Corporate Profile
103 companies, around 20,000 employees A model management style and corporate Established in 1951, Doğuş Group has taken its citizenship place among the leading business conglomerates Doğuş Group has a customer-focused and of Turkey and, in keeping with its corporate vision, productivity-centered management style. This style conducts itself as a leader in the region. is not only formed through material gains, but it also embodies a strong corporate citizenship approach Doğuş Group is active in 7 core businesses: to benefit society, as a whole. Doğuş Group implements social responsibility projects, especially • financial services in the area of education, with a particular focus on • automotive children and our future. • construction • media Doğuş Group values • tourism The Group companies share a set of core values: • real estate integrity, understanding, excellence, creativity, unity • energy and responsibility. These values, which have been part of the Group’s beliefs and convictions since Operating with 103 companies and around 20,000 its earliest days, continue to guide and drive the employees, Doğuş Group focuses on engendering business decisions of all Doğuş companies. customer loyalty and building brand value with its high technology infrastructure. A regional focus Having world-class brands and significant A key actor in the Turkish economy with a strong partnerships on a global scale, Doğuş Group global recognition continues to contribute to Turkey’s ongoing process Doğuş Group is a significant actor in the Turkish of transformation and innovation. This outlook economy, creating a high level of employment, clearly summarizes the Group’s vision, particularly in contributing to the tax revenues and generating a services. high level of total business volume within the country. By making the most effective use of its superior Doğuş Group always provides its services based human resources and advanced technological upon the principles of customer satisfaction and infrastructure, the Group will maintain its high trust. As a result of this approach, the Group has standards for the maximization of the value of its created reputable brands with global standards and brands and will seek to grow through strong global has been representing our country worldwide. Its alliances, and become a regional leader in the name is a source of attraction for the international services sector. investors who are interested in Turkey. The Group has contributed to this process by creating a synergy with global giants including the following:
General Electric in finance and real estate, Volkswagen AG and TÜVSÜD in automotive, Alstom and Marubeni in construction, MSNBC, CNBC and Condé Nast in media and Hyatt International Ltd., Starwood Hotels & Resorts, Worldwide Inc., HMS International Hotel GmbH (Maritim) and Aldiana GmbH in tourism. CORPORATE PROFILE CORPORATE
DOĞUŞ GROUP ANNUAL REPORT 2008 1 Financial Highlights
With the financial results that it achieved in 2008, Doğuş Group added another link to the unbroken chain of sustainable growth that is the result of its focused business strategies. The Group’s core business segments contributed to the development of revenues, business volume, number of customers and profitability.
• In all of its lines of business, the Group’s consolidated revenues reached to YTL 6,963 million in value while its operating profit amounted to YTL 1,040 million. • The Group’s total assets rose by 36% to 37,895 million in 2008. • The Group’s consolidated shareholders’ equity in 2008 reached YTL 5,556 million, up from the previous year’s level of YTL 4,899 million.
Key Financial Indicators
(YTL thousand) 2005 2006 2007 2008 ROE- Return on Group Equity 69% 12% 13% 8% Total Assets 16,843,232 18,559,867 27,891,620 37,894,960 Total Shareholders’ Equity 3,291,765 3,805,857 4,899,484 5,556,161 Revenues 9,138,520 5,283,298 5,682,177 6,962,589 Net profit for the year 2,256,286 470,003 623,097 437,145 Gross Profit 3,422,827 1,430,815 1,632,083 1,994,322 EBITDA 3,039,049 752,808 907,493 1,177,526
Principal Performance Ratios
(%) 2005 2006 2007 2008 Gross Profitability 37 27 29 29 Net Profitability 25 9 11 6 EBITDA Margin 33 14 16 17 ROA- Return on Assets 13 3 2 1 ROE- Return on Group Equity 69 12 13 8 FINANCIAL HIGHLIGHTS FINANCIAL
2 DOĞUŞ GROUP ANNUAL REPORT 2008 2008 Total Assets by Segments (%) 2008 Total Revenues by Segments (%)
Automotive 4% Tourism 3% Media 2% Media 1% Construction 8% Tourism 2% Construction 2% Others 1% Others 8%
Financial Services 82% Automotive 31% Financial Services 56%
Total Assets Total Shareholders’ Equity (YTL Million) (YTL Million) 37,895 5,556 27,892 4,899 3,806 3,292 18,560 16,843
2005 2006 2007 2008 2005 2006 2007 2008
Revenues Net Profit for the Year (YTL Million) (YTL Million) 2,256 9,139 6,963 5,682 5,283 623 470 437 2005 2006 2007 2008 2005 2006 2007 2008 FINANCIAL HIGHLIGHTS FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 3 Consolidated Financial Information by Segments
(YTL thousand) 2005 2006 2007 2008 Banking and Finance Segment Assets 12,835,940 14,673,002 23,212,300 30,340,887 Total Interest and Commission Income 5,105,996 2,189,816 2,507,362 3,802,111
Automotive Segment Assets 697,455 781,623 1,053,360 1,558,179 Revenue 2,465,691 2,527,200 2,552,972 2,203,741
Construction Segment Assets 418,110 410,596 283,846 772,220 Revenue 262,239 272,979 304,636 582,410
Tourism Segment Assets 1,034,248 738,118 802,693 1,130,828 Revenue 112,464 121,388 122,819 160,104
Media Segment Assets 125,430 394,647 406,140 450,871 Revenue 111,362 166,182 181,093 184,503
Others Segment Assets 277,962 734,432 1,773,919 2,368,177 Revenue 75,546 15,464 27,521 58,081
The consolidated segment results presented on this page may differ from the solo segment results presented in the following chapters. This is mainly because of the requirements of IFRS segment reporting in the consolidated financial statements. According to requirements of consolidation, intra-segment balances and transactions with associates are eliminated and jointly controlled entities are accounted proportionally over the Group’s “proportionate share of the enterprise”. CONSOLIDATED FINANCIAL INFORMATION BY SEGMENTS BY INFORMATION FINANCIAL CONSOLIDATED
4 DOĞUŞ GROUP ANNUAL REPORT 2008 Ratings
Transparency and accountability are the 2 key contexts by providing standardized and reliable components of the Doğuş Group’s management information. This not only creates an opportunity approach. In line with this approach, Doğuş Holding for financial institutions with regards to their credit has become the first corporate in Turkey to be rated risk analysis, but is also an acknowledgement by by the three major international rating agencies: the rating agencies that the Group’s management Standard & Poor’s, Fitch and Moody’s. The Holding quality reflects its alignment with global corporate has been rated by Standard & Poor’s and Fitch since governance principles. 2000 and by Moody’s since 2006. The ratings list of Doğuş Holding as of 31 May, 2009 Doğuş Holding benefits from instant comparability is as follows; in credit terms both in the national and international
Ratings
Standard & Poor’s Rating Outlook Latest Report
Long-term Counterparty Credit Rating BB- Negative January 14, 2009
Short-term Counterparty Credit Rating B
Moody’s Rating
Corporate Family Rating - Domestic Currency Ba3 Stable July 7, 2008
Probability of Default Rating Ba3
Fitch Ratings Rating
Long-term Foreign Currency Issuer Default Rating BB- Stable April 7, 2009
Long-term Local Currency Issuer Default Rating BB- RATINGS
DOĞUŞ GROUP ANNUAL REPORT 2008 5 Message from the Chairman
Looking ahead, we strive to invest for the future. We reflect on the year’s successes knowing that significant challenges remain in the future. I am confident that Doğuş Group’s competitive advantages do position us well to meet these challenges. We will continue to deliver superior performance through disciplined investment, the strength of our functional organization, our ongoing commitment to technology while maintaining our focus on innovation and operational excellence. MESSAGE FROM THE CHAIRMAN MESSAGE FROM
6 DOĞUŞ GROUP ANNUAL REPORT 2008 As economic challenges gripped the world’s energy-related infra investment strategies in energy attention in the last quarter of the year, Doğuş Group sector. has addressed those challenges and focused on the long term strategies for decades to come. I would In detail, in banking and finance, Garanti had a very like to assess the developments from the viewpoint successful year despite adverse market conditions. of both Turkey and our Group. We carried forward our well structured balance sheet to 2008 and further improved it with successful The world is facing a period of severe financial and decision-making. Our cautious and foresighted economic crisis which began raising flags around the approaches, customer-oriented strategies, dedicated world toward the end of 2007 and deepened in late efforts of our employees and, last but not least, the 2008, economic activity came to a bottleneck leading confidence our customers had in us fortified our to recession. strength during the crisis. We extended the most loans of any bank in Turkey while sustaining sound Thus, the confidence crisis surfaced after the real asset quality through advanced risk management estate and various financial securities bubble systems and established risk culture. Reflecting the burst, credit markets paralyzed and the global trust inspired by the Garanti brand, our deposits liquidity decreased severely. In order to strangle increased far in excess of the average for the the confidence crisis and reduce the systemic risk, banking sector. Underscoring the resilience of our governments in developed countries are unveiling business model in a difficult year, we delivered the immensely large rescue packages directed toward highest ordinary banking income growth of 22% and the financial sector. However, uncertainties remain became the most profitable private bank in 2008. despite all these efforts. Having completed its integration with the world rapidly and successfully In automotive, due to the challenging global financial with respect to trade as well as financial markets, environment, we had a tough year where we directed Turkey has inevitably been affected by the global our route primarily into the long term organizational crisis. productivity and planning goals with the consent of our successful top management. Doğuş Otomotiv, which is about to celebrate its 15th anniversary, Nonetheless, Turkey is equipped with the advantage accomplished its objectives and enlarged its market of a solid financial system. Turkish financial sector share in almost all of its segments that it exists. New is free of a secondary market and toxic assets, investments were in the scope and a selected project is well regulated by the Banking Regulation and was the Authorized Porsche Dealer and Service Supervision Agency, has a strong capital structure, Center in Lausanne whose foundations have been has a limited currency risk exposure and is laid and which forms another link of our company’s managing risk well, offering Turkey the opportunity to collaboration with Porsche AG that exceeds over a recover with limited damage. decade. Furthermore, our production investments have also been finalized with the opening of the As for Doğuş Group, 2008 has been signified Meiller-Doğuş Damper Factory in Sakarya and with with sound financial results and a risk-focused the start of the Krone Trailer Factory construction in sustainable growth strategy. Tire/İzmir in the summer of 2008.
In brief, the Group focused on strengthening its well- In construction, Doğuş Construction’s local and structured balance sheet with successful decision regional operations have gained momentum and making in banking and finance sector, production international expansions continued. In 2008, we and new service point investments in the automotive maintained our position as one of the key companies sector, developing local and international projects in in the sector with mega project approaches, the construction sector, acquisition and creation of infrastructure and underground projects undertaken new brands in the media sector, excelling hotel and both in Turkey and in the surrounding region. We national and international marina investments in the aim to continue with the expansion of our operations tourism sector, developing and managing residential particularly in the markets where we are active and and commercial project investments in real estate had previous experience; such as Morocco, Ukraine, sector, and formulating and generating energy and Bulgaria and Libya. MESSAGE FROM THE CHAIRMAN MESSAGE FROM
DOĞUŞ GROUP ANNUAL REPORT 2008 7 8 MESSAGE FROM THE CHAIRMAN accordance with currentsocial,economical and clean energyanditsinfrastructure, whileactingin expand throughprofitable enterprisesbasedon In energy, DoğuşEnergyaimstodevelop and portfolio ownedbyDoğuşGroup. logistics facilitiesbyutilizingthelargerealestate and commercialbuildingsaswellhospitals its workondevelopingprojectsincludingresidential estate industrythroughout Turkey andcontinuing is closelymonitoringthedynamicsofreal affordable residentialunits. And DoğuşRealEstate of investmentstrategyrepresentsoriginaland through stablegrowth”withthecrucialpoint of “increasingthevalueitsinvestmentportfolio Real Estate.Doğuş-GEREIT hastheresponsibility its twocompanies;Doğuş-GEREIT andDoğuş In realestate,Doğuşfunctionsinthesectorwith operations intheyearsahead. investment philosophytoourfinancialresultsand We willcontinuetoreflectourgrowth-oriented restored artdecopalace,originallybuiltin1922. Park HyattIstanbulMaçkaPalasishousedina in theresidentialandshoppingdistrictofNişantaşı, November 2008asaboutiqueluxuryhotel.Located hotel propertyParkHyattIstanbulMaçkaPalasin results in2008.Doğuş Tourism Groupopenedits7th the fewdestinationsgloballythatshowedpositive negatively affected thesector. Turkey was oneof hotel projectseventhoughtheglobalfinancialcrisis establishments andnewinvestmentsinmarina grow throughtherenovationofexistingtouristic In tourism,Doğuş Tourism Groupcontinuedto for itsaudienceandfosterspublictrust. quality broadcasting,createsasenseofbelonging synonymous withprestigiouspublicationsandhigh business approach,theGroupcontinuestobe stable identityandprofessionalqualityfocused was signedwithCondéNast.Withitsinnovative, two originalmagazinesandalicenseagreement continues topursueitsexpansionstrategy:launched Similarly, sincethebeginningof2009,Group brand portfoliowiththeadditionofsixnewbrands. TV channelsandradiostations,extendedits Media Groupmaintaineditsleadershipinthematic from radiostationstopublishing.In2008,Doğuş branches ofmedia:from TV networkstointernet, NBA, Virgin, NationalGeographic, operatesatall valuable andglobalbrandssuchasMSNBC,CNBC, In media,DoğuşMediaGroup,havingacollectionof DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Group Chairman oftheBoardDirectors Ferit F. Şahenk support andconfidence. national andglobalesteemedpartnersfortheirclose economic andsocialstakeholders,toour the Group’ssuccess,andtoallofourcustomers, attentive anddedicatedefforts andcontributionsto to thankourvaluableemployeesfortheirkeen, On behalfofourBoardDirectors,Iwouldlike growth takeshold. Group havetheireyesfixedonthehorizonwhere global financialmarkets,themembersofDoğuş As weareleavingbehindachallengingyearforthe being of Turkey. with abetterwayoflifeandtopromotethewell- honestly andwithdevotiontoprovideourcustomers its cultureandvalueswherewecontinuetoserve Beyond allthis,Doğuşwillcontinuetosucceedwith focus oninnovationandoperationalexcellence. commitment totechnologywhilemaintainingour strength ofourfunctionalorganization,ongoing performance throughdisciplinedinvestment,the challenges. We willcontinuetodeliversuperior advantages dopositionuswelltomeetthese I amconfidentthatDoğuşGroup’scompetitive that significantchallengesremaininthefuture. We reflectontheyear’ssuccessesknowing Looking ahead,westrivetoinvestforthefuture. approach”. infrastructure withacustomer-centeredbusiness human resourcesandadvancedtechnological by makingthemosteffective useofoursuperior of “becomingaregionalleaderintheservicessector All theseaccomplishmentsarebasedonthevision renewable sources. continues tooperateinenergygenerationbasedon geographical areasacross Turkey whiletheGroup we arecloselymonitoringprivatizationinitiativesin environmentally friendlyfocus.Withthismission, geographical developmentsandmaintainingits the public. annual, andyear-end,auditreportsaresharedwith Reporting Standards(IFRS),andindependentsemi- in accordancewiththeInternationalFinancial The Group’sfinancialsaredrawnupquarterly, conferences. Annual Reportsandperiodicpressreleases activities, andnewfieldsofinvestmentthrough the publicdulyinformedonitscorporatestrategy, on itswebsite,www.dogusgrubu.com.tr, andkeeps The Groupmakesallrelevantinformationavailable public atlarge. investors ofitspublicly-floatedcompanies,andthe partners, suppliers,theexistingandpotential customers, nationalandinternationalbusiness information toitsshareholders,employees, the disclosureofitsfinancialandnon-financial Doğuş Grouppaysagreatdealofattentionto disclosures withregardstoitsactions. accepted standardsandisunabletoprovidereliable with anypartythatactscontrarytotheglobally embraces theprincipleof“notbeinginvolved” national andinternationalcontexts.DoğuşGroup on thepartofallitsstakeholders,bothin own businessandalsorequiresthesameapproach Doğuş Groupstrictlyfollowsethicalstandardsinits principle ofresponsiblebusinessconduct. of itsactivitiestostakeholders,inlinewith measures andcommunicatestheconsequences integrates globally-acceptedethicalandsocial its operationsandbusinessactivities,DoğuşGroup strongly affected byeachothers’actions.Inallof and fromemployeestosocietyingeneral,are actors, rangingfromcorporationstocustomers business environment,whereallbusiness-related of transparencyandaccountabilityintoday’s Doğuş Groupdeeplyacknowledgestheimportance Transparencyand Accountability its Stakeholders Doğuş Group’s Approach Towards • safeguarding oftheinformationpertainingto safeguarding • ofinterest, actionsthatwillresultinconflict • relationswiththemedia, • theacceptanceofgifts,invites,aidsand • relations with customers, subcontractors, suppliers • atthecompanies, timeandresourcesutilization • procedures underthefollowingheadings: Ethical principlesarespelledoutanddocumentedin fall withinthesphereofitsinfluence. corruption bothinternallyandinotherareas,which the Groupreaffirmsitscommitmenttofightagainst the UnitedNationsGlobalCompactsince April 2007, subject todisciplinarymeasures. As aparticipantto in violationofthecompany’sCodeConductare with theCodeofConductandStandards. Actions A keyprincipleforDoğuşGroupisstrictcompliance Ethical principles responsibility oftheHolding’sFinanceDepartment. ISE MaterialEventdisclosuresareunderthe In termsofpublicdisclosurerequirements,the of Turkey) principlesbytherespectivecompanies. conformity withtheCMB(theCapitalMarketsBoard publicly-floated companiesarepubliclydisclosedin The fieldsofactivityandperformancetheGroup’s stakeholders inlinewiththenationalregulations. effectively managingtheflow ofinformationtotheir individual InvestorRelationsdepartments,whichare listed attheİstanbulStockExchange,havetheir All DoğuşGroupaffiliatedcompanies,thatare misconduct, security, andharassment. companies, personalinformation,professional donations, with whomthecompanyhascommercialrelations, of goodsandothercompaniesindividuals DOĞUŞ GROUP ANNUAL REPORT 2008
9 DOĞUŞ GROUP’S APPROACH TOWARDS ITS STAKEHOLDERS Doğuş Group Board Of Directors
Doğuş Group’s Board of Directors consists of 12 members, including its Chairman, and convenes as the Group’s business requires but at least 6 times a year.
Members of the Board of the Directors Ferit Faik Şahenk earned his Masters degree in Economics from Chairman of the Board of Directors University of Miami, USA. He served at different positions of the Central Bank of the Republic Mr. Şahenk earned a Bachelor’s degree in Marketing of Turkey. He served as Representative of the and Human Resources from Boston College and is Central Bank of Turkey at London Office and a graduate of the “Owner/President” Management Assistant General Manager at the Foreign Relations Program at Harvard Business School. He served as Department of the same institution. Akhan joined the founder and Vice President of Garanti Securities, Doğuş Group in 1994 and served as Executive VP CEO of Doğuş Holding and Chairman of Doğuş in charge of Treasury, Operations and International Otomotiv. Currently, Mr. Şahenk is the Chairman of Relations at T. Garanti Bankası A.Ş. before being Doğuş Group. Mr. Şahenk served as the Chairman promoted to President & CEOship of Körfezbank of Turkish-American Business Council of the Foreign A.Ş. He held the positions of member of the BOD Economic Relations Board (DEİK), and currently and CFO for Doğuş Holding between 2001-2005. serving as the Chairman of the Turkish-German He currently serves as the member of the BOD Business Council and the board member of Turkish- for Doğuş Group and the CEO of Doğuş Holding, United Arab Emirates Business Council. In addition, Chairman for Doğuş GE REIT, Körfez Aviation, he is the Vice President of the Turkish Industrialists’ Doğuş Real Estate Co., Doğuş Turgutreis Marina and Businessmen’s Association (TÜSİAD) and Co., Doğuş Didim Marina Co., Doğuş Energy Co., the President of Economic and Financial Affairs DAF Co., and member of the BOD for TÜVTURK, Commission in the same association. He is also an Doğuş Construction, GarantiBank Moscow, active member of the World Economic Forum and GarantiBank Netherlands, Domenia Credit IFN SA the Alliance of Civilizations Initiative. Also he is on Romania, Motoractive IFN SA Romania, Ralfi IFN SA the Regional Executive Board for Massachusetts Romania. Institute of Technology (MIT) Sloan School of Management for Europe, Middle East, South Asia Aclan Acar and Africa. Member of the Board of Directors
Süleyman Sözen Aclan Acar is a graduate of Ankara University, Deputy Chairman of the Board of Directors Faculty of Economics and Commercial Sciences with postgraduate education on banking and Süleyman Sözen is a graduate of Ankara University, insurance in the same university. Mr. Acar has a Faculty of Political Sciences. Mr. Sözen has held postgraduate degree from Vanderbilt University, USA various positions of responsibility in the Ministry of in Economics. He joined Doğuş Group in 1990 and Finance and the private sector. He joined Doğuş has held various managerial positions in finance, Group in 1997. He is a Deputy Chairman for the retail and automotive sectors. He has served as Board of Directors for Garanti Bank and Doğuş the Chairman of Garanti Insurance and the Garanti Holding. Mr. Sözen also serves as the Chairman for Pension Company. Since January 2006, he serves the Board of Directors for GarantiBank International as the Chairman of the Board of Directors for Doğuş and GarantiBank Moscow. Otomotiv. He is a member of Board of Directors of Doğuş Holding. Hüsnü Akhan Member of the Board of Directors and Ahmet Kurutluoğlu CEO of Doğuş Holding Member of the Board of Directors
Hüsnü Akhan is a graduate of Middle East Technical Ahmet Kurutluoğlu obtained his undergraduate University, Ankara, where he has completed his degree from Faculty of Law, his MBA degree from
DOĞUŞ GROUP BOARD OF DIRECTORS DOĞUŞ GROUP Undergraduate degree in Management. Akhan the Business Administration Faculty and his Masters
10 DOĞUŞ GROUP ANNUAL REPORT 2008 degree in Labour Legislation from the Faculty of Muhsin Mengütürk Law, İstanbul University. He joined Doğuş Group Member of the Board of Directors in 1981 and has served as a Legal Consultant for Doğuş Holding and Doğuş Construction. He currently Muhsin Mengütürk is a graduate of Robert College, serves as a member of the Board of Directors for İstanbul where he completed his undergraduate Doğuş Holding and as the Chief Legal Consultant of degree in Mechanical Engineering and Duke the Group. University, USA for his masters and PhD degree, again in Mechanical Engineering. Prior to 1990, Doğan Günay Professor Mengütürk taught at Bosphorus University Member of the Board of Directors and İstanbul Technical University. In the 1990s, he held various managerial posts in the private sector Doğan Günay is a graduate of Bosphorus University, and between 1997-2000, he served as the Chairman Faculty of Administrative Sciences where he of the Capital Markets Board of Turkey. Between completed both graduate and undergraduate 2001-2006, he held executive roles in the finance degrees in Business Administration. He joined Doğuş sector. Currently, he is a member of the Board of Group in 1991. Since 1995, he has been a member Directors of Doğuş Holding. of the Board for Doğuş Tourism Group companies. In 2006, he became the President of Doğuş Tourism Sadi Göğdün Group. Furthermore, currently he serves as a Member of the Board of Directors member of the Board of Directors of Doğuş Holding. Sadi Göğdün is a graduate of Academy of Erman Yerdelen Economics and Commerce, İstanbul and obtained Member of the Board of Directors his PhD in economics and commerce in 1971. He joined Doğuş Group in 1976 and has held various Erman Yerdelen visited Münster University, managerial positions in the finance and construction Germany, where he attended the School of Business in the Group. Further, he served as the member of Administration. In 1966, he graduated from the the Board for Garanti Bank. Currently, he serves a Finance and Business Administration Faculty of member of the Board of Directors of Doğuş Holding İstanbul School of Economy and Commerce. He has and Doğuş Construction. received his “master degree” in 1996 from Marmara University İstanbul. After various managerial posts Şadan Gürtaş in the private sector, in 1992 he became the CEO Member of the Board of Directors of Turkish Airlines. He participated in the founding of NTV News Channel in 1996 and has been acting Şadan Gürtaş is a graduate of Anadolu University, as its Chairman of the Board since 1996. He is also Faculty of Economic and Commercial Sciences. a member of Doğuş Holding Board of Directors He has joined Doğuş Group in 1968 and currently representing Doğuş Media Group. serves as a member of the Board of Directors of Doğuş Holding. Gönül Talu Member of the Board of Directors Yücel Çelik Member of the Board of Directors Gönül Talu is a graduate of İstanbul Technical University with a master of sciences degree in civil Yücel Çelik is a graduate of Ankara University, engineering. He joined Doğuş Group in 1969 and Faculty of Social Sciences. He has served in the has held various managerial positions in Doğuş finance sector prior to joining Doğuş Group in 1974 Construction. Since 1991, he serves as the CEO and with Garanti Bank. Between 1983-2006, he has been the Chairman of the Board of Directors for Doğuş a member of the Board of Directors for the Garanti Construction. He is also a member of the Board of Bank and its subsidiaries. Currently, he serves as a Directors for Doğuş Holding. member of the Board of Directors for Doğuş Holding. DOĞUŞ GROUP BOARD OF DIRECTORS DOĞUŞ GROUP
DOĞUŞ GROUP ANNUAL REPORT 2008 11 Committees subject to the Board of Directors
Currently, two committees are subject to the • Overseeing the efficacy of financial control and oversight of Doğuş Group Board of Directors: internal audit activities within Doğuş Group The Audit Committee and the Risk Management companies, Committee. • Overseeing the security, efficiency and effectiveness of the information systems used In addition to these two committees, the Group also by Doğuş Group companies and reviewing and has a Legal Advisory Council. approving their contingency plans, and • Assisting the Board of Directors in ensuring that Legal Advisory Council the business activities of Group companies are in The Legal Advisory Council has the following duties: compliance with the requirements of applicable laws and regulations. • Making a general evaluation of the law-related issues pertinent to Doğuş Group, The Risk Management Committee • Identifying important matters among these issues, Doğuş Group’s Risk Management Committee • Specifying the legal processes that are to be was established to assist and advise the Board followed and the measures that are to be taken in of Directors in its oversight of corporate Risk all such matters. Management practices by Doğuş Group companies.
The Audit Committee The Committee is made up of 3 board members who The Audit Committee was established to assist and are elected by the Board upon the proposals made advise the Board of Directors in matters related by the Chairman. The Risk Management Committee to internal and external audit, the internal control convenes at least 4 times a year according to a system, and the financial reporting practices of all meeting schedule agreed to in advance by the Board Doğuş Group companies. of Directors.
The Committee is made up of 3 members who are The major responsibilities of the Committee include: elected by the Board of Directors upon the proposals of the Chairman. The Audit Committee convenes at • Reviewing significant risks assumed by Doğuş least 4 times a year according to a meeting schedule Group companies in the conduct of their activities agreed to in advance by the Board of Directors. and determining the alignment of these with shareholders’ risk-taking preferences and The major responsibilities of the Committee include: willingness, • Advising the Board of Directors on any action or • Overseeing the efficacy of actions taken by Group common policy that must be taken with regards to companies in response to the findings of all Risk Management within the Group and, financial, operational, and information technology • Overseeing the effectiveness of Risk Management audits performed by Doğuş Holding Internal Audit actions and their alignment with common policies Department in Group companies, and standards within all Doğuş Group companies. • Evaluating the efficacy of the internal control processes of Doğuş Group companies and advising on ways to improve the internal control environment, COMMITTEES SUBJECT TO THE BOARD OF DIRECTORS TO COMMITTEES SUBJECT
12 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding
The mission of Doğuş Holding contains the following so as to enable the Group to adapt in the quickest important elements: to fulfill steering, coordination, manner possible to the developing and evolving control and audit functions, as well as to generate business environment, value for the Group and its companies, monitor • Leading the creation and management of strategic activities of the Group companies on behalf of the alliances and corporate partnerships, shareholders, and perform the financial audit and • Providing communication among the Group administer control systems. Doğuş Holding aims companies and identifying opportunities that will to create competitive companies that put regional result in synergy, growth at the focal point of their operations. • Coordinating and consolidating the financial and corporate reporting of the Group companies, In the management of its subsidiaries, Doğuş • Ensuring optimum use of technology, knowledge Holding is committed to fulfilling the following and human resources across the Group, responsibilities: • Formulating and maintaining corporate values and communicating them within and outside the • Updating the Group’s strategy along the lines of Group, the changing investment climate and steering the • Instilling an awareness of social responsibility and Group companies in line with the predetermined corporate citizenship, strategy, • Implementing the ERM-Enterprise Risk • Ensuring generation of sufficient financial Management approach to assure that the resources to realize the Group’s long-term vision, business risks undertaken by the Group and their optimum utilization, companies are in compliance with the • Formulating and managing corporate initiatives shareholders’ risk appetite. Holding Functions
Doğuş Corporate Communications Finance Doğuş Corporate Communications is responsible The Finance Department is responsible for relations for Doğuş Group’s reputation management through with local and foreign financial institutions, parallel the means of strategic communications tools, to the financing needs of Doğuş Holding and other media relations, social responsibility projects Group companies (excluding the finance sector), and sponsorship activities. The Department cash flow and asset management, coordination of is also responsible for the coordination of the market risks as well as rating process management, internal communications among the Doğuş Group and project finance requirements of non-financial companies. segment of Doğuş Group.
Doğuş Strategy Office of the Chairman Doğuş Strategy is responsible for determining Office of the Chairman is in charge of the tasks that short, medium and long-term business strategies are related to the Chairman’s business activities. in line with the Doğuş Group’s vision. The The responsibilities of the department include department oversees the strategic planning efforts various functions primarily economic research, by spearheading tools, processes and systems that protocol services, event management and media can used by Group companies. It manages business relations of the Chairman as well as the coordination development projects and seeks investment of internal and external affairs with third parties, opportunities to create competitive advantage for including economic and financial institutions, the Group. It administers research and constantly business partners, universities, NGO’s, official analyzes global and domestic changes to sharpen institutions and the governmental authorities. the Group’s strategic action capability. The Department also establishes and coordinates Group- Risk Management wide initiatives to enhance corporate development The Risk Management Department is accountable for establishing the Enterprise Risk Management
and synergy across companies within the Group. DOĞUŞ HOLDING - FUNCTIONS
DOĞUŞ GROUP ANNUAL REPORT 2008 13 structures for the Group companies, in order to Human Resources identify/follow up risks and mitigating actions. The The Human Resources Department is responsible Department focuses on risks that may have a direct for the management of Doğuş Holding human or indirect effect on the shareholder’s assets. Areas, resources processes in line with corporate such as business strategies, operations, legal values and strategies. The basic activities of the issues and finance related matters as well as new Human Resources Department are; search and investment considerations fall under the scope of the selection, training and development, organizational Department. The outcomes are being shared and development, employee relations, compensation discussed with Group companies’ Risk Managers. and benefits administration, performance The department regularly reports to the CEO, the management and improvement systems. Risk Committee and the Board where risks, causes The Department is also responsible for establishing and potential effects and action plans are discussed. the communication platform, among the other Doğuş Group companies, and providing human resources Internal Audit and Financial Reporting consultancy services for non-Garanti branded The Internal Audit unit of the Department is companies of Doğuş Group. responsible for the performance of financial, operational and IT audits at Doğuş Group companies, Doğuş Investments in accordance with its annual risk-based audit plan. Doğuş Investments is responsible for undertaking The Financial Reporting unit, on the other hand, is business opportunities in new sectors and in sectors responsible for the preparation of the consolidated Doğuş Group operates. It evaluates domestic and financial statements, management reports, and regional investment opportunities, that are in line projections in accordance with International Financial with the Group’s strategy, and changes in the global Reporting Standards and monitoring and reporting of economy. The Department responsibilities include deviations from business line budgets. providing thorough analysis of business opportunities and closing deals for the projects approved by Legal Affairs Doğuş Holding Board. The Department is also The Legal Affairs Department is responsible for the responsible for monitoring the projects after legal representation of Doğuş Holding and other the successful initiation, to ensure timely and Group companies under its responsibility, and efficient return for each business development for ensuring that all kinds of contracts and legal project. processes are handled in line with the company’s best interests and with no legal risk. Lean Management Lean Management is responsible for coordinating Financial Affairs and IT the lean transformation within Doğuş Group. The Financial Affairs and IT Department is Through a series of activities such as training, responsible for assistance and support services value stream mapping studies, action workouts and under information technologies and financial kaizen projects, the division helps management transactions for Doğuş Group, its tax liabilities, as and employees to understand lean management well as the subsidiary relations and its financial principles and invigorate the business performance activity compliance. of the entire Group. It leads and reports the results of process optimization studies that help the Group to Tax Affairs increase its competitive advantage and profitability, The Tax Affairs Department is responsible for through increased efficiency, quality and customer assistance and support services for Doğuş Group, satisfaction. as well as its subsidiaries, regarding tax laws and procedures such as tax disputes, incentives, M&A, transfer pricing, training and tax planning and structuring to avoid international double taxation. The Tax Department also joins the meetings of the Tax Council, and the other related associations, to support tax legislation process. DOĞUŞ HOLDING - FUNCTIONS
14 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Group’s Strategy and Performance in 2008
Despite financial difficulties the world has been mechanisms, effective global collaboration and facing since the last quarter of the year 2008, the transparent and close communication with its past year has been a successful period for Doğuş stakeholders. Group. The financial and operational outcomes, achieved by our Group in 2008, have helped the Corporate risk management is an issue to which Group to maintain its leading and competitive the Group companies have always given great position in all business lines. importance. The members of Doğuş Group are the authors of the pioneer risk management practices Doğuş Group has further enhanced its efforts to add introduced in their respective sectors in our country. value and deliver the very best to its stakeholders, Furthermore, the Group had introduced its risk- including customers, business partners and focused approach to management in all of its employees. Without any loss of momentum from the non-financial companies in 2006. During the past 3 previous years, we have continued to add significant years, Doğuş Group has given utmost importance to projects and ventures to our Group’s business the integration of Risk Management practices to all portfolio in most of the 7 business lines. The world its business activities. class projects, undertaken by our Group, also denote our further success and potential growth in By the year-end 2007, Risk and Risk Management the medium term, both in the national and regional had been completely consolidated throughout all contexts. of the Group’s non-financial concerns and with the design of several risk management systems, our 2008: A year of investments Group is now able to monitor and assess its risks on Since its establishment, Doğuş Group has been a consolidated basis at all Group industries. involving itself in global business relationships, which provide high degree of access to the world markets. In the light of this consolidated picture, the concept In 2008, our Group has made a number of major of Risk has become a significant tool for us in corporate decisions in line with its corporate vision of achieving a much more effective and flexible “becoming a regional leader in the services sector by structure in management, both on an individual making the most effective use of its superior human company basis and throughout the Group as a resources and advanced technological infrastructure whole. Our Group also gives special importance to with a customer-centered business approach”. including its financial services subsidiaries within the scope of its Risk Management practices. This In 2008, the major investments of the Group involved addition will help increase the effectiveness of production and new service point investments in the management in all of our business activities while automotive sector, local and international project strengthening our competitiveness to a great extent. development in the construction sector, acquisition and creation of new brands in the media sector, and Another successful year for Garanti Bank marina and hotel investments in the tourism sector. In 2008, Garanti Bank strengthened its well- structured balance sheet with successful decision Sound financial results making. The Bank’s cash loans grew more than YTL Our Group completed the year 2008 with successful 12 billion to YTL 53 billion, which made Garanti the financial results, based on our budget targets as largest contributor to the economy among the banks. well as the different performance criteria that we Garanti’s deposits increased significantly above the continuously monitor in the conduct of day-to-day sector average and the Bank became the second business. largest private bank in Turkey in terms of Turkish lira deposit base, while maintaining its leading A risk-focused sustainable growth strategy position in the sector with regard to foreign currency Doğuş Group’s strategy is shaped around the deposits. With the help of rapid network expansion principles of sustainable profitability and risk-focused of its branches in the last 2 years, Garanti’s deposit growth management. Accordingly, the Group base rose 33% over year-end 2007 to YTL 58 billion. defines its competitive edge and draws its future Increasing its ordinary banking income by 22% in roadmap through 3 basic means: strong governance 2008 and solidifying its lead in this area, Garanti DOĞUŞ GROUP’S STRATEGY AND PERFORMANCE IN 2008 DOĞUŞ GROUP’S STRATEGY
DOĞUŞ GROUP ANNUAL REPORT 2008 15 Bank also became the most profitable private bank total automotive market has constricted by 17% in 2008 with a net income of YTL 1,9 billion. compared to the previous year. This constriction reached a level of 55% in the last quarter of the year. Committed to its customers, Garanti operates an expanding distribution network comprising Despite the financial difficulties faced by the 730 branches including 5 foreign branches and sector both in the national and global contexts, 4 international representative offices, close to Doğuş Otomotiv has maintained its performance in 2,600 ATMs, an award winning call center and an providing the best possible services to its customers internet & mobile bank utilizing its state-of-the-art during the past year. The company has been trying technology. Garanti supports its extensive branch to minimize the effects of exchange rate fluctuations network with centralized operations, exceptional data through lean management policies and promotion warehousing and management reporting systems, campaigns with a strong customer-focus. and the efficient use of alternative delivery channels. Garanti prepared its business plan to be resilient Doğuş Otomotiv has accomplished the majority of during the arduous days ahead and it will continue to its 2008 objectives with a sale of 55,307 vehicles by work closely with its customers to support the local preserving its market share at 11%. The company economy while keeping its balance sheet liquid and has recorded a business profit of YTL 23 million in its capital strong. In 2009, it will, as always, strive 2008 through generating a turnover of YTL 2,144 for the benefit of all its stakeholders – employees, million. During the same year, the assets have customers, shareholders and business partners – totaled YTL 1,444 billion and the investments have and its standing in the Turkish banking sector will totalled YTL 60 million. continue to rise. Doğuş Otomotiv started the construction of Porsche Romania - Towards a Universal Banking Platform Lausanne Sales and Service Center in July 2008. In 2007, within the framework of an existing The center will be ready to serve its customers by agreement with GE, Doğuş Group’s strategic the last quarter of 2009. partner in the financial services sector, the Group had acquired 50% of 3 Romanian financial services Production investments companies that were owned by GE. This move Doğuş Otomotiv has structured its growth projections has given Doğuş equal stakes with GE in the around the principle of having a productive and management and capital of these companies. profitable presence in every link of the automotive value chain. Accordingly, Doğuş Otomotiv is not only Through the execution capability and synergistic an importer and distributor, but is also active in such power of Garanti, Doğuş Group’s next objective is complementary service lines as retailing, automotive to bring the 3 companies that it owns jointly with financing, spare parts and accessories trade, GE, together with the 49 Romanian branches of logistics and customer services, used car trading, GarantiBank International. After this restructuring, fleet services and leasing, express service, vehicle which is slated for completion during the fourth inspection services, and insurance. quarter of 2009, the resulting bank will conduct its operations under the “GE-GarantiBank” trademark, In 2008, Doğuş Otomotiv has taken its first step into with assets totaling approximately USD 1,5 production, which it regards as another essential link billion. These operations, based on an enhanced in the automotive value chain. On June 20, 2008, cooperation platform, shall continue to deliver the Meiller-Doğuş Damper Factory was opened in innovative products, such as the Bonus Card and Sakarya, with the partnership of the world’s leading the award-winning Internet Banking for Romanian damper producer, Meiller, and Doğuş Otomotiv is clients. the current distributor for Meiller in Turkey. On July 17, 2008, the foundation of Krone Trailer Factory A tough year for the automotive sector was laid in Tire, İzmir and this is planned to be Along with the rest of the world, the automotive Doğuş Otomotiv’s second production plant. With an sector in Turkey has been negatively affected by investment of €35 million, the Krone Doğuş Trailer the economic stagnation since mid-2008. The Factory is projected to be due in 2009. DOĞUŞ GROUP’S STRATEGY AND PERFORMANCE IN 2008 DOĞUŞ GROUP’S STRATEGY
16 DOĞUŞ GROUP ANNUAL REPORT 2008 New segments, new brands Construction maintained its position as one of key In 2008, Doğuş Otomotiv made a new entry to its companies in its sector and continued its growth on international brands by entering the thermal control the basis of sound and sustainable profitability. systems segment with Thermo King. The total number of global brands, represented by Doğuş Doğuş Construction currently executes a total of Otomotiv, has been increased to 15. 11 projects, 6 in Turkey and 5 abroad. The total amount of the projects where Doğuş is involved is Reaching our customers through USD 4,933 billion, and the share of Doğuş in these new service points projects is USD 3,132 billion. Despite the economic difficulties of 2008, Doğuş Otomotiv has continued its strong position in the In Turkey, Doğuş Construction has continued its work Turkish automotive sector by keeping up with the on the following projects, throughout 2008: Marmaray opening of new sales and service points. The CR-1 Project with Alstom of France and Marubeni opening of Doğuş Oto Etimesgut service point, of Japan as well as Otogar-Kirazlı-Başakşehir and established in Ankara with an investment of YTL 42 Kadıköy-Kartal Rail Mass Transportation systems million, has been a morale booster for the company and Sinop-Boyabat and Araklı-İyidere Highways, despite the economic crisis and the constriction in Boyabat Dam and HEPP projects. the automotive sector. Doğuş Oto’s entire servicing area now totals 175,000 m² with the participation of Doğuş has also undertaken international projects 22,000 m² premises. The expanded Service area including Argana-Amskroud Highway in Morocco is targeted for use as DOD’s Used Car Dealership (lot I-II), Construction of Kiev-Dinyeper Bridge and premises and for providing Sales and Services for Kiev Boryspil International Airport Development VW passenger cars, VW commercial vehicles and in Ukraine, Construction of Sofia Metro Extension Audi Services. Project (lot 1) in Bulgaria and Construction of Sirte University Complex, 1st Phase in Libya. Concurrently, Doğuş Otomotiv family gained new members to its Sales and Service network as International expansion will continue follows: Başaran with its VW and SEAT showrooms Doğuş Construction aims to continue with the and service facilities in Fethiye, Opat with its VW expansion of its operations particularly in the showroom in Tarsus, Gencay and Koluman with its markets where it is currently active and has previous VW services in Batman and Gaziantep respectively, experience, including Morocco, Ukraine, Bulgaria Aydoğanlar with its VW and Audi services in and Libya. The Gulf countries and other markets Ankara are newly joined locations of Doğuş Otomotiv are also included in Doğuş Construction’s domain of family. activity and the Company has been closely pursuing project opportunities in these markets. Scania, the leader of the heavy commercial vehicle import market, is in charge for the following Acquisitions in the media sector locations: In Bolu with Çarıkçı, in Hatay with Sağ Doğuş Group’s activities in the media sector Otomotiv and together with Krone in Hadımköy, continued to grow and develop during last year. In İstanbul with Flash’s new showrooms and service 2008, Doğuş Media Group expanded its portfolio stations. Additionally, KCR Otomotiv’s Meiller with the addition of 6 new brands: NTV Spor (Sports showroom and service station in Denizli are TV channel), Kral TV (Music TV channel), Kral FM, rendering services in compliance with the world Billboard Radio, Virgin Radio and Robb Report standards on behalf of Doğuş Otomotiv. Magazine.
Construction: Local and regional operations has Doğuş Media Group maintained its leadership gained momentum in radio and periodicals industries. Despite the In 2008, Doğuş Construction maintained its “mega financial conjuncture in 2008, Doğuş Media Group project approach” and its above-ground and managed to increase its market share of advertising underground projects, undertaken both in Turkey investments in both radio and periodicals. and in the surrounding region. As a result, Doğuş DOĞUŞ GROUP’S STRATEGY AND PERFORMANCE IN 2008 DOĞUŞ GROUP’S STRATEGY
DOĞUŞ GROUP ANNUAL REPORT 2008 17 In total, advertising investments in Turkey decreased is May 2009. Didim Marina consists of 580 berths by 3% in 2008. In such an environment, Doğuş and 600 drypark spaces. Media Group performed better than the market and kept its market share around 5.5% - at the same The other marina investment of Doğuş Group, the level as the previous year. Dalaman Marina project, is scheduled to start in 2009. The Media Group maintained its market share in the TV segment equal to the previous year (around Improvement of the existing facilities 10%), although the advertising investment in the TV While growing through new investments, Doğuş industry decreased by 4%. Group has also focused on the enhancement of its existing facilities throughout 2008. With reference to the radio stations, the Media Group has grown 33% on a turnover basis and raised its The second phase of renovation of the MARITIM market share from 5.23% to 6.83%, surpassing Hotel Club Alantur has been completed and the the total growth of the Turkish radio industry, which hotel currently presents an array of new facilities to remained unchanged in 2008. its guests. The renovation of the Sheraton Voyager Hotel Resort & Spa and MARITIM Hotel Grand Azur The Media Group’s periodical revenues increased also continued during the past year. tremendously, by 40%, and the Media Group’s market share increased from 4.8% to 6.16%. Developments in the real estate sector Doğuş Group had significant achievements in the Finally, the Internet Advertising market grew by 9% area of real estate with its 2 companies operating in in 2008 and Doğuş Media Group has increased its the sector, Doğuş-GE REIT and Doğuş Real Estate market share from 15% to 17%. Company. These companies were established in 1997, and 2008, respectively. Considering turnover and market share successes and investments of the Group, Doğuş Media Group During 2008, Doğuş-GE REIT explored investment has also been honored with a total of 68 awards for opportunities in the residential and commercial real its hi-quality broadcasting and social responsibility estate market. Doğuş-GE REIT sold its shares in campaigns, which were granted in different areas by GKY Romania Company which owns 34,500 m2 of various stakeholders of the Group. land in Bucharest’s Voluntari region and gained a sale income of Euro 4,050,579. Doğuş Media Group will continue to pursue its expansion strategy during 2009. An agreement In 2009, Doğuş-GE REIT intends to manage signed with Conde Nast Magazine Group and new the current portfolio to maintain cash flow, try to investments, such as NTV Tarih and NTV Bilim, are decrease vacancies and improve tenant quality. part of this expansion strategy. The other company of Doğuş Group operating in Major investments in tourism the real estate sector, Doğuş Real Estate, has been Doğuş Tourism Group continued to grow through the continuing its work on developing projects including renovation of existing tourist establishments and its residential and commercial buildings, as well as development-focused investments in 2008. hospitals and logistics facilities, by utilizing the large In keeping with its strategic development plans, real estate portfolio owned by Doğuş Group. Doğuş Tourism Group completed the Park Hyatt Istanbul Maçka Palas project, which involved Doğuş Real Estate currently holds 14 assets in its converting one of the historic landmarks in İstanbul balance sheet and the Company has been focusing into a 90-room boutique hotel in autumn 2008. on the development of 2 major projects since its establishment: a shopping center project in Gebze, Furthermore, construction for Didim Marina, another with a closed construction area of approximately major project of the Tourism Group, continued 150,000 m² and leasable space of 60,000 m²; and throughout 2008 and the opening date for the marina a residential project in Kartal/İstanbul neighbor to DOĞUŞ GROUP’S STRATEGY AND PERFORMANCE IN 2008 DOĞUŞ GROUP’S STRATEGY
18 DOĞUŞ GROUP ANNUAL REPORT 2008 the Kartal Urban Transformation Area. The latter Looking forward... comprises 540 apartment units as well as social and commercial units. Furthermore, Doğuş Real Estate Adapting to the global financial conjuncture is intensively working on the assets located in the With its high degree of competency in the Urban Transformation Areas in Balçova/İzmir, Riva/ management of change, the ability to act İstanbul, Bodrum, Yalıkavak, and Kartal/İstanbul. strategically and sound risk management system, The Company has plans to develop mixed use Doğuş Group has continued to grow through new projects on these assets. ventures in 2008 in many of its business lines. Moreover, the Group has managed to restructure its Focused activities in the energy sector corporate strategies in line with the recent economic During 2008, Doğuş Group continued to engage in conjuncture in the best way possible. decisive activities in the energy sector. In addition to the start of construction for the Boyabat Dam and The year 2009 will not be easy for the Turkish Hydroelectric Power Plant, the Group continued the economy along with the rest of the world. While a development of the Aslancık Dam and Hydroelectric consensus has not been reached as to the length Power Plant. The construction of both dams is of this financial turmoil or how long it will continue expected to be finalized by 2012. to affect the world economy, necessary precautions should certainly be taken by all actors of the economy, including the private sector.
As Doğuş Group, we aim to keep and even accelerate our momentum in the coming year in order to achieve the best possible results in each of our business lines. Doğuş Group will continue to serve an increasing number of customers, an increasing number of places, with its innovative and customer-centered business approach. DOĞUŞ GROUP’S STRATEGY AND PERFORMANCE IN 2008 DOĞUŞ GROUP’S STRATEGY
DOĞUŞ GROUP ANNUAL REPORT 2008 19 FINANCIAL SERVICES Financial Services With its subsidiaries in banking, leasing, factoring, brokerage, asset management, pension and life insurance, Garanti Bank operates as a fully-integrated financial services company. 22 FINANCIAL SERVICES * Figuresarebased onGarantiBankIFRSconsolidated financialstatements. Financial Highlights* DOĞUŞ GROUP 2,542 million. operating profit amounted to YTL came to YTL 3,431millionwhileits 98,188 million.Consolidated revenues assets rose by 30.4% to YTL In 2008,FinancialServices segment’s total Income fromOperationsMargin Income fromOperations Gross ProfitMargin Net FeesandCommissionIncome Net InterestIncome Segment Assets (YTL thousand) (YTL Million) Segment Assets ANNUAL REPORT 2008 2006 56,914 2007 75,325 2008 98,188 75,324,720 2,961,173 1,288,573 3,099,156 30.8% 45.7% 2007 (YTL Million) Net CommissionIncome Total NetInterest and 2006 3,239 98,188,338 2,542,065 1,578,332 3,430,714 2007 21.0% 41.4%
4,388 2008 2008 5,009 Garanti Bank
Financial Highlights* (YTL million) 2007 2008 Growth
Total Assets 76,148 99,038 30%
Total Loans 40,028 52,750 32%
Total Non-Cash Loans 12,802 14,567 14%
Total Deposits 43,690 57,960 33%
Shareholders’ Equity 7,126 9,743 37%
Net Income 1,641 1,891 15%
* According to 2008 BRSA- consolidated financial statements
Profitability Ratios Return on Average Assets (ROAA) 2.2% Return on Average Equity (ROAE) 22.8%
Ordinary Banking Income
Garanti’s Ordinary Banking Income rose 22% over the previous year, reaching YTL 22% 4.7 billion in 2008.
Earnings per Share (YTL million for nominal) **
Garanti’s Earnings per Share grew 15% over the previous year to reach YTL 0.45 in 2008. 15%
** For comparability purposes, number of shares in 2007 was assumed to be 4.2 billion. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 23 Garanti Bank
Garanti Bank is Turkey’s second largest private bank Jointly owned by Doğuş Holding and GE Capital, by asset size with the highest capacity to generate Garanti is publicly traded in the ISE with a free float recurrent banking revenues. Total assets* reaching of 49%. Committed to corporate governance best in excess of US$ 65 billion is the result of its practices, Garanti strives to contribute the maximum customer centric approach and innovative culture. added value to all its stakeholders in a consistent In 2008, Garanti delivered the highest ordinary way. banking income growth of 22% and increased its customer base by over one million, underscoring the Believing that its corporate mission involves more resilience of its business model in a difficult year. than banking, Garanti is dedicated to sustainable banking practices and to a long-term strategy As a universal bank with leading presence in for creating value to the communities in which it all business lines, Garanti serves over 8 million operates. This commitment is reflected in its day- customers in corporate, commercial, SME, and to-day operations and in the numerous projects in consumer segments offering fully integrated financial which it is involved, comprising culture, the arts, services through its nine financial subsidiaries education, sports and the environment. that include payment systems, pension, leasing, factoring, brokerage and asset management. Activities in 2008 In 2008, Garanti Bank strengthened its well-structured Committed to its customers, Garanti operates an balance sheet with successful decision making. The expanding distribution network comprising 730 Bank’s cash loans grew more than YTL 12 billion branches including five foreign branches and to YTL 53 billion, which made Garanti the largest four international representative offices, close to contributor to the economy among the banks. 2,600 ATMs, an award winning call center and an Garanti’s deposits increased significantly above the internet&mobile bank utilizing its state-of-the-art sector average and the Bank became the second technology. Garanti supports its extensive branch largest private bank in Turkey in terms of Turkish lira network with centralized operations, exceptional data deposit base while maintaining its leading position in warehousing and management reporting systems, the sector with regard to foreign currency deposits. and the efficient use of alternative delivery channels. With the help of rapid network expansion of its branches in the last two years, Garanti’s deposit Over its 62-year history, Garanti became base rose 33% over year-end 2007 to YTL 58 billion. acknowledged worldwide for its strength and Increasing its ordinary banking income by 22% in tradition in providing high quality offerings. Through 2008 and solidifying its lead in this area, Garanti its dynamic business approach and its commitment Bank also became the most profitable private bank to technological innovation, Garanti has developed in 2008 with a net income of YTL 1,9 billion. groundbreaking practices for increased efficiencies and accomplished many firsts in the banking scene. Future Plans Its wide product variety combined with custom- Garanti will emerge from this difficult period of global tailored solutions is a key competitive advantage economic crisis as a strong and ambitious competitor in its success as Turkey’s largest lender providing in the banking sector. Despite courageous more than US$ 44 billion in cash and non-cash intervention, trillions of dollars worth of government loans. Among Garanti’s main distinguishing factors aid packages and capital injections, the global crisis is its sound asset quality through advanced risk worsened in the second half of 2008 and is by no management systems, established risk culture, and means over. Indeed, the complex problems of the strong collection capability. Prudent management international finance sector have spread to other and risk approach have earned the Bank strong areas of the global economy, leading to the edge of a brand recognition as the “Best Bank in Turkey”. worldwide recession. During this dangerous period, it FINANCIAL SERVICES FINANCIAL *consolidated assets as of the end of 2008.
24 DOĞUŞ GROUP ANNUAL REPORT 2008 is essential to act more cautiously and manage risks Turkey and the Turkish banking sector have effectively. experienced even more difficult times in the past decade. Garanti has always emerged stronger from Garanti prepared its business plans to be resilient these periods of economic volatility. In 2009, by during the arduous days ahead. It will continue to working for the benefit of all Garanti stakeholders – work closely with its customers to support the local employees, customers, shareholders and business economy while keeping its balance sheet liquid and partners – Garanti’s standing in the Turkish banking its capital strong. From top management to branch sector will continue to rise. personnel, Garanti will continue to work carefully to limit the effects of the weakening economic outlook on asset quality. By focusing on managing costs and profitability, it will improve the efficiency of newly opened branches. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 25 GarantiBank International N.V.
