offering memorandum confidential

Transcription

OFFERING MEMORANDUM CONFIDENTIAL
5,032,232,100 Shares
Coca-Cola İçecek A.Ş.
(incorporated in and under the laws of the Republic of Turkey with registered number 265859/213431)
Class C Shares
The selling shareholders named in this offering memorandum are offering 5,032,232,100 Class C Shares, par value
YKr1 each, of Coca-Cola İçecek A.Ş., a joint stock company organized under the laws of the Republic of Turkey. Of the total
number of Class C Shares being offered, (i) 3,421,917,800 Class C Shares are being offered in the United States to qualified
institutional buyers as defined in, and in reliance on, Rule 144A under the U.S. Securities Act of 1933, as amended (the
"Securities Act"), and outside the United States and Turkey to certain persons in offshore transactions in reliance on
Regulation S under the Securities Act and (ii) 1,610,314,300 Class C Shares are being offered in an initial public offering in the
Republic of Turkey. The allocation between the international offering and the Turkish offering is subject to change. Class C
Shares must be purchased in round lots of 100 shares. Certain of the selling shareholders have granted to the underwriters (as
defined in "Plan of Distribution") an option which, due to applicable Turkish law requirements, is exercisable only by İş Yatırım
Menkul Değerler A.Ş. ("İş Investment"), subject to consultation with and the approval of Credit Suisse Securities (Europe)
Limited ("Credit Suisse"), to the extent permitted by applicable laws and regulations, until 30 days after the commencement of
trading of the Class C Shares on the Istanbul Stock Exchange (the "ISE") to purchase up to an aggregate of 753,522,400
additional Class C Shares solely for the purpose of covering over-allotments, if any.
The total number of Class C Shares outstanding represents 47.5% of our total outstanding shares, and the Class C
Shares offered in this offering will represent 20.2% (23.2%, assuming the over-allotment option is exercised in full) of our total
outstanding shares. Holders of the Class C Shares will be entitled to receive dividends paid, if any, for the Class C Shares
declared after the closing date of this offering in respect of the 2006 financial year, and in respect of subsequent years.
Immediately prior to the offering, the selling shareholders owned 48.8% of our outstanding shares, including an
aggregate of 59.6% of the outstanding Class C Shares. Following the completion of the offering and assuming the overallotment option is exercised in full, the selling shareholders will own 25.6% of our outstanding shares, including an aggregate
of 1,277,071,958.5 Class C Shares, representing approximately 10.8% of the outstanding Class C Shares, and Anadolu Efes will
own 51.2% of our outstanding shares. We will not receive any of the proceeds from the offering directly, although we will
receive proceeds indirectly through the sale of shares by our subsidiary CCSD (as defined herein).
No public trading market currently exists for any of our securities. We have applied for listing of the Class C Shares on
the ISE under the symbol "CCOLA." We expect trading to commence on or about May 12, 2006.
Investing in our Class C Shares involves risks. See "Risk Factors" beginning on page 8 for a discussion of factors that
prospective investors should consider before making an investment decision.
The Class C Shares have not been and will not be registered under the Securities Act and may not be offered or sold
within the United States, except to qualified institutional buyers in reliance on the exemption from the registration requirements
of the Securities Act provided by Rule 144A and to certain persons in offshore transactions in reliance on Regulation S.
Prospective purchasers are hereby notified that sellers of the Class C Shares may be relying on the exemption from the
provisions of Section 5 of the Securities Act provided by Rule 144A. For a discussion of certain restrictions on transfers of the
Class C Shares, see "Transfer Restrictions."
Offer Price: YTL7.25 per round lot
The Class C Shares are offered by the underwriters when, as and if delivered to and accepted by the underwriters and
subject to their right to reject orders in whole or in part. The underwriters expect to deliver the Class C Shares through the
facilities of Merkezi Kayıit Kuruluşu A.Ş. (the "Central Registry Institution"), the central depository of the ISE, against payment
in Istanbul, Turkey on or about May 10, 2006.
Global Co-ordinator and Bookrunner
Credit Suisse
Co-Lead Managers
CA IB
Lehman Brothers
Co-Manager
İş Investment
May 5, 2006
In this offering memorandum, "CCI," "we," "our" and "us" refer to Coca-Cola İçecek A.Ş. and its consolidated
subsidiaries, Coca-Cola Satış ve Dağıtım A.Ş. ("CCSD") and Efes Sınai Yatırım Holding A.Ş. ("Efes Invest") (unless the
context otherwise requires). We also use these terms to refer to Coca-Cola İçecek A.Ş. and its subsidiaries prior to the 2002
restructuring described in "Business—History and Recent Developments."
"CC Kazakhstan" refers to J.V. Coca-Cola Almaty Bottlers Limited Liability Partnership, the bottling company in
Kazakhstan. "CC Azerbaijan" refers to Azerbaijan Coca-Cola Bottlers LLC, the bottling company in Azerbaijan. "CC
Kyrgyzstan" refers to Coca-Cola Bishkek Bottlers Closed Joint Stock Company, the bottling company in Kyrgyzstan. "CC
Jordan" refers to The Coca-Cola Bottling Company of Jordan Limited, the bottling company in Jordan.
"The Coca-Cola Company" includes its direct wholly owned subsidiary, The Coca-Cola Export Corporation, and all of
the other direct and indirect wholly owned subsidiaries of The Coca-Cola Company. "Anadolu Efes" includes Anadolu Efes
Biracılık ve Malt Sanayi A.Ş. and all of its direct and indirect subsidiaries, unless the context otherwise requires. "Özgörkey
Holding" refers to Özgörkey Holding A.Ş.
In making an investment decision, you should rely on your own examination of us, the information in this offering
memorandum and the terms of the offering, including the merits and risks involved. See "Risk Factors."
You should rely only on the information contained in this offering memorandum. We have not authorized any person
to give any information or make any representation not contained in this offering memorandum in connection with the offering
and, if given or made, such information or representation must not be relied upon as having been authorized by us, the selling
shareholders or any of the underwriters. No representation or warranty, express or implied, is being made by the selling
shareholders or the underwriters as to the accuracy or completeness of information contained herein, and nothing contained in
this offering memorandum is, or shall be relied upon as, a promise or representation by the selling shareholders or the
underwriters or any of their respective affiliates or advisors as to the past, present or future. You should not assume that the
information contained in this offering memorandum is accurate as of any date other than the date on the front of this offering
memorandum.
This offering memorandum does not constitute an offer to sell or a solicitation of an offer to purchase Class C
Shares by any person in any jurisdiction where it is unlawful to make such an offer or solicitation. The distribution of
this offering memorandum and the offering or sale of the Class C Shares in certain jurisdictions is restricted by law. This
offering memorandum may not be used for, or in connection with, and does not constitute, any offer to, or solicitation by,
anyone in any jurisdiction or under any circumstance in which such offer or solicitation is not authorized or is unlawful.
Persons into whose possession this offering memorandum may come are required by us, the selling shareholders and the
underwriters to inform themselves about and to observe such restrictions. Further information with regard to
restrictions on offers and sales of the Class C Shares and the distribution of this offering memorandum is set out under
"Plan of Distribution" and "Transfer Restrictions."
Prospective investors should not construe anything in this offering memorandum as legal, business or tax
advice. Each prospective investor should consult its own advisors as needed to make its investment decision and to
determine whether it is legally permitted to purchase the securities under applicable investment or similar laws or
regulations. Investors should be aware that they may be required to bear the financial risks of this investment for an
indefinite period of time.
U.S. INTERNAL REVENUE SERVICE CIRCULAR 230 DISCLOSURE
Pursuant to U.S. Internal Revenue Service Circular 230, we hereby inform you that the description set forth
herein with respect to U.S. federal tax issues was not intended or written to be used, and such description cannot be used,
by any taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer under the U.S. Internal
Revenue Code. Such description was written to support the marketing of the Class C Shares. Such description is limited
to the U.S. federal tax issues described herein. It is possible that additional issues may exist that could affect the U.S.
federal tax treatment of the Class C Shares, or the matter that is the subject of the description noted herein, and such
description does not consider or provide any conclusions with respect to any such additional issues. A taxpayer should
seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
Neither we, the selling shareholders nor the underwriters are making any representation to any offeree or purchaser of
the Class C Shares regarding the legality of investment herein by such offeree or purchaser.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED STATES
The Class C Shares have not been approved or disapproved by the U.S. Securities and Exchange Commission,
any state securities commission in the United States or any other U.S. regulatory authority, nor have any of the foregoing
authorities passed upon or endorsed the merits of the offering of the Class C Shares or the accuracy or the adequacy of
this offering memorandum. Any representation to the contrary is a criminal offense in the United States.
NOTICE TO NEW HAMPSHIRE RESIDENTS ONLY
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A LICENSE
HAS BEEN FILED UNDER CHAPTER 421-B OF THE NEW HAMPSHIRE REVISED STATUTES ("RSA") WITH
THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A SECURITY IS EFFECTIVELY REGISTERED OR
A PERSON IS LICENSED IN THE STATE OF NEW HAMPSHIRE CONSTITUTES A FINDING BY THE
SECRETARY OF STATE THAT ANY DOCUMENT FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT
MISLEADING. NEITHER ANY SUCH FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS
AVAILABLE FOR A SECURITY OR TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS
PASSED IN ANY WAY UPON THE MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN
APPROVAL TO, ANY PERSON, SECURITY OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO
BE MADE, TO ANY PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION
INCONSISTENT WITH THE PROVISIONS OF THIS PARAGRAPH.
NOTICE TO PROSPECTIVE INVESTORS IN THE EUROPEAN ECONOMIC AREA
Any offer of securities to the public that may be deemed to be made pursuant to this offering memorandum in any
member state of the European Economic Area (the "EEA") that has implemented Directive 2003/71/EC (together with any
applicable implementing measures in any member state, the "Prospectus Directive") is only addressed to qualified investors in
that member state within the meaning of the Prospectus Directive.
This offering memorandum has been prepared on the basis that all offers of Class C Shares will be made pursuant to an
exemption under the Prospectus Directive, as implemented in member states of the EEA, from the requirement to produce a
prospectus for offers of Class C Shares. Accordingly, any person making or intending to make any offer within the EEA of the
Class C Shares which are the subject of the placement contemplated in this offering memorandum should only do so in
circumstances in which no obligation arises for us, the selling shareholders or any of the underwriters to produce a prospectus
for such offer. None of we, the selling shareholders or any underwriter has authorized, nor does any of them authorize, the
making of any offer of the Class C Shares through any financial intermediary, other than offers made by the underwriters which
constitute the final placement of the Class C Shares contemplated in this offering memorandum.
NOTICE TO PROSPECTIVE INVESTORS IN THE UNITED KINGDOM
This offering memorandum and the offering are only addressed to and directed at persons in Member States of the EEA
who are "qualified investors" within the meaning of Article 2(1)(e) of the Prospectus Directive ("Qualified Investors"). In
addition, in the United Kingdom, this offering memorandum is being distributed only to, and is directed only at, Qualified
Investors (a) who are persons who have professional experience in matters relating to investments falling within Article 19(5) of
the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"), and Qualified
Investors falling within Article 49(2)(a) to (d) of the Order, or (b) who are high net worth entities falling within Article 49 of the
Order, and any other persons to whom it may otherwise lawfully be communicated (all such persons together being referred to
as "relevant persons"). Any investment or investment activity to which this offering memorandum relates is available only to
(i) in the United Kingdom, relevant persons, and (ii) in any member state of the EEA other than the United Kingdom, Qualified
Investors, and will be engaged in only with such persons.
BUYER'S REPRESENTATION
Each person in a Member State of the EEA which has implemented the Prospectus Directive (each, a "Relevant
Member State") will be deemed to have represented, warranted and agreed to and with each underwriter and CCI that:
(a)
it is a qualified investor within the meaning of the law in that Relevant Member State implementing Article 2(1)(e) of
the Prospectus Directive; and
(b)
in the case of any Class C Shares acquired by it as a financial intermediary, as that term is used in Article 3(2) of the
Prospectus Directive, (i) the Class C Shares acquired by it in the offering have not been acquired on behalf of, nor have they
been acquired with a view to their offer or resale to, persons in any Relevant Member State other than qualified investors, as that
term is defined in the Prospectus Directive, or in circumstances in which the prior consent of Credit Suisse has been given to the
offer or resale; or (ii) where Shares have been acquired by it on behalf of persons in any Relevant Member State other than
qualified investors, the offer of those Class C Shares to it is not treated under the Prospectus Directive as having been made to
such persons.
For the purposes of this representation, the expression "offer of Class C Shares to the public" in relation to any Class C
Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the
terms of the offer and any Class C Shares to be offered so as to enable an investor to decide to purchase or subscribe for the
Class C Shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus
Directive in that Relevant Member State.
This offering will be registered with the Turkish Capital Markets Board (the "CMB") under the provisions of Law
No. 2499 of the Republic of Turkey relating to Capital Markets, as amended (the "Capital Markets Law"). Such registration does
not constitute a guarantee by the CMB or any other public authority with respect to us or our securities. Neither this offering
memorandum nor any other offering material related to the international offering of Class C Shares may be used in connection
with any general offering to the public within the Republic of Turkey for the purpose of the sale of Class C Shares without the
prior approval of the CMB.
In connection with this offering, certain of the selling shareholders have granted to the underwriters an over-allotment
option, which, due to applicable Turkish law requirements, is exercisable only upon notice by İş Investment for the period
commencing on the last day of the bookbuilding period for the Turkish offering and ending 30 days after the commencement of
trading of the Class C Shares on the ISE. Pursuant to the over-allotment option, İş Investment, subject to consultation with and
the approval of Credit Suisse, to the extent permitted by applicable laws and regulations, may require these selling shareholders
to sell additional Class C Shares at the offer price solely to cover over-allotments, if any, made in connection with the offering.
Any Class C Shares sold by the selling shareholders pursuant to the exercise of the over-allotment option will be sold on the
same terms and conditions as the Class C Shares being sold in the offering.
In connection with this international offering and the Turkish offering, İş Investment as stabilizing manager
may, subject to consultation with and the approval of Credit Suisse, to the extent permitted by applicable laws and
regulations, engage in transactions with the objective of stabilizing the market price of the Class C Shares. In accordance
with the regulations of the CMB, stabilizing activities may only be carried on for a maximum period of 30 days following
the commencement of trading of the Class C Shares on the ISE and orders can be given only in the case the Class C
Share price falls below the offer price. In connection with such stabilization activities and during the stabilization period,
İş Investment, subject to consultation with and the approval of Credit Suisse, to the extent permitted by applicable laws
and regulations, may stabilize or maintain the price of any Class C Shares by bidding for or purchasing the Class C
Shares in the open market. No representation is made as to the magnitude or effect of any such stabilizing or other
transactions and any such activities or transactions would not constitute a guarantee of any share price. İş Investment is
not obliged to engage in these activities and may under certain circumstances upon notice to the ISE and the CMB,
discontinue these activities at any time. See "Plan of Distribution."
AVAILABLE INFORMATION
For so long as any of our Class C Shares are "restricted securities" within the meaning of Rule 144(a)(3) under the
Securities Act, if at any time we are neither subject to the reporting requirements of Section 13 or 15 of the U.S. Securities
Exchange Act of 1934, as amended (the "Exchange Act"), nor exempt from the reporting requirements of the Exchange Act
pursuant to Rule 12g3-2(b) thereunder, we will provide upon request to the holder or beneficial owner of any Class C Shares and
to each prospective purchaser designated by any such holder or beneficial owner, information required by Rule 144A(d)(4) to
facilitate resale of the Class C Shares pursuant to Rule 144A.
MARKET AND INDUSTRY INFORMATION
This offering memorandum contains historical market data and industry forecasts which have been obtained from
industry publications, market research and other publicly available information.
Unless indicated otherwise, market share data provided in this offering memorandum have been extracted from
information provided by AC Nielsen ("Nielsen"). Nielsen's market research does not include on-premise beverage sales (such as
sales of beverages at restaurants, schools, offices and coffee houses, among others). As a result, we estimate that, of total sales
volumes in Turkey, the Nielsen data covers about 70% of carbonated soft drinks, about 70% of fruit juices and nectars, about
55% of fruit-flavored drinks, about 45% of bottled waters and about 50% of iced teas. With respect to our international
operations, we estimate that, of total sales volumes of carbonated soft drinks, the Nielsen data covers about 65% of the volumes
in nine cities of Kazakhstan (Almaty, Shymkent, Astana, Pavlodar, Ust Kamenogorsk, Karaganda, Aktyubinsk, Aktau and
Atyrau), about 80% of the volumes in Jordan and about 80% of the volumes in three cities of Azerbaijan (Baku, Sumgait and
Ganja).
Unless indicated otherwise, consumption data with respect to Turkey have been extracted from the 2006 annual report
of Canadean Soft Drinks Service ("Canadean") on the alcohol-free beverages industry in Turkey published in April 2006, and
consumption data with respect to Kazakhstan have been extracted from the 2005 annual report of Canadean on the alcohol-free
beverages industry in Kazakhstan published in May 2005. There is no similar independent third party data available to us for
Azerbaijan and Kyrgyzstan. Canadean compiles its information by collecting data from producers in the relevant country.
Therefore, such data may exclude imports into the country (such as imports of fruit juice from Russia into Kazakhstan, which
may be significant) and may also exclude data for small local producers who do not participate in the Canadean surveys because
of the fragmented nature of the markets.
Unless indicated otherwise, consumption data with respect to Jordan have been extracted from the report of IMES
Consulting (MENA) FZ LLC ("IMES") on the non-alcoholic beverages industry in the Middle East published in
September 2005.
We have not independently verified the information in industry publications or market research, although we believe
the information contained therein to be reliable. Neither we, the selling shareholders nor any of the underwriters represent that
this information is accurate.
Certain of the information contained herein under the headings "Risk Factors," "Exchange Rates" and "The Turkish
Securities Market" has been extracted from summaries of information and data publicly released by official sources in the
Republic of Turkey. We have not independently verified this information. References to "SIS" in this offering memorandum are
to periodic news bulletins from the Turkish State Institute of Statistics.
References to the "Economist Intelligence Unit" in this offering memorandum are to The Economist Intelligence Unit,
February 2006.
The information provided from the sources referred to above has been accurately reproduced and, as far as CCI is
aware and has been able to ascertain from information published by such sources, no facts have been omitted which would
render the reproduced information inaccurate or misleading. Where third party information has been used in this offering
memorandum, the source of such information has been identified.
ENFORCEABILITY OF CIVIL JUDGMENTS
CCI is a joint stock company organized under the laws of Turkey. Many of the directors, principal shareholders and
officers of CCI reside outside the United States and all or a significant portion of the assets of such persons may be, and
substantially all of the assets of CCI are, located outside the United States. As a result, it may not be possible for a shareholder to
effect service of process within the United States upon CCI or such persons.
The courts of the Republic of Turkey will not enforce a judgment obtained in a court established in a country other than
the Republic of Turkey unless:
•
there is in effect a treaty between such country and the Republic of Turkey providing for reciprocal enforcement of
court judgments;
•
there is "de facto" enforcement in such country of judgments rendered by Turkish courts; or
•
there is a provision in the laws of such country that provides for the enforcement of judgments of the Turkish
courts.
There is no treaty between Turkey and the United States or the United Kingdom providing for reciprocal enforcement
of judgments. Turkish courts rendered at least one judgment in the past confirming de facto reciprocity between Turkey and the
United Kingdom. However, since de facto reciprocity is decided by the relevant court on a case-by-case basis, there is
uncertainty as to the enforceability of court judgments obtained in the United States or the United Kingdom by Turkish courts in
the future.
In addition, the courts of Turkey will not enforce any judgment obtained in a court established in a country other than
Turkey if:
•
the court rendering the judgment did not have jurisdiction to render such judgment;
•
the defendant was not duly summoned or represented or the defendant's fundamental procedural rights were not
observed;
•
the judgment in question was rendered with respect to a matter within the exclusive jurisdiction of the courts of
Turkey;
•
the judgment is clearly against public policy rules of Turkey;
•
the judgment is not final and binding and with no further recourse for appeal under the laws of the country where
the judgment has been rendered; or
•
the judgment is not of a civil nature.
Moreover, there is doubt as to the ability of a shareholder to bring an original action in Turkey predicated on the U.S.
federal securities laws.
INTELLECTUAL PROPERTY
The trademarks "Bibo," "Bonaqua," "Burn," "Canada Dry," "Cappy," "Coca-Cola," "Coca-Cola Bottle," "Coca-Cola
light," "Coke," "Doğazen," "Fanta," "Fanta Light," "Fanta Bottle," "Fresca," "Frutia," "Piko," "Powerade," "Sen Sun," "Sprite,"
"Sprite Bottle," "Sprite light," "Turkuaz," the Contour Bottle for Coca-Cola and the Dynamic Ribbon Device, including all
transliterations and all related trade dress applications, registrations and copyrights, are owned by The Coca-Cola Company. The
Coca-Cola Company has granted to CCI, CC Kazakhstan, CC Azerbaijan, CC Jordan and CC Kyrgyzstan, as the case may be,
the exclusive right to use the trademarks in the relevant territories. Additionally, pursuant to agreements with various third
parties, from time to time The Coca-Cola Company may acquire for periods of time exclusive licenses to use third party
trademarks, including the right to sublicense the right to use the trademarks in Turkey and other countries. Schweppes Holding
Limited, an indirect wholly owned subsidiary of The Coca-Cola Company, has granted to CCI, CC Kazakhstan and CC Jordan
the exclusive right to use the trademark "Schweppes" in Turkey, Kazakhstan and Jordan. Beverage Partners Worldwide
(Europe) A.G., a subsidiary of a joint venture between The Coca-Cola Company and Nestlé S.A., has granted CCI the exclusive
right to use the trademark "Nestea Ice Tea" in various flavors in Turkey.
PRESENTATION OF FINANCIAL AND OTHER INFORMATION
Financial Statements
We maintain our books of account and prepare our statutory financial statements in accordance with the Turkish
Commercial Code and Turkish tax legislation. We are required to calculate and pay taxes and calculate, declare and pay
dividends by reference to income reported in our statutory financial statements. For fiscal year 2004 only, our statutory financial
statements were required to be adjusted to account for the effects of inflation, but they continued to be prepared on an
unconsolidated basis. In fiscal year 2005, the Turkish Ministry of Finance discontinued the application of inflation accounting to
statutory financial statements.
Our functional currency is the New Turkish Lira. Our audited consolidated financial statements prepared in accordance
with International Financial Reporting Standards ("IFRS") as of and for the years ended December 31, 2003, 2004 and 2005 (the
"IFRS Financial Statements") are included in this offering memorandum.
Unless otherwise indicated, the financial information presented in this offering memorandum is extracted or derived
from the IFRS Financial Statements. IFRS differs in certain significant respects from U.S. GAAP. For a description of certain
significant differences between IFRS and U.S. GAAP, see "Summary of Certain Significant Differences between U.S. GAAP
and IFRS" contained in Annex A to this offering memorandum.
Our IFRS Financial Statements have been restated for the changes in the general purchasing power of the New Turkish
Lira as of December 31, 2005 based on IAS 29, "Financial Reporting in Hyperinflationary Economies." IAS 29 requires that
financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current at
the date of the most recently presented balance sheet, which for the purposes of this document is December 31, 2005, and that
corresponding figures for previous periods be restated in the same terms. The restatement was calculated by means of
conversion factors derived from the Turkish countrywide wholesale price index published by the SIS. See Note 2 to our IFRS
Financial Statements. Effective from January 1, 2006, IAS 29 will no longer be applied in our financial statements prepared in
accordance with IFRS.
The CMB requires that all public companies in Turkey prepare financial statements in accordance with the accounting
principles of the CMB ("CMB Principles"), which are identical to IFRS accounting principles except that, as declared by the
CMB effective from January 1, 2005, IAS 29 is not applied and the presentation of the financial statements and notes is made
based on CMB reporting requirements. In connection with the Turkish offering and in accordance with CMB requirements, we
have made public our audited financial statements as of and for the years ended December 31, 2003, 2004 and 2005 and
prepared in accordance with CMB Principles (the "CMB Financial Statements"). These CMB Financial Statements are not
contained in this offering memorandum. To receive a copy of the CMB Financial Statements, please contact CCI Investor
Relations (telephone: +90 216 528 4000; e-mail: [email protected]). In 2007, we may determine to use CMB Principles as our sole
basis for reporting and we may discontinue reporting in accordance with IFRS, as the differences between the two sets of
accounting principles have become less significant.
We acquired Efes Invest on November 14, 2005. Efes Invest acquired CC Jordan on December 29, 2005. Our
consolidated balance sheet as of December 31, 2005 reflects these acquisitions. Our consolidated income statement for the year
ended December 31, 2005 reflects the acquisition of Efes Invest from November 15, 2005.
For the information of the reader, we have included in this offering memorandum separate financial information
relating to Efes Invest. The audited consolidated financial statements of Efes Invest as of and for the years ended December 31,
2004 and 2005 and as of and for the years ended December 31, 2003 and 2004, prepared in accordance with IFRS, are included
in this offering memorandum. We have not participated in the preparation of that financial information and we make no
representation regarding the accuracy or the completeness of that information.
Pro Forma Financial Information
For the information of the reader, this offering memorandum contains unaudited pro forma consolidated financial
information illustrating the effect of (i) the acquisition by CCI of 87.63% of Efes Invest; and (ii) the incurrence of debt in
connection with such acquisition, as if such transactions had occurred on January 1, 2005. See "Unaudited Pro Forma
Consolidated Financial Information." Information that is provided on a "pro forma basis" in this offering memorandum reflects
these transactions and does not reflect the acquisition of CC Jordan, unless otherwise stated.
Currencies and Convenience Translations
Pursuant to Law No. 5083 on the Currency of the Republic of Turkey, with effect from January 1, 2005, the currency
of Turkey was redenominated, with one million Turkish Lira being converted into a new unit of currency known as the "New
Turkish Lira." The smallest unit of currency is now the "New Kuruş," which represents one-hundredth of a New Turkish Lira. In
this offering memorandum, references to "New Turkish Lira," "Lira," "YTL," "Yeni Kuruş" and "Ykr" are to the redenominated
currency of Turkey. References to "U.S. dollars," "dollars," and "$" are to United States dollars. References to "euro," "EUR"
and "€" are to the lawful single currency of the member states of the European Communities that adopt or have adopted the euro
as their currency in accordance with the legislation of the European Union relating to European Monetary Union. References to
"Jordanian dinar" or "JD" are to the currency of Jordan. References to "Turkey" or the "Republic" are to the Republic of Turkey
and references to the "Government" are to the Government of Turkey. Discrepancies between the amounts listed and the totals
thereof in the tables included herein may appear due to rounding.
For the convenience of the reader, this offering memorandum presents translations of certain U.S. dollar amounts into
New Turkish Lira at the official New Turkish Lira bid rate announced by the Central Bank of the Republic of Turkey (the
"Central Bank exchange rate"). These translations are for convenience only and are not intended to comply with the Financial
Accounting Standards Board's Statement of Financial Accounting Standard (SFAS) No. 52, Foreign Currency Translation, as
applied to financial statements of entities in highly inflationary economies. The Federal Reserve Bank of New York does not
report a noon buying rate for New Turkish Lira. Unless otherwise indicated, the Central Bank exchange rate used in this offering
memorandum is YTL1.3418 = $1.00, the exchange rate on December 31, 2005. Convenience translations of historical financial
information in this offering memorandum have been provided using the following exchange rates:
As of or for the year ended December 31,
YTL/U.S. Dollar
2003
2004
2005
1.3958
1.3421
1.3418
The Central Bank exchange rate in effect on May 4, 2006 was YTL1.3104 = $1.00.
We do not make any representation that the New Turkish Lira or U.S. dollar amounts in this offering memorandum
have been, could have been or could be converted into U.S. dollars or New Turkish Lira, as the case may be, at any particular
rate or at all. You should read "Exchange Rates" for historical information regarding the exchange rates between the New
Turkish Lira and the U.S. dollar. For a discussion of the effects on us of fluctuating exchange rates, see "Risk Factors—Risks
Relating to Our Business and the Alcohol-Free Beverages Industry—Fluctuations in exchange rates may adversely affect the
results of our operations and financial condition" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Principal Factors Affecting Our Results of Operations—Exchange Rates."
Sales Volume
Unless otherwise specified, sales volume is measured in terms of unit cases sold. A unit case equals 5.678 liters or 24
servings of 8 U.S. fluid ounces each. The unit case is the typical volume measure used in our industry.
FORWARD-LOOKING STATEMENTS
This offering memorandum contains forward-looking statements, including but not limited to:
•
expectations about the adequacy of our cash balances and cash flow from operations to support our operations for
specified periods of time;
•
estimates of how we intend to use the net proceeds to CCSD from this offering;
•
expectations regarding our ability to take advantage of market opportunities and implement our strategy;
•
estimates of the impact of currency exchange rates on our operating results;
•
expectations as to the adequacy of our production facilities and future certifications by third parties;
•
expectations regarding the performance of the Turkish economy;
•
expectations regarding the integration and future performance of recently acquired businesses;
•
the nature and level of proposed capital expenditures; and
•
expectations regarding our financial performance for future periods.
These statements may be found in "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business" and elsewhere in this offering memorandum. Forward-looking statements
generally can be identified by the use of forward-looking terminology such as "may," "will," "expect," "intend," "estimate,"
"anticipate," "plan," "target," or "believe."
The forward-looking statements contained in this offering memorandum are based on the beliefs of management, as
well as the assumptions made by and information currently available to management. Although we believe that the expectations
reflected in such forward-looking statements are reasonable at this time, we can give no assurance that such expectations will
prove to be correct. Given these uncertainties, you are cautioned not to place undue reliance on such forward-looking statements.
Important factors that could cause actual results to differ materially from our expectations include, without limitation: changes in
our relationship with The Coca-Cola Company and its exercise of its rights under our bottler's agreements; our ability to
maintain and improve our competitive position in our markets; our ability to obtain raw materials and packaging materials at
reasonable prices; changes in our relationship with our significant shareholders; the level of demand for our products in our
markets; fluctuations in the value of the New Turkish Lira or the level of inflation in Turkey; other changes in the political or
economic environment in Turkey or our other markets; adverse weather conditions during the summer months; changes in the
level of tourism in Turkey; our ability to successfully implement our strategy; and the other factors identified in "Risk Factors."
Should any of these risks and uncertainties materialize, or should any of our underlying assumptions prove to be incorrect, our
actual results of operations or financial condition could differ materially from that described herein as anticipated, believed,
estimated or expected.
All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their
entirety by reference to these cautionary statements. We do not intend and we do not assume any obligation to update
any forward-looking statement contained in this offering memorandum.
TABLE OF CONTENTS
Page
OFFERING MEMORANDUM SUMMARY .......................................................................................................................................
RISK FACTORS ............................................................................................................................................................................
THE SELLING SHAREHOLDERS ...................................................................................................................................................
USE OF PROCEEDS ......................................................................................................................................................................
DIVIDENDS AND DIVIDEND POLICY ...........................................................................................................................................
EXCHANGE RATES ......................................................................................................................................................................
CAPITALIZATION ........................................................................................................................................................................
SELECTED CCI CONSOLIDATED FINANCIAL AND OPERATING DATA ........................................................................................
1
8
21
21
22
24
26
27
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION ......................................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ..............................
BUSINESS ....................................................................................................................................................................................
MANAGEMENT............................................................................................................................................................................
PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS .........................................................................................
DESCRIPTION OF THE SHARE CAPITAL .......................................................................................................................................
THE TURKISH SECURITIES MARKET...........................................................................................................................................
FOREIGN INVESTMENT AND EXCHANGE CONTROLS..................................................................................................................
TAXATION...................................................................................................................................................................................
PLAN OF DISTRIBUTION ..............................................................................................................................................................
TRANSFER RESTRICTIONS ..........................................................................................................................................................
INDEPENDENT AUDITORS ...........................................................................................................................................................
LEGAL MATTERS ........................................................................................................................................................................
INDEX TO FINANCIAL STATEMENTS ...........................................................................................................................................
ANNEX A: SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN U.S. GAAP AND IFRS .........................................
30
32
56
95
101
110
119
124
125
133
136
138
138
F-1
A-1
OFFERING MEMORANDUM SUMMARY
This summary highlights certain aspects of our business and the offering and may not contain all of the information
that is important to you. You should read the entire offering memorandum, including the consolidated financial statements and
related notes, before making any decision to invest in the Class C Shares.
In this offering memorandum, unless the context otherwise requires, the terms "we," "us," "our" and other similar
terms refer to the consolidated business of CCI and its subsidiaries. You should carefully consider the information set forth
under the headings "Risk Factors" and "Forward-Looking Statements."
Overview
We are a leading bottler and distributor of carbonated soft drinks ("CSDs") and noncarbonated beverages ("NCBs")
with operations in Southern Eurasia (which we define as Turkey, the Caucasus and Central Asia) and the Middle East. Our
business consists of producing, selling and distributing alcohol-free beverages, primarily brands of The Coca-Cola Company, in
Turkey, Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan. We also have a 28.9% interest in the Coca-Cola bottler in
Turkmenistan. Coca-Cola is one of the world's most recognized trademarks and is the leading brand in the world. (Source:
Interbrand 2005).
We expanded our bottling operations beyond Turkey with the acquisition of an 87.63% interest in Efes Invest and the
acquisition of a 90.0% interest in CC Jordan in the fourth quarter of 2005. In addition, as a result of the acquisition of Efes
Invest, we are party to a joint venture that has the exclusive distribution rights for brands of The Coca-Cola Company in Iraq and
has the option to become the sole Coca-Cola bottler in Iraq. See "Business—History and Recent Developments."
We offer a wide range of beverages, including CSDs as well as an expanding selection of NCBs (a category that
includes juices, waters, sports drinks, energy drinks, iced tea and iced coffee) in selected markets. The core brands that we sell in
all of our markets are Coca-Cola, Coca-Cola light, Fanta and Sprite. We also distribute beer in Kazakhstan and Kyrgyzstan
pursuant to an agreement with a subsidiary of Anadolu Efes and based on a written consent by The Coca-Cola Company.
Although CSDs continue to represent a high proportion of our sales volume, our NCB sales have grown as we continue to
expand our offering. In 2003, 2004 and 2005, CSDs represented 84.2%, 85.1% and 85.2%, respectively, NCBs represented
15.0%, 14.2% and 14.0%, respectively, and beer represented 0.8%, 0.7% and 0.8%, respectively, of our total unit case sales
volume on a pro forma basis.
We believe that we have established an international reputation as a world-class bottler, through our advanced use of
information technology, high-quality production facilities, pioneering e-learning initiatives and innovative asset refurbishment
efforts. All five of our plants in Turkey, as well as four of our plants in Kazakhstan, Azerbaijan, Kyrgyzstan and Jordan, were
among only 220 of approximately 1,100 bottling facilities within the Coca-Cola system worldwide to have secured The CocaCola Company's own quality approval as of December 31, 2005.
We believe that The Coca-Cola Company attaches substantial importance to its presence in Southern Eurasia and the
Middle East because of the significant growth opportunities in these markets. In 2005, Turkey alone was the fourth largest
market in Europe for products of The Coca-Cola Company and the thirteenth largest market for products of The Coca-Cola
Company in the world in terms of sales volumes. Together with The Coca-Cola Company, we intend to continue exploring new
growth opportunities by introducing new products and packages into our markets as consumer preferences develop and change.
In 2005, on a consolidated basis, we sold 317.6 million unit cases of CSDs and NCBs (including 5.6 million unit cases
sold by Efes Invest from November 15, 2005), resulting in net sales of YTL1,190.4 million, net income of YTL79.6 million and
EBITDA of YTL193.5 million. For a description of how we calculate EBITDA, see "Selected CCI Consolidated Financial and
Operating Data."
In 2005, on a pro forma basis, we sold 361.3 million unit cases of CSDs and NCBs in all of our markets, resulting in
net sales of YTL1,330.1 million, net income of YTL90.4 million and EBITDA of YTL223.3 million. See "Unaudited Pro Forma
Consolidated Financial Information."
Key Strengths and Strategy
Our vision is to become one of the leading bottlers of alcohol-free beverages in the world operating in the culturally
diverse geography of Southern Eurasia and the Middle East. We believe there are strong opportunities to further grow our
business in the coming years through: (i) significant potential to increase the CSD consumption per capita and to expand our
NCB business in our existing territories; (ii) opportunity to expand geographically in our region capitalizing on the financial and
human resources of our new enlarged company, subject to the approval of The Coca-Cola Company; and (iii) a management
team with extensive experience of managing turn-around situations and start-up operations in emerging markets.
Key Strengths
•
Attractive growth markets
•
Strong growth opportunities
•
Category leadership
•
World leading brand portfolio
•
Creating value through alignment with The Coca-Cola Company
•
Advanced systems and infrastructure
•
Solid financial track record
•
Proven management team
Strategy
Our vision is to be one of the leading bottlers of alcohol-free beverages in Southern Eurasia and the Middle East.
We intend to achieve this by pursuing a strategy with three key elements: (i) driving sustainable and profitable growth
and enhancing our competitive position in our markets; (ii) leveraging our key capabilities and best practices (including
procurement, production, supply chain, sales, distribution and IT) throughout the combined operations and (iii) expanding into
new territories, subject to the approval of The Coca-Cola Company.
We will seek to implement our strategy by:
•
continuing to increase alcohol-free beverage consumption through:
•
delivering best-in-class execution of product availability and attractiveness at the point of sale;
•
introducing new brands, flavors and packages for both CSD and selected NCB categories;
•
expanding cold drink availability; and
•
developing customer and point-of-sales marketing activities.
•
focusing on revenue and profit growth by promoting higher-margin brands and packages;
•
rolling out advanced channel-focused sales and distribution systems to our international markets where applicable;
•
refining our business models to restructure acquired operations;
•
maintaining a competitive edge in information systems; and
•
continuing to build employee excellence through attracting, developing and retaining highly skilled people and
focusing on ongoing training and education.
Business Segments
Our operations are divided into two business segments, (i) operations in Turkey and (ii) international operations. These
operations are supported by centralized functions at our headquarters in Istanbul. On a pro forma basis, our operations in Turkey
accounted for YTL1,171.4 million (88.1% of total net sales) in 2005, and 86.4% of total unit case sales volume in 2005. See
"Unaudited Pro Forma Consolidated Financial Information."
Risk Factors
Prior to investing in the Class C Shares, prospective investors should carefully consider the information set forth under
the headings "Risk Factors" and "Forward-Looking Statements," as well as the other information in this offering memorandum,
including in the IFRS Financial Statements and related notes.
The Offering
The International Offering....................... 3,421,917,800 Class C Shares are being offered in the international offering. The
Class C Shares are being offered and sold (i) in the United States only to qualified
institutional buyers ("QIBs") in reliance on Rule 144A, and (ii) outside the United
States and Turkey to certain persons in offshore transactions in reliance on
Regulation S.
The Turkish Offering ............................... 1,610,314,300 Class C Shares are being offered in the Turkish offering. The Turkish
offering will be open from May 3 to May 5, 2006 (inclusive) and the Class C Shares
offered are being offered and sold on an underwritten basis by a syndicate of Turkish
financial institutions. The allocation between the international offering and the
Turkish offering is subject to change. See "Plan of Distribution."
The Selling Shareholders......................... The Coca-Cola Company, Özgörkey Holding and our subsidiary CCSD are offering
a total of 5,032,232,100 Class C Shares. See "The Selling Shareholders."
Shares Outstanding .................................. Our outstanding share capital is separated into Class A Shares, Class B Shares and
Class C Shares, with each share in each class having a nominal value of Ykr1.
As of the date of this offering memorandum, we have 24,958,977,000 shares
outstanding, including an aggregate of 11,847,547,136.9 Class C Shares, representing
47.5% of our total outstanding shares.
Anadolu Efes beneficially owns all of our outstanding Class A Shares and
4,783,535,809.7 Class C Shares, representing 51.2% of our total outstanding shares.
The Coca-Cola Company beneficially owns all of our outstanding Class B Shares
and 3,840,000,000 Class C Shares representing 35.9% of our total outstanding shares.
Our outstanding Class C Shares are beneficially owned by The Coca-Cola Company,
Özgörkey Holding and CCSD and certain other shareholders, including Anadolu
Efes. For more detailed information, see "Principal Shareholders and Related Party
Transactions."
Before and after the offering, we will have 24,958,977,000 shares outstanding,
including an aggregate of 11,847,547,136.9 Class C Shares, representing 47.5% of
our total outstanding shares.
Over-Allotment Option............................ The Coca-Cola Company and Özgörkey Holding have granted to the underwriters an
over-allotment option, which, due to applicable Turkish law requirements, is
exercisable only upon notice by İş Investment for the period commencing on the last
day of the bookbuilding period for the Turkish offering and ending 30 days after the
commencement of trading of the Class C Shares on the ISE. Pursuant to the
over-allotment option, İş Investment, subject to consultation with and the approval of
Credit Suisse, to the extent permitted by applicable laws and regulations, may require
these selling shareholders to sell up to an additional 753,522,400 Class C Shares at
the offer price solely to cover over-allotments, if any, made in connection with the
offering. See "Plan of Distribution."
Offer Price................................................ YTL7.25 per round lot of 100 Class C Shares. Class C Shares must be purchased in
round lots.
Use of Proceeds........................................ We will not receive any proceeds from the offering directly. We expect our
subsidiary, CCSD, to receive approximately YTL87.1 million in net proceeds, after
deducting underwriting discounts and commissions and CCSD's pro rata share of the
estimated operating expenses. We intend to use these proceeds principally for capital
expenditures in 2006 and, to the extent proceeds are not required for such purpose,
for the prepayment of a portion of the amount outstanding under a $55 million credit
facility under which CCSD is the borrower. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations—Future Liquidity,
Financing Arrangements and Commitments—Borrowings and Capital Funding."
Lock-up Agreements ............................... We and certain of our shareholders have agreed, subject to certain exceptions, not to
offer or sell any shares of CCI, or securities convertible or exchangeable into shares
of CCI, other than pursuant to this offering for a period of 180 days following the
date of this offering memorandum without the consent of Credit Suisse. See "Plan of
Distribution."
Transfer Restrictions................................ The Class C Shares will be subject to certain restrictions on transfer as described
under "Transfer Restrictions."
Disclosure of Beneficial Interests in
Shareholders becoming direct or indirect holders of 5%, 10%, 15%, 20%, 25%, 33
Shares .................................................... 1⁄3%, 50%, 66 2⁄3% or 75% or more of the issued share capital or voting rights of a
public company in Turkey are required to notify the CMB, the ISE and the public
company of such acquisition and, thereafter, to notify the ISE and the public
company of their transactions in the shares or voting rights of such public company
when the total number of the shares or voting rights traded falls below or exceeds
such thresholds. The names, domiciles and the number of shares or voting rights
purchased by such persons must be included in a notice sent to the CMB and the ISE,
and the identity of such persons is publicly disclosed in Turkey by the ISE. Although
CMB regulations require that investors who purchase 5% or more of the shares in a
public offering be disclosed to the CMB and the ISE by the underwriters, as a matter
of market practice, the underwriters will disclose the following information regarding
all investors to the CMB and the ISE: (i) name, (ii) field of activity, (iii) nationality,
and (iv) whether the investor has purchased the Class C Shares on behalf of a client.
See "Description of the Share Capital— Disclosure of Beneficial Interests in Shares."
Dividends ................................................. Holders of the Class C Shares will be entitled to receive dividends paid, if any, for
the Class C Shares declared after the closing date of this offering in respect of the
2006 financial year, and in respect of subsequent years. We cannot assure you that in
any given year a dividend will be declared at all. See "Dividends and Dividend
Policy," "Description of the Share Capital—Dividend Distribution and Allocation of
Profits" and "Taxation."
Voting Rights ........................................... Holders of Class C Shares are entitled to one vote per Class C Share. Out of the ten
members of our board of directors, six will be nominated by the holders of Class A
Shares, three will be nominated by the holders of Class B Shares and the remaining
director will be elected from among the persons nominated by any shareholder. The
directors representing the Class A Shares will nominate and the board will appoint
the managing director, subject to the approval of at least two directors representing
the holders of Class B Shares. See "Description of the Share Capital—Voting
Rights," "—Board of Directors" and "—Managing Director."
Proposed Listing and Trading.................. We have applied to the ISE for listing under the symbol "CCOLA." Prior to this
offering, there has been no public market for any class of our securities. Trading of
the Class C Shares on the ISE is expected to commence on or about May 12, 2006.
Settlement Procedures.............................. Payment for the Class C Shares is expected to be in New Turkish Lira in same-day
funds. If you do not maintain a custody account in Turkey, you are required to open a
custody account with a recognized Turkish depositary in order to make payments of
New Turkish Lira and receive Class C Shares. You must provide details of such
custody accounts to Credit Suisse no later than May 5, 2006. The Class C Shares will
be delivered to your Turkish custody account on or about the closing date, subject to
timely provision of account details.
Identification Number.............................. ISIN: TRECOLA00011
Risk Factors.............................................. You should read "Risk Factors" for a discussion of factors that you should consider
carefully before deciding to invest in our Class C Shares.
Our address is Esenşehir Mah., Erzincan Caddesi No: 36, 34776 Ümraniye, Istanbul, Turkey. Our telephone number is
+90 216 528 4000.
Summary CCI Consolidated Financial and Operating Data
The following table presents the summary consolidated financial data of CCI as of and for the years ended
December 31, 2003, 2004 and 2005.
The consolidated statements of income data and the consolidated statements of cash flows data for the years ended
December 31, 2003, 2004 and 2005, as well as the consolidated balance sheet data as of December 31, 2003 and 2004, have
been extracted from our IFRS Financial Statements that are included elsewhere in this offering memorandum.
We define EBITDA as profit from operations plus depreciation and amortization (included in cost of sales, distribution,
selling and marketing expenses and general and administration expenses), impairment loss on property, plant and equipment,
retirement and vacation pay and gain (loss) on disposal of fixed assets. EBITDA serves as an additional indicator of our
operating performance and not as a replacement for measures such as cash flows from operating activities and profit from
operations as defined and required under IFRS. We believe that EBITDA is useful to investors as a measure of operating
performance because it reflects our underlying operating cash costs. In addition, we believe EBITDA is a measure commonly
used by analysts and investors in our industry. Accordingly, we have disclosed this information to permit a more complete
analysis of our operating performance. EBITDA, as we calculate it, may not be comparable to similarly titled measures reported
by other companies.
You should read the following information in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the IFRS Financial Statements and the related notes included elsewhere in this
offering memorandum.
Year Ended December 31,
2005
2004
2003
(audited)
(in thousands of YTL, except unit case sales volume and
share data)
Summary Income Statement Data:
Net Sales........................................................................................
Gross Profit ...................................................................................
Operating income..........................................................................
Net income ....................................................................................
Other Operating Data:
Unit case sales volume (in thousands) (unaudited)......................
EBITDA (unaudited) ....................................................................
Reconciliation of Profit from Operations to EBITDA:
Profit from operations...................................................................
Depreciation and amortization......................................................
Retirement and vacation pay ........................................................
Impairment loss on property, plant and equipment......................
Gain (loss) on disposal of fixed assets .........................................
EBITDA (unaudited) ....................................................................
Share and Per Share Data:
Weighted average ordinary shares outstanding............................
Basic and diluted net income per weighted average ordinary
share ...........................................................................................
Cash dividends declared per ordinary share.................................
Summary Cash Flow Data:
Net cash provided by operating activities ....................................
Net cash provided by (used in) investing activities .....................
Net cash (used in) provided by financing activities .....................
1,190,399
368,412
116,622
78,880
1,079,356
295,446
74,446
23,699
923,732
260,032
53,577
115,022
317,590
193,464
275,422
148,253
222,075
145,521
116,622
72,670
3,332
3,111
(2,271)
193,464
74,446
72,884
4,006
2,330
(5,413)
148,253
53,577
75,231
7,800
10,915
(2,002)
145,521
22,649,439,955
22,368,152,900
22,368,152,900
0.0034
0.0032
0.0011
0.0018
0.0051
0.0008
146,105
(421,777)
284,733
70,076
10,936
(120,181)
143,371
(88,301)
(130,758)
2005
Summary Balance Sheet Data:
Assets:
Cash and cash equivalents ............................................................
44,136
As of December 31,
2004
(audited)
(in thousands of YTL)
45,764
2003
61,108
Trade accounts receivable, net......................................................
Inventories, net..............................................................................
Property, plant and equipment, net...............................................
Intangible assets ............................................................................
Total assets ....................................................................................
Liabilities:
Short-term borrowings..................................................................
Trade accounts payable.................................................................
Amounts due to related parties .....................................................
Long-term debt, less current portion ............................................
Employee benefit obligation.........................................................
Total liabilities ..............................................................................
Shareholders' Equity:
Total shareholders' equity .............................................................
Minority interest............................................................................
Total liabilities, minority interest and shareholders' equity .........
121,424
103,985
613,753
286,562
1,234,196
88,516
90,570
481,084
2,495
741,038
78,754
97,252
518,437
4,127
838,889
320,498
45,855
32,739
8,722
17,153
500,850
49,506
24,270
30,828
10,874
14,440
198,337
118,557
24,916
25,419
30,632
13,528
280,771
678,999
54,347
1,234,196
542,701
—
741,038
558,118
—
838,889
RISK FACTORS
Prior to making an investment decision, you should carefully consider the risks and uncertainties described below,
which are those that we currently believe may materially affect our company and any investment you make in our company. If
any of these events occur, the trading price of our Class C Shares could decline. Additional risks and uncertainties that do not
currently exist or of which we are unaware may also become important factors that could adversely affect our company and
your investment.
You should also refer to the other information included in this offering memorandum, including our consolidated
financial statements and the notes thereto. For additional information, see "Exchange Rates," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business" and "The Turkish Securities Market."
Risks Relating to Our Relationship with The Coca-Cola Company
If The Coca-Cola Company is unwilling to renew our bottler's agreements or exercises its right to terminate the bottler's
agreements, our business will be adversely affected.
We have bottler's agreements with The Coca-Cola Company and The Coca-Cola Export Corporation under which we
produce, sell and distribute The Coca-Cola Company's trademarked beverages in Turkey, Kazakhstan, Azerbaijan, Jordan and
Kyrgyzstan. Each agreement includes limitations on our ability to market competing brands not owned by The Coca-Cola
Company without its consent. These agreements are fundamental to our business. The trademarked beverages of The Coca-Cola
Company represented 99.2% of our total sales volume in Turkey in the last three fiscal years, and represented 91.1% of the total
sales volume of Efes Invest in the last three fiscal years. Accordingly, our business depends on the willingness of The Coca-Cola
Company to continue to renew the bottler's agreement when it expires. In addition, our business results could be adversely
affected if the terms on which the bottler's agreements are renewed in the future are not at least as favorable to us as the current
terms.
The Coca-Cola Company has a unilateral right to terminate the bottler's agreements upon the occurrence of certain
events described in the bottler's agreements, which would also automatically terminate our distribution rights. In addition, The
Coca-Cola Company has the unilateral right to terminate the distribution agreement relating to our Turkish operations for any
reason upon three months' written notice. See "Principal Shareholders and Related Party Transactions—Our Relationship with
The Coca-Cola Company." If The Coca-Cola Company exercises its right to terminate our agreements upon the occurrence of
any of those events, or, upon expiration of the term of any of the bottler's agreements or the distribution agreement for our
Turkish operations, either is unwilling to renew these agreements or imposes terms less favorable to us than those that are
currently in place, this will have a material adverse effect on our business, operating results and financial condition.
The Coca-Cola Company has various rights under the bottler's agreements that, if exercised, could adversely affect our
results or our ability to grow.
The purchase of concentrate from The Coca-Cola Company or its authorized suppliers represents our most significant
raw materials cost, amounting to 40.3%, 40.2% and 39.5% of the total cost of raw materials for our Turkish operations in 2003,
2004 and 2005, respectively, and 32.0%, 30.0% and 28.0% of the total cost of raw materials for Efes Invest in 2003, 2004 and
2005, respectively.
Our purchases of concentrate are governed by our bottler's agreements with The Coca-Cola Company and The CocaCola Export Corporation. Under the bottler's agreements, The Coca-Cola Company determines the price we pay for concentrate
at its sole discretion. This right gives The Coca-Cola Company considerable influence over our profit margins and results of
operations. Historically, The Coca-Cola Company has determined concentrate prices for our Turkish operations after discussions
with us in order to reflect local trading conditions. Since 2002, The Coca-Cola Company has determined concentrate prices for
most of our CSDs in Turkey by reference to a percentage of our U.S. dollar net sales as calculated in accordance with U.S.
GAAP, which has had the effect of hedging these concentrate prices against possible devaluations of the New Turkish Lira.
With respect to our international operations, The Coca-Cola Company sets a fixed price in U.S. dollars for concentrate which
normally stays in place for one calendar year, and prices are subject to annual review by The Coca-Cola Company at the end of
each year. We cannot offer any assurance that The Coca-Cola Company will choose to continue these practices of determining
concentrate prices for our markets in the future, nor can we offer any assurance that The Coca-Cola Company's objective with
respect to sales of concentrate will always be consistent with our financial goals. In addition, under the bottler's agreements
relating to our international operations, The Coca-Cola Company has the right to set the maximum price we may charge to our
customers. It is possible that The Coca-Cola Company could exercise its rights under the bottler's agreements in a manner that
would make it difficult for us to achieve our objective of profitable volume growth and therefore have an adverse effect on our
business, operating results and financial condition.
Pursuant to the bottler's agreements, we are required to submit a business plan to The Coca-Cola Company for prior
approval on an annual basis. The Coca-Cola Company may terminate our rights to produce, sell and distribute brands of The
Coca-Cola Company in any of the countries in which we operate if our business plan is not approved.
In addition, any acquisition by us of other Coca-Cola bottlers in different countries may require, among other things,
the consent of The Coca-Cola Company. We cannot offer any assurance that The Coca-Cola Company will provide its consent
to any future geographic or other expansion of our business, whether or not such expansion involves other Coca-Cola bottlers.
The bottler's agreements afford The Coca-Cola Company other rights that can affect our business. See "Principal
Shareholders and Related Party Transactions—Our Relationship with The Coca-Cola Company."
If The Coca-Cola Company decides to reduce the amount of brand promotion it provides, our business could be adversely
affected.
As the owner of the Coca-Cola beverage trademarks, The Coca-Cola Company has the primary responsibility for
consumer marketing and brand promotion. The successful growth of our existing products depends on The Coca-Cola
Company's consumer marketing activities, including the financial contributions that The Coca-Cola Company makes to our
annual promotional and marketing plan. The Coca-Cola Company is under no obligation to make such contributions or to
maintain historical levels of funding in the future. In addition, our ability to expand our product range would depend on The
Coca-Cola Company's product expansion strategy. A reduction in marketing efforts by The Coca-Cola Company, in its
contribution to our annual marketing plan or in its commitment to the development or acquisition of new products could lead to
decreased consumption of trademarked beverages of The Coca-Cola Company in the countries in which we operate and could
have a material adverse effect on our business, operating results and financial condition. See "Principal Shareholders and Related
Party Transactions—Our Relationship with The Coca-Cola Company."
If The Coca-Cola Company fails to adequately protect its trademarks in the countries in which we operate, our business will
suffer.
The Coca-Cola Company owns or licenses the trademarks of all its products that we produce, sell and distribute, and it
has the responsibility for protecting its trademarks in the countries in which we operate. All the trademarks owned or licensed by
The Coca-Cola Company that are in use in Turkey, Kazakhstan, Azerbaijan, Kyrgyzstan and Jordan (and many others not
currently in use) are either registered with the respective trademark offices of such countries, or are the subject of a pending
application in the name of The Coca-Cola Company. See "Business—Regulation—Intellectual Property." If The Coca-Cola
Company fails to protect its trademarks against infringement or misappropriation, the competitive position of the brands of The
Coca-Cola Company could suffer and a decrease in the volume of products we sell could result, which would materially affect
our results of operations.
Risks Relating to Our Business and the Alcohol-Free Beverages Industry
If we fail to manage our growth and integrate our acquired businesses effectively, our business and financial results could be
adversely affected.
Our acquisition of a controlling interest in Efes Invest increased our size and geographic scope, and we must devote
significant management time and financial resources to integrate and manage the expanded business. In order to manage the
day-to-day operations of our expanded business, we must overcome cultural and language barriers and assimilate different
business practices. Although our business in each of our markets consists of producing, selling and distributing primarily brands
of The Coca-Cola Company, each country in which we operate presents specific challenges and is in a different stage of
economic and technological development. For example, although we plan to extend the sales, marketing and distribution
systems we have developed through the use of advanced information technology in our Turkish operations, this may not be
achievable in our newly acquired operations due to the lack of infrastructure in the countries. The use of different information
technology systems in our business segments may make our financial reporting and consolidation activities more challenging in
the near term. Furthermore, we recently acquired the Coca-Cola bottling operations in Jordan, which have been underperforming
in recent years. Although we believe that our strategy for Jordan will result in improved results in that country, there can be no
assurance that these efforts will be successful.
Part of our strategy is to continue to examine opportunities for future geographic growth, particularly in the Middle
East. Any expansion into other territories would require the approval of The Coca-Cola Company, and in most cases would
require the purchase of existing franchised bottlers at fair value. Operating a bottling company is a capital intensive business,
and investing in expansion into emerging markets may require us to make substantial capacity investments based on our
expectations of future volume growth. This would reduce our return on capital in the short term, and the expected volume in
such markets may not materialize as we expect.
We believe that we will be successful in managing our growth and integrating our business practices, systems and
control. However, there can be no assurance that we will be able to integrate the acquired businesses at the initially planned cost
or at all, or that we will achieve the synergies we expect, and failure to do so due to any of the foregoing risks, or for any other
reason, could have a material adverse effect on our liquidity, financial condition and results of operations.
If we fail to maintain our competitive position, our financial results could suffer.
The alcohol-free beverages market is highly competitive in the countries in which we operate. We compete with,
among others, bottlers of other international or domestic brands of alcohol-free beverages. A change in the number of
competitors or an increase in the level of marketing or investments undertaken by our current competitors may cause a reduction
in the consumption of our products and may reduce our market share, or we may be required to make increased marketing
expenditures to remain competitive. In Turkey, we also face increasing competition from private label brands owned by large
retail groups.
In addition to facing increased competition from new entrants and from increased marketing spending by our
competitors, we face price competition. Typically, other premium beverage manufacturers in our markets match the pricing of
our products. If these competitors successfully change their pricing strategies, however, our ability to raise our prices would be
restricted, which could result in lower margins and income. Furthermore, in Kazakhstan, Azerbaijan and Kyrgyzstan, we face
significant competition from a large number of local bottlers that aggressively compete with us based on price. See "Business—
Competition."
If the supply of raw materials or packaging materials is interrupted or if the prices of these materials fluctuate, our financial
results could be adversely affected.
Our results of operations may be affected by the availability and pricing of raw materials and packaging materials,
particularly high fructose corn syrup ("HFCS"), sugar, polyethyleneterapthalate ("PET") resin, aluminum, glass, labels, closures
and plastic crates, some of which are priced in currencies other than New Turkish Lira, which is our functional currency. The
price of raw materials may be substantially affected by changes in global supply and demand, along with weather conditions,
governmental controls, exchange rates, currency controls and other factors. A sustained interruption in the supply of these
materials would require us to find substitute suppliers acceptable to The Coca-Cola Company and could require us to pay higher
prices for such materials. Any significant increase in the prices of these materials will increase our operating costs and depress
our margins if we are unable to recover these additional operating costs through the pricing of our products. See "Business—
Production—Raw Materials and Purchasing Strategy."
Adverse weather conditions or decreased tourism in the summer months could reduce demand for our products.
Sales of alcohol-free beverages are generally higher in the summer months of May to September because of the warm
weather and, especially in Turkey, the high levels of tourism typical of these periods. Bad weather conditions, including
unusually cold or rainy periods, or decreased levels of tourism, particularly in Turkey, during this peak season could adversely
affect sales volume, profit from operations and cash flow and could therefore have a disproportionate impact on our operating
results for the entire year.
Any contamination or deterioration of our products could damage our reputation and our financial results and could result
in legal liability.
The actual or alleged contamination or deterioration of our products, whether deliberate or accidental, could damage
our reputation and financial results. The risk of contamination or deterioration exists at each stage of the production cycle,
including during the production and delivery of raw materials, the bottling, storage and delivery to our customers of our products
and the storage and shelving of our products by our customers. The quality control standards in all of our facilities are monitored
by The Coca-Cola Company. However, there can be no assurance that our products will not be contaminated or suffer
deterioration. If any of our products is found to have been contaminated or to have deteriorated, we could be required to recall
large quantities of our products, and we could incur criminal or civil liability for damage caused by the products. Further, any
actual or rumored contamination or deterioration of our products or products of other Coca-Cola bottlers in other countries could
damage the reputation of The Coca-Cola Company's brands. Because the trademarked beverages of The Coca-Cola Company
represent almost all of our total sales volume, damage to the reputation of The Coca-Cola Company's brands would adversely
affect our competitiveness and financial results.
A weakening of demand for CSDs could adversely affect our financial results.
Although we continue to expand our range of products in the NCB category (which includes, but is not limited to,
juices, waters, sports and energy drinks, iced tea, iced coffee and other beverages) in Turkey, Kazakhstan, Azerbaijan and
Kyrgyzstan, our revenues continue to depend to a large extent on the sales of CSD products. There can be no assurance that
demand will not weaken in the future, either as a result of economic conditions or as a result of evolving consumer preferences
toward noncarbonated alternatives.
Our future growth may be impeded if we cannot successfully expand our sales and product offering in the NCB category of
the commercial beverage market.
We believe that one of the keys to our future growth is the expansion of our sales and product lines in the NCB
category. We intend to work closely with The Coca-Cola Company to introduce new noncarbonated products in those of our
markets where we believe they will be successful and to expand promotional activities with respect to our current noncarbonated
product lines. If consumers are not receptive to our new products, or if The Coca-Cola Company does not commit sufficient
marketing resources to new or existing products, we could be unable to achieve growth and our financial results could suffer.
Proposed changes in the Turkish corporate tax law may have an adverse effect on our net income if adopted.
We have traditionally benefited from certain Turkish corporate tax incentives, particularly incentives related to capital
investments. Under the draft corporate tax code (the "Draft Corporate Tax Code") that is expected to be implemented in
May 2006 with a retroactive effective date of January 1, 2006, the corporate tax rate in Turkey will be reduced from the current
rate of 30% to 20% but tax incentives for capital investments will no longer be available. The Draft Corporate Tax Code permits
us to elect to follow either the old or the new regime with respect to 2006. As a result, we may be able to use our remaining
capital investment incentives in 2006 if we have sufficient qualifying income; however, our overall effective tax rate in 2006 and
thereafter may increase and we cannot assure you that this increase will not have a material adverse effect on our business,
financial condition and results of operations. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Principal Factors Affecting Our Results of Operations—Taxation" and "Taxation—The Republic of Turkey—
Taxation of Corporations."
A change in the amount or the application of the special consumption tax imposed on sales of cola-flavored soft drinks in
Turkey could adversely affect our business.
A special consumption tax is imposed on the sale of cola-flavored soft drinks in Turkey, in addition to the 18%
value-added tax that is imposed on all products. The special consumption tax amounts to 25% of the transfer price of colaflavored soft drinks from CCI, our production company, to CCSD, our sales and distribution company. The tax is levied only on
the first sale of the products and, therefore, does not apply to sales by CCSD to our customers. Although the Government
decreased the special consumption tax rate from 26.5% to 25% in June 2002, there can be no assurance that the tax rate will not
be increased in the future. For example, the Government increased a similar special consumption tax rate on alcoholic beverages
twice since the end of 2003. If the Turkish government increases the amount of the special consumption tax or changes the way
in which the tax is applied, our financial results could be adversely affected.
The Turkish Competition Authority or similar regulators in our other markets could restrict our ability to engage in certain
business practices.
Competition in Turkey is principally regulated by the Law on the Protection of Competition, No. 4054 of 1994 (the
"Turkish Competition Law"). The Turkish Competition Law is enforced by the Turkish Competition Board, which has the
power to investigate possible violations and impose fines. In February 2004, following an investigation which began in 2002,
CCSD was found to be dominant in a "carbonated soft drink market" based on market circumstances at that time. CCSD was,
however, found not to have abused its position of dominance, and no fine was imposed. Under the Turkish Competition Law,
CCSD could be subject to fines if it were found both to be dominant and to have engaged in business practices that would
constitute an abuse of dominance. These practices include, without limitation, entering into exclusivity arrangements with
customers in exchange for payments such as bonuses or premiums, charging resale prices for products of The Coca-Cola
Company that are below an acceptable measure of cost with the intention to eliminate current or potential competitors or that are
above an acceptable measure of margin, cross-subsidizing its products (i.e., using profits made in one market segment where
competition is weak to support lower prices in another market segment where competition is more aggressive), refusing to
supply products without justification, or restricting production, marketing or technological development to the detriment of
consumers.
In addition, the Turkish Competition Board is currently examining whether to keep in place the block exemption
currently granted to carbonated soft drink companies in Turkey enabling them to enter into exclusive agreements with sales
outlets. See "Business—Regulation—Competition Regulation."
We cannot predict whether competition law enforcement by the Turkish Competition Board or by similar regulatory
authorities in our other markets in the future will result in significant fines being imposed on us, require us to change our current
business practices or result in adverse publicity. Any of these outcomes could have a negative impact on our competitiveness
and results of operations.
Fluctuations in exchange rates may adversely affect the results of our operations and financial condition.
Our purchases of PET resin, cans, sugar and HFCS are typically denominated in or indexed to U.S. dollars. In 2003,
2004 and 2005, 36.6%, 33.2% and 37.4%, respectively, of our purchases of raw and packaging materials (excluding concentrate)
in Turkey were denominated in Turkish Lira, and 63.4%, 66.8% and 62.6%, respectively, were denominated in foreign
currencies (almost all of which was in U.S. dollars). With respect to our international operations, in 2003, 2004 and 2005,
49.0%, 45.0% and 43.0%, respectively, of the purchases of raw and packaging materials (excluding concentrate), respectively,
were denominated in local currencies and 51.0%, 55.0% and 57.0%, respectively, were denominated in foreign currencies
(almost of all which was in U.S. dollars).
We incur currency risks whenever we enter into a transaction using a currency other than local currencies. We attempt
to reduce our currency risk by, wherever practicable, purchasing raw and packaging materials in transactions denominated in
local currencies. In addition, because concentrate prices for most of our CSDs in Turkey have been determined by reference to a
percentage of our U.S. dollar net sales as calculated in accordance with U.S. GAAP, a large proportion of our concentrate prices
has been effectively hedged against possible devaluations of the New Turkish Lira. Given the volatility of the currencies in the
countries in which we operate, we cannot offer any assurance that we will be able to manage our currency risks effectively or
that future volatility in exchange rates will not adversely affect our financial results.
In addition to managing these transaction risks, we translate non-New Turkish Lira denominated results of operations,
assets and liabilities into New Turkish Lira to prepare our IFRS consolidated financial statements. The revaluation of balance
sheet items results in foreign exchange translation losses or gains, which are reported as non-operating expenses or income,
which can have a material effect on our results.
See "Management's Discussion and Analysis of Financial Condition and Results of Operations—Principal Factors
Affecting Our Results of Operations—Exchange Rates."
Risks Relating to Control by Principal Shareholders
Our principal shareholders have the ability to exert significant influence over our business and their interests may not be
aligned with our interests or those of other shareholders.
Currently, The Coca-Cola Company beneficially owns 35.9% of our shares and Anadolu Efes beneficially owns 51.2%
of our shares. After the offering and assuming that the over-allotment option will be exercised, The Coca-Cola Company will
beneficially own 20.5% and Anadolu Efes will beneficially own 51.2% of our shares. The Coca-Cola Company beneficially
owns all of our Class B Shares, and Anadolu Efes beneficially owns all of our Class A Shares. The relationship between our
principal shareholders is governed by our articles of association, which are described in "Description of the Share Capital."
We have a board of directors consisting of ten board members. The quorum for all board meetings is six. Pursuant to
our articles of association, a majority of the holders of Class A Shares may nominate six members of the board of directors, a
majority of the holders of Class B Shares may nominate three members and the remaining director will be elected from among
the persons nominated by any shareholder. The minimum number of affirmative votes required to approve a resolution is six if
there are nine or ten directors present and five if there are six, seven or eight directors present. For certain decisions, at least two
directors representing the Class B shareholders must vote in favor, even if the minimum voting requirement is otherwise met.
Such decisions are defined as "Major Decisions" and they include, among other things, approving business plans, setting the
agenda of the shareholders' general assembly, a public offering of CCI shares and appointment or removal of the managing
director. See "Description of the Share Capital—General Meetings." The chairman of the board of directors is selected from
among the directors nominated by Class A Shares and the vice chairman is selected from among the directors nominated by
Class B Shares. The directors representing Class A shareholders nominate the managing director, whose appointment must also
be approved by at least two directors representing Class B shareholders. Two of our three statutory auditors must be nominated
by the Class A shareholders and the remaining statutory auditor must be nominated by the Class B shareholders. The holders of
at least 80% of each of the Class A Shares and Class B Shares must approve, to the extent they are voted upon by the
shareholders, Major Decisions.
The arrangements described above and under "Principal Shareholders and Related Party Transactions" and
"Description of the Share Capital" will continue to give Anadolu Efes and The Coca-Cola Company, in their capacity as Class A
and Class B shareholders, significant influence over our business after the consummation of the offering and will enable them,
together, to determine the outcome of all actions requiring approval by our board of directors and the outcome of corporate
actions that require shareholder approval, with the exception of matters that require an extraordinary quorum or unanimous
approval.
The interests of these principal shareholders may differ from those of other shareholders. As a result of their ownership
of a substantial percentage of our outstanding shares, their affiliation with members of our board of directors and their influence
over our business, they may prevent us from making certain decisions or taking certain actions that would benefit us or protect
the interests of other shareholders. The influence of these shareholders may have the effect of delaying, deferring or preventing a
change in control, may discourage bids for our Class C Shares and may adversely affect the market price of our Class C Shares.
Risks Relating to Operating in Emerging Markets
In general, investing in the securities of issuers such as CCI that have operations solely in emerging markets involves a
higher degree of risk than investing in the securities of issuers with substantial operations in the United States, the countries of
the European Union or other similar jurisdictions. Summarized below are a number of risks relating to operating in emerging
markets. Additional risks and uncertainties relating to these emerging markets that do not currently exist or of which we are
unaware may also become important factors that could adversely affect our financial results and your investment.
Risks Relating to Operating in Turkey
Economic developments in Turkey may have a material adverse effect on our business, financial condition and results of
operations in the future.
Over the past two decades, the Turkish economy has undergone a transformation from a highly protected and regulated
system to a free market system. The Turkish economy has, in general, responded well to this transformation, but it has
experienced severe macroeconomic imbalances, including substantial budget deficits, significant balance of payment deficits,
high rates of inflation and high real rates of interest (which are nominal interest rates less inflation).
In May 2000, the Turkish Government began implementing a macroeconomic program monitored by the International
Monetary Fund (the "IMF") with the aim of stabilizing the country's financial health. Liquidity crises in the banking sector in
November 2000 and February 2001 triggered the most severe economic crisis in Turkey since 1994. In February 2002, the
Government and the IMF signed a three-year stand-by agreement, which required the Government to implement certain policy
changes and structural reforms. The reforms contributed to economic growth but the economy is still vulnerable to volatility,
changes in investor sentiment and political uncertainty. In May 2005, the Government entered into a new three-year stand-by
agreement with the IMF. The IMF's support is contingent on Turkey's compliance with the restrictions contained in the stand-by
agreement. There can be no assurance that Turkey will be able to meet the conditions of the IMF agreement or that IMF support
for Turkey will continue.
Future negative developments in the Turkish economy could impair our business strategies and have a materially
adverse effect on our financial condition and results of operations.
Political developments in Turkey may have a material adverse effect on our business, financial condition and results of
operations in the future.
Turkey has been governed by a parliamentary democracy since 1923, although the military has in the past played a
significant role in politics and the Government, intervening in the political process through coups in 1960, 1971 and 1980.
Unstable coalition Governments have been common, and in the over 80 years since its formation, the Republic of Turkey has
had 59 Governments with political controversies frequently resulting in early elections. The latest in a series of early elections,
the national elections held on November 3, 2002 resulted in victory of the Justice and Development Party ("AKP"), which is
known to have Islamic roots. AKP, led by Recep Tayyip Erdoğan, received 34.1% of the votes cast and formed a single party
Government in the Grand National Assembly ("GNA"). AKP declared that it would continue to implement the current IMF
program and the economic policies introduced by the former Government with minor revisions. To date, AKP's economic
policies have complied with the IMF program and have relatively stabilized the Turkish economy, as discussed above. The next
national election is expected to be held by 2007 and a change of Government at the next election could lead to a change in
economic policies. The failure to continue to implement the IMF program may have an adverse effect on the Turkish economy
and, as a result, on our financial condition and results of operations.
The head of state in Turkey is the President of the Republic of Turkey, who is elected by the GNA. The current
President, Ahmet Necdet Sezer, the former head of the Constitutional Court, was elected in May 2000 for a seven-year term
which will terminate in May 2007. Pursuant to the Constitution, a President cannot be elected twice. The President has had a
volatile relationship with the governments formed by the AKP and has vetoed several pieces of legislation passed by the GNA.
Increased instability in the Government, including additional conflicts among senior politicians in Turkey, as well as increased
political instability in the Middle East, may adversely affect the Turkish economy, which in turn could adversely affect our
business.
Terrorism within Turkey or conflicts in Turkey's neighboring countries may have a material adverse effect on our business
and results of operations in the future.
Political uncertainty within Turkey and in certain neighboring countries, such as Iran and Iraq, has historically been one
of the potential risks associated with investment in Turkish companies. Political instability in the Middle East and elsewhere
remains an area of concern. The four bombings in Istanbul in November 2003 appear to have had a limited impact on the
Turkish economy. However, if similar attacks occur in the future, Turkey's capital markets, as well as the levels of tourism and
foreign investment in Turkey, may suffer. In addition, the bombings in the coastal holiday resorts of Çeşme and Kuçadası in
July 2005 and the threat of future terrorism have had and could continue to have an adverse effect on the Turkish economy.
It is possible that further acts of terrorism may be directed against American interests in Turkey, and such acts of
terrorism could be directed against properties and personnel of companies such as ours which are associated with American
interests. While our property and business interruption insurance covers damages to insured property directly caused by
terrorism, we cannot be certain that such amounts will be sufficient to cover any losses we may incur.
Turkey has also had problems with terrorist and ethnic separatist groups in past years. For example, Turkey has been in
conflict with the Peoples' Congress of Kurdistan, formerly known as the PKK. After seven years of relative peace, this group has
recommenced its terrorist attacks mostly in the southeastern part of Turkey but also in Istanbul. If such terrorist attacks continue,
it may adversely affect tourism and the Turkish economy, which in turn could adversely affect our business.
Uncertainties relating to European Union membership may adversely affect our operating environment and our results of
operations.
Turkey has had a long-term relationship with the European Union. In 1963, it signed an association agreement with the
European Union and in 1970 a supplementary agreement was signed providing for a transitional second stage of Turkey's
integration into the European Union. The European Union resolved on December 17, 2004 to commence accession negotiations
with Turkey and affirmed that Turkey's candidacy will be judged on the same criteria applied to other candidates. These criteria
require a range of political, legislative and economic reforms to be implemented. Negotiations for Turkey's accession to the
European Union commenced on October 4, 2005. No assurance can be given that Turkey will be able to meet the criteria
applicable to becoming a member state of the European Union or that the European Union will maintain its current approach
regarding the candidacy of Turkey. Uncertainties relating to Turkey's admission to the European Union may adversely affect the
Turkish economy in general, which could adversely affect demand for our products.
The level of inflation in Turkey could adversely affect our business.
Over the five-year period ended December 31, 2000, the Turkish economy experienced annual inflation averaging
approximately 65.1% per year as measured by the Turkish wholesale price index. In response, the Government implemented
policies intended to combat these persistently high levels of inflation. However, as a result of the financial crises experienced in
Turkey in November 2000 and February 2001, during 2001 the wholesale price index increased to 88.6%. In line with the standby arrangements with the IMF, the Government started implementing certain austerity measures to reduce public sector debt and
to control inflation. The inflation rate based on the wholesale price index declined from 30.8% in 2002 and 13.9% in 2003 to
13.8% in 2004 and to 4.5% in 2005.
The implementation of certain austerity measures proposed by the Government to control inflation could have an
adverse effect on the Turkish economy and on the value of Turkish equity securities. Although the rate of inflation has decreased
in recent years, there can be no assurance that this trend will not reverse, particularly if the Turkish government fails to continue
its current economic policies or if those policies cease to be effective. If the level of inflation in Turkey were to fluctuate
significantly, it is possible that the market price of our Class C Shares would be adversely affected. Increases in the level of
inflation also could require us to increase the prices of our beverages, which could adversely affect our sales.
The state of the current account deficit in Turkey could lead to depreciation of the New Turkish Lira and increased inflation
which could adversely affect our business, results of operations and financial condition.
With the economy expanding, interest rates low, inflation declining and productivity gains at record highs, the New
Turkish Lira appreciated by almost 48.0% from the end of 2001 to the end of March 2006 according to the Central Bank's
consumer price index based Real Effective Rate Index. However, given the widening current account deficit and the resulting
surge in financing needs, some Turkish economists are concerned about the stability of the New Turkish Lira. Turkey had a
current account deficit of $7.9 billion in 2003 (3.3% of gross national product). In 2004, the current account deficit increased to
$15.6 billion, accounting for 5.2% of gross national product, and in 2005 the deficit reached $22.9 billion, or 6.3% of gross
national product. In a period of uncertainty, the persistent widening of the current account deficit may lead to a sudden
adjustment in the New Turkish Lira with inflationary consequences.
Future earthquakes could damage our facilities and the Turkish economy in general.
On August 17, 1999, an earthquake measuring 7.4 on the Richter scale struck the area surrounding Izmit. On
November 12, 1999, another earthquake occurred in the city of Düzce, between Ankara and Istanbul, resulting in further
financial costs to Turkey. Almost all of Turkey is classified by seismologists as being in a high risk earthquake zone. Almost
45% of Turkey's population and most of its economic resources are located in a first degree earthquake risk zone (the zone with
the highest level of risk of damage from earthquakes). Our headquarters and our Çorlu and Bursa production facilities are
located in first degree earthquake risk zones, our Ankara and Kemalpaşa production facilities are located in second degree
earthquake risk zones and our Mersin production facility is located in a third degree earthquake risk zone. The occurrence of a
severe earthquake could affect one or more of our production facilities and cause an interruption in our business, which would
have an adverse effect on our business. In addition, a severe earthquake could harm the Turkish economy in general, which
could adversely affect demand for our products.
Risks Relating to Operating in Kazakhstan
Kazakhstan has a relatively short history as an independent state and there remains potential for instability that could have a
material adverse effect on our business, financial condition and results of operations in Kazakhstan.
Kazakhstan's existence as an independent state resulted from the break-up of the Soviet Union. Kazakhstan's president,
Nursultan Nazarbayev, has been in office since Kazakhstan became an independent sovereign state in 1991. As such, it has a
relatively short history as an independent nation and there remains potential for social, political, economic, legal and fiscal
instability. These risks include, among other things, local currency devaluation, civil disturbances, changes in exchange controls
or lack of availability of hard currency, restrictions on repatriation of capital, changes with respect to taxes, and nationalization
or expropriation of property. The occurrence of any of these factors could have a material adverse effect on our business,
financial condition and results of operations in Kazakhstan. There can be no assurance that political, legal, economic, social or
other developments in Kazakhstan will not have an adverse effect on our business in Kazakhstan.
Kazakhstan is in the process of moving from a command to a market-driven economy. Kazakhstan has actively pursued
a program of economic reform and inward foreign investment designed to establish a free market economy, but there can be no
assurance that such reforms and other reforms will continue in the future.
Under President Nazarbayev's leadership, the foundations of a market economy have taken hold, including
privatization of state assets, liberalization of capital controls, tax reforms and pension system development. President
Nazarbayev was re-elected in December 2005 for an additional seven-year term. Should a new president be elected in the future,
the pro-business atmosphere in Kazakhstan could change. Changes to Kazakhstan's property, tax or other regulatory regimes, or
other changes that affect the pro-business atmosphere in Kazakhstan, could negatively affect the Group's business, financial
condition and results of operations.
Since the breakup of the Soviet Union, a number of former Soviet republics have experienced periods of political
instability, civil unrest, military action or incidents of violence. Kazakhstan has not experienced any such unrest and, to date, this
regional instability has not affected Kazakhstan or our operations in Kazakhstan. However, future political instability, civil
unrest or continued violence in the region could affect the political or economic stability of Kazakhstan, and could have an
adverse effect on our business, financial condition, results of operations or prospects in Kazakhstan.
We ship our products using the national railway system operated by the Kazakh government and if there is a change in the
availability or reliability of this rail system, our results of operations, financial condition and prospects could be adversely
affected.
Kazakhstan covers a large geographic region which is roughly equivalent in size to Western Europe. In addition, the
highway infrastructure in Kazakhstan is unreliable and, due to severe weather conditions in winter, often inaccessible. As a
result of these factors, we use rail transportation for the distribution of our products in Kazakhstan outside of Almaty. The rail
system in Kazakhstan is operated by the Kazakh government. Any reduction or cessation in the availability of the railroads to us
or a significant increase in the tariffs for railroad transportation could have a material adverse effect on our business, financial
condition and results of operations in Kazakhstan.
The taxation system in Kazakhstan is at an early stage of development and experience. The interpretation and application of
tax laws and regulations are evolving, which significantly increases the risks with respect to our operations and investment in
Kazakhstan.
As tax legislation in Kazakhstan has been in force for only a relatively short time, tax risks in Kazakhstan are
substantially greater than typically found in countries with more developed tax systems. Tax legislation is evolving and is
subject to different and changing interpretations, as well as inconsistent enforcement. Tax regulation and compliance is subject
to review and investigation by the authorities who may impose extremely severe fines, penalties and interest charges.
Kazakhstan's tax laws are not always clearly determinable and have not always been applied in a consistent manner. In
addition, the tax laws continue to evolve. The uncertainty of application and the evolution of tax laws create a risk of additional
and substantial payments of tax by CC Kazakhstan, which could have a material adverse effect on its financial position and
results of operations. The tax authorities are able to raise additional tax assessments for taxes for five years after the end of the
relevant tax period, and the calendar years 2001 to 2005 remain open. For all taxes, the fact that the tax authorities have
conducted an audit of a particular period does not prevent them from revisiting that period and raising an additional assessment.
In addition, Kazakhstan's tax system does not have the concept of the tax authorities giving legally binding rulings on tax issues
that are put to them.
The legal system in Kazakhstan is in the process of development, and the application of laws and regulations may be
unpredictable.
Risks associated with the legal system in Kazakhstan include: inconsistencies between and among laws, presidential
decrees, edicts and governmental and ministerial orders and resolutions; conflicting local, regional and national rules and
regulations; the lack of judicial or administrative guidance on interpreting the applicable rules; the untested nature of the
independence of the judiciary and its immunity from economic or political influence; the relative inexperience of jurists, judges
and courts in interpreting recently enacted legislation and complex commercial arrangements; a high degree of discretion on the
part of governmental authorities; and a lack of binding judicial precedents. There is no guarantee that we or any other claimant
would obtain effective legal redress from any court or tribunal in Kazakhstan.
The recent enactment of many laws, the lack of consensus about the scope, content and pace of economic and political
reform and the rapid evolution of the legal systems in ways that may not always coincide with market developments have
resulted in ambiguities, inconsistencies and anomalies and the enactment of laws and regulations without a clear constitutional
or legislative basis, that give rise to investment risks that do not exist in more developed legal systems. Legislation has been
enacted in Kazakhstan to protect private property against expropriation and nationalization. However, due to the lack of
experience in enforcing these provisions in the short time they have been in effect and due to potential political changes in the
future, there can be no assurance that such protections would be enforced in the event of an attempted expropriation or
nationalization. No assurance can be given that the future development of the laws and legal systems of Kazakhstan will not
have a material adverse effect on our business and financial results.
Risks Relating to Operating in Azerbaijan
Azerbaijan has a relatively short history as an independent state and there remains potential for instability that could have a
material adverse effect on the business, financial condition and results of our operations.
Azerbaijan's existence as an independent state resulted from the break-up of the Soviet Union. As such, it has a
relatively short history as an independent nation and there remains potential for social, political, economic, legal and fiscal
instability. These risks include, among other things, local currency devaluation, civil disturbances, changes in exchange controls
or lack of availability of hard currency, legal and tax systems that are not fully developed, restrictions on repatriation of capital,
changes with respect to taxes, and nationalization or expropriation of property. The occurrence of any of these factors could have
a material adverse effect on our business, financial condition and results of operations in Azerbaijan. There can be no assurance
that political, legal, economic, social or other developments in Azerbaijan will not have an adverse effect on our business in
Azerbaijan.
The Azeri economy has been undergoing a significant transformation. The Azeri government has been implementing
economic reforms, including privatization and trade liberalization. However, there can be no assurance that the Azeri
government will continue its current economic policies or that such policies will continue to be effective. Future negative
developments in the Azeri economy could impair our business, financial conditions and results of operations in Azerbaijan.
Political uncertainty within Azerbaijan is one of the potential risks associated with operating in Azerbaijan. Protests
followed the parliamentary elections that took place on November 6, 2005. The ruling New Azerbaijan Party was re-elected,
although civil unrest related to the contested elections occurred for some time after the elections based on alleged improprieties
during the election process.
Since the breakup of the Soviet Union, a number of former Soviet republics have experienced periods of political
instability, civil unrest, military action or incidents of violence. Future political instability, civil unrest or continued violence in
the region could affect the political or economic stability of Azerbaijan, and could have an adverse effect on our business,
financial condition, results of operations or prospects in Azerbaijan.
Risks Relating to Operating in Jordan
We are exposed to the political, economic and other risks relating to the Middle East region.
