eczac · yatırım ve pazarlama a.Ş. 6,187,500 6.19 board of directors annual report prepared...

Eczacıbaşı Building Products Co.

2008 ANNUAL REPORT

BOARD OF DIRECTORS ANNUAL REPORT PREPARED PURSUANT TO COMMUNIQUE SERIAL: XI NO:29

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I. INTRODUCTION

1. Period Covered by the Report This report covers the activities of Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. (EYAP) between 1 January 2008 and 31 December 2008.

2. Company Name Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. (EYAP)

3. Boards in Charge during the Period

Board of Directors Bulent Eczacıbaşı Chairman Erdal Karamercan Vice Chairman Haluk Bayraktar Member-General Manager Husamettin Onanç Member M. Sacit Basmacı Member Atalay M.Gumrah Member Ahmet T. Yamaner Member

The Board of Directors was elected at the 28 March 2008 General Meeting of Shareholders for a period of one year.

Audit Committee Bulent Avcı Auditor Tayfun Icten Auditor

The auditors were appointed to serve until the examination of the accounts for the next General Meeting.

4. Registered and Paid-in Capital

Registered Capital TRY 100,000,000.- Paid-in Capital TRY 100,000,000.-

As EYAP is a publicly-traded company, the exact number of its shareholders is not known.

The value of EYAP’s shares fluctuated over the year parallel to movements in the composite index of the Istanbul Stock Exchange. The 2008 closing price per share was TRY 0.98.

No dividends were distributed during the previous three years.

Shareholders owning 10% or more of the Company’s shares are as follows: Shareholders Share Value (TRY) Share (%) Eczacıbaşı Holding A.Ş. 69,562,424 69.56 İntema İnşaat ve Tesisat MalzemeleriYatırım ve Pazarlama A.Ş. 6,187,500 6.19


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5. Main Factors Affecting Company Performance and Expectations:

EYAP’s primary strategies in 2008 were defending its market leadership in the domestic market, growing its sales of branded products abroad, strengthening its financial structure and increasing its profitability. The Company achieved all of these strategies in 2008.

The Company reduced those OEM agreements that did not contribute to profitability or adversely impacted VitrA-branded sales by creating competition in strategic markets and focused instead on branded sales. In line with this policy, the Company was careful to ensure that marketing investments were brand-focused in all strategic markets.

The main external factor affecting the Company’s performance in 2008 was the global crisis, which curtailed demand in domestic and foreign markets, increase at energy prices, and exchange rate volatility, particularly between September and December 2008.

6. Outlook:

On 2 July 2008, EYAP purchased a 47.16 percent share of the German company Burgbad AG, the European leader in the luxury bathroom furniture market. EYAP then purchased another 43.3 percent of Burgbad shares from minority shareholders in the Frankfurt and Dusseldorf stock markets at the same share price (Euro 20.12 per share), through a public tender offer required by German law. As a result, EYAP’s total shareholding in Burgbad AG was 90.78 percent as of 31 December 2008.

7. Market Position in Main Business Segments:

According to the market share report prepared by the market research company GFK, EYAP continues to be the leader of the ceramic sanitary ware, sanitary fixture and concealed cistern markets in Turkey.

8. Developments in Manufacturing Units, Capacity Usage Rates, Goods and Services Produced, and Comparisons of Quantity, Quality, Demand and Prices with Previous Period Figures:

In January 2009, EYAP completed the transportation of its concealed cistern and bathroom accessory production plant in Gebze to Bozüyük, as planned. The move to a single production site has significantly reduced costs and increased productivity.

9. Developments in Prices of Goods and Services, Sales Proceeds and Conditions, Output and Productivity, and Reasons Thereof:

Sales in Turkey remained level with the previous year in 2008. International sales, on the other hand, dropped 26% relative to the previous year on a Euro basis. The main factors behind this decrease were the global crisis, which slashed demand in the US and UK markets, and the Company’s successful reduction of OEM sales, in line with its strategic targets.


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10. Measures to Improve the Company’s Financial Structure:

The Company reduced the collection period for overseas sales and began to require cash on export sales to risky companies. At the same time, it extended payment terms for domestic purchases, postponed non-essential investments, implemented measures to prevent excess stock and introduced employee and expenditure savings.

EYAP also increased its paid-in capital to TRY 100,000,000. on level with its registered capital, with a paid capital increase of TRL 43,750,000.

11. Information on Interests in Enterprises subject to Consolidation in the Parent Company Capital (Cross-Shareholding):

Eczacıbaşı Holding A.Ş. has a 69 percent shareholding in EYAP. EYAP does not have a cross-shareholding relationship with Eczacıbaşı Holding A.Ş. nor an influence on this company’s business and management policies. EYAP acquired a majority share of Burgbad AG in July 2008 and now has a shareholding of 90.78 percent in this German company.

12. Descriptions of the Main Components of the Building Products Division’s Internal Audit and Risk Management Systems with respect to the Preparation of its Consolidated Financial Statements:

An international independent auditing company located in Germany has audited the 30 June 2008 and 31 December 2008 financial statements of the subsidiaries included in the consolidation to ensure their compliance with the legislation of Turkey’s Capital Markets Board and International Financial Reporting Standards.

II. OPERATIONS

A) Investments

The Company invested TRY 9,094,602 ($ 7,004,469) between 1 January 2008-and 31 December 2008 in the modernization of the VitrA plant. The coverage of the investment incentive certificate for this investment is given below.

Type of Investment Investment Amount Date-No Incentives

(TRY) Eczacıbaşı Yapı Extension- 5,000,000 01.08.2006-4875 Collective Housing Gereçleri/Bozüyük Modernization Fund Exemption Customs Exemption

VAT Support


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B) Developments in the Production of Goods and Services

Capacity Utilization Rates (%)

Production Units 2008/12 2007/12 Ceramic Sanitary Ware 80 92Sanitary Fittings 72 86

Volume Output:

Production (1000 Units)

2008/12 2007/12 Change (%)

Ceramic Sanitary Ware 4,002 4,516 (11) Duroplast Toilet Seats 441 454 (3) Concealed Cisterns 139 170 (18) Furniture 31 43 (28) Chrome-Plated + Colored Fittings 2,279 2,451 (7)

The foreign currency value of export sales was $ 135.17 million in 2008, down from $ 172.30 million in 2007.

Export Revenue:

Eczacıbaşı Yapı Gereçleri Exports - $ Million

200.00 180.00

172.3

140.00 120.00 100.00

80.00 60.00 40.00 20.00

0.00

135.17 2008 2007


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Eczacıbaşı Yapı Gereçleri Main Export Markets

Germany 21%

Other Countries

50%

USA 11%

UK

18%

C. Major Financial Ratios

2008 2007 Current Ratio 0.70 1.07 Liquidity Ratio 0.45 0.57 Total of Debts / Assets 0.79 0.58 Total of Equity / Asset 0.21 0.42 Total of Equity / Debts 0.27 0.72

D. Administrative Operations

1. Company Directors and their Functions:

Name Function ProfessionHaluk Bayraktar General Manager MSc. Mechanical Engineer

Levent Giray Assistant General Manager MSc. Industrial Engineer

Hakan Şahin Assistant General Manager Industrial Engineer Mustafa Akdoğan Purchasing Manager Industrial Engineer D.Erhan Arpaç Human Resources Manager LawyerBerna Erbilek Marketing Manager Business Manager M. Acun Guneş Sales Manager Mechanical Engineer Mustafa Manavoğlu Product Development

ManagerMechanical Engineer

Mehmet Mercan Factory Manager-VitrA Metallurgy Engineer Oktay Pehlevan Factory Manager-Artema Mechanical Engineer Ayşegül Üzel Financial Affairs Manager Business Manager -S.M.M.M

2. Changes in the Number of Employees:

Status Entries Departures Year-end headcount Union 87 320 1,173 Non-Union 38 105 398 Total 125 425 1,571


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3. Implementation of Collective Bargaining Agreements:

The Company’s Collective Bargaining Agreement with the Union for the VitrA unit, which it signed on 29 March 2007 for the period 1 January 2007 through 31 December 2008, came to an end on 31 December 2008. Negotiations continue on a new labor agreement.

The Company’s Collective Bargaining Agreement for the Artema unit, which it signed on 5 December 2008, will be effective 1 September 2008 through 31 August 2010.

4. Research & Development Activities:

R&D expenditure totaled TRY 3,459,102 in 2008.

5. Donations:

Donations were valued at TRY 281,511 in 2008, with TRY 25,000 of this amount being donations to the TEMA Foundation and TRY 226,271, donations to Primary Boarding Schools (YİBO).

III) RECOMMENDED DISTRIBUTION OF PROFITS

The Company has no profit to distribute due to its net loss for the period.

BOARD OF DIRECTORS


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Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. Report on Compliance with Corporate Governance Principles

1. Declaration of Compliance with Corporate Governance Principles: During the period 1 January 2008 – 31 December 2008, the Company implemented some but not all of the principles issued by the Capital Markets Board (CMB). Detailed information is given below.

PART I. SHAREHOLDERS

2. Relations with Shareholders: The Company has not yet established a shareholder relations unit, so it manages these relations through the Finance Department, which oversees communication with the CMB, Istanbul Stock Exchange, Central Registry Agency, Takasbank and shareholders. The Company’s view is that there is little demand for a unit of this kind.

In 2008, the Company received and responded to five inquiries and 15 requests for annual reports.

3. Exercise of Shareholder Rights to Obtain Information: Shareholders’ requests for information are usually transmitted by intermediary organizations. These requests are accepted by appointment and the required meetings arranged. Individual requests are generally received in written form and answered as soon as possible. In 2008, the Company received and responded to five written requests. Shareholders’ rights and developments that can affect these rights are announced by the Istanbul Stock Exchange. The Company did not use the electronic media for this purpose during the period. The Company’s articles of association do not contain any clause about appointing a special auditor, nor did it receive any demand for one during the period.

4. Information on the General Meeting: The general shareholders’ meeting was held punctually during the period, and the attendance rate was 70.8 percent. Shareholders were invited to the meeting through announcements in the press and the bulletin of the Istanbul Stock Exchange. Five shareholders from the publicly-owned part of the Company attended the meeting.

The Company made its annual report and financial tables available to shareholders at its headquarters during the two weeks before the meeting. Shareholders used their right to ask questions at the general meeting and received responses from the Board of Directors.

There is no requirement in the Company’s articles of association that decisions regarding the division of assets, large purchases and hiring be taken up at the general meeting, but they are put on the agenda anyway.

To facilitate attendance, the general meeting is announced in popular newspapers and held in the city center. The minutes of the general meeting are sent to the Istanbul Stock Exchange and CMB; they can also be freely viewed at the Company’s headquarters and on its web site: www.vitra.com.tr.

5. Voting Rights and Minority Rights: There are no privileged voting rights or mutual affiliate relationships. To date, there has been no shareholder demand concerning minority shares. The Company does not use the cumulative voting procedure.


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6. Dividend Policy and Time of Dividend: At a meeting held on 17 March 2006, the Board of Directors established the following corporate governance principles with regard to the Company’s profit distribution policy:

There are no special references in the Company’s articles of association to privileged shares, founder benefit shares, the distribution of profit to members of the Board of Directors and employees, and advanced dividends.

The Company’s articles of association accept the principle of distribution of the first dividend based on the ratio and amount decided by the CMB.

The Board of Directors proposes to the General Meeting how much profit should be distributed based on the principle of maintaining a balance between company profitability, shareholder expectations, and growth strategies.

Dividend payments (cash or bonus shares) are to be made as soon as possible within the legal time limit.

7. Transfer of Interests: There is no article of association that limits share transfers.

PART II – PUBLIC DISCLOSURE AND TRANSPARENCY

8. Information Policy: The Company’s principle is to present all non-confidential information whenever requested and as soon as possible. The Finance Department provides written or oral responses to all requests from shareholders, media or potential investors.

9. Disclosure of Special Events: In 2008, the Company made 21 special event disclosures to the PDP (Public Disclosure Platform) and the Istanbul Stock Exchange and CMB. Neither institution requested further information. Since the Company’s stocks are not traded in international markets, the disclosures were timely and the CMB did not issue warnings.

10. Company Web Site and Content: The Company added a section for investors to its web site in 2005.

11. Statement of Final and Real Shareholders: The Company is a member of the Eczacıbaşı Group and no study has been done on this subject.

12. Disclosure of People with Access to Potential Insider Trading Information: The Company has disclosed this list to the CMB but not to the public. The list includes management, the board of auditors and other boards established according to CMB requirements as listed in the annual report.

PART III – STAKEHOLDERS

13. Informing Stakeholders: Stakeholders are informed through general meetings, supplier and customer meetings, strategic planning meetings, general manager meetings and departmental meetings. (Targets, changes in wages, social benefits, travel allowances and satisfaction surveys are reviewed in these meetings.) The Company shares information with customers and suppliers in every area and undertakes joint efforts to develop processes. Strategic meetings with employees are held once a year; general manager meetings are held at least four times a year. Meetings to evaluate customers and suppliers are held at least once a year and related sales and marketing departments make customer visits


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14. Contribution to Management: Stakeholders contribute to management through strategic planning meetings for employees, general meetings for shareholders, supplier meetings, customer meetings and customer visits.

15. Human Resources Policy: Relations with employees are managed by the Human Resources Department. Our human resources policy aims to: -Establish an organizational structure that is flexible and open to change, while ensuring that human resources are used effectively and productively to achieve the Company’s strategic goals;

-Continually review and improve the Company’s human resources processes and systems, and encourage employees to learn so that they might improve their knowledge, competencies, and behavior, thus enhancing their individual performance as well as the performances of their teams and the Company;

-Create opportunities for personal and career development that respond to the needs of the Company and reflect performance evaluation results; -Attract employees who have the right competencies for their jobs: who are creative, innovative, participative, open to change, entrepreneurial, energetic and strong communicators; who want to develop personally and professionally and who are able to train others; who share our values; To date, there have been no complaints of discrimination from Company employees.

16. Relations with Customers and Suppliers: Customer satisfaction is evaluated through semi-annual surveys carried out by wholesalers and retailers in Turkey and international markets. Apart from surveys, the Company organizes retailer meetings, visits, and trips to the plant. A supplier satisfaction survey is held once a year on “Suppliers’ Day”. 17. Social Responsibility: The Company supports many social, cultural and sports activities, in accordance with the principles of the Eczacıbaşı Group. There are no legal claims on the Company related to environmental pollution.

PART IV – BOARD OF DIRECTORS

18. Structure and Composition of Board of Directors and Independent Members: The Board of Directors consists of seven members, one of which is an executive officer.

Bülent Eczacıbaşı Chairman Erdal Karamercan Vice Chairman Haluk Bayraktar General Manager-Member Hüsamettin Onanç Member M. Sacit Basmacı Member Atalay M. Gümrah Member Ahmet T. Yamaner Member

The Board does not have any independent members. The Company’s view is that independent members are not needed since the Board is careful to listen to the views of shareholders and outsources consultancy services when required.


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19. Structure of the Board: The structure of the Board of Directors is in accordance with Articles 3.1.1, 3.1.2 and 3.1.5 of the CMB’s Corporate Governance Principles. Related procedures, however, are not included in the Company’s articles of association.

20. Mission, Vision and Strategic Targets: In 2008, the Board of Directors determined that the vision of the Company was to “make VitrA a global bathroom brand offering customer-focused solutions in ceramic sanitary ware, bathroom furniture, and kitchen and bathroom fittings and accessories for better living”. The Company’s strategic targets were to strengthen its financial structure and increase profitability in 2008. The Board of Directors monitored targets at monthly meetings.

21. Risk Management and Internal Audits: The Company receives support on every issue from the Audit Committee, which comprises two members of the Board of Directors, as well as from the Financial Coordination Unit of Eczacıbaşı Holding and the Company’s independent auditor.

22. Duties and Responsibilities of Board Members and Directors: These are clearly defined in the Company’s articles of association.

