annual report 2010
Transkript
annual report 2010
‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 ANNUAL REPORT contents Message from the Chairman ………………………………………......................................................................... 1 Agenda of General Assembly Meeting …………………………….............................................………….....….. 3 1. Company ………………………………………………………………………........................................................ 6 1.1 Summary Info ........................................................................................................................................... 6 1.2 Capital and Shareholding Structure ........................................................................................................... 10 1.3 Board of Directors, Auditing Board and Auditing Committee ..................................................................... 11 1.4 Management Organisation ........................................................................................................................ 12 1.5 Management Team ................................................................................................................................... 13 1.6 Historical Background ............................................................................................................................... 15 2. Sector of Operation ………………………………………..………………….……………………………………... 22 2.1 Turkish IT Sector ...................................................................................................................................... 22 2.2 Sub-segments of the IT Sector ................................................................................................................. 27 2.3 Growth of the IT Sector ............................................................................................................................ 35 3. Subsidiaries …………………………………………………………………………………………………………… 42 3.1 Datagate Bilgisayar Malzemeleri Tic. A.fi .................................................................................................. 42 3.2 Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. ........................................................................................................ 43 3.3 Neotech Teknolojik Ürünler Da¤›t›m A.fi. .................................................................................................. 44 3.4 ‹nfin Bilgisayar Ticaret A.fi. ....................................................................................................................... 44 3.5 Teklos Teknoloji Lojistik A.fi. .................................................................................................................... 45 4. Operation …………………………………………………………………………………………………………….... 48 4.1 Structure of Product Supply and Distribution ............................................................................................ 48 4.2 Logistics ................................................................................................................................................... 49 4.3 Invoicing and Payment Collection ............................................................................................................. 49 4.4 Technical Service and Customer Relations ............................................................................................... 49 4.5 Sales and Marketing ................................................................................................................................. 50 5. Corporate Governance Principles Compliance Report ……………………………………………………….... 54 6. Board of Directors' Suggestions on Dividend Distribution ……………..........………………………………... 64 7. Auditing Board’s Report ………………..……………………………………..…………………………………….. 70 8. Independent Auditor’s Report ………………………………………………..………………………………......... 74 9. Financial Statements and Notes ………………………………………………..………………………………...... 78 ANNUAL REPORT Dear Shareholders; Before our activities performed in 2010, and the relevant balance sheet and profit & loss account reflecting the results of these activities, I would like to talk briefly about the latest developments in the global economy and Turkish economy, and the expectations of the IT sector in 2011. After the global crisis in 2008, the world started having slow recovery, and in 2010, the growth rate reached the growth tempo that the sector was having before the global crisis. Although, the growth rates of developing countries contribute lots to global economic recovery, developed countries’economies could not meet the expectation regarding economic recovery. In 2010, the world had 5 % growth with the help of financial supports conducted commonly by EU & IMF and stimulus packages of developing countries. It is essential to say that increasing debt amount with precautions taken may result in problems in EU. Turkish Economy had quite successful year in 2010 with 8,9% growth by means of strong financial structures in public and financial institutions. We estimate 5 % - 6 % growth in 2011 as the strong economic recovery resulted in current account deficit. IT Sector achieved 10% growth in 2010 compared to 2009 and reached 6 billion USD. Individual consumer demand, smart devices, proliferation of internet connection, common campaigns of Telecom Companies, usage of social networking websites have been main drivers in terms of e- government services sector to grow. We consider that Increasing interest for mobile and tablet, increasing demand of individual consumers, proliferation of internet usage with the changes in Turkish Trade Law will contribute the sector growth by 8%-9% in 2011. In 2010, our Company’s turnover reached 1.228.175.766 TRL with an increase of 12.94% comparing to the previous year. Our gross profit has been TRL 74.903.229; and its ratio to sales realized as 6.10%. Operating costs of our Company has increased from 2.25% to 2.34% of the sales, comparing to the previous year. Net income after tax reached 13.171.469 TRL. As the company, we consider investing in IT sector. In this way, we acquired 51 % of Art›m Biliflim ve Da¤›t›m A.fi. that has the contracts of multifarious producers who provides value added solutions in 2011. Nevres Erol B‹LEC‹K Chairman 1 ANNUAL REPORT In 2011, as the company management, we will continue our business understanding, which is focused on profitability, making costeffective analyses, aiming at the realization of the sales budget figures, producing sales policies with a target of customer satisfaction using mobile channel sales teams and prioritizing productivity. I would like to express my gratitude to all who contributed to our success, to our business partners, suppliers, employees, and particularly to our shareholders. Yours Faithfully, Erol B‹LEC‹K Chairman 2 ANNUAL REPORT Agenda of General Assembly Meeting 2010 1. Opening and Election of the Chair of the Meeting, 2. Authorisation of the Chair of Meeting for signing of the Minutes of General Assembly Meeting, 3. Review of the Board of Director's Report, Auditing Board's Report and Independent Auditor's Report prepared by AGD Ba¤›ms›z Denetim ve Dan›flmanl›k S.M.M.M. A.fi. regarding the activities and related accounts of 2010, 4. Review and approval of the Balance Sheet and Profit & Loss Account of 2010, 5. Acquittal of the members of the Board of Directors and Auditing Board in respect of the duties performed during the year 2010, 6. Approval of the appointment of Independent Audit Company, 7. Review and approval of the Board of Directors' suggestion on dividend distribution for the year 2010 and determination of the dividend distribution date, 8. Providing the shareholders with information on “Disclosure Policy” adopted by a resolution of the Company Board in accordance with the Corporate Governance Principles, 9. Determining the remunerations to be paid to the Board Members in 2011, 10. Determination of the remunerations and number of the members of the Auditing Board and election thereof, 11. Wishes and closure. Date of Meeting : 06.05.2011 Time of Meeting : 10:00 Place of Meeting : Ayaza¤a Mah. Cendere Yolu No :9/1 fiiflli / Istanbul - Turkey 3 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 1. COMPANY ANNUAL REPORT 5 ANNUAL REPORT 1. Company 1.1 Highlights • ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi., which was founded in 1989 to operate in the computer field, has became a company distributing about 200 worldwide brands, employing 382 people and cooperating with over 7.500 business partners, holding the leadership position of the sector for a long time. • In the Turkey Top 500 ICT Companies Ranking performed every year by Interpro Medya A.fi., our company ranked 7th (seventh) in the general ranking based on turnover achieved in 2009 among the companies including telephone operators and mobile phone sellers. Our company ranked first in the hardware category with a turnover of 1.020.865 (thousand TRL) among the companies including those above. On the other hand, our Company ranked 1st (first) with a sales revenue of TRL 1.087.422 (thousand TRL), like the previous years, in the category of companies selling only computers. Further, it ranked first in seven IT categories. • ‹ndeks acting as a holding company has 6 affiliates and subsidiaries, each of which operates in different fields of technology products. The following companies are included in the consolidated financial statements of ‹ndeks. The product groups of such companies are shown in the following table: Product Groups by Company INDEKS DATAGATE NETEKS NEOTECH TEKLOS • PC • Notebooks • Printers • Servers • Peripherals • Software • Microprocessor • Hard Disk • Main board • Display Card • Monitor • Optical Products • Server Products • Memory Products • Notebooks • Desktops • Backup Units • Network Products • Accessories • Security Products • Network (Modem-USBAdaptor) products • Laser Printers • Corporate Network Systems • Network Equipment • Structured Cabling • Private Exchange Systems • Network Security Solutions • ADSL and SME Communication Solutions • Consumer Electronics • Communication Equipment • Alternative Electronic Products • Logistics and Transportation Major distributorships undertaken by main product groups are shown below: PC Products APPLE ASUS FUJITSU HP LENOVO LG MSI SONY VAIO TOSHIBA OEM ALPS INTEL IOMEGA KINGSTON LITE-ON NEC PHILIPS SEAGATE VIEWSONIC WD BELKIN SAMSUNG WD FUJITSU Printer & Peripherals Network Products Software Products Household Electronics AIRTIES 3COM IBM APC APPLE ALIED TL LOTUS CANON HITACHI CHECKP. MICROSOFT EPSON LG CISCO NOVELL HP NOKIA HCS SYMANTEC IBM PANASONIC HP TIVOLI OKI SONY PANASONIC NEWBRIDGE VIEWSONIC NORTELL XEROX TREND M. PANDUIT AVAYA IBM ISS Memory and Medium Sized Systems HP IBM LACIE SEAGATE WD 6 ANNUAL REPORT a) Breakdown of Sales: 69% of the Company’s income is derived from the sales of PC and OEM (Original Equipment Manufacturer–computer parts). Breakdown of the Company’s sales is as follows: Breakdown of Sales on Product Category Based OEM 19.72% Communication 5.35% Printer 7.59% Software 3.86% Computer 48.95% Peripherals 2.35% Other Medium Sized 1.61% Systems 2.11% Household Electronics 8.46% b) Major Manufacturers of our Company ‹ndeks Bilgisayar has a wide range of product line, which allows it to reach more number of dealers, with this advantage, to increase its sales above the sector average. Breakdown of the major distributorships undertaken by our Company are shown below: 3 COM CORNING JUNIPER NOVEL TARGUS ACER DELL KINGMAX OKI TIPPING POINT AIR TIES EPSON KINGSTON PANDUIT TOSHIBA AOC FUJITSU SIEMENS LENOVO PANASONIC TREND MICRO APC GENIUS LEXMARK POWERSONIC TRUST APPLE GIGABYTE LG SAMSUNG VERITAS ASUS GKB LINKSYS SAPPHIRE VERITECH AVAYA HCS LITE – ON SEAGATE VESTEL AVOCENT HOMEND MAXTOR SERVER i SERIES WACOM BELKIN HP MICROSOFT SERVER p SERIES WESTERN DIGITAL CABINET IBM MSI SIEMENS XEROX CANON IMATION NEC SONY CHECKPOINT IOMEGA NOKIA SONY VAIO CISCO SYSTEM ISS NORTEL NETWORKS SYMANTEC (*) Trademarks are listed in alphabetic order. c) Changes in the Share Price throughout the Year: ‹NDEKS in ISE: Having held an IPO in June 2004, our company’s shares are traded in Istanbul Stock Exchange (ISE) national market under the code of “INDES”. The ISE-100 index opened at 52.825 in 2010, closed at 66.004 on 31.12.2010 with the increase of 25 %. The lowest level was 48.739 on 25.02.2010 and the highest level was 71.777 on 25.10.2010. The TRL/USD exchange rate opened at 1.4810 at the beginning of the year, had some fluctuations during the year and closed the year at 1.5376 USD valued by 3.8% within the year. The year-end value of 1 share was TRL 2.63, whereas its value was 1,54 at the beginning of the year. According to the closing value on the last transaction day of the year, the value of our Company is TRL 147.280.000. 7 ANNUAL REPORT d) Awards achieved in 2010 Company Date Description Cisco 15.01.2010 Our subsidiary, Neteks A.fi achieved the distributor of the year award organized by Cisco Systems in 2009. This award was given in revenue, business development, common channel and dealers satisfafaction categories. Lenovo 01.02.2010 Indeks achieved the most efficient business partner award which was organized by Lenovo in China in 2009. This award was given in revenue, growth, number of dealers made purchasing from the distributor, financial performance and payment performance categories IBM 12.02.2010 Indeks has been awarded the distributor of the year organized by IBM Turk Ltd in Istanbul. This award was given in revenue, growth, number of dealers made purchasing from the distributor, financial performance and payment performance categories Interpromedya A.fi. 29.06.2010 ‹ndeks Bilgisayar ranked 7th among the Turkey Top 500 ICT Companies with its sales income of TRL 1.087.422 in the turnover-based general ranking as determined by Interpromedya A.fi. In the analysis of the general ranking results, ‹ndeks Bilgisayar ranked 1st, as the previous years, among the companies dealing with computer trade only. Further, it ranked first in six different ICT categories. These are Personal computer, Mobile, Printing systems, data back up and storage, monitor, operating systems and B2B E-Trade. Further, Datagate Bilgisayar Malzemeleri Tic. A.fi., which is a 59% subsidiary of ‹ndeks Bilgisayar, ranked first in the category of “OEM (computer parts)” incomes and Neteks ‹letiflim Da¤›t›m Ürünleri A.fi., which is a 50% subsidiary of ‹ndeks Bilgisayar, ranked first in the category of “Data Communication Hardware”. 8 ANNUAL REPORT e) Distributorships Undertaken in 2010: Al›nan Ödül Company Tarih Date Aç›klama Description Turkish Telecom 17.03.2010 Our logistic company called Teklos A.fi. achieved the contract of Turkish Telecom for storage and distribution of the products which will be provided to the customers of Turkish Telecom. Canon Eurasia Ltd. 22.12.2010 Our subsidiary Neotech A.fi. has started negotiations with Canon Eurasia Ltd for the distribution of cameras, video camcorders products and their accessories in Turkey as Canon is one of the biggest producer of these types of products in the world. 9 ANNUAL REPORT f) Data on Financial Structure: LIQUIDITY RATIOS 31.12.2010 31.12.2009 Current Ratio 1,24 1.30 Liquidity Ratio 0,93 0.85 OPERATING RATIOS (*) 31.12.2010 31.12.2009 Receivables Turnover 69 61 Payables Turnover 86 74 Inventory Turnover 37 31 PROFITABILITY RATIOS 31.12.2010 31.12.2009 Gross Profit Margin 6,10 % 5.91 % Operating Profit Margin 3,76 % 3.66 % Net Profit Margin 1,07 % 1.47 % Profit Before Tax Margin 1,51 % 2.06 % FINANCIAL STRUCTURE RATIOS 31.12.2010 31.12.2009 Shareholders’ Equity / Total Liabilities & Shareholders’ Equity 22 % 26 % Short Term Liabilities / Total Liabilities & Shareholders’ Equity 76 % 71 % Long Term Liabilities / Total Liabilities & Shareholders’ Equity 2% 3% Financial Debts / Total Liabilities 5% 10 % (*) The figures in quarterly financial accounts have been taken into consideration in the calculation of the averages. 1.2 Capital and Shareholding Structure As of 31.12.2010, the shareholding structure of our Company is as follows: Shareholder's Name Country Shares % Number of Shares Amount of Shares Nevres Erol Bilecik T.C. %38,63 21.634.440 21.634.440 Ayfle ‹nci Bilecik T.C. %2,37 1.325.558 1.325.558 Yunanistan %35,56 19.911.119 19.911.119 Public Offer T.C. %23,44 13.126.987 13.126.987 Other T.C. %0,00 1.896 1.896 56.000.000 56.000.000 Pouliadis ana Associates S.A.(*) TOTAL (*) Voting rights of the shares of Pouliadis and Associates S.A. were given to 5 Greek banks. 10 ANNUAL REPORT Capital Increase throughout the Year: The upper limit of authorized capital of our Company was determined as TRL 75.000.000 and its share capital issued as of 31.12.2009 is TRL 56.000.000. Covering the all maximum authorized capital, i.e. TRL 75.000.000, from the profit of 2006, an application is made to Capital Markets Board (CBM) of Turkey for issuing shares with nominal value of TRL 1.000.000 for the capital increase from TRL 55.000.000 to TRL 56.000.000 and the application was approved with the resolution of CBM with no. 25/699 of 28.06.2007. The capital increase was registered on 10.07.2007 and announced on the Turkish Trade Register Gazette with no. 6852 of 16 July 2007. Our company’s capital of TRL 56.000.000 is composed of Group A registered shares in value of TRL 318,18 and Group B bearer shares TRL 55.999.681,82. Group A shareholders are authorised to determine half plus one of the board members and to receive 5% of the remaining profit after the first issue reserve funds and first dividend. 1.3 Board of Directors, Auditing Board, Auditing Committee and Corporate Governance Committee Board Members In the General Assembly held on 25.05.2009, Members of the Board of Directors were elected for duration of three years, and their duties and powers were determined pursuant to the Company's Articles of Association and the relevant provisions of the Turkish Commercial Code. Resolutions of the General Assembly were published in the Turkish Trade Register Gazette with no. 7336 of 19 June 2009. Name & Surname Title Term of Office Nevres Erol Bilecik Chairman 3 years Salih Bafl Deputy Chairman 3 years Atilla Kayal›o¤lu Board Member 3 years Ayfle ‹nci Bilecik Board Member 3 years Halil Duman Board Member 3 years Members of the Auditing Board Name & Surname Title Term of Office Veli Tan Kirtifl Auditor 1 year Haluk fien Auditor 1 year Members of the Auditing Committee Name & Surname Title Term of Office Salih Bafl Committee Member 3 years Ayfle ‹nci Bilecik Committee Member 3 years Corporate Governance Committee Name & Surname Title Term of Office Salih Bafl Chairmen of the Committee 3 years Ayfle ‹nci Bilecik Committee Member 3 years Halil Duman Committee Member 3 years 11 ANNUAL REPORT 1.4 Organisation Chart: Organisation chart of the company is given below: Erol B‹LEC‹K Chairman of the Board Tayfun Y‹⁄‹T Technology Development Manager Naim SARAÇ Internal Audit Manager Atilla KAYALIO⁄LU General Manager Business Unit Management Sales Management Halil DUMAN Assistant General Manager Product Management Product Management Accounting Retail Finance Non-Retail Logistics Software Customer Services Elektronic Sales Import Medium Sized Systems Human Resources Ankara ‹zmir 12 ANNUAL REPORT 1.5. Board of Directors The Board of Directors of the company consists of five members. Curriculum Vitae of the board members are given below. Nevres Erol Bilecik, Chairman of the Board of Directors: Erol Bilecik was born in 1962 and graduated from Istanbul Technical University, Department of Computer Engineering. Erol Bilecik, who established ‹ndeks A.fi. in 1989, acts as the chairman of the following subsidiaries of Index, besides our company: Despec Bilgisayar Pazarlama ve Ticaret A.fi., Datagate Bilgisayar Malzemeleri Ticaret A.fi., Neteks ‹letiflim Ürünleri Da¤›t›m A.fi., Neotech Teknolojik Ürünler Da¤›t›m A.fi., Desbil Teknolojik Ürünler Ticaret Afi., Homend Elektrikli Cihazlar San. Ve Ticaret Afi., ‹nfin Bilgisayar Ticaret A.fi. and Teklos Teknoloji Lojistik Hizmetleri Afi. Moreover, between the years 2002 and 2005, he presided TUBISAD (Turkish Informatics Industry Association) established in 1974, the oldest civil society organisation in the ICT sector, members of which are companies realising 95% of the total transaction volume of the Turkish ICT sector. Erol Bilecik is married with two children and speaks English. Salih Bafl, Deputy Chairman: Salih Bafl was born in 1965, and graduated from Anadolu University, Department of Business Administration. He has been working for Index Group since 1990. In 2003, while he was acting as the Assistant General Manager Finance & Accounting for ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi., he was appointed as the General Manager and Vice Chairman of the Board of Directors of Datagate Bilgisayar Malzemeleri Ticaret A.fi.. He curren acts as the Deputy Chairman for the companies, ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret Afi., Teklos Teknoloji Lojistik Hizmetleri Afi., Homend Elektrikli Cihazlar San. Ve Ticaret Afi., ‹nfin Bilgisayar Ticaret A.fi. and Desbil Teknolojik Ürünler Ticaret A.fi., and as one of the members of the Board of Directors for the companies Despec Bilgisayar Pazarlama ve Ticaret Afi., Neotech Teknolojik Ürünler Da¤›t›m A.fi. and Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. Salih Bafl is married with one child and speaks English. Atilla Kayal›o¤lu, General Manager, Board Member: Atilla Kayal›o¤lu was born in 1952, and graduated from Bo¤aziçi University, Department of Mechanical Engineering in 1974; following that he received a masters degree from Syracuse University, Department of Industrial Engineering. He carried out several duties in IBM Turk between the years 1980-1999; and in 1999, when he was the Global Services Manager he left IBM Turk and joined Index. Kayal›o¤lu acts as a Board Member and General Manager of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi.; he also acts as a Board Member of the companies of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi., Datagate Bilgisayar Malzemeleri Ticaret Afi., ‹nfin Bilgisayar Ticaret A.fi. and Teklos Teknoloji Lojistik Hizmetleri Afi.. Atilla Kayal›o¤lu is married with two children and speaks English. Ayfle ‹nci Bilecik, Board Member, Computer Engineer: Ayfle ‹nci Bilecik was born in 1964 and graduated from Istanbul Technical University, Department of Computer Engineering. She also acts as a Board Member of Desbil Teknolojik Ürünler Ticaret A.fi., being a subsidiary of Index. Being one of the founding partners of ‹ndeks Bilgisayar founded in 1989, Ayfle ‹nci Bilecik used to work as an engineer specialized in software in the ICT sector for long years. Ayfle ‹nci Bilecik is married with two children and speaks English. Halil Duman, Board Member: Halil Duman was born in 1965, and graduated from Marmara University, Department of Business Administration. He carried out several duties in Yücelen ‹nflaat A.fi. between the years 1987 and 2000; and in 2000, when he was the Manager of Finance, he left Yücelen ‹nflaat and joined Index as Finance Director. Duman acts as a member of the Board of Directors of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi., and also acts as a Board Member of Datagate Bilgisayar Malzemeleri Ticaret Afi., Neteks ‹letiflim Ürünleri Da¤›t›m Afi., Teklos Teknoloji Lojistik Hizmetleri Afi., Neotech Teknolojik Ürünler Da¤›t›m Afi., Despec Bilgisayar Pazarlama ve Ticaret Afi., Desbil Teknolojik Ürünler Ticaret A.fi. Homend Elektrikli Cihazlar San. ve Ticaret Afi., ‹nfin Bilgisayar Ticaret A.fi. ve Alk›m Bilgisayar Afi, and acts as Assistant General Manager - Finance of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi. Halil Duman is married with two children. 13 ANNUAL REPORT Names and titles of executives are as follows: Board Member - General Manager Atilla KAYALIO⁄LU akayalioglu@index.com.tr Board Member – Asst. General Manager Halil DUMAN hduman@index.com.tr Internal Audit Manager Naim SARAÇ nsarac@index.com.tr Technology Development Manager Tayfun Y‹⁄‹T tyigit@index.com.tr Finance Manager Birgül ÖZTÜRK bozturk@index.com.tr Accounting Manager Halim ÇA⁄LAYAN hcaglayan@index.com.tr Customer Services and Logistics Dept. Manager Çetin EK‹NC‹ cekinci@index.com.tr IT Manager Erkan BERBER eberber@index.com.tr Import Manager Canan Koç RANA ckoc@index.com.tr Administrative Affairs Manager Selahattin GÜL sgul@index.com.tr Ankara District Manager Özcan AKDEN‹Z oakdeniz@index.com.tr ‹zmir District Manager Osman fiAH‹N osahin@index.com.tr Marketing and Communication Manager Özen BOZÇA⁄A BEZ‹RC‹ obezirci@index.com.tr Group Sales Manager Mahmut ÖLÇER molcer@index.com.tr Retail Channel Sales Manager Atilla ALKAfi aalkas @index.com.tr Electronic Sales and Marketing Manager Korkut YILDIRIM kyildirim@index.com.tr IBM e server Software Manager ‹lker SALTO⁄LU isaltoglu@index.com.tr OEM Sales Manager Elif fiEN esen@index.com.tr HP Business Unit Manager Ebru KOÇO⁄LU ekocoglu@index.com.tr Microsoft IBM and Lenovo Sales Manager Sedat AZ‹ZO⁄LU sazizoglu@index.com.tr Asus, Dell, Toshiba, Canon Business Unit Manager Yeliz ÖZCAN yozcan@index.com.tr 14 ANNUAL REPORT 1.6 Historical Background 2010 Foto & Video 2009 2008 2007 787 Million $ Revenue 2006 630 Million $ Revenue 2005 563 Million $ Revenue 2004 431 Million $ Revenue Public Offer 2003 2002 2001 2000 163 Million $ Revenue 1999 105 Million $ Revenue IBM POS 1998 1997 51 Million $ Revenue 1996 PC Distribütör 1995 1994 1993 5 Million $ Revenue Consumables 1992 1991 1990 15 Business Partner NIXDORF AS400 Kingston ANNUAL REPORT ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi. was founded on 10.07.1989 to operate in the computer sector. The Company was transformed into a joint stock company in April 2000. The headquarters of the Company, in which Greece-based Pouliadis Group participated in August 2000, is in Istanbul. The Company operates in the Information Technologies (“IT”) sector and deals with the purchase, sales, technical and software support of computers, computer supplies and data transmission equipment. The Company made a distributorship agreement with 3M, being an American company operating in Turkey, for 3M magnetic medium products in 1989. The Company increased its market share in the 3M magnetic products market from 1,2% to 55% in one year. It achieved a turnover of 875 thousand USD with only a staff of 6 in 1989. In the next year, in 1990, it made a turnover of 1.380 thousand USD with a staff of 19. It ranked 82nd among the Turkish IT companies in 1990. In 1991 it made a contract with the Italian company named Olivetti to act as the “Authorised Seller” of Olivetti PC products. In the same year, it increased the number of staff to 36 and made a turnover of 2.188 thousand USD in 1991. It ranked 45th, rising 37 steps in the ranking of the Turkish IT companies. The Company set up Ankara branch as its first branch in 1992 and started more permanent activities in the Central Anatolia Region. In 1992 the number of its staff increased to 49 and its turnover to 3.7 million USD. It ranked 30th, rising 15 steps in the ranking of the Turkish IT companies, in 1992. It climbed to the rank of 20th among the Turkish IT companies with its turnover of 9.2 million USD and staff of 56 in 1993. In 1994, it has become the Turkish Distributor of HP consumables, APC Uninterrupted Power Supplies and Siemens Nixdorf PC products. Then, it became the 19th biggest IT company of the Turkish market. In 1994 it achieved a turnover of 11.3 million USD with its staff of 61. It founded its ‹zmir branch in April 1995 and signed “Business Partner” contract with IBM in May. Just in the second half of the same year, i.e. at the end of 1995, it was granted “IBM PC Business Partner Award” by IBM due to its achievements as a business partner. With its significant ‘channel’ activities in the same year, ‹ndeks won “The Most Active Distributor Award” of INTERPRO, which is considered valuable by the sector. It achieved a turnover of 15.9 million USD with its staff of 62 in 1995. Thereafter, it has become the 16th biggest IT Company in the sector. In 1996, IBM changed the distribution model in PC sales organization and adopted the “distributorship” model. Thus, ‹NDEKS has become the first Turkish company that made a distributorship contract with IBM. It made 4.127 units of IBM PC in 8 days in April of the same year, which was first in the market. By the end of year, ‹ndeks reached the turnover of 38.7 million USD with a staff of 70 and ranked 9th by climbing 7 steps more in the ranking of the Turkish IT companies. It was deserved to receive the tiTRLe of “The Most Active Computer Company” once more in 1996, just like in 1995. In 1997, ‹ndeks has become the 8th biggest IT Company in Turkey, with a turnover of 58.6 million USD and a staff of 75. The Company made a distributorship agreement for Lotus & IBM Software products, thereby starting distribution of software in 1998. In the same year, it made a distributorship agreement with HP A.fi. for distribution of hardware products. In the same year, it made a new agreement with IBM and became the distributor of AS/400, being one of the most important value-added products of Turkey. Towards the end of that year, ‹ndeks made a distributorship agreement with Kingston. In 1998, the Company won “The Most Active IT Company Award” again after 1995 and 1996 and became the only IT company that achieved to win the same award third times. In November 1998, the “Supplies Department” of ‹ndeks Bilgisayar was reorganised as an independent company and became “DESPEC Türkiye” with a joint investment with Von Dorp Despec Group, which was the “Number 1” in its field in Europe. With its turnover of 89.4 million USD with a staff of 131 in 1998, ‹ndeks climbed another 2 steps in the ranking of Turkish IT ranking and became the 6th Biggest Turkish IT Company. In 1999, ‹ndeks made distributorship agreements with many significant products such as Cisco, Microsoft, Xerox, IBM Pos and Escort; and its “logistics centre” started operations in June of the same year. “‹ndeks Logistics Centre”, which is situated on an area of 2,500 sqm and equipped with highly functional technology, was one of the most important investments of ‹ndeks in canal. The Company reached the turnover of 111 million USD with a staff of 155 in 1999. On 12 April 2000, the company transformed from a Limited Liability Company into a Joint Stock Company. In August 2000, Pouliadis and Associate Societe Anonyme Industrial and Commercial of High Technology Systems S.A. ('Pouliadis S.A.') acquired 50% of ‹NDEKS Bilgisayar which thereby became a company with foreign shareholder. In the same year, ‹ndeks made an agreement for distributorship of Epson products and added Epson products to its increasingly growing range of products. ‹ndeks Bilgisayar achieved a turnover of 163 million USD by the end of 2000. 16 ANNUAL REPORT In 2001, the Company made a distributorship agreement with COMPAQ. With this agreement, ‹NDEKS blazed a trail being the only distributor dealing with IBM, HP and COMPAQ PC products. In the same year, ‹ndeks also made distributorship agreements for Novel, Sony and Microsoft OEM products. The Company continued its investments in spite of the economic crisis in 2001 and in March of the same year, it acquired 50.5% of Datagate Bilgisayar Malzemeleri Ticaret Afi. (DATAGATE), which is a leading company in Computer parts/OEM sector, thereby boosting the morale of the sector. In the same period, it acquired 70% of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. (NETEKS) , which is one of the highly experienced distribution companies in network, and continued its growth in spite of the crisis. In the Turkey Top 500 ICT Companies Ranking performed by Interpro Medya A.fi. in 2001, our company ranked 1st in the category of “IT Hardware Incomes”, 2nd in the category of “Turkish IT Companies” and 11th in the general ranging of the ICT Sector. In 2002, Oki printers and Toshiba notebook and server products were included in the ‹ndeks range of products. In July 2002, all companies of the group relocated to its current three-storey building with an indoor area of 10.000 sqm in the address of Cendere Yolu, No: 23 Ka¤›thane. The turnover of the Company in 2002 was 189 million USD. Products with Fujitsu Siemens and Nec brands were added to the product portfolio of the Company in 2003. Further, the share of ‹ndeks in DATAGATE, of which 50.5% shares were acquired by ‹ndeks in 2001, thereby being an affiliate of the Company, was increased to 85%. The consolidated turnover of the Company was realized as 323 million USD as of the end of 2003. 