OYAK ERDEM‹R - ERDEMİR

ANNUAL REPORT 

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CHAIRMAN’S MESSAGE 

CHIEF EXECUTIVE OFFICER’S MESSAGE 

BOARD OF DIRECTORS-EXECUTIVE MANAGEMENT 

GROUP COMPANIES AND PRESIDENTS 

ERDEMIR GROUP 

STRATEGIC RESTRUCTURING 

WORLD STEEL INDUSTRY 

PRODUCTION 

SALES 

INVESTMENTS 

HUMAN RESOURCES 

SUSTAINABILITY 

CORPORATE GOVERNANCE 

FINANCIALS

1 

Dear Shareholders, 

Chairman’s Message 

Radical changes the iron and steel industry underwent over the last few years remained 

throughout 2007. This year a number of mergers among the leading players became official, 

and consolidation took place among the raw material suppliers. Steel prices increased steadily 

primarily due to higher raw material and freight costs. 

Erdemir Group adapted its business policies to these relentless conditions in its second year 

within OYAK family. The Group, with its strong and capable management team, effectively 

executed its recently formulated corporate strategies, and locked onto success by closely 

monitoring industry developments and taking timely actions. Erdemir Group has focused 

on profitability and operational productivity, and continued to create value for its shareholders. 

Our accomplishments have been acknowledged by the international credit rating agencies 

and Erdemir Group has been rated equal to the sovereign by both Moody’s and 

Standard & Poor’s. These ratings mark the solid financial structure and core values of our 

Group despite the challenging and dynamic competitive conditions and high investment 

costs in the steel industry. 

Erdemir Group ranked 8 th among the steel producers of EU-27 with 5,4 million tons of 

crude steel production. We believe our Group’s competitiveness would increase once the 

modernization and capacity expansion investments come to an end at the Ere¤li and 

‹skenderun plants. In 2007, most of investments at Ere¤li plant were completed, while 

‹skenderun plant’s investments have reached a 75% completion level. Our primary operational 

objectives for 2008 are to produce first hot rolled coil in Iskenderun, start up a new blast 

furnace that has been designed and built by Erdemir Group engineers at Ere¤li plant, and 

initiate Turkey’s largest iron ore investment to date.

Over the next few years, we expect the demand and supply to stay at a dynamic disequilibrium, 

as the new steelmaking capacities both in Turkey and around the world to come on stream. 

In parallel, it is our primary objective that the overall cost competitiveness of Erdemir Group 

shall be asserted, while dynamic sales and raw material procurement practices shall continue 

to be implemented. Our marketing activities shall be singularly based upon cherishing long 

term relations with our core customers while progressively expanding our customer portfolio. 

In order to achieve these objectives, OYAK has initiated a Strategic Restructuring Program 

immediately upon acquiring Erdemir Group in 2006. As part of this program, most of the 

shared services of group companies have been consolidated by now. With that, we aim to 

increase our business process effectiveness, better serve our customers and further improve 

our profitability. As we plan our future, we will not only strive to better foresee the horizon 

in order to continue on our path to become an even more powerful company, but we will 

also take action keeping in mind that “the institutions of the future” will be those that manage 

to shape and impact what the future holds. 

I hope to share the pride and happiness of our Group’s continued accomplishments in the 

coming years, which were crowned in 2007 with strong financial and operational performance. 

I thank to all our shareholders, employees, customers and suppliers being major contributors 

to our success. 

Sincerely Yours, 

Coflkun ULUSOY, Ph.D. 

Chairman of the Board 

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Dear Shareholders, 

Chief Executive Officer’s 

Message 

We complete the year content with our solid results achieved in time of major changes in 

the global economic conditions as well as shifting market dynamics in the steel industry. 

Robust demand and supply conditions registered in the steel industry during 2006 

maintainted their course through 2007. World crude steel production reached 1.343 million 

tons, while China took the center stage for volume growth. In response to rising raw material, 

freight and energy costs, steel prices continued to increase throughout 2007. Mergers in 

our industry also continued without losing pace. 

Due to continued strong demand, 2007 was a healthy year for the Turkish steel industry, 

enabling steel manufacturers to adjust their prices and pass on increased manufacturing 

costs through the value chain. The CIS manufacturers were mostly focused on their domestic 

markets in order to meet strong local demand, creating a favorable environment for Turkish 

manufacturers in the international billet markets. Turkish crude steel production increased 

by over 10% during 2007 and reached 25,8 million tons. Our country remained as the 

world’s 11 th biggest steel manufacturer and became the second most rapidly growing 

country following China in terms of steel production capacity. With its 5,4 million ton output 

Erdemir Group ranked 57 th in world, 17 th in Europe, and 8 th in the European Union. 

In contrast to Erdemir Group’s integrated steel manufacturing capabilities utilizing blast 

furnaces, the majority of domestic steel is produced by Electric Arc Furnaces (EAF) in our 

country. As a result, Turkey has become the largest scrap metal importer in the world, 

thereby increasing our steel industry’s dependency on foreign raw materials, as well as 

having a negative impact in our country’s trade balance. 

Taking these macroeconomic and industry specific conditions into consideration, we 

continued our investments at full speed, fulfilling USD 947 million worth projects during 

2007. “Blast Furnace No.1 Renewal Project” installed at our Ere¤li plant has special importance 

among our ongoing investments. This project, which is wholly designed, planned and 

managed by Erdemir Group, and successfully executed at much lower cost compared to 

benchmarked third party contracts, clearly demonstrates our management’s conviction in 

Erdemir talent pool’s 43 years of accumulated experience and competencies. With the 

completion of this investment, Erdemir Group will become an entity that successfully 

operates the plants that itself builds and establishes.

TRY 679 million net profit recorded during 2007 reflects the fruits of our efforts, as we 

embrace the future with continued investments, and dynamically shift our operations, 

business processes and policies in line with our customer’s ever evolving needs. 

Our accomplishments were recognized and awarded by the stock market, and Erdemir 

Group market capitalization peaked on September 27, 2007, reaching USD 8,3 billion. 

We are aware that competitive advantage is made possible by not only actively managing 

for the bottomline by focusing on profitability and productivity, but also emphasizing on 

meeting customer and employee satisfaction, as well as striving for higher product and 

service quality. We are also aware that success can be sustained by channeling our resources 

toward achieving the common goals that are established upon a well defined business 

strategy, and by adapting to changes rapidly. 

I would like to emphasize that we will continue to exhibit stellar performance and create 

value for both our stakeholders and the prospects of our country. I extend my thanks to 

our shareholders, employees, customers and suppliers who have been accompanying us 

in this journey and have been significant contributors to our successes. 

Sincerely Yours, 

O¤uz ÖZGEN 

President and Chief Executive Officer 

Board Member 

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Ayd›n MÜDERR‹SO⁄LU, Ph.D. 

Deputy Chairman 

Managing Director 

27.02.2006 - 

Gülefflan DEM‹RBAfi 

Board Member 

01.01.2007 - 25.02.2008 

Celalettin ÇA⁄LAR 

Board Member 

27.02.2006 - 

Board of Directors 

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Coflkun ULUSOY, Ph.D. 

Chairman 

Managing Director 

27.02.2006 - 

Ergün OKUR 

Board Member 

27.02.2006 - 

Caner ÖNER, Ph.D. 

Board Member 

27.02.2006 - 

Dinç KIZILDEM‹R 

Board Member 

27.02.2006 - 

Dilek SADIKO⁄LU was elected Auditor on 05.02.2007 in place of Ömer DUMAN, who served between 

14.03.2003 – 31.01.2007. 

Fatma CANLI was elected Auditor on 22.03.2007 in place of Nurhan ÖZDAMAR, who served between 

27.02.2006 – 27.03.2007. 

Arzu Hatice AT‹K was elected Board Member on 26.02.2008 in place of Gülefflan DEM‹RBAfi, who served between 

01.01.2007 – 25.02.2008. 

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Cem KARAKAfi, Ph.D. 

Board Member 

27.02.2006 - 

O¤uz ÖZGEN 


Board Member 

17.07.2006 - 

10 Dilek SADIKO⁄LU 

Auditor 

05.02.2007 - 

Fatma CANLI 

Auditor 

22.03.2007 - 

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Executive Management 

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Esat GÜNDAY 

Executive Vice President 

Operations 

13.07.2006 - 

Samim fiAYLAN 


Human Resources and 

Administrative Affairs 

13.07.2006 - 

6 

O¤uz ÖZGEN 


Board Member 

13.07.2006 - 

Cem KARAKAfi, Ph.D. 


Chief Financial Officer 

28.08.2007- 

Günhan BEfiE 


Sales and Marketing 

13.07.2006 - 

Ertu¤rul AYDIN served as Executive Vice President Chief Financial Officer, between 13.07.2006 - 27.08.2007 

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Ozan BEKÇ‹ 


Raw Materials and Procurement 

13.07.2006 - 

‹smail Hakk› GÜROL 


Technical Services and Investments 

13.07.2006 - 

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‹smail AKÇAKMAK 

‹SDEM‹R 

President 

and Board Member 

05.05.2006 - 

‹brahim Hakk› BAYRAKTARO⁄LU** 

ERDEM‹R Çelik Servis Merkezi 

Act. President 

27.04.2007 - 

Presidents of 

Group Companies 

‹lhami ACAR 

ERENCO 

President 

and Board Member 

23.06.2006 - 

Dinç KIZILDEM‹R 

ERDEM‹R Lojistik 

Chairman and 


24.08.2006 - 

* Hülya ‹nci ATAHAN served as Act. President of CELBOR between 27.02.2006 - 24.04.2007. 

** Ali Caner ÖNER served as the President of Erdemir Çelik Servis Merkezi between 27.02.2006 - 27.04.2007. 

*** fierafettin ÖNER served as President of Erdemir Romania between 01.07.2004 - 30.04.2007. 

Sedat ORHAN 

ERDEM‹R Maden 

President 

12.10.2006 - 

Özkan DO⁄AN* 

ÇELBOR 


24.04.2007 - 

Fuat ALA *** 

ERDEM‹R Romania 

President 

10.05.2007 -

Group Companies 

‹skenderun Demir ve Çelik A.fi. 

Karay›lan Beldesi 31319 ‹skenderun 

Tel.: 0 326 758 40 40 

Faks: 0 326 755 11 84 - 758 53 51 

758 38 38 

info@isdemir.com.tr 

Erdemir Mühendislik Yönetim ve 

Dan›flmanl›k Hizmetleri A.fi. 

Merdivenköy Yolu Sok. No. 4 

Küçükbakkalköy Kad›köy 34750 ‹stanbul 

Tel.:0 216 578 80 00 

Faks: 0 216 469 48 30 

erenco@erenco.com.tr 

Erdemir Lojistik A.fi. 

Merdivenköy Yolu Sok. No. 4 K. 6 

Küçükbakkalköy Kad›köy 34750 ‹stanbul 

Tel.: 0 216 578 81 81 

Faks: 0 216 469 48 22 

info@erdemirlojistik.com.tr 

Erdemir Çelik Servis Merkezi A.fi. 

Organize San. Böl. 700. Sok. 

No. 724 Gebze Kocaeli 

Tel: 0 262 679 27 27 

Faks: 0 262 679 27 67 

info@erdemir-csm.com.tr 

Erdemir Madencilik San. ve Tic. A.fi. 

Cürek Yolu 5. km Divri¤i Sivas 

Tel.: 0 346 419 11 21 (5 hat) 

Faks: 0 346 419 11 50 

ermaden@erdemirmaden.com.tr 

Çelbor Çelik Çekme Boru San. ve Tic. A.fi. 

Kayseri Yolu 7. km P.K.21, 71300 K›r›kkale 

Tel.: 0 318 225 46 96 

Faks: 0 318 224 28 71 

satis.celbor@erdemir.com.tr 

Erdemir Romania S.R.L. 

18, Soseaua Gaesti, Targoviste, 

Dambovita County Romania 

Tel.: +40 245 60 71 10 

Faks: +40 245 60 60 70 

office@erdemir.ro 

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Group Profile 

OYAK 

ATAER (100%) 

ERDEM‹R (49,29%)

SUBSIDIARIES 

‹SDEM‹R (92,91%) 

ERDEM‹R MADEN (90%) 

ERENCO (100%) 

ÇELBOR (100%) 

ERDEM‹R ÇEL‹K SERV‹S MERKEZ‹ (100%) 

ERDEM‹R ROMANIA S.R.L (100%) 

ERDEM‹R LOJ‹ST‹K (100%) 

ERDEM‹R GAZ (100%) 

AFFILIATES 

ARCELORMITTAL AMBALAJ ÇEL‹⁄‹ SAN. ve T‹C. A.fi. (25%) 

BORÇEL‹K SAN. ve T‹C. A.fi. (8,92%) 

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ERDEM‹R 

Owner and operator of Erdemir Group’s Ere¤li facilities, 

Erdemir is Turkey's largest iron and steel company and 

the country's only integrated producer of flat steel 

products. Erdemir started production in 1965 and 

currently has a production capacity of over 3 million 

tons of crude steel per year and over 5 million tons 

per year of flat steel products. Erdemir produces heavy 

plates, hot and cold rolled coils, as well as tin, chrome 

and zinc coated flat steel products in accordance with 

established international quality standards. We are at 

the forefront of innovation and new product 

developments in Turkish industry. Our products are 

used in a wide variety of industries including construction, 

pipe production, automotive, shipbuilding, durable 

goods, agricultural machinery, pressure vessels, and 

metal packaging. Committed to growth, Erdemir has 

expanded rapidly in recent years through acquisitions 

both at home and abroad, as well as through establishing 

new plants. Erdemir Group of Companies currently 

consist of: ‹skenderun Demir ve Çelik A.fi. (‹SDEM‹R), 

Erdemir Madencilik San. ve Tic. A.fi. (Erdemir Maden), 

Erdemir Çelik Servis Merkezi San. ve Tic. A.fi. (Erdemir 

Çelik Servis Merkezi), Erdemir Mühendislik Yönetim ve 

Dan›flmanl›k Hizmetleri A.fi. (ERENCO), Erdemir Romania 

S.R.L., Çelik Çekme Boru San. ve Tic. A.fi. (ÇELBOR), 

Erdemir Lojistik A.fi. (Erdemir Lojistik) and Erdemir Gaz 

San. ve Tic. A.fi. (Erdemir Gaz). 

Erdemir’s majority is owned by Ataer Holding A.fi., 

which is in turn wholly owned by Turkey's OYAK Group. 

Erdemir's current shareholding structure is as follows; 

- 49,29% - ATAER Holding A.fi. 

- 3,08% - Treasury Shares 

- 47,63% - Free float on Istanbul Stock Exchange (ISE) 

‹SDEM‹R 

Owner and operator of Erdemir Group’s ‹skenderun 

facilities,Turkey's second largest steel producer, 

Iskenderun Demir ve Çelik A.fi. (‹sdemir) was transferred 

to Erdemir Group on February 1, 2002. 

The following year Erdemir Group initiated a 

comprehensive investment program aimed at 

modernizing existing facilities and adding new capacity 

to enable ‹sdemir expand its product portfolio to include 

flat steel products thereby better meeting the needs 

of local and regional markets. As the current investment 

program is expected to be completed by the end of 

2008, ‹sdemir will have a production capacity of 3,5 

million tons of flat steel products per year in addition 

to its existing capacity of 2,5 million tons per year of 

billet and wire rod. 

ERDEM‹R MADEN 

Erdemir Group’s mining subsidiary, Erdemir Maden 

holds licenses of 14 iron ore fields and one manganese 

ore field in the northern Turkish province of Sivas Divri¤i. 

Operating the only pelletizing plant in Turkey, Erdemir 

Maden produces 50% of domestic ore output, and 

meets 20% of domestic iron ore demand.

ERENCO 

Erdemir Group’s engineering company Erenco offers 

a wide range of engineering and project management 

services ranging from project planning to implementation 

and installation. Erenco manages a large portion of the 

massive investment program the Group is undergoing 

while participating in numerous these projects in Turkey 

and abroad. 

ERDEM‹R ROMANIA S.R.L 

Located in Targovista-Romania, Erdemir Group’s 

Romanian subsidiary produces flat silicon steel, widely 

used in the manufacturing of electric motors and 

transformers. 

ÇELBOR 

Located in K›r›kkale province of Turkey; Erdemir Group's 

pipe manufacturing subsidiary ÇELBOR produces a 

wide range of extruded pipe products including seamless 

steel pipes, cold drawn precision pipes, drilling pipes 

and tubes, seamless steel profiles and boiler tubes. 

ERDEM‹R ÇEL‹K SERV‹S MERKEZ‹ 

Erdemir Group’s steel service center, located in the 

Gebze Organized Industrial Zone to the east of Istanbul, 

offers slitting and cut-to-length services to automotive, 

white goods, HVAC, home and office appliance 

manufacturers by supplying them with custom sized 

flat steel products. 

ERDEM‹R LOJ‹ST‹K 

Erdemir's in-house logistics subsidiary was established 

to meet the logistics requirements of Erdemir Group. 

ERDEM‹R GAZ 

Erdemir Gaz is established in accordance with Turkey's 

Energy Market Regulatory to supply our Group's natural 

gas needs at the most favorable market rates. 

AFFILIATES 

ARCELORMITTAL Ambalaj Çeli¤i Sanayi ve 

Ticaret A.fi. 

Erdemir holds 25% stake in ARCELORMITTAL Ambalaj 

Çeli¤i San. Tic. A.S., purchased on October 17, 2002. 

The company markets tin plated packaging materials 

that are slit and cut-to-length at its plant in Gemlik. 

BORÇEL‹K Çelik Sanayi ve Ticaret A.fi. 

Erdemir holds 8,92% stake in Turkish flat steel reseller 

Borçelik. 

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Strategic 

Restructuring 

WE ARE RESHAPING OUR FUTURE, 

INTEGRATING OUR BUSINESS PROCESSES AND 

ORGANIZATIONAL STRUCTURE.

Erdemir Group’s accession to OYAK Group is one 

of the most important developments in the Group’s 

history, and the strategic restructuring activities that 

commenced immediately after the transfer have 

put their mark on all key initiatives during 2007. 

Despite having a year of high investment 

expenditures, Erdemir Group was able to sustain 

its previous year’s record profit level during 2007 

thanks to a combination of strategic and operational 

improvements as well as successful implementation 

of a more dynamic and efficient management 

structure. 

For the first time in Erdemir Group’s history, all 

group companies were administered as a single 

economic and operational unit. Centralization of 

shared services, culminating in their relocation to 

our Istanbul headquarters in March 2008, will allow 

for more effective and efficient management of 

our resources, while assuring higher service quality 

with swifter response. 

Thanks to centralized management of group 

purchasing activities, we were successful in 

minimizing the effects of supply bottleneck that 

affected global raw materials markets. Concurrently, 

we were able to reduce our inventory cost by 

extending the judicious use of long term supply 

agreements and special derivative instruments, 

already in place for sourcing our core raw materials, 

to procurement of auxiliary raw materials and other 

consumables. We also managed to maintain 

minimum inventory levels thanks to centralizing 

our inventory management system. 

We also established a new financial management 

structure encompassing the whole group to ensure 

the most effective and efficient use of our financial 

resources. The benefits of the new structure were 

quickly demonstrated as we began to plan for our 

both short and long term financial resources with 

more clarity, increased the returns on our liquid 

assets and minimized our cost of borrowing with 

the aid of central treasury and credit management 

teams. We also established a risk management 

team with oversight for the whole group, in order 

to actively monitor and manage our group’s financial 

risks and therefore preserve our healthy financial 

structure. 

As a result of product portfolio expansion in our 

‹skenderun plant to include both long and flat steel 

products, it has become imperative to also 

reconfigure our sales and marketing structure. Taking 

this fact into consideration, we have already initiated 

redesign of our sales order fulfillment processes as 

well as modification of our information systems 

infrastructure. In addition, centralization of marketing 

and sales functions is underway. 

Benchmark studies and joint projects among group 

companies were encouraged, in order to foster an 

environment for sharing best practices and to 

maximize benefits from synergy potentials within 

Erdemir Group. Consequently, human resources 

management is also considered as part of our 

shared services approach, to be implemented within 

the scope of our Strategic Restructuring program. 

We are aware that strategic initiatives must be 

supported with appropriate measures, such as 

business process redesign and information systems 

infrastructure upgrades. Enterprise Resource Planning 

(ERP) software implementation initiative, 

simultaneously underway in both Ere¤li and 

Iskenderun plants, aims to fulfill such a mission by 

significantly improving our joint resource allocation 

and planning capabilities as well as allowing for 

integrated and dynamic decision making within the 

group. The new system is expected to be operational 

at Ere¤li and ‹skenderun plants by the end of 2008. 

In addition to ERP, we are also in the midst of 

initiating Advanced Planning and Scheduling software 

implementation to equip our sales and operations 

planning teams with a better tool that will enable 

them to maximize our capacity utilization and 

minimize our production cost, while reducing order 

fulfillment lead times. 

Since joining OYAK, Erdemir Group has continued 

to make progress with its Strategic Restructuring 

Program, further strengthening its current leading 

position in the market. 

14

Worldwide steel production continued to 

grow during 2007 reaching 1,3 billion 

tons.

World 

Steel 

Industry

17 

OVERVIEW OF 2007 

Strong global demand for steel continued during 2007 

pushing both raw materials and steel products prices 

ever higher, reaching record levels. 

Developments resulting from the 

continued growth of the Chinese 

market 

High growth rates for steel production sustained their 

pace in emerging economies, mainly in China as well 

as in Brazil, India and Turkey. Having transformed itself 

over the course of the past few years from being a net 

steel importer to becoming a major exporter, China 

continued to exert a disproportionate influence on 

global markets, with its steel exports soaring to a record 

48 million tons last year. Such dramatic increase in 

Chinese steel exports has ultimately alarmed other 

major players such as the US, Europe and Japan, forcing 

them to apply precautionary and protectionist measures 

such as anti-dumping and government subsidy 

investigations. 

Raw Materials Procurement 

Annual negotiations for iron ore and coal procurement 

contracts were finalized in a relatively short period of 

time during the start of 2007. Foreseeing bottlenecks 

in raw materials supply, some steel manufacturers in 

the CIS (Commonwealth of Independent States) 

countries and in the Far East went one step further, 

acquiring small to medium sized coal and iron ore 

mines, or establishing formal partnerships with larger 

producers in order to secure guaranteed long term 

supplies at favorable prices. At the same time, various 

emerging economies such as Egypt, India, Algeria and 

China applied export duties and other restrictions on 

iron ore and scrap iron exports in order to secure 

sufficient raw material supplies for their domestic 

producers. 

Mergers and Acquisitions 

Mergers and acquisitions among steel manufacturers 

maintained their intensity during 2007. The merger 

between global giants Arcelor and Mittal, brokered in 

2006, finally became official while the merger between 

Corus and Tata was also completed. Acquisition of 

North American steel producers by foreign investors 

continued apace throughout 2007, with half of the US 

steel production capacity and almost all of Canadian 

steel production changing management control. 

There were also two major mergers in the value chain 

upstream, as iron ore producer CVRD acquired nickel 

producer Inco, and Rio Tinto Group acquired aluminum 

supplier Alcan. Such major events in the industry once 

again demonstrated that, despite the recent increase 

in size and scope of mergers among steel producers, 

there still remains a great potential for further 

consolidation to better cope with the increasing power 

of raw material suppliers. 

Long Products Market 

Healthy and growing market demand for billets and 

reinforcing bars in the CIS during 2006 and 2007 

were of particular benefit to Turkish steel manufacturers. 

