Türk Demir Döküm Fabrikaları Anonim Şirketi. Consolidated Financial Statements Together With Report of Independent Auditors December 31, PDF

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Türk Demir Döküm Fabrikaları Anonim Şirketi Consolidated Financial Statements Together With Report of Independent Auditors Türk Demir Döküm Fabrikaları A.Ş. TABLE OF CONTENTS Report of Independent Auditors

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Türk Demir Döküm Fabrikaları Anonim Şirketi Consolidated Financial Statements Together With Report of Independent Auditors Türk Demir Döküm Fabrikaları A.Ş. TABLE OF CONTENTS Report of Independent Auditors 1 Consolidated Balance Sheet 2 Consolidated Income Statement 3 Consolidated Changes in Equity Statement 4 Consolidated Cash Flow Statement 5 Page Notes to the Consolidated Financial Statements 6-32 To the Board of Directors of Türk Demir Döküm Fabrikaları Anonim Şirketi We have audited the accompanying consolidated balance sheet of Türk Demir Döküm Fabrikaları Anonim Şirketi (the Company - a Turkish corporation) and its subsidiaries (the Group) as of and the related consolidated income, changes in equity and cash flow statements for the year then ended, all expressed in the equivalent purchasing power of Turkish Lira as of. These consolidated financial statements are the responsibility of the Company's management. 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 plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Group as of, and of the results of its operations and its cash flows for the year then ended in accordance with International Financial Reporting Standards. March 5, 2004 İstanbul, Turkey CONSOLIDATED BALANCE SHEET As at ASSETS Notes Current assets Cash and cash equivalents 3 20,974,588 11,600,730 Trade and other receivables 4 101,271,451 96,340,368 Inventories 5 58,857,786 30,964,320 Prepayments and other current assets 6 6,386,264 3,563,133 Total current assets 187,490, ,468,551 Non-current assets Equity investments 2,110, ,942 Investments available for sale 7 14,636,134 14,652,007 Property, plant and equipment, net 8 51,938,164 55,083,384 Intangible assets, net 9 5,713,617 1,083,942 Deferred tax asset ,906 - Other non-current assets 178,261 - Total non-current assets 75,145,272 71,586,275 Total assets 262,635, ,054,826 LIABILITIES AND EQUITY Current liabilities Trade and other payables 11 87,827,075 42,433,352 Short-term borrowings 10 22,712,191 26,909,546 Current portion of long-term borrowings 10 7,194,304 1,360,665 Income tax payable 12 2,544,988 7,131,856 Provisions 11 3,072,031 2,280,458 Total current liabilities 123,350,589 80,115,877 Non-current liabilities Long-term borrowings 10 28,591,464 15,487,185 Provisions 13 4,417,759 4,201,730 Deferred tax liability 12-1,165,256 Total non-current liabilities 33,009,223 20,854,171 Total liabilities 156,359, ,970,048 Minority interest 14 2,778,367 17,294,379 Equity Share capital issued ,658, ,627,993 Share premium , ,638 Legal reserves and accumulated deficit 17 (46,940,895) (52,617,232) Total equity 103,497,182 95,790,399 Total liabilities and equity 262,635, ,054,826 The accompanying policies and explanatory notes on pages 6 through 32 form an integral part of the consolidated financial statements. (2) CONSOLIDATED INCOME STATEMENT For the year ended Notes Sales ,267, ,755,681 Cost of sales 22 (219,882,949) (168,828,109) Gross profit 93,384,683 63,927,572 Distribution costs 22 (39,114,329) (27,376,115) Administrative expenses 22 (26,525,092) (18,565,200) Other operating income 22 7,181,496 6,969,214 Other operating expense 22 (5,139,757) (5,593,380) Operating profit 29,787,001 19,362,091 Financial expense, net 22 (7,034,311) (138,272) Loss on net monetary position (176,376) (3,707,815) Profit before tax 23,150,880 15,516,004 Taxation charge 13 Current (9,261,440) (8,133,210) Deferred 1,592,493 9,502,624 Total taxation (charge) benefit (7,668,947) 1,369,414 Profit after tax 14,907,367 16,885,418 Minority interest 14 1,555,701 1,033,187 Net profit 16,463,068 17,918,605 Weighted average number of shares (000's) with TL 1,000 face value each 34,583,333 20,000,000 Basic/diluted earnings per share in full TL The accompanying policies and explanatory notes on pages 6 through 32 form an integral part of the financial statements. (3) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the year ended Share Capital Legal Reserves and Accumulated Deficit Capital Surplus Total Equity Balances at January 1, ,627,993 (70,535,837) 779,638 77,871,794 Net profit for the year 17,918,605 17,918,605 Balances at December 31, ,627,993 (52,617,232) 779,638 95,790,399 Share capital increase from accumulated profits 2,030,446 (2,030,446) - - Effect of restructuring (Note 