The region in which Jordan is located is characterized by a significant degree of instability, particularly in neighboring
countries such as Iraq and the occupied West Bank. Iraq, with which Jordan maintains substantial economic ties, is suffering
from the ongoing unstable political and security situation there. In August 2005, rockets were launched at a U.S. military ship
docked in the Red Sea port of Aqaba. On November 9, 2005, three international hotels in Amman were attacked by suicide
bombers, resulting in the deaths of nearly 60 people. Security officials have stated their belief that both attacks were linked to
Jordanian Abu Musab al-Zarqawi, believed to be the leader of al Qaeda in Iraq. If similar attacks occur in the future, tourism and
foreign investment in Jordan may decrease and, as a result, Jordan's economy and our business in Jordan may be adversely
affected.
Furthermore, Israel's military campaigns and economic sanctions against the Palestinians in the West Bank and Gaza
Strip have adversely affected Jordan's economy. In February 2005, the Israeli government voted to disengage from the Gaza
Strip by dismantling all Israeli settlements and removing all Israeli settlers. This process was completed in September 2005.
Nonetheless, Israel maintains offshore maritime control as well as airspace control. The future political status of the Gaza Strip
has yet to be determined.
Events in neighboring countries will continue to have a significant impact on Jordan's economy and our business in
Jordan.
Economic and political developments in Jordan may have a material adverse effect on our business, financial condition and
results of operations in Jordan.
Jordan is a small country with inadequate supplies of water and other natural resources such as oil. Debt, poverty, and
unemployment are fundamental problems. King Abdullah II, since assuming the throne in 1999, has undertaken some broad
economic reforms in a long-term effort to improve living standards. In the past three years, the government has worked closely
with the IMF, practiced careful monetary policy, and made substantial progress with privatization. The government has also
liberalized the trade regime. These measures have helped improve productivity and have encouraged foreign investment in the
country. However, there can be no assurance that Jordan will continue to implement its current government and fiscal policies in
the future.
Although the present government is committed to its liberalization policies, existing laws may be applied
inconsistently, swift enforcement of the laws may not always be available and the interpretation of existing laws may be unclear.
In addition, many enforcement agencies have been recently established and are in the process of evolving. Therefore, their
resources and their ability to enforce the law may be limited.
While the Jordanian government's policies have generally resulted in improved economic performance in recent years,
such level of performance may not be sustained in the future. There can be no assurance that Jordan will continue to implement
its current government and fiscal policies in the future, or that external developments such as the price of oil will not adversely
affect Jordan's economy and our business in Jordan.
Risks Relating to an Investment in Our Class C Shares
There has been no prior public market for our Class C Shares, and our Class C Shares may experience price and volume
fluctuations.
Prior to this offering, there has been no public market for any class of our securities in or outside of Turkey. We cannot
offer any assurance that a market for the Class C Shares will develop or, if such a market does develop, that it will continue.
After the offering, we expect that approximately 20.2% of our Class C Shares will be held by persons other than our principal
shareholders (approximately 23.2% if the over-allotment option is exercised in full). The limited public market for the Class C
Shares may impair the ability of holders to sell them in the amount and at the price and time such holders may wish to do so, and
may increase the volatility of the price of the Class C Shares.
The initial offer price for the Class C Shares offered in this offering has been determined by agreement between us, the
selling shareholders and the underwriters. Among the factors considered in making such determination were the history of and
the prospects for the industry in which we compete, an assessment of our management, our present operations, the historical
results of our operations and the trend of our net sales, our prospects for future earnings, the general condition of the securities
markets at the time of the offering and the prices of similar securities of generally comparable companies. The offer price of our
Class C Shares may not be indicative of the market price for such securities after the listing. The trading price of our Class C
Shares could also be subject to significant fluctuations in response to variations in our and our competitors' financial
performance, general market conditions and other factors. In addition, international financial markets have from time to time
experienced price and volume fluctuations which have been unrelated to the operating performance or prospects of individual
companies. Consequently, the trading market for, and the liquidity of, our Class C Shares may be materially adversely affected
by general declines in the market or by declines in the market for similar securities.
As is the case for the equity securities of many emerging market issuers, the market value of our Class C Shares may be
subject to significant fluctuation, which may not necessarily be related to our consolidated financial performance.
The Istanbul Stock Exchange is less liquid than other major exchanges and may be more volatile, which may adversely affect
your ability to trade Class C Shares purchased in the offering.
The principal trading market for our Class C Shares will be the ISE. The ISE is considerably smaller and less liquid
than securities markets in the United States and the United Kingdom. As of December 31, 2005, the total market capitalization
of all of the companies with equity securities regularly traded on the ISE was YTL218.3 billion and a disproportionately large
percentage of the market capitalization and trading volume of the ISE is represented by a small number of listed companies. As
of December 31, 2005, the shares of 304 companies were regularly traded on the ISE and the combined market capitalization of
the 10 companies with the greatest market capitalizations was approximately 51% of the market capitalization of all companies
trading on the ISE.
The ISE is also a highly volatile market. Trading on the ISE has traditionally been characterized by a high degree of
short-term speculative trading, which is at least partially attributable to the relatively underdeveloped institutional investor base
in Turkey and to the relatively small size of the retail investor base. The average daily trading volume in the shares of all
companies whose equities trade regularly on the ISE was YTL596 million during 2003, YTL837 million during 2004, and
YTL1,060 million during 2005.
Future sales of substantial amounts of our Class C Shares, or the perception that such sales could occur, could adversely
affect the market value our Class C Shares.
Immediately following the completion of this offering, there will be 11,847,547,136.9 Class C Shares issued and
outstanding. The Coca-Cola Company, Anadolu Efes, and Özgörkey Holding (which together will hold an aggregate of
6,814,130,070.7 Class C Shares after the offering or 6,060,607,670.7 Class C Shares if the over-allotment option is exercised),
have agreed, subject to certain exceptions, not to offer or sell any Class C Shares or securities convertible or exchangeable into
Class C Shares for a period of 180 days following the date of this offering memorandum without the consent of Credit Suisse, as
described in "Plan of Distribution." Sales of substantial amounts of our Class C Shares, or the perception that such sales could
occur, could adversely affect the market price of our Class C Shares and could adversely affect our ability to raise capital
through future capital increases.
Your ownership interest in CCI may be diluted as a result of our proposed merger with Efes Invest.
We currently own 87.63% of the shares of Efes Invest. Following the completion of this offering, we intend to merge
with Efes Invest and in connection with the merger we expect to issue new Class C Shares to the minority shareholders of Efes
Invest. Our boards of directors unanimously decided to propose to our shareholders that in connection with the merger, the ratios
of the following be considered while determining the merger ratio: (i) the value ascribed to Efes Invest shares in CCI's
acquisition of Anadolu Efes's stake in Efes Invest, and (ii) the value ascribed to CCI at the time of the share capital increase in
which Anadolu Efes was the sole participant, in addition to the value arising from CCI's acquisition of Anadolu Efes's stake in
Efes Invest and the acquisition of Efes Invest shares in the mandatory call. The terms of the merger, including the exchange ratio
of our Class C Shares and Efes Invest shares, will be finalized closer to the time of the proposed merger and will be subject to
the approval of the shareholders of CCI and Efes Invest and the CMB. Upon any issuance of new Class C Shares in connection
with the merger, your ownership interest in us will be diluted.
Fluctuations in the value of the New Turkish Lira could significantly affect the value of the Class C Shares and any
dividends we pay with respect to the Class C Shares.
The quoted price of the Class C Shares will be in New Turkish Lira. In addition, dividends, if any, that we pay in
respect of our Class C Shares will be paid in New Turkish Lira. Fluctuations in the value of the New Turkish Lira can be
expected to significantly affect the value of the Class C Shares and dividend payments upon conversion into other currencies,
including the U.S. dollar. See "Dividends and Dividend Policy."
The pre-emption rights granted to holders of our Class C Shares may be unavailable to United States holders of our Class C
Shares.
In the case of an increase in our capital, holders of Class C Shares are entitled to subscribe for new Class C Shares in
proportion to their respective holdings even though such pre-emption rights may be restricted by our board of directors. To the
extent that pre-emption rights are granted, United States holders of Class C Shares may not be able to exercise such pre-emption
rights unless a registration statement under the Securities Act is effective with respect to such rights or an exemption from the
registration requirement thereunder is available.
THE SELLING SHAREHOLDERS
The following table sets forth the number of Class C Shares beneficially owned by each selling shareholder, the
number of Class C Shares offered by each selling shareholder in the offering (including pursuant to the over-allotment option)
and the number of Class C Shares that each selling shareholder will beneficially own after the offering (assuming the overallotment option is exercised).
Selling Shareholder
Class C Shares Offered in the
Class C Shares Beneficially
Owned Prior to the Offering
Offering
% of Class C Number without
Number with
Number
Shares Over-Allotment Over-Allotment
The Coca-Cola
Company(1) .................... 3,840,000,000.0
Özgörkey Holding(2)......... 1,969,471,861.0
CCSD(3) ............................ 1,253,354,597.5
Class C Shares Beneficially
Owned After the Offering with
Over-Allotment
% of Class C
Number
Shares
32.4 3,201,877,600.0 3,840,000,000.0
—
16.6 577,000,000.0 692,400,000.0 1,277,071,861
10.6 1,253,354,500.0 1,253,354,500.0
97.5
—
10.8
—
(1)
Held of record by The Coca-Cola Export Corporation. The business address of The Coca-Cola Export Corporation is
One Coca-Cola Plaza, N.W., Atlanta, Georgia, United States of America.
(2)
The business address of Özgörkey Holding is Kemalpaşa Caddesi No: 12, 35060, Pınarbaşı, Izmir, Turkey.
(3)
The business address of CCSD is Dereiçi Değirmenbahçe Caddesi Asena Sok. No: 30, Yenibosna 34350, Istanbul,
Turkey.
CCSD is our sales and distribution subsidiary. You should read "Principal Shareholders and Related Party
Transactions—Principal Shareholders" for additional information on the selling shareholders and a description of our
relationship with each of The Coca-Cola Company and Özgörkey Holding.
USE OF PROCEEDS
CCI will not receive any proceeds from this offering directly. We expect our subsidiary, CCSD, to receive
approximately YTL87.1 million in net proceeds, after deducting underwriting discounts and commissions and CCSD's pro rata
share of the estimated offering expenses. We intend to use these proceeds principally for capital expenditures in 2006 and, to the
extent proceeds are not required for such purpose, for the prepayment of a portion of the amount outstanding under a $55 million
credit facility under which CCSD is the borrower. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations—Future Liquidity, Financing Arrangements and Commitments—Borrowings and Capital Funding."
DIVIDENDS AND DIVIDEND POLICY
In accordance with Turkish law, the distribution of profits and the payment of an annual dividend in respect of the
preceding financial year will be recommended by the board of directors each year for approval by the shareholders at the annual
general meeting, which must be held within three months following the end of the preceding fiscal year. Dividends are payable
on a date determined at the annual general meeting of shareholders and are required by the CMB to be paid on a date no later
than the end of the fifth month following the end of the preceding fiscal year. Distribution of dividends can be made in the form
of cash or bonus shares, or a combination of both. Each share entitles its holder to the same amount of dividend.
2% of our annual profit before taxes and other similar mandatory payments is set aside by the general meeting of
shareholders for donations to Anadolu Eğitim ve Sosyal Yardım Vakfı (Anadolu Education and Social Aid Foundation) so long
as it maintains its tax-exempt status, and 1% to another tax-exempt foundation to be determined by the shareholders owning a
majority of the Class B shares, provided that the first legal reserve is set aside and first dividends are distributed. The remaining
annual profit is distributed in accordance with our articles of association after deducting required amounts and setting aside
required reserves and deducting the previous year's losses, if any, prescribed by the Turkish Commercial Code in the following
required order:
•
5% of the net profit will be allocated to the first legal reserve (donations described below made within the relevant
fiscal year will be included in the gross amount of distributable profit when calculating the first legal reserve);
•
a first dividend is paid to shareholders in the amount specified by the CMB (donations described below made
within the relevant fiscal year will be included in the gross amount of distributable profit when calculating the first
dividend);
•
the remainder of the net profit may be (i) distributed in full or in part to the shareholders as a second dividend, or
(ii) set aside as extraordinary reserves pursuant to a resolution of the general meeting of shareholders; and
•
10% of the amount of dividends paid to shareholders after deducting 5% of our paid-in capital must be set aside as
a second reserve.
The calculation of reserves described above are performed using statutory financial statements prepared according to
the Turkish Commercial Code and Turkish tax legislation, which may differ from our IFRS accounts significantly due to
different depreciation, expense and revenue, and foreign exchange gain and loss recognition standards and consolidation
requirements. When we become a public company, calculation of dividends will be based on the financial statements prepared in
accordance with CMB Principles. See "Presentation of Financial and Other Information—Financial Statements."
The CMB requires the distribution of a minimum of 30% of distributable profit as reported in the financial statements
prepared in accordance with CMB Principles as the first dividend (described in the second bullet point above) either in cash or as
bonus shares or as a combination of both for public companies. This requirement did not affect our dividend distribution with
respect to 2005 because we were not a public company in 2005. However, if the CMB imposes similar requirements with
respect to 2006, we will be required to distribute with respect to 2006 at least 30% of our distributable profit as the first dividend.
The CMB may, from time to time, change the amount of dividends required to be distributed by public companies.
Pursuant to the Turkish Capital Markets Law, public companies may distribute interim dividends in accordance with
the following criteria:
•
interim dividends must be based on quarterly audited financial statements prepared in accordance with the Turkish
Taxation Code;
•
interim dividends cannot exceed 50% of the net profits for the relevant interim period;
•
the aggregate amount of interim dividends in one fiscal year cannot exceed the lesser of (x) 50% of distributable
profits for the previous fiscal year, or (y) the extraordinary reserves approved by the general assembly of
shareholders;
•
any interim dividends previously paid must be deducted from any subsequent interim dividend payments within
the same fiscal year;
•
the articles of association of the company must permit the distribution of interim dividends and the general
meeting of shareholders must authorize the board of directors to declare such distributions for each year that they
wish to have interim dividend distributions; and
•
holders of privileged classes of shares and any non-shareholders entitled to receive dividends are not allowed to
receive interim dividends.
Currently, our articles of association allow us to distribute interim dividend payments to our shareholders.
Under Turkish law, the statute of limitations in respect of annual or interim dividend payments is a period of five years
following the date of the general assembly meeting of shareholders approving the distribution, after which time uncollected
dividends are transferred to the Government.
Dividends have historically been payable on our shares. The following table shows the aggregate amounts paid to
holders of our shares in each of the past five fiscal years and to date in 2006. Dividends paid historically are not necessarily
representative of dividends to be paid in the future.
Year Dividend Paid(1):
2001........................................
2002........................................
2003........................................
2004........................................
2005........................................
Aggregate Historic
Amounts(2)
Historic Amounts
Per Share
(YTL)
Aggregate Restated
Amounts(3)
Restated Amounts
Per Share
(YTL)
6,838
—
14,388
35,000
78,390
0.000229
—
0.00064
0.00156
0.00314
18,037
—
17,057
39,116
79,644
0.000603
—
0.00076
0.00175
0.00319
2006........................................
50,000
0.00200
50,000
(1)
Dividends are paid in respect of prior financial years.
(2)
Represents amount paid.
(3)
Represents amount as adjusted for inflation for reporting in our consolidated financial statements.
0.00200
Historically, CCI has had relatively low levels of distributable income in its statutory books. Consequently, our
dividend policy from 1999 until 2003 was to pay dividends amounting to 100% of the distributable amount. Before 1999, our
policy was to reinvest distributable amounts in our business. With respect to 2003 and 2004, our distributable income was more
significant, and we paid dividends in 2004 and 2005 amounting to 76.4% and 100% of the amount available for distribution,
respectively based on our review of peer group dividends in 2004.
It is the policy of our board of directors to propose to our shareholders to distribute 50% of our distributable profits
every year provided that such practice is in compliance with the CMB regulations and does not conflict with our investment and
funding needs for the relevant period.
The timing and amount of any future dividend payments will depend on our existing and future financial condition,
results of operations, liquidity needs and other matters that we may consider relevant from time to time, including, without
limitation, capital expenditures, the market conditions in which we operate and equity market conditions.
Regardless of its class, each of our shares entitles its holder to the same amount of dividend.
We are subject to certain limitations with respect to distribution of dividends pursuant to a loan facility which is
scheduled to mature on December 23, 2006. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Future Liquidity, Financing Arrangements and Commitments—Borrowings and Capital Funding."
To the extent we declare dividends in the future, we will pay those dividends solely in New Turkish Lira. Because
exchange rates between the New Turkish Lira and the U.S. dollar fluctuate continuously, a holder of our Class C Shares will be
exposed to currency fluctuations generally and particularly between the date on which dividends are declared and the date on
which dividends are paid. Under current Turkish regulations, any dividends or other distributions paid in respect of the Class C
Shares will be subject to withholding taxes and the Turkish state fund levy. See "Taxation—The Republic of Turkey."
EXCHANGE RATES
The Federal Reserve Bank of New York does not report a noon buying rate for the New Turkish Lira. For the
convenience of the reader, this offering memorandum presents unaudited translations of certain New Turkish Lira amounts into
U.S. dollars at the official New Turkish Lira bid rate announced by the Central Bank of the Republic of Turkey (the "Central
Bank exchange rate"). Unless otherwise stated, any balance sheet data in the consolidated financial statements included in this
offering memorandum have been translated from U.S. dollars into New Turkish Lira using the Central Bank exchange rate on
the date of such balance sheet for monetary assets and liabilities and at historical rates for non-monetary assets and liabilities.
Any income statement data in the consolidated financial statements have been translated from U.S. dollars into New Turkish
Lira using average exchange rates during the relevant period. Unless otherwise indicated, the Central Bank exchange rate used in
this offering memorandum is the Central Bank exchange rate in respect of the date of the financial information being referred to.
We make no representation that the New Turkish Lira or the U.S. dollar amounts in this offering memorandum could have been
or could be converted into U.S. dollars or New Turkish Lira, as the case may be, at any particular rate.
Exchange rates for the Turkish Lira and New Turkish Lira have historically been and continue to be highly volatile.
Although until February 2001 it was a stated policy of the Central Bank of the Republic of Turkey to devalue the New Turkish
Lira in line with the domestic inflation rate, the Central Bank of the Republic of Turkey has since adopted a floating exchange
rate policy resulting in increased volatility in the value of the New Turkish Lira. The annual inflation rates in Turkey as
measured by the percentage changes in the Turkish consumer price index for 2001, 2002, 2003, 2004 and 2005 were 54.4%,
45.0%, 25.3%, 8.6% and 8.2%, respectively. The U.S. dollar increased against the New Turkish Lira at an average rate of 96.5%
and 22.9% in 2001 and 2002, respectively, and decreased against the New Turkish Lira at an average rate of 0.8%, 4.7% and
5.7% in 2003, 2004 and 2005, respectively.
In February 2005, the SIS substituted the previous 1994 based CPI index with a new index based on 2003 prices and
with new sector weights. With the introduction of the new CPI, the SIS also disseminated historical data from January 2003
according to the new index.
The following table sets forth the high, low, period average and period end Central Bank of the Republic of Turkey
exchange rates expressed as the number of Turkish Lira or New Turkish Lira per U.S. dollar, for the periods indicated:
2001.......................................................................................
2002.......................................................................................
2003.......................................................................................
2004.......................................................................................
2005(3) ....................................................................................
2006 (through May 4, 2006)(3) ..............................................
High
Low
Period Average(1)
Period End(2)
1,636,942
1,688,410
1,746,390
1,550,710
1.4000
1.3562
663,739
1,286,543
1,348,023
1,301,340
1.2541
1.2964
1,246,802
1,517,018
1,495,297
1,422,378
1.3406
1.3263
1,439,567
1,634,501
1,395,835
1,342,100
1.3418
1.3104
(1)
Represents the average of the monthly Central Bank exchange rates for the relevant period. Averages were computed
by using the average of the Central Bank exchange rates on the last business day of each month during the relevant period.
(2)
Represents the Central Bank exchange rates on the last business day for the relevant period.
(3)
Exchange rates expressed in YTL.
The following table sets forth the high and low Central Bank exchange rates expressed as the number of New Turkish
Lira per U.S. dollar, for each of the periods indicated:
Month:
October 2005........................................................................................................................................................
November 2005....................................................................................................................................................
December 2005 ....................................................................................................................................................
January 2006 ........................................................................................................................................................
February 2006 ......................................................................................................................................................
March 2006 ..........................................................................................................................................................
April 2006 ............................................................................................................................................................
High
Low
1.3649
1.3644
1.3527
1.3441
1.3322
1.3562
1.3440
1.3368
1.3433
1.3370
1.3156
1.3060
1.2964
1.3168
The YTL/U.S. dollar exchange rate in effect on May 4, 2006 was YTL1.3104 = $1.00.
Pursuant to Law No. 5083 on the Currency of the Republic of Turkey, with effect from January 1, 2005, the currency
of Turkey was redenominated, with one million New Turkish Lira being converted into a new unit of currency known as the
"New Turkish Lira." The smallest unit of currency is now the "New Kuruş," which represents one hundredth of a New Turkish
Lira.
CAPITALIZATION
The following table sets forth our capitalization as of December 31, 2005, both on an actual basis and as adjusted to
reflect the proceeds to our subsidiary CCSD from the sale of Class C Shares offered in this offering, after deducting
underwriting discounts and commissions and CCSD's pro rata share of the estimated offering expenses. You should read this
table in conjunction with "Selected CCI Consolidated Financial and Operating Data," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our IFRS Financial Statements and the related notes thereto included
elsewhere in this offering memorandum.
As of December 31, 2005
Actual
As Adjusted
Debt:
Short-term debt:
Bank indebtedness .............................................................................................................................
Private Placement Trust Certificates .................................................................................................
Capital lease obligations ....................................................................................................................
Total short-term debt .........................................................................................................................
Long-term debt:
Bank indebtedness .............................................................................................................................
Private Placement Trust Certificates .................................................................................................
Capital lease obligations ....................................................................................................................
Total long-term debt ..........................................................................................................................
Total debt ...........................................................................................................................................
Shareholders' Equity:
Issued capital......................................................................................................................................
Share premium...................................................................................................................................
Treasury shares ..................................................................................................................................
Legal reserves and accumulated profits ............................................................................................
Total shareholders' equity ..................................................................................................................
Total capitalization.............................................................................................................................
320,498
9,576
1,231
331,305
320,498
9,576
1,231
331,305
8,722
—
—
8,722
340,027
8,722
—
—
8,722
340,027
250,752
169,882
(58,556)
316,921
678,999
1,019,026
250,752
189,613
—
316,921
757,286
1,097,313
Class C Shares held by CCSD are being offered as part of this offering. Because CCSD is our subsidiary, these Class C
Shares are considered to be treasury shares. The net proceeds received by CCSD in connection with the sale of its Class C
Shares (YTL87.1 million) will be recognized directly in Shareholder's equity and will not be reflected in the income statement.
The difference between the net proceeds from such sale and the book value of such treasury shares (YTL58.6 million), net of
30% corporate tax (YTL19.7 million), will be credited to Share premium. Corporate tax will be computed based on the book
value of treasury shares as recorded in our statutory books (YTL57.8 million). The book value of such treasury shares in the
statutory books is slightly lower than the value recorded in the IFRS Financial Statements due to the application of inflation
accounting in the IFRS Financial Statements in accordance with IAS 29.
Between December 31, 2005 and April 14, 2006, our short-term debt decreased by YTL3.5 million, short-term capital
lease obligations decreased by YTL0.7 million and our long-term debt increased by YTL161.3 million. Except for these changes
in short-term and long-term debt, there has been no material change in our capitalization since December 31, 2005.
SELECTED CCI CONSOLIDATED FINANCIAL AND OPERATING DATA
The following table presents the selected consolidated financial data of CCI as of and for the years ended December 31,
2003, 2004 and 2005.
The consolidated statements of income data and the consolidated statements of cash flows data for the years ended
December 31, 2003, 2004 and 2005, as well as the consolidated balance sheet data as of December 31, 2003 and 2004, have
been extracted from our IFRS Financial Statements that are included elsewhere in this offering memorandum.
by other companies.
You should read the following information in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the IFRS Financial Statements and the related notes included elsewhere in this
offering memorandum.
2004
2003
(audited)
(in thousands of YTL, except unit case sales volume and share data)
2005
Income Statement Data:
Net sales ....................................................................................
Cost of sales ..............................................................................
Gross profit..............................................................................
Distribution, selling and marketing expenses ..........................
General and administration expenses .......................................
Other operating income (expense)............................................
Profit from operations............................................................
Financial (expense) income, net ...............................................
Other (expense) income, net.....................................................
Monetary gain (loss) .................................................................
Profit before tax ......................................................................
1,190,399
(821,987)
368,412
(210,018)
(40,932)
(840)
116,622
(8,089)
4,727
(6,829)
106,431
1,079,356
(783,910)
295,446
(183,242)
(40,841)
3,083
74,446
(6,294)
(12,333)
18,277
74,096
923,732
(663,700)
260,032
(157,229)
(40,313)
(8,913)
53,577
25,226
4,003
18,481
101,287
Current.......................................................................................
Deferred.....................................................................................
Income tax................................................................................
Minority interest .....................................................................
Net income ...............................................................................
Other Operating Data:
Unit case sales volume (in thousands) (unaudited)..................
EBITDA (unaudited) ................................................................
Reconciliation of Profit from Operations to EBITDA:
Profit from operations...............................................................
Depreciation and amortization..................................................
Retirement and vacation pay ....................................................
Impairment loss on property, plant and equipment..................
Gain (loss) on disposal of fixed assets .....................................
EBITDA (unaudited) ................................................................
Share and Per Share Data:
Weighted average ordinary shares outstanding........................
Basic and diluted net income per weighted average ordinary
share .......................................................................................
Cash dividends declared per ordinary share.............................
Cash Flow Data:
Net cash provided by operating activities ................................
Net cash provided by (used in) investing activities .................
Net cash (used in) provided by financing activities .................
(22,497)
(4,286)
(26,783)
(768)
78,880
(27,398)
(22,999)
(50,397)
—
23,699
(24,808)
38,543
13,735
—
115,022
317,590
193,464
275,422
148,253
222,075
145,521
116,622
72,670
3,332
3,111
(2,271)
193,464
74,446
72,884
4,006
2,330
(5,413)
148,253
53,577
75,231
7,800
10,915
(2,002)
145,521
22,649,439,955
22,368,152,900
22,368,152,900
0.0034
0.0032
0.0011
0.0018
0.0051
0.0008
146,105
(421,777)
284,733
70,076
10,936
(120,181)
147,371
(88,301)
(130,758)
2005
Balance Sheet Data:
Current Assets:
Cash and cash equivalents ........................................................
Trade receivables ......................................................................
Investments in securities...........................................................
Inventories.................................................................................
Prepayments and other current assets.......................................
Prepaid income taxes ................................................................
Total current assets.................................................................
Investment in associate .............................................................
Property, plant and equipment..................................................
Intangible assets ........................................................................
Prepayments and other non-current assets ...............................
Deferred tax asset......................................................................
Total assets...............................................................................
Current Liabilities:
Short-term borrowings..............................................................
Current portion of long-term borrowings.................................
Trade and other payables ..........................................................
Income tax payable ...................................................................
Provisions..................................................................................
Total current liabilities...........................................................
Long-term borrowings
Deferred tax liability .................................................................
Provisions..................................................................................
Equity:
Issued capital.............................................................................
Share premium..........................................................................
Treasury shares .........................................................................
Legal reserves and retained earnings........................................
Minority interest........................................................................
Total equity ...............................................................................
Total liabilities and equity......................................................
2004
(audited)
As of December 31,
2003
44,136
121,424
4,415
103,985
21,280
20,737
315,977
2,643
613,753
286,562
15,261
—
1,234,196
45,764
88,516
1,140
90,570
8,355
6,691
241,036
—
481,084
2,495
16,423
—
741,038
61,108
78,754
46,647
97,252
8,467
98
292,326
—
518,437
4,127
14,635
9,364
838,889
320,498
10,807
107,693
9,057
3,017
451,072
8,722
23,903
17,153
49,506
15,158
69,348
11,396
3,243
148,651
10,874
24,372
14,440
118,557
24,775
61,868
16,384
2,308
223,892
30,632
12,719
13,528
250,752
169,882
(58,556)
316,921
54,347
733,346
1,234,196
224,889
—
—
317,812
—
542,701
741,038
224,889
—
—
333,229
—
558,118
838,889
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma consolidated financial information has been derived by the application of pro forma
adjustments to our consolidated income statements for the year ended December 31, 2005, which was prepared in accordance
with IFRS.
The unaudited pro forma consolidated financial information gives effect to the following transactions as if they had
occurred on January 1, 2005: (i) the acquisition by CCI of 87.63% of Efes Invest; and (ii) the incurrence of debt in connection
with such acquisitions.
We believe that the assumptions used provide a reasonable basis for presenting the significant effects directly
attributable to the acquisitions noted above. The unaudited pro forma consolidated financial information is provided for
illustrative purposes only and, because of its nature, addresses a hypothetical situation. It does not purport to represent what our
results of operations or financial position would actually have been if these transactions had in fact occurred on such dates and is
not necessarily indicative of our future financial position or results of operations. This information should be read in connection
with, and is qualified by reference to the information contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements of CCI and Efes Invest and related notes
included elsewhere in this offering memorandum.
Unaudited Pro Forma Consolidated Income Statement for the Year Ended December 31, 2005
Net sales ...............................
Cost of sales .........................
Gross Profit.........................
Selling, distribution and
marketing expense ............
General and administrative
expense..............................
Other operational income
(expense) ...........................
Profit From Operations.....
Financial (expense) income .
Other income (expense).......
Monetary gain ......................
Income Before Taxes .........
Tax charge net......................
Net Income..........................
Minority Interest................
Equity holders of the
parent ...............................
Profit From Operations.....
Depreciation and
amortization ......................
Other operating
(income)/expense ..............
Retirement and vacation pay
EBITDA ................................
Pro Forma
Combined Efes
Invest and CCI
Dec. 31, 2005
CCI(a)
Dec. 31, 2005
Efes
Invest(a)(b)
Dec. 31, 2005
Efes Invest 45 days
ended
Dec. 31, 2005(c)
(in millions of YTL)
1,190.4
(822.0)
368.4
159.7
(104.1)
55.6
(19.0)
12.6
(6.4)
1,330.1
(913.5)
417.6
(210.0)
(18.1)
2.4
(225.7)
(40.9)
(12.7)
1.9
(51.7)
(0.8)
116.6
(8.1)
4.7
6.8
106.4
(26.8)
79.6
(0.8)
0.0
24.8
(1.3)
10.8
1.4
35.7
(6.9)
28.8
(1.9)
0.0
(2.1)
0.1
(7.3)
(9.3)
2.2
(7.1)
(0.1)
(0.8)
139.3
(20.2)
8.3
(5.4)
121.9
(31.5)
90.4
(5.2)
78.9
116.6
26.9
24.8
(7.2)
(2.1)
85.2
139.3
72.7
8.1
(0.9)
79.8
0.8
3.3
193.5
0.0
0.0
32.9
0.0
(0.0)
(3.0)
0.8
Adjustments
(10.9)(d)
(2.4)(e)
223.3
(a)
The consolidated income statements of CCI and Efes Invest for the year ended December 31, 2005 have been derived
from their respective audited consolidated financial statements for the year ended December 31, 2005 of the respective entities
included elsewhere in this offering memorandum.
(b)
The income statement of Efes Invest is prepared in U.S. dollars. For purposes of preparing the unaudited pro forma
consolidated financial information, the U.S. dollar amounts have been converted into New Turkish Lira using the average rate
for 2005 (YTL1.3404 = $1.00).
(c)
Reflects the elimination of the results of Efes Invest for the 45 days beginning November 15, 2005 and ending
December 31, 2005 as these results are included in the consolidated income statement of CCI. The income statement
information of Efes Invest for the 45 days beginning November 15, 2005 and ending December 31, 2005 has been derived from
its unaudited income statement for the related period.
(d)
CCI paid YTL331.2 million for 87.63% of Efes Invest. The purchase of Efes Invest was financed as follows:
(i) YTL196.0 million through a share capital increase; (ii) YTL125.5 million through bank borrowings (a dollar denominated
facility of $60.0 million and a YTL denominated facility of YTL45.0 million); and (iii) the YTL9.7 million from cash from
operations. The dollar denominated borrowings incur interest at an annual rate of LIBOR plus 0.45% and the YTL denominated
borrowings incur interest at an annual rate of 14.8%. Assuming the debt was incurred as of January 1, 2005, the additional
accrued interest expense on these loans for the period between January 1, 2005 and November 14, 2005 is reflected as financial
(expense).
(e)
Minority interest in the unaudited pro forma consolidated income statement for the year ended December 31, 2005 was
computed based on a minority share ownership of 12.37% of Efes Invest for the period.
2005
Efes Invest net income, for the period between January 1, 2005 and November 14, 2005 (attributable to the equity
holders of CCI) (in millions of YTL)................................................................................................................................
19.7
Minority share ownership.....................................................................................................................................................
Minority interest in net income of Efes Invest (in millions of YTL) ..................................................................................
12.37%
2.4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with our
IFRS Financial Statements and the related notes contained elsewhere in this offering memorandum. For a description of certain
significant differences between IFRS and U.S. GAAP, see Annex A to this offering memorandum. This discussion contains
forward-looking statements that involve risks and uncertainties, including those discussed in "Risk Factors" and elsewhere in
this offering memorandum.
Overview of Our Business
We are a leading bottler and distributor of CSDs and NCBs with operations in Southern Eurasia (which we define as
Turkey, the Caucasus and Central Asia) and the Middle East. Our business consists of producing, selling and distributing
alcohol-free beverages, primarily brands of The Coca-Cola Company, in Turkey, Kazakhstan, Azerbaijan, Jordan and
Kyrgyzstan. We also have a 28.9% interest in the Coca-Cola bottler in Turkmenistan.
all of our markets are Coca-Cola, Coca-Cola light, Fanta and Sprite. Although CSDs continue to represent a high proportion of
our sales volume, our NCB sales have grown as we continue to expand our offering. In 2003, 2004 and 2005, CSDs represented
82.7%, 83.8% and 84.9%, respectively, and NCBs represented 17.3%, 16.2% and 15.1%, respectively, of our total unit case
sales volume in Turkey. On a pro forma basis, in 2003, 2004 and 2005, CSDs represented 84.3%, 85.1% and 85.2%,
respectively, and NCBs represented 15.7%, 14.9% and 14.8%, respectively, of our total unit case sales volume in all of the
markets in which we now operate.
Recent Developments
Acquisition of Shares by CCSD
In April 2005, E. Özgörkey İçecek Yatırımı A.Ş. sold its interest in CCI to Anadolu Efes and CCSD in equal parts. As
a result, CCSD acquired 1,253,354,597.5 Class C Shares for YTL58.6 million, which was financed through borrowings.
Recent Acquisitions
We expanded our bottling operations beyond Turkey with the acquisition from Anadolu Efes of a 51.87% interest in
Efes Invest on November 14, 2005 for consideration of YTL196.0 million. Subsequent to the acquisition, we extended a
mandatory call to all remaining shareholders in accordance with CMB requirements. As a result of the mandatory call, we
acquired an additional 35.76% of the shares of Efes Invest for aggregate consideration of YTL135.2 million, increasing our total
interest in Efes Invest to 87.63%. The purchase of Efes Invest was financed as follows: (i) YTL196.0 million through a share
capital increase in which Anadolu Efes was the sole participant; (ii) YTL125.5 million through bank borrowings; and
(iii) YTL9.7 million through cash from operations.
On December 29, 2005, our subsidiary Efes Invest Holland B.V. acquired from an indirect wholly owned subsidiary of
The Coca-Cola Company a 90.0% interest in CC Jordan for approximately $6.4 million (YTL8.7 million). The purchase of
CC Jordan was financed through borrowings. The remaining 10.0% of the shares of CC Jordan are held by an indirect wholly
owned subsidiary of The Coca-Cola Company.
The acquisitions of Efes Invest and CC Jordan were accounted for using the purchase method of accounting in
accordance with IFRS 3, "Business Combinations." The aggregate purchase price of such acquisitions was allocated to the
tangible and intangible assets acquired and liabilities assumed based upon their respective fair values as of the time each
acquisition was consummated. The excess of the purchase price over the historical cost basis of the net assets acquired
("goodwill") was allocated based upon appraisals of the fair market value and useful lives of the acquired fixed assets and
liabilities.
The results of Efes Invest and CC Jordan are not included in our IFRS Financial Statements as of and for the years
ended December 31, 2003 and 2004. Our consolidated balance sheet as of December 31, 2005 reflects the acquisitions of Efes
Invest and CC Jordan. Our consolidated income statement for the year ended December 31, 2005 reflects the acquisition of Efes
Invest from November 15, 2005.
EBITDA of YTL193.5 million. For a description of how we calculate EBITDA and a reconciliation of profit from operations to
EBITDA, see "Selected CCI Consolidated Financial and Operating Data."
net sales of YTL1,330.1 million, net income of YTL90.4 million and EBITDA of YTL223.3 million. See "Unaudited Pro Forma
Consolidated Financial Information."
In March 2006, we purchased for cash consideration of approximately $8 million (YTL10.6 million), subject to
post-closing adjustments, Mahmudiye Kaynak Suyu Ambalaj İşletmecilişi Ambalaj Sanayi ve Ticaret Ltd. Şti., a private natural
source water company which holds the exclusive extraction rights to a natural water source. This acquisition was financed using
cash from operations.
Functional Currency and Basis for Financial Reporting
Our functional currency is the New Turkish Lira, and we prepare our financial results in accordance with IFRS. In prior
periods, because our financial results were consolidated with the results of The Coca-Cola Company, we established our
accounting system in accordance with U.S. GAAP. We continued reporting our financial results in U.S. dollars after our results
were no longer consolidated with those of The Coca-Cola Company; this was due in part to the fact that Turkey has historically
experienced high inflation and devaluation, which made the interpretation of financial results in Turkish Lira difficult. The New
Turkish Lira has experienced relative stability in recent periods. In 2005, we converted our internal reporting systems to New
Turkish Lira.
We also prepare financial statements in accordance with the requirements of Turkish law and the accounting principles
of the CMB. In 2007, we may determine to use CMB Principles as our sole basis for reporting and we may discontinue reporting
in accordance with IFRS, as the differences between the two sets of accounting principles have become less significant. See
"Presentation of Financial and Other Information—Financial Statements."
Application of IAS 29
Our consolidated financial statements have been restated for the changes in the general purchasing power of the New
Turkish Lira as of December 31, 2005 based on IAS 29, "Financial Reporting in Hyperinflationary Economies." IAS 29 requires
that financial statements prepared in the currency of a hyperinflationary economy such as Turkey's be stated in terms of the
measuring unit current at the balance sheet date, and that corresponding figures for previous periods be restated in the same
terms. The restatement was calculated by means of conversion factors derived from the Turkish countrywide wholesale price
index ("WPI") published by the SIS.
Pursuant to IAS 29, non-monetary items in the consolidated financial statements, including income and expense items
attributable thereto, are restated on a monthly basis pursuant to the WPI. In accordance with IAS 29, all fixed-asset investments,
other investments, intangible assets, shareholders' equity and related income and expense items in the consolidated financial
statements have been restated on the basis of changes in the WPI from the WPI published in respect of the month of the relevant
transactions to the WPI published in respect of the restatement date, December 31, 2005.
Within hyper-inflationary economies, holding local currency monetary assets in excess of monetary liabilities results in
a loss, since the real value of the monetary assets decreases in line with the inflation rate. Conversely, if monetary liabilities
exceed monetary assets, a gain results as the real value of such liabilities decreases. The gain or loss is defined as a "loss/gain on
net monetary position" and is one of the major items in inflation-adjusted financial statements.
IAS 29 also requires that the loss or gain on our net monetary position be included in our restated net profit (loss). Net
monetary position is defined as monetary assets less monetary liabilities. Since the amounts included in the net monetary
position are stated in nominal money units, they need not be restated, whereas the other financial statement items are restated as
described below.
Restatement of balance sheet and income statement items through the use of a general price index and relevant
conversion factors does not necessarily mean that we could realize or settle the same values of assets and liabilities as indicated
on the consolidated balance sheets. Similarly, it does not necessarily mean that we could return or settle the same values of
equity to our shareholders. For a more detailed discussion of the application of IAS 29 in our consolidated financial statements,
see Note 2 to the IFRS Financial Statements.
The WPI and conversion factors that are used in the presentation of our financial statements in the equivalent
purchasing power of New Turkish Lira as of December 31, 2005 and for the preceding three financial years are given below:
December 31, 2005........................................................................................................................
December 31, 2004........................................................................................................................
December 31, 2003........................................................................................................................
December 31, 2002........................................................................................................................
WPI
Conversion Factor
8,786
8,404
7,382
6,479
1.000
1.045
1.190
1.356
Effective from January 1, 2006, IAS 29 will no longer be applied in our financial statements prepared in accordance
with IFRS.
Key Performance Indicators
Our management focuses primarily on gross profit, gross profit margin, profit from operations, net income, EBITDA
and EBITDA margin as key measures to evaluate our performance.
by other companies. For a reconciliation of EBITDA to profit from operations, see "Selected CCI Consolidated Financial and
Operating Data."
Principal Factors Affecting Our Results of Operations
Our Relationship with The Coca-Cola Company
General. We are a producer, distributor and seller primarily of products of The Coca-Cola Company. The Coca-Cola
Company controls the global product development and marketing of its brands. The Coca-Cola Company's ability to perform
these functions successfully has a direct effect on our sales volume and results of operations. We produce the beverages of The
Coca-Cola Company, engage in local marketing and promotional activities, establish business relationships with local
customers, develop local distribution channels and distribute the products of The Coca-Cola Company to customers either
directly or indirectly through independent distributors. Our business relationship with The Coca-Cola Company is mainly
governed by a bottler's agreement entered into between The Coca-Cola Company and us with respect to each country in which
we operate. You should read "Principal Shareholders and Related Party Transactions—Our Relationship with The Coca-Cola
Company" for additional information on our relationship with The Coca-Cola Company and a detailed description of the terms
of the bottler's agreements.
Purchase of Concentrate. Expenditure for concentrate constitutes our largest individual raw material cost. Under the
bottler's agreement for each of our markets, we are required to purchase concentrate for all beverages of The Coca-Cola
Company from companies designated by The Coca-Cola Company. The Coca-Cola Company is entitled under the bottler's
agreement to determine, in its sole discretion, the price we pay for concentrate.
Historically, The Coca-Cola Company has determined concentrate prices after discussions with us in order to reflect
local trading conditions. Since 2002, The Coca-Cola Company has determined concentrate prices for most of our CSDs in
Turkey by reference to a percentage of our monthly U.S. dollar net sales as calculated in accordance with U.S. GAAP, which has
had the effect of hedging these concentrate prices against possible devaluations of the Turkish Lira. Concentrate represented
34.5%, 35.1% and 34.8% of our total cost of sales in 2003, 2004 and 2005, respectively. The cost of concentrate is reflected in
cost of sales in our consolidated income statement.
With respect to our international operations, The Coca-Cola Company sets a fixed price in U.S. dollars for concentrate
which normally stays in place for one calendar year, and prices are subject to annual review by The Coca-Cola Company at the
end of each year. Concentrate represented 21.5%, 19.4% and 18.5% and of the total cost of sales of our international operations
in 2003, 2004 and 2005, respectively.
While we do not have any reason to believe that The Coca-Cola Company's practice of determining concentrate prices
will be discontinued, we cannot offer any assurance that The Coca-Cola Company will choose to continue it in the future. We
expect amounts of concentrate purchased from The Coca-Cola Company to track our sales volume growth.
Promotional and Marketing Support. The Coca-Cola Company makes contributions to us in respect of promotional
and marketing support programs to promote the sale of its products in the countries in which we operate. The promotional
contributions are treated as a reduction in cost of goods sold. These contributions totaled YTL61.7 million, YTL49.9 million and
YTL38.1 million in 2003, 2004 and 2005, respectively. Contributions for marketing programs are recognized as a reduction of
our advertising costs. Marketing contributions amounted to YTL8.2 million, YTL15.9 million and YTL26.1 million in 2003,
2004 and 2005, respectively.
Pricing and Pricing Strategy. Our pricing strategy is driven by our strategy of increasing sales of CSDs and the
proportion of single-serve package sales within the CSD category while improving gross profit margins. Historically, because all
of our customer transactions are conducted in New Turkish Lira but our financial statements were prepared in U.S. dollars, our
pricing strategy aimed to mitigate the effect of devaluation through increases in our Turkish Lira-denominated wholesale selling
prices in order to reduce volatility in our U.S. dollar revenues. With the change to preparation of our financial statements in New
Turkish Lira, our pricing strategy in Turkey will increasingly focus on keeping prices in line with the inflation rate as well as
reflecting the effect of unfavorable fluctuations in foreign currency-denominated raw materials. Our pricing strategy in
international operations will focus on increasing net sales per unit in U.S. dollars.
We independently determine our pricing strategy in light of the trading conditions prevailing in each country in which
we operate. However, The Coca-Cola Company's contractual right under the bottler's agreements (i) to set our concentrate prices
and (ii) to set maximum prices we may charge to our customers outside of Turkey, affects our pricing decisions and could give
The Coca-Cola Company considerable influence over our gross profit margins. See "Risk Factors—Risks Relating to Our
Relationship with The Coca-Cola Company—The Coca-Cola Company has various rights under the bottler's agreement that, if
exercised, could adversely affect our results or our ability to grow."
Amounts Payable to and Receivable from The Coca-Cola Company. As of December 31, 2003, 2004 and 2005, The
Coca-Cola Company and its subsidiaries owed us YTL0.1 million, YTL4.1 million and YTL0.9 million, respectively, and we
owed to The Coca-Cola Company and its subsidiaries a total of YTL24.4 million, YTL29.8 million and YTL30.6 million,
respectively. These amounts reflected amounts owed by The Coca-Cola Company to reimburse advertising costs paid by us on
behalf of The Coca-Cola Company, as well as trade balances related to sales of concentrate and finished products by The CocaCola Company to us.
Impact of Economic and Political Environment
Our results of operations are and will continue to be significantly affected by political and economic factors in the
countries in which we operate, including the economic growth rate, the rate of inflation and fluctuations in exchange and interest
rates. See "Risk Factors—Risks Relating to Operating in Emerging Markets."
Package Mix and Product Mix
We refer to "future consumption" purchases as purchases of beverages for consumption at a later time, whereas
"immediate consumption" purchases are purchases of chilled beverages for immediate consumption typically away from home,
including in restaurants, bars, kiosks, gas stations, sports and entertainment centers, offices and hotels. Beverages for future
consumption are produced in multi-serve containers (1 liter or more). Beverages for immediate consumption include
single-serve containers (0.5 liter or less) and fountain products.
Single-serve packages sold for immediate consumption typically generate higher margins than multi-serve packages
sold for future consumption primarily because consumers are willing to pay a premium to consume our beverages chilled at a
convenient location. One of the strategies we use to improve our sales of single-serve packages for immediate consumption is to
invest in cold drink equipment, mainly coolers, which we make available to retail outlets. This typically represents a significant
portion of our capital expenditure. See "Business—Sales and Marketing—Consumption Occasions."
"Package mix" refers to the relative percentages of our sales volume comprising single-serve packages sold for
immediate consumption and multi-serve packages sold for future consumption. A favorable shift in package mix occurs when
sales of our higher margin single-serve packages increase relative to sales of multi-serve packages, while an unfavorable shift in
package mix occurs when our volume shifts toward more multi-serve packages that generate lower margins.
In addition, sales of different products in our portfolio of beverages carry different margins, depending on the product.
For example, sales of Coca-Cola tend to result in higher margins than sales of Turkuaz bottled water because the bottled water
segment in Turkey is highly fragmented and characterized by intense price competition. Therefore, our margins may fluctuate
from year to year depending on the proportion of our sales volume represented by higher-margin and lower-margin beverages.
Our strategy is aimed at ensuring that our higher-margin (mainly CSD) sales volume is not adversely affected by the selective
broadening of our range of beverages and that lower-margin beverages are complementary to our core business.
Cost of Sales
Cost of sales includes raw material costs, depreciation of production equipment and other assets related to production,
as well as freight costs of raw materials, intra-company transportation of products, labor costs for production employees and
manufacturing costs.
Raw material costs represented 85.6%, 88.3% and 88.2% of our total cost of sales in 2003, 2004 and 2005,
respectively. Our major raw materials include concentrate, sweeteners, glass bottles, polycarbonate bottles (which are used in
our HOD water business), cans, PET resin, caps and aseptic packages, as well as other packaging materials. See "Business—
Production—Raw Materials and Purchasing Strategy."
Of the total cost of sales in 2003, 2004 and 2005, depreciation expense amounted to 6.3%, 5.1%, and 4.9%,
respectively.
Distribution, Selling and Marketing Expenses
Distribution, selling and marketing expenses include:
•
distribution and selling expenses, which include the cost of our sales force, delivery truck drivers, forklift drivers
and warehouse employees, depreciation and maintenance of cold drink equipment, sales vehicles, delivery trucks
and forklifts, as well as fees charged by third party shipping agents for the bulk deliveries made to distributors and
large customers and gasoline expenses for the above mentioned vehicles; and
•
marketing and advertising expenses, net of reimbursements from the Coca-Cola Company, which include the cost
of advertising signs, novelties and various customer-focused marketing activities.
The cost of employees and depreciation expenses are the two most significant components of distribution, selling and
marketing expenses. Of the total distribution, selling and marketing expenses in 2003, 2004 and 2005, employment costs
amounted to 27.2%, 23.4% and 25.9%, respectively, and depreciation expense amounted to 17.3%, 14.4% and 13.0%,
respectively.
General and Administration Expenses
General and administration expenses include employment costs relating to the finance, information technology, internal
audit, human resources, legal and general administration functions and the depreciation and maintenance of the buildings and
vehicles used by certain employees in these functions, as well as consulting expenses. Employment costs constitute the most
significant component of general and administration expenses. Of the total general and administration expenses in 2003, 2004
and 2005, employment costs amounted to 60.1%, 64.9% and 60.0%, respectively, and depreciation expense amounted to 12.5%,
10.7% and 8.7%, respectively.
Seasonality
Sales of alcohol-free beverages are generally higher in all of our markets in the summer months of May to September
because of the warm weather and, in Turkey, the high levels of tourism typical of these periods. Historically, we have
experienced the highest sales volume and profits in the second and third quarters, and the lowest sales volume and profits in the
first and fourth quarters, of each year. In 2005, we realized 17.9% of our unit case sales volume in the first quarter, 28.2% in the
second quarter, 33.0% in the third quarter and 20.9% in the fourth quarter. As a result, our cash flows vary widely between
quarters. Bad weather conditions, including unusually cold or rainy periods, in any of our markets or decreased levels of tourism
in Turkey during the peak season could adversely affect sales volume, profit from operations and cash flow and could therefore
have a disproportionate impact on our operating results for the entire year.
We also experience increased demand for our beverages during Ramadan, which is the holy month of fasting in the
Islamic calendar. The dates of Ramadan are determined according to a lunar calendar, meaning that Ramadan generally occurs
10 days earlier each year.
Exchange Rates
We report our financial results in New Turkish Lira. We have foreign currency denominated revenues, expenses, assets
and liabilities. As a consequence, movements in exchange rates can affect our profitability, the comparability of our results
between periods and the carrying value of our assets and liabilities.
Our revenues are generated in the local currencies of the countries in which we operate. When we incur expenses that
are not denominated in the same currency as the related revenues, foreign exchange rate fluctuations could affect our
profitability. Raw materials purchased in currencies such as the U.S. dollar can lead to higher cost of sales if those currencies
strengthen against the local currencies in which revenues are generated, which, if not recovered through price increases, would
lead, in turn, to a reduction in our gross profit margins. In 2003, 2004 and 2005, 44.7%, 46.1% and 45.0%, respectively, of our
purchases of raw and packaging materials were denominated in U.S. dollars. As of December 31, 2005, the cost of all of our
concentrate, which represented 39.5% of our raw material costs in 2005, was denominated in U.S. dollars. Since 2002, The
Coca-Cola Company has determined concentrate prices for most of our CSDs in Turkey by reference to a percentage of our U.S.
dollar net sales as calculated in accordance with U.S. GAAP, which has had the effect of hedging these concentrate prices
against possible devaluations of the Turkish Lira. With respect to our international operations, The Coca-Cola Company has set
a fixed price in U.S. dollars for concentrate and our expenses for PET resin, sugar, glass bottles and cans are denominated in
U.S. dollars.
In addition, even where revenues and expenses are matched, we must translate non-New Turkish Lira denominated
results of operations, assets and liabilities into New Turkish Lira in our consolidated financial statements. To do so, balance
sheet items are translated from their source currency into New Turkish Lira using fiscal year-end exchange rates and income
statement and cash flow items are translated into New Turkish Lira using average exchange rates during the relevant period.
Consequently, increases and decreases in the value of the New Turkish Lira versus the currencies used by our international
operations will affect our reported results of operations and the value of our assets and liabilities in our consolidated balance
sheet, even if our results of operations or the value of those assets and liabilities has not changed in their original currency. These
translations could significantly affect the comparability of our results between financial periods or result in significant changes to
the carrying value of our assets, liabilities and shareholders' equity.
Impact of Inflation
Exchange rates for the New Turkish Lira can be highly volatile. Although until February 2001 it was the stated policy
of the Central Bank of the Republic of Turkey to devalue the Turkish Lira in line with inflation, in recent years the devaluation
of the Turkish Lira has not been consistent with inflation rates. The annual inflation rates in Turkey as measured by the average
percentage changes in the Turkish consumer price index for 2000, 2001, 2002, 2003, 2004 and 2005 were 64.9%, 54.9%, 54.4%,
45.0%, 25.3%, 8.6% and 8.2%, respectively. Historically, we have been able to increase our local currency selling prices
approximately in line with inflation in each of these years. See "Risk Factors—Risks Relating to Operating in Turkey—The
level of inflation in Turkey could adversely affect our business" and " —Application of IAS 29."
Taxation
Under the Turkish Taxation Code, a company that has its head office or place of business in Turkey is subject to a
corporate tax that is levied at a rate of 30% on the corporation's taxable income. During the fiscal years ended December 31,
2001 and 2002, corporations were also obligated to make a mandatory contribution to the Turkish state funds equal to 10% of
corporate taxes, resulting in an overall effective tax rate for these corporations of 33% for 2001 and 2002, compared to an
effective tax rate of 30% for fiscal 2003. For fiscal year 2004 only our statutory financial statements were required to be adjusted
to account for the effects of inflation, but they continued to be prepared on an unconsolidated basis.
In addition, the Turkish government offers investment incentives to companies that make certain qualifying capital
investments in Turkey. Prior to April 24, 2003, the total amount of qualifying capital investments was deducted from taxable
income and the remainder of taxable income, if any, was taxed at the corporate tax rate. A withholding tax of 19.8% was applied
to the total amount of qualifying capital investments. With effect from April 24, 2003, the investment incentives scheme was
amended such that companies are no longer subject to a withholding tax, but rather directly deduct 40% of qualifying capital
investments from their annual taxable income. In addition, corporations that had unused qualifying capital investment amounts
from periods prior to April 24, 2003 were entitled to carry them forward and apply the 19.8% withholding tax to them in the
manner described above.
In accordance with the Turkish Taxation Code, CCI, CCSD and Efes Invest file separate tax returns. CCI applied
investment incentive certificates to its entire taxable income in 2001, 2002 and 2003 and, as a result, its tax rate based on its
statutory financial statements in those years was 19.8%. As of December 31, 2004, CCI had remaining certificates in an amount
of approximately YTL46.0 million, which is indexed annually based on the specific rates announced by the government. As of
December 31, 2005, CCI had utilized all of the investment incentive certificates under the old regime and had started utilizing
the investment incentive entitlements under the new regime. As of December 31, 2005, CCI had remaining entitlements in an
amount of approximately YTL13.9 million. Remaining entitlements will continue to be applied against net income as reported in
the statutory financial statements of CCI until they have been fully utilized. CCI's tax rate based on its statutory financial
statements was 8.2% in 2005. CCSD applied all of its investment incentive entitlements under the new regime to part of its
taxable income in 2003. CCSD's tax rate based on its statutory financial statements was 26.9% in 2003, 28.7% in 2004 and
25.3% in 2005. The lower than statutory rate in 2003, 2004 and 2005 was due to the utilization of all the investment tax
incentives obtained after April 24, 2003 against CCSD's taxable income.
We have traditionally benefited from certain Turkish corporate tax incentives, particularly incentives related to capital
investments. Under the draft corporate tax code (the "Draft Corporate Tax Code") that is expected to be implemented in
May 2006 with a retroactive effective date of January 1, 2006, the corporate tax rate in Turkey will be reduced from the current
rate of 30% to 20% but tax incentives for capital investments will no longer be available. The Draft Corporate Tax Code permits
us to elect to follow either the old or the new regime with respect to 2006. As a result, we may be able to use our remaining
capital investment incentives in 2006 if we have sufficient qualifying income; however, our overall effective tax rate in 2006 and
thereafter may increase.
The amount of income tax we incur is calculated based on the taxable income reported in our Turkish statutory
accounts rather than on our IFRS income before tax. Accordingly, our IFRS income before tax may change without there being
any corresponding change in our IFRS income tax. If that happens, our effective tax rate for IFRS purposes will be affected.
Tax Amnesty Law No. 4811, published on February 27, 2003, provided companies with the option of increasing their
taxable income in exchange for the assurance of immunity from tax inspection and additional assessments for corporate income
taxes with respect to the years 1998 to 2001. CCI and CCSD availed themselves of this option and increased their total taxes
payable with respect to the years 1998 to 2001 by YTL845, 694, of which YTL563,796 was paid in 2003 and the remaining
amount was paid in July 2004.
As of December 31, 2003, 2004 and 2005, Efes Invest had cumulative loss carryforwards of $5.3 million
(YTL7.4 million), $20.5 million (YTL27.5 million) and $20.1 million (YTL27.0 million), respectively. Of the total amount as of
December 31, 2005, $16.8 million (YTL22.6 million) was available to offset gains. These losses can be carried forward for five
years from the date they were incurred.
The loss carryforwards held by Efes Invest at the end of 2005 and which were available to offset gains expire as
follows:
Amount
0.4.............................................................................................................................................................
2.1.............................................................................................................................................................
20.1............................................................................................................................................................
Expiration
2007
2008
2009
Efes Invest availed itself of the tax amnesty described above and obtained immunity from tax examinations for these
years. YTL0.1 million of additional corporate tax and VAT are being paid in installments to the local tax offices.
CC Kazakhstan is subject to a corporate income tax of 30% on taxable profit as determined under the law of
Kazakhstan. Companies are required to file profit tax declarations on a quarterly basis in advance. For the years ended
December 31, 2003, 2004 and 2005, CC Kazakhstan paid corporate taxes amounting to $1.4 million (YTL2.0 million),
$2.5 million (YTL3.4 million), and $0.6 million (YTL0.8 million), respectively.
CC Azerbaijan was subject to corporate income tax of 24% on taxable profit as determined under the law of Azerbaijan
in prior years. Effective January 1, 2006, such rate was reduced to 22%. Companies are required to file profit tax declarations on
an annual basis. For the years ended December 31, 2003, 2004 and 2005, CC Azerbaijan had cumulative loss carryforwards
amounting to $7.3 million (YTL10.2 million) and $7.0 million (YTL9.4 million) and $6.5 million (YTL8.7 million),
respectively. CC Azerbaijan's losses can be carried forward indefinitely; however, losses can be used to offset only 80% of
income in any given year.
CC Kyrgyzstan is subject to corporate income tax of 20% on taxable profit as determined under the law of Kyrgyzstan.
As of December 31, 2003 and 2004, CC Kyrgyzstan had cumulative loss carryforwards amounting to $6.6 million
(YTL9.2 million) and $2.3 million (YTL3.1 million). These losses can be carried forward for five years from the date they are
incurred. As of December 31, 2005, CC Kyrgyzstan had no remaining tax loss carryforwards.
CC Jordan is subject to corporate income tax of 15% on taxable profit as determined under the laws of Jordan.
Taxpayers are permitted to carry forward unabsorbed tax losses to offset profits of subsequent periods indefinitely for losses
incurred after the year 2001. However, losses incurred prior to 2002 are carried forward for six years. As of December 31, 2005,
CC Jordan had cumulative loss carryforwards of $6.8 million (YTL9.1 million), which can be used until the end of 2007.
Special Consumption Tax
A special consumption tax is levied by the Turkish government on sales of cola products (in our case, Coca-Cola and
Coca-Cola light). This tax currently amounts to 25% (having been decreased from 26.5% in 2002) of the transfer price from
CCI, our production company, to CCSD, our sales and distribution company. The tax is levied only on the first sale of the
products and, therefore, does not apply to sales by CCSD to our customers. The tax is included in net sales as a deduction from
gross sales and amounted to YTL83.6 million in 2003, YTL99.2 million in 2004 and YTL104.0 million in 2005. See "Risk
Factors—Risks Relating to Our Business and the Alcohol-Free Beverages Industry—A change in the amount or application of
the special consumption tax imposed on sales of cola-flavored soft drinks in Turkey could adversely affect our business." There
is no similar tax levied on sales of cola products in the other countries in which we operate.
Results of Operations
Year Ended December 31, 2005 Compared to Year Ended December 31, 2004
Overview
Our financial results in 2005 reflected a continuation of volume and profit growth primarily resulting from the
continued improvement of the economic climate in Turkey in 2005. The unit case, which equals 5.678 liters, or 24 servings of 8
U.S. fluid ounces each, is the typical volume measure used in our industry. Our net sales grew by 10.3% against a unit case
volume increase of 15.3% compared to 2004. Our gross margin increased from 27.4% in 2004 to 30.9% in 2005. Profit from
operations increased from YTL74.4 million in 2004 to YTL116.6 million in 2005. EBITDA increased from YTL148.3 million
in 2004 to YTL193.5 million in 2005.
Sales Volume
In 2005, our unit case sales volume increased by 42.2 million unit cases, or 15.3%, from 275.4 million unit cases in
2004 to 317.6 million unit cases in 2005. Of the increase, 5.6 million unit cases is attributable to the inclusion of Efes Invest's
results from November 15, 2005. The remaining increase was primarily attributable to an improvement in CCSD sales volume
and new product launches.
CSD sales volume increased by 38.9 million unit cases, or 16.8%, from 230.9 million unit cases in 2004 to
269.8 million unit cases in 2005. Of the increase, 4.9 million unit cases is attributable to the inclusion of Efes Invest's results
from November 15, 2005. The remaining increase was primarily attributable to an increase in the sales volume of future
consumption CSD packages, largely resulting from increased marketing activities and certain refinements to our pricing strategy.
Sales of immediate consumption CSD packages also increased primarily as a result of the launch of a 200 ml returnable glass
bottle in March 2005.
NCB sales volume increased by 3.1 million unit cases, or 20.3%, from 15.2 million unit cases in 2004 to 18.3 million
unit cases in 2005, as a result of an increase in sales of future consumption NCB packages. Of the increase, 0.7 million unit cases
is attributable to the inclusion of Efes Invest's results from November 15, 2005. The remaining increase is principally
attributable to increases in sales of Cappy, partially as a result of new flavor launches, as well as the introduction of Nescafé
Xpress in April 2005. These increases were offset in part by a decrease in sales of Frutia (a beverage line that was discontinued
in October 2005).
Turkuaz bottled water sales volume increased by 1.1 million unit cases, or 7.3%, from 15.1 million unit cases in 2004
to 16.2 million unit cases in 2005, primarily due to an overall increase in consumption of bottled water. Sales volume of bottled
water increased at a lower rate than the overall consumption increase in Turkey, however, due to decreased demand for
processed water resulting from negative publicity regarding processed water as compared to source water. Turkuaz HOD sales
decreased by 0.9 million unit cases primarily as a result of the negative publicity regarding processed water.
Net Sales
Revenue is stated net of sales discounts and special consumption tax, listing fees and deductions relating to
contributions for marketing and promotions paid to customers. Listing fees are incentives provided to customers for carrying our
products in their stores. We believe that net sales, rather than gross sales, is relevant in evaluating our performance because the
net sales amount reflects the amount customers are willing to pay for our products. Net sales increased by YTL111.0 million, or
10.3%, from YTL1,079.4 million in 2004 to YTL1,190.4 million in 2005. Of the increase, YTL19.0 million is attributable to the
inclusion of Efes Invest's results from November 15, 2005. The remaining increase in net sales was principally the result of the
sales volume increase, as well as increases in New Turkish Lira selling prices following a pricing strategy that included
increased trade discounts and consumer promotions in anticipation of an increasingly competitive soft drink market in 2004,
offset in part by the effect of the inflation adjustment.
Net sales per unit case decreased by YTL0.17 from YTL3.92 in 2004 to YTL3.75 in 2005 period. The decrease is
mainly due to the effect of inflation adjustments on the New Turkish Lira price increases, which was below the level of inflation.
Cost of Sales
Our cost of sales increased by YTL38.1 million, or 4.9%, from YTL783.9 million in 2004 to YTL822.0 million in
2005. Of the increase, YTL12.6 million is attributable to the inclusion of Efes Invest's results from November 15, 2005. The
remaining increase was primarily due to the increased volume in 2005, as well as an increase in certain concentrate prices
(calculated as a percentage of our monthly U.S. dollar net sales) and the cost of other raw materials, primarily HFCS and PET
resin. In addition, the increase in single-serve packages, which have relatively higher cost per unit case, as a percentage of our
package mix, further contributed to the increase in cost of sales. These increases were offset in part by the effect of the inflation
adjustment and the appreciation of the New Turkish Lira against the U.S. dollar, which reduced the New Turkish Lira cost of
raw materials purchased in U.S. dollars.
Cost of sales per unit case decreased from YTL2.85 in 2004 to YTL2.59 in 2005.
Gross Profit
Gross profit increased by YTL73.0 million, or 24.7%, from YTL295.4 million in 2004 to YTL368.4 million in 2005 as
a result of the factors discussed above. Of the total gross profit, YTL6.4 million is attributable to the inclusion of Efes Invest's
results from November 15, 2005. Our gross profit margin increased from 27.4% in 2004 to 30.9% in 2005.
Distribution, selling and marketing expenses increased by YTL26.8 million, or 14.6%, from YTL183.2 million in 2004
to YTL210.0 million in 2005. Of the increase, YTL2.4 million is attributable to the inclusion of Efes Invest's results from
November 15, 2005.
Selling and distribution expenses increased by YTL21.4 million, or 16.3%, from YTL131.4 million in 2004 to
YTL152.8 million in 2005. Of the increase, YTL2.0 million is attributable to the inclusion of Efes Invest's results from
November 15, 2005. The increase was the result of an increase in transportation expenses largely due to the increase in sales
volume, as well as increased personnel headcount mainly resulting from the introduction of distributor advisors and the
restructuring of our sales force in order to maintain and improve sales execution.
Marketing and advertising expenses increased by YTL5.4 million, or 10.5%, from YTL51.8 million in 2004 to
YTL57.2 million in 2005, Of the increase, YTL0.4 million is attributable to the inclusion of Efes Invest's results from
November 15, 2005. The increase was primarily attributable to increased marketing activities to improve immediate
consumption channel sales and relating to new product launches.
General and administration expenses increased by YTL0.1 million, or 0.2%, from YTL40.8 million in 2004 to
YTL40.9 million in 2005. Of the increase, YTL1.9 million is attributable to the inclusion of Efes Invest's results from
November 15, 2005. On a CCI standalone basis, general and administration expenses decreased by YTL1.8 million, or 4.4%,
from YTL40.8 million in 2004 to YTL39.0 million in 2005. The decrease was primarily due to the effect of the inflation
adjustment on salary increases that were slightly less than the inflation rate, and a reduction in headcount. In addition,
depreciation expenses decreased due to full depreciation of vehicles and IT equipment partially offset by an increase in rental
expenses for IT equipment and other IT expenses.
Other Operating Income (Expense)
Other operating income consists of gain on disposal of fixed assets. Other operating expense consists of impairment
losses and loss on disposal of fixed assets. Other operating income (expense) was an income of YTL3.1 million in 2004 and an
expense of YTL0.8 million in 2005. No income or expense was attributable to the inclusion of Efes Invest's results from
November 15, 2005.
We had impairment losses of YTL2.3 million and YTL3.1 million in 2004 and 2005, respectively. The loss in 2005
was primarily attributable to the writedown of a PET blowing machine. The amount in 2004 includes the writedown of PET
blowing machines and coolers, offset in part by the reversal of a previously accrued writedown as a result of the sale of refillable
PET bottling equipment which had been written down.
We had a gain on disposal of fixed assets of YTL5.4 million and YTL2.3 million in 2004 and 2005, respectively. The
gain in both years is primarily attributable to the sale of refillable PET production lines, cold drink equipment and vehicles.
Profit from Operations
Profit from operations increased by YTL42.2 million from YTL74.4 million in 2004 to YTL116.6 million in 2005 as a
result of the factors discussed above. Of the increase, YTL2.1 million is attributable to the inclusion of Efes Invest's results from
November 15, 2005. As a percentage of net sales, profit from operations 2005 reached 9.8% compared to 6.9% in the 2004
period.
Financial (Expense) Income, Net
Financial (expense) income, net consists of interest income, interest expense and the net foreign exchange gain/(loss)
incurred on the remeasurement of borrowings. Financial expense, net increased by YTL1.8 million, or 28.6%, from
YTL6.3 million in 2005 to YTL8.1 million in 2005.
Interest income decreased by YTL2.5 million, or 45.5%, from YTL5.5 million in 2004 to YTL3.0 million in 2005. The
decrease was a result of a decrease in both interest rates and amounts invested.
Interest expense increased by YTL2.5 million, or 26.3%, from YTL9.5 million in 2004 to YTL12.0 million in 2005,
due to higher debt balances in the 2005 period (including the incurrence of debt to finance the acquisition of our shares by
CCSD, offset in part by decreased interest rates. Short-term borrowings (primarily with 12-month maturities, including the
current portion of long-term debt and short-term capital lease obligations) amounted to YTL64.7 million as of December 31,
2004 and YTL331.3 million as of December 31, 2005. Long-term debt amounted to YTL10.9 million as of December 31, 2004
and YTL8.7 million as of December 31, 2005.
Foreign exchange loss amounted to YTL2.2 million in 2004 compared to a gain of YTL1.0 million in 2005. 2004
included the foreign exchange loss resulting from the significant depreciation of the Turkish Lira against the U.S. dollar in
May 2004 at which time a significant portion of our U.S. dollar borrowings was repaid. In 2005, we incurred foreign exchange
income due to the appreciation of the New Turkish Lira against the U.S. dollar as of December 31, 2005 compared to its value as
of December 31, 2004.
Other (Expense) Income, Net
Other (expense) income, net includes non-recurring items such as a tax amnesty payment and public offering expenses
and the foreign exchange gain incurred on the remeasurement of current receivables and payables balances.
We had net other expense of YTL12.3 million in 2004, compared to net other income of YTL4.7 million in 2005. In
2004, the expense primarily included YTL7.3 million of expenses related to a proposed public offering and YTL5.9 million of
foreign exchange losses on foreign currency denominated current assets and liabilities. These expenses were offset in part by a
gain on the sale of scrap materials. In 2005, net other expense primarily included YTL7.7 million of negative goodwill resulting
from the acquisition of CC Jordan by Efes Invest, an expense of YTL2.1 million due to the impairment of goodwill in Efes
Invest, an expense of YTL1.5 million related to a proposed public offering and YTL0.9 million of foreign exchange losses on
foreign currency denominated current assets and liabilities, offset in part by YTL1.5 million of gain on sale of scrap materials.
Monetary Gain
In 2005, monetary loss amounted to YTL6.8 million compared to monetary gain of YTL18.3 million in 2004.
Income Tax
Income tax consists of corporate tax and deferred tax charge. Deferred tax is computed based on temporary differences
between the statutory books and the IFRS accounts.
A corporate tax charge of YTL27.4 million, or 37.0% of pre-tax income under IFRS, was recorded for 2004, based on
the results in our Turkish statutory books. A corporate tax charge of YTL22.5 million, or 21.1% of pre-tax income under IFRS,
was recorded based upon the results in our Turkish statutory books in 2005. The YTL4.9 million decrease in corporate tax
charge despite an improved operating result is due to the increase in the utilization of investment tax credits under the new
regime (discussed under "—Principal Factors Affecting Our Results of Operations—Taxation") in 2005, which enabled us to
offset a greater proportion of our income using investment tax credits. Of the corporate tax charge in 2005, YTL0.5 million
relates to the inclusion of Efes Invest's results from November 15, 2005. The decrease in the effective tax rate is attributable to
this use of tax credits in addition to the discontinuation of inflation accounting in our statutory books effective from January 1,
2005, which resulted in lower corporate tax base in local books in 2005 compared to 2004.
Deferred tax is computed based on temporary differences between the statutory books and IFRS books. Income taxes
for 2005 included deferred tax charge of YTL4.3 million compared to deferred tax charge of YTL23.0 million in 2004.
YTL1.7 million of the 2005 deferred tax charge relates to Efes Invest. The lower deferred tax charges in 2005 versus 2004 are
due to the recognition in 2004 of one-off deferred tax charges resulting from a change in the Turkish Tax Code in 2004 to no
longer permit the indexing of capitalized foreign exchange losses to inflation, as was the case previously.
Net Profit
Net profit increased to YTL79.6 million in 2005 from YTL23.7 million in 2004, as a result of the factors discussed
above. YTL6.3 million of net income is related to Efes Invest. As a percentage of net sales, net profit was 6.6% in 2005
compared to 2.2% in 2004.
EBITDA
EBITDA increased by YTL45.2 million, or 30.4%, from YTL148.3 million in 2004 to YTL193.5 million in 2005. Of
the increase, YTL3.0 million relates to the inclusion of Efes Invest's results. The remaining increase was attributable principally
to a YTL40.1 million increase in profit from Turkey operations discussed above, a YTL0.8 million increase in impairment losses
and a YTL3.1 million decrease in gain on sale of fixed assets, partially offset by a reduction in retirement and vacation pay. As a
percentage of net sales, EBITDA was 16.3% in 2005 compared to 13.7% in 2004.
Year Ended December 31, 2004 Compared to Year Ended December 31, 2003
Overview
Our financial results in 2004 reflected a continuation of the return to volume and profitability growth that began in
2003. The improved economic climate in Turkey in 2004 contributed to our improved operating results, as did the continued
average strength of the Turkish Lira against the U.S. dollar in 2004. Our net sales grew by 16.8% against a unit case volume
increase of 24.0% compared 2003. Our gross margin decreased from 28.2% in 2003 to 27.4% in 2004. Profit from operations
increased from YTL53.6 million in 2003 to YTL74.4 million in 2004, and EBITDA increased from YTL145.5 million in 2003
to YTL148.3 million in 2004.
Sales Volume
In 2004, our unit case sales volume increased by 53.3 million unit cases, or 24.0%, from 222.1 million unit cases in
2003 to 275.4 million unit cases in 2004. The increase was primarily attributable to a 25.6% increase in CSD sales volume and
the inclusion in the 2004 results of a full year of sales of water from our HOD business, which was launched in May 2003. In
addition, in June 2003 we were authorized, along with a number of other bottlers in the Coca-Cola system, to sell products to
distributors reselling into Iraq. These sales, consisting primarily of CSDs along with small amounts of fruit juice, nectar,
fruit-flavored drinks and water, amounted to 2.5 million unit cases in 2004. This volume increase was partially offset by lower
sales of Turkuaz bottled water.
CSD sales volume increased by 47.1 million unit cases, or 25.6%, from 183.7 million unit cases in 2003 to
230.8 million unit cases in 2004. Sales volume of both immediate and future consumption CSD packages increased in 2004,
largely resulting from the improved economic climate in Turkey, increased marketing activities and certain refinements to our
pricing strategy.
NCB sales volume increased by 3.0 million unit cases, or 24.6%, from 12.2 million unit cases in 2003 to 15.2 million
unit cases in 2004, primarily as a result of competitive pricing in Cappy (which contributed a 2.3 million unit case increase), as
well as the full year impact in 2004 of the launch of a new brand, Burn, the introduction of new packages for Frutia (a beverage
line that was discontinued in October 2005) and increased distribution of Powerade, all of which were implemented after the
first quarter of 2003. These increases were partially offset by the discontinuation of sales of Bibo in the second quarter of 2003.
Turkuaz bottled water sales volume decreased by 11.1 million unit cases, or 42.4%, from 26.2 million unit cases in
2003 to 15.1 million unit cases in 2004. The decrease was the result of our increased focus in 2004 on improving the margins on
our Turkuaz bottled water by reducing discounts to certain customers, whereas during 2003 our focus was on increasing sales
volume of the product. Our HOD water sales volume contributed 14.3 million unit cases of incremental sales volume in 2004,
following its introduction in May 2003.
Net Sales
Net sales increased by YTL155.7 million, or 16.8%, from YTL923.7 million in 2003 to YTL1,079.4 million in 2004.
The increase in net sales was principally the result of the increase in sales volume as a result of increased trade discounts and
consumer promotions in anticipation of an increasingly competitive soft drink market in 2004, as well as Turkish Lira selling
prices and a positive change in package mix, offset in part by the effect of inflation adjustment.
Cost of Sales
Our cost of sales increased by YTL120.2 million, or 18.1%, from YTL663.7 million in 2003 to YTL783.9 million in
2004. The increase was primarily due to the increased volume in 2004, as well as increases in the costs of certain raw materials
including concentrate, HFCS and PET resin, offset in part by the effect of inflation adjustment and the appreciation of the New
Turkish Lira against the U.S. dollar, which reduced the New Turkish Lira cost of raw materials purchased in U.S. dollars.
Cost of sales per unit case decreased from YTL2.99 in 2003 to YTL2.85 in 2004.
Gross Profit
Gross profit increased by YTL35.4 million, or 13.6%, from YTL260.0 million in 2003 to YTL295.4 million in 2004 as
a result of the factors discussed above. However, our gross profit margin decreased from 28.2% in 2003 to 27.4% in 2004.
Distribution, selling and marketing expenses increased by YTL26.0 million, or 16.5%, from YTL157.2 million in 2003
to YTL183.2 million in 2004, largely as a result of the increased sales volume in 2004 and an increased level of marketing
spending due to increased competition.
Selling and distribution expenses increased by YTL13.5 million, or 11.3%, from YTL119.0 million in 2003 to
YTL131.4 million in 2004. The increase was the result of an increase in transportation expenses largely due to the increase in
sales volume, as well as increased costs of repair and maintenance of vehicles and cold drink equipment, partially due to the
establishment of cooler refurbishment centers. These increases were offset in part by a decrease in depreciation expense as a
result of the effect of inflation adjustment.
Marketing and advertising expense increased by YTL13.6 million, or 35.6%, from YTL38.2 million in 2003 to
YTL51.8 million in 2004, primarily reflecting the increased competition in the alcohol-free beverages market in Turkey starting
in the second half of 2003 and continuing into 2004. In addition, our continued focus on a number of new brands and packages
primarily introduced in May and June 2003 contributed to the increase in advertising costs in 2004.
General and administration expenses increased by YTL0.5 million, or 1.2%, from YTL40.3 million in 2003 to
YTL40.8 million in 2004. The increase was primarily due to an increase in personnel salaries in line with inflation, which was
offset in part by decreases in depreciation expenses and in utilities and communication expenses as a result of the effect of
inflation adjustment.
Other Operating Income (Expense)
Other operating expense decreased by YTL12.0 million, or 134.8%, from an expense of YTL8.9 million in 2003 to
income of YTL3.1 million in 2004.
A total of YTL2.3 million and YTL10.9 million were provided for impairment loss in 2004 and 2003, respectively. The
amount in 2004 includes the write-down of PET blowing machines and coolers, offset in part by a gain on the sale of impaired
refillable PET bottling equipment which previously had been written down. The 2003 amount is largely attributable to the write
down of our Bibo production line, which had not been used since late 2002 following a decision to discontinue the Bibo brand.
We had a gain on disposal of fixed assets of YTL5.4 million and YTL2.0 million in 2004 and 2003, respectively. The
gain in 2004 is primarily attributable to the sale of a refillable PET production line, cold drink equipment and vehicles.
Profit from Operations
Profit from operations increased by YTL20.8 million, or 38.8%, from YTL53.6 million in 2003 to YTL74.4 million in
2004 as a result of the factors discussed above. As a percentage of net sales, profit from operations in 2004 reached 6.9% from
5.8% in 2003.
Financial (Expense) Income, Net
Financial (expense) income, net amounted to income of YTL25.2 million in 2003 compared to an expense of
YTL6.3 million in 2004.
Interest income decreased by YTL5.0 million, or 47.6%, from YTL10.5 million in 2003 to YTL5.5 million in 2004.
The decrease was primarily a result of a decrease in interest rates.
Interest expense decreased by YTL5.6 million, or 37.1%, from YTL15.1 million in 2003 to YTL9.5 million, due to
lower debt balances resulting from reduced borrowing levels in 2004 along with decreased interest rates. Short-term borrowings
(primarily with 12-month maturities, including the current portion of long-term debt and short-term capital lease obligations)
amounted to YTL143.3 million as of December 31, 2003 and YTL64.7 million as of December 31, 2004. Long-term debt
amounted to YTL30.6 million as of December 31, 2003 and YTL10.9 million as of December 31, 2004.
Foreign exchange loss of YTL2.2 million was incurred in 2004 as a result of the significant depreciation of Turkish
Lira against the U.S. dollar in May 2004 at which time a significant portion of our U.S. dollar borrowings was repaid. In 2003,
we incurred foreign exchange gain of YTL30.0 million due to appreciation of Turkish Lira against U.S. dollar as of
December 31, 2003 compared to its value as of December 31, 2002.
Other (Expense) Income, Net
We had net other expense of YTL12.3 million in 2004, compared to net other gain of YTL4.0 million in 2003. In 2004
the expense primarily included YTL7.3 million of expenses related to a proposed public offering and YTL5.9 million of foreign
exchange losses on foreign currency denominated current assets and liabilities. In 2003, net other income included foreign
exchange gain of YTL3.0 million on foreign currency denominated current assets and liabilities.
Monetary Gain
Monetary gain amounted to YTL18.3 million and YTL18.5 million in 2004 and 2003, respectively.
Income Tax
A corporate tax charge of YTL24.8 million, or 24.5% of pre-tax income under IFRS, was recorded for 2003, based on
the results in our Turkish statutory books. A corporate tax charge of YTL27.4 million, or 37.0% of pre-tax income under IFRS,
was recorded based on the results in our Turkish statutory books in 2004. The YTL2.6 million increase in corporate tax charge is
due to improved operating results in our statutory books. The increase in the effective tax rate is attributable to the introduction
of inflation accounting in our statutory books effective from January 1, 2004, which resulted in a higher corporate tax base in our
statutory books in 2004 compared to 2003.
Deferred tax is computed based on temporary differences between the statutory books and IFRS books. Income taxes
for 2004 included a deferred tax charge of YTL23.0 million compared to a deferred tax income of YTL38.5 million in 2003. The
increase in deferred taxes in 2004 versus 2003 is due to a decrease in the local fixed assets resulting from a new amendment to
the 2003 tax code provision discussed above, which called for the recording of temporary differences (per the new tax code for
inflation) to be "non-deductible capitalized foreign exchange losses" as a prepaid expense rather than being indexed for inflation,
as was the case previously.
Net Profit
Net profit decreased to YTL23.7 million in 2004 from YTL115.1 million in 2003, as a result of the factors discussed
above. As a percentage of net sales, net profit was 2.2% in 2004 compared to 12.5% in 2003.
EBITDA
EBITDA increased by YTL2.8 million, or 1.9%, from YTL145.5 million in 2003 to YTL148.3 million in 2004. This
increase was attributable principally to the YTL20.9 million increase in profit from operations, largely offset by a
YTL8.6 million reduction in impairment losses, a YTL3.4 million increase in gain on disposal of fixed assets, a YTL3.8 million
decrease in retirement and vacation pay liability expenses and a YTL2.3 million decrease in depreciation expenses. As a
percentage of net sales, EBITDA was 13.7% in 2004 compared to 15.8% in 2003.
Liquidity and Capital Resources
Our consolidated statement of cash flow for the year ended December 31, 2005 reflects the acquisition of Efes Invest.
The cash inflows and outflows of Efes Invest until November 15, 2005 are reflected under the net cash used in investing
activities section as "Subsidiaries acquired, net of cash." The cash inflows and outflows from November 15, 2005 are reflected
under the relevant line items of consolidated statement of cash flow.
Net Cash Generated from (Used in) Operating Activities
Our primary source of cash flow is funds provided by operating activities.
In 2005, net cash generated from operating activities amounted to YTL146.1 million, compared to YTL70.1 million in
2004. The increase in 2005 was due primarily to a YTL57.5 million increase in net profit before income tax and monetary gain
and YTL19.7 million decrease in cash used as working capital. The decrease in cash used as working capital is due to an
increase in deposits on returnable bottles and cases received as a result of the launch of 200ml returnable glass bottles and a
YTL9.4 million increase in trade payables due to the consolidation of Efes Invest, partially offset by an increase in trade
receivables, which resulted from the increase in sales in 2005.
In 2004, net cash generated from operating activities amounted to YTL70.1 million, compared to YTL147.4 million in
2003. The decrease in 2004 mainly reflected the decrease in net profit before income tax and monetary gain largely due to
increase in financial expenses and other expenses and an increase in cash used as working capital due to volume growth and
increased competition. The increase in cash used as working capital is due to increases in taxes, trade receivables and other
current assets, partially offset by a decrease in inventories.
Net Cash Generated from (Used in) Investing Activities
Net cash used in investing activities amounted to YTL421.8 million in 2005, compared to net cash generated from
investing activities of YTL10.9 million in 2004. The net cash used in investing activities in 2005 included YTL319.9 million for
the acquisition of Efes Invest.