23. Operating Principles of the Board of Directors: The Chairman assigns the General Manager the duty of preparing the agenda of Board meetings. Over the year, the Board held 24 meetings that were attended by a majority of the members. Invitations were made by phone or e-mail. The office of the Vice President of the Building Products Division is responsible for organizing meetings and distributing related information.

No member opposed the Board’s resolutions during the year. All Board members have attended meetings on the subjects listed in Part IV, Article 2.17.4 of the CMB’s Corporate Governance Principles. None of the members have special voting or veto rights.

24. Prohibition on Transactions with the Company and Competition: In line with the general principles of the Eczacıbaşı Group, no member of the Board of Directors can make a transaction with the Company.

25. Ethical Rules: The Company abides by the ethical rules of the Eczacıbaşı Group. These are distributed to all employees in written format but are not disclosed to the public.


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26. Number, Structure and Independence of Corporate Governance Committees Established by the Board of Directors: The Board only has one Corporate Governance committee, the Audit Committee. The reason for this is that the Company outsources consultancy services when needed.

27. Compensation and Benefits provided to the Board of Directors: In accordance with the decisions of the general assembly, members of the Board of Directors do not receive wages, make financial transactions with the Company, nor receive performance awards. In 2008, no member of the Board of Directors received guarantees, credit or loans from the Company.

ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2008 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT

CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT

ORIGINALLY ISSUED IN TURKISH

INDEPENDENT AUDITOR’S REPORT To the Board of Directors of Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. 1. We have audited the accompanying consolidated financial statements of Eczacıbaşı

Yapı Gereçleri Sanayi ve Ticaret A.Ş. and its subsidiaries (the “Group”) which comprise the consolidated balance sheet as of 31 December 2008 and the consolidated statement of income, consolidated statement of changes in shareholders’ equity and the consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements 2. The Group management is responsible for the preparation and fair presentation of

these consolidated financial statements in accordance with the financial reporting standards issued by the Capital Markets Board (“CMB”). This responsibility includes, designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated 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.

Auditor’s Responsibility 3. Our responsibility is to express an opinion on these consolidated financial statements

based on our audit. We conducted our audit in accordance with the auditing standards issued by the CMB. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts

and disclosures in the consolidated 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 consolidated 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 in sufficient and appropriate to

provide a basis for our audit opinion. Opinion 4. In our opinion, the accompanying consolidated financial statements present fairly, in

all material respects, the consolidated financial position of Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. as of 31 December 2008, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the financial reporting standards issued by the CMB (Note 2).

Additional paragraph for convenience translation into English 5. The accounting principles described in Note 2 to the consolidated financial statements

differ from International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board with respect to the application of inflation accounting for the period between 1 January - 31 December 2005. Accordingly, the accompanying consolidated financial statements are not intended to present the consolidated financial position and results of operations of the Group in accordance with IFRS.

Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers Originally issued and signed in Turkish Coşkun Şen, SMMM Partner Istanbul, 18 March 2009

CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2008

CONTENTS PAGE CONSOLIDATED BALANCE SHEETS ................................................................................... 1-2 CONSOLIDATED STATEMENTS OF INCOME .................................................................... 3 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ........................................... 4 CONSOLIDATED STATEMENTS OF CASH FLOW ............................................................ 5 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS ...................................... 6-64 NOTE 1 ORGANISATION AND NATURE OF OPERATIONS ........................................................................... 6 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS ............................................................. 7-23 NOTE 3 BUSINESS COMBINATIONS .................................................................................................................. 23-24 NOTE 4 SEGMENT REPORTING .......................................................................................................................... 24-26 NOTE 5 CASH AND CASH EQUIVALENTS ....................................................................................................... 27 NOTE 6 FINANCIAL INVESTMENTS .................................................................................................................. 27-28 NOTE 7 FINANCIAL LIABILITIES ....................................................................................................................... 28-29 NOTE 8 TRADE RECEIVABLES AND PAYABLES ............................................................................................ 30 NOTE 9 OTHER RECEIVABLES AND PAYABLES ............................................................................................ 31 NOTE 10 INVENTORIES ......................................................................................................................................... 31-32 NOTE 11 PROPERTY, PLANT AND EQUIPMENT ............................................................................................... 32-33 NOTE 12 INTANGIBLE ASSETS ............................................................................................................................ 34 NOTE 13 GOODWILL .............................................................................................................................................. 34 NOTE 14 GOVERNMENT GRANTS ....................................................................................................................... 35 NOTE 15 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES ................................................................ 35-36 NOTE 16 EMPLOYEE BENEFITS ........................................................................................................................... 37-38 NOTE 17 OTHER ASSETS AND LIABILITIES ...................................................................................................... 39 NOTE 18 EQUITY ..................................................................................................................................................... 40-42 NOTE 19 REVENUE AND COST OF SALES ......................................................................................................... 43 NOTE 20 EXPENSES BY NATURE ........................................................................................................................ 43-44 NOTE 21 OTHER OPERATING INCOME/EXPENSES .......................................................................................... 44-45 NOTE 22 FINANCIAL INCOME .............................................................................................................................. 45 NOTE 23 FINANCIAL EXPENSES .......................................................................................................................... 45 NOTE 24 TAX ASSETS AND LIABILITIES ........................................................................................................... 46-50 NOTE 25 EARNINGS PER SHARE ......................................................................................................................... 51 NOTE 26 TRANSACTIONS AND BALANCES WITH RELATED PARTIES ....................................................... 51-54 NOTE 27 FINANCIAL RISK MANAGEMENT ....................................................................................................... 55-63 NOTE 28 EVENTS AFTER THE BALANCE SHEET DATE .................................................................................. 64

CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2008 AND 2007 (Amounts expressed in New Turkish Lira (“YTL”) unless otherwise indicated.)

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Notes 2008 2007 ASSETS Cash and cash equivalents 5 38,533,767 3,342,732 Trade receivables 8 11,439,748 1,276,066 Due from related parties 26 75,189,136 80,503,334 Other receivables 9 5,258,738 2,919,836 Inventories 10 66,645,278 58,741,924 Other current assets 17 4,101,561 4,323,281 Current assets 201,168,228 151,107,173 Other receivables 9 51,320 25,837 Financial investments 6 4,370,041 4,645,200 Property, plant and equipment 11 196,495,039 151,750,654 Intangible assets 12 88,569,557 10,002,049 Goodwill 13 32,183,470 - Deferred income tax assets 24 238,182 2,683,108 Other non-current assets 17 1,309,049 973,582 Non-current assets 323,216,658 170,080,430 Total assets 524,384,886 321,187,603

The accompanying notes form an integral part of these consolidated financial statements.

CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2008 AND 2007 (Amounts expressed in New Turkish Lira (“YTL”) unless otherwise indicated.)

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Notes 2008 2007 LIABILITIES Financial liabilities 7 203,411,204 107,228,329 Trade payables 8 42,619,839 26,708,603 Due to related parties 26 8,921,150 8,183,777 Other payables 9 4,814,753 4,506,283 Current income tax liabilities 24 131,972 - Provisions 15 11,950,799 6,698,769 Other current liabilities 17 14,929,906 859,180 Current liabilities 286,779,623 154,184,941 Financial liabilities 7 8,913,688 23,662,878 Provisions for employee benefits 16 15,211,123 9,283,108 Deferred income tax liabilities 24 27,844,457 - Provisions 1,333,290 - Non-current liabilities 125,302,558 32,945,986 Total liabilities 412,082,181 187,130,927 EQUITY Attributable to equity holders of the parent 18 102,262,544 134,056,676 Share capital 18 100,000,000 56,250,000 Restricted reserves 18 1,303,016 1,303,016 Translation reserve 18 9,777,150 - Retained earnings 18 76,603,199 119,070,775 Net loss for the period 18 (85,420,821) (42,567,115) Minority interests 18 10,040,161 - Total equity 112,302,705 134,056,676 Total liabilities and equity 524,384,886 321,187,603 Commitments, contingent assets and liabilities 15


CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2008 AND 2007 (Amounts expressed in New Turkish Lira (“YTL”) unless otherwise indicated.)

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Notes 2008 2007 Revenue 4, 19 382,660,997 362,424,841 Cost of sales (-) 4, 20 (252,986,750) (259,798,362) GROSS PROFIT 129,674,247 102,626,479 Marketing, selling and distribution expenses (-) 20 (86,979,660) (94,113,648) General administrative expenses (-) 20 (66,544,558) (45,543,736) Research and development expenses (-) 20 (5,105,264) (4,771,961) Other operating income 21 2,603,988 3,160,903 Other operating expense (-) 21 (1,667,438) (5,852,203) OPERATING LOSS (28,018,685) (44,494,166) Financial income 22 36,036,131 26,985,357 Financial expense (-) 23 (90,298,672) (26,036,938) LOSS BEFORE TAX (82,281,226) (43,545,747) Income tax expense - Taxes on income (800,336) - - Deferred income tax (expense)/income 24 (2,328,892) 978,632 NET LOSS (85,410,454) (42,567,115) Net loss attributable to: - Equity holders of the parent (85,420,821) (42,567,115) - Minority interests 10,367 - Losses per 1,000 shares (YKR) 25 (14.61) (7.57)


CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2008 AND 2007 (Amounts expressed in New Turkish Lira (“YTL”) unless otherwise indicated.)

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Equity attributable Share Restricted Translation Retained Net loss to equity holders Minority Total capital reserves reserve earnings for the period of the parent interests equity Balances at 1 January 2007 56,250,000 1,303,016 - 117,505,492 1,565,283 176,623,791 - 176,623,791 Transfers - - - 1,565,283 (1,565,283) - - - Net loss for the period - - - - (42,567,115) (42,567,115) - (42,567,115) Balances at 31 December 2007 56,250,000 1,303,016 - 119,070,775 (42,567,115) 134,056,676 - 134,056,676 Balances at 1 January 2008 56,250,000 1,303,016 - 119,070,775 (42,567,115) 134,056,676 - 134,056,676 Capital increase 43,750,000 - - - - 43,750,000 - 43,750,000 Transfers - - - (42,567,115) 42,567,115 - - - Business combinations (Note 3) - - - - - - 9,346,793 9,346,793 Effect of change in the effective rate of subsidiary (Note 2) - - - 99,539 - 99,539 (348,106) (248,567) Currency translation differences - - 9,777,150 - - 9,777,150 1,031,107 10,808,257 Net loss for the period - - - - (85,420,821) (85,420,821) 10,367 (85,410,454) Balances at 31 December 2008 100,000,000 1,303,016 9,777,150 76,603,199 (85,420,821) 102,262,544 10,040,161 112,302,705


CONVENIENCE TRANSLATION INTO ENGLISH OF ONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2008 AND 2007 (Amounts expressed in New Turkish Lira (“YTL”) unless otherwise indicated.)

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Notes 2008 2007 Operating activities: Net loss attributable to equity holders of the parent (8,420,821) (42,567,115) Adjustments to reconcile net loss to net cash generated from /(used in) operating activities: Minority interests 10,367 - Depreciation 11 29,656,633 26,029,993 Amortisation 12 5,720,930 1,084,608 Impairment on property, plant and equipment and intangible assets - 4,392,441 Impairment on financial investments 6 652,522 - Provision for employment termination benefits 16 8,122,016 4,087,535 Provision for doubtful receivables 1,953,680 924,847 Personnel bonus accrual 15 3,104,133 - Provision for guarantee expenses 15 294,398 - Provision for unused vacation pay liability 15 373,544 5,090,686 Provision for lawsuits 15 1,666,385 1,608,083 Accrual for forward foreign exchange contracts 17 1,437,194 (2,729,403) Accrual for salaries and wages 3,844,398 - Expense accruals 755,515 356,212 Tax expense 24 800,336 - Deferred income tax (expense)/income 24 2,328,892 (978,632) Provision for impairment of inventory 10 1,766,582 1,375,216 Interest expense 23 14,707,915 11,569,220 Interest income 22 (710,619) (261,953) Gain on sale of property, plant and equipment-net (214,972) (183,481) Cash flows from operating activities before changes in operating assets and liabilities (9,150,972) 9,798,257 Changes in assets and liabilities: Trade receivables 17,195,782 (733,990) Due from related parties 3,543,452 21,242,753 Inventories 5,706,390 11,119,338 Other receivables 194,180 3,213,806 Other current assets 1,010,355 688,032 Other non-current assets (335,467) (189,392) Trade payables 9,256,904 (14,983,700) Due to related parties 737,373 (6,620,683) Provisions - (4,715,668) Other payables 308,470 (959,923) Other liabilities (17,275,999) - Income taxes paid (2,571,289) - Employment termination benefits paid 16 (9,355,564) (11,903,152) Annual vacation paid or used (1,056,025) - Premiums paid (2,880,082) - Net cash generated from/(used in) operating activities (4,672,492) 5,955,678 Cash flows from investing activities: Cash outflow on acquisition of subsidiary 3 (118,644,826) - Purchases of property, plant and equipment 11 (20,138,883) (22,420,704) Purchase of intangible assets 12 (2,053,694) (491,760) Purchase of financial investments (377,363) (1,709,013) Proceeds from sale of property, plant and equipment 468,676 1,643,670 Cash outflow on additional share purchase of subsidiary (248,567) - Net cash used in investing activities (140,994,657) (22,977,807) Cash flows from financing activities: Share capital increase 43,750,000 - Increase in bank borrowings, net 148,582,283 30,337,286 Interest paid (10,966,279) (11,569,229) Interest received 710,619 261,953 Net cash generated from financing activities 182,076,623 19,030,010 Currency translation differences (1,218,439) - Net increase in cash and cash equivalents 35,191,035 2,007,881 Cash and cash equivalents at the beginning of the period 5 3,342,732 1,334,851 Cash and cash equivalents at the end of the period 5 38,533,767 3,342,732


CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2008 (Amounts expressed in New Turkish Lira (“YTL”) unless otherwise indicated.)