With demand for billets and debar in the CIS states 

soaring, local manufacturers reduced exports leading 

to a regional shortage of long product supplies, which 

also coincided with continued high demand in the 

Middle East construction industry for billet and wire 

rod, hence resulting in very favorable market dynamics 

for Turkish long steel manufacturers.

Derivative Markets for Steel 

Another important development during 2007 was the 

establishment of steel derivative market, the first of its 

kind, by the Dubai Gold and Commodity Exchange 

(DGCX) . Turkish long steel manufacturers were among 

its initial users. 

The Turkish Steel Industry 

Crude steel production in Turkey grew by over 10,5%, 

reaching 25,8 million tons by the end of 2007, and 

allowing our country maintain its ranking as the eleventh 

largest steel manufacturer worldwide, as well as 

becoming the second most rapidly growing country 

following China in terms of crude steel output. 

Output by electrical arc furnaces (EAF) grew by 13,0% 

reaching 19,4 million tons and the integrated steel 

production increased by 3,5% reaching 6,4 million 

tons. Healthy levels of demand throughout the year 

helped sustain high steel prices, providing a favorable 

market condition for the steel manufacturers. 

FORECASTS FOR 2008 

Even though global growth rate might turn out to be 

lower compared to previous years, demand for steel is 

expected to remain solid during 2008. According to 

recent forecast by the International Iron and Steel 

Institute (IISI), global steel consumption is expected to 

increase by 6,8% during 2008, on the back of continued 

growth in emerging markets such as Brazil, Russia, India 

and China, as well as the Gulf Region and Americas. 

Growth is also expected in mature markets where 

consumption is expected to resume healthy levels due 

to below average inventory levels. 

In response to such demand growth, annual steel output 

is anticipated to increase beyond 1,4 billion tons, 

escalating the pressures on already existing bottlenecks 

in the raw materials supply chain, and further elevating 

raw material and energy costs beyond the levels reached 

during 2007. 

As a result of these market dynamics, steel manufacturers 

without access to raw material resources are likely to 

face supply shortages, or will have no choice but to 

accept higher raw material costs, which will consequently 

put pressure on their profit margins. 

Taking into consideration the protectionist measures 

that are again on the rise worldwide, coupled with 

increasing freight costs, it can reasonably be foreseen 

that markets will become more regional and price 

variations among regions will emerge during 2008. 

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Global Crude Steel Production (thousand tons) 

Rank Country 2006 2007 07/06% 

1 China 422.989 489.241 15,7 

2 Japan 116.226 120.199 3,4 

3 USA 98.557 97.212 -1,4 

4 Russia 70.830 72.220 2,0 

5 India 49.450 53.080 7,3 

6 S. Korea 48.455 51.367 6,0 

7 Germany 47.224 48.550 2,8 

8 Ukraine 40.892 42.830 4,7 

9 Brazil 30.901 33.784 9,3 

10 ‹taly 31.624 31.990 1,2 

* 

11 TURKEY 23.308 25.745 10,5 

12 Taiwan 20.000 20.450 2,3 

13 France 19.852 19.252 -3,0 

14 Spain 18.391 19.050 3,6 

15 Mexico 16.313 17.170 5,3 

World 1.250.499 1.342.997 7,4 

Source: IISI 04.02.2006 

* Turkish Iron and Steel Producers’ Association 

Turkey, the most rapidly growing country after China in 

terms of crude steel output, ranked 11 th in the world, 

5 th in Europe and 3 rd in the European Union.

EU-27 16% 

Turkey 2% 

CIS 9% 

USA 7% 

Other 10% 

Crude Steel Production 2007 

EU-27 17% 

Turkey 2% 

CIS 5% 

USA 9% 

Other 14% 

China 36% 

Japan 9% 

Other Asia 11% 

Consumption 2007 

China 33% 

Japan 6% 

Other Asia 14% 

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116,40 

Arcelor 

Mittal 

17,91 

Riva 

17,02 

Source: Metal Bulletin (17.03.2008) 

EU-27 Largest Steel Producers 2007 

8,09 

7,36 

7,09 

5,69 5,37 

TKS Celsa Salzgitter Voestalpine SSAB Erdemir 

Group 

4,38 

Global Steel 

Holdings 

3,00 

Alfonso 

In terms of crude steel production, Erdemir Group ranks 57 th 

in the world, 17 th in Europe and 8 th in the European 

Union.

Global Apparent Steel Consumption (thousand tons) 

Rank Country 2006 2007 07/06% 

1 China 384.320 428.017 11,4 

2 USA 134.000 123.100 -8,1 

3 Japan 83.300 84.500 1,4 

4 S.Korea 51.600 56.200 8,9 

5 India 48.572 55.203 13,7 

6 Russia 42.781 53.471 25,0 

7 Germany 46.621 49.122 5,4 

8 Italy 38.800 38.900 0,3 

9 Spain 30.437 30.839 1,3 

10 Mexico 25.449 26.287 3,3 

11 TURKEY 23.299 25.782 6,1 

12 Taiwan 23.790 24.960 4,9 

13 Brazil 20.590 23.720 15,2 

14 Iran 19.188 20.528 7,0 

15 Canada 19.252 18.083 -6,1 

World 1.242.480 1.323.474 6,5 

Source : (IISI) SRO Autumn 2007 

* Crude Steel 

Turkey ranks 11 th in the world in terms 

of steel consumption. 

22

Crude steel output of Erdemir Group, the 

biggest producer in Turkey, reached 

5,4 million tons in 2007.

Production

25 

As a result of productivity improvements and 

modernization investments, Erdemir managed to 

achieve record levels of production and shipment 

volume in 2007, while reaching 97,9% capacity 

utilization. Our Operational Efficiency, calculated by 

combining time utilization, throughput and product 

quality of our facilities, was 82,2%. 

FLAT STEEL PRODUCTION 

Flat steel production at our Ere¤li plant increased by 

7,8% in 2007, reaching 4.206 thousand tons, the 

highest volume the plant has ever recorded. Iskenderun 

plant produced 552 thousand tons of slab, while our 

plant in Romania recorded production of 59 thousand 

tons of silicon steel. 

LONG STEEL PRODUCTION 

In addition to slab production, ‹skenderun plant also 

manufactured 1.917 thousand tons of pig iron and 

long products including, billet and wire rod. 

IRON ORE PRODUCTION 

Our mines produced 1.292 thousand tons of pellets 

and 627 thousand tons of other products during 2007. 

STEEL SERVICE CENTER 

Our Steel Service Center custom cut and slit 

178 thousand tons of cold and galvanized products 

according to our customers’ specifications. 

ENGINEERING, MANAGEMENT AND 

CONSULTANCY SERVICES 

Our engineering company was in charge of executing 

the majority of investment projects at our Ere¤li and 

Iskenderun plants, as well as various investment projects 

at other OYAK Group companies, handling over 50 

projects. 

SEAMLESS STEEL TUBE PRODUCTION 

The only domestic manufacturer of industrial seamless 

steel tubes, our K›r›kkale plant produced 5.380 tons of 

products including seamless steel tubes and profiles, 

cold drawn precision pipes, drilling pipes, and boiler 

tubes. 

LOGISTICS SERVICES 

Primarily engaged in meeting the seaborne logistics 

needs of Erdemir Group companies, our logistics 

company continued to provide a broad range of sea 

and train-ferry transportation, ship chartering and agency 

services. 

PORT OPERATIONS 

As the largest integrated port on the Turkish coastline 

of Black Sea, our Ere¤li Port handled 11,2 million tons 

of cargo during 2007, 1,9 million tons of which was 

provided as services for third parties. Technical and 

legal modifications to Ere¤li Port during 2007 enabled 

us to increase the vessel size we can handle from 

150.000 to 200.000 DWT, allowing us in turn to reduce 

our freight costs. 

Our ‹skenderun Port, which is connected to the national 

railway system, increased its material handling volume 

by 21,5% reaching 10,3 million tons. 4,2 million tons 

of this total was provided as services to third parties, 

which constitutes an increase of 15,3% compared to 

the previous year.

Upon completion of ongoing investments, the 

unloading capacity at each of our ports are planned 

to reach 16 million tons per year, allowing us to better 

utilize long term freight contracts and reduce freight 

costs by USD 1 per ton, thereby generating 

approximately USD 20 million savings per annum. 

RAW MATERIALS PROCUREMENT 

After achieving notable success in reducing costs and 

eliminating bottlenecks with utilization of long term 

purchase contracts for our core raw materials, we 

started to employ a similar approach for auxiliary raw 

materials and other consumables, as well as applying 

consignment sourcing for certain ferro-alloys. 

Concurrently, we broadened our portfolio of suppliers, 

creating a more competitive environment that is to 

the advantage of Erdemir Group. 

We aimed to maximize our use of domestic ore and 

coal resources amid bottlenecks encountered in global 

raw materials markets during 2007. 

As a result, we increased our domestic coal consumption 

from 30 thousand tons in 2006 to 163 thousand tons 

in 2007. 

While all 3,9 million tons per annum output of domestic 

iron ore was consumed by the three integrated plants 

in Turkey, 2 million tons of this amount was consumed 

in our ‹skenderun plant thanks to favorable logistics. 

Erdemir Group’s pellet production output will almost 

triple from its current level of 1,2 million to 3,2 million 

tons, upon completion of planned investments in 

Hasançelebi Pelletizing Plant, allowing us to be better 

equipped against volatilities in the global raw materials 

markets. 

Despite facing inventory increases averaging 30% per 

year over the course of previous 5 years, we managed 

to stabilize inventory levels during 2007, thanks to new 

procurement and inventory management strategies put 

in place. We were also able to sustain order lead times 

throughout 2007 for locally sourced materials. 

26

27 

Production (thousand tons) 

SEMI-FINISHED PRODUCTS 

2003 2004 2005 2006 2007 

Hot Metal 4.896 5.035 4.999 4.931 5.236 

Ere¤li 2.821 2.786 2.776 2.811 2.762 

‹skenderun 2.075 2.249 2.223 2.120 2.474 

Liquid Steel 5.091 5.206 5.282 5.271 5.486 

Ere¤li 3.189 3.129 3.176 3.221 3.200 

‹skenderun 1.902 2.077 2.106 2.050 2.286 

Crude Steel 4.941 5.044 5.150 5.155 5.366 

PRODUCTS 

Ere¤li (Slab) 3.088 3.031 3.095 3.135 3.128 

‹skenderun (Slab) - - - 18 552 

‹skenderun* 1.853 2.013 2.055 2.002 1.686 

Flat (Ere¤li) 3.535 3.616 3.760 3.903 4.206 

Cold Rolled 1.416 1.652 1.701 1.689 1.632 

Hot Rolled 2.070 1.910 2.000 2.126 2.355 

Plate 49 54 59 88 219 

Long+Slab (Iskenderun)** 1.929 2.157 2.149 2.118 2.469 

Pig Iron 149 172 113 120 265 

Slab 18 552 

Long Product 1.780 1.985 2.036 1.981 1.652 

Iron Ore 1.172 1.678 1.792 1.919 

Pellet 776 1.120 1.135 1.292 

Other 396 558 657 627 

Silicon Flat Steel (Romania) 66 63 48 47 59 

* Bloom, CC Billet and 200 x 200 Billet 

** Includes Billet and Wire Rod

Ere¤li Plant Production Records 2007 (tons) 

PRODUCTION FACILITY PREVIOUS NEW INCREASE INCREASE 

RECORD RECORD (%) 

BLAST FURNACE NO.2 1.668.583 1.709.697 41.114 2,5 

HOT STRIP MILL NO.1 753.717 1.078.236 324.519 43,1 

PLATE MILL 91.308 228.281 136.973 150,0 

TOTAL COIL AND PLATE 4.030.725 4.485.736 455.011 11,3 

PICKLING LINE NO.3 302.661 383.376 80.715 26,7 

CONTINUOUS ANNEALING LINE (CAL) 920.708 957.610 36.902 4,0 

THIN COIL CONTINUOUS ANNEALING LINE (TIN CAL) 179.789 239.297 59.508 33,1 

HOT SHEAR NO.2 296.010 336.225 40.215 13,6 

TOTAL PLATE PRODUCTS 88.213 219.245 131.032 148,5 

TOTAL HOT ROLLED PRODUCTS 2.214.752 2.355.094 140.342 6,3 

TOTAL PRODUCTS 3.903.628 4.205.944 302.316 7,7 

SHIPMENT BY TRUCK 2.588.097 3.307.567 719.470 27,8 

TOTAL SHIPMENT 3.904.118 4.295.022 390.904 10,0 

28

29 

Labour Productivity In 

Total Product Production 

at Ere¤li Plant 

(manhour/ton) 

4,76 

2004 

4,38 

3,83 

3,62 

2005 2006 2007 

Total Products by Groups, Produced at Ere¤li Plant 

Hot Rolled 56% 

Cold Rolled 39% 

Plate 5%

‹skenderun Plant Production Records 2007 (tons) 

PRODUCTION FACILITY PREVIOUS NEW INCREASE INCREASE 

RECORD RECORD (%) 

BLAST FURNACE No.1 720.939 851.605 130.666 18,1 

HOT METAL 2.248.917 2.473.785 224.868 10,0 

LIQUID STEEL 2.106.379 2.286.165 179.786 8,5 

CRUDE STEEL 2.055.414 2.237.546 182.132 8,9 

TOTAL PRODUCTION 2.173.710 2.468.751 295.041 13,6 

Long 67% 

Slab 22% 

Products 

by Groups, Produced 

at ‹skenderun Plant 

Labour Productivity in 

Total Product Production 


(manhour/ton) 

6,28 

2004 

Pig Iron 11% 

6,05 5,84 

5,26 

2005 2006 2007 

30

As the leader of the domestic market, our group 

posted USD 4,2 billion of sales in 2007.

Sales

33 

With the aim of meeting our customers’ expectations, 

our Group has diligently monitored ever changing 

market conditions and reformulated its sales strategies 

and policies accordingly, allowing us to not only sustain 

but also strengthen our long term relationships with 

our customers. We broadened our customer base in 

foreign markets, reaching more end-users and thereby 

reducing the ratio of our sales through intermediaries 

in our exports. New product development was a key 

success factor in 2007, as we introduced new material 

grades that are certified by international quality inspection 

agencies. 

Sales (thousand tons) 

2003 2004 2005 2006 2007 

Flat (Ere¤li) 3.556 3.604 3.553 3.904 4.295 

Cold Rolled 1.364 1.639 1.644 1.681 1.688 

Hot Rolled 2.146 1.915 1.860 2.139 2.392 

Plate 46 50 49 84 215 

Long (Isdemir) 1.956 2.166 2.128 2.137 1.920 

Pig Iron 151 159 117 119 268 

Long 1.805 2.007 2.011 2.018 1.652 

Iron Ore (Ermaden) 3.088 1.788 1.762 1.772 1.865 

Pellet 3.088 767 1.084 1.148 1.302 

Other - 1.021 678 624 563 

Silicon Flat Steel (Romania) 52 71 53 62 75 

Silicon Sheet 46 64 41 44 58 

Other 6 7 12 18 17 

Together with the amount of slab produced in ‹skenderun and processed in Ere¤li, 

‹skenderun’s sales volume reached 2.479 thousand tons in 2007.

FLAT PRODUCTS 

Thanks to solid domestic market demand, flat product 

sales of our Ere¤li plant grew by 10,1%, reaching 4.295 

thousand tons and netting USD 3,1 billion in revenues. 

Since our new Plate Mill at Ere¤li became operational 

toward end of 2006, we have been able to offer 

additional heavy plate grades in our product portfolio, 

hence increasing our plate sales by more than155,5% 

compared to the previous year. 

Steel 

Service Centers 13% 

Merchants 19% 

Automotive 

Industry and Suppliers 14% 

Re-rollers 7% 

Breakdown of Domestic Flat Steel 

Product Sales by Market Segment 

Strong domestic demand for our flat steel products 

left us with less capacity available for exports. As a 

result, flat products export volume for 2007 stayed at 

655,6 thousand tons, generating USD 416 million in 

sales revenue. Due to reduced export volumes, we 

had to strategically target our export markets, channeling 

76,5% of the volume to EU countries. 

Income from sale of by-products with limited domestic 

demand such as benzole, blast furnace slag and 

granulated slag was also boosted by the development 

of new export markets, netting the company an 

additional USD 3,1 million. 

Our plant in Romania achieved sales of 58 thousand 

tons of silicon flat steel. 

Pipe and Profile Industry 25% 

Other 4% 

Household and Office 

Appliances 5% 

Packaging Industry 6% 

Heating Equipment 7% 

34

35 

Romania 13% 

India 7% 

Spain 14% 

Great Britain 6% 

Breakdown of Flat Steel Exports by Country 

Greece 6% 

LONG PRODUCTS 

Thanks to the resurgence of the domestic construction 

sector in 2007, coupled with healthy demand for long 

products in international markets, our Iskenderun plant 

generated USD 951,5 million revenues from its domestic 

sales by shipping 1.650,9 thousand tons of products. 

Israel 28% 

Italy 43% 

Italy 25% 

Egypt 2% 

Poland 2% 

China 3% 

Brazil 5% 

Other 15% 

Germany 2% 

We accomplished notable successes in overseas 

markets, broadening the geographic base of our export 

markets to include Italy, the Netherlands, Israel, Spain, 

Iran, Greece, Syria, Sweden, Bosnia Herzegovina, and 

Serbia. 

Breakdown of Long Steel Exports by Country 

Spain 9% Iran 9% 

Bosnia Herzegovina 3% 

Sudan 4% 

Other 4%

Profile Manufacturers 25% 

Mat-Wire, Nail 

Manufacturers 13% 

IRON ORE MINING 

Iron ore sales grew by 5% during 2007, reaching 1.865 

thousand tons, 1.302 thousand tons of which were 

pellets. 

STEEL SERVICE CENTER 

In 2007, our Steel Service Center shipped 282 thousand 

tons of steel products, 46% of which was for the 

automotive industry, followed with 24% for the white 

goods industry, 9% for other steel service centers, 8% 

for the HVAC industry, 6% for the electrical appliances 

industry, and the remainder for exports. 

LOGISTICS 

Our logistics company continued to provide sea 

transportation, train-ferry transportation, ship chartering 

and agency services to group companies, handling over 

3,9 million tons of goods. 

Breakdown of Domestic Long Steel 

Product Sales by Market Segment 

Foundries 14% 

Construction Steel Manufacturers 33% 

Other 4% 

SEAMLESS STEEL PIPES 

Electrode-Welding Wire Manufacturers 3% 

High Carbon Steel Wire and Spring Manufacturers 4% 

Thin Wire Manufacturers 4% 

Our manufacturing facility produced 3.506 tons 

seamless steel pipe and in addition modified 3.449 

tons of pipes sourced from the market, totaling 7.035 

tons of output. 

36

Running the largest industrial investment 

budget in Turkey, Erdemir Group 

invested nearly USD 1 billion in 2007.

Investments

39 

In addition to our ongoing investments in our Iskenderun 

plant primarily to establish flat steel production capacity, 

we made progress at full speed with modernization 

and new facility installation investments at our Ere¤li 

plant. As a result, our investments during 2007 totaled 

USD 947 million, USD 444 million of which was 

financed utilizing long-term facilities. 

Investments at Ere¤li Plant 

We continued making progress with our modernization 

and capacity enlargement investments aimed at 

increasing flat steel product output up to 5,3 million 

tons a year. Within the scope of these investment 

projects, we completed modernization and capacity 

expansion of Hot Strip Mill No.2 along with the second 

phase of the Plate Mill modernization, which was 

initiated in 2006. Production tests are in progress in 

the Plate Sandblasting and Coating Facility. Another 

capacity enlargement initiative commenced in 2007 

includes the construction of a new normalizing furnace 

and the renovation of the existing mill motors in Hot 

Strip Mill No.1. 

In order to broaden our portfolio of offerings for tinplate 

products and to increase tinplate manufacturing 

efficiency, we fulfilled the Batch Annealing Line 

modernization, installed a 40 MW Steam Turbine 

System along with No.3 and No.4 Rotating Air Heaters 

of Boilers and No.2 Steel Plate Ladle Furnace. 

Cold Strip Mill No.2 modernization and Advanced 

Planning and Scheduling software implementation 

procjects are initiated. Engineering studies are in progress 

to build our own port and logistics facilities on our 

property in Yar›mca, located on the Marmara coastline. 

Blast Furnace No.1 renewal project has been a unique 

opportunity for Erdemir Group to demonstrate its 43 

years of cumulative engineering know-how and project 

management capabilities. Project was 95% complete 

by end of 2007 with testing in progress and the furnace 

expected to resume production by mid 2008. When 

fully operational, at Ere¤li plant, hot metal capacity of 

the New Blast Furnace will be increased to 1,75 million 

tons per year while furnace productivity will elevate 

from 2,2 up to 2,65. 

Investments at ‹skenderun Plant 

Several of our long term investment projects came to 

fruition during 2007, with a number of new production 

units commencing operation upon completion. 

Continuous Slab Casting Machine No.1 construction, 

Blast Furnace No.3 modernization, Turbo Blower Plant 

No.6 construction, new Slag Dumping Unit, new 

Desulphurization Plant and Pulverized Coal Injection 

(PCI) Unit were among those projects that were 

successfully completed. 

Investment projects in progress include the following: 

• Coal Preparation and Coke Manipulation Plant 

modernization to supply our increasing coal consumption 

volume. 

• Ore Preparation and Blending facilities modernization 

in order to supply raw material needs that will be 

necessary to achieve 6,25 million tons per year liquid 

steel production in our BOF. 

• Coke Batteries No.5 and 6 construction to supply the 

coke volume required for reaching our production 

capacity targets. 

• Coke Oven By-product Plant modernization to increase 

both the capacity and quality of coke gas production as 

well as to reduce the plant’s environmental impact. 

• Sintering Plant No.2 construction to increase output 

in line with achieving our production capacity targets. 

• Blast Furnace No.4 construction to meet our production 

capacity targets. 

• Electric Arc Furnace (EAF) construction to continue 

supplying the Wire Rod Mill with billets thereby enabling 

us to both maintain our market share and reduce fixed 

costs per unit due to higher output.

• BOF modernization to produce the liquid steel volume 

required to meet our production targets. 

• Calcination Plant No.8 construction to supply calcine 

needed to reach our production output targets. 

• Scrap Preparation Plant construction to prepare scrap 

metal for use in the BOF when that modernization project 

is completed. 

• New Slab Casting Plant No.2, which has the same 

capacity as Slab Casting Plant No.1. 

• Slab Heating Furnaces No.1 and 2 construction to supply 

the new flat steel Hot Strip Mills with pre-heated slabs. 

• Hot Shearing and Slitting Lines construction to custom 

cut flat steel coils to the sizes required by our customers. 

• Steam Boilers No.6 and 7 construction to meet increased 

steam consumption needs as result of production output 

increases. 

• Turbo Generator modernization in the steam regulation 

and automation systems to reduce steam used per unit 

of electricity generated. 

• Construction and installation of a new 380 kV main 

transmission line from Erzin to Iskenderun (the ETL line) 

and accompanying Switching Plant to meet higher energy 

consumption needs resulting from the plant’s capacity 

and product portfolio expansion. 

• Air Separation Plant No.7 construction to meet our 

oxygen, nitrogen and argon consumption requirements, 

in line with plant expansion. 

New Hot Strip Mill construction at our ‹skenderun plant, 

the core investment in transforming the facility for 

manufacturing flat steel products, reached its final stage 

and is expected to become operational by spring of 

2008. 

Investments in Mining 

Steel producers with access to their own dedicated 

iron ore resources enjoy competitive advantage in the 

current market environment of ever increasing raw 

material costs and supply bottlenecks. Taking this fact 

into consideration, Erdemir Group’s mining arm obviously 

plays a very strategic role for sustaining our Group’s 

success with its 14 separate iron ore mines, producing 

50% of domestic iron ore output and operating the 

only pelletizing plant in Turkey. 

