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Tekstil Factoring Hizmetleri Anonim Şirketi

Table of Contents Independent Auditors’ Report Balance Sheet Income Statement Statement of Cash Flows Notes to the Financial Statements

Tekstil Factoring Hizmetleri Anonim ŞirketiBalance Sheet As at 31 December 2008(Currency: New Turkish Lira ("TRY") unless otherwise stated)

Notes 2008 2007AssetsCash and cash equivalents 8 2,050,871 1,431,560 Factoring receivables 9 32,089,204 103,823,870 Other assets 10 35,387 35,176 Investments in equity securities - 16,763 Tangible assets 11 77,702 190,659 Intangible assets 21,660 8,638 Deferred tax assets 7 92,620 76,112 Total assets 34,367,444 105,582,778

Liabilities

Loans and borrowings 12 6,056,182 81,311,587 Factoring payables 13 353,214 1,271,664 Other liabilities 14 880,474 1,001,930 Income taxes payable 7 190,005 341,023 Employee benefits 15 329,942 258,559 Total liabilities 7,809,817 84,184,763

EquityShare capital 16 8,100,000 8,100,000 Adjustment to share capital 16 36,108,961 36,108,961 Accumulated losses 16 (17,651,334) (22,810,946)Total shareholders' equity 26,557,627 21,398,015 Total equity and liabilities 34,367,444 105,582,778

Commitments and contingencie 18

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

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Tekstil Factoring Hizmetleri Anonim ŞirketiIncome StatementFor the Year Ended 31 December 2008(Currency: New Turkish Lira ("TRY") unless otherwise stated)

Notes 2008 2007

Factoring interest income 21,083,923 22,122,873 Factoring commission income 2,006,087 2,095,258 Factoring commission expense (168,301) (139,984)Income from factoring operations 22,921,709 24,078,147

Interest expense on loans and borrowings (11,568,538) (12,161,855)Foreign exchange losses, net 192,852 53,297 Provision for impaired factoring receivables 9 (354,324) (246,543)Income after interest expense, foreign exchange 11,191,699 11,723,046 gain and provision for impaired factoring receivablesInterest income other than on factoring transactions 58,099 62,309 Other operating income 330,173 267,309 Operating profit 11,579,971 12,052,664 Salaries and employee benefits 5 (3,559,278) (2,948,473)Administrative expenses 6 (1,184,774) (1,208,317)Depreciation and amortization expenses 11 (131,411) (120,253)Other expenses (111,986) (83,056)Operating expenses (4,987,449) (4,360,099)

Profit before income taxes 6,592,522 7,692,565

Income tax expense 7 (1,432,910) (1,831,588)

Net profit for the year 5,159,612 5,860,977

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

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Tekstil Factoring Hizmetleri Anonim Şirketi

Notes to the financial statements

1. Reporting entity 2. Basis of preparation 3. Significant accounting policies 4. Determination of fair values 5. Salaries and employee benefits 6. Administrative expenses 7. Taxation 8. Cash and cash equivalents 9. Factoring receivables

10. Other assets 11. Tangible assets 12. Loans and borrowings 13. Factoring payables 14. Other liabilities 15. Employee benefits 16. Equity 17. Financial risk management 18. Commitments and contingencies 19. Related party disclosures 20. Subsequent events

Tekstil Factoring Hizmetleri Anonim Şirketi Notes to the Financial Statements As at and for the Year Ended 31 December 2008 (Currency: New Turkish Lira (“TRY”) unless otherwise stated)

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1 Reporting entity

Tekstil Factoring Hizmetleri Anonim Şirketi (“the Company”) was established on 25 February 1994 pursuant to the license obtained from the Undersecreteriat of Treasury to the Prime Ministry (“Undersecretariat of Treasury”) to render factoring services as permitted by the law number 6762.

The ultimate parent of the Company is GSD Holding AŞ.

On 31 December 2004, 100% of the shares of GSD Factoring Hizmetleri AŞ (“GSD Factoring”) were transferred from GSD Holding AŞ to Tekstil Factoring Hizmetleri AŞ (“Tekstil Factoring”). Furthermore, on 2 March 2005, 88% of the shares of Tekstil Factoring were transferred from GSD Dış Ticaret AŞ, 100% subsidiary of GSD Holding AŞ, to GSD Holding AŞ. The required approvals for the transfers mentioned above were obtained from the Undersecretariat of Treasury on 9 August 2005 and 9 September 2005 and Turkish Competition Authority on 19 July 2005. After these transfers, GSD Factoring was dissolved and legally combined with Tekstil Factoring on 13 December 2005 under the name of Tekstil Factoring and the total direct and indirect shareholding percentage of the GSD Holding AŞ in Tekstil Factoring remained the same.

The Company’s principal activity is to provide factoring services substantially in one geographical segment (Turkey).

The Company’s head office is located at Aydınevler Mah. İnönü Cad. Gökçe Sk. GSD Binası No:14 Küçükyalı-Maltepe-İstanbul.