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NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS Eczacıbaşı Yapı Gereçleri Sanayi and Ticaret A.Ş. (“EYAP” or the “Company”) is a manufacturing company involved in the production of a wide range of ceramic sanitary ware, complementary products for bathroom units and shower cabins under the VitrA brand and sanitary fittings and bathroom accessories under the Artema brand. The Company manufactures ceramic sanitary ware in the Bozüyük-Bilecik factory, complementary products for bathroom units and shower cabins in the Gebze-Kocaeli and Kartal-İstanbul factories, and sanitary fittings in the Bozüyük-Bilecik factory. EYAP is a member of the Eczacıbaşı Group of companies, one of the oldest and most prominent industrial groups in Turkey. The Company is registered with the Capital Markets Board (“CMB”) and its shares have been quoted on the Istanbul Stock Exchange (“ISE”) since 15 June 1995. As of 31 December 2008, 18.84% (2007: 31.25 %) of the Company's shares were held by the public (Note 18). The address of the registered office is as follows: Kanyon Ofis Büyükdere Cad. No:185 Kat:20-21 Levent-İstanbul Subsidiaries: The country of the Subsidiary consolidated in these consolidated financial statements as of 31 December 2008 and its nature of business are as follows: Country of Nature of Subsidiary incorporation business Burgbad Aktiengesellschaft (“Burgbad”) Germany Bathroom accessories The address of the registered office of the Subsidiary within the scope of consolidation is as follows: - Bad Fredeburg Kirchplatz 10 57392

Schmallenberg Germany These consolidated financial statements have been approved for issue by Haluk Bayraktar and Hüsamettin Onanç in the name of the Board of Directors on 18 March 2009. The owners of EYAP have the power to amend the consolidated financial statements after their issue in the General Assembly meeting of EYAP.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS 2.1 Basis of presentation A) Financial Reporting Standards The Capital Markets Board of Turkey (“CMB”) regulates the principles and procedures of preparation, presentation and announcement of financial statements prepared by the entities with the Communiqué No: XI-29, “Principles of Financial Reporting in Capital Markets” (“the Communiqué”). This Communiqué is effective for the annual periods starting from 1 January 2008 and supersedes the Communiqué No: XI-25 “The Financial Reporting Standards in the Capital Markets”. According to the Communiqué, entities shall prepare their financial statements in accordance with International Financial Reporting Standards (“IAS/IFRS”) endorsed by the European Union. Until the differences of the IAS/IFRS as endorsed by the European Union from the ones issued by the International Accounting Standards Board (“IASB”) are announced by Turkish Accounting Standards Board (“TASB”), IAS/IFRS issued by the IASB shall be applied. Accordingly, Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) issued by the TASB which are in line with the aforementioned standards shall be considered. With the decision taken on 17 March 2005, the CMB has announced that, effective from 1 January 2005, for companies operating in Turkey and preparing their financial statements in accordance with CMB Financial Reporting Standards the application of inflation accounting is no longer required. Accordingly, the Group did not apply IAS 29 “Financial Reporting in Hyperinflationary Economies” issued by IASB in its financial statements for the accounting periods starting 1 January 2005. As the differences of the IAS/IFRS endorsed by the European Union from the ones issued by the IASB have not been announced by TASB as of the date of preparation of these consolidated financial statements, the consolidated financial statements have been prepared within the framework of Communiqué XI, No: 29 and related promulgations to this Communiqué as issued by the CMB in accordance with the accounting and reporting principles accepted by the CMB (“CMB Financial Reporting Standards”) which are based on IAS/IFRS. The consolidated financial statements and the related notes to them are presented in accordance with the formats required by the CMB including the compulsory disclosures. As per CMB’s Communiqué Serial XI, No:29 and its announcements clarifying this communiqué enterprises are obliged to present the hedging rate of their total foreign exchange liability and total export and import amounts in the notes to the financial statements. Accordingly, required reclassifications have been made in the comparative financial statements (Note 2.4). The consolidated financial statements are prepared in New Turkish Lira (“YTL”) based on the historical cost convention except for the financial assets and liabilities which are expressed with their fair values.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.2 Amendments in International Financial Reporting Standards (a) Standards, amendments and interpretations effective in 2008

- IFRIC 14, “IAS 19 - The Limit on a Defined Limited Asset, Minimum Funding Requirements and their Interaction”

- IFRIC 11, “IFRS 2 - Group and Treasury Share Transactions” - IFRIC 13, “Customer Loyalty Programmes” - IFRIC 16. “Hedges of a Net Investment in a Foreign Operation

(b) Standards, amendments and interpretations that are not effective in 2008 and not applied by the

Group prior to the effective date

- IAS 1 (Amendment), “Presentation of Financial Statements” (effective from 1 January 2009). The amendment is part of the IASB’s annual improvements project published in May 2008. The amendment clarifies that some rather than all financial assets and liabilities classified as held for trading in accordance with IAS 39, ‘Financial instruments: Recognition and measurement’ are examples of current assets and liabilities respectively. The Group will apply IAS 1 (Amendment) from 1 January 2009. It is not expected to have an impact on the Group’s consolidated financial statements.

- IAS 23 (Amendment), “Borrowing costs” (effective from 1 January 2009). It requires an

entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs will be removed. The Group will apply IAS 23 (Amendment) from 1 January 2009. It is not expected to have an impact on the Group’s consolidated income statement.

- IAS 23 (Amendment), “Borrowing costs” (effective from 1 January 2009). The

amendment is part of the IASB’s annual improvements project published in May 2008. The definition of borrowing costs has been amended so that interest expense is calculated using the effective interest method defined in IAS 39 ‘Financial instruments: Recognition and measurement’. This eliminates the inconsistency of terms between IAS 39 and IAS 23. The Group will apply IAS 23 (Amendment) from 1 January 2009. It is not expected to have an impact on the Group’s consolidated income statement.

- IAS 36 (Amendment), “Impairment of Assets” (effective from 1 January 2009). The

amendment is part of the IASB’s annual improvements project published in May 2008. Where fair value less costs to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those for value-in-use calculation should be made. The Group will apply IAS 36 (Amendment) for impairment disclosures that are realized since 1 January 2009.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued)

- IAS 39 (Revised), “Financial Instruments: Recognition and Measurement” (effective from 1 January 2009). The amendment is part of the IASB’s annual improvements project published in May 2008. This amendment clarifies that it is possible for there to be movements into and out of the fair value through profit or loss category where a derivative commences or ceases to qualify as a hedging instrument. The definition of financial asset or financial liability at fair value through profit or loss as it relates to items that are held for trading is also amended. This clarifies that a financial asset or liability that is part of a portfolio of financial instruments managed together with evidence of an actual recent pattern of short-term profit taking is included in such a portfolio on initial recognition. The Group will apply IAS 39 (Amended) from 1 January 2009. It is not expected to have an impact on the Group’s consolidated income statement.

(c) Standards, amendment and interpretations not effective in 2008 and not relevant to the Group

and not early adopted

- IFRS 8, “Operating Segments” - IFRS 2 (Amendment), “Share-based Payment” - IAS 32 (Amendment), “Financial Instruments: Presentation” - IFRS 1 (Amendment) “First-time Adoption of International Financial Reporting

Standards” and IAS 27 “Consolidated and Separate Financial Statements”” - IAS 27 (Amendment), “Consolidated and Separate Financial Statements” - IFRS 3 (Amendment), “Business Combinations” - IFRS 5 (Amendment), “Non-current assets held for sale and Discounted Operations” (and consequential amendment to IFRS 1, “First-time adoption”) - IAS 28 (Amendment), “Investments in Associates” (and consequential amendments to

IAS 32, “Financial Instruments: Presentation”, and IFRS 7, “Financial instruments: Disclosures”)

- IAS 38 (Amendment), “Intangible Assets” - IAS 19 (Amendment), “Employee Benefits” - IAS 16 (Amendment), “Property Plant and Equipment” - IAS 29 (Amendment), “Financial Reporting in Hyperinflationary Economies” - IAS 40 (Amendment), “Investment Property” (and consequential amendments to IAS 16) - IAS 41 (Amendment), “Agriculture” - IAS 20 (Amendment), “Government Grants” - IFRIC 15, “Agreements for the Construction of Real Estates”

B) Translation of Financial Statements of Foreign Subsidiaries Financial statements of subsidiaries operating in foreign countries are prepared according to the legislation of the country in which they operate and adjusted to the CMB Financial Reporting Standards to reflect the proper presentation and content. Foreign subsidiaries’ assets and liabilities are translated into YTL using the foreign exchange rate at the balance sheet date, and income and expenses are translated into YTL using the average foreign exchange rate. Exchange differences arising from the retranslation of the opening net assets of foreign undertakings and differences between the average and balance sheet date rates are included in the “translation reserve” under the equity.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) C) Basis of Consolidation a) The consolidated financial statements include the accounts of the parent company, Eczacıbaşı

Yapı Gereçleri Sanayi ve Ticaret A.Ş., and its subsidiaries (“Group”) on the basis set out in sections (b), (c) and (d) below. The financial statements of the companies included in the scope of consolidation have been prepared as of the date of the consolidated financial statements and in accordance with CMB Financial Reporting Standards, applying uniform accounting policies and presentation. The results of subsidiaries are included or excluded from their effective dates of acquisition or disposal respectively.

b) Subsidiaries are companies in which the Company has the power to control the financial and

operating policies for the benefit of the Company, either (a) through the power to exercise more than 50% voting rights relating to shares in the companies or (b) although not having the power to exercise more than 50% of the voting rights, through the exercise of actual dominant influence over the financial and operating policies. The table below sets out the subsidiary and its shareholding structure:

Direct shareholding Proportion of by the effective Subsidiary Group (%) interest (%) Burgbad (*) 90.78 90.78

(*) On 2 July 2008 the Group acquired 47.16% of Burgbad shares owned by Ruddies Beteiligungs-

und Vermögensverwaltungsgesellschaft mbH for EUR33,399,220. The Group acquired another 41.76% on 31 July 2008 and 1,54% on 20 August 2008 for EUR29,577,245 and EUR1,090,323 respectively, in compliance with the call liability arising from the public trading of Burgbad shares in the Frankfurt and Duesseldorf stock exchanges (Note 3). The results of Burgbad are included from its effective date of acquisition and reported under the “Bathroom furniture” segment.

The Group acquired another 0,06% of Burgbad shares from minority interest holders for

EUR23,697 (YTL46,512) on 7 November 2008, 0,10% for EUR34,784 (YTL70,135) on 3 December 2008, 0.11% for EUR20,591 (YTL45,305) on 19 December 2008 and 0.05% for EUR40,459 (YTL86,615) on 31 December 2008. As a result of these purchases, the Company’s effective shareholding in Burgbad increased to 99.78%. The difference between the cost of the share purchase and the carrying amount of the shares acquired from minority interest holders has been accounted for under retained earnings.

The balance sheets and statements of income of the subsidiary are consolidated on a line-by-line basis and the carrying value of the investment held by EYAP and its subsidiary is eliminated against the related equity. Intercompany transactions and balances between EYAP and its subsidiary are eliminated during the consolidation. The cost of, and the dividends arising from, shares held by EYAP in its subsidiary are eliminated from equity and income for the period.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued)

c) Investments in which the Group has interests below 20%, or over which the Group does not exercise a significant influence, or which are considered not having a significant impact on the consolidated financial statements are classified as available for sale. Available for sale investments that do not have a quoted market price in active markets and whose fair value cannot be measured reliably are carried at cost less any provision for impairment (Note 6).

d) The results of Subsidiary are included or excluded from consolidation regarding to their effective

dates of acquisition and disposal, respectively. e) The minority shareholders’ share in the net assets and results for the period for Subsidiary are

separately classified in the consolidated balance sheet and statement of income as minority interest and income or loss attributable to minority interest, respectively.

2.2 Changes in the Accounting Policies and Errors Significant changes in accounting policies or significant errors are corrected retrospectively by restating the prior period consolidated financial statements. There are no changes in the accounting policies for the period 1 January - 31 December 2008. 2.3 Changes in the Accounting Estimates The effect of changes in accounting estimates affecting the current period is recognised in the current period; the effect of changes in accounting estimates affecting current and future periods is recognised in the current and future periods. There are no changes in the accounting estimates for the period 1 January - 31 December 2008.

2.4 Convenience translation into English of consolidated financial statements originally issued in Turkish

The accounting principles for the consolidated financial statements (defined as “CMB Financial Reporting Standards”) differ from the IFRS issued by the International Accounting Standards Board with respect to the application of inflation accounting for the period 1 January - 31 December 2005, measurement principles and disclosure requirements for retirement benefits, and the presentation of basic financial statements and the notes to them. Accordingly, the accompanying consolidated financial statements are not intended to present the financial position and results of operations in accordance with IFRS. 2.5 Summary of Significant Accounting Policies The significant accounting policies applied in the preparation of these consolidated financial statements are summarized below. These accounting policies are applied on a consistent basis to comparative balances and results, unless otherwise indicated.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) a) Cash and cash equivalents Cash and due from banks are presented on the balance sheet with their acquisition values. Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with insignificant risk of value in exchange and original maturities of 3 months or less, and marketable securities with original maturities of less than 3 months (Note 5). b) Trade receivables and provision for doubtful receivables Trade receivables that are created by the Group by way of providing goods or services directly to a debtor are carried at amortised cost using the effective yield method. Short duration receivables with no stated interest rate are measured at the original invoice amount unless the effect of imputing interest is significant. A credit risk provision for trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount. The recoverable amount is the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted by the original effective interest rate of the originated receivables at inception. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited to other income (Note 8). c) Credit finance income/expenses Credit finance income/expenses represent imputed finance charges on credit sales and purchases. Such income and expenses are recognised using the effective yield method over the year of credit sales and purchases, and included under financial income and expenses. d) Inventories Inventories are valued at the lower of cost or net realisable value less costs to sell. Cost of inventories is comprised of the purchase cost and the cost of bringing inventories into their present location and condition. Cost is determined by the monthly moving weighted average method. Net realisable value less costs to sell is the estimated selling price in the ordinary course of business, less the estimated costs necessary to sale (Note 10).


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) e) Property, plant and equipment Property, plant and equipment are carried at the acquisition value less accumulated depreciation and, if any, impairment (Note 11). Depreciation is provided over the economic useful lives for property, plant and equipment on a straight-line basis The depreciation period for property, plant and equipment which approximate the economic useful lives of such assets, are as follows: Years Land improvements 5-30 Buildings 20-50 Machinery and equipment 2-30 Motor vehicles 2-15 Furniture and fixtures 2-15 Special costs 2-5 Other tangible assets 2-15 Gains or losses on disposals of property, plant and equipment are determined by comparing proceeds with their carrying amounts and are included in the related income and expense accounts, as appropriate. Where the carrying amount of an asset is greater than its recoverable amount, it is written down immediately to its recoverable amount. The recoverable amount of an asset is the higher of its fair value less cost to sell and its value in use. Fair value less cost to sell is the amount obtainable from the sale of an asset less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from an asset. Expenses for the repair of property, plant and equipment are normally charged against income. They are, however, capitalised in exceptional cases if they result in an enlargement or substantial improvement of the respective assets. f) Intangible assets Intangible assets comprise trademarks, order backlogs, customer relationships, production knowhow, acquired rights and computer software. The value of trademarks, order backlogs, customer relationships and production knowhow were determined through independent valuations made during the business combinations. Intangible assets are carried at cost less accumulated amortization. The amortisation period for intangible assets which approximate the useful lives of such assets are as follows:


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Years Trademark 20 Customer relationships 11 Production knowhow 11 Computer software and other rights 2-15 Where an indication of impairment exists, the carrying amount of any intangible asset is assessed and written down immediately to its recoverable amount (Note 12). g) Business combinations and goodwill A business combination is the bringing together of separate entities or businesses into one reporting entity. Business combinations are accounted for through applying the purchase method in accordance with IFRS 3. The cost of a business combination is allocated by recognising the acquiree’s identifiable assets, liabilities and contingent liabilities at the date of acquisition. Goodwill has been recognised as an asset and has initially been measured as the excess of the cost of the combination over the fair value of the acquiree’s assets, liabilities and contingent liabilities. In business combinations, the acquirer recognises identifiable assets (such as deferred income tax on carry forward losses), intangible assets (such as trademarks) and/or contingent liabilities which are not included in the acquiree’s financial statements at their fair values in the consolidated financial statements. The goodwill previously recognised in the financial statements of the acquiree is not considered as an identifiable asset. Goodwill recognized as a result of business combinations is not amortised and its carrying value is tested for impairment annually or more frequently if events or changes in circumstances indicate that it might be impaired. If the acquisition cost is lower than the fair value of the identifiable assets, liabilities and contingent liabilities acquired, the difference is accounted for as income in the related period. The Group treats the transactions with minority interests as transactions with equity owners of the Group. Accordingly, for purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains and losses on disposals to minority interests are also recorded in equity.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) h) Available-for-sale financial instruments Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale; these are included in non-current assets unless management has the intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. Management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. All financial assets are initially recognized at cost, being the fair value of the consideration given and including acquisition charges associates with the investment. After initial recognition, financial assets that are classified as available-for-sale are measured at fair value unless fair value cannot be reliably measured. Other financial assets in which the Group has an interest below 20%, that do not have a quoted market price in active markets, and whose fair value cannot be measured reliably are carried at cost, if applicable, less any provision for impairment. Available for sale investments that have a quoted market price in active markets and whose fair values can be measured reliably are carried at fair value. In accordance with the revised IAS 39 “Financial Instruments”, unrealised gains and losses arising from changes in the fair value of financial assets classified as available-for-sale are deferred in the equity until the financial asset is sold, collected, or otherwise disposed of. When the marketable securities available-for-sale is derecognized from the consolidated financial statement, the related income and expenses followed in the fair value reserve of financial assets under equity are transferred to the consolidated income statement. There is no fair value reserve in the accompanying consolidated financial statements for the periods presented. ı) Share capital In the restatement of shareholders’ equity items, the addition of funds formed due to hyperinflation, such as the revaluation value increase fund in share capital, is not considered as a contribution from shareholders. Additions of legal reserves and retained earnings to share capital are considered as contributions by shareholders. In the restatement of shareholders’ equity items added to share capital, the capital increase registry dates or the payment dates are considered. In the restatement of share premiums, the payment dates are considered (Note 18).