We plan to strengthen our backward integrated position 

by adding a new pelletizing plant at Hasançelebi, with 

2,0 million tons per annum pellet output. Engineering 

and design is already complete for this investment and 

the plant is expected to commence operation in 2010, 

significantly reducing both our risk to external supply 

shocks and our raw material costs. 

Investments at Romania Plant 

Brand new Continuous Annealing Furnace No.2 and 

Slitting Line were installed and commenced operations 

at our plant in Romania during 2007. 

Investments at K›r›kkale Plant 

A wide range of modernization projects were undertaken 

at our pipe manufacturing facility at K›r›kkale during 

2007. 

40

41 

Investments Completed in 2007 

Date Of Operation 

Investment Projects 2007 

I- Ere¤li Plant 

1) Batch Annealing Line Modernization 

2) Hot Strip Mill No.2 Capacity Improvement and Modernization 

3) 40 MW Steam Turbine Installation 

4) BDF Ladle Furnace No.2 Installation 

5) Plate Rolling Mill Modernization 

II- ‹skenderun Plant 

1) Continuous Slab Casting Plant No.1 

2) Blast Furnace No.3 Modernization 

3) Turbo Blower Plant No.6 (For Blast Furnace No.3) 

4) Slag Dumping Facilities 

5) Desulphurization Plant 

6) Pulverized Coal Injection (PCI) Facility 

1 2 3 4 5 6 7 8 9 10 11 12

Continuing Invesment Projects in 2007 

Date Of Operation 

Investment Projects 2008 2009 2010 2011 2012 

I- Ere¤li Plant 

1) Plate Sandblasting and Coating Plant Completion 

2) Ere¤li Port Capacity Expansion 

3) Blast Furnace Stoves Modernization 

4) Blast Furnace No.1 Modernization 

5) Completion of Normalizing Furnace No.2 

6) No. 2 Cold Strip Mill Automation System Modernization 

7) Yar›mca Logistics Center 

II- ‹skenderun Plant 

1) Coke Oven Batteries No.5 and No.6 Construction 

2) Coke Oven Battery By-product Plant Modernization (Stage 1) 

3) Slab Casting Plant No. 2 Construction 

4) Turbo Generator Modernization 

5) Calcination Plant No.8 Construction 

6) Coal Preparation Facility Modernization & Coke Manipulation Facility Modernization 

7) Slab Reheating Furnaces No.1 & No.2 Construction 

8) Hot Strip Mill Construction 

9) 380 kV E.T.L. and Switch Plant Installation 

10) Air Separation Plant No.7 Construction 

11) Steam Boilers No.6 and No.7 Construction 

12) Ore Preparation & Blending Facility Modernization 

13) Scrap Preparation Facilities Construction 

14) Hot Shearing and Slitting Lines Construction 

15) Sintering Plant No.2 Construction 

16) Basic Oxygen Furnace (BOF) Modernization (Converter No.1 ) 

17) Coke Oven Battery No.4 Modernization 

18) Blast Furnace No.4 Construction 

19) Electric Arc Furnace Construction 

Q: Quarter / H: Half 

1Q 2Q 3Q 4Q 1H 2H 1H 2H 1H 2H 1H 2H 

2. 

Cnutr 

3. 

Cnutr 

42

Ensuring the motivation and effectiveness 

of our talent pool is our no.1 priority.

Human 

Resources

45 

Our most valuable asset to accompany us in our 

endeavor for embracing the future is the Erdemir Group 

talent pool with its ownership of our corporate values 

and its commitment to relentlessly working in pursuance 

of reaching our Group’s goals. 

We believe in an innovative and participatory approach 

for maximizing the potential of our human resources. 

We have a thorough and active management of the 

whole human resource management cycle, starting at 

the recruiting stage for hiring fully qualified staff and 

continuing throughout their career with the aid of 

continuous performance evaluation that tracks everyone’s 

accomplishments and expectations with the aim of 

maintaining the highest performance standards, as well 

as creating an environment in which everyone can excel 

to the limits of their competencies. 

As of December 31, 2007 our Group comprised of 

10.981 hourly paid, 3.486 monthly salaried and 596 

contract based employees, totaling 15.063 people. 

Vocational 

High School 8% 

University or 

Higher Degrees 16% 

41 - 50 Years of Age 26% 

Level Of Education 

55 Years of Age and Above 1% 

51 - 54 Years of Age 4% 

Number of Employees 

7.461 

ERE⁄L‹ 

High School and Equivalent 49% 

Primary School 27% 

6.289 

‹SKENDERUN 

Breakdown of Employees by Age 

1.313 

OTHERS 

31-40 Years of Age 48% 

19 - 30 Years of Age 21%

Number of Trainings 

12.439 

ERE⁄L‹ 

2.199 

‹SKENDERUN 

225 

OTHERS 

375.331 

ERE⁄L‹ 

210.728 

‹SKENDERUN 

7.461 

13.265 

Average Period of Employment 

ERE⁄L‹ 

92 

321 

1.244 

5.804 

Training Hours 

38.120 

MADEN ERDEM‹R 

ROMANIA 

6.289 

407 

56 

611 

5.215 

‹SKENDERUN OTHERS 

7.924 

OTHERS 

1.313 

72 

1.017 

55 

169 

0 - 10 Years 11 - 21 Years 22 - 24 Years 25+ Years 

46

47 

Performance Management System 

Designed to identify and align employee objectives 

with those of the company as well as to encourage 

personal development and to enhance productivity by 

means of fair appraisal, the Performance Management 

System is applied to Erdemir Group’s entire workforce. 

Data collected through the system provides input for 

training and career development plans as well as for 

decisions related to contract extension and termination. 

Collective Bargaining Agreement 

According to the 21 st Collective Bargaining Agreement, 

which took effect on September 1, 2006 and will be 

valid until August 31, 2008, employees at Ere¤li plant 

were entitled to a wage increase in both the second 

and third semi-annual Agreement periods, beginning 

on March 1, 2007 and September 1, 2007, respectively. 

In accordance with a separate protocol signed with the 

Türk Metal Sendikas› (Turkish Metal Union), Ere¤li plant 

also fulfilled its obligation to phase out 80% of previously 

subcontracted 1.300 positions by hiring 926 fulltime 

employees during 2007. 

‹skenderun plant signed the 22 nd Collective Bargaining 

Agreement with the Çelik ‹fl Sendikas› (Steel-Workers 

Union) on May 24, 2007 and the agreement will be 

valid until December 31, 2008. Salary increases took 

effect in semi-annual periods, in accordance with the 

terms of the agreement. 

Erdemir Çelik Servis Merkezi collective bargaining 

agreement took effect on July 1, 2007 and terminates 

on June 30, 2009. 

Collective bargaining agreement in our plant in Romania 

was signed on June 1, 2007 and will be valid until 

May 31, 2008. 

Çelbor’s collective bargaining agreement took effect 

on September 1, 2007 and will need to be renewed 

by August 31, 2008. 

Even though the collective bargaining agreement at 

Erdemir Maden had to be renewed as of January 1, 

2007, negotiations could not have been initiated since 

the union’s authorization certificate was not timely 

issued by the Ministry of Labor and Social Security. 

As demonstration of Erdemir Group’s goodwill, we 

increased the salaries by 10% for 2007 to be deducted 

once the new agreement is settled. 

Health Services 

Erdemir Group provides its employees and retirees 

with a wide variety of health services, ranging from 

emergency room services to clinical diagnostic and 

rehabilitative treatments, in addition to various training 

programs designed to increase our employees’ 

awareness about means of healthy living and disease 

preventive measures. 6.306 employees and 948 

retirees were treated, while 2.762 doses of hepatitis 

and flu vaccine were provided free of charge in our 

clinic at Ere¤li plant last year. 

Our training curriculum also covered a wide range of 

topics, including “Effective and Emphatic 

Communication, Psychology of Success and NLP, 

Emotional Intelligence and Conflict Management” 

lectured by expert psychologists. 

In addition, we commenced Certified First Aid Training 

programs during the course of 2007. As a result, 718 

employees in Ere¤li and 145 employees in ‹skenderun 

fulfilled their programs and were certified in first aid 

response.

Training 

Our fully equipped training facility is a clear showcase 

of Erdemir Group’s priorities in terms of ensuring that 

our employees continue developing their skills and 

enriching their knowledge base regularly, with the aid 

of intensive training curriculum designed in alignment 

with those needs identified during performance 

appraisals. 

We recorded 55,4 and 24,5 hours of training per 

employee in Ere¤li and in Iskenderun respectively 

throughout 2007. Total hours of training in Erdemir 

Maden and in Erdemir Romania were 13.265 and 

38.120 hours respectively. 

Furthermore, 7.421 employees at our Ere¤li plant and 

3.120 employees at ‹skenderun plant participated in 

awareness building and briefing sessions with regard 

to Occupational Health and Safety (OHS). 

Erdemir Group also undertook a major educational 

project aiming to upgrade diploma levels of our 764 

employees with primary school and 405 employees 

with high school degrees. 

Keeping in mind that the future business leaders of 

Erdemir Group will rise to those ranks from within our 

management talent pool, we are actively seeking for 

means of developing their managerial skills. 

Consequently, 15 selected employees attended 

“Management Essentials: Managing Performance” 

certification program delivered online at our Ere¤li plant 

in cooperation with Cornell University. 

Social Services 

Our social services play a key role in upgrading the 

quality of life and hence ensuring motivation of our 

employees. Keeping this fact in mind, we continued 

to invest in upgrading our recreational facilities and 

diversify the range of services offered to our stakeholders, 

all fulfilled during a year of major investment devouring 

a major portion of our resources for plant modernization 

and capacity enlargements. 

We also outsourced dining services in Ere¤li with the 

aim of both achieving a more effective utilization of 

our resources, and simultaneously improving the quality 

of services offered. TS 13001 Food Safety Management 

System (HACCP) certification activities were also 

transferred to a contractor company for similar reasons. 

48

While improving our economic performance, 

we are also creating value for the 

environment and society to achieve 

sustainable growth.

Sustainability

51 

Occupational Health and Safety 

(OHS) 

Assuring a safe and healthy working environment for 

our employees is one of the fundamental pillars of our 

corporate values. We continuously train every employee, 

provide each person with the appropriate protective 

equipment to fulfill their jobs safely and upgrade the 

safety standards of our facilities, to achieve an accidentfree 

environment. 

26 OHS engineers were commissioned spanning 22 

units to ensure OHS standards are practiced throughout 

the facilities, while 119.310 hours of OHS training was 

provided to 19.352 employees in Ere¤li and similar 

trainings in Iskenderun totaled 48.721 hours throughout 

the year. Furthermore, following 3 months of intensive 

preparations, 15 new training courses were added to 

our OHS curriculum, with particular focus on establishing 

a more OHS conscious culture among our employees. 

In terms of facility upgrades, Erdemir fire detection and 

warning system was modernized in 2007. 

As a result of all our ongoing efforts, our TS 18001 

Occupational Health and Safety Management System 

Certificate was renewed at Ere¤li plant in October 

2007, following a successful audit of our facilities. 

Specific Energy Consumption 


(MCal/TCS) 

5.122 

2003 

5.125 

2004 

5.199 

4.875 4.734 

2005 2006 2007 

Energy Management 

Considering that steel industry consumes 4-7% of 

global energy output, it becomes imperative that a well 

established energy management policy needs to be 

implemented to ensure sustainability of our industry 

while minimizing its effects on the environment in the 

long term. Moreover, since energy consumption 

constitutes 30% of total operating cost of integrated 

plants, reducing energy consumption is clearly an 

important means to increasing competitive advantage 

for steel companies. 

We were able to reduce our specific energy consumption 

by 2,9%, lowering it down to 4.734 Mcal/Ton Crude 

Steel (TCS) level, thereby achieving the lowest specific 

energy consumption ever recorded at our Ere¤li plant. 

In addition, with the commissioning of our new 40 MW 

capacity steam turbine plant by mid of 2007, we were 

able convert previously wasted heat energy into electricity, 

providing added value to our bottomline, as well as 

significantly reducing our emissions. 

Specific Energy Consumption 


(MCal/TCS) 

7.125 

2003 

6.420 

2004 

6.166 6.008 5.805 

2005 2006 2007

Similar improvements also took place in ‹skenderun, 

as we exceeded our specific energy consumption 

reduction target by 145 Mcal/TCS, recording 5.950 

Mcal/TCS, lowest figure ever achieved in that facility. 

All these accomplishments are aligned with our motto 

of doing well while doing good and we were honored 

by the recognition of our efforts when both our Ere¤li 

and ‹skenderun plants shared the top two rankings in 

the “Best Energy Productivity Project in Industry” awarded 

by the Ministry of Energy and Natural Sources. 

1,78 

2003 

Specific CO2 Emission 


(Ton/TCS) 

2,09 

2004 

2,04 

1,92 1,88 

2005 2006 2007 

Environment Management 

We strive to hold ourselves accountable to even more 

stringent norms compared to existing environmental 

regulatory standards in everything we do, demonstrating 

our utmost sensitivity to environmental concerns. 

We were granted operation license, valid until 2010, 

for our Landfill Plant, constructed pursuant to the 

Hazardous Waste Control Regulation issued by the 

Ministry of Environment and Forestry and in accordance 

with the Environmental Impact Evaluation (EIE) 

regulations. We also undertook environmental impact 

reviews for the Blast Furnace Reline project, as well as 

part of coating and galvanizing line feasibility studies. 

In collaboration with TUBITAK Bursa Laboratory we 

initiated periodic analyses of our waste water. 

0,92 

2003 

Specific SO2 Emission 


(kg/TCS) 

0,28 

2004 

0,17 

0,07 

0,12 

2005 2006 2007 

52

53 

Environmentally friendly technologies were selected 

for new investments at our ‹skenderun plant as well. 

Environmental impact evaluations were prepared and 

authorization certificates were obtained from the Hatay 

Provincial Environment and Forestry Directorate for 

our port upgrading and main dock extension project; 

Air Separation Plant No.7, Coal Preparation Plant, Ore 

Preparation Plant, Blast Furnace No.3 and Coke Battery 

No.4 modernization projects. 

Extending our reach beyond our operational sphere 

of influence, we participated in “Sulh 2007 Exercise”, 

organized by the Undersecretariat for Maritime Affairs 

and attended by countries sharing the Black Sea 

Coastline, to mitigate oil pollution hazards that might 

arise due to an accident in the Black Sea. 

57,0 

2003 

Solid Waste Recycle 

Ratio at Ere¤li Plant 

(%) 

72,4 

2004 

65,2 

70,8 

72,0 

2005 2006 2007 

We presented Erdemir’s Environmental Management 

System to a large audience at the 13 th National Quality 

Congress, aiming to share best practices among various 

industries. We also hosted an iron and steel industry 

meeting in November, titled “Air Quality of ‹skenderun 

Region” organized by the Ministry of Environment and 

Forestry. 

Again, in line with our motto of doing well while doing 

good, we generated TRY 3,6 million of income in 2007 

as a result of collecting and selling value added wastes 

(paper, plastic, brick, wood, etc) for recycling. 

Recirculation Water Consumption 

Ratio at Ere¤li Plant 

(%) 

85,70 

2003 

88,90 

2004 

90,86 91,00 91,23 

2005 2006 2007

Quality, Technology and R&D 

Thanks to our well defined new product development 

initiatives, we introduced 21 new flat steel grades during 

2007; increasing total number of Erdemir flat steel 

grades offered in our product portfolio up to 325. 

Furthermore we demonstrated the high quality of our 

products by receiving CE certificate for our products 

used in pressure equipment manufacturing, successfully 

completed interim audit for our already existing CE 

certification for construction grade products, and obtained 

manufacturing approval certificates issued by ABS 

(American Lloyd), BV (French Lloyd), LR (British Lloyd) 

and TL (Turkish Lloyd) institutions for our heavy plate 

products used in shipbuilding. 

Both long and flat product quality improvement targets 

were achieved at Iskenderun plant, while we rapidly 

increased the number of slab grades up to 29 with the 

commissioning of Slab Casting Plant No.1. 13 new 

billet grades were also introduced, hence totaling 185 

grades offered to our customers. 

Information Systems 

One of the major initiatives undertaken by our 

information technologies group based in the Ere¤li 

plant was to modify Erdemir-Online infrastructure and 

custom develop software to allow for centralized sales 

of flat and long products. 

We also modified our wide area network infrastructure 

to establish a secured data connection with various 

banks. Other projects managed by our information 

systems group include installing a plant maintenance 

management software in Erdemir Maden, and 

production management system integration among 

various new facilities at ‹skenderun plant. 

Our technology group based in ‹skenderun installed a 

new warehouse management system for long products 

in Iskenderun, enabling real time tracing capability of 

inventory handling operations. 

54

55 

Total Quality Activities 

Having started our journey in total quality management 

more than 15 years ago, continuous improvement and 

striving for excellence is ingrained in all of our employees 

in every Erdemir Group company. 

Our total quality management approach is structured 

according to the EFQM (European Foundation for 

Quality Management) model. In addition to the ISO 

EN 9001:2000 Quality Management System, ISO EN 

14001 Environment Management System and 18001 


in Ere¤li plant, the ISO / TS 16949 Automotive Industry 

Quality Management Specification compliance certificate 

was also obtained in 2007 as a result of customer 

focused improvement activities. 

ISO 9001:2000 Quality Management System certificate 

renewal, as well as TS 18001 Occupational Health 

and Safety Management and ISO 14001 Environment 

Management Systems interim audits were successfully 

completed at our ‹skenderun plant. 

Our Steel Service Center has ISO EN 9001:2000 

Certificate, while Erdemir Romania has both ISO EN 

9001:2000 Quality Management System and ISO EN 

14001 Environment Management System Certificates. 

In 2007, Erdemir Romania also obtained 18001 


Certificate. 

As part of our ongoing efforts to share best practices 

among group companies, our Ere¤li team helped 

ERENCO for its ISO 9001:2000 Quality Management 

System Certificate and to ÇELBOR for its API 5L and 

5CT Monogram Certificate applications, both endeavors 

resulting in the successful issuance of those certificates.

Corporate Social Responsibility 

Activities 

As one of the largest enterprises in Turkish economy, 

Erdemir Group acts as a role model for other entities 

and plays an important role in improving the society’s 

quality of life by contributing to and supporting the fields 

of education, health, arts and sports, especially in areas 

where our facilities are located in. 

We continued our contributions to upgrade education 

and health institutions, to support charities, as well as 

to sponsor arts and sport events, and scientific research 

of the universities. Many internship opportunities were 

also provided for university and vocational high school 

students. 

Erdemir Group companies supported the OYAK Group 

High School Mathematics Competition nationwide, and 

a photography competition for university students 

entitled “Steel and Life” was organized by Ere¤li plant, 

while a chess tournament was organized for primary 

school, high school and vocational high school students 

by Erdemir Maden. 

Ere¤li and ‹skenderun facilities also proudly sponsor 

their own sports clubs, which also helps strengthen 

the bonds among our employees as they get together 

to cheer for their teams. 

Also, as part of our responsibility to timely inform the 

public about all material events in our group companies, 

we regularly published and distributed our corporate 

newspaper and magazine, as well as scheduling press 

and analyst meetings, and plant tours. 

As a clear demonstration of how socially responsible 

culture is ingrained in Erdemir Group, our employees 

participated at record levels in blood donation 

campaigns, organized by the Turkish Red Crescent on 

our premises. They also participated in rescue activities 

following natural disasters near our Ere¤li and ‹skenderun 

plants. 

56

Corporate Governance, an integral part 

of our corporate culture, is a must in 

preserving shareholder confidence.

Corporate 

Governance

59 

CORPORATE GOVERNANCE 

IN ERDEM‹R GROUP 

Starting from the date of its establishment, Ere¤li Demir 

ve Çelik Fabrikalar› T.A.fi. always acted as a role model 

in Turkish industry due to its capital structure and the 

stringent provision clauses of its Articles of Association. 

As a result, Erdemir Group’s corporate culture was 

formed with foremost responsibility towards its 

shareholders with special emphasis on assuring 

transparency, and applying the most stringent ethical 

and legal norms. 

COMPLIANCE WITH THE CORPORATE 

GOVERNANCE PRINCIPLES 

I. RELATIONS WITH SHAREHOLDERS 

As a publicly traded company with a broad shareholderbase, 

we actively manage our relations with our 

shareholders, corporate investors and analysts by 

regularly organizing national and international investor 

meetings, by publicly disclosing all material events, and 

by fulfilling our legal obligations to the related regulatory 

bodies, such as the Istanbul Stock Exchange (ISE) and 

the Capital Markets Board (CMB), while quickly 

responding to inquiries from our shareholders, analysts 

and portfolio managers. 

Amendments to the Articles of Association 

FORMER TEXT 

Article VII- (amended article announced in the 

08.08.2005 dated and 6363 numbered Turkish Trade 

Registry Gazette) The registered capital of the Company 

is TL 700 trillion. The Board of Directors may, if it 

considers such action expedient, increase the issued 

capital subject to the conditions provided for herein 

by issuing shares with a nominal value of TL 500 up 

to the amount of the registered capital of the Company 

as all such issued shares shall be payable to bearer. 

The Board of Directors has the authority to issue shares 

over their par value. 

Each share of the shares of stock bears 2 voting rights. 

But the Public Sector has 1 voting right for each of its 

half of the shares. (The Public Sector means any 

Ministry or subdivision of the Republic of Turkey or 

any person or entity which is under the effective control 

as to the management and direction of the Government 

of Turkey.) 

General Assembly 

The Ere¤li Demir ve Çelik Fabrikalar› T.A.fi. General 

Meeting is held once a year within 3 months of the 

financial year end. When the Board of Directors sets 

a date for a General Meeting, such date is notified to 

both the CMB and ISE. All of our shareholders are 

invited to the General Assembly via our Company web 

page while the media is also informed in writing of the 

agenda. Our 2007 Ordinary General Meeting was held 

on 22.03.2007 with 49,3% of the shares being 

represented. Balance Sheet, Income Statement, Board 

of Directors and Audit Reports for 2006 were made 

available for our shareholders’ inspection at the 

Company’s Head Office and regional offices 

commencing from 07.03.2007. Copies of such reports 

were also provided to shareholders on request. 

During the 2007 Ordinary General Meeting, four 

shareholders asked questions concerning the company’s 

performance and strategies which were duly answered 

by the relevant company directors as designated by 

the Chairman. The General Meeting minutes and a list 

of the attendees were published on our Company 

website. 

NEW TEXT 

Article VII- The registered capital of the Company is 

TRY 700 million. The Board of Directors may, if it deems 

necessary, increase the issued capital subject to the 

conditions provided for herein by issuing bearer shares 

each with a nominal value of Nkr 1 up to the amount 

of the registered capital of the Company. 

The Board of Directors has the authority to issue shares 

over their par value. 

Each share of the shares of stock bears 2 voting rights. 

But the Public Sector has 1 voting right for each of its 

half of the shares. (The Public Sector means any Ministry 

or subdivision of the Republic of Turkey or any person 

or entity which is under the effective control as to the 

management and direction of the Government of 

Turkey).

Amendments to the Articles of Association 

FORMER TEXT 

The share certificates shall be issued both in Turkish 

and English. 

Within the registered capital limit the Board of Directors 

is authorized to issue share certificates against Appraisal 

Surplus that is calculated and determined according to 

the repeating article 298 and amendment provisions 

of Tax Procedure Law Number 213. 

The issued capital of the Company is TL 

487.872.000.000.000 totally paid in divided into 975 

Billion 744 Million shares with a nominal value of TL 

500 each. TL 307.200.000.000 of these shares are 

registered TL 487.564.800.000.000 thereof are made 

up of bearer shares. (*) 

This capital shall be divided as Group A and Group B. 