15.34% of the ‹ndeks Bilgisayar shares was offered to public on ISE via a capital increase through rights issue after restricting the execution of pre-emptive rights of existing shareholders, on 24.06.2004. The Company made distributorship contracts with Kingmax and Asus for memory and barebone products, respectively, in 2004 and started to distribute such products. In the same year, ‹ndeks Bilgisayar A.fi. was awarded ISO 9001:2000 certificate. On 02.02.2005, in accordance with the resolution of the Board of Directors dated 02.02.2005, ‹ndeks acquired 80% of Neotech Teknolojik Ürünler Da¤›t›m Anonim fiirketi for wholesale trade of consumer electronics and communication products as a new field of operation of the Company. In March 2005, the Registered Capital System was adopted, and its maximum registered capital was approved as TRL 75.000.000. In May 2005, the issued capital of ‹ndeks was increased from TRL 17.600.000 to 45.000.000. In September 2005, the Company made an exclusive distributorship agreement with TPV Technology Limited, which manufactures 19,5% of the monitors in the global market and has realised a turnover of 4 billion USD in 2004, for distribution of AOC branded LCD, CRT Monitor, Plasma Monitor and LCD TV products in Turkey. According to the Top 500 Turkish ICT Companies report issued by Interpro on 27.05.2005 for 2004, our Company ranked 1st in the categories of Notebooks, Desktop PCs, Print Systems, Servers, Data Backup and Storage Units, Office Software and OEM and 8th in the turnover-based general ranking of Turkey, in which Turk Telekom ranked 1st. With these results, ‹ndeks Bilgisayar achieved to be the only local computer company in the Top Ten. In February 2006, 30.30% of the shares of the second biggest company of the group and a subsidiary of ‹ndeks Bilgisayar, namely Datagate Bilgisayar Malzemeleri Ticaret A.fi., was offered to public in February 2006. of was offered to public on ISE via a capital increase through rights issue after restricting the execution of pre-emptive rights of existing shareholders. Began to be traded on ISE on 10.02.2006 Thus, 2 companies of the group have been offered to public and begun to be traded on ISE. Partnership share of ‹ndeks Bilgisayar decreased from 85% to 59.2% with the public offering of Datagate. The issued capital of ‹ndeks Bilgisayar was increased from TRL 45.000.000 to TRL 55.000.000 in May 2006. TRL 8.718.703 out of the amount of increase, i.e. TRL 10.000.000, is covered from the profit of the period of 2005 and the remaining TRL 1.281.297 from extraordinary reserves. ‹ndeks has executed one of the most important and greatest investments in ICT sector by purchasing Karadeniz Orme A.S., which is founded on a 39.761 m2 land and having 18.969 m2 indoor area, in order to be used as a logistics centre. The trade name of Karadeniz Orme AS has been changed into Teklos Teknoloji Lojistik Hizmetler A.fi. and its field of activity has been customized to be able to work on the logistics services. The head office of the company moved to its new location on 26.10.2006. EVOS (Effective Efficient Operational Result-Oriented) ERP System developed by ‹ndeks A.fi. in 2006 was started to be used by ‹ndeks Group Companies on 01.01.2007. EVOS Project was developed by the Software Engineers Group of ‹ndeks A.fi. within a period of 9 months. Our Company and its subsidiaries included in the consolidated financial statements made distributorship agreements with Canon for printer, fax and scanner products, with Western Digital Corporation for hard disk products, with Panasonic for consumer electronics, with Viewsonic for monitor products and with Sony Vaio for notebook products. According to the 2005 Turkey Top 500 ICT Companies report issued Interpro in 2006, ‹ndeks Bilgisayar, with its turnover of 758.634 (thousand TRL), again ranked 1st in the category of companies selling only computers, like in 2004. With this result, the Company kept its special place as the only local computer company in the Top Ten. Moreover, it was ranked the biggest company in the category of markets with respect to the incomes from Server, Print Systems, OEM, Operating System, Office Software and E-Trade sales. 17 ANNUAL REPORT ‹ndeks Bilgisayar and its subsidiaries made distributorship contracts with Philips for monitors and PC peripherals, Asus for notebook products, Apple IMC for Apple brand products, Trend Micro for software products for internet security and viruses, Nokia for E-series products, LG Electronics for notebook products in 2007. The issued capital of the Company was increased from TRL 55.000.000 to TRL 56.000.000 in July 2007. The amount of increase, i.e. TRL 1.000.000, is covered from the profit of the period of 2006. On 24.07.2007, ‹ndeks Bilgisayar and its subsidiary Datagate Bilgisayar A.fi sold 50% of their shares in Neteks ‹letiflim Ürünleri Da¤›t›m A.fi., an affiliate of ‹ndeks Bilgisayar, to Westcon Group Eurepean Operation Limited, one of the leading global companies in its field. Of the 50% shares sold, 26% and 24% were provided by ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi and Datagate Bilgisayar Malzemeleri Ticaret A.fi., respectively. Following such sale, Neteks become a JV of which shares are held by ‹ndeks Bilgisayar A.fi. and Westcon Group on 50%-50% basis. It was the first time that with this agreement, Westcon Group made an investment in Turkey under a partnership; until then, it was operating only with its fully owned subsidiaries in 19 countries around the world. According to the 2007 Turkey Top 500 ICT Companies Ranking performed by Interpro Medya A.fi., our company ranked seventh, one step higher than the previous year, in the general ranking based on turnover achieved in 2006 among the companies including telephone operators and mobile phone sellers. On the other hand, it ranked first with its sales income of 901.778 (thousand TRL), like the previous years, in the category of companies selling only computers. Further, it ranked first in nine ICT categories. The categories in which ‹ndeks Bilgisayar ranked first are the Portable computer wholesale trader and distributor, Data backup and storage hardware, Server, Print systems wholesale trader and distributor, Data communication hardware, OEM products, Operating system, Office software wholesale trader and distributor and E-trade. In 2008, ‹ndeks Bilgisayar made a distributorship agreement with LG, which is one of the most valuable brands of the world, for notebooks, consumer products and monitors and with Asustek for Asus branded server products. In the same year, Neotech, being a subsidiary of ‹ndeks Bilgisayar, and Datagate were appointed as the distributors of Wacom and Belkin products, respectively. Our Company ranked sixth, one step higher than the previous year, in the general ranking based on sales made in 2007 among the first 500 ICT companies including telephone operators and mobile phone sellers in Turkey. On the other hand, our Company ranked 1st with a sales revenue of TRL 1.022.919 thousand TRL, like the previous years, in the category of companies selling only computers. Further, it ranked first in eight ICT categories. In 2009, ‹ndeks Bilgisayar made distributorship agreements with Iomega and Dell and a supply contract with Best Buy. The contracts made by Neotech A.fi., a subsidiary of ‹ndeks Bilgisayar, for Apple and Airties products were transferred to ‹ndeks Bilgisayar as a result of the segment adjustments in this year. In the same period, Neteks, a 50% affiliate of ‹ndeks Bilgisayar, made distributorship agreements with Juniper, IBM ISS and Avaya. On the other hand, Datagate A.fi. made a distributorship agreement with Fujitsu Siemens. ‹ndeks Bilgisayar ranked 7th among the Turkey Top 500 ICT Companies with its sales income of 927.893 thousand TRL in the turnover-based general ranking as determined by Interpromedya A.fi. In the analysis of the general ranking results, ‹ndeks Bilgisayar ranked 1st, as the previous years, among the companies dealing with computer trade only. Further, it ranked first in six ICT categories. Further, Datagate Bilgisayar Malzemeleri Tic. A.fi., which is a 59% subsidiary of ‹ndeks Bilgisayar, ranked first in the category of “OEM (computer parts)” incomes and Neteks ‹letiflim Da¤›t›m Ürünleri A.fi., which is a 50% subsidiary of ‹ndeks Bilgisayar, ranked first in the category of “Data Communication Hardware”. In 2010, our logistic company called Teklos A.fi. achieved the contract of Turkish Telecom for storage and distribution of the products which will be provided to the customers of Turkish Telecom. ‹ndeks Bilgisayar ranked 7th among the Turkey Top 500 ICT Companies with its sales income of TRL 1.087.422 in the turnover-based general ranking as determined by Interpromedya A.fi. In the analysis of the general ranking results, ‹ndeks Bilgisayar ranked 1st, as the previous years, among the companies dealing with computer trade only. Further, it ranked first in six different ICT categories. These are Personal computer, Mobile, Printing systems, data back up and storage, monitor, operating systems and B2B E-Trade. Further, Datagate Bilgisayar Malzemeleri Tic. A.fi., which is a 59% subsidiary of ‹ndeks Bilgisayar, ranked first in the category of “OEM (computer parts)” incomes and Neteks ‹letiflim Da¤›t›m Ürünleri A.fi., which is a 50% subsidiary of ‹ndeks Bilgisayar, ranked first in the category of “Data Communication Hardware”. Furthermore, Indeks has started negotiations with Canon Eurasia Ltd for the distribution of cameras, video camcorders products and their accessories in Turkey as Canon is one of the biggest producer of these types of products in the world. Our subsidiary, Neteks A.fi achieved the distributor of the year award organized by Cisco Systems in 2009. Indeks achieved the most efficient business partner award which was organized by Lenovo in China in 2009. In addition, Indeks has been awarded the distributor of the year organized by IBM Turk Ltd in Istanbul. 18 ANNUAL REPORT 19 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 2. SECTOR OF OPERATION ANNUAL REPORT 21 ANNUAL REPORT 2. Sector of Operation 2.1 IT Sector 2.1.1 Turkish IT Sector The usage of computers in Turkey started in the end of the 1980’s. Although there was a very rapid development in the sector between the years of 1990 and 1995, usage of computers were limited to mostly financial sector, governmental units, big businesses and universities. In the second half of the 1990’s, the increase in the usage of computers made the IT sector one of the most rapidly growing sectors in Turkey. According to the data issued by International Data Corporation (“IDC”), the Turkish Information and Communication Technologies (“IT”) sector achieved a compound annual growth rate (“CAGR”) of 20% between 1997 and 2000. In 2000, the Turkish IT sector has reached its greatest business volume thus far with 2.3 billion USD, whereas that figure reduced to 1.2 billion USD with 49% recession in 2001 because of the economical crisis that was encountered in the end of 2000 and the postponement of the demand of IT investments by public and private sectors. The figures achieved in 2000 were again caught only in 2004, with a business volume of 2.4 million USD. In other words, it took 4 years to eliminate the effects of the crises. However, one should also consider that one of the causes of the shrinkage of the business volume was the continuously price reduction of products, which is the structural feature of the IT Industry. As a consequence of the realization of the postponed IT investments especially in the private sector in parallel with the improvement in the macroeconomic indicators after 2001, the IT sector continued its growth with a compound annual growth rate (“CAGR”) of 27.9% between 2001 and 2007, which is higher than the growth rates in the period before the crisis. Particularly the increasing usage of internet in the recent years has made a great contribution to this development. With the contribution of the increasing interest and the continuing investments in the market for notebooks, Turkish IT Sector reached the value of 5.2 billion USD in 2007. However, in despite of the negative pressure of the global economic shrinkage on the consumption tendency and the appreciation of USD against TRL, contrary to the previous crisis periods, the Turkish IT Sector did not shrink, but has reached 5.3 billion USD in 2009. The contribution of tax stimulus packages of the government during 6 months cannot be underestimated for this growth. According to IDC’s research, IT market achieved growth from 2009 to 2010 with 10,7 %. Turkish IT Market Business Volume (Mio $) 9.665 10.000 CAGR(09-14): %12.5 9.000 50% 7.688 8.000 60% 8.767 6.910 7.000 (Mio USD) 5.361 5.000 30% 4.000 (% Growth) 40% 5.937 6.000 20% 3.000 2.000 10% 1.000 0% 0 2009 2010 2011F IT Sector Business Volume 2012F 2013F 2014F % Growth Source: IDC 2011 22 ANNUAL REPORT According to the 2011 Turkey IT Expenditures Research conducted by IDC, the Turkish IT market is expected to have a 12.5% compound annual growth rate (CAGR) in the period between 2009 and 2014, reaching 9.7 billion USD in 2014. IT investment demands deferred in the 2001 crisis period have been started to be realized with the appearance of the increasing stable outlook of the economy and these investment expenditures have been one of the most powerful dynamics of the market in the first 5 years following 2001. New investments that increased after merger and acquisition operations in all sectors, beginning in the finance and telecommunication sectors and spread to other sectors from 2005 on, technology replacement investments, increased IT investment made by the government as part of e-government projects, increase in the internet usage rates and finally, in the number of the users who follow up the rapidly developing technology became the driving forces of the market between 2005 and 2008. Although the first quarter of 2008 started very favourably, the sector started to lose its strength due to the suit brought to close AKP, a slowdown was experienced in the third quarter when not so many negative results were observed. However, with the last quarter, the sector was affected by the global financial crisis that started at the beginning of October, and thus, the quarter was closed with a double-digit shrinkage. 2009 was experienced as a year when the wounds of the crisis were bandaged; the effects of the crisis in the first quarter diminished with the effect of the VAT cut applied for 6 months, including the second and third quarters, and positive growth was recorded in the fourth quarter. In 2010, IT sector achieved quite gradual growth after constitutional referendum particularly static summer season. Turkey has been one of the major developing countries due to the improving general economic conditions, increased per capita income and steps taken for globalization. In addition to highly qualified and cost effective human resources, majority of the young population is contributing to the attractiveness of our country. When the pressure of the diminished consumption tendency on the IT Market due to the crisis in 2008-2009 decreased, it is estimated that the IT sector will grow by 16.4 comparing to the previous year and with such growth, the sector will reach 6.9 billion USD by the end of 2011. On the other hand, if the share of the end-users in the market is monitored in the period between 1995 and 2009, it would be clearly seen that the market structure has changed considerably. Accordingly, the IT market comprised governmental and public bodies (38%), finance sector companies (30%), private sector companies (20%), individual users (7%) and SMEs (5%) in 1995. However, the shares of government and public sector companies, finance sector companies and private sector companies in the market decreased while those of individual users and SMEs increased in the period between 1995 and 2009. As a result, as of 2010, the Turkish IT market comprises 40% individual users, 17% government and public sector companies, 16% private sector companies, 13% finance sector companies and 14% SMEs. Changes in the Market Share of End Users 2011F 18% 11% 2010 17% 13% 2009 18% 14% 2008 20% 2005 16% 10% 40% 35% 25% 35% 20% 38% 12% 25% 38% 0% 42% 14% 18% 25% 1995 14% 14% 16% 15% 22% 2000 15% 10% 23% 30% 30% 40% 18% 50% 7% 20% 60% 70% 10% 5% 80% 90% 7% 100% 1995 2000 2005 2008 2009 2010 2011T Public Institutions 38% 25% 22% 20% 18% 17% 18% Finance Sector 30% 35% 25% 15% 14% 13% 11% Private Sector (Corporate) 20% 23% 25% 18% 16% 16% 15% SME 5% 7% 10% 12% 14% 14% 14% Individiual Users 7% 10% 18% 35% 38% 40% 42% Source: IDC 2011 According to the 2009 report of ITU (International Telecommunication Union) on the basis of 2007 data, the rate of PC ownership per household is 70% in the USA, 75% in England, 79% in Germany, 40% in Greece, 53% in Italy, 21% in Brazil and 29% in Turkey. The rate of internet users is 62% in the USA, 67% in England, 71% in Germany, 25% in Greece, 43% in Italy, 15% in Brazil and 19% in Turkey. 23 ANNUAL REPORT It is estimated that the rate of the number of PC in operating status to the total population has increased from 8% to 27% in the period between 1995 and end of 2010, and that the rate of the internet users to the total population has increased from 10% to 37% in the same period. This indicates that PC ownership and internet usage rates increased over 3 times in the last 15 years. PC ownership and internet usage rates have increased by 67% and 40%, respectively in the last 5 years. Comparing to the country data published by ITU above, it is clear that Turkey is far below the developed countries with respect to the PC ownership and internet users rate and that there is a long distance to be covered in this field. The PC and internet penetration in Turkey between 1995 and 2010 has developed as shown in the following graphics. 40% 60% 50% 50% 35% 30% 30% 40% 40% 27% 37% 30% 20% 25% 15% 20% 12% 10% 15% 8% 10% 0% 1995 2000 2005 PC Penetration 2010 2011 2012F 0% 10% 1995 2000 2005 2010 2011T 2012F Internet Penetration Source: IDC 2011 According to the results of “Households IT Usage Research” published by the Turkish Statistical Institute (TÜ‹K) in April 2010, the PC and internet usage rates of individuals are 40.1% and 38.1%, respectively. The survey indicates that computer and internet usage rates of people between 16 and 74 ages are 50.5% and 48.6% for men and 30.0% and 28.0% for women, respectively. The age group in which the rate of computer and internet usage is highest is 16-24.These rates are higher in men than women in all age groups. By educational level, the population who use the computer and internet most are graduates of first degree and higher education levels. 11.8% of people place order for or purchase goods or service for personal use via internet. According to the report results, PC and internet usage rates have increased by 8% and 9%, respectively in the period between 2009 and 2010. Another interesting feature of the report is that although the computer and internet usage rate of the rural population is lower than the urban population, the computer and internet usage rates increased by 16% and 15%, respectively, in the rural areas. Although the increasing rate is pleasing, it is clear that the computer and internet usage rate in the urban areas is over 2 times higher than the rural areas. 24 ANNUAL REPORT Comparison of computer and internet usage on area based (rural & urban) (%) (2009-2010) Computer usage rate 2009 Computer and internet users In the last there months Between three months and one year Over one year Never used Change 2010 Internet usage rate Change % 2009 2010 % 41,64 9% Turkey 40,11 43,18 8% 38,14 Urban 47,70 50,61 6% 45,52 49,23 8% Rural 22,16 25,60 16% 20,68 23,69 15% Turkey 35,60 39,08 10% 33,97 37,58 11% Urban 42,60 46,28 9% 40,87 44,72 9% Rural 19,02 22,04 16% 17,64 20,67 17% Turkey 2,29 1,94 -15% 2,43 2,24 -8% Urban 2,77 2,12 -23% 2,78 2,57 -7% Rural 1,14 1,50 32% 1,59 1,46 -8% Turkey 2,23 2,17 -3% 1,75 1,82 4% Urban 2,33 2,21 -5% 1,87 1,93 3% Rural 2,00 2,06 3% 1,46 1,57 7% Turkey 59,89 56,82 -5% 61,86 58,36 -6% Urban 52,30 49,39 -6% 54,48 50,77 -7% Rural 77,84 74,40 -4% 79,32 76,31 -4% Source : TUIK 2009, 2010 Computer and Internet Usage in the Seperation of Urban and Rural 60 50,61 49,23 50 43,18 41,64 40 30 23,69 25,60 20 10 0 Computer usage Turkey Internet usage Urban Rural Source: TUIK 2011 Public investment in IT sector increasingly grows year by year with the contribution of the “e-Transformation Turkey Project” in accordance with the Information Society Strategy adopted by the Prime Ministry. Accordingly, the share of IT investments out of the total public investments increased to 159 million USD in 2002, 389 million USD in 2005, 555 million USD in 2007, 590 million USD in 2009 and 675 million USD in 2010. 25 ANNUAL REPORT Amount of Total Payment (Current Prices) Number of Project Year Amount of Total Payment (2010 Prices) Ürünleri (000) TRL (000) $ US (000) TRL (000) $ US 2002 203 286.013 158.808 478.029 297.511 2003 204 369.321 208.656 536.205 318.536 2004 211 451.181 281.285 587.673 376.958 2005 200 626.253 388.494 814.734 533.215 2006 203 791.065 557.716 900.868 685.156 2007 237 816.753 555.463 927.964 629.695 2008 271 814.890 591.529 835.966 589.603 2009 244 847.663 590.418 890.046 619.939 2010 177 1.083.743 675.524 1.083.743 675.524 Source: State Planning Agency 2009, Public Information & Communication Technology Investments 2.1.2. IT Market Comparison in the World and Turkey According to IDC’s report regarding growth rates between countries, the highest growth rate from 2009 to 2010 was seen in Ukraine with 76% and respectively Russia with 55 %, BAE with 32 %, Romania with 28 %, Egypt with 27 %, South Africa with 26 %, Poland, Saudi Arabia and Czechoslovak with 16 %. Turkey has been the 10th in above rank with 12 % growth rate on PC quantity based sales. Israel has been stated after Turkey with 9 % growth rate. World IT Market - Country Based PC Market Growth Analysis, 2009 - 2010 (Quantity) 12.000 10.000 8.000 6.000 4.000 2.000 0 Russia Turkey Poland Saudi Arabia Ukraine UAE South Africa Chech Rep. Israel Egypt Romania 2009 7.122 3.210 2.854 1.351 1.997 1.762 1.637 1.121 1.011 656 478 2010 11.070 3.607 3.304 2.379 2.319 2.318 2.069 1.305 1.104 836 614 %55 %12 %16 %76 %16 %32 %26 %16 %9 %27 %28 Growth Source: IDC 2011 Turkish IT Market - Dealers Market Share Analysis, 2009 - 2010 (Million $ USD) 1400 1200 1000 800 600 400 200 0 Retail Classic Dealers Producer Shops Producing Shops Direct Producer Telecom Authorized Seller Virtual Shops 2009 1.339 473 179 172 163 75 147 43 2010 1.329 633 357 220 120 76 76 13 Growth - %0.7 %33.8 %98.8 %27.6 - %26.5 %22 %13 %8 Market Share 2010 %47 %4 %1.3 - %48.5 %3 %3 - %69.6 %0 Source: IDC 2011 26 ANNUAL REPORT According to IDC’s report regarding Turkish IT Market, market shares of the dealers in 2010; 47 % in retails, 22 % in Regular Dealers, 13 % in Producer Shops, 8 % in Corporate Dealers, 4 % in producers, 3 % Telecom, 3 % in Authorized Sellers, less than 1 % in Visual Markets (online shops). The major growth was recorded by Producer Shops and Regular Dealers, Corporate Dealers and Telecom Dealers respectively. The growth rates are 98 %, 33,8 %, 27,6 %, 1,3 % respectively. On the other hand, Visual Shops -69,6 %, Authorized Sellers -48,5 %, Producer Direct -26,5 % and Retail -0,7 % were shrank. The stakes of retail shops were too small and especially after 2007 and 2008, the market share of these shops increased in considerably important amount. The main factor was that the individual users took important stake from the market up to 40 % in 2010. It is expected to be higher in the future. 2.2 Sub-segments of the ICT Sector Turkish IT sector is essentially separated into three main groups, namely hardware, software and IT services. According to the Turkey results published by IDC in 2011, the business volume of the Turkish Information and Communication Technologies (IT) market reached 5.3 billion USD in 2009, 5.9 billion USD in 2009. The same report shows that the share of the “Hardware”, “Software” and “IT Services” sub-segments in the total market are 75 %, 10 % and 15 %, respectively. This indicates that the Turkish IT sector has got a structure where “hardware” is predominant with respect to income created. IT Sector Expenditures, 2009-2014 (mio US$) 8.000 7.000 6.000 5.000 4.000 3.000 2.000 1.000 0 2009 2010 2011 2012F 2013F 2014F - Hardware 3.975 $ 4.443 $ 5.251 $ 5.842 $ 6.700 $ 7.366 $ - Software 533 $ 584 $ 671 $ 760 $ 863 $ 963 $ - Service 854 $ 909 $ 988 $ 1.086 $ 1.204 $ 1.336 $ Source: IDC 2011 Turkish IT Sector 2009-2014 (Mio $) IT Sector Contents (x m $) 2010 2011 F 3.975,0 4.443,1 5.251,0 Software 532,6 584,2 670,9 759,7 863,1 963,3 Service 853,6 909,4 988,2 1.086,2 1.204,0 1.336,1 Total IT 5.361,2 5.936,7 6.910,1 7.687,9 8.766,6 9.665,0 10,7% 16,4% 11,3% 14,0% 10,2% Growth on Segments 2010 2011 F 2013 F 2014 F Hardware 11,8% 18,2% 11,3% 14,7% 9,9% Software 9,7% 14,8% 13,2% 13,6% 11,6% Service 6,5% 8,7% 9,9% 10,8% 11,0% IT 11% 16% 11% 14% 10% 2013 F 2014 F Hardware 2009 Growth % Distribution in Segments 5.842,0 2012 F 2012 F 2013 F 2014 F 6.699,5 7.365,6 2009 2010 2011 F Hardware 74,1% 74,8% 76,0% 76,0% 76,4% 76,2% Software 9,9% 9,8% 9,7% 9,9% 9,8% 10,0% Service 15,9% 15,3% 14,3% 14,1% 13,7% 13,8% IT 100% 100% 100% 100% 100% 100% (Telecom, Network tools are not included for the calculation) 27 2012 F ANNUAL REPORT According to the 2011 Turkey IT Expenditures Survey conducted by IDC, the Turkish IT market is expected to have a 12.5% compound annual growth rate (CAGR) in the period between 2009 and 2014, reaching 9.6 billion USD in 2014. These estimates are based on the anticipated growth rates, investments anticipated to be made by companies rapidly as they were deferred due to the crises of 2001 and 2008, effects of IT expenditures incurred by the public sector for e-transformation projects on IT consumption, increased use of IT in education, anticipated increased rate of the use of internet and mobile technologies and replacement investments to be caused by new technologies. Growth Rates in Turkish IT Market Between 2009-2014 (%) on Sub-Group Based Total IT Service Software Hardware 90.00% 75.00% 60.00% 45.00% 30.00% 15.00% 0.0% 2009 2010 2011F 2013F 2012F 2014F Source: IDC 2011 2.2.1 Hardware Market Hardware market in Turkish IT sector is the sub-segment having the biggest share regarding the sales amounts of 1999 – 2009, with the ratios changing between 57% and 74%. With tax stimulus packages of the government for only 6 months in 2009 and constitutional referendum at the end of third quarter were both supported the growth in the sector. The hardware sector achieved growth from 2009 to 2010 as 11,8 %. Growth Rates & Targets of Hardware Expenditures in IT Sector, 2009-2014 (Mio USD,%) 8.000 7.366 18% 6.700 Hardware 6.000 16% 5.842 14% 5.251 5.000 3.975 12% 4.443 10% 8% 3.000 (% Growth) 7.000 4.000 20% 6% 2.000 4% 1.000 2% 0 0% 2009 2010 Hardware 2011F 2012F 2013F 2014F % Growth Source: IDC 2011 28 ANNUAL REPORT IDC expects Hardware sector capacity is expected to reach 7,336 million USD in 2014. 2.2.1.1 PC Market: The hardware sub-group consisting of Desktop PCs, portable PCs (“Laptop PCs”, “Notebooks”), Servers and Peripherals is monitored via the sales data in PC market which represent a very significant portion of the total sales. Accordingly, total sales of the PC market were realized as 2.691.519 in 2008, whereas such total number (both notebook and desktop) rose to 3.210.386 units with an increase of 19.3% in 2009. In 2010, it reached 3.607.136 with 12,4 % growth rate. However, when the sales in the PC market are considered by quantity excluding the server market, it is noticed that portable PCs have gained majority in this market for the first time in 2009. From the year of 2004, supplying portable PCs with high performance, increased mobility possibility with their lighter structure and affordable prices to the consumers has enabled significant increases in their sales, and finally, sales of portable PCs have surpassed those of desktop PCs in 2009. When the market share of mobile PC was 35,7 % in 2005, it reached 63 % in 2009 and 66,1 % in 2010. In this paralel, when the market share of desktop PC was 64,3 %, it decreased to 37 % in 2009 and 33,9 % in 2010. Estimation of Turkish PC Market on Type and Quantity Based, 2005-2010 Type Desktop Notebook Total 2005 (%) 1.027.336 64.3 570.366 35.7 1.597.702 100,0 2006 (%) 1.331.144 63.7 757.597 36.3 2.088.741 100,0 2007 (%) 1.415.568 54.3 1.191.332 45.7 2.606.900 100,0 2008 (%) 1.455.049 54.1 1.236.470 45.9 2.691.519 100,0 2009 (%) 1.186.862 37.0 2.023.524 63.0 3.210.386 100,0 2010 (%) CAGR(%) 1.221.607 33.9 3.52% 2.385.529 66.1 33.13% 17.69% 3.607.136 100,0 Growth 2006 29.57% 32.83% 30.7% 2007 6.34% 57.25% 24.8% 2008 2009 2.79% -18.43% 3.79% 63.65% 3.2% 19.3% 2010 2.93% 17.89% 12.4% Trends in Market Shares of Desktops & Notebooks Quantity 2011F Amount (USD) 32% 2011F 68% 28% 72% 2010 34% 66% 2010 29% 71% 2009 37% 63% 2009 32% 68% 2008 54% 2005 2008 46% 64% 92% 1995 8% 96% 0% 20% 2005 36% 2000 40% Desktop Market Share 4% 60% 80% Notebook Market Share 45% 100% 55% 53% 47% 2000 84% 1995 16% 91% 0% 20% 40% Desktop Market Share 9% 60% 80% 100% Notebook Market Share Source: IDC 2011 The developments at PC market are closely related with the ongoing projects in public and educational sectors. The stable growth in demand of the consumers is also considered as another significant factor on this issue. The growing retail chains and financial opportunities offered to the consumers by these chains have been the most important driving forces for the PC sales. Besides, noticing the benefits of mobile computing systems by the corporate companies is seen as another important reason for the growth. At this point, one may clearly see from then market sales figures that the demand by the small and large enterprises seeking productivity for portable PCs as an important part of mobile data systems has increased. 