As at 31 December 2008, the Company has 36 employees (2007: 41 employees).

2 Basis of preparation

(a) Statement of compliance The Company maintains its books of account and prepares its statutory financial statements in New Turkish Lira (“TRY”) in accordance with the Turkish Accounting Standards as promulgated by the Banking Regulation and Supervision Agency (“BRSA”) and also the Turkish Commercial Code (collectively, “Turkish GAAP”).

The accompanying financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) and are based on the statutory records, with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS. The Company adopted all IFRS, which were mandatory as at 31 December 2008.

(b) Basis of measurement The financial statements have been prepared on the historical cost basis.

The methods used to measure fair values are discussed further in Note 4.

(c) Functional and presentation currency These financial statements are presented in TRY, which is the Company’s functional currency. All financial information presented in TRY is rounded to the nearest digit.


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2 Basis of preparation (continued)

(d) Use of estimates and judgments The preparation of financial statements requires management to make judgments, 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 judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes:

• Note 4 – fair value measurement of financial instruments

• Note 6 – taxation

• Note 14 – reserve for employee severance payments

• Note 16 – financial risk management

• Note 17 – commitments and contingencies

3 Significant accounting policies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

(a) Accounting in hyperinflationary economies International Accounting Standard (“IAS”) 29, which deals with the effects of inflation in the financial statements, requires that financial statements prepared in the currency of a hyperinflationary economy to be stated in terms of the measuring unit current at the balance sheet date and the corresponding figures for previous periods be restated in the same terms. One characteristic that necessitates the application of IAS 29 is a cumulative three year inflation rate approaching or exceeding 100%.

The cumulative three-year inflation rate in Turkey has been 35.61% as at 31 December 2005, based on the Turkish nation-wide wholesale price indices announced by Turkish Statistical Institute (“TURKSTAT”). This, together with the sustained positive trend in the quantitative factors such as financial and economical stabilization, decrease in the interest rates and the appreciation of TRY against the US Dollars (“USD”), have been taken into consideration to categorize Turkey as a non-hyperinflationary economy under IAS 29 effective from 1 January 2006. Therefore, IAS 29 has not been applied to the financial statements of the Company as at and for the year ended 31 December 2006 and thereafter.


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3 Significant accounting policies (continued)

(b) Foreign currency transactions Transactions in foreign currencies are translated at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are converted into TRY at the exchange rates ruling at balance sheet date with the resulting exchange differences recognized in the income statement as foreign exchange gain or loss. Gains and losses arising from foreign currency transactions are reflected in the income statement as realized during the course of the year.

Foreign exchange rates used by the Company as at 31 December are as follows: 2008 2007

USD 1.5123 1.1647 Euro 2.1408 1.7102 GBP 2.1924 2.3259

(c) Financial instruments (i) Non-derivative financial instruments Financial instruments, all of which are non-derivative comprise cash and cash equivalents, factoring receivables, other assets, investments in equity securities, loans and borrowings, factoring payables and other liabilities.

Financial instruments are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition non-derivative financial instruments are measured as described below.

A financial instrument is recognised if the Company becomes a party to the contractual provisions of the instrument. Financial assets are derecognised if the Company’s contractual rights to the cash flows from the financial assets expire or if the Company transfers the financial asset to another party without retaining control or substantially all risks and rewards of the asset. Regular way purchases and sales of financial assets are accounted for at trade date, i.e., the date that the Company commits itself to purchase or sell the asset. Financial liabilities are derecognised if the Company’s obligations specified in the contract expire or are discharged or cancelled.

Factoring payables are measured at amortised cost.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances, time and demand deposits at banks.

Time deposits are measured at amortized cost using the effective interest method, less any impairment losses. Demand deposits are measured at cost.

Accounting for financial income and expense is discussed in note 3(l).

Factoring receivables and provision for impaired factoring receivables

Factoring receivables are measured at amortised cost less specific allowances for uncollectability and unearned interest income. Specific allowances are made against the carrying amount of factoring receivables and that are identified as being impaired based on regular reviews of outstanding balances to reduce factoring receivables to their recoverable amounts.


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(c) Financial instruments (continued) A credit risk provision for impairment of the investment in factoring receivables is established if there is objective evidence that the Company will not be able to collect all amounts due as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event (or events) has an impact on the estimated future cash flows of the receivables. The amount of the provision for impaired factoring receivables is the difference between the carrying amount and recoverable amount, being the present value of expected cash flows, including the amount recoverable from guarantees and collateral, discounted based on the interest rate at inception. For restructured receivables, the Company initially determines as to whether there has been impairment as a result of the restructuring, and if so, a provision for impairment is recorded representing the difference between the recoverable amounts, being the present value of expected cash flows from restructured receivables discounted using the interest rate of the original receivables, and the carrying amount.

Investments in equity securities

Available-for-sale assets are financial assets that are not held for trading purposes, or held to maturity. Available-for-sale instruments include certain equity investments.