20 registered share equals to TL 10.000 shall be Group 

A whereas 975.743.999.980 shares equal to TL 

487.871.999.990.000 shall be Group B. In addition 

to all its rights to be valid until the High Board of 

Privatization rules contrary there shall be a right of 

usufruct established on Group A shares. All the voting 

rights related to the Group A shares shall be enjoyed 

by the usufructuary. (“Usufructuary rights”) 

For the share certificates to be issued at the Board of 

Directors’ decision, a prospectus shall be issued by the 

The Board of Directors according to the regulations of 

the Capital Market Board and shall publish this. These 

share certificates shall be presented to the undertakings 

of private investors both in Turkey and abroad provided 

that the legislation of the related countries shall not be 

violated. 

The Board of Directors sell the share certificates to be 

issued pursuant to this article on the condition that the 

price of share certificates are fully paid in cash. 

The Board of Directors when it considers it necessary 

is authorized to issue ordinary and convertible bonds. 

NEW TEXT 

The issued capital of the Company is TRY 487.872.000 

totally paid and divided into 48.787.200.000 shares 

with a nominal value of NKr 1 each. 1 NKr of these 

shares are registered TRY 487.871.999,99 thereof are 

made up of bearer shares. (*) 

According to the Turkish Commercial Code enacted 

entailing amendment under the law number 5274, the 

par value of the share was altered from TL 500 to NKr 

1. As a consequence the total number of shares 

decreased and in exchange for 20 shares of TL 500 

par value each 1 share of NKr 1 shall be handed out. 

All the rights pertaining to the shares owned in this 

context are reserved. Shares representing the capital 

are monitored in the framework of dematerialization 

element. 

This capital shall be divided as Group A and Group B. 

1 registered share equals to YKr 1 shall be Group A 

whereas 48.787.199.999 shares equal to TRY 

487.871.999,99. shall be Group B bearer shares. In 

addition to all its rights to be valid until the High Board 

of Privatization rules contrary there shall be a right of 

usufruct established on Group A shares. All the voting 

rights related to the Group A shares shall be enjoyed 

by the usufructuary. (“Usufructuary rights”) 

The Board of Directors when it considers it necessary 

is authorized to issue ordinary and convertible bonds. 

60

61 

Dividend Distribution Policy 

and Time 

Our Company's dividend distribution policy is covered 

by article XIII of the Articles of Association. In compliance 

with current provisions and the relevant item of the 

Articles of Association and as dictated by Corporate 

Governance Principles, a consistent balance is sought 

between the interests of shareholders, and the 

Company’s resource requirements in determining the 

ratio of net profit that is to be distributed to shareholders 

in the form of cash and/or bonus shares. 

Transfer of Shares 

There is no limitation to the transfer of shares of our 

Company and provisions of the Turkish Commercial 

Code are applicable. 

II. PUBLIC DISCLOSURE AND 

TRANSPARENCY 

Although our stock is traded in Istanbul Stock Exchange, 

we consider ourselves accountable to the global investor 

community and therefore Ere¤li Demir ve Çelik Fabrikalar› 

T.A.fi. voluntarily compiles its reports according to 

international financial reporting standards and we 

publish our financial performance in our Company 

website, demonstrating our belief in transparency. 

As part of its responsibility as a public company, our 

Company immediately notifies its investors and the 

public of all material events. All amendments and 

developments are continuously updated and shared 

with the public. Our Company disclosed 16 material 

events in 2007. An e-mail address was assigned for 

investors’ use. 

Managerial staff with access to material information 

that can affect the market value of the Company are 

obliged to publicly disclose their transactions should 

they make use of capital market instruments issued 

by the Company. 

III. BENEFICIARIES 

Our Company is aware that the fundamental driver of 

competitive advantage is that of human resources. 

Employee satisfaction and motivation are assured by 

applying a fastidious policy during recruitment and 

performance evaluation processes. 

Fully believing in the fact that sustaining our strong 

presence depends on social prosperity, our Company 

fulfills its responsibilities for its social environment. 

IV. BOARD OF DIRECTORS 

The Company Board of Directors is comprised of a 

total of 9 members, 3 of whom were elected to office 

for a period of 3 years, 3 elected for 2 years and 3 

elected for 1 year. The Chairman of the Board and the 

Deputy Chairman are both Managing Directors and 

the Company's President and Chief Exeutive Officer is 

a Board Member. Furthermore there are two auditors. 

While the Board of Directors is responsible for the 

overall administration of the Company and control of 

Company business and activities, President is appointed 

to the Board on the condition that at least one member 

of the Board of Directors is given authority to represent 

the Company. 

Two thirds majority is required for decisions to take 

effect during Board Meetings.

An Audit Committee was established within the Board 

of Directors, responsible for overseeing the preparation, 

inspection and approval of financial statements and 

annual reports. 

The Board of Directors convened 16 times in 2007. 

Changes to the Board of Directors during 2007 are as 

follows: 

Board Member Metin Kilci left his position on December 

31, 2006 and Gülefflan Demirbafl was elected in his 

place on January 1, 2007. 

Statutory Auditor Ömer Duman left his position on 

January 31, 2007 and Dilek Sad›ko¤lu was elected in 

his place on February 5, 2007. 

Statutory Auditor Nurhan Ozdamar left her position on 

March 22, 2007 and Fatma Canl› was elected in her 

place on the same date. 

Internal Control Mechanism 

Active auditing and control of the Company management 

is carried out by the Internal Audit Board, the tasks and 

authority of which are defined by a specific corporate 

regulation. 

Ethical Standards 

Employee guidelines include ethical rules such as 

accountability, supportiveness of company interests, 

and confidentiality, as well as regulating various subjects 

such as supervisor - subordinate relations, relations 

with customers and suppliers. 

RISK MANAGEMENT 

Since our Company is sourcing most of its raw materials 

from international markets and is currently undertaking 

one of the largest investments recorded in Turkish 

economy, it draws foreign exchange loans, mostly in 

US Dollars, from the national and international markets. 

Taking this fact into consideration, Erdemir Group 

commenced corporate risk management activities at 

the end of 2007 by establishing “Consolidation and 

Group Risk Management Center” in order to 

systematically measure and manage all market related 

and financial risks. 

Our goal is to determine the potential magnitude and 

impact of any possible negative operational and financial 

deviations between our forecasts and actual performance 

and subsequently take proactive precautions to mitigate 

these risks. 

Following subjects are within the scope of our Risk 

Management concerns: 

• Determining the Risk Management policy and enabling 

this policy to become a part of our corporate culture 

• Managing foreign exchange rate, interest, parity and 

liquidity risks 

• Establishing audit and reporting structure related to 

Risk Management 

• Enabling the Risk Management function to become 

a strategic parameter for improving the effectiveness 

of all management processes 

62

Our Group posted TRY 679,4 million 

of net profit in 2007.

Financial 

Report

FINANCIAL REPORT 

Erdemir Group again performed strongly during its second year under OYAK ownership. Significant progress has been accomplished in 

Turkey’s largest industrial capital expenditures program, while business process and organizational restructuring efforts were accelerated. 

Such improvements reflected positively on two years’ financial results. 

Consolidated net sales revenue rose by 11,2%, reaching TRY 5.454 million . Net operating profit was TRY 802 million, nearly the same 

level for 2006. EBITDA, an important financial metric, reached TRY 1.143 million by increasing 2,9% yoy. In conclusion, net profit for 

the period was TRY 679 million which is slightly below the record level of 2006. 

Despite intensive investment activities, 2007 was the second year in succession that ‹skenderun facilities ever posted profits as the 

company contributed TRY 245 million to our bottomline. 

Flat steel production and sales at Ere¤li plant, reached 4.206 tons with 8% growth and 4.295 tons with 10% growth respectively. 

Production output, including slabs at ‹skenderun plant soared by 17% yoy. In addition, iron ore and pellet production increased by 7%. 

TRY revalued against the USD by 17% during 2007, which in turn offset the positive effect of price increases, impairing our balance 

sheet. Despite escalating competition and rising raw material prices, Erdemir Group remained on track. Intensifying its efforts towards 

becoming a regional power, the Group relentlessly continued to improve its already impressive productivity and quality levels at Ere¤li 

facilities, and is about to complete its transformation and capacity enlargement investments at ‹skenderun. Total capital expenditures at 

both sites totaled USD 947 million in 2007. 

Investment Incentives 

Ere¤li Plant 

During 2007, 294 thousand tons of HRC worth USD 186,6 million and 195,4 thousand tons of CRC worth USD133,1 million were 

exported under the IPAC (Inward Processing Allowance Certificate) Scheme. Likewise, 452,2 thousand tons of iron ore worth USD 29,6 

million; 503,4 thousand tons of pellet worth USD 35,2 million; 1,8 thousand tons of ferro-alloys worth USD 2,1 million and some other 

supplies worth USD1,4 million were imported as customs exempt. 

In addition, during the same period TRY 20,6 million VAT exemption and TRY 1,2 million customs duty exemption were obtained on 

imports. 

‹skenderun Plant 

The transformation and modernization investments at ‹skenderun are conducted under an Investment Incentive Certificate valid until 

August 28, 2009, securing 100% VAT and customs duty exemption. In 2007, VAT and customs duty exemption totaled TRY 60 million 

and TRY 7,6 million, respectively. 

Under IPAC 136 thousand tons of billet, 114 thousand tons of wire rod, 36 thousand tons of pig iron and 4 thousand tons of ribbed 

iron were exported, whereas 1.761 thousand tons of ferrous material and 28 thousand tons of ferro-alloys were imported. 

65

THE AUDITOR’S REPORT ON FINANCIAL STATEMENTS 

To the Board of Directors of 

ERE⁄L‹ DEM‹R VE ÇEL‹K FABR‹KALARI T.A.fi. 

DTR Ba¤›ms›z Denetim ve 

Serbest Muhasebeci 

Mali Müflavirlik A.fi. 

Armada ‹fl Merkezi 

A Blok Kat:7 No.8 

06510 Sö¤ütözü, 

Ankara, Türkiye 

Tel.: (312) 295 47 00 

Fax: (312) 295 47 47 

www.deloitte.com.tr 

1. We have audited the accompanying consolidated balance sheet of Ere¤li Demir ve Çelik Fabrikalar› T.A.fi. (the 

“Company”) and its subsidiaries (together the “Group”) as of December 31, 2007, and the consolidated 

income statement, consolidated statement of changes in equity and consolidated cash flows statement for 

the year then ended, and a summary of significant accounting policies and other explanatory notes. 

Responsibility of Management for the Financial Statements 

2. The Company’s management is responsible for the preparation and fair presentation of these financial 

statements in accordance with accounting standards published by the Capital Markets Board (“CMB”). This 

responsibility includes: designing, implementing and maintaining internal control relevant to the preparation 

and fair presentation of financial statements that are free from material misstatements, whether due to fraud 

or error; selecting and applying appropriate accounting policies; and making accounting estimates that are 

reasonable in the circumstances. 

Auditors' Responsibilities 

3. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted 

our audit in accordance with auditing standards published by CMB. Those standards require that we comply 

with relevant ethical requirements and plan and perform the audit to obtain reasonable assurance whether 

the financial statements are free of material misstatement. 

4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the 

financial statements. The procedures selected depend on our judgment, including the assessment of the risks 

of material misstatement of the financial statements, whether due to fraud or error. In making those risk 

assessments, we consider internal control relevant to the entity's preparation and fair presentation of the 

financial statements in order to design audit procedures that are appropriate in the circumstances, but not 

for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also 

includes evaluating the appropriateness of accounting principles used and the reasonableness of accounting 

estimates made by management, as well as evaluating the overall presentation of the financial statements. 

5. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our 

audit opinion. 

Member of 

Deloitte Touche Tohmatsu

6. CMB’s Communiqué Serial: XI No: 25 “Communiqué on Accounting Standards in the Capital Market” (the 

“Communiqué”) and its supplementary communiqués with some amendments are effective as of the first 

interim financial statements ending after January 1, 2005. The Company prepared its consolidated financial 

statements as of March 31, 2005, June 30, 2005 and September 30, 2005 in accordance with the related 

Communiqué. However, the Communiqué declared that as an alternative, the application of International 

Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (“IASB”) and the 

International Accounting Standards Committee (“IASC”) shall be counted as in compliant with the CMB’s 

financial reporting standards. Based on CMB letter sent to the Company’s management on 7 March 2006 

and numbered SPK.017/83-3483, instead of Communiqué XI No: 25, the Company prepared its annual 

consolidated financial statements as of December 31, 2005 in accordance with IFRS, excluding the necessary 

restatement adjustments to be made in accordance with IAS 29 “Financial Reporting in Hyperinflationary 

Economies”, and announced to the public. 

Because of the preparation of the Company’s consolidated financial statements as of December 31, 2005 

in accordance with a new set of accounting standards (IFRS) instead of the standard (Cominiqué XI:No:25) 

applied in the interim periods of 2005 resulted in a significant impact on the net profit for the year (TRY 

152.329.914), CMB, based on the CMB letter sent to the Company’s management numbered B.02.1.SPK.0.13- 

855-7484 by its decision No: 21/526 on May 5, 2006, decided that, the Company’s consolidated financial 

statements as of December 31, 2005 should be revised and publicly disclosed, in accordance with the set 

of accounting standards that were used in the interim periods and should be immediately presented to the 

General Assembly for approval. 

The Company filed an annulment lawsuit in 11 th Administrative Court of Ankara to suspend the execution of 

CMB’s decision taken at CMB meeting No: 21/526 dated May 5, 2006. The court rejected the demand on 

July 13, 2006 and the appeal to this decision was also rejected on July 20, 2006 with the affirmation of two 

members and reasoned refusal of one member of the court. 11 th Administrative Court of Ankara has also 

decided to reject lawsuit with its decision numbered E. 2006/1396; K. 2007/494 dated 29.03.2007. On 

11.10.2007, the Company has appealed this decision which was declared to the Company on 18.09.2007. 

The judicial process in the 13 th Chamber of the State Council with file number of 2007/13762 is still continuing. 

On the other hand, the Privatization Administration has filed a lawsuit in 3 rd Commercial Court of Ankara against 

the Company on May 1, 2006 to request the cancellation of the Company’s General Assembly’s resolution 

on March 30, 2006 regarding the dividend distribution. This case is also still pending. 

Due to the Company’s considerations that there was a permission of CMB about “Application of IFRS on 

financial statements prepared in 2005” numbered B.02.1.SPK.0.17/83-3483 dated March 7, 2006 and the 

related lawsuits are also in progress, the Company has not fulfilled CMB’s request and consequently CMB 

restated the Company’s consolidated financial statements as of December 31, 2005 by adding negative 

goodwill of TRY 152.329.914, which was previously classified into the retained earnings, to the profit for the 

year ended December 31, 2005, and made the necessary disclosure to the public by publishing it in the 

‹stanbul Stock Exchange (‹SE) bulletin dated August 15, 2006. 

Member of 


The Company has also filed a new annulment lawsuit in the 10 th Administrative Court of Ankara on 

October 10, 2006 against CMB’s restatement of consolidated financial statements as of December 31, 2005 

on August 15, 2006. Later, the lawsuit has been forwarded to the 11 th Administrative Court of Ankara. The 

11 th Administrative Court of Ankara has rejected this lawsuit with the decision numbered E.2006/2548; 

K.2007/1071 dated 25.06.2007. This decision has been declared to the Company on 18.09.2007 and the 

Company has appealed this decision on 11.10.2007 with a demand of “Suspension of Execution”. The judicial 

process within the framework of the 13 th Chamber of the State Council and numbered as 2007/13724 is 

still in progress and the Chamber has accepted the annulment filed against the decision of the 11 th Administrative 

Court of Ankara numbered E.2006/2548; K.2007/1071 dated 25.06.2007 and disputed action, by its decision 

numbered 2007/13724 and dated 04.12.2007. 

Had the Company started to prepare its consolidated financial statements in accordance with IFRS after 

December 31, 2005, it would also have to present the comparative financial statements in accordance with 

IFRS based on IFRS 1: First-time adoption of International Financial Reporting Standards and the previously 

recognized negative goodwill would be transferred directly to retained earnings on January 1, 2005 instead 

of recognizing in income statement in accordance with IFRS 3: Business Combinations. Therefore because 

of the above-mentioned reasons, net profit for the year ended December 31, 2007 and 2006 will not be 

affected from above mentioned disputes. 

Based on the above mentioned reasons, the Company did not make any adjustments in the accompanying 

consolidated financial statements for the possible effects of changes in the net profit for the year ended 

December 31, 2005 due to the above-mentioned lawsuits and expects the resolution of these pending 

lawsuits. 

Opinion 

7. In our opinion, except for the effect on the financial statements of the matter referred to in the paragraph 6, 

the financial statements present fairly, in all material respects the financial position of Ere¤li Demir ve Çelik 

Fabrikalar› T.A.fi. and its subsidiaries as of December 31, 2007, and of its financial performance and its cash 

flows for the year then ended in accordance with the financial reporting standards issued by CMB. 

‹stanbul, February 28, 2008 

DRT BA⁄IMSIZ DENET‹M VE SERBEST MUHASEBEC‹ MAL‹ MÜfiAV‹RL‹K A.fi. 

Member of DELOITTE TOUCHE TOHMATSU 

Berkman Özata 

Partner 

Member of 


ASSETS 


CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2007 

(Amounts are expressed as New Turkish Lira (TRY) unless otherwise stated.) 

Note December 31, 2007 December 31, 2006 

Current Assets 3.233.086.753 3.195.645.990 

Cash and Cash Equivalents 4 586.242.691 756.989.078 

Marketable Securities – net 5 499.920 525.787 

Trade Receivables – net 7 793.204.236 755.130.107 

Finance Lease Receivables – net 8 - - 

Due From Related Parties – net 9 132.988.297 54.737.803 

Other Receivables – net 10 56.029.430 60.335.650 

Biological Assets – net 11 - - 

Inventories – net 12 1.436.192.534 1.382.264.142 

Receivables from Ongoing Construction Contracts – net 13 - - 

Deferred Tax Assets 14 - - 

Other Current Assets 15 227.929.645 185.663.423 

Long Term Assets 6.396.159.397 5.469.450.422 

Trade Receivables – net 7 3.509.986 5.060.166 

Finance Lease Receivables – net 8 - - 

Due From Related Parties – net 9 - - 

Other Receivables – net 10 153.568 531.270 

Financial Assets – net 16 37.119.746 43.404.515 

Positive/(Negative) Goodwill – net 17 - - 

Investment Property – net 18 30.870.315 30.870.315 

Property, Plant and Equipment - net 19 6.092.546.342 5.178.981.283 

Intangible Assets – net 20 53.148.138 48.237.506 

Deferred Tax Assets 14 178.811.302 162.364.504 

Other Long Term Assets 15 - 863 

TOTAL ASSETS 9.629.246.150 8.665.096.412 

69 

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

LIABILITIES 


CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2007 



Short Term Liabilities 1.541.797.583 1.426.389.387 

Short Term Borrowings – net 6 121.215.253 440.272.425 

Short Term Portions of Long Term Borrowings – net 6 404.496.509 100.590.644 

Finance Lease Payables – net 8 194.946 - 

Other Financial Liabilities – net 10 6.755.592 5.158.711 

Trade Payables – net 7 575.978.496 370.939.893 

Due to Related Parties 9 35.087.265 18.797.315 

Advances Received 21 101.644.922 195.351.765 

Ongoing Construction Progress Payments – net 13 - - 

Provisions 23 189.191.535 177.356.178 

Deferred Tax Liabilities 14 - - 

Other Liabilities – net 15 107.233.065 117.922.456 

Long Term Liabilities 1.924.192.642 1.707.448.097 

Long Term Borrowings – net 6 1.779.880.462 1.522.284.347 

Finance Lease Payables – net 8 216.372 - 

Other Financial Liabilities – net 10 - - 

Trade Payables – net 7 - 80.687.979 

Due to Related Parties 9 - - 

Advances Received 21 - - 

Provisions 23 107.716.254 88.452.318 

Deferred Tax Liabilities 14 35.577.814 15.492.187 

Other Liabilities – net 15 801.740 531.266 

Minority Interests 24 158.814.688 132.026.389 

SHAREHOLDERS’ EQUITY 6.004.441.237 5.399.232.539 

Capital 25 844.018.500 487.872.000 

Treasury Shares 25 (26.004.662) (15.031.598) 

Capital Reserves 2.274.348.053 2.273.449.831 

Premium in Excess of Par 26 112.766.677 112.766.677 

Gain on Cancellation of Equity Shares 26 - - 

Revaluation Fund 26 17.979.124 17.514.373 

Revaluation Fund on Financial Assets 26 - - 

Inflation Adjustment of Shareholders’ Equity Items 26 2.143.602.252 2.143.168.781 

Profit Reserves 804.307.697 665.559.259 

Legal Reserves 27 151.524.628 114.745.182 

Statutory Reserves 27 405.033.456 301.039.045 

Extraordinary Reserves 27 249.696.392 249.696.392 

Special Reserves 27 78.640 78.640 

Gain on Sale of Assets and Equity Participations’ Shares 

which will be Transferred to Capital 27 - - 

Currency Translation Reserve 27 (2.025.419) - 

Net Profit for the Period/Year 679.425.900 684.864.908 

Retained Earnings 28 1.428.345.749 1.302.518.139 

TOTAL SHAREHOLDERS’ EQUITY AND LIABILITIES 9.629.246.150 8.665.096.412 

The accompanying notes form an integral part of these financial statements 

70


CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2007 

OPERATING INCOME 


January 1, – January 1, – 


Sales Revenue – net 36 5.453.504.011 4.902.266.406 

Cost of Sales (-) 36 (4.433.155.312) (3.897.165.868) 

Service Income – net 36 - - 

Other Operating Income – net 36 - - 

GROSS PROFIT 1.020.348.699 1.005.100.538 

Operating Expenses (-) 37 (217.908.821) (190.899.443) 

NET OPERATING PROFIT 802.439.878 814.201.095 

Other Income and Gains 38 221.810.553 208.326.322 

Other Expense and Losses (-) 38 (105.970.512) (127.033.940) 

Finance Expense (-) 39 (95.767.016) (107.610.128) 

OPERATING PROFIT 822.512.903 787.883.349 

Net Monetary Gain / Loss (-) 40 - - 

Minority Interest’s Share on Period Profit 24 (24.799.837) (27.364.399) 

PROFIT BEFORE TAXATION 797.713.066 760.518.950 

Taxation 41 (118.287.166) (75.654.042) 

PROFIT FOR THE PERIOD 679.425.900 684.864.908 

EARNINGS PER SHARE 42 0,8050 0,8114 

71 



CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2007 


Changes in 

Balance as of Transfers to Dividends Minority Translation Net Profit for Balance as of 

January 1, 2007 Reserves Shares Difference the Period December 31, 2007 

Capital 487.872.000 356.146.500 - - - - 844.018.500 

Treasury Shares (15.031.598) (10.973.064) - - - - (26.004.662) 

Inflation Adjustment of Shareholders’ 2.143.168.781 - - 433.471 - - 2.143.602.252 

Equity Items 

Premium in Excess of Par 112.766.677 - - - - - 112.766.677 

Translation Difference - - - - (2.025.419) - (2.025.419) 

Legal Reserves 114.745.182 36.779.446 - - - - 151.524.628 

Statutory Reserves 301.039.045 103.994.411 - - - - 405.033.456 

Revaluation Fund 17.514.373 - - - 464.751 - 17.979.124 

Special Reserves 78.640 - - - - - 78.640 

Extraordinary Reserves 249.696.392 - - - - - 249.696.392 

Retained Earnings 1.987.383.047 (485.947.293) (69.507.539) (3.287.185) (295.281) 679.425.900 2.107.771.649 