The purchase of property, plant and equipment and intangibles increased by YTL58.1 million from YTL46.3 million in
2004 to YTL104.3 million in 2005. YTL26.8 million of the purchase of property, plant and equipment and intangibles included
the fixed assets of CC Jordan, 90% of which was acquired by Efes Invest on December 29, 2005 and the remaining balance
mainly included the investments of CCI in machinery and equipment, coolers, dispensers, carbon dioxide dispensers and
advertising signs.
Net proceeds from disposal of investments in securities was YTL41.8 million in 2004 due to a sale of marketable
securities compared to YTL2.9 million net payments to invest in marketable securities in 2005.
Net cash generated from investing activities amounted to YTL10.9 million in 2004, compared to net cash used in
investing activities of YTL59.3 million in 2003, respectively. The increase in net cash generated from investing activities in
2004 was due primarily to a YTL41.8 million sale of marketable securities, offset in part by an increased level of purchases of
property, plant and equipment.
The increase in investments in fixed assets in 2003 and 2004 reflects the beginning of an economic recovery and our
resumption of an increased level of capital expenditures following the poor economic conditions in Turkey after the economic
crisis of 2001. Purchases of property, plant and equipment and intangibles, including cold drink equipment and vehicles, totaled
YTL46.3 million in 2004 and YTL57.7 million in 2003. Of the amount in 2003, YTL29.0 million were made through long-term
(more than one year) lease agreements and YTL28.7 million were cash purchases of property, plant and equipment. The full
amount in 2004 represented cash purchases of property, plant and equipment and intangibles. Lease obligation payments are
reflected in the financing activities section of our consolidated statements of cash flows. Revenue from the sale of fixed assets
(including machinery, buildings, cold drink equipment and refillable PET bottles and cases) was YTL15.4 million in 2004 and
YTL8.6 million in 2003.
Net Cash Used in Financing Activities
Net cash generated from financing activities amounted to YTL284.7 million in 2005 compared to net cash used in
financing activities of YTL120.2 million in 2004.
The main reason for the increase in net cash generated from financing activities in 2005 was the YTL308.4 million
increase in new borrowings on a net basis and YTL195.6 million increase in share capital, partially offset by YTL79.6 million of
dividends paid and the purchase by CCSD of CCI shares for YTL58.6 million.
The gross amounts of proceeds from bank borrowings and repayments of bank borrowings are reflected in our
consolidated statements of cash flows. These amounts include borrowings on the spot market to meet temporary (typically oneor two-day) liquidity requirements, particularly prior to the summer season when there is a need to build up inventory and extend
sales credit terms to maintain our competitiveness, and these borrowings are typically repaid within one week. Total proceeds
from bank borrowings amounted to YTL2,562.4 million and YTL3,657.5 million in 2004 and 2005, respectively. Repayments
of bank borrowings amounted to YTL2,643.5 million and YTL3,430.2 million in 2004 and 2005, respectively. The significant
increases in bank borrowings and repayments in 2005 was due principally to YTL125.5 million of new borrowings incurred to
finance the acquisition of Efes Invest and $55 million (YTL73.8 million) of debt incurred to fund the acquisition of shares by
CCSD from an existing shareholder. In 2005, on a net basis, YTL227.3 million new bank borrowings were incurred. In 2004, on
a net basis, YTL81.1 million was used to pay down total borrowings (including bank borrowings and capital leases).
The bank borrowing balance was YTL75.6 million as of December 31, 2004 and YTL340.0 million as of
December 31, 2005. YTL53.6 million of the balance in 2005 is related to Efes Invest. The bank borrowing balances as of these
dates consisted primarily of syndicated 12-month loans and long-term debt securities issued in 1999.
We have used capital leases to finance part of our capital expenditure whenever these yielded a lower cost of borrowing
compared to bank borrowings, and as a means of extending debt maturities over one year. The decrease in capital lease
repayments from YTL13.6 million in 2004 to YTL5.7 million in 2005 is attributable to the decreased amount of capital leases in
2005 since no new capital leases were entered into in 2004 and 2005.
We paid dividends of YTL79.6 million in 2005 with respect to the 2004 statutory results and YTL39.1 million of
dividends in 2004 with respect to the 2003 statutory results.
Net cash used in financing activities amounted to YTL120.2 million and YTL130.8 million in 2004 and 2003,
respectively. The main reason for the decrease in net cash used in financing activities in 2004 is the YTL35.8 million decrease in
repayment of borrowings on a net basis, offset in part by an increase in dividends paid in 2004 of YTL22.0 million.
The gross amounts of proceeds from bank borrowings and repayments of bank borrowings are reflected in our
consolidated statements of cash flows. These amounts include borrowings on the spot market to meet temporary (typically oneor two-day) liquidity requirements, particularly prior to the summer season when there is a need to build up inventory and extend
sales credit terms to maintain our competitiveness, and these borrowings are typically repaid within one week. Total proceeds
from bank borrowings amounted to YTL548.8 million and YTL2,562.4 million in 2003 and 2004, respectively. Repayments of
bank borrowings amounted to YTL665.7 million and YTL2,643.5 million in 2003 and 2004, respectively. The significant
increases in bank borrowings and repayments in 2004 is due to a change in our banks' treatment of the intra-day borrowings we
use for daily cash management. In 2004, on a net basis, YTL81.1 million was used to pay down total borrowings (including
bank borrowings and capital leases), compared to YTL116.9 million in 2003.
The bank borrowing balance was YTL174.0 million as of December 31, 2003 and YTL75.6 million as of
December 31, 2004. The bank borrowing balances as of these dates consisted primarily of syndicated 12-month loans and longterm debt securities issued in 1999.
In 2003, YTL29.1 million of our capital expenditure was made using capital leases as a source of financing because of
the lower cost of this method of financing compared to the cost of bank borrowings in 2003. The increase in capital lease
repayments from YTL8.2 million in 2003 to YTL13.6 million in 2004 is attributable to the increased amount of capital leases in
2003.
We paid dividends of YTL39.1 million in 2004 with respect to the 2003 statutory results. We paid dividends of
YTL17.1 million in 2003, with respect to the combined 2002 and 2001 statutory results.
Future Liquidity, Financing Arrangements and Commitments
Working Capital
Net working capital is defined as the total of current assets excluding cash and marketable securities and deferred
income taxes less current liabilities excluding bank borrowings, capital lease obligations and deferred income tax liability. Net
working capital increased by YTL37.6 million from YTL110.1 million in 2004 to YTL147.7 million in 2005 mainly due to
increased sales, consolidation of the Efes Invest balance sheet as of December 31, 2005 and the launches of new brands and
packages. Working capital requirements in 2005 and 2004 were fully funded by cash provided by operating activities.
In 2005, YTL29.7 million of the increase in net working capital related to Turkish operations and was due to an
increase in trade receivables as a result of the increase in sales, and an increase in prepaid taxes due to third quarter year-to-date
statutory books net income being higher than full year net income, partially offset by a reduction in inventory. The
implementation and use of an integrated system of supply chain management software in recent years has made it possible to
order raw materials based on weekly sales forecasts generated by our sales force, resulting in reduced inventory levels and a
reduced amount of capital tied up in inventory. The remaining YTL7.9 million of the increase in working capital was due to the
consolidation of the Efes Invest balance sheet for the year ended December 31, 2005.
Net working capital as a percentage of net sales increased to 12.4% in 2005 from 10.2% in 2004. The increase in 2005
was primarily due to the consolidation of Efes Invest's balance sheet as of December 31, 2005, while its income statement was
consolidated only for the 45-day period beginning on November 15, 2005 and ending on December 31, 2005. On a pro forma
basis, including Efes Invest's net sales for the full year, net working capital as a percentage of net sales would have been 11.1%.
Our working capital management reflects the better use of investments made in information technology in recent years. In
addition, BASIS, which is The Coca-Cola Company's proprietary sales accounting software system used by bottlers, enables us
to more easily identify accounts receivable that will be past due and plan collection efforts. We believe that our working capital
will be sufficient for our present requirements. We expect to continue, however, to borrow on the spot market to meet the
temporary liquidity requirements during the period before the summer season, as described in "—Net Cash Used in Financing
Activities."
Net working capital increased by YTL6.1 million from YTL104.0 million in 2003 to YTL110.1 million in 2004 mainly
due to increased sales, and the launches of new brands and packages. Working capital requirements in 2004 and 2003 were fully
funded by cash provided by operating activities.
In 2004, the increase in net working capital is mainly attributable to the increase in trade receivables as a result of
increase in sales and decrease in income taxes payable, offset by an increase in trade payables due to concentrate purchases.
Net working capital as a percentage of net sales decreased to 10.2% in 2004 from 11.3% in 2003. The improved
working capital management is a reflection of the better use of investments made in information technology in recent years. For
example, our integrated system of supply chain management software has made it possible to order raw materials based on
weekly sales forecasts generated by our sales force, resulting in reduced inventory levels and a reduced amount of capital tied up
in inventory. In addition, BASIS, which is The Coca-Cola Company's proprietary sales accounting software system used by
bottlers, enables us to more easily identify accounts receivable that will be past due and plan collection efforts. We believe that
our working capital will be sufficient for our present requirements. We expect to continue, however, to borrow on the spot
market to meet the temporary liquidity requirements during the period before the summer season, as described in "—Net Cash
Used in Financing Activities."
Borrowings and Capital Funding
We typically are able to fund most of our cash requirements from operating activities and short-term borrowings to
meet temporary liquidity requirements.
As of December 31, 2005, we had a total of YTL340.0 million of debt, comprised of YTL320.5 million in short term
loans (of which YTL318.9 million was in syndicated 12-month loans and YTL1.6 million was in YTL spot loans as described
under "—Net Cash Used in Financing Activities"), YTL9.6 million in current portion of long-term debt(consisting current
portion of Private Placement Trust Certificates issued in 1999), YTL1.2 million in short-term capital leases, and YTL8.7 million
in long-term debt. Of the total amount, YTL55.6 million is attributable to the consolidation of the Efes Invest balance sheet as of
December 31, 2005. Our net debt (computed as cash and cash equivalents plus restricted cash plus all securities held to maturity,
less short-term and long-term debt and capital lease obligations) as of December 31, 2005 was YTL291.5 million, an increase of
YTL262.8 million from December 31, 2004, due to an increase in syndicated 12-month loans needed to fund the acquisition of
Efes Invest in 2005 and $55 million (YTL73.8 million) of debt incurred to fund the acquisition of shares by CCSD from an
existing shareholder.
As of December 31, 2004, we had a total of YTL75.6 million of debt, comprised of YTL49.5 million in short-term
loans (primarily syndicated 12-month loans), YTL9.7 million in current portion of long-term debt, YTL5.5 million in short-term
capital leases, YTL9.6 million in long-term debt consisting of Private Placement Trust Certificates issued in 1999 and
YTL1.3 million in long-term capital leases. Our net debt as of December 31, 2004 was YTL28.7 million, a decrease of
YTL37.6 million from December 31, 2003.
As of December 31, 2003, we had a total of YTL174.0 million of debt, comprised of YTL118.6 million in short-term
loans, YTL12.4 million in current portion of long-term debt, YTL12.4 million in short-term capital leases, YTL22.7 million in
long-term debt and YTL7.9 million in long-term capital leases. Our net debt as of December 31, 2003 was YTL66.3 million.
We are party to a loan facility dated December 23, 1999, guaranteed by CCSD. In order to avail ourselves of certain tax
benefits, the loan made to us under the facility was immediately assigned to CCBT Finance Grantor Trust, a special-purpose
New York trust formed solely for the purpose of such financing, in exchange for the issue of private placement trust certificates
to the investors in the trust. During the life of the loan, we make payments of principal and interest on the loan facility to the
trust which are then passed through to the holders of the certificates. The annual interest rate applicable to the loan is 10.61%.
Pursuant to the terms of the private placement trust certificates, we and CCSD are required to maintain certain financial ratios
and may not create any security on our assets, dispose of a substantial portion of our assets, or enter into any merger or
consolidation. In addition, we are required to ensure that at least 25% of our share capital is directly or beneficially held by The
Coca-Cola Company. We have sought a waiver of this requirement in connection with the offering; if we do not obtain the
waiver, we will be required to offer to prepay the amounts outstanding under the facility. Furthermore, the loan facility places
certain restrictions on our ability to make distributions (including dividend distributions) payments and investments. We are
permitted to distribute dividends, make other distributions, payments or investments provided that we are not in default under
any of our indebtedness and the sum of the aggregate value of all of our investments and payments during the period between
the closing date of the sales of the private placement trust certificates and the date of such payment or investment does not
exceed $30 million, plus 50% of consolidated net income for such period (or minus 100% of consolidated net income for such
period if consolidated net income for such period is a loss), plus the aggregate amount of net proceeds with respect to the issue
of capital stock for such period. Our acquisition of Efes Invest and CC Jordan qualified as a permitted investment under the
agreement and therefore we did not need to obtain waivers in connection with such investments. The loan matures on
December 23, 2006. As of April 14, 2006, $6.8 million (YTL9.1 million based on the Central Bank exchange rate of $1.00 =
YTL1.3409 in effect on April 14, 2006) was outstanding under the facility.
We entered into a 370-day credit agreement on June 23, 2005 with a syndicate of banks. The agreement provides us
with an aggregate of $55 million in term loans, part of which is available in euro converted at a stated currency exchange rate.
CCSD has agreed to guarantee such loans. We are required to repay each loan made available under the agreement on a date
falling 370 days after the date of drawdown. The annual interest rate applicable to the loans is LIBOR (for loans denominated in
U.S. dollars) or EURIBOR (for loans denominated in euro) plus 0.85%. Pursuant to the agreement, we and CCSD are required
to maintain certain financial ratios and may not create any security on our assets, dispose of a substantial portion of our assets, or
enter into any merger or consolidation (except for a merger or a consolidation resulting in the merger or consolidation of CCI or
CCSD into the other or a third party, provided that (i) the surviving entity or entities will be fully liable for the obligations of
each of the CCI and CCSD under the finance documents and (ii) at least 51% of the share capital of each of the surviving entity
is held by the Anadolu Group and The Coca-Cola Export Corporation; (iii) the "net financial debt/equity" ratio of the surviving
entity shall be equal to or less than 1.5; and (iv) in case of a merger with a third party, the main business of such third party will
be in the non-alcoholic beverages sector). Our acquisition of Efes Invest and the planned merger of CCI and Efes Invest is
permitted under the agreement. In addition, unless we receive prior written consent of the lenders, we and CCSD are required to
ensure and procure that at least 51% of our respective share capital is directly or indirectly held by Anadolu Efes and The CocaCola Export Corporation. As of April 14, 2006, the full amount was outstanding under this facility. We are also the guarantor of
another $55 million credit agreement with identical terms under which CCSD is the borrower. As of April 14, 2006, the full
amount of the loan was outstanding. We intend to repay a part the borrowings under this facility with the proceeds of the
offering to be received by CCSD.
For the financing of the mandatory call to Efes Invest shareholders, we entered into five different loan facilities with
five different banks for a total of $60 million and YTL45 million. All five loan agreements have a term of 370 days. The annual
interest rates applicable to such loans range from 14.80% to LIBOR plus 0.45%. We currently intend to refinance these loans on
maturity which will be in December 2006. Pursuant to the loan agreements, we are prohibited from creating security over all or
any part of our assets, entering into any mergers or consolidations (except for mergers or consolidations with our subsidiaries or
our shareholders' subsidiaries), and selling or disposing of all or substantial part of our assets. In addition, we undertook to
ensure and procure that our shareholding remains the same during the terms of the loans except for public offerings or any sales
that do not result in a change of control and do not reduce the joint shareholding of the Anadolu Group and The Coca-Cola
Export Corporation below 51%. As of April 14, 2006, $60 million (YTL80.5 million based on the Central Bank exchange rate of
$1.00 = YTL1.3409 in effect on April 14, 2006) and YTL45 million was outstanding under these facilities.
On April 3, 2006, we entered into a credit facility agreement guaranteed by CCSD. Under the agreement two term
loans are made available to us, one for $30 million and the other for EUR24.75 million. We are required to pay each loan made
available under the agreement on a date falling 2 years after the date of drawdown. The annual interest rates applicable to the
loans are LIBOR (for loans denominated in U.S. dollars) or EURIBOR (for loans denominated in euro) plus 0.55%. We are also
the guarantor for a $20 million and EUR16.5 million term loan agreement with identical terms and conditions under which
CCSD is the borrower. Pursuant to the agreements, we undertook not to dispose of all or part of our assets except for those
disposals of assets (i) made in the ordinary cause of our trading, (ii) which are obsolete, or (iii) (other than financial assets or
other financial investments) in exchange for other assets comparable or superior as to type, value and quality. Furthermore, we
undertook not to enter into any merger, reconstruction, joint venture, or to make any acquisition or investment without the prior
written consent of the lending bank. Consent of the lending bank is not necessary for a sale of our shares if such sale does not
result in a change of joint control of Anadolu Efes and The Coca-Cola Company and a reduction in their total shareholding in us
below 51%. Under the agreement a material change in our control constitutes an event of default. As of April 14, 2006, the full
amount of the two facilities was outstanding.
In order to hedge against LIBOR and EURIBOR volatility in the market, CCI entered into interest rate swap
transactions as a result of which it fixed the interest rates under the above-mentioned facility to 5.24% for our U.S. dollar
borrowings and to 3.37% for our euro borrowings for two years. For the same purpose, CCSD also entered into interest rate
swaps with a two-year term. For U.S. dollar borrowings, if LIBOR is 6.0% or less, CCSD pays a fixed rate of 5.13% plus the
0.55% margin mentioned above. If LIBOR is above 6.0% it pays LIBOR minus 0.80% plus the 0.55% margin. For euro
borrowings, it pays a fixed rate of 3.10%, plus the 0.55% margin for the first year. For the second year, it pays 5.5% less 7.5
times the difference between the five year and two year euro swap rate quoted by Reuters page ISDAFIX2 plus the 0.55%
margin.
On November 10, 2004, CC Kazakhstan entered into a general credit facility for a maximum amount of $10 million
which can be utilized as letters of credit or short and medium term cash borrowings. Efes Invest is the joint and several co-debtor
and the guarantor of this credit facility. Pursuant to the agreement, the cost of borrowings are discussed and mutually agreed
upon with the bank on a case-by-case basis. As of April 14, 2006, CC Kazakhstan had $6.5 million (YTL8.7 million based on
the Central Bank exchange rate of $1.00 = YTL1.3409 in effect on April 14, 2006) cash borrowings outstanding under this
facility.
On September 1, 2005, CC Kazakhstan entered into a EUR5.5 million loan agreement guaranteed by Efes Invest
Holland B.V. We intend to refinance the loan on its maturity on September 15, 2006. The annual interest rate applicable to the
loan is 5.1%. As of April 14, 2006, the full amount was outstanding under the agreement.
On November 30, 2005, Efes Invest Holland B.V. entered into a $15.7 million one-year loan facility, guaranteed by
CCI, with an annual interest rate of LIBOR plus 0.50%. The full amount was drawn down in four separate tranches during
November and December 2005. Of these borrowings, approximately $6.3 million was used for the acquisition of CC Jordan,
approximately $2.0 million was used to finance CC Iraq and the remainder was used to repay debt. We intend to refinance the
loan on its maturity. Pursuant to the agreement, we are prohibited from disposing of all or a substantial part of our assets other
than disposals made (i) in the normal course of our business, (ii) with the prior consent of the lender, (iii) for fair value, or (iv) of
absolete or unused assets. Furthermore we are prohibited under the loan agreement from creating any encumbrances over all or
material part of our revenues or revenue-generating assets other than those created in the ordinary course of our business.
On December 27, 2005, CC Jordan entered into an uncommitted facility agreement available for 53 weeks guaranteed
by CCI and CCSD. Under the facility, CC Jordan can borrow funds in U.S. dollars, euros and Jordanian dinars. Jordanian Dinar
borrowings under the facility can be short-term working capital loans priced at three or six month certificate of deposit. The limit
of outstanding borrowings under the facility are determined by the bank from time to time. The annual interest applicable to U.S.
dollar and euro loans is the eurocurrency rate determined for such currencies appearing on Page 3750 of the Telerate screen as of
11:00 am, London time plus a margin notified by the bank in respect of a particular loan. The annual interest rate applicable to
Jordanian Dinar loans is the rate issued by the Central Bank of Jordan which is typically published on Reuters page CBJC3 plus
an aggregate fixed rate. Pursuant to the agreement, CC Jordan agreed not to merge or consolidate into or dispose of its assets to
any person or entity in a manner which would have a material adverse effect in its business and financial condition. Furthermore,
during the term of the agreement, CC Jordan is prohibited from disposing of its fixed assets which in the aggregate represent in
any prior fiscal year more than 25% of its total revenues. Under the facility CC Jordan borrowed (i) a $9 million working capital
loan and (ii) a $4 million working capital loan both of which are payable in January 2007 with an applicable interest rate of
eurocurrency rate (as described above) plus 0.6%. As of April 14, 2006, $13 million (YTL17.4 million based on the Central
Bank exchange rate of $1.00 = YTL1.3409 in effect on April 14, 2006) was outstanding under the facility.
On February 20, 2006, CC Jordan entered into a $4 million uncommitted loan facility with a one-year term. The annual
interest rate applicable to such facility is the arithmetic mean of the rate at which at or about 11 am (London time) two business
days before the beginning of each interest period the bank is offered U.S. dollar deposits in the London interbank euro-currency
deposit market by prime banks plus 1.00%. As security for such uncommitted loan facility, CCI entered into an authority over
deposits agreement with the lender bank. Accordingly, until all of CC Jordan's liabilities are discharged under the loan, the
lending bank is no longer under any requirement to extend and no longer extends financial accommodation to CC Jordan, and
any agreed notice of withdrawal has been given, we agreed to maintain a deposit of $4.0 million (plus accrued interest) with the
lending bank. Furthermore, as a separate liability, we agreed to pay the bank in full and on demand any unpaid amounts used
under the facility and we authorized the bank to apply all or any part of our deposit to discharge any sums due but unpaid under
the facility from time to time. As of April 14, 2006, $4.0 million (YTL5.4 million based on the Central Bank exchange rate of
$1.00 = YTL1.3409 in effect on April 14, 2006) was outstanding under the facility.
On March 7, 2006, CC Azerbaijan entered into a $6 million one-year loan facility, guaranteed by CCI, with an annual
interest rate of LIBOR plus 0.55%. CC Azerbaijan has borrowed a total of $3.5 million under the facility in several tranches.
Pursuant to the agreement, we are prohibited from disposing of all or a substantial part of our assets other than disposals made
(i) in the normal course of our business, (ii) with the prior written consent of the lender, (iii) for fair value, or (iv) of obsolete or
unused assets. Furthermore, under the agreement we undertook not to create any encumbrances over all or material part of our
revenues or revenue generating assets other than those created in the ordinary course of our business. We intend to pay all
principal and interest at the end of the term of the loan using cash generated from operations. As of April 14, 2006, $3.5 million
(YTL4.7 million based on the Central Bank exchange rate of $1.00 = YTL1.3409 in effect on April 14, 2006) was outstanding
under the facility which matures during March 2007. The last drawdown date under the agreement is June 1, 2006. Any amounts
undrawn after such date shall be automatically cancelled.
Capital Expenditure
Our business is capital-intensive and requires significant capital expenditure, primarily relating to investments in
production equipment, distribution infrastructure and cooling and dispensing equipment. Between 2003 and 2005, our capital
expenditure (excluding CC Jordan) as a percentage of net sales averaged 5.6%, which we believe is in line with the industry
average. Our capital expenditures for 2005 (including Efes Invest and Jordan) amounted to YTL103.7 million, including
YTL27.6 million attributable to the inclusion of Efes Invest's results from November 15, 2005. The amount of capital
expenditure may vary from year to year, depending on the nature of assets being installed, upgraded or replaced. These amounts
may increase if we further expand our operations into emerging markets. See "Risk Factors—Risks Relating to Our Business
and the Alcohol-Free Beverages Industry—If we fail to manage our growth and integrate our acquired businesses effectively,
our business and financial results could be adversely affected."
We expect to spend a total of approximately YTL182.8 million for capital expenditures in the fiscal year 2006,
allocated as set forth below:
Production equipment(1) ...............................................................................................................
Land and buildings.......................................................................................................................
Vehicles, computers and furniture...............................................................................................
Immediate consumption equipment(2) .........................................................................................
Total .............................................................................................................................................
Turkish
International
Operations
Operations
59.8
27.2
2.0
30.8
119.8
(1)
Includes new production lines and other equipment, as well as returnable bottles and cases.
(2)
Includes coolers, dispensers, carbon dioxide dispensers and advertising signs.
31.4
15.3
4.0
12.3
63.0
Of this amount, YTL24.0 million was committed as of December 31, 2005. We expect to fund these expenditures using
a variety of sources, including cash generated from operating activities and the net proceeds of this offering to CCSD,
supplemented by short-term borrowings as required.
Summary of Contractual Obligations and Commercial Commitments
The following table summarizes the contractual obligations, commercial commitments and principal payments we were
obliged to make as of December 31, 2005 under our debt instruments, leases and other agreements.
Total
Short-term debt obligations ....................................................
Long-term debt obligations.....................................................
Capital (finance) lease obligations .........................................
Total ........................................................................................
320,498
18,298
1,231
340,027
Payment Due by Period
Less than
1-3 Years
3-5 Years
1 Year
320,498
9,576
1,231
331,305
—
8,722
—
8,722
—
—
—
—
More than
5 Years
—
—
—
—
Off-Balance Sheet Arrangements
We entered into two operational lease agreements in 2002 covering a total of 53 vehicles for a period of four years. The
total lease payments under the agreements amounted to YTL0.2 million as of December 31, 2005, which remains to be paid in
2006.
Market and Currency Risk
Treasury Policies and Objectives
We face financial risks arising from adverse movements in currency exchange rates, interest rates and commodity
prices that could significantly affect our ability to meet our obligations. A substantial majority of our debt obligations and capital
expenditures are, and are expected to continue to be, denominated in currencies other than the New Turkish Lira. By contrast, a
substantial amount of our revenues are, and are expected to continue to be, denominated in New Turkish Lira.
Our treasury department is responsible for managing our financial risks. The primary objective of our treasury
department is to ensure that all transactions are executed in a cost-efficient manner, are controlled effectively and are undertaken
with appropriate counterparties. As a policy, we do not enter into speculative financial transactions.
Interest Rate Risk
Our interest rate exposure generally relates to our debt obligations. We manage our interest rate exposure using a
combination of fixed and floating rate debt. A 1% increase or decrease in the market interest rates applicable to our floating rate
debt outstanding at December 31, 2005 would have increased or decreased interest expense for 2005 by approximately
YTL3.4 million.
Foreign Exchange Risk
We have not historically entered into transactions to hedge the risk of exchange rate fluctuations because it was not
possible to obtain hedging arrangements on commercially reasonable terms in the amounts and for the periods that would be
required. Although we do not have a formal policy, we seek to structure our borrowings in a combination of U.S. dollars, euro
and New Turkish Lira to minimize our foreign exchange exposure. We may seek to enter into hedging transactions in the future.
Commodity Price Risk
We are exposed to the effect of changes in the price of sugar in all of the countries in which we operate. In Turkey, the
price of sugar is set by the Ministry of Industry.
We are also exposed to price fluctuations in aluminum and resin. We seek to reduce our exposure to resin price
fluctuations by entering into transactions for the purchase of resin based on a fixed annual price. We participate in a
cross-enterprise procurement group along with certain other bottlers in the Coca-Cola system for the procurement of certain raw
materials. Through this group, we are able to monitor the market for aluminum and, where we feel it is appropriate, make
forward purchases of aluminum.
Credit Risk
We have no significant concentrations of credit risk due to our large customer base. We have put in place policies to
help ensure that sales of products and services are only made to customers with an appropriate credit history.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our consolidated
financial statements, which have been prepared in accordance with IFRS. The preparation of these financial statements requires
our management to make estimates and judgments that affect the amounts reported in our financial statements and
accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for making judgments about, among other things, the
carrying value of assets and liabilities that are not readily available from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
We believe the following critical accounting policies reflect our more significant judgments and estimates used in the
preparation of our IFRS consolidated financial statements.
Revenue Recognition
We recognize revenues when all of the following conditions are met: evidence of a binding arrangement exists
(generally in the form of a purchase order), products have been delivered and there is no future performance required, and
amounts are collectible under normal payment terms.
Revenue is stated net of sales discounts, listing fees and deductions relating to contributions for marketing and
promotions paid to customers. Listing fees are incentives provided to customers for carrying our products in their stores.
Contributions that are subject to contractual-based term arrangements are amortized over the term of the contract. The amounts
deducted from sales for marketing and promotional incentives are net of amounts received from The Coca-Cola Company as a
contribution toward the cost of such marketing and promotional incentives.
Property, Plant and Equipment
We record property, plant and equipment at their historical cost and compute depreciation and amortization using the
straight-line method over their estimated useful lives. We have determined useful lives of property, plant and equipment after
consideration of historical results and anticipated results based on our current plans. Our estimated useful lives represent the
period the asset remains in service assuming normal routine maintenance. We review the estimated useful lives assigned to
property, plant and equipment when our business experience suggests that they do not properly reflect the consumption of the
economic benefits embodied in the property, plant or equipment nor result in the appropriate matching of cost against revenue.
Factors that lead to such a conclusion may include physical observation of asset usage, examination of realized gains and losses
on asset disposals and consideration of market trends such as technological obsolescence or change in market demand. In cases
where we determine that the useful life of property, plant and equipment should be shortened, we would depreciate the net book
value in excess of the estimated salvage value over its revised remaining useful life.
The assessment of long-lived assets for possible impairment requires us to make certain judgments, including estimates
of future cash flow from the respective assets. We evaluate the impairment of long-lived assets in accordance with the provisions
of International Accounting Standards (IAS) No. 36, Impairment of Assets. We record impairment losses on long-lived assets
used in operations when events and circumstances indicate that the assets might be impaired and the discounted cash flows
estimated to be generated by those assets are less than the carrying amounts of those assets. The impairment loss is measured by
comparing the fair value of the asset to its carrying amount.
Intangible Assets
Intangible assets acquired separately are measured on initial acquisition at cost. The cost of an intangible asset acquired
in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at
cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are
assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the
amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in
the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted
for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The
amortization expense on intangible assets with finite lives is recognized in the income statement in the expense category
associated with the function of the intangible asset.
Intangible assets with indefinite useful lives are tested for impairment annually. Such intangibles are not amortized.
The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment
continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective
basis.
Goodwill represents the excess of acquisition costs over the fair value of the net assets of an acquired business. We
adopted IFRS No. 3 and amendments in IAS 36 and IAS 38. Accordingly, goodwill is no longer amortized but is reviewed
annually for impairment.
We performed a test for goodwill impairment using the two-step process described in IAS 38. The first step of this test
is a screen for potential impairment, and the second step measures the amount of impairment for purposes of this test. We derive
fair values using a discounted cash flow analysis, based on assumptions consistent with our plans and forecasts. The test resulted
in no impairment of goodwill as of December 31, 2005.
The accuracy of our assessments of fair value is based on management's ability to accurately predict key variables such
as sales volume, prices, spending on marketing and other economic variables. Predicting these key variables involves uncertainty
about future events; however, the assumptions we use are consistent with those employed for internal planning purposes.
Income Taxes
We compute and record deferred income taxes in accordance with IAS 12 Income Taxes. We calculate income taxes
according to the statutory balance sheets and income statements prepared in New Turkish Lira in accordance with the Turkish
Taxation Code.
Turkish tax legislation allows certain tax deductions related to new asset investments. These deductions are accounted
for as a reduction of current income tax expense in the year in which they arise. Unused tax deductions can be carried forward
and are indexed to local inflation until they are fully used.
We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely
than not to be realized. While we have considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance will not need to be
increased to cover additional deferred tax assets that may not be realizable. Any increase in the valuation allowance could have a
material adverse impact on our income tax provision and net income in the period in which such determination is made.
Employee Benefit Obligations
We provide for employees' statutory termination benefits based on an independent actuarial study in accordance with
IAS 19, Employee Benefits. Our employees are entitled to statutory termination benefits based on each employee's length of
service and monthly salary. The cost of providing these benefits is accrued over the employee's service period. We account for
statutory termination benefits in accordance with the provisions of IAS 19, including the application of actuarial methods and
assumptions in connection with professional actuaries. The benefit obligation has been measured as of December 31 for each of
the years presented.
We periodically review the actuarial assumptions used for calculating our net periodic provision for employee
termination benefits and the projected benefit obligation to better reflect current economic and market conditions.
Concentration of Credit Risk and Allowance for Doubtful Accounts
Due to the size and diversity of our customer base, concentrations of credit risk with respect to trade accounts
receivable are limited. The allowance for doubtful accounts receivable is stated at the amount considered necessary to cover
potential risks in the collection of accounts receivable balances. We evaluate the collectibility of accounts receivable based on a
number of factors. When we become aware of a specific customer's inability to meet its financial obligations to us, a specific
reserve for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount that we believe
will ultimately be collected. Based on our historical experience in the collection of accounts receivable, the recorded allowances
have proved to be adequate.
Current Trading and Prospects
In the first quarter of 2006, our sales volume, net revenue, operating income, and income before tax have exceeded
prior year levels and our expectations.
Our consolidated unit case volume has increased compared to the first quarter of the prior year as a result of the
addition of Efes Invest and Jordan and continued growth in all of our markets.
The net sales increase was largely driven by the sales volume increase referred to above as well as a reduction in
discounts. Our cost of sales per unit case decreased largely due to the appreciation of the New Turkish Lira against the U.S.
dollar despite an increase in New Turkish Lira denominated expenses in line with inflation.
We expect the momentum seen in 2004 and 2005 to continue through the remainder of the current financial year, with
the economies in our markets, particularly Turkey and Kazakhstan, continuing to show healthy levels of growth. We believe that
we are well positioned to take advantage of such expected growth.
BUSINESS
Overview
We are a leading bottler and distributor of carbonated soft drinks ("CSDs") and noncarbonated beverages ("NCBs")
with operations in Southern Eurasia (which we define as Turkey, the Caucasus and Central Asia) and the Middle East. Our
business consists of producing, selling and distributing alcohol-free beverages, primarily brands of The Coca-Cola Company, in
Turkey, Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan. We also have a 28.9% interest in the Coca-Cola bottler in
Turkmenistan. Coca-Cola is one of the world's most recognized trademarks and is the leading brand in the world. (Source:
Interbrand 2005).
We expanded our bottling operations beyond Turkey with the acquisition of an 87.63% interest in Efes Invest and the
acquisition of a 90.0% interest in CC Jordan in the fourth quarter of 2005. In addition, as a result of the acquisition of Efes
Invest, we are party to a joint venture that has the exclusive distribution rights for brands of the Coca-Cola Company in Iraq and
has the option to become the sole Coca-Cola bottler in Iraq. See " —History and Recent Developments."
all of our markets are Coca-Cola, Coca-Cola light, Fanta and Sprite. We also distribute beer in Kazakhstan and Kyrgyzstan
pursuant to an agreement with a subsidiary of Anadolu Efes and based on a written consent by The Coca-Cola Company.
Although CSDs continue to represent a high proportion of our sales volume, our NCB sales have grown as we continue to
expand our offering. In 2003, 2004 and 2005, CSDs represented 84.2%, 85.1% and 85.2%, respectively, NCBs represented
15.0%, 14.2% and 14.0%, respectively, and beer represented 0.8%, 0.7% and 0.8%, respectively, of our total unit case sales
volume on a pro forma basis.
We believe that we have established an international reputation as a world-class bottler, through our advanced use of
information technology, high-quality production facilities, pioneering e-learning initiatives and innovative asset refurbishment
efforts. All five of our plants in Turkey, as well as four of our plants in Kazakhstan, Azerbaijan, Kyrgyzstan and Jordan, were
among only 220 of approximately 1,100 bottling facilities within the Coca-Cola system worldwide to have secured The CocaCola Company's own quality approval as of December 31, 2005.
We believe that The Coca-Cola Company attaches substantial importance to its presence in Southern Eurasia and the
Middle East because of the significant growth opportunities in these markets. In 2005, Turkey alone was the fourth largest
market in Europe for products of The Coca-Cola Company and the thirteenth largest market for products of The Coca-Cola
Company in the world in terms of sales volumes. Together with The Coca-Cola Company, we intend to continue exploring new
growth opportunities by introducing new products and packages into our markets as consumer preferences develop and change.
EBITDA of YTL193.5 million. For a description of how we calculate EBITDA, see "Selected CCI Consolidated Financial and
Operating Data."
net sales of YTL1,330.1 million, net income of YTL90.4 million and EBITDA of YTL223.3 million. See "Unaudited Pro
Forma Consolidated Financial Information."
The chart below shows our current group structure including our principal subsidiaries and joint ventures:
Key Strengths and Strategy
Our vision is to become one of the leading bottlers of alcohol-free beverages in the world operating in the culturally
diverse geography of Southern Eurasia and the Middle East. We believe there are strong opportunities to further grow our
business in the coming years through: (i) the significant potential to increase the CSD consumption per capita and to expand our
NCB business in our existing territories; (ii) the opportunity to expand geographically in our region capitalizing on the financial
and human resources of our new enlarged company, subject to the approval of The Coca-Cola Company; and (iii) a management
team with extensive experience of managing turn-around situations and start-up operations in emerging markets.
Key Strengths
Attractive Growth Markets
We operate in countries with (i) growing economies and populations and (ii) young demographics. The three largest
contributors to our operations on a pro forma basis, Turkey, Kazakhstan and Azerbaijan, posted real GDP growth of 8.9%, 9.4%
and 10.2%, respectively, in 2004. With a population of approximately 71.2 million in 2004, Turkey is the third most populous
country in Europe with 48% of its population under the age of 25. Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan had a
combined population of approximately 34 million in 2004, and each of these countries has a large proportion of young people.
We believe this combination of factors provides us with opportunities to increase our sales volume in the future. (Source:
Economist Intelligence Unit)
Strong Growth Opportunities
We are currently pursuing three key areas for growth: (i) further developing the CSD per capita consumption in our
existing territories; (ii) expanding the brand portfolio in our current territories with additional non-carbonated beverage
categories (including fruit juices, nectars, iced tea, iced coffee, sport drinks, energy drinks and water); as well as (iii) adding to
the geographic scope of the group by continuing to expand into new territories across Southern Eurasia and the Middle East. We
are actively exploring with The Coca-Cola Company the possibility of expanding into new countries in these regions. Any
expansion into other countries would require the approval of The Coca-Cola Company.
Category Leadership
We are the CSD leader in terms of sales volume in all of the countries in which we operate (with the exception of
Jordan, where we have a number two position in terms of CSD sales volume). According to Nielsen, our shares within the CSD
category were 63.3%, 45.4% and 50.2% in Turkey, Kazakhstan and Azerbaijan, respectively for 2005 based on sales volume. In
the NCB categories, we were the sales volume leader in fruit juices, sports drinks and iced coffee in Turkey and in bottled water
in Azerbaijan for 2005.
World Leading Brand Portfolio
We produce, sell and distribute Coca-Cola, the world's leading branded alcohol-free beverage in terms of sales volume
and the world's most recognized brand (Source: Interbrand 2005). Other leading CSD brands licensed to us by The Coca-Cola
Company are Coca-Cola light, Fanta and Sprite. These brands, together with Coca-Cola, are four of the world's five best selling
non-alcoholic beverages in terms of sales volume. In addition to our CSD brand portfolio, we have an extensive portfolio of
licensed global and regional NCB brands in selected markets, such as Powerade, Bonaqua, Cappy, Piko, Burn, Nestea and
Nescafé Xpress.
Creating Value through Alignment with The Coca-Cola Company
Across all functions and levels of our organization, we have a strategic and operational alignment with The Coca-Cola
Company. We have strong marketing teams that work closely with The Coca-Cola Company to develop local marketing
strategies and programs. In addition, we work closely with The Coca-Cola Company on production techniques, quality control,
environmental matters and new packaging and product development. We believe the scale and capabilities of our enlarged
business will give us a key role in the future development of the Coca-Cola business in our regions.
Advanced Systems and Infrastructure
Our advanced IT systems and production and distribution infrastructure enable us to respond quickly and with
flexibility to the growing and changing demands of our markets. Our extensive sales and distribution networks have made it
possible for us to reach approximately 88%, 79% and 94% of all retail outlets in Turkey, Kazakhstan and Azerbaijan,
respectively. (Source: Nielsen) Our supply chain management systems provide us with the ability to grow efficiently and
profitably and roll out new products successfully. We believe that since 1999, our operations in Turkey have been at the
forefront of Coca-Cola bottlers in terms of implementation of significant IT applications. We have been selected by The CocaCola Company as one of five bottlers to lead the development of IT systems worldwide for the Coca-Cola bottling community.
Solid Financial Track Record
We have had a consistent record of sales volume, net sales and EBITDA growth over time, which is demonstrated
through the results of our Turkey and international business segments over the past several years. In Turkey, sales volume
increased from 222 million to 312 million unit cases between 2003 and 2005, representing a compound annual growth rate of
over 18%. In 2005, we generated net sales in Turkey of YTL1,157 million compared to YTL924 million in 2003 (13%
compound annual growth rate). EBITDA increased from YTL146 million in 2003 to YTL190 million in 2005, which translates
into an EBITDA margin increase from 15.8% to 16.3%.
Our international business (excluding Jordan) increased its volumes, net sales and EBITDA substantially from 2003 to
2005. Sales volumes increased from 28 million unit cases to 49 million unit cases from 2003 to 2005 (32% compound annual
growth rate) while net sales rose from $59 million to $119 million (43% compound annual growth rate) during the same time
period. EBITDA increased from $10 million in 2003 to $25 million in 2005 (57% compound annual growth rate), which
translates into an EBITDA margin increase from 17.2% to 20.9%.
Proven Management Team
Our senior management team is comprised of a diverse group of professionals with a strong set of operational skills
developed in various countries across different cultural environments. Our management team has a track record of
(i) successfully managing through periods of political and economical volatility in selected countries, (ii) implementing efficient
and effective turn-around programs and start-up operations and (iii) recruiting and training talented individuals to develop an
internal human resource pool of future managers.
Strategy
Our vision is to be one of the leading bottlers of alcohol-free beverages in Southern Eurasia and the Middle East.
We intend to achieve this by pursuing a strategy with three key elements: (i) driving sustainable and profitable growth
and enhancing our competitive position in our markets; (ii) leveraging our key capabilities and best practices (including
procurement, production, supply chain, sales, distribution and IT) throughout the combined operations and (iii) expanding into
new territories, subject to the approval of The Coca-Cola Company.
We will seek to implement our strategy by:
•
continuing to increase alcohol-free beverage consumption through:
•
delivering best-in-class execution of product availability and attractiveness at the point of sale;
•
introducing new brands, flavors and packages for both CSD and selected NCB categories;
•
expanding cold drink availability; and
•
developing customer and point-of-sales marketing activities.
•
focusing on revenue and profit growth by promoting higher-margin brands and packages;
•
rolling out advanced channel-focused sales and distribution systems to our international markets where applicable;
•
refining our business models to restructure acquired operations;
•
maintaining a competitive edge in information systems; and
•
continuing to build employee excellence through attracting, developing and retaining highly skilled people and
focusing on ongoing training and education.
History and Recent Developments
The sale of Coca-Cola beverages in Turkey dates back to 1964 when İMSA, a local company, was granted the first
franchise to bottle and distribute The Coca-Cola Company's beverages in Istanbul. Over the years, The Coca-Cola Company
awarded franchises for other areas in Turkey to companies owned and managed by the Özgörkey family and the Has Group. The
Coca-Cola Company began making equity investments in bottling, sales and distribution companies in Turkey in the 1980s.
In June 1996, The Coca-Cola Company formed a bottling joint venture with Anadolu Efes, which purchased 33.3% of
the equity of The Coca-Cola Company's entities in Turkey. The joint venture (subsequently named Coca-Cola Bottlers of
Turkey) was expanded in June 1998 to include the production and sales companies of the Özgörkey Group, providing it with
bottling rights throughout all of Turkey.
In 2000, the three production companies included in the joint venture were merged into one entity named Coca-Cola
İçecek Üretim A.Ş. ("CCIU"). At the same time, the sales and distribution companies of Coca-Cola Bottlers of Turkey were
merged into one entity named Coca-Cola Satış ve Dağıtım A.Ş. ("CCSD"). Each of the two companies was 40.0% owned by
The Coca-Cola Company, 40.0% by Anadolu Efes, 11.2% by E. Özgörkey İçecek Yatırımı A.Ş. and 8.8% by Özgörkey
Holding A.Ş. (formerly known as Etap İçecek Yatırımı A.Ş.)
In December 2002, CCIU issued shares in exchange for almost all of the outstanding shares of CCSD, resulting in
99.96% ownership of CCSD by CCIU, with the remaining 0.04% held by CCIU's shareholders in the same proportion as their
ownership of CCIU. Also in December 2002, CCIU changed its name to Coca-Cola İçecek A.Ş. As a result of the restructuring,
we brought the full range of bottling and distribution activities under a single parent company. Under our current structure, CCI
is responsible for production of beverages and CCSD is responsible for sales and distribution of the beverages.
In April 2005, E. Özgörkey İçecek Yatırımı A.Ş. sold its interest in CCI to Anadolu Efes and CCSD in equal parts, and
it sold its interest in CCSD to Anadolu Efes.
We expanded our bottling operations beyond Turkey with the acquisition from Anadolu Efes of a 51.87% interest in
Efes Invest on November 14, 2005 for consideration of YTL196.0 million. Subsequent to the acquisition, we extended a
mandatory call to all remaining shareholders in accordance with CMB requirements. As a result of the mandatory call, we
acquired an additional 35.76% of the shares of Efes Invest for aggregate consideration of YTL135.2 million, increasing our total
interest in Efes Invest to 87.63%. The purchase of Efes Invest was financed as follows: (i) YTL196.0 million through a share
capital increase in which Anadolu Efes was the sole participant; (ii) YTL125.5 million through bank borrowings; and
(iii) YTL9.7 million through cash from operations. Following the completion of the capital increase, Anadolu Efes holds
approximately 51.2% of our shares.
Following the completion of this offering, we intend to merge with Efes Invest. Our boards of directors unanimously
decided to propose to our shareholders that in connection with the preparations for the merger, the ratios of the following be
considered while determining the merger ratio: (i) the value ascribed to Efes Invest shares in CCI's acquisition of Anadolu Efes's
stake in Efes Invest, and (ii) the value ascribed to CCI at the time of the share capital increase referred to above, in addition to
the value arising from CCI's acquisition of Anadolu Efes's stake in Efes Invest and the acquisition of Efes Invest shares in the
mandatory call. In connection with the merger, we expect to issue additional Class C Shares. The terms of the merger will be
subject to the approval of the shareholders of CCI and Efes Invest and the CMB. If the merger is completed and registered with
the Istanbul Trade Registry, CCI will be the successor entity of Efes Invest and will assume all of its rights and obligations. In
connection with the merger, we intend to apply to delist the Efes Invest shares from the Istanbul Stock Exchange and the London
Stock Exchange.
On December 29, 2005, our subsidiary Efes Invest Holland B.V. acquired from an indirect subsidiary of The CocaCola Company, a 90% interest in CC Jordan for approximately $6.4 million. The remaining 10% of the shares of CC Jordan are
held by an indirect subsidiary of The Coca-Cola Company.
In March 2006, we acquired a private natural source water company, Mahmudiye Kaynak Suyu Ambalaj İşletmecilişi
Ambalaj Plastik Gıda Nakliyat Pazarlama Sanayi ve Ticaret Ltd. Şti ("Mahmudiye"), which holds the exclusive extraction rights
to a natural water source, for approximately $8.0 million, subject to post-closing adjustments.
Business Segments
Our operations are divided into two business segments, (i) operations in Turkey and (ii) international operations. These
operations are supported by centralized functions at our headquarters in Istanbul. On a pro forma basis, our operations in Turkey
accounted for YTL1,171.4 million (88.1% of total net sales) in 2005 and 86.4% of total unit case sales volume in 2005. See
"Unaudited Pro Forma Consolidated Financial Information."
Factors Influencing Alcohol-Free Beverage Consumption in our Markets
In all of our markets, there are several key factors that influence alcohol-free beverage consumption and, as a result, our
financial performance:
Population and Demographic Structure
With a population of 73.3 million people in 2005, Turkey is estimated to rank as the third most populous country in
Europe, following Russia and Germany. (Source: Economist Intelligence Unit) The annual population growth rate is estimated
to be 1% until 2020. (Source: State Planning Organization) As of 2004, approximately 47% of Turkey's population was 25 years
old or less. (Source: SIS)
Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan have a combined population of approximately 34.0 million. We
consider Kazakhstan and Azerbaijan to be relatively slow population growth countries, and we consider Jordan and Kyrgyzstan
to be relatively fast population growth countries. Furthermore, each of these countries has a large proportion of young people, as
shown in the table below:
2005 Population
(in millions)
Kazakhstan .......................................................................................
Azerbaijan ........................................................................................
Jordan ...............................................................................................
Kyrgyzstan .......................................................................................
15.2
8.4
5.8
5.2
Annual
Population
Growth Rate
Percentage of
Population under 15
Years Old
0.9%
0.8%
2.7%
1.0%
23.7%
26.4%
34.5%
31.6%
Source: Economist Intelligence Unit, CIA World Factbook
Economy
Alcohol-free beverage consumption in Turkey generally does not decline during economically stagnant periods, but
rather shifts toward relatively less expensive products. (Source: Canadean) As is the case in most other consumer industries in
Turkey, the growth trend in the Turkish economy since 2002 and the decreasing inflation rate have had a positive impact on the
alcohol-free beverages industry, particularly for ready-to-drink alcohol-free beverages. (Source: Canadean). The per capita GDP
in Turkey grew from $2,918 in 2000 to $4,893 in 2005, which represents an 11% compound annual growth rate over the period.
(Source: Economist Intelligence Unit)
The per capita GDP in Kazakhstan grew from $1,228 in 2000 to $2,713 in 2004 and reached $3,688 in 2005, which
represents a 24.5% compound annual growth rate over the period. In Azerbaijan, the per capita GDP grew from $654 in 2000 to
$1,024 in 2004 and reached $1,458 in 2005, which represents a 17.4% compound annual growth rate over the period. The per
capita GDP in Jordan grew from $1,676 in 2000 to $1,936 in 2004 and reached $2,104 in 2005, which represents a 4.7%
compound annual growth rate over the period. The per capita GDP in Kyrgyzstan grew from $286 in 2000 to $431 in 2004 and
reached $465 in 2005, which represents a 10.8% compound annual growth rate over the period. (Source: Economist Intelligence
Unit)
Tourism
Alcohol-free beverage sales tend to increase between May and September in tourist areas in Turkey. Approximately
17.5 million tourists visited Turkey in 2004 and 21.1 million in 2005, and Turkey is among the top 20 countries in the world in
terms of the number of tourists and tourism revenues. (Source: Ministry of Tourism) Despite the war in Iraq, the number of
tourists in Turkey increased by 5.3% and 20.4% in 2003 and 2004, respectively. (Source: World Tourism Organization) Tourism
does not have a significant impact on consumption in our markets outside of Turkey.
Seasonality
An additional characteristic of the alcohol-free beverage industry in the countries in which we operate is seasonality,
with consumption increasing during periods of higher temperatures and during Ramadan when people tend to spend more on
private consumption. The fact that summers are hot in most of our markets results in substantially higher alcohol-free beverage
consumption during the summer months compared to the winter months.
Consumption Per Capita
The following table compares the per capita consumption in 2004 of all ready-to-drink beverages (excluding milk and
milk-based drinks) and CSDs, as well as the per capita GDP in 2004, of the countries indicated. The countries shown below have
been selected either because of their geographic proximity to our markets or because they have similar GDP levels. We believe
that increasing GDP levels are an indicator of increasing CSD consumption. In addition, the United States has been included for
the sake of comparison, as it has the largest CSD consumption per capita for these beverages. Consumption data for Azerbaijan
and Kyrgyzstan have not been included because such information is not available to us from independent third party sources.
Mexico.........................................................................................
United States ...............................................................................
Spain............................................................................................
Germany......................................................................................
Italy..............................................................................................
Hungary.......................................................................................
Greece .........................................................................................
Bulgaria .......................................................................................
Poland..........................................................................................
Turkey .........................................................................................
Jordan(4) .......................................................................................
Kazakhstan ..................................................................................
Russia ..........................................................................................
(1)
Source: Canadean, except for Jordan.
(2)
Excluding milk and milk-based drinks.
(3)
Source: Economist Intelligence Unit.
(4)
Source: IMES.
2004
Per Capita
Ready-to-Drink
Consumption(1)(2)
(in liters)
2004
Per Capita
CSD
Consumption(1)
(in liters)
2004
Approximate
Per Capita GDP(3)
(in U.S. dollars)
377
360
276
271
269
185
159
136
133
129
106
79
67
151
184
99
82
51
70
57
61
40
34
32
25
32
6,445
10,050
24,590
33,350
28,910
10,000
18,720
3,126
6,344
4,170
1,967
2,713
5,341
With a consumption level of ready-to-drink beverages (excluding milk and milk-based drinks) of 129 liters per person
in 2004 and 137 liters per person in 2005, Turkey ranks below EU member states in the Mediterranean such as Italy, Greece and
Spain. In the CSD category, Turkey also ranks lower than these EU member states, with a per capita CSD consumption of
34 liters in 2004. While Jordan's per capita CSD consumption is similar to Turkey's, Kazakhstan ranks lower than Turkey, with a
per capita CSD consumption of 25 liters in 2004. We estimate that per capita CSD consumption in Azerbaijan is lower than that
in Kazakhstan and that per capita CSD consumption in Kyrgyzstan is significantly lower than in both of these markets.
Operations in Turkey
The Turkish Alcohol-Free Beverages Industry
We classify CSDs in Turkey into cola drinks, gazoz (a carbonated cream soda) and other flavored carbonated drinks.
We classify NCBs into the following segments in Turkey:
•
fruit juices, nectars and fruit-flavored drinks
•
iced tea
•
iced coffee
•
sports drinks
•
energy drinks
•
bottled water
•
HOD water
•
ayran (a yoghurt drink)
•
milk and milk-based drinks
•
hot beverages (including tea and coffee)
•
drinks prepared from powders and concentrates
All alcohol-free beverages, excluding hot beverages and drinks prepared from powders and concentrates, are also
referred to as "ready-to-drink beverages." In Turkey, beverage industry participants often exclude milk and milk-based drinks
from their analyses because milk is used for cooking and other purposes in addition to being a beverage. Ayran, on the other
hand, is considered to be a beverage competing with other NCBs in Turkey and is therefore included in these analyses.
The following table shows the development of per capita alcohol-free beverage consumption in Turkey over the
periods indicated:
CSDs ..........................................................................................................................
Fruit juices, nectars and fruit-flavored drinks ...........................................................
Iced tea .......................................................................................................................
Iced coffee..................................................................................................................
Sports drinks ..............................................................................................................
Energy drinks .............................................................................................................
Bottled water ..............................................................................................................
HOD water .................................................................................................................
Ayran..........................................................................................................................
Ready-to-drink beverages (excluding milk and milk-based drinks) ........................
Milk and milk-based drinks.......................................................................................
Hot beverages.............................................................................................................
Drinks from powders and concentrates .....................................................................
Total alcohol-free beverages......................................................................................
2005
2004
2003
(in liters)
2002
2001
36.7
6.9
0.3
0.01
0.04
0.01
20.2
75.1
10.8
150.0
10.5
192.0
2.3
354.8
34.3
6.4
0.3
0.2
0.1
0.1
17.2
71.2
10.8
140.4
9.2
192.8
2.1
344.5
28.1
5.5
0.3
0.1
0.04
0.04
15.3
66.7
10.9
126.9
8.2
193.2
2.2
330.5
25.5
5.2
0.2
—
0.01
0.03
14.9
64.4
11.0
121.2
7.7
193.4
2.3
324.6
25.3
5.3
0.1
—
0.01
0.04
15.0
59.3
11.1
116.2
7.1
193.9
2.6
319.8
Source: Canadean.
The following table shows the development of total alcohol-free beverage consumption in Turkey over the periods
indicated:
Ready-to-drink beverages (excluding milk and milk-based drinks) ...................................
Total alcohol-free beverages.................................................................................................
2005
2004
2003
2002
(in billions of liters)
2001
10.5
25.2
9.85
24.1
7.83
21.5
8.79
22.8
8.28
22.1
Source: Canadean.
Products
We are the leading bottler and distributor of CSDs and NCBs in Turkey based on sales volume, with a 59.2%, 59.4%
and 63.3% share of the CSD category and a 43.7%, 42.8% and 43.5% share of total ready-to-drink alcohol-free beverages
(excluding milk and milk-based drinks) for 2003, 2004 and 2005, respectively. We intend to continue to manage our existing
range of CSDs and NCBs, as well as introducing new brands and packages into the Turkish market. Our strong sales and
marketing, production, and distribution capabilities enable us to rapidly bring new products to market and enhance our share of
the CSD category.
We do not produce, sell or distribute in Turkey our own brands or products from other companies unaffiliated with The
Coca-Cola Company. We also do not distribute outside of Turkey any products produced in our Turkish plants; however, we
have received special authorization under our bottler's agreement to sell products to a subsidiary of The Coca-Cola Company in
Turkey for resale in the Turkish Republic of Northern Cyprus, as well as to distributors reselling into Iraq. See "—International
Operations—Iraq."
The following table sets forth all of the brands we currently produce, sell and distribute in Turkey, their year of
introduction in Turkey and the flavors in which they are currently offered:
Year of
Introduction
Brand
CSDs
Coca-Cola......................................................................
Coca-Cola light .............................................................
Fanta ..............................................................................
Sprite .............................................................................
Schweppes.....................................................................
Sen Sun..........................................................................
NCBs
Cappy ............................................................................
Turkuaz .........................................................................
Turkuaz .........................................................................
Nestea............................................................................
Powerade.......................................................................
Burn...............................................................................
Nescafé Xpress..............................................................
(1)
1964
1986
1985
1987
1990(1)
1971
1994
2001
2003
2002
2002
2003
2005
Flavors/Types
Orange, Lemon
Bitter Lemon, Mandarin, Tonic, Soda Water, Melon
Orange, Peach, Apricot, Sour Cherry, Multifruit,
100% Tomato, 100% Apple, 100% Orange, 100%
Citrus Mix, Tropic
Bottled Water
HOD
Lemon, Peach, Lemon light, Peach light, Blackberry
Ice Blast, Citrus Charge, Sun Rush
Choco, Vanilla, White
Relaunch.
Our core brands in Turkey are Coca-Cola, Coca-Cola light, Fanta, Sprite, Cappy and Turkuaz, which together
accounted for 94.4%, 95.0% and 96.3% of our total unit case sales volume in 2003, 2004 and 2005, respectively. CSDs continue
to represent a high proportion of our sales volume in Turkey, although our NCB sales volumes have grown as we continue to
expand our offering. In 2003, 2004 and 2005, CSDs represented 82.7%, 83.8% and 84.9%, respectively, and NCBs represented
17.3%, 16.2% and 15.1%, respectively, of our total unit case sales volume.
The following table sets forth our unit case sales volume and unit case sales volume as a percentage of our total sales
volume for the products offered in Turkey in those periods:
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola....................
Other CSDs .................
NCBs (inc. water) .......
Total ............................
194.9
69.9
47.1
311.9
2004
% of Total
Unit Case
Volume
Unit Case
Sales Volume
(in millions)
62.5
22.4
15.1
100.0
170.2
60.7
44.5
275.4
2003
% of Total
Unit Case
Volume
Unit Case
Sales Volume
(in millions)
61.8
22.0
16.2
100.0
132.4
51.2
38.5
222.1
% of Total
Unit Case
Volume
59.6
23.1
17.3
100.0
CSDs
The table below provides the total consumption in the CSD category in Turkey for the periods indicated:
2005
Consumption ........................................................................................
2,611.0
2004
2003
(in millions of liters)
2,408.0
1,944.0
2002
2001
1,743.4
1,707.9
Source: Canadean.
CSD consumption in Turkey decreased between 1999 and 2001, partially as a result of the downturn in the Turkish
economy and natural disasters, and remained relatively flat in 2002. However, the CSD category grew by 11.5% in 2003, 23.9%
in 2004 and 8.4% in 2005, with particularly strong growth in the cola drinks segment. Most of the growth occurred in the first
half of 2004, following the Ülker Group's launch of Cola Turka in July 2003 (which was accompanied by increased marketing
spending in Turkey by the Ülker Group as well as other participants in the category) and the positive economic developments
that began in the second half of 2003. (Source: Canadean)
Our approach to the CSD category is to sustain volume and value growth through (i) increasing the availability of our
products; (ii) consistent consumer communications across all media; (iii) effective segment-based pricing and packaging; and
(iv) maintaining our presence across the range of CSDs to enhance revenues from consumers at all income levels.
The following table sets forth our unit case sales volume and unit case sales volume as a percentage of our total sales
volume for Coca-Cola and our other CSDs in those periods:
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola....................
Other CSDs .................
CSDs total ...................
194.9
69.9
264.8
2004
% of Total
Unit Case
Volume
62.5
22.4
84.9
Unit Case
Sales Volume
(in millions)
2003
% of Total
Unit Case
Volume
170.2
60.7
230.9
Unit Case
Sales Volume
(in millions)
61.8
22.0
83.8
132.5
51.2
183.7
% of Total
Unit Case
Volume
59.7
23.1
82.8
Our leading CSDs in Turkey are Coca-Cola and Fanta. The Coca-Cola brand demonstrated compound annual unit case
sales volume growth of approximately 14% over the period from 2003 to 2005. Other key brands in the CSD category are CocaCola light, Sprite, Schweppes and Sen Sun, our gazoz brand. Sen Sun, a product targeting lower income groups, allows us to
build revenue from more price-sensitive consumers. We intend to continue our efforts to increase consumption of CSDs in
Turkey in general, as well as developing campaigns surrounding the launch of new flavors.
The table below shows the major participants in the CSD category in Turkey:
Cola Drinks
Gazoz
CCI ........................................................................................
Pepsi Bottling Group ............................................................
Ülker Group ..........................................................................
Uludağ ...................................................................................
Coca-Cola
Coca-Cola light
Pepsi Cola
Pepsi Twist
Pepsi Light
Pepsi Blue
Cola Turka
Cola Turka Light
Uludağ
Uludağ Light
Sen Sun
Fruko
Fruko Nefiss
Fruko Nane
Çamlıca
Çamlıca Light
Uludağ
Other Flavored
Carbonated Drinks
Fanta
Schweppes
Sprite
Yedigün
Seven Up
Pepsi Gold
Pepsi Cappucino
Sunny
Link
Uludağ
Our share of the CSD category was 59.3%, 59.4% and 63.3% for the years ended December 31, 2003, 2004 and 2005,
respectively, and 66.4% for the first three months of 2006, based on sales volumes. CCI is followed by the Pepsi Bottling Group
and the Ülker Group, which purchased the Çamlıca brand in 2002 and launched the Cola Turka brand in July 2003. Uludağ is a
national brand that remains popular particularly in the gazoz and other flavored carbonated drinks segments.
NCBs
Noncarbonated beverages continue to grow in Turkey, with new products being brought to market on a regular basis.
Recent years have seen the relative importance of NCBs grow in our range of beverages offered in Turkey. This is partly
attributable to changing consumer preferences as well as our increased emphasis offering a wider variety of alcohol-free
beverages. Our NCB range of beverages includes fruit juices, nectars, iced tea, iced coffee, sports drinks, energy drinks and
water.
In 2003, 2004 and 2005, NCBs accounted for approximately 17.3%, 16.2% and 15.8% respectively, of our total unit
case sales volume in Turkey. The following table sets forth our unit case sales volume and unit case sales volume as a
percentage of our total sales volume for our NCBs in those periods:
2005
Unit Case
Sales Volume
(in millions)
NCBs (excluding
water)........................
Turkuaz .......................
Bottled water(1) ............
HOD water(2) ...............
NCBs total...................
17.6
29.5
16.1
13.4
47.1
(1)
Introduced in second quarter 2001.
(2)
Introduced in second quarter 2003.
2004
% of Total
Unit Case
Volume
Unit Case
Sales Volume
(in millions)
5.7
10.1
5.9
4.2
15.8
15.2
29.4
15.1
14.3
44.6
2003
% of Total
Unit Case
Volume
Unit Case
Sales Volume
(in millions)
5.5
10.7
5.5
5.2
16.2
% of Total
Unit Case
Volume
12.2
26.2
19.7
6.5
38.4
5.5
11.9
8.9
2.9
17.2
Fruit Juice and Nectars. The Foodstuffs Regulation of the Turkish Standards Institute classifies fruit drinks as
follows:
•
fruit juices are drinks produced from 100% fruit juice without any additives;
•
nectars are drinks containing at least 25% fruit juice; and
•
fruit-flavored drinks are drinks containing at least 15% fruit juice.
The table below provides the total consumption in the fruit juices and nectars segment in Turkey for the periods
indicated:
2005
Consumption ..............................................................................................................
336.0
2004
2003
2002
278.0
216.6
201.1
2001
211.9
Source: Canadean.
Consumption in this segment remains low in Turkey relative to other European countries, possibly as a result of the
abundance of fresh fruits available year-round in Turkey. Principally as a result of the Turkish economic crisis of 2001, overall
consumption of fruit juices and nectars decreased between 2000 and 2002. Consumption levels recovered to their pre-crisis level
by 2003, followed by 28.3% growth in 2004 and 20.9% growth in 2005 partially as a result of new product and flavor launches
between 2003 and 2005, as well as the increase in consumer confidence and purchasing power. (Source: Canadean)
Our brand in the fruit juice and nectar segment is Cappy, which was the leading brand in this segment in Turkey in the
first nine months of 2005. Cappy is a premium brand aimed at middle- and higher-income consumers. We have made efforts to
differentiate Cappy from other brands in the segment and to strengthen the brand by improving its packaging and by introducing
new flavors, including an apricot mix flavor in 2003, a tropic flavor and a 100% tomato juice, 100% apple juice in 2005 and a
100% citrus mix in February 2006.
Our core strategy in the fruit juice and nectar segment is to continue to build on our position by introducing new flavors
and innovative packages. Our share of this segment was 24.3% 22.9% and 27.2% for 2003, 2004 and 2005 respectively, and
28.7% for the first three months of 2006, based on sales volumes.
The following table shows the major participants in the fruit juice and nectars segment in Turkey:
Fruit Juices
Nectars
CCI ...............................................................................................................................................
Aroma...........................................................................................................................................
Dimes ...........................................................................................................................................
Cappy
Aroma
Dimes
GıdaSA.........................................................................................................................................
—
Cappy
Aroma Meyöz
Dimes
Dimes Extra
Dimes
MeyMax
Piyale
Tat.................................................................................................................................................
—
Pınar .............................................................................................................................................
Tamek...........................................................................................................................................
Pınar
Tamek
Ülker.............................................................................................................................................
—
Sek
Fidan
Pınar
Tamek
Tamek Plus
İçim
Iced Tea, Iced Coffee, Energy Drinks and Sports Drinks. The table below provides the total consumption in the iced
tea, energy drinks and sports drinks segments in Turkey for the periods indicated:
Iced tea ..................................................................................................................................
Iced coffee.............................................................................................................................
Energy drinks ........................................................................................................................
Sports drinks .........................................................................................................................
2005
2004
2003
2002
22.5
0.9
4.7
3.2
19.5
0.2
5.2
4.0
18.5
0.1
3.0
2.5
2001
14.5
—
2.0
0.9
8.7
—
2.9
0.7
Source: Canadean.
Iced tea consumption increased by 5.4% in 2004 compared to 27.6% in 2003. The slowing trend in 2004 followed a
decrease in investment by Lipton. Both Lipton and Nestea launched new drinks and increased their marketing expenditure in
2005. In 2005, iced tea sales volume increased by 15.4%. Iced coffee is a small but growing beverage segment that doubled its
volume in 2004 compared to 2003. In 2005, iced coffee sales volume increased to 0.9 million liters with a growth of 350%
compared to 2004. Energy drinks volume increased by 73% in 2004 as both Burn and Red Bull were the subject of marketing
campaigns during the year. In 2005, energy drinks sales decreased by 9.6% due to the ban on the sale of energy drinks. See "—
Legal Proceedings." Sports drinks volume increased by approximately 60% in 2004 and decreased by 20% in 2005 largely due
to supply issues. (Source: Canadean)
We have expanded our noncarbonated range of products in recent years to reach consumers who prefer to drink new
beverage alternatives. We re-launched our iced tea, Nestea, in May 2002, launched our sports drink, Powerade, in June 2002 and
launched our energy drink, Burn, in June 2003. We launched Nescafé Xpress iced coffee drinks in three flavors in April 2005.
Iced teas, iced coffees, energy drinks and sports drinks generally have both a higher growth trend and higher margins than CSDs
and are targeted primarily at young and urban consumers in the middle- and higher-income ranges. Our strategy going forward is
to build availability through expanded distribution, to build brand preference through sampling and visibility programs and to
launch new flavors and varieties.
The following table shows the major participants in the iced tea, iced coffee, energy drinks and sports drinks segments
in Turkey:
Iced Tea
Iced Coffee
Energy Drinks
Sports Drinks
CCI ....................................................
Pepsi Bottling Group ........................
Red Bull ............................................
Tuborg...............................................
Uludağ ...............................................
Nestea
Lipton
—
—
Uludağ
Nescafé Xpress
—
—
—
—
Powerade
Gatorade
—
—
—
Others ................................................
—
Birdy, Master Cafe
Burn
—
Red Bull
Battery
Deep
Buzzer, Lion Club,
Power Ball, Red
Dragon, Red Zone,
Shark
Isostar, Sport Max
The two major iced tea brands, Nestea and Lipton, have by far the largest share. We had a share in this segment of
22.7% in 2003, 24.6% in 2004, 23.3% in 2005 and 17.3% in the first three months of 2006.
Nescafé Xpress was launched in April 2005 and reached a market share of 55.5% by December 31, 2005. (Source:
Canadean) We purchase Nescafé Xpress from The Coca-Cola Company, which imports the products into Turkey.
In the energy drinks segment, we had a share of 46.7% in 2003, 35.1% in 2004, 38.0% in 2005 and 31.5% in the first
three months of 2006.
The sports drinks segment is a relatively new one in Turkey. Powerade was launched by CCI in June 2002. Gatorade
was launched by the Pepsi Bottling Group in March 2003. In the sports drinks segment, we had a share of 87.5% in 2003, 88.4%
in 2004, 94.7% in 2005 and 94.3% in the first three months of 2006.
Water. The bottled and HOD water segments continue to be highly fragmented in Turkey, characterized by low brand
loyalty and high price sensitivity among consumers. We do not currently participate in the sparkling water segment in Turkey.
Bottled Water. The table below provides the total consumption in the bottled water segment in Turkey for the periods
indicated:
2005
Consumption ........................................................................................
1,437.0
2004
2003
1,207.0
1,060.0
2002
2001
1,015.0
1,010.0
Source: Canadean.
Bottled water in Turkey enjoyed strong growth in the 1990s, primarily as a result of the poor quality of tap water in
most urban areas. Compared to the CSD category and the fruit juice and nectar segment, the 2001 economic crisis in Turkey had
little impact on bottled water sales. Total sales volume remained relatively stable in 2001 and 2002 and increased by 4.4%,
13.9% and 19.1% in 2003, 2004 and 2005, respectively. The primary influence on bottled water consumption in the past few
years has been competition from HOD water. (Source: Canadean)
We introduced our line of Turkuaz bottled water in May 2001, and it reached a leading position in 2002. In 2003, we
increased our share to 14.6% and expanded our offering of Turkuaz by introducing a 1.5 liter bottle size. In 2004, due to
negative publicity by our source water competitors regarding processed drinking water, which negatively affected consumer
preference, as well as our own efforts to increase margins, our share fell to 10.0% for 2004 and 7.1% in 2005. Our share for the
first three months of 2006 was 3.6%.
The bottled water segment includes noncarbonated source water and processed drinking water. The following table
shows the major participants in the bottled water segment in Turkey:
CCI ....................................................................
Danone ..............................................................
Erikli..................................................................
Koç Holding......................................................
Nestle.................................................................
Pepsi Bottling Group ........................................
Pınar ..................................................................
Sabancı Holding................................................
Yimpaş Holding................................................
Source Water
Processed Drinking Water
—
Hayat, Flora
Erikli
Tat Kabalak
Pure Life
—
Pınar Madran, Şaşal,
Yaşam Pınarım
Saka
Aytaç
Turkuaz
—
—
—
—
Aquafina
—
—
—
HOD Water. The table below provides the total consumption in the HOD water segment in Turkey for the periods
indicated:
2005
Consumption ........................................................................................
5,350.0
2004
2003
5,000.0
4,620.0
2002
2001
4,400.0
4,000.0
Source: Canadean.
The availability of HOD water has become more widespread in recent years, and industry-wide consumption in the
segment in Turkey grew at a compound annual growth rate of approximately 7.5% between 2001 and 2005. The increase in
HOD water consumption can be partially attributed to the growing reliance on HOD water rather than tap water in urban
households, as well as to the fact that HOD water is more economical than bottled water on a volume basis. Demand for HOD
water is expected to grow rapidly in Turkey. Istanbul is estimated to account for half of national demand, with most of the
volume growth coming from major urban areas such as İzmir, Ankara and Antalya. (Source: Canadean)
The market for home and office delivery of water is growing rapidly in Turkey. In May 2003, we launched our line of
Turkuaz HOD water with a 19-liter refillable proprietary container, initially targeting the HOD delivery market in Istanbul.
Since its launch, we have expanded our delivery of HOD water to the Thrace and Bursa regions. In 2003, we sold 6.5 million
unit cases to over 100,000 households and offices. In 2004, our HOD sales increased to 14.3 million unit cases. In 2005, our
HOD sales decreased to 13.4 million unit cases due to the negative publicity regarding processed drinking water.
Our strategy is to work with The Coca-Cola Company to introduce a natural source water in the Turkish market, in
addition to continuing to market our Turkuaz processed water. In March 2006, we acquired Mahmudiye, a private natural source
water company that holds the exclusive extraction rights to a natural water source. We intend to sell this source water initially in
the HOD market under the "Doğazen" brand name, which is owned by The Coca-Cola Company.
The HOD water segment is highly fragmented in Turkey. The following table shows the major participants in the HOD
water segment in Turkey:
HOD Water Brand
CCI .......................................................................................................................................................
Danone .................................................................................................................................................
Koç Holding.........................................................................................................................................
Pınar .....................................................................................................................................................
Nestle....................................................................................................................................................
Sabancı Holding...................................................................................................................................
Erikli.....................................................................................................................................................
Others ...................................................................................................................................................
Turkuaz
Flora, Hayat
Tat Kabalak
Pınar Madran
Pure Life
Saka
Erikli, Gümüş
Güvenpınar, Hamidiye,
Karsu, Kavacık, Koçbey,
Lido
Customers
We have approximately 248,000 customers in Turkey, including approximately 174,000 future consumption customers
and 74,000 immediate consumption customers. In 2003, 2004 and 2005, our top ten customers (measured by unit case sales
volume), excluding distributors, accounted for 15.1%, 14.0%, and 13.7%, respectively, of our total unit case sales volume, and
our top three customers accounted for 7.7%, 7.2% and 6.5%, respectively, of our total unit case sales volume.
Distribution
Our distribution network in Turkey services our customers through our direct distribution system and through
independent distributors. We endeavor to use the most cost-efficient method of delivery for each customer. Most deliveries,
whether made directly or through independent distributors, are made using Coca-Cola branded vehicles. As of December 31,
2005, there were 2,125 Coca-Cola branded vehicles in Turkey (of which 889 were in our fleet and the remainder were owned or
leased by independent distributors). Our distribution network reached approximately 86.0% of all future consumption outlets in
Turkey in 2004 and approximately 88.0% in 2005. (Source: Nielsen) No similar independent information is available with
respect to immediate consumption outlets.
Direct Distribution
We use direct distribution in Turkey primarily for key accounts such as hypermarkets, supermarkets and fast food
restaurants. Direct distribution accounted for 37.1%, 34.7% and 31.3% of total sales volume in 2003, 2004 and 2005,
respectively.
Since 2000, we have been reducing our vehicle fleet as we shift our focus to indirect distribution for lower volume
accounts. In addition, we have begun outsourcing direct distribution to transportation logistics firms. The table below shows the
development of our vehicle fleet in recent years:
As of December 31,
2003
2004
2005
Autos ............................................................................................................................................................
Trucks and trailers........................................................................................................................................
Scooters ........................................................................................................................................................
Total .............................................................................................................................................................
724
166
31
921
830
161
22
1,013
904
75
23
1,002
Indirect Distribution
In addition to direct distribution, we increasingly sell products indirectly through distributors. As of December 31,
2005, we were using a total of 359 distributors in Turkey, plus an additional 150 distributors for our HOD water. Our team of
distributor advisors is responsible for transferring our know-how and processes to our exclusive distributors, providing extensive
training and support to distributor owners and personnel to ensure that they meet our delivery and merchandising standards. We
work with our non-HOD distributors using either a conventional distribution system or a hybrid distribution system.
Conventional System. Under the conventional distribution system, the independent distributors take orders from
customers. We sell the ordered products to the distributors, which are responsible for warehousing and delivering the products,
as well as collecting amounts due from their customers. This method of distribution is becoming increasingly significant for us
and accounted for 48.5%, 49.3% and 52.7% of our total sales volume in 2003, 2004 and 2005, respectively.
Hybrid System. In a hybrid distribution system, we are responsible for calling on customers and taking orders. We sell
the ordered products to the distributors, which are responsible for warehousing and delivering the products, as well as collecting
amounts due from their customers. This method of distribution accounted for 12.0%, 12.0% and 12.2% of our total sales volume
in 2003, 2004 and 2005, respectively.
HOD Distribution. We operate a call center for our HOD customers to place orders. We have built a distribution
network for our HOD water business by entering into exclusive arrangements with established HOD distributors. Orders are
transmitted from our call center to the appropriate distributor using mobile communications, and delivery to a customer typically
is made within 1.5 hours from the time the order was placed by the customer. HOD distribution accounted for 3.0%, 5.3% and
4.3% of our total sales volume in 2003, 2004 and 2005.
International Operations
We expanded our international operations to Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan with the acquisition of a
controlling interest in Efes Invest and CC Jordan in the fourth quarter of 2005. In addition, we are party to a joint venture that
has the exclusive distribution rights in Iraq and has the option to become the sole Coca-Cola bottler in Iraq.
We believe that Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan, with a combined population of approximately
34.6 million (Source: Economist Intelligence Unit), represent significant growth opportunities because of their current
consumption rates and demographics. Jordan's per capita CSD consumption is similar to Turkey's with 32 liters while
Kazakhstan ranks lower than Turkey, with a per capita CSD consumption of 25 liters in 2004. We estimate that per capita CSD
consumption in Azerbaijan is relatively equal to that in Kazakhstan and that per capita CSD consumption in Kyrgyzstan is
significantly lower than in these markets. In addition, with the exception of bottled water, demand for NCBs in these markets
remains relatively low compared to demand in Turkey. In addition, each of these countries has a large proportion of young
people, who typically consume a larger amount of CSD products. We believe that we can increase our sales volumes in the
future by developing the overall soft drink culture in these countries through our marketing efforts.
We consider Kazakhstan and Azerbaijan to be core growth countries for us. Market reforms, political stability and the
favorable pricing of oil and gas have been major contributors toward economic growth in these countries. With their increasing
levels of disposable income, we expect these countries in particular to experience an increase in consumption of CSDs and a
shift toward premium branded products. Our strategy in these countries is to (i) increase our market penetration through
executing a more sophisticated channel marketing approach and increasing the availability and attractiveness of our products at
the point of sale; (ii) expand our offering of NCBs; and (iii) introduce new packages. In Kyrgyzstan, a more economically
constrained market, we intend to focus on increasing the overall market size through the restructuring of our sales and
distribution systems and the introduction of affordable packages. In Jordan, we plan to leverage our experience in our other
markets and make the necessary investments to improve our volumes and share, including introducing PET and other attractive
packages.
Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan are exposed to greater economic and political volatility and have a
lower per capita GDP than Turkey. As a result, consumer demand in these countries is more price sensitive, making the
affordability of our products even more important in these markets. The pricing strategy in these countries has been based on a
number of factors in addition to economic indicators, including pricing of competing products, the penetration of competing
products in the market and brand loyalty. In addition, The Coca-Cola Company's contractual right to set the concentrate prices
for the bottlers in these countries and to set the maximum prices these bottlers may charge for their products affects pricing
decisions.
In general, these countries have a relatively less developed distribution structure and a fragmented retail sector that
emphasizes small retailers. The bottlers in these countries have focused on tailoring their distribution systems to the local market
through a combination of direct delivery and independent distributors. Having a direct delivery system provides a competitive
advantage by enabling a closer customer relationship and providing greater influence over how products are presented to
customers. The bottlers in these countries have focused on improving the availability of chilled products by placing coolers in
these markets. In Kazakhstan and Kyrgyzstan, the bottlers also act as distributors of beer products of Anadolu Efes in selected
cities.
The leading CSDs in each of these markets are Coca-Cola and Fanta, followed by Sprite and Coca-Cola light. Efes
Invest sold 28.0, 40.0 and 49.3 million unit cases of CSDs, NCBs and beer in these countries (excluding Jordan) in 2003, 2004
and 2005, leading to net sales of $58.7 million (YTL78.6 million), $90.3 million (YTL121.2 million) and $118.5 million
(YTL158.9 million) in those periods. In 2005, CSDs accounted for 77.8% of total unit case sales volumes, NCBs (including
bottled water) accounted for 16.5%, and sales of Anadolu Efes brands accounted for the remaining portion.
The following table sets forth Efes Invest's consolidated unit case sales volume and unit case sales volume as a
percentage of its total sales volume for the products offered in those periods. The table below does not include sales volumes in
Jordan over the periods.
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola....................
Other CSDs .................
NCBs ...........................
Beer(1) ..........................
Total ............................
17.7
20.7
8.1
2.8
49.3
2004
% of Total
Unit Case
Volume
35.8
42.0
16.5
5.7
100.0
Unit Case
Sales Volume
(in millions)
15.3
16.7
5.7
2.4
40.1
2003
% of Total
Unit Case
Volume
Unit Case
Sales Volume
(in millions)
38.2
41.7
14.2
5.9
100.0
% of Total
Unit Case
Volume
11.4
11.8
2.7
2.1
28.0
40.6
42.3
9.7
7.4
100.0
(1)
Distributed pursuant to an agreement with a subsidiary of Anadolu Efes and based on a written consent from The CocaCola Company which is renewed annually.
Kazakhstan
Alcohol-Free Beverage Consumption in Kazakhstan
The following table shows the development of per capita alcohol-free beverage consumption in Kazakhstan over the
periods indicated:
2004
CSDs ................................................................................................................................................................
Bottled water ....................................................................................................................................................
HOD water .......................................................................................................................................................
Juices, nectars and juice drinks........................................................................................................................
Energy drinks ...................................................................................................................................................
Iced tea .............................................................................................................................................................
25.0
40.9
0.8
11.9
0.1
0.4
2003
(in liters)
20.0
27.9
0.4
8.4
0.1
0.4
2002
16.5
18.2
0.3
6.2
0.1
0.1
Source: Canadean.
We believe that Kazakhstan offers significant growth potential for CC Kazakhstan's business. The country has a
population of approximately 15.2 million, of which approximately 24% are under 15 years old. (Source: Economist Intelligence
Unit; CIA World Factbook) The per capita GDP in the country grew from $1,228 in 2000 to $2,713 in 2004 and reached $3,688
in 2005, which represents a 24.5% compound annual growth rate over the period. (Source: Economist Intelligence Unit). We
estimate that our own CSD sales per capita grew from 5.2 liters in 2003 to 8.3 liters in 2005.
Products
CC Kazakhstan was established in 1995 and became the first producer of products of The Coca-Cola Company in
Kazakhstan in 1996. The following table sets forth all of the alcohol-free brands that CC Kazakhstan currently produces, sells
and distributes, their year of introduction in Kazakhstan and the flavors in which they are currently offered:
Year of
Introduction
Brand
CSDs
Coca-Cola................................................................
Coca-Cola light .......................................................
Fanta ........................................................................
Sprite .......................................................................
Schweppes...............................................................
NCBs
Piko(1).......................................................................
Bonaqua ..................................................................
(1)
Flavors/Types
1995
2001
1995
1995
2005
Orange, Exotic, Wildberry
Tonic
Orange, Peach, Apricot, Cherry, Multivitamin,
Tomato, Apple, Plum, Grape, Grapefruit,
Pineapple
2003
1995 (carbonated)
2004 (still)
Bottled Water: Carbonated, Still
Piko is purchased from a manufacturer authorized by The Coca-Cola Company and distributed by CC Kazakhstan.
The following table sets forth CC Kazakhstan's unit case sales volume and unit case sales volume as a percentage of its
total sales volume for the products offered in those periods:
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola....................
Other CSDs .................
NCBs ...........................
Beer(1) ..........................
Total ............................
11.5
10.6
3.9
2.5
28.5
2004
% of Total
Unit Case
Volume
40.6
36.7
13.8
8.9
100.0
Unit Case
Sales Volume
(in millions)
9.5
9.3
2.8
2.0
23.6
2003
% of Total
Unit Case
Volume
40.2
39.3
11.9
8.6
100.0
Unit Case
Sales Volume
(in millions)
6.9
6.8
1.2
1.7
16.6
% of Total
Unit Case
Volume
41.6
45.2
3.0
10.2
100.0
(1)
CSDs
The table below provides information with respect to consumption in the CSD category in Kazakhstan for the periods
indicated:
Consumption (in millions of liters) ..........................................................................................................
Consumption per capita (liters) ................................................................................................................
2004
2003
2002
402.3
25.0
322.0
20.0
265.4
16.5
Source: Canadean.
Fruit-flavored CSDs make up a large proportion of the CSD consumption in Kazakhstan, partially due to the historical
absence of Coca-Cola and Pepsi in the market. In the last three years, fruit-flavored CSDs have represented on average 70% of
the total CSD consumption in Kazakhstan, with colas representing on average 23% of the total. (Source: Canadean)
The table below shows the major participants in the CSD category in Kazakhstan:
CC Kazakhstan........................................................................................................................