29 ANNUAL REPORT Turkish IT Market on Main Form Based 2009 – 2010 2009 2010 Desktop PC 37.0% Mobile PC 63.0% Desktop PC 34% Total PC Sales Quantity: 3.210.386 Mobile PC 66% Total PC Sales Quantity: 3.607.136 Source: IDC 2011 Besides the producers which have international brands, a considerable part of hardware production both inside and outside the country is performed with the main components that are obtained from the global computer parts suppliers by big and small-sized companies. Over time, these factors have transformed the hardware product market and the especially PC market into a low added value structure in which the competition is highly sensitive to the price. According to IDC’s 2011 report, 36 % of Desktop PCs were sold by local producers, 28 % International Producers and the rest consists of processor selling amount to local market. In this category, local producers are dominant in 2010. When look at the Notebook amounts, local producers have market share of 19 % and International producers have market share of 81 %. Suppliers Based Distribution of Turkish Desktop and Notebook Market, 2010 Notebook Desktop Others 36% International Producers 28% Local Producers 19% International Producers 81% Local Producers 36% Source: IDC 2011 30 ANNUAL REPORT 2.2.1.1.1 Desktop PCs PC Desktop products have represented the most important product category within the sub-group of hardware in terms of the unit and sale volumes until 2009. Total sales of Desktop PCs decreased from 594 thousand in 2000 to 251 thousand in 2001 due to the 2001 economic crisis. PC sales increased with the rate 41% CAGR between 2002 and 2005, well above the economical development, with the influence of the decrease in the year 2001 and reached 1 million units in 2005. Desktop PC sales rose to 1.33 million units and 1.4 million units with an increase of 30% and 6% in 2006 and 2007, respectively. Such sales again increased by 10-15% in the first three quarters of 2008 and by 2,8% in the last quarter due to the global crises, and closed the year with a sales quantity of 1.45 million units, which was the highest historical level. However, as a consequence of the development of the mobile technology, the share of the desktop PC sales in the total PC market decreased to 37%, and the sales quantity was realized as 1,19 million units with a decrease of 18,4% in 2009. PC Desktop market exhibits much segmented structure where the domestic producers are dominated. While international producers get a market share of 28%, the remaining part of the market is under the control of the big or small sized domestic producers. These are Hewlett Packard 16,3 %, Casper 13,9 %, Exper 11,3 %, Arçelik 3,5 %, Fujitsu 3 %, Lenovo 3 %, Pro2000 2,9 %, Dell 2,4 %, Crea 2,4 %, Acer Group 1,7 %, Vestel 1,6 % and Others 38 %. Quantity Based Distribution of Desktop Sales (000), 2010 1.600,0 1.400,0 1.200,0 1.000,0 800,0 600,0 400,0 200,0 0,0 Desktop PC 2000 2001 2002 2003 2004 593.5 251.4 344.8 516.4 710.1 2005 2006 2007 2008 2009 Source: IDC 2011 Hewlett - Packard 16.3% Others 38.0% Casper 13.9% Vestel 1.6% Arçelik 3.5% Acer Group 1.7% Crea 2.4% Dell 2.4% 31 Fujitsu 3.0% Pro2000 2.9% 2010 1.027.3 1.331.1 1.415.6 1.455.0 1.186.9 1.221.6 Lenovo 3.0% Exper 11.3% ANNUAL REPORT 2.2.1.1.2 Notebooks Since 2004, a significant consumption activity has started all over the world in Portable PCs (notebook, netbook) market when the international big producers decreased the prices with increasing competition in this market and the developing technology. As a consequence of affordable price policies of producers and retailers, notebook prices for end users decreased to 400 - 1000 USD on average in Turkey, which eventually made these products affordable for home users and increased the widespread usage of the notebooks in the offices. Accordingly, the share of Portable PCs (except for server) in the total PC sales by quantity has increased from 5% to 23.8% between 1998 and 2004 and then to 45.9% in 2008. Supplying portable PCs with high performance, increased mobility possibility with their lighter structure and affordable prices to the consumers has enabled significant increases in their sales, and finally, sales of portable PCs have reached 63.03%, well above those of desktop PCs in 2009. In 2010, it reached 66,1 %. Sales of Portable PCs in 2000 increased from 51 thousand units to 221 thousand units in 2004 and then rose to 1.236 thousand units in 2008, 2.023 thousand units in 2009 and 2.385 thousand units in 2010. According to the 2011 results of the IDC report on Turkish IT Expenditures, the Turkish mobile PC Market is estimated to reach 3 million units in 2011, and the share of the mobile PC shares in the total PC sales shall reached 66,1 % in 2010. It seems that international brands are more dominant in the Notebook PC market than the Desktop PC market. According to the 2010 data obtained from IDC, the most important leading brands in the Portable PC market, namely Acer, Hewlett Packard, Toshiba, Casper, Lenovo and Dell, control 66.1% of the market in terms of quantity. As a consequence of the fact that just like in the desktop products in previous periods, the structure of notebook products tends to be standardised, it is observed that some part of the market shares of international brands are left to the domestic producers. The market share of the domestic producers which was 10% at the end of the year 2003 increased to 16.8% in 2008 and 19% in 2010. According to the 2010 results, the shares of Casper and Exper, which are the two big domestic market of the Turkish market, were realized as 8,84 % and 5.77%, respectively. Notebook Sales (000) and Supplier Based Distribution of Sales, 2010 2.500,0 2.250,0 2.000,0 1.750,0 1.500,0 1.250,0 1.000,0 750,0 500,0 250,0 0,0 Notebook PC 2000 2001 2002 2003 2004 2005 2006 51,1 33,2 68,9 138,1 221,5 570,4 757,2 2007 2008 2009 2010 1.191,3 1.236,5 2.023,5 2.385,5 Source: IDC 2011 Exper 5.8% Others 8.5% Acer 15.1% LG Electronics 6.1% Hewlett - Packard 14.5% Samsung 6.5% Asus 7.0% Dell 8.7% Lenovo 8.8% Toshiba 10.1% Casper 8.8% 32 ANNUAL REPORT 2.2.2 Software Market The size of the software sub-group increased from USD 276 million in 1999 to USD 377.3 million in 2000. However, in the 2001 crisis, just like in hardware sector, software sector decreased to USD 172.3 million with shrinkage of about 54%. In 2009 it reached 533 million USD. However, due to the pressure of the crises that has deepened in the last quarter of 2008 on the consumption tendencies, the sales of the Turkish Software Market decreased to 609 million USD with minor shrinkage of 1% in 2009, contrary to the dramatic shrinkage of the 2001 crisis. As of the end of 2010, the share of the software sub-group in the entire IT market in terms of the total turnover is at very low levels in comparison with Europe and America with 9.8% share, mainly because of pirated usages. Microsoft Office, being a commonly used program, is the most pirated program. The laws which were enacted by the Turkish Parliament in 1995 for purpose of ensuring the protection of the registration rights decreased the pirated usage rate. According to the estimations of our company, while 70% of the software is illegally used in Turkey, this rate is around 35% in the USA. Because the operating system software is purchased as incorporated into the computer, its pirated usage is less than other software. The registration right laws had influence on the custom suppliers using pirated products most frequently. Most of the custom suppliers use the licensed operating system software at present. IT Sector Software Expenditures Growth Figures and Growth Targets, 2009-2014 (Mio USD,%) 16% 1.200 963 1.000 12% 760 800 10% 671 600 584 533 8% 6% 400 4% 200 2% 0 0% 2009 2011F 2010 Software 2014F 2013F 2012F % Growth Source: IDC 2011 Ages of the Biggest 20 Software Companies of Turkey 5 4 3 Average 13 years 2 1 0 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Source: State Planning Agency 2007, Information and Communication Technology Specialisation Commission 33 23 (% Growth) Software 863 14% ANNUAL REPORT The average age of the top 20 software companies of Turkey is 13. While the imported products in the software sector have the most important share, there is also an increase in the Turkey-based software. Because the government keeps it compulsory to use the domestic software in some of the projects, it is expected that shares of the Turkey-origin software companies will continue to increase. A great part of the software produced in Turkey is used by the banking, accounting, human resources and textile sectors for production. While some part of the software companies offers the ready-to-use packages, particularly the domestic companies in the sector offer software solutions tailored to specific requirements of their customers. Microsoft is the leader of the application software and IBM is leader of the system software. The other major companies in the software sub-group are SAP, Oracle, Havelsan, Logo Yaz›l›m, Likom Yaz›l›m and Link Bilgisayar. 2.2.3 IT Services Market Contrary to the hardware and software sub-sectors, IT Services sub-sector s the constant and necessary services relating to the existing IT investments periodically and leasing services. In the 2001 crisis, the Turkish IT Services Market decreased to 288.2 million USD with a decrease of 39% comparing to the previous year. The volume of the Turkish IT Services Market grew faster than the total market in 2002, reaching 403.5 million USD, and the share of the IT Services in the total market increased to a record level of 28.1% in the same year. However, in spite of the pressure of the crisis that deepened in the last quarter of 2008 on the consumption tendencies, the market was realized at 854 million USD in 2009. The share of the IT Services in the total market was 15.9% in 2009, which decreased to 15.3 in 2010. However, it is expected that this share will increase due to the needs that may arise during the integration of newer technology systems on the existing systems and outsourcing of IT operations by big companies and banks in particular. IT Sector IT Services Growth Figures and Growth Targets, 2009-2014 (Mio USD,%) 1.600 1.400 12% 1.336 1.200 1.000 854 909 1.204 10% 872 988 8% 800 6% 600 400 4% 200 2% 0 (% Growth) IT Services 1.086 0% 2009 2010 IT Services 2011F 2012F 2013F 2014F % Growth Source: IDC 2011 ‹ndeks Bilgisayar in the ICT Sector: In Turkey, Top 500 ICT Companies Ranking performed every year by Interpro Medya A.fi., our company ranked seventh in the general ranking based on turnover achieved in 2009 among the companies including telephone operators and mobile phone sellers. On the other hand, it ranked first, like the previous years, in the category of companies selling only computers. Further, it ranked first in seven IT categories. 34 ANNUAL REPORT 2009 Top 10 ICT Companies Revenue Range (Sales Revenue) 2009 Range Company US $ (mio) 1 Türk Telekom 6,787 2 Turkcell 5,739 3 Vodafone 1,631 4 Avea 1,608 5 KVK 1,317 6 Gen-pa 1,088 7 ‹ndeks Bilgisayar 698 8 Hewlett-Packard 612 9 Teknosa 562 10 Digitürk 514 Important Events in the IT Sector in 2010: Important events that occurred in the Turkish IT Sector in 2010 are listed below: Business - Entertainment - Education world is recognised by Technology! 1- Announcement of smart devices 2- Announcement of tablets 3- Demand for internet connection from everywhere 4- Individual Consumer is the leader of technology world 5- Telecom campaings 6- Prevalence of Social Networking websites in Anatolia 7- Transformation of citizen << >> e-citizen 8- Turkey became the 7th biggest internet market of Europe. 9- Constitutional referandum at the end of third quarter, market started to have gradual growth. 2.3 Growth of the Turkish IT Sector: Factors Inciting the Growth of the Turkish IT Sector: • Rapidly Increasing Usage of Technology: All business and public companies recognise the value of the increasing control over sources, development of productivity, expanding the business volume and analysing the customer requirements by using the technological devices. • Economic Performance: The development of the IT market was struck down by the economic crises of 2001 and 2008. After the economic crisis, Turkey entered a recovery period with strict economic policies. Economic stability makes a direct positive effect on IT investments. • Changing Economic Structure: The importance of service sector increased, with a decrease of agriculture in the economy in Turkey in the last ten years. The increasing operations in the service sector instigate the IT investments especially in retail, wholesale, logistics, financial services, professional and personal services markets. • Developing Trade with European Union-27 and other EU countries: Turkey made 38.94% of its importation from the European Union (EU)-27 countries in 2010, respectively. When including also the other European countries in the figures, 55% of the importation was made from the EU countries in 2010. On the other hand, 46% of the total export is made to the European Union (EU)-27 countries in 2010. When including also the other European countries in the figures, 56% of the exportation was made to the EU countries in 2010. Development of the trade with the European Union and Direct Foreign Investments in Turkey will increase IT investments and competition in local industries, instigate the investments of European Union-originated companies in Turkey, which ultimately expedites the change of quality standards in data management and analysis systems. 35 ANNUAL REPORT Direct Foreign Investment Inflow: Direct foreign capital investments in developing countries such as Turkey, make important contribution to the development of the country economy. It makes direct contribution to the improvement of IT investments. The economic reforms implemented by Turkey just after the 2001 crisis and the macroeconomic stability, together with the political stability, contributed to the improvement of the business and investment environment and broadened the horizon of the companies in their investment decisions. With the economic and political stability environment, Turkey utilized foreign resources in considerable amounts. The amount of the direct foreign investment flowed into Turkey was 1.8 bn USD in 2003, 2.9 bn USD in 2004, 10 bn USD in 2005, 20.2 bn USD in 2006, 22 bn USD in 2007 and 18 bn in 2008. With the effect of the global crisis towards the end of 2008, the foreign capital investments remained limited to 18%. However, the effects of the crisis have aggravated in 2009, which ultimately resulted in a decrease of 58% in such investments (7.6 bn USD). In 2010, it became 7 billion USD with 8 % decrease. Privatization: Income obtained from privatization has increased considerably in the last 5-6 years. According to the data obtained from the Turkish Privatization Administration, the income obtained from privatization was 187 million USD in 2003, 1.3 billion USD in 2004, 8.2 billion USD in 2005, 4.3 bn USD in 2007, 6.3 billion USD in 2008 and 2.3 billion USD in 2009. 1.225 million USD, 600 million USD and 440 million USD out of 2.3 bn USD obtained in 2009 was resulted from the privatization of Baflkent Elektrik, Sakarya Elektrik and Meram Elektrik, respectively. In 2010, 3,1 billion USD privatisation was made. Investments made following the privatizations by the new owners of the privatized companies in new infrastructure and technological optimization efforts supported the growth in the IT sector. Banking Sector: The banking sector has undergone a structural change since 2001. Banks are under the pressure of the diminishing profitability due to the changing market conditions. Bank managements are trying to increase their profitability while protecting their market shares. To be marketing-oriented and address to the target customer segment more efficiently have been necessary for all banks. Most of banks have strong growing targets in all customer segments. IT Managements in Turkish Banks replace the existing IT infrastructure in a certain schedule, instead of replacing all of them at once, in order to use them efficiently and respond to the requirements of the competition. Public Sector: Information Society projects conducted in accordance with the Information Society Action Plan established by the Prime Ministry are defined one of the most important projects of the general policies of the Government. As part of such efforts, etransformation Turkey Project aims to carry out the process of transformation into an information society in a harmonious and integrated structure under. The administration in charge of the project is the State Planning Organization attached to the Prime Ministry. The State Planning Organisation determines its public investment program by evaluating and selecting the proposals for projects submitted by public institutions and agencies with respect to the plan targets, public investment policies, national economy, the European Union process, sector-specific and intersector priorities and allocating resource to the selected projects. It is estimated that the number and amount of the projects relating to the public information and communication technology will increase in the forthcoming period. Telecommunication Sector: Turkey made major progress in the telecommunication sector with respect to the compliance with the EU and catching up with the global changes in the recent years. As part of the process of the accession of Turkey to the European Union, the chapter “Information Society and Media” was opened and the negotiations have started on 19 December 2008 because Turkey has met the criteria for the chapter to be opened. On the other hand, the chapter “Information Society and Media” in the Third National Program, which was adopted on 31 December 2008 to schedule the commitments of Turkey for harmonisation with the EU acquisition, commits to complete necessary arrangements in 2009 and 2010.This commitment aims at the liberalization of the electronic communication sector, creation of good working competition atmosphere, catching up with the development in information and communication fields and establishment of infrastructure and legal foundations for the related fields. Accordingly, it is estimated that a resource of about 8 million Euros will be needed for the institutional structuring for purpose of the harmonization with and implementation of the EU acquits. The enforcement of the Electronic Communication Law, which had been on the agenda of the telecommunication sector for five years from 2003, on 10 November 2008 and the enforcement of the Authorisation Regulation on Electronic Communication on 28 May 2009 are some of the favourable events that occurred in the recent years. In addition to the foregoing, the enforcement of the Number Porting Regulation at the beginning of July may be considered one of the most important steps taken for introduction of the third generation electronic communication service. Rapid progress of technological developments makes impact on every part of our lives and creates some concepts such as information economy and internet economy. Extraordinary developments in the IT sector go beyond the country borders of the goods and finance markets and take the world into an economic globalization. Besides such progress in the IT technology, telecommunication sector also experiences many developments. As a consequence, it is inevitable that the countries that cannot keep up with such developments will remain behind the technologically advanced countries. 36 ANNUAL REPORT Logistics Sector: Intensifying competition in the logistics sector entails to follow the business process via Supply Chain Management (SCM) to control the supply of materials and distribution costs. Big producers operating in consumables and household appliances feel this need considerably. Supply Chain Management solutions require making additional investments in web technologies and communication networks, etc. Retail Sector: Competition in the Turkish retail sector is intensifying. Investments made by international actors in the Turkish market increasingly continue. Media Markt, Dixons, Darty, Electro World and Best Buy have also been included in the chain stores in Turkey in the recent years. Entrance of the international actors into the Turkish market has made a favourable effect on the growth rate of the sector. It is the first time Best Buy and Media Markt has met in the Turkish market in 2009. Growing Individual Consumer Market: It is obvious that consumers use the IT more than before. Opportunity of payment by instalment with credit cards and growth of retail markets rapidly support the growth of the individual consumer market. PC usage of end users and their demand for peripherals have increased from 7% to 38% of the market between 1995 and 2009. Accordingly, the structure of the market has changed, and individual consumers have represented the biggest share in the end user market since 2007. Internet Technology and Portals: Corporate usage of internet technology is still improving. Data portals become common via internet banking. The public sector is the main factor instigating the portal turnovers due to the e-government projects. Telecommunication, production, insurance and distribution sectors use portals for developing business with partners and suppliers, enhance communication and cooperation with customers and develop the management of the internal business processes. According to the Information society strategy (2006-2010) report, priority subjects considered and hindrances that should be overcome for all actions taken towards an information society are concentrated on the following items: • • • • • • • • • • • • Increasing the sustainable growth and competitiveness, Enhancing the life quality, Prevention of numerical gap, Enhancing the competence of human resource and employment, Presentation of public services from multi-platforms in a citizen-oriented and efficient manner, Generalizing the e-trade, Ensuring standardization and security in information society applications, Develop R-D and innovativeness in tune with the market and creating value accordingly, Generalizing wide band communication infrastructure, Enriching the content and information society applications, Making use of the convergence potential of technologies, Making use of media channels for development of information society. Strategic Priorities of Turkey According to the Information society strategy (2006-2010) report, the priorities of the Turkish Strategy are established on the following 7 foundations: 1- Social Transformation: "Opportunity for information and communication technologies for everybody". Economic and social benefit will be increased by efficient use of citizens in their daily and working lives. 2- Penetration of Information and Communication Technologies into Business Life: "Competition advantage of companies with information and communication technologies". SMEs will be encouraged to prefer e-trade by increasing their computer ownership and internet access rates; the need for information and communication technologies relating to the strategically important sectors and regions will be determined and to meet such need, sector-specific productivity programs will be implemented. 3- Citizen-Oriented Service Transformation: "Presentation of public service in high standards" Public services will be transferred to electronic environment starting from the frequently used and value added services via information and communication technologies, and at the same time, the business processes will be restructured in accordance with the user requirements, thereby making service presentation more efficient. 4- Modernization in Public Management: "Public management reform supported with IT" An e-government formation attaching priority to efficiency and citizens’ satisfaction and having organization and process structures in tune with the country conditions will be realized by support of IT. 37 ANNUAL REPORT 5- Global Competitive Information Technologies Sector; "Internationally acting IT Sector" Actions to be taken are project-oriented services, improvement of the capabilities and international expansion in IT services and more competitive sector-specific solutions in software. 6- Competitive, Widespread and Cheap Communication Infrastructure and Services; "Providing access to high quality and cheap wide band to every level of the society" For ensuring the improvement and widespread usage of the communicational infrastructure and services, an efficient competitive environment will be created in the field of the telecommunication infrastructure. By this way, fast, secure, continuous and quality communication services will be provided, and an environment suitable for the establishment of the telecommunication infrastructures based on new technologies will be created. 7- Development of R-D and Innovativeness: "New product and services suitable to the demand of the global market" Priority will be attached to R-D activities in the IT sector which is a highly demanded Innovative and highly value-added sector in the global markets. Development of new technologies and transformation of such technologies into production will be supported. In addition, for development and efficiency of R-D and innovativeness activities, ITs will be used to the maximum extent. The first four of the foregoing strategic priorities are for the change in the daily life of the citizens participating in the economic and social transformation, public sector and business life, and the other strategic priorities are for the IT infrastructure necessary for the realization of such transformation, strengthening the sector that will provide such infrastructure and development of the new product and services that will enhance the competitiveness of our country, being suitable to the demands of the market. 38 ANNUAL REPORT 39 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 3. SUBSIDIARIES ANNUAL REPORT 41 ANNUAL REPORT 3. Subsidiaries Name of Subsidiary Percentage of Share Issued Capital Datagate Bilgisayar Malzemeleri A.fi.(*) % 59,24 10.000.000 TRL Neteks ‹letiflim Ürünleri Da¤. A.fi.(*) % 50,00 1.100.000 TRL Neotech Teknolojik Ürünler Da¤›t›m A.fi. % 80,00 1.000.000 TRL ‹nfin Bilgisayar Ticaret A.fi. % 99,80 50.000 TRL Neteks D›fl Ticaret Ltd. fiti. (**) % 49,50 5.000 TRL Teklos Teknoloji Lojistik A.fi. % 99,99 5.000.000 TRL (*) With %7,5 registered, total %59,24 (**) Neteks D›fl Ticaret Ltd. fiti is a 99% owned subsidiary of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. The financial statements of Datagate Bilgisayar Malzemeleri A.fi., Neotech Teknolojik Ürünler Da¤. A.fi. and Teklos Teknoloji Lojistik Hizmetleri A.fi. are consolidated by full consolidation method and those of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. by proportional consolidation method. The financial statements of ‹nfin Bilgisayar Ticaret A.fi. and Neteks D›fl Ticaret Ltd fiti are not included in the consolidation because their low volumes of operation are not likely to be of significance for the financial statements. 3.1. Datagate Bilgisayar Malzemeleri Tic. A. fi. Datagate is engaging in the representation, sales, distributorship, marketing, logistics and after sales services of many IT producer supplying IT components such as microprocessors, hard discs, memory units, optical units, motherboards, tapes, video accelerator cards, monitors, various types of hardware supporting software. The company was founded in Istanbul in 1992. Head office and logistic operations of the Company are carried out in Ayaza¤a Mahallesi Cendere Yolu No: 9/2 fiiflli /ISTANBUL. . Ankara and ‹zmir offices provide service for Anatolia. The partnership started with the acquisition of 50.5% shares of Datagate Bilgisayar Malzemeleri A.fi by ‹ndeks Bilgisayar A.fi. in 2001 reached 85.00% with an additional acquisition of 34.5% by the same company in November 2003. Partnership share of ‹ndeks Bilgisayar decreased to 59.24% with the public offering of Datagate in February 2006. In February 2006, the shares of Datagate Bilgisayar Malzemeleri Tic. A.fi. were offered to public successfully, restricting the preferential rights of the existing shareholders, and begun to be traded in the New Economy Market of Istanbul Stock Exchange. Its capital, which was TRL 1,550,000 before public offering, has increased to TRL 6,600,000 following the public offering. With the public offering, the capital of Datagate Bilgisayar Malzemeleri Tic. A.fi. was increased from TRL 6.600.000 to TRL 10.000.000 in 2007, covering TRL 1.910.004 from the profit of the period in 2006 and TRL 1.489.996 from the Share Premiums. The maximum registered capital of the company is TRL 20.000.000. Datagate was subject to an Independent Audit and it achieved sales revenue of TRL 305.497.533 in 2010 according to its audit report which is prepared in accordance with International Financial Reporting Standards as required by the Capital Market Regulations. The financial statements show that the company earned an operating profit of TRL 4.657.774 and net profit of TRL 1.712.982 in 2010. 42 ANNUAL REPORT The main product groups and brands distributed by Datagate are listed below: Product Group Brands Hard Disk Seagate, Maxtor Microprocessor Intel Main board Intel, MSI Display Card MSI, Sapphire, Gigabyte Monitor AOC, Fujitsu, Acer Laptops Acer, Fujitsu Desktops Fujitsu, Acer Memory Products Veritech, Samsung, Transcend Server Products Intel, Fujitsu Card Readers Sony Network Products Intel Backup Units Fujitsu, Seagate Accessories Belkin, Genius Security products GKB, Avermedia Network (Modem-USB-Adaptor) products Belkin Projector Acer 3.2. Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. Neteks was established to provide network and communication products to the market through its retailers and business partners as a distributor company in 1996. Neteks has tried to provide complete network solutions to business partners by accommodating the most experienced names in their fields in Turkey. Besides the corporate networks systems and its components of the companies such as Cisco, Nortel Networks, 3Com, HP, Juniper and Avocent, Neteks A.S. also distributes corporate telephone switchboard systems of Nortel Networks and Avaya, structural cable products of HSC, Corning, Panduit and Günko, network security solutions of Check Point, Trend Micro and IBM ISS. The main product groups and brands distributed by Neteks are listed below: Ürün Grubu Markalar Kurumsal A¤ Sistemleri Cisco System, Nortel Networks 3Com, HP, Avocent Kurumsal Santral Sistemleri Nortel Networks, Avaya Yap›sal Kablolama Çözümleri Corning, HCS, Panduit, Günko A¤ Güvenlik Çözümleri Check Point, Trend Micro, IBM, ISS 43 ANNUAL REPORT Netex was subject to an Independent Audit and it achieved sales revenue of TRL 107.884.168 in 2010 according to its audit report which is prepared in accordance with International Financial Reporting Standards as required by the Capital Market Regulations. The financial statements show that the company earned an operating profit of TRL 2.675.970 and net profit of TRL 1.547.920 in 2010. 70% and 24% of the share of Neteks were acquired by ‹ndeks and Datagate A.fi., respectively, in 2001. In 2007, 6% of Neteks A.fi.’s shares which are held by other shareholders were acquired by Indeks A.fi. at US$ 374.000. Our company kept 50% of shares for itself and sold 26% to Westcon Group European Operation Limited at US$ 1.820.000. According to the agreement signed between the parties, 24% of the shares of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. held by Datagate Bilgisayar A.fi, as a 59,24% affiliate of ‹ndeks Bilgisayar A.fi. and listed in Istanbul Stock Exchange, were sold to Westcon Group European Operation Limited at US$ 1.680.000. Of the 50% shares sold, 26% and 24% were provided by ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret A.fi and Datagate Bilgisayar Malzemeleri Ticaret A.fi., respectively. ‹ndeks Bilgisayar A.fi. and Westcon Group have had 50-50% of the shares of Neteks A.fi after the sale of shares. 3.3. Neotech Teknolojik Ürünler Da¤›t›m A.fi. Neotech Teknolojik Ürünler Da¤›t›m A.S. was established with a capital of 100.000 TRL on 04.02.2005. The company, being an 80% affiliate of ‹ndeks A.S., operates in wholesale marketing of consumer electronics and communication devices. The company increased its capital from TRL 100.000 to TRL 1.000.000 in 2007. The main product groups and brands distributed by Neotech are listed below: Product Group Brands Household Electronics Product Homend Home Electronics Product Sony, Toshiba, Viewsonic, NEC LG, Panasonic Projectors NEC, Canon, Viewsonic Mobile Phones Blackberry, Samsung, iPhone Photo & Video Canon The contracts made between our company and Apple and Airties, respectively, have been transferred to ‹ndeks Bilgisayar A.fi., which is our main shareholder, within the year. Neotech was subject to an Independent Audit and it achieved sales revenue of TRL 122.424.058 in 2010 according to its audit report which is prepared in accordance with International Financial Reporting Standards as required by the Capital Market Regulations. The Company earned an operating profit of TRL 2.959.890 and net profit of TRL 829.965 in 2010 according to the financial statements. 3.4. ‹nfin Bilgisayar Ticaret A.fi. ‹nfin Bilgisayar Ticaret Anonim fiirketi was established in 2001 to help the retailers with their sales and export operations within the framework of investment operations under incentive certificates. Due to the fact that its biggest part of purchase and sales of the company was arisen out of the companies included in the financial statements, and its business volume was so low that does not make any impact on the financial statements, this company is left out of the said statements 44 ANNUAL REPORT 3.5. Teklos Teknoloji Lojistik A. fi This company was founded under the name of Karadeniz Örme Sanayi A.fi. to operate in textile sector on 03.01.1973. In March 2006, ‹ndeks has executed an important and greatest investment in IT sector by purchasing Karadeniz Orme A.S., which is founded on a 39,761 square meters land and having 18,969 square meters indoor area, in order to be used as a logistics headquarters. The trade name of Karadeniz Orme AS has been changed into Teklos Teknoloji Lojistik Hizmetler A.fi. and its field of activity has been changed to as logistics services. Teklos Teknoloji Lojistik Hizmetler A.fi. is providing logistic services to the companies operating in the IT sector. The company distributed 10.287.389 units of products and 515.427 cartons in 2009. Teklos was subject to an Independent Audit and it achieved sales revenue of TRL 6.160.060 TRL in 2010. According to its audit report which is prepared in accordance with International Financial Reporting Standards required by the Capital Market Regulations. The statements show that the company earned an operating profit of TRL 3.388.433 and net profit of TRL 2.742.279 in 2010. 