Total 5.399.232.539 - (69.507.539) (2.853.714) (1.855.949) 679.425.900 6.004.441.237 

Balance as of Expertise Transfers to Changes in Translation Change in Net Profit Balance as of 

January 1, 2006 Adjustment Reserves Dividends Minority Shares Difference Treasury Shares for the Period December 31, 2006 

Capital 487.872.000 - - - - - - - 487.872.000 

Treasury Shares (15.026.923) - - - - - (4.675) - (15.031.598) 

Inflation Adjustment of 

Shareholders’ Equity Items 2.143.168.781 - - - - - - - 2.143.168.781 

Premium in Excess of Par 112.766.677 - - - - - - - 112.766.677 

Legal Reserves 92.124.577 - 22.620.605 - - - - - 114.745.182 

Statutory Reserves 254.027.516 - 47.011.529 - - - - - 301.039.045 

Revaluation Fund 14.791.236 2.723.137 - - - - - - 17.514.373 

Special Reserves 78.640 - - - - - - - 78.640 

Extraordinary Reserves 122.895.169 - 126.801.223 - - - - - 249.696.392 

Retained Earnings 1.588.732.219 - (196.433.357) (93.542.159) 2.182.675 1.578.761 - 684.864.908 1.987.383.047 

Total 4.801.429.892 2.723.137 - (93.542.159) 2.182.675 1.578.761 (4.675) 684.864.908 5.399.232.539 

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

72


CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 2007 


CASH FLOWS FROM OPERATING ACTIVITIES 



Profit before tax and minority interest 822.512.903 787.883.349 

Adjustments to reconcile net profit before tax and minority interest to net cash 

provided by operating activities 

Depreciation and amortization expenses 36/37 340.727.026 296.510.534 

Provisions for employee termination benefits 23 27.347.774 28.719.909 

Expertise adjustment on fixed assets 19 - 867.787 

Share of profit from subsidiaries consolidated 

by equity pick-up method 16 (1.559.594) (199.474) 

(Profit) / loss from tangible fixed asset sales 38 1.303.320 (4.317.431) 

Purchases of financial assets 16 1.963.716 - 

Allowance for diminution in value of financial assets 16 4.750.701 (4.479.213) 

Provision for doubtful receivables (2.892.928) 1.026.157 

Allowance for diminution in value of inventories (3.334.698) (5.973.698) 

Change in provisions other then tax provisions 23 25.125.383 18.653.406 

Financing expenses 39 95.735.636 77.034.446 

Interest collected (93.216.285) (94.690.784) 

Accrued exchange (gain )/ loss on loans (176.726.849) 11.317.102 

Net cash provided by operating activities before 

changes in working capital 1.041.736.105 1.112.352.090 

Changes in working capital 43 (126.492.423) (267.908.480) 

Interest paid (123.018.240) (141.812.125) 

Interest collected 93.216.285 94.690.784 

Taxes paid (127.938.363) (122.602.754) 

Employee termination benefits paid 23 (8.083.838) (7.674.253) 

Cash provided by operating activities 749.419.526 667.045.262 

CASH FLOW FROM INVESTING ACTIVITIES 

Changes in marketable securities 5 25.867 19.046.589 

Purchase of financial assets 16 (3.240) (10.330) 

Cash provided by fixed asset sale 19/38 8.708.793 6.831.303 

Purchases of tangible fixed assets 19 (1.383.819.963) (1.111.532.829) 

Purchases of intangible fixed assets 20 (1.385.655) (618.643) 

Cash used in investing activities (1.376.474.198) (1.086.283.910) 

CASH FLOW FROM FINANCING ACTIVITIES 

Changes in borrowings in trade payables 7 (3.521.352) 67.711.971 

Proceeds from loans 1.223.186.170 1.860.060.517 

Repayment of loans (691.652.710) (1.236.177.843) 

Translation difference (197.969) (285.520) 

Dividends paid (69.507.539) (93.542.159) 

Changes in treasury shares - (4.675) 

Changes in minority interests (865.250) 2.641.673 

Cash provided by financing activities 457.441.350 600.403.964 

NET CHANGES IN CASH AND CASH EQUIVALENTS (169.613.322) 181.165.316 

CASH AND CASH EQUIVALENTS 752.353.961 571.188.645 

AT THE BEGINNING OF THE PERIOD 

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 582.740.639 752.353.961 

Accrued Interest 3.502.052 4.635.117 

CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 

INCLUDING ACCRUAL OF INTEREST 4 586.242.691 756.989.078 

73 



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 

DECEMBER 31, 2007 


NOTE 1 – OPERATIONS AND THE ORGANIZATION OF THE GROUP 

Ere¤li Demir ve Çelik Fabrikalar› T.A.fi. and its subsidiaries (the “Group”) comprises of Ere¤li Demir ve Çelik Fabrikalar› 

T.A.fi. (the “Company”), as the parent company, and its subsidiaries with the majority of shares of these subsidiaries 

are owned by the Company or the Company has significant influence on the management structure. 

Ere¤li Demir ve Çelik Fabrikalar› Türk Anonim fiirketi (“Erdemir” or the “the Company”) is a Turkish corporation incorporated 

as a joint stock company in 1960. The principal activities of the Company are the manufacturing and production of iron 

and steel rolled products, alloy and non-alloy iron, steel and pig iron castings, cast and pressed products, coke and 

by-products of all types. 

Company’s shares are to be accepted for trading on ‹stanbul Stock Exchange from year 1986. 

The operations of the companies included in the consolidation, and the share of the Group’s share capital are as follows: 

2007 2006 

Share Share 

Name of the Company Operation % % 

‹skenderun Demir ve Çelik A.fi. Iron and Steel 92,91 91,72 

Erdemir Madencilik San. ve Tic. A.fi. Iron Ore 90,00 90,00 

Erdemir Çelik Servis Merkezi San. ve Tic. A.fi. Iron and Steel 100,00 100,00 

Erenco Erdemir Müh. Yön. ve Dan. Hiz. A.fi. Management and Consultancy 100,00 100,00 

Erdemir Romania S.R.L. Iron and Steel 100,00 100,00 

Çelbor Çelik Çekme Boru San. ve Tic. A.fi. Iron and Steel 100,00 100,00 

Erdemir Lojistik A.fi. Logistic Services 100,00 100,00 

ArcelorMittal Ambalaj Çeli¤i San. ve Tic. A.fi.(*) Steel for Packaging 25,00 25,00 

(*) ArcelorMittal Ambalaj Çeli¤i San. ve Tic. A.fi.’s financial statements were consolidated by the equity pick-up method. 

The Company’s trade registry address is Uzunkum No:7 Karadeniz Ere¤li. 

Other financial assets mentioned in Note 16 are not consolidated, since their effects on financial statements are immaterial 

or their subsidiary ratios are low. 

The number of the personnel based on categories at the end of the period: 

December 31, 2007 December 31, 2006 

Unit Unit 

Monthly paid personnel (A) 3.486 3.385 

Hourly paid personnel (B) 9.603 9.811 

Candidate worker (C) 1.378 282 

Contractual personnel (D) 21 17 

Contractual personnel (Contractor) 575 561 

TOTAL 15.063 14.056 

NOTE 2 – BASIS OF THE FINANCIAL STATEMENTS 

2.1 Accounting Standards 

The Company and all its subsidiaries in Turkey maintains 

its books of account and prepares its statutory financial 

statements ("Statutory Financial Statements") in accordance 

with accounting principles issued by the Turkish 

Commercial Code (the "TCC") and tax legislation 

(collectively, "Turkish Practices"). The other subsidiaries 

which operate abroad maintain its books of account and 

prepare its statutory financial statements according to the 

country which they operate in. The Company’s financial 

statements were prepared in accordance with the CMB 

rules for accounting and reporting (CMB Generally 

Accepted Accounting Principles). 

74


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2007 

CMB published a comprehensive set of accounting 

principles in accordance with the Decree Serial: XI, No: 

25 on “The Decree for Capital Markets Accounting 

Standards”. This decree is applicable for the first interim 

financial statements ended subsequent to January 1, 

2005 period. Article 5 of the supplementary decree Serial: 

XI, No: 27 issued as an amendment to Decree Serial: XI, 

No: 25 declared that, as an alternative, the compliance 

with the accounting standards issued by the International 

Accounting Standards Board (IASB) and the International 

Accounting Standards Committee (IASC) will be counted 

as in compliance to the CMB Accounting principles stated 

in Decree Serial: XI, No: 25. 

The accompanying financial statements and notes prepared 

in accordance with IFRS, the allowed alternative application 

permitted by CMB, are disclosed in accordance with the 

required formats announced by the CMB on December 

20, 2004. 

The Group has prepared its interim financial statements 

as of March 31, 2005, June 30, 2005 and December 31, 

2005 according to the regulations set out by the CMB’s 

Decree Serial:XI, No:25. However, the financial statements 

as of December 31, 2005, interim financial statements of 

March 31, June 30, and December 31, 2006, annual 

financial statements as of December 31, 2006 and interim 

financial statements as of March 31, 2007, June 30, 2007 

and December 31, 2007, annual financial statement as 

of December 31, 2007 have been prepared in accordance 

with International Financial Reporting Standards (IFRS) as 

an alternative approach as explained above. 

The accompanying financial statements and notes prepared 

in accordance with IFRS, the allowed alternative application 

permitted by CMB, are disclosed in accordance with the 

required formats announced by the CMB on December 

20, 2004 based on the permission of the CMB’s Statement 

No:017/83-3483, on March 7, 2006, stating that: “…As 

explained in your letter, if the disclosure of financial 

statements prepared in accordance with IFRS, instead of 

the CMB’s Communiqué Serial: XI, No: 25 is required, 

the 2005 financial statements prepared in accordance 

with IFRS should be prepared in compliance with the 

accounting standards of our Board. Hence, these financial 

statements should only be disclosed if the necessary 

restatement adjustments in accordance with IAS 29 

“Financial Reporting in Hyperinflationary Economies” are 

eliminated and the necessary adjustments in the 

comparative financial statements are made.” 

2.2 Inflation Accounting 

The financial statements for the periods before January 

1, 2005 were adjusted with the wholesale price index for 

inflation effects based on the International Accounting 

Standard 29 (IAS 29) in order to present the changes in 

the purchasing power of the Turkish Lira. IAS 29 sets 

rules for preparing the financial statements in 

hyperinflationary economies. At the CMB meeting 

75 


No:11/367 on March 17, 2005, it is declared that the 

hyperinflationary period is over in accordance with Article 

6 of the Communiqué Serial:XI, No: 20 “Restatement of 

Financial Statements in Hyperinflationary Periods”, and 

the corresponding article 375 of the Communiqué Serial:XI, 

No: 25 “Capital Markets Accounting Standards”, and the 

indicators of hyperinflation have been disappeared to a 

considerable extent. Thus, the application of inflation 

accounting is ceased as of 2005. Therefore, the inflation 

accounting is not applied in the financial statements for 

the periods after January 1, 2005. 

2.3 Consolidation 

The consolidated financial statements incorporate the 

financial statements of the Group and its subsidiaries 

controlled by the Group as explained in Note 1. Adjustments 

are made to eliminate intercompany sales and purchases, 

intergroup receivables and payables and intergroup equity 

investments. 

Entities in which the Group, directly or indirectly, has above 

50% shareholding or interest of voting rights or otherwise 

has power to exercise control over operations, have been 

fully consolidated. Control is achieved where the Group 

has the power to govern the financial and operating policies 

of an investor enterprise so as to obtain benefits from its 

activities. 

The accounting policies of the subsidiaries included in 

consolidation are changed and adopted to the Group’s 

accounting policies where necessary. All significant 

transactions and balances between the Company and its 

consolidated subsidiaries are eliminated on consolidation. 

On acquisition, the assets and liabilities of the relevant 

subsidiaries are measured at their fair values at the date 

of acquisition. The interest of minority shareholders is 

stated at the minority's proportion of the fair values of the 

assets and liabilities recognized. The results of subsidiaries 

acquired or disposed of during the year are included in 

the consolidated income statement from the effective date 

of acquisition or up to the effective date of disposal, as 

appropriate. 

Where necessary, adjustments are made to the financial 

statements of subsidiaries to bring the accounting policies 

used into line with those used by other subsidiaries of the 

Group. 

Investments in Associates 

An associate is an entity over which the Group has 

significant influence and that is neither a subsidiary nor an 

interest in a joint venture. Significant influence is the power 

to participate in the financial and operating policy decisions 

of the investee but is not a control or joint control over 

those policies.



The results of operations and assets and liabilities of 

associates are incorporated in these financial statements 

using the equity method of accounting, except when the 

investment is classified as held for sale, in which case it 

is accounted for under IFRS 5 Non-current Assets Held 

for Sale and Discontinued Operations. 

Under the equity method, investments in associates are 

carried in the consolidated balance sheet at cost as 

adjusted for post-acquisition changes in the Group’s share 

of the net assets of the associate, less any impairment in 

the value of individual investments. Losses of an associate 

in excess of the Group’s interest in that associate (which 

includes any long-term interests that, in substance, form 

part of the Group’s net investment in the associate) are 

not recognized. 

Any excess of the cost of acquisition over the Group’s 

share of the net fair value of the identifiable assets, liabilities 

and contingent liabilities of the associate recognized at 

the date of acquisition is recognized as goodwill. Goodwill 

is included within the carrying amount of the investment 

and is assessed for impairment as part of the investment. 

Any excess of the Group’s share of the net fair value of 

the identifiable assets, liabilities and contingent liabilities 

over the cost of acquisition, after reassessment, is 

recognized immediately in profit or loss. 

Where a group entity transacts with an associate of the 

Group, profits and losses are eliminated to the extent of 

the Group’s interest in the relevant associate. 

2.4 Prior Period Comparative Information and 

Restatement of Prior Periods 

To enable the determination of financial condition and 

performance trends, the Group prepares the financial 

statements comparative to previous period. In order to 

comply with the presentation of the current period financial 

statements, comparative information are restated when 

required and detailed information about restatements are 

presented at note 44. 

2.5 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. 

2.6 Adoption of New and Revised International 

Financial Reporting Standards: 

In the current year, the Group has adopted all of the new 

and revised Standards and Interpretations issued by the 

International Accounting Standards Board (“the IASB”) 

and the International Financial Reporting Interpretations 

Committee (“IFRIC”) of the IASB that are relevant to its 

operations and effective for accounting periods beginning 

on January 1, 2007. The adoption of these new and 

revised Standards and Interpretations has resulted in 

changes to the Group’s accounting policies in the following 

areas: 

IFRS 7, “Financial instruments: Disclosures” 

IAS 1, “Presentation of financial statements” 

IFRS 7, “Financial instruments: Disclosures” 

This standard requires disclosures that enable users of 

the financial statements to evaluate the significance of the 

Group’s financial instruments and the nature and extent 

of risks arising from those financial instruments. The new 

disclosures are included throughout the financial 

statements. While there has been no effect on the financial 

position or results, comparative information has been 

revised where needed. 

IAS 1, “Presentation of financial statements” 

This amendment requires the Group to make new 

disclosures to enable users of the financial statements to 

evaluate the Group’s objectives, policies and processes 

for managing capital. 

Standards, amendments and interpretations effective in 

2007 but not relevant 

The following standards, amendments and interpretations 

to published standards are mandatory for accounting 

periods beginning on or after January 1, 2007 but they 

are not relevant to the Company’s operations: 

IFRS 4, “Insurance contracts”, 

IFRIC 7, “Applying the restatement approach under IAS 

29, Financial reporting in hyperinflationary economies”, 

IFRIC 8, “Scope of IFRS 2”, 

IFRIC 9, “Reassessment of embedded derivatives”, 

IFRIC 10, “Interim financial reporting and impairment”. 

Standards, amendments and interpretations to existing 

standards that are not yet effective and have not been 

early adopted by the Company 

At the date of authorization of these financial statements, 

the following Standards and Interpretations were in issue 

but not yet effective: 

IFRIC 11, “IFRS 2 – Group 

and treasury share 

transactions” 

IAS 23, “(Amendment) 

Borrowing costs” 

IFRS 8, “Operating 

segments” 

IFRIC 12, “Service 

concession arrangements” 

Effective for annual periods 

beginning on or after 

March 1, 2007 



January 1, 2009 







76



IFRIC 13, “Customer loyalty 

programmes” 

IFRIC 14, “IAS 19- The limit 

on a defined benefit asset, 

minimum funding 

requirements and their 

interaction” 

IFRS 2, “Share-based 

Payment” Amendment 

relating to vesting 

conditions and 

cancellations 

IFRS 3, “Business 

Combinations” IAS 27, 

“Consolidated and 

Separate Financial 

Statements” IAS 28, 

“Investments in Associates” 

IAS 31 “Interests in Joint 

Ventures” Comprehensive 

revision on applying the 

acquisition method 

IAS 1, “Presentation of 

Financial Statements” IAS 

32, “Financial Instruments: 

Presentation” Amendments 

relating to disclosure of 

puttable instruments and 

obligations arising on 

liquidation 

IAS 1, “Presentation of 

Financial Statements” 

Comprehensive revision 

including requiring a 

statement of 

comprehensive income 

The Company’s management anticipates that the adoption 

of these Standards and Interpretations in future periods 

will have no material impact on the financial statements of 

the Company. 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING 

POLICIES 

Significant accounting policies used in the preparation of 

the accompanying consolidated financial statements are 

as follows: 

3.1 Revenue 

Revenue is measured at the fair value of the consideration 

received or receivable. Revenue is reduced for estimated 

customer returns, rebates, and other similar allowances. 

77 




July 1, 2008 









July 1, 2009 










Sale of goods: 

Revenue from sale of goods is recognized when all the 

following conditions are satisfied: 

• The Group has transferred to the buyer the significant 

risks and rewards of ownership of the goods; 

• The Group retains neither continuing managerial 

involvement to the degree usually associated with ownership 

nor effective control over the goods sold; 

• The amount of revenue can be measured reliably; 

• It is probable that the economic benefits associated with 

the transaction will flow to the entity; and 

• The costs incurred or to be incurred in respect of the 

transaction can be measured reliably. 

Dividend and interest revenue 

Interest revenue is accrued on a time basis, by reference 

to the principal outstanding and at the effective interest 

rate applicable, which is the rate that exactly discounts 

estimated future cash receipts through the expected life 

of the financial asset to that asset’s net carrying amount. 

Dividend revenue from investments is recognized when 

the shareholders’ rights to receive payment have been 

established. 

Rental income 

Rental income from investment properties is recognized 

on a straight-line basis over the term of the relevant lease. 

3.2 Inventories 

Inventories are stated at the lower of cost or net realizable 

value. Costs, including an appropriate portion of fixed and 

variable overhead expenses, are assigned to inventories 

held by the method most appropriate to the particular class 

of inventory, with the majority being valued using the 

monthly weighted moving average method. Net realizable 

value represents the estimated selling price less all estimated 

costs of completion and costs necessary to make a sale. 

3.3 Property, Plant and Equipment 

Property plant and equipment purchased before January 

1, 2005 are carried at indexed historical cost for inflation 

effects as at December 31, 2004, purchases in 2005 and 

in later periods are carried at historical cost and are 

presented after depreciation and impairment loss. Tangible 

assets are depreciated according to straight-line basis 

using the useful lives of the assets starting from date of 

entry to the balance sheet or installation dates. The following 

rates are used to amortize the assets over their expected 

useful lives:



Buildings 2-16% 

Land Improvements 5% 

Machinery and Equipments 5-20% 

Vehicles 5-20% 

Furniture and Fixtures 5-33% 

Other tangible fixed assets 5-25% 

The Group’s tangible fixed assets operating in iron ore 

and fixed assets used in the production of seamless steel 

tube and flat steel in Romania are stated in the balance 

sheet at their revalued amounts, being the fair value at the 

date of revaluation, less any subsequent accumulated 

depreciation and subsequent accumulated impairment 

losses. Revaluations are performed with sufficient regularity 

such that the carrying amount does not differ materially 

from that would be determined using fair values at the 

balance sheet date. 

Any revaluation increase arising from the revaluation of 

such assets is credited to the properties revaluation reserve, 

except to the extent that it reverses a revaluation decrease 

for the same asset previously recognized in profit or loss, 

in which case the increase is credited to profit or loss to 

the extent of the decrease previously charged. A decrease 

in carrying amount arising on the revaluation of such land 

and buildings is charged to profit or loss to the extent that 

it exceeds the balance, if any, held in the properties 

revaluation reserve relating to a previous revaluation of 

that asset. 

Depreciation on revalued tangible fixed assets is charged 

to profit or loss. On the subsequent sale or retirement of 

a revalued property, the attributable revaluation surplus 

remaining in the properties revaluation reserve is transferred 

directly to retained earnings. Any transfer from revaluation 

reserve to the retained earnings can not be made unless 

the asset is disposed. 

3.4 Leasing Operations 


Leases are classified as finance leases whenever the terms 

of the lease transfer substantially all the risks and rewards 

of ownership to the lessee. All other leases are classified 

as operating leases. 

Assets held under finance leases are recognized as assets 

of the Group at their fair value at the inception of the lease 

or, if lower, at the present value of the minimum lease 

payments. The corresponding liability to the lessor is 

included in the balance sheet as a finance lease obligation. 

Lease payments are apportioned between finance charges 

and reduction of the lease obligation so as to achieve a 

constant rate of interest on the remaining balance of the 

liability. Finance charges are charged to profit or loss, 

unless they are directly attributable to qualifying assets, 

in which case they are capitalized in accordance with the 

Group’s general policy on borrowing costs. 

Rentals payable under operating leases are charged to 

profit or loss on a straight-line basis over the term of the 

relevant lease. 

3.5 Intangible Assets 

Intangible assets acquired separately 

Intangible assets purchased before January 1, 2005 are 

carried at indexed historical cost for inflation effects as at 

December 31, 2004, purchases in 2005 and in later periods 

are carried at historical cost and are recognized less any 

depreciation and impairment loss. Intangible assets are 

depreciated principally on a straight-line basis over their 

expected useful lives. The estimated useful life and 

amortization method are reviewed at the end of each 

annual reporting period, with the effect of any changes in 

estimate being accounted for on a prospective basis. 

Computer software 

Acquired computer software licences are capitalized on 

the basis of the costs incurred to acquire and bring to use 

the specific software. These costs are amortized over their 

estimated useful lives (three to five years). 

3.6 Impairment of Assets 

Assets that have an indefinite useful life, for example 

goodwill, are not subject to amortization and are tested 

annually for impairment. Assets that are subject to 

amortization are reviewed for impairment whenever events 

or changes in circumstances indicate that the carrying 

amount may not be recoverable. An impairment loss is 

recognized for the amount by which the asset’s carrying 

amount exceeds its recoverable amount. The recoverable 

amount is the higher of an asset’s fair value less costs to 

sell and value in use. For the purposes of assessing 

impairment, assets are grouped at the lowest levels for 

which there are separately identifiable cash flows (cashgenerating 

units). Non-financial assets other than goodwill 

that suffered impairment are reviewed for possible reversal 

of the impairment at each reporting date. 

3.7 Borrowing Costs 

Borrowing costs directly attributable to the acquisition, 

construction or production of qualifying assets, which are 

assets that necessarily take a substantial period of time 

to get ready for their intended use or sale, are added to 

the cost of those assets, until such time as the assets are 

substantially ready for their intended use or sale. Investment 

income earned on the temporary investment of specific 

borrowings pending their expenditure on qualifying assets 

is deducted from the borrowing costs eligible for 

capitalization. 