GarantiBank International NV (GBI), fully owned GBI had no exposure to sub-prime market, asset- by Garanti Bank, was established in 1990. backed securities or any other leveraged instruments. Headquartered in Amsterdam-Netherlands, GBI is also active in Germany, Romania, Turkey, Moody’s reconfirmed GBI’s Long-term Bank Deposits Switzerland, Ukraine and Kazakhstan through its rating of A3 with a stable outlook in October 2008. branches and representations. As of 2008, GBI became one of the “5” Dutch banks As a “global boutique”, GBI delivers fast, accurate, ready for BASEL II - IRB Approach. The smooth tailor-made, innovative and country-specific financial transition to BASEL-II reinforced GBI’s capital base solutions to its clients globally in the areas of Trade further. Finance, Private Banking and Structured Finance. All business lines performed well, in spite of adverse Transactional commodity finance, structured market conditions. trade finance and trade banking products such as syndicated loans and forfaiting are covered under A survey published by “Trade & Forfaiting Review” in Trade Finance Division and attract SMEs and August 2008 revealed GBI being ranked among the corporate clients as well as financial institutions best global trade finance banks, once again. globally. GBI prides itself on delivering seamless and superior execution and on creating value around 2008 Activities in Romania global trade flows. GBI Romania opened 8 more agencies, reaching a network of 49 operational units throughout the In Private Banking, GBI offers a broad range of country, with 15 of these units located in Bucharest. global financial products and services to international high net worth individual and institutional clients Total assets doubled to Euro 500 million, mainly due to the through its high level of service quality and product increase in loans to individuals, which totaled Euro sophistication. The services are delivered in 3 forms: 400 million in 2008, almost 6 times compared to 2007. Discretionary Asset Management, Advisory Services and Direct Execution. On the liabilities side, deposits from banks and funds entrusted increased 2.5 times. In Structured Finance, GBI targets delivering project finance, Islamic finance and ship finance services The number of customers reached 43,000, of which globally and aims to create synergies with its other retail customers represented more than 90% of the business lines. total, while the rest was SMEs and large corporates.
GBI has a Long Term Deposits Rating of ‘A3’ from In November 2008, the Bank launched the first ‘pay- Moody’s. This rating, which is 7 notches higher pass’ credit card in Romania. than Turkish sovereign rating, reflects GBI’s role as a niche player in the competitive segment of The Bank has also issued 24,500 Bonus credit cards international trade and commodity finance, strong since its launch in late 2007. financial fundamentals and asset quality, historically low credit losses, reliable funding profile and solid GBI Romania concluded a partnership agreement profitability. with EximBank Romania to offer clients specific products (collaterals and insurance) and to Activities in 2008 cooperate in financing projects related to its areas of Despite the global financial turmoil, GBI registered a priority: SMEs development and export business. very successful performance in 2008 compared to its peers in Europe, reaching the same level of net profit Future Plans generated in 2007. GBI will continue to focus on its core business lines of Trade Finance, Private Banking and Structured Due to its strategic focus on low risk / fundamental Finance, which are inherently low risk activities, while banking activities such as Trade Finance and Private moving on adding value to its esteemed clientele. Banking, GBI maintained its high asset quality with a very low NPL ratio against the backdrop of GBI will maintain delivering steady returns on equity persistently deteriorating credit markets. through its prudent and sustainable growth strategy. FINANCIAL SERVICES FINANCIAL
26 DOĞUŞ GROUP ANNUAL REPORT 2008 GarantiBank Moscow
Since 1996, GarantiBank Moscow (GBM) has been period and with a slowdown in the lending activity, operating in Moscow under a full banking license and GBM intentionally decreased assets size in 2008 by it is among the 74 foreign banks in Russia. 38% from $503 million in 2007-end to $314 million. Most of the decrease took place after August 2008. GBM is a member of the Russian Deposit Insurance System. The Bank has 1 branch and 3 satellite As the credit quality of all the Russian companies is branches. under pressure, our focus has been on companies in the real sector of economy that are relatively Economic Developments: low leveraged, with good cash generation ability, The Russian economy has been growing 7-8% over financially disciplined and have relatively low the few years. In 2008, due to the negative impact short-term refinancing requirements and sound of the economic turmoil especially in the last quarter, management. Our priorities are revised towards growth realized as 5.6%, while for 2009 a decline accumulating liquidity and strengthening the of 2.2% is expected. Inflation in 2008 was 13.3% collaterals over lending expansion. and for 2009 the Russian government targets to contain inflation within the similar range of 13%- While decreasing loan portfolio by 52%, the Bank 14%. However there is a probability that it will be has managed to increase its fee and commission exceeded. income by 46% in 2008 to USD 5,7 million. FX and currency revaluation gain was also increased by In Russia, the outlook depends heavily on 49% to USD 4,2 million. Thus, despite of living in commodity prices, especially oil and gas prices, the crises environment since August 2008, GBM which have fallen rather sharply due to the global achieved a profit before tax of USD 15,1 million by financial crisis. year-end 2008, a 12% increase compared with USD 13,5 million at the end of 2007. 2009 will be a tough year for the Russian economy as it is deeply integrated into the global financial Responding to tough economic environment, the system. The Government has already implemented Bank is placing more emphasis on reducing its significant anti-crises measures to help refinance operational expenses. upcoming external debt obligations and provide liquidity to the banking system. The length and the With a staff of 81, GBM has over 600 active depth of the expected global recession will determine corporate and commercial customers. Russian the path the Russian economy takes in 2009. companies comprise 82% of its customers and 18% are non-residents. In 2008, the number of large scale loan Activities in 2008 customers amounted to 117 and 73% of the loans The unprecedented global financial crisis is changing provided were granted to the Russian companies. the operating and competitive landscape for all companies in Russia. Future Plans The current economic situation provides GBM has an ability to quickly adapt to such dramatic opportunities for GBM to start business with new changes in the business environment as the ongoing reputable names and encourage existing relations. liquidity crunch that all the Russian banks faced GBM’s constant policy is to be very close to its in September 2008 and the associated negative customers. Today, this is especially important and impact on the real sector of the national economy. we follow our customers even more precisely, by Since August 2008, the Bank has taken actions to increasing the frequency of the visits and paying withstand the crises. more attention to visiting production units in the regions. The Bank is focused on providing high Since the beginning of 2008, GBM continues quality services while maintaining a compact to support its customers through maintaining a structure. By adapting itself to a changing conservative lending approach, and remains focused environment, GBM aims at keeping the Bank’s on the delivery of sound corporate/commercial banking structure intact during the challenging period that services in Russia. As a precaution taken in this crises should start after the crisis. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 27 Garanti Securities
A subsidiary of Garanti Bank, Garanti Securities In 2008, Garanti Securities was the lead arranger in provides corporate finance, research and capital the offering of the corporate bonds of Koç Finans, a markets brokerage services to its domestic and leading consumer finance company in Turkey, with a foreign clients. Garanti Securities is Turkey’s leading nominal value of YTL 150 million. brokerage house and a major player in mergers and acquisitions, public offerings, privatizations, domestic Brokerage and international brokerage services as well as Garanti Securities provides equity market brokerage settlement and custody services. services to both domestic and foreign clients. Garanti Securities captured a market share of 4% for ISE Activities in 2008 trading in 2008 with an average daily trading volume of YTL 104 million. Garanti Securities’ total trading Corporate Finance volume reached YTL 25 billion in 2008, while the The total volume of corporate finance transactions Company served 190,000 clients in the same period. advised by Garanti Securities since its inception Garanti Securities’ state-of- the-art technological reached US$ 12,5 billion. Seven major transactions infrastructure allows both retail and institutional were finalized during 2008 and the total transaction clients to easily execute their transactions. volume was US$ 3,5 billion. Garanti Securities acted as the Joint Global Coordinator and the Sole In addition, Garanti Securities has an experienced Domestic Bookrunner in the initial public offering and highly-qualified research team, whose portfolio of Turkish Telecom in the second quarter of 2008. recommendations have consistently outperformed Quoted on the Istanbul Stock Exchange in May, the the index returns over the years. Garanti Securities’ Turkish Telecom public offering was the largest IPO research reports are delivered to the extensive client ever in Turkey with a total issue size of US$ 1,9 base and investment centers of Garanti Bank, as billion. well as to institutional international investors across the world. Garanti Securities performed six merger and acquisition transactions in 2008. Garanti Securities Thanks to strong research and brokerage services, acted as the sell-side advisor to the State Deposit Garanti Securities is also widely acclaimed by Insurance Fund of Turkey (the “SDIF”) in the sale foreign institutional investors, reflected in a 50% of ATV-Sabah Media Group and the transaction increase of the trading volume generated by these closed for US$ 1,1 billion. In March 2008, in a clients in 2008. The Institutional Sales Department transaction Garanti Securities again acted as the of Garanti Securities delivers customized services to sell-side advisor, an equal controlling stake in Çimko foreign institutional clients with a customer oriented Cement Company was sold to Barbetti, an Italian approach. cement company, at a company valuation of US$ 1,3 billion. In April 2008, Garanti Securities acted as the The technological infrastructure that enables foreign sell-side advisor to the SDIF in the sale of Esyem institutional clients to send their orders electronically and Esen Machinery companies. In June 2008, to the ISE directly has been completed in 2008. Garanti Securities advised in the sale of Kral Media Group to Doğuş Media Group for US$ 95 million. In Future Plans September 2008, Garanti Securities also acted as Garanti Securities is planning to increase market the sell-side advisor to the SDIF during the sale of shares in a tough market environment by continuing Adabank for US$ 57 million. to focus on its clients and contribute to the Turkish economy by bringing in foreign direct investment and Garanti Securities completed the mandatory increased portfolio flow to Turkey. tender offers of Boyner Holding AŞ and Acıbadem Sağlık Hizmetleri AŞ in January and May 2008, respectively, as well as the rights issue transactions of Tesco Kipa and Garanti Bank in February and May 2008, respectively. FINANCIAL SERVICES FINANCIAL
28 DOĞUŞ GROUP ANNUAL REPORT 2008 Garanti Asset Management
Since 1997, Garanti Asset Management (GAM), Garanti Asset Management works closely with its the first asset management company in Turkey, has sister company, Garanti Pension and Life (GP). been providing individual and institutional investors During 2008, GAM provided GP with management with mutual fund, pension fund, discretionary services for 10 different types of pension funds. In portfolio management and alternative investment 2008, the total volume of assets under management solutions. With a management philosophy based on in this segment increased from YTL 562 million in analytical thought, competent human resources and 2007 to YTL 879 million in 2008, which corresponds advanced technology, Garanti Asset Management to a market share of 13.77% as of 31.12.2008. is considered one of the best asset management service providers in Turkey. Discretionary Portfolio Management The global financial crisis has shown its effect on YTL 4,7 billion assets under management discretionary portfolio management, just like it did In 2008, GAM managed 16 mutual funds of for other business lines. The liquidity problems led GarantiBank, 3 mutual funds of Garanti Securities, to portfolio outflows in the sector. The discretionary 10 pension funds of Garanti Pension and Life, and portfolio management market totaled about YTL 2,2 the portfolio of Garanti Investment Trust listed on the billion and the volume of Garanti Asset Management ISE. in this segment reached YTL 296 million with a 13.49% market share as of end of 2008, according As of 31.12.2008, the assets under GAM’s to the Capital Markets Board data. management totaled YTL 4,7 billion. Garanti Asset Management believes that it will Growing market share in mutual funds in a benefit, preferentially, from the difficult market variable year conditions due to its advantage of being a pioneer in After having experienced steady growth for several the asset management sector and the competitive years in a row, the mutual funds market suffered and high quality service understanding of Garanti Bank. from the global financial crisis that has taken place towards mid-2007 and experienced deeper levels in Alternative Investments Management 2008. The aggregate volume of mutual funds, under In 2008, Alternative Investments Department began GAM’s management, lost about a part of its value, to manage 2 new funds, the Principal Protected declining from YTL 3,7 billion in 2007 to YTL 3,5 Fund and %10 Interest and Principal Guaranteed billion in 2008, when the total market size decreased Fund. On the other hand, the Capital Markets from YTL 26 billion to YTL 24 billion during the same Board of Turkey has approved the Hedge Fund’s period. prospectus in the middle of the year and is expected to issue this immediately after the Board’s approval. Yet, Garanti Asset Management strengthened its market position and increased its market share Risk management from 14.22% at the end of 2007 to 14.63% as of Garanti Asset Management has effective risk control 31.12.2008. mechanisms that encompass all phases of its investment processes. Rapid growth in pension funds Pension funds are one of the fastest-growing Under the heading of Pre-Defined Risk Control investment products that have been offered in mechanisms, the expected returns and maximum Turkey today. sustainable losses for all investment instruments are continuously monitored by the Company. The strong growth in the sector increases the importance of pension funds from the standpoint of Auditing market share. The share of pension funds, in total Garanti Asset Management is one of the most highly assets under management, continues to rise day by respected and trusted companies in its sector. The day and in the near future, this business line will be reputation the Company has earned is, among in a position to serve as a financial leverage for the others, attributable to its effective internal audit Turkish economy as a whole. system. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 29 Activities in 2008 Future Plans The main advantage of GAM over its competitors is Garanti Asset Management will remain the its proactive business strategy and the synergetic first choice of customers in 2009, displaying a and effective collaboration that the Company has performance compatible with the Garanti brand. developed within Garanti Bank and its branches, In this context, the Company aims to increase which act as the main delivery channel of GAM. its market share and solidify its position by using GAM is also unique in that it is the only asset efficient delivery channels and launching new management company with an internal research products. department. Garanti Asset Management’s objective is to become In order to further increase the synergy between an Asset Management company that obtains the the 2 companies, the branches of Garanti Bank, highest benefit from the huge business potential has been provided with training activities and visits that exists in Turkey, in the ongoing process of its pertaining to available asset management products institutionalization. in 2008. The informative visits and training programs allow these products to be marketed more actively As an affiliate of Garanti Bank and a member of and consciously. Doğuş Group, Garanti Asset Management is set to achieve that objective mainly due to its own human Alternative Investments Department organized 4 resources, as well as corporate culture and business introduction and information meetings in İstanbul, philosophy. Ankara and İzmir for the introduction of a Hedge Fund, targeting the qualified investors. FINANCIAL SERVICES FINANCIAL
30 DOĞUŞ GROUP ANNUAL REPORT 2008 Garanti Leasing
Garanti Leasing provides leasing-based financial In 2008, Garanti Leasing remained the Turkish solutions for machinery, equipment and real-estate leasing company with the highest credibility in purchases of customers. SMEs make up a significant international markets. Garanti Leasing has the portion of Garanti Leasing’s customer base. As of same ratings with its parent company, Garanti Bank. the end of 2008, the Company has been assigned Despite the changes in several global institutions the highest ratings possible for a Turkish company, and sovereigns, the Company’s ratings were not by credit rating agencies such as Standard & Poor’s changed during the last 1 year period, except and Fitch, and is the only Turkish leasing company Standard and Poors, which changed the outlook to be graded by 2 different agencies. from Stable to Negative, parallel to its action on the sovereign level. Garanti Leasing is rated at BB Activities in 2008 (LTFC), BB+ (LTLC), AAA TUR (National) by Fitch In 2008, Garanti Leasing achieved a market share of Ratings and “BB-/Negative/B” by Standard and 15.1% in transaction volume and 16.8% in number Poors. of contracts. With these market shares, Garanti Leasing maintained its leadership in the sector. Total The VAT regulation, which changed in the beginning transaction volume reached USD 799 million and of 2008, resulted in a contraction in the Leasing 3,349 new service contracts were signed in 2008. Sector. The global turmoil, originated abroad, has been the additional factor affecting the sector. In According to the independently audited IAS financial 2009, the leasing volume is expected to move in tables, Garanti Leasing increased its profit by 31% parallel to macroeconomic developments. in 2008, to YTL 73,7 million. The Company had total assets worth YTL 2,3 billion at the end of 2008. Future Plans The new leasing law, which is expected to be By the competitors’ votes with the monthly business approved the Council of Ministers in early 2009, and finance magazine Capital, Garanti Leasing has will allow leasing companies in Turkey to offer new been awarded, once more, as the “Best Leasing products such as operational leasing, sale-and- Company in Turkey” for the second consecutive lease-back and software leasing. The sector is year. likely to gain significant momentum through these offerings. Garanti Leasing benefits from the advantage of having an extensive distribution channel, by utilizing Operational leasing is a financial tool that differs branches of Garanti Bank as the main distribution from financial leasing in that the leased equipment is channel. Garanti Leasing combines this competitive returned to the leasing company when the contract advantage with its solution oriented and customer expires. This product has a considerable share centric approach. Additionally, via its own marketing in total leasing volumes overseas and will, when network, Garanti Leasing leverages the advantage launched in Turkey, present a new financing method of an extensive delivery channel and serves and a fresh perspective on investment decisions by customers at 20 different points. Regional offices companies and, in particular, SMEs and commercial were restructured in 2008, parallel to Garanti Bank’s companies. regional structuring efforts. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 31 Garanti Fleet Management
Founded in 2007, Garanti Filo Yönetimi A.Ş. (Garanti fleet of 3,100 vehicles, as of the end of 2008. With Fleet Management) operates in the industry of the advantage of owning “Garanti” as a brand, fleet management, one of the operational leasing having strong funding capabilities, and offering high products, which has a great potential in Turkey. service quality, and service after lending, Garanti This wholly-owned subsidiary of Garanti Leasing Filo Yönetimi A.Ş. aims to have a stronger foot in the had a balance sheet size of USD 70 million and a sector in the future. FINANCIAL SERVICES FINANCIAL
32 DOĞUŞ GROUP ANNUAL REPORT 2008 Garanti Factoring
Garanti Factoring, one of the first factoring achieved the leadership in the sector, thanks to companies in Turkey, was founded in 1990. Garanti its focus on the import financing and international Factoring provides, in one single package, the suppliers’ financing lines in its import factoring financing, guarantee and collection services required product. by both the domestic and international trade, with a particular focus on financing of the trade and Performing and reporting the collections of corporate receivable-based financing. Some 34.82% of its clients, by means of a professional collection system common shares are traded at the ISE National through Garanti Factoring’s Call Centre, was an Market. important innovation adopted by Garanti Factoring for its service range during 2008. Within the Garanti Factoring has been expanding its factoring framework of the service contracts signed in 2008, products and services across the country, serving the Company achieved a total transaction volume of a wide client base, mainly SMEs and also including YTL 143 million. importers, exporters, and organizations with widespread supplier and dealer networks. The cooperation, between Garanti Bank and Garanti Factoring, hit the top in 2008 with factoring operations performed at approximately 300 Activities in 2008 branches of Garanti Bank. In addition to SMEs Garanti Factoring raised its market share from and Commercial Banking lines, such cooperation 13.3% in 2007 to 14.7% in 2008. Having realised reached considerable levels on Corporate Banking a transaction volume of USD 2,9 billion in the year side as well with ongoing services provided to the 2007, Garanti Factoring reached a volume of USD leading enterprises of the country. 3,6 billion in 2008. While the total factoring sector was up by 13% in terms of volume in 2007, Garanti Future Plans Factoring expanded by 25%, advancing its growth Thanks to the draft bill on leasing, factoring and faster than the sector. finance companies, which is expected to be enacted in 2009, the operational area of the factoring industry Garanti Factoring, which raised its year-end profit by will become more clearly delineated, paving the way 24% to YTL 7,1 million in 2008, also raised its total for faster growth. assets to YTL 750 million. Although foreign financing need of the companies Upon the reorganisation in terms of Credit has increased as a result of the global crisis, which Monitoring Systems, new techniques were emerged in 2008, the shrinking global liquidity implemented, particularly those that were developed is expected to boost the demand for receivable on early warning systems and as a result of such financing products. Offering its uninterrupted support developments, the NPL ratio was limited to some to SMEs in such conjuncture, Garanti Factoring 0.25%. will continue to focus on the receivable financing segment. In 2008, other developments included the launch of the IT project. This will play a significant role in It is expected that the demand will increase for the future of Garanti Factoring and increase the export factoring transactions by the exporting operational efficiency, minimizing the fixed costs companies, which are the leading actors of the within the operational expenses, as well as enabling national economy, due to the current atmosphere of the Company to become the technological leader of uncertainty in respect of overseas markets. the sector. The IT Project is planned to be completed by mid-June 2009. Upon completion of its ongoing IT project, Garanti Factoring, the leader in terms of technology as well, With its boutique products available in financing will have the infrastructure required for providing of the foreign trade, Garanti Factoring continued faster and more effective services to its clients, to create added value for its clients in 2008. It has including e-factoring solutions. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 33 In 2009, the production portfolio of the Company will The main goal will be to accelerate the current be added new offerings geared towards protecting growth rate, which was achieved in commissions the Turkish exporters against the risks they will be and number of clients, in line with the growing sales exposed to in international markets, and towards team, and to maintain this growth rate, independent financing of their receivables. of the macro economic circumstances in the year 2009. The cooperation with Garanti Bank will be taken further beyond the point achieved in 2008, leading Garanti Factoring will further increase its to an increase in the existing cooperation with the performance in 2009 and cover a considerable branches and lines of business and contributing to distance on its way towards becoming the leader customer satisfaction. Garanti Factoring has set, as factoring company in Turkey. its goal, to conduct factoring transactions at each Garanti branch, and holds each client portfolio where corporate clients exist. FINANCIAL SERVICES FINANCIAL
34 DOĞUŞ GROUP ANNUAL REPORT 2008 Garanti Pension and Life
Garanti Pension and Life was founded in 1992 its excellence in customer service practices. Just as AGF Garanti Life Insurance Company. The one such initiative has been the introduction of the company received its individual pension license in CRM system that integrates all the customer facing 2002 and started operations in the pension sector processes of the Company, to boost its efficiency as “Garanti Pension and Life Company”. After that, and to further increase customer satisfaction. With Garanti Pension and Life showed a tremendous this project, Garanti Pension and Life won the transformation into the best practitioner of Service Industry Leadership award presented by bancassurance in Turkey, gaining significant market Microsoft. share over the years. On June 21, 2007, Eureko B.V., one of the leading insurance companies of In May 2008, Garanti Pension and Life, with its Europe, became a shareholder of Garanti Pension customer oriented view, has introduced 3 involuntary and Life with a stake of 15%. unemployment insurance products simultaneously. With these products, the Company intends to assist Activities in 2008 its customers to overcome the difficult times they Garanti Pension and Life has been increasing its face in an event of unemployment and maintain their profitability along with its market shares in both life standards. Production of these new products pension and life insurance sectors. The main target increased rapidly with the diversification of the of the Company is to grow in both of the sectors in distribution channels and marketing campaigns in a which it operates, while increasing its profitability. very short period. Its net profit, after tax, increased by 55% to YTL 64 million in 2008, making the Company the sector’s In order to increase customer loyalty, Hobby Clubs most profitable player. Project has been launched in 2008. Garanti Pension and Life initiated this project aiming at happy and Meanwhile, in 2008, Garanti Pension and Life was content customers not only at their retirement but at the most successful pension company in increasing the accumulation phase as well. its market share by 1.5 percentage points to 14.08%. While its fund size was about YTL 573 million in Future Plans 2007, it reached to YTL 890 million in 2008. At the Garanti Pension and Life, as the leading same time, the Company increased its number bancassurance company in Turkey, will further of participants to 336,500 and reached a 19.32% increase the share of alternative distribution market share. channels in its total production. With the help of unemployment insurance products, Garanti Pension On the life insurance side, the Company has been and Life will grow its life production and gain a growing rapidly in premium production, increasing valuable market share. Additionally, new flexible its total premium production to YTL 124 million and and custom designed products offering phased its market share to 7.9%, as of the end of 2008. withdrawal programs for the retirees will be launched Moreover, Garanti Pension and Life has the greatest in 2009. number of policies in the market with an astonishing 2,3 million insurance policies. Garanti Pension and Life will preserve its customer oriented view in every aspect and continue to In 2008, Garanti Pension and Life has continued launch innovative projects in order to fulfill customer to be the leading player in the sector in regard to expectations. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 35 Garanti Mortgage
The Housing Finance Department of Garanti Bank, is receiving a significant number of applications via which was established at the end of 2005 as the first the call center. In early 2009, the Bank will initiate its of its kind in the banking sector, was incorporated as webchat and video-phone services for mortgages. a separate entity, a subsidiary of the Bank, named Garanti Konut Finansmanı Danışmanlık Hizmetleri 2008 has been a very successful year in terms of A.Ş. (Garanti Mortgage) in October 2007. The new product development; products such as the Company continues achieving its aim of promoting Mortgage Basket, Buy Now Pay Later Mortgage, and enhancing Garanti Bank’s expertise in this field, No Fee Mortgage, Mortgage for Foreign Nationals, further strengthening its position as a market leader. Mortgage with Payment Postponing Option, among other products, have been launched during the year. Activities in 2008 Also, in order to reach different consumer groups, After the enactment of the Mortgage Law in March several major campaigns have been launched in 2007, new housing finance products, including 2008 (i.e. campaign for Turkish Armed Forces). In the Variable Rate Mortgage was launched for the 2009, 8 new products are expected to be launched first time in Turkey by Garanti, to meet different in order to continue meeting different consumer consumer needs. Such product developments needs, and, campaigns will be continued directed continued in 2008, reaching a total of 24 products at different groups and segments in order to reach at year-end, assisting Garanti’s continuing market larger consumer groups. leadership with a share of 13.4%. Future Plans The housing loans portfolio of the Bank increased In 2009, Garanti will continue to prioritize similar considerably, from YTL 4,166 billion at the beginning values as in 2008. The practice of providing the of 2008 to YTL 5,020 billion at the end of the year. largest product range to consumers will continue The share of housing loans within the consumer with new product development, while the focus loans portfolio remained at around 50%, excluding on developing new businesses and distribution credit cards. channels for the market will be maintained. In addition, focus on “Garanti the Mortgage Expert” In April 2008, Garanti launched Turkey’s first brand will continue to improve both the brand name mortgage call center, 444 EVİM (444 MY HOME). and customer awareness. Expanding and increasing With a “mortgage expert” team of 20, 444 EVİM the number of developer financing projects and assists consumers with all questions regarding improving relations with real estate agencies by mortgages, as well as accepting mortgage focusing on field teams will continue to be among applications via phone and contacting potential top priorities in 2009. Accordingly, the market share mortgage customers obtained via CRM analysis and profitability will be increased by supporting such and leads from third parties. With a daily average channels and services. of 400 inbound and 250 outbound calls and an average answering time of 10 seconds only, Garanti FINANCIAL SERVICES FINANCIAL
36 DOĞUŞ GROUP ANNUAL REPORT 2008 Garanti Payment Systems
Established in 1999 by Garanti Bank with the vision Activities in 2008 of developing systems that will replace cash, Garanti • With an issuing market share of 21.1%, Garanti Payments Systems Inc. (GPS) is the fastest and increased its number of credit cards at the highest most efficient developer of the credit card market. rate, reaching 7,5 million cards, thus achieving GPS will continue to provide services in the areas of a growth rate of 15.4% relative to the previous chip-based multi- or joint-brand card programmes, year and 622% over the last 8 years. Of immense commercial cards, virtual cards, marketing of importance in creating non-interest revenue, businesses and e-commerce. credit cards accounted for 54% of the Bank’s commission fees. Setting trends in the industry with its projects, GPS is constantly enhancing its products and services. • The products of GPS continued to grow Resourceful and visionary, GPS has a marketing- across the board, in terms of number of users, focused team and is a leader in innovation and transaction volume, number of merchant, and a pioneer in many areas both in Turkey and on number of POS. Providing services through a international platforms. total of 327,005 POS terminals and with 278,253 merchants, GPS sustains its position of market Garanti has largest range of products in Turkey as leader with a market share of 22.3% in acquiring a consequence of its endeavour to cater to diverse volume and 22.8 % in retail volume. GPS grew by needs through the most appropriate product. With 17% in its number of POS, relative to the previous its 7,5 million cards, consisting of Bonus, Flexi, year, and increased its acquiring volume by 26%, Shop&Miles, Shop&Miles&club, Privé, American thus reaching a turnover of YTL 38,3 billion. Express and commercial credit cards, Garanti is the Bank offering the highest number of plastic cards in • Having introduced the concept of card platform to the country. When virtual cards and bank cards are Turkey in 2002, under an agreement conducted included in the total, Garanti manages a portfolio of with DenizBank initially and at a later stage, over 12 million cards. with TEB, Şekerbank and, in 2008, ING Bank, GPS enlarged this platform and the Bonus Card GPS attributes great importance to customer Platform finished the year as market leader with a analysis in order to be able to manage its portfolio share of 27.12% in terms of turnover. and revenue in the best manner possible and carries out exemplary and leading edge work in the • Thanks to innovative projects, GPS grew at a rate area of CRM on Risk Measurement and customer of 62.7% in debit cards retail volume and reached profitability thanks to an astute use of technology. YTL 170 of spending per card. With its retail volume that stands at 3 times the total market, it GPS completed 2008 as the leader in the following has a market share of 23.5%. areas: the number of plastic cards, the number of POS, international issuing volume, domestic and • Having issued 2 new cards, Ekin Card and international acquiring volume, international and Corporate Travel Card, GPS has made it possible domestic shopping retail volume, international and for Garanti to offer the highest number of choices domestic debit card shopping retail volume. GPS to the market with a total of 8 commercial also has the only network of businesses in Turkey products. On the basis of its rich product range, that accept VISA, MasterCard, JCB, American GPS provides the best and most appropriate Express, CUP and Diners cards. services to firms of diverse character and, in 2008, increased its number of cards by 18% and GPS provides businesses with services such as its volume by 45%. The growth rate, attained in POSmatik, Easy Cash Desk, Point of Payment, the number of member businesses carrying out and Point of Application for Cards. It meets all of e-commerce, rose by 17%. the needs of businesses, without fail, in the area of payments and offers special payments services, Garanti issued Shop&Miles, the official credit card of such as dial-up POS, ADSL POS, Mobile POS and Turkish Airlines (THY), in 2000. The agreement with Virtual POS, while providing e-commerce services THY was renewed for a second time in 2008, for a
and e-retail services over garantialisveris.com. period of 3 years. The first and most popular credit SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 37 card in Turkey with a flight mileage program, the response in its campaigns customised for more than Shop&Miles group has now approached the 400,000 4 million card holders and raised its card activation card mark. to 83%.
By purchasing the exclusive right to issue and Future Plans market American Express products in Turkey in One of the main objectives at GPS is the most 2006, GPS further consolidated its presence in efficient management of all phases of the credit card the affluent cards category, first achieved through process, including applications, limits and collection, Shop&Miles. Following the issuance of Bonus with the purpose of minimising the bad debts bound Platinum Card, bearing the American Express to arise from rising unemployment as a result of logo, American Express grew at a rate of 572% the world economic crisis. GPS will continue its in the number of cards and 693% in volume relative war against cash in 2009, sustaining its emphasis to the previous year. on contactless payments in order to come into contact with large audiences, and reaching out to For GPS, customer satisfaction has always been a persons who cannot obtain credit cards, starting with priority. In 2008, the Company attained a 20% rate of housewives and students, through bank cards. FINANCIAL SERVICES FINANCIAL
38 DOĞUŞ GROUP ANNUAL REPORT 2008 Garanti Technology
Garanti Technology (GT) is a Doğuş Group company In the area of System and Operation Management, and a subsidiary of Garanti Bank. GT, provides the Call Center has been converted to an IP-based technology infrastructure, software development on Contact Center, and all backups in native tape units various platforms, internet applications, integration, were started to be encrypted for added security. system management, security management, project management, and office application services to Garanti Technology has been awarded the “Best companies that are in the banking and financial Innovation in a Loyalty Programme” award with its services, automotive, construction, media and “Bonus Trink Sticker” project at the Cards&Payments tourism industries. The company also provides Europe 2008 Conference, held in Belgium on 19-20 consultancy services related to these sectors. June 2008.
GT develops IT strategies for the institutions it Garanti Technology has also won the first place in serves, turns solutions into value-added services, the “Best Electronics/Mobile Commerce/Payments/ creates and manages change and quality and Collections Implementation” field with its “Smart ensures sustainability. GT’s corporate governance Sticker” project at the 15th Billing & Information is based on the ITIL process model and built on Management Systems 2008 Conference held in the principle of “Design-Operate-Support”. Every Amsterdam on June 19-20, 2008. single project is prepared in accordance with quality standards such as COBIT and ISO, to Future Plans ensure the most appropriate solutions that meet the As a pioneering institution, Garanti Technology has requirements of the institutions served. adopted the mission of keeping Garanti Bank, its subsidiaries and other companies of Doğuş Group Activities in 2008 one step ahead at all times. Garanti Technology will Competent in all platforms and equipped with the continuously invest in state-of-the-art technology, ability to provide creative technological solutions, GT uninterrupted transaction competency and had 720 employees as of the end of 2008. infrastructure security, maintaining its leadership in technology. In the area of Software Development, GT initiated several projects including the OGS/KGS Payments, Supplier Financing, Indexed Deposits, POS Loans, Barcode Loyalty, and adaptations of new Garanti products to GBI Romania. FINANCIAL SERVICES FINANCIAL
DOĞUŞ GROUP ANNUAL REPORT 2008 39
Automotive
Doğuş Otomotiv has successfully concluded 2008 by accomplishing the majority of its objectives despite the tough market conditions shaped by the economic turmoil on a global scale. 42 AUTOMOTIVE ** Figures are based on Doğuş Otomotiv IFRS consolidated financial statements. Figuresarebasedon DoğuşOtomotivIFRSconsolidated financialstatements. ** financialstatements ofthesegment. Figuresarebasedonstandalone * Financial Highlights* DOĞUŞ GROUP rose to YTL 60million. YTL 1,444millionand the total investments During the same year, the assets totalled generating a turnover of YTL 2,144million. profit of YTL19million**in2008 by Doğuş Otomotiv hasrecorded abusiness Cost Revenues Segment Assets (YTL thousand) EBITDA Margin EBITDA Gross ProfitMargin (YTL Million) Total Assets ANNUAL REPORT 2008 0620 2008 2007 2006 1,134
1,160
1,444 (,9,1) (1,853,052) (2,199,519) 2,552,084 1,160,188 109,916 13.8% 4.3% 2007 (YTL Million) Revenues 0620 2008 2007 2006 2,527 2,144,139 1,443,678 38,366 13.6% 1.8% 2,552 2008
2,144 Year 2008 in Doğuş Otomotiv
Doğuş Otomotiv has successfully concluded 2008 by • The leader of imported car market with a sales accomplishing the majority of its objectives despite figure of 55,307 the tough market conditions shaped by the economic • Representative of the world’s strongest 15 turmoil on a global scale. automotive brands • 80 different models Doğuş Otomotiv’s products and services that • Selling 13,124 used cars are reflected to its customers on a wide range of • Nearly 2,000 employees spectrum have helped it to gain a competitive edge • More than 500 customer contact points among its rivals. Doğuş Otomotiv continues to • Approximately 800,000 customers hold its leading position in the market firmly with its • A total car park of 650,000 wide range of products and services ranging from • 435,000 m² of closed sales and service area financing loans to sales and from after sales services • Receipt of nearly 800,000 cars in service stations to used car dealership.
Total Vehicle Wholesales (Unit) 2006 2007 2008
Passenger Cars 42,741 40,966 33,742 Volkswagen 27,619 26,110 21,485 Audi 4,956 5,898 5,647 Porsche 220 218 157 Bentley 0 19 12 Lamborghini 0 3 9 SEAT 4,572 3,426 2,874 Skoda 5,374 5,292 3,558 Light Commercial Vehicles 32,062 27,669 18,969 Volkswagen 31,947 27,669 18,969 Skoda 115 0 Heavy Commercial Vehicles 2,908 3,055 2,596 Scania 2,099 2,174 1,894 Krone 809 811 518 Meiller 0 70 184 TOTAL 77,711 71,690 55,307 AUTOMOTIVE
DOĞUŞ GROUP ANNUAL REPORT 2008 43 Doğuş Otomotiv / Value Chain 2008
Replacement Import& Parts & Other Production Retail Used Car Sales Finance Distribution After Sales Investments Services
Quick Fix to all Automotive Krone* Brands Used Car Sales Financing* TÜVTURK*
**
Doğuş Otomotiv Independent Authorized Insurance* Meiller* Dealers
Yüce Auto* (Switzerland) LeasePlan*
Insurance*
Centre of Logistics
* Subsidiaries ** Represantative Offices
44 DOĞUŞ GROUP ANNUAL REPORT 2008 A successful year against all odds opening of new sales and service points. Opening Despite the circumstances that have primarily of Doğuş Oto Etimesgut service point, established affected the automotive sector adversely in Turkey in Ankara with an investment of YTL 42 million, has as it has been in the world, notably since the last been a morale booster for our company despite quarter of 2008, Doğuş Otomotiv has accomplished the economic crisis and the constriction in the the majority of its 2008 objectives with a sales of automotive sector. Doğuş Oto’s total servicing 55,307 vehicles by preserving its market share at area has reached to a total of 175,000 m² with the 11%. participation of 22,000 m² premises comprising VW Passenger Cars and VW Commercial Vehicles sales Doğuş Otomotiv has recorded a business profit of and services, Audi services and DOD’s used car YTL 19 million in 2008 through generating a turnover dealership premises. of YTL 2,144 million. During the same year, the total assets have reached to YTL 1,444 million and the Concurrently, Başaran with its VW and SEAT investments have reached to a total of YTL 60 million. showrooms and service facilities in Fethiye, Opat with its VW showroom in Tarsus, Gencay and Production investments are being finalized Koluman with its VW services in Batman and Doğuş Otomotiv is one step closer to its goal of Gaziantep respectively, Aydoğanlar with its VW existing in every link of automotive value chain by and Audi services in Ankara are newly joined virtue of spreading its products and services to a locations of the Doğuş Otomotiv family. Scania, wider spectrum with its investments in production in the leader brand of the heavy commercial vehicle 2008. import market together with Krone trailer performed the inagurations of two new sales and service The opening of Meiller-Doğuş Damper Factory has dealers in Bolu with Çarıkçı and in Hadımköy with been accomplished in Sakarya in 20 June 2008 Flash Otomotiv. Scania has also enlarged the with the partnership of the world’s leading damper service points in Turkey with Sağ Otomotiv Scania producer Meiller, whose distributor in Turkey is workshop in Hatay. Additionally, KCR Otomotiv’s already Doğuş Otomotiv. The production plant, which Meiller showroom and service station in Denizli are was accomplished with an investment of €10 million rendering services in compliance with the world is Doğuş Otomotiv’s first, has made our company standards on behalf of Doğuş Otomotiv. with proud by achieving its first production with a “zero” PPM. Another investment that has marked its seal on 2008 is the Authorized Porsche Dealer and Service The foundations of Krone Trailer Factory, which was centre in Lausanne whose foundations have been planned to be Doğuş Otomotiv’s second production laid. The service point D-Auto Suisse SA, which plant, has been laid in Tire, İzmir on 17 July 2008. will be established on an area of 5,000 m² with an The Krone Doğuş Trailer Factory whose foundations investment of $12 million, and whose 99% shares have been laid with the collaboration of Europe’s are owned by Doğuş Otomotiv forms another link second biggest trailer producer Krone, whose of our company’s collaboration with Porsche AG distributor in Turkey is already Doğuş Otomotiv since that exceeds over a decade. Porsche’s Lausanne 2003, with an investment of €35 million is projected dealership is projected to be in operation by mid- to be due in 2009. Turkey’s first foreign-partnered 2009. trailer production plant, Krone-Doğuş Trailer Factory will at the same time be the first trailer production We have widened our range of products center in Europe, which will produce in requested Keeping more than 80 models in its stocks that colours. appeal to every type of budget and taste, Doğuş Otomotiv holds its unique position of being the Our new service points only automotive company that incorporates the Despite the economic conjuncture of 2008, aside it’s widest range of products under one same roof and continuing production investments; Doğuş Otomotiv hereby rivets its practice of existing in every line of has carried its strong position a step further in the automotive value chain and responding to the needs Turkish automotive sector by keeping up with the and wants of its customers to the full. AUTOMOTIVE
DOĞUŞ GROUP ANNUAL REPORT 2008 45 Doğuş Otomotiv, who accommodates world’s competitors in the luxury segment for the first time most prestigious automobile brands, has realized since its launch in 1994. Company’s other brands numerous launches in 2008. Besides the newly have kept the ball rolling by increasing their market launched Golf VI, Tiguan, Scirocco and Passat CC share following Audi’s success. by VW in Turkish market, Audi A4 (B8), which is denominated as “The Car of the Future” and the Scania Industrial and Marine Engines has ranked new Seat Ibiza are a few of the models that are third in the “Top 10” list of Scania’s global listings for presented to the appreciation of the customers in the top selling distributors. 2008. The success in the after sales Doğuş Otomotiv, who has concluded the year services is continuing successfully by growing its sales and enlarging its Our customer oriented approach, which is based market share in the higher-end luxury segment, upon the concept of keeping our customers content has made an indelible impression by virtue of the not only during the sales process but also with the accomplished activities. Lamborghini’s new Gallardo after sales process, comprises rendering friendly and LP 560 has been launched in September and its quality services throughout the years as if it is the showroom was put in to service with an exclusive first day. party in October. Bugatti’s test-drive vehicle, which was brought in the last quarter of the year, has been Volkswagen Passenger Cars becoming the most welcomed avidly. appreciated brand of the year for three consecutive years in a customer appreciation survey carried by Thermo King, the world’s leading temperature Turkish Quality Association (KALDER) is a solid control systems producer brand that has started its justification of this approach being not of words but operations in sales and services areas in Turkey with of deeds. the Doğuş Otomotiv’s distributorship in August 2008, has also completed its corporate and organizational Şenyıldız Otomotiv’s ranking as the third in overall structuring in the same year. classification and the first in technical classification in the 4th Twin Cup organized globally by Audi AG Rendering services with its 9 authorized dealership to determine the world’s finest technical service and service points settled in potential promising stations is a proof of dexterity to which our service regions like İzmir, Ankara, Samsun, Antalya, stations have reached. Antakya, Adana and Mersin in addition to the ones located in Istanbul’s Asian and European sides, the The DOD difference in used car sales brand’s sales target in 2009 is 300 vehicles with an Winning a prominent position in the used car sales aimed market share of 30%. Thermo King branded where trustworthiness has gained an essentiality, products are in compliance with the CE and ATP DOD unquestionably became the most preferred standards and are expected to enlarge their sales partner for its customers who wish to be served by volume by 20% with the compliance to the EU a trusted institution. DOD has continued to diversify standards becoming a current issue. its range of products and services in 2008 by adding new inventive solutions to the already existing ones It has been a vintage year for our brands for different segments and needs. Despite the economic conjuncture and the constriction in the market, our brands have Utilising the Internet competently, DOD has lifted its accomplished the majority of their sales objectives. effectiveness by restructuring its website One of the most prominent successes accomplished www.dod.com.tr and has reached to its vertex by in the year was Audi becoming the market leader attracting over a million and a half visitors in 2008. with a sales figure of 5,484 vehicles, outclassing its AUTOMOTIVE
46 DOĞUŞ GROUP ANNUAL REPORT 2008 DOD has accomplished three new product launches The Practical Conversation Booklet project, “10 Dilde based upon the concepts of unconditional customer Seyr’ü Sefer”, prepared by Scania Marketing Team satisfaction and high brand value in 2008. ParkDOD has put its signature under an international success that is developed for the customers who are not by winning the honour prize of the “Communication able to leave their vehicles full time to the sales Award”, which is regarded as the best marketing points; PrimeDOD that has its own infrastructure and project award. The booklet, which was prepared to website for the used car trade in luxury segment; provide solutions for the communication problems and KeyDOD, the first of its kind in the world, a user of the long distance drivers, contains practical friendly value assessment website has attracted conversation tips in the languages of the10 mostly attention as the standard setting products in the visited countries by Turkish drivers. sector. Proceeding on our way with superordinate goals TÜVTURK expands rapidly Doğuş Otomotiv describes its entrepreneurship Established by the Doğuş Otomotiv-Akfen-TÜVSÜD and its strategy with its profoundly progressive consortium and entitled to undertake the task of potential as: opening and operating vehicle inspection stations in Turkey for a period of 20 years, TÜVTURK has • Deepening in the national market and structured itself rapidly and has pressed 183 stations uninterrupted leadership in the imports market, in 77 cities in to operation by the end of 2008 after • Becoming a regional power in the international having been active in 2007. arena.
Doğuş Otomotiv has been rewarded in Doğuş Otomotiv will carry on its efforts to increase the communications area the investor satisfaction in mid and long terms; A new commercial has been added to Doğuş generating soaring value for its stakeholders and will Otomotiv’s series of successful commercials in proceed on its way with its ascending targets. 2008 and VW Passat Variant’s “Baba” commercial has received both Kristal Elma award and the Gold Medal in IAAA. AUTOMOTIVE
DOĞUŞ GROUP ANNUAL REPORT 2008 47 FINANCIAL SERVICES Construction
We have been creating worlds underground and aboveground since 1950. 50 CONSTRUCTION * Figuresarebased onstandalonefinancialstatements ofthesegment. Financial Highlights* DOĞUŞ GROUP margin of 12.2%. YTL 72million that resulted inanEBITDA margin of 14.2%. The Group’s EBITDA was 94% from last year’s level withagross profit recorded net salesof YTL 590million,up In 2008,DoğuşConstruction Group EBITDA Margin EBITDA Gross ProfitMargin Cost Revenues Segment Assets (YTL thousand) (YTL Million) Segment Assets ANNUAL REPORT 2008 2006 685 072008 2007 355
907 (260,800) 304,636 354,997 34,510 14.4% 11.3% 2007 (YTL Million) Revenues 2006
271 (506,089) 590,050 906,572 072008 2007 72,236 12.2% 14.2% 305 2008
590 Corporate Profile
Doğuş Construction is one of the leading companies Currently, the total value of the projects, in which of its sector due to its mega project perspective Doğuş is involved, totals USD 4,933 billion, and and its superstructure and infrastructure projects the share of Doğuş in these projects is USD 3,132 undertaken both in Turkey and in the international billion. Doğuş takes part in the execution of various market. Ranking among the most reputable prestigious rail mass transportation system and road construction companies since its establishment projects individually, and as part of the joint ventures, in 1950, Doğuş Construction has completed 160 or consortiums, that are established with the projects worth more than USD 9 billion. participation of international construction companies in local and international markets. The works performed so far include 19 dams and HEPPs with a total electricity production capacity of Doğuş’s strategy involves growth in the existing 3 megawatts, 1,150 km of roads including 415 km of markets while seeking business opportunities in motorways, 2,000,000 m2 of building construction, potential markets, maximizing profitability, improving infrastructure works, bridges, more than 96,000 m its cash position and minimizing risks. As part of of tunnels and diversion tunnels, ports, marinas, its vision to diversify its portfolio, Doğuş has added irrigation projects, sewerage systems, office airport projects to its portfolio and expects to expand buildings, shopping and leisure centers, residential in these fields. Doğuş is considering building projects and industrial buildings. for their business opportunities within the local and international markets.
Ongoing Projects
Project Expected Project Values Doğuş share (USD Mn) (USD Mn) Total USD 4,933 3,132 Domestic Projects 3,561 1,990 Araklı-İyidere Coastal Road 167 86 Sinop-Boyabat Road 208 208 Kadıköy-Kozyatağı Mass Transportation 181 47 Otogar-Başakşehir Mass Transportation 1,152 576 Marmaray Project, 2nd Phase 1,148 368 Boyabat Dam and HEPP 705 705 International Projects 1,372 1,142 MOROCCO Argana Amskroud Motorway, Lot I-II 215 215 BULGARIA Sofia Metro Extension Project-Route II, LOT 1 246 246 UKRAINE Dnieper Railway and Highway Bridge 110 110 Boryspil State International Airport Development Prj. 367 138 LIBYA Sirte University Complex, Construction of Section 1 433 433 CONSTRUCTION * As of March 31st, 2009
DOĞUŞ GROUP ANNUAL REPORT 2008 51 A glance at the ongoing projects; and Belen Ltd. The length of the twin tunnel system Doğuş Construction’s projects, which are in progress which will extend from Kozyatağı to Kadıköy is at home and abroad, are as follows: 2 x 8,6 km and the New Austrian Tunneling Method (NATM) is applied in 7 of the stations, while 2 nos Domestic Projects TBMs are used in the main tunnel sections • Araklı İyidere Road Construction (9 stations in total). • Sinop-Boyabat Road Construction • Kadıköy-Kozyatağı Metro Mass Transportation Within the scope of the Marmaray Contract CR1, System (Marmaray Phase 2), the work of rehabilitation of • Otogar-Kirazlı-Başakşehir Metro Mass the İstanbul suburban railway is being executed by Transportation System our consortium. This railway connects Halkalı at the • Marmaray Contract CR1: Gebze-Haydarpaşa, European side and Gebze at the Anatolian side with Sirkeci-Halkalı Commuter Rail Upgrading: an uninterrupted, modern, high capacity system. Civil and Electrical and Mechanical Systems The existing double-track, 64 km in length, will be (Marmaray, 2nd Phase) upgraded to a triple-track system, 36 stations and 15 • Boyabat Dam and HEPP bridges will be renovated, and the entire electrical and mechanical systems will be replaced. International Projects • Morocco-Argana Amskroud Motorway, The Boyabat Dam and HEPP will be constructed Section I-II as a concrete dam on the Kızılırmak River by • Bulgaria-Sofia Metro Extension Project- Doğuş Construction, for energy generation. With an Route II, LOT 1 installed capacity of 513 MW and standing 195 m • Ukraine-Dnieper Railway and Highway Bridge high from the foundation, with a crest length of 262 Construction m, the dam is planned to generate 1,5 billion Kwh/ • Ukraine-Boryspil State International Airport year of power, when it is commissioned. Development Project • Libya-Sirte University Complex, Construction of Under construction by the Doğuş-Polat Joint Section 1 Venture, the scope of “Araklı-İyidere Coastal Road” construction works covers a 27 km, 2x2 lane road The “Otogar-Kirazlı-Başakşehir Metro” is a rail and a tunnel cross-section with 11,80 m width mass transportation system project that covers the and 600 m length, 17 hydraulic bridges, 9 junction construction and electromechanical works and the bridges, 9 underpasses and overpasses and 160 delivery of rolling stocks. Single-track length of the nos box culverts. twin-tunnel system, which will have 16 stations, is 47,4 km in total. It starts from the intercity bus The Sinop-Boyabat project is another road terminal (Otogar) and extends through the route construction work, which includes a 1x2 lane road of Bağcılar, Kirazlı, and then it is divided into 2 with the length of 52,2 km and a tunnel with the branches and reaches both the Olympic Village dimension of 2 km X 11,80 m, 6 nos bridges and 233 and Başakşehir houses, constituting a considerable box culverts in total. part of the railway systems network in İstanbul. Four Tunnel Boring Machines (TBM) are used in With the National Motorways Administration of the construction of the twin tunnels with the circular Morocco as the client, the Argana-Amskroud cross-section of TBM – 6,50 m and NATM – 7,80 Motorway Project includes a 45,6 km 2x2-lane m. This project is being executed by the Gülermak- motorway, 3 viaducts, 11 underpasses and Doğuş Joint Venture. overpasses, 9 nos vehicle crossings, 5 nos pedestrian crossings, 216 nos box and pipe culverts Construction works of another rail mass as well as various motorway structures. transportation system project, titled “Kadıköy- Kozyatağı Metro”, is being executed by the In Ukraine, the Kiev Boryspil State International Anadoluray Joint Venture, established by the Airport Project comprises 185,000 m2 of Apron companies of Yapı Merkezi, Doğuş, Yüksel, Yenigün Pavement, 60,000 m2 of Roads and Surface Car CONSTRUCTION
52 DOĞUŞ GROUP ANNUAL REPORT 2008 Park, 1,3 km of Viaduct, and 83,500 m2 of the The total contract value of these projects are USD International Passenger Terminal Building. The 4,9 billion, while the share of Doğuş amounts to USD project was started by the Joint Venture led by 3,1 billion. Doğuş Construction. In addition, the construction work of Kiev-Dniyeper Railway and Highway In addition to the mega projects it has undertaken, Bridge with the length of 450 m (2x3 motorway, 1x2 Doğuş Construction has been awarded the railway), elevation height of 21 m, width of 45 m, 5 construction of Boyabat Dam and Hydroelectric nos of piers, 6,600 m (d= 1,5 m) of piling works is Power Plant Project in the domestic market and an important project which is currently ongoing in these will contribute a considerable capacity to the Ukraine. power generation capability of the country.
Doğuş Construction has started to work in Bulgaria, In the international markets, Doğuş was awarded after it was awarded the tender of Sofia Metro 3 important projects in 2008. The construction of Extension Project LOT 1 section with the length of “Sofia Metro Line Extension Lot 1” will be the second 3,8 km, tunnel inner diameter of 8,43 m, and project to be executed in Bulgaria after successfully 4 metro stations. completing the Trakia Motorway Burgas-Karnobat Section. Additionally, the construction of Boryspil Doğuş Construction has been awarded the Airport International Terminal D was awarded to construction of the 1st Phase of Sirte University Doğuş Construction as a Joint Venture project. With Complex in Libya. In previous years, Doğuş this airport project, Doğuş fulfills it strategy to enter a Construction had completed numerous infrastructure sector with great potential. and superstructure works in Libya and has restarted its activities in this country after a long break. The After several years of successful experiences, Doğuş Complex includes an area of 218,000 m², which Construction returns to the Libyan market with an encompasses 5 nos Service Buildings and 9 nos important and prestigious project, the Construction Faculty Buildings. of Sirte University Complex. This project will enable Doğuş to extend its market focus and allow 2008: Towards becoming a regional power geographical diversification. Sparked by mortgage foreclosures and the constraints in the loan market, the liquidity crisis In 2009 and following years to come, Doğuş made 2008 a very tough year for the companies. Construction shall continue to expand its activities In spite of those drawbacks, Doğuş Construction particularly in the markets in which it is currently managed to add new projects to its project portfolio, active and where it has previous experience, both in Turkey and in the region. including Morocco, Ukraine, Bulgaria and Libya. The Gulf countries, and other markets, are also included In this manner, Doğuş Construction maintained its in Doğuş Construction’s domain of activity. The position as one of the key companies in its sector, Company has been pursuing project opportunities in due to its mega project approach and continuous these markets and has plans to take a competitive growth, which is based on the principle of sound and position with respect to the projects that will be sustainable profitability. introduced in such countries.