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) j) Taxes on income Taxes on income for the period comprise of current tax and the change in deferred income taxes. Current year tax liability consists of the taxes calculated over the taxable portion of the current year income by reference to corporate income tax rates enacted as of the balance sheet date and adjustments provided for the previous years’ income tax liabilities. Deferred income tax is provided, using the liability method, for all temporary differences arising between the tax base of assets and liabilities and their carrying values for financial reporting purposes. Currently enacted tax rates are used to determine deferred income taxes. Deferred income tax liabilities are recognised for all taxable temporary differences, whereas deferred income tax assets resulting from deductible temporary differences are recognised to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilised. Deferred income tax assets and deferred income tax liabilities related to income taxes levied by the same taxation authority are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities (Note 24). Deferred income tax assets and deferred income tax liabilities are classified as long term in the consolidated financial statements. k) Revenue recognition Revenues are recognised on an accrual basis at the time deliveries are made, the amount of revenue can be measured reliably, and it is probable that the economic benefits associated with the transaction will flow to the Group at the fair value of considerations received or receivable. Net sales represent the invoiced value of goods sold less sales returns and commission, and exclude sales taxes. When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the fair value and the nominal amount of the consideration is recognized as interest income on a time proportion basis that takes into account the effective yield on the asset. Other revenues earned by the Group are recognised on the following bases: Royalty and rental income - on an accrual basis. Interest income - on an effective yield basis. Dividend income - when the Group’s right to receive payment is established. l) Foreign currency transactions and translations Transactions in foreign currencies during the period have been translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet date. Exchange gains or losses arising on the settlement and translation of foreign currency items have been included in the statement of income.


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) m) Borrowings Borrowings are recognised initially at the proceeds received, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost using the effective yield method; any difference between proceeds, net of transaction costs, and the redemption value is recognised in the income statement over the period of the borrowings. Borrowing costs are charged to the income statement when they are incurred (Note 6). n) Employee benefits /Provision for employment termination benefits The provision for employment termination benefits represents the present value of the estimated total reserve of the future probable obligation of the Group arising from the retirement of employees in accordance with the Turkish Labour Law and calculated by applying actuarial valuation methods (Note 16). o) Provisions The conditions which are required to be met in order to recognise a provision in the consolidated financial statements are that the Group has a present legal or constructive obligation as a result of past events, that it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and that a reliable estimate can be made of the amount of the obligation. p) Related parties For the purpose of these consolidated financial statements, shareholders, key management personnel and Board members, in each case together with their families and companies controlled by or affiliated with them and associated companies are considered and referred to as related parties (Note 26). r) Warranties Warranty expenses are recorded as a result of repair and maintenance expenses for products produced and sold, authorised services’ labour and material costs for products under the scope of the warranty terms without any charge to the customers, initial maintenance costs and estimated costs based on statistical information for possible future warranty services and returns of products with respect to the products sold during the year (Note 15).


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) s) Earnings per share Earnings per share disclosed in the consolidated statement of income are determined by dividing net profit by the weighted average number of shares that have been outstanding during the period concerned. In Turkey, companies can increase their share capital by making a pro-rata distribution of shares (“Bonus Shares”) to existing shareholders from retained earnings. For the purpose of earnings per share computations, such Bonus Share issuances are regarded as issued shares. Accordingly the weighted average number of shares used in earnings per share computations is derived by giving retrospective effect to the issuances of the shares without consideration. t) Statement of cash flows Cash flows during the period are classified and reported by operating, investing and financing activities in the cash flow statements. Cash flows from operating activities represent the cash flows of the Group generated from operating activities. Cash flows related to investing activities represent the cash flows that are used in or provided from the investing activities of the Group (fixed investments and financial investments). Cash flows arising from financing activities represent the cash proceeds from the financing activities of the Group and the repayments of these funds. Cash and cash equivalents comprise cash on hand and bank deposits and short-term, highly liquid investments that are readily convertible to known amounts of cash with maturities equal or less than three months and which are subject to an insignificant risk of changes in value (Note 5). u) Contingent assets and liabilities Liabilities or assets that arise from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the control of the entity should not be recognised as liabilities or assets, however they should be disclosed as contingent liabilities or assets (Note 15).


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NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) v) Derivative financial instruments Derivative financial instruments are initially recognised in the consolidated balance sheet at cost (including transaction costs) and subsequently measured at their fair value. The derivative financial statements of the Group consist of forward foreign exchange contracts and commodity swap agreements. The fair value of over-the-counter forward foreign exchange contracts is determined based on the comparison of the original forward rate with the forward rate calculated in reference to the market interest rates of the related currency for the remaining period of the contract, discounted to 31 December 2008. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. y) Segment reporting A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. A reportable segment is a business segment or a geographical segment identified based on the foregoing definitions for which segment information is required to be disclosed. A business segment or geographical segment should be identified as a reportable segment if a majority of its revenue is earned from sales to external customers and its revenue from sales to external customers and from transactions with other segments is 10% or more of the total revenue, external and internal, of all segments; or its segment result, whether profit or loss, is 10% or more of the combined result of all segments in profit or the combined result of all segments in loss, whichever is the greater in absolute amount; or its assets are 10% or more of the total assets of all segments. Because of the reason that, risk and reward rates are affected by differences between countries; the primary format for segment reporting is the geographical segment. The secondary format for segment reporting is business segments based on different product groups. z) Offsetting Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.


20

NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued)

aa) Comparatives and restatement of prior period financial statements The consolidated financial statements of the Group include comparative financial information to enable the determination of trends in financial position and performance. The Group has performed reclassifications in the consolidated balance sheet as of 31 December 2007 in order to conform to the presentation of the balance sheet as of 31 December 2008. Such reclassifications are as follows: - Other current assets: “Other receivables”, which amounted to YTL39,293 on 31 December 2007,

were reclassified as “Other current assets” in the balance sheet as of 31 December 2008. - Other liabilities: “Provisions”, which amounted to YTL356,212 on 31 December 2007, were

reclassified as “Other liabilities”. - Provision for employee benefits: “Provisions for termination benefits”, which amounted to YTL9

283,108 on 31 December 2007, were reclassified as “Provision for employee benefits”. - Provisions, contingent assets and liabilities: “Provisions”, which amounted to YTL6,698,769 on

31 December 2007, were reclassified as “Provisions, contingent assets and liabilities”. - Property, plant and equipment: The multiplication cast, which was booked in Inventories to the

amount of YTL14,520,309 as of 31 December 2007, was reclassified as “Property, plant and equipment”.

- Financial income: The exchange rate difference, which was booked in “Sales income” and amounted to YTL6,068,178 in the income statement as of 31 December 2007, was reclassified as “Financial income”.

- Financial income: “Other income”, which amounted to YTL7,723,416 on 31 December 2007, was reclassified as “Financial income”.

- Financial income: Interest income booked in “Other income”, which amounted to YTL261,953 on 31 December 2007, as reclassified as “Financial income”.

- Cost of sales: The stock count surplus booked in “Other income”, which amounted to YTL138,712 on 31 December 2007, was reclassified as “Cost of sales”.

- Cost of sales: The stock count shortage booked in “Other expense”, which amounted to YTL343,694 was reclassified as “Cost of sales”.

2.6 Critical Accounting Estimates and Assumptions Preparation of the consolidated financial statements in accordance with CMB Financial Reporting Standards necessitates the usage of estimations and assumptions that can affect amounts of reported assets and liabilities as of balance sheet date, the explanation for the contingent assets and liabilities and income and expenses reported during the accounting period. Although these estimations and assumptions are based on the best judgment of the Group management related with the current conditions and transactions, actual results may differ from these estimations. Estimations are revised on a regular basis; necessary adjustments and corrections are made; and they are included in the income statement when they accrue. Estimations and assumptions subject to the risk of leading to corrections in the registered value of the assets and liabilities in the next financial period are stated below:


21

NOTE 2 – BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.6 Critical Accounting Estimates and Assumptions (Continued) (a) Estimated impairment of goodwill The Group tests annually whether goodwill has been impaired, in accordance with the accounting policy stated in Note 2.5 . The recoverable amount of a cash-generating unit has been determined based on value-in-use calculations. These value-in-use calculations include discounted after-tax cash flow projections that are based on EUR-denominated financial budgets approved by Group management covering a three-year period. Cash flows beyond three years are extrapolated by taking into consideration the shut-down periods recurring once a year. The fair value in EUR is converted into YTL using the related foreign exchange rate on the date of the balance sheet. Therefore, the value-in use calculations are affected by fluctuations in the foreign exchange market. The discount rate used in the value-in-use calculations is 8.20%. The discount rates used are before tax and reflect specific risks relating to the Company. As of 31 December 2008, the Group did not determine any impairment in the amount of goodwill as a result of the impairment test performed with the aforementioned assumptions. (b) Estimated impairment of property, plant and equipment In accordance with the accounting policy stated in Note 2.5, tangible assets were analysed for impairment by the Group. The recoverable amount of property, plant, and equipment has been determined based on value-in-use calculations. These value-in-use calculations include discounted before-tax cash flow projections, and these projections are based on YTL financial budgets approved by Group management covering a three-year period. The discount rate used in the value-in-use calculations is 17.30%. The discount rates used are before tax and reflect specific risks relating to the company. As of 31 December 2008, the Group did not determine any impairment in the amount of the property, plant, and equipment as a result of the impairment test performed with the aforementioned assumptions. (c) Net realisable value Inventories are valued at the lower of cost or net realisable value as described by the accounting policy in Note 2.5. Net realisable value is the estimated selling price in the ordinary course of business, less the costs of completion and selling expenses. (d) Useful lives of tangible and intangible assets In accordance with the accounting policy stated in Note 2.5, tangible and intangible assets are stated at historical cost less depreciation and net of any impairment. Depreciation on tangible assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives. Useful lives depend on best estimates of management, and are reviewed in each financial period and corrected accordingly.


22

NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.6 Critical Accounting Estimates and Assumptions (Continued) (e) Provision for doubtful receivables The Group calculates the provision for impairment of trade receivables to cover the estimated losses resulting from customers’ inability to make required payments. The estimates used in evaluating the adequacy of the provision for impairment of trade receivables are based on the aging of the trade receivable balances and the trend of collection performance. The provision for doubtful trade receivables is a critical accounting estimate that is formed by past payment performance and the financial position of customers. (f) Provisions In accordance with the accounting policy stated in the Note 2.4, provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. 2.7 Going concern The Group prepares its consolidated financial statements based on the assumption that the Group will continue as a going concern. However, the Group’s activities were adversely affected by the increase in foreign exchange rates and decrease in demand resulting from the global economic crisis, accordingly the Group incurred a loss before tax amounting to YTL82,281,226 for the year ended 31 December 2008. The Group increased its share capital from YTL56,000,000 to YTL100,000,000 in 2008 in order to strengthen its equity. The Board of Directors of EYAP decided to propose to the shareholders an increase in authorised capital from YTL100,000,000 to YTL300,000,000 at the General Assembly, and obtained the necessary permissions from the CMB and Ministry of Industry and Trade. In order to reduce the cost of production and increase efficiency, Group management; - decreased the number of personnel in line with the reduction in demand resulting from the

global economic crisis. However, the consolidated financial statements of the Group were negatively affected by this decrease due to the employment benefits paid to redundant personnel.

- moved the ceramic sanitary ware factory in İstanbul-Kartal to the factory in Bozüyük in 2007

and the bathroom accessory and concealed cistern plant in Kocaeli-Gebze to the factory in Bozüyük in 2008.

Group management decided to establish a centre of research and development in Bozüyük in order to improve its operations, decrease production costs, sustain its differentiation strategy in the medium and long term, and benefit from certain incentives.


23

NOTE 2 - BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) The Group acquired the shares of Burgbad, which is a premium bathroom brand and one of Europe’s leading bathroom and sanitary ware manufacturers, in order to become a global brand in the bathroom furniture segment (Note 3). In order to gain a competitive advantage and increase its market share, the Group decided to merge with VitrA Küvet San. ve Tic. A.Ş. to add acrylic bathtubs and shower cabins to its product line. Through this merger, the Group aims to create synergy and decrease costs by strengthening the “complete bathroom” concept and differentiating itself from competitors in the domestic and foreign markets. As a result of the negative impact of the global economic crisis on its exports to Europe and the US, the Group reviewed its operations in all markets and decided to restructure its sales operations. The Group is searching for alternative markets to Europe and the US and is giving priority to such markets. Group management believes that the strategy and market developments described above will help EYAP become more competitive and contribute to improved results. NOTE 3 - BUSINESS COMBINATIONS On 2 July 2008 the Group acquired 47.16% of Burgbad shares owned by Ruddies Beteiligungs-und Vermögensverwaltungsgesellschaft mbH for EUR33,399,220 . The Group acquired another 41.76% on 31 July 2008 and 1.54% on 20 August 2008 for EUR29,577,245 and EUR1,090,323 respectively, in compliance with the call liability arising from the public trading of Burgbad shares in the Frankfurt and Duesseldorf stock exchanges (Note 3). The fair values of identifiable assets, liabilities and contingent liabilities acquired, and the cost of acquisition are as follows: YTL Acquisition cost 117,384,647 Direct costs relating to the acquisition 3,426,795 Purchase consideration settled in cash 120,811,442 Net assets acquired (88,627,972) Goodwill (Note 13) 32,183,470


24

NOTE 3 - BUSINESS COMBINATIONS (Continued) The assets and liabilities arising from the acquisition are as follows: YTL Cash and cash equivalents 2,166,616 Trade receivables 27,542,398 Other receivables 2,558,565 Inventories 15,376,326 Intangible assets 73,627,828 Property, plant and equipment 49,433,074 Deferred income tax asset 109,848 Other current/non-current assets 788,635 Trade payables (6,654,332) Provisions for pensions (6,595,127) Other non-current provisions (472,140) Deferred income tax liabilities (25,349,055) Provisions (11,494,173) Financial liabilities (1,109,766) Other liabilities (20,052,441) Taxes on income (1,901,491) Total of net assets 97,974,765 Minority interests (9,346,793) Net assets acquired 88,627,972 Purchase consideration settled in cash (120,811,442) Acquired cash and cash equivalents 2,166,616 Cash outflow on acquisition (net) (118,644,826) NOTE 4 - SEGMENT REPORTING a) External revenues 2008 2007 Vitra 203,834,182 248,168,249 Artema 107,539,937 114,256,592 Bathroom furniture (*) 71,286,878 - 382,660,997 362,424,841 (*) Consideration of bathroom furniture in a distinct segment began in 2008 with the acquisition of Burgbad

(Note 3).


25

NOTE 4 - SEGMENT REPORTING (Continued) Income earned by geographical location of customers is shown below: 2008 2007 Europe 198,321,538 158,122,541 Turkey 135,994,003 138,414,240 Asia 24,805,908 23,286,503 America 18,403,450 34,444,377 Other 5,136,098 8,157,180 382,660,997 362,424,841 b) Segment assets 2008 2007 Vitra 206,369,977 224,362,917 Artema 51,899,004 58,468,036 Bathroom furniture 180,275,625 - Segment assets (**) 438,544,606 282,830,953 Unallocated assets 85,840,280 38,356,650 Total assets per consolidated financial statements 524,384,886 321,187,603 (**) Segment assets are generally related to segment operations. c) Segment liabilities 2008 2007 Vitra 30,917,665 29,056,293 Artema 10,684,576 10,080,370 Bathroom furniture 43,943,423 - Segment liabilities (*) 85,545,664 39,136,663 Unallocated liabilities 326,536,517 147,994,264 Total liabilities per consolidated financial statements 412,082,181 187,130,927 (*) Segment liabilities generally comprise operating liabilities and exclude deferred income tax liabilities.