Resmi Group Bottlers (bottling partner of PepsiCo International)........................................
Libella Bottlers........................................................................................................................
Natura Bottlers ........................................................................................................................
OBIS Company.......................................................................................................................
Cola Drinks
Other CSDs
Coca-Cola
Coca-Cola light
Pepsi Cola
Pepsi Light
Pepsi Twist
Libella Cola
Fanta
Sprite
Mirinda
Fiesta
7Up
Libella
Natura
Crystal
Crystal Cola
CC Kazakhstan is the market leader in CSDs in the country, with a share of the CSD category in Kazakhstan of 37.4%,
40.4% and 45.4% for the years ended 2003, 2004 and 2005 (Source: Nielsen) The producers of fruit-flavored CSDs are highly
fragmented and, given the geographical size of Kazakhstan, tend to operate on a regional level.
Water
The table below provides information with respect to consumption of bottled water in Kazakhstan for the periods
indicated:
2004
2003
2002
658.6
40.9
449.9
27.9
293.8
18.2
Source: Canadean.
The table below shows the major participants in the bottled water category in Kazakhstan:
Bottled Water
CC Kazakhstan..............................................................................................................................................
Resmi Group Bottlers (bottling partner of PepsiCo International)..............................................................
OBIS Company.............................................................................................................................................
Alex Saryagash Bottlers ...............................................................................................................................
Caspian Company.........................................................................................................................................
Asem-Ai Company .......................................................................................................................................
Raimbek Bottler ............................................................................................................................................
Vimpex..........................................................................................................................................................
Bonaqua
Aqua Mineral
Crystal
Alex Saryagash
Vita
Asem-Ai Saryagash
Juicy
Tassay
Bottled water consumption is higher than CSD consumption in Kazakhstan, and it continues to grow as a result of
heightened awareness of health issues, as well as increased investments by producers and distributors. (Source: Canadean) The
segment is dominated by local source waters, and there is a strong local preference for source water over processed water.
CC Kazakhstan's share of the bottled water segment was 2.4%, 1.5% and 2.2% for the years ended 2003, 2004 and 2005.
(Source: Nielsen).
Juices, Nectars and Juice Drinks
The Coca-Cola Company defines fruit drinks as follows:
•
fruit juices are drinks produced from 100% fruit juice without any additives;
•
nectars are drinks containing at least 30% fruit juice; and
•
juice drinks are drinks containing at least 10% fruit juice.
The table below provides information with respect to consumption in the juices, nectars and juice drinks category in
Kazakhstan for the periods indicated:
2004
2003
2002
192.1
11.9
135.2
8.4
100.0
6.2
Source: Canadean.
Consumption of juices and nectars has been growing rapidly in Kazakhstan, partially as a result of the expanding
production and distribution coverage by industry participants. There are large amounts of these products imported from Russia
which are not covered by Canadean industry research and, therefore, are not reflected in the table above.
The table below shows the major participants in the juices, nectars and juice drinks category in Kazakhstan:
Juices, Nectars
and Still Drinks
CC Kazakhstan...............................................................................................................................
Resmi Group Bottlers (bottling partner of PepsiCo International)...............................................
Libella Bottlers...............................................................................................................................
Natura Bottlers ...............................................................................................................................
Asem-Ai Company ........................................................................................................................
Raimbek Bottler .............................................................................................................................
Piko
Dada
Gracio
Solnechny
Libella
Natura
Fruitay
Juicy
Ainalain
Palma
Consumption of juices, nectars and juice drinks is growing in Kazakhstan. Russian importers, together with local
bottlers, continue to be the most significant players in this segment. CC Kazakhstan began competing in this segment in 2003
with the introduction of its nectar Piko. Its share of the fruit juices, nectars and juice drinks segment was 7.0%, 5.8% and 7.1%
for the years ended 2003, 2004 and 2005. (Source: Nielsen)
Customers
According to Nielsen, as of December 31, 2005, small stores, kiosks and open markets represented 68%, medium
stores represented 19% and large stores represented 13% CSD industry sales in Kazakhstan. CC Kazakhstan has approximately
6,000 customers receiving direct deliveries.
Distribution
CC Kazakhstan manages the distribution of its products through a combination of direct and indirect distribution.
Direct deliveries are made primarily to key accounts and other retail outlets in the large cities of Almaty, Shymkent and Astana.
In 2003, 2004 and 2005, direct deliveries accounted for approximately 42%, 43% and 45%, respectively, of CC Kazakhstan's
total unit case sales volume. Indirect deliveries are made either through a hybrid system, in which CC Kazakhstan sales
representatives take orders from customers and the orders are filled by distributors who purchase the products from
CC Kazakhstan, or through a conventional distributor system involving immediate sales. CC Kazakhstan operates through
approximately 20 distributors in Kazakhstan and has 92 trucks in its own fleet. CC Kazakhstan ships products by train directly
from its two plants in Almaty.
CC Kazakhstan also distributes Anadolu Efes' beer products in Almaty and Astana based on a written consent from The
Coca-Cola Company which is renewed annually. In 2005, these products accounted for 8.9% of CC Kazakhstan's total unit case
sales volumes.
CC Kazakhstan's distribution network reached approximately 78% and 79% of all retail outlets in the nine major cities
in Kazakhstan, Almaty, Shymkent, Astana, Pavlodar, Ust Kamenogorsk, Karaganda, Aktyubinsk, Aktau and Atyrau in 2004 and
2005, respectively. (Source: Nielsen) CC Kazakhstan is expanding its distribution reach by purchasing additional trucks
dedicated to the Caspian Sea region.
Azerbaijan
CC Azerbaijan became the first producer of products of The Coca-Cola Company in Azerbaijan when it was
established in 1996. The following table sets forth all of the brands that CC Azerbaijan currently produces, sells and distributes,
their year of introduction in Azerbaijan and the flavors in which they are currently offered:
Year of
Introduction
Brand
CSDs
Coca-Cola................................................................
Coca-Cola light .......................................................
Fanta ........................................................................
Sprite .......................................................................
NCBs
Bonaqua ..................................................................
Flavors/Types
1996
2001
1996
1996
Orange
1996 (carbonated)
2003 (still)
The following table sets forth CC Azerbaijan's unit case sales volume and unit case sales volume as a percentage of its
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola....................
Other CSDs .................
NCBs ...........................
Total ............................
4.8
8.8
4.0
17.6
2004
% of Total
Unit Case
Volume
Unit Case
Sales Volume
(in millions)
27.6
49.6
22.8
100.0
2003
% of Total
Unit Case
Volume
4.3
5.8
2.7
12.8
Unit Case
Sales Volume
(in millions)
33.4
45.6
21.0
100.0
3.4
3.9
1.3
8.6
% of Total
Unit Case
Volume
39.5
44.9
15.6
100.0
CC Azerbaijan faces competition from PepsiCo International, which has a plant in Azerbaijan, as well as local
competitors, who actively compete based on pricing. The table below shows the major participants in the industry in Azerbaijan:
CC Azerbaijan....................................................................................
Mars Overseas PepsiCo (Pepsi Bottling Group)...............................
Tac Company .....................................................................................
Hayal Company .................................................................................
Shollar Company ...............................................................................
Cola Drinks
Other CSDs
Bottled Water
Coca-Cola
Coca-Cola light
Pepsi-Cola
Pepsi Light
Pepsi Twist
Fanta
Sprite
Mirinda
Fiesta
7Up
Tac Gulistan
Hayal
Bonaqua
Aqua Mineral
Tac Aqua Vita
Hayal
Shollar
CC Azerbaijan is the market leader in CSDs in the country, with a share of the CSD category in Azerbaijan of 41.7%,
45.6% and 50.2% for the years ended 2003, 2004 and 2005 respectively. It is also the market leader in the bottled water segment,
with a share of 31.2% and 35.5% for the years ended 2004 and 2005 respectively. (Source: Nielsen)
We believe that Azerbaijan's demographics will support future growth in sales of CSDs. The country has a population
of approximately 8.4 million, of which approximately 27% are under fifteen years old. (Source: Economist Intelligence Unit;
CIA World Factbook.) The per capita GDP in the country grew from $654 in 2000 to $1,024 in 2004 and reached $1,458 in
2005, which represents a 17.4% compound annual growth rate over the period. (Source: Economist Intelligence Unit) We
estimate that our own CSD sales per capita grew from 5.0 liters in 2003 to 9.2 liters in 2005.
According to Nielsen, as of December 31, 2005, small stores and kiosks represented 76%, medium stores represented
20% and large stores represented 4% of CSD industry sales in Azerbaijan. CC Azerbaijan has over 4,400 customers receiving
direct deliveries.
Distribution in Baku is managed directly by CC Azerbaijan, and it relies on distributors elsewhere in Azerbaijan. In
2003, 2004 and 2005, CC Azerbaijan delivered approximately 74%, 75% and 75%, respectively, of its sales volume directly to
wholesalers and customers in Baku and sold the remainder elsewhere in Azerbaijan through a conventional distributor system
involving immediate sales. CC Azerbaijan operates through 44 distributors outside of Baku and has its own fleet of 56 trucks in
Baku. CC Azerbaijan intends to invest in additional trucks in 2006.
CC Azerbaijan's distribution network reached approximately 94% of all retail outlets in the three largest cities in
Azerbaijan, Baku, Sumgait and Ganja, in 2005. (Source: Nielsen)
Jordan
We acquired a 90% interest in CC Jordan on December 29, 2005. CC Jordan has been bottling products of The CocaCola Company in Jordan since 1997, when The Coca-Cola Company acquired the local bottler, which had been operating since
1993. The following table sets forth all of the brands that CC Jordan currently produces, sells and distributes, their year of
introduction in Jordan and the flavors in which they are currently offered:
Year of
Introduction
Brand
Coca-Cola......................................................................
Coca-Cola light .............................................................
Fanta ..............................................................................
Sprite .............................................................................
Sprite light.....................................................................
Schweppes.....................................................................
Arwa (imported from United Arab Emirates and
Bahrain)......................................................................
Flavors/Types
1993
1994
1993
1993
2000
2005
Orange, Strawberry, Blackcurrant, Apple
Tonic, Bitter Lemon, Ginger, Soda Water
2005
The following table sets forth CC Jordan's unit case sales volume and unit case sales volume as a percentage of its total
sales volume (including exports) for the products offered in those periods:
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola....................
Other CSDs .................
NCBs ...........................
Total ............................
8.4
7.0
0.1
15.5
2004
% of Total
Unit Case
Volume
54.5
45.0
0.5
100.0
Unit Case
Sales Volume
(in millions)
6.9
5.4
0.0
12.3
2003
% of Total
Unit Case
Volume
55.7
44.3
0.0
100.0
Unit Case
Sales Volume
(in millions)
% of Total
Unit Case
Volume
6.4
4.6
0.0
11.0
58.2
41.8
0.0
100.0
CSDs
The table below provides information with respect to consumption in the CSD category in Jordan for the periods
indicated:
Consumption (in millions of liters) .........................................................................................................................
Consumption per capita (liters) ...............................................................................................................................
Source: IMES.
2004
2003
178.4
31.9
174.0
31.6
PepsiCo International is CC Jordan's primary competitor and is currently the market leader in Jordan. The table below
shows the products offered by each bottler:
Cola Drinks
Other CSDs
CC Jordan............................................................................................................................
Coca-Cola
Coca-Cola light
PepsiCo International..........................................................................................................
Pepsi-Cola
Pepsi Diet
Fanta
Sprite
Sprite light
Mirinda
Mountain Dew
7Up
7Up Diet
Pepsi Twist
CC Jordan's share of the CSD category in Jordan was 24.3%, 16.9% and 15.8% for the years ended 2003, 2004 and
2005, respectively.
Jordan has a relatively small population of 5.8 million, but approximately 35% of its inhabitants are under 15 years of
age. (Source: Economist Intelligence Unit; CIA World Factbook). Per capita GDP in the country grew from $1,676 in 2000 to
$1,936 in 2004 and reached $2,104 in 2005, which represents a 4.7% compound annual growth rate over the period. (Source:
Economist Intelligence Unit)
When CC Jordan's predecessor commenced operations, PepsiCo International had been in the market for almost thirty
years. In recent years, with the entry of lower-priced PET products from Syria and PepsiCo's introduction of larger PET
packages, consumer demand has shifted from returnable bottles to PET packages. We believe that CC Jordan experienced
substantially decreased volumes and share during this period of transition as a result of its failure to invest in PET packages. We
plan to leverage our experience in our other markets and make the necessary investments to improve our sales volumes and
share in Jordan in the coming years. Since the acquisition, we have appointed a new general manager of CC Jordan and have
reduced the number of employees by approximately 25%. We have begun restructuring our sales and distribution systems and
intend to upgrade the employee training and supply chain and information systems in CC Jordan. We have installed a new PET
production line which became operational in January 2006 and have introduced PET packages in various sizes in the first three
months of 2006. We also plan to work together with The Coca-Cola Company to add at least one NCB to our portfolio in Jordan
in 2006.
According to Nielsen, as of December 31, 2005, small stores represented 77%, medium stores represented 7%,
supermarkets represented 7% and catering represented 9% of CSD industry sales in Jordan. CC Jordan has approximately
17,600 customers receiving direct delivery.
In 2004, CC Jordan distributed 88% of its sales volume directly using its fleet of 148 trucks. The remaining 12% was
sold through a network of 16 distributors who make immediate sales to customers. CC Jordan's distribution network reached
approximately 51% of all retail outlets in Jordan in 2005. (Source: Nielsen). We intend to pursue cost savings and expand our
distribution network in Jordan in 2006 by entering into distribution arrangements with third parties to distribute our products in
areas outside of the major cities in Jordan. We also intend to upgrade and expand our fleet of trucks in 2006.
Kyrgyzstan
CC Kyrgyzstan became the first producer of products of The Coca-Cola Company in Kyrgyzstan when it was
established in 1996. The following table sets forth all of the alcohol-free brands that CC Kyrgyzstan currently produces, sells
and distributes, their year of introduction in Kyrgyzstan and the flavors in which they are currently offered:
Brand
CSDs
Coca-Cola................................................................
Coca-Cola light .......................................................
Fanta ........................................................................
Sprite .......................................................................
Schweppes(1)............................................................
Fresca ......................................................................
NCBs
Year of
Introduction
1996
2001
1996
1996
2005
1999
Flavors/Types
Orange, Exotic, Wildberry
Tonic Water
Green Apple, Strawberry, Peach
Piko(2).......................................................................
Bonaqua ..................................................................
Orange, Peach, Apricot, Cherry, Multivitamin,
Tomato, Apple, Plum, Grape, Grapefruit,
Pineapple
2003
1996 (carbonated)
2004 (still)(1)
(1)
Purchased from CC Kazakhstan and distributed in Kyrgyzstan.
(2)
Purchased from a manufacturer authorized by The Coca-Cola Company in Kazakhstan and distributed in Kyrgyzstan.
The following table sets forth CC Kyrgyzstan's unit case sales volume and unit case sales volume as a percentage of its
2005
Unit Case
Sales Volume
(in millions)
Coca-Cola..............................
Other CSDs ...........................
NCBs .....................................
Beer(1) ....................................
Total ......................................
1.3
1.4
0.2
0.3
3.2
2004
% of Total
Unit Case
Volume
38.6
47.0
5.8
8.6
100.0
2003
Unit Case
Sales Volume
(in millions)
% of Total
Unit Case Volume
Unit Case
Sales Volume
(in millions)
1.5
1.6
0.2
0.3
3.6
42.1
43.4
5.9
8.6
100.0
1.1
1.2
0.2
0.3
2.8
% of Total
Unit Case
Volume
37.9
43.5
7.3
11.3
100.0
(1)
There is no independent third party data with respect to market share in Kyrgyzstan. CC Kyrgyzstan competes
primarily with local producers.
Kyrgyzstan has a relatively small population of 5.2 million, but approximately 32% of its inhabitants are under 15 years
of age. (Source: Economist Intelligence Unit; CIA World Factbook) Per capita GDP in the country grew from $286 in 2000 to
$431 in 2004 and reached $465 in 2005, which represents a 10.8% compound annual growth rate over the period. (Source:
Economist Intelligence Unit) We estimate that our own CSD sales per capita grew from 2.6 liters in 2003 to 3.1 liters in 2005.
CC Kyrgyzstan has approximately 1,600 customers receiving direct deliveries.
In 2003, 2004 and 2005, CC Kyrgyzstan distributed 55%, 56% and 61% of its sales volume directly to key accounts
and other retail outlets in Bishkek. The remainder is sold through a hybrid system in which CC Kyrgyzstan representatives take
orders and products are sold through distributors. CC Kyrgyzstan operates through 13 distributors in Kyrgyzstan and has its own
fleet of 13 trucks in Bishkek.
CC Kyrgyzstan also distributes Anadolu Efes's beer products, which are imported from Kazakhstan pursuant to a
written consent by The Coca-Cola Company which is renewed annually. In 2005, these products accounted for 8.5% of
CC Kyrgyzstan's total unit case sales volumes.
Iraq
In June 2005, we formed The Coca-Cola Bottling Company of Iraq FZCO ("CC Iraq") as a 50%-50% Dubai joint
venture between Efes Invest Holland B.V. and a Dubai company. CC Iraq and The Coca-Cola Company also signed (i) a
distribution agreement, granting CC Iraq the sale and distribution rights for Iraq with respect to Coca-Cola products and (ii) an
option agreement granting CC Iraq an option, exercisable until July 2007, to become the exclusive bottler for the Iraq market.
CC Iraq currently imports products principally from CCI and CC Jordan for sale in Iraq.
CC Iraq continues to monitor its investment strategy in Iraq and, subject to political developments in the country, has
plans to begin construction of production facilities in 2006.
Tajikistan
The Coca-Cola Company has granted Efes Invest Holland B.V. an option, exercisable until October 2007, to set up a
local legal entity in Tajikistan in which it has a minimum shareholding of 85% ("New Co") to become the exclusive bottler of
certain approved containers of The Coca-Cola Company products in Tajikistan. The option requires New Co to satisfy certain
conditions until April 2007 such as building a production facility in Dushanbe, obtaining all necessary licenses and permits for
the production and import of concentrate and beverage bases and maintaining a sound financial structure with sufficient equity
funding. Furthermore, The Coca-Cola Company has the right to terminate the option if New Co fails to buy or lease a site for a
production facility, obtain all necessary construction licenses, execute a contract with the contractor for the construction of the
production facility, or execute supply contracts for the machinery and equipment necessary for bottling operations by
November 2006.
We are currently distributing products in Tajikistan through a local sales and distribution company and we are
assessing the local market.
Sales and Marketing
Marketing Relationship with The Coca-Cola Company
We and The Coca-Cola Company dedicate significant resources to marketing beverages of The Coca-Cola Company
throughout the countries in which we operate. Together we develop marketing plans that are tailored for each country and
promote and market brands of The Coca-Cola Company. Our sales and marketing strategy is to drive profitable volume growth
by creating and fulfilling demand for the products we sell and, in particular, by increasing the number of occasions during which
consumers can enjoy them. Accordingly, we aim to reach consumers wherever they are, with the right mix of brands, in the right
packages (including availability of cold drinks for immediate consumption) and with a meaningful brand message that is
relevant for the particular market.
Our marketing effort can be divided into consumer marketing (targeting the individuals who ultimately consume our
products) and customer marketing (targeting the retailers and distributors to whom we sell products for onward sale to
consumers). Generally, The Coca-Cola Company focuses on consumer marketing, involving the building of brand equity,
analyzing consumer preferences, formulating the brand marketing strategy and media advertising design. The consumer
marketing effort is carried out and mostly paid for by The Coca-Cola Company in coordination with CCI and includes
television, radio and cinema advertising, particularly around significant events such as Ramadan, the World Cup football
championship in Turkey and various music events in Turkey and our other markets.
We concentrate on executing marketing activities at the customer level, involving the development of the relationship
with customers, occasion-based marketing at the point of purchase and carrying out other promotional activities to build a strong
presence in the marketplace. We also sponsor sports, cultural and community activities in each of our markets such as Formula 1
in Turkey, as well as university spring festivals and sports tournaments.
Consumption Occasions
We use the broad categories of "future consumption" and "immediate consumption" in developing our sales and
marketing strategies. Generally, we refer to "future consumption" purchases as purchases of beverages for consumption at a later
time, whereas "immediate consumption" purchases are purchases of chilled beverages for immediate consumption typically
away from home, including in restaurants, bars, kiosks, gas stations, sports and entertainment centers, offices and hotels.
We divide these two categories into sub-channels for sales and marketing purposes, based on the specific
characteristics of each country in which we operate. We use our key account managers to develop customer relationships and
help us improve merchandising at the point of sale, which we believe is critical to our success, particularly in future consumption
channels. In addition, we develop tailored marketing and promotional programs for our key accounts.
Future Consumption
Beverages for future consumption are produced in multi-serve containers (1 liter or more), and in smaller containers
which are sold together in multi-packs. Our sales for future consumption usually generate higher sales volume and lower
margins per retail outlet than those for immediate consumption.
Our future consumption customers include hypermarkets, supermarkets, discount stores, "mom and pop" stores, kiosks,
specialty food stores and open markets. In Turkey, hypermarket and supermarket chains have undergone growth and
consolidation in recent years and, as a result, are increasing their share within the retail sector. Internationally, these types of
retailers are still developing and their growth in terms of total industry sales is accelerating. Because of their high sales volume,
these retailers have greater bargaining power with respect to the prices of our products than our other customers; nonetheless, we
benefit from economies of scale in selling to these customers.
Immediate Consumption
Beverages for immediate consumption include those served in single-serve containers (0.5 liter or less) and fountain
products. Single-serve packages sold for immediate consumption usually generate relatively higher margins than multi-serve
packages sold for future consumption. This is primarily due to consumers' willingness to pay a premium to purchase our
products chilled, in a convenient size and at a convenient location.
Because we believe that consumers prefer to drink our immediate consumption beverages chilled, we invested over
YTL21.8 million in cooler equipment in 2003, YTL19.5 million in 2004 and an additional YTL22.3 million in 2005 for our
Turkish operations, and Efes Invest invested over $0.9 million (YTL1.2 million) in 2003, $1.8 million (YTL2.4 million) in 2004
and an additional $2.2 million (YTL 2.9 million) in 2005 for our operations in Kazakhstan, Azerbaijan and Kyrgyzstan. We
purchase various types of coolers from local and international suppliers. We intend to invest approximately YTL36.4 million in
2006 to increase the number of coolers in all of the countries in which we operate. The following table shows the approximate
number of coolers in each of the following countries as of December 31, 2005:
Approximate
No. of Coolers
Turkey ..........................................................................................................................................................
Kazakhstan ...................................................................................................................................................
Azerbaijan ....................................................................................................................................................
Kyrgyzstan ...................................................................................................................................................
229,900
14,000
7,200
3,200
To extend the useful life of our cooler assets in Turkey, we have established cooler refurbishment centers in Istanbul,
Ankara, İzmir and Mersin. We estimate that refurbishment adds three to five years to the useful life of a cooler.
Marketing
Our goal is to differentiate our products from others by marketing them in an appealing and relevant way at the point of
sale. We undertake promotional activities both to increase the number of sales points for our beverages and to increase the
attractiveness of our products at the point of sale.
Merchandising is one of our most important performance indicators, along with volume growth and market share.
Because the widespread availability of our products is one of the keys to our success, we provide creative displays and point-ofsale materials, as well as specifically designed coolers, to our customers to increase our presence. We integrate this
merchandising with national promotional activities tailored to the market in each country to deliver consistent messages to
consumers. We evaluate our execution in terms of conformity to our merchandising goals in all of the countries in which we
operate.
We have marketing teams in each country that work together with the local offices of The Coca-Cola Company to
ensure that our marketing efforts are tailored to the specific characteristics of each market.
We use a "channel marketing" approach, classifying different types of customers into groups such as hypermarkets,
supermarkets, grocery stores, restaurants, entertainment centers and offices. Our teams plan marketing strategies and programs
for each channel in the market, closely monitor shopper behavior, consumption occasions, and customer and market needs and
develop solutions tailored for the particular consumption occasions within each channel.
Sales
We have designated different geographic sales regions in each of the countries in which we operate, each with a sales
manager who has responsibility for implementing our strategies at the local level and who leads a team of representatives
responsible for sales, customer relations, merchandising and individual account management. In each of our countries, we tailor
our sales strategy to reflect the level of development and local customs in the marketplace. We believe that our local sales
management is in the best position to evaluate the particular circumstances of each market and address its particular needs.
We also use key account management to build and reinforce strong relationships with our major customers. Key
account managers work with customers (primarily future consumption customers) to increase sales volume, revenue and
category profitability by sharing our expertise in merchandising and supply chain management, and by helping customers
through developing tailor-made promotions. Key account managers also negotiate the commercial terms of our relationship with
major customers.
In Turkey, we have recently introduced a new organization of our sales personnel in order to expand the number of
outlets covered directly by our sales force. Our sales force is organized by channel within each geographic region and focuses on
acquiring new customers and developing strategies with their customers to increase sales. Our HOD water business in Turkey
has a separate, dedicated organization dealing with the sale and distribution of our 19-liter refillable containers to the HOD
market.
The sales organizations outside of Turkey differ based on the geographic size of each country, the population density
and the business opportunities. Generally, the bottling operation in each country has a sales and marketing manager who is
responsible for the sales force. As we work to integrate our operations, we intend to leverage our know-how and expertise in
Turkey to further develop our sales systems in our other countries.
Production
Production Process
Beverage Production. The production process of our CSDs essentially involves mixing concentrate, sugar or HFCS and treated
water. The mixture is carbonated and filled in refillable and non-refillable containers such as bottles or cans on automated filling
lines. The production process for NCB products involves essentially the same processes as for CSDs, except that the beverage is
pasteurized completely. Our Turkuaz and Bonaqua water brands are processed water to which we add a specified mix of
minerals purchased from a supplier authorized by The Coca-Cola Company.
Container Production. We seek to offer nearly all of our products in various sizes and packages to meet consumer preference
and demand. Packages containing 0.5 liter or less are primarily intended for immediate consumption, but are also sold for future
consumption. Packages containing one liter or more are primarily targeted for future consumption. We sell our 1.0 liter PET and
0.33 liter can packages in multi-packs. In addition, we provide fast food restaurants and other immediate consumption outlets
with bag-in-box packages for their fountain equipment, which mixes syrup with water and enables fountain retailers to sell
CSDs or NCBs to customers in cups or glasses.
The following table shows the package types currently offered in each of our markets:
Turkey
Glass bottles (returnable):
0.2 liter ..................................................................................
0.25 liter ................................................................................
0.35 liter ................................................................................
1.25 liter ................................................................................
Glass bottles (non-returnable):
0.2 liter ..................................................................................
0.25 liter ................................................................................
PET bottles:
0.5 liter ..................................................................................
1.0 liter ..................................................................................
1.5 liter ..................................................................................
2.0 liter ..................................................................................
2.25 liter ................................................................................
2.5 liter ..................................................................................
Cans:
0.25 liter ................................................................................
0.33 liter ................................................................................
Aseptic cartons:
0.2 liter(1) ...............................................................................
1.0 liter(1) ...............................................................................
Premix/Postmix:
10 liter bag-in-box(2)..............................................................
19 liter bag-in-box(2)..............................................................
20 liter bag-in-box(2)..............................................................
18 liter premix drink tanks....................................................
18 liter postmix drink tanks ..................................................
HOD water containers:
19 liter refillable containers ..................................................
Kazakhstan
_
_
Azerbaijan
Jordan
_
_
_
_
_
_
_
_
_
_
_
_
Kyrgyzstan
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_(1)
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
(1)
Toll filled.
(2)
Pliable plastic bags containing syrup and packaged in cardboard boxes for use in fountain dispensers.
We purchase all of our cans, glass bottles and 19-liter refillable HOD containers from suppliers approved by The CocaCola Company.
To make PET bottles, injection molding machines are used to melt PET resin into "preforms," which are hollow PET
tubes. Blow molding machines are then used to blow uniform jets of air into heated preforms, converting them into hollow PET
bottles inside a fixed mold in the shape of the desired end product. This process makes it possible to manufacture a finished
product with a high quality surface finish, with uniformity in thickness and consistent dimensions. Our plant in Çorlu, Turkey
serves as the preform production center for all of our Turkish operations. CC Azerbaijan produces its own preforms at its Baku
plant. We purchase preforms for Kazakhstan and Kyrgyzstan from authorized suppliers. In all of our production facilities that
have PET filling lines, preforms are blown into non-refillable PET bottles in-house.
We have a total of 16 PET blowing machines in our plants in Turkey and 7 PET preform injection machines in our
plant in Çorlu, Turkey. Our blow molding capacity in Turkey is currently approximately 1.4 billion PET bottles per year, and
our preform capacity in Turkey is approximately 1 billion per year. We plan to replace three of our single-stage, lower-capacity
PET blowing machines (in our Mersin and Çorlu plants) with two rotary PET blowing machines with higher capacity (one in
each of Mersin and Çorlu) in 2006.
We also have a total of 7 PET blowing machines in Kazakhstan, Azerbaijan and Kyrgyzstan. Our blow molding
capacity in these countries is currently approximately 540 million PET bottles per year, and preform production capacity in
Azerbaijan is approximately 85 million per year.
We installed a new PET blowing machine with a capacity of 50 million PET bottles per year and a PET filling line in
Jordan in January 2006.
Toll Filling. In Turkey, we contract with third parties to fill certain types of our packages, including aseptic carton packages and
0.25 liter cans. These parties, called "toll fillers," are paid on a per unit basis. We believe that, with respect to these packages, toll
filling is more cost-effective than establishing the filling lines in our own production facilities. Packages filled by toll fillers
represented 3.1%, 2.7% and 3.4% of our total unit case sales volume in Turkey in 2003, 2004 and 2005, respectively.
Packaging and Labeling. Sealed cans and bottles are imprinted with date codes that permit us to monitor and replace inventory
and provide fresh products. After the containers are imprinted and labeled with the relevant brand logo, we package them in
plastic cases or cardboard cartons on automated packaging lines. This is the final stage in the production process and can involve
packaging into packs of 24, 12, 8, 6 or 4 units.
Production Facilities and Warehouses
A map showing the location of each our production facilities and distribution centers can be found on the inside front
cover of this offering memorandum.
The table below sets forth information regarding our facilities as of December 31, 2005:
Production Facility
Turkish Operations:
Ankara ............................
Bursa...............................
Çorlu...............................
Mersin ............................
Kemalpaşa......................
Total ...............................
International
Operations:
Almaty City,
Kazakhstan ..................
Almaty—Burundai,
Kazakhstan ..................
Baku, Azerbaijan............
Madaba, Jordan ..............
Bishkek, Kyrgyzstan......
Total ...............................
No. of
Lines
Annual
Production
Capacity as of
December 31,
2005
(in millions of
unit cases)(1)
5
6
8
5
4
28
83
84
130
73
58
428
2
18
2
2
3
1
10
21
18
15
5
77
Preform
Production
PET
Blowing
PET Bottle
Filling
Glass
Bottle
Filling
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
_
Can
Filling
_
_
_
_
_
_
_
(1)
Annual production capacity calculations are based on the formula provided by The Coca-Cola Company to all bottlers
of Coca-Cola products. Capacity is defined as (i) the product obtained by multiplying (a) the hourly unit case output of a plant at
targeted utilization according to package mix for the year and (b) the maximum number of hours the plant can operate in the
peak season of June, July and August in accordance with local labor laws, divided by (ii) peak season sales as a percentage of
total sales for the year. Because package mix and sales may change from year to year, production capacity calculations for one
year may not be directly comparable to such calculations for other years.
All of the production facilities shown above include warehousing facilities. In addition, we have five distribution
centers in Turkey, two distribution centers in Kazakhstan (Shymkent and Astana), and four distribution centers in Jordan.
Production Capacity in Turkey
We have a total of 28 production lines in our production facilities in Turkey. The maximum production capacity of all
facilities in Turkey amounted to approximately 428 million unit cases per year as of December 31, 2005, including CSDs, NCBs
and bottled and HOD water. Annual capacity utilization was approximately 68% in 2004 and approximately 70% for 2005.
"Peak season production capacity" is defined as the product obtained by multiplying (a) the hourly unit case output of a
plant at targeted utilization according to package mix for the year and (b) the maximum number of hours the plant can operate in
the peak season of June, July and August in accordance with local labor laws. Because package mix may change from period to
period, production capacity calculations for one peak season may not be directly comparable to such calculations for other peak
seasons.
Our goal is to bring new capacity on line early enough to provide a buffer for potential additional sales when peak
season production capacity utilization reaches approximately 85% for any package group. In 2004, peak season production
capacity utilization reached 86% for PET future consumption package group for CSDs. Accordingly a new PET filling line for
CSD production and two PET blowers were installed and became operational in our Kemalpaşa plant in June 2005.
In the peak season of 2005, we again reached 85% peak season production capacity utilization for PET future
consumption packages for CSDs. As a result, we plan to add another PET filling line for CSD production in our Çorlu plant in
May 2006. We estimate that after this investment CCI's annual production capacity in Turkey will reach approximately
480 million unit cases and annual capacity utilization will be approximately 68% in 2006.
Of the production lines shown in the table above, we are holding for sale two production lines in Bursa relating to a
product that we discontinued.
International Production Capacity
Annual capacity utilization in Kazakhstan was approximately 58% for 2005. CC Kazakhstan built a new plant in
Burundai, on the outskirts of Almaty, that commenced limited production on two lines in August 2005 and was fully operational
by January 2006. As a result of the addition of the new plant, CC Kazakhstan's annual production capacity increased from
18 million unit cases in 2004 to 39 million unit cases as of December 31, 2005. We plan to upgrade CC Kazakhstan's canning
line in 2006 to enable it to produce juice, iced tea and fruit-flavored drinks in cans.
Annual capacity utilization in Azerbaijan was approximately 93% for 2005. The Azerbaijan plant began to produce its
own preforms after installing a preform production machine in 2004. We plan to install a second preform injection machine and
an additional PET filling line, as well as upgrade the syrup and water treatment system, in 2006 for an estimated cost of
$11 million. After completion of these investments, we expect our total annual production capacity in Azerbaijan to reach
35 million unit cases in 2006.
In Jordan, we installed a new PET blowing machine and a PET filling line in January 2006. We plan to upgrade the
syrup and water treatment systems in the first quarter of 2006 for an estimated cost of $6 million. After completion of these
investments, our total annual production capacity in Jordan is expected to reach to 25 million unit cases in 2006.
There is no package group in any of our markets outside of Turkey that we expect to exceed 85% utilization through
2006.
Quality Control
We place great importance on quality control, which is also closely monitored by The Coca-Cola Company. Our
quality standards cover the entire value chain, from the purification of water to the production of the finished product, up to and
including the point where the product ultimately reaches the consumer. We believe that the continued high quality of our
products is crucial to our success; therefore, we are committed to maintaining high standards with respect to the purity of our
water and the quality of the raw materials we procure.
Each of our production facilities has a quality control laboratory for testing raw materials, packaging and finished
products. Our bottler's agreements with The Coca-Cola Company prescribes stringent quality standards covering the entire
production process. In addition, we are required to obtain our raw materials, including packaging, only from suppliers that have
been approved by The Coca-Cola Company.
We have sophisticated control equipment to monitor the key areas of the production process in our production facilities.
We monitor the functioning of these control systems on a regular basis. Both The Coca-Cola Company and local regulatory
authorities in each of the countries in which we operate also perform regular audits of our processes to assure that there is
independent validation of our key control points. In some instances, our control systems conduct monitoring on a continuous
basis while the beverages are being manufactured. We also use a sampling procedure for certain tests. The objective of our
production quality monitoring is to ensure that any beverage that does not comport with our exact specifications is removed prior
to being placed in the market.
In 1997, The Coca-Cola Company awarded CCI its Best Quality Improvement Award and the President's Award for
Best Quality. In addition, our production facilities in Turkey took the top five places in a Quality Competition organized by the
Eurasia and Middle East Division of The Coca-Cola Company in 2002. CC Kazakhstan's plant in Almaty City was awarded the
Best Quality Award in 2003.
Since 1998, our quality system activities have been evaluated under The Coca-Cola Quality System ("TCCQS") which
is a quality system particular to bottlers of The Coca-Cola Company. TCCQS is a partnership-based initiative between The
Coca-Cola Company and its bottling partners. TCCQS' management control methods allow better predictability and control over
the outcome of processes and business decisions. It is designed to ensure consistent quality, protect The Coca-Cola Company's
trademarks, promote customer and consumer satisfaction and respond to changing business needs.
There are fourteen basic areas on which TCCQS focuses:
•
Development of physical facilities and people
•
Maintenance of trademark quality in advertising and the marketplace
•
Protection of products, ingredients, processes and information
•
Prevention of unauthorized use of trademarked materials
•
Audit and monitoring of effectiveness of TCCQS
•
Maintenance of clean and hygienic manufacturing conditions
•
Adherence to standards and specifications of The Coca-Cola Company
•
Storage, handling and distribution of ingredients, final products and packaging materials
•
Communication of quality information
•
Use of approved manufacturing processes
•
Operation of customer and consumer programs
•
Monitoring of product age
•
Compliance with food laws and regulatory requirements
•
Maintenance of environmental responsibility
Of the approximately 1,100 bottling facilities within the Coca-Cola system worldwide, 220 had received quality
certificates from The Coca-Cola Company based on TCCQS as of December 31, 2005. All five of our production facilities in
Turkey and four of our plants outside of Turkey (Azerbaijan, Kazakhstan (Almaty City), Kyrgyzstan and Jordan) have received
TCCQS certificates.
The TCCQS standard has been expanded in Turkey to include, in addition to production facilities, other key business
areas. In May 2004, our Ankara sales center was the first Coca-Cola bottling operation in the world to receive a TCCQS
certificate with a scope covering business areas beyond production (sales, distribution, warehouse, cold drink operations, human
resources, garage, finance and business applications areas).
The following facilities were awarded ISO 9001/2000 Quality Assurance Management System Certificates and
TCCQS certificates on the dates indicated:
Facility
ISO 9001/2000 TCCQS
Turkey:
Ankara .....................................................................................................................................................
Bursa........................................................................................................................................................
Çorlu........................................................................................................................................................
Kemalpaşa...............................................................................................................................................
Mersin .....................................................................................................................................................
Outside Turkey:
Kazakhstan (Almaty City) ......................................................................................................................
Azerbaijan ...............................................................................................................................................
Kyrgyzstan ..............................................................................................................................................
Jordan ......................................................................................................................................................
2002
2002
2001
2002
2002
2001
2002
2002
2002
2001
2004
2003
2005
2004
2004
2003
2005
2005
The Coca-Cola Company regularly undertakes quality audits in our distribution channels to monitor compliance with
package and product specifications. In these audits, random samples of beverages from the various channels are taken and tested
in The Coca-Cola Company's laboratories in Brussels, Belgium. The Coca-Cola Company sends us monthly reports with our
product and package quality scores.
Raw Materials and Purchasing Strategy
Our raw material requirements are divided between the ingredients required for production of beverages and materials
required for packaging and labeling the beverages.
The ingredients required for the production of beverages include concentrate, sweeteners, purified water and carbon
dioxide. Packaging materials include cans, can ends, returnable and non-returnable glass bottles, PET resin, labels, caps, crowns,
cardboard and plastic film.
In compliance with the quality standards prescribed by our bottler's agreements with The Coca-Cola Company, we
purchase all containers, closures, cases, aseptic packages and other packaging materials and labels from approved manufacturers.
In addition, we coordinate with the cross-enterprise procurement group, as described below, with respect to the purchase of
certain materials, such as PET resin, cans and glass.
We choose our suppliers based on reliability, quality and price competitiveness. We attempt, wherever possible, to
diversify our sources of supply and our transportation contractors for the various raw materials we require. We purchase many of
our raw materials in relatively small quantities in order to avoid unnecessary costs of warehousing raw materials and to maintain
the flexibility to respond to changing sales volume and customer demand. We believe that we have sufficient access to materials
and supplies, and that alternative suppliers would be available for all raw materials (other than concentrate) if we were to
experience a disruption in supply.
We participate in a cross-enterprise procurement group along with certain other bottlers in the Coca-Cola system with
respect to procurement of certain raw materials for our Turkish operations. We have agreed to purchase cans, PET resin and
glass through this procurement program and have committed to execute supply agreements relating to these materials. We are
not required to obtain all of our requirements for these materials through the program. We determine on an annual basis the
volumes of raw materials we will purchase through the group. We have agreed that any and all negotiations with suppliers of
these materials for the volumes we have committed to purchase through the program will be conducted through the
cross-enterprise procurement group.
A description of suppliers and the purchasing strategy for our primary raw materials is set out below:
Concentrate: Pursuant to the terms of our bottler's agreements with The Coca-Cola Company, concentrate is supplied
directly by The Coca-Cola Company or a company designated by it. The price of concentrate is quoted to us in U.S. dollars each
year by The Coca-Cola Company. The price may vary for different bottlers around the world and will be determined by The
Coca-Cola Company based on several factors.
While the price of concentrate is set by The Coca-Cola Company at its discretion, in the past any price increase for
concentrate sold to our Turkish operations has been determined by The Coca-Cola Company after discussion with us so as to
reflect trading conditions in Turkey. Since 2002, The Coca-Cola Company has determined concentrate prices for most of our
CSDs by reference to a percentage of our U.S. dollar net sales, which has had the effect of hedging these concentrate prices
against possible devaluations of the New Turkish Lira. Expenditure for concentrate constitutes our largest single raw material
cost, representing 40.3%, 40.2% and 39.5% of our total raw material costs in our Turkish operations in 2003, 2004 and 2005,
respectively.
Our bottlers outside of Turkey have similar concentrate pricing arrangements with The Coca-Cola Company. For our
international operations, The Coca-Cola Company sets a fixed price in U.S. dollars for concentrate which normally stays in place
for one calendar year, and prices are subject to annual review by The Coca-Cola Company at the end of each year. Expenditure
for concentrate constituted the second largest single raw material cost for Efes Invest (after PET resin), representing 32.1%,
30.2% and 27.9% of its total raw material costs in 2003, 2004 and 2005, respectively.
Sweeteners: In Turkey, we have historically used HFCS as an alternative to sugar to the extent that local HFCS
capacity permitted. The Amylum Group began supplying HFCS in Turkey in 1999, Cargill, Incorporated in June 2000 and Tat
Nişasta in 2004. As a result, our sugar procurement in Turkey gradually declined and currently represents approximately 30%
the value of our sweetener purchases for our Turkish operations. We obtain HFCS from all three of these suppliers under longterm contracts. Cargill's prices are denominated in U.S. dollars, while Amylum's and Tat's prices are denominated in New
Turkish Lira. All of these suppliers set the price of their HFCS based on a discount from domestic sugar prices, which are set by
the Turkish Government and can be modified several times during the year. Currently, there are no other suppliers of the variant
of HFCS that we currently use in Turkey, although there are several suppliers of other variants of HFCS. Expenditure for
sweeteners represented 27.8%, 30.8% and 32.6% of our total raw material costs in 2003, 2004 and 2005, respectively.
Our bottlers outside of Turkey use sugar rather than HFCS in their products. CC Kazakhstan and CC Azerbaijan
purchase sugar domestically in Kazakhstan and Azerbaijan, and CC Kyrgyzstan imports sugar from Europe. Sugar prices are
volatile, and there are no long-term supply contracts in place. Sugar prices are generally denominated in U.S. dollars. CC Jordan
has a sugar supply contract in place until August 2006. Efes Invest's consolidated expenditure for sugar represented 19.2%,
19.8% and 20.4% of its total raw material costs in 2003, 2004 and 2005, respectively.
PET resin: Resin prices are affected by world oil prices, and negotiations with our PET resin suppliers typically take
place on a monthly or quarterly basis. Purchase prices are typically denominated in U.S. dollars.
Our Turkish operations manufacture all of the PET bottles they require. PET resin is purchased in the form of pellets
principally from AdvanSA and also from manufacturers in the Far East. AdvanSA is a subsidiary of the Sabancı Group in
Turkey. AdvanSA determines the price of PET resin based on the prevailing world market price. Our experience with this
supplier has been good and we believe that the prices quoted by AdvanSA and its payment terms have been favorable relative to
alternative suppliers. Expenditure for PET resin represented 11.3%, 9.2% and 9.9% of our total raw material costs in 2003, 2004
and 2005, respectively.
CC Azerbaijan produces PET preforms in Azerbaijan for its own use and purchases PET resin from manufacturers in
the Far East. CC Kazakhstan and CC Kyrgyzstan purchase preforms primarily from Plaskap-Plasform Bishkek Company in
Kyrgyzstan. We intend to purchase preforms for CC Jordan from suppliers in the Middle East. Efes Invest's consolidated
expenditure for PET resin represented 32.0%, 33.9% and 34.6% of its total raw material costs in 2003, 2004 and 2005,
respectively.
Cans: We purchase our can requirements for our Turkish operations from Crown Bevcan Türkiye Ambalaj Sanayi ve
Ticaret A.Ş. and Rexam Paketleme Sanayi ve Ticaret A.Ş. Prices, which are set in U.S. dollars, are fixed on an annual basis with
both suppliers. Expenditure for cans represented 9.2%, 9.1% and 9.8% of our total raw material costs in 2003, 2004 and 2005,
respectively.
CC Kazakhstan purchases cans from Rexam Beverage Can Naro-Fominsk LLC in Moscow. Prices are set in U.S.
dollars on an annual basis. CC Jordan purchases cans from Crown Middle East Can Ltd in Jordan. Efes Invest introduced can
products in Kazakhstan in September 2005.
We intend to explore possible synergies with respect to the acquisition of cans for all of our operations in the future.
Glass bottles: We purchase all of our glass bottle requirements for our Turkish operations from Anadolu Cam A.Ş., a
company of the Şişecam Group and the sole supplier of glass bottles in Turkey. We negotiate with the supplier to establish a
price for glass bottles, which typically remains in place for at least twelve months. In accordance with market practice, we place
purchase orders for glass bottles on a weekly basis. Purchase prices are denominated in New Turkish Lira. Expenditure for glass
bottles represented 2.2%, 2.4% and 1.0% of our total raw material costs in 2003, 2004 and 2005, respectively.
CC Jordan purchases returnable glass bottles from approved suppliers in Kuwait and Saudi Arabia. CC Azerbaijan and
CC Kyrgyzstan purchase negligible amounts of glass bottles. Prices are denominated in U.S. dollars.
Information Technology
Information technology systems are crucial in the management of our business. We use advanced information
technology systems to schedule production, procure raw materials, route delivery vehicles and invoice customers.
Operations in Turkey
We began implementing the SAP system, an integrated system of software applications providing a common
framework for our accounting, production, procurement, human resources and cost management activities, in 1999. We have
enhanced our SAP system with the Strategic Enterprise Management module, which gathers data from the core SAP
applications and enables us to measure corporate performance and formulate our business plan. We have invested approximately
$4.5 million since 1999 on the implementation of SAP in each part of our business, and we continue to work on enhancing the
current level of integration of our systems.
The Coca-Cola Company and we also invest in information systems across Turkey in order to ensure that detailed,
useful information on sales, customer performance and consumer preferences and behavior is regularly available. Together, we
use this information to shape and refine our marketing plans to tailor them to the various customer categories. One information
system we use for this purpose is BASIS (Beverage Advanced Standard Information System), which is The Coca-Cola
Company's proprietary sales accounting software system used by bottlers. We were the first bottler in the Coca-Cola system to
implement a BASIS web-based tool developed by The Coca-Cola Company to enable our independent distributors to order
products, track shipping and access their accounts with us. Distributors that use the BASIS program can also access sales
statistics for their territories. Our network requirements across Turkey are currently provided by Siemens Business Solutions in
accordance with our strategic outsourcing program.
We use several e-procurement systems to allow us to optimize inventory holding and payment terms from our
suppliers. In addition, we use handheld devices for sales teams that take sales orders from customers. These devices are also
used for providing recent historical information about the outlet being visited, equipment, accounts receivable and consignments
of the outlet. We use this information to perform a comprehensive and detailed analysis of the purchasing patterns and
preferences of various groups of soft drink consumers in each of the types of channels where they might potentially purchase our
beverages. Based on this analysis, we tailor our product, pricing, packaging and distribution strategies to maximize the growth
potential of each distribution channel. Our use of information technology allows us to react quickly and effectively to consumer
trends, which may differ in each channel.
International Operations
Efes Invest historically deployed an information system in its headquarters and bottling operations developed and
owned by an affiliate of Anadolu Efes. This system generally covers finance, logistics, purchasing and sales (with the exception
of CC Kazakhstan, which uses BASIS to manage sales information). In November 2005, we replaced the information
technology system for the finance, logistics and human resource functions relating to our international operations at our
headquarters in Turkey with SAP. With respect to the international operations, we plan to continue to use the Anadolu Efes
information technology system, making the necessary investments to upgrade it (except for CC Jordan which currently uses
SCALA but will convert to the Anadolu Efes information technology system in 2006). Currently, there is no fee paid to Anadolu
Efes with respect to the use of this system.
Employees
The following table sets forth a breakdown of our employees by function:
As of December 31,
2005(1) 2004(1) 2003(1)
General Management.................................................................................................................................
Finance .......................................................................................................................................................
Internal Audit .............................................................................................................................................
Human Resources ......................................................................................................................................
Sales and Marketing...................................................................................................................................
Operations ..................................................................................................................................................
Legal...........................................................................................................................................................
Total ...........................................................................................................................................................
25
283
3
144
1,623
1,517
7
3,602
21
290
4
141
1,717
1,222
6
3,401
28
285
3
120
1,596
1,093
6
3,131
(1)
Employee figures represent the sum of employees of CCI, Efes Invest and CC Jordan as of such date, excluding
temporary staff.
The following table sets forth a breakdown of our employees by country:
As of December 31,
2005(1) 2004(1) 2003(1)
Turkey ........................................................................................................................................................
Kazakhstan .................................................................................................................................................
Azerbaijan ..................................................................................................................................................
Jordan .........................................................................................................................................................
Kyrgyzstan .................................................................................................................................................
Total ...........................................................................................................................................................
(1)
1,989
536
180
721
176
3,602
1,717
518
199
793
174
3,401
1,634
416
152
762
167
3,131
Employee figures include employees of CCI, Efes Invest and CC Jordan as of such date, excluding temporary staff.
In addition to the employees shown above, as of December 31, 2005, we, Efes Invest and CC Jordan had 808
employees on contract from third parties to provide merchandising, warehouse, distribution, technical, courier, building
maintenance, archive, switchboard and security services. We also hire temporary employees for some of our production facilities
in the peak production and sales seasons.
On April 5, 2006, we entered into a collective bargaining agreement with Öz Tütün, Müskırat, Gıda Sanayii ve
Yardımcı İşçileri Sendikası (the "Union"), which will be effective during the period between January 1, 2006 and March 31,
2008. The agreement covers approximately 445 (or 21%) of our employees at our facilities located in Çorlu, Mersin, Bursa,
Kemalpaşa, Ankara and Istanbul. The collective bargaining agreement entitles the employees covered thereunder to certain
additional rights and benefits which are more advantageous than the statutory rights and benefits provided for in the applicable
labor laws.
The employees in our operations outside of Turkey are not members of any labor unions. In Kazakhstan, the law
requires us to enter into a collective bargaining agreement with our employees, which we have done since 1999.
We consider our employees to be among our most valuable assets. Over one-third of all of our employees hold
university degrees, and the average age of all of our employees is 33.
In 2003, we launched CCI Campus in Turkey to provide education and training for our employees. We have extended
this e-learning opportunity to 350 employees from 50 of our top Turkish distributors in 2005, and we intend to expand its
availability in 2006. CCI Campus comprises classroom training, seminars and workshops, on-the-job training and e-learning.
Employees who do not have computers in their workspace have access to e-learning kiosks at various locations in our
headquarters and production facilities. We also provide training programs for employees of our customers in Turkey. We intend
to extend CCI Campus facilities to our employees in our international operations.
Competition
The alcohol-free beverage industry is highly competitive in our markets. Alcohol-free beverages are offered by a wide
range of competitors, including major international beverage companies such as Pepsi Bottling Group and regional and local
beverage companies, including the Ülker Group, in Turkey. In particular, we face price competition from local non-premium
brand producers and distributors, which typically produce, market and sell CSDs and NCBs at prices lower than ours, especially
during the summer months.
In our markets outside of Turkey, Pepsi Bottling Group has bottling facilities in Kazakhstan, Azerbaijan and Jordan and
is a major competitor in these markets. Local producers also engage in aggressive price competition in Kazakhstan and
Azerbaijan. In Kyrgyzstan, our primary competitors are local producers.
We compete on the basis of pricing, advertising, brand awareness, distribution channels, retail space management,
point-of-sale marketing, customer point of access, local consumer promotions, package innovations, product quality and new
products. One of the key factors affecting our competitive position is the consumer and customer goodwill associated with the
trademarks of our products. We rely on The Coca-Cola Company to enhance the awareness of The Coca-Cola Company's
brands against other alcohol-free brands.
For a discussion of the major participants in each category in which we compete in Turkey, see "—Operations in
Turkey" and "—International Operations."
Regulation
Competition Regulation
Turkey
Competition in Turkey is principally regulated by the Turkish Competition Law. The Turkish Competition Law is
enforced by the Turkish Competition Board, which has the power to investigate possible violations and impose fines. In
February 2004, following an investigation which began in 2002, CCSD was found to be dominant in a "carbonated soft drink
market" based on market circumstances at that time. CCSD was, however, found not to have abused its position of dominance,
and no fine was imposed. Under the Turkish Competition Law, CCSD could be subject to fines if it were found both to be
dominant and to have engaged in business practices that would constitute an abuse of dominance. These practices include,
without limitation, entering into exclusivity arrangements with customers in exchange for payments such as bonuses or
premiums, charging resale prices for products of The Coca-Cola Company that are below an acceptable measure of cost with the
intention to eliminate current or potential competitors or that are above an acceptable measure of margin, cross-subsidizing its
products (i.e., using profits made in one market segment where competition is weak to support lower prices in another market
segment where competition is more aggressive), refusing to supply products without justification, or restricting production,
marketing or technological development to the detriment of consumers.
Customarily, carbonated soft drink companies in Turkey enter into exclusive agreements with sales outlets. These
agreements cover subjects including brand exclusivity, the obligation to purchase exclusively from the supplier and minimum
sales commitments and are currently permitted under a block exemption granted by the Turkish Competition Board. The Turkish
Competition Board is in the process of evaluating whether this block exemption should remain in place. The criterion for
determining whether the exemption should be revoked is whether it has resulted in ineffective competition in the product market.
If the Turkish Competition Board determines to revoke the block exemption, this would require the affected companies to seek
individual exemptions for such exclusivity arrangements. The exemption could be revoked only for one company or for all of
the companies operating in this market. In addition, the Turkish Competition Board could determine to revoke the exemption in
part, but continue to allow other practices to be conducted under the block exemption.
We cannot predict whether Turkish Competition Law enforcement by the Turkish Competition Board in the future will
result in significant fines being imposed on us, require us to change our current business practices or result in adverse publicity.
Any of these outcomes could have a negative impact on our competitiveness and results of operations.
International
In order to comply with local competition regulations, our bottlers outside of Turkey do not enter into exclusive
agreements with sales outlets. None of our bottlers outside of Turkey has been the subject of any material inquiry or
investigation by local authorities for violation of competition laws.
Environmental Regulation
We are subject to the environmental legislation of each of the countries in which we operate. In addition, we have
adopted at all of our facilities The Coca-Cola Company's "Good Environmental Practices." These controls and standards that we
apply internally are significantly more stringent than those currently required by local law.
In 2002, all of our bottlers in and outside of Turkey began implementing an environmental management system based
on ISO 14001 standards. This included a training program, which was intended to provide our managers with the ability to
identify opportunities to reduce environmental burdens at our production facilities. We have implemented waste minimization
and management programs with respect to our usage of raw materials, consumption of energy and discharge of water.
The Coca-Cola Company has its own environmental management system, called "eKO System." As of December 31,
2005, of the 1,050 Coca-Cola bottling facilities worldwide, 77 have received eKO System certification from The Coca-Cola
Company. In Turkey, our Ankara and Mersin production facilities received ISO 14001 certificates in 2002 and eKO System
certificates in 2003, and our, Kemalpaşa and Bursa production facilities received ISO 14001 certificates in 2004 and our Çorlu
production facility received an ISO 14001 certificate in 2005. CC Kazakhstan's plant in Almaty City has been recommended by
the ISO audit team to receive an ISO 14001 certificate in 2006. Our ISO 14001 and eKO System certifications are confirmed
through annual audits conducted by the Turkish Standards Institute in Turkey and by independent consultants outside of Turkey.
We believe the environmental regulatory climate in all of the countries in which we operate will become increasingly
strict. As a potential EU accession candidate, Turkey in particular will likely bring its environmental standards in line with the
standards that exist within the EU. For example, EU legislation requires each member state to implement its directive on
packaging and to set waste recovery and recycling targets. We do not believe that the adoption of such standards in any of our
markets would require us to make significant investments or change our current methods of operation, as we believe that the
standards we currently apply internally are not less stringent than the EU regulations.
Intellectual Property
In addition to having the exclusive right to bottle and distribute The Coca-Cola Company's brands in Turkey, we have
the exclusive right in Turkey to prepare, package and distribute for sale beverages carrying the Schweppes brand, now owned by
a subsidiary of The Coca-Cola Company, and NCBs carrying brands licensed by Beverage Partners Worldwide, a joint venture
between The Coca-Cola Company and Nestlé S.A. CC Kazakhstan has the exclusive right in Kazakhstan to prepare, package
and distribute Schweppes-branded beverages. CC Jordan has the exclusive right in Jordan to prepare, package and distribute
Schweppes and Canada Dry-branded beverages.
The Coca-Cola Company owns or licenses the trademarks of all its products that we produce, sell and distribute, and it
has the responsibility for protecting its trademarks in Turkey, Kazakhstan, Kyrgyzstan, Azerbaijan, Jordan, Turkmenistan and
Iraq. Trademarks in Turkey are protected by the Decree Law No. 556 on Protection of Trademarks, which was enacted in
compliance with the international agreements to which Turkey is a party, including the Madrid Protocol dated 1989 Amending
Madrid Convention dated 1891, the Paris Convention dated 1883, the Agreement Establishing the World Trade Organization
and the Agreement on Trade Related Aspects of Intellectual Property Rights. Trademarks in the other countries are protected by
similar national laws and international treaties. All the trademarks owned or licensed by The Coca-Cola Company that are in use
in Turkey (and many others not currently in use) are registered with the Turkish Patent Institute, or are the subject of a pending
application, in the name of The Coca-Cola Company. All the trademarks owned and licensed by The Coca-Cola Company in
countries outside of Turkey are registered with the national trademark registry offices, or are subject of a pending application, in
the name of The Coca-Cola Company. Historically, The Coca-Cola Company has borne all the legal costs of combating
infringements of The Coca-Cola Company's trademarks.
Insurance and Risk Management
We believe we are adequately insured against all losses and risks involving property and third party liability. For our
Turkish operations, we have insurance covering director's and officer's liability, product liability, general liability, as well as fleet
insurance, from Turkish insurance companies. Since 2002, we have obtained coverage against terrorist acts from an international
insurance provider. In addition, we have insurance covering interruptions in our business caused by any failure by a supplier due
to physical damage to the supplier's premises.
Our bottlers outside of Turkey generally have insurance policies coving property, third party liability and business
interruption from local insurers. In addition, they obtain reinsurance from Turkish insurance companies for director's and
officer's liability, third party liability, loss of profit and business interruption. Our operations in Kazakhstan, Azerbaijan and
Kyrgyzstan also have insurance coverage against terrorist acts from an international insurance provider.
We have implemented systems that we believe are appropriate to identify, assess and control key risks. We use
professional external advisors and insurance agents to review and verify our risk management approach. We have established
risk control guidelines, which are applied and audited at all of our production facilities.
Legal Proceedings
On March 1, 2004, the permit for the discharge of treated waste water of our Bursa plant expired. We had requested the
extension of the term of such discharge permit's term for an additional three years, but the Bursa City Environment and Forest
Directorate rejected our request on the grounds that we were not a member of the Yeşil Çevre Waste Water Treatment Facility
Management Cooperative (the "Cooperative") and did not have a quality control permit for the connection between our plant and
the Bursa discharge facility. Since we could not reach an amicable solution with the administration, on August 23, 2004, we
filed a lawsuit in order to have this administrative action annulled. The decision of the court of first instance was in favor of the
Bursa regulatory authority. On May 31, 2005, we appealed this decision, and the Court of Appeals has not yet rendered its final
judgment. Although in principle the maximum penalty for failure to have the necessary permit would be closure of the facility,
we do not believe such an event will occur and we do not expect this issue to have a material effect on our results of operations
or on the operations of our Bursa plant. In the meantime, we are continuing our settlement discussions with the administration
and we have applied to become a member of the Cooperative. In the event that we cannot reach a settlement with the regulatory
authorities, we intend to construct our own wastewater pipeline. Furthermore, we believe that our membership in the
Cooperative may be approved and completed by July 2006, in which case we would treat our waste water through the facilities
of the Cooperative.
In November 2004, the Ankara Municipality notified us of its claim that we were using an underground source of water
in our facility without a permit. The Ankara Municipality claimed that we were required to subscribe to its underground water
services and stated that, if we failed to do so, our wells would be sealed. We responded to this notice and indicated that we have
been using this underground source for industrial purposes in compliance with the underground water regulations and related
certificates we have received from the State Water Affairs Bureau. We have filed an action with the appropriate court to seek
cancellation of the claim by the Ankara Municipality. We do not believe that an adverse decision would have a material impact
on our results of operations or on the operations of our Ankara plant because we have access to other sources of water.
In 2004, the Consumer Rights Association challenged before the Supreme Administrative Court the Communiqué on
Turkish Nutrition Code for Energy Drinks numbered 2004/11. The Supreme Administrative Court suspended the execution of
certain provisions of the said Communiqué on the grounds that the limits provided for the ingredients of energy drinks
(including but not limited to caffeine) were risky for public health. Subsequently, the Ministry of Agriculture and Rural Affairs
and the Ministry of Health issued a new communiqué numbered 2005/7 amending such suspended provisions.
On February 25, 2005, the Consumer Rights Association filed another lawsuit against the Ministry of Agriculture and
Rural Affairs and the Ministry of Health challenging the Communiqué numbered 2005/7 that amended the previously suspended
regulations on the grounds that the limit set forth by the new regulations continues to endanger public health. The Supreme
Administrative Court has ruled for an injunction suspending execution of the second communiqué on July 22, 2005. As a result
of these actions, the sale of energy drinks (including our product, Burn) was prohibited in Turkey until the Court rendered its
final decision. However, the Ministry of Agriculture and Rural Affairs issued a new Communiqué (No: 2006/5) on the
production and distribution of energy drinks. Accordingly, CCI started production of Burn with the new formula as prescribed
by the new Communiqué in March 2006 and the distribution of Burn has recommenced.
On November 15, 2005, the International Labor Rights Fund and former employees of Trakya Nakliyat ve Ticaret Ltd.,
a provider of transportation services to CCSD, filed a claim against The Coca-Cola Company, The Coca-Cola Export
Corporation and us claiming that we violated the U.S. Alien Tort Claims Act, the U.S. Torture Victim Protection Act, the U.S.
Racketeer Influenced and Corrupt Organizations Act, and New York State tort law. The plaintiffs seek an unspecified amount of
damages for the physical injuries and mental anguish claimed to have been experienced by the employees as a result of alleged
police action during a protest, held at our headquarters in Istanbul, relating to the termination of unionized employees of Trakya
Nakliyat. We and the other defendants believe that this claim is without merit and have filed a motion to dismiss with respect to
the claim.
Except as described in this offering memorandum, we are not subject to any litigation, arbitration, regulatory actions or
other disputes which, individually or in the aggregate, involve potential liabilities which we believe could have a significant
effect or a material adverse effect on our business, financial condition, financial position, profitability or results of operations,
nor are we aware that any such disputes are pending or threatened against us.
Property
The following tables set forth all of our facilities and properties:
Production Facilities
Facility
Turkey
Ankara ...............................................................
Bursa..................................................................
Çorlu..................................................................
Kemalpaşa.........................................................
Mersin ...............................................................
Sarayköy............................................................
Other
Kazakhstan ........................................................
Kazakhstan ........................................................
Azerbaijan .........................................................
Jordan ................................................................
Kyrgyzstan ........................................................
Location
Land
Build-up area
(in square meters)
Warehouse
Ankara
Bursa
Tekirdağ
İzmir
Mersin
Ankara
—
—
41,266
62,369
—
2,883
23,112
33,451
46,662
20,338
35,834
—
—
—
—
—
—
—
Almaty City
Bereke Village
Binagadi (Baku)
Madabz
Bishkek
15,900
263,740
28,792
34,628
25,500
9,800
14,500
11,908
16,289
11,126
1,754
2,341
4,200
14,464
5,796
Sales Centers and Warehouses
Warehouse
Turkey
Yenibosna................................................................................
Işıkkent....................................................................................
Elazığ.......................................................................................
Ankara .....................................................................................
Ümraniye(1) ..............................................................................
Other
Kazakhstan ..............................................................................
Kazakhstan ..............................................................................
Kazakhstan ..............................................................................
Kazakhstan ..............................................................................
Jordan ......................................................................................
Jordan ......................................................................................
Jordan ......................................................................................
Jordan ......................................................................................
Location
Istanbul
İzmir
Elazığ
Ankara
Istanbul
Almaty City
Bereke Village
Astana City
Shymkent
Amman (Hizam)
Amman
Irbed
Aqabz
Land
Build-up area
(in square meters)
Warehouse
11,700
11,217
4,190
—
—
—
15,455
1,950
20,003
—
2,975
4,530
2,742
2,622
13,460
9,099
16,659
—
3,425
4,530
2,742
2,622
6,571
5,184
3,954
505
3,050
4,530
2,616
2,500
1,106
2,638
2,748
305
23,050
Other Real Property(2)
Property
Location
Turkey
Balgat ..................................................................................................................
Babaeski ..............................................................................................................
Babaeski ..............................................................................................................
Babaeski ..............................................................................................................
Babaeski ..............................................................................................................
Beypazarı.............................................................................................................
Beypazarı.............................................................................................................
Maşukiye.............................................................................................................
Aliağa ..................................................................................................................
Ümraniye.............................................................................................................
Bursa....................................................................................................................
Ankara
Kırklareli
Kırklareli
Kırklareli
Kırklareli
Ankara
Ankara
İzmit
İzmir
İstanbul
Bursa
(1)
Includes CCI headquarters.
Land(in square meters)
10,559
3,100
7,150
9,900
3,500
1,857
8,335
76,669
35,262
404
4,800
(2)
These properties are not currently in use.
Except for our properties in Astana and Shymkent in Kazakhstan and certain properties in Azerbaijan which are leased
to us, we own all of our production facilities, warehouses and properties free of material liens other than CC Jordan's property
located in Hizam which is subject to a bank mortgage in an amount of $2.5 million.
MANAGEMENT
Board of Directors
Under the Turkish Commercial Code and our articles of association, our board of directors is responsible for the
management of CCI. The articles of association require that our board of directors consist of ten members. All directors serve for
terms of three years.
Pursuant to our articles of association, the holders of a majority of Class A Shares may nominate six members of the
board of directors, the holders of a majority of Class B Shares may nominate three members and the remaining director will be
elected from among the persons nominated by any shareholder. If any class of shareholders fails to obtain a majority, any
shareholder, regardless of its class, shall have the right to make such nomination. Under Turkish law, directors are required to
own at least one share in order to serve on the board. However, if a director is elected to the board as a representative of a legal
entity shareholder, then such shareholder may pledge one share to the company on behalf of such director. See "Description of
the Share Capital—Board of Directors."
The following table sets forth the name of each member of our board of directors as of the date of this offering
memorandum.
Name
Year of Position
Birth
Tuncay Özilhan.....................
Mehmet Cem Kozlu..............
Michael A. O'Neill................
Recep Yılmaz Argüden.........
Ahmet Boyacıoğlu ................
John M. Guarino ...................
Armağan Özgörkey...............
Gerard A. Reidy ....................
John P. Sechi.........................
Mehmet Hurşit Zorlu ............
1947 Chairman of CCI; Chief Executive Officer of Anadolu
Group
1946 Vice Chairman of CCI; Consultant to the North Asia,
Eurasia and Middle East Group of the Coca-Cola Company
1945 Director of CCI; Managing Director of CCI
1958 Director of CCI; Director of Efes Invest
1946 Director of CCI; President of the Efes Beer Group
1959 Director of CCI; Regional Director for Bottling Investments
1963 Director of CCI; Chairman of the Board of Özgörkey
Holding A.Ş. and Vice Chairman of the Board of Etap
Industrial and Investment Holding
1942 Director of CCI
1957 Director of CCI
1959 Director of CCI; Chief Financial Officer and Investor
Relations
Director of Efes Beverage Group
Year First
Elected to
Position
Year
Term
Ends
1996
2009
1998
2009
2005
2005
2005
2005
1998
2009
2009
2009
2009
2009
2006
2006
2004
2009
2009
2009
Of our board of directors, three members, John M. Guarino, Mehmet Cem Kozlu and Gerard A. Reidy, were nominated
by The Coca-Cola Company, in its capacity as Class B shareholder; six members, Tuncay Özilhan, Mehmet Hurşit Zorlu,
Michael A. O'Neill, John P. Sechi, Ahmet Boyacıoğlu and Recep Yılmaz Argüden, were nominated by Anadolu Efes, in its
capacity as Class A shareholder; and one member, Armağan Özgörkey, was further nominated by Anadolu Efes in its capacity
as a shareholder, in accordance with the provisions of our articles of association. See "Risk Factors—Risks Relating to Control
by Principal Shareholders—Our principal shareholders have the ability to exert significant influence over our business and their
interests may not be aligned with our interests or those of other shareholders" and "Description of the Share Capital—Board of
Directors." Although Mr. Reidy was nominated by The Coca-Cola Company and Mr. Sechi was nominated by Anadolu Efes,
they have no other current ties to the nominating shareholders.
Pursuant to our articles of association, the chairman of the board of directors is selected from among the directors
nominated by the Class A shareholders and the vice chairman is selected from among the directors nominated by the Class B
shareholders.
The business address of our directors is Esenşehir Mah. Erzincan Cad. No. 36, 34776 Ümraniye, Istanbul, Turkey.
Senior Management
Our senior management is responsible for the day-to-day management of our company in accordance with the
instructions, policies and operating guidelines set by our board of directors. Pursuant to our articles of association, the board of
directors may delegate some of its powers to a managing director who must be nominated by the directors nominated by the
Class A shareholders although the appointment must be approved by at least two directors appointed by the Class B
shareholders. The following table sets forth the name and office of each executive officer of CCI.
Name
Michael A. O'Neill....................
Ronald W. Jones .......................
Christopher W. J. Gaunt ...........
Burak Başarır ............................
Hüseyin Akın ............................
Aliye Alptekin...........................
Year of
Birth Position
1945
1944
1946
1970
1958
1960
Year First
Appointed
to Position
Managing Director
Chief Operating Officer—Turkey and the Middle East
Chief Operating Officer—Central Asia Operations
Chief Financial Officer
President—Turkey
Human Resources Director
2006
2006
2005
2005
2006
2004
The business address of each member of our senior management is Esenşehir Mah. Erzincan Cad. No. 36, 34776
Ümraniye, Istanbul, Turkey.
Biographies
Directors
Tuncay Özilhan. Mr. Özilhan has been the chairman of our board of directors since 1996. Mr. Özilhan has been acting
as Chief Executive Officer of the Anadolu Group since 1984. Mr. Özilhan also serves as Chairman of Efes Pazarlama, Tarbes,
Efes Invest, ABank, Anadolu Cetelem, Adel Kalemcilik, Ülkü Kırtasiye, Anadolu Elektronik and Hamburger Restoran
İşletmeleri A.Ş. In addition, he has been General Manager of Erciyas Biracılık since 1977, and General Coordinator of the
Anadolu Endüstri Holding Beer Group and General Coordinator of Anadolu Endüstri Holding since 1980. From 2001 through
2003, he was President of TÜSİAD (the Turkish Industrial and Businessmen's Association). He is Honorary Consul of Estonia
as well as Chairman of the Efes Pilsen Sports Club. Mr. Özilhan holds a degree in economics from Istanbul University and an
M.B.A. from Long Island University in the United States.
M. Cem Kozlu. Mr. Kozlu was appointed as a member of our board of directors in 1998 and has been the vice
chairman of our board of directors since January 2006. He has been the President of the Central Europe, Eurasia and Middle
East Group of The Coca-Cola Company, which covers 48 countries, since 2001. In 2000, Mr. Kozlu was appointed President of
The Coca-Cola Company's Central Europe and Eurasia Group and in 2001 his responsibilities were expanded to include the
Middle East Region as well. From 1998 to 2000, he was President of the Southern Eurasia Division of The Coca-Cola
Company. He first joined The Coca-Cola Company in 1996 as Managing Director responsible for its Turkey, Caucasus and
Central Asian Republics operations. Before joining The Coca-Cola Company, Mr. Kozlu served as a Member of Parliament in
the Turkish National Assembly from 1992 to 1995. He served as Chairman and Chief Executive Officer of Turkish Airlines
from 1989 to 1991 and as Chairman of Turkish Airlines from 1997 to 2003. In addition, he was Managing Director of Komili
Holding A.Ş. from 1985 to 1989 and Managing Director of Komili Marketing and Foreign Trade Co. from 1976 to 1984.
Mr. Kozlu holds a B.A. from Denison University, an M.B.A. from Stanford University, a Ph.D. in administrative sciences from
Bosphorus University and an honorary Ph.D. from Denison University.
Michael A. O'Neill. Mr. O'Neill was appointed as a member of our board of directors in 2004 and became our
managing director (chief executive officer) in February 2006. Since retiring from The Coca-Cola Company in 2000, he has
remained a consultant to the company and serves on the boards of the joint stock company Wimm-Bill-Dann, Efes Invest, Efes
Breweries International and the Council for Trade and Economic Cooperation (Russia-USA). He joined The Coca-Cola
Company in 1989 and led its entry into Russia. In 1997, he was appointed as President of the Nordic and Northern Eurasia
Division of The Coca-Cola Company, a diverse region extending from Scandinavia to Vladivostok. From 1975 to 1989, he was
a member of the Irish Foreign Trade Service. He represented Ireland abroad, serving as the agency's trade counselor and envoy
to Moscow from 1977 to 1980 and director of its operations in Germany, Austria and Switzerland from 1983 to 1989. He is a
founding member and First Vice President of the American Chamber of Commerce in Russia and a founding member of The
Foreign Investment Advisory Council. An industrial engineer, he graduated from Rathmines College in Dublin, Ireland.
R. Yılmaz Argüden. Mr. Argüden was appointed as a member of our board of directors in November 2005. He is also
on the board of directors of Efes Invest and the Chairman of ARGE, a management consulting firm. Previously, Mr. Argüden
served as member of the boards of directors of various companies including Erdemir Ereşli Demir ve Çelik Fabrikaları T.A.Ş.
where he served as chairman between 1997 and 1999. In 1991 Mr. Argüden served as the Chief Economic Advisor to the Prime
Minister of Turkey. From 1988 to 1990 he led Turkey's privatization program. Mr. Argüden worked at the World Bank as a
Senior Officer between 1985 to 1988. He also worked at the RAND Corporation as a Policy Analyst between 1980 and 1985
and at the Research and Development Center of the Koç Group between 1978 and 1980. Mr. Argüden has a B.S. degree in
Industrial Engineering from Bosphorus University and received his Ph.D. in policy analysis from the RAND Graduate Institute.
Ahmet Boyacıoğlu. Mr. Boyacıoğlu was appointed as a member of our board of directors in November 2005.
Mr. Boyacıoğlu is also a member of the board of directors of a number of other Efes Beverage Group companies.
Mr. Boyacıoğlu served in a number of positions, including President—Strategy & Business Development, President—Beer
Divisions, President—International Beer Divisions and President—Eastern Europe Divisions of Efes Beverage Group, General
Manager of Ege Biracılık ve Malt San. A.Ş., General Manager of Güney Biracılık ve Malt San. A.Ş., Sales Manager and
Regional Sales Manager of Ege Biracılık ve Malt San. A.Ş. from 1973, when he first joined Efes Beverage Group.
Mr. Boyacıoğlu holds a B.S. degree in Management from Middle East Technical University, Faculty of Administrative Sciences.
John M. Guarino. Mr. Guarino was appointed as a member of our board of directors in December 2005. Since
August 2005, he has been acting as the Europe, Middle East and Africa Regional Director for Bottling Investments for The
Coca-Cola Company. He served as the chief executive officer of Coca-Cola Erfrischungsgetränke AG based in Berlin from 2002
to 2005. From 2000 to 2001, he served as the President of the Middle East and North Africa Division of The Coca-Cola
Company, with responsibility for the both the bottling and franchise business in 22 countries. Prior to joining The Coca-Cola
Company, he worked for Philip Morris Companies Inc. in a variety of executive roles in Europe, Africa and the Middle East.
Mr. Guarino has a B.S. in Commerce from Rider College in Lawrenceville, New Jersey and a Masters of Business
Administration degree from Northeastern University in Boston.
Armağan Özgörkey. Mr. Özgörkey was appointed as a member of our board of directors in 1998. He has been the
Chairman of Etap Beverages and Vice Chairman of the board of Etap Industrial and Investment Holding, which is a family
enterprise in the fields of plastics, packaging, fruit juice concentrates and soft drinks, since 1997. Mr. Özgörkey joined the Efes
Beverage Group in 1996 and served as a Vice President of its Eastern Europe operations from 1996 to 1997. From 1985 to 1996,
he served as Trade Manager and General Coordinator at his family-owned Coca-Cola bottling business covering the Aegean and
Mediterranean territories in Turkey. Mr. Özgörkey holds a B.S. in accounting from Oglethorpe University.
Gerard A. Reidy. Gerard A. Reidy was appointed to our board of directors in January 2006. At present he is a director
of Eikon Venture Capital Fund, chairman of Gaea Products S.A. and a board member of Coca-Cola Sabco and Coca-Cola
Bottling Company of Egypt. Mr. Reidy was in the Coca-Cola system for 23 years. In 1971 he started his Coca-Cola career as
Special Projects Manager of The Coca-Cola Export Corporation in South Africa. Between 1981 and 1995 he was the CEO of
Coca-Cola Hellenic Bottling Company. Mr. Reidy has a Bachelor of Engineering degree from University College, Dublin and
an M. Sc, MBA and a Ph.D from Michigan State University.
John P. Sechi. Mr. Sechi was appointed as a member of our board of directors in April 2006. Mr. Sechi is also the
Chairman and Senior Partner of Globalpraxis, a management consulting firm which provides services in the consumer goods,
telecom, energy and financial services sectors, and has held this position since March 2001. He is also on the advisory boards of
various beverage and packaging companies. From June 1998 to December 2000, Mr. Sechi was President of the German
Division for The Coca-Cola Company. He was Division President of the Central Mediterranean Division and Vice President of
The Coca-Cola Export Corporation from January 1995 to June 1998. He joined The Coca-Cola Company in January 1985 with
the International Audit Group as a Principal Auditor until August 1987 after which he held a variety of positions of increasing
responsibility, including: Finance Director for Coca-Cola Great Britain Ltd and Refreshment Spectrum Ltd from
September 1987 to June 1998, Supply Point Manager for the Northwest European Division from July 1988 to March 1989,
European Supply Point Director from April 1989 to December 1990, Chief Financial Officer for the Iberian Division from
January 1990 to August 1993 and Deputy Division President for the Central Mediterranean Division from September 1993 to
December 1994. He has more than 22 years of experience in the beverage industry and has worked in more than 20 countries.
Prior to joining Coca-Cola, he was an Audit Manager with Touche Ross & Co. (now Deloitte & Touche) and a Financial
Analyst with ICI. He is a member of the Canadian Institute of Chartered Accountants and holds a Bachelor of Business
Management degree from Ryerson University, Toronto, Canada.
M. Hurşit Zorlu. Mr. Zorlu was appointed as a member of our board of directors in 2004. He joined the Efes Beverage
Group in 1984 and has been the Chief Financial Officer and Investor Relations Director of the Efes Beverage Group since 2000.
He currently serves as a member of the boards of directors of various Efes Beverage Group companies, including Efes Breweries
International, Efes Invest, Efes Ukraine, Efes Romania, Efes Moldova, Rostov Beverage, Anadolu Efes Technical Management
and Consultancy N.V. and Efes Holland Technical Management and Consultancy B.V. Prior to joining the Efes Beverage
Group, Mr. Zorlu worked for Turkish Airlines as Marketing Specialist from 1982 to 1984. Mr. Zorlu holds a B.S. in economics
from Istanbul University.
Executive Officers
Michael A. O'Neill. See "—Directors."
Ronald W. Jones. Mr. Jones served as our managing director from November 2001 until our acquisition of Efes Invest
in November 2005 when he became Chief Operating Officer of our Turkish and Middle Eastern Operations. He also served as a
member of our board of directors from 2001 to 2005. He joined the Coca-Cola system in 1980 as Vice President and Chief
Operating Officer of The Coca-Cola Bottling Co. of the Peninsula. Mr. Jones has been responsible for various operations within
the Coca-Cola system including serving as President and Chief Executive Officer of The Coca-Cola Bottling Company of
Louisiana. Between 1998 and 2001, he served as President and Chief Executive Officer of Efes Invest. Mr. Jones holds a B.S. in
general business from New York State University and received an honorary Ph.D. in human letters from the University of New
Orleans.
Christopher W. J. Gaunt. Mr. Gaunt was appointed as the President of Efes Invest in 2001 and was appointed Chief
Operating Officer of our International Operations after our acquisition of Efes Invest in November 2005. He first joined Efes
Beverage Group in 2000 as the general manager of Bulgaria operations. Prior to joining Eves Beverage Group, Mr. Gaunt
served for one year as Executive Director of Panonska Pivovara Croatia (Carlsberg International) and General Director of CocaCola Bottlers Uzbekistan from 1996 to 1999. Between 1973 and 1994, he worked in the UK Beverage Industry, progressing to
senior management positions with H.P. Bulmer and Allied Domecq. He also worked the Wine and Spirit Division of the
Whitbread Brewery Group in 1973. Mr. Gaunt has a degree in History from Leeds University.
Burak Başarır. Mr. Başarır has served as our Chief Financial Officer since January 2005. In CCI, he served as Ankara
Sales Center Manager from 2003 to 2005, Mersin Sales Center Manager from 2000 to 2003, Middle Anatolia Sales Center
Finance Manager from 1999 to 2000, and Budget and Planning Supervisor from 1998 to 1999. Prior to joining CCI, Mr. Başarır
served as Senior Auditor for Arthur Andersen for three years between 1995 and 1998. Mr. Başarır holds an A.A. in international
business from American River College and a B.S. in business administration from Middle East Technical University.
Hüseyin Akın. Mr. Akın has served as our Commercial Director for Turkish operations since 1998 and, after our
acquisition of Efes Invest, became our President—Turkey in February 2006. Prior to assuming his current position, he served as
Marketing Manager of The Coca-Cola Company for the Caucasus and Central Asian Republics Region from 1993 to 1998,
General Manager of Coca-Cola Marketing, Sales & Distribution Company from 1991 to 1993 and Key Accounts and Fountain
Business Manager from 1989 to 1991. Prior to joining the Coca-Cola system, he worked for Procter & Gamble from 1988 to
1989 as Brand Manager, for Madra-Akın Edible Oil and Soap Company first as Regional Sales Manager and later as Finance
Director between 1985 and 1988, and for Hewlett-Packard as Marketing Engineer from 1981 to 1982. Mr. Akın holds a B.S. in
electrical engineering and computer science from Princeton University and an M.B.A. in marketing, finance and international
business from the University of Chicago.
Aliye Alptekin. Ms. Alptekin joined our company in February 2004 as Deputy Human Resources Director and became
our Human Resources Director in May 2004. Prior to joining us, she worked for Turkish Airlines from 1989 to 2004, where she
held various positions such as International Relations and Agreements Manager, Senior Vice President of Marketing, and
Executive Vice President in charge of Human Resources. Ms. Alptekin holds a B.S. in business administration from Hacettepe
University.
Corporate Governance
There are no mandatory corporate governance rules in Turkey. In 2003, the CMB issued a set of recommended
principles for public companies (the "Corporate Governance Principles") which were amended in February 2005. The Corporate
Governance Principles can be categorized in four groups: (i) principles relating to investor relations; (ii) principles relating to
public disclosure and transparency; (iii) principles relating to stakeholders; and (iv) principles relating to management.
Implementation of the Corporate Governance Principles is not currently mandatory. However, the CMB requires public
companies to disclose the extent to which they have been implemented and, if they have not been fully implemented, to explain
the reasons therefor. The CMB may decide to declare such principles as mandatory in the future and require us to fully comply
with them. Although we have taken steps to implement many of the provisions of the Corporate Governance Principles,
including adopting a Code of Ethics applicable to our directors and employees, currently we are not fully in compliance. We are
closely monitoring the adaptation of these principles in order to assess the measures needed to implement the best corporate
governance practice that will develop in the Turkish market.
We have established an Investor Relations department to ensure that we will be accessible to our public shareholders.
In order to ensure that we inform our shareholders of material developments in a timely manner, we have taken all necessary
measures to comply with the rules of the CMB and ISE with respect to public disclosure. In addition, subject to applicable CMB
rules, we intend to use our website to provide useful information to our shareholders. We will publish our annual reports
following the offering and will make them accessible to our investors.
We have adopted a transparent dividend policy which is reflected in our articles of association. Our articles of
association do not restrict the transfer of Class C Shares. Our Class A Shares and Class B Shares will continue to have certain
privileged rights with respect to management. See "Description of Share Capital—General Meetings."