45 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 4. OPERATION ANNUAL REPORT 47 ANNUAL REPORT 4. Operation The supply and distribution structure of Indeks Bilgisayar A.fi. is shown as follows: 1. Structure of Product Supply and Distribution: Indeks operates as a main distributor (“broadline distributor”) in IT industry. It buys IT products from suppliers at certain prices and maturity periods and subsequently sells the products to the sales channels that will sell them to the end user. The company does not plan to develop a sales structure that will include direct sales to the end user in the near future. Supplier Supplier Supplier Supplier Supplier Supplier ‹NDEKS B‹LG‹SAYAR A.fi. System Integrators Value Added Dealers Channel Regular Dealers Retail Chain Retail Channel Regular Shops E-Commerce END USER 1.1 Suppliers: The hardware and software suppliers of the company are grouped into two categories. • Global brands that operate in Turkey: ((IBM, HP, LENOVO, INTEL, SEAGATE, CANON, OKI, SYMANTEC, MICROSOFT, APC, FUJITSU SIEMENS, EPSON, TOSHIBA, SONY, ASUS): As this is the nature of the business, these global companies prefer working with distributors which are less in numbers instead of handling distribution, • Global brands that do not operate in Turkey: (KINGSTON, NEC, VIEWSONIC, WESTERN DIGITAL) These companies have not set up offices in Turkey yet. However, these companies conduct their imports, sales and marketing activities through the dealership of distributors. 1.1.2 Distribution Channel: As a distribution company, Indeks buys the products from suppliers. Furthermore, it resells them to the sales channels which sell to the end user. The structure of distribution channels which Indeks sells to and which sell IT products to the end user in Turkey is summarised below: 1.1.2.1 Solution Provider Dealers Channel (System Integrators) With respect to the number of people they employ, companies in this channel have at least 100 employees. They are among the relatively old companies in the industry. The end user these companies target is solely the big corporate customers. They have experience in the industry and have especially high service, sales and product recognition capabilities. The main target of the companies in this channel is to adapt new technologies to corporate customers. The numbers of these companies are not more than 100 all over Turkey at the moment. 1.1.2.2 Value Added Dealers: With respect to the number of people they employ, companies in this channel have 25-100 employees. These companies are more limited with respect to capital but thanks to their young and dynamic structures, they are able to make quick decisions and operate on low margins by keeping costs down. Their target group is multinational companies and corporate customers with generally one location. Distributors support these companies with respect to finance, logistics, and product information. These companies do not have an intensive relationship with the manufacturers. The numbers of these companies are more than 500 all over Turkey. 48 ANNUAL REPORT 1.1.2.3 Regular Dealers (Classic): These are pretty small companies with a staff of 5 to 25. They do not have their own unique solutions. Their target is SMEs and the home market. They number at least 4.000 to 5.000 and are the biggest group in the IT industry. These companies carry out their operations fully with distributor company resources. Their sales are more directed towards OEM products and peripherals than branded products. 1.1.2.4 Retail Channel In the recent years, Retail Chains diversified and reached huge transaction volume with the reason of investments made by local chains shops and the investment also made by international chains in this category. Furthermore, Food Chain Shops and Dowry Shops increased their business volume. Majority of home market needs is provided by above mentioned chain shops in Turkey. For Indeks, there are 3 types of retail groups: • Retail Chains: The retail chains are big groups having more than one store under the same brand such as Teknosa, Bimeks, Vatan, Gold, Media Markt , Darty, Electro world, Best Buy Teknolojiks, NT, Yalç›nlar, Evkur, Metro, Migros, Real, Carrefour, Tesco/ Kipa. The main function of some groups of this category is computer, while some of them such food markets and dowry shops are chains dealing with computer as a secondary business. • Regular Computer Stores (Classic): These stores are small companies where the owner of the store and a few sales representatives work and they operate with limited resources. They are totally focused on computers. • E-Retail: This channel is based on virtual markets which open virtual stores and operate in the internet medium. Due to the widespread usage of the internet in the recent years, the number of the companies operating in this channel is increasingly growing. The companies such as Hepsiburada, e-store are the examples of this type of channel. 2. Logistic Indeks makes sales and distribution via its 382 employees and more than 7000 dealers with companies included into consolidation in its financial statements to 81 provinces of Turkey from its logistic centres in Istanbul, Ankara and Izmir. The branch offices in Ankara and ‹zmir established in 1992 and 1995, respectively, operate as “district offices”. Having their own logistic, sales, accounting, finance, current accounts and customer services departments, they are responsible for sales to the dealers and development of the sales channels in their cities. Ankara office is responsible for the district Ankara, Central Anatolia and Eastern Anatolia Regions, ‹zmir Office for the District Izmir, Western Anatolia and Aegean Regions. The areas not included the foregoing shall be under the responsibility of the headquarters in Istanbul. Indeks has executed one of the most important and greatest investments in IT sector by purchasing Karadeniz Orme A.fi., which is founded on a 39,761 square meters land and having 18,969 square meters closed area, in order to be used as a logistics headquarters. The trade name of Karadeniz Orme A.fi. has been changed into Teklos Tekn oloji Lojistik Hizmetler A.fi. and its field of activity has been customized to be able to work on the logistics services. Teklos Teknoloji Lojistik Hizmetler A.fi. is providing logistic services to the group companies and other companies in IT sector as well. The head office of the company moved to its new location on 26.10.2006. Indeks has also district warehouses in Ankara and Izmir. 3. Invoicing and Collection Indeks makes sales to almost all companies dealing with computer and IT products. This kind of dealers, which are estimated as number about 5,000 in total in Turkey, are considered Regular Dealer (Classic Dealers). Credit Committee: Credit claims of the dealers are submitted to the Credit committee that does meetings every week on a regular basis for this purpose. These meeting are organized with headed of CFO (Assistant General Manager responsible for Financial and Operational Affairs), Assistant CFO, Finance Manager, Credit & Risk Manager and Sales Managers of related customers. 4. Technical Support and Customer Service The Company does not provide after sale service. Instead, it directs its customers to the companies of each product authorised to provide service. It is because the suppliers prefer their own solution partner to provide service to the end user. 49 ANNUAL REPORT 5. Marketing and Sales Due to the structure of the IT industry, the technologies and prices of the products that Indeks distributes are subject to frequent changes and improvements. Therefore, an efficient and effective inventory management and rate of inventory turnover may make significant impact on the operational performance of companies. Considering the dynamic structure of the industry, Indeks assigns one product manager for each group of product. The product managers have the mission of understanding the requirements of the sales groups with differing targets and objectives are comprehended better and therefore, the Company provides better service to such groups, following up the market and technology trends, executing the marketing activites. Exchange of information with customers are provided via web, e-mail and fax. 50 ANNUAL REPORT 51 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 5. CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT 2010: ANNUAL REPORT 53 ANNUAL REPORT 5. Corporate Governance Principles Compliance Report 2010: 1. Corporate Governance Principles Compliance Statement Our Company complies with and applies the Corporate Governance Principles published by the Capital Markets Board within the operating period between 01.01.2010 and 31.12.2010. These principles are adopted by the company management. Some of these principles were adopted immediately, and works continue to fulfil the deficiencies. SECTION I - SHAREHOLDERS 2. Shareholders Relations Department: We have established an Investor Relations Department in order to facilitate the relations with the shareholders. The Department carries out it activities reporting to Asst. General Manager-Finance Halil Duman, and contact information of the responsible people are as follows. Name & Surname Title E-mail address Telephone No. Halil Duman Assistant General Manager hduman@index.com.tr 0-212-312 21 09 Naim Saraç Internal Audit Manager nsarac@index.com.tr 0-212-331 21 15 Halim Ça¤layan Accounting Manager hcaglayan@index.com.tr 0-212-331 23 70 Emre Ba¤c› Internal Auditor ebagci@index.com.tr 0-212-331 21 17 During the period, Investor Relations Department has provided information to the shareholders and intermediary institution analysts, and to this end, questions asked via telephone, fax or e-mail were answered. Questions asked by the shareholders and intermediary institutions during the period were answered pursuant to CMB's "Communiqué on the Disclosure of Special Events to the Public" Series VIII, No. 39. Besides, our Company makes a press conference each year, evaluates the previous year, publishes the targets for the relevant year, thus informs the investors. Recently, a press conference was made on 05.04.2011 for the group companies, and information was provided on the activities. 3. Use of Shareholders' Rights to Obtain Information: Shareholders direct their requests to our Company to obtain information via telephone, fax or e-mail. A great part of the questions asked by the investors are on the subsidiaries of the Company, contents of the concluded distributorship contracts, capital increase, and share certificate activities. No distinction is made among shareholders as regards the exercise of the right to obtain information. Aside from the annual press conferences, disclosure of special events submitted to ISE is another method for providing general information. Our special event disclosures are also published on our web-site simultaneously. In order to help shareholders to use their rights to obtain information in an efficient way, detailed information is given www.index.com.tr, in the investors. Assignment of a special auditor is not arranged as an individual right in the Articles of Association. In order to ensure shareholders to use their rights to obtain information, the principle has been adopted allowing minority shareholders to notify any subjects, they are doubtful of and request inspection of, to the Auditing Committee, and thus, investigation of such subjects. During the period no request was made for assignment of a special auditor. Moreover, in order to help foreign investors to use their rights to obtain information, an English version of the investors section of our website has been prepared, and company information, financial statements and notes, operation reports, and research reports were uploaded to this section. 4. Information on General Assembly: 2009 General Assembly of our Company was held on 20.04.2010. The General Assembly resolved the followings unanimously: - Acceptance of the accounts of the 2009 Balance Sheet and Income Statement, - Acquittal and discharge of the Board Members and Auditors with respect to the accounts in 2009, and - Hiring AGD Ba¤›ms›z Denetim ve Dan›flmanl›k SMMM A.fi. for Independent Audit Services to be provided for the 2010 financial statements, The Company has a net profit after tax amounting to TRL 15.934.942 given in its financial statements for the year 2009, which were prepared pursuant to Communiqué of the Capital Markets Board Series XI, No. 29. 54 ANNUAL REPORT - TL 544.647,09, which composes 5% of the net profit, i.e. TL 10.892.941,74 according to the legal records will be retained as the 1st Issue Reserve Fund, - The First Dividend will be distributed in amount of gross TL 6.156.117,97 (TL 0,109931 for 1 share with a nominal value of TL 1 in the rate of 10,9931%) and net TL 5.232.700,27 (TL 0,093442 for 1 share with a nominal value of TL 1 in the rate of 9,3442%), corresponding 40% of the net distributable profit, i.e. TL 15.390.294,91 found by deducting the 1st Issue Reserve Fund in amount of TL 544.647,09 from TL 15.934.942 , which is the net profit after tax. - The Second Dividend will be distributed to the Preferred Group A Shareholders in amount of gross TL 461.708,85 (TL 1.451,09 for 1 share with a nominal value of TL 1) and net TL 392.452,52 (TL 1.233,43 for 1 share with a nominal value of TL 1), corresponding 5% of TL 9.234.176,94 remaining after deducting the first dividend, i.e. TL 6.156.117,97 from TL 15.390.294,91, which is the net distributable profit of the period, - Starting for profit distribution on 04 May 2010, - Allocation of the remaining amount as extraordinary reserve funds, - Election of Mr. Veli Tan Kirtifl and Mr. Haluk fien as the Members of the Auditing Board for a term of office of one year, unanimously. 5. Voting Rights and Minority Rights: In general, there is no privilege concerning voting rights. However, • Pursuant to the Article 9 “Board of Directors and its Term of Office” of the Company's Articles of Association, "Half plus one of the members of the Board of Directors are elected from the candidates nominated by the Group A shareholders.” • Pursuant to Article 12 "General Assembly" of the Articles of Association, the rights given to the shareholders who represent at least one-tenth of the principal capital by the Articles 341, 348, 356, 359, 366, 367 and 377 of the Turkish Code of Commerce, shall be used by shareholders who represent at least one-twentieth of the principal capital. • There is no company, holding shares in cross-ownership. Pursuant to the above explained provision of the Articles of Association, the method of minority shares' representation in the board of directors and use of accumulated votes is not applicable. 6. Dividend Distribution Policy and Deadline for Dividend Distribution: Our Company's Dividend Distribution Policy is to distribute in cash or in bonus share, or partly in cash and partly in bonus share, provided that it is no less than the minimum amounts stipulated by the Capital Market legislation, considering long-term growth and strategies, investments and fund requirements, profitability and the expectations of shareholders, excluding the special conditions required by extraordinary conditions in the economic conditions. Profit distribution for 2010 was done on time on 04 May 2010 as stated. 7. Transfer of Shares: The Articles of Association of the Company does not contain any articles limiting the transfer of shares. SECTION 2 - PUBLIC DISCLOSURE AND TRANSPARENCY 8. Company Information Disclosure Policy The company information disclosure policy was formed in accordance with Article 20 of the articles of association regulating "Public Disclosure and Transparency". Disclosure of information to the public is made pursuant to the relevant provisions of the capital markets legislation. An information policy for public disclosure is prepared and announced to the public. Information to be disclosed to the public are submitted to the use of public in a timely, accurate, complete, understandable, interpretable, accessible and equal manner. Ethical rules of the Company shall be determined by the Board of Directors and submitted to the information of the General Assembly. Implementations of ethical rules are announced to the public. Company's principles on social responsibility are also included within these rules. In use of shareholder's rights, it is complied with the relevant legislation, to which the Company is subject to, this Articles of Association, and other In-Company regulations. The Board of Directors takes the necessary measures to ensure use of shareholder's rights. For the purpose of extending the shareholders' right to get information, submission of any information which may affect the use of rights to the shareholders in electronic media is considered with great care. Annual operation report, financial statements and reports, dividend distribution suggestion, articles of association amendment proposals, organisation changes, and other important information regarding the activities of the Company to be kept accessible to shareholders' inspection in the head office and branches of the Company and in electronic format at the Company website considered with great care. Commercial relations with the Group companies and other partners are performed within the scope of market prices. 55 ANNUAL REPORT Due care shall be given in preparation of the periodical financial statements and statement footnotes to reflect actual financial condition of the Company, and to ensure that Company Operation Report provides detailed information on the activities of company. Consultancy activities and Independent Audit Companies are separated. Independent Audit Company is elected for maximum 5 periods. Independence of such companies is strictly protected. Accordingly, new distributorship agreements were disclosed to the public by the Chairman of the Board and General Managers via disclosure of special events. Names and duties of people responsible as regards the information policy are given below. Name & Surname Title E-mail address Telephone No. N.Erol Bilecik Chairman of the Board ebilecik@index.com.tr 0-212 331 21 11 Atilla Kayal›o¤lu General Manager - ‹ndeks akayal›oglu@index.com.tr 0-212 331 21 11 Salih Bafl General Manager - Datagate sbas@datagate.com.tr 0-212 332 15 00 Erhan Do¤an General Manager - Neteks edogan@neteks.com.tr 0-212 331 23 23 Erol Çetin General Manager - Neotech ecetin@neotech.com.tr 0-212 331 21 71 Our Company's website at www.index.com.tr is used as a communication channel pursuant to the points determined in CMB's Corporate Governance Principles, for the use of shareholders, investors, intermediary institution analysts, and other stakeholders. 9. Disclosure of Special Events: The Company has made 23 Disclosures of Special Events in the period between 01.01.2010 – 31.12.2010, and no additional clarification was asked by CMB or ISE. The Company has duly fulfilled all its liabilities regarding disclosure of special events. 10. Company Website and Contents: Our Company has a website at the address of www.index.com.tr. Our website includes commercial register information, final status of partnership and management structure, members of the Board of Directors, Auditing Board, Auditing Committee, information on general assembly, Company's Articles of Association, periodical financial statements and reports, independent auditor's report, annual reports, information on public offering, and disclosure of special events made by the Company. 11. Disclosure of the Company's Ultimate Controlling Individual Shareholder/ Shareholders: Following public offering, our Company's ultimate controlling individual shareholders are given below. Shareholder's Name Country Shares % Nevres Erol Bilecik T.C. 41,06 % 12. Disclosure of Insiders: The list of individuals who can be classified as an insider are as follows. Members of the Board of Directors Nevres Erol Bilecik Salih Bafl Atilla Kayal›o¤lu Ayfle ‹nci Bilecik Halil Duman Auditors assigned pursuant to the Turkish Code of Commerce Veli Tan Kirtifl Haluk fien 56 ANNUAL REPORT General Manager of the Company and other Managers Atilla Kayal›o¤lu General Manager Halil Duman Assistant General Manager - Finance Naim Saraç Internal Audit Manager Halim Ça¤layan Accounting Manager Birgül Öztürk Finance Manager Chartered Accountant Hakk› Dede Other Related Company Managers Tayfun Atefl Datagate A.fi. Board Member O¤uz Gülmen Despec A.fi. General Manager Erhan Do¤an Neteks A.fi. General Manager Erol Çetin Neotech A.fi. General Manager Yi¤it Deniz Neteks A.fi. Accounting Manager SECTION III – STAKEHOLDERS 13. Informing Stakeholders: Stakeholders are regularly informed by the Company concerning any issues related to themselves. E-mail and the company's website are essential means of information. Each year at least one meeting is held with the suppliers separately. Regional informational meetings are made with the vendor channel throughout Turkey. Informational meetings with dinner are made for the employees and their spouses at least once each year to notify the developments related to the Company. 14. Participation of the Stakeholders in the Management: There is no special arrangement for participation of the stakeholders in the management. However, within the scope of vendor directed special channel programs, product supply and sales policies of suppliers are performed in conjunction. 15. Human Resources Policy: The human resources policy of our Company, which is also published on www.index.com.tr is as following: Our personnel policy is based on the target of becoming a company admired and appreciated by all our employees. Essential criteria composing our personnel policy are; • Ensuring that our employees do not worry about their future, • Ensuring that the employees have confidence in the managers and the company, • Measuring the performance of all employees, and managing the success criteria in line with these measurements, • Displaying a transparent management, • Ensuring easy access to management, • Ensuring that employees have freedom and convenience of expression, • Caring about work discipline, • Ensuring that all personnel work not individually but with a team spirit, • Caring about career planning, • Organizing social activities, • Providing efficient working environment and conditions. The satisfaction of the personnel of our Company is measured via “Personnel Satisfaction Survey” conducted each year, the areas that need to be improved are determined and corrective steps are taken. There is no discrimination, under no circumstances, based on ethnic origin, sex, colour, race, religion or other faiths in our Company. No complaints of discrimination have been filed to the management. 57 ANNUAL REPORT 16. Information on Relations with the Clients and Suppliers: Achieving customer satisfaction in marketing and sale of products and services is one of our important and indispensable targets. To achieve it, in-company procedures were prepared and are currently applied. Visits are made to customers and suppliers, and occasionally customer satisfaction surveys are made to learn their expectations and find solutions. As a result of such works, it was awarded ISO 9001:2000 in 2004. Product Supply and Distribution Structure; The company operates as a main distributor (“broadliner distributor”) in IT industry. It buys IT products from suppliers at certain prices and maturity periods and subsequently sells the products to the sales channels that will sell them to the end user. The company does not plan to develop a sales structure that will include direct sales to the end user in the near future. Suppliers; The hardware and software suppliers of the company are grouped into two categories. 90% of the business volume of the Company is achieved with the products of such international companies. 17. Social Responsibility: We show respect to the society, nature and environment, national values, customs and traditions; in the light of our transparency principle, we provide reliable information to shareholders and stakeholders, also considering the rights and benefits of our Company, in a timely, accurate, full, understandable, analysable and easily accessible condition, on the company management, financial and legal status; we comply with the laws of the Republic of Turkey; we act in accordance with the legislation in force in all our operations and decisions. During the year, no lawsuits were filed against the Company for environmental issues. SECTION IV - BOARD OF DIRECTORS 18. The Structure and Composition of the Board of Directors and Independent Members: Board of Directors Title Executive/Non-Executive Nevres Erol Bilecik Chairman Executive Salih Bafl Vice Chairman Non-Executive Atilla Kayal›o¤lu Member/General Manager Executive Ayfle ‹nci Bilecik Member Non-Executive Halil Duman Member Executive There are no independent members in the Board of Directors, and election of independent members was not provided in the Articles of Association. Each year, in the Ordinary General Assembly meetings, permission is given to the Chairman and Members of the Board of Directors, pursuant to Articles 334 and 335 of the Turkish Code of Commerce, to perform the works, in person or on behalf of other people, included in the subject of the Company, and to become partners in companies performing these types of activities, and to perform other relevant operations. Other affiliates of the Company are represented in the Board of Directors. As these companies operate in the IT sector but have different specialization areas, it is permitted to the Members of the Board of Directors to perform tasks in other companies. 19. Qualifications of Board Members: Minimum and essential qualifications required in the Members of the Board of Directors are regulated in Article 9 "Board of Directors and Its Term of Office" of the Company's Articles of Association. All Members of the Board of Directors meet the qualifications listed in CMB's Corporate Governance Principles, Section IV, Articles 3.1.1, 3.1.2 and 3.1.3. 20. Mission, Vision and Strategic Goals of the Company: Our Company’s mission is to “Continue its leadership by providing service as a main supply centre of IT products for all companies in the computer channel considering their changing requirements”. This definition has been determined by the Board of Directors and announced to the general public through the website of the Company. Our Company’s vision is to “Be an IT Distributor capable of meeting all requirements of the computer channel from one single point.” Managers each year prepare a business plan and submit to the Board of Directors, which upon approval becomes effective as of the first week of January. Strategic business plan, income and expenditure budgets, which are prepared at the beginning of December, are evaluated by the Board of Directors which convenes regularly each month. 58 ANNUAL REPORT 21. Risk Management Mechanism and Internal Control: Risk management has an important place within the constant activities of our Company. Main starting point of risk management is identification and follow-up of all risks, which our Company has confronted with or it is probable to confront. Our managers target to ensure that applications which improve and develop risk management are constantly implemented in the Company. Current and probable risks of our Company are categorized as follows: a- Payment Risk: Dealer channel, which is described as regular dealers within the distribution structure, has low capital structure. This group of dealers, which is considered to have a number of approx. 5,000, is transferred frequently, therefore, their opening and closing ratio is rather high. The Company makes sales to almost all companies dealing with the trading of computer. b- Constant Renewal of Product Technologies: The most important feature of the sector we operate in is that technology and prices of the products are constantly changed and renewed. Companies who fail to adjust their inventory turnover to this change may face with the risk of loss. c- High Competition in the Sector and Profit Margins: Manufacturer companies in the sector have a high competition worldwide as brands. The competition of manufacturer companies reflects to the prices in the national market. For companies which have weak financing and cost structure, this situation causes an important risk. d- Exchange Rate Risk: A great part of the IT products are imported from foreign countries or purchased from domestic sources in foreign currency. When buying products the Company is often credited in foreign currency, and then payments are made in these currencies. Companies, which do not formulate their sales policy based on product-in-currency, are faced with loss risk when foreign exchange rate increases. e- No exclusivity clause in appointing of distributors by the manufacturer companies: In distributorship contracts made with manufacturer companies there is no reciprocal exclusivity relation. Manufacturer companies, when appointing distributors, may appoint other distributors as well according to the conditions of the market, and distributor companies may sign distributorship contracts with other manufacturer companies. f- Changes made in importation regimes: Changes occasionally made by the Governments in importation regimes effect the importation positively, but such changes may sometimes have negative effects as well. Due to the foregoing risks and for controlling all assets and liabilities of the Company, an Internal Audit Department reporting directly to the Chairman of the Board is established. Further, our current accounts and risk management department investigates our dealers. These inquiries are intended to reveal current account relations of the dealers with other suppliers, their relations with banks and other financial institutions and whether they issue any bad cheques or not. Credit Committee: The reports on the computer companies which completed their first year in the industry and those whose credit line has been extended are drawn up by the risk control analysts and presented to the credit committee that meets in certain days each week. The credit committee determines credit lines for each company according to the data from their investigation, past payment data and sales performance. The credit committee determines the working method, and if required, asks dealers to submit a cheque endorsed by a third party or give a further security in mortgage form. Credit lines exceeding a certain amount are evaluated at the weekly meetings of the executive committee, and any excess of credit lines is subject to the approval of the executive committee. 22. Authority and Responsibilities of the Members of the Board of Directors and Managers: Authority and Responsibilities of the Members of the Board of Directors and Managers are defined in the Articles of Association with reference to the relevant provisions of the Turkish Code of Commerce. 23. Principles of Activity of the Board of Directors: The Board of Directors has convened 9 times within the period between 01.01.2010 and 31.12.2010. The agenda and statements relating to the meeting are passed to the Members of the Board of Directors in advance. Such communication is handled by the secretary of the Chairman of the Board. While no resolutions are made in some of the discussed topics, the minutes of the topics which were resolved are not disclosed to the public. On the other hand, important subjects resolved in the meeting of the Board of Directors are announced to the general public through Disclosure of Special Events. 