26

NOTE 4 - SEGMENT REPORTING (Continued) d) Segment highlights for the periods ended at 31 December 2008 and 2007 2008 Bathroom Vitra Artema furniture Total Revenue 203,834,182 107,539,937 71,286,878 382,660,997 Cost of sales (133,236,372) (75,069,070) (44,681,308) (252,986,750) Segment result 70,597,810 32,470,867 26,605,570 129,674,247 2007 Bathroom Vitra Artema furniture Total Revenue 249,119,225 113,305,616 - 362,424,841 Cost of sales (168,192,927) (91,605,435) - (259,798,362) Segment result 80,926,298 21,700,181 - 102,626,479 e) Capital expenditures, depreciation expenses, amortisation and other non-cash expenses 2008 Bathroom Vitra Artema furniture Unallocated Total Investment expenditures 11,925,111 561,177 7,433,649 2,272,640 22,192,577 Depreciation and amortisation 19,310,033 4,329,444 7,048,479 4,689,607 35,377,563 Provision for employment termination benefits 5,940,097 1,105,783 - 1,510,876 8,556,756 2007 Bathroom Vitra Artema furniture Unallocated Total Investment expenditures 15,163,307 631,478 - 7,117,679 22,912,464 Depreciation and amortisation 19,796,047 3,603,434 - 3,715,120 27,114,601 Provision for employment termination benefits 2,816,774 537,015 - 733,746 4,087,535


27

NOTE 5 - CASH AND CASH EQUIVALENTS 2008 2007 Cash 24,905 10,825 Banks - YTL demand deposits 70,376 47,245 - Foreign currency demand deposits 11,382,370 84,651 - YTL time deposits 17,292,000 3,200,011 - Foreign currency time deposits 9,764,116 - 38,533,767 3,342,732 As of 31 December 2008, the maturity of time deposits is up to one year and the interest rates applied are 16,18% and 4,79% for YTL and EUR time deposits respectively (2007: interest rates for YTL time deposits are 16,00%. There are no foreign currency time deposits.). NOTE 6 - FINANCIAL INVESTMENTS 2008 2007 Percentage of Percentage of shareholding % Amount shareholding % Amount Vitra Bathroom Products LLC OOO 100 3,331,687 100 3,331,687 Vitra Bath and Tiles JSC 50 1,006,138 50 628,775 Vitra Bulgaria Ood 50 682,509 50 682,509 Vitra U.S.A. Inc. 49 572,488 49 572,488 Seramik Araştırma Merkezi 1< 2,000 1< 2,000 Akenerji Elektrik Üretimi ve Otoprodüktör A.Ş. 1< 229 1< 229 5,595,051 5,217,688 Less: Diminution in value (-) (1,225,010) (572,488) 4,370,041 4,645,200


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NOTE 6 - FINANCIAL INVESTMENTS (Continued) Financial investments are carried at acquisition cost and shareholding percentages are calculated using nominal values. The financial assets have neither been accounted for using the equity method nor consolidated line-by-line due to the insignificance of their combined impact on the net profit, financial position and results of the Group. The movements of financial assets as of 31 December 2008 and 2007 are below: 2008 2007 1 January 4,645,200 4,645,200 Contribution of capital increase 377,363 - Diminution in value (Note 21) (652,522) - 31 December 4,370,041 4,645,200 NOTE 7 - FINANCIAL LIABILITIES 2008 2007 Weighted average Weighted average interest rate p.a. YTL interest rate p.a. YTL Short-term bank borrowings EUR borrowings 5.57 19,435,273 4.83 33,519,920 USD borrowings 4.54 12,105,206 5.80 16,189,330 YTL borrowings - 114,464 17.89 39,161,271 GBP borrowings - - 6.99 6,977,700 Interest accrual 982,255 1,691,058 32,637,198 97,539,279 Current portion of long-term bank borrowings EUR borrowings 7.30 126,661,971 6.40 8,306,685 USD borrowing 4.38 34,688,608 6.60 1,197,977 GBP borrowings 5.22 3,288,600 - - YTL borrowings 16.50 1,500,000 - - Interest accrual 4,634,827 184,388 170,774,006 9,689,050 203,411,204 107,228,329


29

NOTE 7 - FINANCIAL LIABILITIES (Continued) 2008 2007 Weighted average Weighted average interest rate p.a. YTL interest rate p.a. YTL Long-term bank borrowings EUR borrowings 6.77 79,371,908 6.40 16,613,374 USD borrowings 4.29 1,541,780 6.41 3,560,654 GBP borrowings - - 6.08 3,488,850 80,913,688 23,662,878 The redemption schedule of long-term bank borrowings is as follows: 2008 2007 2010 80,913,688 14,158,211 2011 - 9,504,667 80,913,688 23,662,878 The carrying amounts and fair values of bank borrowings are as follows: Carrying amount Fair value 2008 2007 2008 2007 Bank borrowings 284,324,892 130,891,207 289,688,936 132,450,140 284,324,892 130,891,207 289,688,936 132,450,140 The fair values are based on cash flows discounted with the weighted average interest rates of 4.78% (2007: 5.50 %), 4.41% (2007: 4.68%), 5.22% (2007: 6.69%) and 15.33% (2007: 17.89%) per annum for EUR, USD, GBP and YTL borrowings respectively.


30

NOTE 8 - TRADE RECEIVABLES AND TRADE PAYABLES Trade receivables 2008 2007 Trade receivables 11,801,938 957,189 Notes receivables 1,012,385 622,853 Other trade receivables 342,420 340,614 13,156,743 1,920,656 Less: Provision for doubtful receivables (1,716,995) (644,590) 11,439,748 1,276,066 Movement schedules of provision for doubtful receivables as of 31 December 2008 and 2007 are as follows: 2008 2007 1 January 644,590 340,615 Additions due to business combinations 1,017,167 - Current year charge 182,934 303,975 Disposals and collections (215,060) - Currency translation differences 87,364 - 31 December 1,716,995 644,590 Trade payables 2008 2007 Trade payables 43,023,119 27,084,748 Other trade payables - 39,989 43,023,119 27,124,737 Less: Unrealised credit finance expense (403,280) (416,134) 42,619,839 26,708,603 The weighted average term of trade payables is less than 3 months. The balances are calculated based on cash flows discounted using weighted average interest rates of 2.37% (2007: 4.33%), 0.35% (2007: 5.23%), 2.40% (2007: 6.10%) and 16.95% (2007: 14.10%) per annum for EUR, USD, GBP and YTL trade payables, respectively.


31

NOTE 9 - OTHER RECEIVABLES AND PAYABLES 2008 2007 Other Short-Term Receivables VAT receivable 5,111,173 2,919,836 Receivables from personnel 146,515 - Deposits and guarantees given 1,050 - 5,258,738 2,919,836 2008 2007 Other Long-Term Receivables Deposits and guarantees given 45,748 20,265 Other receivables 5,572 5,572 51,320 25,837 2008 2007 Other Short-Term payables Social security payable 2,222,270 1,746,218 Taxes and dues payable 1,620,313 1,840,847 Payable to personnel 972,170 919,218 4,814,753 4,506,283 NOTE 10 - INVENTORIES 2008 2007 Raw materials and supplies 26,587,423 19,212,826 Semi-finished goods 8,363,637 11,821,311 Finished goods 33,918,084 29,520,367 68,869,144 60,554,504 Less: Provision for impairment on inventories (2,223,866) (1,812,580) 66,645,278 58,741,924 The cost of inventories recognised as expense and included in ‘cost of sales’ amounted to YTL127,271,627 (2007: YTL143,949,201).


32

NOTE 10 - INVENTORIES (Continued) Movement schedules for provision for impairment on inventories are as follows: 2008 2007 1 January 1,812,580 926,938 Current year charge 1,766,582 1,375,216 Cancelled provisions (1,355,296) (489,574) 31 December 2,223,866 1,812,580 NOTE 11 - PROPERTY, PLANT AND EQUIPMENT Additions due Currency 1 January to business translation 31 December 2008 Additions combinations Disposals Transfers differences 2008 Cost: Land 1,093,794 - - (1,972) - - 1,091,822 Land improvements 3,356,360 29,746 - - 568,116 - 3,954,222 Buildings 43,871,028 2,184,212 29,933,687 (232,418) 485,478 24,689,142 100,931,129 Machinery and equipment 375,801,600 9,338,774 10,466,121 (649,184) 3,215,494 25,258,030 423,430,835 Motor vehicles 1,838,476 67,819 - (381,886) - - 1,524,409 Furniture and fixtures 19,934,616 1,525,958 8,728,610 (428,555) - 19,978,763 49,739,392 Special costs 8,079,833 37,218 - (110,655) - - 8,006,396 Other tangible assets 949,595 - - (7,109) - - 942,486 Construction in progress 465,269 6,320,150 - - (4,612,847) - 2,172,572 Advances given - 635,006 304,656 - (403,365) 61,177 597,474 455,390,571 20,138,883 49,433,074 (1,811,779) (747,124) 69,987,112 592,390,737 Accumulated depreciation: Land improvements 2,054,148 146,717 - - - - 2,200,865 Buildings 19,660,564 2,170,184 - (232,418) - 21,182,413 42,780,743 Machinery and equipment 257,097,329 24,221,646 - (489,472) - 23,978,635 304,808,138 Motor vehicles 1,419,519 147,816 - (333,990) - - 1,233,345 Furniture and fixtures 17,376,787 2,044,220 - (429,675) - 18,996,175 37,987,507 Special costs 5,358,321 819,782 - (71,088) - - 6,107,015 Other tangible assets 673,249 106,268 - (1,432) - - 778,085 303,639,917 29,656,633 - (1,558,075) - 64,157,223 39,895,698 Net book value 151,750,654 196,495,039

As of 31 December 2008 and 2007, there are no mortgages on property, plant and equipment. Transfers amounting to YTL747,124 are related to intangible assets (Note 12). Depreciation and amortisation expenses of YTL23,883,447 have been recorded in ‘cost of sales’, of YTL1,146,158 in ‘research and development expenses’, of YTL3,878,141 in ‘general administrative expenses’ and of YTL6,469,817 in ‘marketing and selling expenses’.


33

NOTE 11 - PROPERTY, PLANT AND EQUIPMENT (Continued) 1 January Impairment 31 December 2007 Additions Disposals Transfers (Note 21) 2007 Cost: Land 1,093,794 - - - - 1,093,794 Land improvements 3,147,812 49,718 - 188,844 (30,014) 3,356,360 Buildings 42,270,017 4,748 - 1,596,263 - 43,871,028 Machinery and equipment 362,375,864 6,875,711 (1,632,181) 11,797,450 (3,615,243) 375,801,601 Motor vehicles 2,453,406 12,128 (627,058) - - 1,838,476 Furniture and fixtures 19,554,729 372,788 (405,418) 418,027 (5,510) 19,934,616 Special costs 7,306,765 245,743 (110,193) 688,166 (50,648) 8,079,833 Other tangible assets 946,053 858 (66) 4,046 (1,296) 949,595 Construction in progress and advances given 2,970,407 14,859,010 - (17,364,148) - 465,269 442,118,847 22,420,704 (2,774,916) (2,671,352) (3,702,711) 455,390,572 Accumulated depreciation: Land improvements 1,907,994 146,154 - - - 2,054,148 Buildings 18,236,723 1,423,841 - - - 19,660,564 Machinery and equipment 235,990,110 22,144,743 (1,037,523) - - 257,097,330 Motor vehicles 1,659,499 300,960 (540,940) - - 1,419,519 Furniture and fixtures 16,757,247 1,019,338 (399,798) - - 17,376,787 Special costs 4,589,087 875,474 (106,240) - - 5,358,321 Other tangible assets 553,815 119,483 (49) - - 673,249 279,694,475 26,029,993 (2,084,550) - - 303,639,918 Net book value 162,424,372 151,750,654

Transfers amounting to YTL2,671,352 are related to intangible assets (Note 12). Depreciation and amortisation expenses of YTL18,789,393 have been recorded in ‘cost of sales’, of YTL513,905 in ‘research and development expenses’, of YTL4,072,732 in ‘general administrative expenses’ and of YTL3,738,571 in ‘marketing and selling expenses’.


34

NOTE 12 - INTANGIBLE ASSETS Additions due Currency 1 January to business translation 31 December 2008 Additions combinations Disposals Transfers differences 2008 Cost: Rights 11,191,351 1,255,187 20,446,508 (3,082,434) 785,125 2,054,404 32,650,141 Order backlog - - 732,298 - - 81,206 813,504 Computer software 8,180,760 381,122 - - - - 8,561,882 Brand name - - 21,415,862 - - 2,374,848 23,790,710 Advances given - 417,385 153,879 - (38,001) 61,928 595,191 Customer relationships - - 23,290,931 - - 2,582,778 25,873,709 Production know-how - - 24,451,045 - - 2,711,426 27,162,471 19,372,111 2,053,694 90,490,523 (3,082,434) 747,124 9,866,590 119,447,608 Accumulated amortization: Rights 3,828,493 1,454,027 16,862,695 (3,082,434) - 1,602,937 20,665,718 Order backlog - 727,476 - - - 86,028 813,504 Computer software 5,541,569 851,759 - - - - 6,393,328 Brand name - 531,871 - - - 62,897 594,768 Customer relationships - 1,051,705 - - - 124,371 1,176,076 Production know-how - 1,104,092 - - - 130,565 1,234,657 9,370,062 5,720,930 16,862,695 (3,082,434) - 2,006,798 30,878,051 Net book value 10,002,049 88,569,557

1 January Impairment 31 December 2007 Additions Disposals Transfers (Note 21) 2007 Cost: Rights 9,211,931 - - 2,669,150 (689,730) 11,191,351 Computer software 8,460,244 491,760 (773,446) 2,202 - 8,180,760 17,672,175 491,760 (773,446) 2,671,352 (689,730) 19,372,111 Accumulated amortization: Rights 3,143,942 684,551 - - - 3,828,493 Computer software 5,145,135 400,057 (3,623) - - 5,541,569 8,289,077 1,084,608 (3,623) - - 9,370,062 Net book value 9,383,098 10,002,049 NOTE 13 - GOODWILL As a result of the acquisition of Burgbad on 2 July 2008 goodwill amounting to YTL32,183,470 has been formed (Note 3). The Group has not identified any impairment on goodwill as of 31 December 2008.