2) - (6,728,737) - (6,728,737) Dividend paid - (2,027,548) - (2,027,548) Net profit for the year - 16,463,068-16,463,068 Balances at December 31, ,658,439 (46,940,895) 779, ,497,182 (4) CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY For the year ended The accompanying policies and explanatory notes on pages 6 through 32 form an integral part of the financial statements. (5) CONSOLIDATED CASH FLOW STATEMENT For the year ended (Currency -- In millions of TL equivalent purchasing power at ) Cash flows from operating activities Profit before income tax and monetary loss 24,308,391 19,223,819 Adjustments to reconcile net income / (loss) to net cash flows from operating activities: Depreciation and amortization 9,392,263 14,734,546 Provision for employee termination benefits (non-current provisions) 730,090 (631,461) Interest expense 2,333,111 1,008,510 Provision for impairment 673, ,401 Net profit adjusted for non-cash items 37,437,848 35,105,815 Changes in operating assets and liabilities: Trade and other receivables (16,580,508) (25,387,880) Inventories (27,428,623) (2,599,622) Prepayments and other current assets (3,334,022) (3,095,021) Trade and other payables 50,278,471 10,834,425 Income taxes paid (13,640,084) (1,780,201) Interest paid (7,922,149) (6,710,665) Net cash provided by operating activities 17,824,234 6,366,851 Cash flows from investing activities: Purchase of property, plant and equipment (10,876,718) (5,510,609) Increase in investments in associate (1,343,248) - Increase in other non-current assets (178,261) - Increase in investments in available for sale (658,120) - Decrease in minority interest (1,555,701) - Dividends paid (2,027,548) - Effect of restructuring 6,728,737 - Net cash used in investing activities (9,910,859) (5,510,609) Cash flows from financing activities: Repayment of short-term borrowings (6,000,110) (27,080,535) Proceeds from long-term borrowings 14,999,060 (13,963,836) Net cash used in financing activities 8,998,950 (41,044,371) Net monetary gain / (loss) on restatement of cash transactions (7,538,467) 25,703,589 Net increase / (decrease) in cash and cash equivalents 9,373,858 (14,484,540) Cash and cash equivalents at the beginning of the year 11,600,730 26,085,270 Cash and cash equivalents at the end of the year 20,974,588 11,600,730 Supplemental disclosure of cash flows information: Cash received by the Company for interest Dividend income received 93,303 20,525 2,199 53,812 The accompanying policies and explanatory notes on pages 6 through 32 form an integral part of the financial statements. (6) NOTES TO CONSOLIDATED FINANCIAL STATEMENT 1. CORPORATE INFORMATION General Türk Demir Döküm Fabrikaları Anonim Şirketi (Demir Döküm) was founded in Certain shares of Demir Döküm are listed on the Istanbul Stock Exchange. The address of the registered office of the Company is Kurtköy-Orhanlı Caddesi Mezarlık yanı Pendik, İstanbul. Headquarters of the Company are located in İnegöl. The production facilities of Demir Döküm are located in Bozüyük and İnegöl. As of November 22, 2001, Demir Döküm spun off its panel radiator production facilities that were located in Bozüyük and established Panel Radyatör Sanayi ve Ticaret A.Ş. (Panel) to carry on the production activities of panel radiators. Demir Döküm sold 50% of Panel to a group company, Beko UK, at an amount of U.S. Dollars 10,109,080 on December 28, On January 1, 2003 the division of Beko UK which specialised in the sales and servicing of radiators was sold to DD Heating Limited (DD Heating) in which the Company owns 50%. Heatline is the radiator operation sold and although the heatline radiator business dates back to 1980 s it was properly established in 1990 and has become one of the fastest growing brands in the heating market. On May 1, 2003, the German heatline division of Beko was also transferred to DD Heating. Beko UK has sold 50% share of Panel to DD Heating funded by a loan of 9,700,000 GBP at 5%(Libor+1,25%) repayable by February As of July 25, 2002, the Company also spun off its cast iron radiator production facilities that were located in İnegöl and established Demrad Döküm Ürünleri Sınai ve Ticaret Anonim Şirketi (Demrad) to carry on the production activities of cast iron radiator. The establishment has been realized through the transfer of the fixed assets of Demirdöküm to Demrad as capital in-kind. The Company owns 99.9% of Demrad. According to the Resolution dated July 24, 2002, the Company has decided to separate its oiled radiator production facilities and establish a joint venture with 45% of Demir Döküm, 10% of Ram Pacific Ltd., and 45% Chung Mei Industries Limited (a Chinese Corporation) participation of under the name of Chung Mei Industries Limited (Chung Mei). The new establishment will sell