Investments in equity securities in which the Company has less than 20% shareholding were acquired before 1 January 2006. They are measured at cost, restated for the effects of inflation in TRY units current at 31 December 2005 pursuant to IAS 29 as such investments do not have a quoted market price in an active market and their fair values cannot be estimated reasonably.

When equity investments are disposed of, any resulting gain or loss is recognized in the income statement as the difference between the sales price and the carrying amount of the investment.

Loans and borrowings

Loans and borrowings are recognized initially at cost, net of any transaction costs incurred. Subsequent to initial recognition, loans and borrowings are stated at amortized cost with any difference between cost and redemption value being recognized in the income statement over the period of the borrowings.

Other

Other assets and payables are measured at cost due to their short term nature.

(ii) Share capital Ordinary shares

Incremental costs directly attributable to issue of ordinary shares and share options are recognised as a deduction from equity.

Share capital increased pro-rata to existing shareholders is accounted for at par value as approved at the annual meeting of shareholders.

(d) Tangible assets (i) Recognition and measurement Items of tangible assets acquired before 1 January 2006 are measured at cost restated for the effects of inflation in TRY units current at 31 December 2005 pursuant to IAS 29 less accumulated depreciation and impairment losses. Tangible assets acquired after 31 December 2005 are measured at cost, less accumulated depreciation, and impairment losses.

Cost includes expenditures that are directly attributable to the acquisition of the asset.

When parts of an item of tangible assets have different useful lives, they are accounted for as separate items (major components) of tangible assets.


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(d) Tangible assets (continued) (ii) Subsequent costs The cost of replacing part of an item of tangible assets 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 Company and its cost can be measured reliably. The costs of the day-to-day servicing of tangible assets are recognized in the income statement as incurred.

(iii) Depreciation Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of an item of tangible assets.

The estimated useful lives for the current and comparative periods are as follows: Years Office equipment, furniture and fixtures 5 Motor vehicles 5

Leasehold improvements are depreciated over the periods of the respective leases on a straight-line basis.

(e) Intangible assets Intangible assets represent computer software licenses and rights. Intangible assets acquired before 1 January 2006 are measured at cost restated for the effects of inflation in TRY units current at 31 December 2005 pursuant to IAS 29, less accumulated amortization, and impairment losses. Intangible assets acquired after 31 December 2005 are measured at cost, less accumulated amortisation, and impairment losses. Amortization is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets.

(f) Leased assets Leases in terms of which the Company 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.

Other leases are operating leases and are not recognised on the Company’s balance sheet.

(g) Impairment (i) Financial assets 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.


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(g) Impairment (continued) All impairment losses are recognised in income statement. 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 equity securities, the reversal is recognised in the income statement.

(ii) Non-financial assets The carrying amounts of the Company’s non-financial 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 intangible assets that have indefinite lives or that are not yet available for use, recoverable amount is estimated at each reporting date.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognised in the income statement.

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.

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.

(h) Employee benefits (i) Reserve for employee severance payments In accordance with the existing social legislation in Turkey, the Company is required to make certain lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than resignation or misconduct. Such payments are calculated on the basis of an agreed formula, are subject to certain upper limits and are recognized in the accompanying financial statements as accrued. The reserve has been calculated by estimating the present value of the future obligation of the Company that may arise from the retirement of the employees.

(ii) Short-term benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.


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(i) Provisions A provision is recognised if, as a result of a past event, the Company 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.

(j) Offsetting Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

(k) Related parties For the purpose of this report, the shareholders of the Company, GSD Group companies, the ultimate shareholders of the Company and the companies controlled by/associated with them are referred to as related parties.

(l) Revenue and cost recognition (i) Factoring interest and commission income Factoring interest and commission income is recognized on accrual basis using the effective interest method.

(ii) Factoring commission expenses Factoring commission charges are recorded as expense on accrual basis using the effective interest method.

(iii) Other income and expenses Other income and expenses are recognized on accrual basis. Other income and expenses are charged as expense as incurred.

(iv) Interest income other than on factoring transactions Such interest income includes interest income from time deposits on accrual basis using the effective interest method.

(v) Interest expense on bank borrowings Interest expense on borrowings is recognized on accrual basis using the effective interest method.

(m) Income tax Taxes on income comprise current tax and the change in the deferred taxes. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred income tax is provided, using the balance sheet liability 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.

Deferred tax liabilities and assets are recognized when it is probable that the future economic benefits resulting from the reversal of taxable temporary differences will flow to or from the Company. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. Currently enacted tax rates are used to determine deferred taxes on income.


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(n) 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 Company’s 2009 financial statements, will require the disclosure of segment information based on the internal reports regularly reviewed by the Company’s Chief Operating Decision Maker in order to assess each segment’s performance and to allocate resources to them. Currently, the Company’s principal activity is to provide factoring services substantially in one geographical segment (Turkey). Therefore, it is not expected to have any impact on the financial statements.

Revised IAS 23 Borrowing Costs removes the option to expense borrowing costs and requires that an entity capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. The revised IAS 23 will become mandatory for the Company’s 2009 financial statements. However, it is not expected to have any impact on the financial statements.