35

NOTE 14 - GOVERNMENT GRANTS The Group is entitled to the following incentives and rights: i) Exemption from customs duty on imported machinery and equipment ii) Exemption from customs duty on imported investment goods; exemption from VAT, duties and

charges on investment goods purchased from local suppliers. NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES Short-term provisions 2008 2007 Provision for unused vacation pay liability 7,343,242 5,090,686 Provision for lawsuits 3,274,468 1,608,083 Provision for guarantee expenses 1,193,091 - Provision for employment termination benefits 139,998 - 11,950,799 6,698,769 Long -term provisions 2008 2007 Provision for guarantee expenses 1,333,290 - 1,333,290 - Movements of provisions are as follows: 2008 2007 1 January 6,698,769 563,523 Additions due to business combinations 4,619,896 - Charge for unused vacation pay liability 373,544 5,538,619 Charge for lawsuits 1,666,385 1,608,083 Charge for guarantee expenses 294,398 - Charge for employment termination benefits 139,998 - Paid or used unused vacation pay liability (1,056,025) (1,011,456) Currency translation differences 547,124 - 31 December 13,284,089 6,698,769


36

NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES (Continued) Provisions in the amount of YTL3,274,468 (2007: YTL1,608,083) were recorded in light of legal consultations and past experiences of legal, labour, trade and administrative lawsuits against the Group. Guarantees received 2008 2007 Guarantee bills received 7,060,439 6,023,519 Letter of guarantees received 1,706,732 842,084 Guarantee cheques received 1,321,140 1,896,664 Mortgages received 140,000 140,000 10,228,311 8,902,267 Guarantees given 2008 2007 Securities given 12,193,250 34,966,680 Letter of guarantees given 6,526,646 6,687,732 18,719,896 41,654,412 The Group has entered into forward foreign exchange contracts with banks in order to hedge its foreign exchange risk. According to such contracts, the Group purchases YTL and sells EUR at the predetermined exchange rate. The details of the contracts are as follows: Forward EUR amount YTL amount Transaction date Due date rate to be sold to be purchased 18 September 2008 29 January 2009 1.9315 500,000 965,750 18 September 2008 26 February 2009 1.9483 500,000 974,150 18 September 2008 30 March 2009 1.9673 500,000 983,650 18 September 2008 29 April 2009 1.9837 500,000 991,850 18 September 2008 28 May 2009 2.0018 500,000 1,000,900 18 September 2008 29 June 2009 2.0231 500,000 1,011,550 18 September 2008 30 July 2009 2.0433 500,000 1,021,650 18 September 2008 28 August 2009 2.0603 500,000 1,030,150 18 September 2008 29 September 2009 2.0792 500,000 1,039,600 18 September 2008 28 October 2009 2.0977 500,000 1,048,850 18 September 2008 25 November 2009 2.1136 500,000 1,056,800 18 September 2008 30 December 2009 2.1367 500,000 1,068,350 6,000,000 12,193,250


37

NOTE 16 - EMPLOYEE BENEFITS 2008 2007 Provision for employment termination benefit 8,120,249 9,283,108 Provision for pensions 7,090,874 - 15,211,123 9,283,108 Turkey Provision for employment termination benefits is allocated in accordance with the disclosures given below. Under Turkish Labour Law, the Company is required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). Since the legislation was changed on 23 May 2002, there are certain transitional provisions relating to length of service prior to retirement. At 31 December 2008, the amount payable consists of one month’s salary limited to a maximum of YTL2,087.92 (2007: YTL2,030.19) for each year of service. The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the future probable obligation of the Company arising from the retirement of employees. IAS 19 “Employee Benefits” requires actuarial valuation methods to be developed to estimate the enterprise’s obligation under defined benefit plans. Accordingly, the following actuarial assumptions were used in the calculation of the total liability: 2008 2007 Discount rate (%) 6.26 5.71 Turnover rate to estimate the probability of retirement (%) 97 97 The principal assumption is that maximum liability for each year of service will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. As the maximum liability is revised semi-annually, the maximum amount of YTL2,260.04 (1 January 2008: YTL2,087.92), which is effective from 1 January 2009, has been taken into consideration in calculating the Company’s provision for employment termination benefits.


38

NOTE 16 - EMPLOYEE BENEFITS (Continued) Movements in the provision for employment termination benefits during the year are as follows: 2008 2007 1 January 9,283,108 17,098,725 Increase during the year 8,416,758 4,087,535 Actuarial loss/(gain) (434,740) - Paid during the year (9,144,877) (11,903,152) 31 December 8,120,249 9,283,108 Germany Pension provisions have been stated for obligations resulting from pension plan commitments for retirement, invalidity and dependants payments which guarantee a spesific pension entitlement to employees of Burgbad. The pension provisions are measured using the projected unit credit method on the basis of actuarial surveys. The calculation of provisions has been based on the assumed rate of interest and pension trend which are 5,75% and 2,00 % respectively. Movement schedule of provision for employment retirement benefit plans is as follows: 2008 2007 1 January - - Addition due to business combinations 6,595,129 - Payments (210,687) - Currency translation differences 706,432 - 31 December 7,090,874 -


39

NOTE 17 - OTHER ASSETS AND LIABILITIES 2008 2007 Other current assets Prepaid expenses 3,296,861 1,103,926 Order advances given 186,788 416,912 Income accruals 68,457 60,517 Advances given to personnel 1,962 2,850 Forward foreign exchange contracts - 2,729,403 Job advances - 9,673 Other current assets 547,493 - 4,101,561 4,323,281 Other non-current assets Prepaid expenses 948,119 973,582 Other non-current assets 360,930 - 1,309,049 973,582 Other liabilities Bonus accrual 5,457,791 - Accrued salaries and wages 3,844,398 - Forward foreign exchange contacts 1,437,194 - Deferred income 777,922 - Accrual for reclaims 690,927 - Accrual for customer premiums 588,679 - Accrual for marketing expenses 235,488 - Accrual for commission expenses 98,704 290,074 Accrual for damage indemnity 55,200 66,138 Accrual for energy expenses 31,702 294 Other 1,711,901 502,674 14,929,906 859,180


40

NOTE 18 - EQUITY Paid-in capital The total authorised number of ordinary shares of par value YKr1 each at 31 December 2008 is 10,000,000,000 (2007: 5,625,000,000). There is no preferred stock. The movement of ordinary shares issued that are fully paid is as follows: 2008 2007 1 January 5,625,000,000 5,625,000,000 Issued for cash 4,375,000,000 - 31 December 10,000,000,000 5,625,000,000 The Company’s shareholders and their shareholding percentages as of 31 December 2008 and 2007 are as follows: Share Share 2008 (%) 2007 (%) Eczacıbaşı Holding A.Ş. 69,562,424 70 29,259,257 52 İntema İnşaat ve Tesisat Malzemeleri Yatırım ve Pazarlama A.Ş. 6,187,500 6 6,187,500 11 Eczacıbaşı Yatırım Holding Ortaklığı A.Ş. 5,000,000 5 2,812,500 5 İslam Kalkınma Bankası 400,604 <1 400,604 1 Kale Seramik A.Ş. 12,013 <1 12,013 <1 Publicly owned 18,837,459 19 17,578,126 31 Total capital 100,000,000 100 56,250,000 100 Adjustment to share capital 56,796,542 56,796,542 Total paid-in capital 156,796,542 113,046,542 Adjustment to share capital can only be netted-off against losses and used as an internal source in capital increase where extraordinary reserves can be netted-off against prior years’ loss and used in the distribution of bonus shares and dividends to shareholders.


41

NOTE 18 - EQUITY (Continued) Restricted Reserves As of 31 December 2008 and 2007, restricted reserves comprise legal reserves amounting to YTL1,303,016 Legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (“TCC”). The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the company’s 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 paid-in share capital. Under the TCC, legal reserves can only be used to offset losses and are not available for any other usage unless they exceed 50% of paid-in share capital. These amounts should be classified as restricted reserves according to CMB Financial Reporting Standards. As of 31 December 2008 restricted reserves comprise legal reserves amounting to YTL1,303,016 (2007: YTL1,303,016). In accordance with the CMB regulations effective until 1 January 2008, inflation adjustment differences arising at the initial application of inflation accounting which are recorded under “accumulated losses” can be netted off from the profit to be distributed based on CMB profit distribution regulations. In addition, the aforementioned amount recorded under “accumulated losses” can be netted off from net income for the period, if there is any, undistributed prior period profits, and inflation adjustment differences of extraordinary reserves, legal reserves and capital, respectively. In addition, in accordance with the CMB regulations effective until 1 January 2008, “Capital, Share Premiums, Legal Reserves, Special Reserves and Extraordinary Reserves” were recorded at their statutory carrying amounts and the inflation adjustment differences related to such accounts were recorded under “inflation adjustment differences” at the initial application of inflation accounting. “Equity inflation adjustment differences” could be utilised in issuing bonus shares and offsetting accumulated losses, and the carrying amount of extraordinary reserves could be utilised in issuing bonus shares, cash dividend distribution and offsetting accumulated losses. In accordance with Communiqué No:XI-29 and related announcements of the CMB, effective from 1 January 2008, “Share capital”, “Restricted Reserves” and “Share Premiums” shall be carried at their statutory amounts. The valuation differences (such as inflation adjustment differences) shall be disclosed as follows: - if the difference arises from the inflation adjustment of “Paid-in Capital” and has not yet been

transferred to capital, it should be classified under the “Inflation Adjustment to Share Capital”; - if the difference is due to the inflation adjustment of “Restricted Reserves” and “Share

Premium” and the amount has not been utilised in dividend distribution or capital increase yet, it shall be classified under “Retained Earnings”.

Other equity items shall be carried at the amounts calculated based on CMB Financial Reporting Standards. Capital adjustment differences have no other use other than being transferred to share capital.


42

NOTE 18 - EQUITY (Continued) In accordance with the decision of Capital Markets Board on 8 January 2008 no 4/138 the minimum dividend distribution ratio for the publicly listed joint stock companies shall be applied as 20% (31 December 2007: 20%). Accordingly, it has been made possible that based on the decisions taken in general assemblies of the companies the distribution can be made in cash, non-cash by issuance of free shares with respect to the transfer of profits to the capital or a combination of both as partially in cash and non-cash. For the cases when the initial dividend determined is less than 5% of issued/paid in capital, it is allowed to retain the dividends within the companies. However, for those companies which are going to distribute dividends over the profits generated from 2007 operations and which increased their share capitals without distributing dividends in the previous year and thus have a distinguish of shares as “new” and “old” shares, it is enforced to make the distribution of initial dividends in cash. In accordance with the CMB’s decision numbered 7/242 on 25 February, 2005; if the amount of net distributable profit based on the CMB’s requirement regarding the minimum profit distribution arrangements which is computed over the net profit determined according to the CMB’s regulations does not exceed net distributable profit in the statutory accounts, the whole amount calculated per CMB’s regulations should be distributed. On the contrary, the amount of net distributable profit based on the CMB’s requirement regarding the minimum profit distribution arrangements which is computed over the net profit determined according to the CMB’s regulations exceeds net distributable profit in the statutory accounts; distributable profit is limited to the profit per statutory accounts. In the case when there is a net loss per statutory accounts or financial statements prepared in accordance with CMB financial reporting standards, a distribution of profit is prohibited. Retained earnings 2008 2007 Equity inflation adjustment differences 101,708,204 101,708,204 Extraordinary reserves 30,182,811 30,182,811 Accumulated losses (55,287,816) (12,820,240) Retained earnings 76,603,199 119,070,775 The restated amounts of the capital and legal reserves stated as their historical amounts in the consolidated financial statements and the inflation restatement differences are as follows: Equity Historical Restated inflation restatement amounts amounts differences Share capital 100,000,000 156,796,542 56,796,542 Legal reserves 1,303,016 16,310,979 15,007,963 Extraordinary reserves 30,182,811 60,086,510 29,903,699 131,485,827 233,194,031 101,708,204


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NOTE 19 - REVENUE AND COST OF SALES 2008 2007 Domestic sales 324,987,446 258,652,952 Foriegn sales 209,474,610 230,883,920 Other sales 712,240 543,130 Gross sales 535,174,296 490,080,002 Less: discounts (151,378,700) (126,530,703) Less: returns (1,134,599) (1,124,458) Net sales 382,660,997 362,424,841 Cost of sales (-) (252,986,750) (259,798,362) Gross profit 129,674,247 102,626,479 NOTE 20 - EXPENSES BY NATURE Cost of sales: 2008 2007 Raw materials, supplies and semi-finished goods 127,271,627 143,949,201 Personnel 70,840,698 66,404,601 Depreciation and amortisation expenses 23,883,447 18,789,393 Energy 17,973,765 19,079,382 Maintenance 4,706,409 1,455,796 Transportation 1,778,219 1,840,386 Rent 1,078,614 1,299,489 Insurance 937,230 1,032,395 Impairment on inventories, net 411,286 885,642 Guarantee expenses 294,398 - Other 3,811,057 5,062,077 252,986,750 259,798,362


44

NOTE 20 - EXPENSES BY NATURE (Continued) Operating expenses 2008 2007 Personnel 37,689,119 24,490,270 Transportation 23,193,352 22,015,237 Consultancy 22,437,611 14,534,011 Advertising and promotion 14,921,290 23,153,549 Commissions 12,304,598 22,663,263 Amortisation and depreciation expenses 11,494,116 8,325,208 Employment termination benefits, net 8,122,016 4,087,535 Rent 3,003,192 2,412,840 After-sales service 2,417,932 4,831,872 Lawsuit expenses, net 1,666,385 1,608,083 Travel 1,641,985 1,288,904 Sponsorship 1,640,000 1,639,500 Dealer training 1,575,393 1,365,395 Termination pay 1,483,529 631,924 Communication 1,242,483 1,640,208 Energy 1,038,004 961,965 Other 12,758,477 8,779,581 158,629,482 144,429,345 NOTE 21 - OTHER OPERATING INCOME/EXPENSES Other income: 2008 2007 Gain on sales of scrap goods 1,286,364 2,236,472 Gain on sale of property, plant and equipment 267,278 262,525 Insurance compensation 241,913 166,156 Income from damaged goods 65,763 30,929 Rent income 22,744 - Other 719,926 464,821 2,603,988 3,160,903


45

NOTE 21 - OTHER OPERATING INCOME/EXPENSES (Continued) Other expenses: 2008 2007 Impairment on financial assets 652,522 4,392,441 Taxes paid for stock count differences 364,777 747,313 Donations 281,511 - Penalties 118,503 139,984 Loss on sale of property, plant and equipment 52,306 79,044 Penalty paid to Competition Board - 411,861 Other 197,819 81,560 1,667,438 5,852,203 NOTE 22 - FINANCIAL INCOME 2008 2007 Foreign exchange gains 25,831,092 15,371,036 Due date charges on term sales 9,155,681 7,723,416 Interest income 710,619 261,953 Commodity swap contracts 338,739 899,549 Forward foreign exchange contracts - 2,729,403 36,036,131 26,985,357 NOTE 23 - FINANCIAL EXPENSE 2008 2007 Foreign exchange losses 67,485,012 9,739,100 Interest expense 14,707,915 11,569,220 Due date difference on term purchases 4,386,325 4,371,060 Forward foreign exchange contracts 3,416,389 131,145 Other 303,031 226,413 90,298,672 26,036,938


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NOTE 24 - TAX ASSETS AND LIABILITIES 2008 2007 Taxes and funds payable 999,681 - Less: prepaid current income taxes (867,709) - Tax provision, net 131,972 - Turkish tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provisions for taxes, as reflected in these consolidated financial statements, have been calculated on a separate-entity basis. Turkey Corporate Income Tax Law has been changed with the law numbered 5520 which was published at 13 June 2006. Most of the rules of the new Corporate Income Tax Law are applicable from 1 January 2006. According to this, corporate tax rate applicable for the year 2008 is 20% (2007: 20%). Corporate tax rate is applied to the taxable profit which is calculated by adding non-taxable expenses and deducting some exemptions taken place in tax laws (exemptions for participation revenues, exemptions for investment incentives) from accounting profit of the Company. No additional taxes are paid unless profit is distributed (except 19.8% witholding tax paid over used investment incentives). Dividends paid to non-resident corporations, which have a place of business in Turkey, or resident corporations are not subject to withholding tax. Otherwise, dividends paid are subject to withholding tax at the rate of 15%. An increase in capital via issuing bonus shares is not considered as a profit distribution and thus does not incur withholding tax. Corporations are required to pay advance corporation tax quarterly at the rate of 20% on their corporate income. Advance tax is payable by the 17th of the second month following each calendar quarter end. Advance tax paid by corporations is credited against the annual corporation tax liability. The balance of the advance tax paid may be refunded or used to set off against other liabilities to the government. In accordance with Tax Law No: 5024 “Law Related to Changes in Tax Procedure Law, Income Tax Law and Corporate Tax Law” that was published on the Official Gazette on 30 December 2003 to amend the tax base for non-monetary assets and liabilities, effective from 1 January 2004, the income and corporate taxpayers will prepare the statutory financial statements by adjusting the non-monetary assets and liabilities for the changes in the general purchasing power of the Turkish Lira. In accordance with the aforementioned law provisions, in order to apply inflation adjustment, cumulative inflation rate (SIS-WPI) over last 36 months and 12 months must exceed 100% and 10%, respectively. As of 1 January 2005, forementioned conditions are not valid thus, there are no inflation adjustments. In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns within the 25th of the fourth month following the close of the financial year to which they relate.