Taking advantage of its long standing experience Considerable Contribution To Employment and its precise perspective concerning the business Thanks to the engineering applications that require world, Doğuş Construction was able to increase the different areas of expertise, Doğuş Construction level of its profitability in a sector which has developed provides a wide range of career opportunities to its a dynamic structure. The company will continue to employees in various geographies and cultures. pursue its goal of becoming a regional power. This is made possible by the application of large scaled projects that the company has undertaken in Doğuş Construction currently executes a total of domestic as well as overseas markets. 11 projects, 6 of which are in Turkey and 5 are overseas. CONSTRUCTION
DOĞUŞ GROUP ANNUAL REPORT 2008 53 Today, the Company employs a total of 4,000 people Corporate Risk Management in its domestic and international projects and they Representing one of the key tools in the decision- are an integral part of our success. As suggested by making process at Doğuş Construction, corporate the Company performances and achievements to risk management is implemented in all work date, the competencies of our employees come to processes. Thus, all risks under predetermined the forefront at Doğuş Construction, including their categories are defined, analyzed and assessed, organizational commitment, desire to succeed, team actions are planned and followed, and developments work and cooperation, openness to development and and any risk that may be encountered are monitored change, quality orientation and self-reliance. taking into account all potential risks.
Acting in line with the understanding that the success Doğuş Construction creates a competitive advantage of its projects is directly proportional to the success and differentiates itself from its peers by virtue of its of its employees, Doğuş Construction creates a fair advanced level of corporate risk management. working environment by attaching importance and giving the opportunity of technical, personal and Cost Management System executive development to its employees. Doğuş Construction is in the final stage of work on its “Cost Management System”. Upon its completion Quality, Occupational Health and Safety, and introduction, the system will enable sensitive, Environment and activity-based, “cost and productivity” analyses Doğuş Construction adheres to the Quality, at any level in the company. The system will place Occupational Health and Safety, Environmental Doğuş Construction in a special position regarding Management Systems which it has designed, the assessment and measurement of profitability and based on the superior global standards. All of performance, in respect of internal processes, and these 3 management systems are certified by the bring improvements to productivity indicators. DNV (Det Norske Veritas). Management system certifications, held by the company (ISO 9001:2008 Quality, OHSAS 18001:2007 Occupational Health & Safety, and ISO 14001:2004 Environmental Management) expired at year-end 2006, and each has been renewed for another 3 years upon the positive outcome of the audit performed by LRQA (Lloyd’s Register). CONSTRUCTION
54 DOĞUŞ GROUP ANNUAL REPORT 2008 Teknik Mühendislik ve Müşavirlik A.Ş.
Teknik Mühendislik is a Doğuş Construction Group • Planning and feasibility surveys, technical and company, established in 1984, and it provides economical surveys, research and laboratory engineering, consultancy and technical services to tests, drilling and similar studies, assistance in Doğuş Construction Group and other institutions and finding more rational and developed methods and contractors. implementation of such for these draft projects, • Business management services. Teknik Mühendislik offers the following services for projects of motorways, highways, railways, dams, Teknik Mühendislik continues to successfully hydroelectric power plants, irrigation projects, water complete all the works undertaken with its and sewerage system projects and industrial plants: experienced and trained key personnel and • Any and all engineering, consultancy and technological equipment employed since its technical services, establishment.
Ayson Geoteknik ve Deniz İnşaat A.Ş.
Ayson, founded in 1977, is a Doğuş Group company also constructing the injection gallery tunnels, which specialized in geotechnical works. Since then, it has is 2,625 metres in total, in the same project. The provided services at the highest technical level to the injection works in these tunnels has been undertaken local and international public and private enterprises. as well and will be executed in compliance with the progress of the tunnel construction. Ayson’s fields of activity include all types of bored and pre-cast concrete piles, prefabricated vertical In Bulgaria, Ayson executes the diaphragm wall drains (wick drains), sand drains, jet grout columns, construction, prestressed anchor construction, stone columns, impervious walls, retaining walls, bored pile construction and other relevant pre-stressed anchoring with steel strands, sheet geotechnical works of the 4 metro stations of Sofia piling, bolting, soil nails, grouting works, shotcreting, Metro Extension Project LOT 1 Section with the exploratory drilling, water wells drilling, drainage length of 3,8 km and will execute the geotechnical wells, foundation explorations, soil improvement investigation works in the Metro route. works, deep excavation supporting systems, ventilation shafts, and excavation work, including In Ukraine, Ayson serves as a geotechnical preliminary studies of all these operations and supervisor for the geotechnical works of Kiev evaluation through in-situ tests. Boryspil State International Airport Project which comprises 25,000 m bored pile construction, 12,600 Ayson also offers a wide range of services in marine m driven pile construction, static axial compressive structures, jetties, dolphins, ferry terminal ramps and and lateral load tests, high-strain integrity tests and breakwaters. Recently, the company added ‘Viaduct dynamic tests. Construction’, ‘Steel Superstructure Construction’ and ‘Tunnel Construction’ to its field of activities. Ayson has established an integrated management Ayson has successfully completed more than 41,700 system comprising Quality, Occupational Health and tons of grouting, 1,100,000 m of bored piles and Safety and Environmental Management Systems in 480,000 meters of anchoring works in the projects 2009 and achieved certificates from LRQA (Llyod’s undertaken so far. Register). Management systems are established on the basis of ISO 9001:2008, ISO 14001:2004 Ayson has currently undertaken four projects in and OHSAS 18001:2007 standards. Managed by Turkey and overseas: within the scope of the the highly qualified technical staff with 35 years of Boyabat Dam and HEPP, which is being constructed experience, and its “do it once, do it perfect” motto, as a concrete dam on the Kızılırmak river by Doğuş Ayson has attracted high praise from local and Construction, Ayson has executed downstream foreign employers and consultants for the quality of cofferdam injection works in total of 850 m3 with the works it performs in its entire field of activities.
total drilling length of 10,500 m. Currently, Ayson is CONSTRUCTION
DOĞUŞ GROUP ANNUAL REPORT 2008 55 FINANCIAL SERVICES
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Doğuş Media Group started its operations in 1999, prior to the acquisition of NTV. Since 1999, the Group has made significant progress and has created/acquired new brands. In addition, the Group is working with global brands and organizations; such as, MSNBC, CNBC, Condé Nast, NBA, Billboard, Virgin, National Geographic etc. Today, Doğuş Media Group has become synonymous with prestigious publications and high quality broadcasting.
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A’DAN Z’YE BENTLEY 58 MEDIA Financial Highlights* DOĞUŞ GROUP * Figuresarebased onstandalonefinancialstatements ofthesegment. EBITDA margin of -20.8%. EBITDA was YTL -40millionwithan margin 22.2%.In2008, the Group’s consolidated net assets andagross profit in 2008,attaining YTL 450millionin a satisfactory financialperformance Doğuş MediaGroup presented EBITDA Margin EBITDA Gross ProfitMargin Cost Revenues Segment Assets (YTL thousand) Media GroupMarketShares(%) 2007
TV Channels 10 ANNUAL REPORT 2008 082007 2008 10
Radio Stations 5 082007 2008 6.8 (103,925) 186,461 180,286 20,005 10.7% 44.3% 2007
Periodicals 4.8 082007 2008 6.2 (150,988) (40,336) 194,051 450,382 -20.8% 22.2%
15 2008 Internet 2008 17 Doğuş Media Group
Doğuş Media Group’s professional and quality- Technological infrastructure focused business approach fosters the public’s trust The uplink system that enables satellite distribution in its brands and creates a sense of belonging for of Doğuş Media Group’s TV channels and radio consumers, thereby giving rise to an expectation of stations consists of 8 live-broadcasting vehicles, continuous progress and distinction. of which 4 are in İstanbul, 3 in Ankara, and 1 in Diyarbakır; a total of 216 NTV transmitters, of which Close bonds have been developed between 2 are in the Turkish Republic of Northern Cyprus; Doğuş Media Group (“The Media Group”) and its 51 CNBC-e transmitters, 93 Kral TV transmitters, 50 consumers and this has also had an impact upon NTV Radio transmitters, 41 Kral FM transmitters, 36 advertisers, leading them to prefer the Media Group Virgin Radio transmitters and 1 transmitter for each brands for promotion. Radio N101, Radio Eksen and Billboard Radio.
Doğuş Media Group is always one step ahead in Doğuş Media Group closely follows all of the its advertising practices. Accordingly, the Media technological advancements in broadcasting Group generates “custom-tailored” solutions for its and makes all its infrastructural investments in a customers who wish to be associated with the Media manner to achieve compatibility with DVB-T and HD Group’s brand equity and to differentiate themselves. broadcasts. Advertisers are offered a bunch of media and a high level of efficiency. Awards Doğuş Media Group has been honored with a total Financial and operational performance in 2008 of 525 awards (between the years 2001-2008) for Doğuş Media Group expanded its portfolio in 2008 its broadcasts and social responsibility campaigns. with the addition of 6 new brands: NTV Spor (Sports In 2008 alone, 68 awards were earned in different TV channel), Kral TV (Music TV channel), Kral FM, areas, given by various ministries, organizations, Billboard Radio, Virgin Radio and Robb Report associations and foundations, professional chambers, universities, and high schools. Magazine. Targets and Strategies for 2009 Although the total advertising market decreased by Doğuş Media Group will continue to pursue its 3% due to the global economic crisis, Doğuş Media expansion strategy during 2009. Since the beginning Group performed better than the market and kept its of 2009, Doğuş Media Group has already made market share around 5.5% - at the same level as the some investments and this includes the launch of previous year. 2 original magazines, whose content has been, and will continue to be, prepared by the Group and Doğuş Media Group’s TV channels maintained its academics: NTV Tarih (history and documentary), market share around 10%, although TV industry NTV Bilim (science and technology). decreased by 4% in 2008. Another big step for periodicals was the license In terms of radio stations, the Media Group has agreement signed with Condé Nast Magazine Group, raised its market share from 5.23% to 6.83% well known with its prestigious periodicals like Vogue, and reached 33% growth on a turnover basis, Glamour, and GQ. Doğuş Media Group has taken far surpassing the Turkish radio industry, which the license rights of Condé Nast’s magazine titles for remained unchanged in 2008. Turkey and plans to release Vogue, first of all, in 2010.
Moreover, contrary to the Turkish magazine industry, Doğuş Media Group owns the biggest radio group Doğuş Media Group’s periodical revenues in Turkey. The Group strengthens its position in increased tremendously, by 40%, and the Media the radio industry and continues to invest. In the Group’s market share increased from 4.8% to beginning of 2009, the Group launched Radio 6.16%. Voyage, which can be defined as an “ambient radio”.
The internet advertising market grew 9% in 2008 and The Group, following the technological developments Doğuş Media Group has increased its market share and adapting its vision and products accordingly, from 15% to 17%. re-launched ntvmsnbc.com with an upgraded infrastructure and interface based on Web 2.0 technology. MEDIA
DOĞUŞ GROUP ANNUAL REPORT 2008 59 Doğuş Media Group - Brands
CNBC-e has two different programming formats and took its day-time format from CNBC, the US and content from Doğuş Media Group. In the NTV daytime, CNBC-e targets business professionals and In 1996, NTV started broadcasting as the first 24- individual investors, providing real-time access to hour news channel in Turkey. In January economic and market data. 1999, NTV became a member of Doğuş Media Group. The success of NTV changed the Turkish During the evening line-up, CNBC-e turns into an media industry and started the era of thematic entertainment channel, offering award-winning films, TV channels. NTV primarily broadcasts national popular series, dramas and important organizations and global news as well as quality documentaries in their original language with Turkish subtitles. and programs on economy, culture and the arts, CNBC-e cooperates with the giants of the industry, lifestyles, and sports. such as; HBO, WB, MGM, Paramount, Buena Vista, Sony Columbia and Fox etc. NTV aims to bring correct and accurate news and analysis to its audience in an uninterrupted Surveys show CNBC-e viewers to be well educated, and unbiased manner. The quality of content and questioning and selective city-dwellers who care impartial editorial approach turned NTV into a about creativity and are seeking to raise their living prestigious brand and made NTV synonymous standards. with “reliable news”. NTV’s broadcasts, on health, education, and the environment, along with other special projects, are concrete examples of NTV’s social responsibility approach. NTV Spor In addition to the head office in İstanbul, NTV follows Launched in March 2008, NTV Spor is a dedicated up the latest developments in Turkey with offices in TV channel producing sports-related programming other cities like Ankara, İzmir and Diyarbakır, with 24 hours a day. NTV Spor is fostered by NTV’s reporters all around the country and news agencies. expertise in news and sports broadcasting. NTV For international news, NTV relies on several Spor can be regarded as a sports platform where sources: its office in Brussels, reporters in major sports fans can catch up on everything about sports cities around the world like Washington DC., Paris, for 24/7. Strasbourg, Berlin, Athens, Lefkosia, Baghdad and Tehran, also its worldwide news corporations like From the first day, NTV Spor aimed to provide Reuters, ENEX, APTN, and BBC. up-to-date and impartial sports news combined with rich content and a dynamic programming format. Most programming on NTV Spor is composed of live or tape-delayed sporting events, national and global sports news, sports-related documentaries CNBC-e and TV shows with special guest appearances. Big CNBC-e is the world’s one of the best hybrid organizations from various sports branches, such as examples, successfully combining finance and La Liga, Serie A, Argentina League, NBA, NASCAR, entertainment contents under the same brand and The Golden League and IAAF Grand Prix, are Turkey’s the only finance-business TV channel. broadcasted live. It was established on October 16, 2000, as a result of co-operation of the world’s leading business NTV Spor gained success in share rates and ranked channel CNBC and the Group’s entertainment #2 within all thematic TV channels, only 6 months channel, Kanal e. after its launch. MEDIA
60 DOĞUŞ GROUP ANNUAL REPORT 2008 e2 NBA TV Doğuş Media Group’s one of the big steps in TV The Media Group launched NBA TV in Turkey on industry is e2, which was established in December August 1, 2004. NBA TV airs “live” basketball games, 2006. As a TV network, e2 offers new entertainment news from the NBA, special features and interviews. options to viewers in the form of a wide array of Broadcasting at least 1 live basketball game every popular talk shows, sit-coms, and series. day with Turkish narration and commentary, NBA TV offers fans the opportunity to watch the greatest In addition to its extraordinary programming content, stars of the world of basketball. with its loyal, high involved and selective audience, e2 differentiates itself as a “niche” entertainment TV network, bringing uncommon TV characters and celebrities to the white screen. Kral TV In its programming, e2 consists of 3 slots; “at dawn”, Kral TV was launched in August 1994 and became “at dusk” and “at midnight”: a member of Doğuş Media Group in June 2008. Kral • At dawn, popular daily shows, like Rachel Ray and TV broadcasts Turkish music videos 24/7 and are Ellen are broadcasted dubbed. guided by on-air hosts. As the first music channel in • At dusk is the prime-time slot, where most popular Turkey, Kral TV turned into a music platform where and award-winning dramas and series are on air; both artists and fans found a central location for such as, Mad Men, Dexter. music news and promotion. • At midnight, e2 welcomes an audience that desires to see entertainment shows, such as The Daily Show The content is highly relevant to the region and the with Jon Stewart and poker shows. music tastes of Turkish people, which in turn enabled Kral TV to attract a wide range of audiences. The TV “share rates” indicate that Kral TV is the most preferred music TV channel in Turkey.
Internet ntvmsnbc “Turkey’s News Portal”, ntvmsnbc, started out ntvmsnbc was re-launched in February 2009 with on May 15, 2000; by forming a partnership with a new system, based on WEB 2.0 technologies. the world’s most visited news portal MSNBC’s Thereby, the website will gain a modern interface, technological ability and NTV’s news experience and infrastructure with full of user friendly multimedia network fosters and enhances “ntvmsnbc”. elements. The new system will enable users to personalize the portal according to their needs and ntvmsnbc news portal offers information on a interests. wide range of subjects. Its content is prepared by its own staff editors in an impartial and unbiased manner. Users can get access to the news of the latest developments, real time data on market and exclusive topics. MEDIA
DOĞUŞ GROUP ANNUAL REPORT 2008 61 Radio Stations
NTV Radio Virgin Radio Launched in 2000, NTV Radio covers a wide range The energetic and entertaining Virgin Radio is of news and developments about the economy, one of the most prestigious members of the Virgin sports, films and concerts. It brings Turkish language Group, founded by Sir Richard Branson. Virgin Radio programs to listeners of the BBC’s Voice of delivers the most popular hits around the world to America’s and Deutsche Welle’s Turkish broadcasts, its listeners. In addition, it foresees the upcoming as well as the BBC World Service’s news in English, hits and trends and delivers “the upcoming hits”. and airs Jazz & Classical music at nights. In terms Virgin Radio, broadcasting in 18 cities, plays the of “reach” and “duration share” scores, NTV Radio is best of urban, pop, rock, R&B and hip-hop in its ranked #1 within news radio stations. “uninterrupted music zones”.
Kral FM Radyo N101 Kral FM is Turkey’s the most listened radio station, Radio N101 radio station is located in İstanbul at in terms of both “reach” and “duration share” scores. frequency 101 FM. The radio was established in 1992 and joined the Group in 2008. Radio N101 has been broadcasting since 2004 and was re-launched in February 2009. N 101’s music In addition to its popular DJ performances, Kral genre can be summarized as Popular Turkish Music. FM airs Turkish music (tavern, arabesque, Turkish It mainly plays today’s biggest hits and combines folk and classical music), and it has become a it with unforgettable tunes of the recent past, news trendsetter in the Turkish music industry. from the Turkish music industry and current events- all delivered by experienced DJ’s, as well.
The drive-time show in the morning is performed by Turkey’s one of the most popular DJ: Cem Ceminay. MEDIA
62 DOĞUŞ GROUP ANNUAL REPORT 2008 Radyo Eksen Radio Voyage Launched in 2000, Radyo Eksen presents a wide In January 2009, Radio Voyage will start array of musical composition ranging from modern broadcasting as Turkey’s first Ambient and New Age rock and country to indie and heavy metal and is radio station. Turkey’s one and only modern music station. The station mostly broadcasts modern, unusual, Radio Eksen is also well-known with its productions even experimental versions of classical music and sponsorships, including the following: Radyo compositions and new age songs built on ethnic Eksen productions; Devotchka, Gutter Twins, backgrounds. The playlist will consist of songs Helldorado. Between the years of 2008-2009, the that can be listened to at any time of the day and following concerts were sponsored by Radyo Eksen: composed of genres such as Ambient, New Age, Judas Priest, Moby, Paul Weller, Mark Knopfler, Avant Classical, Pop Classic, Gregorian Pop, Down Metallica etc. In addition, festivals were sponsored, Tempo, World Music, Ethnic Jazz and Soundtracks. to include the İstanbul Jazz Festival, H2000 and With this kind of variety, “Voyage” leads listeners Independent Film Festivals in İstanbul. discover new sounds.
“Radyo Eksen” became a love brand and a phrase, with which people associated themselves and expressed their lifestyles.
Billboard Radio Billboard Radio is a new business model for Billboard brand, which is the most recognized and prestigious music list in the world, and was launched in March 2008, immediately after Billboard Magazine’s success in Turkey. Based on the selections from the Billboard charts as a reference, the radio station plays the songs that have made it to the top of the charts, mainly from 70s, 80s and 90s. Billboard Radio’s music content can be summarized as Goldies. MEDIA
DOĞUŞ GROUP ANNUAL REPORT 2008 63 Periodicals
National Geographic Robb Report With a history dating back to 1888, more than 10 Robb Report joined Doğuş Media Group in 2008, as million subscribers and over 50 million readers Turkey’s first magazine focused on luxury market. Its worldwide, National Geographic is not only a mission is to become an exclusive guide for high net magazine, but one of the most prestigious brands in worth individuals who are passionate for celebrating the world. life.
The magazine’s Turkish edition debuted in 2001 From yachts and automobiles to jewelry, priceless and each month, its readers are presented with a watches, fashion, and premiere vacation spots, fresh-new array of fascinating features and original Robb Report readers have all the elements of a articles on geography, science, exploration, history, luxurious life. The magazine covers both the latest and more. products and the original styles of world-renowned, sophisticated luxury brands.
National Geographic Kids Published since 1975, National Geographic Kids was Motor Boat & Yachting launched in Turkey by Doğuş Media Group in 2004. Starting in December 2007, Europe’s bestselling The magazine’s aim is twofold: to entertain and, yachting magazine, Motor Boat & Yachting was simultaneously, equip children with knowledge via its published in Turkey, under Doğuş Media Group. high quality visuals and content. Also receiving content support from the Yachting World, the world’s first sailing magazine, Motor Boat &Yachting brings detailed information and tips on CNBC-e Business boats and the life on the sea, tests and interviews to This magazine first hit newsstands in 2006. The sea aficionados every month. periodical covers the business world, the global and Turkish economy and investment trends. It contains lifestyle news for business professionals and exclusive interviews with the leading figures in the NTV Tarih business world and politics. NTV Tarih debuted in January 2009 as a popular history magazine. This monthly, original content magazine consist of academic researches, which are written in a language so that everyone can Billboard understand. Published in the USA for more than 110 years, Doğuş Media Group launched the Billboard The magazine analyzes history and the events magazine Turkish edition in 2006, and only after 6 according to the time and circumstances in which months, it was “the best selling music magazine” in they occured and looks at them from a perspective Turkey. of social life, human relations and habits. The magazine also helps the readers to understand and Billboard focuses on news and charts from the music gain a fresh, scientific opinion for current events. industry and includes the latest news from all genres of music, exclusive interviews with artists. NTV History aims to inform the public, improve historical consciousness and preserve the cultural and geographic history, for both national and international topics. MEDIA
64 DOĞUŞ GROUP ANNUAL REPORT 2008 The magazine’s content is prepared by academics, scientists and researchers. With its visual richness and fluent wording, NTV Science aims to carry NTV Bilim science to wider audiences and change its image Doğuş Media Group’s new magazine “NTV Science” from a mysterious thing that only a handful of people hit stands in March 2009. All of the following events can understand. meet up with the reader in this new magazine; new developments in science and technology, inventions “NTV Genç Bilim” which is a supplement of NTV that affect the future of mankind, small but drastic Science, aims to reach children between the ages designs that we use everyday, the secrets of the of 11-14, in order to help them in their studies and to universe and the billion year adventure of the show them how much fun science can be. universe.
NTV Publications
NTV started publishing books in March 2007. NTV Publications offers perspective while acting as a reference on subjects such as history, science, arts, photography, politics and nature. Expanding its product line every month, NTV Publications became an important and prestigious brand in the public eye in less than a year. MEDIA
DOĞUŞ GROUP ANNUAL REPORT 2008 65 FINANCIAL SERVICES Tourism
The Doğuş Tourism Group consist Doğuş Group also operates with of 8 facilities, including 4 five-star 2 marinas, D-Marin Turgutreis and hotels, 1 four-star hotel, 2 five-star D-Marin Didim in the tourism sector holiday villages, as well as and another marina project in the Arena Giyim clothing company. Dalaman is also in the pipeline. Financial Highlights*
(YTL thousand) 2007 2008 Segment Assets 957,105 1,303,369 Revenues 122,819 157,124 Cost (64,253) (96,902) Gross Profit Margin 47.7% 38.3% EBITDA 6,111 14,456 EBITDA Margin 5.0% 9.2%
In 2008, Doğuş Tourism Group recorded net sales of YTL 157 million, indicating a rise of 28% over the previous year with a gross profit margin of 38%. The Group recorded YTL 14,5 million in EBITDA, leading to an EBITDA margin of 9%.
Segment Assets Revenues (YTL Million) (YTL Million) 157 1,303 123 121 957 830
2006 2007 2008 2006 2007 2008
TOURISM * Figures are based on standalone financial statements of the segment.
68 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Tourism Group
Doğuş Tourism Group (“The Tourism Group”) was New initiatives established in 1976. Since its inception, Doğuş Strictly adhering to its growth-oriented philosophy, Tourism Group has distinguished itself with a service- Doğuş Tourism Group has maintained its continuing oriented approach and continues to stand out as renovations of existing tourist establishments and its a business focused on quality while maximizing development-focused investments within the scope customer comfort and providing complete satisfaction. of 2008 targets.
Doğuş Tourism Group consists of 8 facilities, Following its strategic development plans and in including 4 five-star hotels, 1 four-star hotel and addition to its Didim and Dalaman Marina projects, 2 five-star holiday villages as well as the Arena Giyim Doğuş Group continues its initiatives in the tourism clothing company. The Arena Giyim company is the sector. These initiatives include the Park Hyatt creator of the In-formal brand name, and which also Istanbul Maçka Palas Project, which is converting has contracts with world renowned luxury brands one of the historic landmarks in İstanbul into a 90- such as Emporio Armani, Gucci and Loro Piana. room boutique hotel.
Doğuş Tourism Group’s hotel facilities include the Highlights from 2008 Park Hyatt Istanbul Maçka Palas, Hyatt Regency The second phase of the MARITIM Hotel Club Istanbul, MARITIM Hotel Club Alantur - Alanya, Alantur renovation has been completed and the MARITIM Hotel Grand Azur - Marmaris, Sheraton Hotel will present an array of new facilities to Voyager Antalya Hotel Resort & Spa, Paradise Side its guests. A Hotel Rating agency, TopHotels.ru, Beach Hotel and Aldiana Side. provides an informative rating of hotels which is based on the opinions of the specialists of tourist The Group secures its high levels of international business and the opinions of the tourists. service quality through global cooperation with TopHotels.ru has rated the MARITIM Hotel Club Emporio Armani, Gucci and Loro Piana in the fashion Alantur as 23rd of the TOP-100 Best Hotels of the industry, and with Hyatt International (Europe Africa World and the 10th of the TOP-10 of the Best Hotels and Middle East) LLC, Starwood Hotels & Resorts, by Country. MARITIM Hotel Club Alantur has also Worldwide Inc, HMS International Hotel GmbH been awarded with the HolidayCheck-Award 2008, (MARITIM) and Aldiana GmbH, in the tourism sector. which placed the Hotel among the 99 most popular hotels worldwide. 2008: A year of success Turkey’s tourism sector has undergone an In addition, the renovation of the Sheraton Voyager accelerated rate of growth in the past 3 decades and Hotel Resort & Spa continues. The world’s leading ranks among the 10 leading, most popular tourism online travel provider, Expedia, awarded the destinations in the world. Sheraton Voyager Hotel Resort & Spa as “Top Producer for Room Nights in 2008”. Furthermore, The current world recession negatively affected the Thomas Cook awarded the hotel with Travelife Silver tourism sector especially in the second half of 2008. Award - For Sustainable & Environmentally Aware Despite the general slowdown, a few destinations Hotels. around the world, including Turkey, showed positive results in 2008. Turkey received more than 26 million In line with the concept of providing a high standard international tourist arrivals, which represented a of service, Doğuş Tourism Group has also continued growth of approximately 13%. Tourism receipts to renovate the MARITIM Hotel Grand Azur. reached USD 21,9 billion, marking an increase of 19% with respect to the 2007. However, “tourism Paradise Side Beach Hotel has won Primo 2008 spending per person” rose by 4.3% compared to the award, ranking the hotel among the top 10 hotels previous year, to USD 708. İstanbul had one of the of Neckerman’s 5000 hotels worldwide. The fastest “revPAR” growth rates in Europe, up 23.5% to Internet platform for independent reviews and USD 159. unbiased opinions concerning travel and vacation, HolidayCheck, awarded the hotel with Gastronomy TOURISM
DOĞUŞ GROUP ANNUAL REPORT 2008 69 Award placing Paradise Side Beach Hotel as As a sign of quality in the area of Marinas, the the best 5 of all checked hotels in the category D-Marin received the “The Best Marina in Turkey” Gastronomy. award by SKAL in 2007.
The expert for club holidays, www.cluburlaub. The outlook de, undertakes a customer survey every year and In line with Doğuş Group’s strategies, Doğuş Tourism ranked Aldiana Side as the 5th Best Club Worldwide Group sets its future strategy to become a regional on cluburlaub.de. leader and to expand even further. Doğuş Tourism Group will continue to reflect its growth-oriented Each year, Travel+Leisure, the famous US travel investment philosophy to its financial results and magazine that reaches 1,5 million people, conducts operations in coming years as well. a survey among its readers of the best cities and hotels in the world. In 2007, this survey, which is considered the most up-to-date guide for today’s trendy travellers, ranked Hyatt Regency Istanbul among “The Best 500 Hotels in the World”.
Meanwhile in November 2008, Doğuş Tourism Group opened its 7th hotel property, Park Hyatt Istanbul Maçka Palas as a boutique luxury hotel. Located in the chic Nişantaşı residential and shopping district, Park Hyatt Istanbul Maçka Palas is housed in a restored art deco palace, originally built in 1922. In 2009, Park Hyatt Istanbul Maçka Palas was ranked number four among the top 45 new hotels in the world by the Travel and Leisure Magazine. TOURISM
70 DOĞUŞ GROUP ANNUAL REPORT 2008 Paradise Side Beach Hotel is also located on the shore next to the Aldiana Side. The holiday village, with large self contained apartments, has an 805- Antur Turizm A.Ş. bed capacity, with 60% of the apartments enjoying Antur Turizm A.Ş. (Antur), a member of IATA, ASTA a sea view. All apartments have a balcony and IFTAA and TURSAB, was established in 1966. are equipped with full bathrooms, heating and air Antur serves its customers by providing incoming conditioning, a TV, refrigerator, computer ports, and outgoing ticket sales, hotel reservations, tour/ a safe deposit box and a telephone. The holiday conference organizations and car/aircraft rental village also boasts sporting activities, a 150 person services. The Ministry of Tourism recognized the capacity meeting room, 2 restaurants, a health achievements of the company since Antur’s tourism center and a gym. activities brought over USD 1 million of foreign currency into the country.
Antur owns a 4-star hotel on the Mediterranean Garanti Turizm Yatırım ve İşletme A.Ş. coast in Alanya, located 140 km east of Antalya. Garanti Turizm Yatırım ve İşletme A.Ş. (Garanti Turizm) was established in 1988. It invested in a Only 5 km from Alanya’s city centre the Maritim 5-star luxury hotel, the Maritim Hotel Grand Azur, Hotel Club Alantur welcomes its guests with 350 which is situated in Marmaris some 100 km from rooms and suites, including several brand new, Dalaman airport. The Hotel has 288 bedrooms recently built rooms. Situated directly at the beach and a 610-bed capacity, with 93% of the bedrooms of the Turkish Riviera, the hotel maintains its 60,000 commanding a view of the Aegean Sea. The sq.m. garden and pool area and offers various Hotel also boasts a conference room, which can opportunities for sport activities, relaxation or accommodate 350 people and 2 seminar rooms, entertainment. which can each seat 40 people.
Voyager Mediterranean Turizm Datmar Turizm A.Ş. Endüstrisi ve Ticaret A.Ş. Datmar Turizm A.Ş. owns 2 five-star holiday villages, Voyager Mediterranean Turizm Endüstrisi ve Ticaret namely Aldiana Side and the Paradise Side Beach A.Ş. owns the Sheraton Voyager Antalya Hotel, Hotel in Side, both managed by Aldiana GmbH Resort & Spa, which is managed by Starwood Hotels (Groupo Santana Carzorla and Thomas Cook AG & Resorts Worldwide Inc. partnership). Both properties are located in Side, 70 km from the airport and 80 km from Antalya. The Sheraton Voyager Antalya Hotel, Resort & Spa is a luxury 5-star resort hotel with 395 Aldiana Side, with its 600-bed capacity, is built in bedrooms and an 814-bed capacity. The impressive the style of an Ottoman caravanserai and features a architectural style of the hotel attracts many visitors. mini golf course and a rock-climbing wall. In addition, Approximately 85% of the rooms enjoy a view of the Aldiana Side offers its guests an array of facilities Mediterranean Sea. The Hotel boasts every comfort including an outdoor swimming pool, 12 tennis imaginable as well as a wide variety of sports courts, basketball, soccer, volleyball, windsurfing, facilities. In addition, the Hotel offers seminar and sailing, two indoor and outdoor restaurants, a snack conference rooms, which accommodate from 20 to bar, discotheque, day-care center, sauna, health 700 people. The Hotel also offers a Spa facility. center and a gym. TOURISM
DOĞUŞ GROUP ANNUAL REPORT 2008 71 fashion conscious clientele with exclusive service standards, in a very unique surrounding.
Göktrans Turizm ve Ticaret A.Ş. In 2007, the new Emporio Armani, Armani Jeans and Gucci boutiques and Emporio Armani Caffe Göktrans Turizm ve Ticaret A.Ş. owns the 5-star were opened at İstinye Park, one of İstanbul’s most Hyatt Regency Istanbul which is located in Taksim, famous new shopping malls. As well as these new at the heart of İstanbul, and is managed by Hyatt boutiques, Arena also secured the franchise of Loro International (Europe Africa and Middle East) LLC. Piana in the same year, a very famous cashmere brand. The first Loro Piana boutique was opened in The 360 bedroom hotel offers a myriad of special the fashionable Nişantaşı district of İstanbul. amenities. The Hyatt Regency Istanbul offers 18 junior suites, one presidential suite and 11 The company is actively seeking prestigious labels Penthouse Apartments among its accommodations. to add to its portfolio. The Hotel also has a ballroom, which can accommodate 300 people with dining set-up and 5 The historical Maçka Palas building, which is owned meeting rooms. The Hotel also houses the Spazio by Arena Giyim, has been converted into a 90- and Agora restaurants which serve fine Italian cuisine room boutique hotel under the “Park Hyatt Istanbul and exotic Turkish specialties. A full renovation Maçka Palas Hotel” brand name. Ideally located in project, which started in 2002 for guestrooms and the fashionable Nişantaşı residential and shopping banquet facilities, was completed in 2004. district, the hotel uniquely combines the historic architecture of an Art Deco building with innovative Renovated in 2007, the Gaia Fitness Centre & Spa interior design. Housing the existing Emporio Armani supports the personal development of its guests by and Gucci boutiques, the hotel is also within walking providing a place and an experience, centered on distance to many other upscale designer fashion the promotion of the individual. The Gaia creates houses, as well as ultra-trendy bars and restaurants. a space in which guests are invited to explore and There are 90 generously sized deluxe rooms with blend, slip into a tranquil state of relaxation and an average size of 59 sq.m., including 7 Park consider their conscious awareness, spiritual growth Suites, 1 Executive Suite, 1 Diplomatic Suite and a and physical health. Presidential Suite. The residential top-floor suites offer a private terrace and large rain sky showers. Each guestroom is equipped with high-speed broadband Internet access, a digital telephone with Arena Giyim Sanayi Turizm ve voice mail messaging, a flat-screen television, a Ticaret A.Ş. DVD player and JBL i-Pod stations. Each guestroom Incorporated in 1997, Arena Giyim Head Offices features an oversized wet room clad in local are based in İstanbul, Turkey. The company has fossilised limestone offering 5 different bathing initially secured the franchise of Emporio Armani experiences and 25 of them include an authentic and Gucci. The first boutiques were opened in Turkish bath, complete with heated stone seat. İstanbul, located in one of İstanbul’s most prestigious locations, the historical Maçka Palas Building. In Arena Giyim is the proprietor of the famous Reina 2003, the company has secured long-term leases Nightclub, which is operated by a third party and of two premises from Turgutreis D-Marin Shopping located in a stunning location on the Bosphorus. Complex to open Emporio Armani boutique and Emporio Armani Cafe.
Also in the same year, Arena initiated a multi-brand fashion retail project under the ‘In-formal’ name. Do-Ça Tekstil Temizleme A.Ş. The first store was opened in the Turgutreis D-Marin Do-Ça Tekstil Temizleme (Do-Ça) was established in Shopping Complex, while the second is situated in 1999. Do-Ça currently operates in the Hyatt Regency the historical Maçka Palas Building. The boutique’s İstanbul, and provides laundry dry cleaning services to hotel guests and other customers.
TOURISM philosophy is to present prestigious labels to its
72 DOĞUŞ GROUP ANNUAL REPORT 2008 Marinas
The Marina offers a shopping and entertaining centre including brand-named stores, restaurants, cafeterias and bars and these options provide a Doğuş Turgutreis Marina İşletmeciliği major improvement to Didim’s tourism, economy and Turizm ve Ticaret A.Ş. social life. The D-Marin Turgutreis Marina is currently operating at 100% capacity and maintains a berthing capacity In addition to first quality service and comfort, of 550 yachts in the water and 150 yachts in dry D-Marin Didim offers a private beach, fitness center, berth, for yacht lengths between 8 m and 50 m. tennis court and a swimming pool. D-Marin Didim From the start, the Marina has provided a range of will continue to provide the best berth place capacity, technical, social and administrative services with the largest dry storage area, an ideal geographical high quality standards to yachts and their owners. location, a modernized marina infrastructure, well The marina has the Blue Flag, 5 Golden Anchor trained and customer oriented Marina employees. flag from THYA (The Yacht Harbour Association) With these attributes, D-Marin Didim is aiming to on its flag post. The Marina also has been awarded be the best marina of choice in the Aegean and with Skalite prize by SKAL Club as the Best Marina Mediterranean parts of Turkey, in the short run. Investment & the Best Marina Operation for the The Marina’s longer term target involves becoming significant contribution to the tourism industry of the “Number One” in the Mediterranean coasts. country. Other Marinas The other BOT Marina at Dalaman Marina project will start after the official procedures are finished.
Doğuş Didim Marina İşletmeciliği Turizm ve Ticaret A.Ş. In terms of the total area, D Marin Didim is the largest marina in Turkey. It has a berthing capacity of 580 yachts in the water and 600 in dry berth, for yacht with lengths between 8 metres and 50 metres. With the largest dry storage area, at 70,000 m2, the Marina has 2 travel lifts of 400 tons and 75 tons, respectively, a 40 tons-capacity trailer and a hangar of 30 m x 60 m. There are 36 well equipped technical shops in the dry storage area and this provides all varieties of maintenance services throughout the year to D-Marin Didim’s customers. TOURISM
DOĞUŞ GROUP ANNUAL REPORT 2008 73 FINANCIAL SERVICES Real Estate
Supported by the synergy of Founded in 2006, Doğuş Real Estate shareholder structure, Doğuş-GE REIT’s Investment and Management Company ambition is to be one of Turkey’s is the newest, youngest and most leading Investment and Development dynamic establishment within Doğuş companies. This synergy will be created Group. Wholly owned by Doğuş Group, by the combination of GE Real Estate’s Doğuş Real Estate aims to be one of global experience and capital the key players in the sector, without with Doğuş Group’s experience in compromising on reliability, honesty and finance, construction and real estate. high-quality service understanding. 76 REAL ESTATE * Figuresarebased onstandalonefinancialstatements ofDoğuşGEREIT. Portfolio Breakdown2008(%) Doğuş-GE REIT’sFinancialHighlights* DOĞUŞ GROUP EBITDA Margin EBITDA Gross ProfitMargin Cost Revenues Segment Assets Company has3.7%share in the market. capitalization of YTL 43,18million, the from previous year’s level. Enjoying amarket YTL 202millionat year-end 2008,up21% Doğuş-GE REIT’snet asset value rose to (YTL thousand) Doğuş Power Center 79.8% ANNUAL REPORT 2008 Cash& Equivalents 0.7% Antalya 2000Plaza3.6% Etiler Property 3.9% Levent Property 2.1% (28,916) 166,663 42,171 17,282 40.0% 31.4% 2007 Taksim Property 9.9% 466.17% 40,636 201,851 (1,880) 78.4% 2008 8,717 Doğuş-GE REIT
History Focal point of Doğuş-GE REIT’s investment Beginning in 1997, Real Estate Investment Trust strategy: Original and affordable residential units (REIT) companies began to operate in our country Doğuş-GE REIT’s strategic target is to invest in for the first time, mainly due to regulations prepared architecturally original, and financially reasonable, by the Capital Markets Board. Starting in 1997, they housing development projects with a certain became publicly listed in the Stock Exchange. conceptual approach, appealing to middle and upper-middle income groups in metropolitan areas On July 25th 1997, our Company started to operate such as İstanbul, and in commercial real estate and as the third REIT in the stock exchange with the title development projects, with regular, low risk and high “Osmanlı REIT”. The Company had a “registered” lease returns. capital of YTL 5 trillion and a “paid-in” capital of YTL 250,000 and was listed on the Istanbul Stock Modern quality policies Exchange (ISE) 100 index. The quality of products and services has become more important than ever, due to ever-increasing At the end of 2001, as a result of the merger of competition. Therefore, the ISO (International Osmanlı Bank and Garanti Bank - both belong to Organization for Standardization) has set the ISO- Doğuş Group - 51% of the company’s shares were 9000 quality system standards in order to secure transferred to Garanti Bank, making it a financial product and service quality. Systems, that are subsidiary of Garanti Bank and its name was implemented by companies, will be inspected and changed into Garanti REIT. By the end of 2005, the documented by independent institutions. Company’s “registered” capital and “paid-in” capital reached YTL 500 million and YTL 93,78 million, Under these conditions, the Quality System of respectively. Doğuş-GE REIT was “re-endorsed” with the audit and inspection performed by TUV Sudwest TGK As of December 1, 2006, the shareholding structure in 2004. This continued endorsement once again of Doğuş-GE REIT changed as Garanti Bank certifies that the elements of transparency, reliability sold 50% of its shares to GE Capital Corporation and professionalism elements are maintained in the and 50% to Doğuş Holding A.Ş. Currently, Doğuş management processes of Doğuş-GE REIT and that Holding A.Ş. and GE Capital Corporation each the established management system conforms to hold 25.5% of the shares, while 49% of the shares international standards. are publicly held. Shares are listed on the İstanbul Stock Exchange (ISE) National 100 and ISE-GMYO Headlines from 2008 activities industrial indices, and their ticker symbol in the Doğuş-GE REIT expands its portfolio by basing its national market is “DGGYO”. policy and activities upon investment in profitable and large-scale projects and on the creation of high Vision & Mission value for its shareholders and investors. During Supported by the synergy of the new shareholder 2008, REIT explored investment opportunities in structure, Doğuş-GE REIT’s ambition is to be one residential and commercial real estate market. of Turkey’s leading Investment and Development companies. The combination of GE Real Estate’s REIT sold its shares in GKY Romania Company, global experience and capital with Doğuş Group’s which owns 34.500 m2 of land in Bucharest’s experience in finance, construction and real estate Voluntari region, and gained Euro 4,050,579 in sale will create this synergy. income. The Company announced an office tower project in Maslak İstanbul with a total construction Doğuş-GE REIT’s mission is to increase the value of area of 105,000 sq.m. and a gross leasable area of its investment portfolio through stable growth, thus 65,000 sq.m. maximizing shareholder value by offering higher dividends and market capitalization and to provide The Company’s net asset value rose to YTL 165,4 the highest customer satisfaction in the projects million at year-end 2008, or by 21.44%. Despite the developed. increase in portfolio and net asset value, market REAL ESTATE REAL
DOĞUŞ GROUP ANNUAL REPORT 2008 77 capitalization is down to YTL 43,1 million from YTL Doğuş Power Center offers significant advantages 129,4 million, amid global economic crisis. to the shops it hosts. Most shops are forced to move out of the city when they cannot find With the impact of the revaluation, portfolio assets reasonably priced, large spaces, in urban mall-type profit figures increased to YTL 29,1 million from YTL shopping centers. This creates disadvantages when 19,1 million. attempting to attract the desired customers. Doğuş Power Center offers such shops the opportunity to Highlights from properties portfolio have large spaces in a very central location, such as Doğuş-GE REIT has a large portfolio of properties Maslak. The center has a total indoor area of 58,000 with Doğuş Power Center in Maslak, İstanbul. The m2, 33,000 m2 of which is dedicated to shops. The portfolio also encompasses 3 commercial properties center can accommodate 900 vehicles, with 13,000 in İstanbul, 1 in Levent, 1 in Taksim and the other in m2 of closed and 9,000 m2 of open parking space. Etiler and a shopping mall, Antalya 2000 Plaza, in Doğuş Power Center was completed in November Antalya. 2006 and has been in use since. According to the expertise report prepared by Taksim Gayrimenkul İstanbul / Maslak, Shopping Center Project, Değerleme A.Ş. by the end of 2008, its market value “Doğuş Power Center” is YTL 147,486,000. In the classification of shopping centers, the term “power center” is used for shopping centers that Outlook contain large shops that are “category killers” due to In 2009, Doğuş-GE REIT aims to manage the their size and the variety of the products and brands current portfolio to maintain cash flow, to decrease in the inventory. Such centers are quite common, vacancies and to improve tenant quality. especially in the USA, and offer customers the opportunity to shop comfortably in large spaces, to find a variety of brands for one product, and to ship at reasonable prices. These centers are also easy to access and car parking is readily available. Some contain department stores only, whereas others also contain small shops, with entertainment and food units to support the department stores.
Doğuş Power Center is a pioneer in Turkey since it contains only large spaces and has a unique mixture of shops. This mixture includes diverse units such as automotive showrooms and service areas, food market, music market, home furniture, sports equipment, electronics and food court. Doğuş Power Center is in Maslak, an urban location that is also a main business center, and includes only large shops or ‘Big Boxes’. However, unlike similar centers elsewhere in the world, it has high-quality internal design and furnishing. The most important factor is that the Maslak-Levent area is Turkey’s banking and finance center, and many well-educated, white-collar employees work in the area. The center also offers significant access advantages due to its proximity to the coastal road, TEM and E5 highways, the connecting roads for both bridges, and the new metro (subway) station. REAL ESTATE REAL
78 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Real Estate
Doğuş Real Estate Investment and Management Company was founded in 2006 with an objective of developing and managing real estate projects; primarily on the lands owned by the Doğuş Group. As the newest, youngest and dynamic establishment owned 100% by the Doğuş Group; Doğuş Real Estate aims to be one of the key players in the sector with its strong team and expertise in the areas of architecture, construction, construction management, sales and marketing. The Doğuş Real Estate Company team is closely monitoring the dynamics of the real estate portfolio owned by the Doğuş Group and continuing its work on potential developments that include residential, commercial, hospitality and logistics projects. REAL ESTATE REAL
DOĞUŞ GROUP ANNUAL REPORT 2008 79 Doğuş Real Estate
History Apart from these 2 projects; Doğuş Real Estate Founded in 2006, Doğuş Real Estate Investment and is working on the assets located in the Urban Management Company is the newest, youngest and Transformation Areas in Balçova/İzmir, Riva, most dynamic establishment within Doğuş Group. Bodrum, Yalıkavak, and Kartal, intensively. Mixed Wholly owned by Doğuş Group, Doğuş Real Estate use projects are planned to be developed on these aims to be one of the key players in the sector, assets. without compromising on reliability, honesty and high-quality service understanding. Without compromising on its aim to ensure customer satisfaction, Doğuş Real Estate Investment and Doğuş Real Estate’s mission is to increase its Management Company will continue to reflect all the investments through stable growth in the years values and professionalism of Doğuş Group’s brand to come and to provide the highest customer to its ongoing projects and to its investments in the satisfaction by carrying Doğuş brand and its pipeline. professionalism into real estate projects.
By utilizing Doğuş Group’s large real estate portfolio, Doğuş Real Estate Company closely monitors the dynamics of the real estate industry throughout Turkey and continues its work on developing projects. These projects include residential and commercial buildings as well as hospitals and logistics facilities.
Currently holding 14 assets in its balance sheet, Doğuş Real Estate has been focusing on the development of 2 major projects since the Company’s establishment: a Shopping Center Project in Gebze, with a closed construction area of approximately 150,000 m² ; leasable space of 60,000 m²; and a Residential Project in Kartal, neighbor to the Kartal Urban Transformation Area comprising of 540 apartment units as well as social and commercial units. Both projects have been designed around certain concepts that offer unique architectural details including efficient and affordable spaces for the users. REAL ESTATE REAL
80 DOĞUŞ GROUP ANNUAL REPORT 2008 Ongoing Projects
The Shopping Center Project in Gebze Centrum the newest and most popular settlement area For today’s consumers, it is crucial and very in İstanbul. The development is planned at the convenient to provide all of the shopping needs from intersection point of key roadways, airway, seaway the same center, with the same quality and with the and metro networks that will substantially solve the highest standards. Doğuş Real Estate is excited transportation problem in İstanbul. to be able to meet such demand arising from the requirements of the modern life, with an efficient high Doğuş Real Estate is developing the Kartal Project quality project concept. as the new center of living, for everyone who chooses it. The Company desires it to be a “home”; The Company is proud of bringing in something which may provide not only a higher quality of life new in Gebze, one of the most important industrial but also generate returns by means of investment; regions in Turkey, with a population of over half incorporating all kinds of social and commercial million, very close to İstanbul, and on the way to facilities. The project is being designed to meet all undergoing a total change in almost every field from the needs of the target customers by offering the infrastructure to roads, from public parks to social following features: alternative residential units from and cultural facilities. 1+1 to 3+1; operating costs of which are minimized beforehand; the required infrastructures of which are With the Gebze Shopping Center Project, Doğuş envisaged for the customers future convenience; Real Estate aims to create a totally new excitement and, the most economical operating scheme that can and fulfill the desired requirements within the region, be developed. including both Gebze district and the neighborhood locations of İstanbul and Kocaeli provinces. The The main target of Doğuş Real Estate is to see its Gebze Shopping Center, which will be totally funded customers and their loved ones to lead a happy, by Doğuş Real Estate, has a construction area of safe and privileged life in Kartal. Upon completion 150,000 m². Covering a total of 60,000 m² leasable of the project, built on strong foundations, Kartal space, the project will incorporate a hypermarket, a will become the new center of living, culture and construction market, an electronics market, an ice commerce in İstanbul. skating rink, cinema halls as well as a parking lot and covered car-park for 1,500 vehicles. Targets • To become the most valuable and most credible Doğuş Real Estate, together with all big brands, set company in the sector, its sights on creating diversity to meet all the needs • By concentrating on unconditional customer of investors and local community, through a “shop- satisfaction; mix” to ensure the proper satisfaction of the local • Carrying its corporate identity and different points retail shop owners’ requirements. of views into all the projects • Creating spaces to provide high standards of Projects In The Pipeline living.
Housing and Residential Project in Kartal Principles Doğuş Real Estate, aims to bring people together • Trust, with the Contemporary Houses of Contemporary • Respect, Turkey. Considering that for today’s people “house” • Honesty, means a “Lifestyle”, rather than a “Living Space”, • The continuity and the quality of service the Company believes that the project is well suited • Providing permanent institutional competitive to satisfy all “Standards of Living”, as demanded by advantage, modern families. • Within an organization structure that keeps teamwork at the forefront, From this point of view, Doğuş Real Estate conceptualized the housing and residential project To fulfill its responsibilities against today, and the in Kartal; a district neighbour to the Kartal Urban following generations. Transformation Area, which is planned to be of REAL ESTATE REAL
DOĞUŞ GROUP ANNUAL REPORT 2008 81 FINANCIAL SERVICES Energy
Doğuş Energy has designated new investment projects and privatizations in the generation and distribution of electricity, as well as the operation of these assets and energy trading as its core areas of business.
D-Tes Electricity Whole Sale Co. Doğuş Energy aims to develop and expand through profitable enterprises based on clean energy and its infrastructure, while acting in accordance with current social, economical and geographical developments and maintaining its environmentally friendly focus.
Aslancık Elektrik Üretim ve Ticaret Ltd. Şti. Boyabat Elektrik Üretim ve Ticaret Ltd. Şti. D-Tes Elektrik Enerjisi Toptan Satış A.Ş. ENERGY
84 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Energy
History Ongoing investments Founded in 2005 within Doğuş Holding, the Energy As a renewable and clean energy source, Department maintains the objective of monitoring hydroelectric energy has started to assume greater all development that concerns, and pertains to, the importance in Turkey. Doğuş Group also bases energy sector, both within Turkey and throughout its future strategies on this premise. The Group the region. In addition, the Energy Department will obtained licenses to build and operate the Boyabat formulate and design strategies for the energy, and Hydroelectric Powerplant (513 MW), in which it energy-related, infrastructure investments that are holds a 34% stake, and the Aslancık Hydroelectric planned within Doğuş Group. By means of these Powerplant (120 MW), in which it holds a 25% stake. objectives, Doğuş Energy aims to create profitable, In addition, the Group also acquired a 25% share in and environmentally friendly, business enterprises. the D-TES Electric Power Trading Company.
Since its establishment in 1951, Doğuş Group has Prospects retained an array of competitive advantages that Doğuş Energy aims to develop and expand through are inherent in its structure. Over time, the Group profitable enterprises, based on clean energy and has accumulated considerable experience in energy its infrastructure, while acting in accordance with and mining, and, in particular, in building dams and the current social, economical and geographic constructing various power stations. developments and maintaining its environmentally friendly perspective. The energy sector To maintain the continuity of the economic, Outlook sociological, technological progress and expansion Doğuş Group closely monitors privatization of our country, the energy sector must adapt and initiatives, in various regions of the country, and keep up with this rate of progress. The liberalization monitors the changes expected in the renewable process taking place in the sector has underpinned energy regulations. Doğuş Group will continue to growth, increasing the need for new investments. operate in the areas of energy generation and in To that end, it is estimated that the sector will need the distribution of electricity. as much as USD 130 billion in investment in total, to meet an estimated 7% CAGR in demand until 2020.