We have a board of directors consisting of ten members, six of whom are nominated by Class A shareholders and three
of whom are nominated by Class B shareholders. The remaining director is nominated by any one of our shareholders. We do
not have any independent directors as defined in the Corporate Governance Principles; however, Gerard A. Reidy, nominated by
The Coca-Cola Company, and John P. Sechi, nominated by Anadolu Efes, do not have any current ties to such nominating
shareholders.
See "Description of Share Capital—Board of Directors" for a description of the nomination process for our board of
directors.
Board Practices
Board Committees. We formed an audit committee in accordance with the Corporate Governance Principles in
December 2005 to supervise the execution, adequacy and efficiency of our accounting system, disclosure of financial
information, external audit and internal control. In addition, the audit committee is responsible for approving the appointment of
a chief audit executive and reviewing his compensation package and performance. The current members are Recep Yılmaz
Argüden, John P. Sechi and Cem Kozlu. Messrs. Argüden and Sechi represent the Class A shareholders, and Mr. Kozlu
represents the Class B shareholders. Our audit committee reports to our board of directors and is required to meet at least four
times in a year and once in each quarter. See "Description of the Share Capital—Audit Committee."
Service Contracts. The directors' and executive officers service contracts do not provide for benefits upon termination
of employment.
Compensation
We aim to provide sufficient compensation for our employees to attract and retain individuals with the skills necessary
to successfully manage and grow our business and maximize long-term shareholder value. Our compensation policy seeks to
provide total compensation that is competitive with the consumer goods market. To check and follow up with the market
conditions in terms of compensation and benefits, we participate in and subscribe to Hay Group's professional market surveys of
remuneration in Turkey.
Remuneration of the board of directors is approved by the general meeting of shareholders. Pursuant to our articles of
association, remuneration of the managing director is a Major Decision requiring the approval of at least two directors
nominated by the Class B shareholders, as well as the voting quorum. See "Description of the Share Capital—Managing
Director."
The total remuneration paid to the directors and all other senior executives of CCI (including payments under the
management incentive plan, the long-term incentive plan, management bonuses, performance pay and, for certain executives,
payments relating to housing and home leave) with respect to 2005 amounted to YTL5.9 million. No loans were made to our
directors or executive officers during the past three years.
Expatriate Policy
Most of our employees in our international operations are hired locally and their compensation is set in accordance with
local market practices. Generally, only management level employees are given expatriate assignments, although we make
exceptions if technical expertise is needed in our international operations. We provide certain benefits to employees on
expatriate assignments.
Incentive Plans
Consistent with our commitment to long-term shareholder value, our policy is to link a significant portion of our
executive officers' compensation to the performance of our business through incentive plans. Therefore, in structuring
remuneration packages, we aim to link the potential reward to the performance of our business as well as to the performance of
the individual.
Management Incentive Plan
We operate a management incentive plan for our managers and more senior ranking employees. The individual
incentive is based on both individual performance and the performance of our business. The target award is a proportion of the
annual base salary, increasing for more senior employees, and varies from 15% up to 60% of an employee's base annual salary.
Compensation under the management incentive plan is typically paid in cash. We paid a total of YTL1.5 million to eligible
employees under the plan in 2003, YTL2.0 million in 2004 and YTL3.2 million in 2005.
Long-Term Incentive Plan
In addition to the management incentive plan described above, we have instituted a long-term incentive plan aimed at
retaining middle- and senior-ranking employees. Based on overall business performance in terms of sales volume and EBITDA,
an amount is recommended each year to the board of directors to be set aside for distribution to plan participants. Individual
awards are made as a percentage of gross annual base salary and plan amounts are proportionately vested over a three-year
period. Funds in the plan are managed by a local investment bank to maximize return on amounts invested. Payments made
under this plan amounted to YTL0.5 million in 2003, YTL0.9 million in 2004 and YTL0.5 million in 2005.
The Coca-Cola Company Stock Option Plan
Prior to 1998, some of our middle- and senior-ranking managers were entitled to participate in the stock option plan of
The Coca-Cola Company. Options granted under the plan are immediately exercisable for up to 10 years or 15 years from the
date of award. If The Coca-Cola Company's ownership of CCI falls below 20%, all options outstanding must be exercised
within six months of that date. CCI has no stock option plan.
Share Ownership
Except as disclosed in "Principal Shareholders and Related Party Transactions—Principal Shareholders," as of the date
of this offering memorandum, none of the members of our board of directors or senior management directly owns more than 1%
of any class of our share capital, and none of them will own more than 1% of any class of our share capital following the
offering.
PRINCIPAL SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
Principal Shareholders
The table below sets forth the interests of our principal shareholders as of the date of this offering memorandum:
Name
The Coca-Cola Company...................................
Anadolu Efes........................................................
Anadolu Efes Biracılık ve Malt Sanayi A.Ş.(1).....
Efes Pazarlama ve Dağıtım Ticaret A.Ş...............
Özgörkey Holding...............................................
Coca-Cola Satış ve Dağıtım A.Ş. .......................
Total Shares
Owned
% of
Outstanding
Share Capital
Class C
Shares Owned
% of
Class C
Shares
8,951,427,978.6
12,783,535,809.7
10,204,730,774.6
2,578,805,035.1
1,969,471,861.0
1,253,354,597.5
35.86
51.22
40.89
10.33
7.89
5.02
3,840,000,000.0
4,783,535,809.7
2,304,730,774.6
2,478,805,035.1
1,969,471,861.0
1,253,354,597.5
32.41
40.38
19.46
20.92
16.62
10.58
(1)
Reflects acquisition by Anadolu Efes Biracılık ve Malt Sanayi A.Ş. of 11,184,177,147 Class C Shares from Anadolu
Endüstri Holding A.Ş. prior to the completion of this offering. See " —Anadolu Efes."
The table below sets forth the interests of our principal shareholders as adjusted to reflect the offering:
Following the Offering without
Following the Offering with
Over-Allotment
% of
Outstanding
Share Capital
Class C Shares
Name
The Coca-Cola Company..
Anadolu Efes.......................
Anadolu Efes Biracılık ve
Malt Sanayi A.Ş. ...............
Efes Pazarlama ve Dağıtım
Ticaret A.Ş. .......................
Özgörkey Holding..............
Coca-Cola Satış ve
Dağıtım A.Ş......................
Over-Allotment
% of
Class C
Shares
% of
Outstanding
Share Capital
Class C Shares
% of
Class C
Shares
23.04
51.22
638,122,400.0
4,783,535,809.7
5.39
40.38
20.48
51.22
—
4,783,535,809.7
—
40.38
40.89
2,304,730,774.6
19.46
40.89
2,304,730,774.6
19.46
10.33
5.58
2,478,805,035.1
1,392,471,861.0
20.92
11.75
10.33
5.12
2,478,805,035.1
1,277,071,861.0
20.92
10.78
0.00
97.5
0.00
0.00
97.5
0.00
In addition to the Class C Shares indicated above:
•
Anadolu Efes Biracılık ve Malt Sanayi A.Ş. holds 7,900,000,000 Class A Shares and Efes Pazarlama ve Dağıtım
Ticaret A.Ş. holds 100,000,000 Class A Shares, representing all of the Class A Shares outstanding; and
•
The Coca-Cola Export Corporation holds 5,111,427,978.6 Class B Shares and Mr. Cemal Ahmet Bozer holds
1,884.5 Class B Shares (together representing all of the Class B Shares outstanding).
The Coca-Cola Company
The Coca-Cola Company was incorporated in September 1919 under the laws of the State of Delaware and succeeded
to the business of a Georgia corporation with the same name that had been organized in 1892. The Coca-Cola Company is the
largest manufacturer, distributor and marketer of alcohol-free beverage concentrates and syrups in the world. Finished beverage
products bearing The Coca-Cola Company's trademarks, sold in the United States since 1886, are now sold in more than 200
countries and include the leading soft drink products in most of these countries. The Coca-Cola Company also produces, markets
and distributes juices and juice drinks, as well as certain water products.
The Coca-Cola Company holds, indirectly through The Coca-Cola Export Corporation, 35.9% of our outstanding share
capital including all of our outstanding Class B Shares (with the exception of 1,884.5 Class B Shares held by Mr. Cemal Ahmet
Bozer, who is the President of Coca-Cola Eurasia and Middle East Division. Three members of our board of directors, John M.
Guarino, Mehmet Cem Kozlu and Gerard A. Reidy were nominated by The Coca-Cola Company and elected in accordance with
the provisions of our articles of association.
The business address of The Coca-Cola Company is One Coca-Cola Plaza, Atlanta, Georgia 30313, United States.
Anadolu Efes
Established in 1966, Anadolu Efes is the leading brewer in Turkey and also produces and markets beer, malt and soft
drinks across a geography that consists of Turkey, Russia, the CIS countries, Southeast Europe and the Middle East through its
subsidiaries and affiliates.
Anadolu Efes conducts the beverage operations of Anadolu Endüstri Holding A.Ş., a leading Turkish conglomerate that
operates in a number of industries both within and outside Turkey, including automotive, office supply and stationery, quick
service restaurants and financial services sectors in addition to beverages.
Yazıcılar Holding A.Ş., Özilhan Sınai Yatırım A.Ş. and Anadolu Endüstri Holding A.Ş. are the largest shareholders of
Anadolu Efes with 29.77%, 17.30% and 7.84% respectively. Anadolu Efes is listed on the Istanbul Stock Exchange and 45.09%
of Anadolu Efes is publicly held.
Anadolu Efes' beer business consists of a total of sixteen breweries, six malteries and one hops processing facility in six
countries.
Six members of our board of directors, Tuncay Özilhan, Mehmet Hurşit Zorlu, Michael O'Neill, John P. Sechi, Ahmet
Boyacıoğlu and Recep Yılmaz Argüden were nominated by Anadolu Efes in its capacity as holder of our Class A Shares and
elected in accordance with the provisions of our articles of association.
The business address of Anadolu Efes is Esentepe Mah. Anadolu Cad. No: 1 Kartal, 34870, Istanbul, Turkey.
Özgörkey Holding
Özgörkey Holding, established in 1997, is the parent company of Etap Holding which holds the companies owned by
the Özgörkey Family. Prior to the formation of CCI through the merger of three bottling companies, the members of Özgörkey
Family were the shareholders of The Coca- Cola Company's franchise for the Aegean and Mediterranean regions of Turkey and
the Eastern part of Romania for over 35 years with significant experience in the soft drink industry. In addition to its beverage
interests, Özgörkey Holding investments are in the fields of printing and packaging, foods and agriculture and design and
manufacture of storage and material handling units produced in injection molded plastics.
Özgörkey Holding holds 7.9% of our outstanding share capital and 16.6% of our outstanding Class C Shares.
The business address of Özgörkey Holding is Kemalpaşa Caddesi No: 12 35060, Pınarbaşı, İzmir.
Our Relationship with The Coca-Cola Company
The Coca-Cola System
The Coca-Cola system is based on a division of functions between The Coca-Cola Company and its various bottlers
that is intended to optimize the production, marketing and distribution of The Coca-Cola Company's beverages worldwide.
The Coca-Cola Company owns the trademarks of the beverages of The Coca-Cola Company, controls the global
marketing of The Coca-Cola Company's brands and supplies the bottlers of The Coca-Cola Company's products with
concentrate and beverage bases for these products.
In their local markets, the bottlers of The Coca-Cola Company's products generally undertake to:
•
produce the products of The Coca-Cola Company;
•
engage in local marketing and promotional activities customized to the particular circumstances of the markets in
which they operate;
•
establish business relationships with local customers and develop local distribution channels, for example, by
investing in cold drink equipment, such as coolers; and
•
distribute the products of The Coca-Cola Company to retailers either directly or indirectly through wholesalers.
The Coca-Cola Company maintains relationships with independently owned bottlers in which The Coca-Cola
Company has no ownership interest, with bottlers in which The Coca-Cola Company has invested and holds a non-controlling
ownership interest and with bottlers in which The Coca-Cola Company has invested and holds a controlling ownership interest.
We work closely with The Coca-Cola Company to maximize our opportunities to increase sales growth, with the goal
of increasing long-term value for our shareholders.
Bottler's Agreement for Turkish Operations
Overview. A bottler's agreement is essential to participate as a bottler in the Coca-Cola system. The Coca-Cola
Company has the ability to exert significant influence over the conduct of our business under our bottler's agreement. The
bottler's agreement that we entered into with The Coca-Cola Company and The Coca-Cola Export Corporation in July 2000 is in
the standard form that The Coca-Cola Company uses with bottlers outside the United States and the European Union for the sale
of concentrate for The Coca-Cola Company's trademarked beverages. The bottler's agreement has a fixed initial term and is
currently set to expire on June 30, 2006. In a letter dated December 2, 2005, we agreed with The Coca-Cola Company that our
bottler's agreement with respect to Turkey will be renewed, on the terms currently in place, for an additional 10 years as of
July 1, 2006.
Exclusivity. We have the right to prepare and package and to sell and distribute those beverages of The Coca-Cola
Company in those containers, such as glass bottles, plastic bottles or cans, specifically authorized in the bottler's agreement. The
Coca-Cola Company has agreed to refrain from distributing or selling and from authorizing third parties to distribute or sell the
authorized beverages in the authorized containers throughout Turkey, but retains the right to prepare and package products
covered by the agreement in Turkey for sale outside our exclusive territory. In addition, The Coca-Cola Company retains the
right to prepare, package, distribute and sell, or authorize third parties to prepare, package, distribute and sell, the products
covered by the agreement in Turkey in any manner or form not specified in the bottler's agreement. The bottler's agreement also
contemplates that there may be instances in which large or special buyers have operations transcending the boundaries of our
territory and, in such instances, we have agreed not to oppose, without valid reason, any additional measures deemed by The
Coca-Cola Company to be necessary and justified in order to protect and improve the sales and distribution to such buyers, even
if those measures would entail a restriction of our rights or obligations within reasonable limits.
We are not prohibited from selling beverages other than The Coca-Cola Company's products. Pursuant to the bottler's
agreement, we ensure that the distribution and other equipment and material used under the bottler's agreement have a uniform
external appearance. We are only prohibited from using such equipment to distribute and sell any products which are not
identified by The Coca-Cola Company's trademarks without the prior written consent of The Coca-Cola Company. Also, we
have undertaken not to prepare, package, distribute or sell any concentrate, syrup or beverage which is likely to be passed off for
or appear as an imitation of the concentrates, syrups or beverages described in the bottler's agreement.
Transshipping. We are prohibited from preparing, selling or distributing The Coca-Cola Company's beverages outside
of the territory of Turkey and from selling those beverages to anyone who intends to sell them outside Turkey without the prior
written consent of The Coca-Cola Company. We have agreed to use identification codes on all our packaging materials for The
Coca-Cola Company's beverages for the purposes of identifying the source of the manufacture of the products on the market.
The Coca-Cola Company may impose financial penalties on us if our products are found in another bottler's territory, or even
cancel our authorization for the type of containers found in the other bottler's territory. We currently have a special authorization
from The Coca-Cola Company to sell products to a subsidiary of The Coca-Cola Company in Turkey for resale in the Turkish
Republic of Northern Cyprus, as well as to distributors reselling into Iraq.
Supply of Concentrate. Our bottler's agreement requires us to purchase all our requirements of concentrate for
beverages of The Coca-Cola Company from The Coca-Cola Company and/or its authorized suppliers. The Coca-Cola Company
has the right to establish in its sole discretion the prices of the concentrates and beverage bases we purchase from it, as well as
the authorized suppliers of these concentrates and beverage bases, the conditions of shipment and the currency in which payment
must be made. The Coca-Cola Company has the right to change the authorized suppliers and, at any time, revise the price of
concentrate and the currency or currencies acceptable to it or its authorized suppliers. If we are unwilling to pay the revised
price, The Coca-Cola Company may terminate the agreement or withdraw its authorization with respect to certain beverages.
See "—Termination."
Packaging and Trademarks. We must distribute all the products of The Coca-Cola Company that we produce in
containers authorized by The Coca-Cola Company. The Coca-Cola Company has the right to approve, in its sole discretion, any
kind of packages and containers for The Coca-Cola Company's beverages, including their size, shape and other attributes. The
Coca-Cola Company may, in its sole discretion, cancel its authorization of any container upon giving us six months' notice so
long as this is done in good faith. We must purchase all containers, closures, cases and other packaging materials and labels from
manufacturers approved by The Coca-Cola Company.
The Coca-Cola Company is the sole owner of the trademarks that distinguish The Coca-Cola Company's beverage
bases, syrups and beverages. We are prohibited from producing other products or packages that would imitate, infringe or cause
confusion with the products, containers or trademarks of The Coca-Cola Company, or from acquiring or holding an interest in a
party that engages in such activities.
Moreover, we are prohibited from using the name of The Coca-Cola Company, the trademarks of The Coca-Cola
Company or any description of our relationship with The Coca-Cola Company in any prospectus, advertisement or other sales
effort which relates to issuing, offering or transferring any of our equity or debt securities, or promoting or selling any of those
securities, without obtaining a prior written consent of The Coca-Cola Company. We have obtained such consent from The
Coca-Cola Company in connection with this offering.
Product Promotion. The bottler's agreement requires us to develop, stimulate and fully meet the demand for The
Coca-Cola Company's beverages in The Republic of Turkey and use all approved means and spend such funds on advertising
and marketing of the beverages as may be required to meet that objective. The Coca-Cola Company may, in its sole discretion,
contribute to our advertising and marketing expenditures or undertake promotional activities at its own expense. We are required
to obtain the prior approval of The Coca-Cola Company with respect to all advertising and promotional material relating to The
Coca-Cola Company's beverages.
Financial Condition and Business Plan. We are required to maintain the financial capacity reasonably necessary to
ensure the performance of our obligations to The Coca-Cola Company. We are required to submit to The Coca-Cola Company
an annual business plan covering our marketing, management, financial, promotional and advertising plans, which must be
acceptable to The Coca-Cola Company. In addition, we are required to report to The Coca-Cola Company on a monthly basis, or
such other intervals as The Coca-Cola Company may request, sales of each of our products in such detail as may be requested by
The Coca-Cola Company.
Production Facilities and Quality Control. We are required to invest all the necessary capital and incur expenses
required to maintain production and distribution facilities and inventories of bottles, caps, cases, cartons and other packaging
materials. We have agreed that in preparing, packaging and distributing our products, we will conform to the manufacturing
standards established by The Coca-Cola Company and will permit its representatives to inspect our facilities at any time.
Assignment/Change of Control. We are prohibited from assigning, transferring or pledging our bottler's agreement
with The Coca-Cola Company, or any interest in it, whether voluntarily or involuntarily, without the consent of The Coca-Cola
Company. In addition, we need the consent of The Coca-Cola Company to any change in our control.
Term. Our bottler's agreement will expire in June 2006, unless it has been terminated earlier as provided in the
agreement. We do not have a right to claim tacit renewal of the bottler's agreement. However, in a letter dated December 2,
2005, we agreed with The Coca-Cola Company that our bottler's agreement with respect to Turkey will be renewed, on the terms
currently in place, for an additional 10 years as of July 1, 2006.
Termination. Any party to the bottler's agreement may, with 60 days' written notice to the other parties, terminate the
bottler's agreement in the event of non-compliance by another party with its terms so long as the non-complying party has not
cured such non-compliance during this 60-day period. Any party may also terminate the agreement by written notice to the other
parties if its terms violate applicable law or if any of the parties is unable to legally obtain foreign exchange to remit abroad in
payment of imports of the beverage bases or the ingredients or materials necessary for the manufacture of the beverage bases,
syrups or beverages.
In addition, The Coca-Cola Company may terminate the bottler's agreement with us immediately by written notice to
us in the event that:
•
we become insolvent, declare bankruptcy, are declared bankrupt, are expropriated or nationalized, are liquidated or
dissolved or if a receiver is appointed to manage our business;
•
there is a change in our control or we assign the bottler's agreement, delegate our performance under the agreement
against the terms of the agreement or fail to report to The Coca-Cola Company material changes in our ownership;
or
•
any individual or legal entity that controls or owns a majority of our shares or directly or indirectly influences our
management, engages in the production, packaging, distribution or sale of any products or packages that would
imitate, infringe or cause confusion with the products, containers or trademarks of The Coca-Cola Company,
provided that, upon request, such individual or entity shall be given 60 days to remedy such situation.
Moreover, if we do not wish to pay the required price for concentrate for the beverage Coca-Cola, we must notify The
Coca-Cola Company in writing within 30 days of receipt of The Coca-Cola Company's revised prices, in which case the bottler's
agreement will terminate automatically three months after the date of such notice. In case we refuse to pay the required price for
concentrate other than concentrate for the beverage Coca-Cola, The Coca-Cola Company may at its option cancel the
authorization in relation to such beverage for which we are unwilling to pay the revised price or terminate the entire agreement,
in each case with three months' written notice.
In addition to The Coca-Cola Company's termination rights described above, if we do not comply with the standards
and instructions established by The Coca-Cola Company or prescribed by applicable law relating to the production of the
authorized products, The Coca-Cola Company is entitled to suspend our authorization to produce such products of The CocaCola Company until the default has been corrected to The Coca-Cola Company's satisfaction. The Coca-Cola Company may
also elect, in the event that we breach the terms of the agreement with respect to a particular product, to cancel the authorization
granted to us under the agreement in respect of that product.
Distribution Agreement for Turkish Operations
Overview. Pursuant to the bottler's agreement, we are obliged to engage directly in the distribution of The Coca-Cola
Company's trademarked beverages to the retail market in Turkey and to bear all expenses required for the operation and
maintenance of distribution equipment and facilities. We, our sales and distribution subsidiary CCSD, The Coca-Cola Company
and The Coca-Cola Export Corporation entered into a separate distribution agreement in July 2000, which has had the effect of
optimizing the amount of special consumption tax we pay. Although sales and distribution activities are performed by our
subsidiary, we remain primarily and severally obligated toward The Coca-Cola Company for the performance of our distribution
obligation under the bottler's agreement. Our distribution subsidiary is prohibited from manufacturing, bottling, selling or
dealing in any other manner with any concentrate, beverage or product that would imitate, infringe or cause confusion with the
products, containers or trademarks of The Coca-Cola Company.
Conditions. CCSD is authorized to distribute the products covered by the bottler's agreement obtained from us and to
resell them only in Turkey and in the form in which they were filled and not to add to or alter any label or packaging of The
Coca-Cola Company trademarked products. The Coca-Cola Company may require certain standards to be adopted concerning
the design or the decoration of trucks, cases, cartons, coolers, vending machines and other materials and equipment used in the
distribution and sale of the products authorized under the bottler's agreement. In addition, upon request, CCSD must report sales
of each product to The Coca-Cola Company in such detail as may be requested by The Coca-Cola Company. CCSD is
prohibited from engaging in any promotional activities in connection with the products of The Coca-Cola Company without
prior approval of The Coca-Cola Company and is responsible for collection of returnable bottles containing The Coca-Cola
Company's trademarked beverages. In addition, CCSD and any enterprise which CCSD directly or indirectly owns or controls is
prohibited from dealing in any product or package that would imitate, infringe or cause confusion with the products, containers
or trademarks of The Coca-Cola Company.
Sub-distributors. The distribution agreement contemplates that the sub-distributors to which CCSD sells the beverages
covered by the agreement must meet the approval of The Coca-Cola Company. These sub-distributors are not allowed to sell
The Coca-Cola Company's beverages delivered by CCSD outside Turkey, alter the labels or packaging of the products, engage
in advertisement or promotional activities in connection with the products or sell the products to non-retail buyers. The CocaCola Company may at any time, in its own discretion, withdraw the authorization granted to some or all of CCSD's subdistributors.
Assignment/Change of Control. The assignment and change of control provisions of the distribution agreement are
substantially similar to the assignment and change of control provisions of the bottler's agreement described above.
Term and Termination. The Coca-Cola Company may cancel the distribution agreement for any reason upon three
months' written notice. The distribution agreement terminates automatically upon expiration of the bottler's agreement.
In addition, The Coca-Cola Company may terminate the distribution agreement immediately by giving written notice in
the event that CCSD is acquired by an entity or a person that is engaged, directly or indirectly, in the production, packaging,
distribution or sale of any products or packages that would imitate, infringe or cause confusion with the products, containers or
trademarks of The Coca-Cola Company, whether through direct ownership of such operations or through control or
administration thereof.
Other Agreements for Turkish Operations
We entered into a bottler's agreement and a distribution agreement with Schweppes Holdings Limited, an indirect
wholly owned subsidiary of the Coca-Cola Company, on April 1, 2000 under which we have the exclusive right to manufacture,
distribute and sell Schweppes Tonic, Schweppes Soda, Schweppes Mandarin and Schweppes Bitter Lemon in Turkey. These
agreements are currently set to expire in 2006. However, in letters dated December 2, 2005, we agreed with Schweppes
Holdings Limited that these agreements are renewed, on the terms currently in place, for an additional 10 years as of July 1,
2006. However, in the event the bottler's agreement with The Coca-Cola Company is terminated for any reason, Schweppes
Holding Limited shall have the right to terminate the agreement without liability for damages.
We have also entered into a bottler's agreement and a distribution agreement with Beverage Partners Worldwide
(Europe) A.G., a subsidiary of a joint venture between The Coca-Cola Company and Nestlé S.A., under which we have the
exclusive right to manufacture, distribute and sell Nestea Ice Tea in various flavors in the territory of Turkey. This agreement
will expire on June 30, 2009. However, in the event the bottler's agreement with The Coca-Cola Company is terminated for any
reason, Beverage Partners Worldwide (Europe) A.G. shall have the right to terminate the agreement without liability for
damages.
Pursuant to an agreement dated February 17, 2006, The Coca-Cola Company has granted us the right to use the
trademark "Doğazen" in Turkey in connection with source water products in 19-liter HOD containers for 10 years.
Bottler's Agreements for International Operations
The bottler's agreements for each of our international operations have terms similar to those of the bottler's agreement
for our Turkish operations, except with respect to the following:
Sales. With respect to our international operations, The Coca-Cola Company reserves the right to establish and revise
maximum prices at which each beverage may be sold to retail outlets and the retail prices for each beverage.
Exclusivity. Outside of Turkey we are only authorized sell and distribute the beverages to retail outlets or final
consumers or wholesale outlets that sell only to retail outlets in the relevant territory. Any other method of distribution is subject
to the approval of The Coca-Cola Company. Furthermore, we are prohibited from manufacturing, preparing, packaging,
distributing, selling, dealing or otherwise being concerned with non-alcoholic beverages other than the products of The CocaCola Company in our international operations. With respect to beer and other alcoholic beverages, we have agreed to carry out
such business that may include manufacture, preparation, packaging, distributing, selling or otherwise dealing in alcoholic
beverages through a company distinct from our beverage business. However, pursuant to a written consent by The Coca-Cola
Company which is renewed annually, we distribute beer through CC Kazakhstan and CC Kyrgyzstan.
Term. All of our bottler's agreements for our international operations are set to expire on June 30, 2016.
Other Bottler's and Distribution Agreements for International Operations
We entered into bottler's agreements with Schweppes Holdings Limited, an indirect wholly owned subsidiary of the
Coca-Cola Company, on May 1, 2004 under which we have the exclusive right to manufacture, distribute and sell Schweppes
and Canada Dry products in Jordan. This agreement is currently set to expire in May 2009. However, in the event the bottler's
agreement with The Coca-Cola Company is terminated for any reason, Schweppes Holding Limited shall have the right to
terminate the agreement without liability for damages.
We also entered into a bottler's agreement with Schweppes Holding Limited on January 1, 2006 under which we have
the exclusive right to manufacture, distribute and sell Schweppes products in Kazakhstan. The agreement is set to expire on
December 31, 2010, with an option to extend this term for an additional five years provided that we comply with all of the terms,
covenants, conditions and stimulations of the agreement and that we are capable of the continued developments of the business.
However, in the event the bottler's agreement with The Coca-Cola Company is terminated for any reason, Schweppes Holding
Limited has the right to terminate the agreement without liability for damages. In connection with the bottler's agreement, we are
party to a trademark sub-license agreement with Schweppes Holdings Limited under which we are granted a royalty-free right to
use the Schweppes trademark in association with the products we manufacture, distribute and sell. The trademark sub-license
agreement is currently set to expire on December 31, 2010.
Agreements with respect to Iraq
In 2005, we formed CC Iraq as a 50%-50% joint venture between Efes Invest Holland B.V. and a Dubai company.
Distribution Agreements
CC Iraq and The Coca-Cola Company signed a distribution agreement which grants CC Iraq the sale and distribution
rights in Iraq with respect to Coca-Cola products pursuant to which CC Iraq agrees to engage in direct distribution and sale to
retail outlets and final consumers. CC Iraq is also authorized to distribute and sell The Coca-Cola Company's beverages to
wholesalers in Iraq who sell to retail outlets in Iraq. Under the agreement we are subject to terms and restrictions similar to those
contained in the bottler's agreements with respect to our other international operations regarding trademarks, product promotion,
financial condition, business plan, assignment, change of control and termination. The distribution agreement will expire in
June 2006 unless it has been terminated earlier as provided therein. We do not have the right to claim tacit renewal of the
agreement.
Furthermore, CC Iraq entered into a distribution agreement with Schweppes Holdings Limited, an indirect wholly
owned subsidiary of the Coca-Cola Company, on July 1, 2005 under which we have the exclusive right to distribute and sell
Canada Dry products in Iraq. This agreement is currently set to expire on June 30, 2006.
Option to Enter into a Bottler's Agreement
The Coca-Cola Company has granted CC Iraq an option, exercisable until July 2007, to become the exclusive bottler of
Coca-Cola products in Iraq. The option requires CC Iraq to satisfy certain conditions until January 2007 such as building two
production facilities (one in Baghdad and one in Northern Iraq), obtaining all necessary licenses and permits for the production
and import of concentrate and beverage bases and maintaining a sound financial structure with sufficient equity funding.
Furthermore, The Coca-Cola Company has the right to terminate the option if CC Iraq fails to buy or lease two sites for the
production facilities, obtain all necessary construction licenses, execute a contract with the contractor for the construction of the
production facilities, or execute supply contracts for the machinery and equipments necessary for bottling operations by
February 2006. To date, we have selected the sites for the production facilities and ordered certain machinery and equipment.
CC Iraq is required not to engage in any dealings with any competitor of The Coca-Cola Company or any other soft
drink companies in Iraq. Furthermore, pursuant to the terms of the option, any change of ownership, control or management of
CC Iraq will be subject to prior consent of The Coca-Cola Company.
Agreement with respect to Tajikistan
The Coca-Cola Company has granted Efes Invest Holland B.V. an option, exercisable until October 2007, to set up a
local legal entity in Tajikistan in which it has a minimum shareholding of 85% ("New Co") to become the exclusive bottler of
certain approved containers of The Coca-Cola Company products in Tajikistan. The option requires New Co to satisfy certain
conditions until April 2007 such as building a production facility in Dushanbe, obtaining all necessary licenses and permits for
the production and import of concentrate and beverage bases and maintaining a sound financial structure with sufficient equity
funding. Furthermore, The Coca-Cola Company has the right to terminate the option if New Co fails to buy or lease a site for a
production facility, obtain all necessary construction licenses, execute a contract with the contractor for the construction of the
production facility, or execute supply contracts for the machinery and equipment necessary for bottling operations by
November 2006.
Purchase and Sale of Concentrate and Finished Goods
We purchase concentrate, beverage bases and finished products (Powerade) from The Coca-Cola Company and its
subsidiaries. Total purchases of concentrate and finished products from The Coca-Cola Company and its subsidiaries amounted
to approximately YTL106.4 million, YTL123.5 million and YTL143.1 million in 2003, 2004 and 2005, respectively. See
"Business—Production—Raw Materials and Purchasing Strategy."
We sell finished goods (including postmix fountain syrup for fast food outlets and products for sale in the Turkish
Republic of Northern Cyprus) to The Coca-Cola Company and its subsidiaries. These sales amounted to approximately
YTL7.1 million, YTL6.7 million and YTL8.5 million in 2003, 2004 and the 2005, respectively.
Marketing and Promotional Support
The Coca-Cola Company makes contributions to us in respect of promotional and marketing support programs to
promote the sale of its products in the markets in which we operate. The promotional contributions are treated as a reduction in
cost of goods sold. These contributions totaled YTL61.7 million in 2003, YTL49.9 million in 2004 and YTL38.1 million in
2005. Contributions for marketing programs are recognized as a reduction of our advertising costs. Marketing contributions
totaled YTL8.2 million in 2003, YTL15.9 million in 2004 and YTL26.1 million in 2005.
The levels of support programs are agreed annually. The Coca-Cola Company is under no obligation to participate in
the programs or maintain historical levels of funding in the future. However, given our relationship with The Coca-Cola
Company to date, we do not believe that this support will be reduced or withdrawn in the future. Under the bottler's agreements,
we have committed to spend such funds for advertising and marketing as may be required to maintain and to increase the
demand for The Coca-Cola Company's products we are selling in the markets in which we operate.
Amounts Payable to and Receivable from The Coca-Cola Company
The Coca-Cola Company owed us YTL0.1 million as of December 31, 2003, YTL4.1 million as of December 31, 2004
and YTL0.9 million as of December 31, 2005. We owed The Coca-Cola Company a total of YTL24.4 million as of
December 31, 2003, YTL29.8 million as of December 31, 2004 and YTL30.6 million as of December 31, 2005. These amounts
reflected amounts owed by The Coca-Cola Company to reimburse advertising costs paid by us on behalf of The Coca-Cola
Company, as well as trade balances related to sales of concentrate and finished products by The Coca-Cola Company to us.
Acquisition of CC Jordan
On November 18, 2005, our subsidiary Efes Invest Holland B.V. entered into a share purchase agreement with an
indirect wholly owned subsidiary of The Coca-Cola Company, to acquire a 90.0% interest in CC Jordan for approximately
$6.4 million (YTL8.7 million). The purchase of CC Jordan was financed through borrowing. This transaction closed on
December 29, 2005. The remaining 10.0% of the shares of CC Jordan are held by an indirect subsidiary of The Coca-Cola
Company.
Our Relationship with Anadolu Efes
From time to time, we obtain banking services from Alternatifbank A.Ş., leasing services from Alternatif Leasing A.Ş.
and fund management services from Alternatif Yatırım A.Ş., all of which are affiliates of Anadolu Efes. These services are
provided on an arm's length basis.
CC Kazakhstan and Efes Karaganda Brewery JSC ("Efes Karaganda"), a subsidiary of Anadolu Efes, are party to an
agreement dated January 1, 2005 pursuant to which CC Kazakhstan is the exclusive distributor of Efes Karaganda's beer
products in Almaty and Almaty District and Astana and Akmolinskaya District. The agreement obliges CC Kazakhstan to use its
best efforts to sell the products in these territories, to pay Kazakh taxes and duties with respect to the products, to use Efes
Karaganda's advertising materials, to pay for the product within 20 days of delivery and to provide weekly sales and inventory
reports to Efes Karaganda, among other things. Efes Karaganda has the right to changes prices and terms of payment with seven
days' notice. The agreement expires on December 31, 2009 and will be extended automatically for one year terms until either
party provides notice of termination at least one month before the termination date. CC Kazakhstan does not have the contractual
right to terminate the agreement early without cause without the mutual agreement of Efes Karaganda; Efes Karaganda may
terminate the agreement early with 10 days' written notice. Beer distribution by CC Kazakhstan is carried out pursuant to a
written consent by The Coca-Cola Company which is renewed annually.
CC Kyrgyzstan and Efes Karaganda are party to an agreement dated April 12, 2005 pursuant to which CC Kyrgyzstan
is the exclusive distributor of Efes Karaganda's beer products in Kyrgyzstan. The agreement obliges CC Kyrgyzstan to use its
best efforts to sell the products in Kyrgyzstan, to pay Kyrgyz taxes and duties with respect to the products, to use Efes
Karaganda's advertising materials, to pay for the product within 90 days of delivery and to provide weekly sales and inventory
reports to Efes Karaganda, among other things. CC Kyrgyzstan is contractually bound not to realize a greater than 15% margin
on the price of such products. Efes Karaganda has the right to change prices and terms of payment with seven days' notice. The
agreement expires on December 31, 2006 unless either party provides notice of termination at least one month before the
termination date. CC Kyrgyzstan does not have the contractual right to terminate the agreement early without cause without the
mutual agreement of Efes Karaganda; Efes Karaganda may terminate the agreement early with 10 days' written notice. Beer
distribution by CC Kyrgyzstan is carried out pursuant to a written consent by The Coca-Cola Company which is renewed
annually.
We have leased the premises on which Efes Invest headquarters are located from Anadolu Efes. The initial term of the
lease agreement was one year starting from January 1, 2004. Terms and conditions of the agreement are on an arm's length basis.
The lease agreement is renewed and the annual lease amount is adjusted annually.
Our Relationship with Özgörkey Holding
We have a business relationship with various companies that are affiliates of Özgörkey Holding. We purchase labels
from Etapak Baskı Ambalaj San. ve Tic. A.Ş., Cappy packages and certain toll filling services from Etap Tarım ve Gıda
Ürünleri Ambalaj San. Tic. A.Ş., plastic display racks and units from RTC Etap Ticaret, Tanzim, Teşhir Elemanları ve
Pazarlama Hizmetleri A.Ş., storage units for our 19-liter containers from Etap Makina Kalıp ve Plastik San. A.Ş. and labels and
multipack shrink film from Etap Ambalaj San. ve Tic. A.Ş. Total purchases from these companies totaled YTL12.1 million in
2003, YTL12.6 million in 2004 and YTL 15.4 million in 2005. All transactions with these companies are conducted on an arm's
length basis.
We sold plastic cases and machinery to Özgörkey Holding in the amount of approximately YTL0.1 million in 2003 and
2004. We did not make any sales to Özgörkey Holding in 2005.
Protocol Between The Coca-Cola Export Corporation and Anadolu Efes
Our shareholders The Coca-Cola Export Corporation and Anadolu Efes entered into a protocol on December 30, 2005
under which Anadolu Efes undertakes not to directly or indirectly compete with CCI in Turkey and worldwide with respect to
cola products.
DESCRIPTION OF THE SHARE CAPITAL
The following is a description of the rights attaching to our shares, which rights are derived from the Turkish
Commercial Code, the Capital Markets Law, the CMB regulations and our articles of association.
Paid-in Capital, Nominal Value, Form of Shares and Limit of Liability
Our current share capital is YTL249,589,770 and it consists of 8,000,000,000 Class A Shares, 5,111,429,863.1 Class B
Shares and 11,847,547,136.9 Class C Shares with a nominal value of YKr 1 each. Our Class A and Class B shares are in
registered form and give their holders certain special privileges that are set forth in our Articles. Class C Shares are in bearer
form and they do not give any special privileges to their holders. The composition our share capital will not change as a result of
the offering.
The following table sets forth the changes in our share capital since 2002:
Date of Corporate
Date of Publication in
Capital Increase
Number of Shares
Share Capital
Resolution
August 16, 2002.................
December 24, 2002............
January 24, 2005 ................
November 11, 2005............
the Trade Registry
Gazette
September 18, 2002
January 3, 2003
February 10, 2005
November 17, 2005
TL106,984,272,731,000
TL86,797,302,182
TL120,191,000,000
YTL25,788,050,3510
136,884,226,467 TL136,884,226,467,000
223,681,528,649 TL223,681,528,649,000
223,801,719,649 TL223,801,719,649,000
24,958,977,000
YTL249,589,770
Term, Object and Purposes
We were incorporated on January 22, 1988 under Turkish law as an anonim sirketi (corporation) under the name
Maksan Manisa Meşrubat Kutulama Sanayii A.Ş. which was later changed to Coca-Cola İçecek A.Ş., and we are registered in
the Republic of Turkey with the Istanbul Trade Registry under number 265859-213431.
Pursuant to Article 3 of our articles of association, our object includes the establishment and operation of
manufacturing and production facilities for all types of soft drinks. In connection with our objectives, we may, among other
things, (1) establish, operate or have third parties operate, and lease or have third parties lease facilities required to manufacture
and sell all types of soft drinks including alcohol-free beverages, fruit and vegetable juices, mineral water and drinking water;
(2) manufacture, sell, import and export various types of containers including PET bottles, glass bottles, returnable PET bottles,
PET bottle preforms, large plastic and glass containers; and (3) engage in all export, import, construction, production,
representation, transportation, distribution, marketing and other business activities related to our business. Pursuant to our
articles, we are incorporated for a perpetual term.
Preemption Rights
Turkish companies may increase their capital only through the issuance of new shares, and such issuances may take the
form of a rights issue or a bonus issue. Existing shareholders are entitled to subscribe for new shares, also known as preemption
rights, in proportion to their respective shareholdings each time a Turkish company undertakes a capital increase. Under Turkish
law, preemption rights relate only to issues of shares.
The exercise of preemption rights by shareholders must be made within a subscription period announced by a Turkish
company, which may not be less than 15 days nor more than 60 days. Shareholders of a listed company who do not wish to
subscribe for new shares may sell their rights on the ISE. Any shares not subscribed by the existing shareholders or purchasers
of the rights coupons are sold on the ISE at the current market price. Any differences between the rights issue price and the price
realized for the shares on the ISE accrues to the surplus account of the company.
In accordance with the Turkish Commercial Code, in each capital increase, the ratio of each class of shares is
maintained by increasing each class in the same percentage as the capital increase ratio. The articles do not allow for holders of
separate classes of shares to subscribe for other classes of shares. However, the Class A and Class B shareholders have a right of
first refusal over the shares of the other selling Class A and Class B shareholders.
Preemption rights of shareholders related to a rights issue may be restricted, or disapplied, wholly or in part either by an
affirmative vote of the holders of a majority of the outstanding shares at an ordinary or extraordinary general meeting of
shareholders or a resolution adopted by the board of directors to such effect, provided that such authority is conferred upon the
board of directors by the shareholders. CMB rules stipulate that such authority may be conferred upon the board of directors of
companies that have received permission from the CMB to adopt the authorized capital system. The CMB further requires that
the right of the board of directors to restrict the preemption rights of shareholders applies equally with respect to all shareholders.
CCI has not adopted the authorized capital system.
In a capital increase where pre-emption rights are not restricted, U.S. holders of Class C Shares may not be able to
exercise these rights for Class C Shares unless a related registration statement under the Securities Act is effective or an
exemption from the registration requirements thereunder is available. We cannot assure you that any registration statement
would be filed in such case. See "Risk Factors—Risks Relating to an Investment in our Class C Shares—The pre-emption rights
granted to holders of our Class C Shares may be unavailable to United States holders of our Class C Shares."
Under Turkish law, bonus issues may be undertaken in order to convert all or a portion of the reserves of a company
into share capital. Shares issued pursuant to a bonus issue are distributed free of charge to the relevant shareholders. Preemption
rights may not be waived in connection with a bonus issue.
Right of First Refusal
Pursuant to the articles, the holders of Class A and Class B Shares are entitled to transfer those shares to third parties on
the following conditions: (i) the transfer must be in compliance with the articles; (ii) the prior written consent of the other
holders of the same class of shares must have been obtained; and (iii) Class A or Class B Shares subject to sale must constitute
the entire Class A or Class B shareholding of the relevant shareholder group.
Upon a bona fide offer being received from a third party purchaser, if the relevant shareholder intends to sell its shares,
it must provide the other Class A or Class B shareholders, as the case may be, with a notice specifying the number of shares
proposed to be sold, the name and address of the prospective third party purchaser and the terms of the offer.
Within 90 days following receipt of the notice, the receiving shareholders shall be entitled to purchase the shares pro
rata to their shareholding ratio at the offer price. If the offer includes non-cash consideration and the parties cannot agree on the
value of such non-cash consideration, a mechanism exists for determination of such value through an expert. In the event not all
of the receiving shareholders want to purchase the shares corresponding to their shares, those shareholders that do want to
purchase shall have an additional 30-day period to purchase such shares as well. Any remaining shares not purchased through
the exercise of right of first refusal can then be sold to the third party within 30 days at the conditions initially notified to the
receiving shareholders. In such case, the selling shareholder shall request the third party purchaser to be bound by our Articles
and cause such purchaser to sign and submit our management an undertaking to than effect.
Call Notice
The articles provide for the Class B shareholders to deliver a call notice for the purchase of all of the Class A Shares of
the other shareholders upon the occurrence of one of the following events:
(1)
a deadlock among the holders of Class A and B Shares with respect to a Major Decision;
(2)
a force majeure event;
(3)
a breach by the Class A shareholders of the protocol between Class A and Class B shareholders or any other agreement
relating to the protocol and failure to cure such breach within 180 days of receipt of notice of the breach;
(4)
any holder of Class A Shares becoming subject to bankruptcy proceedings or settling with its creditors or having a
substantial portion of its assets seized or expropriated by a government agency;
(5)
(i) the direct or indirect change of control of any Class A shareholder, or (ii) the acquisition of any investment or
ownership in any Class A shareholder by a competitor of The Coca-Cola Company, except for an acquisition not exceeding 10%
through an organized stock exchange, or (iii) any Class A shareholder or its affiliate becoming a party to a bottler's or similar
agreement with a competitor of The Coca-Cola Company; or
(6)
non-renewal of the bottler's agreement within 60 days of the expiration of its term or termination of the bottler's
agreement.
With respect to items (2) through (5) above, the purchase right may be exercised only in respect of the relevant Class A
shareholder. In the event of a deadlock as described in item (1) above, the Class B shareholders are entitled to exercise the
purchase right only in respect of the Class A shareholder that, in the opinion of the Class B shareholders, created the deadlock.
The purchase price for the Class A Shares will be mutually agreed between the Class B shareholders and the Class A
shareholders. If a mutual agreement cannot be reached within 30 days, then the price will be determined by taking the average of
the daily weighted averages of the stock prices for the Class C Shares for a three-month period or, if the Class A shareholders do
not believe this is a fair representation of the value of such shares, then by an outside audit firm.
Further, following this offering, in the event that one of our bottler's agreement is terminated or not renewed within
60 days following the expiration of the term of such bottler's agreement, the Class B shareholders will initiate a voluntary tender
offer to purchase the shares of Class C shareholders at a price, which is no less than the purchase price of the Class A Shares,
determined as set forth above, in accordance with the relevant CMB regulations.
Put Notice
In the event our bottler's agreement is terminated by The Coca-Cola Company and The Coca-Cola Export Corporation
before its expiry date on a basis not provided for in the bottler's agreement, Class A Shareholders will deliver a put notice to
Class B Shareholders pursuant to which Class B Shareholders will be required to purchase all of the shares of Class A
Shareholders.
Dividend Distribution and Allocation of Profits
Our board of directors recommends annual dividends, which must be approved by our shareholders at their annual
general meeting. Dividends are payable on a date determined at the annual general meeting upon the proposal of our board.
Under current rules, and subject to CMB requirements, our shareholders at the annual general meeting may decide whether or
not to distribute dividends in any year. Any distribution must be completed by the end of the fifth month following the end of the
preceding fiscal year. Dividends are payable in cash or by transfer to an account of the shareholder with a bank in Turkey against
delivery to our office in Turkey of the relevant dividend coupon attached to the share certificate representing the relevant shares.
Distribution of dividends can be made in the form of cash or bonus shares or by distributing a certain amount of cash and a
certain amount of bonus shares. As the shares traded on the ISE are entered into the book-entry system (as described in "The
Turkish Securities Market—The Istanbul Stock Exchange—Trading and Settlement"), dividends in the form of bonus shares
will be transferred to the Central Registry Institution for distribution for the benefit of relevant accounts on the day of the
distribution or the following day, at the latest. These amounts will be immediately transferred to the accounts of the persons
entitled to the dividend. Each share entitles its holder to the same amount of dividend.
Our articles of association define our net profit as the amount remaining after deduction from our annual revenues of all
expenses, depreciation, donations, taxes and similar payments, statutory reserves and any previous year loss that need to be
deducted. 2% of the annual profit before taxes and other similar mandatory payments is set aside by the general meeting of
shareholders for donations to Anadolu Eğitim ve Sosyal Yardım Vakfı (Anadolu Education and Social Aid Foundation) so long
as it maintains its tax-exempt status, and 1% to another tax-exempt foundation to be determined by the shareholders owning
majority of the Class B shares, provided that the first legal reserve and first dividend are covered. The remaining amount is
distributed as prescribed by the Turkish Commercial Code in the following required order:
•
5% of the net profit will be allocated to the first legal reserve (donations described below made within the relevant
fiscal year will be included in the gross amount of distributable profit when calculating the first legal reserve);
•
a first dividend is paid to shareholders in the amount specified by the CMB (donations described below made
within the relevant fiscal year will be included in the gross amount of distributable profit when calculating the first
dividend);
•
the remainder of the net profit may be (i) distributed in full or in part to the shareholders as a second dividend, or
(ii) set aside as extraordinary reserves pursuant to a resolution of the general meeting of shareholders; and
•
10% of the amount of dividends paid to shareholders after deducting 5% of our paid-in capital must be set aside as
a second reserve.
The calculation of reserves described above are performed using statutory financial statements prepared according to
the Turkish Commercial Code and Turkish tax legislation, which may differ from our IFRS accounts significantly due to
different depreciation, expense and revenue, and foreign exchange gain and loss recognition standards and consolidation
requirements. When we become a public company, calculation of dividends will be based on the financial statements prepared in
accordance with CMB Principles. See "Presentation of Financial and Other Information—Financial Statements."
The CMB requires the distribution of a minimum of 30% of distributable profit as reported in the financial statements
prepared in accordance with CMB Principles as the first dividend (described in the second bullet point above) either in cash or as
bonus shares or as a combination of both for public companies. This requirement did not affect our dividend distribution with
respect to 2005 because we were not a public company in 2005. However, if the CMB imposes similar requirements with
respect to 2006, we will be required to distribute with respect to 2006 at least 30% of our distributable profit as the first dividend.
The CMB may, from time to time, change the amount of dividends required to be distributed by public companies.
The Capital Markets Law allows interim distribution of dividends for public companies whose shares are traded on the
ISE. Public companies are able to distribute interim dividends in accordance with the following criteria:
•
interim dividends must be based on quarterly audited financial statements prepared in accordance with the Turkish
Taxation Code;
•
interim dividends cannot exceed 50% of the net profits for the relevant interim period;
•
aggregate amount of interim dividends in one fiscal year cannot exceed the lesser of (x) 50% of distributable
profits for the previous fiscal year, or (y) the extraordinary reserves approved by the general assembly of
shareholders;
•
any interim dividends previously paid must be deducted from any subsequent interim dividend payments within
the same fiscal year;
•
the articles of association of the company must permit the distribution of interim dividends and the general
meeting of shareholders must authorize the board of directors to declare such distributions for each year that they
wish to have interim dividend distributions; and
•
holders of privileged classes of shares and any non-shareholders entitled to receive dividends are not allowed to
receive interim dividends.
Currently, our articles of association allow us to distribute interim dividend payments to our shareholders.
Under Turkish law, the statute of limitations in respect of annual or interim dividend payments is a period of five years
following the date of the general assembly meeting of shareholders approving the distribution, after which time uncollected
dividends are transferred to the Government.
We are subject to certain limitations with respect to the distribution of dividends pursuant to a loan facility which is
scheduled to mature on December 23, 2006. See "Management's Discussion and Analysis of Financial Condition and Results of
Operations—Future Liquidity, Financing Arrangements and Commitments—Borrowings and Capital Funding."
Liquidation Rights
Pursuant to the Turkish Commercial Code, shareholders of a joint stock company have a right to receive a pro rata
share of any proceeds arising from a liquidation of the company. The articles of association, however, may restrict this right of
the shareholders. Currently, no privileged rights with regard to any surplus in case of liquidation are granted to any of our
shareholders.
General Meetings
Pursuant to our articles of association, general meetings of our shareholders are to be held at our head office in Istanbul
or at another location in Istanbul selected by the board of directors. We are required by the Turkish Commercial Code to hold
our annual general meeting within three months of the end of each financial year, which in our case is the calendar year.
Extraordinary general meetings may be convened by our board of directors, or upon the request of our shareholders representing
at least 5% of our share capital, or upon the request of our internal auditors.
The following matters are required by the Turkish Commercial Code and our articles of association to be included on
the agenda of each of our annual general meetings:
•
review of the annual reports of our board of directors and the auditors;
•
the approval, amendment or rejection of the balance sheet and profit and loss account prepared for the preceding
financial year, the release of our board of directors from liability in respect of actions taken by them in the
preceding financial year and the proposals of our board of directors for the allocation and distribution of any of our
net profits;
•
the approval of the remuneration of the directors and the statutory auditors; and
•
the re-election or replacement of directors and/or auditors whose terms of office have expired.
Shareholders representing at least 5% of our share capital may, by written notice, require any additional matters to be
included on the agenda for discussions at any of our general meetings.
Notices covering general meetings (including postponements and reschedulings), which include the agenda of such
general meetings, must be published in the Turkish Trade Registry Gazette and a Turkish newspaper published in Istanbul
determined by us, at least two weeks before the date fixed for the meeting. The Turkish Commercial Code requires us to send
notice of any general meeting by registered mail to each person registered in our share register as a holder of shares and to those
shareholders who have deposited at least one share certificate representing shares with us and have indicated a notice address.
Any shareholder wishing to attend our general meetings in person must either deposit its share certificates, if in printed
form, at our head office or submit a blockage letter issued by the Central Registry Institution to us not less than one week before
the date of the meeting in order to obtain an entry permit for that meeting. Persons registered in our share book as owners of
registered shares need not comply with such requirement in order to attend a general meeting of shareholders. Any shareholder
not wishing to attend any such meeting in person may appoint another person as a proxy. Under Turkish law, proxies for
representation in a general meeting can only be granted to individuals and cannot be granted to the board of directors of the
company.
For shares entered in the book-entry system, the shares owned by the shareholders wishing to attend a general meeting
will be blocked in the accounts maintained by the Central Registry Institution. The Central Registry Institution will prepare a list
indicating those shareholders wishing to attend the general meeting. On the first business day following the general meeting, the
Central Registry Institution will automatically release the shares blocked in such manner. See "The Turkish Securities Market—
The Istanbul Stock Exchange—Trading and Settlement."
Following the Offering, resolutions of our general meetings relating to amendments to our articles of association
(excluding changing our jurisdiction and any mandatory increase in the commitments of our shareholders) must be passed by the
shareholders (or their proxies) representing at least 25% of the share capital. If such quorum is not present when such meeting is
convened, the meeting shall be adjourned and reconvened, in which case there will be no applicable quorum requirement.
Resolutions of general meetings relating to amendments to our articles of association including capital increases must be passed
by a majority of our shareholders or proxies present at such meeting.
Except for amendments made to comply with applicable legislation, any change in the rights of shareholders requires
an amendment to the articles of association. Any decision that relates to a capital increase and any decision that adversely affects
the rights of shareholders holding a specific class of shares will also need to be approved by a special assembly of such class of
shareholders. The quorum requirement for such a meeting is 25% of the relevant class of shareholders and a resolution will be
validly passed if approved by a majority of the share capital represented.
Notwithstanding the foregoing, a meeting called to consider any of the following matters requires the quorum
indicated:
•
dissolution—attendance of shareholders or proxies representing 75% of the capital is required, if the first attempt
to reach a quorum fails, then the meeting quorum falls to 50% for the second attempt,
•
issuing debt securities—attendance of shareholders or proxies representing 50% of the capital is required, if the
first attempt to reach a quorum fails, then the meeting quorum falls to 33.3% for the second attempt (issuing of
debt securities requires shareholders vote unless the articles of association explicitly gives this authority to the
board of directors), and
•
approving the sale of all of the assets during a liquidation—attendance of shareholders or proxies representing
50% of the capital is required, if the first attempt to reach a quorum fails, then the meeting quorum falls to 33.3%
for the second attempt.
Currently, our articles grant the authority to issue debt securities to our board of directors.
According to our articles, the "Major Decisions," to the extent shareholder approval is necessary, require the attendance
and affirmative vote of the holders of 80% of each of the Class A Shares and Class B Shares. The Major Decisions are defined
in our articles of association and they include approval of business plans; proposing items for general meetings of shareholders
regarding the amendments to our articles of association, increase or decrease of our paid-in capital, dissolution or mergers,
distribution of dividends other than those provided for in the capital markets regulations and changing the type of shares; any
resolutions relating to public offerings of shares; appointment, removal and remuneration of the managing director; investments
in shares of other companies; incorporating, acquiring or disposing of subsidiaries; transfers of or encumbrances on Class A or B
Shares; agreements or transactions with our shareholders owning 5% or more or their affiliates; appointment or removal of the
external auditors; capital expenditures in excess of $5,000,000 which were not in a previously approved capital budget;
nominating board members to subsidiaries or instructing representatives for voting on our behalf; resolutions relating to issuing
securities evidencing indebtedness in excess of $50,000,000; and sale or donation of real property, providing mortgage or other
rights in rem as security for the obligations of third parties and removal of the same
However, in the event that the Class B Shares fall below 15% of our share capital, certain matters (such as business
plans, dividends, managing director, capital expenditures and sale of real property) listed above will cease to be the subject of
Major Decisions.
Changing our jurisdiction or any mandatory increase in the commitments of our shareholders requires unanimous
shareholder approval.
Voting Rights
Class A, Class B and Class C shareholders are entitled to one vote per share on all matters submitted to a vote of our
shareholders. Votes at general meetings are taken by a show of hands. However, a secret ballot may be demanded by
shareholders holding 5% or more of our share capital represented at the general meeting.
Transfer of Class C Shares
Subject to the limitations described below, Class C Shares may be sold and transferred by physical delivery or by
means of book-entry registration with accounts maintained by the Central Registry Institution. Turkish law requires non-resident
investors to trade Turkish equity securities through a licensed Turkish bank or a brokerage firm. In addition, the CMB
regulations require banks or brokerage firms to trade shares of a company quoted on a Turkish stock exchange exclusively on
such exchange. Accordingly, following the Offering, non-resident investors may transfer the Shares only on the ISE, through a
licensed bank or a brokerage firm.
Disclosure of Beneficial Interests in Shares
Publicly traded Turkish companies are required by CMB rules to supply the CMB with any information which they
receive regarding the sale of their securities to the public. Any company listed on the ISE or person entering into any of the
transactions below is required to inform the ISE and the CMB of the following transactions:
•
any direct or indirect change of management control of the company;
•
any direct or indirect acquisition of 5%, 10%, 15%, 20%, 25%, 33 1⁄3%, 50%, 66 2⁄3% or 75% or more of the issued
share capital or voting rights of such public company by a person or persons acting together, and thereafter of their
transactions in the shares or voting rights of such company when the total number of shares or voting rights of such
public company traded falls below such thresholds, and of changes in such public company's own shareholding in
any other company in which it owns at least 10% of the issued share capital;
•
acknowledgement of voting agreements by the company;
•
share capital or voting rights of such public company by investment funds belonging to the same sponsor, and
thereafter of those transactions in the shares or voting rights of such company that cause the total number of shares
or voting rights of such public company traded to fall below such thresholds; and
•
purchase or sale of the shares of the company by the directors, senior managers, any other employees with the
authority to make material decisions with respect to the company and direct or indirect holders of 5% of the share
capital or voting rights of such company.
The trading shareholder must notify the CMB immediately and in any event before 9:00 a.m. on the business day
following the date of such transaction. The trading shareholder must also inform the company on the same day, and the company
is also under an obligation to disclose the transaction provided that the requirement to supply information is applicable only to
the extent the company becomes aware of the transaction.
Mandatory Offer
In the event any party or parties acting together acquire, directly or indirectly, 25% or more of a public company's
capital, voting rights or management control, such party or parties are required to make an offer to the other shareholders to buy
their shares. Furthermore, if a party or parties acting together owning between 25% and 50% of the capital increase their
shareholding by 10% or more in any given 12-month period, such party or parties are required to make an offer to the other
shareholders to purchase their shares. The offer must be made to all shareholders of the company, regardless of the class of
shares held, and must generally be made at the same price, although the CMB may permit offers of different prices for different
classes of shares, upon request for exemptive relief. The CMB may also grant an exemption to the general requirement to make
an offer to shareholders under certain circumstances, including, for example, if the acquisition of shares is approved at a meeting
of the company's shareholders or does not result in a change of the company's management.
Protection of Minority Shareholders
A minority shareholder of a public company is defined as a shareholder or group of shareholders who hold 5% or more
of the company's outstanding share capital.
Under Turkish law, minority shareholders have the right, among others, to request our board of directors:
•
to invite the shareholders to an extraordinary shareholder meeting;
•
to request that a matter be included on the agenda at both general and extraordinary meetings of shareholders;
•
to request the appointment of special statutory auditors; and
•
to require that the company take action against directors who have violated the Turkish Commercial Code or the
articles of association of the company or who have otherwise failed to perform their duties.
In 2003, the CMB issued a communiqué regarding cumulative voting principles in general meetings of public
companies. The objective of this communiqué is to enable minority shareholders to elect a representative to the board of
directors and to the statutory auditors of their companies. Under normal voting principles, a shareholder is entitled to one vote
per share for each director to be elected, and may use that vote only to vote for or against the particular director. Under the
principle of cumulative voting, a shareholder may use all the votes to which it is entitled to vote for any one (or more) of the
directors. For example, if five directors are to be elected, each shareholder will be entitled to five votes per share. Under normal
voting principles the shareholder may only cast one vote for (or against) each of the five directors. Under cumulative voting
principles, the shareholder may cast all five votes for a single director or may split the five votes among as many of the five
directors as it chooses. As a result, such shareholder would have a better chance to have a candidate elected to the relevant board
membership. The articles of association of the company must contain a clear provision allowing for cumulative voting for the
provisions of this communiqué to apply at the general meetings of such company. Currently, our articles do not provide for
cumulative voting in general meetings.
Board of Directors
Our articles of association require that our board of directors consist of ten members. All directors serve for terms of
three years. Pursuant to our articles of association, a majority of the holders of the Class A Shares may nominate six members to
the board of directors and a majority of the holders of Class B Shares may nominate three members. Any one shareholder may
nominate the last member of the board of directors. If any class of shareholders fails to obtain a majority and cannot agree on a
candidate, any shareholder, regardless of its class, shall have the right to make such nomination. Directors are elected by the
holders of a majority of the share capital or their proxies present at the general meeting. Under Turkish law, directors are
required to own at least one share in order to serve on the board. However, if a director is elected to the board as a representative
of a legal entity shareholder, then such shareholder may also pledge one share to the company on behalf of such director.
The maximum term of office of each member of the board of directors is three years. Vacancies may be filled by the
remaining members of the board of directors from among the nominees designated by the same class of shareholders who
nominated the vacating member. The replacement member shall serve until the next general meeting of shareholders. If the
appointment of the replacement member is approved in the next general meeting of shareholders, such member shall serve until
the expiry of the term of office of the vacating member. Under Turkish law, there are no retirement requirements for directors.
Remuneration of the board of directors is approved by the general meeting of shareholders. Pursuant to our articles of
association, remuneration of the managing director is a Major Decision requiring the approval of at least two directors
nominated by the Class B shareholders, as well as the voting quorum for Major Decisions described in "—General Meetings."
Under Turkish law, directors can neither attend the negotiations nor vote on matters in which directors themselves,
their spouses or their relatives up to and including third degree have an interest.
Our board of directors has the authority to engage in short-, medium- and long-term borrowings, as such borrowings
are listed as one of the acts that can be carried out by us within the frame of our object and scope. In public companies, the
authority to issue bonds can be transferred to the board of directors and our articles of association have transferred such authority
to the board of directors accordingly.
Audit Committee
Our articles of association require the board of directors to establish an audit committee with a minimum of two
members. If the audit committee is composed of two members, one member must be elected from among the board members
representing the Class A shareholders and the other from among the board members representing the Class B shareholders. If the
audit committee is composed of more than two members, a majority of the audit committee members must be elected from
among the board members representing the Class A shareholders and the remainder from among the board members
representing the Class B shareholders. In addition, if the audit committee is composed of two members, both members (and if
the audit committee is composed of more than two members, the majority of the members) must not have an executive function
in CCI.
Our board of directors established an audit committee in December 2005. The current audit committee members are
Recep Yılmaz Argüden, John P. Sechi and Cem Kozlu.
See "Management—Board Practices—Board Committees."
Auditors
Pursuant to our articles of association and the Turkish Commercial Code, the general meeting of shareholders elects
three statutory auditors for a maximum term of one year. Holders of a majority of the Class A Shares may nominate two auditors
and holders of a majority of Class B Shares may nominate one auditor.
Furthermore, pursuant to our articles of association, our board of directors appoints an external auditor, which must be
an auditing firm associated with an internationally recognized auditing firm acceptable under Turkish regulations and practice.
The external auditing firm is appointed for a term of one year and can be reappointed. The corporate governance principles of
the CMB allow appointment of the same external audit firm for five fiscal years, at the end of which, the same external audit
firm cannot be appointed until the passage of two fiscal years.
Managing Director
Pursuant to our articles of association, the administration and management of CCI shall be carried out by a managing
director appointed by the board of directors from among the candidates nominated by the directors nominated by the holders of
Class A Shares. The articles of association require the same procedure for filling any vacancies in the position of managing
director. However, since election of the managing director is a Major Decision, at least two directors nominated by Class B
shareholders must vote affirmatively.
Directors nominated by Class A or Class B shareholders have the right, at any time within six months following the
appointment of the managing director, to request in writing the dismissal of the managing director. The board of directors shall
convene within 30 days of such a request and vote upon the dismissal of the managing director. If the managing director is
dismissed, the board of directors shall elect a subsequent managing director using the procedure above. In the event such
subsequent managing director is also dismissed, then a director, other than the chairman of the board, nominated by the Class A
shareholders, shall be elected and immediately assume the position of the managing director. In the event a subsequent
managing director cannot be elected within three months of the date on which the director assumed the position of managing
director, the director shall continue to be the managing director and shall resign his directorship.
Any director, within three months following the appointment of the managing director, can request that the board of
directors review the performance of the managing director. The request must include reasonable documentation of inadequate
performance. Upon review of the managing director's performance, the board of directors shall convene and vote upon the
dismissal of the managing director. The procedure described in the preceding paragraph shall be followed for the election of the
subsequent managing director.
Termination of Privileges
Pursuant to our articles of association, in the event that the majority or all of Class A or Class B Shares are transferred
to or owned by third parties that are not affiliated to the current Class A or Class B Shareholders, as the case may be, the
privileges and special rights that are given to such Class A or Class B Shares shall automatically terminate.
THE TURKISH SECURITIES MARKET
Introduction
There has been an organized securities market in Turkey since 1866, although by the late 1970s the markets had been
substantially dormant for many years. In 1981, the Capital Markets Law was enacted, which established the CMB as the main
regulatory body with responsibility for supervision and regulation of the Turkish securities markets. The ISE was re-established
in 1985 and recommenced operations in early 1986.
The Capital Markets Board
The principal function of the CMB is to foster the development of the securities markets in Turkey and thereby
contribute to the efficient allocation of financial resources in the Turkish economy, and to ensure adequate protection for
investors. The CMB supervises and regulates, among others, public companies, banks and other financial intermediaries, mutual
funds, investment corporations, investment consulting firms and rating firms that offer their services to institutions operating in
the capital markets.
As the capital markets regulator, the CMB promulgates regulations relating to Turkish capital markets and the rules
which participants in such markets are required to observe. CMB regulations require registration with the CMB of all securities
to be publicly offered in Turkey as well as certain private placements. A prospectus filed with the CMB for registration must
include all information reasonably necessary to enable a prospective investor to assess the merits of the issuer and the proposed
investment. The CMB may refuse registration in the event that it is not satisfied with the quality of the issuer or the level of
disclosure in the prospectus. The type and scope of information required to be disclosed to the public under CMB regulations is
considerably less detailed than disclosure requirements in more developed markets such as the United States or the United
Kingdom.
The Istanbul Stock Exchange
Governance
The ISE is governed by an Executive Council composed of five members. After nomination by the CMB, the
President, who also acts as the Chief Executive Officer of the Executive Council is appointed by the Government of Turkey.
Four other members of the Executive Council are appointed by the ISE general assembly and represent the three categories of
the ISE members: investment and development banks, banks, and brokerage houses. The ISE is the only stock exchange in
Turkey.
Trading and Settlement
In December 1993, the ISE launched a computerized trading system known as Electronic Purchase and Sale System
("EPSS"). Although the EPSS was used initially for 50 stocks that were not the subject of heavy trading, in December 1994 the
ISE fully converted to EPSS. The ISE operates two computer dealing rooms at its premises and approximately 149 brokers are
eligible to trade through the auspices of the ISE. The brokers, after receiving orders by telephone, enter positions and transact
sales by computer, just as would be done in the treasury departments of most investment banks. Since December 2001, the ISE
members are also able to route their orders directly to the ISE automated trading system through an interface software, called
Ex-API. Through Ex-API, members route the orders (either collected or derived by their own back-office systems) directly to
the ISE automated trading system and instantaneously receive order and trade confirmations. The electronic communication acts
as a sales contract. At the end of each trading session the ISE gives all brokers a breakdown of all the transactions which they
have completed.
Updated trading prices for stocks traded on the ISE are conveyed in real time to data vendors such as Bloomberg and
Reuters for international dissemination. After each trading session, the ISE publishes a daily bulletin which sets forth for each
security, among other information, the high and low sales price, the closing sales price, trading volume and weighted average
sales price. The information contained in the bulletin is customarily extracted and published on the following day in major
newspapers in Turkey. All transactions are on a cash basis, and settlement must take place on the second business day after the
execution of a trade. The Capital Markets Law was amended in 1999 to require share certificates of public companies to be
replaced by an electronic registry system maintained by the Central Registry Institution, which was incorporated as a private
entity regulated by the CMB. The conversion was completed in November 2005, and since then all share trades on the ISE are
effected by revising the electronic records maintained by the Central Registry Institution.
Trading on the ISE is conducted on each business day in Turkey, with the morning session taking place from 9:30 a.m.
to noon, and the afternoon session taking place from 2:00 p.m. to 4:30 p.m. Istanbul time. There are currently five markets on
the Istanbul Stock Exchange. The first is the National Market, which includes all the companies that comply with the quotation
conditions previously set by the Istanbul Stock Exchange. Shares of 100 companies chosen from this market form the Istanbul
Stock Exchange National 100 index. The second market is the Second National Market, which has been formed to provide
capital to companies that cannot meet the quotation conditions set by the Istanbul Stock Exchange and to small and medium
sized companies with a growth potential. The third market is the New Economy Market, which has been formed in order to
allow companies in telecommunications, information, electronics, Internet, computers and other technology sectors to raise
capital. The fourth is the Watch List Companies Market, which is for companies under special surveillance and investigation due
to extraordinary situations with respect to stock transactions on the Istanbul Stock Exchange. The fifth market is the Wholesale
Market permitting block sale of stocks which are traded on the National Market and the Second National Market as well as those
which are not traded on the Istanbul Stock Exchange, through capital increase or sale of stock of existing shareholders to
predetermined and/or unidentified buyers. In the Wholesale Market, the session takes place on each business day between
11:00 a.m. and noon.
The ISE was closed on December 30, 2004 and December 31, 2004 in order to enable its members to carry out
necessary preparations relating to the introduction of the New Turkish Lira. Based on an ISE decision, in line with the
implementation of the New Turkish Lira, all arrangements based on TL1,000,000 (nominal) = 1 lot were amended to YTL1.00
(nominal) = 1 lot and the smallest tradeable unit on the exchange must now have a nominal value of YTL1.00.
Trading Prices and Fluctuations
Trading prices for securities listed on the ISE are generally limited to a daily range established by the ISE for each
session. Accordingly, traders are not permitted to place orders at prices which are 10% higher or 10% lower than the base price
of the relevant security for the preceding trading session. The base price is the price which is taken as the basis for determining
the highest and lowest price limits within which the stock may be traded in one trading session. The base price is determined by
rounding to the nearest price step the average weighted price at which trades were realized and recorded in the immediately
preceding trading session. The stock market director, however, may double, and the Chairman of the ISE may lift, the limits for
a particular trading session either ex officio or upon application by a certain number of ISE members. In the absence of such
actions by ISE officials, price fluctuations of stocks traded on the ISE must be within the range established for each session. If
required by extraordinary adverse circumstances, the Chairman of the ISE may suspend trading in any listed security for up to
five business days and suspend operations of the ISE entirely for a period of up to three days. The CMB may suspend the
operations of the ISE for a period of up to 15 days upon the request of the Executive Council, and the relevant Minister of State
may order a suspension of up to one month upon the request of the CMB. Only the Council of Ministers of Turkey may suspend
the operations of the ISE for a period exceeding one month. Since the ISE recommenced operations in 1986, its operations have
been suspended four times, first due to the 1999 earthquake for six working days (August 17, 1999 to August 24, 1999), second,
after the terrorist attacks of September 11, 2001, for one day, third, following the terrorist attacks in Istanbul on November 11,
2003, for two days, and fourth, for preparations relating to the introduction of the New Turkish Lira on December 30, 2004, for
two days.
Listing Requirements
The ISE requires that a company meet certain profitability and minimum shareholding standards as a condition to
listing securities on the ISE. Certain important listing requirements for securities are set forth below.
•
The last three annual financial statements and the last quarterly financial statements must have been independently
audited. In addition, the current quarter financial statements must have been audited. For group companies,
consolidated financial statements must have been prepared.
•
A minimum of three calendar years must have elapsed since the company's incorporation and the financial
statements for the last three years should be available.
•
The company must have earned profits before taxes in the last two consecutive years (in the previous year if the
market value of the offered shares is at least YTL35 million or the free float rate is at least 35%) (this amount is
increased by the Executive Council of the ISE in accordance with the revaluation rate that is announced annually).
•
The company's minimum net equity must be YTL12 million as shown in its latest independently audited balance
sheet (this amount is increased by the Executive Council of the ISE in accordance with the revaluation rate that is
announced annually).
•
The free float rate must be a minimum of 25% and the market value of the offered shares must amount to a
minimum of YTL18 million (the free float rate can be less than 25% if the market value of the offered shares
amounts to a minimum of YTL35 million) (this amount is increased by the Executive Council of the ISE in
accordance with the revaluation rate that is announced annually).
•
The Executive Council must have had the corporation's financial situation examined and accepted its ability to
continue as a going concern.
•
The articles of association should not include any provision limiting the transfer and trading of the security or any
provision preventing the shareholder from using his or her rights.
•
There should not be any material legal dispute which will affect the production and activity of the corporation.
•
The corporation should not have stopped production for more than three months within the last year for reasons
other than those that are acceptable by the Executive Council of the ISE and there should not be any requests or
proceedings for the liquidation or arrangements in bankruptcy of the corporation or any other related process
identified by the ISE.
•
The securities must comply with the ISE Executive Council criteria of current and possible trading volume in the
market.
•
It must be documented that the establishment and activities of the corporation and the legal status of the share
certificates comply with the legislation to which they are subject.
Disclosure Requirements
In addition to the reporting requirements of the CMB, companies whose shares are listed on the ISE are required to
comply with the information and disclosure requirements of the ISE. There are two types of disclosure requirements, one
relating to financial statements and the other relating to special situations. Disclosure requirements regarding financial
statements are set forth below:
•
Financial statements must be presented on a quarterly basis according to CMB standards.
•
Audited year-end financial statements and reports prepared in accordance with CMB accounting standards must be
submitted to the ISE within a period of 14 weeks following the end of the accounting period.
•
Reviewed six-month results must be submitted to the ISE within ten weeks following the end of the accounting
period.
•
Unaudited first quarter and third quarter financial statements must be submitted within eight weeks following the
end of the accounting period.
The CMB has issued Communiqué no. XI-25 "Communiqué on Accounting Standards in Capital Markets" which sets
out a comprehensive set of accounting principles. In this Communiqué, the CMB stated that, as an alternative, application of
accounting standards prescribed by the International Accounting Standards Board and the International Accounting Standards
and Standing Interpretations Committee will also be considered to be compliant with CMB Accounting Standards.
The "disclosure communiqué" of the CMB requires the following conditions among others to be disclosed to the
public:
•
any direct or indirect change of control of the company;
•
share capital or voting rights of such public company by a person or persons acting together, and thereafter of their
transactions in the shares or voting rights of such company when the total number of shares or voting rights of such
public company traded falls below such thresholds, and of changes in such company's own shareholding in any
other company in which it owns at least 10% of the issued share capital;
•
acknowledgement of voting agreements by the company;
•
share capital or voting rights of such public company by investment funds belonging to the same sponsor, and
thereafter of those transactions in the shares or voting rights of such company that cause the total number of shares
or voting rights of such public company traded to fall below such thresholds;
•
any purchase or sale of the shares of the company by the directors, senior managers, any other employees with the
authority to make material decisions with respect to the company and direct or indirect holders of 5% of the share
capital or voting rights of such company;
•
when large amounts of shares are sold on the ISE; and
•
any information that may affect investors' investment decisions or the value of securities.
Insider Trading
Insider trading is defined in the Capital Markets Law as benefiting from, or permitting others to benefit from, or
avoiding losses through, or enabling others to avoid losses through, the use of non-public information which may affect the
value of securities. Insider trading violations are punishable by prison terms of two to five years and by fines ranging from
YTL50,000 to YTL125,000. For an act to constitute an insider trading violation, the information must be utilized in a manner
which provides an unfair advantage over other investors. Activities such as market manipulation, disseminating misleading
information and engaging in activities unauthorized by the CMB are also punishable by the same penalties applicable to insider
trading. The minimum fine imposed as a result of any of the above listed acts is three times the monetary gain obtained through
such actions. Notwithstanding these sanctions, the effectiveness of this legislation depends largely on the extent to which its
provisions are observed by intermediaries and investors and enforced by the CMB. To the extent these provisions are not
observed or enforced, prices of securities traded on the ISE may be affected by trading based on material non-public
information. Recently, a number of court decisions have imposed insider trading sanctions.
Market Volatility
The ISE is a highly volatile market. Trading on the ISE has traditionally been characterized by a high degree of shortterm speculative trading, which is at least partially attributable to a relatively underdeveloped institutional investor base in
Turkey and to the relatively small size of the retail investor base, which is comprised mainly of high net worth individuals.
As of December 31, 2005, 304 Turkish companies were listed on the ISE and a total of 3 classes of shares of those
companies were regularly traded (12 of these companies and classes of shares are suspended from trading). As of December 31,
2005, the total market capitalization of all companies with equity securities regularly traded on the ISE was
YTL218.318 million. The average daily trading value of the stocks of all companies whose shares were listed on the ISE was
YTL1,063 million in 2005.
A disproportionately large percentage of the market capitalization and trading value of the ISE is represented by a small
number of listed companies. As of December 31, 2005, the combined market capitalization of the 10 companies with the greatest
market capitalizations whose shares regularly traded on the ISE was YTL110 billion, which represented 51% of the market
capitalization of all companies regularly traded on the ISE as of such date. The total average daily trading value of the five most
actively traded stocks on the ISE for 2005 was YTL70.086 million which represented approximately 26% of the average daily
trading value of all stocks traded on the ISE in 2005.
The following table sets forth, for each period indicated, the number of trading days on the ISE during such period, the
total trading value during such period and the average daily trading value during such period, in both nominal New Turkish Lira
and U.S. dollars.
2001
2002
2003
2004
2005(2)
1st quarter.....................................................
2nd quarter ...................................................
3rd quarter....................................................
4th quarter ....................................................
1st quarter.....................................................
2nd quarter ...................................................
3rd quarter....................................................
4th quarter ....................................................
1st quarter.....................................................
2nd quarter ...................................................
3rd quarter....................................................
4th quarter ....................................................
1st quarter.....................................................
2nd quarter ...................................................
3rd quarter....................................................
4th quarter
1st quarter.....................................................
2nd quarter ...................................................
Number of
Trading Days
Total Trading
Value
(in millions of
U.S. dollars)
59
64
63
62
60
64
65
61
58
63
66
59
60
63
65
24,208
24,246
11,737
20,209
18,670
13,432
12,436
25,977
13,605
19,786
21,648
43,319
44,636
28,118
33,085
306,960,209
443,225,336
256,532,949
491,615,874
421,388,660
289,081,644
314,713,025
683,032,102
372,057,497
476,720,578
455,354,985
1,053,345,329
991,793,434
642,101,986
755,229,507
410.3
378.8
186.3
326.0
311.2
209.9
191.3
425.8
225.3
314.1
328.0
734.2
743.9
446.3
509.0
62
64
54,037
34,537
1,176.0
748.7
890.7
552.3
Average Daily Trading Value(1)
(in millions of
(in millions of TL)
U.S. dollars)
2006(2)
3rd quarter....................................................
4th quarter ....................................................
1st quarter.....................................................
2nd quarter (through April 28) ....................
65
59
60
20
52,159
52,175
71,949
20,568
1,096.3
1,253.0
1,638.1
1,406.4
822.3
928.7
1,237.7
1,059.6
Source: ISE
(1)
Translated for each day using daily historical exchange rates.
(2)
Expressed in New Turkish Lira.
FOREIGN INVESTMENT AND EXCHANGE CONTROLS
Until the promulgation of Decrees 28 and 30 on the Protection of the Value of the Turkish Currency in 1983, which
granted Turkish citizens limited rights to hold and trade foreign currencies, Turkish exchange regulations strictly controlled
exchange movements. After the establishment of a foreign exchange market in August 1988, the exchange rate of the Turkish
Lira began to be determined by market forces, and today, banks in Turkey set their own foreign exchange rates independently of
those announced by the Central Bank. Pursuant to Decree 32, issued in August 1989 and amended in June 1991, the
Government abolished restrictions on the convertibility of the Turkish Lira by facilitating exchange of the proceeds of
transactions in Turkish securities by foreign investors, enabling Turkish citizens to purchase securities on foreign securities
exchanges, permitting residents and non-residents to buy foreign exchange without limitation and to transfer such foreign
exchange abroad, and permitting Turkish companies to invest abroad, without ministerial approval, up to $5 million.
Decree 32 provides that persons not resident in Turkey may purchase and sell shares of Turkish companies provided
that such transactions are effected through a Turkish bank or broker which are required to carry out trades of listed securities
solely on the exchange. Decree 32 further provides that a non-resident person may freely repatriate dividends received and
proceeds of their sale in respect of such shares. Decree 32 requires that the dividends received and the proceeds of sale of the
shares be transferred through Turkish banks or special finance institutions.
Law No. 4875 on Direct Foreign Investments, which replaced the Law No. 6224 on June 17, 2003, defines foreign
direct investment as, among other things, share acquisitions, outside a stock exchange or through a stock exchange, where the
foreign investor owns 10% or more of the shares or voting power. Pursuant to Law No. 4875 foreign investment in Turkey is no
longer subject to prior approval. The earlier legislation required foreign investors to invest a minimum amount of $50,000 per
foreign investor, submit a number of documents evidencing the status of the foreign investor and obtain the prior approval of the
Foreign Investment Directorate. As a result of the adoption of Law No. 4875, and subject to the provisions of Decree 32, foreign
investors are now subject to the same requirements as domestic investors when investing in a Turkish company.
Law No. 4875 requires a public Turkish company to notify the Foreign Investment Directorate in the event nonresident holders acquire 10% or more of the share capital or voting rights of such public company. Also, the Capital Markets
Law requires shareholders that become direct or indirect holders of 5%, 10%, 15%, 20%, 25%, 33 1⁄3%, 50%, 66 2⁄3% or 75% or
more of the issued share capital or voting rights of a public company in Turkey to notify the CMB and the ISE of such
acquisition and of their subsequent transactions in the shares or voting rights of such company until the total number of shares or
voting rights of such public company traded falls below such thresholds. The names, domiciles and the number of shares or
voting rights purchased by such investors must be provided to the CMB and ISE. The identity of such investors is publicly
disclosed in Turkey by the ISE.
Under Turkish law, Turkish citizens are permitted to buy unlimited amounts of foreign currency from banks and to
hold foreign exchange in corporate banks. Capital transfers outside of Turkey of more than $5 million for the purpose of setting
up a representative office, branch or subsidiary or participating in an existing company, however, continue to require permission
from the Ministry to which the Undersecretariat of Treasury is attached.
TAXATION
The following discussion is a summary of certain Turkish tax and U.S. federal income tax considerations relating to an
investment in our Class C Shares. The discussion is based on current law and is for general information only. The discussion
below is not intended to constitute a complete analysis of all tax consequences relating to ownership of our shares. You should
consult your own tax advisors concerning the tax consequences of your particular situation. The discussion is based upon laws
and relevant interpretations thereof in effect as at the date of this offering memorandum, all of which are subject to change,
possibly with retroactive effect.
The Republic of Turkey
The following summary of certain Turkish tax matters as in force on the date of this offering memorandum describes
the principal tax consequences of the purchase, ownership and disposition of the Class C Shares. It is not a complete description
of all the possible tax consequences of such purchase, ownership and disposition. You should consult your own tax advisors
concerning the Turkish and other tax consequences of your particular situation.
Taxation of Individuals
The legal framework governing the taxation of personal income is provided by Income Tax Law (Numbered 193).
Personal income includes seven categories of income: commercial earnings, agricultural earnings, wage and salary income,
independent professional service income, income from real estate, dividend and interest income, and other earnings and gains.
Turkish Income Tax Law imposes two different types of income tax liability. Individuals with Full Tax Liability
("Resident Individuals") are taxed on their world-wide income, and Individuals with Limited Tax Liability ("Non-Resident
Individuals") are taxed only on income earned in Turkey.
Non-resident individuals are individuals who are not domiciled in Turkey. Article 4 of the Income Tax Law defines
domicile. Individuals residing in Turkey, and individuals that do not reside in Turkey but live in Turkey for more than six
months within a calendar are treated as domiciled in Turkey under Article 4 of the Income Tax Law. Pursuant to these
provisions non-resident individuals are generally individuals who do not have a residence in Turkey or live in Turkey less than
six months within a calendar year. Non-Resident Individuals are taxed only on income earned in Turkey.
The following types of individuals are taxed on all their earnings and revenue earned in Turkey and abroad and are
deemed as Resident Individuals:
•
Persons settled in Turkey, and
•
Turkish citizens associated with government offices and institutions or with organizations and enterprises whose
headquarters are located in Turkey and who reside in foreign countries as a result of the business of such offices,
institutions, organizations and enterprises. (Persons who are held liable for an income tax or similar tax because of
earnings and revenue acquired in the country where they are located are not separately taxed on such earnings and
revenue.)