47

NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) Tax returns are open for 5 years from the beginning of the year that follows the date of filing during which time the tax authorities have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based on their findings. Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to 5 years. Tax losses cannot be carried back to offset profits from previous periods. There are numerous exemptions in the Corporate Tax Law concerning the corporations. Those related to the Company are as follows: Real property, investment equity, preferential rights, usufruct shares, founding shares, sales exemption: A 75% portion of the gains derived from the sale of preferential rights, usufruct shares and founding shares from investment equity and real property which has remained in assets for more than two full years are exempt from corporate tax. To be entitled to the exemption, the relevant gain is required to be held in a fund account in the liabilities and it must not be withdrawn from the entity for a period of 5 years. The sales consideration has to be collected up until the end of the second calendar year following the year the sale was realized. Brokerage houses and real estate companies who are dealing with the trading and the leasing of the real estate cannot benefit from this exemption. Exemption for investment incentive allowance: The exemption for investment incentive allowance that has been applied for several years and latest calculated as 40% of corporate tax payers’ capital expenditures exceeding a certain amount, has been abolished with Corporate Income Tax Law No.5479 dated 30 March 2006. On the other hand, according to the law and the temporary clause number 69 added to Income Tax Law, unused investment incentive allowance related to the ongoing projects at 31 December 2005, a) investment started after 1 January 2006, within the scope of investment incentive share

certificates granted prior to 24 April 2003 in accordance with the appendices 1,2,3,4,5, and 6 of Income Tax Law numbered 193 prior to the change with the law numbered 4842 dated 9 April 2003,

b) investment allowances being granted before 1 January 2006, which presents an economic and

technical integrity with the investments, in accordance with the Income Tax Law numbered 193 abolished article No.19 of Corporate Income Tax Law numbered 193 can be utilised for the income generated in the years 2006, 2007 and 2008 in accordance with the articles valid on 31 December 2005 (including the corporate tax rate in accordance with the related articles of Income Tax Law). Accordingly, gains of the above nature which are in the profit/loss figures are taken into consideration, in the calculation of corporate tax.

Once one of the above alternatives has been chosen, the application cannot be changed. Corporations that choose to utilise this right will be subject to the previous legislation’s tax rates.


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NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) Apart from the abovementioned exemptions considered in the determination of the corporate income tax base, allowances stated in Corporate Income Tax Law Articles 8, 9 and 10 and Income Tax Law Article 40 are also taken into consideration. Germany In Germany, the corporation tax rate is 29.83%. The applicable tax rate is the result of the corporate income tax rate of 15%, plus solidarity surcharge of 0.83% and the trade tax rate of 14.00% . The details of taxation on income for the years ended 31 December 2008 and 2007 are as follows: 2008 2007 Current period tax expense (-) (800,336) - Deferred income tax (expense)/income (2,328,892) 978,632 (3,129,228) 978,632 The reconciliation of tax expenses stated in the consolidated income statements as of 31 December 2008 and 2007 is as follows: 2008 2007 Loss before tax in the consolidated financial statements (82,281,226) (43,545,747) Tax charge according to parent company’s tax rates 20% 16,456,245 8,709,149 Effect of current year loss (13,464,891) (7,140,400) Non deductible expenses (171,946) (263,668) Effect of carry forward tax losses (6,883,209) 6,883,209 Exemptions 714,456 (4,922,272) Effect of property, plant and equipment and intangible assets 385,674 - Effect of tax rate difference (25,423) (2,262,126) Other 300,473 (25,260) Tax (expense)/income (3,129,228) 978,632 Deferred Income Taxes The Group recognises deferred income tax assets and liabilities based upon temporary differences arising between their financial statements as reported under CMB Financial Reporting Standards and their statutory tax financial statements. Tax rates used for deferred income tax assets and liabilities calculated on temporary differences that are expected to be realised or settled based on taxable income under the liability method are 20% in Turkey and 29.5% in Germany (2007: 20%).


49

NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) The composition of cumulative temporary differences and the related deferred income tax assets and liabilities in respect of items for which deferred income tax has been provided at 31 December 2008 and 2007 using the enacted tax rates are as follows: Cumulative temporary Deferred income differences tax assets/(liabilities) 2008 2007 2008 2007 Deferred income tax asset Provision for employment termination benefits 8,260,247 9,283,108 1,652,049 1,856,622 Provision for unused vacation pay liability 4,408,205 5,090,686 881,641 1,018,137 Provision for impairment of property, plant and equipment 3,830,304 4,392,441 766,061 878,488 Provision for lawsuits 3,274,468 1,608,083 654,894 321,617 Provision for doubtful receivables 2,391,361 1,011,270 478,272 202,254 Provision for impairment on inventory 2,223,866 1,812,580 444,773 362,516 Forward foreign exchange contracts 1,437,194 - 287,439 - Personnel bonus accrual 1,196,116 - 239,223 - Unrealised credit finance income 851,123 920,880 170,225 184,176 Administrative expenses 517,124 - 152,551 - Financial assets 251,910 - 50,382 - Scrap goods 193,937 365,355 38,787 73,071 Carry forward tax losses - 34,416,044 - 6,883,209 Other 290,278 - 85,632 - 5,901,929 11,780,090 Deferred income tax liabilities Property plant and equipment and intangible assets 123,667,058 41,004,572 (33,373,779) (8,200,915) Unincurred credit finance expenses 403,280 416,134 (80,656) (83,227) Forward foreign exchange contracts - 2,729,403 - (545,881) Other 213,690 1,334,797 (53,679) (266,959) (33,508,204) (9,096,982) Deferred income tax (liabilities)/assets - net (27,606,275) 2,683,108


50

NOTE 24 - TAX ASSETS AND LIABILITIES (Continued) A deferred income tax asset is recognised only to the extent that it is probable that a tax benefit will be realised in the future. If it is probable that a tax benefit will be realised, a deferred income tax asset is recognised on unused tax losses, unused tax credits and other temporary differences. The Company did not recognise deferred income tax assets in respect of losses amounting to YTL106,692,431 (2007: YTL39,367,974) that can be carried forward against future taxable income. 2008 2007 2009 332,686 332,686 2010 4,651,626 4,651,626 2012 34,383,662 34,383,662 2013 67,324,457 - 106,692,431 39,367,974 Deferred Income Tax Assets: 2008 2007 Deferred income tax assets to be realized in twelve months 2,579,795 1,143,634 Deferred income tax assets to be realized after twelve months 3,322,134 10,636,456 5,901,929 11,780,090 Defered Income Tax Liabilities: 2008 2007 Deferred income tax liabilities to be settled after twelve months (134,425) (2,191,746) Deferred income tax liabilities to be settled after twelve months (33,373,779) (6,905,236) (33,508,204) (9,096,982) Movements in deferred income taxes can be analysed as follows: 2008 2007 1 January 2,683,108 1,704,476 Addition due to business combinations (Note 3) (25,239,206) - Current year deferred income tax (expense)/income-net (2,328,892) 978,632 Currency translation differences (2,721,285) - 31 December (27,606,275) 2,683,108


51

NOTE 25 - EARNINGS PER SHARE 2008 2007 Net loss for the year (85,420,821) (42,567,115) Weighted average number of shares with YKr1 face value each 5,845,308,652 5,625,000,000 Losses per 1,000 shares (YKr) (14.61) (7.57) NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES The due to and due from related party balances as of year-end, and transactions performed with related parties during the period are summarized below: a) Due from related parties: 2008 2007 Due from shareholders: İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. 36,869,880 43,672,536 36,869,880 43,672,536 Due from group companies: Eczacıbaşı Dış Ticaret A.Ş. 38,602,942 38,344,916 Vitra Bad GMBH 1,903,686 - Vitra Karo San.ve Tic.A.Ş. 82,184 62,670 Vitra UK Ltd. 94,450 - Vitra Küvet San.Tic.A.Ş. 88,675 15,199 Vitra USA Inc 79,976 - Other 224,722 36,188 41,076,635 38,458,973 Less: Provision for doubtful receivables (1,906,256) (707,295) Less: Unearned credit finance income (851,123) (920,880) 75,189,136 80,503,334 Movement of provisions for doubtful receivables summarized as below: 2008 2007 1 January 707,295 1,139,729 Charge for the year 1,770,746 620,872 Collections and disposals (571,785) (1,053,306) 31 December 1,906,256 707,295


52

NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) On average, credit terms for trade receivables are less than 3 months. The effective interest rates applied to receivables from related parties are 2.83% (2007: 4.57%), 1.02% (2007: 2.75%), 2.80% (2007: 5.99%) and 0.15% (2007: 14.09%) for EUR, USD, GBP and YTL, respectively. b) Due to related parties: 2008 2007 Due to shareholders: Eczacıbaşı Holding A.Ş. 6,534,346 1,558,969 6,534,346 1,558,969 Due to group companies: Eczacıbaşı Endüstriyel Hammaddeler San.ve Tic.A.Ş.s 936,972 1,422,136 Vitra Bath and Tiles 896,794 173,639 Vitra Sanitary Marketing U.K. 303,253 2,109,116 Vitra USA Inc. 79,976 363,114 Eczacıbaşı Bilgi İletim San.ve Tic.A.Ş. 51,096 31,757 Eczacıbaşı Koramic Yapı Kimyasalları San.ve Tic.A.Ş. 17,624 3,426 Eczacıbaşı Sağlık Hizmetleri A.Ş. 5,288 - Eczacıbaşı Sigorta Acenteliği A.Ş. 483 - Vitra Bad GMBH - 2,256,064 Other 95,318 265,556 2,386,804 6,624,808 8,921,150 8,183,777 c) Net sales to related parties: 2008 2007 Eczacıbaşı Dış Ticaret A.Ş. 175,470,093 225,202,922 İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. 135,904,026 137,221,919 311,374,119 362,424,841


53

NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) d) Product, service and property, plant and equipment purchases: 2008 Fixed Financial Product Service assets expense (*) Total Eczacıbaşı Dış Ticaret A.Ş. 113,046 3,138,622 - 62,661,096 65,912,764 Eczacıbaşı Holding A.Ş. - 21,208,866 (**) 16,694 8,721,902 29,947,462 İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. 121,133 16,956,804 (***) 3,919 2,350,368 19,432,224 Eczacıbaşı Endüstriyel Hammaddeler San.ve Tic.A.Ş. 4,151,171 111,135 - - 4,262,306 Vitra Bad GMBH - 2,511,978 - - 2,511,978 Vitra USA - 1,742,855 - - 1,742,855 Vitra Bath and Tiles - 1,204,586 - - 1,204,586 Vitra Sanitary Marketing U.K - 1,181,306 17,863 - 1,199,169 Eczacıbaşı İlaç Sanayi - 874,735 - - 874,735 Vitra Karo San.ve Tic.A.Ş. - 349,429 - - 349,429 Eczacıbaşı Bilgi İletim San. ve Tic.A.Ş. - 40,515 223,791 - 264,306 Eczacıbaşı Sağlık Hizmetleri A.Ş. - 35,731 - - 35,731 Eczacıbaşı Koramic Yapı Kimyasalları San.ve Tic.A.Ş. - 34,916 - - 34,916 Girişim Paz.Tük.Ür.San.Tic.A.Ş. - 12,953 - - 12,953 Vitra Küvet San.ve Tic.A.Ş. - 11,824 - - 11,824 İpek Kağıt San. Ve Tic A.Ş. 6,517 - - - 6,517 Eczacıbaşı İnşaat ve Tic.A.Ş. - 5,852 - - 5,852 Eczacıbaşı Beiersdorf Kozmetik - 1,078 - - 1,078 4,391,867 49,423,185 262,267 73,733,366 127,810,685 (*) Comprises interest expense and foreign exchange losses on bank borrowings used through Eczacıbaşı Dış Ticaret

A.Ş. and Eczacıbaşı Holding A.Ş. (**) Services received from Eczacıbaşı Holding A.Ş. consist of legal consultancy, financial consultancy, auditing,

budget planning, corporate identity and human resource services. These services are charged according to the time spent by the related departments of Eczacıbaşı Holding A.Ş.. Additionally, these services include the time spent for the acquisition of the subsidiary in 2008, legal services and services related with human resources.

(***) Service received from Intema İnşaat ve Tesisat Mlz. Yat.Paz.A.Ş. mainly include sales commissions and shared

expenses.


54

NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES (Continued) 2007 Fixed Financial Product Service assets expense Total İntema İnşaat ve Tesisat Mlz.Yat.Paz.A.Ş. 268,497 16,991,473 359,996 2,078,471 19,698,437 Vitra Bad GMBH - 14,465,670 - 2,892,973 17,358,643 Eczacıbaşı Holding A.Ş. - 12,187,280 117,157 2,234,460 14,538,897 Eczacıbaşı Dış Ticaret A.Ş. - 5,372,955 - 8,327,841 13,700,796 Vitra Sanitary Marketing UK - 9,327,138 - 286,602 9,613,740 Eczacıbaşı End.Hammaddeler San.ve Tic.A.Ş. 5,003,377 135,018 -- 5,138,395 Vitra USA - 3,688,415 - 165,266 3,853,681 Eczacıbaşı İlaç Sanayi - 988,834 -- 988,834 Vitra Bath and Tiles - 839,241 -- 839,241 Eczacıbaşı Karo Seramik San.ve Tic.A.Ş. - 312,058 13,299- 325,357 Eczacıbaşı Bilgi İletim San. ve Tic.A.Ş. - 69,443 193,373- 262,816 Eczacıbaşı İnşaat ve Tic.A.Ş. - 87,888 24,893- 112,781 Eczacıbaşı Koramic Yapı Kimyasalları San.ve Tic.A.Ş. - 6,043 29,073- 35,116 Eczacıbaşı Sağlık Hizmetleri A.Ş. - 31,966 -- 31,966 Girişim Paz.Tük.Ür.San.Tic.A.Ş. - 24,017 -- 24,017 İpek Kağıt San. Ve Tic A.Ş. 9,124 - -- 9,124 Vitra Küvet San Tic.A.Ş. 1,155 4,880 -- 6,035 Other - 576 -- 576 5,282,153 64,532,895 737,791 15,985,613 86,538,452 e) Key Management Compensation: The Group has determined key management personnel as chairman, members of the Board of Directors, general manager and assistant general managers. Key management compensation is summarized as below. 2008 2007 Salaries and other short-term benefits 7,053,175 4,205,021 Employment termination benefits 668,587 269,396 Personnel bonuses 2,341,582 - Unused vacation pay liabilities 1,104,733 1,103,932 11,168,077 5,578,349


55

NOTE 27 - FINANCIAL RISK MANAGEMENT Financial risk management The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance. Credit Risk Credit risk arises from deposits with banks, as well as credit exposures to customers, including outstanding receivables. Ownership of financial assets involves the risk that counter parties may be unable to meet the terms of their agreements. A significant portion of trade receivables is due from domestic and foreign related party sales companies. Since the credit risk of receivables from domestic sales is born by the related party, there is no risk. Receivables from foreign sales are guaranteed by Eximbank insurance. The risk has been reduced for foreign receivables that are not covered by Eximbank insurance by collecting them in cash or by receiving a guarantee letter provided by banks. The aging of the Group’s overdue but not impaired trade receivables, including due from related parties which takes into account the overdue terms is as follows: 2008 2007 Trade Receivables Other Receivables Trade Receivables Other Receivables 1-30 days overdue 15,203,081 - 5,606,661 - 1-3 months overdue 3,251,272 - 1,701,500 - 3-12 months overdue 1,441,813 - 985,257 - 1-5 years overdue - - - - More than 5 years overdue - - - - Collateralized or secured with guarantees * - - - -


56

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Trade Receivables Other Receivables Related Related Bank Financial 2008 Other Party Other Party Deposits Instruments Maximum net credit risk as of balance sheet date (A+B+C+D+E) (1) 11,439,748 75,189,136 1,979,545 - 38,508,861 12,193,250 - The part of maximum risk under guarantee with collateral 116,526 - - - - - A. Net book value of financial assets that are not past due/impaired 7,926,334 58,806,384 1,979,545 - 38,508,861 12,193,250 B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired - 888,324 - - - - C. Net book value of past due but not impaired financial assets (6) 3,513,414 15,494,428 - - - - - Collateralized or guaranteed part 116,526 - - - - - D Net book value of impaired financial assets (4) - - - - - - - Past due (gross carrying amount) 1,716,995 1,906,256 - - - - Impairment (-) (1,716,995) (1,906,256) - - - - - The part of net value under guarantee with collateral - - - - - - - Not over due (gross carrying amount) - - - - - - - Impairment (-) - - - - - - - The part of net value under guarantee with collateral - - - - - - E. Off-balance sheet items with credit risk - - - - - -