All of the other borrowing costs are recorded in the income 

statement in the period in which they are incurred. 

78



3.8 Financial Instruments 

Financial assets and financial liabilities are recognized on 

the Group’s balance sheet when the Group becomes a 

party to the contractual provisions of the financial 

instrument. 

Financial assets 

Investments are recognized and derecognized on trade 

date where the purchase of sales of an investment is 

under a contract whose terms require delivery of the 

investment within the timeframe established by the market 

concerned and are initially measured at fair value, net of 

transaction costs except for those financial assets classified 

as fair value through profit or loss which are initially 

measured at fair value. 

Other financial assets are classified into the following 

specified categories financial assets as ‘at fair value through 

profit or loss’ , ‘held to maturity investments’, ‘available 

for sale” financial assets and ‘loans and receivables’. The 

classification depends on the nature and purpose of the 

financial assets and is determined at the time of the initial 

recognition. 

Effective interest method 

The effective interest method is a method of calculating 

the amortized cost of a financial asset and of allocating 

interest income over the relevant period. The effective 

interest rate is that exactly discounts estimated future 

cash receipts through the expected life of the financial 

asset or where appropriate a shorter period. 

Debt instruments that are held to maturity, are available 

for sale, or are loans and receivables recognize in income 

on an effective interest rate basis. 

Available for sale financial assets 

Certain shares and redeemable notes held by the Company 

are classified as being available for sale and are stated at 

fair value. 

Gains and losses arising from changes in fair value are 

recognized directly in the investments revaluation reserve 

with the exception of impairment losses, interest calculated 

using the effective interest method and foreign exchange 

gains and losses on monetary assets which are recognized 

directly in profit or loss. Where the investment is disposed 

of or is determined to be impaired, the cumulative gain or 

loss previously recognized in the investments revaluation 

reserve is included in profit or loss for the period. 

Dividends on available for sale equity instruments are 

recognized in profit and loss when the Companies right 

to receive payments is established. 

The fair value of available for sale monetary assets 

79 


denominated in a foreign currency is determined in that 

foreign currency and translated at the spot rate at the 

reporting date. The change in fair value attributable to 

translation differences that result from a change in amortized 

cost of the asset is recognized in profit or loss, and other 

changes are recognized in equity. 

Receivables 

Trade receivables and other receivables are initially 

recognized at their fair value. Subsequently, receivables 

are measured at amortized cost using the effective interest 

method. 

Impairment of financial assets 

Financial assets, other than those at fair value through 

profit or loss, are assessed for indicators of impairment 

at each balance sheet date. Financial assets are impaired 

where there is objective evidence that, as a result of one 

or more events that occurred after the initial recognition 

of the financial asset, the estimated future cash flows of 

the investment have been impacted. 

For financial assets carried at amortized cost, the amount 

of the impairment is the difference between the asset’s 

carrying amount and the present value of estimated future 

cash flows, discounted at the original effective interest 

rate. 

The carrying amount of the financial asset is reduced by 

the impairment loss directly for all financial assets with the 

exception of trade receivables where the carrying amount 

is reduced through the use of an allowance account. 

When a trade receivable is uncollectible, it is written off 

against the allowance account. Subsequent recoveries of 

amounts previously written off are credited against the 

allowance account. Changes in the carrying amount of 

the allowance account are recognized in profit or loss. 

With the exception of available for sale equity instruments, 

if, in a subsequent period, the amount of the impairment 

loss decreases and the decrease can be related objectively 

to an event occurring after the impairment was recognized, 

the previously recognized impairment loss is reversed 

through profit or loss to the extent that the carrying amount 

of the investment at the date the impairment is reversed 

does not exceed what the amortized cost would have 

been had the impairment not been recognized. 

In respect of available for sale equity securities, any increase 

in fair value subsequent to an impairment loss is recognized 

directly in equity.



With the exception of available for sale equity instruments, 

if, in a subsequent period, the amount of the impairment 

loss decreases and the decrease can be related objectively 

to an event occurring after the impairment was recognized, 

the previously recognized impairment loss is reversed 

through profit or loss to the extent that the carrying amount 

of the investment at the date the impairment is reversed 

does not exceed what the amortized cost would have 

been had the impairment not been recognized. 

In respect of available for sale equity securities, any increase 

in fair value subsequent to an impairment loss is recognized 

directly in equity. 

Cash and cash equivalents 

Cash and cash equivalents comprise cash on hand and 

demand deposits and other short-term highly liquid 

investments which their maturities are three months or 

less from date of acquisition and that are readily convertible 

to a known amount of cash and are subject to an 

insignificant risk of changes in value. The carrying amount 

of these assets approximates their fair value. 

Financial liabilities 

Financial liabilities and equity instruments issued by the 

Group are classified according to the substance of the 

contractual arrangements entered into and the definitions 

of a financial liability and an equity instrument. An equity 

instrument is any contract that evidences a residual interest 

in the assets of the Group after deducting all of its liabilities. 

The accounting policies adopted for specific financial 

liabilities and equity instruments are set out below. 

Financial liabilities are classified as either financial liabilities 

‘at fair value through profit or loss’ or other financial 

liabilities. 

Other financial liabilities 

Other financial liabilities are initially measured at fair value, 

net of transaction costs. 

Other financial liabilities are subsequently measured at 

amortized cost using the effective interest method, with 

interest expense recognized on an effective yield basis. 

The effective interest method is a method of calculating 

the amortized cost of a financial liability and of allocating 

interest expense over the relevant period. The effective 

interest rate is the rate that exactly discounts estimated 

future cash payments through the expected life of the 

financial liability, or, where appropriate, a shorter period. 

3.9 Merger and Acquisitions 

None. 


3.10 Foreign Currency Transactions 

Foreign currency transactions are accounted for with the 

exchange rate ruling at the transaction date. Assets and 

liabilities denominated in foreign currencies are converted 

by the exchange rate ruling at the balance sheet date. 

Gains and losses arising on settlement and conversion of 

foreign currency items are included in the financial 

statements. 

3.11 Earnings per Share 

Earnings per share disclosed in the accompanying 

consolidated statement of income is determined by 

dividing net income by the weighted average number of 

shares in existence during the year concerned. 

In Turkey, companies can raise their share capital by 

distributing “Bonus Shares” to shareholders from retained 

earnings. In computing earnings per share, such “bonus 

share” distributions are assessed as issued shares. 

Accordingly, the retrospective effect for those share 

distributions is taken into consideration in determining the 

weighted-average number of shares outstanding used in 

this computation. 

3.12 Subsequent Events 

Subsequent events cover all of the events that occur 

between the balance sheet date and the publication date 

of the financial statements, even if the events occur 

subsequent to public announcements that are related 

with profit or other pre-selected financial information are 

made. 

The Group adjusts its financial statements if the aboveexplained 

subsequent events require any adjustments. 

3.13 Provisions, Contingent Liabilities and Contingent 

Assets 

A provision is set forth in the financial statements, if a legal 

liability exists as a result of past events as if (i) the cash 

out-flow is probable for the reversal of provision and (ii) 

the liability amount can be estimated reliably. Contingent 

liabilities are consistently reviewed prior to the probability 

of any cash out-flow. In case of the cash out-flow is 

probable, provision is set forth (except for the unusual 

cases that the amount can not be determined) in the 

financial statements of the year that the probability of 

contingent liability accounts is changed. 

Provisions are recognized when the Group has a present 

obligation as a result of a past event, and it is probable 

that the Group will be required to settle that obligation, 

and a reliable estimate can be made of the amount of the 

obligation. 

80



The amount recognized as a provision is the best estimate 

of the consideration required to settle the present obligation 

at the balance sheet date, taking into account the risks 

and uncertainties surrounding the obligation. Where a 

provision is measured using the cash flows estimated to 

settle the present obligation, its carrying amount is the 

present value of those cash flows. 

When some or all of the economic benefits required to 

settle a provision are expected to be recovered from a 

third party, the receivable is recognized as an asset if it 

is virtually certain that reimbursement will be received and 

the amount of the receivable can be measured reliably. 

3.14 Changes in Accounting Policies, Accounting 

Estimates and Errors 

Significant changes in accounting policies and accounting 

errors are applied retrospectively and prior periods financial 

statements are adjusted accordingly. If changes in 

accounting estimates relate only for one period, changes 

are applied in the current period but if changes in estimates 

relate more than one period, changes are applied both in 

the current and following periods prospectively. 

3.15 Related Parties 

In the accompanying financial statements, the companies 

having direct or indirect control over the Group, companies 

controlled by the Group, Group’s management personnel, 

or close family members in charge of the Group or the 

parent company’s management are defined as related 

parties. 

3.16 Segmental Information 

There are no different areas of operation and different 

geographical areas that will necessitate segmental 

information. 

3.17 Construction Contracts 

None. 

3.18 Discontinued Operations 

None. 

3.19 Government Grants and Assistance 

None. 

3.20 Investment Property 

Investment property, which is property, held to earn rentals 

and/or for capital appreciation is carried at cost less 

accumulated depreciation and any accumulated 

impairment losses. The carrying amount includes the cost 

of replacing part of an existing investment property at the 

time that cost is incurred if the recognition criteria are met; 

81 


and excludes the costs of day to day servicing of an 

investment property. Depreciation is provided on investment 

property on a straight line basis. The depreciation period 

for investment property is – years. 

Investment properties are derecognized when either they 

have been disposed of or when the investment property 

is permanently withdrawn from use and no future economic 

benefit is expected from its disposal. Any gains or losses 

on the retirement or disposal of an investment property 

are recognized in profit or loss in the year of retirement or 

disposal. 

Transfers are made to or from investment property only 

when there is a change in use. For a transfer from 

investment property to owner occupied property, the 

deemed cost for subsequent accounting is the fair value 

at the date of change in use. If owner occupied property 

becomes an investment property, the Group accounts for 

such property in accordance with the policy stated under 

property, plant and equipment up to the date of change 

in use. 

No assets held under operating lease have been classified 

as investment properties. 

3.21 Taxation and Deferred Income Taxes 

Turkish tax legislation does not permit a parent company 

and its subsidiary to file a consolidated tax return. Therefore, 

provisions for taxes, as reflected in the accompanying 

consolidated financial statements, have been calculated 

on a separate-entity basis. 

Income tax expense represents the sum of the tax currently 

payable and deferred tax. 

Current tax 

The tax currently payable is based on taxable profit for 

the year. Taxable profit differs from profit as reported in 

the income statement because it excludes items of income 

or expense that are taxable or deductible in other years 

and it further excludes items that are never taxable or 

deductible. The Group’s liability for current tax is calculated 

using tax rates that have been enacted or substantively 

enacted by the balance sheet date. 

Deferred tax 

Deferred tax is recognized on differences between the 

carrying amounts of assets and liabilities in the financial 

statements and the corresponding tax bases which is 

used in the computation of taxable profit, and is accounted 

for using the balance sheet liability method. Deferred tax 

liabilities are generally recognized for all taxable temporary 

differences and deferred tax assets are recognized for all 

deductible temporary differences to the extent that it is 

probable that taxable profits will be available against which 

those deductible temporary differences can be utilized. 

Such assets and liabilities are not recognized if the 

temporary difference arises from goodwill or from the initial 

recognition (other than in a business combination) of other 

assets and liabilities in a transaction that affects neither 

the taxable profit nor the accounting profit.



Deferred tax liabilities are recognized for taxable temporary 

differences associated with investments in subsidiaries 

and associates, and interests in joint ventures, except 

where the Group is able to control the reversal of the 

temporary difference and it is probable that the temporary 

difference will not reverse in the foreseeable future. Deferred 

tax assets arising from deductible temporary differences 

associated with such investments and interests are only 

recognized to the extent that it is probable that there will 

be sufficient taxable profits against which to utilize the 

benefits of the temporary differences and they are expected 

to reverse in the foreseeable future. 

The carrying amount of deferred tax assets is reviewed at 

each balance sheet date and reduced to the extent that 

it is no longer probable that sufficient taxable profits will 

be available to allow all or part of the asset to be recovered. 

Deferred tax assets and liabilities are measured at the tax 

rates that are expected to apply in the period in which the 

liability is settled or the asset realized, based on tax rates 

(and tax laws) that have been enacted or substantively 

enacted by the balance sheet date. The measurement of 

deferred tax liabilities and assets reflects the tax 

consequences that would follow from the manner in which 

the Group expects, at the reporting date, to recover or 

settle the carrying amount of its assets and liabilities. 

Deferred tax assets and liabilities are offset when there is 

a legally enforceable right to set off current tax assets 

against current tax liabilities and when they relate to income 

taxes levied by the same taxation authority and the Group 

intends to settle its current tax assets and liabilities on a 

net basis. 

Current and deferred tax for the period 


Current and deferred tax are recognized as an expense 

or income in profit or loss, except when they relate to 

items credited or debited directly to equity, in which case 

the tax is also recognized directly in equity, or where they 

arise from the initial accounting for a business combination. 

In the case of a business combination, the tax effect is 

taken into account in calculating goodwill or determining 

the excess of the acquirer’s interest in the net fair value 

of the acquiree’s identifiable assets, liabilities and contingent 

liabilities over cost. 

3.22 Employee Benefits/Retirement Pay Provision 

Under Turkish law and union agreements, lump sum 

payments are made to employees retiring or involuntarily 

leaving the Group. Such payments are considered as 

being part of defined retirement benefit plan as per 

International Accounting Standard No. 19 (revised) 

“Employee Benefits” (“IAS 19”). 

The retirement benefit obligation recognized in the balance 

sheet represents the present value of the defined benefit 

obligation as adjusted for unrecognized actuarial gains 

and losses. 

3.23 Retirement Benefits 

None. 

3.24 Agricultural Operations 

None. 

3.25 Statement of Cash Flow 

In statement of cash flow, cash flows are classified 

according to operating, investment and finance activities. 

Cash flows from operating activities reflect cash flows 

generated from steel products sales of the Group. 

Cash flows from investment activities express cash used 

in investment activities (direct investments and financial 

investments) and cash flows generated from investment 

activities of the Group. 

Cash flows relating to finance activities express sources 

of financial activities and payment schedules of the Group. 

Cash and cash equivalents comprise cash on hand and 

demand deposits, and other short-term highly liquid 

investments which their maturities are three months or 

less from date of acquisition and that are readily convertible 

to a known amount of cash and are subject to an 

insignificant risk of changes in value. 

3.26 Share capital and dividends 

Common shares are classified as equity. Dividends on 

common shares are recognised in equity in the period 

in which they are approved and declared. 

3.27 Treasury Shares 

Article IV-H of its Articles of Association allows Erdemir 

to purchase, hold, sell or transfer its own shares, without 

voting rights, and as of December 31, 2007, the Company 

holds its own shares with a nominal value of TRY 

26.004.662 ( December 31, 2006 with the historical value 

TRY 15.031.598) as a result of past rights issues not 

taken up by other shareholders. The Company’s own 

shares have been reclassified in the balance sheet as a 

deduction from the share capital. 

NOTE 4 – CASH AND CASH EQUIVALENTS 

Details of cash and cash equivalents as of December 

31, 2007 and December 31, 2006 are listed below; 

December 31, December 31, 

2007 2006 

Cash 10.951 8.540 

Banks – demand deposits 24.429.757 17.891.612 

Banks – time deposits 561.804.587 738.034.438 

Payment orders 

and cheques given (-) (2.604) (878) 

Repurchase agreements - 1.055.366 

586.242.691 756.989.078 

82



Demand deposits are listed below: 

Time deposits are listed below: 

83 



2007 2006 

TRY 14.536.964 6.620.622 

USD 8.281.055 3.548.316 

JPY 30.950 145.090 

EUR 1.385.329 7.081.015 

GBP 11.116 3.389 

RON 184.343 493.143 

Other - 37 

24.429.757 17.891.612 


2007 2006 

TRY 172.180.372 108.504.377 

EUR 257.078.733 125.523.357 

USD 125.795.065 504.006.704 

RON 6.750.417 - 

561.804.587 738.034.438 

Maturity structure of time deposits as of December 31, 

2007 consists of the following; 

Interest December 31, 

Currency Rate (%) Maturity 2007 

TRY 14,00-16,30 01.01.08 2.303.967 

TRY 14,00-18,80 02.01.08 87.561.331 

TRY 17,87 08.01.08 10.166.460 

TRY 17,87 15.01.08 10.166.460 

TRY 17,87 22.01.08 9.403.976 

TRY 15,97 26.01.08 19.014 

TRY 17,90 29.01.08 22.711.703 

TRY 17,90 05.02.08 19.704.447 

TRY 18,00 12.02.08 10.143.014 

EUR 3,61 02.01.08 56.920.857 

EUR 5,05 21.01.08 25.819.815 

EUR 4,75-5,02 28.01.08 117.358.279 

EUR 5,37 07.02.08 25.743.580 

EUR 4,62 18.02.08 201.909 

EUR 5,30 19.02.08 13.861.449 

EUR 5,40 26.02.08 17.172.844 

USD 4,50 01.01.08 698.331 

USD 2,75-6,15 02.01.08 96.950.359 

USD 3,50-5,70 03.01.08 17.561.742 

USD 5,25 07.01.08 2.343.807 

USD 5,35 14.01.08 2.341.692 

USD 5,50 21.01.08 2.339.579 

USD 5,55 04.02.08 2.918.391 

USD 5,30 19.02.08 641.164 

RON 7,50 07.01.08 2.131.710 

RON 7,50 18.01.08 1.657.997 

RON 7,50 23.01.08 2.960.710 

561.804.587 

In the current period interest accruals are added on to 

corresponding balances. 

The maturity structure of time deposits as of December 

31, 2006 consists of the following; 

Interest December 31, 

Currency Rate (%) Maturity 2006 

TRY 14,00 - 22,30 04.01.2007 58.422.140 

TRY 21,50 08.01.2007 20.000.000 

TRY 21,50 15.01.2007 10.000.000 

TRY 21,50 22.01.2007 11.620.000 

TRY 18,00 23.01.2007 429.000 

TRY 21,55 29.01.2007 7.000.000 

EUR 4,23 23.11.2007 7.406.000 

EUR 3,60 09.01.2007 19.375.567 

EUR 4,00 01.02.2007 37.030.000 

EUR 4,00 01.03.2007 37.030.000 

EUR 3,50 02.01.2007 19.399.860 

EUR 3,50 04.01.2007 5.269.433 

USD 3,00 - 5,75 04.01.2007 257.810.761 

USD 4,50 05.01.2007 54.818.400 

USD 5,70 08.01.2007 28.112.000 

USD 6,00 22.01.2007 1.405.600 

USD 6,00 29.01.2007 702.800 

USD 6,00 05.02.2007 1.405.600 

USD 6,00 13.02.2007 2.108.400 

USD 6,00 20.02.2007 2.108.400 

USD 5,75 31.05.2007 22.489.600 

USD 6,10 04.06.2007 70.280.000 

USD 6,10 15.06.2007 49.196.000 

USD 6,68 21.06.2007 4.216.800 

USD 5,70 18.09.2007 5.762.960 

Interest Accrual 4.635.117 

738.034.438 

There is no repurchase agreement as of December 31, 

2007. 

Breakdown of repurchase agreements as of December 

31, 2006 is as follows: 

December 31, 

Interest Rate (%) Maturity 2006 

21,00 22.01.2007 1.007.337 

11,00 04.01.2007 48.029 

1.055.366



NOTE 5 – MARKETABLE SECURITIES 

Held for Trading Portfolio 



2007 2006 

Investment Funds 499.920 525.787 

The summary of fixed rate loans as of December 31, 2007 is as follows: 

Type of The Effective Weighted 2007 2007 

currency Average Rate of Interest Short Term Portion Long Term Portion December 31, 2007 

TRY (*) %0 15.515.360 - 15.515.360 

TRY %17,00 3.000.000 - 3.000.000 

USD %8,71 13.278.720 39.313.901 52.592.621 

JPY %2,50 3.057.763 2.751.530 5.809.293 

34.851.843 42.065.431 76.917.274 

(*) Interest free spot loans used for outstanding tax payments and similar payments as of December 31, 2007. 

The summary of floating rate loans as of December 31, 2007 is as follows: 



USD Libor + 0,972 258.816.629 1.146.269.214 1.405.085.843 

EUR Euribor + 0,219 170.205.229 480.228.774 650.434.003 

EUR Libor + 0,55 61.093.202 - 61.093.202 

JPY JPYLibor+0,215 744.859 111.317.043 112.061.902 

490.859.919 1.737.815.031 2.228.674.950 

The summary of fixed rate loans as of December 31, 2006 is as follows: 

NOTE 6 – BORROWINGS 


2007 2006 

Bank Loans 121.215.253 440.272.425 

Current Portion 

of Long Term Loans 404.496.509 100.590.644 

Total Short 

Term Borrowings 525.711.762 540.863.069 

Long Term Loans 1.779.880.462 1.522.284.347 

2.305.592.224 2.063.147.416 



TRY (*) %0 244.772 - 244.772 

USD %8,53 55.846.651 130.805.632 186.652.283 

JPY %2,50 3.501.640 6.676.782 10.178.422 

59.593.063 137.482.414 197.075.477 

(*) Interest free spot loans used for outstanding tax payments and similar payments as of December 31, 2006. 

84



The summary of floating rate loans as of December 31, 2006 is as follows: 



USD Libor + 1,09 370.495.152 673.378.525 1.043.873.677 

EUR Euribor + 0,24 110.722.872 579.485.017 690.207.889 

JPY JPYLibor + 0,215 51.982 131.938.391 131.990.373 

481.270.006 1.384.801.933 1.866.071.939 

Breakdown of the loan repayments with respect to maturity is as follows: 

85 



Within one year 525.711.762 540.863.069 

One to two years 639.648.562 265.521.314 

Two to three years 315.031.306 111.365.791 

Three to four years 283.745.200 107.388.487 

Four years or more 541.455.394 1.038.008.755 

2.305.592.224 2.063.147.416 

Type of FC 2007 Short 2007 Long December 31, December 31, 

currency Type Term Portion Term Portion 2007 2006 

Libor + 0,65 USD 51.980.507 17.963.293 69.943.800 70.475.023 

2,5 JPY 3.057.763 2.751.530 5.809.293 10.170.063 

60% portion 5,78 

40% portion Libor + 1 USD 1.714.511 3.181.545 4.896.056 7.791.513 

60% portion 6,64 

40% portion Libor + 0,8 USD 6.292.847 16.840.701 23.133.548 34.632.979 

60% portion 10,26 

40% portion Libor + 0,5 USD 5.271.363 19.291.654 24.563.017 33.406.544 

Libor + 0,20 USD 6.483.171 32.312.042 38.795.213 49.653.869 

Libor + 0,25 USD 1.328.518 1.306.214 2.634.732 6.093.964 

Libor + 1,05 EUR - - - 2.626.026 

Euribor + 0,2 EUR 10.525.597 84.113.164 94.638.761 96.524.431 

Euribor + 0,25 EUR 1.551.310 5.630.032 7.181.342 8.345.934 

Libor + 0,9 USD 4.660.448 45.091.327 49.751.775 53.708.039 

Euribor + 0,5 EUR 4.185.703 23.754.909 27.940.612 34.038.602 

Libor + 2,2 USD 38.814.894 187.219.913 226.034.807 281.120.000 

Libor + 0,55 EUR 61.093.202 - 61.093.202 - 

Libor + 0,55 USD 3.885.281 142.889.971 146.775.252 70.280.000 

Libor + 0,99 EUR - - - 92.575.000 

Libor + 0,75 USD 32.705.070 - 32.705.070 - 

Euribor + 0,75 EUR 136.103.636 - 136.103.636 146.268.500 

Libor + 2,94 USD - - - 63.890.909 

Euribor + 0,85 EUR 544.180 - 544.180 - 

370.198.001 582.346.295 952.544.296 1.061.601.396




Type of FC 2007 Short 2007 Long December 31, December 31, 

currency Type Term Portion Term Portion 2007 2006 

Previous Page Total 370.198.001 582.346.295 952.544.296 1.061.601.396 

Libor + 0,5 USD 1.556.509 56.954.715 58.511.224 - 

Libor + 0,4 USD 4.235.106 - 4.235.106 - 

JPYLibor+0,215 JPY 744.858 111.317.044 112.061.902 131.938.386 

Euribor + 0,215 EUR 6.921.023 253.490.509 260.411.532 277.223.858 

Libor + 0,3 USD 81.488.957 197.762.845 279.251.802 269.908.702 

Libor + 0,435 USD 3.432.933 116.124.400 119.557.333 - 

Euribor + 0,14 EUR 4.016.256 47.996.320 52.012.576 - 

Euribor + 0,125 EUR 1.260.471 6.773.761 8.034.232 - 

Euribor + 0,15 EUR 5.097.052 58.470.080 63.567.132 28.294.233 

Libor + 0,15 USD 526.463 6.875.906 7.402.369 8.896.944 

Spot Loans TRY 15.515.360 - 15.515.360 244.772 

17,00 TRY 3.000.000 - 3.000.000 - 

Libor + 0,95 USD 1.619.030 57.418.645 59.037.675 - 

Libor + 1,05 USD 3.941.868 137.408.493 141.350.361 - 

Libor + 1,40 USD 3.448.576 112.501.973 115.950.549 - 

Libor + 0,45 USD 1.132.554 34.439.476 35.572.030 - 

Libor + 0,54 USD 17.576.745 - 17.576.745 - 

Euribor + 0,65 EUR - - - 813.167 

5,84 USD - - - 46.384.800 

6,01 USD - - - 75.455.409 

5,81 USD - - - 9.886.623 

5,95 USD - - - 22.489.600 

6,04 USD - - - 23.715.147 

5,91 USD - - - 54.863.406 

Libor +1,2 USD - - - 35.140.000 

Interet Accruals (*) 16.290.973 

Total 525.711.762 1.779.880.462 2.305.592.224 2.063.147.416 

(*) In the current period interest accruals are added on to related balances. 