IFRS 3 Business Combinations & IAS 27 Consolidated and Separate Financial Statements; the International Accounting Standards Board (“IASB”) has completed the second phase of its business combinations project by issuing a revised version of IFRS 3 Business Combinations and an amended version of IAS 27 Consolidated and Separate Financial Statements which also brings revisions to IAS 28 Investments in Associates and IAS 31 Interest in Joint Ventures. The new requirements take effect on 1 July 2009, although entities are permitted to adopt them earlier, is not expected to have any impact on the financial statements.

Amendments 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 are effective for annual periods beginning on or after 1 January 2009, with early adoption permitted and are not expected to have any impact on the financial statements.

Amendments to IAS 32 Financial Instruments: Presentation and IAS 1 Presentation of Financial Statements-Puttable Financial Instruments and Obligations Arising on Liquidation improve the accounting for particular types of financial instruments that have characteristics similar to ordinary shares but are at present classified as financial liabilities. The amendments will apply for annual periods beginning on or after 1 January 2009, with earlier application permitted and are not expected to have any impact on the financial statements.

Revised IAS 1 Presentation of Financial Statements does not change the recognition measurement or disclosure of transactions and events that are required by other IFRSs. The revised standard introduces as a financial statement the “statement of comprehensive income”. The revised standard is effective for annual financial periods beginning on or after 1 January 2009, with early adoption permitted.

IFRIC 13 Customer Loyalty Programmes addresses the accounting by entities that operate, or otherwise participate in, customer loyalty programmes for their customers. It relates to customer loyalty programmes under which the customer can redeem credits for awards such as free or discounted goods or services. IFRIC 13, which becomes mandatory for the Company’s 2009 financial statements, is not expected to have any impact on the financial statements.


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4 Determination of fair values

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 or liquidation, and is best evidenced by a quoted market price, if one exists.

The estimated fair values of financial instruments have been determined by the Company using available market information and appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to develop the estimated fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.

A market does not presently exist for factoring receivables which would facilitate obtaining prices for comparative instruments, and if sold or settled prior to their stated maturity dates, these instruments would bear transaction costs in the form of fees or discounts. Fair value has not been computed for these instruments because of the impracticability of determining fair value with sufficient reliability. Furthermore, net book amounts are considered to be a reasonable estimate of the fair value.

The fair value of certain financial assets, including cash and cash equivalents and financial assets, are considered to approximate their respective carrying values due to their short-term nature.

The fair value of borrowings and other monetary liabilities are considered to approximate their respective carrying values due to their short-term nature.

5 Salaries and employee benefits For the years ended 31 December, salaries and employee benefits comprised the following:

2008 2007 Salary expense 2,042,646 1,533,124 Bonus expense 650,519 745,441 Social security oremium 247,607 206,494 Consultancy expense 213,548 172,173 Vacation pay liability 97,927 15,481 Transportation expense 76,154 61,616 Meal expense 65,608 58,865 Health expense 40,630 35,968 Training expense 30,861 35,466 Other 93,778 83,845 3,559,278 2,948,473


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6 Administrative expenses For the years ended 31 December, administrative expenses comprised the following:

2008 2007 Rent expenses 257,889 214,769 Management fee expenses 240,079 174,396 Consultancy expenses 106,971 293,641 Fuel expenses 97,180 95,694 Communication and maintenance expenses 83,546 60,349 IT expenses 50,124 53,419 Taxes and funds 44,640 58,300 Traveling expenses 40,752 63,456 Membership fee expenses 6,309 28,799 Other expenses 257,284 165,494 Total 1,184,774 1,208,317

7 Taxation

As at 31 December 2008, corporate income tax is levied at the rate of 20% (31 December 2007: 20%) on the statutory corporate income tax base, which is determined by modifying accounting income for certain exclusions and allowances for tax purposes. There is also a withholding tax levied at a certain rate on the dividends paid and is accrued only at the time of such payments. Some of the deduction rates included in the 15th and 30th articles of the Law no. 5520 on the Corporate Tax, has been redefined according to the cabinet decision numbered 2006/10731, which has been announced at Trade Registry Gazette of 23 July 2006-26237. In this context, withholding tax rate on dividend payments which are made to the companies except those which are settled in Turkey or generate income in Turkey via a business or a regular agent has been increased to 15% from 10%.

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 to offset profits from previous periods.

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 and paid in one installment within the month of preparation of annual tax return.

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.

In Turkey, the transfer pricing provisions have been stated under the Article 13 of Corporate Tax Law with the heading of “disguised profit distribution via transfer pricing”. The General Communiqué on disguised profit distribution via Transfer Pricing, dated 18 November 2007 sets details about implementation.

If a taxpayer 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 principle, 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 tax deductible for corporate income tax purposes.