24. Prohibitions Concerning Transactions and Competition with the Company: The required permission was granted by the General Assembly to the Members of the Board of Directors to carry out transactions and competition with the Company as specified in Articles 334 and 335 of the Turkish Commercial Code. 59 ANNUAL REPORT 25. Ethical Rules: The Board of Directors of the Company has formulated the ethical rules for the employees. These rules are included in the prospectus which was published during the public offering of the company, and can be found in the investors section of the company website at the address of www.index.com.tr. 26. Number, Structure and Independence of Committees Established by the Board of Directors: Auditing Committee of our Company is composed of Mr. Salih Bafl and Mrs. Ayfle ‹nci Bilecik. The committee met 4 times in 2010 Auditing Committee audited and inspected the accounting system and financial data of the Company, controlled whether the financial statements reflected the actual financial status, and found out compliance to generally accepted accounting principles and financial legislation. There are not independent members in the Board of Directors, therefore, the members of the committee are not independent, either. Executive members of the Board of Directors do not take office in any committee. At the meeting of the Board of Directors of the Company held on 29.04.2009, it was resolved to establish a Corporate Governance Committee, and to elect Salih BAfi, who is a Board Member, as the Chairman of the Committee, and Ayfle ‹nci Bilecik and Halil Duman, who are Board Members, as the members of the Committee. 27. Remuneration of the Board of Directors: Members of the Board of Directors do not get any remuneration. The Chairman and Deputy Chairman of the Board of Directors and President of the Executive Board, also the General Manager and Deputy General Manager get monthly salaries related to their tasks. The Company did not lend any money, extend any credit, extend a personal credit through a third party, nor provided any guarantees to or in favour of any Member of the Board of Directors or any Manager of the Company. 60 ANNUAL REPORT 61 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 6. BOARD OF DIRECTORS' SUGGESTIONS ON DIVIDEND DISTRIBUTION ANNUAL REPORT 63 ANNUAL REPORT 6. Board of Directors' Suggestions on Dividend Distribution The Board of Directors has convened at the company head office, and resolved: a) that a motion would be submit to the Ordinary General Assembly to be held on 06.05.2011 for distribution of the first dividend in amount of 30% of the net distributable profit of 2010. b) that if adopted by the Ordinary General Assembly, the amounts of dividends to be distributed for the profit of 2010 would be determined as following: - The net profit after tax of the Company is TRL 13,171,469 as given in its consolidated financial statements for the year 2010, which were prepared pursuant to Communiqué of the Capital Markets Board Series XI, No. 29. - Set up 1st Issue Reserve Funds as TRL 413.959,12 which is 5% of net profit occurred as TRL 8.279.182,39 in accordance with Tax Law. - The First Dividend will be distributed in amount of gross TRL 3.830.021,96 (TRL 0,0683936 for 1 share with a nominal value of TRL 1 in the rate of 6,83936%) and net TRL 3.255.518,67 (TRL 0,0581346 for 1 share with a nominal value of TRL 1 in the rate of 5,81346%), corresponding 40% of the net distributable profit which occurred after deduction of 1st Issue Reserve Funds, TRL 413.959,12, from Net profit after tax TRL 13.171.469 and with adding donation TRL 9.230. - The Second Dividend will be distributed to the Preferred Group A Shareholders in amount of gross TRL 446.835,90 (TRL 1.404,35 for 1 share with a nominal value of TRL 1) and net TRL 379.810,51 (TRL 1.193,70 for 1 share with a nominal value of TRL 1), corresponding 5% of TRL 8.936.717,92 remaining after deducting the first dividend of TRL 3.830.021,96 from TRL 12.766.739,88, which is the net distributable profit of the period, - TRL 147.685,79 will be retained as the 2nd Issue Reserve Fund, - The distribution of dividend will be started on 17 May 2011, c) That the remaining amount would be added to the extraordinary reserve funds. Suggested dividend distribution table is given below. 64 ANNUAL REPORT 65 ANNUAL REPORT 1. Paid-up / Isuued Capital 56,000,000 2. Total Legal Reserve Fund (according to Legal Records) 4,608,765.84 5% of the profit remaining after allocating If there is preference in divident distribution pursuant to the Article of Association, information on preference 1st issue legal reserves and first dividend are paid to preferred shareholders According to Legal Records According to CMB 3. Profit for the Period 4. Taxes Payable (-) 5. Net Profit for the Period (=) 6. Losses from Previous Years (-) 7. First Issue Legal Reserves (-) 8. NET DISTRIBUTABLE PROFIT FOR THE PERIOD (=) 9. Charitable contributions made in the year (+) 10. Net distributable profit for the period including the charitable c 11,057,588.39 4,347,057.00 2,778,406.00 13,171,469.00 8,279,182.39 0.00 0.00 413,959.12 413,959.12 12,757,509.88 7,865,223.27 9,230.00 ontributions with which the first dividend will be calculated 11. 17,518,526.00 12,766,739.88 First Dividend to Partners 3,830,021.96 Cash 3,830,021.96 Free of charge 0.00 Total 3,830,021.96 12. Dividends Distributed to Preference Share Owners 13. Dividends to members of the Board of Directors, personnel, etc. 0.00 14. Dividends Distributed to Bonus Share Owners 0.00 15. Second Dividend to Partners 16. Second Issue Legal Reserve Fund 17. Statutory Reserves 18. Special Reserves 19. EXTRAORDINARY RESERVES 20. Other Resources Considered for Distribution - 446,835.90 0.00 147,685.79 0.00 0.00 8,332,966.23 3,440,680 0.00 0 Profit from Previous Year - Extraordinary Reserves - Distributable pursuant to the Law and the Articles of Association INFORMATION ABOUT DIVIDEND TO BE DISTRIBUTED(1) DETAILS OF DIVIDEND PER SHARE TOTAL AMOUNT OF DIVIDEND (TRL) GROUP DIVIDEND CORRESPONDING WITH 1 SHARE WITH A NOMINAL VALUE OF TRL 1 RATE % AMOUNT GROSS NET To the Holders of Preferred Shares (Group A) 446,835.90 1,404.35 140,434.94% To the Holders of Ordinary Shares (Group B) 3,830,021.96 0.0683936 6.83936% TOTAL 4,276,857.86 To the Holders of Preferred Shares (Group A) 379,810.51 1,193.70 119,369.70% To the Holders of Ordinary Shares (Group B) 3,255,518.67 0.0581346 5.81346% TOTAL 3,635,329.18 RATE OF NET DISTRIBUTABLE DIVIDEND TO THE PROFIT FOR THE PERIOD INCLUDING CHARITABLE CONTRIBUTION AMOUNT OF DIVIDEND DISTRIBUTED TO SHAREHOLDERS (TRL) RATE OF NET DIVIDEND DISTRIBUTED TO SHAREHOLDERS TO THE PROFIT FOR THE PERIOD INCLUDING CHARITABLE CONTRIBUTION (%) 4.276.857,86 SUMMARIZED DIVIDEND Preferred (Group A) 33,50 % Total Gross Dividend Tax Deduction Total Net Dividend 446,835.90 67,025.38 379,810.51 Ordinary Shares (Group B) 3,830,021.96 574,503.29 3,255,518.67 Total 4,276,857.86 641,528.68 3,635,329.18 66 ANNUAL REPORT 67 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 7. AUDITING BOARD’S REPORT ANNUAL REPORT 69 ANNUAL REPORT 7. Auditing Board’s Report AUDITING BOARD'S REPORT To the General Assembly of ‹ndeks Bilgisayar istemleri Mühendislik Sanayi ve Ticaret A.fi. Title : ‹ndeks Bilgisayar istemleri Mühendislik Sanayi ve Ticaret A.fi. Head Office : Ayaza¤a Mah. Cendere Yolu No: 9/1 fiiflli – ISTANBUL Capital : TRL 56.000.000 Fields of Activity : Purchase and sale of computers of any kind, providing technical and software support and their sales, purchase and sale of computer parts, accessories and consumables of any kind. The auditors' names, terms of office, whether they are partners or personnel of the company, or not : Veli TAN K‹RT‹fi, Haluk fiEN: Term of office is 1 year, and they are not partners or personnel of the company. Number of the Board of Directors meetings attended or Auditing Board meetings held : Attended the Board of Directors Meetings for 2 times. Scope, dates and consequence of examinations : The legal book records and the documents concerning the semi-annual and performed on the company's accounts, books annual balance sheets of the company have been examined. We confirm and documents that the mentioned book records and documents reflect the actual situation. Numbers and conclusions of the counting made in the shareholding cash office in accordance with the sub-paragraph 3, paragraph 1, article 353 of the Turkish Code of Commerce : The company cash office was counted 3 times within the period, and as a result of the counting, it was seen that the actual cash assets comply with the corresponding records. Dates and conclusions of the examinations performed in accordance with the sub-paragraph 4, paragraph 1, article 353 of the Turkish Code of Commerce : The presence of the guarantees and valuable papers listed in the company's records was checked, and it was seen that they comply with the corresponding records. Complaints and irregularities reported and measures taken in respect of the same : No complaints or irregularities have been reported to us. We have examined the accounts and transactions of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret Anonim fiirketi for the accounting period between 01.01.2010 to 31.12.2010 for compliance with the requirements of the Turkish Code of Commerce, the company's Articles of Association, other relevant legislation, and generally accepted accounting principles and standards. In our opinion the enclosed balance sheet issued as of 31.12.2010, the contents of which we certify, accurately reflects the true financial standing of the company as of the same date; and the profit & loss statement for the period between 01.01.2010 and 31.12.2010 accurately and truly reflects the results of business activities during the same period, and the suggestion of profit allocation is in compliance with the legislation in force and the articles of association of the company. We kindly submit for your approval the balance sheet and the profit & loss statement and acquittal of the Board of Directors. Auditors 70 ANNUAL REPORT 71 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 8. INDEPENDENT AUDIT REPORT ANNUAL REPORT 73 ANNUAL REPORT 8. Independent Audit Report INDEPENDENT AUDIT REPORT To The Board of Directors of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret Anonim fiirketi Introduction We have audited the accompanying consolidated financial statements of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret Anonim fiirketi, its subsidiaries (together with “Group”) which comprise the consolidated balance sheet as of December 31, 2010 and the consolidated income statement, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory notes. (Note:2.03) Consolidated financial statements of the Group as of December 31, 2009 were audited by another independent auditing company. The independent auditing company has expressed a positive opinion in the audit report dated March 8, 2010. Responsibility of Management in Accordance with Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with financial reporting standards published by Capital Market Board (CMB). This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Responsibility of Independent Auditing Company Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing published by Capital Market Board. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. Our audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s 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, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements present fairly the consolidated financial position of ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret Anonim fiirketi as of December 31, 2010 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with financial reporting standards published by Capital Market Board (CMB). ÇA⁄DAfi BA⁄IMSIZ DENET‹M S.M.M.M. A.fi. An Independent member of IAPA International ÖZCAN AKSU Certified Public Accountant (Istanbul, April 4, 2011) 74 ANNUAL REPORT 75 ‹NDEKS B‹LG‹SAYAR S‹STEMLER‹ MÜHEND‹SL‹K SANAY‹ VE T‹CARET A.fi. ANNUAL REPORT 2010 9. FINANCIAL STATEMENTS AND NOTES ANNUAL REPORT 9. FINANCIAL STATEMENTS AND NOTES 77 ANNUAL REPORT 9. Financial Statements and Notes Notes to consolidated financial statements for the periods ended 01.01.2010 and 31.12.2010 prepared in accordance with international financial reporting standards. INDEKS B‹LG‹SAYAR S‹S. MÜH. SAN. T‹C. Afi. BALANCE SHEET (XI-29 CONSOLIDATED ) (Turkish Lira) ASSETS Notes CURRENT ASSETS Current 31.12.2010 Previous 31.12.2009 506.260.534 405.654.269 Cash and Cash Equivalents 6 26.415.870 2.320.888 Financial Investments 7 100.875 33 10 315.185.436 229.494.807 4.619.012 624.262 10 310.566.424 228.870.545 11 246.748 1.355.562 Trade Receivables - Receivables from Related Parties - Other Other Receivables - Receivables from Related Parties 10-37 11-37 96.013 1.205.509 - Other 11 150.735 150.053 Inventories 13 127.325.894 138.885.304 Other Current Assets 26 36.985.711 33.597.675 31.871.237 31.092.091 NON-CURRENT ASSETS Other Receivables 11 56.440 51.844 Financial Investment 7 64.894 64.894 Investment Property 17 124.871 - Tangible Fixed Assets 18 28.430.858 28.031.126 Intangible Fixed Assets 19 59.139 68.865 Goodwill 20 2.467.577 2.467.577 Deferred Tax Assets 35 667.458 407.785 538.131.771 436.746.360 TOTAL ASSETS The accompanying policies and explanatory notes are an integral part of the financial statements. 78 ANNUAL REPORT INDEKS B‹LG‹SAYAR S‹S. MÜH. SAN. T‹C. Afi. BALANCE SHEET (XI-29 CONSOLIDATED ) (Turkish Lira) LIABILITIES Notes SHORT -TERM LIABILITIES Financial Liabilities Trade Payables -Due to Related Parties -Other Other Financial Liabilities - Due to Related Parties - Other Provision For Tax Provision For Liabilities Other Short-Term Liabilities 313.007.623 8 11.424.383 10 10-37 10 11 365.962.360 624.144 365.338.216 13.468.858 4.834.616 8.634.242 22.155.856 265.080.401 6.760.191 11-37 11 35 22 26 8 24 SHAREHOLDERS EQUITY Parent Company Shareholders' Equity 27 Paid-in Capital Adjustments regarding Share Capital of Participations (-) Hedging Funds Restricted Reserves Assorted from Profit Previous Years’ Profit / (Loss) Net Profit / (Loss) for the Period Minority Interests 27 The accompanying policies and explanatory notes are an integral part of the financial statements. 258.320.210 8.239.654 1.182.299 7.057.355 1.098.634 1.530.656 5.176.795 11.261.656 3.382.919 12.618.137 9.301.841 10.962.332 8.285.360 1.016.481 10.313.062 649.270 120.437.244 112.776.405- 110.656.770 56.000.000 241.113 104.023.844 79.284 5.109.837 TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 79 Previous 31.12.2009 408.392.686 LONG -TERM LIABILITIES Finansal Borçlar K›dem Tazminat› Karfl›l›¤› Current 31.12.2010 56.000.000 241.113 - 36.055.067 13.171.469 9.780.474 4.183.406 27.664.383 15.934.942 8.752.561 538.131.771 436.746.360 ANNUAL REPORT INDEKS B‹LG‹SAYAR S‹S. MÜH. SAN. T‹C. Afi. INCOME STATEMENT (XI-29 CONSOLIDATED) (Turkish Lira)2.2007 Notes Current 01.01.2010 31.12.2010 Previous 01.01.2009 31.12.2009 CONTINUED OPERATIONS Sales Revenue Cost of Sales (-) GROSS PROFIT Marketing, Sales and Distribution Expenses(-) General Administration Expenses (-) Other Operating Income Other Operating Expenses (-) 28 28 29 29 31 31 OPERATING PROFIT / (LOSS) 1.228.175.766 (1.153.272.537) 74.903.229 (13.493.798) (14.896.959) 60.687 (374.948) 1.087.422.382 (1.023.117.198) 64.305.184 (11.173.103) (12.767.710) 353.339 (948.369) 32 46.198.211 40.029.703 33 (67.681.475) 39.769.341 28.286.140 (45.663.848) 18.546.439 (4.347.057) 22.391.633 (4.747.543) (4.626.551) 279.494 (4.681.623) (65.920) 17.644.090 Other Comprehensive Income 14.199.382 79.284 79.284 OTHER COMPREHENSIVE INCOME (AFTER TAXES) 14.278.666 17.644.090 Total Comprehensive Income Distribution of Profit / (Loss) For the Period 14.199.382 Financial Income Financial Expenses (-) CONTINUED OPERATIONS PROFIT BEFORE TAXATION Continued Operations Tax Income / (Expense) - Tax Expense for the Period 35 - Deferred Tax Income / (Expense) 35 PROFIT FOR THE PERIOD Change in Hedging Fund - 17.644.090 1.709.148 Minority Interest Parent Company Share Distribution of Total Comprehensive Income for the Period 27 27 Minority Interest 27 1.027.913 13.171.469 14.278.666 1.027.913 Parent Company Share 27 13.250.753 15.934.942 Earnings Per Share 36 0,235205 0,284553 15.934.942 17.644.090 1.709.148 The accompanying notes are integral parts of the consolidated financial statements. 80 ANNUAL REPORT INDEKS B‹LG‹SAYAR S‹S. MÜH. SAN. T‹C. Afi. CONSOLIDATED CASH FLOW STATEMENT (Turkish Lira) CASH FLOW STATEMENT (TL) Notes Current 01.01.2010 31.12.2010 Previous 01.01.2009 31.12.2009 A) CASH FLOW PROVIDED FROM OPERATIONS Net Profit for the Year 18.546.439 22.391.633 698.376 Adjustments : 18-19 840.617 Change in Provision for Termination Indemnities 24 521.509 323.612 Rediscount on Notes Receivable (+) 10 489.818 (368.166) Gain (-) or Loss (+) on Sale of Assets 18-19 Depreciation (+) (16.309) 1.794 1.793.875 570.793 10 438.975 2.124.324 10 (242.705) (375.794) Provision for Decrease in Value of Inventories (+) 13 284.547 (223.830) Rediscount on Notes Payable (-) 10 (626.494) (166.845) Increase (+) / Decrease (-) in Provision for Debt 22 Provision for Doubtful Receivables for Current Period (+) Provision for Nullified Doubtful Receivables (-) Provision for Decrease in Value of Affiliates (-) - - Interest Expenses (+) 33 13.146.389 9.866.332 Interest Income (-) 32 (8.367.322) (5.564.708) - - 26.809.339 29.277.521 10-11 (85.515.205) (46.971.198) 13 11.274.863 (58.455.063) Income from Marketable Securities or Long-term Investments(-) Operational Income Before Changes in Working Capital: Increase/Decrease in Trade Receivables /Other Receivables (-) Decrease in Inventories (+) Increase in Marketable Securities with Purchase/Sale Purposes(-) Decrease in Trade Receivables /Other Receivables (-) 10-11 - - 106.737.658 84.935.249 Increase (-) / Decrease (+) in Other Current Assets 26 (3.388.036) (3.568.637) Increase (+) / Decrease (-) in other Liabilities 26 (1.356.481) 5.596.084 Other Cash Flows (+)/(-) Cash Inflow Provided/(Used) From Operating Activities: 286.070 (452.307) 54.848.208 10.361.649 Termination Indemnities Payment (-) 22 (154.297) (176.683) Tax Payment (-) 35 (5.058.573) (3.899.370) 49.635.338 6.285.596 - - Net Cash Inflow Provided/(Used) From Operating Activities: B) NET CASH USED IN INVESTMENT OPERATIONS Net Tangible Assets Purchases (-) Investment property (-) 17 - - (125.500) (898.843) Tangible Assets Purchases 18-19 (1.265.890) Cash provided from sale of Tangible and Intangible Assets 18-19 52.206 22.257 (1.339.184) (876.586) Capital Increase - - Change in Cash with Issue Premiums - - NET CASH RELATING TO INVESTMENT OPERATIONS C) CASH FLOW RELATING TO FINANCIAL ACTIVITIES Change in Short Term Financial Liabilities 8 (10.731.473) (7.157.785) Change in Long Term Financial Liabilities 8 (2.027.702) (1.331.514) Dividends Payments (-) Net Interest Income / (Expense) 32-33 Hedging fund NET CASH RELATING TO FINANCIAL ACTIVITIES NET CHANGE IN CASH AND CASH EQUIVALENTS (6.617.827) - (4.903.594) (3.726.004) 79.284 - (24.201.312) (12.215.303) 24.094.842 (6.806.293) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 6 2.320.888 9.127.181 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 6 26.415.730 2.320.888 The accompanying policies and explanatory notes are an integral part of the financial statements. 81 - - Net Profit - Other Comprehensive Income Net Profit 241.113 - - - - - - 241.133 The Inflation Adjustments Differences Profit of Cancelled Shares Profit of Cancelled Shares - - - - - - - - - - - - - - - - (926.431) (6.617.827) 926.431 5.109.837 79.284 79.284 - - - - - - - - Foreign Currency Translation Reserve - 27.664.383 4.183.406 - - (211.151) 5.066.829 - 22.808.705 Previous year Profit / (Loss) 36.055.067 - - - - 211.151 - - 3.972.255 Restricted Reserves from Profit 15.934.942 - - - - - - Previous year Profit / (Loss) 27.664.383 Restricted Reserves from Profit 4.183.406 Foreign Currency Translation Reserve The accompanying policies and explanatory notes are an integral part of the financial statements. 56.000.000 - Dividends Not-27 - Transfers to Reserves 31.12.2009 - Transfers to Retained Earnings 56.000.000 - Not-27 Capital Capital 01.01.2009 Notes - - Other Comprehensive Income CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (TRL) - - Dividends 241.113 - - Transfers to Reserves 56.000.000 - - Transfers to Retained Earnings Not-27 - - Capital 31.12.2010 241.133 56.000.000 Not-27 01.01.2010 The Inflation Adjustments Differences Capital Notes CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (TRL) 8.752.561 1.709.148 15.934.942 15.934.942 - - - - - 7.043.413 Minority Interest 9.780.474 1.027.913 - - - - - 8.752.561 Minority Interest - - - 5.066.829 - 5.066.829 Net Period Profit / (Loss) 13.171.469 13.171.469 - - - 15.934.942 - 15.934.942 Net Period Profit / (Loss) 112.776.405 17.644.090 - - - - - 95.132.315 Total Equity 120.437.244 14.199.382 79.284 (6.617.827) - - - 112.776.405 Total Equity ANNUAL REPORT INDEKS B‹LG‹SAYAR S‹S. MÜH.SAN.T‹C.Afi. CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY (Turkish Lira) 82 Mali Tablolara Ait Dipnotlar 1. ORGANIZATION AND BUSINESS SEGMENTS ‹ndeks Bilgisayar Sistemleri Mühendislik Sanayi ve Ticaret Anonim fiirketi was established in 1989, and the activities of the Company are comprised of trade of all kinds of “Information Technology” products for the purpose of wholesale trading. The Company is registered to the Capital Markets Board of Turkey since June 2004 and 15,34% of the Company’s shares are traded on Istanbul Stock Exchange. As of December 31, 2010 and December 31, 2009, details regarding to Company’s subsidiaries, which are subject to consolidation, are as follows: Company Name Field Of Operations Datagate Bilgisayar Malzemeleri A.fi. Purchasing and Selling of Computer (Datagate) and Equipment Neotech Teknolojik Ürünler Da¤. A.fi. Purchasing and Selling of Home (Neotech) Electronic Products Teklos Teknoloji Lojistik Hizmetleri A.fi. Capital % of Direct Ownership % of Indirect Ownership 10.000.000 59,24 59,24 1.000.000 80,00 80,00 Logistics 5.000.000 99,99 99,99 Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. Purchasing and Selling of 1.100.000 50,00 50,00 (Neteks) Network Products (Teklos) The financial statements of Datagate Bilgisayar Malzemeleri A.fi., Neotech Teknolojik Ürünler Da¤. A.fi. and Teklos Teknoloji Lojistik Hizmetleri A.fi. are consolidated according to “the full consolidation method”. The financial statements of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. is consolidated according to the proportionate consolidation method”. The main shareholders of the Company are Nevres Erol Bilecik (%38,63) and Pouliadis and Associates S.A. ( % 35,56) located in Greece. The average number of employees for the year ended December 31, 2010 is 316.(2009: 289 ) . All personnel are administrative staff. The Company’s official address registered in Trade Registry is Ayaza¤a District, Cendere Yolu No: 9/1 Ka¤›thane, ‹stanbul and it has branches in Ankara, ‹zmir, Diyarbak›r, Elaz›¤ and Atatürk Airport Free Zone. The Group’s’ subsidiaries as of December 31, 2010 and December 31, 2009 are as follows: Company Name Field Of Operations Capital % of Direct Ownership % of Indirect Ownership Datagate Bilgisayar Malzemeleri A.fi. Purchasing and Selling Computer 10.000.000 59,24 59,24 Neotech Teknolojik Ürünler Da¤. A.fi. Purchasing and selling Home 1.000.000 80,00 80,00 Teklos Teknoloji Lojistik Hizmetleri A.fi. Logistics 5.000.000 99,99 99,99 Neteks ‹letiflim ürünleri Da¤›t›m A.fi. Purchasing and Selling Network 1.100.000 50,00 50,00 ‹nfin Bilgisayar Ticaret A.fi. Purchasing and Selling Computer 50.000 99,80 99,80 Neteks D›fl Ticaret Ltd.fiti. (*) Purchasing and Selling Network 5.000 - 49,50 and equipment Electronic Products Products and equipment (Export-Import) Products (*)Neteks D›fl Ticaret Ltd.fiti is the subsidiary of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. with a rate of 99%. Hereafter, the Company and the subsidiaries will be referred as (‘The Group’) in the consolidated financial statements and notes to the financial statements. 83 ANNUAL REPORT 2. PRINCIPLES RELATED TO THE PRESENTATION OF THE FINANCIAL STATEMENTS 2.01 Basic Principles For The Presentation The Group maintains its books of account and prepares its statutory financial statements in accordance with the regulations of Capital Market Board (CMB) Law, Turkish Commercial Code, Tax Procedural Law and Uniform Chart of Accountants published by Ministry of Finance. The accompanying consolidated financial statements of the Group were prepared in accordance with the communique Serie XI, No:29 “Comminuque on Financial Reporting at Capital Markets” which was declared by the CMB dated April 9, 2008 with No:26842. This communique has become valid for the first interim financial statements after January 01, 2008. Based on 5th clause of this communique, companies applying International Accounting / Financial Reporting Standards (IAS/ IFRS) , which were accepted by European Union and financial statements are disclosed in s appropriate to IAS/ IFRS.Turkish Accounting/Financial Reporting Standards which were published by Turkish Accounting Standards Board, are based and consistent with IAS/ IFRS. Group’s consolidated financial statements were prepared in accordance with the communique Serie XI, No:29 and s to the consolidated financial statements were presented according to the format obliged by the CMB with the declaration dated April 14, 2008. For that reason, prior period financial statements reclassified accordingly. As of April 4, 2011 the Group’s financial statements were approved and signed by its Board of Directors for the period January 1December 31, 2010. General Assembly has a right to change financial statements. 2.02 Dealing with the Inflation Effects in Hyper-Inflationary Periods According to the decision, dated March 17, 2005 with No:11/367, made by the Capital Market Board, the inflation accounting has been no longer effective as of 2005 and the accompanying consolidated financial statements has not been adjusted since January 1,2005. Nonmonetary values, which are in the accompanying consolidated financial statements, exist with valued as of December 31, 2004 in accordance with International Accounting Standards No. 29 “Financial Reporting on Hyper-Inflationist Economies”. 2.03 Consolidation Principles Subsidiaries are the companies, whose shares are held by the Company directly or indirectly through shares of other companies. As a result, the Group with or without over 50% of voting right, has the power and authority to direct and control the management and policies of the subsidiary companies whether through the ownership of voting securities, by contract or otherwise. Balance Sheet and Income statements of the subsidiaries are consolidated according to “full consolidation method” and book value and capital of the Group’s subsidiary are adjusted accordingly. Transactions and balances between the Company and Subsidiaries are eliminated during consolidation. Minority interests show minority shareholders’ share in the subsidiaries’ assets and result of operations for the related period. These details are to be expressed separately in consolidated Balance Sheet and Income Statement. If losses related to minority interest are over benefits from shares of a subsidiary and if there is no bounding liability to the minorities, in general, these losses related with the minorities result against to benefits of the minorities. Companies under common control of the Group is described as Joint Managing Companies. The Group has significant impact on financial and operating policies of these companies. The current shares in the subsidiaries as of December 31, 2010 and December 31, 2009 are as follows: Company Name Datagate Bilgisayar Malzemeleri A.fi. Field Of Operations Purchasing and Selling Computer Capital % of Direct Ownership % of Indirect Ownership 10.000.000 59,24 59,24 1.000.000 80 80 50.000 99,80 99,80 and Equipments Neotech Teknolojik Ürünler Da¤. A.fi. Purchasing and Selling Home Electronic Products ‹nfin Bilgisayar Ticaret A.fi. Purchasing and Selling Computer and Equipments (Export-Import) Teklos Teknoloji Lojistik Hizmetleri A.fi. Logistics 5.000.000 99,99 99,99 Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. Purchasing and Selling Network Products 1.100.000 50,00 50,00 Neteks D›fl Ticaret Ltd.fiti. (*) Purchasing and Selling Network Products 5.000 - 49,50 (*)Neteks D›fl Ticaret Ltd.fiti is the subsidiary of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. with a rate of 99%. 84 ANNUAL REPORT The financial statements of Datagate Bilgisayar Malzemeleri A.fi., Neotech Teknolojik Ürünler Da¤. A.fi. and Teklos Teknoloji Lojistik Hizmetleri A.fi. are consolidated for using direct consolidation method, the financial statements of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. is consolidated by using partial consolidation method. Balance Sheets and Income statements of the subsidiaries are consolidated according to “full consolidation method” and “partial consolidation method”, and book value and capital of the Company’s subsidiaries are adjusted accordingly. Transactions and balances between the Company and subsidiaries are eliminated during consolidation. Minority interests show minority shareholders’ equity in the subsidiaries’ assets and result of operations for the related period. These details are expressed separately in consolidated balance sheet and Profit/Loss Statement. If losses related to minority interest are over benefits from shares of a subsidiary and if there is no bounding liability to the minorities, in general, these losses related with the minorities can result against to benefits of the main shareholders. Financial Information of Companies which are subjected to Partial Consolidation Method Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. which is joint managing of company are subjected to partial consolidation method. Financial summary of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi stated as follows Financial Statement Items 31.12.2010 Current Assets Fixed assets 42.657.724 197.745 26.285.563 160.931 42.855.469 38.003.364 16.960 4.835.145 42.855.469 107.884.168 5.752.937 26.446.494 23.150.765 8.505 3.287.224 26.446.494 99.640.221 Total Assets Short Term Liabilities Long Term Liabilities Total Equity Total Liability Sales Gross Profit Operational Profit Net Profit 2.675.971 1.547.921 31.12.2009 4.740.065 2.095.566 998.033 Companies which are not subjected to Consolidation Parent and subsidiary companies which are not subjected to consolidation and the subsidiary related with management, auditing, capital are as follows: Associate % of Ownership TL Amount of Ownership ‹nfin Bilgisayar Ticaret A.fi. 99,80 62.419 Neteks D›fl Ticaret Ltd. fiti.(*) 49,50 2.475 Total Subsidiary Amount 64.894 (*)Neteks D›fl Ticaret Ltd.fiti is the subsidiary of Neteks ‹letiflim Ürünleri Da¤›t›m A.fi. with a rate of 99%. ‹nfin Bilgisayar Ticaret A.fi. and Neteks D›fl Ticaret Limited fiirketi were not consolidated to the fact that they are both insignificant and do not have material effect on the Group’s consolidated financial statements. These subsidiaries are classified as financial assets available for sale in consolidated financial statements. Comparison between financial outcomes of companies which are not subjected to consolidation and financial outcomes of consolidated financial statements on 31.12.2010 are as follows; Financial Outcomes of 2010 Companies which are not subjected to consolidation Consolidated Financial Statements % 85 Total Asset Total Equity Net Sales Period Income 7.158.065 425.158 28.165.752 78.690 538.131.771 120.437.244 1.228.175.766 13.171.469 1,33% 0,35% 2,29% 0,60% ANNUAL REPORT Significant part of items, which are located in total asset and sales,are eleminated during the consolidation eventhough this companies are subjected to consolidation. Considered other matters when mentioned companies are excluded from the consolidation, are as follows; These companies has not got significant assets and liabilities which are out of balance sheet. Moreover these companies has not got significant assets such as fixed assets etc. On the lights of above given data all these companies were not subjected to consolidation due to all quantitative and qualitative evaluations and on the lights of above given data indicate that these companies do not effect to financial outcomes significantly. 