products under the brand name of Doka. The establishment is realized through the transfer of the fixed assets of the radiator production facility with the historical cost value of TL 89,289. The property, plant and equipment, is used as capital in-kind. The establishment has been realized and as of March 5, 2004 Chung Mei has started its operations in China. According to the resolution dated May 14, 2003, Demirdöküm has decided to operate its selling, marketing and warehousing facilities in China Tianjin Free Trade Zone. For its operations, Demir Döküm participated in Tianjin Demrad international trading Company Limited (Demiladi) which has a share capital of U.S. Dollar 200,000, with 60% participating share. The consolidated financial statements are authorized for issue by the management on March 5, The General Assembly and certain regulatory bodies have the power to amend the statutory financial statements after issue. The parent of Demir Döküm is Koç Holding A.Ş. For the purpose of these consolidated financial statements, Demir Döküm and its consolidated subsidiaries, Panel, Demrad and DD Heating are referred to as the Company and its subsidiaries or the Company . Nature of Activities The Company is engaged in the manufacture and trade of durable consumer goods such as iron panel and steel radiators, cast iron radiators, instant and storage water heaters, central heating systems, iron stoves, individual heating equipment. (7) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Basis of Preparation The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board and International Accounting Standards and Standing Interpretations Committee Interpretations approved by the IASC that remain in effect. The consolidated financial statements have been prepared on an historical cost convention, except for the measurement at fair value of available-forsale financial assets. The Company and its subsidiaries, which are incorporated in Turkey, maintain their books of account and prepare their statutory financial statements in accordance with regulations on accounting and reporting framework and accounting standards promulgated by the Turkish Capital Market Board (TCMB - only for Demir Döküm since its shares are publicly trading), Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The foreign subsidiary maintains its books of accounts in accordance with the laws and regulations in force in the country where it is registered. The consolidated financial statements have been prepared from statutory financial statements of the Company and its subsidiaries and presented in Turkish Lira (TL) with adjustments and reclassifications for the purpose of fair presentation in accordance with IFRS. Reclassifications on 2002 Financials Reclassifications have been made in the consolidated financial statements as of December 31, 2002 to be consistent with the current year presentation. These reclassifications are related to the reclassification of checks and notes receivables amounting to TL 3,370,259 from trade and other receivables to cash and cash equivalents and reclassification of interest accruals on borrowings amounting to TL 543,472 and TL 465,038 from trade and other payables to long term borrowings and short-term borrowings, respectively. Measurement Currency, Reporting Currency and Translation Methodology Measurement currency of the Company and its subsidiaries which operate in Turkey is TL. Measurement currency of DD Heating which operates in Great Britain is Great Britain Pound and related financial statements are converted into TL using the exchange rate at the date of the balance sheet (As of 1 Great Britain Pound = TL 2,476,610 full). The restatement for the changes in the general purchasing power of TL as of is based on IAS 29 ( Financial Reporting in Hyperinflationary Economies ). IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date and the corresponding figures for previous periods be restated in the same terms. One characteristic that necessitates the application of IAS 29 is a cumulative three year inflation rate approaching or exceeding 100%. As of, the three year cumulative rate has been 181% ( %) based on the Turkish countrywide wholesale price index published by the State Institute of Statistics. Such index and conversion factors as of the end of the three year period ended December 31, 2003 are given below: Dates Index Conversion Factors December 31, , December 31, , , (7) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) The main guidelines for the restatement are as follows : - the consolidated financial statements of prior year, including monetary assets and liabilities reported therein, which were previously reported in terms of the measuring unit current at the end of