Within this scope, Doğuş Energy has designated new investment projects and privatizations in the generation and distribution of electricity, as well as the operation of these assets and energy trading as its core areas of business. ENERGY
DOĞUŞ GROUP ANNUAL REPORT 2008 85 FINANCIAL SERVICES Doğuş Group and Corporate Citizenship
Being well aware of the importance of the triple bottom line approach and the true meaning of “corporate citizenship”, Doğuş Group integrates social and environmental measures in all its business practices and uses an important portion of its economic profits, gained by this approach, for the benefit of society and the environment. Doğuş Group as a Corporate Citizen Under the umbrella of “Doğuş Kids” CSR platform, and in areas other than child development, many Prior to the acknowledgement of the key role Group companies pursue different corporate corporate citizenship plays with regards to responsibility projects in line with their area of work, sustainable development, companies were merely including educational, environmental, societal and assessed by their economic indicators, not only in cultural development projects. There is one common Turkey but also all over the world and profit was the attribute in all of them, and that is sustainability. In main indicator for a “successful” company. In our addition to the work undertaken by Group companies day, all companies are subject to a triple bottom in the area of CSR, the Ayhan Şahenk Foundation, line assessment, with economic success, social established in 1992, has been working for the benefit responsibilities and environmental sensitivity taken of the society in the areas of education, culture, as the new benchmarks regardless of their sector, health, environmental issues and sport and has size and brand value. also offered social aid to those in the disadvantaged areas. Being well aware of the importance of the triple bottom line approach and the true meaning of The Doğuş Group is a participant to the United “corporate citizenship”, Doğuş Group integrates Nations Global Compact social and environmental measures in all its As an indication of its sensitivity towards human business practices and uses an important portion of rights and sustainable development, Doğuş Group its economic profits, gained by this approach, for the became a participant to the United Nations (UN) benefit of society and the environment. Global Compact in April 2007. By signing the Global Compact, Doğuş Group has strengthened its Doğuş Group’s corporate social responsibility strong commitment to its social and environmental approach rests on the belief that without giving responsibilities as a corporate citizen. utmost importance to child education and development, it will never be possible to reverse the In April 2009, Doğuş Group published its first social and environmental deterioration in our country, corporate citizenship report, fulfilling its commitment which would also directly affect the situation in the of sharing its progress with regards to the 10 world. In line with this belief, the Group created the principles of the Global Compact. The soft version of “Doğuş Kids”, as its social responsibility platform, the report is available on the UN Global Compact’s and has been conducting several projects and website. initiatives under this platform, ranging from education to health and environment. DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
88 DOĞUŞ GROUP ANNUAL REPORT 2008 United Nations Global Compact Principles
Human Rights
Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights; and Principle 2: Make sure that they are not complicit in human rights abuses.
Labour Standards
Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: The elimination of all forms of forced and compulsory labour; Principle 5: The effective abolition of child labour; and Principle 6: The elimination of discrimination in respect of employment and occupation.
Environment
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Hlkqo^mrkhq-2+-6+-4 Corporate Social Responsibility
Doğuş Kids (Doğuş Çocuk) II- Parent Education is the key to Child Development Established in December 2004, Doğuş Kids is the Doğuş Group strongly believes that investing in social responsibility platform of Doğuş Group and children is a very important corporate activity and it is based on the perspective that our future will gives equal importance to the education of parents, be largely shaped by today’s children and child whose actions have a profound impact on the development. development of their children.
Contributing to the development of the young, Starting with their own employees, Doğuş Group st through education and entertainment activities and initiated a series of seminars in 2007, entitled “21 projects since its inception, Doğuş Kids aims to Century Life Culture Seminars”. These seminars create a more conscious and responsible society aim to prepare parents for the challenges of child st in the areas of child development, health, safety, development in the 21 century and to enable education, culture and arts, environment and them to better understand the rapid changes taking communication. place in the world. Under the moderation of Dr. Erdal Atabek, Social Psychologist, and with the st With this objective in mind, Doğuş Kids engages participation of different guest speakers, the “21 in partnerships with other institutions including Century Life Culture Seminars” offers a different non-governmental organizations, international subject each month and have been open to all organizations, state and governmental bodies. All of employees of the Group along with their spouses. these other institutions share the Doğuş Kids’ vision Four seminars were realized in the year 2008. of cultivating social change through our children. III- Doğuş Kids Activity Areas Child Development Doğuş Kids has prepared “activity areas” at various airports and stadiums throughout Turkey, creating I- Music is the key to Child Development the opportunity to establish direct communication The “Doğuş Kids Symphony Orchestra” was with children and assist in their development, established in 2006 as Turkey’s first national, and through different kinds of games which help foster permanent, children’s symphony orchestra. The social development and physical motor skills in a Orchestra is comprised of conservatory students, creative, healthy and safe manner. aged between 10 and 16 from different regions of Turkey, and introduces the wonder of symphonic Education music to Turkish children as performed by their peers. Dad, Send Me to School Campaign This is an effort to provide a wider recognition (Baba Beni Okula Gönder) of diverse and universal music in our country, Since 2006, on an annual basis, Doğuş Holding and to help this music achieve the recognition it provides scholarships for the education of 50 female deserves, on a worldwide basis. The “Doğuş Kids students through its support with the Dad, Send Me Symphony Orchestra” promotes the artistic skills to School campaign. This is a joint effort with Milliyet and achievements of children studying music, newspaper, together with the Association in Support simultaneously in Turkey and in the international of Contemporary Living (ÇYDD). arena. • In 2008, the Orchestra performed 6 concerts Health in Antalya, Ankara, İstanbul, Bodrum, Basel, Switzerland and Munich, Germany. The “My World” Project: Marking the first of • Proceeds from the concerts performed by the several health-related projects, “My World” has Doğuş Kids Symphony Orchestra in 2008 were been implemented in coordination with UNFPA used to purchase musical instruments to be sent (The United Nations Population Fund) since 2006. to the Fine Arts High Schools in Şanlıurfa, Sivas The “My World” Project identifies “peer education” and Kars with contributions from the Association in activities, realized by UNFPA at various universities worldwide, and carries this concept over to Doğuş DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP Support of Contemporary Living (ÇYDD).
90 DOĞUŞ GROUP ANNUAL REPORT 2008 Kids website, resulting in wider group access to Ayhan Şahenk Foundation these activities. Through this Project, Doğuş Kids helps children to cope with the difficulties of their The Ayhan Şahenk Foundation was established in adolescent years, enabling them to identify the 1992 by Ayhan Şahenk, the Honorary Chairman and changes facing them, including the various growth Founder of Doğuş Group, to undertake initiatives processes. in education, culture, health, environmental issues and sports, as well as offering social aid Environment to those in disadvantaged areas. The majority of the Foundation’s activities, in 2008, focused on Doğuş Kids highly values the environment and education, health and environmental issues. As in supports projects that teach children the importance previous years, children were the target audience for of developing environmental awareness. In 2008, these activities. efforts to expand the “environmental” section on Doğuş Kids website continued to raise environmental Health awareness among children. In March 1997, the Foundation started the “Mobile Healthcare Units” project, in order to support the Communication government of the Turkish Republic in dealing with www.doguscocuk.com.tr health problems and providing sound health services for the disadvantaged citizens, and for children in Doğuş Kids initiative also reaches children through particular. its website. With a target audience in the 7-12 age groups, the website’s editorial functions are also Since the initiation of the project, 331,000 patients, performed by children volunteered. Through this from disadvantaged backgrounds, have been treated interactive website, children express themselves on through the “Mobile Healthcare Units”. In 2008, various topics while sharing their opinions with their 24,206 patients were treated in these units. The peers. Covering sections on sports, health, science, project will continue in 2009, covering the cities of technology, cinema, theater and traffic, the website İstanbul, Ankara, Edirne, and Niğde. has attracted nearly 84,000 members from 81 provinces of the country by the end of 2008. Education In terms of educational activities, The Foundation focuses its work in the area of educational support, including provision of scholarships, donation of computer and training sets and school renovations.
In 2008, the Foundation undertook the provision of training materials and equipment for the “Rehabilitation Center for the Mentally Disabled” in İstanbul, the biggest center of its kind in Turkey. Furthermore, in 2008, the Foundation undertook the restoration of the Faik Şahenk Primary School, which consists of 24 classrooms that had been built by the Foundation in line with earthquake precautions in Darıca during the previous years. In addition to the restoration, a science laboratory was constructed in the building and the existing building was extended, due to the increase in the number of students.
In the main, educational support activities targeted the primary schools in the underdeveloped regions of Turkey, with the aim of contributing to the creation
of equal educational opportunity within the country. CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
DOĞUŞ GROUP ANNUAL REPORT 2008 91 Environment Banking and Financial Services Through the “Ayhan Şahenk Sevgi Ormanları” (Ayhan Şahenk Forests of Endearment), started Education with the aim of leaving a healthy and liveable environment for the future generations, a total Teachers Academy Foundation of 537,000 trees were planted in the Marmaris, (Öğretmen Akademisi Vakfı) Bodrum, Niğde and İstanbul and İstanbul-Alemdağ In 2008, as an indication of education’s role in regions of the country. These forests and green the overall well-being of society and its long term areas were selected because they were demolished commitment for this goal, Garanti established a through fires, mining and erosion. The maintanance foundation called the Teachers Academy Foundation. of these forests were also sustained regularly, This Foundation aims to serve the development of throughout 2008, in line with the agreement signed teachers, ranging from enhancing their capacity to with the Ministry of Environment and Forestry. raising the next generation, to helping them reach the level of recognition and self-esteem that they The Ayhan Şahenk Foundation also undertook deserve in society. the landscape and arboring work of the historical Technical High School in Maçka, İstanbul, as a part With this understanding, the Foundation’s first of its environmental work. project, Öğretmenin Sınırı Yok [No Limits to Teach (er)] aims to contribute to the current education Social Assistance model, provoking analytical thinking and research. As part of the Group’s commitment to bring social aid to the underprivileged, the Ayhan Şahenk Foundation Environment maintained its support to those in need. During the last 2 years, the Foundation provided food staples to WWF – Turkey (Doğal Hayatı Koruma Vakfı) 4,000 families and clothing to 2,500 students living Garanti has been the main sponsor of WWF- under unfavorable conditions. Furthermore, a total of Turkey since 1992, supporting conservation and over 150,000 people were hosted at “iftar” dinners, creating awareness on major environmental issues. served throughout the month of Ramadan, in 2007 Launched in 2007, the Environmentally Aware Bonus and 2008. Card is one of the many projects of Garanti and WWF. The credit card provides customers with the chance to donate parts of their spending credits to WWF-Turkey.
Corporate Volunteering
Denizyıldızları (Starfish) Project Since 1998, the Denizyıldızları (Starfish) Project has been supported by the donations of employees, customers, and friends of Garanti. 4 schools have been constructed and completed by the project to date with the aim of enrolling 3,000 students annually.
The Community Volunteers Foundation (TOG) Since 2003, Garanti has been the main sponsor of TOG, whose vision is to realize social peace, solidarity and change through the participation and leadership of the youth. DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
92 DOĞUŞ GROUP ANNUAL REPORT 2008 Women Automotive
Supporting Women Entrepreneurs Traffic is Life Garanti has been supporting women entrepreneurs Doğuş Otomotiv initiated a series of social responsibility in Turkey for the past 3 years. As part of this effort, activities in 2004 with a view to promote a higher level in cooperation with the Economist magazine, of overall responsibility, awareness and perception Garanti organizes “Turkey’s Women Entrepreneurs about traffic among the Turkish general public, and the Competition”. In addition, Garanti organizes the young generation in particular. Gathered under a single “Women Entrepreneurs Meetings” and co-hosts the banner of “Traffic is Life”, these social responsibility meetings with the Women Entrepreneurs Association activities give a new dimension to traffic education. of Turkey (KAGİDER). In these meetings, various Attracting attention by successfully directly reaching important issues are discussed, including topics 1,5 million children through advertising campaigns related to marketing, future trends, EU integration, such as “Traffic-themed Music Contest”, “Back Seat is and technology. Mine” and “Stop at Red Line”, Doğuş Otomotiv aims to reach a large audience and improve public awareness. Dad, Send Me to School Campaign In 2008, Doğuş Otomotiv aimed to increase social (Baba Beni Okula Gönder) consciousness about the traffic in Turkey and decrease Together with Milliyet newspaper, and in conjunction the number of casualties by partaking as a platform with the Association in Support of Contemporary member of the project “Attention in Traffic, 10 thousand Living (ÇYDD), Garanti joins in the united effort to Lives”, which was carried under the auspices of Turkish support the Project, “Dad, Send Me to School”. Since Republic’s Presidency. 2006, on an annual basis, Garanti has provided scholarships for the education of 100 female Doğuş Otomotiv-Volkswagen Training Lab, students. Samandıra and Şişli In 2005, Doğuş Otomotiv started to establish training Customers laboratories to support education in industrial and vocational colleges, as well as to provide education and Garanti Anatolian Meetings (GAS) job opportunities to more students. Since 2002, Garanti has organized a series of Opening the first laboratory in the “Şişli Industrial and conferences called “Garanti Anatolian Meetings,” Vocational College” and the second in the “Kartal aiming to gather local industrialists and governors. Samandıra Industrial and Vocational College”, Doğuş The meetings have paved the way for professionals Otomotiv provides training opportunities to 50 students and experts to discuss various important issues, at the Doğuş Otomotiv Volkswagen Training Laboratory including: each year. The educational topics taught at the • changing economic and market conditions, laboratory include safety at work, gasoline engines, • evaluating regional and international opportunities, diesel engines, basic electrical and current diagrams, • exploring potential spheres of business, and heating/AC and brake systems, etc. From the day • finding regional solutions in cooperation with local of establishment and onwards, Doğuş Otomotiv has industrialists and officials. supported 58 industrial and vocational colleges; and the Company plans on opening more laboratories for Garanti has organized meetings with 18,500 SMEs training purposes in colleges in Bursa, Ankara and İzmir so far. in the near future. DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
DOĞUŞ GROUP ANNUAL REPORT 2008 93 Construction this study was accomplished to compare the current noise level with the noise level when CR1 Project is Health and Safety completed; thus, to ensure that the final noise level Local and international occupational health and is less than the current level. safety requirements are meticulously applied in every phase of the construction work. Compliance, Apart from this study, Doğuş Construction is with project specific and general environmental performing noise measurements by tracking the and labour safety requirements of each project, entire route with the employer, the employer is a key to the high service quality offered by representative and a professor from İstanbul Doğuş Construction to its clients. Accordingly, the Technical University (İTÜ). These measurements employees are provided, on a continuous basis, will observe the noise that may be produced with training courses to keep up with the changing during the construction process. In addition, Doğuş requirements in the areas of Quality, Environment, Construction will attempt to determine critical Occupational Health and Safety Management receptors, or locations that are very close to the Systems. route (i.e., apartments and specifically hospitals, schools, mosques, etc.). As a result of this study, Doğuş Construction is certified by the Det Norske Doğuş is attempting to determine the locations and Veritas (DNV) whose objectives are “Safeguarding areas with higher noise levels and the potential life, property, and the environment” and is a leading methods of prevention to reduce the noise to the provider of services for managing risk. DNV issued minimum levels that are possible to achieve. several certificates for Doğuş Construction including ISO 9001:2000 Quality, OHSAS 18001:1999 Within the scope of CR1 Project, 36 station buildings Occupational Health & Safety, and ISO 14001:2004 will be constructed. In addition, historical station Environmental Management. Doğuş Construction buildings, waiting halls, historical canopies and is also recertified by Lloyd’s Register (LRQA) with hotels are located along the route of the track. reference to ISO 9001:2008 Quality Management, Besides these, there are historical buildings that are OHSAS 18001:2007 Occupational Health & Safety not in the station areas but are still close to the route. Management, and ISO 14001:2004 Environmental Accordingly, the Council of Monuments is conducting Management systems. another study, related to these buildings and the Council will decide if some of these buildings will be Environment preserved or restored and if some will be moved to The preservation of the environment is of great another location. importance in the projects executed by Doğuş Construction. Particular care is taken to protect While the Project route was under review, natural resources and to minimize the negative environmentally vulnerable areas were considered environmental impacts and to adopt necessary and the route was adjusted to avoid these mitigation measures. To this end, Doğuş vulnerable areas, including Soğuksu, Tuzla Lagoon, Construction is in full compliance with the applicable Küçükçekmece Lake, the Bosporus Conservation environmental laws and regulations. Below are Area and other environmentally sensitive areas. three examples which relate to this environmentally friendly project approach of Doğuş Construction. In reality, apart from these studies, the Marmaray Project aims to encourage the travelling population Marmaray CR1 Project to select railway transportation so that the motorway Planning studies are still underway with reference vehicle traffic will be less dense, and emissions to issue of “noise”. Noise measurements have been will be reduced. In this way, air pollution and the completed by a subcontractor firm and a detailed negative consequences of the greenhouse effect can report has been provided. In this study, noise be prevented. measurements were performed in the entire road path and the surrounding villages. Current noise Morocco, Argana – Amskroud Motorway Project levels (detailed as “train passing noise level” and The Argan tree is an endemic species, unique to Southern Morocco, and the fruits resemble olives. DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP “ambient noise”) are available in our office. In fact,
94 DOĞUŞ GROUP ANNUAL REPORT 2008 The oil from the Argan fruit is one of the most Media valuable plant oils in the world, containing an excess amount of Vitamin E. The absorption rate of the oil Education is very high and it is used as a cream to nourish the skin and to delay the aging process. “We are Adding Kinder Gardens” Campaign On April 23, 2008, NTV initiated the “We are Adding The Argan tree exists only in the south-western area Kinder Gardens” (Anaokulu Ekliyoruz) Campaign, of the Moroccan State. This tree is an endangered in cooperation with UNICEF. The fundraising species and under protection. Accordingly, campaign aimed to provide for the opening of new in collaboration with the Moroccan Forest kinder gardens in 13 cities within Turkey. Throughout Administration, the Morocco, Argana – Amskroud the campaign which lasted for the whole day, Project team chose to build the required depots only approximately YTL 1,000,000 was collected and where there were a minimum number of trees. furthermore, NTV donated the advertising revenues of the day to the campaign. The Project team compensated for any potential damage to wildlife by using the depot areas to grow Environment Argan trees in an area of 75 hectares, as identified by the Moroccan Ministry of Forestry. In this way, the Green Screen Project Project team attempted to protect the wildlife and NTV started the Green Screen Project in 2008 valuable natural resources, presenting a valuable with the aim of increasing public awareness and forest to the country. knowledge on the environmental problems. The Project has been supported by all channels of the Sinop-Boyabat Road Construction Doğuş Media Group. (With Tunnel Crossing) Project Along the projected route, there are 5 different areas The issues covered in the Green Screen Project (total length of 8,8 km) where terrain observations include climate change, inorganic food, waste and drillings were accomplished. To reduce damage reduction, immigration problems, carbon emissions to forests, steep-sloped high cutting excavations and electromagnetic pollution. These issues were were eliminated in order to avoid damage to forests. shared with the audience through special TV Further, in geologically stratified flysch beds, “heel programs and documentaries. fillings” were built to form the motorway platform and to reduce the potential risk of landslip, with the Tourism hydraulic underground movements. Finally, where the motorway route is constructed near villages and Education neighbourhoods, high cuttings were reduced in order Doğuş Tourism Group maintains its support to Ayhan to conserve the forest and to prevent landslip risk in Şahenk Alantur Primary School in Alanya Kestel, the settlements. which was built by the Group in 1985 and extended in 2005, with the addition of 8 extra classrooms. In the Project, excavations were completed in the Gökırmak Stream borrow pit and Stream material Other social initiatives of Doğuş Tourism Group was gathered, to be used in the motorway fillings. include fundraising supports to “Bir Dilek Tut” (Make After an exchange of letters was concluded between a Wish) Foundation at Hyatt Regency Istanbul, and the Project administration and the Highways of to UNICEF, at Sheraton Voyager Antalya Hotel, Republic of Turkey, the borrow pit excavations were Resort and Spa. backfilled with the top layer of soil (i.e., organic layer) which was removed from the motorway route. With Health this method, the Stream’s flora was replenished. A Doğuş Tourism Group company, Arena Giyim, supports the global fight against AIDS, the terminal Where the motorway runs parallel to the Stream in disease of our era. Arena contributes to the Global the Project, the Stream bed was modified to prevent Fund to Fight AIDS, tuberculosis and malaria within soil erosion. the scope of the Emporio Armani’s “Red” Campaign. CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
DOĞUŞ GROUP ANNUAL REPORT 2008 95 Since 2006, Product Red items have held the Real Estate spotlight within the scope of this campaign, by virtue of the involvement of well-known celebrities Community from all over the world. These items have been on Doğuş-GE REIT (Real Estate Investment Trust) sale at Emporio Armani stores, owned by Arena intends to contribute to the social, cultural, artistic Giyim. The Fund receives a donation of 40% of and economic development of communities. This revenues generated from sales of the Product activity occurs in the regions where the REIT Red collection, which will expand in range each develops projects and attempts to implement several season. These donations support projects aimed at social responsibility projects. The most significant developing treatments for AIDS, offering nutritional example of these projects is the Company’s support and psychological support, and preventing the to the Dudullu Cultural Center, with the aim of transmission of the disease from mothers to children. contributing the social and cultural development of the area, in parallel with the Evidea Residential Environment Project in Çekmeköy. Within the sector of tourism, Doğuş Group pays special attention to the issues of waste management and environmental protection. Waste management is strictly followed in all tourism-related facilities operating under the Group. D-Marin Turgutreis Marina is especially important in this respect and several precautions have been taken to minimize the environmental degredation in the surrounding region. The Marina has been awarded with the “Blue Flag” since 2004, an international environment award given to beaches and marinas that possess the requirements concerning environmental protection and sustainability measures.
D-Marin Turgutreis Marina has also been organizing environment-related events in cooperation with DenizTemiz Foundation/TURMEPA with the aim of raising awareness among its employees, the local residents of Bodrum, Turgutreis and the guests of the marina. One of the most remarkable events, of this kind, is the International Coastal Cleanup (ICC) Campaign is one of the most remarkable events of this kind and it takes place annually, on the International Coastal Cleanup Day, with the participation of D-Marin employees and guests. DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
96 DOĞUŞ GROUP ANNUAL REPORT 2008 Corporate Sponsorships
Doğuş Holding Beyond Babylon: Art, Trade, and Diplomacy in the Second Millennium B.C., Art and Culture “Beyond Babylon: Art, Trade, and Diplomacy in the Second Millennium B.C.” exhibition at The D-Marin Turgutreis International Metropolitan Museum of Art, took place between Classical Music Festival 18 November 2008-15 March 2009. Doğuş Doğuş Group continues to contribute to the Group, in conjunction with the DEIK/Turkish- development of classical music and to provide American Business Council, sponsored the event support for this music in Turkey. The Group strives to in cooperation with some of the other leading ensure its access to a wider section of the population conglomerates in Turkey. and help Turkish artists produce world-class pieces. Since 2005, Doğuş Group has been organizing the The exhibition had a focus on the extraordinary art D-Marin Turgutreis International Classical Music created as a result of a sophisticated network of Festival in Bodrum. This Festival highlights the interaction that developed among kings, diplomats, support that is required for the development of merchants, and others in the Near East during the nd diverse forms of music in Turkey. 2 millennium B.C. In addition, “Beyond Babylon” featured cargo from the oldest known seagoing ship, In 2008, the Festival took place between August which had been wrecked around 1300 B.C. and 22-25, and hosted gifted artists from Turkey and discovered in 1982, near Uluburun, off the southern other countries, including İdil Biret and Maxim coast of Turkey, in the Mediterranean Sea. Fedotov. İstanbul 2010 Capital of European Culture Presidential Symphony Orchestra of Turkey İstanbul has been designated as the Capital of The Presidential Symphony Orchestra of Turkey, European Culture for the year 2010 along with Pec which was established in 1826 in the capital of of Hungary and Essen of Germany. Doğuş Group Turkey, Ankara, has been one of few orchestras has become one of the corporate sponsors of the in the world that has managed to survive till our İstanbul 2010 European Capital of Culture Project. day. In November 2007, Doğuş Group signed an agreement, with the Ministry of Culture and Tourism, Sports to become the main sponsor of the Orchestra for a period of 3 years and to start the “Technical Darüşşafaka Ayhan Şahenk Sport Complex Betterment Project” of the concert building of the Since 2006, Doğuş Group has supported the sports Orchestra. The renovation work was completed facilities at the Darüşşafaka Center in Maslak, in less than a year, by October 2008, covering İstanbul. This is one of Turkey’s most established the renovation of the entire inner building and the educational institutions in Turkey. Operating under concert hall, the landscape as well as the renewing the name Ayhan Şahenk Darüşşafaka Sport of the orchestra and office furnitures. Doğuş Group Complex, the facility is designed as a multi-purpose will maintain its support to the orchestra in the complex, hosting a range of artistic and cultural coming years. activities, in addition to sports events to world-class standards. Doğuş Group will maintain its support to Leyla Gencer Voice Competition the Darüşşafaka facilities well into the next decade. Doğuş Holding and Garanti Bank have been the sponsors of the Leyla Gencer Voice Competition during the years of 2006 and 2008. This international voice competition was started by Ms. Gencer, the famous Turkish opera singer, herself in 1995, and it has supported several young opera singers, from all over the world, through their career paths. The 5th Leyla Gencer Voice Competition was held in İstanbul in August 2008. Doğuş Group will maintain
its support to the competition in the future. CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
DOĞUŞ GROUP ANNUAL REPORT 2008 97 Banking and Finance The Lycian Way The Lycian Way is a 500 km footpath, stretching Garanti Bank from Fethiye to Antalya, Turkey. Garanti sponsored Art and Culture the route signs, facilitating a guided trekking route on the Lycian Way. Garanti further contributed to Platform Garanti, Garanti Gallery, and the tourism in the region by publishing a guidebook for Ottoman Bank Museum the Lycian Way. In support of the arts and architecture, Platform Garanti focuses on providing audiences a chance Sports to discover contemporary art exhibitions from all Basketball over the world, as well as functioning as a research Garanti is a dedicated supporter of basketball, a center with a library of 6,500 publications, providing sport that reflects Garanti’s values of teamwork, a resource for artists in Turkey. Garanti Gallery offers dedication, confidence and discipline. The Bank has a platform where different concepts in architecture been the main sponsor of the 12 Giant Men (Turkish and design are debated through exhibitions and National Men’s Basketball Team) since 2001, and additional activities. The Ottoman Bank Museum of the Nymphs of Basketball (Turkish National (OBM) draws on a wealth of information from the Women’s Basketball Team) since 2005. Bank’s archive to narrate the history of the institution. The OBM aims to be more than just a museum of 12 Giant Men Basketball Schools Project banking; it provides awareness of a much wider As part of its sponsorship of the Men’s National context of social history. Basketball Team, Garanti sponsors the 12 Giant Men Basketball Schools Project, which was launched in In the near future, the Platform’s historical building in 2001 to teach basketball to students. Approximately, Beyoğlu and OBM’s historical building in Karaköy will 25,000 young athletes have been trained to date. be restored to serve İstanbul as new cultural centers. With the architectural renewals, Garanti Gallery, Basketball without Borders Platform and OBM aim to redefine their missions and As the main sponsor of the National Basketball organizational structures. Association (NBA) in Turkey, Garanti hosted Basketball without Borders. This is a Community Istanbul Modern Contemporary Art Museum Outreach Program that unites young basketball Istanbul Modern is Turkey’s first and only players (ages 19 & under) to promote the sport, Contemporary Art Museum. Garanti sponsors the also encouraging positive social change in local Istanbul Modern Education Program, which aims to communities for the first time. supplement classroom education. The Program is intended to play a central role in producing creative NBA Skills Challenge and questioning individuals who know about art and Garanti sponsored the NBA Skills Challenge, a actively participate in their environment. competition encouraging aspiring players ages 13-18 to film their basketball skills and submit their Garanti Jazz Green best individual videos online. This submitted videos With the aim of widening the horizons of audiences gave them a chance to attend a 5 day instructional within the genre of jazz, Garanti is one of the leading camp in Orlando, where winners joined more than 80 supporters of jazz music in Turkey. For the past 11 young basketball players for basketball education. years, Garanti has been the main sponsor of the This competition was the first of its kind, with 1,700 International Istanbul Jazz Festival, organized by the entries in 5 weeks. İstanbul Foundation for Culture and Arts. Garanti also supports the Istanbul Jazz Center, giving audiences Football a chance to listen to world famous jazz artists on a Garanti’s dedication to supporting sports was further regular basis. Furthermore, Garanti sponsors one of enhanced in 2008. Garanti Bank became one of the the top music venues in İstanbul, Babylon, providing main sponsors of the Turkish National Men’s Football audiences with a wide range of music, predominantly Team. Garanti created the “Turkos”, representing jazz and nu jazz. Garanti’s support in jazz music is the national team and standing for values such as
DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP labeled as “Garanti Jazz Green”. competition, ambition and team spirit.
98 DOĞUŞ GROUP ANNUAL REPORT 2008 Tourism Real Estate
Safety Community Doğuş Tourism Group has been providing financial During 2008, Doğuş-GE REIT maintained its support to the Management of Safety and Security support to the Community Volunteers Foundation, Department in Marmaris, Muğla, one of the regions by providing monthly donations to the organization. in Turkey where the Group operates. Besides The aim of this contribution was to support the contributing to the renovation of the Department young generation in their efforts to pursue various building in 2007, the Group maintains organizational countrywide social activities under the “Community support to the safety related events of the Service from the Young, Support from You All” Department. Campaign.
Sports The Tourism Group has also been supporting the development of sports in Marmaris by providing financial and organizational support to Marmaris Spor and the Marmaris Maritime Festival since 2006. DOĞUŞ GROUP AND CORPORATE CITIZENSHIP AND CORPORATE DOĞUŞ GROUP
DOĞUŞ GROUP ANNUAL REPORT 2008 99 Doğuş Holding Anonim Şirketi and its Subsidiaries Consolidated Financial Statements As at and for the Year Ended 31 December 2008 With Independent Auditors’ Report
Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi 14 April 2009
This report includes 1 page of independent auditors’ report and 117 pages of consolidated financial statements together with their explanatory notes and 3 pages of supplementary information.
Table of Contents • Independent Auditors’ Report • Consolidated Balance Sheet • Consolidated Income Statement • Consolidated Statement of Recognised Income and Expense • Consolidated Statement of Cash Flows • Notes to the Consolidated Financial Statements • Appendix: Supplementary Information • Convenience Translation to US Dollar
100 DOĞUŞ GROUP ANNUAL REPORT 2008 Independent Auditors’ Report
To the Board of Directors of Doğuş Holding Anonim Şirketi
We have audited the accompanying consolidated financial statements of Doğuş Holding Anonim Şirketi and its subsidiaries (“the Group”), which comprise the consolidated balance sheet as at 31 December 2008, and the consolidated income statement, the consolidated statement of recognised income and expense and the consolidated cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. We did not audit the financial statements of certain consolidated companies as at and for the year ended 31 December 2008 which statements reflect total assets constituting 3.56 percent and total revenues constituting 30.88 percent of the related consolidated totals. Those statements were audited by other auditors whose reports have been furnished to us, and our report, insofar as it relates to the amounts included for these companies, is based solely on the report of the other auditors.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatements, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free of 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 our judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider 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 principles 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 opinion.
Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2008, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Emphasis of Matter Our audit was made for the purpose of forming an opinion on the consolidated financial statements taken as whole. The supplementary information included in Appendix I is presented for the purposes of additional analysis and is not a required part of the basic financial statements. The US Dollar amounts presented in Appendix I are solely for the convenience of the reader as additional analysis and have not been subjected to the audit procedures applied in the audit of the basic financial statements. Accordingly, we do not express an opinion on this supplementary information.
İstanbul, Turkey 14 April 2009
DOĞUŞ GROUP ANNUAL REPORT 2008 101 Doğuş Holding Anonim Şirketi and its Subsidiaries
Consolidated Balance Sheet As at 31 December 2008 Currency: Thousands of New Turkish Lira (“YTL”)
Notes 2008 2007
Assets Property and equipment 13 2,575,568 2,240,202 Intangible assets 14 1,197,110 1,005,876 Investments in debt securities 15 7,972,673 5,389,836 Investments in equity securities 16 48,269 51,790 Investment property 17 1,052,924 631,508 Other non-current assets 18 827,445 1,581,276 Deferred tax assets 12 165,738 110,642 Total non-current assets 13,839,727 11,011,130
Inventories 19 774,782 359,900 Accounts receivable 20 1,214,537 765,350 Due from related parties 38 14,998 26,821 Other current assets 22 738,267 362,133 Banking loans and advances to customers 23 16,560,166 12,559,710 Banking loans and advances to banks 24 2,418,882 1,525,820 Financial assets at fair value through profit or loss 25 76,952 178,383 Cash and cash equivalents 26 2,256,649 1,102,373 Total current assets 24,055,233 16,880,490 Total assets 37,894,960 27,891,620
Equity Paid-in capital 2,010,192 2,010,192 Capital stock held by subsidiaries (53,655) (53,655) Share premium 159,350 159,350 Fair value reserves 36,490 47,346 Translation reserve 49,421 4,048 Hedging reserve 7,362 8,044 Revaluation surplus 1,024,867 826,603 Retained earnings 2,322,134 1,897,556 Total equity attributable to equity holders of the Company 5,556,161 4,899,484
Minority interest Şahenk Family 100,530 85,344 Others 100,107 126,898 Total minority interest 200,637 212,242 Total equity 27 5,756,798 5,111,726
Liabilities Long-term bank borrowings 28 4,535,307 2,669,875 Deferred tax liabilities 12 125,297 57,831 Retirement benefit obligations 30 31,006 49,742 Other non-current liabilities 29 386,911 129,659 Total non-current liabilities 5,078,521 2,907,107
Short-term bank borrowings 31 1,969,524 1,166,012 Short-term portion of long-term bank borrowings 28 1,435,814 1,011,857 Banking deposits from banks 32 640,446 736,187 Banking customers deposits 33 16,809,305 12,442,193 Obligations under repurchase agreements 34 3,370,491 2,596,489 Accounts payable 35 1,332,582 691,397 Due to related parties 38 3,695 5,921 Taxes payable on income 12 39,028 2,015 Other current liabilities 36 1,458,756 1,220,716 Total current liabilities 27,059,641 19,872,787 Total liabilities 32,138,162 22,779,894 Total equity and liabilities 37,894,960 27,891,620
The accompanying notes are an integral part of these consolidated financial statements.
102 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Consolidated Income Statement For the Year Ended 31 December 2008 Currency: Thousands of YTL
Notes 2008 2007 Revenues 6,962,589 5,682,177 Cost of revenues (4,968,267) (4,050,094) Gross profit 7 1,994,322 1,632,083
Administrative expenses 8 (965,799) (726,949) Selling, marketing and distribution expenses (193,827) (165,556) Impairment losses, net 9 (181,974) (75,671) Trading gain / (loss), net 25 147,504 (105,737) Other operating income, net 10 239,957 212,922 Results from operating activities 1,040,183 771,092
Finance income 873,199 415,520 Finance expense (1,410,442) (450,335) Net finance costs 11 (537,243) (34,815)
Other non-operating expense -- (25,482) Share of profit of equity accounted investees 5,592 2,754 Profit before income tax 508,532 713,549
Income tax expense 12 (98,486) (70,772) Profit for the period 410,046 642,777
Attributable to: Equity holders of the Company 437,145 623,097 Minority interest 27 (27,099) 19,680 -Şahenk Family (6,998) 6,468 -Others (20,101) 13,212 Profit for the period 410,046 642,777
The accompanying notes are an integral part of these consolidated financial statements.
DOĞUŞ GROUP ANNUAL REPORT 2008 103 Doğuş Holding Anonim Şirketi and its Subsidiaries
Consolidated Statement of Recognised Income and Expense For the Year Ended 31 December 2008 Currency: Thousands of YTL
Notes 2008 2007
Revaluation of property and equipment 27 255,126 475,606 Change in fair value of available-for-sale financial assets 27 (10,856) 17,086 Change in translation reserve 27 45,373 (532) Effective portion changes in fair value of cash flow hedges 27 (682) 7,240 Deferred tax on income and expenses recognized directly in equity 12 (49,439) (2,460) Income and expense recognised directly in equity 239,522 496,940 Profit for the period 410,046 642,777 Total recognised income and expense for the period 649,568 1,139,717
Attributable to:
Equity holders of the Company 677,531 1,118,264 Minority interest (27,963) 21,453 Total recognised income and expense for the period 649,568 1,139,717
The accompanying notes are an integral part of these consolidated financial statements.
104 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Consolidated Statement of Cash Flows For the Year Ended 31 December 2008 Currency: Thousands of YTL
Notes 2008 2007 Cash flows from operating activities Profit for the period 410,046 642,777 Adjustments for: Impairment losses 9 181,974 75,671 Impairment of investment property -- 25,482 Fair value change in tangible assets held for sale 6 493 (35) Fair value change in investment property 10 (134,574) (2,795) Provision for employee severance indemnity 6, 29 15,851 6,911 Provision for retirement benefit obligation 6, 30 (18,735) 49,742 Depreciation and amortisation 6 137,341 136,401 Technical reserves relating to insurance operations 6 7,124 8,109 Gain on sales of property and equipment (8,024) (44,906) Share of (profit)/loss of equity accounted investees 6 (5,592) (2,754) Change in accrued interest expense/(income), net 6 (206,053) (14,349) Provision for taxes on income 12 135,555 92,814 Deferred tax charge/(benefit) 12 (37,069) (22,042) Gain on sale of founder shares 10 (232,444) -- Warranty expense 24,744 32,849 270,637 983,875 Changes in operating assets and liabilities Change in banking customer deposits 5,417,373 3,197,405 Change in banking deposits from banks (49,008) 268,303 Change in banking loans and advances to banks (572,176) (624,288) Change in balances with the Central Bank 947,255 (599,504) Change in banking loans and advances to customers (5,815,617) (2,647,761) Change in financial assets at fair value through profit or loss 91,354 (63,479) Change in other assets (395,631) 180,392 Change in inventories (368,499) 126,775 Change in accounts receivable (455,609) 73,197 Change in due from related parties 11,823 (12,835) Change in obligations under repurchase agreement 1,004,854 1,013,842 Change in accounts payable 641,185 12,709 Change in due to related parties (2,226) (179,596) Change in other liabilities 332,192 208,524 1,057,907 1,937,559 Interest paid (2,026,638) (1,277,696) Interest received 3,060,937 523,408 Taxes paid (98,542) (125,060) Dividend paid 27 (22,279) (22,417) Employee termination indemnity paid 29 (8,928) (3,065) Net cash from operating activities 1,962,457 1,032,729
Cash flows from investing activities Proceeds from sales of investments in equity securities -- (7,792) Increase in interest in consolidated subsidiaries (24,024) (65) Decrease in interest in consolidated subsidiaries 40,371 4,874 Proceeds from sale of founder shares 272,062 -- Acquisitions of investment property (20,835) (3,016) Increase in investments in debt securities (3,606,682) (1,180,032) Acquisition of property and equipment and intangible assets (750,616) (604,764) Proceeds from sale of property and equipment 95,582 61,927 Cash paid on acquisitions, net of cash acquired -- (928,704) Cash flows (used in)/from investing activities (3,994,142) (2,657,572) Cash flows from financing activities Change in short-term bank borrowings, net 1,470,641 (221,196) Change in long-term bank borrowings, net 2,239,115 1,305,231 Cash flows (used in)/provided by financing activities 3,709,756 1,084,035
Net increase/(decrease) in cash and cash equivalents 1,678,071 (540,808) Cash and cash equivalents at 1 January 1,537,606 2,078,414 Cash and cash equivalents at 31 December 26 3,215,677 1,537,606
DOĞUŞ GROUP ANNUAL REPORT 2008 105 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements 31 December 2008 Currency: Thousands of YTL
Notes to the consolidated financial statements
Note Description Pages 1 Reporting entity 107 2 Basis of preparation 107 3 Significant accounting policies 108 4 Determination of fair values 131 5 Financial risk management 133 6 Segment reporting 146 7 Revenues and cost of revenues 151 8 Administrative expenses 151 9 Impairment losses 151 10 Other operating income, net 152 11 Net finance costs 152 12 Taxation 153 13 Property and equipment 159 14 Intangible assets 161 15 Investments in debt securities 162 16 Investments in equity securities 164 17 Investment property 165 18 Other non-current assets 165 19 Inventories 166 20 Accounts receivable 166 21 Due from/due to customers for contract work 167 22 Other current assets 167 23 Banking loans and advances to customers 168 24 Banking loans and advances to banks 170 25 Financial assets at fair value through profit or loss 170 26 Cash and cash equivalents 171 27 Capital and reserves 172 28 Long-term bank borrowings 175 29 Other non-current liabilities 177 30 Retirement benefit obligation 179 31 Short-term bank borrowings 182 32 Banking deposits from banks 183 33 Banking customer deposits 183 34 Obligations under repurchase agreements 184 35 Accounts payable 184 36 Other current liabilities 185 37 Commitments and contingencies 185 38 Related party disclosures 189 39 Financial instruments 191 40 Use of estimates and judgments 204 41 Group enterprises 206 42 Significant events 214 43 Subsequent events 216 Appendix: Supplementary information 218
106 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
1 Reporting entity
Doğuş Holding Anonim Şirketi (“Doğuş Holding” or “the Company”) was established in 1975 to invest in and coordinate the activities of companies operating in different industries including banking and finance, automotive, construction, tourism, media and real estate and is registered in Turkey.
Doğuş Holding is owned and managed by the members of Şahenk Family. As at 31 December 2008, Doğuş Holding has 53 (2007: 52) subsidiaries (the “Subsidiaries”), 32 (2007: 31) joint ventures (the “Joint Ventures”) and 8 (2007: 7) associates (the “Associates”) (referred to as “the Group” or “Doğuş Group” herein and after). The consolidated financial statements of Doğuş Group as at and for the year ended 31 December 2008 comprises Doğuş Holding and its subsidiaries and the Group’s interest in associates and jointly controlled entities as explained in more detail in note 41, Doğuş Holding holds controlling interest directly or indirectly via other companies owned and/or exercising the control over the voting rights of the shares held by the members of the Şahenk Family, in all its subsidiaries included in the Group.
The Group operates partnerships and has distribution, management and franchise agreements with internationally recognised brand names, such as General Electric Consumer Finance, Volkswagen AG, Volkswagen Finance AG, Audi AG, Porsche AG, Bentley Motors Limited, Seat SA, Scania, Krone, Meiller Fahrzeug&Maschinenfabrik-GMBH&Co KG, Lamborghini S.p.A., Thermo King, ITT Sheraton, Neckerman Reisen, Hyatt International Ltd., HMS International Hotel GMBH, Emporio Armani, Guccio Gucci Spa, CNBC, Loro Piana, Aldiana GMBH and Starwood Hotel & Resort Worldwide Inc.
The address of the registered office of Doğuş Holding is as follows: Eski Büyükdere Caddesi Oycan Plaza No:15 34398 Maslak/ İstanbul-Turkey
The number of employees of the Group at 31 December 2008 is approximately 20,000 (2007: 20,395).
2 Basis of preparation
(a) Statement of compliance Doğuş Group entities operating in Turkey maintain their books of account and prepare their statutory financial statements in New Turkish Lira (“YTL”) in accordance with the Accounting Practice Regulations as promulgated by the Banking Regulatory and Supervision Agency (“BRSA”) applicable to Türkiye Garanti Bankası Anonim Şirketi (“Garanti Bank”), Turkish insurance legislation and accounting principles applicable to insurance business, and accounting principles per Turkish Uniform Chart of Accounts and per Capital Market Board of Turkey applicable to entities operating in other businesses.
Doğuş Group’s foreign entities maintain their books of account and prepare their statutory financial statements in accordance with the generally accepted accounting principles and the related legislation applicable in the countries they operate.
The accompanying consolidated financial statements are based on these statutory records with adjustments and reclassifications for the purpose of fair presentation in accordance with International Financial Reporting Standards (“IFRS”).
DOĞUŞ GROUP ANNUAL REPORT 2008 107 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
2 Basis of preparation (continued)
(b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis as adjusted for the effects of inflation that lasted until 31 December 2005, except for the following: • derivative financial instruments are measured at fair value, • available-for-sale financial assets are measured at fair value, • financial instruments at fair value through profit and loss are measured at fair value, • investment property is measured at fair value, • certain tangible assets are measured at fair value. The methods used to measure the fair values are discussed further in note 4.
(c) Functional and presentation currency These consolidated financial statements are presented in YTL which is Doğuş Holding’s functional currency. All financial information presented in YTL has been rounded to the nearest thousand.
(d) Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Note 4 – Determination of fair values Note 14 – Intangible assets Note 15 – Investment in debt securities Note 23 – Banking loans and advances to customers Note 25 – Financial assets at fair value through profit or loss Note 30 – Retirement benefit obligation Note 32 – Banking deposits from banks Note 39 – Financial instruments Note 40 – Use of estimates and judgements
3 Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities.
Certain comparative amounts have been reclassified to conform with the current year’s presentation as summarised below:
For the year ended 31 December 2007, foreign exchange gain related to derivative transactions amounting to YTL 67,488 thousand which were previously reported under trading gain/(loss), net were reclassified to finance income, net.
108 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(a) Basis of consolidation The accompanying consolidated financial statements include the accounts of the parent company, Doğuş Holding, its subsidiaries, joint ventures and associates on the basis set out in sections below. The financial statements of the entities included in the consolidation have been prepared as of the date of the consolidated financial statements.
(i) Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable are taken into account. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group.
(ii) Special purpose entities The Group has established a number of special purpose entities (“SPEs”) to accomplish a narrow and well defined objective such as securitisation of particular assets, or the execution of specific borrowing or lending transactions. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the SPE’s risks and rewards, the Group concludes that it controls the SPE. SPEs controlled by the Group were established under terms that impose strict limitations on the decision-making powers of the SPEs’ management and that result in the Group receiving the majority of the benefits related to the SPEs’ operations and net assets, being exposed to risks incident to the SPEs’ activities, and retaining the majority of the residual or ownership risks related to the SPE or its assets.
(iii) Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20 and 50 percent of the voting power of another entity. Associates are accounted for using the equity method and are initially recognised at cost. The consolidated financial statements include the Group’s share of the income and expenses and equity movements of associates, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
When the Group’s share of losses exceeds its interest in an associate, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee.
(iv) Joint ventures Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions. Joint ventures are accounted for using the proportionate consolidation method. The consolidated financial statements include the Group’s proportionate share of the enterprises’ assets, liabilities, revenues and expenses with items of a similar nature on a line-by-line basis, from the date that joint control commences until the date that joint control ceases.
DOĞUŞ GROUP ANNUAL REPORT 2008 109 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(a) Basis of consolidation (continued) (v) Transactions eliminated on consolidation Intra-group balances and transactions and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
(b) Accounting in hyperinflationary economies Until 31 December 2005, the financial statements of the Turkish entities have been restated for the changes in the general purchasing power of the New Turkish Lira based on IAS 29 Financial Reporting in Hyperinflationary Economies.
Beginning from January 2006, it was declared that Turkey should be considered a non-hyperinflationary economy under IAS 29. Therefore, IAS 29 has not been applied to the accompanying consolidated financial statements since 1 January 2006.
(c) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments or a financial liability designated as a hedge of the net investment in a foreign operation, or qualifying cash flow hedges, which are recognised directly in equity (see (iii) below).
(ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to YTL at exchange rates at the reporting date. The income and expenses of foreign operations are translated to YTL at average exchange rates at the dates of the transactions.
Foreign currency differences are recognised directly in equity. Such differences are recognised in the translation reserve. When a foreign operation is disposed of, in part or in full, the relevant amount in the translation reserve is transferred to profit or loss.
Foreign currency gains and losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely in the foreseeable future, are considered to form part of a net investment in a foreign operation and are recognised directly in equity in the translation reserve.
110 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(c) Foreign currency (continued) (iii) Hedge of net investment in foreign operation Foreign currency differences arising on the retranslation of a financial liability designated as a hedge of a net investment in foreign operation are recognised directly in equity, in the translation reserve, to the extent that the hedge is effective. To the extent that the hedge is ineffective, such differences are recognised in profit or loss. When the hedged net investment is disposed of, the cumulative amount in equity is transferred to profit or loss as an adjustment to the profit or loss on disposal.
(d) Financial instruments (i) Non-derivative financial instruments Non derivative financial instruments comprise investments in debt and equity securities, accounts receivable, due from related parties, banking loans and advances to customers and banks, financial assets at fair value through profit or loss, cash and cash equivalents, accounts payable, bank borrowings, banking deposits from banks, banking deposits from customers, obligations under repurchase agreements, due to related parties, certain purchased loans and derivative contracts that are not designated as effective hedging instruments, liabilities from short-term sales of financial instruments.
In general, the fair values of financial instruments are based on their quoted market prices at the balance sheet date without any deduction for transaction costs. If a quoted market price is not available, fair value of an instrument is estimated using the available market information and the appropriate valuation methodologies. However, judgement is necessarily required to interpret market data to develop the estimated fair value. Accordingly, the estimates made are not necessarily indicative of the amounts that could be realised in current market exchange.
The fair values of derivatives that are not exchange-traded are the estimated amounts that the Group would receive or pay to terminate the contracts at the balance sheet date taking into account current market conditions and the current creditworthiness of the counter parties.
Non-derivative financial instruments are recognised initially at fair value plus, directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below:
Cash and cash equivalents Cash and cash equivalents comprise cash balances, call deposits, balances with Central Bank of Turkey (“CBT”) and other central banks and other liquid assets. Money market placements are classified in banking loans and advances to banks.
Accounting for interest income and expenses for banking and finance segment is discussed in note 3 (q). Accounting for finance income and expenses for segments other than banking and finance is discussed in note 3 (t).
Held to maturity investments If the Group has the positive intent and ability to hold debt securities to maturity, then they are classified as held-to- maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method, less any impairment losses. Premiums and discounts, including initial transaction costs are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument. These include certain banking loans and advances to banks and customers and certain debt instruments.
DOĞUŞ GROUP ANNUAL REPORT 2008 111 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(d) Financial instruments (continued) (i) Non-derivative financial instruments (continued) Available-for-sale financial assets The Group’s certain debt and equity instruments are classified as available-for-sale financial assets. Subsequent to initial recognition, they are measured at fair value and changes therein are recognised directly in equity, except that any instrument that does not have a quoted market price in an active market and whose fair value cannot be reliably measured is stated at amortised cost. When an instrument is derecognised, the cumulative gain or loss in equity is transferred to profit or loss.
Financial assets at fair value through profit or loss An instrument is classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. These include investments, certain purchased loans and derivative contracts that are not designated as effective hedging instruments, and liabilities from short-term sales of financial instruments. Financial instruments are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition attributable transaction costs are recognised in profit or loss when incurred. Financial instruments at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit or loss. All trading derivatives in a net receivable position (positive fair value) as well as options purchased, are reported as trading assets. All trading derivatives in a net payable position (negative fair value), as well as options written, are reported as trading liabilities.
Banking loans and receivables Banking loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the banking and finance segment jointly controlled entity and its subsidiaries provide money, goods and services directly to a debtor with no intention of trading the receivable. Banking loans and receivables comprise banking loans and advances to banks and customers. Banking loans and receivables are measured at amortised cost less impairment losses. Banking loans and receivables provided by the banking and finance segment jointly controlled entities are classified as banking loans and advances, and reported net of allowances to reflect the estimated recoverable amounts. Amortised cost is calculated on the effective interest rate method. Premium discounts, including initial transaction costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.
Finance lease receivable Leases where the entire risks and rewards incident to ownership of an asset are substantially transferred to the lessee are classified as finance leases. A receivable at an amount equal to the present value of the lease payments, including any guaranteed residual value, is recognised. The difference between the gross receivable and the present value of the receivable is unearned finance income and is recognised over the term of the lease using the effective interest rate method. Finance lease receivables are included in banking loans and advances to customers.
Other Other non derivative financial instruments are measured at amortised cost using the effective interest rate method, less any impairment losses (see accounting policy 3m).
112 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(d) Financial instruments (continued) (i) Non-derivative financial instruments (continued) Change in accounting policy In October 2008, the IASB issued Reclassification of Financial Assets (Amendments to IAS 39 “Financial Instruments: Recognition and Measurement” and IFRS 7 “Financial Instruments: Disclosures”. The amendment to IAS 39 permits an entity to reclassify non-derivative financial assets, other than those designated at fair value through profit or loss upon initial recognition, out of the fair value through profit or loss category if they are no longer held for the purpose of being sold or repurchased in the near term, as follows: • If the financial asset would have met the definition of loans and receivables, if the financial asset had not been required to be classified as fair value through profit or loss at initial recognition, then it may be reclassified if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity. • If the financial asset would not have met the definition of loans and receivables, then it may be reclassified out of the financial assets at fair value through profit or loss category only in ‘rare circumstances’. The amendments are effective retrospectively from 1 July 2008. Gains and losses on subsequent measurement Gains and losses arising from changes in the fair values of financial instruments at fair value are recognised in profit or loss, whereas gains and losses arising from changes in the fair value of cash flow hedges and available-for-sale assets are deferred as a separate component of equity. Derecognition A financial asset is derecognised when the control over the contractual rights that comprise that asset is lost. This occurs when the rights are realised, expire or are surrendered. A financial liability is derecognised when it is extinguished. Available-for-sale assets and assets held for trading that are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of the date the Group commits to sell the assets. The specific identification method is used to determine the gain or loss on derecognition. Held-to-maturity instruments and banking loans and advances are derecognised on the day they are transferred by the Group. (ii) Derivative financial instruments held for risk management purposes The Group holds derivative financial instruments to hedge its certain risk exposures. Embedded derivatives are separated from the host contract and accounted for separately if the economic characteristics and risks of the host contract and the embedded derivative are not closely related, a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative, and the combined instrument is not measured at fair value through profit or loss. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.
Cash flow hedges Changes in the fair value of the derivative hedging instrument designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in fair value are recognised in profit or loss.
If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, then hedge accounting is discontinued prospectively. The cumulative gain or loss previously recognised in equity remains there until the forecast transaction occurs. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when it is recognised. In other cases the amount recognised in equity is transferred to profit or loss in the same period that the hedged item affects profit or loss.
Economic hedges Hedge accounting is not applied to derivative instruments that economically hedge monetary assets and liabilities denominated in foreign currencies. Changes in the fair value of such derivatives are recognised in profit or loss as part of foreign currency gains and losses.
DOĞUŞ GROUP ANNUAL REPORT 2008 113 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(d) Financial instruments (continued) (iii) Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.
Repurchase of share capital (Treasury shares) When share capital recognised as equity is repurchased, the amount of the consideration paid, which includes directly attributable costs, is net off any tax effects, and is recognised as a deduction from equity. Repurchased shares are classified as treasury shares and are presented as a deduction from total equity. When treasury shares are sold or reissued subsequently, the amount received is recognised as an increase in equity, and resulting surplus or deficit on the transaction is transferred to/from retained earnings.
(e) Property and equipment (i) Recognition and measurement The costs of items of property and equipment purchased before 31 December 2005 are restated for the effects of inflation in YTL units current at 31 December 2005 pursuant to IAS 29. Property and equipment purchased after this date are recorded at their historical costs. Accordingly, property and equipment are carried at cost, less accumulated depreciation and accumulated impairment losses (see accounting policy 3m), except as explained below:
In the first year of application of IAS 29, the construction machineries owned by a consolidated entity, Doğuş İnşaat ve Ticaret Anonim Şirketi (“Doğuş İnşaat”), were reflected at their replacement costs on the basis of publicly available information on their quoted prices or on the prices of the comparable items as of 31 December 1997; and such replacement costs were restated for the effects of inflation in YTL units current at 31 December 2005 pursuant to IAS 29. In 2006, Doğuş İnşaat has assigned a third party appraisal company to count and evaluate the market prices of its construction machineries and motor vehicles. Based on the report of the appraisal company Doğuş İnşaat has adjusted its construction machineries and motor vehicles.