The carrying amount of these loans approximates their fair value. 

NOTE 7 – TRADE RECEIVABLES AND PAYABLES 

The breakdown of the trade receivables as of balance 

sheet date is as follows: 

Short Term December 31, December 31, 

Trade Receivables 2007 2006 

Trade receivables 126.901.906 179.393.350 

Notes receivables 675.718.648 594.521.598 

Discount on notes 

receivables (-) (9.792.687) (10.217.337) 

Deposits and 

guarantees given 151.403 572.622 

Other trade receivables 9.815.810 2.940.152 

Provision for doubtful 

receivables (-) (9.590.844) (12.080.278) 

793.204.236 755.130.107 

Movement of provision for short term doubtful receivables: 



Opening balance 12.080.278 11.397.240 

Provision for the period 635.641 683.038 

Provision released (3.125.075) - 

Closing balance 9.590.844 12.080.278 

86



Guarantees received for trade receivables: 

87 


Long Term December 31, December 31, 

Trade Receivables 2007 2006 

Trade receivables 7.458.364 9.884.904 

Deposits and 

guarantees given 165.300 151.438 

Discount on) receivables (-) (2.383.614) (3.244.038) 

Provision for 

doubtful receivables (1.730.064) (1.732.138) 

3.509.986 5.060.166 

For trade receivables, according to the market conditions 

and product types, a maturity without interest charge is 

identified for each customer. For the sales which are over 

due, according to the market conditions and product 

types, an interest charge is applied. 

For the majority of trade receivables, a collateral is received 

from banks. For the doubtful receivables without any 

collateral, first, administrative follow up procedures are 

applied, if it fails, legal follow up starts. 100% provision is 

provided for all receivables under legal follow up. 

As trade receivables consist of a large number of 

customers, the aggregate value of transactions concluded 

is spread amongst customers and there is no significant 

credit risk exposure. Therefore, the Group does not require 

any additional provisions additional to the ones already 

provided at the accompanying financial statements. 

As of balance sheet date, there is no significant overdue 

receivables included in the trade receivables. (2006: there 

is no significant overdue receivables). Collaterals were 

obtained for all of those receivables and all these receivables 

were collected at the subsequent month. Therefore, no 

provision was provided. 

Specific provision is provided by the Group for the full 

amount of all unsecured receivables under legal follow 

up. 


Trade Payables 2007 2006 

Trade payables 557.789.268 359.602.477 

Discount on 

trade payables (-) (6.043.783) (4.515.560) 

Deposits and 

guarantees received 9.587.648 9.883.741 

Other trade payables 14.645.363 5.969.235 

575.978.496 370.939.893 

Movement of provision for long term doubtful receivables: 

January 1, - January 1, - 



Provision released (2.074) - 



Carrying Amount Fair Value Carrying Amount Fair Value 

Letter of guarantees 1.256.697.571 1.256.697.571 951.047.986 951.047.986 

Cheques 2.705.168 2.705.168 - - 

Total 1.259.402.739 1.259.402.739 951.047.986 951.047.986 


Trade Payables 2007 2006 

Trade Payables - 68.484.560 

Discount on 

trade payables (-) - (5.366.581) 

Other trade 

payables - 17.570.000 

- 80.687.979 

TRY 14.558.750 portion of other short term trade payables 

arise from the purchase of ‹sdemir from Privatization 

Administration (31.12.2006; Other long term trade payables: 

TRY 17.570.000 payables to Privatization Administration). 

Short term and long term trade payables consist of 

borrowings obtained from various banks for raw material 

purchases. Amount of borrowings in short term payables 

is TRY 189.847.315 (USD 163.001.094 ) including the 

interest where the interest rates vary between % 5,87- 

6,23 % for USD. (As of 31 December 2006, borrowings 

amount in short term trade payables is TRY 130.226.764 

(USD 92.648.523) including the interest and borrowings 

amount in long term trade payables is TRY 68.484.560 

(USD 48.722.652) where the interest rates vary between 

5,13-6,27%). 

As of December 31, 2007, TRY 3.285.510 of the discount 

on short term trade payables ( December 31, 2006: TRY 

3.957.215) and no discount on long term trade payables 

(December 31, 2006: TRY 4.670.953) is calculated on 

borrowings obtained from banks. 

Depending on different purchasing options, annual interest 

rate for USD denominated purchases is 5,87-% 6,23 %. 

All purchases with a maturity are USD denominated.




NOTE 8 – FINANCE LEASE RECEIVABLES AND PAYABLES 

Minimum finance lease 

Present value of the 

minimum finance lease 

Financial Lease 

Payables December 31, 2007 December 31, 2006 December 31, 2007 December 31, 2006 

Within one year 260.166 - 194.946 - 

Between two and five years 238.625 - 216.372 - 

Minus: financial 

expenses of future years (87.473) - - - 

Present value 

of the finance lease 411.318 - 411.318 - 

There is no finance lease receivables for the periods January 1, – December 31, 2007 and December 31, 2006. 

NOTE 9 – DUE FROM/TO RELATED PARTIES 

The immediate parent and ultimate controlling party 

respectively of the Group is Ere¤li Demir ve Çelik Fab.T.A.fi. 

Transactions between the Company and its subsidiaries, 

which are related parties of the Company, have been 

eliminated on consolidation and are not disclosed in this 

note. 

The trade receivables from related parties arise mainly 

from the sale transactions. The receivables are unsecured 

in nature and bear no interest. 

The trade payables to related parties mainly arise from 

the purchase transactions. The payables bear no interest. 

Due from related 

parties (short term) 


2007 2006 

Borçelik Çelik San. 

Tic. A.fi. 67.799.853 10.870.311 

ArcelorMittal Amb 

Çel. San. ve Tic. A.fi. 64.359.886 41.293.304 

Personelden alacaklar 605.902 86.315 

Bolu Çimento Sanayi A.fi. 209.297 - 

Teknotes A.fi. (**) - 1.953.947 

Adana Çimento 

Sanayi T.A.fi. - 239.582 

Oysa Çimento Sanayi 

ve Ticaret A.fi. - 87.915 

Other 13.359 206.429 

132.988.297 54.737.803 

Due to related 

parties (short term) 


2007 2006 

Due to personnel 19.987.833 14.133.972 


Sanayi T.A.fi. 6.662.506 - 

Due to shareholders 1.404.074 1.685.562 

Oyak Pazarlama 

Hizmet ve Turizm A.fi. 1.350.909 1.539.980 

Oyak ‹nflaat A.fi. - 1.114.319 

Oyak Savunma ve 

Güvenlik Sistemleri A.fi. 2.062.497 - 

Axa Oyak Sigorta A.fi. 2.892.396 81.337 

Omsan Lojistik A.fi. 488.777 150.970 

Other 238.273 91.175 

35.087.265 18.797.315 

(**) Teknotes A.fi. was sold at December 31, 2007, therefore 

it is not classified as a related party as of December 31, 

2007. 

There is no long term payables or receivables with related 

parties. 



Major sales to 

related parties 


Sanayi T.A.fi. 4.085.258 1.894.776 

ArcelorMittal Amb. 

Çel. San. ve Tic. A.fi. 140.933.053 92.761.552 

Oysa Çimento Sanayi 

ve Ticaret A.fi.(*) - 1.206.931 

Bolu Çimento 

Sanayi A.fi. 1.791.853 - 

Oytafl ‹ç ve 

D›fl Ticaret A.fi. 2.412.640 - 

Borçelik Çelik San. 

Tic. A.fi. 173.146.926 220.588.210 

Teknotes A.fi.(**) - 3.399.463 

Other 108.228 1.935.210 

322.477.958 321.786.142 

88



Major purchases 

from related parties 

Axa Oyak Sigorta A.fi. 15.019.643 4.701.783 

Omsan Lojistik A.fi. 10.172.175 1.043.194 

Oyak Pazarlama 

Hizmet ve Turizm A.fi. 12.846.654 5.200.687 

Oyak Savunma ve 

Güvenlik Sistemleri A.fi. 4.712.511 1.163.828 

Oyak Teknoloji Biliflim 

ve Kart Hizmetleri 1.419.509 - 

Teknotes A.fi. (**) - 4.533.825 

Other 1.776.621 2.817.323 

45.947.113 19.460.640 

(*) Oysa Çimento Sanayi ve Ticaret A.fi. was sold at March 

22, 2007, therefore it is not classified as a related party 

as of December 31, 2007. 

(**) Teknotes A.fi. was sold at December 31, 2007, 

therefore it is not classified as a related party as of 

December 31, 2007. 


2007 2006 

Deposits hold by related parties 

Oyak Bank A.fi. (*) - 196.990.057 

Oyak Anker Bank GmbH 8.629.482 40.739.220 

8.629.482 237.729.277 

Disbursement by related parties 

Oyak Bank A.fi. (*) - 244.772 

(*) Oyakbank A.fi. is not classified as a related party as of 

December 31, 2007. 

Salaries, bonuses and other benefits received by the key 

management of the Group is TRY 12.089.021 for the 

twelve months ended in 2007 (December 31, 2006: TRY 

6.534.358). 

NOTE 10 – OTHER RECEIVABLES AND PAYABLES 

Other Short Term Assets 


2007 2006 

VAT receivable 14.629.127 18.697.775 

Other doubtful receivables 6.672.963 7.074.383 

Provision for other 

doubtful receivables (-) (6.672.963) (7.074.383) 

Receivable from Privatization 

Administration 39.180.929 40.102.865 

Other 2.219.374 1.535.010 

56.029.430 60.335.650 

89 


January 1, - 

December 31, 2007 

January 1, - 


Movement of provision for other doubtful receivables 


Provision for the period 56.438 507.771 

Provision released (-) (457.858) (162.090) 


Other Long Term Assets 


2007 2006 

Municipality of 

Ere¤li participation fee 153.568 531.270 

Other Short Term Liabilities 


2007 2006 

Deductions for association membership 

and consumers coop. liabilities 1.408.375 973.968 

Blocked employment termination benefit 1.232.310 1.525.943 

Other liabilities 4.114.907 2.658.800 

6.755.592 5.158.711 

Other Long Term Liabilities 

In the current period there is no other long term payables 

(2006: None). 

NOTE 11 – BIOLOGICAL ASSETS 



There are no biological assets as of December 31, 2007 

and December 31, 2006. 

NOTE 12 – INVENTORIES 


2007 2006 

Raw materials 723.054.487 812.629.970 

Work in process 366.084.962 149.979.506 

Finished goods 296.080.839 382.417.719 

Trade goods 2.314.640 1.767.815 

Other inventories 52.473.479 41.834.348 

Allowance for diminution in 

value of inventories (-) (7.321.846) (10.656.544) 

Order advances 

given 3.505.973 4.291.328 

1.436.192.534 1.382.264.142



Movement of allowance for diminution in value of 

inventories 


Provision for the period 3.082.094 1.011.003 

Provision released (-) (6.416.792) (6.984.701) 


The value of final and semi-final product inventories includes 

TRY 31.519.859 depreciation and amortization expense 

as of December 31, 2007 (December 31, 2006:55.248.823 

TRY). 

NOTE 13 – RECEIVABLES FROM ONGOING 

CONSTRUCTION CONTRACTS 

None. 

NOTE 14 – DEFERRED TAX ASSETS AND LIABILITIES 

Deferred Tax 


January 1, - 


January 1, - 


The Group recognizes deferred tax assets and liabilities 

based upon temporary differences arising between its 

financial statements in accordance with the CMB’s 

Communique on Accounting Standards and its statutory 

tax financial statements. These differences usually result 

in the recognition of revenue and expenses in different 

reporting periods for the CMB regulations and tax purposes 

and are set out below. 

Tax rate used in calculation of deferred tax assets and 

liabilities (excluding land) is 20%. (December 2006: 20%). 

Deferred tax is calculated with 5% tax rate for temporary 

timing differences occurring from land (2006:5%). 

Timing differences occur between the years in which 

certain items of income and expense are recorded for 

accounting and for tax purposes. Timing differences are 

calculated on differences between the values of tangible 

and intangible fixed assets, inventories and prepaid 

expenses in the legal books and in the inflation adjusted 

financial statements and on the discount of receivables, 

retirement pay provision and investment incentives. 


2007 2006 

Deferred tax assets: 

Discount on notes receivable (641.051) (1.366.854) 

Inventories (2.010.483) (1.985.931) 

Unused vacation provision (9.797.126) 

Tangible and intangible 

(6.913.871) 

fixed assets (128.572.127) (122.168.117) 

Provision for employee 

termination benefit 

(21.531.854) (17.690.464) 

Investment incentive (2.468.868) (10.090.191) 

Provision for legal cases 

Unused taxation 

(3.344.974) - 

disadvantage (3.621.133) - 

The correction of the credits 

according to IRR method (1.774.167) - 

Other (5.049.519) (2.149.076) 

(178.811.302) (162.364.504) 

Deferred tax liabilities: 

Discount on notes payable 577.837 868.500 

Inventories 143.618 5.938 

Tangible and intangible 

fixed assets 17.052.940 14.617.749 

Land 776.938 - 

The correction of the credits 

according to IRR method 16.078.887 - 

Other 947.594 - 

35.577.814 15.492.187 

(143.233.488) (146.872.317) 

As end of December 31, 2007, Group has TRY 18.105.665 

(2006 : TRY 0) tax deductible accumulated profit carried 

forward and TRY 3.621.133 (2006:TRY 0) is calculated 

as deferred tax asset. 

Presentation of December 31, December 31, 

deferred tax 2007 2006 

(asset) / liabilities 

Deferred tax 

(assets) (178.811.302) (162.364.504) 

Deferred tax 

liabilities 35.577.814 15.492.187 

(143.233.488) (146.872.317) 


Deferred Tax (asset) / December 31, December 31, 

liability movements 2007 2006 

Opening balance (146.872.317) (100.269.711) 

Deferred tax expense 

/ (income) 3.638.829 (45.814.373) 

Effects of 

Revaluation Fund - (788.233) 

Closing balance (143.233.488) (146.872.317) 

90



NOTE 15 – OTHER CURRENT/LONG TERM ASSETS 

AND CURRENT/LONG TERM LIABILITIES 

Other Current Assets 


2007 2006 

Prepaid 

expenses 8.855.060 9.452.382 

Income accruals 1.349.241 991.027 

VAT carried forward 104.473.453 54.600.282 

VAT deductible 81.889.995 80.743.966 

Other VAT 29.948.698 38.918.348 

Prepaid taxes 

and funds 173.547 760.582 

Business advances 831.621 12.099 

Other 408.030 184.737 

227.929.645 185.663.423 

Other Non-Current / Long Term Assets 


2007 2006 

Prepaid expenses - 863 

NOTE 16 – FINANCIAL ASSETS 

91 


Other Short Term Current Payables 


2007 2006 

Taxes and 

dues payable 21.330.687 17.715.785 

Social security 

premiums payable 17.745.319 28.626.635 

Deferred income 1.066.640 582.413 

Overdue and rescheduled 

taxes and other liabilities 7.061.600 15.822.969 

VAT calculated 54.303.653 53.012.450 

Other VAT 464.724 27.560 

Other payables 5.260.442 2.134.644 

107.233.065 117.922.456 

Other Long Term Current Payables 


2007 2006 

Municipality of 

Ere¤li participation fee 165.261 531.266 

Expense Relating to 

Future Periods 636.479 - 

801.740 531.266 

The Group's subsidiaries and shares as of December 31, 2007 and December 31, 2006 are as follows: 


Company Interest % 2007 Interest % 2006 

Borçelik Çelik San. Tic. A.fi. 8,92 48.415.165 8,92 48.415.165 

Teknotes A.fi. - -




2007 2006 

Total assets 147.525.449 140.161.662 

Total liabilities (122.783.673) (117.125.518) 

Net assets 24.741.776 23.036.144 

Group’s share in 

net assets 6.185.444 5.759.036 



Income 203.460.178 172.040.990 

Net profit for the period 6.238.375 797.896 

Group’s share in 

net profit for the period 1.559.594 199.474 

NOTE 17 – POSITIVE / (NEGATIVE) GOODWILL 

None. 

NOTE 18 – INVESTMENT PROPERTY 


Financial information of the Group’s associate consolidated by the equity method is as follows: 



Cost 

As of 1 January 30.870.315 30.870.315 

Additions - - 

As of 31 December 30.870.315 30.870.315 

NOTE 19 – PROPERTY, PLANT AND EQUIPMENT – NET 

Depreciation 



As of January 1, - - 

Period charge - - 

As of December 31, - - 

Book Value 30.870.315 30.870.315 

As of December 31, 200, fair value of the Group’s 

investment property at November 2007 is TRY 64.853.500 

(USD 54.453.650) (December 31, 2006:USD 46.558.000). 

Fair value of investment property has been assessed in 

January 2007 by an independent expertise firm that is 

independent from the Group. Çelen Kurumsal De¤erleme 

ve Dan›flmanl›k A.fi. is an independent expertise company 

authorized by the CMB. Valuation is determined by using 

the market transaction values of similar properties as 

reference. 

In December 2007, the Group obtained rent income 

amounted to TRY 68.602 (2006:TRY 25.558) from 

investment properties leased under operational leases. 

Land Buildings Machinery and Vehicles Furniture and Other Construction in Total 

Land Improvements Equipment Fixtures Progress 

Cost 

As of 1 January 2007 opening balance 89.005.172 1.155.998.158 2.352.606.997 7.767.113.826 360.530.679 141.648.289 15.217.806 1.558.023.446 13.440.144.373 

Translation difference (23.420) - (2.066.451) (534.019) (11.926) (36.060) - (24.181) (2.696.057) 

Additions 164.630 14.198.018 11.322.682 47.736.759 6.175.232 7.580.999 573.252 1.296.508.502 1.384.260.074 

Disposals - (2.515.910) (13.530.830) (66.060.614) (5.312.356) (1.110.795) (284.096) - (88.814.601) 

Transfers - 10.865.703 52.677.009 571.894.872 47.955.950 20.393.612 52.024 (714.848.748) (11.009.578) 

Classification - (509.425) (261.726.090) 262.243.587 - (8.072) - - - 

As of 31 December 2007 closing balance 89.146.382 1.178.036.544 2.139.283.317 8.582.394.411 409.337.579 168.467.973 15.558.986 2.139.659.019 14.721.884.211 

Accumulated Depreciation 

As of 1 January 2007 - (1.001.223.051) (1.836.509.829) (5.135.785.313) (301.944.439) (111.174.931) (13.196.210) - (8.399.833.773) 

Translation difference - - 1.862.561 284.646 8.369 15.690 - - 2.171.266 

Charge for the period - (12.210.781) (73.370.344) (258.008.398) (13.898.275) (10.274.842) (572.080) - (368.334.720) 

Disposals - 2.468.968 11.611.727 59.087.579 4.352.470 1.065.215 216.528 - 78.802.487 

Classification - 2.120 238.054.509 (238.056.697) - 68 - - - 

As of 31 December 2007 - (1.010.962.744) (1.658.351.376) (5.572.478.183) (311.481.875) (120.368.800) (13.551.762) - (8.687.194.740) 

Advances received 57.856.871 

Net book value as of 

31 December 2007 89.146.382 167.073.800 480.931.941 3.009.916.228 97.855.704 48.099.173 2.007.224 2.139.659.019 6.092.546.342 

As of December 31, 2007, additions to property, plant and equipment include TRY 3.572.432 (December 31, 2006: 

TRY 3.781.947) capitalized amortization expenses. In addition, the capitalized finance income is TRY 83.946.133 

( December 31, 2006: finance expense of TRY 71.650.100). 