"Settlement in Turkey" means individuals whose residences are in Turkey. "Residence" is defined in Article 19 and
subsequent Articles of the Civil Code and includes individuals who reside in Turkey for more than six months during one
calendar year (temporary departures do not terminate the residence period).
Article 5 of the Income Tax Law sets forth exceptions the definition of domicile. Individuals (including expatriates)
who are considered non-resident individuals because they do not have a residence in Turkey, but live in Turkey more than six
months within a calendar year will not be considered domiciled in Turkey if their presence in Turkey is based on a well defined
and temporary job and duty. In other words, individuals that meet this exception will be taxed as non-resident individuals.
Effective rates of Turkish income tax vary from 15% to 35%. Income tax rates for income received by individuals in
2006 are set forth below:
YTL0
— YTL7,000......................................................................................................................
YTL7,000
— YTL18,000....................................................................................................................
YTL18,000
— YTL40,000....................................................................................................................
YTL40,000 and more......................................................................................................................................
15%
20%
27%
35%
Taxation of Corporations
Corporate tax is assessed on the basis of Corporation Tax Law (Numbered 5422). The Corporation Tax Law applies to
profits earned by corporations, cooperatives, state-owned companies, economic enterprises owned by associations and
foundations, and mutual funds and investment trusts governed by the Capital Market Law. Corporations are subject to Turkish
corporate tax at the effective rate of 30 percent. Under the draft Corporate Tax Code that is currently under discussion and is
expected to become effective retroactively from January 1, 2006, the corporate tax rate would decrease to 20%.
Two types of corporate tax liability are imposed by the Corporation Tax Law: "full" and "limited" liability. Those with
a "full" corporate tax liability are corporate entities ("Resident Entities") whose legal or business headquarters is located in
Turkey. Corporate entities subject to full tax liability are responsible for the declaration and the payment of taxes on their worldwide corporate income. Corporate entities subject to limited tax liability are corporate entities that have no legal or business
headquarters in Turkey ("Non-Resident Entities"). Corporate entities subject to limited tax liability are liable for taxes only on
corporate income earned in Turkey.
Dividend and Capital Gain Defined
Under the Income Tax Law dividends, interest, dividends paid against profit/loss sharing certificates, and similar
income are defined as dividend and interest income, income from the sale of the securities is defined as capital gain.
Distributions on Our Class C Shares
Dividends distributed by us are subject to an income withholding tax of 10% if they are paid to shareholders that are
Resident Individuals, Non-Resident Individuals, or Non-Resident Entities which do not hold such shares through a permanent
establishment or permanent representative in Turkey. However, the following is not subject to any withholding: (a) dividends
distributed related to year 1998 and previous years' corporate profits, (b) dividends distributed with respect to corporate
exempted income between years 1999-2002 and (c) dividends distributed under the scope of Temporary article 61 of Income
Tax Law. Under the Turkish Income Tax Law, the bonus share distributions are not subject to withholding tax.
If a double taxation treaty is in effect between Turkey and the resident country of a Non-Resident Individual or NonResident Entity, and that treaty provides for the application of a rate of income withholding tax on dividends that is lower than
the rate imposed by the Turkish Income Tax Law, then such Individual or Entity will benefit from the lower withholding tax rate
mentioned in the double taxation treaty. However, the Turkish withholding tax rate of 10% is generally lower than (or equal to)
the rates provided in most of the double tax treaties that Turkey has signed. Therefore in most cases the application of a lower
withholding tax rate based on the double tax treaties is not currently possible.
Within the framework of the taxation regime, withholding tax is the final tax for dividend income earned by NonResident Individuals/Entities. Non-Resident Individuals/Entities with or without any permanent establishment or permanent
representative in Turkey are not required to file an annual or discrete/special tax return for gains that are taxed by withholding.
On the other hand Resident Individuals are required to file an annual tax return for their dividend income. 1⁄2 of the
gross amount of cash dividends gained by Resident Individuals from Resident Entities are exempt from income tax. If the
remaining amount exceeds the threshold amount YTL18,000 for the year 2006 together with certain other income (i.e., salaries,
income from movable property and real estate income), this all remaining amount should be declared by annual tax return.
Withholding tax charged on total gross dividend will be credited against income tax calculated. Dividends distributed related to
year 1998 and previous years' corporate profits are not subject to declaration. Dividends distributed over the corporate exempted
income between years 1999-2002 and dividends gained under the scope of Temporary Article 61 of Income Tax Law must be
annually declared in the following manner: 1⁄2 of the dividend amount + 1⁄9 of the dividend amount is subject to declaration, but
1
⁄5 of the declared income is deducted from income tax calculated. Bonus share distributions are not subject to declaration.
Dividend income obtained by Resident Entities from a resident entity is not subject to withholding tax and also
exempted from corporate tax.
Sale, Exchange, or Other Disposition of the Class C Shares
According to an amendment made to the Income Tax Law by Law number 5281 ("Amendment 5281") published in
Official Gazette dated December 31, 2004, the taxation and declaration methods for capital gains derived from disposal of shares
listed on the Istanbul Stock Exchange through authorized intermediary banks and brokerage houses have been changed
significantly. These changes have become effective on January 1, 2006, and will be valid for the ten year period between
January 1, 2006 and December 31, 2015. There will be no change in the taxation of dividend income and dividends will
continue to be subject to 10% withholding tax.
Under Amendment 5281, capital gains from the sale, exchange or other disposition of our Class C Shares through the
intermediation of banks and brokerage houses will be subject to 15% withholding tax which would be the final tax for NonResident Individuals/Entities. However, the provisions of applicable double tax treaties should also be taken into consideration
where the treaty benefits should be applied at source.
Gains from the sale, exchange, or other disposition of our Class C Shares by a Non-Resident Individual/Entity are
subject to 15% withholding tax in Turkey if (i) the sale, exchange, or other disposition takes place in Turkey; or (ii) payment is
made in Turkey; or (iii) payment is made outside of Turkey and transferred (A) to the payer's account in Turkey, or (B) to the
payee's account in Turkey ("Turkish Gains").
Additionally, gains from the sale, exchange, or other disposition of our Class C Shares by Resident Individuals and
Turkish Gains of Non-Resident Individuals are subject to 15% withholding tax unless the sale, exchange, or other disposition
that takes place after one year from the acquisition date of such shares.
Gains from the sale, exchange, or other disposition of our Class C Shares by Resident Entities and Turkish Gains of
Non-Resident Entities are subject to taxation regardless of how long the Class C Shares were held. However, Resident Entities
may benefit from a corporate tax exemption with respect to Class C Shares that they hold at least 2 years and provided that
certain conditions are met. Furthermore, the provisions of applicable double taxation treaties should also be taken into
consideration for the gains of Non-Resident Entities.
Non-Resident Individuals/Entities are not required to file annual or discrete/special tax returns for gains on Class C
Shares that are taxed by withholding.
On the other hand, voluntary annual tax returns may be given on a calendar year basis for gains derived from Class C
Shares subject to withholding tax. Losses can be offset against capital gains realized from the trading of securities of the same
kind by way of such voluntary tax returns since the losses cannot be carried forward to future years. While the wording of the
regulation currently provides that voluntary declarations can only be given by resident and non-resident individuals, there is an
expectation that the Ministry of Finance will interpret these rules to also apply to non-resident entities.
Withholding tax liability is a liability of intermediary banks and brokerage houses that make payments to beneficial
owners of Shares. Declarations with respect to withholding tax liability are filed quarterly by the intermediary banks or
brokerage houses. If a holder transfers Class C Shares from one brokerage house to another, the receiving brokerage house must
be informed of the purchase date and the value of such Shares in order to be able to take such information into account in the
calculation of withholding tax. However, notification regarding purchase date and value may also be filed with the Ministry of
Finance if Shares are transferred from one beneficial owner to another or physical delivery is made.
Taxation of Investment and Mutual Funds
As of January 1, 2006, the corporate tax exemption set forth in the Corporate Tax Law for non-resident investment
funds are abolished and non-resident investment funds are subject to same taxation principles as other Non-Resident Entities.
However, corporate tax exemption for non-resident invest funds continues to apply for shares purchased before January 1, 2006.
Stamp Taxes
According to the Turkish Stamp Tax Law (Law No. 488), all agreements and documents which reference a monetary
amount are subject to a 0.75 percent stamp tax on an aggregated basis. Among other things, loan agreements with banks and
foreign credit institutions (whether on a cash or non-cash basis), company establishments, and capital increases are now exempt
from stamp duty. The amount of stamp tax per document may not exceed a maximum of YTL878,400. According to Article l(a)
of the Council of Ministers Decree No. 94/6035, the stamp tax rate is 0 percent for underwriting agreements. Any such
agreement or document executed outside Turkey is not subject to Turkish stamp tax unless it is presented as evidence before a
Turkish Court or a government authority or its provisions are benefited in Turkey.
Turkish Tax Treaties
Turkey has double taxation treaties in effect with certain European countries. Many of these treaties provide, subject to
a one year holding period, for non-taxation in Turkey of capital gains on the Shares. Additionally, treaties with the United States
of America, The Netherlands, Belgium and Italy provide an exemption regardless of the length of the holding period for capital
gains derived by residents of these countries as a result of sale of the shares of a Turkish corporation to a Turkish resident,
provided that the shares are quoted on the Istanbul Stock Exchange.
As of April 2006, Turkey has relevant double taxation treaties in effect with the following countries:
Albania
Iran
Poland
Algeria
Austria
Azerbaijan
Bangladesh
Belarus
Belgium
Bulgaria
China
Croatia
The Czech Republic
Denmark
Egypt
Estonia
Finland
France
Germany
Greece
Hungary
India
Indonesia
Israel
Italy
Japan
Jordan
Kazakhstan
Kuwait
Kyrgyzstan
Latvia
Lithuania
Luxembourg
Macedonia
Malaysia
Moldova
Mongolia
Morocco
The Netherlands
Turkish Republic of
Northern Cyprus
Norway
Pakistan
Romania
Saudi Arabia
Singapore
Slovakia
Slovenia
South Korea
Spain
Sudan
Sweden
Syria
Tajikistan
Thailand
Tunisia
Turkmenistan
Ukraine
United Arab Emirates
United Kingdom
United States of America
Uzbekistan
Tax Treaty with the United States
A generally applicable tax treaty for the prevention of double taxation of income between Turkey and the United States
(the "Turkey-U.S. Treaty") applies to all amounts of income paid or credited.
Under Article 10 of the Turkey-U.S. Treaty, withholding tax on dividends paid to a company resident in the United
States which owns, as beneficial owner, at least 10 percent of the voting stock of a Turkish company paying the dividend is
limited to 15 percent of gross dividends paid. In all other cases, the withholding tax rate is 20 percent of the gross dividend paid.
However, in both cases, the local effective rate of 10 percent shall be withheld by a resident corporation, since the current local
withholding tax rate is lower than the Turkey-U.S. Treaty rates of 15 percent and 20 percent.
According to Article 13 of the Turkey-U.S. Treaty, for so long as the Shares are quoted on the Istanbul Stock
Exchange, capital gains derived by residents of the United States from the disposition of the Shares to a Turkish resident are not
taxable in Turkey.
United States Federal Income Taxation
The following is a description of the principal U.S. federal income tax consequences that may be relevant with respect
to the acquisition, ownership and disposition of our Class C Shares. This description addresses only the U.S. federal income tax
considerations of holders that are initial purchasers of our Class C Shares pursuant to the offering and that will hold such Class C
Shares as capital assets. Except to the extent set forth below, this description does not address state, local, foreign or other tax
laws or tax considerations applicable to holders that may be subject to special tax rules, including:
•
banks, financial institutions or insurance companies;
•
real estate investment trusts, regulated investment companies or grantor trusts;
•
dealers or traders in securities or currencies;
•
tax-exempt entities;
•
persons that received our Class C Shares as compensation for the performance of services;
•
persons that will hold our Class C Shares as part of a "hedging" or "conversion" transaction or as a position in a
"straddle" for U.S. federal income tax purposes;
•
persons that have a "functional currency" other than the U.S. dollar;
•
certain former citizens or long-term residents of the United States; or
•
holders that own or are deemed to own 10% or more, by voting power or value, of our shares.
Moreover, this description does not address the U.S. federal estate and gift or alternative minimum tax consequences of
the acquisition, ownership and disposition of our Class C Shares.
This description is based on the Internal Revenue Code of 1986, as amended (the "Code"), existing, proposed and
temporary U.S. Treasury Regulations and judicial and administrative interpretations thereof, in each case as in effect and
available on the date hereof.
All of the foregoing are subject to change, which change could apply retroactively and could affect the tax
consequences described below.
For purposes of this description, a "U.S. Holder" is a beneficial owner of our Class C Shares that, for U.S. federal
income tax purposes, is:
•
a citizen or resident of the United States;
•
a partnership or corporation created or organized in or under the laws of the United States or any state thereof,
including the District of Columbia;
•
an estate the income of which is subject to U.S. federal income taxation regardless of its source; or
•
a trust if such trust validly elects to be treated as a U.S. person for U.S. federal income tax purposes or if (1) a court
within the U.S. is able to exercise primary supervision over its administration and (2) one or more U.S. persons
have the authority to control all of the substantial decisions of such trust.
A "Non-U.S. Holder" is a beneficial owner of our Class C Shares that is not a U.S. Holder.
If a partnership (or any other entity treated as a partnership for U.S. federal income tax purposes) holds Class C Shares,
the tax treatment of a partner in such partnership will generally depend on the status of the partner and the activities of the
partnership. Such a partner should consult its tax advisor as to its tax consequences.
You should consult your own tax advisor with respect to the U.S. federal, state, local and foreign tax
consequences of acquiring, owning or disposing of our Class C Shares.
Internal Revenue Service Circular 230 Disclosure
Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the description set forth herein
with respect to U.S. federal tax issues was not intended or written to be used, and such description cannot be used, by
any taxpayer for the purpose of avoiding any penalties that may be imposed on the taxpayer under the U.S. Internal
Revenue Code. Such description was written to support the marketing of the Class C Shares. Such description is limited
to the U.S. federal tax issues described herein. It is possible that additional issues may exist that could affect the U.S.
federal tax treatment of the Class C Shares, or the matter that is the subject of the description noted herein, and such
description does not consider or provide any conclusions with respect to any such additional issues. Taxpayers should
seek advice based on the taxpayer's particular circumstances from an independent tax advisor.
Distributions
Subject to the discussion below under "—Passive Foreign Investment Company Considerations," if you are a U.S.
Holder, for U.S. federal income tax purposes, the amount of any distribution made to you of cash or property, other than certain
distributions, if any, of our Class C Shares distributed pro rata to all our shareholders, with respect to your Class C Shares will be
includible in your income as dividend income to the extent such distributions are paid out of our current or accumulated earnings
and profits as determined under U.S. federal income tax principles. Subject to the discussion below under "—Passive Foreign
Investment Company Considerations," non-corporate U.S. Holders generally may be taxed on such distributions at the lower
rates applicable to long-term capital gains for taxable years beginning on or before December 31, 2008. However, a U.S.
Holder's eligibility for such preferential rate would be subject to certain holding period requirements, the non-existence of
certain risk reduction transactions with respect to the shares and our qualification for the benefit of the Turkey-U.S. Treaty. Such
dividends will not be eligible for the dividends received deduction generally allowed to corporate U.S. Holders. Subject to the
discussion below under "—Passive Foreign Investment Company Considerations," to the extent, if any, that the amount of any
distribution by us exceeds our current and accumulated earnings and profits as determined under U.S. federal income tax
principles, it will be treated first as a tax-free return of your adjusted tax basis in your Class C Shares and thereafter as capital
gain. We do not maintain calculations of our earnings and profits under U.S. federal income tax principles.
If you are a U.S. Holder, and we pay a dividend in New Turkish Lira, any such dividend will be included in your gross
income in an amount equal to the U.S. dollar value of New Turkish Lira on the date of receipt. The amount of any distribution of
property other than cash will be the fair market value of such property on the date of distribution.
If you are a U.S. Holder, dividends paid to you with respect to your Class C Shares will be treated as foreign source
income, which may be relevant in calculating your foreign tax credit limitation. If you are a U.S. Holder, you may not be eligible
for a foreign tax credit against your U.S. federal income tax liability for Turkish taxes withheld by us. If you are eligible for a
foreign tax credit against your U.S. federal income tax liability for Turkish taxes withheld by us, you generally will be required
to include in income the gross amount of any distribution made to you, before reduction for any Turkish taxes withheld
therefrom. If you are a U.S. Holder and are not eligible for a foreign tax credit for Turkish taxes withheld by us, while the
treatment of such Turkish taxes is unclear, you should be entitled to either exclude the amount of Turkish taxes withheld by us
from your gross income, or to deduct the amount of Turkish taxes withheld by us from your gross income, in calculating your
U.S. federal income tax liability. The limitation on foreign taxes eligible for credit is calculated separately with respect to
specific classes of income. For this purpose, dividends that we distribute generally will constitute "passive income," or, in the
case of certain U.S. Holders, "financial services income." U.S. Holders should note that the "financial services income" category
will be eliminated with respect to taxable years beginning after December 31, 2006, and the foreign tax credit limitation
categories after such time will be limited to "passive category income" and "general category income."
Subject to the discussion below under "—Backup Withholding Tax and Information Reporting Requirements," if you
are a Non-U.S. Holder, you generally will not be subject to U.S. federal income or withholding tax on dividends received by you
on your Class C Shares, unless you conduct a trade or business in the United States and such income is effectively connected
with that trade or business.
Sale or Exchange of Class C Shares
Subject to the discussion below under "—Passive Foreign Investment Company Considerations," if you are a U.S.
Holder, you generally will recognize gain or loss on the sale or exchange of your Class C Shares equal to the difference between
the amount realized on such sale or exchange and your adjusted tax basis in your Class C Shares. Such gain or loss will be
capital gain or loss. If you are a noncorporate U.S. Holder, the maximum marginal U.S. federal income tax rate applicable to
such gain will be lower than the maximum marginal U.S. federal income tax rate applicable to ordinary income (other than
certain dividends) if your holding period for such Class C Shares exceeds one year (i.e., long-term capital gains). Gain or loss, if
any, recognized by you generally will be treated as U.S. source income or loss for U.S. foreign tax credit purposes. The
deductibility of capital losses is subject to limitations.
If you are a U.S. Holder, the initial tax basis of your Class C Shares will be the U.S. dollar value of the New Turkish
Lira denominated purchase price determined on the date of purchase. If your Class C Shares are treated as traded on an
"established securities market," a cash basis U.S. Holder, or, if it elects, an accrual basis U.S. Holder, will determine the dollar
value of the cost of such Class C Shares by translating the amount paid at the spot rate of exchange on the settlement date of the
purchase. If you convert U.S. dollars to New Turkish Lira and immediately use that currency to purchase Class C Shares, such
conversion generally will not result in taxable gain or loss to you.
With respect to the sale or exchange of Class C Shares, the amount realized generally will be the U.S. dollar value of
the payment received determined on the date of sale or disposition. If the Class C Shares are treated as traded on an "established
securities market," a cash basis taxpayer, or, if it elects, an accrual basis taxpayer, will determine the United States dollar value
of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.
As described under "—The Republic of Turkey—Sale, Exchange or Other Disposition of the Class C Shares," under
current law if you are a U.S. Holder, you may be subject to Turkish tax upon the disposition of the Class C Shares under certain
circumstances. The U.S. foreign tax credit with respect to such Turkish tax may be limited because the gain may be treated as
U.S. sourced. However, if you are a resident of the United States for purposes of the Treaty who is eligible for the benefits of the
Treaty, you may be exempt from such Turkish tax.
Subject to the discussion below under "—Backup Withholding Tax and Information Reporting Requirements," if you
are a Non-U.S. Holder, you generally will not be subject to U.S. federal income or withholding tax on any gain realized on the
sale or exchange of such Class C Shares unless:
•
such gain is effectively connected with your conduct of a trade or business in the United States; or
•
you are an individual and have been present in the United States for 183 days or more in the taxable year of such
sale or exchange and certain other conditions are met.
Passive Foreign Investment Company Considerations
A Non-U.S. corporation will be classified as a "passive foreign investment company," or a PFIC, for U.S. federal
income tax purposes in any taxable year in which, after applying certain look-through rules, either
•
at least 75% of its gross income is "passive income"; or
•
at least 50% of the average gross value of its assets is attributable to assets that produce "passive income" or are
held for the production of passive income.
Passive income for this purpose generally includes dividends, interest, royalties, rents and gains from commodities and
securities transactions.
Based on certain estimates of its gross income and gross assets and the nature of its business, we believe that we will
not be classified as a PFIC for the taxable year ending December 31, 2005 and we do not expect to become a PFIC for the
taxable year ending December 31, 2006. Our status in future years will depend on our assets and activities in those years. We
have no reason to believe that our assets or activities will change in a manner that would cause us to be classified as a PFIC, but
there can be no assurance that we will not be considered a PFIC for any taxable year. If we were a PFIC, and you are a U.S.
Holder, you generally would be subject to imputed interest charges and other disadvantageous tax treatment (including the
denial of the taxation of such dividends at the lower rates applicable to long-term capital gains, as discussed above under
"Distributions") with respect to any gain from the sale or exchange of, and certain distributions with respect to, your Class C
Shares.
If we were a PFIC, you could make a variety of elections that may alleviate certain of the tax consequences referred to
above, and one of these elections may be made retroactively. However, it is expected that the conditions necessary for making
certain of such elections will not apply in the case of our Class C Shares. You should consult your own tax advisor regarding the
tax consequences that would arise if we were treated as a PFIC.
Backup Withholding Tax and Information Reporting Requirements
U.S. backup withholding tax and information reporting requirements generally apply to certain payments to certain
noncorporate holders of stock. Information reporting generally will apply to payments of dividends on, and to proceeds from the
sale or redemption of, Class C Shares made within the United States, or by a U.S. payor or U.S. middleman, to a holder of
Class C Shares, other than an exempt recipient, including a corporation, a payee that is not a U.S. person that provides an
appropriate certification and certain other persons. A payor will be required to withhold backup withholding tax from any
payments of dividends on, or the proceeds from the sale or redemption of, Class C Shares within the United States, or by a U.S.
payor or U.S. middleman, to a holder, other than an exempt recipient, if such holder fails to furnish its correct taxpayer
identification number or otherwise fails to comply with, or establish an exemption from, such backup withholding tax
requirements. The backup withholding tax rate is 28% for years through 2010.
In the case of such payments made within the United States to a foreign simple trust, a foreign grantor trust or a foreign
partnership, other than payments to a foreign simple trust, a foreign grantor trust or a foreign partnership that qualifies as a
"withholding foreign trust" or a "withholding foreign partnership" within the meaning of the applicable U.S. Treasury
Regulations and payments to a foreign simple trust, a foreign grantor trust or a foreign partnership that are effectively connected
with the conduct of a trade or business in the United States, the beneficiaries of the foreign simple trust, the persons treated as
the owners of the foreign grantor trust or the partners of the foreign partnership, as the case may be, will be required to provide
the certification discussed above in order to establish an exemption from backup withholding tax and information reporting
requirements. Moreover, a payor may rely on a certification provided by a payee that is not a U.S. person only if such payor does
not have actual knowledge or a reason to know that any information or certification stated in such certificate is incorrect.
The above description is not intended to constitute a complete analysis of all tax consequences relating to
acquisition, ownership and disposition of our Class C Shares. You should consult your own tax advisor concerning the
tax consequences of your particular situation.
PLAN OF DISTRIBUTION
Credit Suisse is acting as global co-ordinator and international bookrunner of the international offering and as
representative of the international underwriters (the "underwriters") named below. Subject to the terms and conditions stated in
the underwriting agreement among us, the selling shareholders and the underwriters dated the date of this offering
memorandum, each underwriter named below has agreed, severally but not jointly, with the selling shareholders, to purchase the
number of Class C Shares set forth opposite the underwriter's name in the table below.
Number of
Class C Shares
Underwriters:
Credit Suisse Securities (Europe) Limited ...........................................................................................................
Bank Austria Creditanstalt AG.............................................................................................................................
Lehman Brothers International (Europe) .............................................................................................................
İş Yatırım Menkul Değerler A.Ş. .........................................................................................................................
Total ......................................................................................................................................................................
2,737,534,200
342,191,800
342,191,800
—
3,421,917,800
The underwriting agreement provides that the obligations of the underwriters to purchase the Class C Shares are subject
to approval of legal matters by counsel and to other conditions. The underwriters must purchase all the Class C Shares to be
offered if they purchase any of the Class C Shares to be offered.
Our portion of the total estimated expenses of the offering will be approximately YTL1.5 million, which represents
CCSD's pro rata portion, as a selling shareholder, of the total estimated expenses of the offering. In addition, the selling
shareholders will pay to the underwriters a combined management, selling and underwriting commission equal to 2.09% of the
total proceeds of the offering. In addition, Credit Suisse will be awarded an additional discretionary incentive fee of 0.5% of the
total proceeds of the offering. Therefore, the underwriters will receive in connection with this offering total commissions of
YTL9.5 million. If the over-allotment option is exercised in full, the underwriters will receive an additional YTL1.4 million in
total commissions.
The Class C Shares are proposed to be sold at the offer price set forth on the cover page of this offering memorandum
within the United States to qualified institutional buyers (as defined in Rule 144A) in reliance on Rule 144A and outside the
United States in reliance on Regulation S.
Concurrently with the international offering, the selling shareholders are offering for sale 1,610,314,300 Class C Shares
in a public offering to retail and institutional investors in Turkey. The Turkish offering is being made pursuant to a Turkish
prospectus. İş Investment is the lead manager of the Turkish offering, pursuant to an underwriting and consortium agreement
with a syndicate of Turkish financial institutions, for which İş Investment is acting as the domestic bookrunner. As part of the
Turkish offering, our employees and distributors in Turkey and the employees of our principal shareholders and their affiliated
companies in Turkey will be entitled to buy up to 50,322,321 Class C Shares at a 3% discount to the offer price.
In addition, The Coca-Cola Export Corporation and Özgörkey Holding A.Ş. have granted to the underwriters of both
the international offering and the Turkish offering an over-allotment option, which, due to applicable Turkish law requirements,
is exercisable only upon notice by İş Investment for the period commencing on the last day of the bookbuilding period for the
Turkish offering and ending 30 days after the commencement of trading of the Class C Shares on the ISE. Pursuant to the overallotment option, İş Investment, subject to consultation and approval of Credit Suisse, to the extent permitted by applicable laws
and regulations, may require The Coca-Cola Export Corporation and Özgörkey Holding A.Ş. to sell up to 638,122,400 and
115,400,000 additional Class C Shares, respectively, at the price per Class C Share set out above less the commissions set out
above, solely to cover over-allotments, if any, made in connection with the offering.
The Class C Shares have not been and will not be registered under the Securities Act or any state securities laws and
may not be offered or sold within the United States, except in transactions exempt from, or not subject to, the registration
requirements of the Securities Act.
In addition, until 40 days after the commencement of this offering, an offer or sale of Class C Shares within the United
States by a dealer that is not participating in this offering may violate the registration requirements of the Securities Act if that
offer or sale is made otherwise than in accordance with Rule 144A.
No action has been or will be taken in any jurisdiction other than Turkey that would permit a public offering of our
Class C Shares, or the possession, circulation or distribution of this offering memorandum or any other material relating to us or
our Class C Shares in any jurisdiction where action for that purpose is required. Each underwriter has agreed that it will not,
directly or indirectly, offer or sell any of our Class C Shares or distribute or publish any offering material or advertisements in
connection with our Class C Shares in or from any jurisdiction, except under circumstances that will result in compliance with
all applicable laws and regulations.
In relation to each Member State of the EEA which has implemented the Prospectus Directive (each, a "Relevant
Member State") an offer to the public of any Class C Shares which are the subject of the offering contemplated by this offering
memorandum may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State
of any Class C Shares may be made at any time under the following exemptions under the Prospectus Directive, if they have
been implemented in that Relevant Member State:
(a)
to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in securities;
(b)
to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year;
(2) a total balance sheet of more than €43,000,000; and (3) an annual net turnover of more than €50,000,000, as shown in its last
annual or consolidated accounts;
(c)
by the underwriters to fewer than 100 natural or legal persons (other than qualified investors as defined in the
Prospectus Directive) subject to obtaining the prior consent of Credit Suisse for any such offer; or
(d)
in any other circumstances falling within Article 3(2) of the Prospectus Directive,
provided that no such offer of Class C Shares shall result in a requirement for the publication by us, the selling shareholders or
any underwriter of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an "offer to the public" in relation to any Class C Shares in any
Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the
offer and any Shares to be offered so as to enable an investor to decide to purchase any Shares, as the same may be varied in that
Member State by any measure implementing the Prospectus Directive in that Member State and the expression "Prospectus
Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Each underwriter has severally represented and agreed in the underwriting agreement that:
(a)
it has only communicated or caused to be communicated and will only communicate or cause to be communicated any
invitation or inducement to engage in investment activity (within the meaning of section 21 of the FSMA) received by it in
connection with the issue or sale of any Class C Shares in circumstances in which section 21(1) of the FSMA does not apply to
CCI; and
(b)
it has complied and will comply with all applicable provisions of the FSMA with respect to anything done by it in
relation to the Class C Shares in, from or otherwise involving the United Kingdom.
We have agreed that for a period of 180 days from the date of the initial offering of the Class C Shares, we will not,
without the prior written consent of Credit Suisse: (i) offer, sell, contract to sell, pledge, charge, grant options over, or otherwise
dispose of, directly or indirectly, any shares of CCI or any securities convertible into, or exchangeable into or exercisable for,
any shares of CCI, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, any of the economic consequences of ownership of any shares of CCI or mandate any third party to do so,
or announce the intention to do so or make an announcement relating thereto.
In addition, the selling shareholders, as well as Anadolu Efes Biracılık ve Malt Sanayi A.Ş. and Efes Pazarlama ve
Dağıtım Ticaret A.Ş., have agreed that for a period of 180 days from the date of the initial offering of the Class C Shares, they
will not, without the prior written consent of Credit Suisse: (i) offer, sell, contract to sell, pledge, charge, grant options over, or
otherwise dispose of, directly or indirectly, any shares of CCI or any securities convertible into, or exchangeable into or
exercisable for, any shares of CCI, or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole
or in part, directly or indirectly, any of the economic consequences of ownership of any shares of CCI or mandate any third party
to do so, or announce the intention to do so or make an announcement relating thereto. The foregoing does not apply to the
Class C Shares to be sold by the selling shareholders pursuant to this offering memorandum or the Turkish prospectus.
In connection with this international offering and the Turkish offering, İş Investment as stabilizing manager may,
subject to consultation with and the approval of Credit Suisse, to the extent permitted by applicable laws and regulations, engage
in transactions with the objective of stabilizing the market price of the Class C Shares. In accordance with the regulations of the
CMB, stabilizing activities may only be carried on for a maximum period of 30 days following the commencement of trading of
the Class C Shares on the ISE and orders can be given only in the case the Class C Share price falls below the offer price. In
connection with such stabilization activities and during the stabilization period, İş Investment, subject to consultation with and
the approval of Credit Suisse, to the extent permitted by applicable laws and regulations, may stabilize or maintain the price of
any Class C Shares by bidding for or purchasing the Class C Shares in the open market. No representation is made as to the
magnitude or effect of any such stabilizing or other transactions and any such activities or transactions would not constitute a
guarantee of any share price. İş Investment is not obliged to engage in these activities and may under certain circumstances,
upon notice to the ISE and the CMB, discontinue these activities at any time.
Prior to this international offering, there has been no public market for our Class C Shares. The initial offer price for the
Class C Shares offered in this offering has been determined by agreement between us, the selling shareholders and the
underwriters. Among the factors considered in making such determination were the history of and the prospects for the industry
in which we compete, an assessment of our management, our present operations, the historical results of our operations and the
trend of our net sales, our prospects for future earnings, the general condition of the securities markets at the time of the offering
and the prices of similar securities of generally comparable companies. No assurance can be given as to the liquidity of the
trading market for the Class C Shares.
Prospective purchasers of the Class C Shares who do not maintain a custody account in Turkey must open a custody
account with a recognized Turkish depositary. Prospective purchasers will need to provide details of their custody accounts to
Credit Suisse no later than May 5, 2006. The Class C Shares will be delivered to the Turkish depositary accounts of the
purchasers on or about the closing date of this offering, subject to timely and satisfactory provision to Credit Suisse of account
details.
The underwriters have performed investment banking and advisory services for us from time to time for which they
have received customary fees and expenses. For example, Credit Suisse advised us in connection with the acquisition of Efes
Invest in 2005. In addition, we have in the past entered, and expect to continue to enter, into commercial banking transactions
with affiliates of Credit Suisse, CA IB and İş Investment. The underwriters may, from time to time, engage in other transactions
with us in the ordinary course of their business.
We and the selling shareholders have agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make because of any of
those liabilities.
TRANSFER RESTRICTIONS
As a result of the following restrictions, we advise you to contact legal counsel prior to making any resale, pledge or
transfer of the Class C Shares.
The offering is being made in accordance with Rule 144A and Regulation S. The Class C Shares have not been and
will not be registered under the Securities Act or with any securities regulatory authority of any state or other jurisdiction of the
United States and, accordingly, may not be offered or sold within the United States, except to QIBs in reliance on the exemption
from the registration requirements of the Securities Act provided by Rule 144A and to persons outside the United States in
accordance with Regulation S. Terms used in this section that are defined in Rule 144A or Regulation S are used herein as so
defined.
Rule 144A
Each purchaser of Class C Shares within the United States pursuant to Rule 144A, by accepting delivery of this
offering memorandum and the Class C Shares, will be deemed to have represented, agreed and acknowledged as follows:
(1)
The purchaser acknowledges that our Class C Shares have not been and will not be registered under the Securities Act
or with any securities regulatory authority of any state of the United States and are subject to significant restrictions on transfer.
(2)
The purchaser is (i) a QIB, (ii) aware, and each beneficial owner of such Class C Shares has been advised, that the sale
of such Class C Shares to it is being made in reliance on Rule 144A and (iii) acquiring such Class C Shares for its own account
or for the account of a QIB.
(3)
It agrees (or, if it is acting for the account of another person, such person has confirmed to it that such person agrees)
that it (or such person) will not offer, resell, pledge or otherwise transfer such Class C Shares except: (a) in accordance with
Rule 144A to a person whom it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account
or for the account of a QIB; (b) in an offshore transaction in accordance with Rule 903 or 904 of Regulation S; or (c) in
accordance with Rule 144 under the Securities Act (if available), in each case in accordance with any applicable securities laws
of any state of the United States. The purchaser will, and each subsequent holder is required to, notify any subsequent purchaser
from it of those Class C Shares of the resale restrictions referred to in (a), (b) and (c) above. No representation can be made as to
the availability of the exemption provided by Rule 144 for resale of the Class C Shares.
(4)
Notwithstanding anything to the contrary in the foregoing paragraphs, our Class C Shares may not be deposited into
any unrestricted depositary facility established or maintained by a depositary bank, unless and until such time as those Class C
Shares are no longer "restricted securities" within the meaning of Rule 144(a)(3) under the Securities Act.
(5)
It acknowledges that we, the Selling Shareholders, the underwriters and our and their respective affiliates will rely upon
the truth and accuracy of the acknowledgements, representations and agreements in the foregoing paragraphs. If it is acquiring
our Class C Shares for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each
such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of
each such account.
Prospective purchasers are hereby notified that sellers of our Class C Shares may be relying on the exemption
from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Regulation S
Each purchaser of our Class C Shares outside the United States pursuant to Regulation S, by accepting delivery of this
offering memorandum and the Class C Shares, will be deemed to have represented, agreed and acknowledged as follows:
(1)
It (a) is aware that the sale of our Class C Shares to it is being made pursuant to and in accordance with Rule 903 or
904 of Regulation S, (b) is, or at the time such Class C Shares are purchased will be, the beneficial owner of those Class C
Shares and (c) is purchasing such Class C Shares in an offshore transaction meeting the requirements of Regulation S.
(2)
It understands that our Class C Shares have not been and will not be registered under the Securities Act or with any
securities regulatory authority of any state of the United States.
(3)
It is not our affiliate or a person acting on behalf of such an affiliate.
(4)
It acknowledges that we, the Selling Shareholders, the underwriters and our and their respective affiliates will rely upon
the truth and accuracy of the acknowledgements, representations and agreements in the foregoing paragraphs.
Class C Shares
Subject to the limitations described below, Class C Shares may be sold and transferred by delivery. Decree 32 on the
Protection of the Value of the Turkish Currency, issued in August 1989 and amended in June 1991, provides that persons not
resident in Turkey may purchase and sell shares of Turkish companies on the condition that such transaction is effected through
a duly licensed bank or broker. The Turkish capital markets legislation requires that shares of a company quoted on a Turkish
securities exchange be traded exclusively on such exchange. The CMB has indicated that this requirement applies only to
intermediary institutions (banks or brokers) licensed for trading on the stock exchange and to trade orders placed with them by
investors. Accordingly, our shareholders that are not resident in Turkey may transfer their Class C Shares only on the ISE as
they are required to use a Turkish bank or a broker.
This offering will be registered with the CMB under the provisions of the Capital Markets Law. This registration does
not constitute a guarantee by the CMB or any other public authority with respect to the Class C Shares or CCI.
INDEPENDENT AUDITORS
The consolidated financial statements of Coca-Cola İçecek A.Ş. as of December 31, 2003, 2004 and 2005 and for the
years then ended and of Efes Sınai Yatırım Holding A.Ş. as of December 31, 2003, 2004 and 2005 and for the years then ended,
included in this offering memorandum, have been audited by Güney S.M.M.M. A.Ş., located at Büyükdere Caddesi, Beytem
Plaza No. 22 80220 Şişli, Istanbul, Turkey, as an affiliated firm of Ernst & Young International, independent auditors, as stated
in their reports appearing herein.
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon for us by White & Case LLP, our U.S.
counsel, and Derman Ortak Avukat Bürosu, our Turkish counsel. Certain legal matters in connection with this offering will be
passed upon for the underwriters by Linklaters, the underwriters' U.S. counsel, and Pekin & Bayar, the underwriters' Turkish
counsel.
INDEX TO FINANCIAL STATEMENTS
Page
CCI Consolidated Financial Statements as of and for the Years Ended December 31, 2005, 2004 and 2003
Report of Independent Auditors ................................................................................................................................................
Consolidated Balance Sheets.....................................................................................................................................................
Consolidated Income Statements ..............................................................................................................................................
Consolidated Statements of Changes in Equity ........................................................................................................................
Consolidated Cash Flow Statements .........................................................................................................................................
Notes to Consolidated Financial Statements.............................................................................................................................
Efes Invest Consolidated Financial Statements as of and for the Years Ended December 31, 2005 and 2004
Consolidated Balance Sheet ......................................................................................................................................................
Consolidated Income Statement ................................................................................................................................................
Consolidated Statement of Shareholders' Equity ......................................................................................................................
Consolidated Cash Flow Statement...........................................................................................................................................
Efes Invest Consolidated Financial Statements as of and for the Years Ended December 31, 2004 and 2003
Consolidated Balance Sheet ......................................................................................................................................................
Consolidated Income Statement ................................................................................................................................................
Consolidated Statement of Shareholders' Equity ......................................................................................................................
Consolidated Cash Flow Statement...........................................................................................................................................
F-2
F-3
F-4
F-5
F-6
F-7
F-40
F-41
F-42
F-43
F-44
F-45
F-76
F-77
F-78
F-79
F-80
F-81
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors of
We have audited the accompanying financial statements of Coca-Cola İçecek Anonim Şirketi and its subsidiaries
(collectively referred to as "the Group") which comprise the consolidated balance sheets as of December 31 2005, 2004 and
2003 and the consolidated income statements, statements of changes in equity and cash flow statements for the years then ended,
and a summary of significant accounting policies and other explanatory notes. These financial statements are the responsibility
of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with the International Standards on Auditing. Those Standards require that we
plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as
of 31 December 2005, 2004 and 2003, and of its financial performance and its cash flows for the years then ended in accordance
with International Financial Reporting Standards.
/s/ Ernst & Young
March 17, 2006
İstanbul, Turkey
Coca-Cola İçecek Anonim Şirketi CONSOLIDATED BALANCE SHEETS As at December 31, 2005, 2004 and 2003
(Currency—Thousands of New Turkish Lira (YTL) in equivalent purchasing power at December 31, 2005)
ASSETS
Current assets
Cash and cash equivalents ..............................................................................
Trade receivables ............................................................................................
Investments in securities.................................................................................
Inventories.......................................................................................................
Prepayments and other current assets.............................................................
Prepaid income taxes ......................................................................................
Total current assets.......................................................................................
Non-current assets
Investment in associate ...................................................................................
Property, plant and equipment........................................................................
Intangible assets ..............................................................................................
Deferred tax asset............................................................................................
Prepayments and other non-current assets .....................................................
Total non-current assets...............................................................................
Total assets.....................................................................................................
LIABILITIES AND EQUITY
Current liabilities
Short-term borrowings....................................................................................
Current portion of long-term borrowings.......................................................
Trade and other payables ................................................................................
Income tax payable .........................................................................................
Provisions........................................................................................................
Total current liabilities.................................................................................
Non-current liabilities
Long-term borrowings ....................................................................................
Deferred tax liability .......................................................................................
Provisions........................................................................................................
Total non-current liabilities .........................................................................
Equity
Issued capital...................................................................................................
Share Premium................................................................................................
Treasury shares ...............................................................................................
Legal reserves and retained earnings..............................................................
Minority interest..............................................................................................
Total equity....................................................................................................
Total liabilities and equity............................................................................
Notes
2005
2004
(restated)
2003
3
4
5
6
7
44,136
121,424
4,415
103,985
21,280
20,737
315,977
45,764
88,516
1,140
90,570
8,355
6,691
241,036
61,108
78,754
46,647
97,252
8,467
98
292,326
8
9
10
18
11
2,643
613,753
286,562
—
15,261
918,219
1,234,196
—
481,084
2,495
—
16,423
500,002
741,038
—
518,437
4,127
9,364
14,635
546,563
838,889
13
13
12
18
14
320,498
10,807
107,693
9,057
3,017
451,072
49,506
15,158
69,348
11,396
3,243
148,651
118,557
24,775
61,868
16,384
2,308
223,892
13
18
14
8,722
23,903
17,153
49,778
10,874
24,372
14,440
49,686
30,632
12,719
13,528
56,879
15
15
15
16
250,752
169,882
(58,556)
316,921
678,999
54,347
733,346
1,234,196
224,889
—
—
317,812
542,701
—
542,701
741,038
224,889
—
—
333,229
558,118
—
558,118
838,889
The policies and explanatory notes on pages F-7 through F-39 form an integral part of the consolidated financial statements
Coca-Cola İçecek Anonim Şirketi CONSOLIDATED INCOME STATEMENTS For the years ended December 31, 2005, 2004
and 2003 (Currency—Thousands of New Turkish Lira (YTL) in equivalent purchasing power at December 31, 2005 (Note 2))
Sales ...............................................................................
Cost of sales ...................................................................
Gross profit...................................................................
Distribution, selling and marketing expenses ...............
General and administration expenses ............................
Other operating income (expense).................................
Income from operations ..............................................
Financial (expense) income, net ....................................
Other (expense) income, net..........................................
Net gain (loss) on monetary position.............................
Income before tax.........................................................
Current income tax.........................................................
Deferred income tax.......................................................
Net income ....................................................................
Attributable to:
Equity holders of the parent...........................................
Minority interest.............................................................
Weighted average number of shares with 1 YKr par
value each....................................................................
Earnings per share.......................................................
Notes
2005
2004
(restated)
2003
17
17
1,190,399
(821,987)
368,412
(210,018)
(40,932)
(840)
116,622
(8,089)
4,727
(6,829)
106,431
(22,497)
(4,286)
79,648
1,079,356
(783,910)
295,446
(183,242)
(40,841)
3,083
74,446
(6,294)
(12,333)
18,277
74,096
(27,398)
(22,999)
23,699
923,732
(663,700)
260,032
(157,229)
(40,313)
(8,913)
53,577
25,226
4,003
18,481
101,287
(24,808)
38,543
115,022
78,880
768
79,648
23,699
—
23,699
115,022
—
115,022
22,649,439,955
0.0034
22,368,152,900
0.0011
22,368,152,900
0.0051
17
17
17
17
17
18
18
The policies and explanatory notes on pages F-7 through F-39 form an integral part of the consolidated financial statements.
Coca-Cola İçecek Anonim Şirketi CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY For the years ended
December 31, 2005, 2004 and 2003 (Currency—Thousands of New Turkish Lira (YTL) in equivalent purchasing power at
December 31, 2005)
Issued
Capital
At December 31, 2002..............
Capital contributions.................
Dividends paid ..........................
Net profit for the year ...............
At December 31, 2003..............
Dividends paid ..........................
At December 31, 2004, as
previously reported ................
Effect of correction of an error
(Note 2) ..................................
At December 31, 2004
(as restated) ............................
Issue of share capital (note 15) .
Transfer from accumulated
profits .....................................
Purchase of treasury shares.......
Dividends paid ..........................
Minority portion of net fair
value of subsidiary acquired ..
At December 31, 2005.............
Available to Equity Holders of the parent
Share
Treasury Legal Reserves and
Premium
Shares
Retained Earnings
Total
Minority
Interest
Total
Equity
224,883
6
—
—
224,889
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
235,264
—
(17,057)
115,022
333,229
(39,116)
18,016
460,147
6
(17,057)
115,022
558,118
(39,116)
18,016
—
—
—
—
—
—
—
460,147
6
(17,057)
115,022
558,118
(39,116)
18,016
224,889
—
—
312,129
537,018
—
537,018
—
—
—
5,683
5,683
—
5,683
224,889
25,736
—
169,882
—
—
317,812
—
542,701
195,618
—
—
542,701
195,618
127
—
—
—
—
—
—
(58,556)
—
(127)
—
(79,644)
—
(58,556)
(79,644)
—
—
—
—
(58,556)
(79,644)
—
—
250,752
—
—
169,882
—
—
(58,556)
—
78,880
316,921
—
78,880
678,999
53,579
768
54,347
53,579
79,648
733,346
Coca-Cola İçecek Anonim Şirketi CONSOLIDATED CASH FLOW STATEMENT For the years ended December 31, 2005,
2004 and 2003 (Currency—Thousands of New Turkish Lira (YTL) in equivalent purchasing power at December 31, 2005 (Note 2))
Cash flows from operating activities
Net profit before income tax, net gain on monetary position and minority
interest .................................................................................................................
Adjustments to reconcile net profit to net cash provided by operating
activities
Gain on disposal of property, plant and equipment ..............................................
Impairment loss on property, plant and equipment...............................................
Depreciation and amortization (including amortization of goodwill and other
intangible assets).................................................................................................
Provision for employee termination benefits, management bonus, vacation
payments .............................................................................................................
Provision for inventories, net.................................................................................
Provision for doubtful receivables.........................................................................
Impairment of goodwill .........................................................................................
Interest expense......................................................................................................
Negative goodwill..................................................................................................
Net income adjusted for non-cash items ...........................................................
(Increase) decrease in trade receivables ................................................................
(Increase) decrease in inventories..........................................................................
(Increase) decrease in other current assets ............................................................
Increase (decrease) in trade and other payables ....................................................
Interest paid............................................................................................................
Taxes paid ..............................................................................................................
(Increase) decrease in other non-current assets.....................................................
Employee termination benefits, vacation pay, management bonus payments.....
Net cash generated from operating activities ...................................................
Cash flows from investing activities
Purchase of property, plant and equipment and intangibles .................................
Proceeds from disposal of property, plant and equipment....................................
Subsidiaries acquired, net of cash (Note 2)...........................................................
Net proceeds from disposal of investments in securities ......................................
Liquidation of investments ....................................................................................
Net cash generated from (used in) investing activities ....................................
Cash flows from financing activities
Proceeds from bank borrowings............................................................................
Repayments of bank borrowings...........................................................................
Dividends paid .......................................................................................................
Treasury shares ......................................................................................................
Share capital increase.............................................................................................
Restricted cash .......................................................................................................
Net cash generated from (used in) financing activities....................................
Monetary gain on cash transactions ......................................................................
Net decrease in cash and cash equivalents ............................................................
Cash and cash equivalents at beginning of year....................................................
Cash and cash equivalents at end of period......................................................
2005
(restated)
2004
2003
113,260
55,819
82,806
(2,271)
3,111
(5,413)
2,330
(2,002)
10,915
72,670
72,884
75,231
7,592
180
1,015
2,058
11,726
(9,654)
199,687
(27,998)
10,971
(959)
21,535
(8,856)
(44,444)
750
(4,581)
146,105
8,381
93
984
—
8,333
—
143,411
(19,358)
6,589
(7,884)
640
(8,049)
(36,983)
(3,739)
(4,551)
70,076
10,766
267
1,252
—
12,715
—
191,950
14,998
6,025
(3,661)
(22,069)
(16,177)
(13,166)
(3,721)
(6,808)
147,371
(104,345)
5,309
(319,932)
(2,915)
106
(421,777)
(46,250)
15,434
—
41,752
—
10,936
(57,749)
8,623
—
(39,175)
—
(88,301)
3,657,540
(3,430,225)
(79,644)
(58,556)
195,618
—
284,733
(10,689)
(1,628)
45,764
44,136
2,562,407
(2,643,472)
(39,116)
—
—
—
(120,181)
23,825
(15,344)
61,108
45,764
548,829
(665,734)
(17,057)
—
6
3,198
(130,758)
37,963
(33,725)
94,833
61,108
Coca-Cola İçecek Anonim Şirketi NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended
December 31, 2005)
1. CORPORATE INFORMATION
General
Coca-Cola İçecek Anonim Şirketi ("CCI" or "the Company") is incorporated in Turkey. CCI was formed in June 2000
through the merger of two manufacturing companies under the trade name of "Coca-Cola İçecek Üretim Anonim Şirketi". In
December 2002, Coca-Cola İçecek Üretim Anonim Şirketi's trade name was amended to "Coca-Cola İçecek Anonim Şirketi".
The registered office address of CCI is Esentepe Mah. Erzincan Cad. No:36 Ümraniye 34776 İstanbul, Turkey.
The Group consists of the Company and its subsidiaries.
The subsidiaries of the Company included in the consolidated financial statements and its effective participation
percentages at December 31, 2005, 2004 and 2003 respectively are as follows:
Place of Principal
Incorporation Activities
Coca-Cola Satış,
Dağıtım A.Ş. ("CCSD")
Efes Sınai Yatırım
Holding A.Ş. ("Efes Sınai")
2005
Turkey Distribution and sales of CCI products in Turkey
Production, bottling, distribution and selling of
Coca-Cola products and distribution of Efes
Turkey products outside of Turkey
2004
2003
99.96% 99.96% 99.96%
87.63%
—
—
The list of CCI's indirect subsidiaries and joint venture included in the consolidated financial statements through Efes
Sınai and its effective participation percentages are as follows:
Subsidiaries
Place of
Incorporation
J.V. Coca-Cola Almaty Bottlers
Limited Liability Partnership
("Almaty CC")
Azerbaijan Coca-Cola Bottlers LLC
("Azerbaijan CC")
Coca-Cola Bishkek Bottlers Closed
Joint Stock Company
("Bishkek CC")
Efes Invest Holland BV ("Efes
Invest Holland")
Tonus Closed Joint Stock Co.
("Tonus")
The Coca-Cola Bottling Company of
Jordan Ltd. ("TCCBCJ")
Efes Sınai Dış Ticaret A. Ş. ("Efes
Sınai Dış Ticaret")
Kazakhstan
Principal
Activities
Effective Shareholding
and Voting Rights %
2005
76.71%
Holland
Production, bottling, distribution and
selling of Coca-Cola and distribution
of Efes products
selling of Coca-Cola products
selling of Coca-Cola and distribution
of Efes products
Holding company
Kazakhstan
Holding company
81.45%
Jordan
selling of Coca-Cola products
Foreign trade company located in
Tuzla Free Zone
78.87%
Azerbaijan
Kyrgyzstan
Turkey
78.78%
78.87%
87.63%
86.75%
Joint Venture
Place of
Incorporation
The Coca-Cola Bottling of Iraq
FZCO ("J.V. Dubai")
Nature of Activities of the Group
Dubai
Principal
Activities
Holding company
Effective Shareholding
and Voting Rights
2005
43.82%
The Group is a leading bottler and distributor of carbonated soft drinks and non carbonated beverages with operations
in Southern Eurasia (which is defined as Turkey, the Caucasus, and Central Asia) and the Middle East. Through The Coca-Cola
Company's ("TCCC") standard international bottler's and distribution agreements, the Company has the right to prepare and
package, exclusively distribute and sell, subject to certain exceptions, specified TCCC beverages in authorized containers
bearing TCCC's trademarks, including Coca-Cola, Coca-Cola light, Fanta, Sprite, Cappy, Sen Sun, Powerade, Burn and Turkuaz
throughout Turkey. The Bottler's and Distribution Agreements between the Company, TCCC and The Coca-Cola Export
Corporation ("TCCEC") are renewed and extended until June 30, 2016. In addition, under Bottler's and Distribution Agreements
signed between Schweppes Holdings Limited and the Company that are valid until June 30, 2016, the Company has the
exclusive right in Turkey, to prepare and distribute for sale beverages under the Schweppes trademark. Under Bottler's and
Distribution Agreements signed between Beverage Partners Worldwide (Europe) A.G. and the Company, expiring on June 30,
2006, the Company has the exclusive right in Turkey, to prepare, package and distribute for sale, beverages bearing the Nestea
and Nescafe Xpress trademark.
The operations of Efes Sınai consist of production, bottling, distribution and selling of Coca-Cola products and
distribution of Efes products in Kazakhstan, Azerbaijan, Jordan and Kyrgyzstan. Efes Sınai owns and operates four factories in
these countries. The Bottler's and Distribution agreements relating to Kazakhstan, Azerbaijan, Kyrgyzstan and Jordan will expire
in December 2010, June 2011, November 2010 and April 2009, respectively, with a possibility of extension for 5 more years. In
addition, the Bottler's and Distribution Agreement signed between Schweppes Holdings Limited and Almaty CC expired on
December 31, 2005 but was renewed and extended until December 31, 2010, with a possibility of extension for 5 more years.
TCCBCJ also signed a Bottler's and Distribution agreement with Schweppes Holdings Limited which is valid until April 30,
2009, with a possibility of extension for 5 more years.
CCI and Efes Sınai managements have declared their intention to merge the companies following the potential IPO of
CCI.
Subsidiaries and Joint Ventures
CCSD was formed in June 2000 through the merger of three sales and distribution companies under the trade name of
"Coca-Cola Satış ve Dağıtım Anonim Şirketi".
CCI purchased the 51.87% of Efes Sınai's shares owned by Anadolu Efes Biracılık ve Malt Sanayii Anonim Şirketi
(Anadolu Efes) for a cash consideration of YTL 196,045 on November 14, 2005. Following this acquisition, CCI made an
announcement for a mandatory call for the publicly traded shares representing 48.13% of Efes Sınai's shares with the permission
of the Capital Markets Board. Through the mandatory call, CCI has purchased an additional 35.76% of the shares of Efes Sınai
for a cash consideration of YTL 135,185. As a result of these transactions, CCI has become the ultimate parent of Efes Sınai by
purchasing a total of 87.63% of Efes Sınai's shares for total consideration of YTL 330,796. The consolidated income statement
of CCI for the financial year 2005 reflects the acquisition of Efes Invest from November 15, 2005. The consolidated balance
sheet on of December 31, 2005 reflects the acquisition of Efes Sınai.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The principal accounting policies adopted in preparing the consolidated financial statements of the Group are as
follows:
Basis of Preparation
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards
("IFRS"). The consolidated financial statements have been prepared on a historical cost basis, except for the measurement at fair
value of investments in securities, certain acquired property, plant and equipment and intangibles.
CCI and its subsidiaries incorporated in Turkey maintain their books of account and prepare their statutory financial
statements on a stand-alone basis in New Turkish Lira ("YTL") in accordance with the Turkish Commercial Code, Tax
Legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The subsidiaries incorporated outside of
Turkey maintain their books of account and prepare their financial statements in accordance with the regulations of the countries
in which they operate. The consolidated financial statements have been prepared from the statutory financial statements of CCI
and its subsidiaries and presented in accordance with IFRS with certain adjustments and reclassifications for the purpose of fair
presentation in accordance with IFRS. Such adjustments are primarily related to:
a)
the restatement for changes in the general purchasing power of YTL in the subsidiaries for which the functional
currency is YTL (pursuant to IAS 29 "Financial Reporting in Hyperinflationary Economies" as discussed further below),
b)
accounting for depreciation based on the useful life and period that the related property, plant and equipment are in use
(pro-rata basis),
c)
providing for doubtful receivables and inventories,
d)
providing for impaired assets,
e)
accounting for deferred taxes on temporary differences,
f)
accounting for employee termination benefits on an actuarial basis,
g)
accruals for various expenses (bonus, long-term incentive plans, vacations etc.),
h)
recognition and measurement of financial instruments,
i)
consolidation accounting.
Effect of new accounting pronouncements: On December 17, 2003, revisions to IAS 32 "Financial Instruments:
Disclosure and Presentation" and IAS 39 "Financial Instruments: Recognition and Measurement" were published. The revised
IAS 39 had to be applied for annual periods beginning on or after January 1, 2005. Earlier application was permitted only if the
revised IAS 32 was also applied early.
On December 18, 2003, the following revisions to IAS were published, which are effective on January 1, 2005:
—
—
—
—
—
—
—
—
—
—
—
—
—
IAS 1
IAS 2
IAS 8
IAS 10
IAS 16
IAS 17
IAS 21
IAS 24
IAS 27
IAS 28
IAS 31
IAS 33
IAS 40
"Presentation of Financial Statements,"
"Inventories,"
"Accounting Policies, Changes in Accounting Estimates and Errors,"
"Events after the Balance Sheet Date,"
"Property, Plant and Equipment,"
"Leases,"
"The Effects of Changes in Foreign Exchange Rates,"
"Related Party Disclosures,"
"Consolidated and Separate Financial Statements,"
"Investments in Associates,"
"Interests in Joint Ventures,"
"Earnings per Share," and
"Investment Property."
The accounting policies adopted are consistent with those of the previous financial years except that the Group has
adopted the following new/revised standards mandatory for financial years beginning on or after January 1, 2005.
IFRS 3 "Business Combinations"
IAS 36 "Impairment of Assets"—revised in 2004.
IAS 38 "Intangible Assets"—revised in 2004.
IFRS 3 has been applied for business combinations for which the agreement date is on or after March 31, 2004. The
effect of the adoption of IFRS 3 upon the Group's accounting policies has been to impact the recognition of restructuring
provisions arising upon an acquisition. The Group is now only permitted to recognize an existing liability contained in the
acquiree's financial statements on acquisition. Previously, this type of restructuring provision could be recognized by the
acquirer regardless of whether the acquiree had recognized this type of liability.
Further, upon making an acquisition the Group initially measures the identifiable assets, liabilities and contingent
liabilities acquired at their fair values as at the acquisition date. A minority interest in the acquiree is stated at the minority
proportion of the net fair values of those items.
Additionally, the adoption of IFRS 3 and IAS 36 (revised) has resulted in the Group ceasing annual goodwill
amortization and commencing testing for impairment at the cash-generating unit level annually (unless an event occurs during
the year which requires the goodwill to be tested more frequently) from January 1, 2005. Negative goodwill is accounted for in
the consolidated income statement.
Moreover, the useful lives of intangible assets are now assessed at the individual asset level as having either a finite or
indefinite life. Until the end of 2004, intangible assets were considered to have a finite useful life with a rebuttable presumption
that useful life would not exceed twenty years from the date when the asset was available for use. In accordance with the revised
IAS 38, an intangible asset is regarded as having an indefinite useful life when, based on an analysis of all of the relevant factors,
there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group.
Accordingly, the Bottlers' and Distribution Agreements to which subsidiaries of Efes Sınai are parties and which were acquired
in 2005 are considered to have an indefinite useful life.
The Group's adoption of the new IFRS and the revisions to IAS, as discussed above, does not entail any restatements of
comparative figures.
Measurement and Reporting Currency
As a result of a long period of high inflation in Turkey the Turkish Lira ("TL") ended up in large denominations,
creating difficulty in expressing and recording transactions. A new law was enacted on January 31, 2004 to introduce YTL, as
the new currency unit for the Republic of Turkey effective January 1, 2005. The conversion rate for TL against YTL is fixed at
YTL 1 to TL 1,000,000 throughout the one year period until complete phase-out of TL. The Group's functional and presentation
currency is YTL and financial statements, including comparative figures for the prior years, are presented in YTL.
The restatement for the changes in the general purchasing power of YTL as of December 31, 2005 is based on IAS 29
("Financial Reporting in Hyperinflationary Economies"). IAS 29 requires that financial statements prepared in the currency of a
hyperinflationary economy be stated in terms of the measuring unit current at the balance sheet date and the corresponding
figures for previous period/years be restated in the same terms. Determining whether an economy is hyperinflationary in
accordance with IAS 29 requires judgment as the standard does not establish an absolute rate. Instead, it considers the following
characteristics of the economic environment of a country to be strong indicators of the existence of hyperinflation: (a) the
general population prefers to keep its wealth in non-monetary assets or in a relatively stable currency and amounts of local
currency held are immediately invested to maintain purchasing power; (b) the general population regards monetary amounts not
in terms of local currency but in terms of a relatively stable currency and prices may be quoted in that currency; (c) sales and
purchases on credit take place at prices that compensate for the expected loss of purchasing power during the credit period, even
if the period is short; (d) interest rates, wages and prices are linked to a price index; and (e) the cumulative inflation rate over
three years is approaching, or exceeds, 100%.
Although as of December 31, 2005, the three-year cumulative inflation rate was 35.6% (2004 - 69.7% and 2003 181%) based on the Turkish countrywide wholesale price index published by the State Institute of Statistics, considering the
economic characteristics indicated above, IAS 29 continues to be applied in the preparation of December 31, 2005, 2004 and
2003 financial statements. The Group will cease the application of IAS 29 effective January 1, 2006.
The index and conversion factors that are used in the restatement of the financial statements in the equivalent
purchasing power of YTL at December 31, 2005 and for the preceding financial years are given below:
Dates
Index
Conversion Factors
December 31, 2003.........................................................................................................
December 31, 2004.........................................................................................................
December 31, 2005.........................................................................................................
7,382
8,404
8,786
1.190
1.045
1.000
The main guidelines for the above-mentioned restatement are as follows:
•
The consolidated financial statements of the prior years which were previously reported in terms of the measuring
unit current at the end of these years are restated in their entirety to the measuring unit current at December 31,
2005.
•
Monetary assets and liabilities reported in the consolidated balance sheet as of December 31, 2005 are not restated
because they are already expressed in terms of the monetary unit current at that balance sheet date.
•
Non-monetary assets and liabilities which are not carried at amounts current at the balance sheet date and other
components of shareholders' equity except for the statutory revaluation surplus, which is eliminated, are restated
by applying the relevant conversion factors.
•
The effect of general inflation on the net monetary position is included in the income statement as net gain/loss on
monetary position.
•
All items in the consolidated income statements are restated by applying appropriate average conversion factors
with the exception of depreciation, amortization and gain or loss on disposal of fixed assets (which have been
restated based on the restated gross book values and accumulated depreciation/amortization).
Restatement of consolidated balance sheet and consolidated income statement items through the use of the general
price index and relevant conversion factors does not necessarily mean that the Group could realize or settle the same values of
assets and liabilities as indicated in the consolidated balance sheets. Similarly, it does not necessarily mean that the Group could
return or settle the same values of equity to its shareholders.
Basis of Consolidation
The consolidated financial statements comprise the financial statements of CCI and its subsidiaries which it controls,
prepared as of December 31, 2005, 2004 and 2003. Subsidiaries are consolidated from the date on which control is transferred to
the Group and cease to be consolidated from the date on which control is transferred out of the Group. This control is normally
evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company's share capital
and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The equity and net
income attributable to minority shareholders' interests are shown separately in the consolidated balance sheet and consolidated
income statement, respectively.
Intercompany balances and transactions, including intercompany profits and unrealized profits and losses, are
eliminated. Consolidated financial statements are prepared using uniform accounting policies for like transactions and other
events in similar circumstances.
Business Combination
The acquisition of Efes Sınai on November 14, 2005 was accounted for using the purchase method of accounting in
accordance with IFRS 3. The purchase method of accounting involves allocating the cost of the business combination to the fair
value of the assets acquired and liabilities and contingent liabilities assumed at the date of the acquisition. The positive
difference amounting to YTL 36,494 between the net asset value of Efes Sınai according to fair value accounting and the
acquisition price is recorded as goodwill in the consolidated financial statements. Intangible assets amounting to YTL 243,268
which have been recognized on acquisition of Efes Sınai during the consolidation represent the Bottlers Agreements and
Distribution Agreements signed between subsidiaries of Efes Sınai and TCCC. The Company considers that based on the
relevant facts there is no foreseeable limit to the period over which such assets are expected to generate cash inflows for the
Group and that the agreements will be renewed with no significant cost. The intangible assets relating to the Bottlers and
Distribution Agreements are therefore not amortized but will be tested for impairment annually.
The fair value of identifiable assets and liabilities of Efes Sınai and the carrying value of such assets and liabilities in
Efes Sınai's books of account as at the date of acquisition were:
Cash and cash equivalents ..............................................................................................................
Investment in securities ..................................................................................................................
Trade receivables—net ...................................................................................................................
Due from related parties .................................................................................................................
Inventories—net..............................................................................................................................
Other current assets.........................................................................................................................
Investment in associate ...................................................................................................................
Property, plant and equipment—net...............................................................................................
Intangibles .......................................................................................................................................
Goodwill..........................................................................................................................................
Fair
Value
Carrying
Value
18,984
450
4,441
2,995
12,198
6,259
2,749
106,921
245,610
2,057
18,984
450
4,441
2,995
12,198
6,259
2,749
112,516
1,075
2,057
Other non-current assets .................................................................................................................
Deferred tax asset / (liabilities).......................................................................................................
Borrowings......................................................................................................................................
Trade payables—net .......................................................................................................................
Due to related parties ......................................................................................................................
Other accruals and liabilities ..........................................................................................................
Minority interest..............................................................................................................................
Fair value of identifiable net assets ................................................................................................
Shareholding percentage acquired..................................................................................................
Fair value of identifiable net assets acquired by the Group...........................................................
Total cash consideration .................................................................................................................
Fair value of identifiable net assets acquired by the Group...........................................................
Goodwill (Note 10).........................................................................................................................
Total cash consideration .................................................................................................................
Net cash acquired with the subsidiary............................................................................................
Net cash consideration ....................................................................................................................
295
3,892
(37,581)
(12,781)
(4,716)
(5,771)
(10,156)
335,846
87.63%
294,302
330,796
(294,302)
36,494
330,796
(18,984)
311,812
295
(5,489)
(37,581)
(12,781)
(4,716)
(5,771)
(10,156)
87,525
On December 29, 2005, Efes Invest Holland, a subsidiary of Efes Sınai, acquired from Atlantic Industries, an indirect
subsidiary of TCCC, 90% of the shares in TCCBCJ which exclusively conducts the Coca-Cola bottling operations in Jordan, for
an amount of YTL 8,576. The consolidated income statement of CCI for the financial year 2005 does not reflect the acquisition
of TCCBCJ. The consolidated balance sheet as of December 31, 2005 reflects the acquisition of TCCBCJ.
The fair value of identifiable assets and liabilities of TCCBCJ and the carrying value of such assets and liabilities in
TCCBCJ's books of account as of the date of acquisition were:
Current assets .....................................................................................................................................
Property, plant and equipment, net....................................................................................................
Intangible assets, net ..........................................................................................................................
Current liabilities................................................................................................................................
Fair value of identifiable assets .........................................................................................................
Shareholding percentage acquired.....................................................................................................
Fair value of identifiable net assets acquired by the Group..............................................................
Total cash consideration ....................................................................................................................
Fair value of identifiable net assets acquired by the Group..............................................................
Negative goodwill (Note 17) .............................................................................................................
Total cash consideration ....................................................................................................................
Net cash acquired with the subsidiary...............................................................................................
Net cash consideration .......................................................................................................................
Fair
Value
Carrying
Value
21,278
27,014
2,157
(30,194)
20,255
90%
18,230
8,576
(18,230)
(9,654)
8,576
(456)
8,120
21,278
24,285
—
(30,194)
15,369
Investment in Associates
The Group's investments in associates are accounted for under the equity method of accounting. The investments in
associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group's share of net assets of
the associates, less any impairment in value. The consolidated income statement reflects the Group's share of the results of
operations of the associates.
Foreign Currency Translation
The consolidated financial statements are presented in YTL, which is the Company's functional and presentation
currency. Each entity in the group determines its own functional currency and items included in the financial statements of each
entity are translated into that functional currency.
Transactions in foreign currencies are initially recorded in the functional currency rate of exchange ruling at the date of
the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate
of exchange ruling at the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial transactions.
The functional currency of Efes Sınai and the Company's foreign subsidiaries is the U.S. dollar ("USD"). As at the
reporting date, the assets and liabilities of these subsidiaries are translated into the presentation currency of CCI (YTL) at the rate
of exchange ruling at the balance sheet date and their income statements are translated at the weighted average exchange rates
for the period. For 2005, the relevant period was between the acquisition date, November 15, 2005, and December 31, 2005.
Cash and Cash Equivalents
The Group considers all liquid investments with maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents comprise cash balances, short-term deposits and checks dated on or before the relevant
period end which are readily convertible to known amounts of cash and subject to insignificant risk of changes in value.
Trade Receivables
Trade receivables, which generally have payment terms of 15-65 days, are recognized at original invoice amount less
an allowance for any uncollectible amounts. An estimate for doubtful debt is made when collection of the full amount is no
longer probable. Bad debts are written off when identified.
Investments and Other Financial Assets
When financial assets are recognized initially, they are measured at fair value, or in the case of investments not at fair
value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets
after initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year-end.
Investments that are intended to be held to maturity, such as Turkish government bonds, are subsequently measured at
amortized cost using the effective interest rate method. Amortized cost is calculated by taking into account any discount or
premium on acquisition, over the period to maturity. For investments carried at amortized cost, gains and losses are recognized
in the consolidated income statements when the investments are derecognized or impaired, as well as through the amortization
process.
After initial recognition, investments that are classified as available-for-sale are measured at fair value. Interest earned
on available-for-sale investments is reported as interest income. Gains or losses on available-for-sale investments are recognized
as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is
determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income
statement.
For available-for-sale investments that are actively traded in organized financial markets, fair value is determined by
reference to quoted market bid prices at the close of business on the balance sheet date. For investments where there is no quoted
market price, fair value is determined by reference to the current market value of another instrument which is substantially the
same or is calculated based on the expected cash flows of the underlying net asset base of the investment.
All regular way purchases and sales of financial assets are recognized on the trade date, i.e. the date that the Group
commits to purchase or to sell the asset.
Recognition and Derecognition of Financial Assets and Liabilities
The Group recognizes a financial asset or financial liability in its consolidated balance sheet when and only when it
becomes a party to the contractual provisions of the instrument. The Group derecognizes a financial asset or a portion of a
financial asset when and only when it loses control of the contractual rights that comprise the financial asset or a portion of a
financial asset. The Group derecognizes a financial liability when the obligation specified in the contract is discharged, cancelled
or expires.
Inventories
Inventories are valued at the lower of cost and net realizable value, after provision for obsolete items. Net realizable
value is the selling price in the ordinary course of business, less the costs of completion, marketing and distribution. Cost
includes all costs incurred in bringing the product to its present location and condition, and is determined primarily on the basis
of weighted average cost.
Property, plant and equipment are stated at cost less accumulated depreciation and any impairment in value. Land is not
depreciated.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Buildings and Leasehold Improvements ...................................................................................................
Machinery and Equipment.........................................................................................................................
Vehicles......................................................................................................................................................
Furniture and Fixtures................................................................................................................................
Other Tangible Assets................................................................................................................................
25 - 40 years
6 - 15 years
5 - 10 years
5 - 10 years
5 - 12 years
Other tangible assets mainly consist of premix and carbon dioxide tanks, coolers, vending machines and dispensing
equipment having estimated useful life between 9 and 12 years and also include pallets, returnable bottles and cases, which are
depreciated over 5 years. The deposit liabilities relating to such returnable bottles are reflected in trade and other payables. The
Group also sells products in non-returnable bottles in which case there is no deposit obligation.
Repair and maintenance costs are expensed as incurred. There are no repair and maintenance costs capitalized as part of
property, plant and equipment.
All costs incurred for the construction of property, plant and equipment are capitalized and are not depreciated until the
asset is ready for use.
The carrying values of property, plant and equipment are reviewed for impairment when events or changes in
circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values
exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The
recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in
use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent
cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses
are recognized in the income statement.
Intangible Assets
Intangible assets acquired separately are measured on initial acquisition at cost. The cost of an intangible asset acquired
in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at
cost less any accumulated amortization and any accumulated impairment losses. The useful lives of intangible assets are
assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful life and assessed for
impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the
amortization method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in
the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted
for by changing the amortization period or method, as appropriate, and treated as changes in accounting estimates. The
amortization expense on intangible assets with finite lives is recognized in the income statement in the expense category
associated with the function of the intangible asset.
Intangible assets with indefinite useful lives are tested for impairment annually. Such intangibles are not amortized.
The useful life of an intangible asset with an indefinite life is reviewed annually to determine whether indefinite life assessment
continues to be supportable. If not, the change in the useful life assessment from indefinite to finite is made on a prospective
basis.
Goodwill
Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable net assets of the acquired
business, at the date of acquisition. Goodwill which arose from the acquisition before March 31, 2004 was amortized on a
straight-line basis over its useful economic life up to a presumed maximum of 10 years. In accordance with IFRS 3, the Group
ceased to amortize goodwill arising from the business combinations before March 31, 2004, starting from the beginning of the
annual accounting period beginning on or after March 31, 2004 (January 1, 2005) and reviewed for impairment.
Goodwill arising from acquisitions on or after March 31, 2004 is not amortized but is reviewed for impairment
annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.
Borrowings
All borrowings are initially recognized at the fair value of the amounts received less directly attributable transaction
costs.
After initial recognition, borrowings are subsequently carried at amortized cost using the effective interest rate method.
Gains and losses are recognized in net profit or loss when the liabilities are recognized, as well as through the
amortization process.
Borrowing Costs
Borrowing costs are generally expensed as incurred.
Borrowing costs are capitalized if they are directly attributable to the acquisition, construction or production of a
qualifying asset. Capitalization of borrowing costs commences when the activities to prepare the asset are in progress and
expenditures and borrowing costs are being incurred. Borrowing costs can be capitalized until the assets are substantially ready
for their intended use. Borrowing costs include interest charges and other costs incurred in connection with the borrowing of
funds.
Leases (Group as a lessee)
(a)
Finance Lease
Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased
item, are capitalized at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the
minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as
to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against
income. Capitalized leased assets are depreciated over the estimated useful life of the asset.
(b)
Operating Lease
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as
operating leases. Operating lease payments are recognized as an expense in the income statement on a straight-line basis over the
lease term.
Income Taxes
Tax expense (income) is the aggregate amount included in the determination of net profit or loss for the period in
respect of current and deferred taxes.
Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date
between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax
liabilities are recognized for all taxable temporary differences.
Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets
and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary
differences, carry-forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income
tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable
profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the
asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the
balance sheet date.
Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets
against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.
Provisions
Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it
is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability. Where discounting is used, the increase in the provision
due to the passage of time is recognized as an interest expense.
Contingent Assets and Liabilities
A contingent asset is not recognized in the financial statements but disclosed if an inflow of economic benefits is
probable. Contingent liabilities are not recognized in the financial statements unless the possibility of an outflow of resources
embodying economic benefits is probable.
Employee Benefits
Turkish Entities
(a)
Defined Benefit Plans
The reserve for employee termination benefits is provided for in accordance with IAS 19 "Employee Benefits" and is
based on independent actuarial study. The employee termination benefits are discounted to the present value of the estimated
future cash outflows using the interest rate estimate of qualified actuaries. (See Note 14)
Full provision is made for the present value of the defined benefit obligation calculated using the "Projected Unit Credit
Method". All actuarial gains and losses are recognized in the income statement.
(b)
Defined Contribution Plans
The Group pays contributions to the Social Security Institution of Turkey on a mandatory basis. The Group has no
further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit
expense when they are due.
Foreign Subsidiaries
There are no accumulated obligations related to employee termination benefits for the subsidiaries of the Company
operating outside Turkey. Azerbaijan CC contributes to the Azerbaijan Republic state pension and social insurance funds.
Azerbaijan CC's contributions amount to approximately 22% of employees' salaries and are expensed as incurred.
Azerbaijan CC has no other plan or obligation for payment of post-retirement benefits to its employees. Bishkek CC contributes
to the Kyrgyz state pension, social insurance, medical insurance, and unemployment funds on behalf of its employees.
Bishkek CC's contributions amount to approximately 33% of employees' salaries and are expensed as incurred. Bishkek CC has
no other plan or obligation for payment of post-retirement benefits to its employees.
Almaty CC pays 21% of gross income as social insurance taxes to the Government of the Republic of Kazakhstan,
which represents its contribution to the post retirement benefits of its employees. Almaty CC also withholds and contributes
10% of the salary of its employees as the employees' contribution to their designated pension funds. Under the legislation,
employees are responsible for their retirement benefits and Almaty CC has no present or future obligation to pay its employees
upon their retirement. Almaty CC has no other plan or obligation for payment of post retirement benefits to its employees.
TCCBCJ pays 11% of employees' gross salaries along with a 5.5% deduction from gross salaries of employees as
contribution to the Jordan Social Security Department. This amount will be paid to the employees by the social security
department after their retirement. TCCBCJ has no other plan or obligation for payment of post retirement benefits to its
employees.
Offsetting
Financial assets and liabilities are offset and the net amount reported in the consolidated balance sheet when there is a
legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and
settle the liability simultaneously.
Revenue Recognition
Sale of Goods
Sales are recognized when all of the following conditions are met: evidence of a binding arrangement exists (generally
purchase orders), products have been delivered and there is no future performance required, and amounts are collectible under
normal payment terms. Sales are stated net of sales discounts and special consumption tax, listing fees and deductions relating to
contributions for marketing and promotions paid to customers.
Interest
Income is recognized as the interest accrues.
Earnings Per Share
Earnings per share are calculated by dividing net income for the period attributable to shareholders by the weighted
average number of shares outstanding during the same period. There are no outstanding instruments with dilutive effects on
earnings per share.
Treasury Shares
When an entity reacquires its own equity instruments, those instruments ("treasury shares") are deducted from equity.
No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of an entity's own equity instruments.
December 31, 2005)
Geographical Segment
For management purposes, the Group is organized into two major geographical areas, domestic and foreign. These
areas are the basis upon which the group reports its segment information. Financial information on geographical segments is
presented in Note 22.
Estimation uncertainty
The key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date
that have significant risks of causing a material adjustment to the carrying amounts of assets and liabilities within the next
financial year are discussed below:
Impairment of property, plant and equipment
The Company evaluates impairment of property, plant and equipment in accordance with the provisions of IAS 36
"Impairment of Assets". The Company records impairment losses on property, plant and equipment used in operations when
events and circumstances indicate the assets might be impaired and the discounted cash flows estimated to be generated by those
assets are less than the carrying amounts of those assets. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount.
Impairment of Goodwill
The Group determines whether goodwill is impaired at least on an annual basis. This requires an estimation of the value
in use of the cash-generating units to which the goodwill is allocated. Estimating the value in use requires the Group to make an
estimate of the expected future cash flows from the cash-generating unit and also to choose a suitable discount rate in order to
calculate the present value of those cash flows.
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements, apart
from those involving estimations, which have the most significant effect on the amounts recognized in the financial statements:
Useful life of intangible assets
Intangible assets which represent the Bottlers and Distribution Agreements as detailed in Note 2 are not amortized
since the management considers that there is no foreseeable limit to the period over which such assets are expected to generate
cash inflows for the Group and hence have an indefinite useful life.
Subsequent Events
Post period-end events that provide additional information about the Group's position at the balance sheet date
(adjusting events), are reflected in the financial statements. Post-period-end events that are not adjusting events are disclosed in
the notes when material.
Correction of Error
The Company has identified an error in the computation of the gain on disposal of fixed assets realized in the last
month of 2004. This error has been corrected retrospectively.
The effect of this restatement is summarized below:
Balances at December 31, 2004, before restatement .......................
Understated gain on disposal of fixed assets....................................
Deferred tax effect ............................................................................
Balances at December 31, 2004, restated .....................................
Property plant
and equipment,
net
Deferred tax
liability,
net
Net
income
472,966
8,118
—
481,084
21,937
—
2,435
24,372
18,016
8,118
(2,435)
23,699
3. CASH AND CASH EQUIVALENTS
Bank accounts (including short-term time deposits)..............................................................
Checks .....................................................................................................................................
Cash on hand...........................................................................................................................
Total........................................................................................................................................
2005
2004
2003
41,731
1,685
720
44,136
44,151
1,360
253
45,764
59,573
1,297
238
61,108
As of December 31, 2005, time deposits in foreign currencies equivalent to YTL 6,145 (2004—YTL 33,655 and
2003—YTL 48,590) existed for periods varying between three days to three weeks (2004—one to eight weeks and 2003—
YTL one to five weeks) and earned interest between 2.00% and 4.5% (2004—1.85% - 4.5% and 2003—YTL 0.8% - 4%).
As of December 31, 2005, time deposits in local currency amounting to YTL 26,797 (2004—YTL 8,713 and 2003—
YTL 9,678), were made for a period of three days (2004 and 2003—three days) and earned interest of 14.5% (2004—29% and
2003—26%).
4. TRADE RECEIVABLES
Accounts receivable.............................................................................................................
Receivables from related parties (Note 21).........................................................................
Notes receivable and post-dated checks..............................................................................
Other.....................................................................................................................................
Less: Allowance for doubtful receivables ...........................................................................
2005
2004
2003
119,303
4,436
4,364
395
(7,074)
80,819
4,592
5,554
72
(2,521)
70,848
259
9,490
114
(1,957)
121,424
88,516
78,754
2005
2004
2003
3,637
99
44,816
778
—
4,415
1,041
—
1,140
1,806
25
46,647
5. INVESTMENTS IN SECURITIES
Available for sale securities at fair value
Mutual funds ................................................................................................................................
Held to maturity securities at amortized cost
Government bonds—Foreign currency denominated.................................................................
Government bonds—YTL denominated.....................................................................................
As of December 31, 2005, foreign currency denominated government bonds amounting to YTL 493 (2004—
YTL 1,041 and 2003—YTL 1,806) whose maturity dates are June 23, 2006 (2004—June 24, 2005 and 2003—June 17, 2004)
and have a fixed interest rate of 4.14% (2004—2.42% and 0.9%) were kept as a reserve account, which was held as collateral by
a foreign bank for the future interest payments on a loan obtained by CCI from a foreign consortium in 1999.
6. INVENTORIES
Finished goods .....................................................................................................................
Raw materials.......................................................................................................................
Spare parts............................................................................................................................
Packaging materials .............................................................................................................
Goods in transit ....................................................................................................................
Less: Allowance for obsolescence.......................................................................................
2005
2004
2003
35,025
50,162
9,799
6,333
4,099
(1,433)
103,985
27,682
40,570
13,276
3,120
7,175
(1,253)
90,570
26,299
33,713
9,920
6,780
21,700
(1,160)
97,252
7. PREPAYMENTS AND OTHER CURRENT ASSETS
Prepayments and other current assets which are expected to be realized within twelve months consist of:
Prepaid expenses..........................................................................................................................
Value added tax receivable..........................................................................................................
Other.............................................................................................................................................
2005
2004
2003
11,325
9,434
521
21,280
4,389
3,963
3
8,355
5,480
2,585
402
8,467
Prepaid expenses consist of prepayments for health and fixed asset insurance premiums and rents.
8. INVESTMENT IN ASSOCIATE
Participations
Entity
Principal
Activities
Country of
Business
Production, bottling,
distribution and selling of
Turkmenistan CC............. Coca-Cola products
Turkmenistan
Carrying
Value
2005
Ownership
Interest (%)
Group's
Share of loss
2,643
29.14%
(365)
As of December 31, 2004 and 2003, the Group did not have any investments in associates.
9. PROPERTY, PLANT AND EQUIPMENT
Land
and
Building
s
Machiner
y
and
Equipme
nt
Vehicle
s
Furnitur
Other
Leasehold Constructio Advance
e and Tangible Improvemen
n in
s
Fixtures
Assets
ts
Progress
Given
Total
At December 31, 2002, net
of accumulated
depreciation and
impairment ........................
Additions..............................
Disposals, net .......................
Transfers...............................
Provision for impairment.....
Depreciation charge for the
current year........................
of accumulated
depreciation and
impairment ........................
Additions..............................
Disposals, net .......................
Transfers...............................
current year........................
of accumulated
depreciation and
impairment ........................
Additions..............................
Disposals, net .......................
Transfers...............................
Additions through
acquisition of subsidiary ...
current year........................
of accumulated
depreciation and
impairment ........................
December 31, 2003
179,800
3,200
(2,430)
(178)
—
264,683
9,664
16,519
2,698
(151) (1,230)
144
—
(10,121)
—
11,671
67
(33)
20
—
84,202
28,625
(2,735)
134
(794)
1,064
34
—
—
—
2,546
4,563
—
(120)
—
— 553,630
—
55,706
— (6,579)
—
—
— (10,915)
(5,483)
(37,589) (2,676)
(2,615) (24,997)
(45)
—
— (73,405)
174,909
7,547
(2,614)
2,694
(906)
233,485
8,456
621
1,120
(4,817) (1,107)
6,375
—
—
—
84,435
17,359
(1,164)
6,235
(1,424)
1,053
—
—
—
—
6,989
14,089
(300)
(15,304)
—
— 518,437
5,371
46,250
— (10,021)
—
—
— (2,330)
(5,789)
(36,063) (2,636)
(2,459) (24,225)
(80)
—
— (71,252)
175,841
12,831
(36)
6,125
199,601
5,833
15,488
5,212
— (1,223)
24,693
1,110
9,110
143
(19)
—
—
6,775
458
(605)
—
81,216
38,205
(1,174)
3,871
973
47
—
—
5,474
31,476
—
(34,950)
5,371
—
—
(849)
481,084
103,717
(3,038)
—
168
—
12,083
(443)
—
—
(23)
—
—
—
106,962
(3,111)
(1,922) (26,305)
(104)
—
4,874 107,453
916
1,977
Cost....................................... 220,346
(38,221
Accumulated Depreciation ..