In 2001, the Group started to reflect the land and buildings at their fair values as appraised by independent third party appraisers. Any increase arising on the revaluation of such land and buildings is credited to the properties’ revaluation surplus account under equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognised as an expense, in which case the increase is credited to profit or loss to the extent of the decrease previously charged. A decrease in carrying amount arising on the revaluation of such land and buildings is charged as an expense to the extent that it exceeds the balance, if any, held in the properties revaluation surplus relating to a previous revaluation of that asset.
Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment.
Gains and losses on disposal of an item of property and equipment are determined by comparing the proceeds from disposal with the carrying amount of property and equipment and are recognised net within “other operating income, net” in profit or loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.
114 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(e) Property and equipment (continued) (ii) Reclassification to investment property Property that is being constructed for future use as investment property is accounted for as property and equipment until construction or development is complete, at which time it is remeasured to fair value and reclassified as investment property. Any gain or loss arising on remeasurement is recognised in profit or loss.
When the use of a property changes from owner-occupied to investment property, the property is remeasured to fair value and reclassified as investment property. Any gain arising on remeasurement is recognised directly in the equity. Any loss is recognised immediately in profit or loss.
(iii) Subsequent costs The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred.
(iv) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Group will obtain ownership by the end of the lease term. Land is not depreciated.
The estimated useful lives for the current and comparative periods are as follows:
Description Year Buildings 50 Furniture and equipment 4-20 Motor vehicles 5-10
Leasehold improvements are amortised over the periods of the respective leases, also on a straight-line basis.
Depreciation methods, useful lives and residual values are reassessed at each reporting date.
Tangible assets purchased before 2005 at Garanti Bank and its subsidiaries are depreciated over their estimated useful lives on a straight line basis from the date of their acquisition. Assets acquired after this date are depreciated based on the declining balance method, one of the accelerated depreciation methods.
(f) Intangible assets (i) Goodwill Goodwill (negative goodwill) arises on the acquisition of subsidiaries, associates and joint ventures.
Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised immediately in profit or loss.
Acquisitions of minority interests Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of the additional investment over the carrying amount of the net assets acquired at the date of exchange.
Subsequent measurement Goodwill is measured at cost less accumulated impairment losses (see accounting policy 3m). In respect of associates, the carrying amount of goodwill is included in the carrying amount of the investment.
DOĞUŞ GROUP ANNUAL REPORT 2008 115 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(f) Intangible assets (continued) (ii) Other intangible assets Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment losses (see accounting policy 3m).
(iii) Subsequent expenditure Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in profit or loss as incurred.
(iv) Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill, from the date that they are available for use.
(g) Securities borrowing and lending business Investments lent under securities lending arrangements continue to be recognised in the consolidated balance sheet and are measured in accordance with the accounting policy for the related assets as appropriate. Cash collateral received in respect of securities lent is recognised as liabilities to either banks or customers. Investments borrowed under securities borrowing agreements are not recognised. Cash collateral placements in respect of securities borrowed are recognised under banking loans and advances to either banks or customers. Income and expenses arising from the securities borrowing and lending business are recognised on an accrual basis over the period of the transactions and are included in “Revenues” or “Cost of revenues”.
(h) Repurchase and resale agreements over investments The Group enters into purchases of investments under agreements to resell (“reverse repo”) substantially identical investments at a certain date in the future at a fixed price. Investments purchased subject to commitments to resell them at future dates are not recognised. The amounts paid are recognised in banking loans to either banks or customers. The receivables are shown as collateralised by the underlying security. Investments sold under repurchase agreements (“repo”) continue to be recognised in the consolidated balance sheet and are measured in accordance with the accounting policy for the related assets as appropriate. The proceeds from the sale of the investments are reported as “obligations under repurchase agreements”, a liability account.
Income and expenses arising from the repurchase and resale agreements over investments are recognised on an accrual basis over the period of the transactions and are included in “Revenues” or “Cost of revenues”.
(i) Investment property Investment property is property held either to earn rental income or for capital appreciation or for both but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at fair value with any change therein recognised in profit or loss.
When the use of a property changes such that it is reclassified as property and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.
(j) Leased assets Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Lease liabilities are reduced through repayments of principal, while the finance charge component of the lease payment is charged directly to profit or loss.
Other leases are operating leases and, except for investment property, the leased assets are not recognised on the Group’s consolidated balance sheet. Investment property held under an operating lease is recognised on the Group’s consolidated balance sheet at its fair value.
116 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(k) Inventories Inventories are measured at the lower of cost and net realisable value. Except as discussed in the following paragraphs, the cost of inventories is mainly based on the moving weighted average, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories cost includes an appropriate share of production overheads based on normal operating capacity.
Cost of trading goods and trading properties are determined on “specific identification” basis by the entities operating in automotive and construction businesses.
Trading properties comprised land and buildings that are held for trading purposes.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
(l) Construction work in progress Construction work in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognised to date less progress billings and recognised losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity.
Construction work in progress is presented as part of accounts receivable in the consolidated balance sheet. If payments received from customers exceed the income recognised, then the difference is presented as deferred income in the consolidated balance sheet.
The asset, “Due from customers for contract work” represents revenues recognised in excess of amounts billed. The liability, “Due to customers for contract work” represents billings in excess of revenues recognised.
(m) Impairment (i) Financial assets A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale financial asset is calculated by reference to its current fair value.
Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.
All impairment losses are recognised in profit or loss. Any cumulative loss in respect of an available-for-sale financial asset recognised previously in equity is transferred to profit or loss.
An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For financial assets measured at amortised cost and available-for-sale financial assets that are debt securities, the reversal is recognised in profit or loss. For available-for-sale financial assets that are equity securities, het reversal is recognised directly in equity.
(ii) Loans and receivables and held-to-maturity investments The recoverable amounts of banking loans and receivables and held-to-maturity instruments are calculated as the present values of the expected future cash flows discounted at the instrument’s original effective interest rate. Short-term balances are not discounted.
DOĞUŞ GROUP ANNUAL REPORT 2008 117 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(m) Impairment (continued) (ii) Loans and receivables and held-to-maturity investments (continued) Loans and receivables are presented net of specific and portfolio basis allowances for uncollectibility. Specific allowances are made against the carrying amounts of loans and receivables that are identified as being impaired based on regular reviews of outstanding balances to reduce these banking loans and receivables to their recoverable amounts. In assessing the recoverable amounts of banking loans and receivables, the estimated future cash flows are discounted to their present value. Portfolio basis allowances are maintained to reduce the carrying amount of portfolios of similar banking loans and receivables to their estimated recoverable amounts at the balance sheet date. The expected cash flows for portfolios of similar assets are estimated based on previous experience and considering the credit rating of the underlying customers and late payments of interest or penalties. Increases in the allowance account are recognised in profit or loss. When a banking loan is known to be uncollectible, all the necessary legal procedures have been completed, and the final loss has been determined, the loan is written off directly. If, in a subsequent period, the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write down, the write-down or allowance is reversed through profit or loss.
(iii) Financial assets remeasured to fair value The recoverable amount of an equity instrument is its fair value. The recoverable amount of debt instruments and purchased loans remeasured to fair value is calculated as the present value of the expected future cash flows discounted at the current market rate of interest.
Where an asset remeasured to fair value is impaired, the write-down is recognised in profit or loss.
If, in a subsequent period, the amount of impairment loss decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through profit or loss.
(iv) Non-financial assets The carrying amounts of the Group’s non-financial assets, other than investment property, inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated at each reporting date.
The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups of assets (“the cash generating unit”). The goodwill acquired in a business combination, for the purpose of impairment testing, is allocated to cash generating units that are expected to benefit from the synergies of the combination.
An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of cash- generating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.
118 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(m) Impairment (continued) (iv) Non-financial assets (continued) An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(n) Non-current assets held for sale Non-current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. Immediately before classification as held for sale, the assets (or components of a disposal group) are remeasured in accordance with the Group’s accounting policies. Thereafter generally the assets (or disposal group) are measured at the lower of their carrying amount and fair value less cost to sell. Any impairment loss on a disposal group first is allocated to goodwill, and then to remaining assets and liabilities on pro rata basis, except that no loss is allocated to inventories, financial assets, deferred tax assets and investment property, which continue to be measured in accordance with the Group’s accounting policies. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss. Gains are not recognised in excess of any cumulative impairment loss.
(o) Employee benefits (i) Defined benefit plan A defined benefit plan is a pension plan that defines an amount of pension benefit that an employee and his/her dependants will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.
Garanti Bank, jointly controlled entity, has a defined benefit plan (“the Plan”) for its employees namely Türkiye Garanti Bankası Anonim Şirketi Memur ve Müstahdemleri Emekli ve Yardım Sandığı Vakfı (“the Fund”). The Fund is a separate legal entity and a foundation recognised by an official decree, providing pension and post-retirement medical benefits to its all qualified employees. This benefit plan is funded through contributions of both by the employees and the employer as required by Social Security Law numbered 506 and these contributions are as follows:
2008 Employer % Employee % Pension contributions 15.5 10.0 Medical benefit contributions 6.0 5.0 2007 Employer % Employee % Pension contributions 15.5 10.0 Medical benefit contributions 6.0 5.0
This benefit plan is composed of a) the contractual benefits of the employees, which are subject to transfer to Social Security Foundation (“SSF”) (“pension and medical benefits transferable to SSF”) (see Note 30) and ii) other excess social rights and payments provided in the existing trust indenture but not transferable to SSF and medical benefits provided by Garanti Bank for its constructive obligation (“excess benefits”).
DOĞUŞ GROUP ANNUAL REPORT 2008 119 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(o) Employee benefits (continued) (i) Defined benefit plan (continued) Pension and medical benefits transferable to SSF As discussed in Note 30, Garanti Bank expects to transfer a portion of the obligation of the Fund to SSF. This transfer will be a settlement of that portion of the Fund’s obligation. Final legislation establishing the terms for this transfer was enacted on 8 May 2008. Although the settlement will not be recognised until the transfer is made, Garanti Bank believes that it is more appropriate to measure the obligation at 31 December 2008 as the value of the payment that would need to be made to SSF to settle the obligation at the balance sheet date in accordance with the Temporary Article 20 of the Law No.5754: “Law regarding the changes in Social Insurance and General Health Insurance Law and other laws and regulations” (“the New Law”).
The pension disclosures set out in Note 30 reflect the actuarial assumptions and mortality tables specified in the New Law, including a discount rate of 9.80 percent.
The pension benefits transferable to SSF are calculated annually by an independent actuary, who is registered with the Undersecretariat of the Treasury.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are directly charged to profit or loss.
Excess benefits not transferable to SSF The excess benefits, which are not subject to the transfer, are accounted in accordance with IAS 19, “Employee Benefits”. The obligation in respect of the retained portion of the defined benefit pension plan is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value by using the projected unit credit method, and any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is a floating discount rate between 17.41 - 10.51 percent as of 31 December 2008 (31 December 2007: 16.77 – 10.17 percent).
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are directly charged to profit or loss.
(ii) Reserve for employee severance indemnity Reserve for employee severance indemnity represents the present value of the estimated future probable obligation of the Group arising from the retirement of the employees and calculated in accordance with the Turkish Labour Law. It is computed and reflected in the consolidated financial statements on an accrual basis as it is earned by serving employees. The computation of the liabilities is based upon the retirement pay ceiling announced by the Government. The ceiling amounts applicable for each year of employment were YTL 2,173.18 and YTL 2,030.19 at 31 December 2008 and 2007, respectively.
International Financial Reporting Standards require actuarial valuation methods to be developed to estimate the entity’s obligation under defined benefit plans. The principal statistical assumptions used in the calculation of the total liability in the accompanying consolidated financial statements at 31 December were as follows:
2008 2007 % % Discount rate 6.26 5.71 Turnover rate to estimate the probability of retirement 1.0-8.70 3.0-8.0
120 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(p) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.
(i) Warranties A provision for warranties is recognised when the underlying products or services are sold. The provision is based on historical warranty data and a weighting of all possible outcomes against their associated probabilities.
The warranties on automobiles sold by the Group are issued by the producers (Volkswagen, Audi, Porsche, Seat, Scania, Krone) where the Group acts as an intermediary between the customers and the producer. The claims of customers to the Group are recognised as warranty expense. The Group recognises the amount claimed from the producers as warranty income and offset against warranty expense. The Group incurs the cost that is not paid by the manufacturers. Accordingly, the Group recognises the estimated liability for the difference between possible warranty claims of customers and possible warranty claims from producers based on historical service statistics.
(ii) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.
(q) Revenue and cost recognition (i) Banking and finance business Interest income and expense: Interest income and expense are recognised in profit or loss as they accrue, except for interest income on overdue loans, taking into account the effective yield of the asset or an applicable floating rate. Interest income on overdue loans that are under legal follow up is recognised on cash basis. Interest income and expense include the amortisation of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount at maturity calculated on an effective interest rate basis.
Fee and commission income: Fee and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.
Trading gain (loss), net: Trading gain/(loss) includes gains and losses arising from disposals of financial assets at fair value through profit or loss and available-for-sale.
DOĞUŞ GROUP ANNUAL REPORT 2008 121 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(q) Revenue and cost recognition (continued) (ii) Insurance business Premium income: For short-term insurance contracts, premiums are recognised as revenue (earned premiums), net of premium ceded to reinsurer firms, proportionately over the period of coverage. The portion of premium received on in- force contracts that relates to unexpired risks at balance sheet date is recognised as the reserve for unearned premiums that are calculated on a daily pro-rata basis. Premiums are shown before deduction of commissions and deferred acquisition cost, and are gross of any taxes and duties levied on premiums. For long-term insurance contracts, premiums are recognised as revenue when the premiums are due from the policyholders. Premiums received for long-term insurance contracts with discretionary participation feature (“DPF”), are not recognised as revenue, insurance premiums for such contracts are recognized directly as liabilities.
Unearned premium reserve: Unearned premiums are those proportions of the premiums written in a period that relate to the period of risk subsequent to the balance sheet date for all short-term insurance policies. In accordance with the incumbent legislation on the computation of insurance contract liabilities, unearned premium reserve set aside for unexpired risks as at the balance sheet dates, has been computed on daily pro-rata basis. The change in the provision for unearned premium is recognised in profit or loss in the order that revenue is recognised over the period of risk.
Claims and provision for outstanding claims: Claims are recognised in the period in which they occur, based on reported claims or on the basis of estimates when not reported. The claims provision is the total estimated ultimate cost of settling all claims arising from events, which have occurred up to the end of the accounting period. Full provision is accounted for outstanding claims, including claim settlements reported at the period-end. Incurred but not reported claims (“IBNR”) are also provided for under the provision for outstanding claims.
Provision for future policy benefit: Provision for future policy benefits are the difference between the net present values of premiums collected in return of the risk covered by the company and the liabilities to policyholders. Provision for future benefits is the sum of the remainder of collected premiums and accumulated life insurance provision. Provision for future benefits is computed on the basis of actuarial mortality assumptions as approved by the Turkish Treasury Insurance Department, which are applicable for Turkish Insurance Companies.
Liability adequacy test: At each balance sheet date, asset-liability adequacy tests are performed to ensure the adequacy of the contract liabilities, net of related deferred acquisition cost. In performing these tests, current best estimates of future cash flows are used. Any deficiency is immediately charged to profit or loss.
Income generated from pension business: Revenue arising from asset management and other related services offered by the insurance subsidiary of Garanti Bank are recognised in the accounting period in which the service is rendered. Fees consist primarily of investment management fees arising from services rendered in conjunction with the issue and management of investment contracts where the company actively manages the consideration received from its customers to fund a return that is based on the investment profile that the customer selected on origination of the instrument. These services comprise the activity of trading financial assets in order to reproduce the contractual services. In all cases, these services comprise an indeterminate number of acts over the life of the individual contracts.
122 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(q) Revenue and cost recognition (continued) (iii) Construction contracts Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue and expenses are recognised in profit or loss in proportion to the stage of completion of the contract. Contract revenue and expenses are recognised in profit or loss in proportion to the stage of completion of the contract.
The stage of completion is assessed by reference to the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss.
(iv) Commissions When the Group acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognised is the net amount of commission made by the Group.
(v) Rental income Rental income from investment property is recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease.
(vi) Other businesses Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates. Revenue is recognised when the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, and there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.
Transfers of risks and rewards vary depending on the individual terms of the contract of sale.
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at the reporting date.
(vii) Research and development costs Expenditure on research activities is recognised in profit or loss when incurred.
(viii) Dividend income Dividend income is recognised on the date that the Group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.
(r) Government grants Government grants are recognised initially as deferred income when there is reasonable assurance that they will be received and that the Group will comply with the conditions associated with the grant. Grants that compensate the Group for expenses incurred are recognised in profit or loss on a systematic basis in the same periods in which the expenses are recognised. Grants that compensate the Group for the cost of an asset are recognised in profit or loss on a systematic basis over the useful life of the asset.
DOĞUŞ GROUP ANNUAL REPORT 2008 123 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
3 Significant accounting policies (continued)
(s) Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are accounted for by revising the minimum lease payments over the remaining term of the lease when the lease adjustment is confirmed.
(t) Finance income and finance expense Finance income comprises interest income on funds invested, foreign currency gains, and gains on derivative instruments that are recognised in profit or loss. Interest income is recognised as it accrues, using the effective interest method.
Finance expenses comprise interest expense on borrowings, foreign currency losses, and losses on derivative instruments that are recognised in profit or loss. All borrowing costs are recognised in profit or loss using the effective interest method unless if it meets the qualifying asset criteria for to capitalise. Foreign currency gains and losses are reported on a gross basis.
(u) Income tax Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years.
Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they probably will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities but they intend to settle current tax liabilities and assets on a net basis or their tax assets on a net basis or their tax assets and liabilities will be realised simultaneously.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.
Deferred taxes related to fair value measurement of available for sale assets and cash flow hedges are charged or credited to equity and subsequently recognized in profit or loss together with the deferred gains that are realised.
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3 Significant accounting policies (continued)
(v) Offsetting Financial assets and liabilities are offset and the net amount presented in the consolidated balance sheet when, and only when, there is a legally enforceable right to set off the amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.
Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains and losses from a group of similar transactions.
(w) Items held in trust Assets, other than cash deposits held by the Group in fiduciary or agency capacities for its customers and government entities, are not included in the accompanying consolidated balance sheet, since such items are not under the ownership of the Group.
(x) Financial guarantees The financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because of a specified debtor fails to make payment when due in accordance with the terms of a debt instrument.
Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment (when a payment under the guarantee has become probable).
(y) Discontinued operations A discontinued operation is a component of the Group’s business that represents a separate major line of business or geographical area of operations that has been disposed of or is held for sale, or is a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon disposal or when the operation meets the criteria to be classified as held for sale, if earlier. When an operation is classified as a discontinued operation, the comparative income statement is re-presented as if the operation had been discontinued from the start of the comparative period.
(z) Segment reporting A segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. Segment information is presented in respect of the Group’s business and geographical segments. The Group’s primary format for segment reporting is based on business segments. The business segments are determined based on the Group’s management and internal reporting structure.
Inter-segment pricing is determined on an arms length basis.
Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly deferred tax assets, prepaid taxes and interest earning assets of non-finance segments. Unallocated liabilities comprise deferred tax liabilities, taxes payable on income and interest bearing liabilities of other corporate segments.
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3 Significant accounting policies (continued)
(z) Segment reporting (continued) Segment capital expenditure is the total cost incurred during the period to acquire property and equipment and intangible assets other than goodwill.
(aa) De-merger/ Spin off Economically a de-merger represents a division of an entity into separate parts. The result of a de-merger is that the same shareholders own the same group of businesses; the shareholders structure and their ownership interests are identical both before and after the de-merger. In the absence of further guidance in IFRS, the Group has accounted the de-merger via book values.
(bb) New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2008, and have not been applied in preparing these financial statements:
• IFRS 8 Operating Segments introduces the “management approach” to segment reporting. IFRS 8, which becomes mandatory for the Group’s 2009 consolidated financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Group’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. Currently the Group presents segment information in respect of its business and geographical segments (see note 6).
• Revised IAS 1 Presentation of Financial Statements (2007) introduces the term total comprehensive income, which represents changes in equity during a period other than those changes resulting from transactions with owners in their capacity as owners. Total comprehensive income may be presented in either a single statement of comprehensive income (effectively combining both the income statement and all non-owner changes in equity in a single statement), or in an income statement and a separate statement of comprehensive income. Revised IAS 1, which becomes mandatory for the Group’s 2009 consolidated financial statements, is expected to have a significant impact on the presentation of the consolidated financial statements. The Group plans to provide total comprehensive income in a single statement of comprehensive income for its 2009 consolidated financial statements.
• Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements – Puttable Financial Instruments and Obligations Arising on Liquidation requires puttable instruments, and instruments that impose on the 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 if certain conditions are met. The amendments, which become mandatory for the Group’s 2009 consolidated financial statements, with retrospective application required, are not expected to have any impact on the consolidated financial statements.
126 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
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3 Significant accounting policies (continued)
(bb) New standards and interpretations not yet adopted (continued) • Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to the Group’s operations:
- the definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations. - contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss. - transaction costs, other than share and debt issue costs, will be expensed as incurred. - any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss. - any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.
• Revised IFRS 3, which becomes mandatory for the Group’s 2010 consolidated financial statements, will be applied prospectively and therefore there will be no impact on prior periods in the Group’s 2010 consolidated financial statements.
• Amended IAS 27 Consolidated and Separate Financial Statements (2008) requires accounting for changes in ownership interests by the Group in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to IAS 27, which become mandatory for the Group’s 2010 consolidated financial statements, are not expected to have a significant impact on the consolidated financial statements.
• Amendment to IFRS 2 Share-based Payment – Vesting Conditions and Cancellations clarifies the definition of vesting conditions, introduces the concept of non-vesting conditions, requires non-vesting conditions to be reflected in grant- date fair value and provides the accounting treatment for non-vesting conditions and cancellations. The amendments to IFRS 2 will become mandatory for the Group’s 2009 consolidated financial statements, with retrospective application, and are not expected to have any impact on the consolidated financial statements.
• Amendments to IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items clarify the application of existing principles that determine whether specific risks or portions of cash flows are eligible for designation in a hedging relationship. The amendments will become mandatory for the Group’s 2010 consolidated financial statements, with retrospective application required. It is not expected to have any impact on the consolidated financial statements.
• IFRIC 15 Agreements for the Construction of Real Estate will standardise accounting practice across jurisdictions for the recognition of revenue among real estate developers for sales of units, such as apartments or houses before construction is complete. The Interpretation is effective for annual periods beginning or after 1 January 2009. The management assessment for the effects of IFRIC 15 on the consolidated financial statements continues as at the date of this report.
DOĞUŞ GROUP ANNUAL REPORT 2008 127 Doğuş Holding Anonim Şirketi and its Subsidiaries
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3 Significant accounting policies (continued)
(bb) New standards and interpretations not yet adopted (continued) • IFRIC 16 Hedges of a Net Investment in a Foreign Operation clarifies that:
- net investment hedging can be applied only to foreign exchange differences arising between the functional currency of a foreign operation and the parent entity’s functional currency and only in an amount equal to or less than the net assets of the foreign operation, - the hedging instrument may be held by any entity within the group except the foreign operation that is being hedged, - on disposal of a hedged operation, the cumulative gain or loss on the hedging instrument that was determined to be effective is reclassified to profit or loss.
The Interpretation allows an entity that uses the step-by-step method of consolidation an accounting policy choice to determine the cumulative currency translation adjustment that is reclassified to profit or loss on disposal of a net investment as if the direct method of consolidation had been used. IFRIC 16, which becomes mandatory for the Group’s 2009 consolidated financial statements, applies prospectively to the Group’s existing hedge relationships and net investments and is not expected to have any effect on the consolidated financial statements.
• IFRIC 17 Distributions of Non-cash Assets to Owners requires entities to recognise certain distributions of non-cash assets at fair value, and to recognise in profit or loss the difference between the fair value of the assets distributed and their carrying amounts. IFRIC 17 provides guidance on when and how a liability for certain distributions of non-cash assets is recognised and measured, and how to account for settlement of that liability. Transactions within its scope will need to be measured at fair value. IFRIC 17 is effective for annual periods beginning on or after 1 July 2009; earlier application is permitted only if IFRS 3 Business Combinations (2008), IAS 27 Consolidated and Separate Financial Statements (2008) and the related amendments to IFRS 5 are applied at the same time. The interpretation is not expected to have any effect on the consolidated financial statements of the Group.
• IFRIC 18 Transfers of Assets from Customers provides guidance on transfers of property, plant and equipment (or cash to acquire it) for entities that receive such contributions from their customers. IFRIC 18 applies prospectively to transfers of assets from customers received on or after 1 July 2009; earlier application is permitted provided that the necessary valuations and other information were obtained at the time that those transfers occurred. The interpretation is not expected to have significant effect on the consolidated financial statements.
• Amendments to IAS 36 Impairment of Assets require that disclosures equivalent to those for value-in-use calculation should be made, where fair value less costs to sell is calculated on the basis of discounted cash flows. The amendment is effective for annual periods beginning on or after 1 January 2009, and is not expected to have any impact on the consolidated financial statements of the Group.
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3 Significant accounting policies (continued)
(bb) New standards and interpretations not yet adopted (continued) • Amendments to IAS 38 Intangible Assets clarify that:
- expenditure in respect of advertising and promotional activities should be recognised as an expense when the benefit of those goods or services is available to the entity; for example, in respect of the acquisition of goods, an expense should be recognised when the entity has the right to access those goods; - a prepayment should be recognised only for payments made in advance of the receipt of the corresponding goods or services; and - catalogues are considered to be a form of advertising and promotional material rather than inventory.
The amendments are effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier, and are not expected to have any impact on the consolidated financial statements of the Group.
• Amendments to IAS 38 Intangible Assets remove the observation that there is rarely, if ever, persuasive evidence to support an amortisation method for intangible assets with finite useful lives that results in a lower amount of accumulated amortisation than under the straight-line method. The IASB has deleted this observation in order to avoid giving the impression that the units-of-production amortisation method is not allowed if it results in a lower amount of accumulated amortisation than under the straight-line method. The amendment is effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier, and is not expected to have any impact on the consolidated financial statements of the Group.
• The amendments to IAS 40 Investment Property bring that the property that is under construction or development for future use as investment property is within the scope of IAS 40. Where the fair value model is applied, such property is, therefore, measured at fair value. However, where fair value of investment property under construction is not reliably measurable, the property is measured at cost until the earlier of the date construction is completed and the date at which fair value becomes reliably measurable. The amendments are effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier, and are not expected to have any impact on the consolidated financial statements of the Group.
• The amendments to IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations require an entity which is committed to a sale plan involving loss of control of a subsidiary to classify all the assets and liabilities of that subsidiary as held for sale when the criteria for classification as held for sale in IFRS 5 are met, regardless of whether the entity will retain a non-controlling interest in its former subsidiary after the sale. Relevant disclosure should be made for this subsidiary if the definition of a discontinued operation is met. A consequential amendment to IFRS 1 First-time Adoption of International Financial Reporting Standards states that these amendments are applied prospectively from the date of transition to IFRSs. The amendment is effective for annual periods beginning on or after 1 July 2009, although entities are permitted to adopt them earlier if the amendments to IAS 27 Consolidated and Separate Financial Statements also are applied, and is not expected to have any impact on the consolidated financial statements of the Group.
DOĞUŞ GROUP ANNUAL REPORT 2008 129 Doğuş Holding Anonim Şirketi and its Subsidiaries
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3 Significant accounting policies (continued)
(bb) New standards and interpretations not yet adopted (continued) • Amendments to IAS 16 Property, Plant and Equipment bring changes for presentation issues that arise from assets that are rented and then subsequently sold on a routine basis. The amendment results in such assets being transferred to inventories at their carrying amount when they cease to be rented and become held for sale and the proceeds from the sale of such assets would be recognised as revenue in accordance with IAS 18 Revenue. The amendment is effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier, and is not expected to have any impact on the consolidated financial statements of the Group.
• The amendments to IAS 29 Financial Reporting in Hyperinflationary Economies require to reflect the fact that a number of assets and liabilities are measured at fair value rather than historical cost. The amendment is effective for annual periods beginning on or after 1 January 2009, and is not expected to have any impact on the consolidated financial statements of the Group.
• Amendments to IAS 19 Employee Benefits:
- specify that the distinction between short-term and long-term employee benefits is that short-term employee benefits are those that are due to be settled within 12 months of the end of the period in which the employee renders the related service. As a result, the amendment replaces in IAS 19 the term “fall due” in the definition of short-term employee benefits with the term “due to be settled” and replaces the term “do not fall due” in the definition of other long-term employee benefits with the term “are not due to be settled”. - clarify that the deduction of plan administration costs is appropriate only to the extent that they are not reflected in the measurement of the defined benefit obligation. In other words, costs of administering the plan may be either recognised in the return on plan assets or included in the actuarial assumptions used to measure the defined benefit obligation. - clarify that a plan amendment that results in a change in the extent to which benefit promises are affected by future salary increases is a curtailment, while an amendment that changes benefits attributable to past service gives rise to a negative past service cost if it results in a reduction in the present value of the defined benefit obligation.
The amendment is effective for annual periods beginning on or after 1 January 2009, although entities are permitted to adopt them earlier, and is not expected to have any impact on the consolidated financial statements of the Group.
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3 Significant accounting policies (continued)
(cc) Early adopted standards and interpretations • Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalize borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as a part of the cost of that asset. The revised IAS 23 will become mandatory for the Group’s 2009 consolidated financial statements, however the Group has early adopted the revised IAS 23 in the accompanying consolidated financial statements.
• IFRIC 13 Customer Loyalty Programmes addresses the accounting by entities that operate or otherwise participate in customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13 becomes mandatory for the Group’s 2009 consolidated financial statements however the Group has early adopted this interpretation in the accompanying consolidated financial statements by using one of the relevant approaches that the future cost for the obligation to deliver the award should be recognised as an expense at the time of gaining the awards.
4 Determination of fair values
A number of the Group’s accounting policies and disclosures require the determination of fair value, for both financial and non-financial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. When applicable, further information about the assumptions made in determining fair values is disclosed in the notes specific to that asset or liability.
(a) Property and equipment The fair value of property and equipment recognised as a result of a business combination is based on market values. The market value of property is the estimated amount for which a property could be exchanged on the date of valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion. The Group reflects land and buildings at their fair values as appraised by independent third party appraisers. The fair values of land and buildings are determined based on the discounted cash flow method, depreciable replacement cost or market prices for similar item.
(b) Intangible assets The fair value of intangible assets acquired in a business combination is based on the discounted cash flows expected to be derived from the use and eventual sale of the assets.
(c) Investment property An external, independent valuation company, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the Group’s investment property portfolio every year. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently and without compulsion.
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4 Determination of fair values (continued)
(c) Investment property (continued) In the absence of current prices in an active market, the valuations are prepared by considering the aggregate of the estimated cash flows expected to be received from renting out the property. A yield that reflects the specific risks inherent in the net cash flows then is applied to the net annual cash flows to arrive at the property valuation.
Valuations reflect, when appropriate; the type of tenants actually in occupation or responsible for meeting lease commitments or likely to be in occupation after letting vacant accommodation, and the market’s general perception of their creditworthiness; the allocation of maintenance and insurance responsibilities between the Group and the lessee; and the remaining economic life of the property. When rent reviews or lease renewals are pending with anticipated reversionary increases, it is assumed that all notices and where appropriate counter-notices have been served validly and within the appropriate time.
(d) Inventories The fair value of inventories acquired in a business combination is determined based on its estimated selling price in the ordinary course of business less the estimated costs of completion and sale, and a reasonable profit margin based on the effort required to complete and sell the inventories.
(e) Investments in equity and debt securities The fair value of financial assets at fair value through profit or loss, held-to-maturity investments and available-for-sale financial assets is determined by reference to their quoted bid price at the reporting date. The fair value of held-to- maturity investments is determined for disclosure purposes only.
(f) Trade and other receivables The fair value of trade and other receivables, excluding construction work in progress, is estimated as the present value of future cash flows, discounted at the market rate of interest at the reporting date.
(g) Derivatives The fair values of forward exchange contracts, options and other derivative contracts are based on their listed market prices, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price for the residual maturity of the contract using a risk- free interest rate (based on government bonds).
The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date.
(h) Non-derivative financial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. For finance leases the market rate of interest is determined by reference to similar lease agreements.
132 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
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5 Financial risk management
(a) Overview The Group has exposure to the following risks from its use of financial instruments:
• credit risk • liquidity risk • market risk • operational risk
This note presents information about the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring and managing risks, and the Group’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.
Corporate Risk Management efforts have been initiated by the Group since 2006. These efforts have been executed by Doğuş Holding Risk Management Department since November 2006.
Among the Group’s key institutional responsibilities, the Group coordinates and monitors the Group risk management application through corporate risk management, and identifies investor and shareholder risk preference.
The Group’s risk management vision is defined as, identifying variables and uncertainties that will impact the Group’s objectives, conducting proactively and managing through the most appropriate steps, supervising the implementation of steps in line with the shareholders’ risk preference.
Corporate Risk Management activities are executed within the Group as a whole in the following fields:
• Determining risk management standards and policies, • Developing a uniform risk management oriented work culture and capabilities, • Conducting risk analysis of existing and potential investments, • Creating a senior administration vehicle reporting on the risks of new investments of a company, sector or group, • Determining risk limitations and action plans, • Supporting the implementation of these action plans, • Supporting strategic processes with a risk management approach.
Doğuş Holding’s Risk Management Department, established with an effort to implement Risk Management across the Group, is under the supervision of Doğuş Holding’s Chief Executive Officer (“CEO”) and Risk Management Committee of the Board of Directors.
The latter determines shareholder risk preference, ensuring that appropriate risk management applications are in place. Doğuş Holding’s CEO has the ultimate responsibility for Corporate Risk Management.
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5 Financial risk management (continued)
(b) Risk management framework for the automotive segment It is composed of forming internal audit and risk management policies and strategies and controlling their operability and finally it is included in the functions of the Doğuş Otomotiv Servis ve Ticaret Anonim Şirketi (“DOAŞ”) Board of Directors. Financial risks are monitored by the Office of Finance Coordinator and reported to the Board of Directors and the Audit Committee. Operational risks are being managed by the brand directors in accordance with DOAŞ’s policies based on the Internal Audit Department’s findings. DOAŞ Board of Directors has assigned the Audit Committee formed by the Board members to implement the function of audit. DOAŞ Audit Committee carries out its activities within the terms of Audit Committee Rules. Pursuant to this, there is an Internal Audit Department supervising internal control mechanisms which continues its activities within the scope of DOAŞ Audit Department Regulation prepared in accordance with International Internal Auditing Standards.
Once in every three months at minimum, Internal Audit department gives information on the audit findings and the issues that require taking actions when necessary.
(c) Risk management framework for the banking and finance segment Developing risk management policies and strategies, and controlling these functions are among the responsibilities of Garanti Bank Board of Directors. Consequently, the Risk Management Department, which carries out the risk management activities and works independently from executive activities, report directly to the Board of Directors of Garanti Bank.
Garanti Bank’s Board of Directors monitors the effectiveness of the risk management system through the audit committee, other related committees and senior management.
Garanti Bank’s risk management policy is established on its maintainable long term, value adding growth strategy. This policy is measuring risks with the methods in compliance with its activities and international standards, and optimal allocation of economic capital to business lines considering the risk-return balance.
The Risk Management System consists of all the mechanisms related to establishment of standards, information flow, determination of the compliance with standards, decision making and applications processes; which were put into practice by the Board of Directors of Garanti Bank in order to monitor, control and change when deemed necessary the risk-return structure and the future cash flows of Garanti Bank and its subsidiaries and the quality and the level of related activities.
The risks are measured with the internationally accepted methodologies in compliance with local and international regulations, Garanti Bank’s structure, policies and procedures. They are effectively managed and assessed in a continuously growing manner. At the same time, studies for compliance with the international banking applications, such as Basel II, are carried out.
In order to ensure compliance with the rules altered pursuant to the Articles 23, 29 and 31 of the Banking Law No. 5411 and the Articles 36 and 43 of Regulation on Internal Systems within the Banks, dated 1 November 2006, Garanti Bank revised its written policies and implementation procedures regarding management of each risk encountered in its activities in February 2007.
Garanti Bank has purchased an integrated software system to place better risk management and Basel II applications in order to support and improve risk management activities. Garanti Bank aims to establish the Basel II applications in line with the roadmap of BRSA.
134 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
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5 Financial risk management (continued)
(c) Risk management framework for the banking and finance segment (continued) (i) Audit Committee The Audit Committee consists of two members of the Board of Directors of Garanti Bank who do not have any executive functions. The Audit Committee, which was established to assist the Board of Directors of Garanti Bank in its auditing and supervising activities, is responsible for:
• The supervision of the efficiency and effectiveness of the internal control, risk management and internal audit systems of Garanti Bank, functioning of these systems as well as accounting and reporting systems within the framework of related procedures, and the integrity of information generated; • The preliminary assessment on the selection process of independent audit firms and the systematic monitoring of the activities of these companies; • The maintenance and coordination of the internal audit functions of subsidiaries subject to consolidated internal audits.
(ii) Other committees Market, credit and operational sub-risk committees have been established in order to support the implementation of risk management and internal audit systems within Garanti Bank by sharing information with the involved units.
(iii) Derivative financial instruments Garanti Bank and its subsidiaries enter into a variety of derivative financial instruments for hedging and risk management purposes. This note describes the derivatives used. Further details of the objectives and strategies in the use of derivatives are set out in the sections of this note on non-trading activities. Details of the nature and terms of derivative instruments outstanding at the balance sheet dates are set out in Note 37. Derivative financial instruments used include swaps, futures, forwards, options and other similar types of contracts whose values change in response to the changes in interest rates, foreign exchange rates and gold prices. Derivatives are individually negotiated over-the-counter contracts. A description of the main types of derivative instruments used is set out below:
Swaps Swaps are over-the-counter agreements to exchange future cash flows based upon agreed notional amounts. Most commonly used swaps are currency swaps. Garanti Bank and its subsidiaries are subject to credit risk arising from the respective counterparties’ failure to perform. Market risk arises from the possibility of unfavorable movements in market rates relative to the contractual rates of the contract.
Futures and forwards Futures and forward contracts are commitments to either purchase or sell a designated financial instrument, currency, commodity or an index at a specified future date for a specified price and may be settled in cash or another financial asset. Futures are standardised exchange-traded contracts whereas forwards are individually traded over-the-counter contracts. Initial margin requirements for futures are met in cash or other instruments, and changes in the future contract values are settled daily. Therefore credit risk is limited to the net positive change in the market value for a single day. Futures contracts have little credit risk because the counterparties are futures exchanges. Forward contracts result in credit exposure to the counterparty. Futures and forward contracts both result in exposure to market risk based on changes in market prices relative to contracted amounts.
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5 Financial risk management (continued)
(c) Risk management framework for the banking and finance segment (continued) (iii) Derivative financial instruments (continued)
Options Options are derivative financial instruments that give the buyer, in exchange for a premium payment, the right, but not the obligation, to either purchase from (call option) or sell (put option) to the writer a specified underlying at a specified price on or before a specified date. Garanti Bank enters into foreign exchange options. Foreign currency options provide protection against rising or falling currency rates. Garanti Bank, as a buyer of over-the-counter options, is subject to market risk and credit risk since the counterparty is obliged to make payments under the terms of the contract if Garanti Bank exercises the option. As the writer of over-the-counter options, Garanti Bank is subject to market risk only since it is obliged to make payments if the option is exercised.
(iv) Trading activities Garanti Bank and its subsidiaries maintain active trading positions in non-derivative financial instruments. Most of the trading activities are customer driven. In anticipation of customer demand, an inventory of capital market instruments is carried and access to market liquidity is maintained by quoting bid and offer prices to and trading with other market makers. Positions are also taken in the interest rate, foreign exchange, debt and equity markets based on expectations of future market conditions. These activities constitute the proprietary trading business and enable Garanti Bank and its subsidiaries to provide customers with capital market products at competitive prices. As trading strategies depend on both market-making and proprietary positions, given the relationships between instruments and markets, those are managed in concert to maximize net trading income. Trading activities are managed by type of risk involved and on the basis of the categories of trading instruments held.
(d) Credit risk (i) Banking and finance segment Garanti Bank and its subsidiaries’ counterparty credit exposure at the balance sheet date from financial instruments held or issued for trading purposes is represented by the fair value of instruments with a positive fair value at that date, as recorded on the consolidated balance sheet. Notional amounts disclosed in the notes to the consolidated financial statements do not represent the amounts to be exchanged by the parties to derivatives and do not measure the exposure to credit or market risks. The amounts to be exchanged are based on the terms of the derivatives.
The risk that counterparties to trading instruments might default on their obligations is monitored on an ongoing basis. In monitoring credit risk exposure, consideration is given to trading instruments with a positive fair value and to the volatility of the fair value of trading instruments. To manage the level of credit risk, Garanti Bank and its subsidiaries deal with counterparties of good credit standing, enter into master netting agreements whenever possible, and when appropriate, obtain collateral. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.
Garanti Bank and its subsidiaries are subject to credit risk through its trading, lending, hedging and investing activities and in cases where they act as intermediaries on behalf of customers or other third parties or issues guarantees.
Credit risk associated with trading and investing activities is managed through Garanti Bank’s market risk management process.
136 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(d) Credit risk (continued) (i) Banking and finance segment (continued) Garanti Bank and its subsidiaries’ primary exposures to credit risk arise through loans and advances. The amount of credit exposure in this regard is represented by the carrying amounts of these assets on the balance sheet. Garanti Bank developed a statistical-based internal risk rating model for its credit portfolio of corporate/commercial/medium- sized companies. This internal risk rating model has been in use for customer credibility assessment since 2003. Risk rating has become a requirement for loan applications, and ratings are used both to determine branch managers’ credit authorisation limits and in credit assessment process.
Garanti Bank and its subsidiaries are exposed to credit risk on various other financial assets, including derivative instruments used for hedging and debt investments. The current credit exposure in respect of these instruments is equal to the carrying amount of these assets in the balance sheet. In addition, Garanti Bank and its subsidiaries are exposed to off balance sheet credit risk through guarantees issued (Note 39).
The risk that counterparties to both derivative and other instruments might default on their obligations is monitored on an ongoing basis. To manage the level of credit risk, Garanti Bank and its subsidiaries deal with counterparties of good credit standing, enter into master netting agreements whenever possible, and when appropriate, obtain collateral.
Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for groups of counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions.
Impaired loans Impaired loans are those which Garanti Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreement due to lack of assets, high debtness ratio, insufficient working capital and/or equity of the customer.
Allowance for impaired loans Garanti Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a portfolio-basis loan loss allowance established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.
Write-off policy Garanti Bank writes off a receivable balance (and any related allowances for impairment losses) when it is determined that the receivable is uncollectible based on the evidence of insolvency issued by the Court. In cases where any possible collections are negligible comparing to the prospective expenses and costs, such receivables are written off by the decision of the Board of Directors.
Collateral policy Garanti Bank’s policy is to require suitable collateral to be provided by certain customers prior to the disbursement of approved loans. Garanti Bank and its subsidiaries currently hold collateral against banking loans and advances to customers in the form of mortgage interests over property, other registered securities over assets and guarantees. Collateral generally is not held over banking loans and advances to banks, except when securities are held as part of reverse repurchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held at 31 December 2008 and 2007.
DOĞUŞ GROUP ANNUAL REPORT 2008 137 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(d) Credit risk (continued) (i) Banking and finance segment (continued) Collateral policy (continued) Approximately 72 percent (2007: 74 percent) of the outstanding performing loans are collateralised. Guarantees and letters of credit are also subject to strict credit assessments before being provided. The agreements specify monetary limits to Garanti Bank and its subsidiaries’ obligations. The extent of collateral held for performing guarantees and letters of credit is approximately 82 percent (2007: 79 percent).
(ii) Other corporate segments Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and investment securities.
Accounts receivable The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer in which the segments other than banking and finance entities operate. The demographics of the Group’s customer base, including the default risk of the industry and country in which customers operate has an influence on credit risk. Since the Group operates in construction, automotive, media, real estate and tourism businesses, geographically the concentration of credit risk for the Group’s entities operating in the mentioned businesses are mainly in Turkey.
Majority of accounts receivable in the automotive business segments are due from dealers. Entities operating under automotive business segment have set an effective control mechanism to follow up and limit the risk for each counter party and obtain letters of guarantee from its dealers against its receivables for vehicle and spare part sales.
The companies operating under the segments other than banking and finance segment and automotive segment have set a credit policy under which each new customer is analysed individually for the creditworthiness before each company’s standard payment and delivery terms and conditions are offered.
In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are a dealer, tourism agency, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties.
The Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of accounts receivable. The component of this allowance is a specific loss component that relates to individually significant exposures.
The Group establishes an allowance for impairment losses that represent its estimate of incurred losses in its receivables portfolio. The Group sets impairment for its receivables if there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount, being the present value of all cash flows, including amounts recoverable from guarantees and collateral discounted based on the original effective interest rate of the originated receivables at inception.
138 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(ii) Other corporate segments (continued) Guarantees In general terms, the Group’s policy is to provide guarantees to its group enterprises in terms of sureties, letters of guarantee in the nature of the businesses that each entity operates.
(e) Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation.
(i) Banking and finance segment Liquidity risk arises in the general funding of Garanti Bank and its subsidiaries’ activities and in the management of positions. It includes both the risk of being unable to fund assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame.
Garanti Bank and its subsidiaries have access to a diverse funding base. Funds are raised using a broad range of instruments including deposits, syndications, securitisations, bonds issuance, other funding sources and share capital. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. Garanti Bank strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. Liquidity risk is continuously assessed through identifying and monitoring changes in funding required for meeting business goals and targets set in terms of the overall strategy. In addition, a portfolio of liquid assets is held as a part of Garanti Bank’s liquidity risk management strategy.
Exposure to liquidity risk The calculation method used to measure Garanti Bank’s compliance with the liquidity limit is set by BRSA. Currently, this calculation is performed on a bank only basis. In November 2006, BRSA issued a new communiqué on the measurement of liquidity adequacy of banks. The legislation requires the banks to meet minimum 80 percent liquidity ratio of foreign currency assets/liabilities and minimum 100 percent liquidity ratio of total assets/liabilities on a weekly and monthly basis effective from 1 June 2007.
Garanti Bank’s liquidity ratios in are as follows:
2008 First Maturity Bracket (Weekly) Second Maturity Bracket (Monthly)
FC FC + YTL FC FC + YTL Average (%) 168.14 149.56 110.42 108.99 Maximum (%) 215.04 179.94 126.94 119.54 Minimum (%) 137.44 126.82 95.14 100.70
2007 First Maturity Bracket (Weekly) Second Maturity Bracket (Monthly)
FC FC + YTL FC FC + YTL Average (%) 205.49 188.04 127.36 123.78 Maximum (%) 251.92 212.33 147.16 130.54 Minimum (%) 158.32 148.21 112.59 116.03
DOĞUŞ GROUP ANNUAL REPORT 2008 139 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(e) Liquidity risk (continued) (i) Banking and finance segment (continued) Garanti Bank’s banking subsidiary in the Netherlands is subject to a similar liquidity measurement, however the Dutch Central Bank does not impose limits, rather monitors the banks’ overall liquidity position to ensure there is no significant deterioration in the liquidity of banks operating in the Netherlands.
Garanti Bank’s banking subsidiary in Russia is subject to three levels of liquidity requirement since 2004; instant liquidity of minimum 15 percent, current liquidity of minimum 50 percent and long-term liquidity of maximum 120 percent. Garanti Bank’s subsidiary in Russia complies with the local legislation.
(ii) Other Corporate Segments Typically, the Group’s entities operating under other corporate segments ensure that they have sufficient cash on demand to meet expected operational expenses in terms of the relevant characteristics of the businesses they operate, including the servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural disasters.
For the entities operating under automotive business segment, risk of funding current and potential requirements is mitigated by ensuring the availability of adequate number of creditworthy lending parties. Entities operating under automotive business segment, in order to minimize liquidity risk, hold adequate cash and available line of credit (including factoring capacity).
(f) Market risk (i) Banking and finance segment All trading instruments are subject to market risk, the risk that future changes in market conditions may make an instrument less valuable or more onerous. The instruments are recognised at fair value, and all changes in market conditions directly affect trading gain/(loss).
Garanti Bank and its subsidiaries manage their use of trading instruments in response to changing market conditions. Exposure to market risk is formally managed in accordance with risk limits set by senior management by buying or selling instruments or entering into offsetting positions.
140 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(f) Market risk (continued) (i) Banking and finance segment (continued) Currency risk Garanti Bank and its subsidiaries are exposed to currency risk through transactions in foreign currencies and through their investments in foreign operations.
Garanti Bank and its subsidiaries’ main foreign operations are in the Netherlands and Russia. The measurement currencies of these operations are Euro and USD. As the currency in which Garanti Bank presents its consolidated financial statements is YTL, the consolidated financial statements are affected by currency exchange rate fluctuations against YTL.
Garanti Bank finances a significant portion of its net investment in foreign operations with borrowings in the same currencies as the relevant measurement currencies to mitigate its currency risk. Currency swaps are also used to match the currency of some of its other borrowings to the measurement currencies involved.
Garanti Bank and its subsidiaries’ transactional exposures give rise to foreign currency gains and losses that are recognised in profit or loss. These exposures comprise the monetary assets and monetary liabilities that are not denominated in the measurement currency of Garanti Bank, excluding borrowings treated as hedges of net investments in foreign operations.
Interest rate risk Garanti Bank and its subsidiaries’ operations are subject to the risk of interest rate fluctuations to the extent that interest- earning assets (including investments) and interest-bearing liabilities mature or reprice at different times or in differing amounts. In the case of floating rate assets and liabilities, Garanti Bank and its subsidiaries are also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices, such as the deposit rate and libor and different types of interest. Treasury activities are aimed at optimizing net interest income, given market interest rate levels consistent with Garanti Bank’s business strategies.
Asset-liability risk management activities are conducted in the context of Garanti Bank’s sensitivity to interest rate changes. In general, as common in current economic environment, the consolidated financial statements are liability sensitive because its interest-earning assets have a longer duration and reprice slightly less frequently than interest- bearing liabilities. This means that in rising interest rate environments, margins earned will narrow as liabilities reprice. However, the actual effect will depend on a number of factors, including the extent to which repayments are made earlier or later than the contracted dates and variations in interest rate sensitivity within repricing periods and among currencies.
Interest rate derivatives are primarily used to bridge the mismatch in the repricing of assets and liabilities. This is done in accordance with the guidelines established by Garanti Bank’s Assets and Liabilities Committee (“ALCO”).
Some assets have indefinite maturities or interest rate sensitivities and are not readily matched with specific liabilities. Those assets are funded through liability pools based on the assets’ estimated maturities and repricing characteristics.
Part of Garanti Bank’s return on financial instruments is obtained from controlled mismatching of the dates on which interest receivable on assets and interest payable on liabilities are next reset to market rates or, if earlier, the dates on which the instruments mature.
DOĞUŞ GROUP ANNUAL REPORT 2008 141 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(f) Market risk (continued) (i) Banking and finance segment (continued) The market risk arising from trading transactions is calculated via Value at Risk (“VaR”). In addition to this, the stress tests and scenario analysis are performed. The balance sheet interest rate risk is monitored with methods such as static duration, gap and sensitivity analysis.
Internal limits are set as well as legal limits in order to restrict market risk; value at risk limits for trading portfolio, position limits set for trading desks, single transaction limits set for traders and stop-loss limits. Approval, update, monitoring, override and warning procedures of these limits are put into practice and changed with the approval of the Board of Directors of Garanti Bank.
The consolidated value at market risks as at 31 December calculated as per the statutory consolidated financial statements of Garanti Bank prepared for BRSA reporting purposes within the scope of “Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks” published in Official Gazette no.26333 dated 1 November 2006, are as follows:
2008 2007
Average Highest Lowest Average Highest Lowest Interest rate risk 891,485 1,109,830 361,914 372,751 436,742 306,226 Common share risk 40,968 60,708 15,269 3,505 12,920 6 Currency risk 56,190 68,395 46,864 57,687 82,791 30,086 Option risk 64,967 106,820 36,967 30,821 56,753 11,314 Total value at risk 1,053,610 1,345,753 461,014 464,764 589,206 347,632
Exposure to interest rate risk – non-trading portfolios Garanti Bank had already started working on risk management area before the regulations on Bank’s Internal Control and Risk Management Systems and Measurement and Assessment of Capital Adequacy Ratios of Banks issued by the BRSA in February 2001, and restructured its internal systems in accordance with the related regulations under the responsibility of the Board of Directors and currently works accordingly.
In order to comply with the regulations, Garanti Bank revisited its activities related with market risk management in accordance with “Regulation on Banks’ Internal Control and Risk Management Systems” and “Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks” published in Official Gazette no. 26333 dated 1 November 2006.
The risk policies defined for Garanti Bank’s market risk exposure and the applications are approved and reviewed regularly by the Board of Directors.
The top management is responsible for applying risk policies, principles and application procedures approved by the board of directors, ensuring timely and reliable reporting to the board of directors about the important risks identified, assessing internal control, internal audit and risk reports prepared for departments and either eliminating risks, deficiencies or defects identified in these departments or taking the necessary precautions to prevent those and participating in determination of risk limits.
The Board of Directors follows up the effectiveness of risk management systems through audit committee, related other committees and top management, and take decisions in the light of various risk reports and the assessments made by audit committee. The Board of Directors is responsible of healthy performance of internal systems.
142 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(f) Market risk (continued) (i) Banking and finance segment (continued) Market risks arising from trading transactions are measured by internal risk measurement model using (VaR) methodology. In the VaR calculations, trading and available-for-sale portfolios are taken into account. VaR is calculated by three different methods, namely historical simulation, monte carlo simulation and parametric method. Garanti Bank takes the parametric VaR results as the basis for the internal management of market risk and determination of limits. The calculations made according to other two methods are used for comparison and monitoring purposes. In the VaR calculation, one year historical market data set is used, and 99 percent confidence interval and one-day retention period (10 days for legal capital adequacy calculation) are taken into account. In order to test the reliability of the VaR model, back tests are performed. Stress tests and scenario analysis are also applied in order to reflect the effects of prospective severe market fluctuations in the VaR calculations.