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7 Taxation (continued)

The reported tax expense for the years ended 31 December are different than the amounts computed by applying the statutory tax rate to profit before tax as shown in the following reconciliation:

2008 2007 Amount % Amount %Reported profit before income taxes 6,593,122 7,692,565 Taxes on reported profit per statutory tax rate (1,318,624) 20.00 (1,538,513) 20.00Permanent differences: Non-deductible expenses (6,200) 0.09 (13,511) 0.18 Effect of profit distribution from inflation adjustment of equity items - - (156,617) 2.04 Effect of bonus provision (107,571) 1.63 (123,000) 1.60 Other permanent differences (1,115) 0.02 53 0.00Income tax expense (1,433,510) 21.74 (1,831,588) 23.82

The income tax expense for the years ended 31 December comprised the following items:

2008 2007Current corporation and income taxes 1,449,418 1,861,384Deferred taxes on taxable temporary differences (16,508) (29,796)Taxation charge 1,432,910 1,831,588

In accordance with the related regulation for prepaid taxes on income, advance payments during the year are being deducted from the final tax liability computed over current year operations. Accordingly, the income tax expense is not equal to the final tax liability appearing on the balance sheet.

The taxes payable on income as of 31 December comprised the following:

2008 2007Taxes on income 1,449,418 1,861,384Less: Corporation taxes paid in advance (1,259,413) (1,520,361)Income taxes payable 190,005 341,023

Deferred tax is provided, using the balance sheet liability 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 initial recognition of assets and liabilities which effect neither accounting nor taxable profit.

Deferred tax assets and liabilities at 31 December were attributable to the items detailed in the table below:

2008 2007 Assets Liabilities Assets Liabilities Employee benefits 65,988 - 51,712 -Bonus provision 26,632 - 24,400 -Total 92,620 - 76,112 -


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8 Cash and cash equivalents At 31 December, cash and cash equivalents comprised the following:

2008 2007Cash at banks -time deposits 1,994,356 1,220,896 -demand deposits 55,080 209,927Cash on hand 1,435 737Total cash and cash equivalents 2,050,871 1,431,560

As at 31 December 2008, deposit amounting to TRY 4,000 is blocked. As at 31 December2007, there is no blocked deposit.

At 31 December 2008, the time deposits are comprised of TRY 1,901,328(EUR 616,039 and GBP 265,696) at a related party bank. The Euro Textile International Banking Unit Ltd., with maturity on 2 January 2009 and with interest rates of 4.50% and 4.75%

9 Factoring receivables At 31 December, factoring receivables comprised the following:

2008 2007

Domestic factoring receivables 31,670,734 97,584,362Export factoring receivables 418,470 6,239,508Impaired factoring receivables 1,842,355 1,508,109Factoring receivables, gross 33,931,559 105,331,979Allowance for impaired factoring receivables (1,842,355) (1,508,109)Factoring receivables, net 32,089,204 103,823,870 At 31 December 2007, TRY 176,161 of the factoring receivables where contractual interest or principal payments are past due but the Company management believes that impairment is not appropriate on the basis of the level of security, collateral available and or the stage of collection of amounts owed to the Company.

The collaterals obtained for the factoring receivables as at 31 December are as follows:

2008 2007Customer cheques and notes 31,377,463 93,799,716 Guarantee cheques 1,628,695 2,166,475 Mortgages 70,000 70,000 33,076,158 96,036,191

Movements in the allowance for impaired factoring receivables during the years ended 31 December was as follows:

2008 2007Balance at the beginning of the year 1,508,109 1,261,566Allowance for the year 372,002 362,918Recoveries of amounts previously provided (17,678) (116,375)Written-off during the year (20,078) -Balance at the end of the year 1,842,355 1,508,109


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10 Other assets At 31 December, other assets comprised the following:

2008 2007Prepaid expenses (*) 33,064 32,241Deposits and guarantees given 1,468 558Others 855 2,377 35,387 35,176

(*) Prepaid expenses are related to the health insurance of employees.

11 Tangible assets Movement of tangible assets and related accumulated depreciation during the year ended 31 December 2008 was as follows:

1 January 2008 Additions Disposals 31 December

2008Cost Land improvements 9,476 - - 9,476Motor vehicles 426,263 - - 426,263Furniture and fixtures 825,222 11,330 - 836,552Leasehold improvements 160,327 - - 160,327Total cost 1,421,288 11,330 - 1,432,618

1 January 2008Current year

charge Disposals 31 December

2008Less: Accumulated depreciation Land improvements 319 48 - 367Motor vehicles 281,028 107,480 - 388,508Furniture and fixtures 790,827 16,290 - 807,117Leasehold improvements 158,455 469 - 158,924Total accumulated depreciation 1,230,629 124,287 - 1,354,916Net carrying value 190,659 77,702


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11 Tangible assets (continued)

Movement of tangible assets and related accumulated depreciation during the year ended 31 December 2007 was as follows:

1 January 2007 Additions Disposals 31 December

2007Cost Land improvements 9,476 - - 9,476Motor vehicles 529,805 - (103,542) 426,263Furniture and fixtures 798,801 32,712 (6,291) 825,222Leasehold improvements 157,990 2,337 - 160,327Total cost 1,496,072 35,049 (109,833) 1,421,288