2.04 Comparative Information and Adjustment of the Previous Consolidated Financial Statements The comparative financial statements have been presented to enable to perform the financial position and the performance trend analysis. All necessary adjustments have been made in prior financial statements to present consistent and comparative financial statements. The new items have been added to Group's Statement of Cash Flows in the current period in order to better reporting of the cash flows of the Group. In parallel with the changes in Statement of Cash-Flows in the current period, the similar classifications are made to prior periods in order to ensure the comparability of the financial statements. The classifications do not have any effect on the prior period’s profit / loss, shareholders’ equity, total assets, etc. 2.05 Offsetting The financial assets and liabilities in the financial statements are offset and the net amount reported in the balance sheet, where there is a legally enforceable right to offset the recognized amounts, and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. 2.06 Changes in Accounting Policies The changes to the current accounting policies can be performed if it is necessary or the changes will provide more appropriate and reliable presentation of the transactions and to the events related financial position, performance and the cash flow of the Group that affect the financial statements of the Group. If the changes in accounting policies affects the prier periods, policy is applied to the prier period financial statements as if it is applied before. There is no any changing in financial accounting policies made in the current period 2.07 Changes in Accounting Estimates and Errors Accounting estimates are made based on reliable information and using appropriate estimation methods. However, if new or additional information becomes available or the circumstances, which the initial estimates based on, change, then the estimates are reviewed and revised, if necessary. If the change in the accounting estimates is only related to a sole period, then only that period’s financial statements are adjusted. On the other hand, if the amendments are related to the current as well as the forthcoming periods, then both current and forthcoming periods’ financial statements are adjusted. In instances where the accounting estimates affect both current and forthcoming periods, then description and monetary value of the estimate is disclosed in the notes to the financial statements. However; if the effect of the accounting estimate to the financial statement cannot be determined, then it is not disclosed in the notes to the financial statements. The Group is applying the accounting estimates to determine the doubtful receivables, the value decrease in fixed assets and inventory, the useful lives of the fixed assets, contingent liabilities, actuarial assumptions for the termination indemnities, etc. There is no change in accounting estimates in the current period. Accounting estimates applied by the Group are disclosed below in the related parts of the footnotes. The Group benefits from past experiences for the accounting estimates. 2.08.01 Income The Group recognizes income according to the accrual basis, when the Group reasonably determines the income and economic benefit is probable. Group’s income mainly consists of sales of computer and computer equipments as PC, laptop, motherbord, hard disk, display adapter. All the sales are operated via dealers and there are not any direct sales to end customers. Net sales is calculated by deducting sales return and sales discounts from total sales. Revenue from the sale of goods is recognized when all the following conditions are gratified: • • • • • The significant risks and the ownership of the goods are transferred to the buyer; The Group refrains the managerial control over the goods and the effective control over the goods sold; The revenue can be measured reasonably; It is probable that the the economic benefits related to transaction will flow to the entitiy; The costs incurred or will be incurred in conjuction with the transaction can be measured reliably. 86 ANNUAL REPORT Interest revenue is accured on a time basis, by reference to the principal outstanding and at the effective interest rate applicaple, which is the rate that discounts the estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount. When there is significant amount of cost of financing included in the sales, the fair value is determined by discouting all probable future cash flows with the yield rate, which is embedded in the cost of financing. The differences between the fair value and the nominal value is recorded as interest income according to the accrual basis. 2.08.02 Inventories Inventories are stated either at the lower of acquisition cost or net realizable value. Group’s inventories consist of computer and computer equipments like PC, laptop, electrical household appliances, network products. The inventory costing method used by the Group is “First In First Out (FIFO)”. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs neccessary to make the sale. 2.08.03 Tangible Fixed Assets For Assets acquired in and after 2005, the tangible assets are reflected to the consolidated financial statements by deducting their accumulated depreciation from their cost. For assets that were acquired before January 01, 2005, the tangible fixed assets is presented on the consolidated financial statements based on their cost value, which is adjusted according to the inflationary effects as of December 31, 2004. Depreciation is calculated using the straight-line method based on their economic lives. The following rates, determined in accordance with the economic lives of the fixed assets, are used in calculation of depreciation. TYPE OF FIXED ASSET Depreciation rates as of Depreciation rates as of December 31, 2010 (%) December 31, 2009 (%) Land Improvements 10 10 Buildings 2 2 Machinery, Plant and Equipment 20-10 20-10 Motor Vehicles 25-10 20-10 Furniture and Fixtures 25-10 20-10 Leasehold Improvements 20-10 20-10 Lands are not subject to depreciation since they have unlimited useful lives. Tangible fixed assets has been revised in terms of impairment each period. If the carrying value of a tangible fixed asset is more than its expected net realizable value then the carrying value is reduced to its net realizable value by making the necessary provision. The profit and loss arisen from fixed asset sales are determined by comparing the net book value with the sales price and the result is added to the operating profit or loss. Maintenance and repair expenses are accounted as expense at their realization date. If the maintenance and repair expenses clearly improve the economic value or performance of the related asset then they are capitalized. 2.08.04 Intangible Assets Intangible Assets contains acquired assets by sales such as computer software programs and computer software licences. There is no intangible assets created within the structure of business. Intangible assets acquired before January 1, 2005 are carried at acquisition costs adjusted for inflation; whereas those purchased in the year 2005 and purchased after 2005 are carried forward at their acquisition cost less accumulated amortization. Amortization is calculated using the straight-line method between 5 and 10 years period. Intangible fixed assets are rewieved in terms of impairment for each balance sheet period. If the carrying value of a tangible fixed asset is more than its expected net realizable value, then the carrying value is reduced to its net realizable value by making the necessary provisions. There is no provision for decrease in value of a tangible fixed assets. 2.08.05 Impairment of Assets Assets which has infinite life are not subjected to amortization. Impairment test is applied for these assets for each year. 87 ANNUAL REPORT Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are seperately identifiable cash flows. Apart from the goodwill, non-financial assets that suffered impairment are reviewed for possible reversal of impairment at each reporting date. 2.08.06 Research and Development Expenses None. 2.08.07 Borrowings Costs The borrowing costs are recognized as expense when they are incurred. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalized as part of the cost of that asset. The capitalization of borrowing costs as part of the cost of a qualifying asset shall commence, when expenditures and borrowing costs for the asset are incurred, continues until that asset becomes available for sale. Expenditures on a qualifying asset include only those expenditures that have resulted in payments of cash, transfers of other assets or the assumption of interest-bearing liabilities. There are no capitalized borrowing costs in current period related to qualifying assets. 2.08.08 Financial Instruments (i) Financial Assets Investments are recognized and derecognized on transaction date where the purchase and sales of an investment is under a contract, terms of which require delivery of the investment within the timeframe established by the market concerned and are initially measured at fair value, net of transaction costs except for those financial assets classified as fair value through profit or loss which are initially measured at fair value. Financial assets are classified as “financial assets, whose fair value differences are reflected to the profit or loss”, “financial assets held to the maturity”, “financial assets available for-sale” and “loans and receivables.” Prevailing Interest Method Prevailing interest method is the assessment of financial asset with their amortized cost and allocation of interest income to the relevant period. Prevailing interest rate is a rate that discounts the estimated cash flow of the financial instruments for the expected life or where appropriate a shorter period. Income related to financial assets, except the “financial assets, whose fair value differences are reflected to the profit or loss”, is calculated by using the prevailing interest rate. a) Financial Assets Whose Fair Value Differences Are Reflected to the Profit or Loss “Financial assets whose fair value differences are reflected to the profit or loss”, are the financial assets that are held for trading purposes. If a financial asset is acquired for trading purposes, it is classified in this category. Also, derivative instruments, which are not exempt from financial risk, are also classified as “Financial assets whose fair value differences are reflected to the profit or loss”. These financial assets are classified as current assets. b) Financial Assets Which Will Be Held to the Maturity Debt instruments, which the Group has the intention and capability to hold to maturity, and/or have fixed or determinable payment arrangement are classified as “Investments Held to the Maturity”. Financial asset that will be held to the maturity, are recorded after deducting the impairment from the cost basis, which has been amortized with prevailing interest method. All relevant income is calculated using the prevailing interest method. c) Financial Assets Available-For-Sale Financial assets, which are “Available-for-Sale” are either financial assets, which will not be held to maturity or financial assets, which are not held for trading purposes. Financial assets Available-for-Sale are recorded with their fair value if their fair value can be determined reliably. Marketable securities are shown at their cost basis unless their fair value can be reliably measured or have an active trading market. Profit or loss pertaining to the financial assets Available-for-Sale is not recorded on the income statement. The fluctuation in the fair value of these assets are shown in the statement of shareholders’ equity. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously recognized is includeded in profit or loss for the period. Provisions recorded in the income statement pertaining to the impairment of financial asset Available-for-Sale can not be reversed from the income statement in future periods. Except equity instruments classified as available-for-sale, if impairment loss decreases in next period and if therein decreasing can be related to an event occurred after the accounting of impairment loss, impairment loss accounted before, can be cancelled in income statement. 88 ANNUAL REPORT d) Loans and Receivables Trade receivables, other receivables, and loans are initially recognized at their fair value. Subsequently, receivables and loans are measured at amortized cost using the effective interest method. In the case of interest on loans and receivables negligible, registered value of loan and receivables is accepted as fair value. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indication of impairment at each balance sheet date. Financial assets are impaired, where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced with the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are reversed against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. With respect to available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity. Cash and Cash Equivalents Cash and cash equivalents are cash, demand deposit and other short-term highly liquid investments, which their maturities are three months or less from the date as of acquisition, that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. (ii) Financial Liabilities Financial liabilities and equity instruments are classified according to the contractual agreements entered into and the definition of financial liability and equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all the liabilities. Accounting policies determined for the financial liabilities and the financial instruments based on equity are explained below. Financial liabilities are classified as either “financial liabilities whose fair value differences are reflected to the profit /loss” or other financial liabilities. a) Financial Liabilities Whose Fair Value Differences Are Reflected to the Profit /Loss “Financial liabilities whose fair value differences are reflected to the profit /loss” are recorded with their fair value and are re-evaluated at the end of each balance sheet date. Changes in fair values are recorded on the income statement. Net earnings and/or losses recorded on the income statement also include interest payments made for this financial liability. b) Other Financial Liabilities None. (iii) Derivative Financial Instruments The Group has aggrement in foreign currency futures markets. Derivative financial instruments are recognised with its market value on the date of derivative contracts signed and re-assessed with its market value. The difference between the fair value as of December 31, 2010 and the cost value of the forward contracts as of December 31, 2010 is recognised under the shareholders’ equity within the scope of “ IAS 39 Hedge Accounting.” The gain or loss realized from the increase or decrease in the fair value of the derivative instruments which do not meet the conditions for hedge accounting is recognised in profit or loss. The fair value is determined by the appropriate one of possible valid market values, otherwise discounted cash flows and option pricing models. The derivatives with positive fair value is recognised as an asset and with negative fair value is recognised as a liability under the balancesheet. (Note:7) 89 ANNUAL REPORT 2.08.09 Effects of Currency Fluctuations All transactions, denominated in foreign currencies, are converted into TL by the exchange rate ruling at the transaction date. All foreign currency denominated monetary assets and liabilities stated at the balance sheet are converted into TL by the exchange rate ruling at the balance sheet date. Foreign exchange gains and/or losses as a result of the conversions are recorded in the income statement. Group uses same foreign currency in their sales and purchase transaction. Therefore Group does not contain cuurency risk. 2.08.10 Earnings per Share Earnings per share in the income statement is calculated by dividing net income by the weighted average number of common shares outstanding for the period. In Turkey, companies are allowed to increase their share capital by distributing “bonus shares” from retained earnings. These bonus shares are deemed as issued shares while calculating the net earnings per share. Accordingly, the retrospective effect for those share distributions is taken into consideration in determining the weighted-average number of shares outstanding used in this computation. 2.08.11 Subsequent Events Subsequent events cover all events that occur between the balance sheet date and the publication date of the financial statements. If there is substantial evidence that the subsequent events existed or arise after the balance sheet date, these events are disclosed and explained in the notes to the financial statements. 2.08.12 Provisions, Contingent Liabilities and Assets A provision is recognized when an entity has a present obligation (legal or constructive) as a result of a past event; it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and reliable estimate can be made of the amount of the obligation Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. The discount rate (or rates) is a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money and the risks specific to the liability. The increase in provisions arisen from time differences is recorded as interest expense in case of discounting. Future events that may affect the amount required to settle an obligation shall be reflected in the amount of a provision where there is sufficient objective evidence that they will occur. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Contingent liabilities and assets are not reflected to consolidated financial statements but disclosed in the notes to the consolidated financial statements. The entity recognizes a provision for the part of the obligation, for which an outflow of resources embodying economic benefits is probable, except in the extremely rare circumstances where no reliable estimate can be made. 2.08.13 Leasing Operations The Group as Lessee Financial Leases Financial leases are descibed which the lessor retains all the risks and benefits pertaining to the goods. Financial leases are taken into the accounts according to lower current market value or minimum lease payments. The liability arising from a financial leasing transaction is separated into interest payable and principal debt in order to determine a fixed interest rate on the remaining balance. The costs and expenses incurred at the initial acquisition of the fixed asset subject to financial leasing are added to the cost. The fixed assets obtained through financial leasing are subject to depreciation over their estimated useful lives. Information of net book value of Group’s assets ,which are subject to lease, stated on Note:18. Information related with Group’s financial leasing debt stated on Note:8 Operating Leases Lease agreements in which the lessor retains all the risks and benefits relating to the good are described as operational leasing. Lease payments made for an operational leasing are recorded as expense according to normal method throughout the lease term. Group’s Lease agreements as a lessee ,are related with store and office lease in ‹stanbul, Ankara, ‹zmir, Diyarbak›r and vehicle leases. Annual lease expense is 479.728 TL (2009 : 582.934 TL) as of 2010. Lease payments have been expensed with straight line-method. 90 ANNUAL REPORT The Group as Lessor Operating Leases The Group presents assets subject to operating leases in their balance sheet according to the nature of the asset. Lease income from operating leases is recognized as income according to the normal method. The initial direct costs incurred during operational leasing are reflected to income statement as expense. Group’s Lease agreements as a lessor, are related with leasing to small part of the main building where Group’s operating, to other non-consolidated companies and to another company which is not include the Group, as aoffice and store. 2.08.14 Related Party Disclosures The partners’ of the Company, Company’s Board of Directors, Company’s management personnel, Company’s other directors, close family members in the charge of the Company, and other companies directly or indirectly controlled by the Company are considered as related parties. The transactions with related parties are disclosed in the Note: 37. 2.08.15 Government Grants and Assistance None. 2.08.16 Investment Property None. 2.08.17 Taxation and Deferred Tax Income tax expense represents the sum of the tax currently payable and deferred tax. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases which is used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against whichthose deductible temporary differences can be utilized. Such assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. 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 they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax for the period Current and deferred tax are recognized as an expense or income to the income statement, except when they relate to items credited or debited directly to equity, in which case the tax is also recognized directly in the equity, or where they arise from the initial accounting for a business combination. 91 ANNUAL REPORT In the case of a business combination, the tax effect is taken into account in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquirer’s identifiable assets, liabilities and contingent liabilities over cost. Taxes stated in financial statements contain changes in current and deferred taxes for the period. The Group calculates current period tax and deferred tax over the period results. Offsetting Tax Income and Liablities Corporate tax amounts are offset with prepaid corporate tax as they are related. Deferred tax assets and liabilities are also offset. Retirement Pay According to Turkish Labor Law, employee termination benefit is reflected in the financial statements, when the termination indemnities are deserved. Such payments are considered as being part of defined retirement benefit plan as per IAS No.19 “Employee Benefits”. Termination indemnity liability is reflected to the financial statements with the amount calculated for value at balance sheet date of lump pension in the next years by discounting by adequate interest rate. Interest cost added to the lump pension expense is shown as interest expense in the results of operations. 2.08.19 Statement of Cash Flow Cash and cash equivalents are stated at their fair values in the balance sheet. The cash and cash equivalents comprises cash in hand, bank deposits and highly liquid investments. On cash flow statement, the Group classifies period’s cash flows as investment and financing activities. Cash inflow provided from operating activities denotes cash inflow provided from main activities of the Group. Cash flow concerned with investment activities shows cash used and provided from investment activities (asset investments and financial investments).Cash flow concerned with investment activities represents sources used from financial activities and pay-back of these funds. 2.08.20 Income Accruals The most of the products sold by the Group has foreign origin. The purchases is made from foreign companies, offices of foreign companies in Turkey or domestic companies in Turkey. Depending upon the realization of the targets given by the domestic or foreign companies; a set of payments are received or offsetting the accounts under the name of “rebate”, “risturn”, “sell out”, or “bonus”. The mentioned amounts is recognised as credit note income accruals in the balancesheet depending upon the realization of the targets and conditions given by the sellers. The documents prepared by sellers under the name of “rebate”, “risturn”, “sell out”, “bonus”, and “credit note” (or Invoices prepared by the Group) is collected or offsetted. 2.08.21 Provisions for Warranty The Group is a distributor of the information technologies in Turkey. The warranties of the products sold is provided by the companies assigned by the producers. The products submitted to Company from dealers and these products are sent to producers or companies assigned by the producers for repair and maintenance. After the repair and maintenance, if there is a need to change or give a new product to customers within the scope of the warranty, the amount of the products are invoiced to producer companies. The Company has no liability of provisions for warranty. 2.09 New and Revised International Financial Reporting Standards i) Amendments and interpretations that have become effective after January 01, 2010 are as follows: • IFRS 2 (Amendment) “Share-based payment” A set of explanations related to share-based payments. • IFRS 3 (Amendment), “Business Combinations” and IAS 27 (Amendment), “Consolidated Financial Statements and Non-Consolidated Financial Statements” Regulations has been made related to accounting for conditional value, cost of acquisition, goodwill and examples related to exchange of shares in subsidiaries are given. • IFRS 1(Amendment), “First-time Adoption of IFRS” Some exceptions to First-time Adoption of IFRS have been made • IAS 39 (Amendment), “Financial Instruments: Recognition and Measurement” – Hedging Instruments • IFRIC 17, “Distributions of Non-cash Assets to Owners”. A set of explanations related to recognition of distribution of non-cash assets to shareholders. These changes do not have impact on the financial statements of the Group. i) The following standards, amendments and interpretations not preferred an early application by the Group and will become effective after December 31, 2010: • IAS 24 (Revised) “Related-Party Disclosures” (The amendment is effective for financial period beginning on and after January 01, 2011.) Revision on the related party disclosures related to entities with significant state ownership. • IFRS 9 “Financial Instruments” (The amendment is effective for financial period beginning on and after January 01, 2013.) Additional conditions to recognition and measurement of Financial Instruments 92 ANNUAL REPORT • IAS 32 (Amendment) “Financial Instruments’ Presentation” (The amendment is effective for financial period beginning on and after February 01, 2010.) Some explanations related to right issue offerings in return for the foreign currency amounts recognised as derivative financial instruments. • IAS 1 (Amendment) “Presentation of Financial Statements” (The amendment is effective for financial period beginning on and after January 1, 2011.) Some explanations have been made for presentation of the statement of shareholders’ equity per shareholders’ equity items. • IFRS 1 (Amendment) (The amendment is effective for financial period beginning on and after July 01, 2010, early adoption is permitted) Limited exemptions for comparative IFRS 7 notes • IFRS 7 (Amendment) “Financial Instruments: Disclosures” (The amendment is effective for financial period beginning on and after January 1, 2011.): Some explanations have been made for the disclosures must be done according to IFRS 7. • IFRS 7 (Amendment) “Financial Instruments: Disclosures” (The amendment is effective for financial period beginning on and after July 1, 2011.): Some explanations have been made for the off-balancesheet transactions to be examined more comprehensively. • IFRIC 9 “Reassesment of Embedded Derivatives” (The amendment is effective for financial period beginning on and after January 01, 2013.) • IFRIC 14 (Amendment) “Prepayments of a Minimum Funding Requirement” (The amendment is effective for financial period beginning on and after January 01, 2011.) Some explanations have been made for the permit to recognise as an asset some voluntary prepayments for minimum funding contributions. • IFRIC 19 “Extinguishing Financial Liabilities with Equity Instruments” (The amendment is effective for financial period beginning on and after July 01, 2010.)Some explanations have been made for the recognition of the transactions such as a negotiation between the company and the creditor for the conditions of the financial liabilities and such a situation that the creditor accept that the debtor company repay the complete or a part of the financial liability by equity instruments. Management of the Group has the opinion that the implementations of the standards stated above does not have an important effect of the Company’s financial statements at subsequent periods. i) Amendments and interpretations that have become effective after January 01, 2010 are as follows: • IFRS 2 (Amendment) “Share-based payment” A set of explanations related to share-based payments. • IFRS 3 (Amendment), “Business Combinations” and IAS 27 (Amendment), “Consolidated Financial Statements and Non-Consolidated Financial Statements” Regulations has been made related to accounting for conditional value, cost of acquisition, goodwill and examples related to exchange of shares in subsidiaries are given. • IFRS 1(Amendment), “First-time Adoption of IFRS” Some exceptions to First-time Adoption of IFRS have been made • IAS 39 (Amendment), “Financial Instruments: Recognition and Measurement” – Hedging Instruments • IFRIC 17, “Distributions of Non-cash Assets to Owners”. A set of explanations related to recognition of distribution of non-cash assets to shareholders. These changes do not have impact on the financial statements of the Group. 3. BUSINESS COMBINATIONS None. 4. BUSINESS ASSOCIATIONS None. 5. REPORTING FINANCIAL INFORMATION BY SEGMENTS AND GEOGRAPHIC AREAS The Group operates in only one sector, which is related to products of information technologies in only one geographical location. Due to these facts it is not necessary to disclose any information related to segment reporting. The information related to the production and sales quantities are disclosed in the relevant note. 6. CASH AND CASH EQUIVALENTS Cash and Cash Equivalents for the periods December 31, 2010 and December 31, 2009 are as follows: Account Name 31 December 2010 31 December 2009 32.821 35.603 24.326.634 1.569.999 Financial Assets held until Maturuity (Reverse Repo) 1.000.140 - Credit card slips 1.056.275 715.286 26.415.870 2.320.888 Cash Bank (Demand Deposits) Total 93 ANNUAL REPORT Maturity of credit card slips are 1 or 2 days for the current and prior period. Maturity of Reverse Repo transactions are 1 day and interest income of TL 140 is accrued. Reverse repo transaction currency is made in TL and ‹nterest rate of reverse repo transaction is % 5,10. There is no lien and blocked amounts on cash and cash equivalents as of December 31, 2010 (December 31, 2009 : None.) Cash and cash equivalents has been indicated as accured interest income deducted from cash and equivalants in Group’s cash flow statements. Account Name 31 December 2010 31 December 2009 Cash and Equivalents 26.415.870 2.320.888 Accrued Interest Income (-) (140) - Total 26.415.730 2.320.888 7. FINANCIAL ASSETS & INVESTMENTS Short- Term Financial Assets & Investments All short term financial investments consist of stock investments and they are classified as financial assets whose fair value differences are reflected to profit or loss. Details are shown below; Account Name 31 December 2010 31 December 2009 214 33 Shares Assets arised from Derivative Instruments 100.661 - Total 100.875 33 Groups Stock investments consists of shares which are traded in Istanbul Stock and Exchange Market (IMKB). 