In the quantification of market risk arising from maturity mismatches of assets and liabilities, duration and variance analysis are also used. In duration analysis, the present values of interest sensitive asset and liability items are calculated based on their cash flows and yield curves developed from market interest rates. The results are supported by the sensitivity and scenario analysis performed periodically due to the prospective fluctuations in markets.
The capital requirement for general market risk and specific risks is calculated using the standard method defined by the “Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks” and reported monthly.
(ii) Other corporate segments Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return.
Currency risk The Group is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of Group entities, primarily YTL, but also Euro, Swiss Francs (“CHF”), Sterling (“GBP”), Egyptian Pound (“EGP”), and Morocco Dirham (“MAD”). The currencies in which these transactions primarily are denominated are YTL, Euro and USD.
In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept to an acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.
The Group is exposed to currency risk through the impact of rate changes on the translation of foreign currency denominated payables and bank borrowings from financial institutions. Such risk is monitored by the Board of Directors and limited through taking positions within approved limits as well as using derivative instruments where necessary.
To minimize risk arising from foreign currency denominated balance sheet items, the Group sometimes utilises derivative instruments as well as keeping part of its idle cash in foreign currencies.
DOĞUŞ GROUP ANNUAL REPORT 2008 143 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(g) Operational risk (i) Banking and finance segment Operational risk expresses the probability of loss that may arise from the overlook of faults and inconsistency with the established rules due to the deficiencies in Garanti Bank and its subsidiaries’ internal controls, manner of the management and the personnel that are not in coherence with time and conditions, deficiencies in the bank management, faults and problems in information technology systems and disasters such as earthquake, fire, flood or terror attacks.
The operational risk items in Garanti Bank are determined in accordance with the definition of operational risk by considering Garanti Bank’s whole processes, products and departments. The control areas are set for operational risks within Garanti Bank and all operational risks are followed by assigning the risks to these control areas. In this context, appropriate monitoring methodology is developed for each control area that covers all operational risks and control frequencies are determined.
Currently, the value at operational risk is calculated according to the basic indicator approach as per the Article 14 of “Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks”.
The annual gross income is defined as net interest income plus net non-interest income reduced by realised gains/losses from the sale of securities available-for-sale and held-to-maturity, non-recurring gains and income derived from insurance claims. The result is added to risk weighted assets in the capital adequacy calculation.
Capital management BRSA sets and monitors capital requirements for Garanti Bank as a whole. The parent company and individual banking operations are directly supervised by their local regulators. In implementing current capital requirements, BRSA requires the banks to maintain a prescribed ratio of minimum 8 percent of total capital to total risk-weighted assets. Garanti Bank and its subsidiaries’ consolidated regulatory capital is analysed into two tiers:
• Tier 1 capital, which includes paid-in capital, share premium, legal reserves, retained earnings, translation reserve and minority interest after deductions for goodwill and certain cost items. • Tier 2 capital, which includes qualifying subordinated liabilities, general impairment allowances and the element of the fair value reserve relating to unrealised gains on securities classified as available-for-sale.
Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.
Garanti Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and Garanti Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. There have been no material changes in the Garanti Bank’s management of capital during the period.
Garanti Bank and its individually regulated operations have complied with externally imposed capital requirements throughout the period.
144 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
5 Financial risk management (continued)
(g) Operational risk (continued) (i) Banking and finance segment (continued) Hedging Due to Garanti Bank and its subsidiaries’ overall interest rate risk position and funding structure, its risk management policies require that it should minimize its exposure to changes in foreign currency rates and manage interest rate, credit risk and market price risk exposure within certain guidelines. Derivative financial instruments are used to manage the potential earnings impact of interest rate and foreign currency movements. Several types of derivative financial instruments are used for this purpose, including interest rate swaps and currency swaps, options, financial futures, forward contracts and other derivatives. The purpose of the hedging activities is to protect Garanti Bank and its subsidiaries from the risk that the net cash inflows will be adversely affected by changes in interest or exchange rates, credit ratings or market prices. Garanti Bank and its subsidiaries enter into transactions to ensure that it is economically hedged in accordance with risk management policies. In the accompanying consolidated financial statements, hedge accounting is applied for the cases where hedge accounting relationship is evidenced.
Garanti Bank has entered into various interest rate swap transactions in order to hedge its certain cash flow exposures primarily on floating rate assets and liabilities, through converting its floating rate income/payments into fixed rate income/payments. The following table includes certain characteristics of such swap transactions outstanding as of 31 December 2008:
Notional amount Fixed payer rate % Floating payer rate % Fixed payment frequency Maturity
USD 13.24 million 5.445 3 month libor + 1.75 Quarterly 2009 USD 33.24 million 3.35 3 month libor + 0.40 Quarterly 2012
Garanti Bank also has entered into various interest rate swap transactions in order to hedge its certain cash flow exposures primarily on project finance loans, through converting its floating rate income/payments into fixed rate income/ payments. The following table includes certain characteristics of these swap transactions outstanding as of 31 December 2008:
Notional amount Fixed payer rate % Floating payer rate % Fixed payment frequency Maturity
4.4475- 6-12 month Semi Annually 2013- Euro 176.30 million 8.3250 Euribor + 2-3.80 -Annually 2019
On 9 January 2008 and 16 January 2008, Garanti Bank has exercised four interest rate swap transactions held for cash flow risk management before their maturities. Garanti Bank has recognised a total income amounting USD 11,686 thousand (equivalent of YTL 13,599 thousand) collected on the dates of these transactions as per the related agreements under trading loss in the accompanying consolidated financial statements.
(ii) Other corporate segments Due to the Group’s overall interest rate risk position and funding structure, its risk management policies require that it should minimize its exposure to changes in interest rate. Derivative financial instruments are used to manage the potential earnings impact of interest rate and foreign currency movements. Several types of derivative financial instruments are used for this purpose, including interest rate swaps and currency swaps, options, financial futures, forward contracts and other derivatives. The purpose of the hedging activities is to protect the Group from the risk that the net cash inflows will be adversely affected by changes in interest rates.
DOĞUŞ GROUP ANNUAL REPORT 2008 145 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
6 Segment reporting Almost each entity included in the Group operates in one specific industry. Accordingly, all the financial statement components of an entity concerned are considered related only to its specific industry.
The Group’s main business segments are as follows: Banking and finance: Entities operating in the banking and finance segment are mainly involved in retail banking, insurance, leasing and factoring businesses. Construction: Subsidiaries operating in the construction segment are mainly involved in the constructions of buildings, infrastructure and related civil engineering businesses. Automotive: Subsidiaries operating in the automotive segment are exclusively involved in the importation, distribution and retailing of Volkswagen, Audi, Seat, Porsche, Bentley, Scania, Lamborghini, Krone and Meiller brand motor vehicles and spare parts and after sales services in Turkey. Tourism: Subsidiaries in the tourism segment are involved in hotel and marina investments, hotel management, ticket sales, hotel reservation, and tour/conference organisation services. Others: Subsidiaries in other operations segment are mainly involved in media, real estate and several service businesses. Doğuş Holding is included in the other industrial segment as well.
6.1 Geographical segments The Group operates principally in Turkey, but also has operations in the Netherlands, Russia, Ireland, Turkish Republic of Northern Cyprus, Malta, Luxemburg, Switzerland, Germany, Romania, Morocco and Ukraine.
In presenting information on the basis of geographical segments, segment revenue is based on the geographical location of customers. Segment assets are based on the geographical location of the assets.
As at and for the years ended 31 December, total geographical sector risk concentrations, both on and off balance sheet, are presented below;
2008
Loans Total assets Total liabilities Non-cash loans Capital expenditure Turkey 15,344,833 33,559,020 23,344,860 3,517,802 574,491 Romania 770,832 1,016,852 415,823 68,196 12,617 Russia 150,305 350,934 48,624 42,134 -- The Netherlands 67,622 632,451 981,680 153,119 664 USA 13,546 264,960 2,076,524 224,734 -- United Kingdom 7,319 577,522 1,957,184 102,988 -- Germany 5,508 470,518 944,098 30,411 -- Others 200,201 1,022,703 2,369,369 436,214 -- 16,560,166 37,894,960 32,138,162 4,575,598 587,772
2007
Loans Total assets Total liabilities Non-cash loans Capital expenditure Turkey 11,582,545 24,404,801 16,866,588 3,192,773 423,778 Russia 158,118 337,366 63,864 42,361 156 The Netherlands 142,437 1,008,647 938,929 96,641 9,637 Romania 432,772 509,759 441,122 17,090 2,730 United Kingdom 36,143 483,231 1,165,011 91,407 -- USA 11,265 142,556 1,550,902 96,272 -- Germany 9,481 411,766 504,094 23,429 -- Others 186,949 593,494 1,249,384 335,671 10,625 12,559,710 27,891,620 22,779,894 3,895,644 446,926
146 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
6 Segment reporting (continued)
6.2 Business segments
Banking and 31 December 2008 finance Construction Automotive Tourism Other Eliminations Total
Revenues Total external revenue 3,799,009 582,410 2,203,512 151,247 226,411 -- 6,962,589 Intersegment revenue 3,103 -- 229 8,857 16,172 (28,361) -- Total segment revenue 3,802,112 582,410 2,203,741 160,104 242,583 (28,361) 6,962,589 Result Segment result 761,897 50,647 (5,021) (16,640) 311,288 9,861 1,112,032 Unallocated expenses (71,849) Results from operating activities 1,040,183 Net finance costs (537,243) Share of profit/(loss) of equity accounted investees 3,221 -- 2,371 ------5,592 Income tax expense (98,486) Profit for the period 410,046 31 December 2008 Other information Segment assets 30,340,887 772,220 1,558,179 1,130,828 2,819,048 (138,775) 36,482,387 Investments in equity securities 20,847 -- 21,866 -- 5,556 -- 48,269 Unallocated assets 1,364,304 Total assets 37,894,960 Segment liabilities 27,205,433 432,505 1,095,004 52,574 208,418 (128,409) 28,865,525 Unallocated liabilities 3,272,637 Total liabilities 32,138,162 31 December 2008 Capital expenditure 116,791 46,365 162,398 128,418 133,800 -- 587,772 Depreciation 56,026 15,400 17,414 26,898 17,697 -- 133,435 Non-cash (income)/expenses other than depreciation (139,736) 68,455 12,644 5,369 (96,746) -- (150,014)
DOĞUŞ GROUP ANNUAL REPORT 2008 147 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
6 Segment reporting (continued)
6.2 Business Segments (continued)
Banking and 31 December 2007 finance Construction Automotive Tourism Other Eliminations Total
Revenues Total external revenue 2,506,258 303,460 2,552,882 115,703 203,874 -- 5,682,177 Intersegment revenue 1,104 1,176 90 7,116 4,740 (14,226) -- Total segment revenue 2,507,362 304,636 2,552,972 122,819 208,614 (14,226) 5,682,177 Result Segment result 713,568 18,933 92,308 (25,753) 3,776 16,568 819,400 Unallocated expenses (48,308) Results from operating activities 771,092 Other non operating expense, net (25,482) Net finance costs (34,815) Share of profit/(loss) of equity accounted investees 1,048 -- 2,299 -- (593) -- 2,754 Income tax expense (70,772) Profit for the period 642,777 31 December 2007 Other information Segment assets 23,212,300 283,846 1,053,360 802,693 2,180,059 (109,795) 27,422,463 Investments in equity securities 14,680 -- 34,804 -- 2,306 -- 51,790 Unallocated assets 417,367 Total assets 27,891,620 Segment liabilities 20,880,830 164,169 496,834 39,507 68,856 (94,479) 21,555,717 Unallocated liabilities 1,224,177 Total liabilities 22,779,894 31 December 2007 Capital expenditure 92,509 41,301 126,729 92,509 93,878 -- 446,926 Depreciation 47,544 16,516 16,428 30,945 22,921 -- 134,354 Non-cash expenses other than depreciation 120,894 28,283 396 3,893 2,907 -- 156,373
148 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
6 Segment reporting (continued)
6.3 Interests in joint ventures As explained under accounting policy 3a, interests in joint ventures are proportionately consolidated in the accompanying consolidated financial statements.
As at 31 December 2008, total assets related to interest in joint ventures in the banking and finance segment amount to YTL 30,299,923 thousand (2007: YTL 23,262,510 thousand), total liabilities amount to YTL 27,150,920 thousand (2007: YTL 20,896,721 thousand). For the year ended 31 December 2008, net profit for the year related to joint ventures in banking and finance segment amount to YTL 555,854 thousand (2007: YTL 614,496 thousand).
As at 31 December 2008, total assets related to interest in joint ventures in the construction segment amount to YTL 382,245 thousand (2007: YTL 118,060 thousand), total liabilities amount to YTL 240,785 thousand (2007: YTL 47,042 thousand). For the year ended 31 December 2008, net profit for the year related to joint ventures in the construction segment amount to YTL 28,114 thousand (2007: YTL 31,055 thousand).
As at 31 December 2008, total assets related to interest in joint ventures in the automotive segment amount to YTL 464,674 thousand (2007: YTL 288,103 thousand), total liabilities amount to YTL 497,307 thousand (2007: YTL 242,792 thousand). For the year ended 31 December 2008, net loss for the year related to joint ventures in the automotive segment amount to YTL 12,180 thousand (2007: YTL 10,262 thousand).
As at 31 December 2008, total assets related to joint ventures in the other segment amounted to YTL 54,642 thousand (2007: YTL 45,295 thousand), total liabilities amounted YTL 9,316 thousand (2007: YTL 9,052 thousand). For the year ended 31 December 2008, net income for the year related to joint ventures in the other segment amount to YTL 8,808 thousand (2007: YTL 4,326 thousand).
6.4 Non-cash (income)/expenses other than depreciation Non-cash expenses other than depreciation for the year ended 31 December 2008 were as follows:
Banking and finance Construction Automotive Tourism Others Total Provision for loans 184,945 ------184,945 Provision for doubtful receivables 5,683 -- 145 461 1,168 7,457 Reversal of impairment in tangible assets (695) ------(292) (987) Provision for defined benefit obligations (18,735) ------(18,735) Fair value change in investment property ------(134,574) (134,574) Insurance technical reserves and provisions 7,124 ------7,124 Provision for employee severance indemnity 2,859 2,181 2,188 1,519 7,104 15,851 Amortisation of other intangible assets 1,301 -- 2,605 -- -- 3,906 Fair value change in assets held for sale 493 ------493 Recoveries of doubtful receivables -- -- (182) (109) (744) (1,035) Recoveries of loan losses (11,145) ------(11,145) Accrued interest and other accruals (304,741) 66,274 7,719 3,498 21,197 (206,053) Others (6,825) -- 169 -- 9,395 2,739 Total (139,736) 68,455 12,644 5,369 (96,746) (150,014)
DOĞUŞ GROUP ANNUAL REPORT 2008 149 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
6 Segment reporting (continued))
6.4 Non-cash (income)/expenses other than depreciation (continued) Non-cash expenses other than depreciation for the year ended 31 December 2007 were as follows:
Banking and finance Construction Automotive Tourism Others Total Provision for loans 82,374 ------82,374 Provision for doubtful receivables -- 1,200 198 -- 1,532 2,930 Impairment on tangible assets 13,003 ------13,003 Provision for defined benefit obligations 49,742 ------49,742 Fair value change in investment property ------2,795 2,795 Impairment on investment property -- 25,482 -- -- 25,482 Insurance technical reserves and provisions 8,109 ------8,109 Provision for employee severance indemnity 3,348 870 252 1,246 1,195 6,911 Amortisation of other intangible assets -- -- 2,047 -- -- 2,047 Fair value change in assets held for sale (35) ------(35) Recoveries of doubtful receivables (55) ------(55) Recoveries of loan losses (10,682) ------(10,682) Accrued interest and other accruals (13,011) 731 (2,101) 2,647 (2,615) (14,349) Others (11,899) ------(11,899) Total 120,894 28,283 396 3,893 2,907 156,373
150 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
7 Revenues and cost of revenues For the years ended 31 December, revenues and cost of revenues of banking and finance segment and other corporate segments were as follows:
2008 2007 Banking and finance segment Banking operations: Interest income 3,118,581 2,016,018 Interest expense (2,041,276) (1,216,315) Fees and commission income 639,361 439,700 Fees and commission expense (245,447) (155,746) Net operating income 1,471,219 1,083,657 Insurance operations: Technical gain 41,067 50,540 Technical loss (8,246) (14,772) Net technical gain 32,821 35,768 Gross profit for banking and finance segment 1,504,040 1,119,425 Other corporate segments Net revenues 3,163,580 3,175,919 Cost of revenues (2,673,298) (2,663,261) Gross profit for other industrial segments 490,282 512,658 Total gross profit 1,994,322 1,632,083
8 Administrative expenses For the years ended 31 December, general and administrative expenses comprised the following:
2008 2007 Personnel expenses 530,399 391,957 Depreciation and amortisation 99,099 97,936 Telecommunication expenses 43,631 29,207 Taxes and duties other than taxes on income 40,345 39,253 Rent expenses 39,854 23,203 Electronic data processing expenses 25,236 17,183 Provision for employee severance indemnity 15,851 6,911 Others 171,384 121,299 Administrative expenses 965,799 726,949
9 Impairment losses For the years ended 31 December, impairment losses comprised the following:
2008 2007 Provision for banking loans (Note 23) 184,945 82,374 Provision for doubtful receivables (Note 20) 7,457 2,930 Reversal of impairment on tangible assets (Note 13) (987) -- Recoveries of doubtful receivables (Note 20) (1,035) (55) Recoveries of provision for banking loans (Note 23) (11,145) (10,682) Impairment on tangible assets (Note 13) -- 13,003 Other provisions 2,739 (11,899) Impairment losses, net 181,974 75,671
DOĞUŞ GROUP ANNUAL REPORT 2008 151 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
10 Other operating income, net For the years ended 31 December, other operating income, net comprised the following:
2008 2007 Income from sale of founders’ share 232,444 -- Fair value change in investment property 134,574 2,795 Warranty expense (24,744) (32,849) Gain on sales of jointly controlled entity -- 179,962 Gain on sale of custody services -- 37,786 Fair value change in tangible assets held for resale-banking (493) 35 Other income/(expense), net (101,824) 25,193 Total other operating income, net 239,957 212,922
Doğuş Holding sold 182 founder shares of Garanti Bank to Garanti Bank on 13 June 2008 subsequent to the permissions obtained from the related legal authorities and recognised a gain of YTL 232,444 thousand in its consolidated financial statements.
As discussed in note 38.4, on 21 June 2007, Garanti Bank sold its 80 percent share in Eureko Sigorta Anonim Şirketi (“Eureko Sigorta”) (“formerly known as Garanti Sigorta”) and 15 percent share in Garanti Emeklilik ve Hayat Anonim Şirketi (“Garanti Emeklilik”) to Eureko BV recognising total gain amounting to YTL 179,962.
11 Net finance costs For the years ended 31 December, net finance costs comprised the following:
2008 2007 Finance income: Foreign exchange gains 811,531 351,679 Interest income on bank deposits 37,902 62,575 Interest income on trading securities 2,976 -- Other interest and similar items 20,790 1,266 Total finance income 873,199 415,520 Finance expense: Foreign exchange losses (1,241,991) (383,083) Interest expense on borrowings (107,906) (25,337) Other interest and similar items (60,545) (41,915) Total finance expense (1,410,442) (450,335) Net finance costs (537,243) (34,815)
Interest income and interest expense amounts included in “Net finance costs” above relate only to the segments other than banking and finance since such amounts are reflected in “revenues” and “cost of revenues” in the results of the “banking and finance segment”.
152 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
12 Taxation In Turkey, corporate income tax is levied at the rate of 20 percent on the statutory corporate income tax base, which is determined by modifying accounting income for certain exclusions and allowances for tax purposes for the years 2008 and 2007. According to the Corporate Tax Law, 75 percent of the capital gains arising from the sale of tangible assets and investments owned for at least two years are exempted from corporate tax on the condition that such gains are reflected in the equity from the date of the sale. The remaining 25 percent of such capital gains are subject to corporate tax.
There is also a withholding tax on the dividends paid and is accrued only at the time of such payments. The withholding tax rate on the dividend payments other than the ones paid to the non-resident institutions generating income in Turkey through their operations or permanent representatives and the resident institutions is 15 percent. In applying the withholding tax rates on dividend payments to the non-resident institutions and the individuals, the withholding tax rates covered in the related Double Tax Treaty Agreements are taken into account. Appropriation of retained earnings to capital is not considered as profit distribution and therefore is not subject to withholding tax.
The transfer pricing law is covered under Article 13 “disguised profit distribution via transfer pricing” of the Corporate Tax Law. The General Communique on disguised profit distribution via transfer pricing dated 18 November 2007 sets details about implementation. If a tax payer enters into transactions regarding sale or purchase of goods and services with related parties, where the prices are not set in accordance with arm’s length basis, then related profits are considered to be distributed in a disguised manner through transfer pricing. Such disguised profit distributions through transfer pricing are not accepted as a tax deductable for corporate income tax purposes.
In Turkey, the tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provision for taxes shown in the consolidated financial statements reflects the total amount of taxes calculated on each entity that are included in the consolidation.
Under the Turkish taxation system, tax losses can be carried forward to be offset against future taxable income for up to five years. Tax losses cannot be carried back.
In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns within four months following the close of the accounting year to which they relate. Tax returns are open for five years from the beginning of the year that follows the date of filing during which time the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based on their findings.
Tax applications for foreign branches of Garanti Bank Malta The corporate earnings are subjected to a 35 percent (2007: 35 percent) corporate tax. This rate is determined by modifying accounting income for certain exclusions and allowances for tax purposes. The earnings of the foreign corporations’ branches in Malta are also subject to the same tax rate that the resident corporations in Malta are subject to. The earnings of such branches that are transferred to their head offices are not subject to an additional tax. The prepaid taxes are paid in April, August and December in the related years. The prepayments can be deducted from the annual corporate tax calculated for the whole year earnings. The excess part of the corporate tax that is not covered by such prepayments is paid to the tax office in September.
DOĞUŞ GROUP ANNUAL REPORT 2008 153 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
12 Taxation (continued) Turkish Republic of Northern Cyprus According to the Corporate Tax Law of the Turkish Republic of Northern Cyprus no.41/1976 as amended, the corporate earnings (including foreign corporations) are subject to a 10 percent corporate tax. This tax is calculated based on the income that the taxpayers earn in an accounting period. Tax base is determined by modifying accounting income for certain exclusions and allowances for tax purposes. The corporations cannot benefit from the rights of offsetting losses, investment incentives and amortisation unless they prepare and have certified their balance sheets, income statements and accounting records used for tax calculations certified by an auditor authorized by the Ministry of Finance. In cases where it is revealed that the earnings of a corporation were not subject to taxation in prior years or the tax paid on such earnings are understated, additional taxes can be charged in the next 12 years following the related taxation period. The corporate tax returns are filed in the tax administration office in April following the end of the accounting year to which they relate. The corporate taxes are paid in two equal installments in May and October.
Luxembourg The corporate earnings are subjected to a 22 percent (2007: 22 percent) corporate tax. Effective from 1 January 2009 this rate is applied as 21 percent. This rate is determined by modifying accounting income for certain exclusions and allowances for tax purposes. An additional 4 percent of the calculated corporate tax is paid as a contribution for unemployment insurance fund. This rate is 6.75 percent in the municipality where Garanti Bank’s Luxembourg branch operates. The tax returns are examined by the authorized bodies, and in case of detected errors, the amount of the taxes to be paid are revised. The amounts and the payment dates of prepaid taxes are determined and declared by the tax office at the beginning of the taxation period. The corporations, whose head offices are outside Luxembourg, are allowed to transfer the rest of their net income after tax following the allocation of 5 percent of it for legal reserves, to their head offices.
Tax applications for foreign subsidiaries of the Group The Netherlands In the Netherlands, corporate income tax is levied at the rate of 25.5 percent (2007: 25.5 percent) on the worldwide income of resident companies, which is determined by modifying accounting income for certain exclusions and allowances for tax purposes for the related year. A unilateral decree for the avoidance of double taxation provides relief for resident companies from Dutch tax on income, such as foreign business profits derived through a permanent establishment abroad, if no tax treaty applies. There is an additional dividend tax of 5 percent computed only on the amounts of dividend distribution at the time of such payments. Under the Dutch taxation system, tax losses can be carried forward for nine years to offset against future taxable income. Tax losses can be carried back to the prior year only. Companies must file their tax returns within nine months following the end of the tax year to which they relate, unless the company applies for an extension (normally an additional nine months). Tax returns are open for five years from the date of final assessment of the tax return during which time the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based on their findings. The corporate income tax has been calculated using the nominal tax rate of 25.5 percent over the Dutch taxable income, 30 percent (2007: 40 percent) over the local taxable income of Germany branch and 16 percent over the local taxable income of Romania branches.
154 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
12 Taxation (continued) Tax application for other foreign group entities; Romania The applicable tax rate for current and deferred tax is 16 percent (2007: 16 percent). The Romanian Government has a number of agencies that are authorised to conduct audits (controls) of Romanian companies as well as foreign companies doing business in Romania. These controls are similar in nature to tax audits performed by tax authorities in many countries, but may extend not only to tax matters, but to other legal and regulatory matters in which the applicable agency may be interested in. When management is aware of specific circumstances where there exists a probability of fine, appropriate reserves are established for such contingencies.
Russia The applicable tax rate for current and deferred tax for Garanti Bank’s consolidated affiliate in Russia is 24 percent. The taxation system in the Russian Federation is relatively new and is characterised by frequent changes in legislation, official pronouncements and court decisions, which are often unclear, contradictory and subject to varying interpretation by different tax authorities. Taxes are subject to review and investigation by a number of authorities, which have the authority to impose severe fines, penalties and interest charges. A tax year remains open for review by the tax authorities during the three subsequent calendar years; however, under certain circumstances a tax year may remain open for a longer period.
Egypt As at 31 December 2008, enacted corporation tax rate is 20 percent for the subsidiaries registered in Egypt according to local tax law (31 December 2007: 20 percent).
Switzerland As at 31 December 2008, enacted corporation tax rate is 22.8 percent for the subsidiaries registered in Switzerland according to local tax law (31 December 2007: 22.8 percent).
12.1 Income tax expense The taxation charge for the years ended 31 December comprised the following items:
Current tax expense 2008 2007 Current corporation and income taxes 135,555 92,814 Deferred tax (37,069) (22,042) Total income tax expense 98,486 70,772
DOĞUŞ GROUP ANNUAL REPORT 2008 155 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
12 Taxation (continued) 12.1 Income tax expense (continued) Reconciliation of effective tax rate The reported taxation charge for the years ended 31 December are different than the amounts computed by applying statutory tax rate to profit before tax as shown in the following reconciliation:
2008 2007 Amount % Amount % Reported profit before taxation 508,532 713,549 Taxes on reported profit per statutory tax rate (101,706) (20.00) (142,710) (20.00) Permanent differences: Disallowable expenses (15,980) (3.14) (19,452) (2.73) Tax exempt income 10,742 2.11 54,808 7.68 Refund from the tax litigation -- -- 35,097 4.92 Fair value of investments -- -- 3,564 0.50 Unrecognised current tax losses (17,303) (3.39) (7,895) (1.11) Effect of different tax rates applied 17,784 3.49 -- -- Others, net 7,977 1.57 5,816 0.82 Income tax expense (98,486) (19.36) (70,772) (9.92)
Income tax recognised directly in equity
2008 2007 Revaluation land and buildings (Note 27.3) (57,723) (24,019) Available-for-sale financial assets 8,284 21,559 Total income tax credit recognised directly in equity (49,439) (2,460)
12.2 Taxes payable on income In accordance with the tax legislation in Turkey, tax payments that are made in advance during the year are being deducted from the total final tax liability of the fiscal year. Accordingly, the taxation charge on income is not equal to the final tax liability appearing on the consolidated balance sheet.
Taxes payable on income as at 31 December comprised the following:
2008 2007 Taxes on income 98,486 70,772 Less: Deferred taxes on taxable temporary differences 37,069 22,042 Less: Corporation taxes paid in advance (96,527) (90,799) Taxes payable on income 39,028 2,015
12.3 Deferred tax assets and liabilities Deferred tax is provided, using the balance sheet method, on all taxable temporary differences arising between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except for the differences relating to goodwill not deductible for tax purposes and the initial recognition of assets and liabilities which affect neither accounting nor taxable profit.
156 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
12 Taxation (continued) 12.3 Deferred tax assets and liabilities (continued) Unrecognised deferred tax assets and liabilities As at 31 December 2008, deferred tax assets amounting to YTL 59,261 thousand (2007: YTL 35,968 thousand) have not been recognised with respect to the statutory tax losses carried forward and deductible temporary differences amounting to YTL 44,644 thousand and YTL 14,617 thousand, respectively (2007: YTL 24,917 thousand and YTL 11,051 thousand, respectively). Such losses carried forward expire until 2013. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable profit will be available against which the Group can utilise the benefits there from.
Recognised deferred tax assets and liabilities Deferred tax assets and deferred tax liabilities at 31 December are attributable to the items detailed in the table below:
2008 2007 Assets Liabilities Assets Liabilities Revaluation on land and buildings -- (103,470) -- (45,747) Provisions 27,318 -- 18,117 -- Effect of percentage of completion method 19,516 (20,850) 21,026 (8,341) Employee severance indemnity and short term employee benefits 16,158 -- 9,640 -- Pro-rata basis depreciation expense -- (5,050) -- (9,600) Fair value gain/(loss) from investment property -- (6,729) -- (140) Valuation difference of financial assets and liabilities 10,322 -- 689 -- Other temporary differences 45,016 (47,625) 53,288 (46,175) Subtotal 118,330 (183,724) 102,760 (110,003) Tax losses carried forward 105,835 -- 60,054 -- Total deferred tax assets/(liabilities) 224,165 (183,724) 162,814 (110,003)
According to the Tax Procedural Law in Turkey, statutory losses can be carried forward maximum for five years. Consequently, 2013 is the latest year for recovering the deferred tax assets arising from such tax losses carried forward. The Group management forecasted to generate taxable income during 2009 and the years thereafter and based on this forecast, it has been assessed as probable that the deferred tax assets resulting from tax losses carried forward in the amount of YTL 529,175 (2007: YTL 300,270 thousand will be realisable; hence, such realisable deferred tax assets in the amount of YTL 105,835 thousand (2007: YTL 60,054 thousand) are recognised in the consolidated financial statements.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same fiscal authority.
The following amounts as at 31 December determined after appropriate offsetting are shown in the consolidated balance sheet:
2008 2007 Gross Offsetting Net Gross Offsetting Net Deferred tax assets 224,165 (58,427) 165,738 162,814 (52,172) 110,642 Deferred tax liabilities (183,724) 58,427 (125,297) (110,003) 52,172 (57,831) Deferred tax assets, net 40,441 -- 40,441 52,811 -- 52,811
DOĞUŞ GROUP ANNUAL REPORT 2008 157 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
12 Taxation (continued) 12.3 Deferred tax assets and liabilities (continued) Movements in temporary differences during the year Movements in deferred tax assets / (liabilities) are as follows:
Balance Recognised in Recognised Balance Recognised in Recognised Balance 1 Jan 07 profit or loss in equity 31 Dec 07 profit or loss in equity 31 Dec 08
Revaluation on land and buildings (21,728) -- (24,019) (45,747) -- (57,723) (103,470) Provisions 18,156 (39) -- 18,117 9,201 -- 27,318 Effect of percentage of completion method (1,755) 14,440 -- 12,685 (14,019) -- (1,334) Employee severance indemnity 7,264 2,376 -- 9,640 6,518 -- 16,158 Fair value gain from investment property ------(6,729) -- (6,729) Pro-rata basis depreciation expense (8,419) (1,181) -- (9,600) 4,550 -- (5,050) Valuation difference on financial assets and liabilities (211) (20,659) 21,559 689 1,349 8,284 10,322 Other temporary differences (1,477) 8,450 6,973 (9,582) -- (2,609) Tax losses carried forward 41,399 18,655 -- 60,054 45,781 -- 105,835 Total deferred tax assets/(liabilities) 33,229 22,042 (2,460) 52,811 37,069 (49,439) 40,441
158 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL 13 Property and equipment Movements of property and equipment and related accumulated depreciation during the year ended 31 December 2008 are as follows:
Transfer to Adjustment for Net investment and currency revaluation Cost 1 January Additions Disposals trading properties Transfers translation increase 31 December
Land and buildings 2,204,882 161,717 (30,533) (318,660) 93,621 5,176 329,227 2,445,430 Furniture and equipment 784,593 149,774 (103,032) -- 14,587 12,954 -- 858,876 Leasehold improvements 189,377 39,609 (10,598) -- 16,342 1,221 -- 235,951 Motor vehicles 60,143 41,303 (6,134) -- 32 1,244 -- 96,588 Construction in progress 108,197 191,617 (11,799) -- (118,944) 1,391 -- 170,462 Others 26,103 3,752 (15,628) -- (5,638) -- -- 8,589 Total cost 3,373,295 587,772 (177,724) (318,660) -- 21,986 329,227 3,815,896
Current Transfer to Adjustment Net year investment and for currency revaluation Less: Accumulated depreciation1 January charge Disposals trading properties Transfers translation increase 31 December
Buildings 388,406 38,505 (17,091) (5,150) -- 469 64,389 469,528 Furniture and equipment 604,604 54,111 (66,642) -- -- 4,485 -- 596,558 Leasehold improvements 55,926 28,731 (2,297) -- -- 372 -- 82,732 Motor vehicles 35,282 11,919 (3,175) -- -- 388 -- 44,414 Others 10,098 169 (961) ------9,306 Total accumulated depreciation 1,094,316 133,435 (90,166) (5,150) -- 5,714 64,389 1,202,538 Net book value 2,278,979 (87,558) (313,510) 16,272 264,838 2,613,358 Less: Impairment in value (38,777) -- 987 ------(37,790) Net carrying value 2,240,202 (313,510) -- 16,272 264,838 2,575,568
The Group’s land and buildings are revalued for the purpose of the consolidated financial statements. Independent third party ppraisersa conduct the appraisals periodically on the basis of fair market value. As of 31 December 2008, the revaluation surplus, net of minority interest and deferred taxes, amounting to YTL 1,024,867 thousand including the fair value differences of investment and trading properties and land and buildings (2007: YTL 826,603 thousand) was credited to “revaluation surplus” account in the equity. Had there been no revaluation on land and buildings, the balances of land and buildings as of 31 December would have been as follows:
Historical cost Accumulated depreciation Net Book Value
31 December 2008 1,512,147 (272,027) 1,240,120 31 December 2007 1,581,888 (260,032) 1,321,856
DOĞUŞ GROUP ANNUAL REPORT 2008 159 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
13 Property and equipment (continued) Movements of property and equipment and related accumulated depreciation during the year ended 31 December 2007 are as follows:
Rate change Adjustment Transfer to difference for Net investment of joint currency revaluation Cost 1 January Additions Disposals property Transfers venture translation increase 31 December
Land and buildings 2,069,891 148,433 (20,312) (590,362) 17,980 72,985 (1,490) 507,757 2,204,882 Furniture and equipment 675,999 103,383 (61,106) -- 2,852 63,889 (424) -- 784,593 Leasehold improvements 141,898 28,207 (22,670) -- 30,885 11,244 (187) -- 189,377 Motor vehicles 54,069 12,856 (9,319) -- -- 2,492 45 -- 60,143 Construction in progress 18,870 137,350 (2,591) -- (45,845) 441 (28) -- 108,197 Others 15,917 16,697 (639) -- (5,872) ------26,103 Total cost 2,976,644 446,926 (116,637) (590,362) -- 151,051 (2,084) 507,757 3,373,295
Adjustment Current Transfer to Rate change for Net year investment difference of currency revaluation Less: Accumulated depreciation 1 January charge Disposals property Transfers joint venture translation increase 31 December
Buildings 336,739 37,985 (11,602) -- -- 7,799 (135) 17,620 388,406 Furniture and equipment 556,355 71,266 (57,596) -- (6) 34,830 (245) -- 604,604 Leasehold improvements 54,393 17,151 (21,429) -- -- 5,811 -- -- 55,926 Motor vehicles 35,024 7,867 (8,616) -- 6 987 14 -- 35,282 Others 10,386 85 (373) ------10,098 Total accumulated depreciation 992,897 134,354 (99,616) -- -- 49,427 (366) 17,620 1,094,316 Net book value 1,983,747 (17,021) (590,362) -- 101,624 (1,718) 490,137 2,278,979 Less: Impairment in value (17,505) (13,003) ------(8,269) -- -- (38,777) Net carrying value 1,966,242 -- 93,355 (1,718) 490,137 2,240,202
(*) The disposal amounts include disposals during the year and the effect of change in ownership of interest in joint ventures.
160 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL 14 Intangible assets At 31 December, intangible assets comprised the following:
2008 2007 Goodwill 772,073 739,777 Concession rights (a) 249,221 242,718 Broadcasting rights (b) 135,600 699 Other intangible assets, net 40,216 22,682 1,197,110 1,005,876
(a) The partnership established by the Group, Akfen Holding Anonim Şirketi and TÜV-SÜD Teknik Güvenlik ve Kalite Denetim Ticaret Limited Şirketi, obtained the right to tender vehicle inspection services for 20 years as of 20 December 2004. Following the completion of taking the advice of 1st Circuit of State, the Concession Agreement, regarding the privatisation of vehicle inspection services with the Privatisation Administration is signed on 15 August 2007. TÜVTÜRK Kuzey Taşıt Muayene İstasyonları Yapım ve İşletim Anonim Şirketi (“TÜVTÜRK Kuzey”) and TÜVTÜRK Güney Taşıt Muayene İstasyonları Yapım ve İşletim Anonim Şirketi (“TÜVTÜRK Güney”) have started their operations. Beginning from sign off date, 189 stable and 38 mobile stations have been planned to be operational countrywide within 18 months. As of 31 December 2008, 183 vehicle inspection stations in 77 cities have started their operations.
(b) Following the tender organised by Saving Deposits Insurance Fund on 18 June 2008; the transfer of the commercial and economic assets of Kral TV and Kral FM to A Yapım Televizyon Programcılık Anonim şirketi (“A Yapım”), a consolidated entity operating in media business, was started and Competition Authority approvals were obtained. Radio Television Supreme Council approved the process and A Yapım took over Kral TV and Kral FM on 16 October 2008 and recognised the amounts paid as broadcasting rights under intangible assets. At 31 December, goodwill comprised the following:
Shares Adjustment 2008 2007 Type of Acquisition Net asset Purchase acquired Group for currency Net Net Company purchase cost fair value date % share translation amount amount
Garanti Bank Cash 789,884 7,215,640 Dec. 2007 4.65 335,527 -- 454,357 454,357 Doğuş GE B.V. Cash 159,049 61,685 Dec. 2007 49.90 30,781 32,296 160,564 128,268 NTV Radyo ve Televizyon Yayıncılığı Anonim Şirketi (“NTV Radyo”) Cash 98,877 12,081 Apr. 2004 97.00 11,719 -- 87,158 87,158 Enformasyon Reklamcılık ve Filmcilik Sanayi ve Ticaret Anonim Şirketi (“Enformasyon”) Cash 40,091 10,783 Jul. 2003 70.00 7,548 -- 30,100 30,100 Doğuş İnşaat ve Ticaret Anonim Şirketi (“Doğuş İnşaat) Cash 89,076 1,491,894 Dec. 2006 4.10 61,093 -- 27,983 27,983 Kapital Radyo ve Televizyon Yayıncılığı Anonim Şirketi (“Kapital Radyo”) Cash 9,246 72 Dec. 2007 97.00 70 -- 9,176 9,176 Doğuş Otomotiv Servis ve Ticaret Anonim Şirketi (“DOAŞ”)** Cash 2,735 -- Dec. 2006 50.00 -- -- 2,735 2,735 -- 772,073 739,777
**The Capital Market Board of Turkey has approved the merger document submitted in relation to merger of the legal entities DOAŞ and Katalonya Oto on 22 August 2007. On 5 September 2007, the Board of Directors of DOAŞ made a call to shareholders for Extraordinary General Assembly to be held on 25 September 2007 in relation to the legal merger. The merger is registered on 28 September 2007 at the Trade Registry.
DOĞUŞ GROUP ANNUAL REPORT 2008 161 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
14 Intangible assets (continued) The movement in goodwill is as follows:
2008 2007 Balance at the beginning of the year 739,777 147,976 Additions during the year -- 591,801 Adjustments for currency translation 32,296 -- Balance at the end of the year 772,073 739,777
15 Investments in debt securities At 31 December, debt securities available-for-sale and held-to-maturity comprised the following:
2008 2007 Interest Face Carrying rate Latest Carrying value value range % maturity value
Debt and other instruments available-for-sale: Government bonds at floating rates 2,036,790 2,196,937 21-23 2014 1,202,103 Discounted government bonds in YTL 1,591,640 1,416,256 16-18 2010 885,984 Government bonds in YTL 776,624 786,346 14-21 2013 800,683 Bonds issued by corporations (a) 624,966 611,273 3-20 2017 413,350 Bonds issued by financial institutions 206,203 208,512 5-21 2014 45,399 Euro bonds 194,735 206,594 5-12 2036 521,814 Government bonds in foreign currency 120,586 123,849 2-6 2010 153,989 Government bonds indexed to consumer price index 39,341 44,459 10 2012 36,362 Bonds issued by foreign governments ------8,335 Others -- 26,008 -- -- 22,250 Total securities available-for-sale 5,620,234 4,090,269 Debt and other instruments held-to-maturity: Government bonds in YTL 982,425 926,309 14-17 2012 141,653 Government bonds at floating rates 784,884 825,798 21-22(b) 2011 857,531 Euro bonds 487,168 497,472 7-12 2036 202,208 Bonds issued by foreign governments 6,431 11,331 -- 2028 35,242 Discounted government bonds in YTL ------905 Bonds issued by financial institutions ------519 Others -- 685 -- -- 6,818 Total held-to-maturity portfolio 2,261,595 1,244,876 Accrued interest income 90,844 54,691 Total held-to-maturity portfolio 2,352,439 1,299,567 Total 7,972,673 5,389,836
(a) Bonds issued by corporations include credit linked notes with face value amounting to USD 264,425 thousand (2007: USD 264,425 thousand) and carrying value amounting to YTL 409,640 thousand (2007: YTL 314,114 thousand) that are linked to the default risk of the Turkish Government. All bonds issued by corporations are valued at amortized cost since these financial assets are not quoted in an active market. The proportionately consolidated factoring joint venture in Garanti Bank’s “financial assets available-for-sale” portfolio also includes private sector bonds with “credit linked notes” at a total face value of USD 6,195 thousand and EUR 355 thousand (2007: USD 10,834 thousand and EUR 755 thousand) and a total carrying value of YTL 10,233 thousand (2007:YTL 9,257 thousand). (b) The interest rates applied on these securities are floating quarterly based on interest ownership of government bond bids of the government.
162 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
15 Investments in debt securities (continued)
As per the Amendments to IAS 39 “Financial Instruments; Recognition and Measurement” as issued by the International Accounting Standards Board in October 2008, Garanti Bank reclassified certain security investments, previously classified in its securities available-for-sale portfolio in its financial statements, with total face values of YTL 855,730 thousand and USD 255,011 thousand to its securities held-to-maturity portfolio as a result of change in its intention to hold such securities. Such securities are included in the securities held-to-maturity portfolio at their fair values of YTL 811,439 thousand and USD 257,708 thousand as of their reclassification date. The negative valuation differences amounting YTL 29,943 thousand and USD 2,034 thousand of these securities are recorded under the shareholders’ equity and amortized through the income statement throughout their maturities. As of the balance sheet date, the negative valuation differences under the shareholders’ equity are YTL 28,103 thousand and USD 2,038 thousand.
As of 31 December 2008, Garanti Bank has allowance amounting YTL 980 thousand (2007: nil) for the security investments.
Interest income from debt and other fixed or floating instruments is reflected in interest on securities whereas gains and losses arising from changes in the fair value of cash flow hedges and available-for-sale assets are deferred as a separate component of equity.
Government bonds and treasury bills include securities pledged under repurchase agreements with customers amounting to YTL 3,518,010 thousand (2007: YTL 2,936,975 thousand).
The following table summarizes securities that were deposited as collaterals with respect to various banking, insurance and asset management transactions:
2008 2007 Face Carrying Face Carrying value value value value
Collateralised to foreign banks 2,148,172 2,188,606 772,666 835,871 Deposited at Istanbul Stock Exchange 1,736,342 1,785,191 2,246,685 2,313,043 Deposited at Central Bank of Turkey (“CBT”) for repurchase transactions 465,775 485,387 23,998 23,097 Deposited at CBT for interbank transactions 180,994 190,384 156,117 162,349 Deposited at CBT for foreign currency money market transactions 175,874 176,514 58,143 64,233 Deposited at Clearing Bank (“Takasbank”) 3,022 3,048 29,412 29,884 Others -- 41,955 -- 11,364 4,871,085 3,439,841
DOĞUŞ GROUP ANNUAL REPORT 2008 163 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
16 Investments in equity securities At 31 December, the Group holds equity investments in the following companies:
2008 2007 Carrying % of Carrying % of Equity accounted investees: value ownership value ownership
Volkswagen Doğuş Tüketici Finansmanı Anonim Şirketi 18,126 49.00 24,922 49.00 Eureko Sigorta 12,191 20.00 8,763 20.00 VDF Holding Anonim Şirketi -- 49.00 3,185 49.00 Yüce Auto Anonim Şirketi 3,492 50.00 5,367 50.00
Associated companies
IMKB Takas ve Saklama Bankası Anonim Şirketi (“Takasbank”) 3,615 5.83 3,601 5.83 Doğan TV Yayıncılık Anonim Şirketi 1,767 0.29 1,767 0.29 DTV Haber Görsel ve Yayıncılık Anonim Şirketi 2,593 5.19 2,593 5.19 Garanti Filo Yönetimi Hizmetleri Anonim Şirketi 3,022 30.22 302 30.22 Garanti Konut Finansmanı Danışmanlık Hizmetleri Anonim Şirketi 227 30.22 227 30.22 Others 3,236 -- 1,063 -- Total 48,269 51,790
Takasbank and other equity participations do not have a quoted market price in an active market and other methods of reasonably estimating their values would be inappropriate and impracticable, accordingly they are stated at cost, restated for the effects of inflation until 31 December 2005.
As discussed in more detail in note 38, 80 percent shares of a previously consolidated subsidiary, Garanti Sigorta Anonim Şirketi (“Garanti Sigorta”), owned by Garanti Bank are sold to Eureko BV on 21 June 2007. After the sale, the remaining 20 percent is reclassified to investments in equity participations and accounted under equity method of accounting. Subsequent to this sale, at 1 October 2007 the legal name of the company has been changed as Eureko Sigorta Anonim Şirketi.
Garanti Konut Finansmanı Danışmanlık Hizmetleri Anonim Şirketi is established as per the decision made during the board of directors meeting of Garanti Bank on 15 September 2007 to provide consultancy and outsourcing services to banks, housing finance and mortgage finance companies. Its legal registration process has been completed on 3 October 2007. Garanti Bank owns 99.99 percent of the company shares. 1/4 of the share capital of the company amounting to YTL 750 thousand (the Group’s interest amounting to YTL 227 thousand) in total is paid. This company is not consolidated in Garanti Bank and its subsidiaries’ consolidated financial statements as currently it does not have material operations comparing to the consolidated performance of Garanti Bank and its subsidiaries, instead it is recorded under investments in equity participations and valued at cost.
Garanti Filo Yönetimi Hizmetleri Anonim Şirketi was established on 10 January 2007 as an operational leasing company, and fully owned and controlled by the leasing subsidiary of Garanti Bank. The company’s main objective is to rent cars to corporations, institutional and small and medium size enterprises. The paid in share capital is YTL 10,000 thousand (the Group’s interest amounting to YTL 3,022 thousand) as of the issue date of the financial statements. This company is not consolidated in Garanti Bank and its subsidiaries’ consolidated financial statements as currently it does not have material operations comparing to the consolidated performance of Garanti Bank and its subsidiaries, instead it is recorded under investments in equity participations and valued at cost.
164 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
17 Investment property As at 31 December, the movement in the investment property was as follows:
2008 2007 Balance at 1 January 631,508 35,335 Transfer from property and equipment 266,958 590,362 Fair value change recognized in profit or loss 134,574 2,795 Additions 20,835 3,016 Disposals (951) -- Balance at 31 December 1,052,924 631,508
In 2008, transfer from property and equipment to investment property comprised various land and buildings held for rental income or capital appreciation held by a consolidated subsidiary, Doğuş Gayrimenkul Yatırım ve İşletme Anonim Şirketi (“Doğuş Gayrimenkul”). The Group obtained independent appraisal reports for each item of investment properties and stated them at their fair values. In 2007, the transfer from property and equipment to investment property comprises a shopping mall.
18 Other non-current assets At 31 December, other non-current assets comprised the following:
2008 2007 Reserve deposits at CBT 535,895 1,483,150 Long-term trade and other receivables 138,840 28,956 Progress billings 30,418 21,839 Assets held for sale 27,424 34,114 Others 94,868 13,217 827,445 1,581,276
At 31 December 2008, reserve deposits at the Central Bank of Turkey are kept as minimum reserve requirement. These funds are not available for the daily business of Garanti Bank and its subsidiaries. As required by the Turkish Banking Law, these reserve deposits are calculated on the basis of YTL and foreign currency liabilities taken at the rates determined by the Central Bank of Turkey. In accordance with the current legislation, the reserve deposit rates for YTL and foreign currency liabilities are 6 and 9 percent, respectively (2007: 6 and 11 percent). Interest rates applied for reserve requirements are 12 percent (2007: 11.81 percent) for YTL deposits and foreign currency reserves do not earn any interests (2007: 1.95 percent and 1.80 percent for reserves in USD and EUR, respectively).
YTL 22,473 thousand (2007: YTL 30,396 thousand) of the tangible assets held for sale is comprised of foreclosed real estate acquired by Garanti Bank against its impaired receivables. Such assets are required to be disposed of within three years following their acquisitions per the Turkish Banking Law. This three year period can be extended by a legal permission from the regulators. In case of real estates held for sale, this requirement is valid only if the legal limit on the size of the real estate portfolio that a bank can maintain is exceeded. Currently, as Garanti Bank is within this legal limit, it is not subject to the above requirement.
As at 31 December 2008, the rights of repurchase on various tangible assets held for sale amounted to YTL 4,144 thousand (2007: YTL 9,021 thousand).
DOĞUŞ GROUP ANNUAL REPORT 2008 165 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
19 Inventories At 31 December, inventories comprised the following:
2008 2007 Goods in transit 458,255 197,557 Trading goods 169,530 81,656 Spare parts 47,247 37,519 Trading property, net of impairment 46,552 915 Raw materials 23,248 16,139 Finished goods 1,227 3,706 Other inventory 28,723 22,408 774,782 359,900
In 2008, trading property reported at 31 December 2007, was sold to third parties and the Group transferred certain items of its property and equipment to trading properties amounting to YTL 46,552 thousand due to the change in the management’s intention for the use and these items were transferred at their fair values at the date of transfer.
20 Accounts receivable At 31 December, accounts receivable comprised the following:
2008 2007 Contracts receivable 292,991 43,516 Premiums receivable 282,817 175,486 Factoring receivables 196,974 149,408 Trade receivables 191,517 232,126 Due from customers for contract work (Note 21) 112,354 5,438 Doubtful receivables 110,092 87,216 Forfeiting receivables 107,459 129,292 Other 30,425 30,084 Total accounts receivable 1,324,629 852,566 Allowance for doubtful receivables (110,092) (87,216) Accounts receivable, net 1,214,537 765,350
Movements in the allowance for doubtful receivables during the years ended 31 December were as follows:
2008 2007 Balance at the beginning of the year 87,216 95,045 Provision for the year 7,457 2,930 Recoveries (1,035) (55) Exchange rate differences on foreign currency balances 16,454 (10,704) Balance at the end of the year 110,092 87,216
At 31 December 2008, the Group held letters of guarantee amounting to YTL 76,533 thousand (2007: YTL 96,645 thousand) as collateral for its receivables.
All the factoring receivables are domestic transactions on recourse basis with a maturity of less than three months.
166 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
21 Due from/due to customers for contract work At 31 December, the details of uncompleted contracts were as follows:
2008 2007 Total costs incurred on uncompleted contracts 1,006,976 725,223 Estimated earnings/(costs) 266,587 83,101 Total estimated revenue on uncompleted contracts 1,273,563 808,324 Less: Billings to date (1,185,639) (823,298) Net amounts due from / (due to) customers for contract work 87,924 (14,974)
Due from customers for contract work and due to customers for contract work were included in the accompanying consolidated balance sheets under the following captions:
2008 2007 Due from customers for contract work (Note 20) 112,354 5,438 Due to customers for contract work (Note 35) (24,430) (20,412) 87,924 (14,974)
22 Other current assets At 31 December, other current assets comprised the following:
2008 2007 Taxes and funds to be refunded 110,839 88,991 Prepaid expenses and similar items 194,762 87,609 Accrued exchange gain on derivatives 245,506 41,227 Warranty receivables 19,747 20,302 Others 167,413 124,004 738,267 362,133
DOĞUŞ GROUP ANNUAL REPORT 2008 167 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
23 Banking loans and advances to customers At 31 December, outstanding loans are as follows:
2008 2007 Consumer loans 5,205,360 4,166,011 Service sector 1,441,475 862,831 Energy 1,085,963 600,602 Transportation and logistics 855,731 512,840 Construction 846,665 698,729 Transportation vehicles and sub-industry 724,839 446,258 Textile 624,777 466,062 Financial institutions 591,170 596,328 Food 585,207 617,392 Metal and metal products 526,452 390,378 Tourism 412,233 295,037 Data processing 369,355 383,082 Durable consumption 289,583 247,369 Chemistry and chemical product 242,925 139,111 Agriculture and stockbreeding 222,306 219,911 Machinery and equipment 203,576 171,060 Stone, rock and related products 194,999 132,110 Electronic, optical and medical equipment 164,818 143,026 Mining 120,240 84,801 Plastic products 98,566 72,531 Paper and paper products 93,240 81,042 Others 660,671 463,564 Total performing loans 15,560,151 11,790,075 Non-performing loans and lease receivables (Note 39.2) 430,739 268,461 Total gross loans 15,990,890 12,058,536 Finance lease receivables, net of unearned income 603,513 581,143 Accrued interest income on loans and lease receivables 349,404 165,046 Allowance for possible losses on loans and lease receivables (383,641) (245,015) Banking loans and advances to customers, net 16,560,166 12,559,710
As at 31 December 2008, interest rates on loans granted to customers range between 2 percent-30 percent (2007: 2 percent-16 percent) per annum for the foreign currency loans and 14 percent-35 percent (2007: 16 percent-31 percent) per annum for the YTL loans.