1 January 2007Current year

charge Disposals 31 December

2007Less: Accumulated depreciation Land improvements 271 48 - 319Motor vehicles 250,130 81,372 (50,474) 281,028Furniture and fixtures 773,989 23,129 (6,291) 790,827Leasehold improvements 157,990 465 - 158,455Total accumulated depreciation 1,182,380 105,014 (56,765) 1,230,629Net carrying value 313,692 190,659

12 Loans and borrowings At 31 December, loans and borrowings comprised the following:

2008 2007 Original Interest TRY amount Original Interest TRY amount Amount rate (%) Up to 1 year 1 year and

over amount rate (%) Up to 1 year 1 year and

over

TRY 3,857,521 22.47 3,857,521 - 75,624,674 17.12 75,624,674 - Euro 1,027,028 7 2,198,661 - 1,673,055 6.1 2,861,259 - GBP - - - - 1,214,865 8.18 2,825,654 -

Total 6,056,182 - 81,311,587 -

As at 31 December 2007, GSD Holding AŞ has warranted the bank borrowings of the Company amounting TRY 72,425,050.

As at 31 December 2007, loans and borrowings included of correspondent bank balances amounting TRY 4,737,013. Correspondent bank balances are due to collection services provided to export factoring customers.


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13 Factoring payables At 31 December, factoring payables comprised the following: 2008 2007Domestic factoring payables 312,126 69,183 Foreign factoring payables 41,088 1,202,481 353,214 1,271,664

14 Other liabilities At 31 December, other liabilities comprised the following:

2008 2007Bonus provision 590,336 737,000Taxes and duties other than on income 207,129 180,266Commission accruals 38,675 24,196Others 44,334 60,468 880,474 1,001,930

15 Employee benefits At 31 December, employee benefits comprised the following: 2008 2007

Reserve for employee severance payments 100,615 127,159Vacation pay liability 229,327 131,400 329,942 258,559

i) Reserve for employee severance payments

In accordance with existing social legislation in Turkey, the Company is required to make lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than resignation or misconduct. Such payments are calculated on the basis of 30 days’ pay, maximum of TRY 2,173.19 at 31 December 2008 (2007: TRY 2,030.20) per year of employment at the rate of pay applicable at the date of retirement or termination. The principal assumption used in the calculation of the total liability is that the maximum liability for each year of service will increase in line with inflation semi-annually.

The liability is not funded, as there is no funding requirement.

International Accounting Standard No: 19 (“IAS 19”) requires actuarial valuation methods to be developed to estimate the enterprise’s obligation under defined benefit plans. The reserve has been calculated by estimating the present value of future probable obligation of the Company arising from the retirement of the employees. Accordingly, the following actuarial assumptions were used in the calculation of the following liability at 31 December:

2008 2007 Expected inflation rate 5.4% 5% Expected rate of salary/limit increase 12% 11% Turnover rate to estimate the probability of retirement 13% 6%


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15 Employee benefits (continued)

For the years ended 31 December, movements in the reserve for employee severance payments were as follows:

2008 2007 Balance at the beginning of the year 127,159 115,659 Paid during the year (33,584) (2,586) Increase during the year 7,040 14,086 Balance at the end of the year 100,615 127,159

ii) Vacation pay liability

Vacation pay liability is calculated by the remaining vacation days multiplied by one days’ pay.

For the years ended 31 December, movements in the vacation pay liability were as follows:

2008 2007 Balance at the beginning of the year 131,400 115,919 Paid during the year (11,137) - Increase during the year 109,064 15,481 Balance at the end of the year 229,327 131,400

16 Equity For the years ended 31 December 2008 and 2007, movements in equity were as follows:

Nominal paid-in capital

Adjustment to share capital

Accumulated losses Net profit

Total equity

Balances at 31 December 2006 8,100,000 36,108,961 (18,867,876) 5,993,971 31,335,056 Transfers - - 5,993,971 (5,993,971) - Dividend paid - - (15,798,018) - (15,798,018) Net profit for the year - - - 5,860,977 5,860,977 Balances at 31 December 2007 8,100,000 36,108,961 (28,671,923) 5,860,977 21,398,015 Transfers - - 5,860,977 (5,860,977) - Net profit for the year - - - 5,159,612 5,159,612 Balances at 31 December 2008 8,100,000 36,108,961 (22,810,946) 5,159,612 26,557,627


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16 Equity (continued)

16.1 Paid-in capital

At 31 December 2008, the Company’s nominal value of authorized and paid-in share capital amounts to TRY 8,100,000 (2007: TRY 8,100,000) comprising 8,100,000 (2007: 8,100,000) registered shares of par value of TRY 1 each. Adjustment to share capital represents the restatement effect of the cash contributions to share capital equivalent to purchasing power of TRY as of 31 December 2005.