181 TL of valuation income which is valuated with closing price on December 31, 2010, is considered as other income. Group has been made a forward foreign exchange purchase commitments amounted USD 21.126.341 as of December 31, 2010. The fair value of this contract is TL 3.186.663 as of December 31, 2010. TL 1.556 of revaluation surplus is considered as income and a mount of TL 99.105 considered as ‘’ hedging fund’’under the shareholder’s equity. Amount of 19.821 Deferred Tax Liabilities which is related with revaluation surplus, has been offsetting from hedging fund. Long –Term Financial Assets & Investments All long term financial investments, are consist of Financial Assets Ready for Sale . Details of Financial Assets Avaliable for Sale are as follows: Account Name Shares - Listed stocks - Unlisted stocks Total 31 December 2010 31 December 2009 64.894 64.894 - - 64.894 64.894 64.894 64.894 94 ANNUAL REPORT Unlisted stock investments are as follows; 31 December 2010 Company Name Share Amount ‹nfin A.fi. Neteks D›fl Tic. Ltd.fiti. Total 31 December 2009 Share Amount Rate (%) Rate (%) 62.419 99,80 62.419 99,80 2.475 49,50 2.475 49,50 64.894 64.894 Summary of financial information related to unlisted stock investments ; 31 December 2010 Total Asset Total Liabilities Total Equity Net Sales Profit for the period ‹nfin A.fi. 5.488.926 5.147.499 341.427 14.786.251 48.714 Neteks D›fl Tic. Ltd.fiti. 1.669.139 1.585.408 83.731 13.379.501 29.976 Total 7.158.065 6.732.907 425.158 28.165.752 78.690 Company Name Total Asset Total Liabilities Total Equity Net Sales Profit for the period ‹nfin A.fi. 10.272.466 9.979.753 292.713 17.821.381 47.939 2.013.512 1.959.758 53.754 12.924.449 63.239 12.285.978 11.939.511 346.467 30.745.830 111.178 Company Name 31 December 2009 Neteks D›fl Tic. Ltd.fiti. Total 8. FINANCIAL LIABILITIES Short-Term financial liabilities for the years ended are as follows: 31 December 2010 Account Name Bank Loans 31 December 2009 11.424.242 22.154.762 Payables of Financial Leases 156 3.378 Deferred Financial Leasing Borrowing Cost (-) (15) (2.284) 11.424.383 22.155.856 Total The details of the Short Term Bank Loans are as follows: 31 December 2010 Type Foreign Currency Amount Amount in TL Annual Interest Rate (%) Short Term Loans TL Loans(Short Term) USD Loans (Short Term) Total Loans 95 7.110.514 431.388 Faizsiz - 13 10.992.854 3–8 11.424.242 ANNUAL REPORT 31 December 2009 Foreign Currency Amount Type Amount in TL Annual Interest Rate (%) Short Term Loans TL Loans(Short Term) USD Loans (Short Term) 14.547.600 Total Loans 250.441 Interest free -11.63 21.904.321 2.50-7.82 22.154.762 The details of the Long Term Bank Loans for the years ended are as follows: Account Name 31 December 2010 31 December 2009 Bank Loans 8.285.360 10.313.062 Total 8.285.360 10.313.062 The details of the Short Term Bank Loans are as follows: 31 December 2010 Foreign Currency Amount Type Amount in TL Annual Interest Rate (%) Long Term Loans TL Loans(Short Term) USD Loans (Short Term) 5.190.241 Total Loans 261.247 12 / 13 8.024.113 8 8.285.360 31 December 2009 Foreign Currency Amount Type Amount in TL Annual Interest Rate (%) Long Term Loans TL Loans(Short Term) USD Loans (Short Term) 6.704.308 218.386 Interest free -11.63 10.094.676 7.82 10.313.062 Total Loans Maturity Information of Bank Loans Liabilities are as follows; 31 December 2010 31 December 2009 0-3 Months 5.594.772 17.083.167 3-12 Months 5.829.471 5.071.595 12-60 Months 7.884.224 7.522.904 401.135 2.790.158 19.709.602 32.467.824 60 Months and above Total 96 ANNUAL REPORT Maturity Information of financial lease liabilities are as follows: 31 December 2010 31 December 2009 156 968 - 2.410 156 3.378 0-3 Months 3-12 Months Total 9. OTHER FINANCIAL LIABILITIES None. 10. TRADE RECEIVABLES AND PAYABLES Short-Term trade receivables for the years ended December 31, 2009 and December 31, 2008 are as follows: Account Name 31.12.2010 31.12.2009 217.070.240 161.033.481 4.619.012 624.262 212.451.228 160.409.219 Receivables 99.446.201 69.302.512 Rediscount on s Receivables (-) (1.331.005) (841.186) 5.082.748 4.888.556 (5.082.748) (4.888.556) 315.185.436 229.494.807 Trade Receivables Due from Related Parties Other Doubtful Receviables Provision for Doubtful Receviables (-) Total The Group has no Long-Term Trade Receviables for the years ended December 31, 2010 and December 31, 2009. A part of 21.616.698 TL of Total 315.185.436 TL trade receivables are in the scope of guarantee as of December 31, 2010. As of December 31.2009, A part of 34.269.777 TL of total 229.494.807 TL trade receivables were in the scope of guarantee. Provision for Doubtful Receivables summarize table is below: Opening Balance Recived amount in current period (+) Exchange Differance Period Expenses (-) Period-end Balance 1 January31 December 2010 1 January31 December 2009 (4.888.556) (3.140.027) 242.705 375.794 2.078 - (438.975) (2.124.323) (5.082.748) (4.888.556) Maturity analysis of trade receivable overdue that is not assessed for impairment is as follows: Up to 3 Months Between 3- 12 Months Between 1-5 Years Total 97 31 December 2010 31 December 2009 744.859 1.209.251 75.791 153.816 - - 820.650 1.363.067 ANNUAL REPORT Explanations concerning the nature risk and level of risk of trade receivables are disclosed in Note:38 Details of Trade payables for the year ended are as follows: Account Name 31.12.2010 31.12.2009 339.132.873 212.094.553 338.508.729 205.334.362 624.144 6.760.191 Notes Payable 28.449.708 53.979.575 Rediscount on Payable (1.620.221) (993.727) 365.962.360 265.080.401 Suppliers Other Suppliers Due to Related Suppliers Total There are not any long-term trade payables for the years ended December 31, 2010. Avarage Maturity of Trade receivables and payables are under two months. Compound interest rate of domestic government bonds is used as prevailing interest rate for rediscount of trade receivables and payables in TL. Also Libor and Eurobor are used for trade receiavbles and payables in USD and EURO. 11. OTHER RECEIVABLES AND PAYABLES Short-term other receivables for the years ended are as follows; Account Name 31.12.2010 31.12.2009 1.526 - - 14.975 149.209 135.078 96.013 1.205.509 246.748 1.355.562 Other Receivables Deposits and Guarantees Given Due From Personnel Non-commercial Receivables Due From Related Parties Total Long-term other receivables for the years ended are as follows: Account Name 31.12.2010 31.12.2009 Deposits and Guarantees Given 56.440 51.844 Total 56.440 51.844 Explanations concerning the nature risk and level of risk of trade receivables are disclosed in Note:38 Short-term other payables for the years ended are as follows: Account Name Taxes, Duties Payable and Other Fiscal Liabilities Social Security Institution Payables Advances Received Personnel Non-commercial Payables Due to Releated Parties Total 31.12.2010 31.12.2009 4.177.693 3.195.053 311.604 250.798 4.012.373 3.354.910 132.572 256.594 4.834.616 1.182.299 13.468.858 8.239.654 98 ANNUAL REPORT 12. RECEIVABLES AND PAYABLES FROM / TO FINANCE SECTOR OPERATIONS None. 13. INVENTORIES Inventories for the periods ended are as follows: Account Name Commercial Goods 31.12.2010 31.12.2009 125.235.533 135.921.631 3.695.200 4.283.966 (1.604.839) (1.320.293) 127.325.894 138.885.304 Goods in Transportation Decrease in Value of Inventory (-) Toplam Products which are invoiced but not actually transfered to inventories are recognised under the “Goods in Transit”. Provision for Impairment of Inventory: 1 January - 31 December 2010 1 January - 31 December 2009 (1.320.293) (1.544.123) 118.899 337.416 (403.445) (113.586) (1.604.839) (1.320.293) Openning Balance (-) Cancellation of Provision Due to Increase in Net Realizable Value Net(+) Provision for the Period(-) Balance at the end of year (-) The provision for decrease in value of stocks is calculated with increasing percentages for the goods waiting in the inventory more than 3 months depending upon increase in the inventory turnover rate. As of December 31, 2010, 7.537.113 TL TL of the inventories is presented with their net realizable value and the remaining balance is presented with their cost in the the financial statements. (As of December 31, 2009, 9.277.090 TL TL of the inventories is presented with their net realizable value and the remaining balance is presented with their cost in the the financial statements.) Explanation 31 December 2010 31 December 2009 Cost 7.537.113 9.277.090 Provision for Decrease in value of Inventories 1.604.839 1.320.293 Net Realizable Value (a) 5.932.274 7.956.797 Inventory presented with its cost value (b) 121.393.620 130.928.507 Total Inventories (a+b) 127.325.894 138.885.304 There is no inventory given as a guarantee for a liability. Total Amount of Insurances on Assets are disclosed in Note:22. The information related to inventories recognised as expense in the current period is disclosed in Note:28. 14. BIOLOGICAL ASSETS None. 15. CONSTRUCTION CONTRACTS IN PROGRESS None. 16. INVESTMENTS EVALUATED BY EQUITY METHOD None. 99 ANNUAL REPORT 17. INVESTMENT PROPERTIES The investment property of the Group consists of a house placed in Çankaya, Ankara. The mentioned property is acquired from a pledge for a receivable. The Group management estimates the fair value of this property as 125.000 TL. The Group management has considered the fair value of the properties in the neighbourhood and acquisition of mentioned properties in their estimates. Cost Account Name 1 January 2010 Aditions Sales Transfer Buildings - 125.500 - - Total - 125.500 31 December 2010 125.500 125.500 Accumulated Depreciation Account Name 1 January 2010 Period Depreciation Sales Transfer 31 December 2010 Buildings - (629) - - (629) Total - (629) - (629) Net Value 124.871 31 December 2009 None 18. TANGIBLE FIXED ASSETS The Fixed Assets details for the years ended are as follows: 31 December 2010 Cost Account Name 01 January 2010 Additions Disposals Lands and parcels 17.320.543 - - 17.320.543 39.204 - - 39.204 11.786.858 277.037 - 12.063.895 Machinery, Plants&Equipments 1.372.927 40.550 - 1.413.477 Motor Vehicles 1.231.892 517.682 (98.946) 1.650.628 Furniture & Fixtures 4.094.611 415.110 (12.970) 4.496.751 Leasehold improvements 274.115 1.950 - 276.065 Other tangible fixed assets 128.372 - - 128.372 36.248.522 1.252.329 (111.916) 37.388.935 Land Improvements Buildings Total Transfer 31 December 2010 100 ANNUAL REPORT Accumulated Depreciation Account Name Land Improvements 01 January 2010 Additions Disposals Transfer 31 December 2010 (39.204) - - - (39.204) Buildings (3.305.121) (238.578) - - (3.543.699) Machinery, Plants&Equipments (1.307.261) (11.267) - - (1.318.528) (531.971) (237.251) 72.128 - (697.094) (2.931.370) (297.308) 3.891 - (3.224.787) (102.469) (32.296) - - (134.765) Total (8.217.396) (816.700) 76.019 Net Value 28.031.126 Motor Vehicles Furniture & Fixtures Leasehold Improvements (8.958.077) 28.430.858 Other tangible fixed assets consist of art objects. Due to there is no depriciation on art objects, these are not subject to depreciation. Other Information The depreciation and amortization expenses are recognised under the operational expenses. The Amount of mortgage on buildings which are stated in assets is USD 6.686.756 . Total Amount of Insurances on Assets are disclosed in Note:22. 31 December 2009 Cost Account Name Lands and parcels 01 January 2009 Additions Disposals Transfer 31 December 2009 17.320.543 - - - 17.320.543 39.204 - - - 39.204 11.412.201 374.657 - - 11.786.858 Machinery, Plants&Equipments 1.372.927 - - - 1.372.927 Motor Vehicles 1.133.338 304.904 (206.350) - 1.231.892 Furniture & Fixtures 3.968.677 133.981 (8.047) - 4.094.611 Leasehold Improvements 197.112 77.003 - - 274.115 Other tangible assets 128.372 - - 128.372 35.572.374 890.545 (214.397) 36.248.522 Additions Disposals Land Improvements Buildings Total Accumulated Depreciation Account Name Lands and parcels 01 January 2009 Transfer 31 December 2009 - - - - - (39.204) - - - (39.204) Buildings (3.029.428) (275.693) - - (3.305.121) Machinery, Plants&Equipments (1.296.051) (11.210) - - (1.307.261) (602.292) (118.725) 189.046 - (531.971) (2.682.842) (249.830) 1.302 - (2.931.370) (84.566) (17.903) - (102.469) Total (7.734.383) (673.361) 190.348 (8.217.396) Net Value 27.837.991 Land Improvements Motor Vehicles Furniture & Fixtures Leasehold Improvements 101 28.031.126 ANNUAL REPORT 19. INTANGIBLE FIXED ASSETS 31 December 2010 Cost Account Name 01 January 2010 Additions Disposals Transfer 31 December 2010 Rights 522.419 13.560 - - 535.979 Total 522.419 13.560 - - 535.979 Accumulated Depreciation Account Name 01 January 2010 Period Depreciation Disposals Transfer 31 December 2010 Rights (453.554) (23.286) - - 476.840 Total (453.554) (23.286) - - 476.840 Net Value 68.865 59.139 31 December 2009 Cost Account Name 01 January 2009 Additions Disposals Transfer 31 December 2009 Rights 514.121 8.298 - - 522.419 Total 514.121 8.298 - - 522.419 Transfer 31 December 2009 Accumulated Depreciation Account Name 01 January 2009 Period Depreciation Disposals Rights (428.538) (25.016) - - (453.554) Total (428.538) (25.016) - - (453.554) Net Value 85.583 68.865 20. GOODWILL Goodwill 31.12.2010 31.12.2009 2.467.577 2.467.577 Additions - - Disposals/ Sales - - Provisions for the value decrease - - 2.467.577 2.467.577 Opening Balance Closing balance There is no provisions for the value decrease in Goodwill. Group’s goodwill arised from Data Gate Bilgisayar A.fi. which is subsidiary of Group’s and Neteks Bilgisayar A.fi. which is group’s joint managing company. Calculated amount of goodwill is revised each balance sheet period. Mentioned companies’ cash amounts are subjected to calculated present discounted value during to revising. According to evaluation made, discount rate is %12, and rate of growth is %5 which is used for determining the future cash flows to present value, as of December 2010 102 ANNUAL REPORT 21. GOVERNMENT GRANT AND ASSISTANCE None. 22. PROVISIONS, CONTINGENT LIABILITIES AND ASSETS Account Name December 31, 2010 December 31,2009 Provisions for Price Differences 3.552.295 2.487.557 Provision for Litigations 1.624.500 895.362 Total 5.176.795 3.382.919 December 31, 2010 Provision for Litigations Provisions for Price Differences Total 895.362 2.487.557 3.382.919 Additions 1.222.790 3.552.295 4.775.085 Payments (493.652) - (493.652) (2.487.557) (2.487.557) 1.624.500 3.552.295 5.176.795 Provision for Litigations Provisions for Price Differences Total 18.629 2.793.497 2.812.126 Additions 902.986 2.487.557 3.390.543 Payments (26.253) - (26.253) - (2.793.497) (2.793.497) 895.362 2.487.557 3.382.919 As of January 1, 2010 Cancellation of Provisions As of December 2010 December 31, 2009 As of January 1, 2009 Cancellation of Provisions As of December 2009 Price difference invoices are taken from clients for selling products with different prices,prvisions are made.isions Additionally, due to increase the sales , targets are given to clients. When the clients achieve the targets, turnover premiums, credit note, price differences invoices etc. are taken from dealers and prvisions are made. ii) Contingent Assets and Liabilities; 31.12.2010 As of December 31, 2010, for one lawsuit initiated against Group , provision amount 1.624.500 TL is reflected to the financial statements. 31.12.2009 As of December 31, 2009, for one lawsuit initiated against Group, provision amount 895.392TL is reflected to the financial statements. 103 ANNUAL REPORT iii) Contingent Liabilities and Commitments: 31 December 2010 TRL USD EURO Bailment Given 1.462.250 3.685.500 1.000.000 Guarantee Notes Given 1.586.506 - - - 6.686.756 - Guarantess letters given 3.096.000 11.515.000 7.500.000 Total 6.144.756 21.887.256 8.500.000 TRL USD 312.750 9.435.500 - 7.699.183 Guarantess letters given 2.854.000 10.515.000 7.100.000 Total 3.166.750 27.649.683 7.100.000 Mortgage 31 December 2009 Bailment Given Mortgage EURO - iv) Total Guarantees and Mortgages on Assets None v) Total Insurance Coverage on Assets: 31.12.2010 Type of Insured Assets USD EUR TL 104.285.000 - - - - 1.376.200 8.818.571 57.545 - Other 610.000 - - Total 113.713.571 57.545 1.376.200 USD EUR TL 91.200.000 - - - - 961.839 8.926.446 37.700 - Other 805.125 - 55.000 Total 100.931.571 37.700 1.016.839 Trade goods Vehicles Plants machinery and equipment 31.12.2009 Type of Insured Assets Trade goods Vehicles Plants machinery and equipment 104 105 1.000.000 Bailment (EURO) - ii. Total Amount of M&G Given on behalf of other affiliated companies which can not be classified under section B and C. iii. Total Amount of M&G Given on behalf of the third person that cannot be classified under section C. Total - - D. Total Amount of other M&G Given i. Total Amount of M&G Given on behalf of main shareholder - C. Total Amount of M&G Given on behalf of the third person liability in order to sustain usual business activities. Bailment (TL) 3.685.500 - 6.686.756 Bailment (USD) B. Total amount of M&G Given on behalf of the Subsidiaries and Affiliated Companies subject to full consolidation Mortgage Lien 57.399.804 - - - - - - - 9.435.500 - 7.699.183 7.100.000 10.515.000 - 31 December 2009 Foreign Currency Amount - 1.462.250 2.049.100 5.697.783 9.209.133 10.337.725 1.586.506 Guarantee notes and cheques(TL) 15.368.250 3.096.000 7.500.000 Guarantee Letter (EUR) 17.802.190 48.190.671 31 December 2010 TL Amount Guarantee Letter (TL) 11.515.000 - 31 December 2010 Foreign Currency Amount Guarantee Letter (USD) A. Total amount of M&G Given on behalf of the Group MORTGAGES & GUARANTEES GIVEN BY THE GROUP 60.137.008 - - - - 312.750 14.207.032 14.519.782 11.592.660 2.854.000 15.338.130 15.832.436 45.617.226 31 December 2009 TL Amount ANNUAL REPORT vi ) The ratio of Mortgages and Guarantees Given to Shareholders’ Equity is as follows; ANNUAL REPORT As of December 31, 2010, the ratio of Mortgages and Guarantees Given to Shareholders’ Equity is 0 %. (0 % of December 31, 2009) 23. COMMITMENTS None. 24. EMPLOYEE TERMINATION BENEFITS Account Name 31 December 2010 31 December 2009 Provision for Employment Termination Indemnity 1.016.481 649.270 Total 1.016.481 649.270 Under the Turkish Labor Law, the Group is required to pay employee termination benefits to each employee, who has entitiled to receive provisions for employee termination benefits in accordance with the effective laws: No: 2422 on March 6, 1981 and No: 4447 on August 25, 1999 of the Social Insurance Act No: 506 and the requirements of the amended Article 60 of the related Act. The maximum employee termination benefit payable as of December 31, 2010 is 2.517,01 TL. (December 31, 2009: 2.365,16). The maximum employee termination benefit payable as of January 1, 2011 is 2.623,23 TL and taken into consideration in the calculations of the Group’s provision for termination indemnities. Termination indemnity payable is not subject to any legal funding. Termination indemnity payable is calculated by forecasting the present value of currently working employee’s possible future liabilities. IAS 19 (“Employee Termination Benefits”) predicts to build up Group’s liabilities with using actuarial valuation techniques in context of defined benefit plans. According to these predictions, actuarial assumptions used in calculation of total liabilities are as follows. Base assumption is the inflation parallel increase of maximum liability of each year. Applied discount rate must represent expected real discount rate after the adjustment of future inflation. As of December 31, 2010, provisions in financial statement are calculated by forecasting the present value of currently working employee’s possible future liabilities.Provisions as of December 31, 2010 are calculated with %4,66 reel discount rate based on the assumptions of % 5,10 inflation rate and % 10 discount rate annually. (31 December 2009: %5,92 reel discount rate). 1 January 2010 31 December 2010 1 January 2009 31 December 2009 January 1 649.270 502.341 Service Costs 109.748 108.164 Actuarial Gains 202.293 66.827 Interest Expences 209.467 148.621 (154.297) (176.683) 1.016.481 649.270 Payment (-) Closing Balance Provision expense for termination indemnities is recognised under the operational expenses. 25. RETIREMENT BENEFIT PLANS None. 106 ANNUAL REPORT 26. OTHER ASSETS AND LIABILITIES Other Current Assets for the years ended, are as follows: Account Name 31 December 2010 Prepaid Expenses for the Following Months 31 December 2009 1.076.036 440.136 Credit Note Income Accrual 17.176.193 15.506.860 Deferred VAT 11.016.348 15.180.738 1.213.692 - 681.336 22.805 5.822.106 2.447.136 36.985.711 33.597.675 VAT Return Job Advances Advances Given Total Short-term other liablities for the years ended, are as follows: Account Name 31 December 2010 31 December 2009 Income Relating to Future Months 11.261.656 12.618.137 Total 11.261.656 12.618.137 Income recognised from invoiced but not delivered products are recognised under the “Income Relating to Future Months“ due to the criterias related with IAS 18 (delivery, transfer of risks, etc.) are not met. Credit Note Income Relating to Future Months transactions as follows: Account Name 1 January 2010 31 December 2010 1 January 2009 31 December 2009 Opening Balance 15.506.860 15.855.397 Current period accrual 91.020.591 81.638.173 Collection / Current account transfer(89.351.258) (81.986.710) Balance at the end of year 17.176.193 15.506.860 27. SHAREHOLDERS’ EQUITY i) Minority Shares / Minority Shares Profit - (Loss) Account Name 31 December 2010 31 December 2009 Minority Shares 9.780.474 8.752.561 Total 9.780.474 8.752.561 31 December 2010 31 December 2009 Minority Shares Profit - (Loss) 1.027.913 1.709.148 Total 1.027.913 1.709.148 Account Name ii) Capital / Share Capital / Elimination Adjustments The share capital of the Group is TL 56.000.000 as of December 31, 2010 and the share capital consist of 56.000.000 per-shares which each of 1 nominal value. The paid in capital of the Group, which is TL 56.000.000, consists of A Group shares issued to the name as paid-in capital is TL 318, B Group shares issued to the bear as paid-in capital is TL 55.999.682. A Group of shareholders have the rights to appoint one more of the half member of the Executive Board. After the initial dividend is given from the distribution of profit, A group Shareholders has also the rights to get % 5 of the remaining part. 107 ANNUAL REPORT The Group accepts the Registered Share capital System with the March 17,2005 dated and 11/327 numbered permission of Capital Market Board and determined the Registered Share Capital ceiling TL 75.000.000. The decision accepted at 2004 Regular Meeting Shareholders of the Group dated April 27,2005. The Group’s registered capital is TL 75.000.000. The Group’s application to raise capital from TL 55.000.000 to TL 56.000.000 by implementing TL 1.000.000 from share of profit of 2006 is approved by committee ruling numbered 25/699 and dated June 28, 2007. The public offering of shares to be issued with nominal value of TL 1.000.000 has been accepted in the Board’s meeting dated June 28, 2007 and with the number of 25/699. As of July 10, 2007, the increase of the capital is registered and published in the Official Gazette numbered 6852 and dated July 16, 2007. The share capital shown in the consolidated balance sheet is the share capital of the Group. The amounts of share capital of the subsidiaries and the subsidiary account are eliminated mutually. 31 December 2010 Shareholder 31 December 2009 Share Percentage % Share Amount Share Percentage % Nevres Erol Bilecik % 38,63 21.634.440 % 41,06 22.994.220 Pouliadis and Associates S.A. % 35,56 19.911.119 % 35,56 19.911.119 Public Offer % 23,44 13.126.987 % 21,01 11.767.207 Other % 2,37 1.327.454 % 2,37 1.327.454 Total % 100 56.000.000 % 100 56.000.000 Share Amount The ultimate controlling party of the Group is Nevres Erol Bilecik and his family members. iii) Capital Reserves None. iv) Restricted Reserves from Profit Restricted reserves from profits consist of legal reserves. The legal reserves consist of first and second legal reserves, appropriated in accordance with the Turkish Commercial Code (TCC). The TCC stipulates that the first legal reserve is appropriated out of historical statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the Group’s historical paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the historical paid-in share capital. Under TCC, the legal reserves are not available for distribution unless they exceed 50% of the historical paid-in share capital but may be used to offset losses in the event that historical general reserve is exhausted. v) Previous Years’ Profits / (Losses) Profits of previous years consist of extraordinary reserves, miscellaneous inflation differences and profits of other previous years. In accordance with the CMB’s decision numbered 7/242 dated on February 25, 2005; if the amount of net distributable profit based on the CMB’s requirement on the minimum profit distribution arrangements, which is computed over the net profit determined based on the CMB’s regulations, does not exceed the net distributable profit in the statutory accounts, the whole amount should be distributed, otherwise; all distributable amount in the statutory accounts are distributed. However, no profit distribution would be made if any financial statements prepared in accordance with the CMB or any statutory accounts carrying net loss for the period. In accordance with the CMB’s decision numbered 2/53 on January 18, 2007, Groups, which prepared their financial statements in accordance with the CMB standards, are required to distribute at least 20% of their net profit. The distribution, with the approval and decision via the General Assembly’s resolution, can be made either by cash, bonus issues or cash and bonus shares with a rule that the distributable amount will not be less than 20 % of the distributable profit. In accordance with CMB’s decision dated January 27,2010; it is decided not to bring any obligation for any minimum profit distribution about dividend distribution which will be made for public corporations. The Group management decided to distribute dividens according to the regulations specified in articles of association of the Group and dividend distiribution policies declared to public. 108 ANNUAL REPORT Breakdown of Shareholders' Equity for the periods January 01 – December 31, 2010 and January 01 – December 31, 2009 are as follows: Account Name 31 December 2010 Share capital 31 December 2009 56.000.000 56.000.000 241.113 241.113 79.284 - 5.109.837 4.183.406 -Legal Reserves 3.962.787 3.036.356 -Profit Reserves of Sales from Affiliates 1.147.050 1.147.050 Previous Years’ Profits 36.055.067 27.664.383 Net Period Loss/ Profit 13.171.469 15.934.942 110.656.770 104.023.844 9.780.474 8.752.561 120.437.244 112.776.405 Shareholders’ Equity Inflation Adjustment Differences Hedging Funds Restricted Reserves From Profit Parent Company Shareholders' Equity Minority Interests Total Shareholders’ Equity In the financial statements prepared according to the standards of the CMB, the Group’s current profits amounted to TL 13.171.469. The Group’s distributable profit for current period is TL 8.279.182. In the financial statements prepared according to the standards of the CMB, the Group’s accumulated profits amounted to 49.226.536 TL. The Group’s distributable profit amount is TL 31.703.103. Group’s dividend which is related previous period profits is limited with this amount. Inflation adjustments on equity, real estates sales profits which are held in fund for adding the share capital are not take into consideration to total distributable profit. Result of General board , which belongs to 2009, dated on April 20, 2010 as follows; Net income after tax is 15.934.942 TL in 2009 Consolidated Financail statements according to CMB’s bulletin of No29. Serial :XI. Realized profit is TL 10.892.941,74 according to tax legistation. It has been decided that restricting primary reserve, total amount is 544.647,09 TL, which calculated according to %5 of Realized profit (TL 10.892.941,74) - It has been decided that distrubiting the primary dividend of Gross 6.156.117,97 TL as a cash, ( distributing %10,9931 for 1 nominal value per share is 0,109931 TL); (Net 5.232.700,27 which is distributing %9,3442 for 1 nominal value per share is 0,093442 TL). The gross Primary dividend is calulated %40 of 15.390.294,91 TL , as a result of deducting 544.647,09 TL, which is primary reserve, from 15.934.942 TL, which is tax after net profit. - It has been decided that distrubiting the the Secondary dividend to A Group preferred shareholder. The distributing the secondary dividend of of Gross 461.708,85 TL as a cash, ( distributing for 1 nominal value per share is 1.451,09 TL); (Net 392.452,52 which is distributing for 1 nominal value per share is 1.233,43 TL). The gross Secondary dividend is calulated %5 of 9.234.176,94 TL , as a result of deducting 6.156.117,97, which is primary dividend, from 15. 390.294,91 TL, which is net period profit. - It has been decided that amount of 381.782,68 TL made as a secondary reserve. - Remainin distribution of profit is started on May 04, 2010 - It has been decided that the remaining amount is added to exstraordinary reserves. 109 ANNUAL REPORT 28. SALES AND COST OF SALES Sales and cost of sales details which belong twelve months accounting period of the Group as of December 31, 2010 and December 31, 2009 are as follows: 1 January 2010 31 December 2010 1 January 2009 31 December 2009 1.220.214.680 1.072.788.369 Foreign Sales 13.816.010 8.400.999 Other Sales 46.717.733 45.200.032 (45.676.817) (34.275.959) Sales Discounts (-) (6.117.768) (4.304.865) Other Discounts (-) (778.072) (386.194) 1.228.175.766 1.087.422.382 (1.153.272.537) (1.023.117.198) 74.903.229 64.305.184 Account Name Domestic Sales Sales Returns (-) Net Sales Cost of Sales (-) Gross Profit from Business Operations Quantity of sales related to twelve months accounting period of the Group as of December 31, 2010 and December 31, 2009 are as follows: Account Name 1 January 2010 31 December 2010 1 January 2009 31 December 2009 Difference % Accessories 183.314 116.752 57% Computer 512.035 422.887 21% Storage and Medium Sized Systems 299.107 332.272 (10%) 4.567 5.093 (10%) 24.153 155 15.483% Network Products 1.213.149 957.731 27% PC Components (OEM) 3.024.448 3.077.113 (2%) 167.730 69.147 143% - 2.719 (100%) Printer and Peripherals 632.341 617.179 2% Software 543.642 471.978 15% 18.677 - 100% 577.010 757.209 (24%) Security Communication Products Consumer electronics Consumption Small house appliances Other 29. RESEARCH AND DEVELOPMENT, MARKETING, SALES & DISTRIBUTION EXPENSES Other operating expenses which belong twelve months accounting period of the Group as of December 31, 2010 and December 31, 2009 are as follows: 1 January 2010 31 December 2010 1 January 2009 31 December 2009 Marketing and Selling Expenses (-) (13.493.798) (11.173.103) General Administrative Expenses (-) (14.896.959) (12.767.710) Total Operating Expenses (28.390.757) (23.940.813) Account Name 110 ANNUAL REPORT 30. EXPENSES RELATED TO THEIR NATURE Expenses Related to Their Nature of the Group as of December 31, 2010 and December 31, 2009 are as follows: 1 January 2010 31 December 2010 1 January 2009 31 December 2009 (28.390.757) (23.940.813) (16.270.464) (12.954.133) (3.327.649) (2.501.586) - Depreciation expenses (840.615) (698.377) - Rental Expense (479.728) (582.934) - Communication Expense (334.662) (380.905) - Travelling Expenses (359.739) (252.132) - Transportation Expenses (632.137) (449.898) - Consultancy and Audit Expenses (462.234) (402.161) - Insurance Expenses (619.926) (685.662) (96.728) (67.983) (1.024.701) (694.444) - Taxes, Duties, Charges Expenses (423.101) (156.380) - Decrease in value of stocks (284.547) - - Provisions for termination indemnities expenses (521.508) (323.612) - Provisions for doubtful trade receivables (196.270) (1.748.529) (1.222.790) (902.986) - Sales and foreign trade expenses (718.041) (661.879) - Other Expenses (575.917) (477.212) (28.390.757) (23.940.813) Account Name Sales, Marketing and Distribution Expenses (-) - Personnel Expenses - Logistic and storage expences - Maintenance and repair expenses - Advertisement Expense - Provision for ligitation Expence Total Operating Expenses Depreciation and amortisation exspenses and personel expenses are recognised in operational expenses. 