57

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Trade Receivables Other Receivables Related Related Bank Financial 2007 Other Party Other Party Deposits Instruments Maximum net credit risk as of balance sheet date (A+B+C+D+E) (1) 1,276,066 80,503,334 2,945,674 - 3,331,907 30,783,600 - The part of maximum risk under guarantee with collateral 110,045 - - - - - A. Net book value of financial assets that are not past due/impaired 1,153,441 72,332,541 2,945,674 - 3,331,907 30,783,600 B. Net book value of financial assets that are renegotiated, if not that will be accepted as past due or impaired - - - - - - C. Net book value of past due but not impaired financial assets (6) 122,625 8,170,793 - - - - - Collateralized or guaranteed part 110,045 - - - - - D Net book value of impaired financial assets (4) - - - - - - - Past due (gross carrying amount) 644,590 707,295 - - - - Impairment (-) (644,590) (707,295) - - - - - The part of net value under guarantee with collateral - - - - - - - Not over due (gross carrying amount) - - - - - - - Impairment (-) - - - - - - - The part of net value under guarantee with collateral - - - - - - E. Off-balance sheet items with credit risk - - - - - -


58

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Liquidity risk Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions Group management develops weekly, monthly and 4-month period cash flow plans to determine the liquidity risk; carries out monthly analyses of operating cash adequacy, operating cash’s ability to pay interest, operating profit’s ability to pay interest, and level of operating cash generation; and takes the necessary precautions accordingly. As of 31 December 2008 and 2007, the undiscounted contractual cash flows of the financial liabilities of the Group are as follows: Carrying Contractual Less than 3-12 1-5 Over 2008 amount cash flow 3 months months years 5 years Non-derivative financial liabilities Financial liabilities 284,324,892 299,274,938 34,405,490 179,287,081 85,582,367 - Trade payables and due to related parties 51,540,989 51,540,989 49,152,695 2,388,294 - - Other payables 4,814,753 4,814,753 4,814,753 - - - Other short term liabilities 14,929,906 14,929,906 8,757,419 6,172,487 - - 355,610,540 370,560,586 97,130,357 187,847,862 85,582,367 - Derivative financial liabilities Derivative cash inflows 12,193,250 12,193,250 2,923,550 9,269,700 - - Derivative cash outlows 12,844,800 12,844,800 3,211,200 9,633,600 - - Net cash outflow from forward contracts 25,038,050 25,038,050 6,134,750 18,903,300 - - Carrying Contractual Less than 3-12 1-5 Over 2007 amount cash flow 3 months months years 5 years Non-derivative financial liabilities Financial liabilities 130,891,207 148,091,022 36,503,967 65,572,378 46,014,677 - Trade payables and due to related parties 34,892,380 34,892,380 32,854,317 2,037,478 585 - Other payables 4,506,283 4,506,283 4,506,283 - - - Other short term liabilities 859,180 859,180 859,180 - - - 171,149,050 188,348,865 74,723,747 67,609,856 46,015,262 - Derivative financial liabilities Derivative cash inflows 30,783,600 30,783,600 10,261,200 20,522,400 - - Derivative cash outflows 34,966,680 34,966,680 11,558,000 23,408,680 - - Net cash outflow from forward contracts 65,750,280 65,750,280 21,819,200 43,931,080 - -


59

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Funding risk The ability to fund existing and prospective debt requirements is managed by maintaining the availability of adequate committed funding lines from high quality lenders. Interest rate risk The Group is exposed to interest rate risk through the impact of rate changes on interest-bearing liabilities and assets. These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities. The Group utilizes its cash in time deposits and the purchasing of company bonds. To keep these exposures at a minimum level, the Group tries to borrow at the most suitable rates. Average effective annual interest rates at 31 December 2008 and 2007 are as follows: 2008 2007 USD EUR YTL USD EUR YTL Current Assets Cash and cash equivalents - 4.79 16.18 - - 16.18 Short-Term liabilities Short-term bank borrowings 4.54 5.57 - 5.8 4.83 17.89 Current portion of long-term bank borrowings 4.38 7.30 16.50 6.6 6.4 - Long-Term liabilities Long-term bank borrowings 4.29 6.77 - 6.41 6.40 - Interest rate positions of the Group at 31 December 2008 and 2007 are as follows: 2008 2007 Financial instruments with fixed interest rates Cash and cash equivalents 27,056,116 3,200,011 Bank borrowings 284,324,892 130,891,207 There are no financial instruments with floating interest rates. - - Foreign exchange risk The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the New Turkish Lira. The Group constantly monitors the currency risk and net financial position through regular meetings and monthly reports. Foreign Currency Position The Group’s assets and liabilities denominated in foreign currencies at 31 December 2008 and 2007 are as follows:


60

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued)

2008 Total YTL Equivalent USD EUR YEN AUD GBP SEK Other Assets: Cash and cash equivalent 21,167,155 1,139,639 9,056,755 - - 25,076 - - Receivables from related parties 39,283,975 4,600,262 14,370,745 - - 1,120 8,017,952 - Trade receivables 10,745,026 146,814 4,915,452 - - - - - Other current assets 2,334,016 11,403 1,033,244 - 7,322 44,315 - - Other receivables 3,331,637 - 1,556,258 - - - - - Other non-current assets 304,120 4,279 307,632 - - - - - 77,165,929 5,902,397 31,240,086 - 7,322 70,511 8,017,952 - Liabilities: Short-term financial liabilities 201,704,752 31,647,936 70,315,134 - - 1,511,102 - - Long-term financial liabilities 80,913,688 1,019,493 37,075,817 - - - - - Trade payables 12,553,076 591,957 5,101,239 50,060 7,823 294,288 - - Due to related parties 1,123,267 510,968 9,557 - - 150,552 - - Short-term debt provisions 4,128,128 - 1,928,311 - - - - - Other short-term payables 922,633 - 430,976 - - - - - Other short-term liabilities 12,141,661 15,527 5,585,229 - 100,000 25,949 - - Long-term debt provisions 8,424,164 - 3,935,054 - - - - - 321,911,369 33,785,881 124,381,317 50,060 107,823 1,981,891 - - Net Foreign Currency Position (244,745,440) (27,883,484) (93,141,231) 50,060 (100,501) (1,911,380) 8,017,952 - Off-balance sheet foreign currency derivative assets - - - - - - - - Off-balance sheet foreign currency derivative liabilities 12,844,800 - 6,000,000 - - - - - Net asset/(liability)position of off balance sheet financial instruments (12,844,800) - (6,000,000) - - - - - Net Foreign Currency Position (257,590,240) (27,883,484) (99,141,231) 50,060 (100,501) (1,911,380) 8,017,952 - Fair value of foreign currency hedged financial assets 11,407,606 - 11,407,606 - - - - Exports 176,307,394 29,339,722 59,607,387 - - 5,226,764 - 13,728,197 Imports 46,213,136 13,215,070 13,270,209 55,549,082 - 1,459,116 - 46,214


61

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued)

2007 Total YTL Equivalent USD EUR YEN AUD GBP SEK Other Assets: Cash and cash equivalent 92,354 9,371 46,135 - - 1,092 - - Receivables from related parties 37,405,906 9,251,896 10,283,446 - - 3,888,161 3,780,352 - Trade receivables 819,977 606,694 6,016 - - 44,315 - - Other current assets 54,133 46,185 200 - - - - - 38,372,370 9,914,146 10,335,797 - - 3,933,568 3,780,352 - Liabilities: Short-term financial liabilities 68,005,963 15,358,032 25,099,862 - - 3,092,428 - - Long-term financial liabilities 23,662,878 3,057,143 9,714,287 - - 1,500,000 - - Trade payables 3,123,402 1,057,804 573,922 - 233,527 288,864 - - Due to related parties 4,932,554 460,517 1,337,313 - - 906,796 - - Other short-term liabilities 675,729 79,684 196,854 - 110,000 8,632 - - 100,400,526 20,013,180 36,922,238 - 343,527 5,796,720 - - Net Foreign Currency Position (62,028,156) (10,099,034) (26,586,441) - (343,527) (1,863,152) 3,780,352 - Off-balance sheet foreign currency derivative assets - - - - - - - - Off-balance sheet foreign currency derivative liabilities 30,783,600 - 18,000,000 - - - - - Net asset/(liability)position of off balance sheet financial instruments (30,783,600) - (18,000,000) - - - - - Net Foreign Currency Position (96,994,836) (10,099,034) (47,032,401) - (343,527) (1,863,152) 3,780,352 - Fair value of foreign currency hedged financial assets 33,513,003 - 33,513,003 - - - - - Exports 225,709,056 57,785,253 54,387,182 - - 17,009,053 24,653,843 - Imports 51,376,414 16,371,304 13,749,323 16,616,560 - 1,284,115 1,468,686 -


62

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) The foreign currency position as of 31 December 2008 and 2007 in regard to changes in foreign currency rates is depicted in the table below. The Group is mainly exposed to EUR and USD currency risk. 2008 Profit/Loss Equity Appreciation of Depreciation of Appreciation of Depreciation of foreign currency foreign currency foreign currency foreign currency Change in USD against YTL by 10% USD Net Assets/Liabilities (4,227,677) 4,227,677 - - Hedged USD (-) - - - - USD Net Effect (4,227,677) 4,227,677 - - Change in EUR against YTL by 10% EUR Net Assets/Liabilities (19,751,491) 19,751,491 10,878,301 - Hedged EUR (-) (1,284,480) 1,284,480 - - EUR Net Effect (21,035,971) 21,035,971 10,878,301 - Change in Other Currency against YTL by 10% Other Currency Net Assets/Liabilities (286,279) 286,279 - - Hedged Other Currency (-) - - - - Other Currency Net Effect (286,279) 286,279 - - 2007 Profit/Loss Equity Appreciation of Depreciation of Appreciation of Depreciation of foreign currency foreign currency foreign currency foreign currency Change in USD against YTL by 10%

USD Net Assets/Liabilities (1,176,234) 1,176,234 - - Hedged USD (-) - - - - USD Net Effect (1,176,234) 1,176,234 - - Change in EUR against YTL by 10% EUR Net Assets/Liabilities (4,546,813) 4,546,813 - - Hedged EUR (-) (3,078,360) 3,078,360 - - EUR Net Effect (7,625,173) 7,625,173 - - Change in Other Currency against YTL by 10% Other Currency Net Assets/Liabilities (400,385) 400,385 - - Hedged Other Currency (-) - - - - Other Currency Net Effect (400,385) 400,385 - -


63

NOTE 27 - FINANCIAL RISK MANAGEMENT (Continued) Capital risk management The Group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group performs a monthly financial risk analysis of capital risk management, the general monetary situation, short-term balance sheet liquidity and net financial liability levels. As of 31 December 2008 and 2007, net debt/(Equity+net debt+minority interest) rates are: 2008 2007 Total liabilities 412,082,181 187,130,927 Cash and cash equivalents (38,533,767) (3,342,732) Net deferred income tax liabilities (27,606,275) 2,683,108 Net debt 345,942,139 186,471,303 Equity 102,262,544 134,056,676 Minority interest 10,040,161 - Equity+net debt+minority interest 458,244,844 320,527,979 Net debt/Equity+net debt+minority interest 75% 58% Monetary assets The fair values of balances denominated in foreign currencies, which are translated at year-end exchange rates, are considered to approximate carrying values. The fair values of certain financial assets carried at cost, including cash and amounts due from banks, are considered to approximate their respective carrying values due to their short-term nature. The carrying values of trade receivables along with the related allowances for uncollectibility are estimated to be their fair values. Monetary liabilities The fair values of bank borrowings and other monetary liabilities are considered to approximate their respective carrying values due to their short-term nature. Since long-term foreign currency loans generally have floating rates, fair value is close to their book value. The fair value of long-term bank loans is the discounted amounts of contractual cash flows with the market interest rate (Note 7).


64

NOTE 28 - EVENTS AFTER THE BALANCE SHEET DATE a) Change in currency of Republic of Turkey

In accordance with the Article 1 of the Law numbered 5083 concerning the “Currency of the

Republic of Turkey” and according to the Decision of The Council of Ministers dated 4 April 2007 and No: 2007/11963, the prefix “New” used in the “New Turkish Lira” and the “New Kuruş” will be removed as of 1 January 2009. When the prior currency, New Turkish lira (“YTL”), values is converted into TL and Kr, one YTL (YTL1) and one YKr (YKr1) shall be equivalent to one TL (TL1) and one Kr (Kr1).

All references made to New Turkish Lira or Lira in laws, other legislation, administrative

transactions, court decisions, legal transactions, negotiable instruments and other documents that produce legal effects as well as payment and exchange instruments shall be considered to have been made to TL at the conversion rate indicated above. Consequently, effective from 1 January 2009, the TL replaces the YTL as a unit of account in keeping and presenting of books, accounts and financial statements.

b) At the Board of Directors meeting of EYAP held on 30 January 2009, it was decided to initiate

necessary procedures within the framework of Communiqué Serial:I, No:31 “Communiqué on Business Combinations” to merge with Vitra Küvet San. ve Tic. A.Ş., another Eczacıbaşı Group company, by taking over its total assets and liabilities as of 31 December 2008 as a whole within the framework of Turkish Law No:451 and Corporate Tax Law No:18-20 and based on the balance sheets prepared in accordance with CMB regulations at 31 December 2008.

c) At the meeting of the Board of Directors of EYAP held on 6 March 2009, it was decided to

increase the authorised capital from YTL100,000,000 to YTL300,000,000 and to apply to the CMB, Ministry of Industry and Trade, and other related bodies to obtain the necessary permissions. Such permissions were obtained on 13 March 2009.

............................................

ECZACIBAŞI YAPI GEREÇLERİ SANAYİ VE TİCARET A.Ş. AUDIT COMMITTEE REPORT FOR THE ACCOUNTING PERIOD AS OF 1 JANUARY –31 DECEMBER 2008

To: Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş. General Assembly

Title of Partnership Eczacıbaşı Yapı Gereçleri Sanayi ve Ticaret A.Ş.

Registered Office Istanbul

Capital TRL 100.000.000.-

Field of Activity production of ceramic health equipment and sanitary installations armatures

Name term of service of auditors, Tayfun Icten, Bulent Avcı will perform up to the whether personnel or partner of Ordinary General Assembly to convene to review Company accounts for the year 2008. Not partner or personnel of the Company.

Number of Board of Directors meetings No attendance to the Board of Directors, attended and of Auditing Committee five audits were conducted.

meetings held Scope of the investigation conducted on All operations have been audited as of ends Partnership Accounts, books and documents, of April, June, August, October and December 2008, date and result of investigations concluded that they were consistent with laws and regulations.

Number and results of the count Counting were made six times in a year as being made in the shareholding counter twice a month and it was seen that the counter that is appropriate for counting is appropriate for counting. as per sub-paragraph 3 of paragraph 1 of Article 353 of the Turkish Commercial Code

Dates and results of the audits Investigation and audits were conducted at the conducted as per sub-paragraph 4 of the end of each month and consistency of paragraph 1 of the Article 353 of the counts with the records was observed. Turkish Commercial Code

Complaint and corruptions submitted No complaint and corruption. and proceedings against them

We have audited the accounts and transactions for the period of 01.01.2008-31.12.2008 in accordance with the Turkish Commercial Code, partnership Articles of Incorporation and other legislations and Generally Recognized Accounting Principles and Standards.

We think that the Balance Sheet attached hereto content of which is adopted by us and which has been drawn up as of 31.12.2008 reflects financial status of the company on the said date, and the Income Statement for the period of 01.01.2008-31.12.2008 represents operating results for the said period, in each case fairly and accurately.

We kindly request you to approve the Balance Sheet and Income Statement and justify the Board of Directors.

Audit Committee

Tayfun Icten Bulent Avcı

eczac · yatırım ve pazarlama a.Ş. 6,187,500 6.19 board of directors annual report prepared...

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