At 31 December, the composition of the authorized and paid-in share capital was as follows:

2008 2007 Share (%) TRY Share (%) TRYGSD Holding AŞ 88.00 7,128,810 88.00 7,128,000Çim Güzelaydınlı 5.00 405,000 5.00 405,000Doru İç ve Dış Ticaret Ltd. Şti. 2.47 200,000 2.47 200,000İsmet Alver 2.22 180,000 2.22 180,000Tekstil Finansal Kiralama AŞ 1.98 160,380 1.98 160,380Others 0.33 25,810 0.33 26,620Nominal share capital 100.00 8,100,000 100.00 8,100,000Adjustment to share capital 36,108,961 36,108,961Total paid in share capital 44,208,961 44,208,961

16.2 Legal Reserves

The legal reserves are established by annual appropriations amounting to 5% of income disclosed in the Company’s statutory accounts until it reaches 20% of paid-in share capital (first legal reserve). Without limit, a further 10% of dividend distributions in excess of 5% 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% of share capital. In the accompanying financial statements, the total of the legal reserves include net in accumulated losses is TRY 8,896,278 as at 31 December 2008 (2007: TRY 8,896,278).


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17 Financial instruments Counter party credit risk:

The Company is subject to credit risk through its factoring operations. The Risk Management and Analysis Department of the Company is responsible to manage the credit risk. The Company requires a certain amount of collateral in respect of its financial assets. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers. A special software programme has been developed to monitor the credit risk of the Company.

At balance sheet date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet.

The breakdown of net factoring receivables by industrial groups is as follows: 2008 % 2007 %

Food 8,951,350 28 14,598,496 14Media 5,750,000 18 12,075,791 12Textile 5,106,000 16 21,947,969 21Trade 2,803,000 10 11,465,059 11Metal 1,558,000 5 10,506,620 10Constructor services 1,508,000 5 2,321,215 2Paper 1,485,000 5 7,070,093 7Automotive 1,046,000 3 2,958,625 3Plastics 1,044,000 3 2,650,853 3Electronic & Electricity 921,000 3 5,025,797 5Machinery 506,000 1 1,972,851 2Dye 352,000 1 3,568,844 3Furniture 205,000 - 1,211,942 1Real estate 128,000 - 5,646,043 5Other 725,854 2 803,672 1 32,089,204 100 103,823,870 100

Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates will affect Company’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.

Interest rate risk

The Company’s operations are subject to the risk of interest rate fluctuations to the extent that interest-earning assets and interest-bearing liabilities mature or re-price at different times or in differing amounts. In the case of floating rate assets and liabilities the Company is also exposed to basis risk, which is the difference in repricing characteristics of the various floating rate indices, such as six months Libor and different types of interest. Risk management activities are aimed at optimizing net interest income, given market interest rate levels consistent with the Company’s business strategies.


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17 Financial instruments (continued) The tables below summarize average effective interest rates by major currencies for monetary financial instruments at 31 December:

2008 2007 GBP (%) EUR (%) TRY (%) USD (%) EUR (%) TRY (%) Assets Cash at banks 4.75 4.5 8.5 5.75 - - Factoring receivables 11.9 11.85 27.55 6.5 4.8 23.97 Liabilities Loans and borrowings - 7 22.47 - 6.1 17.12

Interest rate profile:

As at 31 December, the interest rate profile of the Company's interest-bearing financial instruments were as follows:

Carrying Amount Fixed rate instruments 2008 2007 Factoring receivables 32,089,204 103,823,870 Time deposits 1,994,356 1,220,896 Loans and borrowings 6,056,182 81,311,587


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17 Financial instruments (continued)

Foreign currency risk

The Company is exposed to currency risk through transactions (such as factoring operations and borrowings) in foreign currencies. As the currency in which the Company presents its financial statements is the TRY, the financial statements are affected by movements in the exchange rates against TRY.

At 31 December, the currency risk exposures of the Company were as follows (TRY equivalents):

31 December 2008 Foreign Currency Assets USD EUR Other FC Total TRY Total Cash and cash equivalents - 1,318,901 611,149 1,930,050 120,821 2,050,871 Factoring receivables, net 1,236,901 2,644,519 47,936 3,929,356 28,159,848 32,089,204 Other assets and prepaid expenses 76 - - 76 35,311 35,387 Total Assets 1,236,977 3,963,420 659,085 5,859,482 28,315,980 34,175,462 Loans and borrowings - 2,198,661 - 2,198,661 3,857,521 6,056,182 Factoring payables - 9,163 31,925 41,088 312,126 353,214 Other liabilities - 31,587 11,256 42,843 837,631 880,474 Total Liabilities - 2,239,411 43,181 2,282,592 5,007,278 7,289,870 Net balance sheet position 1,236,977 1,724,009 615,904 3,576,890 23,308,702 26,885,592