)
Accumulated Impairment .... (7,216)
book value ......................... 174,909
December 31, 2004
734,239 43,405 30,998 320,286
(463,669 (34,949
(230,70
)
) (21,888)
0)
(37,085)
—
— (5,151)
1,583
6,989
(530)
—
—
—
1,357,84
6
(789,957
—
)
— (49,452)
84,435
1,053
6,989
518,437
Cost....................................... 226,709
(42,746
)
book value ......................... 175,841
December 31, 2005
726,853 40,518 30,913 329,398
(490,167 (34,685
(241,60
)
) (24,138)
7)
(37,085)
—
— (6,575)
1,583
5,474
(610)
—
—
—
81,216
973
5,474
5,371
Cost....................................... 245,329
(48,238
)
Additions through
acquisition of subsidiary ... 39,028
776,597 37,309 25,436 314,172
(535,984 (27,861
(211,78
)
) (20,730)
4)
1,626
2,000
4,522
(23)
—
39,028
—
(5,793)
227,996
50,705
(2,668)
5,001
—
(36,253) (1,484)
251,566
233,485
199,601
50,705
14,449
8,456
5,833
5,001
9,110
6,775
168
12,083
(710)
—
— (71,861)
4,522
613,753
—
1,366,81
9
(833,953
)
—
— (51,782)
5,371
481,084
1,406,99
1
(845,307
)
—
106,962
book value ......................... 227,996
(39,752)
—
251,566
14,449
—
(7,018)
—
—
4,874 107,453
916
1,977
— (54,893)
4,522
613,753
Impairment Loss
For the 2005 financial year, the Group recorded impairment losses amounting to YTL 3,111 (2004—YTL 2,330 and
2003—YTL 10,915) for property, plant and equipment that had greater carrying value than its estimated recoverable amount.
Borrowing Costs
The Group did not capitalize any borrowing costs on property, plant and equipment as of December 31, 2005, 2004 and
2003.
Finance Leases
Property leased by the Group includes coolers, vehicles, buildings, machinery and equipment.
The following is an analysis of assets under finance leases included in property, plant and equipment:
Machinery and equipment ......................................................................................
Buildings .................................................................................................................
Vehicles...................................................................................................................
Other tangible assets ...............................................................................................
Accumulated depreciation ......................................................................................
Net book value ........................................................................................................
2005
2004
2003
20,730
209
2,875
33,186
57,000
(23,831)
33,169
20,730
209
2,875
33,186
57,000
(18,465)
38,535
20,730
209
2,875
33,186
57,000
(12,462)
44,538
10. INTANGIBLE ASSETS
January
1, Addition Disposal
2003
s
s
Cost
Goodwill........................ 12,563
Rights and
2,774
Agreements ................
Less: Accumulated
amortization
Goodwill........................ (10,467)
Rights and
(918)
Agreements ................
3,952
Net carrying amount...
December 3
1, Addition
2003
s
Additions
through
acquisitio
December 3
n of
1, Addition subsidiar
2004
s
y
December 3
1,
2005
—
—
12,563
—
12,563
36,494
—
49,057
2,043
(58)
4,759
—
4,759
628
248,110
253,497
(1,256)
—
(11,723)
(840)
(12,563)
—
—
(12,563)
(570)
16
(1,472)
4,127
(792)
(2,264)
2,495
(809)
(356)
(3,429)
286,562
11. PREPAYMENTS AND OTHER NON-CURRENT ASSETS
Prepaid expenses.....................................................................................................................
Deposits given.........................................................................................................................
Other........................................................................................................................................
2005
2004
2003
14,936
175
150
15,261
16,242
164
17
16,423
14,428
188
19
14,635
Prepaid expenses consist of prepaid contributions to customers for executing marketing activities in their stores.
12. TRADE AND OTHER PAYABLES
Trade payables—third parties..............................................................................................
—related parties and shareholders.......................................................................................
Taxes other than on income.................................................................................................
Deposits payable for bottles and cases ................................................................................
Accrued expenses and liabilities..........................................................................................
Due to personnel ..................................................................................................................
Other payables .....................................................................................................................
2005
2004
2003
45,855
32,739
16,022
10,150
1,348
1,458
121
107,693
24,270
30,828
9,903
2,886
641
—
820
69,348
24,916
25,419
7,517
3,567
53
—
396
61,868
13. BORROWINGS
Short-term borrowings.......................................................................................................
Current portion of long-term debt .....................................................................................
Current portion of obligations under finance leases .........................................................
Total borrowings falling due within one year ...................................................................
Borrowings falling due after one year ...............................................................................
Obligations under finance leases falling due in more than one year ................................
Total borrowings falling due after one year ......................................................................
Total borrowings................................................................................................................
2005
2004
2003
320,498
9,576
1,231
331,305
8,722
—
8,722
340,027
49,506
9,689
5,469
64,664
9,587
1,287
10,874
75,538
118,557
12,438
12,337
143,332
22,701
7,931
30,632
173,964
The borrowings at December 31, 2005, 2004 and 2003 are held in the following currencies (translated into YTL):
December 31, 2005
Current
Non-current
U.S. Dollar .....................................
Euro ................................................
YTL ................................................
Jordanian Dinar..............................
196,688
82,398
45,484
6,735
331,305
8,722
—
—
—
8,722
December 31, 2004
Current
Non-current
64,331
333
—
—
64,664
10,874
—
—
—
10,874
December 31, 2003
Current
Non-current
141,099
1,016
1,217
—
143,332
30,172
460
—
—
30,632
The effective interest rates at the balance sheet dates are as follows:
Long term
U.S. Dollar .....................
Short term
U.S. Dollar .....................
Euro ................................
YTL ................................
Jordanian Dinar..............
Lease Obligations
U.S. Dollar .....................
Euro ................................
2005
2004
2003
4% - 10.61%
10.61%
10.61%
Libor+(0.45%) - 8%
Euribor+(0.85) - 5.67%
14.8%
7% - 8%
Libor+(1.35%)
—
—
—
Libor+(0.4% - 2.5%)
—
—
—
2.81% - 6.62%
3.9%
2.81% - 12.76%
3.9% - 4.75%
2.81% - 12.76%
3.90% - 4.75%
As of December 31, 2005, 2004 and 2003, all borrowings and obligations under finance leases of CCI and CCSD are
fully cross guaranteed by CCSD and CCl.
Some of the loan agreements include covenants such as threshold levels for the amount of shareholders' equity,
requirement to maintain certain financial ratios as of year ends (and in some cases, some as of quarter ends), or a requirement not
to create a security on assets, dispose of a substantial portion of assets, or enter into any merger or consolidation. The acquisition
of Efes Sınai and the planned merger of CCI and Efes Sınai are permitted. In addition, at least 51% of the share capital of the
Company has to be directly or indirectly jointly held by Anadolu Efes and TCCEC. As at December 31, 2005, the Group entities
that were signatories were in compliance with these covenants.
14. PROVISIONS
2005
Short-term
2004
2003
Management premium /bonus accrual for personnel.............................................................
Long-term
Long-term incentive plan accrual...........................................................................................
Vacation pay accrual...............................................................................................................
Employee termination benefit accrual....................................................................................
Long-term provisions ...........................................................................................................
Total provisions.....................................................................................................................
3,017
3,243
2,308
2,095
2,385
12,673
17,153
20,170
1,493
2,174
10,773
14,440
17,683
1,479
2,111
9,938
13,528
15,836
As of December 31, 2005, 2004 and 2003, the movement of provisions (other than employee termination benefits) is as
follows:
2005
Vacation pay
liability
Long-Term
incentive plan
Management
bonus
Balance at December 31, 2004...............................................
Payments made .......................................................................
Current year charge.................................................................
Monetary gain .........................................................................
2,174
(114)
415
(90)
2,385
1,493
(453)
1,115
(60)
2,095
3,243
(3,243)
3,145
(128)
3,017
Payments made .......................................................................
Monetary gain .........................................................................
2,111
(414)
734
(257)
2,174
1,479
(880)
1,132
(238)
1,493
2,308
(2,028)
3,243
(280)
3,243
Payments made .......................................................................
Monetary gain .........................................................................
1,845
(267)
1,045
(512)
2,111
1,730
(455)
658
(454)
1,479
1,719
(1,534)
2,308
(185)
2,308
2004
2003
Employee Termination Benefits
In accordance with existing social legislation, the Company and its subsidiaries operating in Turkey are required to
make lump-sum payments to employees who have completed at least one year of service with the Company and whose
employment is terminated due to retirement or for reasons other than resignation or misconduct. In Turkey, such payments are
calculated on the basis of 30 days' pay as of December 31, 2005, 2004 and 2003, limited to a maximum YTL 1.73, YTL 1.58
and YTL 1.39 respectively (all expressed in historical terms), per year of employment at the rate of pay applicable at the date of
retirement or termination. The cost of providing those benefits is accrued over the employees' service period. The Company
accounts for the statutory termination benefits in accordance with the provisions of IAS 19, including the application of actuarial
methods and assumptions in consultation with professional actuaries. The benefit obligation has been measured at the balance
sheet date for each period presented. In February 2003, approximately 25% of the Company's work force was terminated
through a workforce reduction plan, and the effects of these terminations have been accounted for in accordance with the
provisions of IAS 19.
The movement of the defined benefit obligation recognized in the consolidated balance sheet is as follows:
As at January 1.....................................................................................................................
Benefit payments .................................................................................................................
Expense recognized in the income statement......................................................................
Monetary gain ......................................................................................................................
Additions through acquisition of subsidiary .......................................................................
Defined benefit obligations..................................................................................................
2005
2004
2003
10,773
(720)
2,917
(467)
170
12,673
9,938
(1,229)
3,272
(1,208)
—
10,773
8,815
(4,552)
6,755
(1,080)
—
9,938
The expense recognized in the income statement consists of the following for the period ending December 31, 2005,
2004 and 2003 respectively:
2005
2004
2003
Current service cost.........................................................................................................................
Interest cost .....................................................................................................................................
Curtailment effect ...........................................................................................................................
Total ................................................................................................................................................
1,160
1,757
—
2,917
1,091
2,181
—
3,272
851
3,753
2,151
6,755
Actuarial assumptions used to determine net periodic pension costs are as follows for the years ended December 31,
2005, 2004 and 2003:
Weighted average discount rate..............................................................................................................
Weighted average rate of compensation increases ................................................................................
2005
2004
2003
16%
10%
16%
10%
24%
16%
15. SHARE CAPITAL
Common shares YTL 0.01 par value
Authorized and issued (units) .........................................
2005
2004
2003
24,958,977,000
22,368,152,900
22,368,152,900
On November 14, 2005, the Company issued 2,578,805,035 shares with a nominal value of YTL 25,788 to Efes
Pazarlama Dağıtım Ticaret A.Ş. for a cash consideration of YTL 195,670. The difference between nominal value and the
consideration received, amounting to YTL 169,882, was recorded under equity as share premium in the consolidated financial
statements.
As of December 31, 2005, 2004 and 2003, the composition of shareholders and their respective percentage of
ownership can be summarized as follows:
2005
Nominal
Amount
Anadolu Efes Biracılık ve Malt Sanayi
A.Ş.............................................................
The Coca-Cola Export Corporation ............
Efes Pazarlama Dağıtım Ticaret A.Ş...........
Özgörkey Holding A.Ş. ...............................
Coca-Cola Satış ve Dağıtım A.Ş. ................
E. Özgörkey İçecek Yatırımı A.Ş................
Etap İçecek Yatırımı A.Ş.............................
Anadolu Endüstri Holding A.Ş....................
Anadolu Eğitim ve Sosyal Yardım Vakfı ...
Others ...........................................................
Restatement Effect.......................................
102,047
89,514
25,788
19,695
12,534
—
—
—
—
11
249,589
1,163
250,752
2004
Percentage
40.89%
35.86%
10.33%
7.89%
5.02%
—
—
—
—
0.01%
100.00%
—
Nominal
Amount
74,555
89,466
—
—
—
25,053
19,684
11,184
3,727
12
223,681
1,208
224,889
2003
Percentage
33.33%
40.00%
—
—
—
11.20%
8.80%
5.00%
1.67%
0.00%
100.00%
—
Nominal
Amount
74,555
89,466
—
—
—
25,053
19,684
11,184
3,727
12
223,681
1,208
224,889
Percentage
33.33%
40.00%
—
—
—
11.20%
8.80%
5.00%
1.67%
0.00%
100.00%
—
Treasury Shares
On April 26, 2005, CCSD purchased 1,253,354,597 shares (5.6%) of the shares of CCI from an existing shareholder for
an amount of YTL 58,556. The Company has deducted this amount from equity as treasury shares.
16. LEGAL RESERVES AND DIVIDENDS
Legal Reserves
The legal reserves consist of first and second legal reserves in accordance with the Turkish Commercial Code. The first
legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a maximum of 20% of
the Company's share capital. The second legal reserve is appropriated at the rate of 10% of all distributions in excess of 5% of
the Company's share capital.
The legal reserves are not available for distribution unless they exceed 50% of the share capital, but may be used to
absorb losses in the event that the retained earnings are exhausted. Legal reserves in the statutory financial statements of CCI are
YTL 30,507 as of December 31, 2005 (December 31, 2004—YTL 21,019, 2003—YTL 12,591).
Dividends
Dividends paid ........................................................
Number of shares ....................................................
Dividend per share ..................................................
2005
2004
2003
79,644
24,958,977,000
0.0032
39,116
22,368,152,900
0.0018
17,057
22,368,152,900
0.0076
December 31, 2005)
17. INCOME AND EXPENSES
SALES
Sales include the following:
Gross sales.......................................................................................................
Sales discounts ................................................................................................
Other discounts ...............................................................................................
2005
2004
2003
1,719,184
(424,646)
(104,139)
1,190,399
1,550,090
(373,408)
(97,326)
1,079,356
1,350,360
(344,524)
(82,104)
923,732
COST OF SALES
Cost of sales comprises the following expenses:
Raw material cost............................................................................................................
Depreciation and amortization........................................................................................
Personnel expenses .........................................................................................................
Other expenses ................................................................................................................
2005
2004
2003
724,637
40,268
28,289
28,793
821,987
692,014
39,707
22,250
29,939
783,910
568,066
41,968
22,653
31,013
663,700
DISTRIBUTION SELLING AND MARKETING EXPENSES
Distribution, selling and marketing expenses include the following:
Marketing and advertising expenses ..............................................................................
Personnel expenses .........................................................................................................
Transportation expenses .................................................................................................
Depreciation on property, plant and equipment.............................................................
Maintenance expenses ....................................................................................................
Utilities and communication expenses ...........................................................................
Rent expenses..................................................................................................................
Insurance expenses .........................................................................................................
Other................................................................................................................................
2005
2004
2003
57,220
55,141
46,033
27,640
6,462
8,953
2,538
885
5,146
210,018
51,798
43,083
36,117
26,519
10,401
8,233
1,090
1,083
4,918
183,242
38,209
43,065
29,913
27,407
4,267
7,896
266
1,136
5,070
157,229
GENERAL AND ADMINISTRATION EXPENSES
General and administration expenses include the following:
Personnel expenses .................................................................................................................
2005
2004
2003
24,572
26,499
24,233
Depreciation on property, plant and equipment.....................................................................
Consulting and legal fees........................................................................................................
Utilities and communication expenses ...................................................................................
Rent expense ...........................................................................................................................
Provision for doubtful receivables..........................................................................................
Repair and maintenance expenses ..........................................................................................
Insurance expenses .................................................................................................................
Other expenses ........................................................................................................................
3,550
2,743
1,954
1,864
1,025
1,011
196
4,017
40,932
4,379
1,771
1,836
1,716
984
998
313
2,345
40,841
5,020
1,823
2,294
1,208
1,252
198
277
4,008
40,313
Contributions paid
For the year ended December 31, 2005, 2004 and 2003, contributions paid by the Group to the Social Security
Institution of Turkey amounted to YTL 16,478, YTL 15,189 and YTL 9,037, respectively.
OTHER OPERATING INCOME (EXPENSE)
Gain on disposal of fixed assets ..................................................................................
Impairment loss on property, plant and equipment.....................................................
2005
2004
2003
2,271
(3,111)
(840)
5,413
(2,330)
3,083
2,002
(10,915)
(8,913)
DEPRECIATION AND AMORTIZATION
Depreciation and amortization appears in the following line items:
Property, plant and equipment
Cost of sales .........................................................................................................................
Distribution, selling and general and administration expenses...........................................
Inventory ..............................................................................................................................
Intangible assets
Cost of sales .........................................................................................................................
2005
2004
2003
39,459
31,190
1,212
38,075
30,898
2,279
40,142
32,427
836
809
72,670
1,632
72,884
1,826
75,231
FINANCIAL (EXPENSE) INCOME
Foreign exchange gain (loss) on borrowings ...........................................................
Interest expense.........................................................................................................
Finance charges paid under finance leases...............................................................
Interest income..........................................................................................................
Financial (expense) income, net ...............................................................................
2005
2004
2003
1,015
(11,822)
(234)
2,952
(8,089)
(2,241)
(8,333)
(1,183)
5,463
(6,294)
29,889
(12,715)
(2,420)
10,472
25,226
OTHER INCOME (EXPENSE)
Foreign exchange gain (loss)............................................................................................
Impairment of goodwill ....................................................................................................
Gain on sale of scrap materials.........................................................................................
Negative goodwill on acquisition of TCCBCJ ................................................................
IPO expenses.....................................................................................................................
Other expenses, net ...........................................................................................................
18. INCOME TAXES
a)
General Information
2005
2004
2003
(911)
(2,066)
1,493
9,654
(1,548)
(1,895)
4,727
(5,918)
—
1,318
—
(7,311)
(422)
(12,333)
3,044
—
1,006
—
(305)
258
4,003
The Group is subject to taxation in accordance with the tax regulations and the legislation effective in the countries in
which the Group companies operate.
In Turkey, the corporation tax rate for the fiscal year ending December 31, 2005 was 30% (2004—33% and 2003—
30%). Corporate tax returns are required to be filed by the fifteenth day of the fourth month following the balance sheet date and
taxes must be paid in one installment by the end of the fourth month. The tax legislation provides for a temporary tax of 30%
(2004—33% and 2003—30%) to be calculated and paid based on earnings generated for each quarter. The amounts thus
calculated and paid are offset against the final corporate tax liability for the year.
In 2003 and prior years, corporation tax was computed on the statutory income tax base without any adjustment for
inflation accounting. Starting from January 1, 2004, the statutory financial statements from which taxable income is derived are
adjusted for inflation. Accumulated earnings arising from the first application of inflation accounting on the December 31, 2003
balance sheet are not subject to corporation tax, and similarly accumulated deficits arising from such application are not
deductible for tax purposes. Moreover, accumulated tax loss carry-forwards related to 2003 and prior periods will be utilized at
their historical (nominal) values in 2004 and future years. Inflation accounting application has ceased effective from January 1,
2005.
In addition, the Turkish government offers investment incentives to companies that make certain qualifying capital
investments in Turkey. Prior to April 24, 2003, the total amount of qualifying capital investments was deducted from taxable
income and the remainder of taxable income, if any, was taxed at the corporate rate. A withholding tax of 19.8% was applied to
the total amount of qualifying capital investments. With effect from April 24, 2003, the investment incentives scheme was
amended such that companies are no longer subject to a withholding tax, but rather directly deduct 40% of qualifying capital
investments from their annual taxable income. In addition, corporations that had unused qualifying capital investment amounts
from periods prior to April 24, 2003 were entitled to carry forward these and apply the 19.8% withholding tax to these amounts
in the manner described above.
In Turkey, the tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return.
Therefore, provision for taxes, as reflected in the consolidated financial statements, has been calculated on a separate-entity
basis.
Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses
were incurred. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period
of five years.
Foreign subsidiaries of the Group are subject to corporate income taxes at rates ranging between 15% and 24%.
The total provision for taxes reflected in the consolidated financial statements is different from the amounts computed
by applying the above mentioned effective tax rates. The reconciliation is as follows:
Consolidated income before tax ...............................................................................
Provision for tax at 30% (2004—33% and 2003—30%) ...........................................
Effect of change in tax laws and tax rates ...................................................................
Non-deductible expenses and other differences..........................................................
Change in deferred tax valuation allowance ...............................................................
Total (provision)/credit for tax.................................................................................
b)
2005
2004
2003
106,431
(31,929)
5,384
(238)
—
(26,783)
74,096
(24,452)
(41,948)
281
15,722
(50,397)
101,287
(30,386)
49,360
(1,084)
(4,155)
13,735
Deferred Income Tax
Components of deferred tax assets and liabilities are as follows:
2005
Property, plant and
equipment...........
Unused investment
incentives............
2004
Temporary
Difference
Deferred
Tax Assets/
(Liabilities)
(125,066)
13,906
2003
Temporary
Difference
Deferred
Tax Assets/
(Liabilities)
Temporary
Difference
Deferred
Tax Assets/
(Liabilities)
(37,520)
(95,398)
(28,619)
6,579
2,171
4,172
43,572
5,676
106,605
10,874
Lease transactions .
Employee
termination and
other employee
benefits ...............
Trade receivables,
payables and
other....................
Inventory ...............
Tax loss carried
forward ...............
Less: Valuation
allowance............
Total......................
Deferred tax asset
Deferred tax
liability...............
5,749
1,725
7,140
2,142
21,144
6,343
21,149
6,345
17,683
5,305
12,298
4,058
(8,878)
(19,940)
(2,663)
(5,982)
1,912
(31,497)
574
(9,450)
1,368
(38,298)
410
(11,489)
33,401
10,020
—
—
—
—
—
(79,679)
—
(23,903)
—
—
(56,588)
—
(24,372)
—
—
109,696
(15,722)
(3,355)
9,364
(23,903)
(24,372)
(12,719)
The movements of deferred tax assets/ (liabilities) during the years ended December 31, 2005, 2004 and 2003
respectively are as follows:
Balance at the beginning of year ............................................................................
Deferred tax (provision) / credit .............................................................................
Monetary gain .........................................................................................................
Balance at the end of year.......................................................................................
2005
2004
2003
(24,372)
(4,286)
4,755
(23,903)
(3,355)
(22,999)
1,982
(24,372)
(47,562)
38,543
5,664
(3,355)
As of December 31, 2005, 2004 and 2003 income tax payable is detailed as follows:
Current taxes payable...................................................................................................
Prepaid Taxes...............................................................................................................
Income taxes payable...................................................................................................
2005
2004
2003
22,497
(13,440)
9,057
27,398
(16,002)
11,396
24,808
(8,424)
16,384
19. FINANCIAL INSTRUMENTS
Financial Risk Management
Financial Risk Management Objectives and Policies
The Group's principal financial instruments comprise bank borrowings, finance leases, cash and short-term deposits
and investments in securities. The main purpose of these financial instruments is to raise finance for the Group's operations. The
Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.
The main risks arising from the Group's financial instruments are interest rate risk, liquidity risk, foreign currency risk
and credit risk. The Group's management reviews and agrees policies for managing each of these risks which are summarized
below. The Group also monitors the market price risk arising from all financial instruments.
The Group is exposed to exchange rate fluctuations due to the nature of its business. This risk occurs due to imports,
purchases, sales and bank borrowings of Group companies which are denominated in currencies other than their local currency
denominated assets and liabilities. These risks are monitored and limited by the analysis of the foreign currency position. The
Group does not enter into derivative or hedging transactions to mitigate its exposure to foreign exchange risk. The strengthening
of foreign currencies against the operations' local currencies could have an adverse effect on the commercial operations. Net
foreign currency liabilities of the Group (excluding the operations where functional currency is USD) December 31, 2005, 2004
and 2003 are YTL 265,689, YTL 61,349 and YTL 131,065 respectively.
Liquidity Risks
The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank
loans and collection of its receivables.
Credit Risk
Financial instruments that potentially subject the Group to significant concentration of credit risk consist principally of
cash, available-for-sale and held-to-maturity securities and trade receivables. The Group maintains cash and cash equivalents
with various financial institutions. It is the Group's policy to limit exposure to any one institution.
The credit risk associated with trade receivables is partially limited due to a large customer base and due to
management's limitation on the extension of credit to customers. The Group generally requires collateral to extend credit to its
customers.
Interest Rate Risk
Certain parts of the interest rates related to borrowings are based on market interest rates; therefore the Group is
exposed to interest rate fluctuations on domestic and international markets. The Group does not enter into hedging transactions
to limit currency and interest rate risks.
The Group's exposure to market risk for changes in interest rates relates primarily to the Group's debt obligations.
These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities. The
interest rates of financial assets and liabilities are as indicated in the related disclosures.
Fair Values
The fair values of trade receivables and other current assets and trade and other payables are estimated to approximate
carrying value due to their short-term nature.
The fair values of short-term and long-term leasing obligations approximate their carrying values since they are
denominated in foreign currencies and revalued at period-end exchange rates.
The fair values of bank borrowings are considered to approximate their respective carrying values, since the initial rates
applied to bank borrowings are updated periodically by the lender to reflect active market price quotations.
20. COMMITMENTS AND CONTINGENCIES
CCI and CCSD
Litigations
The Group is involved on an ongoing basis in litigation arising in the ordinary course of business. In the opinion of
management, the outcome of such litigation currently pending will not materially affect the Group's results of operations,
financial condition or liquidity.
Operating Leases
The Company has signed various operating lease agreements for vehicles.
YTL 205, YTL 226 and YTL 241 of lease expense were reflected as of December 31, 2005, 2004 and 2003,
respectively in the consolidated income statements due to the non-cancelable operating lease agreement for vehicles. Future
minimum lease payments under non-cancelable operating lease agreements are as follows:
Next 1 year ..............................................................................................................................................
1 year through 5 years.............................................................................................................................
Total ........................................................................................................................................................
Letters of Guarantees Given
2005
2004
2003
134
—
134
205
141
346
241
407
648
As of December 31, 2005, 2004 and 2003, the aggregate amount of letters of guarantees, which are obtained from
various banks and submitted to the relevant authorities are YTL 4,492, YTL 6,667 and YTL 5,731, respectively.
Other
The Company has not undergone a tax inspection for any type of tax for any open years (2002 through 2005); as such
any additional tax relating to open years cannot be estimated with any degree of certainty. Management does not anticipate that
any additional liabilities may arise which would materially affect the Group's results of operations, financial condition or
liquidity.
Efes Sınai and Foreign Subsidiaries
Pledges
In connection with a credit line obtained from a bank, there is a pledge agreement on Almaty CC's inventories
amounting to YTL 2,415.
Certain items of property, plant and equipment of Azerbaijan CC amounting to YTL 1,594 were pledged as security for
the supply of concentrate under an agreement with Varoise de Concentres S.A. an indirect wholly owned subsidiary of TCCC.
Mortgage
As of December 31, 2005, the building and land located in Hizam are mortgaged in the amount of YTL 3,306 for the
loan taken by TCCBCJ from Arab Bank.
Contingent Liability
In accordance with the credit line agreement with Azerturk Bank, the Company is obliged not to grant, sell or pledge its
property to anyone without prior permission of the bank during the whole period the loan amount is outstanding.
Letters of Credit
Azerbaijan CC obtained letters of credit in the amount of YTL 1,602 in total to purchase resin from its suppliers.
Political and Economic Environment for Subsidiaries
The countries in which certain Group subsidiaries are operating have undergone substantial political and economical
changes in recent years. These countries do not possess well-developed business infrastructures and accordingly the Group's
operations in such countries carry risks that are not typically associated with operations in more developed markets.
Uncertainties regarding the political, legal, tax and/or regulatory environment, including the potential for adverse changes in any
of these factors, could significantly affect the subsidiaries' ability to operate commercially.
21. RELATED PARTY TRANSACTIONS
a)
Balances with Related Parties
Balances and transactions with related parties as of and for the twelve months ended December 31, 2005, 2004 and
2003 which are separately classified in the consolidated balance sheets and consolidated statements of income, are as follows:
Shareholders
The Coca-Cola Export Corporation .
Anadolu Endüstri Holding A.Ş.........
Özgörkey Holding.............................
Sales to related
parties and other
charges
2005
Purchases from
related parties and
other charges
Amounts owed
by related
parties
Amounts owed
to related
parties
—
34
—
34
159
532
15,390
16,081
—
886
—
886
—
1
1,015
1,016
Other
Beverage Partners Worldwide..........
Coca-Cola Georgia ...........................
The Coca-Cola Company .................
CC Rostov .........................................
Turkmenistan CC..............................
Efes Breweries International B.V.....
Efes Karaganda Brewery J.S.C. .......
Diğer..................................................
—
—
39,067
—
—
—
4,921
—
43,988
44,022
Total ..................................................
Purchases from
related parties and
other charges
2004
Sales to related
parties and other
charges
Shareholders
Etap Grubu ........................................
Other
Atlantic Beverages
Amalgamated Beverage....................
International Beverages ....................
Coca Cola Eurasia.............................
Total ..................................................
Other
Atlantic Beverages............................
Total ..................................................
1,529
59
914
682
231
135
—
—
3,550
4,436
Amounts owed
by related
parties
—
—
30,618
—
—
—
955
150
31,723
32,739
Amounts owed
to related
parties
—
—
62
62
649
19
12,616
13,284
52
—
—
52
172
—
1,007
1,179
—
1,300
352
—
101
—
24,989
—
—
25,090
25,152
—
—
257,517
3,029
—
261,846
275,130
126
2
3,781
—
279
4,540
4,592
—
—
29,609
40
—
29,649
30,828
Sales to related
parties and other
charges
Shareholders
Etap Grubu ........................................
2,076
—
318,005
—
—
—
12,909
—
332,990
349,071
Purchases from
related parties and
other charges
2003
Amounts owed
by related
parties
Amounts owed
to related
parties
—
—
72
72
—
—
12,091
12,091
—
—
—
—
150
1
1,005
1,156
—
—
—
19,278
19,278
19,350
1,336
238
—
235,056
236,630
248,721
—
—
175
84
259
259
18
—
—
24,245
24,263
25,419
As of December 31, 2005, 2004 and 2003 purchases from related parties and other charges consist of purchases of
fixed asset, raw material and toll production.
As of December 31, 2005, 2004 and 2003 sales to related parties and other charges consist of sales of finished goods,
scrap sales and rent income.
b)
Executive Member's Remuneration
For the years ended December 31, 2005, 2004 and 2003 the executive members of the Company's management
received aggregate compensation totaling YTL 5,913, YTL 4,859 and YTL 4,155.
22. SEGMENT INFORMATION
Starting in November 2005, CCI purchased 87.63% of the Efes Sınai's shares. Accordingly the Group started segment
reporting according to geographical and business divisions in 2005. Since Efes Sınai was consolidated after the acquisition date,
segment reporting of Efes Sınai includes the relevant amounts after this date.
Information per geographical segments as of December 31, 2005 is as follows:
Revenues
External sales ............................................................
Inter-segment sales....................................................
Total Revenues ........................................................
Gross profit..............................................................
Total assets...............................................................
Total liabilities .........................................................
Domestic
Foreign
Elimination
Consolidated
1,156,934
1,045
1,157,979
358,760
1,176,116
409,173
34,441
—
34,441
9,686
259,962
114,178
(976)
(1,045)
(2,021)
(25)
(201,882)
(22,501)
1,190,399
—
1,190,399
368,421
1,234,196
500,850
23. SUBSEQUENT EVENTS
i)
In February 2006, a "Share Transfer Agreement" regarding CCI's acquisition of 100% shares of Mahmudiye Kaynak
Suyu İşletmeciliği Ambalaj Plastik Gıda Nakliyat Pazarlama Sanayi Ticaret Limited Şirketi for USD 8,000,000 became valid.
The necessary permissions obtained from the Competition Board of Turkey and the transaction is expected to be finalized by
March 31, 2006.
ii)
Due to a change in the tax legislation of Kyrgyzstan, which has became effective in 2006, Bishkek CC's corporate tax
will be reduced from 20% to 10% of its taxable income.
Efes Sınai Yatırım Holding A.Ş.:
We have audited the accompanying financial statements of Sınai Yatırım Holding A.Ş. (the Company) and its
subsidiaries (together-the Group) which comprise the consolidated balance sheet as of December 31, 2005 and the consolidated
income statement, consolidated statement of changes in shareholders' equity and consolidated cash flow statement for the year
then ended and a summary of significant accounting policies and other explanatory notes. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, present fairly, in all material respects, the financial position of the
Group as of December 31, 2005 and its financial performance and its cash flows for the year then ended in accordance with
International Financial Reporting Standards.
/s/ Ernst & Young
March 10, 2006
İstanbul, Turkey
Efes Sınai Yatırım Holding Anonim Şirketi and its subsidiaries
CONSOLIDATED BALANCE SHEET
As at December 31, 2005
(Currency—Thousands of U.S. Dollars unless otherwise indicated)
Notes
ASSETS
Current assets
2005
2004
Cash and cash equivalents ...............................................................................................................
Investments in securities..................................................................................................................
Trade receivables—net ....................................................................................................................
Due from related parties ..................................................................................................................
Inventories—net...............................................................................................................................
Other current assets..........................................................................................................................
Total current assets........................................................................................................................
Non-current assets
Goodwill—net..................................................................................................................................
Investment in associate ....................................................................................................................
Investments ......................................................................................................................................
Property, plant and equipment—net................................................................................................
Intangible assets—net......................................................................................................................
Due from related parties ..................................................................................................................
Other non-current assets ..................................................................................................................
Total non-current assets................................................................................................................
Total assets......................................................................................................................................
Current liabilities
Trade and other payables .................................................................................................................
Due to related parties .......................................................................................................................
Short-term loans...............................................................................................................................
Current portion of long-term loans..................................................................................................
Income tax payable ..........................................................................................................................
Total current liabilities..................................................................................................................
Long-term loans ...............................................................................................................................
Employee termination benefits........................................................................................................
Deferred tax liability ........................................................................................................................
Other non-current liabilities.............................................................................................................
Total non-current liabilities
Equity attributable to equity holders of the parent
Share capital.....................................................................................................................................
Share premium.................................................................................................................................
Accumulated deficit.........................................................................................................................
Minority interest...............................................................................................................................
Total equity.....................................................................................................................................
Total liabilities and equity.............................................................................................................
3
4
5
28
6
7
8,302
399
5,491
1,698
25,990
5,944
47,824
3,368
285
3,351
2,985
15,215
1,502
26,706
12
8
9
10
11
28
—
1,970
—
97,831
2,397
—
185
102,383
150,207
1,402
2,281
536
56,199
804
2,405
2,277
65,904
92,610
13
28
14,31
14,31
26
21,818
2,510
33,111
304
843
58,586
9,708
3,809
9,614
7,372
—
30,503
14,31
15
27
6,500
127
5,488
7
12,122
2,653
94
2,649
77
5,473
16
128,393
241
(58,009)
70,625
8,874
79,499
150,207
128,393
241
(78,076)
50,558
6,076
56,634
92,610
17
2
The accompanying policies and the explanatory notes on pages F-45 through F-75 form an integral part of the consolidated
financial statements.
CONSOLIDATED INCOME STATEMENT
For the year ended December 31, 2005
Notes
2005
2004
Sales ..................................................................................................................................
Cost of sales ......................................................................................................................
Gross profit......................................................................................................................
Selling, distribution and marketing expenses...................................................................
General and administration expenses ...............................................................................
Other operating income / (expense)—net ........................................................................
Profit from operations....................................................................................................
Financial—revenue...........................................................................................................
Financial costs...................................................................................................................
Loss from associate...........................................................................................................
Translation gain / (loss)—net ...........................................................................................
Income before tax............................................................................................................
Tax charge—net................................................................................................................
Net income .......................................................................................................................
Attributable to:
Equity holders of the parent..............................................................................................
Minority interest................................................................................................................
28,32
19,24,25,28
119,142
(77,663)
41,479
(13,468)
(9,491)
8,332
26,852
476
(1,466)
(311)
1,088
26,639
(5,175)
21,464
90,293
(59,771)
30,522
(10,587)
(6,785)
(168)
12,982
474
(528)
(334)
(554)
12,040
(2,459)
9,581
Basic and diluted net income per share (full U.S. Cents) excluding minority interest ...
18
20,067
1,397
21,464
0.0752
8,445
1,136
9,581
0.0316
20,24,25
21,24,25
22, 28
23,28
23,28
8
26,27
2
The accompanying policies and explanatory notes on pages F-45 through F-75 form an integral part of the consolidated financial
statements.
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Balance at January 1, 2005 ........................................
Effect of the acquisition of new subsidiary ...............
Dividend paid to minority..........................................
Net income for the year .............................................
Balance at December 31, 2005................................
Balance at January 1, 2004 ........................................
Change in shareholding percentage...........................
Net income for the year .............................................
Balance at December 31, 2004..................................
Share
Capital
Share
Premium
Accumulated
Deficit
Total
Minority
Interest
Total
Equity
128,393
—
—
—
128,393
241
—
—
—
241
(78,076)
—
—
20,067
(58,009)
50,558
—
—
20,067
70,625
6,076
1,501
(100)
1,397
8,874
56,634
1,501
(100)
21,464
79,499
Share
Capital
Share
Premium
Accumulated
Deficit
Total
Minority
Interest
Total
Equity
128,393
—
—
128,393
241
—
—
241
(86,521)
—
8,445
(78,076)
42,113
—
8,445
50,558
5,242
(302)
1,136
6,076
47,355
(302)
9,581
56,634
statements.
CONSOLIDATED CASH FLOW STATEMENT
Net income before tax charge.....................................................................................................................
Adjustments for:
Depreciation and amortization....................................................................................................................
Impairment in property, plant and equipment............................................................................................
Loss related to sale of property, plant and equipment ...............................................................................
Impairment of goodwill ..............................................................................................................................
Negative goodwill.......................................................................................................................................
Liquidation of investment and reversal of impairment in investment, net................................................
Gain on sale of subsidiary...........................................................................................................................
Reversal of provision for bad debt .............................................................................................................
Interest expense...........................................................................................................................................
Loss from associate.....................................................................................................................................
Other accruals .............................................................................................................................................
Operating profit before changes in operating assets and liabilities....................................................
Net increase in trade receivables and due from related parties..................................................................
Net increase in inventories..........................................................................................................................
Net change in other assets and liabilities....................................................................................................
Net increase in trade payables and due to related parties...........................................................................
Taxes paid ...................................................................................................................................................
Net cash provided by operating activities ..............................................................................................
Purchase of property, plant and equipment and intangible assets .............................................................
Proceeds from sale of property, plant and equipment................................................................................
Liquidation of investments .........................................................................................................................
Change in capital by minority shareholders...............................................................................................
Sale of subsidiary........................................................................................................................................
Net liability of subsidiary sold....................................................................................................................
Subsidiary acquired, net off cash taken......................................................................................................
Payments to acquire minority interests ......................................................................................................
Dividend paid to minority shareholders .....................................................................................................
Net cash used in investing activities........................................................................................................
Proceeds from short-term loans..................................................................................................................
Proceeds from long-term loans...................................................................................................................
Repayment of short-term loans ..................................................................................................................
Repayment of long-term loans ...................................................................................................................
Interest paid.................................................................................................................................................
Net cash provided by financing activities...............................................................................................
Net increase/(decrease) in cash and cash equivalents...........................................................................
Cash and cash equivalents at beginning of the year .............................................................................
Cash and cash equivalents at end of the year........................................................................................
2005
2004
26,639
12,040
6,080
—
18
1,533
(7,291)
37
(2,571)
(1,058)
1,225
311
152
25,075
4,860
(701)
607
(1,632)
(1,493)
26,716
5,013
298
48
—
—
(53)
—
(249)
398
334
320
18,149
1,387
(6,962)
(713)
(1,083)
(3,096)
7,682
(28,160)
473
499
—
100
2,471
(6,022)
—
(100)
(30,739)
(13,292)
221
—
(121)
—
—
—
(302)
—
(13,494)
52,127
4,836
(38,913)
(7,724)
(1,255)
9,071
5,048
3,653
8,701
2,698
4,403
(395)
(1,285)
(388)
5,033
(779)
4,432
3,653
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2005
General
Efes Sınai Yatırım Holding A.Ş. (the Company) was established on December 13, 1993. Shares of the Company are
currently traded on Istanbul Stock Exchange and the London Stock Exchange. The Company has its statutory seat and its
principal place of business at Esentepe Mahallesi Anadolu Cad. No:1 Kartal, İstanbul, Turkey.
The Group comprises the Company and its subsidiaries.
The ultimate parent of the Company is Coca-Cola İçecek A.Ş. (CCI). The former parent Company, Anadolu Efes
Biracılık ve Malt Sanayii Anonim Şirketi (Anadolu Efes) sold its 51.87% interest in the Company to CCI for cash consideration
of YTL 196,045,010 on November 14, 2005. Following this acquisition, CCI extended a mandatory call to all remaining
shareholders in accordance with the requirements of the Turkish Capital Market Board, and purchased an additional 35.76% of
the Company's shares for cash consideration of YTL 135,184,968. As a result of these transactions, CCI became the ultimate
parent of the Company by purchasing an aggregate of 87.63% of the Company's shares. CCI is one of the leading bottlers and
distributors of carbonated soft drinks and non-carbonated beverages in Turkey. CCI has one business, being the production, sales
and distribution of alcohol-free ready drink beverages.
CCI and the Company have declared that they intend to merge following the IPO of CCI.
The operations of the Group consist of production, bottling, distribution and selling of Coca-Cola products and
distribution of Anadolu Efes' Efes products. The Group owns and operates five factories in Kazakhstan, Azerbaijan, Kyrgyzstan
and Jordan, in addition, the Group has a minority stake in a Coca-Cola bottling plant in Turkmenistan.
List of Subsidiaries
The subsidiaries of the Company as of December 31, 2005 and 2004 were as follows:
Place of
Incorporation
J.V. Coca-Cola Almaty
Bottlers Limited Liability
Partnership (Almaty CC)
Kazakhstan
Azerbaijan Coca-Cola Bottlers Azerbaijan
LLC (Azerbaijan CC)
Coca-Cola Bishkek Bottlers
Kyrgyzstan
Closed Joint Stock Company
(Bishkek CC)
Efes Invest Holland BV (Efes
Invest Holland)
Rostov Beverage C.J.S.C.
(Rostov)
Netherlands
Russian Federation
Principal
Activities
Coca-Cola and distribution of
Efes products
distribution And selling of
Coca-Cola products
Efes products
Holding Company
Ceased production in 2000 and
has been sold to Moscow Efes
Brewery C.J.S.C. (Efes
Moscow) on November 10,
2005
Effective
Shareholding
and Voting
Rights %
2005
Effective
Shareholding
and Voting
Rights %
2004
87.54
87.54
89.90
89.90
90.00
90.00
100.00
100.00
—
100.00
ACCB Limited Liability
Partnership (ACCB)(*)
(Tonus)
Coca-Cola Kuban Bottlers
A.O. (Kuban)
The Coca-Cola Bottling
Company of Jordan Ltd.
(TCCBCJ)(**)
Efes Sınai Dış Ticaret A. Ş.
(Efes Sınai Dış Ticaret)
Kazakhstan
Liquidated
—
100.00
Kazakhstan
Holding company
92.95
92.95
Russian Federation
Dormant company
100.00
100.00
Jordan
distribution And selling of
Coca-Cola products
Foreign trade company located
in Tuzla Free Zone
90.00
—
99.00
99.00
Turkey
(*)
The liquidation process of ACCB was finalized on September 13, 2005 with cancellation of the State Registration
Certificate.
(**)
Acquired on December 29, 2005.
Joint Venture
Place of
Incorporation
The Coca-Cola Bottling of
Iraq FZCO (J.V. Dubai)
Dubai
Principal
Activities
Holding company
Effective
Shareholding
and Voting
Rights %
2005
Effective
Shareholding
and Voting
Rights %
2004
50.00
—
Change in Group Structure
•
The Group and H.M.B.S., which is located in Iraq established a company called The Coca-Cola Bottling of Iraq
FZCO in Jebel Ali Free Trade Zone (Dubai) in the form of 50% - 50% joint venture with a share capital of
approximately USD 165 in June 2005. In addition, a distribution agreement which gives the distribution and
selling rights of Coca-Cola products in Iraq to The Coca-Cola Bottling of Iraq FZCO that is effective from July 1,
2005 was signed between The Coca-Cola Company and The Coca-Cola Bottling of Iraq FZCO. The distribution
agreement expires in June 2006. Furthermore, an option agreement was signed between the parties granting the
right to be the bottling company in Iraq to The Coca-Cola Bottling of Iraq FZCO. The option agreement expires in
2007. The share capital of The Coca-Cola Bottling of Iraq FZCO was increased to an amount of USD 4,000 on
December 20, 2005.
•
On December 29, 2005; Efes Invest Holland acquired from Atlantic Industries, an indirect subsidiary of The CocaCola Company (TCCC); 90% of the shares in "The Coca-Cola Bottling Company of Jordan" (TCCBCJ); which
exclusively conducts the Coca-Cola bottling operations in Jordan The Company has accounted this acquisition in
accordance with International Financial Reporting Standard (IFRS) 3 Business Combinations. Accordingly
negative goodwill amounted to USD 7,160, which has been recognized in the income statement in the line item of
other operating income, is measured as the excess of the cost of the business combination over the Group's interest
in the net fair value of identifiable assets, liabilities and contingent liabilities. The operating results of TCCBCJ are
not included in the current year consolidated income statement, since the acquisition was realized on December 29,
2005. The consolidated balance sheet reflects the acquisition of TCCBCJ.
The details of the acquisition realized in 2005 are as follows:
Cash consideration.......................................................................................................................................................
Fair value of identifiable net assets acquired ..............................................................................................................
Negative goodwill........................................................................................................................................................
6,360
(13,520)
(7,160)
The fair value of identifiable assets and liabilities of TCCBCJ as at the date of acquisition were:
Cash and cash equivalents ...................................................................................................
Recognized on
acquisition
Carrying
Value
338
338
Trade receivables—net ........................................................................................................
Due from related parties ......................................................................................................
Inventories—net...................................................................................................................
Other current assets..............................................................................................................
Property, plant and equipment—net....................................................................................
Intangible assets—net..........................................................................................................
Loans ....................................................................................................................................
Trade and other payables .....................................................................................................
Due to related parties ...........................................................................................................
Fair value of identifiable net assets .....................................................................................
Shareholding percentage acquired.......................................................................................
Fair value of identifiable net assets acquired by the Group................................................
Cash consideration...............................................................................................................
Net cash acquired with the subsidiary.................................................................................
Net cash outflow ..................................................................................................................
2,027
224
10,165
3,027
20,035
1,600
(9,983)
(12,182)
(229)
15,022
90%
13,520
6,360
(338)
6,022
2,027
224
10,165
3,027
18,011
—
(9,983)
(12,182)
(229)
11,398
•
On November 10, 2005, Efes Invest Holland B.V. which owned 100% shares of Rostov Beverage C.J.S.C
(Rostov) sold its shares to Moscow Efes Brewery C.J.S.C. (Efes Moscow) for USD 100. At the date of sale,
Rostov carried net liability amounting to USD 2,471 in its financial statements. The difference between the sales
price of USD 100 and the net liability carried in the Rostov financial statements amounting to USD 2,571 has been
reflected as other operating income in the consolidated financial statements. Since the sales transaction was
completed on November 10, 2005, the Group included Rostov's income statement prepared for the period until
such date in its consolidated financial statements.
•
As the construction at ACCB was ceased in 2003, Group Management discontinued to consolidate ACCB's
financial statements in the Group's financial statements as of December 31, 2003. The liquidation process of
ACCB commenced on March 26, 2004 with an official announcement of the liquidation. On August 18, 2005, the
balance in the bank accounts of ACCB of USD 499 was transferred to the Group and the liquidation was finalized
on September 13, 2005. The difference between the carrying cost of ACCB, which was USD 550, and the
transferred cash amount of USD 499 has been reflected in the income statement.
follows:
General
The consolidated financial statements of the Group have been prepared in accordance with IFRS, which comprise
standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting
Standards and Standing Interpretations Committee (SIC) interpretations approved by the International Accounting Standards
Committee (IASC) that remain in effect. The consolidated financial statements have been prepared on the historical cost
convention except for the investment in securities carried at fair value amounts.
The Company maintains its books of account and prepares its statutory financial statements ("statutory financial
statements") in accordance with the Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued
by the Ministry of Finance. The foreign subsidiaries maintain their books of account and prepare their statutory financial
statements in their local currencies and in accordance with the regulations of the countries in which they operate. The
consolidated financial statements have been prepared from statutory financial statements of the Company and its subsidiaries
and are presented in accordance with IFRS in U.S. Dollars with adjustments and certain reclassifications for the purpose of fair
presentation in accordance with IFRS. Such adjustments mainly comprise accounting for consolidation, accounting for financial
instruments in accordance with IAS 39, accounting for employee termination benefits, accounting for income accruals and
deferred taxation on temporary differences.
Reclassification on 2004 Financial Statements
The Group has made certain reclassifications in the consolidated financial statements as of December 31, 2004 to be
consistent with the current year presentation. Major reclassifications are as follows:
•
USD 573 that represents advances given for inventories has been reclassified from other current assets to
inventories.
•
USD 991 has been reclassified from deferred tax asset to deferred tax liability.
Functional Currency
The consolidated financial statements are presented in U.S. dollars, which is the Company's functional and reporting
currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each
entity are measured using that functional currency. The functional currency of all the subsidiaries is U.S. dollars.
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries prepared
as of the same date.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated
from the date on which control is transferred out of the Group.
The consolidated financial statements of the Group include Efes Sınai and the companies which it controls. This control
is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a company's
share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its activities. The
equity and net income attributable to minority shareholders' interests are shown separately in the balance sheets and income
statements, respectively.
Intercompany balances and transactions, including intercompany profits and unrealized profits and losses, are
The purchase method of accounting is used for acquired businesses. Subsidiaries acquired or disposed during the year
are included in the consolidated financial statements from the date of acquisition or to until date of disposal.
As Kuban is a dormant company as of December 31, 2005 and 2004, the Group Management discontinued
consolidating Kuban's financials in the Group's financial statements. Kuban is carried at cost with a full provision for the
carrying value (Note 9).
Investment in Associates
associates are carried in the consolidated balance sheet at cost plus post-acquisition changes in the Group's share of net assets of
the associates, less any impairment in value. The consolidated income statement reflects the Group's share of the results of
operations of the associates.
Investment in Joint Venture
Interests in joint ventures are accounted for in accordance with the proportionate consolidation method, i.e. by
including in the accounts under the appropriate consolidated financial statements headings of the Company's proportion of the
joint venture revenue, costs, assets and liabilities. An assessment of interests in joint ventures is made when there are indications
that the assets have been impaired or the impairment losses recognized in prior years no longer exist.
Investments
All investments are initially carried at cost, being the fair value of the consideration given and including acquisition
charges associated with the investment.
Investments classified as available-for-sale investments, that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured by alternative valuation methods, are measured at cost. The carrying amounts of
such investments are reviewed at each balance sheet date for impairment. For available for sale investments that are actively
traded in organized financial markets, fair value is determined by reference to the Istanbul Stock Exchange quoted market bid
prices at the close of business on the balance sheet date.
All regular way purchases and sales of financial assets are recognized on the trade date; i.e. the date that the Group
commits to purchase or to sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require
delivery of assets within the time frame generally established by regulation or convention in the market place.
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 recognized amounts and there is an intention to settle on a net basis or realize the asset and settle
the liability simultaneously.
Use of Estimates
The preparation of the financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the balance sheet. Actual results may vary from the current estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the periods in which they become known.
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash at bank and on hand
and short-term deposits with an original maturity of three months or less.
Trade and Other Receivables
Trade receivables are recognized at original invoice amount and carried at amortized cost less an allowance for any
uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad
debts are written off when identified.
Recognition and Derecognition of Financial Assets and Liabilities
The Group recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party
to the contractual provisions of the instrument. The Group derecognizes a financial asset or a portion of financial asset when and
only when it loses control of the contractual rights that comprise the financial asset or a portion of the financial asset. The Group
derecognizes a financial liability when and only when the obligation specified in the contract is discharged, cancelled or expired.
Inventories
Inventories are valued at the lower of cost and net realizable value. Costs are accounted for on a weighted average basis
and include expenditure incurred in acquiring inventories and bringing them to their existing location and condition. The cost of
finished goods includes an appropriate share of production overheads based on normal operating capacity. Unrealizable
inventory has been fully written off.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and estimated costs necessary to make the sale.
The Group accounts for returnable bottles and other containers in inventory and provides a reserve for these bottles and
containers to bring them to their actual values. The Group sells its products also in non-returnable bottles.
depreciated.
Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets are as follows:
Land improvements ...................................................................................................................................
Buildings ....................................................................................................................................................
Machinery and equipment .........................................................................................................................
Furniture and fixtures.................................................................................................................................
Motor vehicles ...........................................................................................................................................
Beverage coolers........................................................................................................................................
5 years
25 - 40 years
15 years
5 years
7 - 10 years
7 - 10 years
Leases
Finance Lease
The Group as Lessor
The Group records leased assets as a receivable equal to the net investment in the lease. Finance income is based on a
pattern reflecting a constant periodic rate of return on the net investment outstanding. Initial direct costs are recognized
immediately as expenses.
Operating Lease
The Group as Lessee
Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor
are classified as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis
over the lease term. The aggregate benefit of incentives provided by the lessor is recognized as a reduction of rental expense
over the lease term on a straight-line basis.
Intangible Assets
Intangible assets acquired separately from a business are capitalized at cost. Intangible assets acquired as part of an
acquisition of a business are capitalized separately from goodwill if the fair value can be measured reliably on initial recognition,
subject to the constraint that, unless the asset has a readily ascertainable market value, the fair value is limited to an amount that
does not create or increase any negative goodwill arising on the acquisition. Intangible assets, excluding development costs,
created within the business are not capitalized and expenditure is charged against profits in the year in which it is incurred.
Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives.
The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate
that the carrying value may not be recoverable.
Intangible assets comprised of land rights and software that are amortized on a straight-line basis over 50 years and
5 years, respectively.
Goodwill
Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable net assets of an acquired
business at the date of acquisition. Goodwill arising from acquisitions before March 31, 2004 was amortized on a straight-line
basis over its useful economic life up to a presumed maximum of 20 years. Goodwill is reviewed at least annually for possible
impairment and when events and changes in circumstances indicate that the carrying value may not be recoverable, it is adjusted
for any impairment in value. In accordance with IFRS 3 "Business Combinations", the Group ceased to amortize goodwill
arising from the business combinations before March 31, 2004, starting from the beginning of the annual accounting period
beginning on or after March 31, 2004 (January 1, 2005) and recorded provision through reviewing goodwill for impairment.
Borrowings
All borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs
associated with the borrowing.
After initial recognition, borrowings are subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses are recognized in net profit or loss when the liabilities are derecognized, as well as through the
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to
the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the
activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are
capitalized until the assets are substantially ready for their intended use. Borrowing costs include interest charges and other costs
incurred in connection with the borrowing of funds.
Provisions
a)
Defined Benefit Plan
In accordance with existing social legislation in Turkey, the Company is required to make lump-sum termination
indemnities to each employee who has completed one year of service with the Company and its Turkish subsidiaries and whose
employment is terminated due to retirement or for reasons other than resignation or misconduct.
In the consolidated financial statements, the Group has reflected a liability calculated using the Projected Unit Credit
Method and based upon estimated inflation rates and factors derived using the Company and its Turkish subsidiaries' experience
of personnel terminating their services and being eligible to receive such benefits and discounted by using the current market
yield at the balance sheet date on government bonds.
b)
Defined Contribution Plan
The Company pays contribution to the Social Security Institution of Turkey on a mandatory basis. The Company has
no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit
expense when they are due.
c)
Foreign Subsidiaries
operating outside Turkey. Azerbaijan CC contributes to the Azerbaijan Republic state pension and social insurance funds.
Azerbaijan CC's contributions amount to approximately 22% of employees' salaries and are expensed as incurred. Azerbaijan
CC has no other plan or obligation for payment of post-retirement benefits to its employees. Bishkek CC contributes to the
Kyrgyz state pension, social insurance, medical insurance, and unemployment funds on behalf of its employees. Bishkek CC's
contributions amount to approximately 33% of employees' salaries and are expensed as incurred. Bishkek CC has no other
program or obligation for payment of post retirement benefits to its employees.
Almaty CC pays 21% of gross income as social insurance taxes to the Government of Republic of Kazakhstan, which
represent its contribution to the post retirement benefits of its employees. Almaty CC also withholds and contributes 10% of the
salary of its employees as the employees' contribution to their designated pension funds. Under the legislation, employees are
responsible for their retirement benefits and Almaty CC has no present or future obligation to pay its employees upon their
retirement. Almaty CC has no other program or obligation for payment of post retirement benefits to its employees.
TCCBCJ pays 11% of employees' gross salaries along with a 5.5% deduction from the gross salaries of employees as
contribution to Jordan Social Security Department. This amount will be paid to employee by the social security department, after
their retirements. TCCBCJ has no other program or obligation for payment of post retirement benefits to its employees.
Revenue Recognition
Sale of Goods
Sales are recognized when all of the following conditions are met: evidence of a binding arrangement exists (generally
purchase orders), products have been delivered and there is no future performance required, and amounts are collectible under
normal payment terms. Revenue is recognized to the extent that it is probable that the economic benefits will flow to the group
and the revenue can be reliably measured. Revenues are stated net of discounts.
Interest
Revenue is recognized as the interest accrues.
Each entity within the Group translates its foreign currency transactions and balances into its functional currency by
applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date
of the transaction. Exchange rate differences arising on the settlement of monetary items or on reporting monetary items at rates
different from those at which they were initially recorded during the period or reported in previous financial statements are
recognized in the income statement in the period in which they arise.
Income Taxes
Tax expense / (income) is the aggregate amount included in the determination of net profit or loss for the period in
respect of current and deferred tax.
liabilities are recognized for all taxable temporary differences:
•
except where the deferred income tax liability arises from goodwill amortization or the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
•
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not reverse in the foreseeable future.
differences, carry-forward of unused tax assets and unused tax losses can be utilized:
•
except where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
•
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against which the temporary
difference can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be
utilized.
balance sheet date.
Deferred income taxes as required by IAS 12 are not provided for Turkmenistan Coca-Cola Bottlers Ltd.
(Turkmenistan CC), an associate, due to the general uncertainties in Turkmenistan regarding the taxation matters. Such
uncertainties make it difficult to identify the tax consequences of the transactions and other events accounted in the financial
statements and also the recovery and settlement effects of temporary differences. The Group believes such omission does not
have a material effect on the consolidated financial statements taking into account the overall magnitude of this associate's
financial statements and the ownership percentage.
Segment Information
The Group is engaged in production, marketing and distribution of soft drink beverages and distribution of beer. The
Group companies have similar economic and political conditions and therefore are subject to similar risks and returns. Financial
information on geographical and business segments is presented in Note 32.
December 31, 2005
Contingencies
Contingent liabilities are not recognized in the financial statements, they are disclosed unless the possibility of an
outflow of resources embodying economic benefits is probable.
A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is
probable.
Subsequent Events
Post year-end events that provide additional information about the Company's position at the balance sheet date
(adjusting events), are reflected in the financial statements. Post-year-end events that are not adjusting events are disclosed in the
notes when material.
Cash on hand......................................................................................................................................................
Cash in banks .....................................................................................................................................................
Total ...................................................................................................................................................................
2005
2004
191
8,111
8,302
44
3,324
3,368
Investment funds.....................................................................................................................................................
Total ........................................................................................................................................................................
2005
2004
399
399
285
285
Investment funds held were issued by Alternatifbank A.Ş. and are valued at their market value at balance sheet date.
Accounts receivable................................................................................................................................
Less: Provision for doubtful accounts ....................................................................................................
Total ........................................................................................................................................................
2005
2004
7,857
(2,366)
5,491
6,230
(2,879)
3,351
6. INVENTORIES
Raw materials..........................................................................................................................................
Finished goods ........................................................................................................................................
Bottles and cases .....................................................................................................................................
Packaging materials ................................................................................................................................
Chemicals................................................................................................................................................
Goods in transit .......................................................................................................................................
Advertising and sales promotion materials ............................................................................................
Advances given.......................................................................................................................................
Reserve for obsolescence........................................................................................................................
Reserve for bottles and cases..................................................................................................................
Total ........................................................................................................................................................
2005
2004
4,999
5,523
21,909
1,778
1,800
1,585
2,185
564
(981)
(13,372)
25,990
3,085
1,841
8,249
2,572
2,345
950
527
573
(643)
(4,284)
15,215
Related with the credit line obtained from a bank, there is a pledge agreement on Almaty CC's inventories amounting to
USD 1,800 as of December 31, 2005 (December 31, 2004—USD 2.065).
7. OTHER CURRENT ASSETS
Due from personnel and other receivables........................................................................................................
Prepaid taxes and expenses................................................................................................................................
VAT receivable..................................................................................................................................................
Other current assets............................................................................................................................................
Total ...................................................................................................................................................................
2005
2004
119
3,777
1,779
269
5,944
402
260
812
28
1,502
The Group has a 33.25% interest in Turkmenistan CC which is involved in the production, bottling, distribution and
selling of Coca-Cola products.
The following table illustrates summarized financial information of the Group's investment in Turkmenistan CC:
Share of the associate's balance sheet:
Current assets ..........................................................................................................................................
Non-current assets...................................................................................................................................
Current liabilities.....................................................................................................................................
Non-current liabilities .............................................................................................................................
Net assets.................................................................................................................................................
Share of the associate's revenue and profit:
Revenue...................................................................................................................................................
Profit........................................................................................................................................................
Carrying amount of the investment ........................................................................................................
2005
2004
1,022
2,956
(2,008)
—
1,970
1,034
3,320
(2,073)
—
2,281
1,363
(311)
1,970
1,032
(334)
2,281
9. INVESTMENTS
ACCB(*) ..............................................................................................................................................................
Kuban .................................................................................................................................................................
2005
2004
—
375
550
375
Less impairment for ACCB and Kuban(**) ........................................................................................................
(*)
Refer to Note 1.
(**)
Refer to Note 2.
(375)
—
(389)
536
Land and
Land
Improvement
s
Cost
At January 1, net .............
Additions.........................
Disposals .........................
Additions through
acquisition of
subsidiary .....................
Disposals through sale
of subsidiary.................
Transfers..........................
Impairment ......................
At December 31 ..............
Accumulated
Depreciation
Machiner
y
and
Building Equipmen
s
t
Motor
Vehicle
s
Furnitur
e
and
Fixtures
Beverag
e
Coolers
and
Other
Fixed
Assets
Constructio
n in
Progress
2005
Total
2004
Total
463
42
—
18,985
647
(28)
37,700
3,321
(172)
8,133
1,715
(534)
2,091
345
(224)
10,935
353
(466)
5,062
21,710
—
83,369
28,133
(1,424)
72,761
13,250
(1,318)
3,123
5,370
6,651
746
356
3,789
—
20,035
—
(328)
—
—
3,300
—
12,284
—
37,258
—
14,509
—
62,009
—
—
—
10,060
—
28
—
2,596
—
(49)
—
14,562
—
(328)
(26,772)
—
—
—
— 129,785
—
—
(1,324)
83,369
At January 1 ....................
Depreciation charge for
the period......................
Disposals .........................
—
(3,159)
(9,493) (5,507)
(1,857)
(7,154)
—
—
—
(606)
1
(3,269) (1,030)
134
446
(119)
224
(1,022)
457
—
—
At December 31 ..............
Net Book Value..............
—
3,300
(3,764)
33,494
(12,628) (6,091)
49,381
3,969
(1,752)
844
(7,719)
6,843
(27,170 (23,436
)
)
(6,046) (4,783)
1,262
1,049
(31,954 (27,170
)
)
—
— 97,831 56,199
As of December 31, 2005, the gross carrying amounts of fully depreciated property, plant and equipment amounted to
USD 15,192 (2004—USD 4,934).
As of December 31, 2005, certain items of property, plant and equipment with a total net book value of USD 1,188
were pledged as security for the supply of concentrate agreement with Varoise de Concentres S.A., a related party (2004—
USD 2,938).
As of December 31, 2005, the building and land in Hizam are mortgaged at an amount of USD 2,464 related with the
credit that TCCBCJ has taken from Arab Bank.
As of December 31, 2005 and 2004, the property, plant and equipment are stated net of the impairment provision
amounting to USD 1,324. At December 31, 2005 and 2004, the provision consisted of the following:
Beverage coolers.....................................................................................................................................
Vehicles...................................................................................................................................................
Machinery and equipment ......................................................................................................................
2005
2004
(812)
(63)
(449)
(1,324)
(812)
(63)
(449)
(1,324)
The movements in the provision for impairment were as follows for the years ended December 31:
Provision for impairment at the beginning of the year ..........................................................................
Charge for the period ..............................................................................................................................
Reversal...................................................................................................................................................
Provision for impairment at the end of the year.....................................................................................
2005
2004
(1,324)
—
—
(1,324)
(1,026)
(599)
301
(1,324)
As of December 31, 2005 and 2004, intangible assets consist of land rights and other intangible assets.
Cost
At January 1 .......................................................................................................................................................
Additions............................................................................................................................................................
Disposals ............................................................................................................................................................
Additions through acquisition of subsidiary .....................................................................................................
At December 31................................................................................................................................................
Accumulated amortization
At January 1 .......................................................................................................................................................
Amortization for the period ...............................................................................................................................
Disposals ............................................................................................................................................................
At December 31................................................................................................................................................
Net book value..................................................................................................................................................
2005
Total
2004
Total
1,035
27
—
1,600
2,662
993
42
—
—
1,035
(231)
(34)
—
(265)
2,397
(201)
(30)
—
(231)
804
Intangible assets amounting to USD 1,600 which are recognized on acquisition of TCCBCJ during the consolidation
represent the "Distribution and Bottling Agreements" signed between TCCBCJ and TCCC. Since the agreements will be
renewed with no significant cost the management of the Group does not determine any useful life as there is no foreseeable limit
to the period over which such assets are expected to generate cash inflows for the Group. The Distribution and Bottling
Agreements are not amortized but will be tested for impairment annually.
12. GOODWILL
Cost
At January 1 ............................................................................................................................................
Additions.................................................................................................................................................
Reversal of negative goodwill ................................................................................................................
At December 31.....................................................................................................................................
Accumulated amortization and impairment losses
At January 1 ............................................................................................................................................
Amortization expense .............................................................................................................................
Impairment ..............................................................................................................................................
At December 31.....................................................................................................................................
Net book value.......................................................................................................................................
2005
2004
3,169
—
131
3,300
3,048
121
—
3,169
(1,767)
—
(1,533)
(3,300)
—
(1,567)
(200)
—
(1,767)
1,402
Negative goodwill with a net book value amounting to USD 131 as of January 1, 2005 that arose from the Group's
acquisitions is recorded as income in accordance with IFRS 3 (Note 2).
The Group has accounted the acquisition of TCCBCJ in accordance with International Financial Reporting Standard
(IFRS) 3 Business Combinations. Accordingly, negative goodwill that is measured as the excess of the cost of the business
combination over the Group's interest in the net assets of TCCBCJ, amounting to USD 7,160 has been recognized in the income
statement in the line item of other operating income.
As of December 31, 2005, goodwill is reviewed for impairment and an impairment has been recorded for positive
goodwill in the amount of USD 1,533. (Note 2).
Trade accounts payable...................................................................................................................................
Due to personnel .............................................................................................................................................
Taxes and duties payable ................................................................................................................................
VAT payable...................................................................................................................................................
Social security premiums payable ..................................................................................................................
Accrued expenses ...........................................................................................................................................
Deposits taken.................................................................................................................................................
Advances received ..........................................................................................................................................
Other accruals and liabilities ..........................................................................................................................
Total ................................................................................................................................................................
2005
2004
16,307
1,087
1,055
205
77
806
2,190
44
47
21,818
7,773
695
887
196
14
27
—
42
74
9,708
14. BORROWINGS
Short-term borrowings.................................................................................................................................
Current portion of long-term borrowings....................................................................................................
Total short-term borrowings........................................................................................................................
Long-term borrowings .................................................................................................................................
Total borrowings..........................................................................................................................................
2005
2004
33,111
304
33,415
6,500
39,915
9,614
7,372
16,986
2,653
19,639
The effective interest rates of borrowings at the balance sheet dates are as follows:
Long-term
USD denominated borrowings ...............................................................
Short-term
Euro denominated borrowings ...............................................................
Jordanian Dinar denominated borrowings .............................................
2005
2004
4% - 7%
4% - Libor+3.75%
Libor+0.50% - 8%
5.67%
7% - 8%
1% - 7%
—
—
Repayments of long-term borrowings, including current portion of long-term borrowings are scheduled as follows:
2005.................................................................................................................................................................
2006.................................................................................................................................................................
2007.................................................................................................................................................................
Thereafter ........................................................................................................................................................
2005
2004
—
304
2,500
4,000
6,804
7,372
142
2,511
—
10,025
Company's short term loans amounting to USD 15.756 as of December 31, 2005 from İş Bankası Bahreyn Branch was
guaranteed by CCI.
15. EMPLOYEE TERMINATION BENEFITS
Beginning balance...................................................................................................................................................
Interest cost .............................................................................................................................................................
Reversal of provision / (Charge) for the year.........................................................................................................
Exchange difference ...............................................................................................................................................
Ending balance........................................................................................................................................................
2005
2004
94
11
22
—
127
86
13
(9)
4
94
In accordance with existing social legislation, the Company and its subsidiaries incorporated in Turkey are required to
make lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than resignation
or misconduct. Such payments are calculated on the basis of 30 days' pay (limited to a maximum of YTL 1,727 and YTL 1,575
at December 31, 2005 and 2004 respectively) per year of employment at the rate of pay applicable at the date of retirement or
termination. For the companies established in Turkey, as of December 31, 2005 and 2004, the Group reflected a liability
calculated using the Projected Unit Credit Method and based upon factors derived using their experience of personnel
terminating their services and being eligible to receive retirement pay and discounted by using the current market yield at the
balance sheet date on government bonds.
The principal actuarial assumptions used at the balance sheet dates are as follows:
Discount rate ...........................................................................................................................................................
Expected rates of salary/limit increases .................................................................................................................
2005
2004
12%
6%
16%
10%
16. SHARE CAPITAL
Number of shares
2005
Common shares, 0.001 YTL, par value
Authorized.........................................................................................................
26,699,400,000
2004
26,699,400,000
As at December 31, 2005 and 2004 the composition of shareholders can be summarized as follows:
2005
CCI ..............................................................................................................
Anadolu Efes...............................................................................................
Publicly traded ............................................................................................
Anadolu Endüstri Holding A.Ş...................................................................
2004
Amount
Percentage
Amount
Percentage
112,511
—
15,869
13
128,393
87.63%
—
12.36%
0.01%
100.00%
—
66,610
61,770
13
128,393
—
51.87%
48.12%
0.01%
100.00%
CCI purchased 51.87% of the Company's shares owned by Anadolu Efes for a cash consideration of YTL 196,045,010
on November 14, 2005. Following this acquisition, CCI made an announcement for mandatory call that was valid between the
dates December 5, 2005 and December 19, 2005 in order to collect the publicly traded shares representing 48.12% of the
Company's share capital from the willing shareholders, with the permission taken from Capital Markets Board on December 3,
2005. Through the mandatory call, CCI purchased 35.76% of the Company's shares for a cash consideration of
YTL 135,184,968. As a result of these transactions, CCI has become the ultimate parent of the Company by purchasing 87.63%
of the Company's shares at an amount of YTL 331,229,978 in total.
17. LEGAL RESERVES AND STATUTORY ACCUMULATED DEFICIT
Legal Reserves
The legal reserves consist of first and second legal reserves in accordance with the Turkish Commercial Code (TCC).
The first legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a maximum of
20% of the Company's restated share capital. The second legal reserve is appropriated at the rate of 10% of all distributions in
excess of 5% of the Company's restated share capital.
As required by the Turkish Capital Markets Board (CMB) Communiqué Serial XI, No: 25 "Communiqué for the
Accounting Standards in Capital Markets"; beginning from the year 2004 profits, the net profit in the financial statements which
are prepared in accordance with International Financial Reporting Standards will be taken as the base for dividend appropriation.
Since the Company has significant statutory accumulated deficits, it has not performed any distribution from net
income of the year 2004.
The statutory accumulated profits and statutory current year profit are available for distribution, subject to the reserve
requirements referred to above.
18. EARNINGS PER SHARE
Basic earnings per share (EPS) are calculated by dividing the net profit for the period attributable to ordinary
shareholders by the weighted average number of ordinary shares outstanding during the year.
The following reflects the income and share data used in the basic earnings per share computation:
Net profit attributable to ordinary shareholders ...............................................
Weighted average number of ordinary shares..................................................
Earnings per share (full Cents) excluding minority interest ............................
2005
2004
20,067
26,699,400,000
0.0752
8,445
26,699,400,000
0.0316
There have been no other transactions involving ordinary shares or potential ordinary shares since the financial
statements preparation date and before the completion of these financial statements.
There are not outstanding instruments with dilutive effects on earnings per share.
19. COST OF SALES
Raw materials consumed and cost of merchandise sold.............................................................................
Direct labor attributable to production ........................................................................................................
Indirect labor attributable to production......................................................................................................
Production overheads...................................................................................................................................
Depreciation and amortisation.....................................................................................................................
Total .............................................................................................................................................................
2005
2004
70,502
1,085
1,011
2,121
2,944
77,663
54,161
761
856
1,609
2,384
59,771
20. SELLING, DISTRIBUTION AND MARKETING EXPENSES
Wages and salaries.......................................................................................................................................
Transportation, customs and insurance .......................................................................................................
Advertising...................................................................................................................................................
Depreciation and amortization.....................................................................................................................
Maintenance .................................................................................................................................................
Travel ...........................................................................................................................................................
Rent ..............................................................................................................................................................
Energy, fuel, and water ................................................................................................................................
Telecommunication .....................................................................................................................................
Other.............................................................................................................................................................
Reimbursement from the Coca-Cola Export Companies related to selling, distribution and marketing
expenses ....................................................................................................................................................
Total .............................................................................................................................................................
2005
2004
4,350
2,956
3,598
2,729
377
74
344
460
131
525
3,548
2,355
2,966
2,151
404
59
258
302
112
362
(2,076)
13,468
(1,930)
10,587
21. GENERAL AND ADMINISTRATION EXPENSES
Wages and salaries.............................................................................................................................................
Consulting and audit fees...................................................................................................................................
Depreciation and amortization...........................................................................................................................
Taxes and duties.................................................................................................................................................
Maintenance and utility expenses......................................................................................................................
Bad debt expense ...............................................................................................................................................
Insurance ............................................................................................................................................................
Telecommunication ...........................................................................................................................................
Rent ....................................................................................................................................................................
Travel .................................................................................................................................................................
Other...................................................................................................................................................................
Total ...................................................................................................................................................................
2005
2004
5,422
1,288
291
590
183
156
172
120
132
392
745
9,491
3,467
767
478
499
129
129
135
100
149
113
819
6,785
2005
2004
7,291
2,571
—
—
22. OTHER OPERATING INCOME / (EXPENSE)—NET
Negative goodwill........................................................................................................................................
Gain on sale of subsidiary............................................................................................................................
Insurance income .........................................................................................................................................
Income from sale of other assets and equipment renting............................................................................
Loss related to sale of property, plant and equipment ................................................................................
(Provision) for litigation / Reversal of provision ........................................................................................
Liquidation of investment and reversal of impairment in investment, net.................................................
Provision for inventory ................................................................................................................................
Impairment of fixed assets...........................................................................................................................
Impairment of goodwill—net ......................................................................................................................
Other (expense) / income.............................................................................................................................
Total other operating income / (expense), net.............................................................................................
316
234
(18)
(30)
(37)
(100)
—
(1,533)
(362)
8,332
—
242
(48)
88
53
(439)
(298)
—
234
(168)
23. FINANCIAL EXPENSE—NET
Interest income.....................................................................................................................................................
Interest income on finance leases ........................................................................................................................
Total financial income .........................................................................................................................................
Interest expense....................................................................................................................................................
Commission and other expenses .........................................................................................................................
Total financial expense ........................................................................................................................................
Net financial expense, net..................................................................................................................................
2005
2004
193
283
476
1,225
241
1,466
(990)
136
338
474
405
123
528
(54)
24. PERSONNEL EXPENSES AND AVERAGE NUMBER OF EMPLOYEES
For the years ended December 31, 2005 and 2004 personnel expenses were as follows:
Wages and salaries..........................................................................................................................................
Other social expenses......................................................................................................................................
Total ................................................................................................................................................................
2005
2004
10,384
1,484
11,868
7,573
1,066
8,639
For the years ended December 31, 2005 and 2004, average number of employees were as follows:
Efes Sınai .............................................................................................................................................................
Azerbaijan CC......................................................................................................................................................
Almaty CC ...........................................................................................................................................................
Bishkek CC ..........................................................................................................................................................
Rostov ..................................................................................................................................................................
TCCBCJ ...............................................................................................................................................................
J.V. Dubai ............................................................................................................................................................
Total .....................................................................................................................................................................
2005
2004
24
198
573
176
—
820
—
1,791
20
172
521
174
3
—
—
890
25. DEPRECIATION AND AMORTIZATION EXPENSES
Cost of production..............................................................................................................................................
Selling, distribution and marketing expenses....................................................................................................
General and administration expenses ................................................................................................................
Inventory ............................................................................................................................................................
Sub-total depreciation expense..........................................................................................................................
Goodwill
Intangible assets
Sub-total amortization expense .........................................................................................................................
2005
2004
2,936
2,721
273
116
6,046
2,376
2,143
264
—
4,783
—
200
8
8
18
34
8
8
14
230
Total depreciation and amortization expenses.............................................................................................
6,080
5,013
26. INCOME TAXES
Major components of income tax expense for the years ended December 31, 2005 and 2004 are:
Current tax expense ...........................................................................................................................................
Deferred tax expense / (income) relating to the origination of temporary differences ....................................
Total income tax...............................................................................................................................................
2005
2004
2,306
2,869
5,175
2,577
(118)
2,459
December 31, 2005
26. INCOME TAXES
The Group is subject to taxation in accordance with the tax regulations and the legislation effective in the countries in
In Turkey, the corporation tax rate as of December 31, 2005 is 30% (2004—33%). Corporate tax returns are required to
be filed until the fifteenth of the fourth month following the balance sheet date and paid in one installment until the end of the
fourth month. The tax legislation provides for a temporary tax of 30% (2004—33%) to be calculated and paid based on earnings
generated for each quarter. The amounts thus calculated and paid are offset against the final corporate tax liability for the year.
inflation accounting. For the period between January 1, 2004 - December 31, 2004, taxable income is derived from the financial
statements which are adjusted for inflation accounting. Accumulated earnings arising from the first application of inflation
accounting on December 31, 2003 balance sheet is not subject to corporation tax, and similarly accumulated deficits arising from
such application is not deductible for tax purposes. Moreover, accumulated tax loss carry-forwards related with 2003 and prior
periods will be utilized at their historical (nominal) values in 2004 and future years. Inflation accounting application has been
ceased effective from January 1, 2005.
of five years. A tax amnesty law, which was enacted in 2003 provided immunity for tax inspection and additional assessments to
those taxpayers who utilized the option. According to the law; companies, who accepted to use this opinion, also accepted a 50%
reduction from their corporate tax losses incurred in the same year and the Company used this option.
basis.
10% withholding applies to dividends distributed by resident corporations to resident real persons, those who are not
liable to income and corporation tax, non-resident real persons, non-resident corporations (excluding those that acquire dividend
through a permanent establishment or permanent representative in Turkey) and non-resident corporations exempted from
income and corporation tax. Dividend distributions by resident corporations to resident corporations are not subject to a
withholding tax. Furthermore, in the event the profit is not distributed or included in capital, no withholding tax shall be
applicable.
Capital gains derived from cash sales of participation shares that have been held for at least two years are exempt from
corporation tax if the gains are added to share capital. Furthermore, in the event the profit arising from the dividend receipt is not
distributed or included in capital, no withholding tax shall be applicable.
The reconciliation of the total income tax to the theoretical amount that would arise using the tax rate of the home
country of the Company is as follows:
2005
2004
26,639
(7,992)
2,960
474
2,252
(2,306)
624
—
(4,080)
(151)
(74)
210
—
57
545
(2,869)
(5,175)
Consolidated profit before tax..................................................................................................................
Tax calculated at the Company's tax rate of 30% (2004—33%)................................................................
Impact of different tax rates in other countries ...........................................................................................
Unused tax losses.........................................................................................................................................
Other.............................................................................................................................................................
Current tax charge.....................................................................................................................................
Tax losses carryforward...............................................................................................................................
Efes Invest Holland deferred tax .................................................................................................................
Fixed assets ..................................................................................................................................................
Income on in-kind transfer of fixed assets to capital ..................................................................................
Allowance for doubtful accounts.................................................................................................................
Inventories....................................................................................................................................................
Payable written off in statutory books.........................................................................................................
Accrued employees bonuses and rent .........................................................................................................
Other.............................................................................................................................................................
Deferred tax (charge) / income.................................................................................................................
Tax charge, net ...........................................................................................................................................
12,040
(3,973)
1,498
(280)
178
(2,577)
(179)
106
353
(166)
45
(39)
(31)
5
24
118
(2,459)
27. DEFERRED TAXES
The list of temporary differences and the resulting deferred tax assets/(liabilities), as of December 31, 2005 and 2004
using the prevailing effective statutory tax rates is as follows:
Deferred Tax
Assets
2005
2004
Temporary differences arising from translation of fixed
assets.......................................................................................
Tax loss carried forward ...........................................................
Provision for doubtful receivables............................................
Impairment provision for fixed assets ......................................
Accrued employees bonuses and rent ......................................
Inventory ...................................................................................
Efes Invest Holland deferred tax ..............................................
Other..........................................................................................
Total ..........................................................................................
—
1,446
61
839
257
147
—
—
2,750
—
464
195
991
105
—
—
73
1,828
Deferred Tax
Liabilities
2005
2004
(8,238)
—
—
—
—
—
—
—
(8,238)
(4,157)
—
—
—
—
(118)
(202)
—
(4,477)
Net
2005
(8,238)
1,446
61
839
257
147
—
—
(5,488)
2004
(4,157)
464
195
991
105
(118)
(202)
73
(2,649)
The management of the Company does not consider the additional deferred tax asset of USD 10,262 (2004—
USD 6,032) as realizable in the foreseeable future, and accordingly, the Company has not provided a deferred tax asset for such
amount in the consolidated financial statements as of December 31, 2005 and 2004.
Movements in deferred tax during the period are as follows:
Balance
January 1, 2005
as reported
Credited/ (charged)
to income
statement
Balance
December 31,
2005
(4,157)
464
195
991
105
(247)
(2,649)
—
(2,649)
(4,081)
982
(134)
(152)
152
394
(2,839)
(30)
(2,869)
(8,238)
1,446
61
839
257
147
(5,488)
—
(5,488)
Fixed Assets .......................................................................
Tax loss carryforward ........................................................
Provision for doubtful receivables.....................................
Income on in-kind transfer of fixed assets to capital ........
Accrued employees bonuses and rent ...............................
Other...................................................................................
Net deferred tax (liability) / asset ...................................
Translation loss ..................................................................
Total...................................................................................
28. RELATED PARTY BALANCES AND TRANSACTIONS
For the purposes of consolidated financial statements, the shareholders of the Company and its consolidated
subsidiaries or their associates and the companies, which are identified to be controlled by/associated with them, are referred to
as related parties.
(1)
Balances with related parties as of December 31, 2005 and 2004, which are separately classified in the consolidated
balance sheets are as follows:
Due from related parties
Anadolu Endüstri Holding (AEH)(1)..................................................................................................................
Rostov Beverage C.J.S.C. (Rostov)(2) ...............................................................................................................
Efes Breweries International N.V.(3)..................................................................................................................
The Coca-Cola Companies(4) .............................................................................................................................
Moscow Efes Brewery(**) (Efes Moscow)(3) .....................................................................................................
Turkmenistan CC (5) .........................................................................................................................................
Efes Karaganda Brewery J.S.C. (Efes Karaganda)(3) ........................................................................................
Atlantic Industries(4) ...........................................................................................................................................
Others .................................................................................................................................................................
Total...................................................................................................................................................................
Due to related parties
The Coca-Cola Companies(4) .............................................................................................................................
Efes Karaganda(3) ...............................................................................................................................................
Others .................................................................................................................................................................
Total...................................................................................................................................................................
Loans obtained from related parties
Oyex Handels GmbH(*) (Oyex)(6) ......................................................................................................................
Anadolu Efes(*)(7) ................................................................................................................................................
Total...................................................................................................................................................................
2005
2004
660
508
100
105
—
172
—
153
—
1,698
350
—
—
412
4,418
172
33
—
5
5,390
2005
2004
1,687
712
111
2,510
2,366
885
558
3,809
148
—
148
327
4,682
5,009
(*)
As of December 31, 2005 and December 31, 2004 long-term loans' principals and interests are included in long-term
loans, respectively.
(**)
Represents the receivable arising from the leasing contract signed between Rostov and Moscow Efes Brewery. In
accordance with the contract, the ownership of the leased assets will be transferred to the lessee at the end of the contract period.
(1)
Shareholder of the Company
(2)
Subsidiary of Efes Moscow
(3)
Subsidiaries of Efes Breweries International N.V.
(4)
Related parties of The Coca-Cola Export Corporation (Shareholder of Azerbaijan CC, Almaty CC and Bishkek CC)
(5)
Investment in associate
(6)
Related Party of AEH
(7)
Shareholder of CCI
(2)
Transactions with Related Parties
The most significant transactions with related parties during the years ended December 31, 2005 and 2004 are as
follows:
2005
2004
Major sales to related parties
Efes Karaganda Brewery J.S.C. ........................................................................................................................