168 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
23 Banking loans and advances to customers (continued) The finance lease receivables are secured through the underlying assets. At 31 December, banking loans and advances to customers included the following finance lease receivables:
2008 2007 Finance lease receivables, net of unearned income 603,513 581,143 Add: Non-performing lease receivables 30,696 4,890 Less: Allowance for possible losses from finance lease receivables (4,568) (5,083) Finance lease receivables, net 629,641 580,950 Accrued interest on lease receivables 6,186 7,025
Analysis of finance lease receivables, gross Due within 1 year 325,665 298,480 Due between 1 and 5 years 384,017 374,732 Due after 5 years 18,231 -- Finance lease receivables, gross 727,913 673,212 Unearned income (98,272) (92,262) Finance lease receivables, net 629,641 580,950
Analysis of finance lease receivables, net Due within 1 year 274,163 249,915 Due between 1 and 5 years 338,940 331,035 Due after 5 years 16,538 -- Finance lease receivables, net 629,641 580,950
The provision for possible losses is comprised of amounts specifically identified as being impaired and non-performing loans and advances and a further portfolio-basis amount considered adequate to cover the residual inherent risk of loss present in the lending relationships presently performing in accordance with agreements made with borrowers. The amount of the portfolio basis allowance is YTL 59,337 thousand (2007: YTL 46,480 thousand).
Movements in the allowance account during the years ended 31 December are as follows:
2008 2007 Balance at the beginning of the year 245,015 152,148 Provision for the year 184,945 82,374 Write-offs (39,860) (21,354) Recoveries (11,145) (10,682) Effect of change in the ownership interest in joint venture -- 42,529 Exchange rate difference on foreign currency balances 4,686 -- Balance at the end of the year 383,641 245,015
DOĞUŞ GROUP ANNUAL REPORT 2008 169 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
24 Banking loans and advances to banks At 31 December, banking loans and advances to banks comprised the following:
2008 2007 Foreign YTL currency Total Total Loans and advances-demand:
Domestic banks 132 734 866 1,611 Foreign banks 111,813 183,021 294,834 76,760 111,945 183,755 295,700 78,371 Loans and advances-time:
Domestic banks 110,619 473,629 584,248 381,848 Foreign banks 294,845 1,211,523 1,506,368 1,032,511 405,464 1,685,152 2,090,616 1,414,359 Total loans and advances to banks 517,409 1,868,907 2,386,316 1,492,730 Placements at money markets 12,255 -- 12,255 -- Accrued interest income 10,786 9,525 20,311 33,090 540,450 1,878,432 2,418,882 1,525,820
At 31 December 2008, almost all time deposits were short-term, maturing within one year, with interest rates ranging between 1 percent - 11 percent (2007: 2 percent - 7 percent) per annum for foreign currency time deposits and 15 percent - 23 percent (2007: 16 percent - 21 percent) per annum for YTL time deposits.
At 31 December 2008, demand deposits at foreign banks included blocked accounts of YTL 586,071 thousand (2007: YTL 331,034 thousand) held against the securitisations, fundings, legal legislations for branches of Garanti Bank in foreign countries and insurance business.
25 Financial assets at fair value through profit or loss At 31 December, financial assets at fair value through profit or loss comprised the following:
2008 2007 Face Carrying Interest rate Latest Carrying Debt and other instruments at fair value value value range % maturity value
Government bonds in YTL 40,369 37,237 7-22 2014 66,256 Bonds issued by corporations 18,705 16,317 5-20 2011 7,394 Gold -- 7,545 -- -- 20,986 Eurobonds 2,651 3,475 5-12 2038 29,171 Government bonds in foreign currency 1,216 1,244 5-7 2011 3,178 Discounted government bonds in YTL 1,218 1,098 16-18 2010 5,639 Bonds issued by foreign institutions ------28,441 Government bonds at floating rates ------1,368 Others -- 10,032 -- -- 15,909 76,948 178,342 Listed shares -- 4 41 Total 76,952 178,383
170 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
25 Financial assets at fair value through profit or loss (continued) Income from debt and other instruments held at fair value is reflected in profit or loss as interest income. Gains and losses arising on derivative financial instruments and changes in fair value of other trading instruments are reflected in trading loss, net, whereas gains and losses arising from changes in the fair value of cash flow hedges are reflected as a separate component of equity. For the year ended 31 December 2008, net trading gain of financial assets amounting to YTL 147,504 thousand (2007: net trading loss amounting to YTL 105,737 thousand) in total is included in “trading gain / (loss), net”.
Net loss from trading of financial assets is comprised of the following:
2008 2007 Fixed/floating securities 12,709 17,853 Foreign currency differences 6,156 (3,292) Derivative transactions 128,639 (120,298) Trading gain / (loss), net 147,504 (105,737)
As at 31 December 2007, government bonds and treasury bills pledged under repurchase agreements with customers amounted to YTL 39,005 thousand (2008: nil).
As at 31 December 2008, financial assets at fair value through profit or loss amounting of YTL 28 thousand (2007: YTL 578 thousand) are blocked against insurance business related transactions.
A proportionately consolidated joint venture in banking and finance segment reclassified some of its investment securities, previously reported as financial assets held for trading amounting to EUR 19,879 thousand with a total face value of USD 28,151 thousand to financial assets available-for-sale as of 1 July 2008 as per the Amendments to IAS 39 “Financial Instruments: Recognition and Measurement” as issued by the International Accounting Standards Board in October 2008.
26 Cash and cash equivalents At 31 December, cash and cash equivalents comprised the following:
2008 2007 Cash at banks 1,028,969 219,100 Balances with CBT 997,313 731,561 Cash at branches of the Group banks 203,186 137,258 Cash on hand 700 527 Other liquid assets and cheques 26,481 13,927 Total cash and cash equivalents 2,256,649 1,102,373
At 31 December, cash and cash equivalents disclosed in the consolidated statement of cash flows comprise the following:
2008 2007 Cash at banks 1,028,969 219,100 Loans and advances to banks with original maturity periods of less than three months 1,956,331 1,166,793 Cash at branches of the Group banks 203,186 137,258 Other liquid assets and cheques 26,491 13,928 Cash on hand 700 527 Cash and cash equivalents in the statement of cash flows 3,215,677 1,537,606
DOĞUŞ GROUP ANNUAL REPORT 2008 171 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
27 Capital and reserves For the years ended 31 December, the reconciliation of movement in capital and reserves were as follows:
Capital stock Fair Paid-in held by Share value Translation Hedging Revaluation Retained Minority Total capital subsidiaries premium reserve reserve reserve surplus earnings Total interest equity Balances 1 January 2007 2,010,192 (53,655) 159,350 30,260 4,580 804 376,789 1,277,537 3,805,857 186,895 3,992,752 Net fair value gains from cash flow hedges ------8,557 -- -- 8,557 -- 8,557 Net market value gains from available-for-sale portfolio ------23,283 ------23,283 -- 23,283 Transferred to net income from fair value increases on disposal ------(3,089) ------(3,089) -- (3,089) Foreign currency translation differences for foreign operations ------(7,929) ------(7,929) -- (7,929) Net gain on hedge of net investment in foreign operations ------7,039 ------7,039 -- 7,039 Change in revaluation surplus, net of minority interest ------449,814 19,339 469,153 -- 469,153 Change in minority interest on consolidated subsidiaries ------25,347 25,347 Effect of change in ownership interests in joint ventures ------(3,108) 358 (1,317) -- (4,067) -- (4,067) Dividend distribution ------(22,417) (22,417) -- (22,417) Profit for the period ------623,097 623,097 -- 623,097 Balances as at 31 December 2007 2,010,192 (53,655) 159,350 47,346 4,048 8,044 826,603 1,897,556 4,899,484 212,242 5,111,726 Net fair value losses from cash flow hedges ------(682) -- -- (682) -- (682) Net market value gains from available- for-sale portfolio ------7,660 ------7,660 -- 7,660 Transferred to net income from fair value increases on disposal ------(18,516) ------(18,516) -- (18,516) Foreign currency translation differences for foreign operations ------45,373 ------45,373 -- 45,373 Change in revaluation surplus, net of minority interest ------198,264 9,712 207,976 -- 207,976 Change in minority interest on consolidated subsidiaries ------(11,605) (11,605) Dividend distribution ------(22,279) (22,279) -- (22,279) Profit for the period ------437,145 437,145 -- 437,145 Balances as at 31 December 2008 2,010,192 (53,655) 159,350 36,490 49,421 7,362 1,024,867 2,322,134 5,556,161 200,637 5,756,798
172 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
27 Capital and reserves (continued)
27.1 Paid in capital As at 31 December 2008, the paid-in capital of Doğuş Holding amounted to YTL 2,010,192 thousand (2007: YTL 2,010,192 thousand) in the consolidated financial statements.
The paid-in capital of Doğuş Holding comprises 820,000,000 shares (2007: 820,000,000 shares) of YTL 0.001 each.
At 31 December, the shareholding structure of Doğuş Holding based on the number of shares is presented below:
2008 2007 Thousands Thousands of shares % of shares % Ferit Şahenk 276,671 33.74 276,671 33.74 Filiz Şahenk 258,932 31.58 258,932 31.58 Deniz Şahenk 147,143 17.94 147,143 17.94 Doğuş Araştırma Geliştirme ve Müşavirlik Hizmetleri AŞ (“Doğuş Arge”) 87,183 10.63 87,183 10.63 DOAŞ 31,381 3.83 31,381 3.83 Doğuş Hava Taşımacılığı Anonim Şirketi (“Doğuş Hava”) 5,264 0.64 5,264 0.64 Doğuş Sigorta Aracılık Hizmetleri Anonim Şirketi (“Doğuş Sigorta”) 4,589 0.56 4,589 0.56 Antur Turizm Anonim Şirketi (“Antur”) 3,824 0.47 3,824 0.47 Lasaş Lastik Sanayi ve Ticaret Anonim Şirketi (”Lasaş”) 3,824 0.47 3,824 0.47 Doğuş Turizm Sağlık Yatırımları ve İşletmeciliği Sanayi ve Ticaret Anonim Şirketi (“Doğuş Turizm”) 765 0.09 765 0.09 Others 424 0.05 424 0.05 820,000 100.00 820,000 100.00
27.2 Reserves The legal reserves, included in retained earnings, are generated by annual appropriations amounting to 5 percent of income disclosed in the Group’s statutory accounts until it reaches 20 percent of paid-in share capital (first legal reserve). Without limit, a further 10 percent of dividend distributions in excess of 5 percent of paid-in capital is to be appropriated to increase legal reserves (second legal reserve). The first legal reserve is restricted and is not available for distribution as dividend unless it exceeds 50 percent of share capital. In the consolidated financial statements, total legal reserves of the consolidated entities amounted to YTL 207,409 thousand as of 31 December 2008 (2007: YTL 158,345 thousand). The reserves also include certain reserves appropriated by Garanti Bank, for the general banking reserve as well as amounts appropriated for purposes of adding to Garanti Bank’s statutory reserves.
DOĞUŞ GROUP ANNUAL REPORT 2008 173 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
27 Capital and reserves (continued)
27.3 Revaluation surplus For the years ended 31 December, the movements of revaluation surplus were as follows:
2008 2007 Balance at the beginning of the year 826,603 376,789 Revaluation increase in land and buildings 264,838 490,137 Deferred taxes on revaluation surplus (57,723) (24,019) Minority portion of revaluation increments, net of deferred taxes 861 (1,773) Effects of change in ownership interest in joint ventures -- 4,808 Depreciation effect on revaluation surplus of prior year (9,712) (19,339) Balance at the end of the year 1,024,867 826,603
27.4 Minority interest For the years ended 31 December, movements of the minority interest are as follows:
2008 2007 Balance at the beginning of the year 212,242 186,895 Sales to minority 40,371 6,023 Release of minority interest through dividend distribution (7,165) (2,064) Effect of share capital increase 7,176 360 Purchases from minority (24,027) (425) Minority interest of changes in revaluation surplus (861) 1,773 Minority interest of profit for the period (27,099) 19,680 Balance at the end of the year 200,637 212,242
174 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
28 Long-term bank borrowings At 31 December, long-term borrowings comprised the following:
2008 2007 Original Interest amount in Long-term Long-term rate (%) million borrowings borrowings
USD 3.00-10.74 2,769,457 4,188,250 2,889,046 EUR 5.02-12.33 508,654 1,088,927 512,115 Others 2.23-21.42 584,912 229,564 Total long-term bank borrowings 5,862,089 3,630,725 Accrued interest expenses 109,032 51,007 Total 5,971,121 3,681,732 Less: Short-term portion of long-term bank borrowings including accrued interest expenses (1,435,814) (1,011,857) Total 4,535,307 2,669,875
On 22 August 2008, Garanti Bank completed a securitization (the “DPR Securitization-IX”) transaction by issuance of certificates; a tranche of EUR 60.4 million with 10 years maturity from European Investment Bank.
On 28 June 2007, Garanti Bank completed a securitization (the “DPR Securitization-VIII”) transaction by issuance of certificates; three tranches of USD 166.2 million with 10 years maturity wrapped by Ambac Assurance Corp., Financial Guaranty Insurance Corp. and XL Capital Assurance and a tranche of USD 15.11 million with 8 years maturity and no financial guarantee.
On 5 February 2007, Garanti Bank obtained 10-year subordinated fixed-rate notes of USD 151.1 million due February 2017 with a repayment option for Garanti Bank at the end of the fifth year. The fixed rate notes with Political Risk Insurance provided by Steadfast (a subsidiary of Zurich American Insurance Company) received a rating of Baa1 by Moody’s Investors Service and priced at par to yield 6.95 percent to investors (207.7 bps over comparable US Treasuries).
On 24 January 2007, Garanti Bank borrowed YTL 131 million from Deutsche Bank AG, London with a maturity of 10 years at 12.93% annual fixed interest rate through a secured financing transaction. Accordingly, Garanti Bank pledged USD 90.7 million of cash collateral to Deutsche Bank AG, London. Subsequently, Garanti Bank has entered into two more secured financing transactions with the same counterparty under the same collateral conditions and borrowed in total YTL 80.39 millions in two separate transactions on 28 June and 3 July 2007 with maturity of 10 years for each and pledged USD 30.2 million of cash collateral for each. The funding costs are 11.30 percent and 11.35 percent, respectively. The cash collaterals earn annually USD libor floating interest rate.
In December 2006, Garanti Bank completed a securitization (the “DPR Securitization-VII”) transaction by issuance of certificates: USD 120.88 million tranche with a maturity of 10 years and USD 30 million tranche with a maturity of 8 years. Both of the series were issued on an unwrapped basis.
DOĞUŞ GROUP ANNUAL REPORT 2008 175 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
28 Long-term bank borrowings (continued) In May 2006, Garanti Bank completed a securitization (the “DPR Securitization-VI”) transaction by issuance of certificates: Euro 91 million with a guarantee issued by MBIA Insurance Corp. with maturity of 5 years, USD 91 million with no financial guarantee and a maturity of 7 years and USD 68 million with a guarantee issued by Ambac Assurance Corp. with maturity of 10 years.
In November 2005, Garanti Bank completed a securitization (the “DPR Securitization-V”) transaction by issuance of certificate: USD 45 million with a guarantee issued by CIFG Inc. with a maturity of 7 years, USD 76 million with a guarantee issued by XL Capital Assurance with a maturity of 8 years and USD 38 million with no financial guarantee and a maturity of 8 years.
In September 2005, Garanti Bank completed a securitization (the “DPR Securitisation-IV”) transaction by issuance of certificate: USD 45 million with a guarantee issued by Financial Guaranty Insurance Corp. with a final maturity of 7 years, USD 45 million with a guarantee issued by Financial Security Assurance with a final maturity of 8 years, USD 50 million with a financial guarantee issued by Assured Guaranty Corp. with a final maturity of 8 years, USD 33 million with a financial guarantee issued by Radian Asset Assurance Inc. with a final maturity of 7 years, USD 8 million with no financial guarantee and a final maturity of 7 years.
In May 2005, Garanti Bank completed a securitization (the “DPR Securitisation-III”) transaction by issuance of certificate: USD 91 million with a guarantee issued by MBIA Insurance Corp., a final maturity of 8 years.
The DPR securitization is a way of securitizing Garanti Bank’s payment orders created via SWIFT MT 103 or similar payment orders in terms of USD, Euro and GBP accepted as derived primarily from Garanti Bank’s trade finance and other corporate businesses and paid through foreign depository banks.
Terms and debt repayment schedule The redemption schedules of long-term and short-term portion of long-term bank borrowings at 31 December are summarised below:
2008 2007 2008 -- 1,011,857 2009 1,435,814 189,010 2010 813,358 374,060 2011 and over 3,721,949 2,106,805 Balance at the end of the year 5,971,121 3,681,732
176 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
28 Long-term borrowings (continued) At 31 December, the terms and conditions of outstanding short-term and long-term bank borrowings were as follows:
2008 Nominal Year of Face Carrying Currency interest rate maturity value amount
Secured USD (Libor+0.6-5.9) 3.44-7.97 2009-2017 3,932,275 3,948,243 Secured Euro (Euribor+0.90-3.65) 5.02-6.85 2009-2013 1,428,582 1,428,142 Secured Other (Bubor+ 6.94) 2.33-21.42 2009 925,030 924,800 Unsecured USD (Libor+1.5-15) 3.00-12.00 2009-2017 858,437 859,142 Unsecured Euro (Euribor+0.13-2.20) 6.00-14.00 2009-2016 674,323 670,175 Unsecured Other 19.50-33.00 2009 109,355 110,143 7,928,002 7,940,645
2007 Nominal Year of Face Carrying Currency interest rate maturity value amount
Secured USD (Libor+1.94-2.40) 4.21-7.75 2008-2017 2,858,447 3,016,466 Secured Euro (Euribor+0.20-0.90) 2008-2012 1,108,696 1,059,392 Secured Other 11.4-12.9 2008-2017 576,610 576,610 Unsecured USD (Libor+0.95-2.20) 5.41-9.21 2008-2017 43,561 44,725 Unsecured Euro (Euribor+0.28-1.33) 2008-2012 84,233 78,362 Unsecured Other (Bubor+6.94-9.21) 7 2008-2014 83,445 72,189 4,754,992 4,847,744
29 Other non-current liabilities At 31 December, other non-current liabilities comprised the following:
2008 2007 Long-term advances received 274,570 44,848 Technical reserves relating to insurance operations 37,353 30,568 Reserve for severance payments 34,629 27,706 Bearer bonds 23,233 18,951 Lease obligations 8,019 1,358 Others 9,107 6,228 386,911 129,659
DOĞUŞ GROUP ANNUAL REPORT 2008 177 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
29 Other non-current liabilities (continued) As at 31 December 2008, long - term advances received represents the upfront sub-operation fees amounting to YTL 274,570 thousand (2007: YTL 25,208 thousand) due to the collections in cash from the sub-operators of TÜVTÜRK Kuzey and TÜVTÜRK Güney for the vehicle inspection stations that were opened before 31 December 2008. During the year ended 31 December 2008, 183 vehicle inspection stations in 77 cities have started their operations in total (2007: nil).
On 29 September 2006, one of Garanti Bank’s subsidiaries issued its first FRN (bearer notes) for Euro 9.1 million, Euro denominated lower tier-2 capital, priced at 99.30 arranged by Deutsche Bank and traded on the alternative market in Frankfurt.
29.1 Technical reserves relating to insurance operations
2008 2007 Reserve for unearned premiums Gross 16,218 8,117 Reinsurers’ share (3,051) (505) 13,167 7,612 Provision for claims Gross 2,347 1,518 Reinsurers’ share (102) (42) 2,245 1,476 Life mathematical reserves 21,941 21,480 37,353 30,568
29.2 Reserve for employee severance indemnity For the years ended 31 December, the movements in the reserve for severance payments were as follows:
2008 2007 Balance at the beginning of the year 27,706 22,004 Provision for the year 15,851 6,911 Paid during the year (8,928) (3,065) Effect of change in ownership interest in joint ventures -- 2,007 Disposal due to sale of consolidated affiliates -- (151) Balance at the end of the year 34,629 27,706
The reserve has been calculated by estimating the present value of future probable obligation of the Group arising from the retirement of the employees.
Statistical valuation methods were developed to estimate the enterprise’s obligation under defined benefit plans. Accordingly, the following statistical assumptions were used in the calculation of the total liability:
2008 2007 Discount rate 6.26% 5.71% The range of turnover rate to estimate the probability retirement 1.0-8.70% 3.0-8.0%
The computation of the liability is predicated upon retirement pay ceiling announced by the Government. As at 31 December 2008, the ceiling amount was YTL 2,173.18 (2007: YTL 2,030.19).
178 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
30 Retirement benefit obligation
Defined benefit plan As a result of the changes in legislation described below, Garanti Bank will transfer a substantial portion of its pension liability under the Plan to SSF. This transfer, which will be a settlement of Garanti Bank’s obligation in respect of the pension and medical benefits transferable to SSF, will occur within three years from the enactment of the New Law in May 2008. The actual date of the transfer has not been specified yet. However, in its financial statements for the year ended 31 December 2007, Garanti Bank modified the accounting required by IAS 19 Employee Benefits as Garanti Bank believes that it is more appropriate to measure the obligation, in respect of the benefits that will be transferred to SSF, at the expected transfer amount prior to the date on which the transfer and settlement will occur. The expected transfer amount is calculated based on the methodology and actuarial assumptions (discount rate and mortality tables) prescribed in the New Law. As such, this calculation measures the liability to be transferred at the expected settlement amount i.e., the expected value of the payment to be made to SSF to assume that obligation.
The obligation with respect to the excess benefits is accounted for as a defined benefit plan under IAS 19.
(i) Pension and medical benefits transferable to SSF As per the provisional Article no.23 of the Turkish Banking Law no.5411 as approved by the Turkish Parliament on 19 October 2005, pension funds which are in essence similar to foundations are required to be transferred directly to SSF within a period of three years. In accordance with the Banking Law, the actuarial calculation of the liability (if any) on the transfer should be performed regarding the methodology and parameters determined by the commission established by Ministry of Labor and Social Security. Accordingly, Garanti Bank calculated the pension benefits transferable to SSF in accordance with the Decree published by the Council of Ministers in the Official Gazette no. 26377 dated 15 December 2006 (“the Decree”) for the purpose of determining the principles and procedures to be applied during the transfer of funds. However the said Article was vetoed by the President and at 2 November 2005 the President initiated a lawsuit before the Turkish Constitutional Court in order to rescind certain paragraphs of the provisional article no.23.
Garanti Bank obtained an actuarial report regarding its obligations at 31 December 2006. This report, which was dated 12 February 2007, is from an actuary, who is registered with the Undersecretariat of the Treasury regarding this Fund in accordance with the Decree. Based on this Decree, the actuarial balance sheet of the Fund has been prepared using a discount rate of 10.24 percent and the CSO 1980 mortality table. Based on the actuarial report, the assets of the plan exceed the amount that will be required to be paid to transfer the obligation at 31 December 2006. In accordance with the existing legislation at 31 December 2006, the pension and medical benefits within the social security limits were subject to transfer and the banks were not required to provide any excess social rights and payments.
On 22 March 2007, the Turkish Constitutional Court reached a verdict with regards to the suspension of the execution of the first paragraph of provisional article no.23 of the Turkish Banking Law, which requires the transfer of pension funds to SSF, until the decision regarding the cancellation thereof is published in the Official Gazette. The Constitutional Court stated in its reasoned ruling published in the Official Gazette numbered 26731, dated 15 December 2007 that the reason behind this cancellation was the possible loss of antecedent rights of the members of pension funds. Following the publication of the verdict, the Grand National Assembly of Republic of Turkey (“Turkish Parliament”) worked on the new legal arrangements by taking the cancellation reasoning into account. At 17 April 2008, the New Law has been accepted by the Turkish Parliament and the New Law has been enacted at 8 May 2008 following its publishing in the Official Gazette no 26870.
DOĞUŞ GROUP ANNUAL REPORT 2008 179 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
30 Retirement benefit obligation (continued)
(i) Pension and medical benefits transferable to SSF (continued) In accordance with the New Law, members of the funds established in accordance with the Social Security Law should be transferred to SSF within three years following its enactment date.
At 19 June 2008, Cumhuriyet Halk Partisi (“CHP”) has applied to the Constitutional Court for the cancellation of various articles of the Law including the first paragraph of the provisional Article 20. As of the issuing date of the accompanying condensed consolidated financial statements, there is not any published ruling of the Constitutional Court regarding this application.
Garanti Bank obtained an actuarial report dated 5 February 2009 from an independent actuary reflecting the principles and procedures on determining the application of transfer transactions in accordance with the New Law. The actuarial balance sheet of the Fund has been prepared using a discount rate of 9.80 percent and the CSO 1980 mortality table, and the assets of the plan exceed the amount that will be required to be paid to transfer the obligation at 31 December 2008.
Garanti Bank’s obligation in respect of the pension and medical benefits transferable to SSF has been determined as the value of the payment that would need to be made to SSF to settle the obligation at the balance sheet date in accordance with the related article of the New Law. The pension disclosures set out below therefore reflect the methodology and actuarial assumptions specified in the New Law. This calculation measures the benefit obligation at the expected transfer amount i.e., the estimated amount Garanti Bank will pay to SSF to assume this portion of the obligation.
The pension benefits are calculated annually, as per the calculation as of 31 December 2008 the present value of funded obligations amount to YTL 53,312 thousand (2007: YTL 96,528 thousand) and the fair value of the planned assets amount to YTL 187,845 thousand (2007: YTL 142,013 thousand).
2008 2007 Present value of funded obligations - Pension benefits transferable to SSF (obligation measured at the expected transfer amount) (89,550) (105,617) - Medical benefits transferable to SSF (obligation measured at the expected transfer amount) 40,918 13,197 - General administrative expenses (4,680) (4,108) (53,312) (96,528) Fair value of plan assets 187,845 142,013 Asset surplus in the plan (*) 134,533 45,485
*Asset surplus in this plan will be used as plan assets of the excess benefit plan.
Plan assets consist of the following:
2008 2007 Securities 145,226 104,053 Land and buildings 33,423 34,198 Cash and due from banks 9,196 3,762 187,845 142,013
(ii) Excess benefits not transferable to SSF The other social rights and payments representing benefits in excess of social security limits are not subject to transfer to SSF. Therefore these excess benefits are accounted as an ongoing defined benefit plan.
180 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
30 Retirement benefit obligation (continued)
(ii) Excess benefits not transferable to SSF (continued) The amounts recognized in the consolidated balance sheet are as follows:
2008 2007 Present value of defined benefit obligation - Pension benefits (49,064) (32,964) - Medical benefits (75,557) (62,263) Fair value of plan assets (*) 134,533 45,485 9,912 (49,742)
*Plan assets are composed of asset surplus in the plan explained in section Pension and medical benefits transferable to SSF.
Provision charge for excess benefits amounting to YTL 49,742 thousand had been recognised as employee benefits in the accompanying consolidated income statement for the year ended 31 December 2007. As per the actuarial calculation performed as of 31 December 2008 as detailed above, the asset surplus over the fair value of the plan assets to be used for the payment of the obligations also fully covers the benefits not transferable and still a surplus of YTL 9,912 thousand remains. However, Garanti Bank’s management, acting prudently, did not consider the health premium surplus amounting YTL 40,918 thousand as stated above and resulted from the present value of medical benefits and health premiums transferable to SSF and accordingly, kept recognising a provision amounting YTL 31,006 thousand as its liability in the accompanying consolidated financial statements reversing only YTL 18,735 thousand of the provision recognised as of 31 December 2007.
2008 Asset surplus over present value of defined benefit obligation 9,912 Net present value of medical benefits and health premiums transferable to SSF (40,918) Present value of defined benefit obligation (31,006)
Expenses recognised regarding this benefit plan in the accompanying consolidated income statements for the years ended 31 December 2008 and 2007 are as follows:
2008 2007 Total contribution payment 34,564 27,524 (Reversal of)/Provision for unfunded liability (18,735) 49,742 15,829 77,266
Principal actuarial assumptions used at 31 December are as follows:
2008 2007 Discount rate at 31 December 17.41-10.51 16.77-10.17 Inflation rates 9.50-5.73 8-4.85 Future real salary increases 1.5 1.5 Medical cost trend rates 17.80-11.77 15.40-10.36 Future pension increase rates 9.50-5.73 8-4.85
Assumptions regarding future mortality are based on published statistics and mortality tables. The average life expectancy of an individual retiring at age 60 is 17 for males, and at age 58 for females is 23.
DOĞUŞ GROUP ANNUAL REPORT 2008 181 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
30 Retirement benefit obligation (continued)
(ii) Excess benefits not transferable to SSF (continued) The sensitivity analysis of defined benefit obligation of excess liabilities at 31 December is as follows:
2008 Percentage of change in defined benefit obligation Assumption change Pension benefits % Medical benefits % Overall % Discount rate +1% (10.5) (14.2) (12.8) Discount rate -1% 13.1 18.3 16.3 Medical inflation +10% of CPI -- 16.6 10.1 Medical inflation -10% of CPI -- (7.9) (4.8)
2007 Percentage of change in defined benefit obligation Assumption change Pension benefits % Medical benefits % Overall % Discount rate +1% (9.3) (13.2) (11.9) Discount rate -1% 11.3 16.8 14.9 Medical inflation +10% of CPI -- 9.9 6.4 Medical inflation -10% of CPI -- (7.8) (5.1)
31 Short-term bank borrowings At 31 December, short-term bank borrowings comprised the following:
2008 2007 Foreign banks 1,601,974 926,897 Domestic banks 359,240 231,825 1,961,214 1,158,722 Accrued interest expenses 8,310 7,290 1,969,524 1,166,012
As at 31 December 2008, loans and advances from banks included various promissory notes amounting to YTL 288,050 thousand in total with latest maturity of 2009 (2007: YTL 327,723 thousand with latest maturity of 2008 of which YTL 81,782 thousand are classified under long term debts).
As at 31 December 2008, short-term borrowings included a one-year syndicated facility to finance pre-export contracts of Garanti Bank’s corporate customers with a total amount of EUR 181.3 million (equivalent of YTL 383,637 thousand) with a rate of Euribor+0.675 percent per annum as signed with 31 foreign banks, and a one-year syndicated loan facility to finance export contracts in two tranches of USD 65 million and EUR 85.2 million (equivalent of YTL 279,068 thousand) with the rates of Libor+2 percent and Euribor+2 percent per annum, respectively from 20 foreign banks.
182 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
32 Banking deposits from banks At 31 December, banking deposits from banks comprised the following:
2008 2007 Term deposits 352,988 617,955 Payable on demand 284,702 113,903 637,690 731,858 Accrued interest expenses 2,756 4,329 640,446 736,187
At 31 December 2008, banking deposits from banks include both YTL accounts in the amount of YTL 165,620 thousand (2007: YTL 270,255 thousand) and foreign currency denominated accounts in the amount of YTL 472,070 thousand (2007: YTL 461,604 thousand). As at 31 December 2008, interest rates applicable to YTL bank deposits and foreign currency bank deposits varied within ranges of 13 percent -22 percent and 1 percent - 8 percent (2007: 16 percent - 21 percent and 4 percent – 11 percent), respectively.
33 Banking customer deposits At 31 December, banking customers deposits comprised the following:
2008 2007 Demand Time Total Total Foreign currency 1,798,626 6,310,337 8,108,963 6,592,991 Saving 389,036 5,113,991 5,503,027 3,774,150 Commercial 518,800 2,074,008 2,592,808 1,772,146 Public and other 205,306 285,652 490,958 236,353 2,911,768 13,783,988 16,695,756 12,375,640 Accrued interest expenses 12 113,537 113,549 66,553 2,911,780 13,897,525 16,809,305 12,442,193
At 31 December 2008, interest rates applicable to YTL deposits and foreign currency deposits varied between 13 percent - 24 percent (2007: 16 percent - 21 percent) and 1 percent - 11 percent (2007: 1 percent - 9 percent), respectively.
As at 31 December 2008, subordinated deposits obtained by the consolidated Garanti Bank’s subsidiary in the Netherlands amounting to Euro 14.5 million (equivalent of YTL 30,695 thousand) are included in foreign currency time deposits (2007: EUR 14.5 million, equivalent of YTL 24,617 thousand).
DOĞUŞ GROUP ANNUAL REPORT 2008 183 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
34 Obligations under repurchase agreements The proportionately consolidated financial joint ventures raise funds by selling financial instruments under agreements to repay the funds by repurchasing the instruments at future dates at the same price plus interest at a predetermined rate. Repurchase agreements are commonly used as a tool for short-term financing of interest-earning assets, depending on the prevailing interest rates.
At 31 December, assets sold under repurchase agreements are as follows:
Fair value Carrying amount Range of Carrying of underlying of corresponding repurchase Repurchase value assets liabilities dates price
2008 Investments in debt securities 3,518,010 3,548,012 3,370,491 Jan’09-Feb’11 3,410,480 3,518,010 3,548,012 3,370,491 3,410,480 2007 Financial assets at fair value through profit or loss 39,005 39,005 35,197 Jan’08-Dec’08 35,524 Investments in debt securities 2,936,975 2,937,494 2,561,292 Jan’08-Feb’11 2,624,916 2,975,980 2,976,499 2,596,489 2,660,440
As at 31 December 2008, accrued interest on obligations under repurchase agreements amounting to YTL 18,577 thousand (2007: YTL 21,440 thousand) is included in the carrying amount of the corresponding liabilities.
In general, the carrying values of such assets are more than the corresponding liabilities due to the margins set between parties, since such funding is raised against assets collateralised.
The proceeds from the sale of securities under repurchase agreements are treated as liabilities and recorded as obligations under repurchase agreements. As at 31 December 2008, the maturities of the obligations varied from one day to twenty six months and interest rates varied between 3 percent-17 percent (2007: 4 percent - 18 percent with maturities varying from one day to three years).
35 Accounts payable At 31 December, accounts payable comprised the following:
2008 2007 Trade payables 972,151 433,306 Payables to insurance and reinsurance companies 273,716 173,243 Due to customers for contract work (Note 21) 24,430 20,412 Payables arising from factoring transactions 20,376 55,824 Notes payable 18,575 3,946 Others 23,334 4,666 1,332,582 691,397
184 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
36 Other current liabilities At 31 December, other current liabilities comprised the following:
2008 2007 Blocked accounts against expenditures of card holders 548,562 508,684 Import deposits and advances received 225,175 67,222 Accrued exchange losses on derivatives 183,967 166,076 Withholding taxes and duties payable 117,716 64,747 Other interest and expense accruals 115,879 35,012 Short term employee benefits 46,840 30,342 Unearned income 32,539 16,652 Transfer orders 20,185 53,848 Blocked accounts 10,747 14,351 Lease obligations 3,288 19,825 Others 153,858 243,957 1,458,756 1,220,716
37 Commitments and contingencies Commitments and contingent liabilities are discussed separately for “segments other than banking and finance” and “banking and finance segment” in the following paragraphs.
37.1 Segments other than banking and finance Commitments and contingent liabilities arising in the ordinary course of business for the entities operating in the “segments other than banking and finance” comprised the following items as of 31 December:
Letters of guarantee 2008 2007 Given to suppliers 803,789 634,764 Obtained from banks and given to government organisations 450,416 271,354 Given to customs administrations 8,238 7,350 Given to banks 372 122 Given to others 2,504 1,474 Total letters of guarantee 1,265,319 915,064
Sureties given 46,344 41,174
The Group, as a guarantor, has given its equity holdings in some group companies with a total nominal amount of YTL 374,138 thousand and tangible assets at an amount of YTL 144,878 thousand (equivalent of USD 95,800 thousand) as collateral. In terms of the related borrowing agreements, one of the tourism segment consolidated subsidiaries’ profit from hotels has been attached.
DOĞUŞ GROUP ANNUAL REPORT 2008 185 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
37 Commitments and contingencies (continued)
37.2 Banking and finance segment In the ordinary course of banking and finance activities, the entities included in the “banking and finance segment” undertake various commitments and incur certain contingent liabilities that are not presented in the consolidated financial statements, including letters of guarantee, acceptance credits and letters of credit.
At 31 December, commitments and contingent liabilities comprised the following items:
2008 2007 Letters of guarantee 3,501,396 2,952,357 Letters of credit 1,003,546 881,276 Acceptance credits 37,414 35,202 Other guarantees and endorsements 33,242 26,810 4,575,598 3,895,645
As at 31 December 2008, commitments for unused credit limits for credit cards, overdrafts, cheques and loans to customers, and commitments for “credit linked notes” amount approximately to YTL 5,294,817 thousand (2007: YTL 4,192,691 thousand) in total.
As at 31 December 2008, commitments for the derivative transactions carried out on behalf of customers in the Turkish Derivatives Exchange amounted to YTL 102,952 thousand (2007: YTL 106,976 thousand) in total.
As at 31 December 2008, commitments for purchases and sales of foreign currencies under spot, forwards, swaps, future rate agreements, options and forward agreements for gold trading amounted to YTL 7,259,895 thousand (2007: YTL 4,160,183 thousand), approximately 98 percent of which are due within a year.
186 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
37 Commitments and contingencies (continued)
37.2 Banking and finance segment (continued) The following tables summarize the contractual amounts of the forward exchange, swap, futures and options contracts, showing the details of the remaining periods to maturity. Foreign currency amounts are translated at rates ruling at the balance sheet date. Monetary items denominated in a foreign currency are economically hedged using foreign currency derivative contracts. All gains and losses on foreign currency contracts are recognised in profit or loss, except for contracts of cash flow hedges as stated above. At 31 December 2008, approximately 112 percent of net consolidated balance sheet foreign currency open position was hedged through the use of foreign currency contracts (2007: 105 percent).
Notional amount with remaining life of Up to 1 1 to 3 3 to 6 6 to 12 Over 1 31 December 2008 month months months months year Total
Interest rate derivatives Future rate agreements ------Purchases ------Sales ------Interest rate swaps 938 5,358 55,285 58,848 4,909 125,338 Purchases 213 3,664 8,000 5,018 4,593 21,488 Sales 725 1,694 47,285 53,830 316 103,850 Interest rate futures -- 1,423 ------1,423 Purchases ------Sales -- 1,423 ------1,423 Other derivatives Securities, shares and index options -- -- 20,610 9,359 511,516 541,485 Purchases -- -- 20,610 3,216 255,758 279,584 Sales ------6,143 255,758 261,901 Currency derivatives Spot exchange contracts 219,989 ------219,989 Purchases 146,201 ------146,201 Sales 73,788 ------73,788 Forward exchange contracts 367,177 215,233 63,978 60,080 53,143 759,611 Purchases 217,067 100,926 42,023 29,766 20,582 410,364 Sales 150,110 114,307 21,955 30,314 32,561 349,247 Currency/cross currency swaps 2,166,005 915,770 581,738 649,194 260,438 4,573,145 Purchases 798,772 434,775 266,194 530,064 232,813 2,262,618 Sales 1,367,233 480,995 315,544 119,130 27,625 2,310,527 Options 406,207 231,050 226,122 196,156 7,817 1,067,352 Purchases 155,907 122,301 125,284 80,665 3,507 487,664 Sales 250,300 108,749 100,838 115,491 4,310 579,688 Foreign currency futures -- 3,277 ------3,277 Purchases -- 687 ------687 Sales -- 2,590 ------2,590 Other foreign exchange contracts 38,684 4,828 2,682 -- -- 46,194 Purchases 1,804 568 ------2,372 Sales 36,880 4,260 2,682 -- -- 43,822 Subtotal purchases 1,319,964 662,921 462,111 648,729 517,253 3,610,978 Subtotal sales 1,879,036 714,018 488,304 324,908 320,570 3,726,836 Total of transactions 3,199,000 1,376,939 950,415 973,637 837,823 7,337,814
DOĞUŞ GROUP ANNUAL REPORT 2008 187 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
37 Commitments and contingencies (continued)
37.2 Banking and finance segment (continued)
Notional amount with remaining life of Up to 1 1 to 3 3 to 6 6 to 12 Over 1 31 December 2007 month months months months year Total
Interest rate derivatives Future rate agreements -- 3,506 ------3,506 Purchases -- 1,753 ------1,753 Sales -- 1,753 ------1,753 Interest rate swaps 1,155 6,283 3,217 -- 4,923 15,578 Purchases 41 6,258 1,959 -- 4,216 12,474 Sales 1,114 25 1,258 - 707 3,104 Interest rate futures -- 1,209 ------1,209 Purchases -- 1,209 ------1,209 Sales ------Other derivatives Securities, shares and index options 106,868 29,979 150 1,792 -- 138,789 Purchases 87,601 6,487 75 896 -- 95,059 Sales 19,267 23,492 75 896 -- 43,730 Currency derivatives Spot exchange contracts 263,602 ------263,602 Purchases 142,334 ------142,334 Sales 121,268 ------121,268 Forward exchange contracts 161,025 34,962 31,278 38,496 3,037 268,798 Purchases 103,000 17,302 14,643 27,817 1,396 164,158 Sales 58,025 17,660 16,635 10,679 1,641 104,640 Currency/cross currency swaps 893,103 546,812 288,418 301,205 89,099 2,118,637 Purchases 580,831 115,394 276,324 272,702 82,380 1,327,631 Sales 312,272 431,418 12,094 28,503 6,719 791,006 Options 271,535 500,643 201,363 205,049 385 1,178,975 Purchases 155,593 259,536 117,953 111,010 385 644,477 Sales 115,942 241,107 83,410 94,039 -- 534,498 Foreign currency futures -- 31,339 671 -- -- 32,010 Purchases -- 7,033 671 -- -- 7,704 Sales -- 24,306 ------24,306 Other foreign exchange contracts 139,079 ------139,079 Purchases 41,934 ------41,934 Sales 97,145 ------97,145 Subtotal purchases 1,111,334 414,972 411,625 412,425 88,377 2,438,733 Subtotal sales 725,033 739,761 113,472 134,117 9,067 1,721,450 Total of transactions 1,836,367 1,154,733 525,097 546,542 97,444 4,160,183
188 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
37 Commitments and contingencies (continued)
37.2 Banking and finance segment (continued) The breakdown of such commitments outstanding at 31 December, by type, is as follows:
2008 2007 Purchase Sale Purchase Sale Currency swap agreements for hedging purposes 2,008,853 2,287,936 1,292,359 771,082 Interest rate and foreign currency options 702,320 776,169 652,899 540,963 Spot foreign currency transactions 146,201 73,788 142,334 121,268 Forward agreements for customer dealing activities 186,106 270,166 15,212 59,708 Forward rate agreements, foreign currency and interest rate futures 687 4,013 10,665 26,059 Options for customer dealing activities 64,928 65,421 86,637 37,263 Forward agreements for hedging purposes 224,257 79,081 148,946 44,934 Forward agreements for gold trading 2,372 43,822 41,934 97,145 Currency swap agreements for customer dealing activities 253,765 22,590 35,271 19,925 Interest rate swap agreements 21,489 103,850 12,476 3,103 3,610,978 3,726,836 2,438,733 1,721,450
37.3 Commitments and contingencies applicable to the business segments As at 31 December 2008, commitment for uncalled capital of affiliated companies amounted approximately to YTL 36,272 thousand (2007: YTL 17,350 thousand).
38 Related party disclosures For the purpose of the consolidated financial statements, the shareholders, key management personnel and the Board members, and in each case, together with their families and companies controlled by/affiliated with them; and associates, investments and joint ventures are considered and referred to as the related parties. A number of transactions are entered into with the related parties in the normal course of business. Most of the related party activity is eliminated at consolidation and the remaining activity is not material to the Group. These transactions were carried out on an arm’s- length basis during the normal course of business.
38.1 Related party balances At 31 December, the Group had the following balances outstanding from its related parties:
2008 2007 Banking customers deposits 46,299 32,110 Due from related parties 14,998 26,821 Due to related parties 3,695 5,921 Letters of guarantee 2,213 5,909
DOĞUŞ GROUP ANNUAL REPORT 2008 189 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
38 Related party disclosures (continued)
38.2 Related party transactions For the years ended 31 December, the Group earned income amounts and was charged for expense amounts in relation to transactions with its related parties as summarised below:
2008 2007 Revenues 4,062 2,040 Interest expense 4,089 2,039
Garanti Bank sold a real estate, a building in Maslak, to Doğuş Holding on 11 March 2008 at a sales price of USD 35 million (the Group’s interest amounting to USD 10.6 million). Before the year end, the total amount has been fully collected and a gain of YTL 81 thousand on this sale is recorded as of 31 December 2008.
Doğuş Holding sold 182 founder shares of Garanti Bank to Garanti Bank on 13 June 2008 subsequent to the permissions obtained from the related legal authorities and recognised a gain of YTL 232,444 thousand in its consolidated financial statements.
38.3 Transactions with key management personnel On a consolidated basis, key management costs included in general and administrative expenses for the years ended 31 December 2008 and 2007 amounted to YTL 82,265 thousand and YTL 59,206 thousand, respectively.
38.4 Other related party disclosures Sale of shares in the proportionately consolidated entity An agreement was reached between Garanti Bank and Eureko BV on 21 March 2007 for the sale of 80 percent shares in Eureko Sigorta, representing nominal shares of YTL 48,000 thousand for Euro 365,000 thousand. The share transfer was completed on 21 June 2007. The gain on sale of this proportionately consolidated entity was YTL 137,964 thousand before tax. As part of the sale transactions mentioned above, Garanti Bank has a sale option on the remaining shares of Eureko Sigorta.
An agreement was reached between Garanti Bank and Eureko BV on 21 March 2007 for the sale of 15 percent shares in Garanti Emeklilik, representing nominal shares of YTL 7,500 thousand for Euro 100,000 thousand. The share transfer was completed on 21 June 2007. The gain on sale of shares of this proportionately consolidated entity was YTL 41,998 thousand before tax. As part of the sale transactions mentioned above, Eureko BV has purchase and sale options on the shares of Garanti Emeklilik.
Sale of subsidiary On 18 October 2007, Doğuş Holding has decided to sell its 65.999 shares of Boyabat Elektrik Üretim ve Ticaret Anonim Şirketi to Doğan Enerji Yatırımları Sanayi ve Ticaret Anonim Şirketi for an amount of USD 952 thousand, one of its shares to Adilbey Holding Anonim Şirketi for USD 1 and 66.000 shares to Unit Investment N.V. for an amount of USD 952 thousand.
190 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments
39.1 Liquidity risk The following tables provide an analysis of monetary assets and monetary liabilities of the Group into relevant maturity groupings based on the remaining periods to repayment:
31 December 2008 Up to 1 1 to 3 3 to 6 6 to 12 Over 1 Monetary assets month months months months year Total New Turkish Lira: Investments in debt securities ------6,382,486 6,382,486 Other non-current assets ------104,596 104,596 Deferred tax assets ------157,558 157,558 Accounts receivable 214,451 464,371 59,433 46,815 -- 785,070 Due from related parties -- 1,992 -- 13,006 -- 14,998 Other current assets 232,627 112,236 180,272 21,453 -- 546,588 Banking loans and advances to banks 223,567 12,360 21,474 -- 283,050 540,451 Banking loans and advances to customers 2,755,590 1,002,413 864,021 48,683 3,023,581 7,694,288 Financial assets at fair value through profit or loss 6,702 674 12,290 -- 27,469 47,135 Cash and cash equivalents 1,216,256 36,666 ------1,252,922 Total YTL monetary assets 4,649,193 1,630,712 1,137,490 129,957 9,978,740 17,526,092 Foreign Currencies: Investments in debt securities ------1,590,187 1,590,187 Other non-current assets ------722,849 722,849 Deferred tax assets ------8,180 8,180 Accounts receivable 64,009 136,605 86,840 142,013 -- 429,467 Other current assets 83,659 76,730 14,935 16,355 -- 191,679 Banking loans and advances to banks 1,129,284 79,205 340,700 -- 329,242 1,878,431 Banking loans and advances to customers 368,459 801,098 1,813,036 455,316 5,427,969 8,865,878 Financial assets at fair value through profit or loss 3,383 120 4,939 -- 21,375 29,817 Cash and cash equivalents 979,099 24,628 ------1,003,727 Total foreign currency monetary assets 2,627,893 1,118,386 2,260,450 613,684 8,099,802 14,720,215 Total monetary assets 7,277,086 2,749,098 3,397,940 743,641 18,078,542 32,246,307
DOĞUŞ GROUP ANNUAL REPORT 2008 191 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.1 Liquidity risk (continued)
31 December 2008 Up to 1 1 to 3 3 to 6 6 to 12 Over 1 Monetary liabilities month months months months year Total New Turkish Lira: Long-term borrowings ------450,591 450,591 Deferred tax liabilities ------125,297 125,297 Other non-current liabilities ------365,396 365,396 Retirement benefit obligation ------31,006 31,006 Short-term and short-term portion of long-term bank borrowings 279,971 45,060 131,592 223 -- 456,846 Banking customer deposits and banking deposits from banks 8,014,036 687,096 77,100 -- 29,359 8,807,591 Obligations under repurchase agreements 2,986,156 98 -- -- 172,499 3,158,753 Accounts payable 123,426 62,508 304,733 37,958 2,638 531,263 Due to related parties 2,379 423 794 -- -- 3,596 Taxes payable on income -- -- 37,872 -- -- 37,872 Other current liabilities 663,165 275,623 122,755 100,997 -- 1,162,540 Total YTL monetary liabilities 12,069,133 1,070,808 674,846 139,178 1,176,786 15,130,751 Foreign Currencies Long-term bank borrowings ------4,084,716 4,084,716 Deferred tax liabilities ------Other non-current liabilities ------21,515 21,515 Short-term and short-term portion of long-term bank borrowings 344,833 480,688 1,561,885 561,086 -- 2,948,492 Banking customer deposits and banking deposits from banks 6,992,423 625,808 652,509 -- 371,420 8,642,160 Obligations under repurchase agreements 86,373 58,293 67,072 -- -- 211,738 Accounts payable 47,265 82,652 184,334 480,765 6,303 801,319 Due to related parties ------99 -- 99 Taxes payable on income -- -- 1,156 -- -- 1,156 Other current liabilities 29,798 76,718 45,455 144,245 -- 296,216 Total foreign currency monetary liabilities 7,500,692 1,324,159 2,512,411 1,186,195 4,483,954 17,007,411 Total monetary liabilities 19,569,825 2,394,967 3,187,257 1,325,373 5,660,740 32,138,162
Liquidity position/(gap) (12,292,739) 354,131 210,683 (581,732) 12,417,802 108,145
192 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.1 Liquidity risk (continued)
31 December 2007 Up to 1 1 to 3 3 to 6 6 to 12 Over 1 Monetary assets month months months months year Total New Turkish Lira: Investments in debt securities ------4,025,794 4,025,794 Other non-current assets ------1,075,455 1,075,455 Deferred tax assets ------31,478 77,024 108,502 Accounts receivable 195,391 155,596 128,083 45,071 -- 524,141 Due from related parties 1,425 24,425 -- 971 -- 26,821 Other current assets 49,769 13,227 ------62,996 Banking loans and advances to customers 2,207,813 769,747 787,197 -- 2,688,265 6,453,022 Banking loans and advances to banks 134,615 6,505 2,419 -- 187,049 330,588 Financial assets at fair value through profit or loss 871 77 29,157 29,731 -- 59,836 Cash and cash equivalents 174,020 430 ------174,450 Total YTL monetary assets 2,763,904 970,007 946,856 107,251 8,053,587 12,841,605 Foreign Currencies: Investments in debt securities ------1,364,042 1,364,042 Other non-current assets ------505,821 505,821 Deferred tax assets ------94 2,046 2,140 Accounts receivable 40,597 24,677 114,468 61,467 -- 241,209 Other current assets 299,137 ------299,137 Banking loans and advances to customers 307,694 751,852 1,410,971 -- 3,636,171 6,106,688 Banking loans and advances to banks 561,226 61,638 268,979 -- 303,389 1,195,232 Financial assets at fair value through profit or loss 13,592 7,412 36,934 60,609 -- 118,547 Cash and cash equivalents 926,250 -- -- 1,673 927,923 Total foreign currency monetary assets 2,148,496 845,579 1,831,352 122,170 5,813,142 10,760,739 Total monetary assets 4,912,400 1,815,586 2,778,208 229,421 13,866,729 23,602,344
DOĞUŞ GROUP ANNUAL REPORT 2008 193 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.1 Liquidity risk (continued)
31 December 2007 Up to 1 1 to 3 3 to 6 6 to 12 Over 1 Monetary liabilities month months months months year Total New Turkish Lira: Long-term borrowings ------234,001 234,001 Deferred tax liabilities ------52,475 52,475 Other non-current liabilities ------127,869 127,869 Retirement benefit obligation ------49,742 49,742 Short-term and short-term portion of long-term bank borrowings 70,304 170,488 102,293 -- -- 343,085 Banking customer deposits and banking deposits from banks 5,340,976 1,567,749 97,001 49,704 -- 7,055,430 Obligations under repurchase agreements 1,983,912 31,081 63,073 172,691 -- 2,250,757 Accounts payable 25,500 30,489 195,807 96,183 347,979 Due to related parties 5,921 ------5,921 Taxes payable on income -- 285 633 -- -- 918 Other current liabilities 178,526 343,885 416,650 23,564 -- 962,625 Total YTL monetary liabilities 7,605,139 2,143,977 875,457 342,142 464,087 11,430,802 Foreign Currencies Long-term bank borrowings ------2,435,874 2,435,874 Deferred tax liabilities ------5,356 5,356 Other non-current liabilities ------1,790 1,790 Short-term and short-term portion of long-term bank borrowings 143,527 423,039 1,118,962 149,256 -- 1,834,784 Banking customer deposits and banking deposits from banks 5,342,417 631,510 98,117 50,906 -- 6,122,950 Obligations under repurchase agreements 145,922 101,185 98,625 -- -- 345,732 Accounts payable 70,501 119,467 146,992 6,458 -- 343,418 Taxes payable on income -- 133 964 -- -- 1,097 Other current liabilities 52,721 94,670 35,433 27,373 -- 210,197 Total foreign currency monetary liabilities 5,755,088 1,370,004 1,499,093 233,993 2,443,020 11,301,198 Total monetary liabilities 13,360,227 3,513,981 2,374,550 576,135 2,907,107 22,779,894
Liquidity position/(gap) (8,447,827) (1,698,395) 403,658 346,714 10,959,62 822,450
194 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.2 Credit risk Exposure to credit risk The carrying amount of financial assets represents the maximum credit exposure. The maximum exposure to credit risk at the reporting date is as follows
2008 2007 Cash and cash equivalents* 2,255,949 1,101,846 Accounts receivable 1,214,537 765,350 Due from related parties 14,998 26,821 Banking loans and advances to customers and banks 18,979,048 14,085,530 Investments in debt securities 7,972,673 5,389,836 Financial assets at fair value through profit or loss 76,952 178,383 Other current assets** 431,995 185,533 Other non-current assets** 742,222 1,559,437 31,688,374 23,292,736
(*) Cash on hand is excluded from cash and cash equivalents. (**) Non-financial instruments such as advances given, VAT deductible and carried forward, prepaid expenses and advances given are excluded from other current assets and other non-current assets.