31 December 2007 Foreign Currency Assets USD EUR Other FC Total TRY Total Cash and cash equivalents 1,221,438 154,381 7,966 1,383,785 47,775 1,431,560 Factoring receivables, net 3,201,938 3,945,169 3,478,074 10,625,181 93,198,689 103,823,870 Other assets and prepaid expenses 58 - - 58 35,118 35,176 Total Assets 4,423,434 4,099,550 3,486,040 12,009,024 93,281,582 105,290,606 Loans and borrowings - 2,861,259 2,825,655 5,686,914 75,624,673 81,311,587 Factoring payables - 747,580 454,901 1,202,481 69,183 1,271,664 Other liabilities - 23,840 356 24,196 977,734 1,001,930 Total Liabilities - 3,632,679 3,280,912 6,913,591 76,671,590 83,585,181 Net balance sheet position 4,423,434 466,871 205,128 5,095,433 16,609,992 21,705,425


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17 Financial instruments (continued)

Foreign currency sensitivity analysis: Depreciation of TRY by 10% against the other currencies as at 31 December would have decreased profit or loss by the amounts shown below. This analysis assumes that all other variables, as at 31 December remain constant.

TRY 2008 2007 Profit/(Loss) Profit/(Loss)USD 123,698 442,343Euro 172,401 46,687Other currencies 61,590 20,513Total 357,689 509,543

Liquidity risk

Liquidity risk arises in the general funding of the Company’s activities and in the management of positions. It includes both risk of being unable to fund assets at appropriate maturities and rates and risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame. The Company has access to funding sources from banks. The Company continuously assesses liquidity risk by identifying and monitoring changes in funding required in meeting business goals and targets set in terms of the overall Company strategy.

The table below analysis liabilities of the Company into relevant maturity groupings based on the remaining period at balance sheet date to the contractual maturity dates, the payments include amounts of both principle and interest on an undiscounted basis and therefore the totals will not agree to the totals presented in the balance sheet. 2008

Carrying

amount Contractual

cash flow Up to 3 Months

3 Months to 1 year

Over 1 Year

Non-derivative financial liabilities 7,289,870 7,352,256 4,485,751 2,866,505 - Loans and borrowings 6,056,182 6,118,568 3,826,247 2,292,321 - Factoring payables 353,214 353,214 353,214 - - Other liabilities 880,474 880,474 306,290 574,184 - Derivative financial liabilities - - - - - Inflow - - - - - Outflow - - - - -

2007

Carrying

amount Contractual

cash flow Up to 3 Months

3 Months to 1 year

Over 1 Year

Non-derivative financial liabilities 82,313,517 82,440,081 80,003,588 2,436,493 - Loans and borrowings 81,311,587 81,438,151 79,622,180 1,815,971 - Other liabilities 1,001,930 1,001,930 381,408 620,522 - Derivative financial liabilities - - - - - Inflow - - - - - Outflow - - - - -


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18 Commitments and contingencies Commitments and contingent liabilities arising in the ordinary course of business comprised the following items as at 31 December:

Letters of guarantee 2008 2007 Given to legal courts 378,695 261,318 378,695 261,318 Litigation and claims

Litigation is a common occurrence in the factoring industry due to the nature of the business. The Company has an established protocol for dealing with such legal claims, once professional advice has been obtained and the amount of damages reasonably estimated, the Company makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Company’s management is unaware of any significant actual, pending or threatened claims against the Company,

19 Related party disclosures

For the purpose of accompanying 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 investments 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. These transactions were carried out on an arms-length basis during the normal course of business. 2008 2007 Tekstilbank AŞ Cheques for collection 234,484 3,434,317 Bank borrowings 6,056,182 1,867,958 Deposits 16,035 37,698 Letter of guarantees 280,030 103,806 Interests expense 190,397 121,798 Letter of guarantee commission 11,026 8,275 Other financing expense 17,936 12,423 Administrative expense 24,645 - The Euro Textile International Banking Unit Ltd. Deposits 1,901,329 1,221,438 Bank borrowings - 27,862,575 Interests expense 3,854,099 2,943,353 Interest income 58,070 62,073 Other expenses 812 910 GSD Yatırım Bankası AŞ Deposits 462 299 Other liabilities 5,630 27,807 Interest expense 92,570 63,892 Letter of guarantee 98,665 134,604 Administrative expense 64,927 62,933 Other financing expense 2,231 3,353


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19 Related party disclosures (continued) GSD Holding AŞ Other expenses 240,079 174,395 Other liabilities 23,678 19,937

For the year ended 31 December 2008, the Company has payments to top management amounting to TRY 1,250,642 (2007: TRY 1,033,020).

As at 31 December 2008, the amount of cheques and notes related to factoring receivables kept at Tekstil Bank AŞ is TRY 234,484 (2007: TRY 3,434,317).

As at 31 December 2007, GSD Holding AŞ has warranted the bank borrowings of the Company amounting TRY 72,425,050.

20 Subsequent events According to the decree of the Council of Ministers numbered 2007/11963 and dated 4 April 2007, for the currency unit of the Republic of Turkey, the term "New" in the name of the national currency was removed on 1 January 2009. 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 the year 2009. Therefore, the Company will keep its records in Turkish Lira beginning from 1 January 2009.

tekstil factoring hizmetleri anonim Ş€¦ · the cumulative three-year inflation rate in turkey...

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