that year are restated in their entirety to the measuring unit current at. - monetary assets and liabilities reported in the consolidated balance sheet as of are not restated because they are already expressed in terms of the monetary unit current at that balance sheet date. - the inflation adjusted share capital was derived by indexing cash contributions, dividends reinvested, transfers from statutory retained earnings and income from sale of investments and property, transferred to share capital from the date they were contributed. - non-monetary assets and liabilities which are not carried at amounts current at the balance sheet date and other components of equity (except for the statutory revaluation adjustment which is eliminated) are restated by applying the relevant conversion factors. - the effect of general inflation on the net monetary position is included in the income statement as monetary gain / (loss). - all items in the income statement are restated by applying appropriate average conversion factors with the exception of depreciation, amortisation, gain or loss on disposal of non-monetary assets (which have been calculated based on the restated gross book values and accumulated depreciation/amortisation). Restatement of balance sheet and income statement items through the use of a general price index and relevant conversion factors does not necessarily mean that the Company and its subsidiaries could realize or settle the same values of assets and liabilities as indicated in the consolidated balance sheets. Similarly, it does not necessarily mean that the Company and its subsidiaries could return or settle the same values of equity to its shareholders. Basis of Consolidation The consolidated financial statements comprise the financial statements of the Company and its subsidiaries drawn up to December 31 each year. Subsidiaries are consolidated from the date on which control is transferred to the Company and cease to be consolidated from the date on which control is transferred out of the Company. The consolidated financial statement include Demir Döküm and its subsidiaries, which it controls. This control is normally evidenced when Demir Döküm owns, either directly or indirectly, more than 50% of the voting rights of a company's share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The equity and net income attributable to minority shareholders' interests are shown separately in the balance sheet and income statement, respectively. Although the Company has 60% participation in Demiladi, it has not been consolidated in the financial statements and stated at cost, due to its operations being immaterial. Eventhough the Company has 45% participation in Chung Mei, as of no equity method of accounting is applied due to the fact that Chung Mei has started operations in (8) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) Intercompany balances and transactions, including intercompany profits and unrealised profits and losses are eliminated. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. As of, consolidated financial statements include the accounts of Demrad, Panel and DD Heating in which the Company has an interest of 99.9%, % and 50.00% respectively. Panel (registered in İstanbul) is engaged in production of panel radiators. Panel is established at November 22, 2001 and started its operations at December 24, Demrad (registered in İstanbul) is engaged in production of cast iron radiator. Demrad is established at July 25, DD Heating (registered in Bedford,UK) is engaged in trading of panel radiators, cast-iron radiators, combi boilers and towel radiators. DD Heating is established on January 1, On January 1, 2003 DD Heating acquired Beko UK shares in Panel which constitute 50% of share capital of Panel. Since Demir Döküm owns 50% of DD Heating, the ownership percentage increased from 50% to 75% in DD Heating. As DD Heating and Panel are under the common control of Demir Döküm, and accordingly, DD Heating and Beko UK are under common control of Koç Holding, the excess of purchase price over the carrying value of the net assets acquired was recorded as a decrease in the equity in the consolidated financial statements. During the consolidation process all significant intercompany transactions and balances are eliminated. Cash and Cash Equivalents For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash on hand, cash in banks, checks readily convertible to known amounts of cash and short-term deposits with an original maturity of three months or less. Cash and cash equivalents are carried at cost plus its interest income accrual. Trade and Other Receivables Trade receivables which generally have day terms, a
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