Coca-Cola CIS Services ....................................................................................................................................
Coca-Cola Export Company..............................................................................................................................
Coca-Cola Meşrubat ..........................................................................................................................................
Coca-Cola Bottlers Turkmenistan .....................................................................................................................
Total...................................................................................................................................................................
Major purchases from related parties
The Coca-Cola Companies..........................................................................................................................
Efes Karaganda Brewery J.S.C. ..................................................................................................................
Atlantic Industries........................................................................................................................................
Anadolu Baku Automobile San. ve Tic. A.Ş. .............................................................................................
Total.............................................................................................................................................................
Rent and service income from related parties
Coca-Cola Meşrubat Pazarlama ve Danışmanlık Hizmetleri A.Ş..............................................................
Efes Karaganda ............................................................................................................................................
The Coca-Cola CIS Services .......................................................................................................................
Total.............................................................................................................................................................
Interest expense to related parties
Anadolu Efes................................................................................................................................................
Oyex .............................................................................................................................................................
Total.............................................................................................................................................................
Interest income from related parties
AEH..............................................................................................................................................................
Efes Moscow................................................................................................................................................
Total.............................................................................................................................................................
General and administrative expenses to related parties
AEH..............................................................................................................................................................
Total.............................................................................................................................................................
(3)
Remuneration of the Board of Directors
a)
There are no pension arrangements for the members of the Board of Directors.
b)
No shares are held by the members of the Board of Directors.
c)
There are no share options granted to the directors of the Company.
d)
No loans have been granted to the directors of the Company.
3,490
2
—
—
—
3,492
2,529
2
353
118
25
3,027
2005
2004
13,230
9,621
16
—
22,867
12,625
7,616
—
145
20,386
593
177
30
800
—
128
29
157
69
6
75
164
13
177
25
283
308
54
338
392
318
318
158
158
As of December 31, 2005 and 2004 the executive members of the Company's management received aggregate
compansation totaling USD 761 and USD 2,090 respectively.
29. GOING CONCERN
Turkmenistan CC has an accumulated deficit amounting to USD 11,782 as of December 31, 2005, (including the
current year loss of USD 933) and its current liabilities exceed its current assets as of the same date. (2004—Accumulated deficit
amounting to USD 10,850). Company management believes that the adverse situation in Turkmenistan CC will be remediated
through profitable operations in the coming years as the country's economy becomes more stable.
As of December 31, 2005 the accumulated deficit of TCCBCJ in the amount of USD 41,802 represents 79% of its
share capital amounting to USD 53,200. Under Article 75 of Jordanian Companies' Law, the Company's General Assembly has
to meet and determine either to increase its paid-in-capital or to liquidate the entity since its accumulated deficit is greater than
50% of the share capital. Shareholders have agreed to increase the share capital for an amount of USD 15.000, following the
related board resolution and completing other required procedures.
Political and Economic Environment for Subsidiaries
The countries, in which certain subsidiaries are operating, have undergone substantial political and economical changes
in the recent years. These countries do not possess well-developed business infrastructures and accordingly the operations in
such countries might carry risks, which are not typically associated with those in more developed markets. Uncertainties
regarding the political, legal, tax and/or regulatory environment, including the potential for adverse changes in any of these
factors, could significantly affect the subsidiaries' ability to operate commercially.
Pledges
Related with the credit line obtained from a bank, there is a pledge agreement on Almaty CC's inventories amounting to
USD 1,800. (December 31, 2004—USD 2,065).
Certain items of property, plant and equipment of Azerbaijan CC amounting to USD 1,188 were pledged as security for
the supply of concentrate agreement with Varoise De Concentres S.A. (December 31, 2004—USD 2,938).
Mortgage
As of December 31, 2005, the buildings and land of TCCBCJ are mortgaged in the amount of USD 2,464 for the loan
taken from Arab Bank.
Contingent Liability
In accordance with the credit line agreement with Azerturk Bank, the Company is obliged not to grant, sell or pledge its
property to anyone without prior permission of the bank during the whole period the loan amount is outstanding.
Letters of Credit
Azerbaijan CC obtained letters of credit in the amount of USD 1,194 in total to purchase resin from its suppliers.
(December 31, 2004—USD 830).
Guarantee Letters
As of December 31, 2005, amount of letters of guarantee obtained from banks and given to suppliers and government
authorities is USD 34 (December 31, 2004—USD 92).
Tax Matters Related to the Subsidiary in the Republic of Kazakhstan
The taxation system in Kazakhstan is evolving as the government transforms itself from a command to a market
oriented economy. The various acts of legislation and regulations are not always clearly written and their interpretation is subject
to the opinions of the local tax inspectors, National Bank officials, and the Ministry of Finance. Instances of inconsistent
opinions between local, regional and national tax authorities and between the National Bank and the Ministry of Finance are
usual.
The current regime of penalties and interest related to reported and discovered violations of the Kazakhstani law,
decrees and related regulations include confiscation of the amounts at issue (for currency law violations), as well as fines of
generally 50% of the taxes unpaid. Interest is assessable at rates of generally 0.03% per day.
Tax Matters Related to the Subsidiary in the Republic of Kyrgyzstan
Bishkek CC is subject to corporate income tax of 20% on taxable profit as determined under the laws of Kyrgyzstan.
As of December 31, 2005, Bishkek CC has no cumulative loss carry forwards. (2004—USD 4,111). The losses carried
forward in Kyrgyzstan expire for tax purposes in five years from the date they are incurred.
During 2003, Bishkek CC had gone through a tax audit. Based on the results of this tax audit, the tax authorities
assessed additional taxes and related penalties. Bishkek CC recorded a provision for this assessment amounting to USD 344 as
of December 31, 2004, as well as making the payment of the corresponding penalties in the amount of USD 7 during the year
ending December 31, 2004. During the year ending December 31, 2004, Bishkek CC made a reversal of the excess provision in
the amount of USD 88 as per tax authorities' final act. During the year ended December 31, 2005, Bishkek CC has paid
USD 122 of corresponding penalties. As a result, the provision reflected to the consolidated balance sheet as of December 31,
2005 is USD 127.
Tax Matters Related to the Subsidiary in Azerbaijan
In accordance with local tax regulation, Azerbaijan CC is subject to a 24% income tax rate. Companies are required to
file profit tax declarations on an annual basis.
Tax Matters Related to the Subsidiary in Jordan
TCCBCJ is subject to corporate income tax of 15% on taxable profit as determined under the laws of Jordan. As of
December 31, 2005, the accumulated losses of TCCBCJ are amounting to USD 41,802.
Political and Economic Environment and Tax Matters Related to the Investment in Associate in Turkmenistan
Legislation and regulations regarding taxation, foreign currency transactions and licensing of foreign currency loans in
Turkmenistan are constantly evolving as the central government manages the transformation from a command to a
market-oriented economy. The various legislation and regulations are not always clearly written and their interpretation is
subject to the opinions of the local tax inspectors, the Turkmenistan Central Bank officials, and the Ministry of Finance.
Instances of inconsistent opinions among the tax districts, the Turkmenistan Central Bank and Ministry of Finance are usual.
Penalties and interest can result in amounts that are multiples of any unreported taxes in Turkmenistan according to the
current regime of penalties and interest related to reported and discovered violations of the laws.
Because of the uncertainties associated with the tax and legal systems of Turkmenistan, the ultimate amount of taxes,
penalties and interest, if any, assessed may be in excess of the amount expensed to date and accrued as of December 31, 2005.
Although such amounts are possible and may be material, it is the opinion of the Group's management that these amounts are
either not probable, or reasonably determinable, or both.
The Group's operations and financial position will continue to be affected by political developments in Turkmenistan,
including the application of existing and future legislation and tax regulations. The Group does not believe that these
contingencies, as related to its operations, are any more significant than those of similar enterprises in Turkmenistan.
Tax Provisions
The Group believes that it has paid or accrued all taxes that are applicable. Where practice concerning the provision of
taxes was unclear, the Group has accrued tax liabilities based on management's best estimate. The Group's policy is to accrue for
contingencies in the accounting period in which a loss is deemed probable and the amount is reasonably determinable. No such
accruals have been made as of December 31, 2005 other than a minor accrual related to litigation.
Financial Risk Management
Financial Risk Management Objectives and Policies
The Group's principal financial instruments comprise bank borrowings, cash and short-term deposits and investment
securities. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group has various
other financial assets and liabilities such as trade debtors and trade creditors, which arise directly from its operations.
The main risks arising from the Group's financial assets and liabilities are credit risk, interest rate risk, foreign exchange
risk, market risk, liquidity risk and cash flow risk. The board / management reviews and agrees policies for managing each of
these risks and they are summarized below.
1)
Credit Risk
Credit risk arises from the possibility that customers may not be able to settle obligations to the Group within the
normal terms of trade.
Credit risks, or the risk of counter parties defaulting, are controlled by the application of credit approvals, limits and
monitoring procedures. The extent of the Group's credit exposure is represented by the aggregate balance of accounts receivable
and advances to suppliers. Concentrations of credit risk with respect to accounts receivable are limited due to the large number
of customers included in the Group's customer base.
The Group places its cash with high credit quality financial institutions.
2)
Interest Rate Risk
Interest rate risk to the Group is the risk of changes in market interest rates reducing the overall return on its
investments and increasing the cash outflow on its borrowings. The Group limits interest rate risk by monitoring changes in
interest rates in the currencies in which its cash, investments and borrowings are denominated.
The effective interest rate ranges as at December 31, 2005 and 2004 is as follows:
Fixed rate borrowings (USD) ..................................................................
Fixed rate borrowings (Euro) ..................................................................
Fixed rate borrowings (Jordanian Dinar) ................................................
Floating rate borrowings (USD)..............................................................
3)
2005
2004
4% - 8%
5.67%
7% - 8%
Libor + 0.50% - Libor + 1%
1% - 7%
—
—
Libor + 3.75%
The Group's operations are predominantly performed in countries where the economies experience volatile levels of
inflation. Their respective currencies are also subject to continuous fluctuation against the U.S. dollar.
The translation of local currency denominated assets and liabilities into US Dollars for the purpose of these financial
statements does not indicate that the Group could realize or settle in US Dollars the reported values of the assets and liabilities.
Likewise, it does not indicate that the Group could return or distribute the reported US Dollar values of capital to its
shareholders.
The following table summarizes the exchange rate of the local currencies to 1 US dollar:
Azerbaijan Manat..............................
Kazakh Tenge ...................................
Kyrgyz Som ......................................
Euro ...................................................
Rouble ...............................................
New Turkish Lira..............................
Jordanian Dinar.................................
Exchange rate at
2005
Average exchange
rate in the period
Exchange rate at
2004
4,593
133.77
41.30
0.85
28.78
1.3418
0.71
4,730
132.88
41.02
0.81
28.31
1.3405
0.71
4,903
130.00
41.62
0.74
27.75
1.3421
0.71
The following table summarizes the annual rate of inflation for each year in the 4 year period ended December 31,
2005:
Azerbaijan ...............................................................................................................................
Kazakhstan ..............................................................................................................................
Kyrgyzstan ..............................................................................................................................
Netherlands .............................................................................................................................
Russian Federation..................................................................................................................
Turkey .....................................................................................................................................
2005
(%)
2004
(%)
2003
(%)
2002
(%)
10
8
2
2
13
3
5
7
3
1
11
14
4
7
6
2
12
14
3
7
2
3
15
31
The Company and its subsidiaries are exposed to exchange rate fluctuations due to the nature of their businesses. The
Group's imports are in USD and Euro. These currencies strengthening against the subsidiaries' local currencies have an adverse
effect on the Group's results.
The Group does not use any derivative instruments to hedge its foreign currency risk. Foreign currency denominated
assets provide a natural hedge against liabilities.
Republic of Kazakhstan, Azerbaijan and Kyrgyzstan Currency Exchange and Controls
The Kazakh Tenge, Azerbaijan Manat and The Kyrgyz Som are not fully convertible currencies outside the territory of
the Republic of Kazakhstan, Azerbaijan and Kyrgyzstan. Within these countries, official exchange rates are determined daily by
the National Bank of the Republic. Market rates may differ from the official rates but the differences are, generally, within
narrow parameters monitored by National Bank.
4)
Market Risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices. The
Group manages market risk through periodic estimation of potential losses that could arise from adverse changes in market
conditions.
5)
Liquidity Risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with
its financial liabilities.
Liquidity requirements are monitored on a regular basis and management ensures that sufficient funds are available to
meet any commitments as they arise.
6)
Cash Flow Risk
Cash flow risk is the risk that future cash flows associated with monetary financial instruments will fluctuate.
Cash flow requirements are monitored on a regular basis and management ensures that sufficient funds are available to
meet any commitments as they arise. The management of the Group believes that any possible fluctuations of future cash flows
associated with monetary financial instruments will not have material impact on the Group's operations.
Fair Values
The fair values of bank borrowings are considered to approximate their respective carrying values, since the initial rates
applied to bank borrowings are updated periodically by the lender to reflect active market price quotations.
Geographical Segments
Information per geographical segments as of December 31, 2005 and 2004 are as follows:
2005
Revenues
External Sales...............................................................
Inter-segment Sales......................................................
Total Revenues ...........................................................
Gross Profit.................................................................
Total Assets.................................................................
Total Liabilities ..........................................................
Domestic
Foreign
Elimination
Consolidated
2,838
6,531
9,369
3,455
106,922
2,382
123,157
—
123,157
38,183
193,743
85,094
(6,853)
(6,531)
(13,384)
(159)
(150,458)
(16,768)
119,142
—
119,142
41,479
150,207
70,708
2004
Revenues
External Sales...............................................................
Total Revenues ...........................................................
Gross Profit.................................................................
Total Assets.................................................................
Domestic
Foreign
Elimination
Consolidated
1,636
9,130
10,766
2,787
107,514
3,485
92,739
—
92,739
28,332
125,234
42,974
(4,082)
(9,130)
(13,212)
(597)
(140,138)
(10,483)
90,293
—
90,293
30,522
92,610
35,976
Business Segments
Sales revenue by business
segments
2005
2004
Soft drinks ..................................................................................................................................................
Beer ............................................................................................................................................................
Service income...........................................................................................................................................
Total...........................................................................................................................................................
106,703
11,820
619
119,142
81,064
9,045
184
90,293
Due to a change in the tax legislation of Kyrgyzstan which has became valid in 2006, Bishkek CC will be subject to
corporate tax amounting to 10% of its taxable income.
TCCBCJ has subsequently repaid the year-end balance of its credit facility from Citibank, amounting to USD 7,862.
According to the same loan agreement with Citibank, as of March 2, 2006, TCCBCJ has increased its use of the credit to the
limit of the facility, USD 13,000.
Efes Sınai Yatırım Holding A.Ş.:
We have audited the consolidated balance sheet of Efes Sınai Yatırım Holding A.Ş. (the Company) and its subsidiaries
(together-the Group) as of December 31, 2004 and the related consolidated income, shareholders' equity and cash flow
statements for the year then ended, all expressed in U.S. Dollars. These financial statements are the responsibility of the Group's
management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements, present fairly, in all material respects, the financial position of the
Group as of December 31, 2004 and the results of its operations and its cash flows for the year then ended in accordance with
International Financial Reporting Standards.
We draw attention to the following matter:
New Turkish Lira (YTL) amounts shown in the financial statements have been included solely for the convenience of
the reader and are translated from U.S. Dollars, as a matter of arithmetic computation only, at the official YTL exchange rate for
purchases of U.S. Dollars announced by the Central Bank of the Republic of Turkey on December 31, 2004 of YTL1.3421 =
USD1.00 (full). Such translation should not be construed as a representation that the USD amounts have been or could be
converted to YTL at this or any other rate.
/s/ Ernst & Young
March 15, 2005
İstanbul, Turkey
Efes Sınai Yatırım Holding Anonim Şirketi and its subsidiaries CONSOLIDATED BALANCE SHEET As at December 31,
2004 (Currency—Thousands of U.S. Dollars unless otherwise indicated, thousands of YTL) (amounts translated into YTL for
convenience purposes—see Note 2)
ASSETS
Current assets
Cash and cash equivalents ...........................................
Investments in securities..............................................
Trade receivables—net
Due from related parties ..............................................
Inventories—net...........................................................
Other current assets......................................................
Total current assets....................................................
Non-current assets
Goodwill, net................................................................
Investment in associate ................................................
Investments ..................................................................
Property, plant and equipment—net............................
Intangible assets-net.....................................................
Deferred tax asset.........................................................
Due from related parties ..............................................
Other non-current assets ..............................................
Total non-current assets............................................
Total assets..................................................................
Current liabilities
Trade and other payables .............................................
Due to related parties ...................................................
Short-term loans...........................................................
Current portion of long-term loans..............................
Income tax payable ......................................................
Total current liabilities..............................................
Long-term loans—net of current portion ....................
Employee termination benefits....................................
Deferred tax liability ....................................................
Other non-current liabilities.........................................
Total non-current liabilities
Minority interest...........................................................
Equity
Share capital.................................................................
Share premium.............................................................
Accumulated deficit.....................................................
Total equity.................................................................
Total liabilities and equity.........................................
Notes
2004
2004
(in thousand
YTL)
3
4
5
28
6
7
3,368
285
3,351
2,985
14,642
2,075
26,706
4,520
382
4,497
4,006
19,651
2,785
35,841
4,204
228
2,578
3,962
8,573
2,655
22,200
5,642
306
3,460
5,317
11,506
3,563
29,794
12
8
9
10
11
27
28
1,402
2,281
536
56,199
804
991
2,405
2,277
66,895
93,601
1,882
3,061
719
75,425
1,079
1,330
3,228
3,056
89,780
125,621
1,481
2,615
483
48,299
792
1,157
3,339
475
58,641
80,841
1,988
3,510
648
64,822
1,063
1,553
4,481
637
78,702
108,496
13
28
14,31
14,31
26
9,708
3,809
9,614
7,372
—
30,503
13,029
5,112
12,903
9,894
—
40,938
6,660
8,028
7,333
1,886
233
24,140
8,938
10,774
9,842
2,531
313
32,398
14,31
15
27
2,653
94
3,640
77
6,464
6,076
3,561
126
4,885
103
8,675
8,155
4,989
86
4,210
61
9,346
5,242
6,696
115
5,650
83
12,544
7,035
16
128,393
241
(78,076)
50,558
93,601
172,316
323
(104,786)
67,853
125,621
128,393
241
(86,521)
42,113
80,841
172,316
323
(116,120)
56,519
108,496
17
2003
2003
(in thousand
YTL)
The accompanying policies and the explanatory notes on pages F-81 through F-107 form an integral part of the consolidated
CONSOLIDATED INCOME STATEMENT
(Currency—Thousands of U.S. Dollars unless otherwise indicated, thousands of YTL)
(amounts translated into YTL for convenience purposes—see Note 2)
Sales .......................................
Cost of sales ...........................
Gross profit...........................
Selling, distribution and
marketing expenses.............
General and administration
expenses ..............................
Other operating expense—net
Profit from operations.........
Financial (expense) /
income—net........................
Loss from associates ..............
Translation loss ......................
Income before tax ..................
Tax charge, net.......................
Income before minority
interest................................
Minority interest.....................
Net income ............................
Notes
2004
2004
(in thousand YTL)
2003
2003
(in thousand YTL)
28,32
19,24,25,28
90,293
(59,771)
30,522
121,182
(80,219)
40,963
58,564
(40,168)
18,396
78,599
(53,909)
24,690
20,24,25
(10,587)
(14,209)
(7,513)
(10,083)
21,24,25
22, 28
(6,785)
(168)
12,982
(9,106)
(225)
17,423
(5,454)
(834)
4,595
(7,320)
(1,119)
6,168
23,28
8
(54)
(334)
(554)
12,040
(2,459)
(72)
(448)
(744)
16,159
(3,300)
59
(212)
(1,636)
2,806
(1,854)
79
(285)
(2,196)
3,766
(2,488)
9,581
(1,136)
8,445
12,859
(1,525)
11,334
952
(458)
494
1,278
(615)
663
26,27
The accompanying policies and explanatory notes on pages F-81 through F-107 form an integral part of the consolidated
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Share
Capital
Share
Premium
Accumulated
Deficit
Total
Balance at January 1, 2004 ...............................................................................
Net income ........................................................................................................
Balance at December 31, 2004.......................................................................
128,393
—
128,393
241
—
241
(86,521)
8,445
(78,076)
42,113
8,445
50,558
(in thousand YTL)
Share
Capital
Net income ........................................................................................................
Balance at December 31, 2004.......................................................................
172,316
—
172,316
323
—
323
(116,120)
11,334
(104,786)
Share
Capital
Share
Premium
Accumulated
Deficit
Total
Net income ........................................................................................................
Balance at December 31, 2003.........................................................................
128,393
—
128,393
241
—
241
(87,015)
494
(86,521)
41,619
494
42,113
(in thousand YTL)
Share
Capital
Net income ........................................................................................................
Balance at December 31, 2003.........................................................................
172,316
—
172,316
Share
Premium
Share
Premium
323
—
323
Accumulated
Deficit
Accumulated
Deficit
(116,783)
663
(116,120)
Total
56,519
11,334
67,853
Total
55,856
663
56,519
CONSOLIDATED CASH FLOW STATEMENT
Net income before minority interest and tax charge ..................
Adjustments for:
Depreciation and amortization (including amortization of
goodwill) ..................................................................................
Impairment in property, plant and equipment............................
Loss related to sale of property, plant and equipment ...............
Impairment in investments .........................................................
Provision for bad debt.................................................................
Provision for litigation ................................................................
Provision for other receivables ...................................................
Provision for employee termination benefits .............................
Provision for inventory ...............................................................
Interest expense...........................................................................
Loss from associates ...................................................................
Operating profit before changes in operating assets and
liabilities ..................................................................................
Net (increase)/decrease in trade receivables and due from
related parties ...........................................................................
Net increase in inventories..........................................................
Net change in other assets and liabilities....................................
Net increase/(decrease) in trade payables and due to related
parties .......................................................................................
Taxes paid ...................................................................................
Net cash provided by operating activities ..............................
Purchase of property, plant and equipment and intangible
assets.........................................................................................
Proceeds from sale of property, plant and equipment and
buildings...................................................................................
Capital increase of subsidiaries by minority shareholders.........
Change in investment in associate..............................................
Payments to acquire minority interests ......................................
Net cash used in investing activities........................................
Short-term loans borrowed .........................................................
Long-term loans borrowed .........................................................
Repayment of short-term loans ..................................................
Repayment of long-term loans ...................................................
Interest paid.................................................................................
Net cash provided by / (used in) financing activities ............
Net increase/(decrease) in cash and cash equivalents...........
Cash and cash equivalents at beginning of the year .............
Cash and cash equivalents at end of the year........................
2004
2004
(in thousand
YTL)
2003
2003
(in thousand
YTL)
12,040
16,159
2,806
3,766
5,013
298
48
(53)
(249)
(88)
80
8
320
398
334
6,728
400
64
(71)
(334)
(118)
107
11
429
534
448
4,425
108
30
52
221
136
—
16
—
545
212
5,939
145
40
70
297
183
—
21
—
731
285
18,149
24,357
8,551
11,477
1,387
(6,389)
(1,286)
1,861
(8,575)
(1,726)
(698)
(1,807)
(1,481)
(937)
(2,425)
(1,988)
(1,083)
(3,096)
7,682
(1,453)
(4,155)
10,309
2,598
(1,171)
5,992
3,487
(1,572)
8,042
(13,292)
(17,839)
(2,404)
(3,226)
221
(121)
—
(302)
(13,494)
297
(162)
—
(405)
(18,109)
818
(117)
(474)
(1,148)
(3,325)
1,098
(157)
(636)
(1,541)
(4,462)
2,698
4,403
(395)
(1,285)
(388)
5,033
(779)
4,432
3,653
3,621
5,909
(530)
(1,725)
(521)
6,754
(1,046)
5,948
4,902
5,180
371
(5,483)
(1,642)
(527)
(2,101)
566
3,866
4,432
6,952
498
(7,359)
(2,204)
(707)
(2,820)
760
5,188
5,948
December 31, 2004
General
Efes Sınai Yatırım Holding A.Ş. (the Company) was established on December 13, 1993. Shares of the Company are
currently traded on Istanbul Stock Exchange and the London Stock Exchange. The Company has its statutory seat and its
principal place of business at Esentepe Mahallesi Anadolu Cad. No:1 Kartal, İstanbul, Turkey.
The Group is the Company and its subsidiaries.
The ultimate parent of the Company is Anadolu Efes Biracılık ve Malt Sanayii Anonim Şirketi (Anadolu Efes).
Anadolu Efes is a Turkish Corporation, which was established in İstanbul in 1966. The operations of Anadolu Efes consist of
production of beer and raw materials. Certain shares of Anadolu Efes are listed on the İstanbul Stock Exchange.
The operations of the Group consist of production, bottling, distribution and selling of Coca-Cola products and
distribution of Efes products. The Group owns and operates three factories in countries other than Turkey, in addition the Group
has minority stake over a bottling plant in Turkmenistan.
List of Subsidiaries
The subsidiaries of the Company as of December 31, 2004 and December 31, 2003 were as follows:
Place of
Incorporation
J.V. Coca Cola Almaty
Bottlers Limited Liability
Partnership (Almaty CC)
Kazakhstan
Azerbaijan Coca-Cola Bottlers
Azerbaijan
LLC (Azerbaijan CC)
Coca Cola Bishkek Bottlers
Closed Joint Stock Company
Kyrgyzstan
(Bishkek CC)
Efes Invest Holland BV (Efes
Netherlands
Invest Holland)
Rostov Beverage C.J.S.C.
(Rostov)
ACCB Limited Liability
Partnership (ACCB)(*)
(Tonus)
Coca Cola Kuban Bottlers
A.O. (Kuban)
Efes Sınai Dış Ticaret A. Ş.
(Efes Sınai Dış Ticaret)
(Formerly known as HST
Principal
Activities
Efes products
Coca Cola products
Efes products
Effective
Shareholding
and Voting
Rights %
2004
Effective
Shareholding
and Voting
Rights %
2003
87.54
86.40
89.90
89.90
90.00
90.00
100.00
100.00
Russian Federation
Holding Company
Ceased production in 2000 and
leased its plant to ZAO
Moscow Efes Brewery
100.00
100.00
Kazakhstan
In liquidation process
100.00
100.00
Kazakhstan
Holding company
92.95
89.67
Russian Federation
Dormant company
100.00
100.00
Turkey
Foreign trade company located
in Tuzla Free Zone
99.00
—
Dış Ticaret Ltd. Şti.)
(*)
The liquidation process of ACCB started on March 26, 2004 with an official announcement of the liquidation.
Change in Group Structure
Acquisitions
—On May 17, 2004, the Company acquired 99% shares of HST for USD 8 and as a result of this transaction, goodwill
amounting to USD 6 is reflected in the financial statements. In October 2004, the name of HST is changed to Efes Sınai Dış
Ticaret A.Ş.
—The Company's effective shareholding at Almaty CC has increased as Efes Invest Holland purchased 0.93% of shares in
Almaty CC from a third party for USD 311. With respect to this transaction, USD 114 of goodwill is reflected in the financial
statements.
—The Group's effective shareholding at Tonus increased as the Group acquired 3.28% of the shares of Tonus for USD 20,
which resulted in a negative goodwill amounting to USD 42, which is written off and charged to income statement.
Environments and Economic Conditions of Subsidiaries
The countries, in which certain consolidated subsidiaries are operating, have undergone substantial political and
economical changes in the recent years. These countries do not possess well-developed business infrastructures and accordingly
the operations in such countries might carry risks, which are not typically associated with those in more developed markets.
Uncertainties regarding the political, legal, tax and/or regulatory environment, including the potential for adverse changes in any
of these factors, could significantly affect the subsidiaries' ability to operate commercially.
follows:
General
The consolidated financial statements of the Group have been prepared in accordance with International Financial
Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards
Board (IASB) and International Accounting Standards and Standing Interpretations Committee (SIC) interpretations approved
by the International Accounting Standards Committee (IASC) that remain in effect. The consolidated financial statements have
been prepared on the historical cost convention.
The Company maintains its books of account and prepares its statutory financial statements ("statutory financial
statements") in accordance with the Turkish Commercial Code and Tax Legislation and the Uniform Chart of Accounts issued
by the Ministry of Finance. The foreign subsidiaries maintain their books of account and prepare their statutory financial
statements in their local currencies and in accordance with the regulations of the countries in which they operate. The
consolidated financial statements have been prepared from statutory financial statements of the Company and its subsidiaries
and are presented in accordance with IFRS in U.S. Dollars with adjustments and certain reclassifications for the purpose of fair
presentation in accordance with IFRS. Such adjustments mainly comprise accounting for consolidation, accounting for financial
instruments in accordance with IAS 39, employee termination benefits, accounting for income accruals and deferred taxation on
temporary differences.
Reclassification on 2003 Financial Statements
The Group has made certain reclassifications in the consolidated financial statements as of December 31, 2003 to be
consistent with the current year presentation.
Functional Currency, Reporting Currency and Translation Methodology
The functional and reporting currency of the Group is U.S. dollars. Because of the international nature of the Group's
activities and the fact that the Group transacts more of its business in U.S. dollars than in any other currency, the financial
statements are prepared in U.S. dollars.
Functional Currency of the Company
As a result of a long period of high inflation, the Turkish Lira (TL) has ended up in large denominations, creating
difficulty in expressing and recording transactions. A new law was enacted in January 31, 2004 to introduce Yeni Türk Lirası
(New Turkish Lira, YTL), the new currency unit for the Republic of Turkey. Conversion rate for TL against YTL is fixed at
YTL 1 to TL 1,000,000 through out the period until complete phase-out of TL. Accordingly the consolidated financial
statements of the Group as of December 31, 2004 is YTL and comparative figures for the prior year(s) have also been presented
in YTL for convenience purposes, using the conversion rate of TL 1,000,000 / YTL=1,00.
The local currency of the Company is YTL. The management of the Company considers that the functional currency is
U.S. dollars and it reflects the economic substance of the underlying events and circumstances of the Company, mainly due to
the following reasons:
•
Sale prices for goods and services are denominated in U.S. dollars,
•
Contributions to the capital of the subsidiaries are denominated in U.S. dollars.
Since the functional currency of the Company is determined as U.S. dollars, the financial statements are remeasured in
U.S. dollars in accordance with IAS 21.
New Turkish Lira amounts shown in the financial statements have been included solely for the convenience of the
reader and are translated from U.S. Dollars, as a matter of arithmetic computation only, at the official YTL exchange rate for
purchases of U.S. Dollars announced by the Central Bank of the Republic of Turkey on December 31, 2004 of YTL1.3421 =
USD1.00 (full). Such translation should not be construed as a representation that the USD amounts have been or could be
converted to YTL at this or any other rate.
Functional Currencies of the Subsidiaries
Local Currency
Azerbaijan CC........................................
Kuban .....................................................
Almaty CC .............................................
Bishkek CC ............................................
Rostov ....................................................
ACCB.....................................................
Efes Invest Holland................................
Tonus......................................................
Efes Sınai Dış Ticaret ............................
Manat
Ruble
Kazakh Tenge
Som
Ruble
Kazakh Tenge
Euro
Kazakh Tenge
New Turkish Lira
December 31, 2004
Functional Currency
December 31, 2003
Functional Currency
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
USD
—
The majority of the foreign consolidated subsidiaries are regarded as foreign entities since they are financially,
economically and organizationally autonomous.
The consolidated financial statements comprise the financial statements of the Company and its subsidiaries prepared
as of the same date.
Subsidiaries are consolidated from the date on which control is transferred to the Group and cease to be consolidated
from the date on which control is transferred out of the Group.
The consolidated financial statements of the Group include Efes Sınai and the companies, which it controls. This
control is normally evidenced when the Group owns, either directly or indirectly, more than 50% of the voting rights of a
company's share capital and is able to govern the financial and operating policies of an enterprise so as to benefit from its
activities. The equity and net income attributable to minority shareholders' interests are shown separately in the balance sheets
and income statements, respectively.
Intercompany balances and transactions, including intercompany profits and unrealized profits and losses are
The purchase method of accounting is used for acquired businesses. Subsidiaries acquired or disposed of during the
year are included in the consolidated financial statements from the date of acquisition or to the date of disposal.
As the construction at ACCB is ceased in 2003, Group Management discontinued to consolidate ACCB's financial
statements to the Group's financial statements as of December 31, 2003 and therefore ACCB is carried at cost. Furthermore the
liquidation process of ACCB started on March 26, 2004 with an official announcement of the liquidation. In addition, as Kuban
is a dormant company as of December 31, 2004 and 2003, the Group Management discontinued to consolidate Kuban's
financials to the Group's financial statements as of December 31, 2003.
Investment in Associate
associates are carried in the balance sheet at cost plus post-acquisition changes in the Group's share of net assets of the
associates, less any impairment in value. The income statement reflects the Group's share of the results of operations of the
associates.
Investments
All investments are initially carried at cost, being the fair value of the consideration given and including acquisition
charges associated with the investment.
Investments classified as available-for-sale investments, that do not have a quoted market price in an active market and
whose fair value cannot be reliably measured by alternative valuation methods, are measured at cost. The carrying amounts of
such investments are reviewed at each balance sheet date for impairment.
All regular way purchases and sales of financial assets are recognized on the trade date i.e. the date that the Group
commits to purchase or to sell the asset. Regular way purchases or sales are purchases or sales of financial assets that require
delivery of assets within the time frame generally established by regulation or convention in the market place.
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 recognized amounts and there is an intention to settle on a net basis or realize the asset and settle
the liability simultaneously.
Use of Estimates
The preparation of the financial statements in conformity with IFRS requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date
of the balance sheet. Actual results may vary from the current estimates. These estimates are reviewed periodically, and, as
adjustments become necessary, they are reported in earnings in the periods in which they become known.
For the purposes of the consolidated cash flow statement, cash and cash equivalents comprise cash at bank and on hand
and short-term deposits with an original maturity of three months or less.
Trade and Other Receivables
Trade receivables are recognized at original invoice amount and carried at amortized cost less an allowance for any
uncollectable amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad
debts are written off when identified.
Recognition and Derecognition of Financial Instruments
The Group recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party
to the contractual provisions of the instrument. The Group derecognizes a financial asset or a portion of financial asset when and
only when it loses control of the contractual rights that comprise the financial asset or a portion of the financial asset. The Group
derecognizes a financial liability when and only when a liability is extinguished that is when the obligation specified in the
contract is discharged, cancelled and expired.
Inventories
Inventories are valued at the lower of cost and net realizable value. Costs are accounted for on a weighted average basis
and include expenditure incurred in acquiring inventories and bringing them to their existing location and condition. The cost of
finished goods includes an appropriate share of production overheads based on normal operating capacity. Unrealizable
inventory has been fully written off.
Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of
completion and estimated costs necessary to make the sale.
The Group accounts for returnable bottles and other containers in inventory and provides a reserve for these bottles and
containers to bring them to their actual values. The Group sells its products also in non-returnable bottles.
depreciated.
Depreciation is calculated on a straight-line basis over the estimated useful life of the asset as follows:
Buildings ....................................................................................................................................................
Machinery and equipment .........................................................................................................................
Furniture and fixtures.................................................................................................................................
Motor vehicles ...........................................................................................................................................
Beverage coolers........................................................................................................................................
25 - 40 years
15 years
5 years
10 years
10 years
Leases
Finance Lease
The Group as Lessor
The Group presents leased assets as a receivable equal to the net investment in the lease. Finance income is based on a
pattern reflecting a constant periodic rate of return on the net investment outstanding. Initial direct costs are recognized
immediately as expenses.
Operating Lease
The Group as Lessor
The Group presents assets subject to operating leases in the balance sheets according to the nature of the asset. Lease
income from operating leases is recognized in income on a straight-line basis over the lease term. The aggregate cost of
incentives provided to lessees is recognized as a reduction of rental income over the lease term on a straight-line basis. Initial
direct costs incurred specifically to earn revenues from an operating lease are recognized as an expense in the statements of
income in the period in which they are incurred.
The Group as Lessee
Leases of assets under which substantially all the risks and rewards of ownership are effectively retained by the lessor
are classified as operating leases. Lease payments under an operating lease are recognized as an expense on a straight-line basis
over the lease term. The aggregate benefit of incentives provided by the lessor is recognized as a reduction of rental expense
over the lease term on a straight-line basis.
Intangible Assets
Intangible assets acquired separately from a business are capitalized at cost. Intangible assets acquired as part of an
acquisition of a business are capitalized separately from goodwill if the fair value can be measured reliably on initial recognition,
subject to the constraint that, unless the asset has a readily ascertainable market value, the fair value is limited to an amount that
does not create or increase any negative goodwill arising on the acquisition. Intangible assets, excluding development costs,
created within the business are not capitalized and expenditure is charged against profits in the year in which it is incurred.
Intangible assets are amortized on a straight-line basis over the best estimate of their useful lives.
The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate
that the carrying value may not be recoverable.
Intangible assets were comprised of land rights and software that are amortized on a straight-line basis over 5 years.
Goodwill
Goodwill represents the excess of the cost of the acquisition over the fair value of identifiable net assets of a subsidiary
at the date of acquisition. Goodwill is amortised on a straight-line basis over its useful economic life between 5-10 years. It is
reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable.
Goodwill is stated at cost less accumulated amortization and any impairment in value.
Negative goodwill arises where the fair value of assets acquired exceeds the cost of the acquisition. Negative goodwill
is amortised on a straight-line basis over its useful economic life between 5-10 years.
Borrowings
All borrowings are initially recognized at cost, being the fair value of the consideration received net of issue costs
associated with the borrowing.
After initial recognition, borrowings are subsequently measured at amortized cost using the effective interest rate
method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses are recognized in net profit or loss when the liabilities are derecognized, as well as through the
Borrowing Costs
Borrowing costs are generally expensed as incurred. Borrowing costs are capitalized if they are directly attributable to
the acquisition, construction or production of a qualifying asset. Capitalization of borrowing costs commences when the
activities to prepare the asset are in progress and expenditures and borrowing costs are being incurred. Borrowing costs are
capitalized until the assets are substantially ready for their intended use. Borrowing costs include interest charges and other costs
incurred in connection with the borrowing of funds.
Provisions
In accordance with existing social legislation, the Company is required to make lump-sum termination indemnities to
each employee who has completed one year of service with the Company and whose employment is terminated due to
retirement or for reasons other than resignation or misconduct.
In the consolidated financial statements, the Group has reflected a liability calculated using the Projected Unit Credit
Method and based upon estimated inflation rates and factors derived using the Group's experience of personnel terminating their
services and being eligible to receive such benefits and discounted by using the current market yield at the balance sheet date on
government bonds.
operating outside Turkey. Azerbaijan CC contributes to the Azerbaijan Republic state pension and social insurance funds. These
contributions are expensed as incurred. Bishkek CC contributes to the Kyrgyz state pension, social insurance, medical insurance,
and unemployment funds on behalf of its employees. Bishkek CC's contributions amount to approximately 33% (2003 - 33%) of
employees' salaries and are expensed as incurred. Bishkek CC has no other program or obligation for payment of post retirement
benefits to its employees.
Almaty CC pays 21% of gross income as social insurance taxes to the Government of Republic of Kazakhstan, which
represent its contribution to the post retirement benefits of its employees. Almaty CC also withholds and contributes 10% of the
salary of its employees as the employees' contribution to their designated pension funds. Under the legislation, employees are
responsible for their retirement benefits and Almaty CC has no present or future obligation to pay its employees upon their
retirement. Almaty CC has no other program or obligation for payment of post retirement benefits to its employees.
Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the
revenue can be reliably measured. Revenues are stated net of discounts, value added and sales taxes. The following specific
recognition criteria must also be met before revenue is recognized:
Sale of Goods
Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and
the amount of revenue can be measured reliably.
Interest
Revenue is recognized as the interest accrues.
Each entity within the Group translates its foreign currency transactions and balances into its functional currency by
applying to the foreign currency amount the exchange rate between the functional currency and the foreign currency at the date
of the transaction. Exchange rate differences arising on the settlement of monetary items or on reporting monetary items at rates
different from those at which they were initially recorded during the period or reported in previous financial statements are
recognized in the income statement in the period in which they arise.
Income Taxes
Tax expense / (income) is the aggregate amount included in the determination of net profit or loss for the period in
respect of current and deferred tax.
liabilities are recognized for all taxable temporary differences:
•
except where the deferred income tax liability arises from goodwill amortization or the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
•
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, except where the timing of the reversal of the temporary difference can be controlled and it is
probable that the temporary difference will not reverse in the foreseeable future.
differences, carry-forward of unused tax assets and unused tax losses can be utilized:
•
except where the deferred income tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or loss; and
•
in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests
in joint ventures, deferred tax assets are only recognized to the extent that it is probable that the temporary
differences will reverse in the foreseeable future and taxable profit will be available against which the temporary
difference can be utilized.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be
utilized.
balance sheet date.
Deferred income taxes as required by IAS 12 are not provided for Turkmenistan Coca-Cola Bottlers Ltd.
(Turkmenistan CC), an investment in associate, due to the general uncertainties in Turkmenistan regarding the taxation matters.
Such uncertainties make it difficult to identify the tax consequences of the transactions and other events accounted in the
financial statements and also the recovery and settlement effects of temporary differences.
Segment Information
The Group is engaged in production, marketing and distribution of soft drink beverages and distribution of beer. The
Group companies have similar economic and political conditions and therefore are subject to similar risks and returns. Financial
information on geographical and business segments is presented in Note 32.
Contingencies
Contingent liabilities are not recognized in the financial statements, they are disclosed unless the possibility of an
outflow of resources embodying economic benefits is probable.
A contingent asset is not recognized in the financial statements but disclosed when an inflow of economic benefits is
probable.
December 31, 2004
Cash on hand......................................................................................................................................................
Cash in banks .....................................................................................................................................................
Total ...................................................................................................................................................................
2004
2003
44
3,324
3,368
44
4,160
4,204
Investment funds.....................................................................................................................................................
Total ........................................................................................................................................................................
2004
2003
285
285
228
228
Investment funds held were issued by Alternatifbank A.Ş. and are valued at their market value at balance sheet date.
Accounts Receivable...............................................................................................................................
Less: Provision for doubtful accounts ....................................................................................................
Total ........................................................................................................................................................
2004
2003
6,230
(2,879)
3,351
5,706
(3,128)
2,578
6. INVENTORIES
Raw materials.............................................................................................................................................
Finished goods ...........................................................................................................................................
Bottles and cases ........................................................................................................................................
Packaging materials ...................................................................................................................................
Chemicals...................................................................................................................................................
Reserve for obsolescence...........................................................................................................................
Reserve for bottles and cases.....................................................................................................................
Goods in transit ..........................................................................................................................................
Advertising and sales promotion materials ...............................................................................................
Others .........................................................................................................................................................
Total ...........................................................................................................................................................
2004
2003
3,085
1,841
8,249
2,572
2,345
(643)
(4,284)
950
527
—
14,642
1,960
1,888
6,122
1,036
1,310
(488)
(4,119)
515
227
122
8,573
As of December 31, 2004, inventories totaling USD 2,065 (2003—USD 2,082) were pledged as security for certain of
the Group's borrowings.
7. OTHER CURRENT ASSETS
Receivable from personnel ................................................................................................................................
Prepaid taxes and expenses................................................................................................................................
Advances to vendors..........................................................................................................................................
VAT receivable..................................................................................................................................................
Income accrual ...................................................................................................................................................
Other current assets and receivables..................................................................................................................
Total ...................................................................................................................................................................
2004
2003
51
260
573
812
72
307
2,075
21
119
1,372
542
243
358
2,655
Entity
Principle Activities
distribution and selling
Turkmenistan CC... of Coca-Cola products
9. INVESTMENTS
Country of
Business
Turkmenistan
December 31, 2004
December 31, 2003
Ownership Group's
Ownership Group's
Carrying
Interest
share Carrying
Interest
share
Value
Value
(%)
of loss
(%)
of loss
2,281
33.25
(334)
2,615
33.25
(212)
ACCB.................................................................................................................................................................
Kuban .................................................................................................................................................................
Less impairment for ACCB and Kuban(*) .........................................................................................................
(*)
2004
2003
550
375
(389)
536
550
375
(442)
483
Refer to Note 2.
Land and
Land
Improvement
s
Cost
At January 1 .....................
Change in consolidation
scope..............................
Additions..........................
Disposals ..........................
Transfer ............................
Impairment .......................
At December 31 ...............
Accumulated
Depreciation
At January 1 .....................
Change in consolidation
scope..............................
Depreciation charge for
the year ..........................
Disposals ..........................
At December 31 ...............
Net Book Value...............
Machiner
y
and
Building Equipmen
s
t
Motor
Vehicle
s
Furnitur
e
and
Fixtures
Beverag
e
Coolers
and
Other
Fixed
Assets
Constructio
n
in Progress
2004
Total
2003
Total
135
17,791
34,002
8,067
2,241
10,000
525
72,761
71,739
—
328
—
—
—
463
—
653
—
541
—
18,985
—
2,031
(1)
2,117
(449)
37,700
—
949
(826)
6
(63)
8,133
—
287
(437)
—
—
2,091
—
1,794
(47)
—
(812)
10,935
—
7,208
(7)
(2,664)
—
5,062
—
13,250
(1,318)
—
(1,324)
83,369
(677)
2,403
(704)
—
(1,026)
71,735
—
(2,675)
(7,497) (5,168)
(2,084)
(6,012)
—
—
—
—
—
—
—
—
—
—
(484)
—
(1,997)
1
(906)
567
(214)
441
(1,182)
40
—
—
—
463
(3,159)
15,826
(9,493) (5,507)
28,207
2,626
(1,857)
234
(7,154)
3,781
(23,436 (19,749
)
)
—
14
(4,783) (4,220)
1,049
519
(27,170 (23,436
—
)
)
5,062 56,199 48,299
As of December 31, 2004, the gross carrying amounts of fully depreciated property, plant and equipment amounted to
USD 4,934 (December 31, 2003—USD 3,625).
As of December 31, 2004, certain items of property, plant and equipment with a total net book value of USD 2,938
were pledged as security for the supply of concentrate agreement with Varoise de Concentres S.A., a related party
(December 31, 2003—USD 3,438).
As of December 31, 2004 and 2003, the property, plant and equipment are stated net of the impairment provision
amounting to USD 1,324 and USD 1,026, respectively. At December 31, 2004 and 2003, the provision consisted of the
following:
Coolers ....................................................................................................................................................
Vehicles...................................................................................................................................................
Machinery and equipment ......................................................................................................................
2004
2003
(812)
(63)
(449)
(1,324)
(762)
(264)
—
(1,026)
The movements in the provision for impairment were as follows for the years ended December 31:
2004
2003
Provision for impairment at the beginning of year ................................................................................
Charge for the year..................................................................................................................................
Write-off..................................................................................................................................................
Provision for impairment at the end of year...........................................................................................
(1,026)
(599)
301
(1,324)
(918)
(108)
—
(1,026)
As of December 31, 2004 and 2003, intangible assets consist of rights and other intangible assets.
Cost
At January 1 .......................................................................................................................................................
Additions............................................................................................................................................................
Disposals ............................................................................................................................................................
At December 31................................................................................................................................................
At January 1 .......................................................................................................................................................
Amortization for the year...................................................................................................................................
Disposals ............................................................................................................................................................
At December 31................................................................................................................................................
Net book value..................................................................................................................................................
2004
Total
2003
Total
993
42
—
1,035
1,173
1
(181)
993
(201)
(30)
—
(231)
804
(354)
(28)
181
(201)
792
12. GOODWILL
Cost
At January 1 ............................................................................................................................................
Additions (Note 2) ..................................................................................................................................
At December 31.....................................................................................................................................
At January 1 ............................................................................................................................................
Amortization for the year........................................................................................................................
At December 31.....................................................................................................................................
Net book value.......................................................................................................................................
2004
2003
3,048
121
3,169
2,931
117
3,048
(1,567)
(200)
(1,767)
1,402
(1,390)
(177)
(1,567)
1,481
Goodwill is amortized over 5 - 10 years.
Trade accounts payable......................................................................................................................................
Due to personnel ................................................................................................................................................
Taxes and dues payable .....................................................................................................................................
Advances received .............................................................................................................................................
Social security premiums payable .....................................................................................................................
Accrued costs .....................................................................................................................................................
Other accruals and liabilities .............................................................................................................................
VAT payable......................................................................................................................................................
Total ...................................................................................................................................................................
2004
2003
7,773
695
887
42
14
27
74
196
9,708
4,402
962
578
141
12
100
200
265
6,660
14. BORROWINGS
Short-term borrowings.................................................................................................................................
Current portion of long-term borrowings....................................................................................................
Total short-term borrowings........................................................................................................................
Long-term borrowings .................................................................................................................................
Total borrowings..........................................................................................................................................
2004
2003
9,614
7,372
16,986
2,653
19,639
7,333
1,886
9,219
4,989
14,208
The effective interest rates at the balance sheet date are as follows:
Borrowings
Long-term
Short-term
2004
2003
4% - Libor+3.75%
4% - Libor+3.75%
1% - 7%
1% - 8%
Repayments of long-term borrowings are scheduled as follows:
2004.................................................................................................................................................................
2005.................................................................................................................................................................
2006.................................................................................................................................................................
Thereafter ........................................................................................................................................................
2004
2003
—
7,372
142
2,511
10,025
1,886
4,768
111
110
6,875
15. EMPLOYEE TERMINATION BENEFITS
2004
2003
86
13
(9)
4
94
70
17
(1)
—
86
At January 1 ............................................................................................................................................................
Interest cost .............................................................................................................................................................
Charge for the year..................................................................................................................................................
Monetary loss..........................................................................................................................................................
At December 31 ......................................................................................................................................................
In accordance with existing social legislation, the Company and its subsidiaries incorporated in Turkey are required to
make lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than resignation
or misconduct. Such payments are calculated on the basis of 30 days' pay (limited to a maximum of YTL 1,575 and YTL 1,394
at December 31, 2004 and 2003 respectively) per year of employment at the rate of pay applicable at the date of retirement or
termination. For the companies established in Turkey, as of December 31, 2004 and 2003, the Group reflected a liability
calculated using the Projected Unit Credit Method and based upon factors derived using their experience of personnel
terminating their services and being eligible to receive retirement pay and discounted by using the current market yield at the
balance sheet date on government bonds.
The principal actuarial assumptions used at the balance sheet dates are as follows:
Discount rate ...........................................................................................................................................................
Expected rates of salary/limit increases .................................................................................................................
2004
2003
16%
10%
25%
18%
16. SHARE CAPITAL
Common shares, 0.001 YTL, par value Authorized ............................
2004
Number of shares
2003
Number of shares
26,699,400,000
26,699,400,000
As at December 31, 2004 and 2003 the composition of shareholders can be summarized as follows:
2004
Anadolu Efes...........................................................................
Publicly traded ........................................................................
Anadolu Endüstri Holding A.Ş...............................................
2003
Amount
Percentage
Amount
Percentage
66,610
61,770
13
128,393
51.88%
48.11%
0.01%
100.00%
66,610
61,770
13
128,393
51.88%
48.11%
0.01%
100.00%
17. LEGAL RESERVES AND STATUTORY ACCUMULATED DEFICIT
Legal Reserves
The legal reserves consist of first and second legal reserves in accordance with the Turkish Commercial Code (TCC).
The first legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a maximum of
20% of the Company's restated share capital. The second legal reserve is appropriated at the rate of 10% of all distributions in
excess of 5% of the Company's restated share capital.
As required by the Capital Markets Board (CMB) Communiqué Serial XI, No: 25 "Communiqué for the Accounting
Standards in Capital Markets"; beginning from the year 2003 profits, the net profit in the financial statements which are prepared
in accordance with International Financial Reporting Standards will be taken as the base for dividend appropriation.
Publicly held companies perform their dividend appropriation in accordance with CMB regulations as follows:
The amount resulting from the first balancing transaction of inflation adjusted financial statements according to the
Communiqué Serial: XI, No: 25 Paragraph Fifteen, article 399 and booked in"accumulated deficit" has to be considered as a
deductible amount when computing the distributable profit from the inflation adjusted financial statements regarding dividend
appropriation according to CMB regulations. In addition to this, "accumulated deficit" amount can be netted off from the current
year profit, if exists and retained earnings, also the remaining deficit can be deducted from the extraordinary reserves, legal
reserves, and reserves arising from the restatement of equity accounts, respectively.
Regarding the profit resulting from 2004 operations resulted from the financial statements prepared in accordance with
the Communiqué Serial: XI No: 25 or IFRS, dividend distribution of at least 30% (2003—20%) of the distributable profit is
obligatory. This distribution will be performed in cash, or as non paid-up stocks amounting not less than 30% of the distributable
income, or as a combination of cash and non-paid up stocks with certain portions cash depending on the decisions of the
companies' general assemblies. Distributable profit can't exceed the amount that is calculated according to the Turkish
Commercial Code and Tax Procedural Law.
The statutory accumulated profits and statutory current year profit are available for distribution, subject to the reserve
requirements referred to above.
As of December 31, 2004 and 2003, breakdown of total equity of the Company is as follows:
2004
Legal reserves ...........................................................................
Extraordinary reserves ..............................................................
Reserves....................................................................................
Share Capital .............................................................................
Share Premium..........................................................................
Accumulated deficit..................................................................
Net income ................................................................................
Total ..........................................................................................
2003
Historic
Nominal
Amount
Equity
Translation
Differences
100
1,006
1,106
19,894
89
272
2,271
2,543
108,499
152
Total
Total
372
3,277
3,649
128,393
241
(90,170)
8,445
50,558
372
3,277
3,649
128,393
241
(90,664)
494
42,113
Equity balances are stated with Turkish Lira values in the statutory books of the Company and the historic nominal
amount represents the translated values of equity balances with the December 31, 2004 exchange rates.
18. EARNINGS PER SHARE
Basic earnings per share (EPS) is calculated by dividing the net profit for the year attributable to ordinary shareholders
by the weighted average number of ordinary shares outstanding during the year.
The following reflects the income and share data used in the basic earnings per share computation:
2004
2003
Net profit attributable to ordinary shareholders (full USD).............................
0.000316
0.000019
2004
2003
Weighted average number of ordinary shares..................................................
26,699,400,000
26,699,400,000
There have been no other transactions involving ordinary shares or potential ordinary shares since the financial
statements preparation date and before the completion of these financial statements.
19. COST OF SALES
Raw materials consumed .............................................................................................................................
Direct labor attributable to production ........................................................................................................
Production overheads...................................................................................................................................
Depreciation of production facilities ...........................................................................................................
Change in finished goods inventories .........................................................................................................
Cost of merchandises sold ...........................................................................................................................
Total .............................................................................................................................................................
2004
2003
39,538
1,617
1,609
2,384
(47)
14,670
59,771
27,138
1,239
1,083
2,137
1,113
7,458
40,168
20. SELLING, DISTRIBUTION AND MARKETING EXPENSES
Reimbursement from the Coca-Cola Export Companies related to selling, distribution and marketing
expenses ..................................................................................................................................................
Wages and salaries.....................................................................................................................................
Transportation, customs and insurance .....................................................................................................
Advertising.................................................................................................................................................
Depreciation and amortization...................................................................................................................
Maintenance ...............................................................................................................................................
Travel .........................................................................................................................................................
Rent ............................................................................................................................................................
Energy, fuel, and water ..............................................................................................................................
Telecommunication ...................................................................................................................................
Other...........................................................................................................................................................
Total ...........................................................................................................................................................
2004
2003
(1,930)
3,548
2,355
2,966
2,151
404
59
258
302
112
362
10,587
(1,195)
2,773
1,161
1,583
1,852
406
53
190
204
94
392
7,513
December 31, 2004
21. GENERAL AND ADMINISTRATION EXPENSES
Consulting and audit fees...................................................................................................................................
Depreciation and amortization...........................................................................................................................
Taxes and duties.................................................................................................................................................
Maintenance and utility expenses......................................................................................................................
Bad debt expense ...............................................................................................................................................
Insurance ............................................................................................................................................................
Telecommunication ...........................................................................................................................................
Rent ....................................................................................................................................................................
Travel .................................................................................................................................................................
Other...................................................................................................................................................................
Total ...................................................................................................................................................................
2004
2003
3,467
767
478
499
129
129
135
100
149
113
819
6,785
2,733
554
436
400
160
221
102
109
97
83
559
5,454
2004
2003
(48)
242
(439)
(30)
85
(641)
22. OTHER OPERATING EXPENSE—NET
Loss related to fixed assets ................................................................................................................................
Rental income ....................................................................................................................................................
Provision expense for inventories .....................................................................................................................
Impairment of fixed assets.................................................................................................................................
Advertising income............................................................................................................................................
Reversal of provision / (Provision) for litigation ..............................................................................................
Reversal of impairment / (Impairment) in investments ....................................................................................
Other income......................................................................................................................................................
Total other operating expense, net.....................................................................................................................
(298)
218
88
53
16
(168)
(108)
—
(136)
(52)
48
(834)
2004
2003
136
—
338
474
(405)
(123)
(528)
(54)
405
107
405
917
(685)
(173)
(858)
59
23. FINANCIAL (EXPENSE) / INCOME—NET
Interest income...................................................................................................................................................
Other financial income.......................................................................................................................................
Interest income on finance leases ......................................................................................................................
Total financial income .......................................................................................................................................
Interest expense..................................................................................................................................................
Commission and other expenses .......................................................................................................................
Total financial expense ......................................................................................................................................
Net financial (expense) / income, net .............................................................................................................
24. PERSONNEL EXPENSES AND AVERAGE NUMBER OF EMPLOYEES
For the years ended December 31, 2004 and 2003 personnel expenses were as follows:
Other social expenses.........................................................................................................................................
Total ...................................................................................................................................................................
2004
2003
7,573
1,066
8,639
5,892
853
6,745
For the years ended December 31, 2004 and 2003, average number of employees were as follows:
Efes Sınai ................................................................................................................................................................
Azerbaijan CC.........................................................................................................................................................
Kuban(*) ...................................................................................................................................................................
Almaty CC ..............................................................................................................................................................
Bishkek CC .............................................................................................................................................................
Rostov .....................................................................................................................................................................
Total ........................................................................................................................................................................
(*)
2004
2003
20
172
1
521
174
3
891
22
159
1
343
166
3
694
not consolidated
25. DEPRECIATION AND AMORTIZATION EXPENSES
Sub-total depreciation expense..........................................................................................................................
Goodwill
Intangible assets
Sub-total amortization expense .........................................................................................................................
Total depreciation and amortization expenses.............................................................................................
26. INCOME TAXES
2004
2003
2,376
2,143
264
4,783
2,130
1,844
246
4,220
200
177
8
8
14
230
5,013
7
8
13
205
4,425
Major components of income tax expense for the years ended December 31, 2004 and 2003 are:
Current tax expense ...........................................................................................................................................
Deferred tax (income) / expense relating to the origination and reversal of temporary differences ...............
Total income tax...............................................................................................................................................
2004
2003
2,577
(118)
2,459
1,489
365
1,854
The Group is subject to taxation in accordance with the tax procedures and the legislation effective in the countries in
In Turkey, the corporation tax rate for the fiscal year ended December 31, 2004 is 33% (2003—30%). Effective
January 1, 2005, the corporate tax rate will be 30%. Corporate tax returns are required to be filed until the fifteenth of the fourth
month following the balance sheet date and paid in one installment until the end of the fourth month. The tax legislation
provides for a temporary tax of 33% (2003—30%) to be calculated and paid based on earnings generated for each quarter. The
amounts thus calculated and paid are offset against the final corporate tax liability for the year.
inflation accounting. Starting from January 1, 2004, taxable income will be derived from the financial statements which are
adjusted for inflation accounting. Accumulated earnings arising from the first application of inflation accounting on
December 31, 2003 balance sheet will not be subject to corporation tax, and similarly accumulated deficits arising from such
application will not be deductible for tax purposes. Moreover, accumulated tax loss carry-forwards related with 2003 and prior
periods will be utilized at their historical (nominal) values in 2004 and future years.
of five years. A tax amnesty law, which was enacted in 2003 provided immunity for tax inspection and additional assessments to
those taxpayers who utilized the option. According to the law, companies, who accepted to use this option, also accepted a 50%
reduction from their corporate tax losses incurred in the same year. The Company utilized this option and has paid USD 20 in
2004 related with the tax base increase.
basis.
10% withholding applies to dividends distributed by resident corporations to resident real persons, those who are not
liable to income and corporation tax, non-resident real persons, non-resident corporations (excluding those that acquire dividend
through a permanent establishment or permanent representative in Turkey) and non-resident corporations exempted from
income and corporation tax. Dividend distributions by resident corporations to resident corporations are not subject to a
withholding tax. Furthermore, in the event the profit is not distributed or included in capital, no withholding tax shall be
applicable.
Capital gains derived from cash sales of participation shares that have been held for at least two years are exempt from
corporation tax if the gains are added to share capital. Furthermore, in the event the profit arising from the dividend receipt is not
distributed or included in capital, no withholding tax shall be applicable.
The reconciliation of the total income tax to the theoretical amount that would arise using the tax rate of the home
country of the Company is as follows:
Consolidated profit before tax, minority interest and translation loss......................................................
Taxable profit ...........................................................................................................................................
Tax calculated at the Company's tax rate of 33% (2003—30%)..............................................................
Impact of different tax rates in other countries .........................................................................................
Unused tax losses.......................................................................................................................................
Other...........................................................................................................................................................
Current tax charge...................................................................................................................................
Tax losses carryforward.............................................................................................................................
Efes Invest Holland deferred tax ...............................................................................................................
2004
2003
12,594
12,594
(4,156)
1,498
(280)
361
(2,577)
(179)
106
4,442
4,442
(1,333)
(414)
392
(134)
(1,489)
(170)
107
Fixed assets ................................................................................................................................................
Income on in-kind transfer of fixed assets to capital ................................................................................
Allowance for doubtful accounts...............................................................................................................
Inventories..................................................................................................................................................
Payable written off in statutory books.......................................................................................................
Accrued employees bonuses and rent .......................................................................................................
Other...........................................................................................................................................................
Deferred tax income / (charge)...............................................................................................................
Tax charge, net .........................................................................................................................................
353
(166)
45
(39)
(31)
5
24
118
(2,459)
355
(771)
31
(1)
31
96
(43)
(365)
(1,854)
27. DEFERRED TAXES
The list of temporary differences and the resulting deferred tax assets/(liabilities), as of December 31, 2004 and 2003
using the prevailing effective statutory tax rates is as follows:
Deferred Tax Assets
2004
2003
Temporary differences arising from restatement of
fixed assets ....................................................................
Tax loss carried forward ..................................................
Provision for doubtful receivables...................................
Impairment provision for fixed assets .............................
Accrued employees bonuses and rent .............................
Inventory ..........................................................................
Retirement pay liability ...................................................
Efes Invest Holland deferred tax liability........................
Other.................................................................................
Impairment in the value of deferred tax asset .................
—
2,830
184
991
105
—
28
—
44
4,182
(1,347)
2,835
—
4,691
161
1,157
100
—
26
—
90
6,225
(2,875)
3,350
Deferred Tax
Liabilities
2004
2003
(4,873)
—
—
—
—
(118)
—
(202)
(291)
(5,484)
—
(5,484)
(5,704)
—
—
—
—
(88)
—
(594)
(17)
(6,403)
—
(6,403)
Net
2004
(4,873)
2,830
184
991
105
(118)
28
(202)
(247)
(1,302)
(1,347)
(2,649)
2003
(5,704)
4,651
161
1,157
100
(88)
26
(594)
73
(178)
(2,875)
(3,053)
The management of the Company does not consider the related deferred tax asset of USD 1,347 (2003—USD 2,875) as
realizable in the foreseeable future, and accordingly, the Company has not provided a deferred tax asset for the amount in the
financial statements as of December 31, 2004 and 2003.
Movements in deferred tax during the year are as follows:
Fixed Assets ............................................................
Tax loss carryforward .............................................
Provision for doubtful receivables..........................
Income on in-kind transfer of fixed assets to
capital ...................................................................
Accrued employees bonuses and rent ....................
Other........................................................................
Net deferred tax (liability) / asset ........................
Translation loss .......................................................
Total........................................................................
Balance
January 1, 2004
as reported
Credited/ (charged)
to income statement
Balance
December 31, 2004
(4,510)
643
150
353
(179)
45
(4,157)
464
195
1,157
100
(593)
(3,053)
(166)
5
346
404
(286)
118
991
105
(247)
(2,649)
28. RELATED PARTY BALANCES AND TRANSACTIONS
For the purposes of consolidated financial statements, the shareholders of the Company and its consolidated
subsidiaries or their associates and the companies, which are identified to be controlled by/associated with them, are referred to
as related parties.
(1)
Balances with related parties as of December 31, 2004 and 2003, which are separately classified in the consolidated
balance sheets are as follows:
Due from related parties
The Coca Cola Companies ................................................................................................................................
Anadolu Endüstri Holding.................................................................................................................................
Moscow Efes Brewery(**) ..................................................................................................................................
Turkmenistan CC...............................................................................................................................................
Others .................................................................................................................................................................
Total...................................................................................................................................................................
2004
2003
412
350
4,418
172
33
5
5,390
1,026
960
4,951
147
207
10
7,301
2004
Due to related parties
The Coca Cola Companies ................................................................................................................................
Others .................................................................................................................................................................
Total...................................................................................................................................................................
Loans obtained from related parties
Anadolu Efes Biracılık ve Malt Sanayi A.Ş.(*)..................................................................................................
Oyex Handels GmbH(*)......................................................................................................................................
Total...................................................................................................................................................................
(*)
2003
2,366
885
558
3,809
6,125
1,449
454
8,028
4,682
327
5,009
4,657
450
5,107
Included in long-term loans and current portion of long-term loans balance as of December 31, 2004 and 2003.
(**)
Includes USD 4,418 (2003—USD 4,951) representing the receivable arising from the leasing contract signed between
Rostov and Moscow Efes Brewery. In accordance with the contract, the ownership of the leased assets will be transferred to the
lessee at the end of the contract period.
(2)
Transactions with Related Parties
The most significant transactions with related parties during the years ended December 31, 2004 and 2003 are as
follows:
Major sales to related parties
Coca Cola Export Co ...................................................................................................................................
Coca Cola CIS Services...............................................................................................................................
Coca Cola Meşrubat.....................................................................................................................................
Coca Cola Bottlers Turkmenistan ...............................................................................................................
Total.............................................................................................................................................................
Major purchases from related parties
The Coca Cola Company Companies .........................................................................................................
Oyex Handels GmbH...................................................................................................................................
Çelik Motor ..................................................................................................................................................
Anadolu Baku Automobile San. Ve Tic. A.Ş. ............................................................................................
Coca Cola CIS Services...............................................................................................................................
Total.............................................................................................................................................................
2004
2003
2,529
353
2
118
25
3,027
2,137
30
4
4
—
2,175
12,625
7,616
—
—
145
—
20,386
8,376
6,535
25
44
—
15
14,995
2004
Rent and service income from related parties
Coca Cola CIS Services .................................................................................................................................................
Efes Karaganda Brewery J.S.C. .....................................................................................................................................
Total ...............................................................................................................................................................................
Interest expense to related parties
Anadolu Efes Biracılık ve Malt Sanayi A.Ş. .................................................................................................................
Oyex Handels GmbH .....................................................................................................................................................
Total ...............................................................................................................................................................................
Interest income from related parties
2003
29
128
157
35
18
53
164
13
177
231
18
249
Moscow Efes Brewery ...................................................................................................................................................
Anadolu Endüstri Holding .............................................................................................................................................
Total ...............................................................................................................................................................................
General and administrative expenses to related parties
Anadolu Endüstri Holding .............................................................................................................................................
Total ...............................................................................................................................................................................
(3)
Remuneration of the Board of Directors
a)
There are no pension arrangements for the members of the Board of Directors.
b)
No shares are held by the members of Board of Directors.
c)
There are no share options granted to the directors of the Company.
d)
No loans have been granted to the directors of the Company.
338
54
392
405
96
501
158
158
147
147
29. GOING CONCERN
Turkmenistan CC has an accumulated deficit amounting to USD 10,850 as of December 31, 2004, (including the
current year loss of USD 1,003) and its current liabilities exceed its current assets as of the same date. These factors, among
others, indicate the existence of a material uncertainty which may cast significant doubt on Turkmenistan CC's ability to
continue as a going concern and therefore it may be unable to realize its assets and discharge its liabilities in the normal course
of business.
Rostov has an accumulated deficit amounting to USD 45,305 and a negative shareholder's equity amounting to
USD 3,088 as of December 31, 2004, (including the current year loss of USD 582) and its current liabilities exceed its current
assets by USD 5,821 as of the same date.
Pledges
Related with the credit line obtained from Demir Kazakhstan Bank, there is a pledge agreement on Almaty CC's
inventories amounting to USD 2,065.
Certain items of property, plant and equipment of Azerbaijan CC amounting to USD 2,938 were pledged as security for
the supply of concentrate agreement with Varoise De Concentres S.A.
Letter of Credit
Azerbaijan CC obtained a letter of credit in the amount of EUR 223,000 to purchase the necessary equipment for the
preform manufacturing line. Additionally, the Company obtained letters of credits amounting to USD 830 in total to purchase
resin from its suppliers.
Guarantee Letters
As of December 31, 2004, amount of letters of guarantee obtained from banks and given to suppliers and government
authorities is USD 92 (December 31, 2003—USD 92).
Commitments Regarding Capital Expenditures
As of December 31, 2004, Almaty CC has EUR denominated commitments for the purchase of machinery and
equipment totaling USD 9,370 (2003—USD 724) and Kazakh Tenge denominated commitments for the purchase of delivery
trucks totaling USD 565 (2003—USD 208).
Political and Economic Environment and Tax Issues of Republic of Kyrgyzstan
Bishkek CC is subject to corporate income tax of 20% on taxable profit as determined under the laws of Kyrgyzstan.
As of December 31, 2004, and 2003 Bishkek CC had cumulative loss carry forwards of USD 4,111 and USD 6,613,
respectively. The losses carried forward in Kyrgyzstan expire for tax purposes in five years from the date they are incurred.
During 2003, Bishkek CC had gone through a tax audit. Based on the results of this tax audit, the tax authorities
assessed additional taxes and related penalties. Bishkek CC recorded a provision for this assessment amounting to USD 344 as
of December 31, 2004, as well as making the payment of the corresponding penalties in the amount of USD 7 during the year
ending December 31, 2004. During the year ending December 31, 2004, Bishkek CC made a reversal of the excess provision in
the amount of USD 88 as per tax authorities' final act. As a result, the provision reflected to the consolidated balance sheet as of
December 31, 2004 is amounting to USD 249.
Political and Economic Environment and Tax Issues of Azerbaijan
In accordance with local tax regulation, the income of Azerbaijan CC is subject to a 24% income tax rate. Companies
are required to file profit tax declarations on an annual basis.
Political and Economic Environment and Tax Issues of Turkmenistan
Legislation and regulations regarding taxation, foreign currency transactions and licensing of foreign currency loans in
Turkmenistan are constantly evolving as the central government manages the transformation from a command to a
market-oriented economy. The various legislation and regulations are not always clearly written and their interpretation is
subject to the opinions of the local tax inspectors, the Turkmenistan Central Bank officials, and the Ministry of Finance.
Instances of inconsistent opinions among the tax districts, the Turkmenistan Central Bank and Ministry of Finance are not
unusual.
The current regime of penalties and interest related to reported and discovered violations of Turkmenistan laws, decrees
and related regulations are severe. Penalties and interest can result in amounts that are multiples of any unreported taxes.
Because of the uncertainties associated with the tax and legal systems of Turkmenistan, the ultimate amount of taxes,
penalties and interest, if any, assessed may be in excess of the amount expensed to date and accrued as of December 31, 2004.
Although such amounts are possible and may be material, it is the opinion of the Group's management that these amounts are
either not probable, or reasonably determinable, or both.
The Group's operations and financial position will continue to be affected by political developments in Turkmenistan,
including the application of existing and future legislation and tax regulations. The Group does not believe that these
contingencies, as related to its operations, are any more significant than those of similar enterprises in Turkmenistan.
Tax Provisions
The Group believes that it has paid or accrued all taxes that are applicable. Where practice concerning the provision of
taxes was unclear, the Group has accrued tax liabilities based on management's best estimate. The Group's policy is to accrue for
contingencies in the accounting period in which a loss is deemed probable and the amount is reasonably determinable. No such
accruals have been made as of December 31, 2004.
Financial risk management
Financial risk management objectives and policies
The Group's principal financial instruments comprise bank borrowings, cash and short-term deposits and investment
securities. The main purpose of these financial instruments is to raise finance for the Group's operations. The Group has various
other financial instruments such as trade debtors and trade creditors, which arise directly from its operations.
The main risks arising from the Group's financial instruments are credit risk, interest rate risk, foreign currency risk,
market risk, liquidity risk and cash flow risk. The board / management reviews and agrees policies for managing each of these
risks and they are summarized below.
1)
Credit risk
Credit risk arises from the possibility that customers may not be able to settle obligations to the Group within the
normal terms of trade.
Credit risks, or the risk of counter parties defaulting, are controlled by the application of credit approvals, limits and
monitoring procedures. The extent of the Group's credit exposure is represented by the aggregate balance of accounts receivable
and advances to suppliers. Concentrations of credit risk with respect to accounts receivable are limited due to the large number
of customers included in the Group's customer base.
The Group places its cash with high credit quality financial institutions.
2)
Interest rate risk
Interest rate risk to the Group is the risk of changes in market interest rates reducing the overall return on its
investments and increasing the cash outflow on its borrowings. The Group limits interest rate risk by monitoring changes in
interest rates in the currencies in which its cash, investments and borrowings are denominated.
The effective interest rate range which are calculated from USD as at December 31, 2004 and 2003 is as follows:
Fixed rate borrowing.........................................................................................................
Floating rate borrowings...................................................................................................
3)
2004
2003
1% - 7%
Libor+3.75%
1% - 8%
Libor+3.75%
Foreign exchange risk
The Group's operations are predominantly performed in countries where the economies experience volatile levels of
inflation. Their respective currencies are also subject to continuous devaluation against the U.S. dollar.
The translation of local currency denominated assets and liabilities into US Dollars for the purpose of these financial
statements does not indicate that the Group could realize or settle in US Dollars the reported values of the assets and liabilities.
Likewise, it does not indicate that the Group could return or distribute the reported US Dollar values of capital to its
shareholders.
The following table summarizes the exchange rate of the local currencies to 1 US dollar:
Exchange rate at
December 31, 2004
Average exchange
rate in the period
Exchange rate at
December 31, 2003
4,903
130.00
41.62
0.74
27.75
1.342
4,913
136.11
42.67
0.80
28.81
1.422
4,923
144.22
44.19
0.79
29.24
1.396
Azerbaijan Manat.........................
Kazakh Tenge ..............................
Kyrgyz Som .................................
Euro ..............................................
Rouble ..........................................
New Turkish Lira.........................
The following table summarizes the annual rate of inflation for each year in the 4 year period ended December 31,
2004:
Azerbaijan .........................................................................
Kazakhstan ........................................................................
Kyrgyzstan ........................................................................
Netherlands .......................................................................
Russian Federation............................................................
Turkey ...............................................................................
2004 (%)
2003 (%)
2002 (%)
2001 (%)
5
7
3
1
11
14
4
7
6
2
12
14
3
7
2
3
15
31
2
6
4
4
19
89
The Company and its subsidiaries are exposed to exchange rate fluctuations due to the nature of their businesses. The
Group's imports are in USD and European currencies. These currencies strengthening against the subsidiaries' local currencies
have an adverse effect on the Group's results.
The Group does not hedge its foreign currency risk.
Republic of Kazakhstan, Azerbaijan and Kyrgyzstan Currency Exchange and Controls
The Kazakh Tenge, Azerbaijan Manat and The Kyrgyz Som are not fully convertible currencies outside the territory of
the Republic of Kazakhstan, Azerbaijan and Kyrgyzstan. Within these countries, official exchange rates are determined daily by
the National Bank of the Republic. Market rates may differ from the official rates but the differences are, generally, within
narrow parameters monitored by National Bank.
4)
Market risk
Market risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices. The
Group manages market risk through periodic estimation of potential losses that could arise from adverse changes in market
conditions.
5)
Liquidity risk
Liquidity risk is the risk that the Group will encounter difficulty in raising funds to meet commitments associated with
its financial liabilities.
Liquidity requirements are monitored on a regular basis and management ensures that sufficient funds are available to
meet any commitments as they arise.
6)
Cash flow risk
Cash flow risk is the risk that future cash flows associated with monetary financial instruments will fluctuate.
Cash flow requirements are monitored on a regular basis and management ensures that sufficient funds are available to
meet any commitments as they arise. The management of the Group believes that any possible fluctuations of future cash flows
associated with monetary financial instruments will not have material impact on the Group's operations.
Fair Values
The fair value of long-term debt is estimated to approximate its carrying value since it is primarily denominated in
foreign currencies and is revalued at year-end exchange rates and a substantial portion of it carries variable interest rates.
The fair values of short-term loans approximate their carrying values since they are denominated in foreign currencies
and revalued at year-end exchange rates.
Geographical Segments
Information per geographical segments as of December 31, 2004 and 2003 are as follows:
Domestic
Revenues
External Sales...............................................................
Total Revenues ...........................................................
Gross Profit.................................................................
Total Assets.................................................................
1,636
9,130
10,766
2,787
107,514
3,485
December 31, 2004
Foreign
Elimination
92,739
—
92,739
28,332
125,234
42,974
(4,082)
(9,130)
(13,212)
(597)
(139,147)
(9,492)
Consolidated
90,293
—
90,293
30,522
93,601
36,967
Business Segments
Sales revenue by
business segments
Soft drinks ............................................................................................................................................
Beer ......................................................................................................................................................
Service fee............................................................................................................................................
Total.....................................................................................................................................................
Domestic
Revenues
External Sales...............................................................
Total Revenues ...........................................................
Gross Profit.................................................................
Total Assets.................................................................
998
5,845
6,843
1,942
105,647
2,556
December 31, 2003
Foreign
Elimination
58,584
—
58,584
16,614
113,490
39,805
(1,018)
(5,845)
(6,863)
(160)
(138,296)
(8,875)
81,064
9,045
184
90,293
Consolidated
58,564
—
58,564
18,396
80,841
33,486
Business Segments
Sales revenue by
business segments
Soft drinks ............................................................................................................................................
Beer ......................................................................................................................................................
Service fee............................................................................................................................................
Total.....................................................................................................................................................
In January 2005, Almaty CC committed to purchase coolers for the total amount of USD 786.
51,292
7,238
34
58,564
ANNEX A
SUMMARY OF CERTAIN SIGNIFICANT DIFFERENCES BETWEEN U.S. GAAP AND IFRS
Our audited consolidated financial statements as of and for the years ended December 31, 2003, 2004 and 2005
contained in this offering memorandum have been prepared in accordance with International Financial Reporting Standards
("IFRS"). In prior periods, because our financial results were consolidated with the results of The Coca-Cola Company, we
established our accounting system in accordance with U.S. GAAP. We continued reporting our financial results in U.S. dollars
after our results were no longer consolidated with those of The Coca-Cola Company; this was due in part to the fact that Turkey
has historically experienced high inflation and devaluation, which made the interpretation of financial results in Turkish Lira
difficult. The New Turkish Lira has experienced relative stability in recent periods. In 2005, we converted our internal reporting
systems to New Turkish Lira and IFRS.
U.S. GAAP may differ from IFRS in certain respects that may be material to the financial information included in this
offering memorandum. In making an investment decision, investors must rely upon their own examination of us, the terms of the
offering and the financial information contained herein. Potential investors should consult their own professional advisers for an
understanding of the differences between U.S. GAAP and IFRS and how those differences might affect the financial information
included in this offering memorandum.
We have summarized below certain significant differences between U.S. GAAP and IFRS relevant to our consolidated
financial statements. This summary does not purport to provide a comprehensive analysis of such differences but rather a list of
potential differences in accounting principles related to our consolidated financial statements. No attempt has been made to
identify all significant differences between U.S. GAAP and IFRS, and we cannot assure you that the differences identified in the
summary below represent all of the principal differences relating to our consolidated financial statements.
The regulatory bodies that promulgate U.S. GAAP and IFRS have significant ongoing projects, and these standards are
subject to revision at any time. We have not attempted to identify future differences between U.S. GAAP and IFRS resulting
from prescribed changes in accounting standards. Neither have we attempted to identify all future differences between U.S.
GAAP and IFRS that may affect our consolidated financial statements as a result of events that may occur in the future.
Financial Reporting in Hyperinflationary Economies
The Financial Accounting Standards Board's Statement of Financial Accounting Standard No. 52 ("SFAS 52"),
Foreign Currency Translation, defines a highly inflationary economy as one that has cumulative inflation of 100% or more over
a three-year period. International Accounting Standard No. 29 ("IAS 29"), Financial Reporting in Hyperinflationary Economies,
gives a number of characteristics that may indicate that an economy is hyperinflationary, including three-year cumulative
inflation of 100% or more, but also taking into account the attitude of the general population to the stability of the local currency,
and prices and wages being linked to price indices.
Effective from January 1, 2006, IAS 29 will no longer be applied in our financial statements prepared in accordance
with IFRS.
IFRS and U.S. GAAP prescribe fundamentally different methods of reporting the results of an entity whose results are
denominated in a hyperinflationary currency, as described further below.
Exchange Gain (Loss)
Under U.S. GAAP, SFAS 52 requires an entity operating in a hyperinflationary economy to translate its assets,
liabilities and income statement into a stable currency as if the stable currency were the functional currency of the entity. Under
SFAS 52, revenues, costs, equity items and non-monetary assets and liabilities are re-measured into the stable currency at
historical exchange rates prevailing on the transaction dates. Monetary assets and liabilities are re-measured into the stable
currency at exchange rates prevailing at the balance sheet date. Exchange gains and losses arising from re-measurement of
monetary assets and liabilities that are not denominated in the functional currency are credited or charged to the consolidated
statements of income, under "exchange gain (loss)."
Under IFRS a two-stage process is followed for the translation of the financial statements of an entity whose functional
currency is the currency of a hyperinflationary economy into a different presentation currency. First, the financial statements
must be stated in terms of the measuring unit current at the balance sheet date. Second, these financial statements (expressed in
terms of the measuring unit current at the balance sheet date) are translated into the reporting currency.
Monetary Gain (Loss)
Under IFRS historic cost financial statements, balance sheet amounts not already expressed in terms of the measuring
unit current at the balance sheet date are restated by applying a general price index. Monetary items are not restated because they
are already expressed in terms of the measuring unit current at the balance sheet date. Most non-monetary items are carried at
cost or cost less depreciation; therefore, they are expressed in amounts current at their date of acquisition. The restated cost, or
cost less depreciation, of each item is determined by applying to its historical cost and accumulated depreciation the change in a
general price index from the date of acquisition to the balance sheet date.
Moreover, all income statement items are expressed in terms of the measuring unit current at the balance sheet date;
such items are restated by applying the change in the general price index from the dates when the items of income and expenses
were initially recorded in the financial statements. The gain or loss on the net monetary position may be derived as the difference
resulting from the restatement of non-monetary assets, owners' equity, income statement items and the adjustment of
index-linked assets and liabilities. The gain or loss on net monetary position is included in net income.
Under U.S. GAAP, no adjustments are made in respect of the general price index.
Under IFRS, property, plant and equipment is recorded at its restated cost, or cost less depreciation, which is
determined by applying to historical cost and accumulated depreciation the change in the general price index from the date of
acquisition to the balance sheet date and any impairment in value. Current year depreciation charge is calculated on the basis of
the restated cost.
Under U.S. GAAP, property, plant and equipment is recorded at historical cost and current year depreciation charge is
calculated on the basis of historical cost.
Deferred Taxes
Under IFRS, deferred taxes are calculated on the temporary differences that arise on the remeasurement of assets and
liabilities of an entity operating in a hyperinflationary country into the reporting currency. In contrast, U.S. GAAP prohibits the
recognition of a deferred tax liability or asset for differences related to assets that are translated from the local currency into the
functional currency using historical exchange rates, when those differences arise from changes in exchange rates.
Impairment Loss
Under both IFRS and U.S. GAAP, impairment loss is recorded on long-lived assets used in operations when events and
circumstances indicate the assets might be impaired. Under IFRS, an impairment charge is recorded to reduce the carrying value
to the asset's recoverable amount, while under U.S. GAAP, such impairment charge is recorded only if the estimated
undiscounted cash flows are less than the carrying value.
Under IFRS reversals of impairments on long-lived assets (except goodwill) are recognized if certain conditions are
met, while U.S. GAAP does not permit the reversal of impairment loss.
Sales Revenue
In accordance with U.S. GAAP, certain contributions for marketing and promotions paid to customers are classified as
a deduction from sales. Under IFRS, payments made to customers that relate to marketing activities are classified as expenses.
This difference has no impact on net income.
HEAD OFFICE OF THE COMPANY
Esenşehir Mah. Erzincan Caddesi No: 36
34776 Ümraniye
Istanbul, Turkey
LEGAL ADVISORS TO THE COMPANY
As to U.S. Law
White & Case LLP
1155 Avenue of the Americas
New York, New York 10036
United States
As to Turkish Law
Derman Ortak Avukat Bürosu
Maya Akar Center
Büyükdere Caddesi No: 100, Kat 17
34394 Esentepe
Istanbul, Turkey
LEGAL ADVISORS TO THE UNDERWRITERS
As to U.S. Law
Linklaters
One Silk Street
London EC2Y 8HQ
United Kingdom
As to Turkish Law
Pekin & Bayar
Ahular Sokak No: 15
34337 Etiler
Istanbul, Turkey
AUDITORS
Ernst & Young
Güney S.M.M.M. A.Ş.
Büyükdere Cad. Beytem Plaza
34381 Şişli
Istanbul, Turkey
(This page has been left blank intentionally.)

offering memorandum confidential

Transcription

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