31. OTHER OPERATING INCOME / EXPENSE Other operating Income / Expense which belong twelve months accounting period, of the Group as of December 31, 2010 and December 31, 2009 are as follows: Account Name 1 January 2010 31 December 2010 1 January 2009 31 December 2009 25.854 129.508 - 223.831 Other Income 34.833 - Other Income Total 60.687 353.339 Other Expense Total (-) (*) (374.948) (948.369) Other Income / Expence (Net) (314.261) (595.030) Insurance Compensation Income Cancellation provision for inventories (*)Other expenses consist from non-deductibel expenses such as tax, penalty, motorvehicle taxes and special communication taxes, etc. 111 ANNUAL REPORT 32. FINANCIAL INCOME Financial income for the periods ended are as follows: 1 January 2010 31 December 2010 Account Name Interet Income 1 January 2009 31 December 2009 730.520 869.733 181 - 29.200.793 20.518.353 Interest Eliminated From Sales(-) 7.636.802 4.694.975 Rediscount Income 1.620.220 993.725 841.187 1.209.354 40.029.703 28.286.140 Other Foreign Exchange Gains (-) Previous Period Rediscount Cancellation Total Financial Income 33. FINANCIAL EXPENSES The financial expenses of the Group as of December 31, 2010 and December 31, 2009 are as follows: 1 January 2010 31 December 2010 1 January 2009 31 December 2009 (7.284.186) (5.754.806) (52.193.769) (33.795.758) Eleminated Interest From Purchases(-) (5.878.789) (4.111.526) Rediscount Expense (-) (1.331.006) (841.187) (993.725) (1.160.571) (67.681.475) (45.663.848) Account Name Banking Charges and Interet Expense (-) Foreign Exchange Loss (-) Cancellation of Previous Period’s Rediscount Total Financial Expense There is no capitalized financial expense of Group for current period. 34. FIXED ASSETS HELD FOR SALE PURPOSES AND DISCONTINUED OPERATIONS None. 35. TAX ASSETS AND LIABILITIES The Group’s tax income / (expense) is composed of current period’s corporate tax expense and deferred tax income / (expense) The tax assets and liabilities of the Group as of December 31, 2010 and December 31, 2009 are as follows: Account Name 31 December 2010 31 December 2009 Period Tax Income/(Expense) 4.626.551 4.681.623 Prepaid Taxes And Funds (-) (3.527.917) (3.150.967) 1.098.634 1.530.656 1 January 2010 31 December 2010 1 January 2009 31 December 2009 (4.626.551) (4.681.623) Deferred Tax Income / (Expense) 279.494 (65.920) Total Tax Income / (Expense) (4.347.057) (4.747.543) Total Tax Payable Account Name Period Tax Income/(Expense) 112 ANNUAL REPORT i) Provision for Current Period Tax Group calculate their temporary taxes on their quarterly financial profits in Turkey. Corporate income as of the temporary tax periods, temporary tax rate of 20 % over the corporate income was calculated and prepaid taxes deducted from taxation on income. According to Turkish Corporate Tax Law, losses can be carried forward to offset the future taxable income for a maximum period of 5 years. On the other hand, such losses cannot be carried back to offset prio years’ profits. According to Corporate Tax Law’s Article: 24, the corporate tax is imposed by the taxpayer’s tax returns. There is no prosedure for a final and definitive agreement on tax assessments. Annual corporate tax returns are submitted until the 25th of April following the closing of the accounting year. Moreover, the tax authorities have the right to examine the tax returns and the related accounting records within five years. Effective Corporate Tax Rate: According to the corporate tax law numbered 5520, which was published in the official gazette dated June 21, 2006, the effective corporate tax rate was set as 20%. In Turkey, advance tax returns are files on a quarterly basis. The advance corporate income taxes have been calculated with the effective corportate tax rate of 20%. According to Turkish Corporate Tax Law, losses can be carried forward to offset the future taxable income for a maximum period of 5 years. On the other hand, such losses cannot be carried back to offset prio years’ profits. According to Corporate Tax Law’s Article: 24, the corporate tax is imposed by the taxpayer’s tax returns. There is no prosedure for a final and definitive agreement on tax assessments. Annual corporate tax returns are submitted until the 25th of April following the closing of the accounting year. Moreover, the tax authorities have the right to examine the tax returns and the related accounting records within five years. Income Withholding Tax: In addition to corporate tax, Group should also calculate income withholding tax on any dividends and income distributed, except for resident companies in Turkey receiving dividends from resident companies in Turkey and Turkish branches of foreign companies. The rate of withholding tax has been increased from 10% to 15% upon the Cabinet decision No: 2006/10731, which was published in Official Gazette on July 23, 2006. ii) Deferred Tax The deferred tax asset and tax liability is based on the temporary differences, which arise between the financial statements prepared according to CMB’s accounting standards and statutory tax financial statements. These differences usually due to the recognition of revenue and expenses in different reporing periods for the CMB standards and tax purposes. 31.12.2010 Temporary Cumulated Differences 31.12.2010 Deffered Tax Assets / (Liabilities) 31.12.2009 Temporary Cumulated Differences 31.12.2009 Deffered Tax Assets / (Liabilities) (673.700) (134.740) (722.245) (144.449) Rediscount Expense 1.331.005 266.201 621.465 124.293 Provision for Termination Indemnities 1.016.480 203.296 625.365 125.073 Provision for Reduced Depreciation from Stock 1.604.840 320.968 1.260.760 252.152 (1.620.220) (324.044) (961.270) (192.254) 1.678.885 335.777 1.214.850 242.970 Account Name Fixed Assets Prekont Income Other Deferred Tax Assets / (Liabilities) 113 667.458 407.785 ANNUAL REPORT 31 December 2010 31 December 2009 Deferred Tax Asset / Liability at the beginning of the period 407.785 473.705 Deferred Tax Income / (Expense) 279.494 (65.920) Deferred Tax Asset / Liability at the end of the period (19.821) - Deferred Tax Asset / Liability at the beginning of the period 667.458 407.785 Account Name Explanation of Unused Tax Advantages: There is no financial loss transferred to forthcoming periods as of December 31, 2010. Reconciliation of tax provision as of December 31, 2010 and December 31, 2009 are as follows: 1 January 2010 1 January 2009 31 December 2010 31 December 2009 Reconciliation of Tax Provision Profits obtained from continuing operations 18.546.439 22.391.633 Income tax rate %20 (3.709.287) (4.478.327) (637.770) (269.216) (4.347.057) (4.747.543) Tax effect: -Non-taxable income -Non-deductible Expenses Deferred Tax Income 36. NET EARNINGS PER SHARE Earnings per share in the income statement are calculated by dividing net income by the weighted average number of common shares outstanding for the period. Group’s earnings per share are calculated for the periods are as follows: 1 January 2010 31 December 2010 Account Name 1 January 2009 31 December 2009 Period Profit/ (Loss) 13.171.469 15.934.942 Weighted Average Number of Common Shares Outstanding 56.000.000 56.000.000 0,235205 0,284553 2.070 2.504 0,223446 0,270326 Earnings / (Loss) per Share Profit for preferred shares Profit for ordinary shares 37. EXPLANATIONS OF RELATED PARTIES a) Receivables and Payables of Related Parties: Receivables Commercial 31 December 2010 Liabilities NonCommercial Commercial NonCommercial Shareholders - - - 3.043.727 Homend A.fi. 1.783.661 - - 112.119 5.957 96.013 - - - - - - 2.399.123 - 624.144 - Neteks D›fl Tic. 292.827 - - - Despec A.fi. 137.444 - - 1.678.690 4.619.012 96.013 624.144 4.834.616 Desbil A.fi. Neosoft A.fi. ‹nfin A.fi. Total 114 ANNUAL REPORT Receivables Liabilities NonCommercial Commercial 31 December 2009 NonCommercial Commercial Shareholders - - - 1.182.299 Homend A.fi. - 1.077.335 - - Desbil A.fi. - 128.174 - - Neosoft A.fi. - - - - 453.492 - - - - - 759.468 - Despec A.fi. 170.770 - 6.000.723 - Total 624.262 1.205.509 6.760.191 1.182.299 ‹nfin A.fi. Neteks D›fl Tic. There is no guarantees or mortgages for the related party receivables or payables. There is no provision made for doubtful receivables for the related party receivables. The related party balances generally consist from trade transactions. But in some conditions there are cash usages between the related parties. The balances consist from non-trade transactions are classified as non-trade receivables or payables in the financial statements. Interest is calculated for the balances and invoiced quarterly. The interest rates for USD is between % 3 and % 4,50 in 2010. Shareholders current accounts are generally arised from divident debt, and interest is not calculated for these debt. b) Purchases from Related Parties and Purchases from Related Parties 1 January - 31 December 2010 Sales to Related Parties Goods and Service Sales Common Cost Participation Interest and Foreign Exchange Income Total Expense / Purchases - 2.994 10.363 13.357 6.672.779 1.498.753 295.300 8.466.832 270.992 217.816 226.804 715.612 ‹nfin A.fi. 9.683.293 5.070 617.698 10.306.061 Neteks D›fl Ltd.fiti. 3.648.161 - 3.550 3.651.711 20.275.225 1.724.633 1.153.715 23.153.573 Desbil A.fi. Despec A.fi. Homend A.fi. Total Purchases From Related Parties Desbil A.fi. Goods and Service Purchases Common Cost Participation Interest and Foreign Exchange Expense Total Expense / Purchases - - 20.713 20.713 Despec A.fi. 5.869.015 - 389.459 6.258.474 Homend A.fi. 4.834.305 - 309.094 5.143.399 ‹nfin A.fi. 5.431.286 - 461.823 5.893.109 Neteks D›fl Ltd.fiti. 4.611.145 - 10.397 4.621.542 20.745.751 - 1.191.486 21.937.237 Total 115 ANNUAL REPORT 1 January - 31 December 2009 Sales to Related Parties Goods and Service Sales Desbil A.fi. Common Cost Participation Interest and Foreign Exchange Income Total Expense / Purchases - 2.802 9.571 12.373 12.863.898 1.276.599 851.795 14.992.292 10.731 2.802 153.871 167.404 ‹nfin A.fi. 8.023.374 4.800 765.743 8.793.917 Neteks D›fl Ltd.fiti. 2.850.108 - 3.518 2.853.626 23.748.111 1.287.003 1.784.498 26.819.612 Despec A.fi. Homend A.fi. Total Purchases From Related Parties Goods and Service Purchases Desbil A.fi. Common Cost Participation Interest and Foreign Exchange Expense Total Expense / Purchases - - 10.769 10.769 11.062.358 19.944 948.035 12.030.337 - - 78.577 78.577 ‹nfin A.fi. 5.864.858 - 350.534 6.215.392 Neteks D›fl Ltd.fiti. 5.209.632 - 10.868 5.220.500 22.136.848 19.944 1.398.783 23.555.575 Despec A.fi. Homend A.fi. Total c) Benefits and wages provided to Management Staff Account Name Short term benefits provided to employees 1 January 2010 31 December 2010 1 January 2009 31 December 2009 2.384.466 2.088.213 Employment Termination Benefits - - Other long term benefits - - 2.384.466 2.088.213 Total Benefits and wages provided to Management Staff consist of general manager wages, assistant general manager wages. 38. NATURE AND LEVEL OF RISKS ARISING OUT OF FINANCIAL INSTRUMENTS (a) Capital risk management The Group, while trying to maintain the continuity of its activities in capital management on one hand, aims to increase its profitability by using the balance between debts and resources on the other hand. The capital structure of the Group consists of debts containing the credits explained in note 8, cash and cash equivalents explained in note 6 and resource items containing respectively issued capital, capital reserves, profit reserves and profits of previous years explained in note 27. Risks, associated with each capital class, and the capital cost are evaluated by the senior management. It is aimed that the capital structure will be stabilized by means of new borrowings or repaying the existing debts as well as dividend payments and new share issuances based on the senior management evaluations. The Group follows the capital by using debt/total capital rate. This rate is found by dividing the net debt by total capital. The net debt is calculated by excluding the cash and cash equivalent amounts from the total debt amount (including credits, leasing and commercial debts as indicated in the balance sheet). Total capital is calculated as resources plus net debt as indicated in the balance sheet. General strategy of the Group based on resources is not different from the previous years. 116 ANNUAL REPORT 31 December 2010 31 December 2009 Total Debt 417.694.527 323.969.955 Minus (-) Cash and Equivalent (26.415.870) (2.320.888) Net Debt 391.278.657 321.649.067 Total Shareholder’s Equity 120.437.244 112.776.405 Total Share capital 511.715.901 434.425.472 76,46% 74,04% Account Name Rate % The Group is entening into hedging contracts (including derivative financial instruments) for the purpose of diversifing currency fluctuation risks. (b) Important Accounting Policies Significant accounting policies of the Group relating to the financial instruments are stated in the footnote 2. (c) Market risk The , due to its activities, is exposed to changes in exchange rates (see article d) and interest rates (see article e), and other risks (article g). The Group, as it holds the financial instruments, also bears the risk of other party not meeting the requirements of the agreement. Market risks seen at the level of Group is measured according to the sensitivity analysis principle. The market risk of the Group incurred during the current year or the method of handling the encountered risks or the method of measuring those risks are no different from the previous year. (c1) Foreign exchange rate risk management Transactions by foreign currency cause the formation of rate risks. The Group is exposed to rate risk due to the changes in exchange rates used for exchanging the assets and liabilities from foreign currency to Turkish Lira. The rate risk evolves due to the commercial transactions to be executed in the future and the difference between actives and passives of the recorded. The Group is exposed to rate risk depending on the course of change of rate changes because it actually evaluates its accounts as foreign exchange deposits and has payables and receivables in foreign currency. Foreign Exchange Rate Sensitivity Analysis Table Current Period Previous Period Profit / Loss Profit / Loss Appreciation of Foreign Exchange Depreciation of Foreign Exchange Appreciation of Foreign Exchange Depreciation of Foreign Exchange In the event of 10% value change of US Dollar against TL; 1- US Dollar Net Property / Liability (5.376.668) 5.376.668 (5.727.877) 5.727.877 (5.376.668) 5.376.668 (5.727.877) 5.727.877 2- The part, protected from US Dollar Risk (-) 3- US Dollar Net Effect (1+2) In the event of 10% value change of Euro against TL; 4- Euro Net Property / Liability (40.779) 40.779 (622.808) 622.808 (40.779) 40.779 (622.808) 622.808 (5.417.447) 5.417.447 (6.350.685) 6.350.685 5- The part, protected from Euro Risk (-) 6- Euro Net Effect (4+5) Total 117 ANNUAL REPORT As of December 31, 2010 total amount of the commercial good inventories is 123.630.694 TL. A significant part of inventories are purchased or imported in USD. As of December 31, 2009 total amount of the commercial good inventories is 134.601.338 TL. A significant part of inventories are purchased or imported in USD. c2 ) Credit Risk and Management Table of Foreign Exchange Position Current Period Account Name TRL Value USD EUR GBP 226.257.352 142.650.727 2.791.142 - 43.237.733 26.926.709 785.243 - 2b. Non-Monetary Financial Assets - - - 3. Other - - - 269.495.085 169.577.436 3.576.384 1. Trade Receivables 2a. Monetary Financial Assets 4. Current Assets Total (1+2+3) 5. Trade Receivables 6a. Monetary Financial Assets 373 6b. Non-Monetary Financial Assets - 7. Other - 241 373 241 - 269.495.457 169.577.677 3.576.384 (291.405.123) (183.490.699) (3.771.657) 11. Financial Liabilities (10.992.996) (7.110.605) - 12a. Other Monetary Liabilities (13.247.695) (8.564.059) (3.738) (199.165.363) (3.775.395) 8. Fixed Assets Total (5+6+7) 9. Total Assets (4+8) 10. Trade Payables 12b. Other Non-Monetary Liabilities 13. Total Short Term Liabilities (10+11+12) 14. Trade Payables 15. Financial Liabilities (315.645.814) (8.024.113) - 16b. Other Non-Monetary Liabilities - 18. Total Liabilities (13+17) (5.190.242) (8.024.113) (5.190.242) - - (323.669.927) (204.355.605) (3.775.395) - 19. Net Asset/ (Liability) Position of Derivative Instruments off the Balance Sheet (19a-19b) 3.287.323 2.126.341 19a. Total Amount of Hedged Assets 3.287.323 2.126.341 19b. Total Amount of Hedged Liabilities 20. Net Foreign Exchange Asset / (Liability) Position (9-18+19) - - 16a. Other Monetary Liabilities 17. Total Long Term Liabilities (14+15+16) - - (50.887.147) (32.651.587) (199.011) - (54.174.470) (34.777.928) (199.011) - 21. Monetary Items Net Foreign Exchange Asset / (liability) position (1+2a+5+6a-10-11-12a-14-15-16a) 22. Total Fair Value of Financial Instruments Used for - the Foreign Exchange Hedge 23. The Amount of Hedged part of Foreign Exchange Assets 23. The Amount of Hedged part of Foreign Exchange Liabilities 3.186.663 2.126.341 - 23. Export 13.816.010 24. Import 472.875.309 118 ANNUAL REPORT Previous Period Account Name TRL Value 1. Trade Receivables 180.541.616 112.923.852 4.866.071 19.306.770 12.263.280 389.737 2b. Non-Monetary Financial Assets - - - 3. Other - - - 199.848.386 125.187.132 5.255.808 - 2a. Monetary Financial Assets 4. Current Assets Total (1+2+3) 5. Trade Receivables 6a. Monetary Financial Assets USD EUR GBP 672 6b. Non-Monetary Financial Assets - 7. Other - 446 672 446 - - 199.849.058 125.187.578 5.255.808 - (216.064.992) (133.023.950) (7.300.296) - 11. Financial Liabilities (21.905.416) (14.548.327) - 12a. Other Monetary Liabilities (15.290.751) (8.952.235) (838.481) (156.524.512) (8.138.778) - 8. Fixed Assets Total (5+6+7) 9. Total Assets (4+8) 10. Trade Payables 12b. Other Non-Monetary Liabilities 13. Total Short Term Liabilities (10+11+12) 14. Trade Payables 15. Financial Liabilities (253.261.159) (10.094.751) 16a. Other Monetary Liabilities - 16b. Other Non-Monetary Liabilities - (6.704.358) (10.094.751) (6.704.358) - - (263.355.910) (163.228.870) (8.138.778) - off the Balance Sheet (19a-19b) 3.850.671 2.557.396 - - 19a. Total Amount of Hedged Assets 3.850.671 2.557.396 17. Total Long Term Liabilities (14+15+16) 18. Total Liabilities (13+17) 19. Net Asset/ (Liability) Position of Derivative Instruments 19b. Total Amount of Hedged Liabilities 20. Net Foreign Exchange Asset / (Liability) Position (9-18+19) (59.656.181) (35.483.896) (2.882.970) - (63.506.852) (38.041.292) (2.882.970) - 21. Monetary Items Net Foreign Exchange Asset / (liability) position (1+2a+5+6a-10-11-12a-14-15-16a) 22. Total Fair Value of Financial Instruments Used for the Foreign Exchange Hedge 23. The Amount of Hedged part of Foreign Exchange Assets 23. The Amount of Hedged part of Foreign Exchange Liabilities 3.850.671 - 23. Export 8.400.999 24. Import 444.575.290 119 2.557.396 ANNUAL REPORT CREDIT TYPES INCURRED IN RESPECT OFFINANCIAL INSTRUMENT TYPES Receivables Current Period Commercial Receivables Related Maximum credit risk incurred as of the date of reporting (A+B+C+D+E) (1) Foot Note Other Receivables Other Related 310.566.424 96.013 207.175 - 21.166.698 - - 25.326.774 4.619.012 309.745.773 96.013 207.175 10-11 in value (2) - 296.209 - - 10-11 B. Book value of financial assets which conditions are renegotiated, and which - 524.442 - - A. Net book value of financial assets which are undue or which did not decline otherwise would be counted as overdue or declined in value (3) 6 6 25.326.774 10-11 524.442 C. Net book value of assets, overdue but did not decline in value. (6) Foot Note Other 4.619.012 - The part of maximum risk secured by guarantee etc. Deposit at Banks - - - - - 5.082.748 - - (5.082.748) - - 6 10-11 - The part secured by guarantee etc. 6 10-11 D. Net book values of assets declined in value (4) - 6 - 6 10-11 - Overdue (gross book value) 10-11 - Decline in value (-) - - - - - The part of net value secured by guarantee etc. 6 10-11 6 10-11 - Undue (gross book value) - 6 - Decline in value (-) - The part of net value secured by guarantee etc. E. Elements containing credit risk off the balance sheet (5) Receivables Previous Period Commercial Receivables Related Maximum credit risk incurred as of the date of reporting (A+B+C+D+E) (1) - The part of maximum risk secured by guarantee etc. Foot Note Other Receivables Other Related Deposit at Banks Foot Note Other 1.569.999 624.262 228.870.545 1.205.509 150.053 - 34.269.777 - - 624.262 227.507.477 1.205.509 150.053 10-11 - 269.589 - - 10-11 - 1.093.479 - - 10-11 A. Net book value of financial assets which are undue or which did not decline in value (2) 1.569.999 6 B. Book value of financial assets which conditions are renegotiated, and which otherwise would be counted as overdue or declined in value (3) 6 C. Net book value of assets, overdue but did not decline in value. (6) - The part secured by guarantee etc. D. Net book values of assets declined in value (4) - Overdue (gross book value) - - - - 10-11 - Decline in value (-) - 4.888.856 - - 10-11 (4.888.856 ) - - 10-11 - The part of net value secured by guarantee etc. - Undue (gross book value) - Decline in value (-) - The part of net value secured by guarantee etc. - - - 6 - 1.093.479 - - 6 6 - 6 10-11 6 10-11 6 10-11 6 E. Elements containing credit risk off the balance sheet (5) 120 ANNUAL REPORT Current Period (31 December 2010) Commercial Receivables Commercial Receivables 1-30 Days Overdue 641.987 - 1-3 Months Overdue 102.873 - 75.791 - 524.442 - Commercial Receivables Commercial Receivables 1.112.764 - 96.487 - 153.816 - 1.093.479 - More than 3 Months Overdue The part of net value secured by guarantee etc. Previous Period (31 December 2010) 1-30 Days Overdue 1-3 Months Overdue More than 3 Months Overdue The part of net value secured by guarantee etc. The Group’s credit risk management exposed from trade receivables. Trade receivables mostly consist from receivables from dealers. The Group has set up an effective control system over its dealers and the risk is monitorized by credit risk management team and Group Management. The Group has set limits for every dealer and these limits are revised if it is neccessary. The taking adequate guarantees from dealers is another method for the risk management. There is no significant trade receivable risk for the Group, because the Group has receivables from a wide range of customers instead of a small number customers and significant amounts. Trade receivables are evaluated by taking into consideration of Group’s past experience and current economic situation and these receivables are presented with their net values in the balancesheet after the proper provisions for doubtful receivables are made. The low profit margin by force of the sectoral conditions make collection and credit risk management policies important and the Group management show sensivity in these situations. The detailed information about the collection and risk management policies are as follows; The Group starts executive proceedings and / or litigate for the receivables overdue for a few months. The Group can configure terms for dealers in difficult situations. The low profit margin by force of the sectoral conditions make collection of receivables important. There is a risk management team to minimize the risk of collections and the sales are realized by making credibility evaluations. The sales to new or risky dealers are made in cash collection. The Group is selling products to a wide range of institutions which are selling or buying computer and its equipments. The capital structure of the dealers classified as “classic dealers” in the distribution channel is low. It is estimated that there are about 5.000 dealers in this group in Turkey and in terms of risk management to minimize the receivable risk of Datagate by taking steps and establishing its own organisation and working system. The steps taken by the Group is as follows; The sales to new customers which has no experience more than 1 year : The sales to new customers which has no experience more than 1 year are made in cash collection. The information team involved in receivable and risk management department consist of 2 staff and this team is monitoring the dealers continuously. Credit Committee: The information about the customers which has experience more than 1 year in the sector and the customers which are demanding an increase for the credit limit are prepared by the information team and presented to credit committee every week. Credit committee consist of Senior Vice President of Finance, Finance Manager, Accounting Manager, information team staff and the Sale Manager of related Customer. Credit Committee establish credit limits to related customers by taking into consideration the information gained from the information team, past payments and sale performances. The Credit Committee determine the conditions and if it is needed they demand for guarantees, mortgages, etc. Group sales are widespread on Turkey, therefore it is reduce the concentration risk. Trade receivables are evaluated by taking into consideration the Group policies and procedures and the trade receivables are shown with their net value after the provisions for doubtful receivables are made in the financial statements. (Note:10) 121 ANNUAL REPORT (c3) Management of interest rate risk Group’s fixed interest financial instruments liabilies are stated in Note: 8. Group’s fixed interest assets (deposit etc.) are stated in Note: 6 Table of Interest Position Fixed Interest Financial Instruments Current Period Previous Period 1.000.140 - 19.525.078 32.314.574 Current Period Previous Period Financial Assets - - Financial Liabilities - - Financial Assets Financial Liabilities Floating Rate Financial Instruments (c4) Liquidity risk management The Group tries to manage the liquidity risk by maintaining the continuation of sufficient funds and loan reserves by means of matching the financial instruments and terms of liabilities by following the cash flow regularly. Liquidity Risk Tables Prudent liquidity risk management signifies maintaining sufficient cash, the utility of fund sources by sufficient credit transactions and the ability to close out market positions. Risk of existing or future possible debt requirements being fundable is managed by maintaining the continuation of availability of sufficient numbers and high quality credit providers. The table below indicates the term divisions of derivative and non-derivative financial liabilities of the Group in TL currency. 31.12.2010 Expected Terms Non-Derivative Financial Liabilities Bank Credits Book Value Commercial Debts Other Debts Expected Terms Derivative Financial Liabilities Shorter than 3 Months Between 3-12 months Between 1-5 years Longer than 5 year 399.140.961 403.267.462 386.681.131 6.012.865 9.970.175 603.291 19.709.602 22.215.866 5.629.535 6.012.865 9.970.175 603.291 - - 141 156 156 365.962.360 367.582.581 367.582.581 13.468.858 13.468.858 13.468.858 Issuances of Debt Instrument Leasing Liabilities Cash outflows Total As Per the Agreement Book Value Cash outflows Total As Per the Agreement Shorter than 3 Months Between 3-12 months Between 1-5 years Longer than 5 year 100.660 89.471 89.471 - - - Derivative Cash Inflow(*) 3.287.323 3.287.323 3.287.323 - - - Derivative Cash Outflow (3.186.663) (3.197.852) (3.197.852) - - - (*)The amount of forward transactions consist of USD 2.125.341. In liability calculation, derivative cash outflow is calculated using exchange rates valid at the end of term. Derivative cash inflow is calculated using the exchange rate valid on December 31, 2010. Actual profit or loss will arise at the end of term. 122 ANNUAL REPORT 31.12.2009 Expected Terms Cash outflows Total As Per the Agreement Book Value Shorter than 3 Months Between 3-12 months Between 1-5 years Longer than 5 year 305.788.973 309.943.977 291.014.033 6.345.517 11.996.821 587.606 32.467.824 35.626.817 16.699.283 6.343.107 11.996.821 587.606 Issuances of Debt Instrument - - - - - - Leasing Liabilities 1.094 3.378 968 2.410 265.080.401 266.074.128 266.074.128 8.239.654 8.239.654 8.239.654 Non-Derivative Financial Liabilities Bank Credits Commercial Debts Other Debts Expected Terms Derivative Financial Liabilities Book Value Cash outflows Total As Per the Agreement Shorter than 3 Months Between 3-12 months Longer than 5 year Between 1-5 years (20.673) (20.673) (20.673) - - - Derivative Cash Inflow(*) 3.850.671 3.850.671 3.850.671 - - - Derivative Cash Outflow (3.871.344) (3.871.344) (3.871.344) - - - (*) The amount of forward transactions consist of USD 2.557.396 In liability calculation, deriative cash outflow is calculated using exchange rates valid at the end of term. Derivative cash inflow is calculated using the exchange rate valid on December 31, 2009. Actual profit or loss will arise at the end of term. (c5) Analyses of other Risks Risks Related to Financial Instruments, Stocks Etc. Group has no stocks or similar marketable securities evaluated by fair value in the current period. 39. FINANCIAL INSTRUMENTS The Group considers that the recorded values of financial instruments reflect the fair values. Aims at financial risk management The finance department of the Group is responsible for maintaining the access to financial markets regularly and observing and managing the financial risks incurred in relation with the activities of the Group.The said risks include market risk (including foreign exchange risk, fair interest rate risk and price risk), credit risk, liquidity risk and cash receiving risk. Fair Value of Financial Instruments Fair value is the amount for which an financial instrument could be exchanged except compulsory sale or liqudation process between willing parties and it is determined with its market value if there is a quoted price. The Group has determined the estimated values of financial instruments by taking into consideration the present market information and proper valuation methods. But determination of market information and estimation of fair value require interpretation and discernment. Consequently the estimations presented are not always the indicators of the values could be realized from a current market transaction. The methods and assumptions used for the determination of the fair value of the financial instruments are as follows; Monetary Assets Balances denominated in foreign currencies are converted into Turkish Lira by the exchange rate rulling at the balancesheet date. It is predicted that these balances are considered to approximate to their net book value. Financial instruments in which cash and cash equivalents are included are carried by their cost value and it is predicted that their net book value are considered to approximate to their fair values due to their short-term maturity. 123 ANNUAL REPORT It is predicted that the net book value of trade receivables with provisions made for doubtful receivables present their fair values. Monetary Liabilities Balances denominated in foreign currencies are converted into Turkish Lira by the exchange rate rulling at the balancesheet date. It is predicted that these balances are considered to approximate to their net book value. It is predicted that net book value of bank loans and other monetary liabilities are considered to approximate their fair values due to their short-term maturity. It is predicted that the net book value of trade payables present their fair values due to their short-term maturity. Fair Value Assessment : The Group has applied the amendments in IFRS 7 related with the financial instruments evaluated by fair value in the balancesheet effective from the date of January 1, 2009. The amendment in fair value calculations is disclosed in accordance with the steps of hierarchy for fair value mentioned below; Level 1: Quoted prices in active markets for identical assets and liabilities. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3 : Inputs for the asset or liability that are not based on observable market data It is predicted that net book value of balances are considered to approximate to their fair values. The Group present its financial investments with their fair values in the financial statements as of December 31, 2010. (Level 2) (Note:7) It is accepted that the discounted net book value of financial assets such as cash and cash equivalents present thier fair values due to their short-term maturity. Trade receivables and payables are measured at their discounted cost using the effective interest method and it is accepted that the net book value of these balances are considered to approximate their fair values. 40. SUBSEQUENT EVENTS None. 41. OTHER ISSUES None. 124 ANNUAL REPORT Ayaza¤a Mahallesi, Cendere Yolu No:9/1 fiiflli - Istanbul / Turkey www.index.com.tr