Exposure to credit risk for segments other than banking and finance segment
The maximum exposure to credit risk for trade receivables at the reporting date by type of customer is as follows:
2008 2007 Retailers 129,997 114,084 Contract receivables 395,018 43,011 Advertising agencies 35,289 37,432 End-users 31,083 34,392 Tourism agencies 1,911 918 Other 34,529 81,327 627,827 311,164
The maximum exposure to credit risk for trade receivables at the reporting date by geographic concentration is as follows;
Carrying amount 2008 2007 Turkey 466,357 272,849 Libya 102,530 -- Morocco 23,712 21,057 Ukraine 3,303 7,010 Egypt -- 4,124 Euro zone 9,003 470 Other 22,922 5,654 627,827 311,164
DOĞUŞ GROUP ANNUAL REPORT 2008 195 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.2 Credit risk (continued) Impairment losses
The aging of trade receivables at the reporting date is;
2008 2008 2007 2007 Gross Impairment Gross Impairment Not past due 418,014 (10) 290,990 (1,200) Past due 0-30 days 155,877 (15) 11,499 (9) Past due 31-120 days 29,977 (3,012) 9,257 (1,127) More than one year 134,144 (107,055) 86,634 (84,880) Total 738,012 (110,092) 398,380 (87,216)
Segments other than banking and finance segment including the DNetherland Holding B.V. figures The following tables are the contractual maturities of financial liabilities, including interest payments and excluding the impact of netting agreements:
2008 Carrying Contractual 6 months 6-12 More than amount cash flows or less months 1-2 years 2-5 years 5 years Non-derivative financial liabilities Secured bank borrowings 2,002,775 (2,184,406) (306,697) (155,310) (256,785) (1,051,372) (414,242) Unsecured bank borrowings 1,639,458 (1,956,143) (746,440) (203,982) (664,223) (267,242) (74,256) Finance lease liabilities 11,307 (11,307) (1,829) (1,459) (7,512) (507) -- Accounts payable 870,674 (870,674) (185,999) (682,198) (2,477) -- --
Derivative financial liabilities Forward contracts 12,748 (21,204) (1,682) (1,873) (3,279) (10,099) (4,271) 4,536,962 (5,043,734) (1,242,647) (1,044,822) (934,276) (1,329,220) (492,769)
2007 Carrying Contractual 6 months 6-12 More than amount cash flows or less months 1-2 years 2-5 years 5 years Non-derivative financial liabilities Secured bank borrowings 1,195,188 (1,260,767) (340,370) (134,897) (85,496) (593,361) (106,643) Unsecured bank borrowings 195,378 (212,139) (50,539) (13,473) (52,334) (89,491) (6,302) Finance lease liabilities 21,183 (21,183) (2,238) (2,273) (16,614) (58) -- Accounts payable 490,866 (490,866) (388,225) (102,641) ------
Derivative financial liabilities Forward contracts 4,872 (5,703) (320) (320) (640) (1,920) (2,503) 1,907,487 (1,990,658) (781,692) (253,604) (155,084) (684,830) (115,448)
196 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.2 Credit risk (continued) Exposure to credit risk for banking and finance segment
Banking loans and advances given to customers 2008 2007 Individually impaired 430,739 268,461 Allowance for impairment (324,304) (198,535) Carrying amount 106,435 69,926
Collectively impaired -- -- Allowance for impairment (59,337) (46,480) Carrying amount (59,337) (46,480)
Past due but not impaired 186,614 18,771 186,614 18,771
Neither past due nor impaired 16,309,374 12,537,292 Loans with renegotiated terms 17,080 (19,799) Carrying amount 16,326,454 12,517,493
Total carrying amount 16,560,166 12,559,710
At 31 December 2008 and 2007, Garanti Bank has no allowance for loans and advances to banks.
Sectoral and geographical concentration of impaired loans for banking and finance segment including DNetherlands Holding BV
An analysis of concentrations of non-performing loans and lease receivables is shown below:
2008 2007 Consumer loans 258,120 176,340 Textile 39,767 23,139 Chemistry and chemical products 21,348 15,904 Construction 16,438 6,627 Food 12,270 7,347 Agriculture and stockbreeding 11,482 2,981 Service sector 9,458 7,022 Durable consumption 5,479 3,673 Metal and metal products 5,250 3,492 Financial institutions 857 2,473 Others 50,270 19,463 Total non-performing loans and finance lease receivables 430,739 268,461
DOĞUŞ GROUP ANNUAL REPORT 2008 197 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.2 Credit risk (continued)
2008 2007 Turkey 406,240 176,340 Romania 22,141 7,347 Netherlands 558 23,139 Germany 236 15,904 Others 1,564 45,731 Total non-performing loans and finance lease receivables 430,739 268,461
Past due but not impaired loans for banking and finance segment including DNetherlands Holding BV
These are loans where contractual interest or principal payments are past due but the Group believes that impairment is not appropriate on the basis of the level of collateral available and the customer’s current activities, assets and financial position.
The breakdown of performing cash and non-cash loans and advances to customers by type of collateral is as follows:
2008 2007 Cash loans Secured loans: 11,848,391 9,069,696 Secured by mortgages 4,048,013 2,367,915 Secured by government institutions or government securities 609,078 440,594 Secured by cash collateral 367,945 354,768 Guarantees issued by financial institutions 51,109 56,318 Other collateral (pledge on assets, corporate and personal guarantees, promissory notes) 6,772,246 5,850,101 Unsecured loans 4,575,783 3,143,836 Total performing loans and finance lease receivables 16,424,174 12,213,532
Non-cash loans Secured loans: 3,708,645 3,063,677 Secured by cash collateral 179,688 149,942 Secured by mortgages 439,287 52,553 Guarantees issued by financial institutions 1,487 1,138 Other collateral (pledge on assets, corporate and personal guarantees, promissory notes) 3,088,183 2,860,044 Unsecured loans 866,953 831,967 Total non-cash loans (Note 6.1) 4,575,598 3,895,644
An estimate of the fair value of collateral held against non-performing loans and receivables is as follows:
2008 2007 Mortgages 103,068 52,778 Promissory notes and surety 89,218 50,265 Pledge assets 45,695 26,921 Cash collateral 112 107 Unsecured 192,646 138,390 430,739 268,461
198 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.2 Credit risk (continued) The amounts reflected in the tables above represent the maximum accounting loss that would be recognized at the balance sheet date if counterparties failed completely to perform as contracted and any collateral or security proved to be of no value. The amounts, therefore, greatly exceed expected losses, which are included in the allowance for uncollectibility.
39.3 Market risk (i) Interest rate risk
Profile As at 31 December, the interest rate profile of the Group’s interest-bearing financial instruments other than banking and finance was as follows:
2008 2007 Fixed rate instruments Financial assets 639,280 201,012 Financial liabilities (647,020) (62,113) (7,740) 138,899
Variable rate instruments Financial assets 94,455 70,275 Financial liabilities (3,021,438) (1,328,566) (2,926,983) (1,258,291)
Cash flow sensitivity analysis for variable rate instruments for segments other than banking and finance segment
A change of 100 basis points in interest rates at the reporting date would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular foreign currency rates, remain constant. This analysis is performed on the same basis for 2006.
Profit or loss Equity 100 bp 100 bp 31 December 2008 increase decrease increase decrease Variable rate instruments (3,893) 3,881 -- -- Cash flow sensitivity (net) (3,893) 3,881 -- --
Profit or loss Equity 100 bp 100 bp 31 December 2007 increase decrease increase decrease Variable rate instruments 331 (358) 306 (310) Cash flow sensitivity (net) 331 (358) 306 (310)
DOĞUŞ GROUP ANNUAL REPORT 2008 199 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.3 Market risk (continued) (i) Interest rate risk (continued) The following table indicates the effective interest rates by major currencies for the major balance sheet components of the Group for the years ended 31 December:
2008 Other USD% Euro% YTL% currencies% Assets Banking loans and advances to banks 1.00-6.70 1.00-7.60 15.00-22.85 -- Debt and other fixed or floating income instruments 6.86-10.00 7.19 14.00-21.00 -- Banking loans and advances to customers 2.00-19.00 3.15-19.00 14.00-24.53 5.51-22.00 Liabilities Banking deposits Foreign currency 1.00-6.5 2.00-7.50 -- 2.00-10.50 Bank 1.50-6.85 1.95-6.94 15.00-18.11 0.75 Saving -- -- 15.75-21.98 -- Commercial -- -- 15.75-23.52 -- Public and other deposits -- -- 21.89 -- Obligations under repurchase agreements 3.03-4.90 3.70-6.75 15.26 9.80 Bank borrowings 3.34-15.00 5.02-14.00 14.50-33.00 2.33
2007 Other USD% Euro% YTL% currencies% Assets Banking loans and advances to banks 4.23-5.51 3.70-6.27 16.00-21.58 8.45-9.70 Debt and other fixed or floating income instruments 2.25-12.39 1.05-10.63 10.00-20.78 3.50-5.25 Banking loans and advances to customers 4.83-13.00 4.00-10.79 16.45-30.82 2.31-16.00 Liabilities Banking deposits Foreign currency 1.00-6.50 1.50-5.00 -- 0.50-9.25 Bank 3.75-6.72 3.50-7.07 13.00-18.00 3.75-6.50 Saving -- -- 18.52-19.75 -- Commercial -- -- 18.99-19.75 -- Public and other deposits -- -- 18.53 -- Obligations under repurchase agreements 5.06-5.83 4.11-5.06 15.44 -- Bank borrowings 5.27-6.22 4.91-5.85 13.66-18.38 1.85
(ii) Currency risk The Group is exposed to currency risk through transactions in foreign currencies and through its investment in foreign operations.
Main foreign operations of the banking and finance segment are in the Netherlands, Romania and Russia. The measurement currencies of these operations are Euro and US Dollars. As the currency in which the Group presents its consolidated financial statements is YTL, the consolidated financial statements are affected by currency exchange rate fluctuations against YTL.
200 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.3 Market risk (continued) (ii) Currency risk (continued) At 31 December, the currency risk exposures of the Group are as follows:
2008 Other USD Euro currencies Total Foreign currency monetary assets Investments in debt securities 1,466,634 107,888 15,665 1,590,187 Other non-current assets 664,529 53,392 4,928 722,849 Deferred tax assets -- 5,293 2,887 8,180 Accounts receivable 251,303 60,988 117,176 429,467 Other current assets 85,441 71,831 34,407 191,679 Banking loans and advances to banks and customers 6,251,596 4,030,891 461,822 10,744,309 Financial assets at fair value through profit or loss 11,080 14,632 4,105 29,817 Cash and cash equivalents 786,156 181,449 36,122 1,003,727 Total foreign currency monetary assets 9,516,739 4,526,364 677,112 14,720,215 Foreign currency monetary liabilities Long-term bank borrowings 3,363,366 721,350 -- 4,084,716 Other non-current liabilities 11,622 8,330 1,563 21,515 Short-term bank borrowings 539,834 995,433 29,736 1,565,003 Short-term portion of long-term bank borrowings 904,185 381,534 97,770 1,383,489 Banking customer deposits and banking deposits from banks 4,578,215 3,828,797 235,148 8,642,160 Obligations under repurchase agreements 150,221 47,117 14,400 211,738 Accounts payable 24,908 746,897 29,514 801,319 Due to related parties 35 64 -- 99 Taxes payable on income -- 1,156 -- 1,156 Other current liabilities 89,685 142,124 64,407 296,216 Total foreign currency monetary liabilities 9,662,071 6,872,802 472,538 17,007,411 Net On Balance Sheet Position (145,332) (2,346,438) 204,574 (2,287,196) Off Balance Sheet Net Notional Position (1,741,604) 1,254,586 (2,414) (489,432) Net Long/(Short) Position (1,886,936) (1,091,852) 202,160 (2,776,628)
DOĞUŞ GROUP ANNUAL REPORT 2008 201 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued) 39.3 Market risk (continued) (ii) Currency risk (continued) 2007 Other USD Euro currencies Total Foreign currency monetary assets Investments in debt securities 1,294,424 50,570 19,048 1,364,042 Other non-current assets 73,782 426,548 5,491 505,821 Deferred tax assets -- 1,579 561 2,140 Accounts receivable 150,463 34,924 55,822 241,209 Other current assets 25,815 220,635 52,687 299,137 Banking loans and advances to customers 3,446,843 2,394,199 265,646 6,106,688 Banking loans and advances to banks 983,618 191,196 20,418 1,195,232 Financial assets at fair value through profit or loss 103,355 15,192 -- 118,547 Cash and cash equivalents 225,053 686,666 16,204 927,923 Total foreign currency monetary assets 6,303,353 4,021,509 435,877 10,760,739 Foreign currency monetary liabilities Long-term bank borrowings 2,117,179 318,695 -- 2,435,874 Deferred tax liabilities -- -- 5,356 5,356 Other non-current liabilities 200 1,590 -- 1,790 Short-term bank borrowings 135,672 617,650 71,714 825,036 Short-term portion of long-term bank borrowings 808,339 201,409 -- 1,009,748 Banking customer deposits and banking deposits from banks 3,405,079 2,464,958 252,913 6,122,950 Obligations under repurchase agreements 305,731 40,001 -- 345,732 Accounts payable 11,635 307,403 24,380 343,418 Taxes payable on income -- 1,042 55 1,097 Other current liabilities 95,993 63,261 50,945 210,197 Total foreign currency monetary liabilities 6,879,828 4,016,009 405,363 11,301,198 Net On Balance Sheet Position (576,475) 5,500 30,514 (540,459) Off Balance Sheet Net Notional Position 328,587 101,908 -- 430,495 Net Long/(Short) Position (247,888) 107,408 30,514 (109,964)
For the purposes of the evaluation of the table above, the figures represent the YTL equivalent of the related hard currencies.
202 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.3 Market risk (continued) Sensitivity analysis
A 10 percent weakening of YTL against the above currencies at 31 December would have increased (decreased) equity and profit or loss by the amounts shown below. This analysis assumes that all other variables, in particular interest rates, remain constant. The analysis is performed on the same basis for 2007.
Equity Profit or loss 31 December 2008 USD (839) (187,855) Euro (62) (109,123) Others (9) 20,225 31 December 2007 USD 1,635 (26,423) Euro 64 10,677 Others 24 3,027
A 10 percent of strengthening of YTL against the above currencies at 31 December would have had the equal but opposite effect on the above currencies to the amounts shown above, on the basis that all other variables remain constant.
39.4 Fair value information Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale of liquidation, and is best evidenced by a quoted market price.
The estimated fair values of financial instruments have been determined using available market information by the Group, and where it exists, using appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to determine the estimated fair value. Turkey has shown signs of an emerging market and has experienced a significant decline in the volume of activity in its financial market. While the management of the Group has used available market information in estimating the fair values of financial instruments, the market information may not be fully reflective of the value that could be realised in the current circumstances.
Management has estimated that the fair values of certain balance sheet instruments are not materially different than their recorded values except for security investments. These balance sheet instruments include loans and advances to banks and customers, obligations under repurchase agreements, loans and advances from banks, and other short-term assets and liabilities that are of a contractual nature. Management believes that the carrying amounts of these particular financial assets and liabilities approximate their fair values, partially due to the fact that it is a practice to renegotiate interest rates to reflect current market conditions.
DOĞUŞ GROUP ANNUAL REPORT 2008 203 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
39 Financial instruments (continued)
39.4 Fair value information (continued) As at 31 December 2008, the fair value of banking loans and advances to customers was YTL 16,561,455 thousand (2007: YTL 12,648,489 thousand), whereas the carrying amount was YTL 16,560,166 thousand (2007: YTL 12,559,710 thousand).
As at 31 December 2008, the fair value of investment in debt securities was YTL 7,974,272 thousand (2007: YTL 5,386,293 thousand), whereas the carrying amount was YTL 7,972,673 thousand (2007: YTL 5,389,836 thousand).
40 Use of estimates and judgments Management discussed with the Audit Committee the development, selection and disclosure of the Group’s critical accounting policies and estimates, and the application of these policies and estimates. These disclosures supplement the commentary on basis of preparation (see note 2d).
Key sources of estimation uncertainty
Allowance for credit losses Assets accounted for at amortized cost are evaluated for impairment on a basis described in accounting policy note 3m.
The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgement about counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the credit risk function.
Portfolio-basis assessed impairment allowances cover credit losses inherent in portfolios of claims with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identified. A component of portfolio-basis assessed allowances is for country risks. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances.
204 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
40 Use of estimates and judgments (continued)
Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in significant accounting policies and Note 4. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
Critical accounting judgements in applying the Group’s accounting policies
Critical accounting judgements made in applying the Group’s accounting policies include:
Financial asset and liability classification The Group’s accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances:
• In classifying financial assets or liabilities as “trading”, the Group has determined that it meets the description of trading assets and liabilities set out in accounting policy 3d Financial instruments. • In designating financial assets or liabilities at fair value through profit or loss, the Group has determined that it has met one of the criteria for this designation set out in accounting policy 3d Financial instruments. • In classifying financial assets as held-to-maturity, the Group has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy 3d Financial instruments.
Securitisations In applying its policies on securitised financial assets, the Group has considered both the degree of transfer of risks and rewards on assets transferred to another entity and the degree of control exercised by the Group over the other entity:
• When the Group, in substance, controls the entity to which financial assets have been transferred, the entity is included in these consolidated financial statements and the transferred assets are recognised in the Group’s consolidated balance sheet. • When the Group has transferred financial assets to another entity, but has not transferred substantially all of the risk and rewards relating to the transferred assets, the assets are recognised in the Group’s consolidated balance sheet. • When the Group transfers substantially all the risks and rewards relating to the transferred assets to an entity that it does not control, the assets have been derecognised from the Group’s consolidated balance sheet.
Details of the Group’s securitisation activities are given in Note 28.
DOĞUŞ GROUP ANNUAL REPORT 2008 205 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises The consolidated financial statements aggregate financial information from the following entities:
41.1 Entities in Banking and Finance Segment The entities first consolidated under Garanti Bank; then proportionately consolidated under the Group in accordance with IAS 31 “Interests in Joint Ventures”:
Name Nature of business Garanti Bank Banking Garanti Kültür Anonim Şirketi (“Garanti Kültür”) (a) Cultural activities Garanti Bank International NV (“GBI”) Banking Garanti Bank Moscow (“GB Moscow”) Banking Garanti Bilişim Teknolojisi ve Ticaret Anonim Şirketi (“Garanti Bilişim”)(a) IT services Garanti Diversified Payment Rights Finance Company (“Garanti DPR”) Special purpose entity for securitisation transaction Garanti Emeklilik ve Hayat Anonim Şirketi (“GEHAŞ”) Life insurance Garanti Faktoring Hizmetleri Anonim Şirketi (“Garanti Faktoring”) Factoring Garanti Financial Services plc. (“Garanti Financial”) A non-operating company Garanti Finansal Kiralama Anonim Şirketi (“Garanti Leasing“) Leasing Garanti Fund Management Company Limited (“GFM”) Fund management Garanti Portföy Yönetimi Anonim Şirketi (“Garanti Portföy”) Fund management Eureko Insurance Garanti Yatırım Menkul Kıymetler Anonim Şirketi (“Garanti Yatırım”) Brokerage and investment banking T-2 Capital Finance Company (”T-2 Capital”) Special purpose entity for subordinated debt transactions
(a) These companies are subsidiaries of Garanti Bank and are operating in businesses other than banking and/or finance. They are included within the “banking and finance” segment for the purposes of Doğuş Holding’s consolidated financial statements since Garanti Bank owns their controlling interests.
The entities first consolidated under D Netherlands Holding B.V. (“DNetherlands BV”); then consolidated under the Group in accordance with IAS 31 “Interests in Joint Ventures”:
Name Nature of business D Netherlands Holding company Domenia (b) Mortgage Ralfi IFN SA (“Ralfi”) (b) Consumer Finance S.C. Motoractive IFN SA (“Motoractive”) (b) Leasing Doğuş GE BV (b) Finance
(b) These companies are subsidiaries of Doğuş GE BV and are operating in finance sector. They are included within the bankings and finance segment for the purpose of Doğuş Holding’s consolidated financial statements since Doğuş GE BV owns their controlling interest. Doğuş GE BV is a proportionately consolidated joint venture of Doğuş Holding.
206 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.2 Entities in Construction Segment
Name Nature of business Doğuş İnşaat Construction Aslancık Elektrik Üretim ve Ticaret Limited Şirketi (“Aslancık”) Electricity generation Ayson Geoteknik ve Deniz İnşaat Anonim Şirketi (“Ayson”) Drilling Boyabat Elektrik Üretim ve Ticaret Anonim Şirketi (“Boyabat”) Electricity generation Dogus Insaat ES Construction Doğuş Alarko YDA İnşaat (“Doğuş Alarko”) Construction Dogus Maroc SARL Construction Doğuş International Limited (“Doğuş International”) Construction equipments Doğuş Polat Adi Ortaklığı (“Doğuş Polat”) Construction Doğuş Enerji Üretim ve Ticaret Anonim Şirketi (“Doğuş Enerji”) Energy Doğuş EOOD Construction Doğuş İnşaat Limited (Ukraine) (“Doğuş İnşaat Limited”) Construction Gülermak-Doğuş Adi Ortaklığı (“Gülermak Doğuş”) Construction Kazakhstan Joint Venture (“Doğuş Prestige”) Construction Yapı Merkezi-Doğuş-Yüksel-Yenigün-Belen Adi Ortaklığı (“YMDYYB”) Construction Teknik Mühendislik ve Müşavirlik Anonim Şirketi (“Teknik Mühendislik”) Civil engineering
41.3 Entities in Automotive Segment First consolidated under Doğuş Otomotiv Servis ve Ticaret AŞ (“DOAŞ”); then consolidated under the Group.
Name Nature of business DOAŞ Automotive distribution Doğuş Auto Mısır JS Automotive distribution Doğuş Auto Mısr LLC Automotive distribution D-Auto Suisse SA Automotive distribution Doğuş Oto Pazarlama ve Ticaret Anonim Şirketi (“Doğuş Oto”) Automotive retail Doğuş Sigorta Insurance brokerage Meiller Doğuş Damper Sanayi ve Ticaret Limited Şirketi (“Meiller Doğuş”) (c) Production TÜVTÜRK Kuzey (c) Vehicle inspection station TÜVTÜRK Güney (c) Vehicle inspection station TÜVTÜRK İstanbul (c) Vehicle inspection station Krone-Doğuş Treyler Sanayi ve Ticaret Anonim Şirketi (“Krone Doğuş”) (c) Production Volkswagen Doğuş Tüketici Finansmanı Anonim Şirketi (“VDF”) Consumer finance Yüce Auto Anonim Şirketi (“Yüce Auto”) Automotive retail VDF Holding Anonim Şirketi (“VDF Holding”) Automotive VDF Otomotiv Servis ve Ticaret Anonim Şirketi (“VDF Otomotiv”) Automotive retail VDF Sigorta Aracılık Hizmetleri Anonim Şirketi (“VDF Sigorta”) Insurance VDF Servis Holding Anonim Şirketi (“VDF Servis Holding”) Automotive finance
(c) These companies are proportionately consolidated joint ventures of Doğuş Holding.
DOĞUŞ GROUP ANNUAL REPORT 2008 207 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.4 Entities in Tourism Segment
Name Nature of business Antur Hospitality and travel agency Arena Giyim Sanayi ve Ticaret Anonim Şirketi (“Arena”) Hospitality and clothing retail Datmar Turizm Anonim Şirketi (“Datmar”) Hospitality Doğuş Dalaman Marina İşletmeleri Turistik ve Ticaret Anonim Şirketi (“Doğuş Dalaman”) (d) A non-operating company Doğuş Didim Marina İşletmeleri ve Ticaret Anonim Şirketi (“Doğuş Didim”) (d) A non-operating company Doğuş Turgutreis Marina İşletmeleri Turistik ve Ticaret Anonim Şirketi (“Doğuş Turgutreis”) Marina Garanti Turizm Yatırım ve İşletme Anonim Şirketi (“Garanti Turizm”) Hospitality Göktrans Turizm ve Ticaret Anonim Şirketi (“Göktrans Turizm”) Hospitality Şahintur Şahinler Otelcilik Turizm Yatırım İşletmeciliği Anonim Şirketi (“Şahintur”) A non-operating company Voyager Mediterranean Turizm Endüstrisi ve Ticareti Anonim Şirketi (“Voyager”) Hospitality
(d) These companies were established to build and operate yachting marinas in four seaside resort towns in Aegean and Mediterranean coasts of Turkey. However, they have not yet started operations, and accordingly were noted as non-operating.
41.5 Entities in Other Segment
Name Nature of business NTV Radyo Media Cappadocia Investments Limited (“Cappadocia”) A non-operating company Compagnie Ottomane d’Investissement BV (“COIBV”) A non-operating company DO-ÇA Tekstil Temizleme ve Ticaret Anonim Şirketi (“DO-ÇA”) Dry cleaning Doğuş Arge Investing Doğuş Gayrimenkul Real estate development Doğuş Hava A non-operating company Körfez Havacılık Turizm ve Ticaret Anonim Şirketi (“Körfez Hava”) Transportation Doğuş Hizmet Yönetimi Organizasyon ve Danışmanlık Anonim Şirketi (“Doğuş Hizmet”) Operation services to banks Doğuş Grubu İletişim Yayıncılık ve Ticaret Anonim Şirketi (“Doğuş İletişim”) Media Doğuş Luxembourg S.á.r.l. (“Doğuş Lux”) A non-operating company Doğuş Nakliyat ve Ticaret Anonim Şirketi (“Doğuş Nakliyat”) A non-operating company Doğuş SA A non-operating company Doğuş Telekomünikasyon Hizmetleri Anonim Şirketi (“Doğuş Telekom”) A non-operating company Doğuş Turizm Real estate development Enformasyon Media Doğuş-GE Gayrimenkul Yatırım Ortaklığı Anonim Şirketi (“Doğuş GE”) Real estate investment fund Makro San. Mam. İmalat ve Pazarlama Limited Şirketi (“Makro”) A non-operating company Lasaş A non-operating company
208 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.5 Entities in Other Segment (continued)
Name Nature of business Sititur Turizm Temizlik Taşımacılık Organizasyon Bilgisayar DanışmanlıkYapı Sanayi ve Ticaret Anonim Şirketi (“Sititur”) A non-operating company Doğuş Yayın Grubu Anonim Şirketi (“Doğuş Yayın Grubu”) Media Kapital Radyo Media N Radyo Televizyon ve Yayıncılık Anonim Şirketi (“N Radyo”) Media İkibinondokuz Radyoculuk ve Sanat Organizasyonu Ticaret Anonim Şirketi (“2019 Radyo”) Media Yonca Radyo ve TV Yayıncılık Anonim Şirketi (“Yonca Radyo”) Media DG Finance Holding BV (“DG Finance”) A non-operating company TV En Prodüksiyon Reklam Media Marina Services Holdings BV (“Marina Services”) Marina management A Yapım Reklam ve Televizyon Media İstinye Yönetim Hizmetleri Anonim Şirketi Shopping mall administration
All Subsidiaries are registered in Turkey except for the following companies:
Name Country of incorporation Cappadocia United Kingdom COIBV The Netherlands D Netherlands The Netherlands Domenia Romania Ralfi Romania Motoractive Romania Doğuş GE BV The Netherlands Doğuş Auto Mısr JS Egypt Doğuş Auto Mısr LLC Egypt D-Auto Suisse SA Switzerland Dogus İnsaat ES Morocco Dogus İnsaat Limited Ukraine Dogus Maroc SARL Morocco Doğuş SA Switzerland Doğuş International United Kingdom Doğuş Lux Luxembourg GB Moscow Russia GBI The Netherlands Garanti Financial Ireland GFM Malta Doğuş EOOD Bulgaria DG Finance The Netherlands Marina Services The Netherlands
DOĞUŞ GROUP ANNUAL REPORT 2008 209 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.6 Subsidiaries The table below sets out all the Subsidiaries and shows their shareholding structure at 31 December 2008:
Direct and indirect Proportion of ownership interest Ownership Proportion effective interest of Proportion of by Doğuş Holding interest through of Doğuş Holding effective Proportion and its shares held by ownership and its interest of of effective Name Subsidiaries Şahenk Family interest Subsidiaries Şahenk Family interest Antur 94.56 5.41 99.97 94.24 5.41 99.65 Arena 99.97 0.03 100.00 99.16 2.73 99.89 Ayson 70.00 -- 70.00 66.61 3.39 70.00 Cappadocia 100.00 -- 100.00 100.00 -- 100.00 COIBV 100.00 -- 100.00 100.00 -- 100.00 Datmar 99.57 0.43 100.00 98.63 1.23 99.86 DO-ÇA 87.27 12.73 100.00 84.70 15.07 99.77 Dogus Insaat ES 100.00 -- 100.00 92.46 7.54 100.00 Dogus Maroc SARL 100.00 -- 100.00 92.46 7.54 100.00 Doğuş Arge 92.44 7.56 100.00 92.43 7.56 100.00 Doğuş Dalaman 100.00 -- 100.00 98.74 1.11 99.85 Doğuş Didim 100.00 -- 100.00 100.00 -- 100.00 Doğuş Gayrimenkul 97.39 2.61 100.00 97.38 2.62 100.00 Doğuş Hava 100.00 -- 100.00 100.00 -- 100.00 Doğuş İletişim 100.00 -- 100.00 99.83 0.17 100.00 Doğuş İnşaat 92.46 7.54 100.00 92.46 7.54 100.00 Doğuş İnşaat Limited 100.00 -- 100.00 92.46 7.54 100.00 Doğuş Enerji 98.00 -- 98.00 90.67 7.32 98.00 Doğuş International 100.00 -- 100.00 92.46 7.54 100.00 Doğuş Lux 100.00 -- 100.00 100.00 -- 100.00 Doğuş Nakliyat 89.73 0.77 90.50 89.69 0.81 90.50 D Netherlands 100.00 -- 100.00 100.00 -- 100.00 Doğuş Auto Mısr JS 100.00 -- 100.00 70.48 2.27 72.75 Doğuş Auto Mısr LLC 99.00 -- 99.00 69.78 2.24 72.02 D-Auto Suisse SA 100.00 -- 100.00 70.36 2.28 72.64 Doğuş Oto 100.00 -- 100.00 71.30 2.21 73.51 DOAŞ 72.46 -- 72.46 70.17 2.29 72.46 Doğuş SA 100.00 -- 100.00 95.07 3.54 98.61 Doğuş Sigorta 99.00 1.00 100.00 86.47 1.97 88.44 Doğuş Telekom 100.00 -- 100.00 100.00 -- 100.00 Doğuş Turgutreis (a) 43.37 56.63 100.00 40.69 59.24 99.93 Doğuş Turizm 100.00 -- 100.00 100.00 -- 100.00 Enformasyon 97.00 -- 97.00 96.84 0.16 97.00 Garanti Turizm 100.00 -- 100.00 96.56 2.36 98.92 Göktrans Turizm 100.00 -- 100.00 98.75 1.18 99.93
(a) Although the ownership rate of Doğuş Holding on this company is less than 50 percent, Doğuş Holding has the controlling power on the operations and financial policies of this company.
210 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.6 Subsidiaries (continued)
Direct and indirect Proportion of ownership interest Ownership Proportion effective interest of Proportion of by Doğuş Holding interest through of Doğuş Holding effective Proportion and its shares held by ownership and its interest of of effective Name Subsidiaries Şahenk Family interest Subsidiaries Şahenk Family interest 2019 Radyo 98.78 -- 98.78 98.61 0.16 98.78 Kapital Radyo 98.75 -- 98.75 98.59 0.16 98.75 Körfez Hava 100.00 -- 100.00 100.00 -- 100.00 Lasaş 100.00 -- 100.00 100.00 -- 100.00 Makro 100.00 -- 100.00 99.58 0.32 99.90 N Radyo 97.00 -- 97.00 96.84 0.16 97.00 NTV Radyo 99.31 -- 99.31 99.14 0.17 99.31 Doğuş Yayın Grubu 100.00 -- 100.00 99.83 0.17 100.00 Sititur 100.00 -- 100.00 100.00 -- 100.00 Şahintur 100.00 -- 100.00 100.00 -- 100.00 Teknik Mühendislik 99.70 -- 99.70 98.58 1.12 99.70 Voyager 99.05 0.95 100.00 99.03 0.97 100.00 Yonca Radyo 97.00 -- 97.00 96.84 0.16 97.00 Doğuş EOOD 100.00 -- 100.00 92.46 7.54 100.00 DG Finance 100.00 -- 100.00 100.00 -- 100.00 Marina Service Holding B.V. 100.00 -- 100.00 78.06 21.92 99.98 A Yapım Radyo ve Televizyon 97.00 -- 97.00 96.84 0.16 97.00 TV En Prodüksiyon Reklam 100.00 -- 100.00 98.67 0.19 98.86
DOĞUŞ GROUP ANNUAL REPORT 2008 211 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.7 Joint ventures The table below sets out the Joint Ventures and shows the shareholding structure at 31 December 2008:
Direct and indirect Proportion of ownership interest Ownership Proportion effective interest of Proportion of by Doğuş Holding interest through of Doğuş Holding effective Proportion and its shares held by ownership and its interest of of effective Name Subsidiaries Şahenk Family interest Subsidiaries Şahenk Family interest Doğuş Alarko 37.50 -- 37.50 34.67 2.83 37.50 Doğuş Polat 50.00 -- 50.00 46.23 3.77 50.00 Garanti Kültür 100.00 -- 100.00 30.22 0.29 30.51 GBI 100.00 -- 100.00 30.22 0.29 30.51 GB Moscow 99.94 -- 99.94 30.20 0.29 30.49 Garanti Bilişim 100.00 -- 100.00 30.22 0.29 30.51 Garanti DPR (a) ------T-2 Capital (a) ------GEHAŞ 85.00 -- 85.00 25.67 0.29 25.96 Garanti Faktoring 81.84 -- 81.84 24.74 0.24 24.97 Garanti Financial 100.00 -- 100.00 30.22 0.29 30.51 Garanti Leasing 100.00 -- 100.00 29.93 0.29 30.21 Garanti FM 100.00 -- 100.00 30.22 0.29 30.51 Doğuş-GE 31.11 -- 31.11 27.19 0.02 27.21 Garanti Portföy 100.00 -- 100.00 30.22 0.29 30.51 Garanti Yatırım 100.00 -- 100.00 30.22 0.29 30.51 Gülermak Doğuş 50.00 -- 50.00 46.23 3.77 50.00 Meiller Doğuş 49.00 -- 49.00 34.38 1.12 35.51 Garanti Bank 30.52 -- 30.52 30.22 0.29 30.51 Aslancık 25.00 -- 25.00 25.00 -- 25.00 Boyabat 34.06 -- 34.06 34.02 0.04 34.06 Doğuş Hizmet 100.00 -- 100.00 32.17 0.28 32.45 Doğuş- Prestij 60.00 -- 60.00 55.48 4.52 60.00 TÜVTURK Kuzey 33.33 -- 33.33 23.39 0.76 24.15 TÜVTURK Güney 33.33 -- 33.33 23.39 0.76 24.15 TÜVTURK İstanbul 32.56 -- 32.56 22.85 0.75 23.60 Krone Doğuş 48.93 -- 48.93 34.66 1.10 35.45 YMDYY 26.00 -- 26.00 24.04 1.96 26.00 Domenia 49.90 -- 49.90 49.90 -- 49.90 Ralfi 49.90 -- 49.90 49.90 -- 49.90 Motoractive 49.90 -- 49.90 49.90 -- 49.90 Doğuş GE BV 49.90 -- 49.90 49.90 -- 49.90
(a) Garanti DPR and T-2 Capital are special purpose entities established for Garanti Bank’s securitisation and subordinated debt transactions, respectively. The Group does not have any shareholding interest in those company.
212 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
41 Group enterprises (continued)
41.8 Associates The table below sets out the associates and their shareholding structure at 31 December 2008:
Direct and indirect Proportion of ownership interest Ownership Proportion effective interest of Proportion of by Doğuş Holding interest through of Doğuş Holding effective Proportion and its shares held by ownership and its interest of of effective Name Subsidiaries Şahenk Family interest Subsidiaries Şahenk Family interest İstinye Yönetim Hizmetleri 42.00 -- 42.00 42.00 -- 42.00 Eureko 20.00 -- 20.00 6.04 0.06 6.10 VDF 49.00 -- 49.00 34.68 1.10 35.78 VDF Holding 49.00 -- 49.00 37.60 0.88 38.48 VDF Servis Holding 49.00 -- 49.00 37.60 0.88 38.48 VDF Otomotiv 100.00 -- 100.00 37.60 0.88 38.48 VDF Sigorta (a) 100.00 -- 100.00 37.60 0.88 38.48 Yüce Auto AŞ 50.00 -- 50.00 35.09 1.15 36.23
(a) Consolidated under VDF Holding Anonim Şirketi.
The major changes in Group enterprises during the year ended 31 December 2008 are summarised in the following paragraphs:
Change in structure/ title The name of Ayson Sondaj Araştırma ve İnşaat Anonim Şirketi was changed to Ayson Geoteknik ve Deniz İnşaat Anonim Şirketi on 28 April 2008.
On 8 April 2008, the Board of Directors of Boyabat Elektrik Üretim ve Ticaret Limited Şirketi, a proportionately consolidated joint venture of the Doğuş Holding, decided to change the firm from “Limited Liability Company” to “Joint Stock Company” and the new name of the company became “Boyabat Elektrik Üretim ve Ticaret Anonim Şirketi”.
Liquidation of entities Garanti FM and Garanti Financial are under liquidation as of the reporting date.
Doğuş Antalya Marina İşletmeciliği Turizm ve Ticaret Anonim Şirketi and Doğuş Bodrum Marina İşletmeciliği Turizm ve Ticaret Anonim Şirketi are liquidated during 2008.
Jeeves is liquidated in July 2008. Establishment of entities A joint venture agreement was already signed between DOAŞ, Fahrzeugwer Bernard Krone GmbH, Bernard Krone and Bernard Krone Holding GmbH&Co. on 31 October 2007 to produce Krone branded products in Turkey, where DOAŞ would hold 49 percent shares of the new company to be established. In accordance with the aforementioned agreement, Krone Doğuş has been established on 5 February 2008. On 18 March 2008, Doğuş Holding has established Doğuş Eğlence Pazarlama ve Kültür Anonim Şirketi (“Doğuş Eğlence”).
On 2 April 2008, Doğuş İnşaat has established Doğuş EOOD in Bulgaria.
On 8 May 2008, Doğuş İnşaat has established Doğuş Enerji.
On 18 August 2008, Doğuş Holding has established Doğuş Spor Kompleksi Yatırım ve İşletme Anonim Şirketi.
On 17 November 2008, Doğuş Holding has established Marina Services.
DOĞUŞ GROUP ANNUAL REPORT 2008 213 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
42 Significant events
42.1 Garanti Bank had called off its existing legal cases against Boğaziçi Corporations Tax Office related with the final and interim corporate tax returns of the years from 2001 to 2005 and settled up with the related tax authority as per the article 3 of the Law No.5736 “Collection of Certain Public Sector Receivables through Conciliation” published in the Official Gazette No.26800 dated 27 February 2008. Accordingly, after making revisions to the corporate tax returns of the period from 2001 to 2005, the tax refund that Garanti Bank collected through conciliation from the tax office, due to the prepaid taxes in 2005 was agreed to be YTL 131,178 (the Group’s interest amounting to YTL 39,642 thousand). Furthermore, Garanti Bank was also entitled to a tax refund on an existing unused investment incentive certificate amounting to YTL 6,078 thousand (the Group’s interest amounting to YTL 1,837 thousand). The accompanying consolidated financial statements for the year ended 31 December 2007 have been prepared after giving retroactive effect to this event.
42.2 A part of Garanti Bank’s non-performing loan portfolio amounting to YTL 98,221 (the Group’s interest amounting to YTL 29,682 thousand) was sold to a local asset management company at a sales price of YTL 28,898 (the Group’s interest amounting to YTL 8,733 thousand). The sale price was fully recognized as income as of 3 April 2008, as the sold receivables had been fully provisioned in Garanti Bank’s financial statements previously.
42.3 Social Security Law No. 5754 which requires the transfer of the liabilities of the members of the Fund established as per the temporary article no. 20 of the Social Security Law No. 506 was accepted and approved by the Turkish Parliament on 17 April 2008 and enacted at 8 May 2008. The accompanying consolidated financial statements for the year ended 31 December 2007 have been prepared after giving retroactive effect to this law.
42.4 After studies on International Convergence of Capital Measurement and Capital Standards carried out by the Basel Banking Committee are finalized with a comprehensive document (“Basel II”) which was published in June 2006, the BRSA required application of practice of Basel II by the banks operating in Turkey initiated within the announced framework of a program and a related road map until the beginning of the year 2009.
42.5 Currently, the capital adequacy in the banking system is calculated on the basis of “Regulation on Measurement and Assessment of Capital Adequacy Ratios of Banks”, published in the Official Gazette dated 1 November 2006 which is partially compatible with Basel II. On 25 June 2008, the BRSA announced that in the light of the recent developments -of which causes and effects are uncertain and deep- in global financial markets, the new draft Turkish Commercial Code which has not been enacted yet, and the comments of financial and real sector representatives, the implementation of Basel II in the context of capital requirements measurement based on credit risk ratings is postponed to a further date.
42.6 As per the decision made at the extraordinary general meeting of Visa Europe Ltd for the allocation of earnings received through conversion of certain shares that Visa Europe Ltd has in Visa Inc., into cash proportionally according to the contribution of the members to the earnings of Visa Europe Ltd, a payment of USD 12.2 million (the Group’s interest amounting to USD 3.7 million) has been made to Garanti Bank being a member of the Visa payment system on 21 October 2008. After deducting the banking and insurance transaction tax at the rate of 5 percent, the remaining collected amount has been recorded as income in the current period.
Furthermore, as a part the same decision, Visa Inc.’s shares that Visa Europe Ltd has but not converted to cash, have been distributed free of charge among the members of the Visa payment system, and Garanti Bank recognised 153,048 shares of Visa Inc. at a face value of USD 15.3 (the Group’s interest USD 4.6) in its accounting records.
214 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
42 Significant events (continued)
42.7 In accordance with the letter of intent signed on 22 May 2008, a dealer and after sales service agreement was signed between DOAŞ and Ingersoll Rand Control Technologies ESA on 15 August 2008 in relation to distribution and after sales services of Thermo King branded products in Turkey by DOAŞ.
42.8 On 31 October 2008, at the Board of Directors assembly of DOAŞ, Otofiks Ekspres Servis Hizmetleri ve Ticaret Anonim Şirketi (“Otofiks”) merged with Doğuş Oto Pazarlama with all assets, liabilities and contingencies of Otofiks to be transferred to Doğuş Oto Pazarlama. The merger is registered on 4 December 2008 at İstanbul Trade Registry.
42.9 Considering the economic conditions in the region, limited competition opportunities and potential effects of the global economic crisis on the region, DOAŞ management has decided to take the necessary measures, including the transfer of shares of Doğuş Auto Mısır JS and Doğuş Auto Mısır LLC to potential local and foreign buyers on 29 December 2008.
42.10 Construction Projects
Doğuş İnşaat won the bid for the expansion of Sofia Metro Line Extension Project in Bulgaria in August 2008 and Boryspil State International Airport Terminal Development Project in Ukraine in September 2008.
Doğuş İnşaat will be responsible for the construction of the projects. The terms of the projects are as follows;
Sofia Metro Line Extension Project Employer: Metropoliten EAD Contract Value: Bulgaria Leva 329 million (USD 261 million) Type: Metro Extension Project Commencement Date: November 2008 Date of contract: August 2008 Date of Completion: August 2012
Bryspil State International Airport State Enterprise Employer: Boryspil International Airport State Enterprise Contract Value: Japanese Yen 23,940 million and Ukrainan Hryvna 736 million Type: Airport Terminal Development Project Commencement Date: November 2008 Date of Contract: September 2008 Date of Completion: December 2010
DOĞUŞ GROUP ANNUAL REPORT 2008 215 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
42 Significant events (continued)
42.10 Construction Projects (continued)
Doğuş İnşaat won the tender of construction and completion of Boyabat Dam and Hydroelectric Power Plant during November 2008. The terms of project are as follows:
Boyabat Dam and Hydroelectric Power Plant Project Employer: Boyabat Elektrik Üretim ve Ticaret Ltd.Şti. Contract Value: YTL 1,052 million Type: Construction and Completion of Boyabat Dam and Hydroelectric Power Plant Project Commencement Date: November 2008 Date of Contract: November 2008 Date of Completion: December 2012
Doğuş İnşaat won the tender of construction and completion of Al-Tahady University Infrastructure & Buildings Project in Libya. The terms of the project are as follows;
Al-Tahady University Infrastructure & Building Project Employer: ODAC (Organization for Development and Improvement Centers) Contract Value: Libyan Dinar 567,970 million Type: Construction and Completion of Al-Tahady University Infrastructure & Buildings Project Commencement Date: December 2008 Date of Contract: November 2008 Date of Completion: December 2010
42.11 Following the tender organised by Savings Deposits Insurance Fund on 18 June 2008, the transfer of the commercial and economic assets of Kral TV and Kral FM to A Yapım, was started and Competition Authority approvals are obtained. Radio Television Supreme Council approved the process and A Yapım purchased terresterial broadcasting rights of Kral TV and Kral FM on 16 October 2008. The payment was made in cash amounting to USD 95,000 thousand. The Group utilised a bank loan amounting to USD 150,000 thousand (equivalent to YTL 226,845 thousand at 31 December 2008) with an interest rate of Libor+3.55 percent and a maturity of November 2015 from Akbank Anonim Şirketi in order to fund this payment.
43 Subsequent events
43.1 According to the decree of the Council of Ministers numbered 2007/11963 and dated 4 April 2007, the national currency unit of the Republic of Turkey called the “New Turkish Lira” is called the “Turkish Lira” effective from 1 January 2009.
Both New Turkish Lira and Turkish Lira banknotes and coins will be in physical circulation in 2009, for one year. New Turkish Lira banknotes will be withdrawn from circulation as of 1 January 2010 (after this date Central Bank will convert them to new banknotes for a period of 10 years).
All documents have been prepared and accounting records have been kept in New Turkish Lira until 31 December 2008. These records and documents will be kept as they are. Accounting data was converted to Turkish Lira on 1 January 2009, and from 1 January 2009 onwards, all documents and accounting data is in Turkish Lira, regardless of the fact that both New Turkish Lira and Turkish Lira will be in circulation physically during 2009.
216 DOĞUŞ GROUP ANNUAL REPORT 2008 Doğuş Holding Anonim Şirketi and its Subsidiaries
Notes to the Consolidated Financial Statements As at and for the Year Ended 31 December 2008 Currency: Thousands of YTL
43 Subsequent events (continued)
43.2 The reporting currency of Garanti Bank’s Luxembourg branch is changed from USD to EUR effective from 1 January 2009. The capital of USD 89,500,000 (the Group’s interest amounting to USD 27,046,900) allocated to the branch is converted into EUR 64,309,837 (the Group’s interest amounting to EUR 19,434,433).
Besides, the capital allocated to the Luxembourg branch increased by EUR 335,690,163 (the Group’s interest amounting to EUR 101,445,567) to EUR 400,000,000 (the Group’s interest amounting to EUR 120,880,000) at 13 January 2009 by the decision of the board of directors of Garanti Bank no.2226 at 4 December 2008 that gives the authorization to the head office to be able to increase the amount of the capital allocated to the Luxembourg branch up to EUR 400,000,000 (the Group’s interest amounting to EUR 120,880,000).
43.3 Vehicle inspection stations have started to operate in Sinop, Rize and Giresun on 10 February 2009, 14 February 2009 and 7 March 2009, respectively.
43.4 Doğuş Gayrimenkul has a credit line amounting to EUR 57,000,000 from Finansbank Anonim Şirketi. On 29 January 2009, EUR 15,000,000 of this credit line has been utilised with a maturity of 20 January 2020. The land of Doğuş Gayrimenkul in Gebze where a shopping center project is being developed has been pledged as a collateral for this credit line.
43.5 Doğuş Yayın Grubu utilised a bank loan amounting to USD 5,000 thousand (equivalent to YTL 8,979 thousand at 10 March) with an fixed interest rate of 7.5 percent and maturity of November 2014 from Denizbank Anonim Şirketi in order to fund operational costs.
43.6 On 24 February 2009, Doğuş İletişim signed an agreement with Condé Nast New Markets Europe /Africa INC., on publishing rights of “Vogue” magazine in Turkey. The first publication date of “Vogue” magazine is set as October 2010 in accordance with the agreement.
43.7 On 30 March 2009, Doğuş Yayın Grubu has established E Elektronik Bahis Oyunları Anonim Şirketi.
DOĞUŞ GROUP ANNUAL REPORT 2008 217 Appendix I
Doğuş Holding Anonim Şirketi and its Subsidiaries
Supplementary Information Convenience Translation to US Dollar 31 December 2008 The US Dollar (“USD”) amounts shown in the consolidated balance sheet and consolidated income statement on the following pages have been included solely for the convenience of the reader.
For the current year’s consolidated financial statements, USD amounts are translated from YTL consolidated financial statements using the official YTL exchange rate of 1.5123 YTL/USD prevailing on 31 December 2008. For the prior year’s consolidated financial statements, USD amounts are translated from YTL consolidated financial statements using the official YTL exchange rate of 1.1647 YTL/USD prevailing on 31 December 2007.
Such translation should not be construed as a representation that the YTL amounts have been converted into USD pursuant to the requirements of IFRS or Generally Accepted Accounting Principles in the United States of America or in any other country.
218 DOĞUŞ GROUP ANNUAL REPORT 2008 Appendix I.1
Doğuş Holding Anonim Şirketi and its Subsidiaries
Consolidated US Dollar Balance Sheet As at 31 December 2008 Amounts translated into thousands of USD for convenience purposes only
2008 2007 Assets Property and equipment 1,703,080 1,923,415 Intangible assets 791,582 863,635 Investments in debt securities 5,271,886 4,627,660 Investments in equity securities 31,918 44,466 Investment property 696,240 542,207 Other non-current assets 547,143 1,357,668 Deferred tax assets 109,593 94,996 Total non-current assets 9,151,442 9,454,047 Inventories 512,321 309,007 Accounts receivable 803,106 657,122 Due from related parties 9,917 23,028 Other current assets 488,175 310,924 Banking loans and advances to customers 10,950,318 10,783,644 Banking loans and advances to banks 1,599,472 1,310,053 Financial assets at fair value through profit or loss 50,884 153,157 Cash and cash equivalents 1,492,197 946,487 Total current assets 15,906,390 14,493,422 Total assets 25,057,832 23,947,469 Equity Paid-in capital 1,329,228 1,725,931 Capital stock held by subsidiaries (35,479) (46,068) Share premium 105,369 136,816 Fair value reserves 24,129 40,651 Translation reserve 32,679 3,476 Hedging reserve 4,868 6,906 Revaluation surplus 677,688 709,713 Retained earnings 1,535,498 1,629,223 Total equity attributable to equity holders of the Company 3,673,980 4,206,648 Minority interest Şahenk Family 66,475 73,276 Others 66,195 108,953 Total minority interest 132,670 182,229 Total equity 3,806,650 4,388,877 Liabilities Long-term bank borrowings 2,998,947 2,292,328 Deferred tax liabilities 82,852 49,653 Retirement benefit obligations 20,503 42,708 Other non-current liabilities 255,843 111,324 Total non-current liabilities 3,358,145 2,496,013 Short-term bank borrowings 1,302,337 1,001,126 Short-term portion of long-term bank borrowings 949,424 868,770 Banking deposits from banks 423,491 632,083 Banking customers deposits 11,115,060 10,682,745 Obligations under repurchase agreements 2,228,719 2,229,320 Accounts payable 881,162 593,627 Due to related parties 2,443 5,084 Taxes payable on income 25,807 1,730 Other current liabilities 964,594 1,048,094 Total current liabilities 17,893,037 17,062,579 Total liabilities 21,251,182 19,558,592 Total equity and liabilities 25,057,832 23,947,469
DOĞUŞ GROUP ANNUAL REPORT 2008 219 Appendix I.2
Doğuş Holding Anonim Şirketi and its Subsidiaries
Consolidated US Dollar Income Statement For the Year Ended 31 December 2008 Amounts translated into thousands of USD for convenience purposes only
2008 2007 Revenues 4,603,973 4,878,661 Cost of revenues (3,285,239) (3,477,371) Gross profit 1,318,734 1,401,290
Administrative expenses (638,629) (624,151) Selling, marketing and other distribution expenses (128,167) (142,145) Impairment losses, net (120,329) (64,970) Trading gain / (loss), net 97,536 (90,785) Other operating income, net 158,670 182,813 Results from operating activities 687,815 662,052
Finance income 577,398 356,761 Finance expense (932,647) (386,653) Net finance costs (355,249) (29,892)
Other non operating expense -- (21,879) Share of profit of equity accounted investees 3,698 2,365 Profit before income tax 336,264 612,646
Income tax expense (65,123) (60,764) Profit for the period 271,141 551,883
Attributable to: Equity holders of the Company 289,062 534,986 Minority interest (17,921) 16,897 -Şahenk Family (4,627) 5,553 -Others (13,294) 11,344
Profit for the period 271,141 551,883
220 DOĞUŞ GROUP ANNUAL REPORT 2008