92



Land Land Buildings Machinery Vehicles Furniture and Other Construction in 

Improvements and Equipment Fixtures Progress Total 

Cost 

As of January 1, 2006 opening balance 89.115.730 1.111.401.752 2.330.835.699 7.502.963.962 347.338.858 165.787.350 14.494.583 788.182.114 12.350.120.048 

Translation difference 61.938 - 953.072 1.770.234 22.114 104.297 - 43.002 2.954.657 

Additions 37.802 138.398 1.597.103 1.472.732 156.935 1.034.672 576.066 1.167.867.548 1.172.881.256 

Disposals (210.298) (235.219) (1.339.981) (38.763.763) (12.023.881) (28.342.006) (37.213) - (80.952.361) 

Transfers - 44.693.227 20.561.104 298.592.715 24.855.945 2.891.532 184.370 (398.069.218) (6.290.325) 

Romania Expert Work 

As of December 31, 2006 

- - - 1.077.946 180.708 172.444 - - 1.431.098 

closing balance 89.005.172 1.155.998.158 2.352.606.997 7.767.113.826 360.530.679 141.648.289 15.217.806 1.558.023.446 13.440.144.373 


As of January 1, 2006 opening balance - (990.911.057) (1.764.531.228) (4.922.218.740) (306.153.322) (134.542.262) (12.083.208) - (8.130.439.817) 

Translation difference - - (355.977) (985.802) 11.275 (30.543) - - (1.361.047) 

Charge for the period - (10.540.154) (73.082.699) (249.914.662) (7.386.928) (4.822.459) (1.148.748) - (346.895.650) 

Disposals - 228.160 693.651 37.485.755 11.746.392 28.248.785 35.746 - 78.438.489 

Romania Expertise Adjustment - - 766.424 (151.864) (161.856) (28.452) - - 424.252 

December 31, 2006 closing 

As of 31 December 2006 - (1.001.223.051) (1.836.509.829) (5.135.785.313) (301.944.439) (111.174.931) (13.196.210) - (8.399.833.773) 

Advances Received 138.670.683 

Net Book Value As of December 31, 

2006 closing balance 89.005.172 154.775.107 516.097.168 2.631.328.513 58.586.240 30.473.358 2.021.596 1.558.023.446 5.178.981.283 

NOTE 20 – INTANGIBLE ASSETS – NET 

Exploration Costs and Other 

Other Assets with Intangible 

Rights Special Useful Life Assets Total 

Cost 

Opening balance as of January 1, 2007 31.782.061 61.593.886 2.385.137 95.761.084 

Additions 670.103 372.933 342.619 1.385.655 

Translation difference 11.009.578 - - 11.009.578 

Closing balance as of 43.461.742 61.966.819 2.727.756 108.156.317 



Opening balance as of January 1, 2007 (19.639.046) (26.668.353) (1.216.179) (47.523.578) 

Charge for the period (4.192.716) (2.608.997) (682.888) (7.484.601) 

Closing balance as of December 31, 2007 (23.831.762) (29.277.350) (1.899.067) (55.008.179) 

Net Book Value as of December 31, 2007 19.629.980 32.689.469 828.689 53.148.138 

Exploration Costs and Other 

Other Assets with Intangible 

Rights Special Useful Life Assets Total 

Cost 

Opening balance as of January 1, 2006 25.246.414 61.593.886 1.997.732 88.838.032 

Additions 468.898 - 149.745 618.643 

Translation difference 14.084 - - 14.084 

Transfers 6.052.665 - 237.660 6.290.325 

Closing balance as of December 31, 2006 31.782.061 61.593.886 2.385.137 95.761.084 


Opening balance as of January 1, 2006 (17.393.136) (24.009.253) (675.627) (42.078.016) 

Charge for the period (2.245.727) (2.659.100) (540.552) (5.445.379) 

Translation difference (183) - - (183) 

Closing balance as of December 31, 2006 (19.639.046) (26.668.353) (1.216.179) (47.523.578) 

Net Book Value as of December 31, 2006 12.143.015 34.925.533 1.168.958 48.237.506 

93 

(Amounts are expressed as New Turkish Lira (TRY) unless otherwise stated.)



NOTE 21 – ADVANCES RECEIVED 


2007 2006 

Short term advances 

received 101.644.922 195.351.765 

NOTE 22 – RETIREMENT BENEFITS 

There are no retirement benefits and related assets as of 

December 31, 2007 and December 31, 2006. 

NOTE 23 – PROVISIONS 

a) Short Term Provisions 


2007 2006 

Provision for corporate tax114.648.337 121.468.415 

Prepaid taxes 

and funds (-) (91.257.104) (84.787.156) 

Penalty provision for obligatory 

employment shortage of 

disabled people, ex-convicts, and 

terror victims 56.718.022 43.322.264 

Provision for the 

increase in social - 1.384.221 

aid Provision 

for tax risks 43.371.778 40.630.723 

Unused vacation 

provision 48.985.632 34.797.008 

Provision for legal cases (Note: 31)16.724.870 20.540.703 

189.191.535 177.356.178 

Movements of current provisions: 


Movement of provision for obligatory employment shortage 

of disabled, ex-convicts and terror victims is as follows: 




Increase 17.956.090 14.680.147 

during the period 

Provision released (4.560.332) (1.430.873) 


Movement of provision for social aid is as follows: 




Increase during the period - 125.686 

Provision released (1.384.221) - 

Closing balance - 1.384.221 

Movement of provision for tax risks is as follows: 

1 January - 1 January - 

31 December 2007 31 December2006 


Increase during the period 3.167.479 5.105.936 

Payment in cash - (7.821.188) 

Provision released (426.424) - 


Movement of provision for legal cases is as follows: 




Increase during the period 4.633.008 4.748.056 

Payment in cash (968.534) (231.119) 

Provision released (7.480.307) (587.318) 


b) Long Term Provisions 


2007 2006 

Provisions for employee 

termination benefits 107.716.254 88.452.318 

Under Turkish Labor Law, the Company is required to 

pay employment termination benefits to each employee 

who has qualified for such payment. Also, employees are 

required to be paid their provision for employment 

termination benefits who are entitled to receive provisions 

for employee termination benefits in accordance with the 

effective laws: No: 2422 on 6 March, 1981 and No: 4447 

on August 25, 1999 of the Social Insurance Act No: 506 

and the requirements of the amended Article 60 of the 

related Act. 

The maximum amount of monthly TRY 2.030,19 which 

is effective in December 31, 2007 has been taken into 

consideration in calculation of provision from employment 

termination benefits as of December 31, 2007 (December 

31, 2006:TRY 1.857,44) 

The liability is not funded, as there is no funding 

requirement. 

The provision has been calculated by estimating the 

present value of the future probable obligation of the 

Company arising from the retirement of employees. IAS 

19 (Employee Benefits) requires actuarial valuation methods 

to be developed to estimate the enterprise’s obligation 

under defined benefit plans. Accordingly, the following 

actuarial assumptions were used in the calculation of the 

total liability: 

94



The principal assumption is that the maximum liability for 

each year of service will increase parallel with the inflation. 

Thus, the discount rate applied represents the expected 

real rate after adjusting for the anticipated effects of future 

inflation. Consequently, in the accompanying financial 

statements as at December 31, 2007, the provision has 

been calculated by estimating the present value of the 

future probable obligation of the Company arising from 

the retirement of the employees. The provisions at the 

respective balance sheet dates have been calculated 

assuming an annual inflation rate of 5% and a discount 

rate of 11%, resulting in a real discount rate of approximately 

5,71% (December 31, 2006: real discount rate of 5,71%). 

The anticipated rate of forfeitures is considered. As the 

maximum liability is revised semi annually, the maximum 

amount of TRY 2.087,92 effective as of July 1, 2007 has 

been taken into consideration in calculation of provision 

from employment termination benefits (December 31, 

2006: TRY 1.960,69 effective as of January 1, 2007). 

Movement of provision for employee termination benefit 

is as follows: 



Provision at the 

beginning of the period 88.452.318 67.406.662 

Service cost 22.333.737 25.021.828 

Interest cost 5.014.037 3.698.081 

Provision paid 

Provision as of 

(8.083.838) (7.674.253) 

the period end 107.716.254 88.452.318 

95 


NOTE 25 – CAPITAL/TREASURY SHARES 

NOTE 24 – MINORITY INTERESTS GAIN / (LOSS) OF 

MINORITY SHARES 

a) Minority Interests 



Balance as of 

January 1, 132.026.389 104.202.992 

Changes in minority interest 

in the period except net 

profit / (loss) for the period 1.988.462 458.998 

Minority interest in net 

profit / (loss) for the period 24.799.837 27.364.399 

Balance as 

of period end 158.814.688 132.026.389 

b) Minority Interest’s Share on Period (Profit) / Loss 



Minority Interest’s Share on 

Period (Profit) / Loss 24.799.837 27.364.399 

As of December 31, 2007 and December 31, 2006 the share capital is as follows: 


Shareholders (%) 2007 (%) 2006 

Ataer Holding A.fi. 49,29 415.976.372 49,29 240.448.787 

Other 47,63402.037.466 47,63 

232.391.615 

Erdemir’s Own Shares 3,08 26.004.662 3,08 15.031.598 

Historical Capital 844.018.500 487.872.000 

Effect of inflation 731.967.735 731.967.735 

Restated Capital 1.575.986.235 1.219.839.735 

Less: Treasury Shares (26.004.662) (15.031.598) 

Less: Treasury Shares – Effect of Inflation (8.395.312) (8.395.312) 

Adjusted Capital 1.541.586.261 1.196.412.825




NOTE 26 – CAPITAL RESERVES 


2007 2006 

Premium in 

excess of par 112.766.677 112.766.677 

Revaluation 

reserve 17.979.124 17.514.373 

Inflation adjustment of shareholders’ 

equity items 2.143.602.252 2.143.168.781 

2.274.348.053 2.273.449.831 

NOTE 27 – PROFIT RESERVES 


2007 2006 

Legal reserves 151.524.628 114.745.182 

Statutory reserves 405.033.456 301.039.045 

Extraordinary reserves 249.696.392 249.696.392 

Special reserves 78.640 78.640 

Translation 

differences (2.025.419) - 

804.307.697 665.559.259 

NOTE 29 – FOREIGN CURRENCY POSITION 

According to the Turkish Commercial Code, legal reserves 

consist of first and second legal reserves. The first legal 

reserves appropriated out of historical statutory profit at 

the rate of 5% per annum, until the total reserve reaches 

20% of the historical paid in share capital. The second 

legal reserve is appropriated after the first legal reserves 

and dividends at the rate of 10% per annum of all cash 

distributions. 

NOTE 28 – RETAINED EARNINGS 


2007 2006 

Retained earnings 1.428.345.749 1.302.518.139 

USD EUR JPY GBP OTHER 

FOREIGN 

CURRENCIES 


Cash and cash equivalents 134.076.120 258.464.062 30.950 11.116 - 392.582.248 

Trade receivables 792.067.138 10.397.833 3.013 - - 802.467.984 

Other assets 29.847.302 10.659.895 - 27.398 91.295 40.625.890 

Total Foreign Currency Assets 955.990.560 279.521.790 33.963 38.514 91.295 1.235.676.122 

Borrowings 1.457.678.464 711.527.205 117.871.195 - - 2.287.076.864 

Trade payables 330.806.416 102.543.819 18.321.217 401.612 882.022 452.955.086 

Other payables 5.982.043 1.430.352 - - - 7.412.395 

Advances received 155.290 - - - - 155.290 

Total Foreign Currency Liabilities 1.794.622.213 815.501.376 136.192.412 401.612 882.022 2.747.599.635 

Foreign Currency Position - Net (838.631.653) (535.979.586) (136.158.449) (363.098) (790.727) (1.511.923.513) 


Cash and cash equivalents 507.555.020 132.604.372 145.090 3.389 37 640.307.908 

Trade receivables 659.436.069 3.244.848 50.041 - - 662.730.958 

Other assets 24.968.003 920.468 - 51.061 325.594 26.265.126 

Total Foreign Currency Assets 1.191.959.092 136.769.688 195.131 54.450 325.631 1.329.303.992 

Borrowings 1.230.525.960 690.207.889 142.168.795 - - 2.062.902.644 

Trade payables 348.296.173 46.655.497 1.466.703 34.252 563.512 397.016.137 

Other payables 2.667.376 - - - - 2.667.376 

Advances received 34.681.475 - - - - 34.681.475 

Total Foreign Currency Liabilities 1.616.170.984 736.863.386 143.635.498 34.252 563.512 2.497.267.632 

Foreign Currency Position - Net (424.211.892) (600.093.698) (143.440.367) 20.198 (237.881) (1.167.963.640) 

96



NOTE 30 – GOVERNMENT GRANTS AND INCENTIVES 

None. 

NOTE 31 – COMMITMENTS AND CONTINGENCIES 


2007 2006 

Lawsuits filed by the Group 

TRY 27.884.340 19.743.045 

USD 66.669.457 81.348.881 

94.553.797 101.091.926 

Reserves for lawsuits filed by the Group 

TRY 8.457.940 8.952.145 

USD 7.296.286 9.695.298 

15.754.226 18.647.443 

Lawsuits filed against the Group 

TRY 61.410.576 50.833.981 

USD 4.160.834 6.111.437 

65.571.410 56.945.418 

Reserves for lawsuits filed against the Group 

TRY 12.097.075 15.163.718 

USD 4.627.795 5.376.985 

16.724.870 20.540.703 

As of 31 December 2007 and December 31, 2006, USD 

25.000.000 (TRY 29.117.500) of lawsuits filed by the 

Group is against the insurance company for the 

compensation of losses from a crane broken due to a 

ship accident in 2005, for which the value of the crane 

was recognized over scrap value in the financial statements. 

Again for the same accident, ship owner, captain and 

indemnity insurance company of the ship is filed by the 

Group and the amount of this lawsuit is USD 25.000.000 

(TRY 29.117.500). 

As of 31 December 2007 and December 31, 2006, TRY 

35.673.249 worth of lawsuits filed against the Group is 

for the purpose of the cancellation of the Company’s 2005 

general meeting and cancellation of profit distribution of 

2005 filed by the Privatization Administration. 

Guarantees received by the Group are as follows: 


2007 2006 

Letter of guarantees 

received 1.297.992.522 1.139.124.711 

Treasury bills 

and bonds - 15.004 

Cash 1.166.641 1.517.922 

1.299.159.163 1.140.657.637 

97 


Guarantees given by the Group is as follows: 


2007 2006 

Letter of guarantees 

given 40.328.467 73.160.987 

NOTE 32 – BUSINESS COMBINATIONS 

There is no business combination as of December 31, 

2007 and 31 December 2006. 

NOTE 33 – SEGMENTAL INFORMATION 

The Company operates predominantly in one industry 

segment, basically production, marketing and distribution 

of flat iron and steel. As the Company is in this industry 

segment, the accompanying financial statements do not 

include separate segmental financial information. All material 

assets, production facilities and distribution channels are 

located in Turkey. 

NOTE 34 – SUBSEQUENT EVENTS 

None. 

NOTE 35 – DISCONTINUED OPERATIONS 

There is no discontinued operation as of December 31, 

2007 and December 31, 2006. 

NOTE 36 – OPERATING INCOME 



Sales Revenue 

Domestic sales 4.702.056.035 3.757.548.860 

Export sales 762.643.475 1.081.772.058 

Other revenues 87.863.446 96.536.371 

Sales returns (-) (11.909.475) (5.723.945) 

Sales discounts (-) (86.520.164) (22.301.329) 

Other discounts (-) (629.306) (5.565.609) 

5.453.504.011 4.902.266.406 

Cost of Sales (4.433.155.312) (3.897.165.868) 

Gross Profit 1.020.348.699 1.005.100.538 

Breakdown of cost of sales for the periods January 1, – 

December 31, 2007 and January 1, – December 31, 2006 




Personnel expense (691.217.333) (606.017.233) 

Material usage (2.837.175.734) (2.322.486.983) 

Depreciation 

expense (337.560.173) (292.207.288) 

Other (567.202.072) (676.454.364) 

(4.433.155.312) (3.897.165.868)



NOTE 37 – OPERATING EXPENSES 



31 December 2007 31 December 2006 

Research and development 

expenses (-) (2.878.153) (3.970.567) 

Marketing, selling and 

distribution expenses (-) (60.088.735) (57.331.711) 

General administrative 

expenses (-) (154.941.933) (129.597.165) 

(217.908.821) (190.899.443) 

Breakdown of research and development expenses for 

the periods 1 January – 31 December 2007 and 1 January 

– 31 December 2006 is as follows: 




Depreciation 

expense (3.716) (362.520) 

Other (1.687.800) (1.456.221) 

(2.878.153) (3.970.567) 

Breakdown of marketing, selling and distribution expenses 

for the periods January 1, – December 31, 2007 and 

January 1, – December 31, 2006 is as follows: 




Depreciation 

expense (448.028) (262.023) 

Other (50.088.732) (48.111.186) 

(60.088.735) (57.331.711) 

Breakdown of general administration expenses for the 

periods January 1, – December 31, 2007 and January 1, 

– December 31, 2006 is as follows: 




Depreciation 

expense (2.715.109) (3.678.703) 

Other (68.600.731) (57.463.531) 

(154.941.933) (129.597.165) 

NOTE 38 – OTHER INCOME/EXPENSES AND PROFIT 

/ LOSSES 



Other income 

and profit 

Foreign exchange gains 5.873.715 - 

Interest income 

Profit on sale of marketable 

93.216.285 94.690.784 

securities 5.782 1.076.287 

Discounting income 

Provisions 

12.354.879 24.826.107 

released 18.404.825 10.232.588 

Income from scrap sold 4.315.126 3.194.885 

Income from scrap separator 30.979.378 23.172.359 

Sales of coal imported 

Income of the 

- 4.872.421 

returned material 1.400.167 2.780.564 

Service income 3.727.418 5.044.406 

Maintenance and repair income 5.150.273 7.709.482 

Fixed asset sales income 3.562.683 4.517.720 

Income from inventory differences 3.157.269 2.139.352 

Insurance income 2.559.930 1.911.014 

Electricity and telephone income1.389.126 1.508.949 

Dispatch income 2.663.470 2.323.283 

Rent income 784.587 942.372 

Income from delay penalties 9.215.718 4.254.874 

Other income and profits 23.049.922 13.128.875 

221.810.553 208.326.322 



Other expense and losses (-) 

Foreign exchange losses (-) - (13.637.115) 

Discounting expenses (-) (14.911.328) (22.599.147) 

Commission expenses (-) (771.945) (472.297) 

Provision expenses (-) (26.448.656) (25.850.634) 

Cost of services (-) (1.341.494) (2.247.220) 

Lawsuit compensations (-) (12.415.673) (6.434.817) 

Legal claim provision expense (-) (4.633.008) (4.748.056) 

Demurrage costs (-) (9.851.846) (9.756.267) 

Cost of imported 

coal sold (-) - (5.197.154) 

Provision for diminution in value 

of equity investments (-) (5.804.073) - 

Loss on sale of 

fixed assets (-) (4.866.003) (200.289) 

Donations to various 

institutions (-) (335.799) (2.195.471) 

Site maintenance costs (-) (8.430.105) (7.174.121) 

Other expenses (-) (16.160.582) (26.521.352) 

(105.970.512) (127.033.940) 

98



NOTE 39 – FINANCE EXPENSES 

99 



Interest expense of loans (95.735.636) (77.034.446) 

Foreign exchange 

difference of loans (31.380) (30.575.682) 

(95.767.016) (107.610.128) 

Total finance expense for the period is TRY 56.331.154 

(January 1, – December 31, 2006: TRY 224.411.288). 

TRY 95.767.016 of the total finance expense was 

recognized directly to profit and loss (January 1, – 

December 31, 2006: TRY 107.610.128). The amount 

equal to (TRY 36.276.978) (income) was capitalized 

(January 1, – December 31, 2006: TRY 118.198.806) and 

(TRY 3.158.884) (income) is written on the inventories 

(January 1, – December 31, 2006: (TRY 1.397.646 TRY) 

(income). 

NOTE 40 – NET MONETARY GAIN / (LOSS) 

The CMB’s resolution numbered 11/367 and dated 17 

March 2005 declares that companies operating in Turkey 

which prepare their financial statements in accordance 

with the CMB’s Accounting Standards, effective January 

1, 2005, will not be subject to the application of inflation 

accounting. Consequently, no monetary gain or loss is 

presented in the accompanying financial statements. 

NOTE 41 – TAXATION 



2007 2006 

Corporate Tax Payable: 

Current corporate tax 

provision (Note 23) 114.648.337 121.468.415 

Prepaid taxes and 

funds (Note 23) (91.257.104) (84.787.156) 

23.391.233 36.681.259 



Taxation: 

Current corporate 

tax expense 114.648.337 121.468.415 

Deferred tax 

(benefit) / charge 3.638.829 (45.814.373) 

118.287.166 75.654.042 

Corporate Tax: 

The Group is subject to Turkish corporation taxes. Provision 

is made in the accompanying financial statements for the 

estimated charge based on the Group’s results for the 

year. 

Corporation tax is applied on taxable corporate income, 

which is calculated from the statutory accounting profit 

by adding back non-deductible expenses, and by 

deducting dividends received from resident companies, 

other exempt income and investment incentives utilized. 

Effective corporate tax rate for the first half of 2007 is 20% 

(December 31, 2006: 20%). TRY 127.936.167 is the total 

amount of the corporate tax paid by the Group during the 

first nine months of the year 2007 (December 31, 2006: 

TRY 122.602.754). 

In Turkey, advance tax returns are filed on a quarterly 

basis. The advance corporate income tax rate in the first 

nine month of 2007 is 20% (December 31, 2006: 20%). 

Losses can be carried forward to offset against future 

taxable income for up to 5 years. Losses cannot be carried 

back to offset against profits from previous periods. 

In Turkey, there is no procedure for a final and definitive 

agreement on tax assessments. Companies file their tax 

returns between 1-25 April following the closing of the 

accounting year to which they relate. Tax authorities may, 

however, examine such returns and the underlying 

accounting records and may revise assessments within 

five years. 

Income Withholding Tax: 

In addition to corporate taxes, companies should also 

calculate income withholding taxes and funds surcharge 

on any dividends distributed, except for resident companies 

in Turkey receiving dividends from resident companies in 

Turkey and Turkish branches of foreign companies. The 

rate of income withholding tax is 10% starting from 24 

April 2003. This rate was changed to 15% as of 23 July 

2006. Undistributed dividends incorporated in share capital 

are not subject to income withholding taxes. 19,8% 

withholding tax must be applied to investment allowances 

relating to investment incentive certificates obtained prior 

to 24 April 2003. Subsequent to this date, companies 

can deduct 40% of the investment disbursements which 

are directly related to production facilities of the company 

and are within the scope of the investment incentive 

certificate. The investments without investment incentive 

certificates do not qualify for tax allowance.




Tax Provision Reconciliation December 31, 2007 December 31, 2006 

Profit before tax 797.713.066 760.518.950 

Effective tax rate %20 %20 

Calculated tax 159.542.613 152.103.790 

Reconciliation between the tax provision and calculated tax: 

- Non-deductible expenses 6.195.051 9.133.111 

- Tax loss carry forward (7.263.560) - 

- Non-taxable income (6.877.403) (11.712.902) 

- Permanent timing differences 9.664.942 (26.924.482) 

- Different tax rates of subsidiaries operating in 

other jurisdictions 86.811 (221.177) 

- Donations 55.092 1.522.953 

- Investment incentive (41.900.318) (41.103.661) 

- Other (1.216.062) (7.143.590) 

Tax expense in income statement 118.287.166 75.654.042 

NOTE 42 – EARNINGS PER SHARE 


Investment incentive certificate application is abrogated 

commencing from January 1, 2006. If companies fail to 

make a profit or incur losses, any allowance outstanding 

as of December 31, 2005 may be carried forward to the 

following years so as to be deducted from taxable income 

of subsequent profitable years. However, companies can 

deduct the carried forward outstanding allowance only 

from 2006, 2007 and 2008 taxable income. The investment 

incentive amount that cannot be deducted from 2008 

taxable income will not be carried forward to following 

years. 

The effective tax rate to be used in the case of deducting 

the tax investment incentive amounts in 2006, 2007 and 

2008, is 30%. If the Company does not use the investment 

incentive carried forward, the effective tax rate will be 20% 

and the right to use investment incentive will be forfeited. 

Since the Group (‹sdemir is not included) does not utilize 

investment incentives, the effective tax rate used in the 

period January 1, – December 31, 2007 is 20%. ‹sdemir 

utilizes 40% investment incentives as of December 31, 

2007. 

Inflation Adjusted Tax Calculation: 

For 2003 and previous years, taxable profits were calculated 

without any inflation adjustment to the statutory records, 

except that fixed assets and the related depreciation were 

revalued annually. Law No. 5024 published in the Official 

Gazette No. 25332 on 30 December 2003 requires the 

application of inflation accounting in Turkey in 2003 and 

future years for tax purposes, if the actual rate of inflation 

meets certain thresholds, using principles which do not 

differ substantially from IAS 29 “Financial Reporting in 

Hyperinflationary Economies”. As inflation met certain 

thresholds as of 31 December 2004, the Group has 

adjusted its statutory financial statements as of 31 

December 2004 in accordance with Law No. 5024 and 

inflation adjusted balances as at 31 December 2004 were 

taken as opening balances as of 1 January 2005. However, 

as inflation did not meet the required thresholds in 2006 

and 2007, the Group did not apply inflation accounting 

in its 2006 annual and 2007 semiannual financial 

statements. 

For the period January 1, – December 31, 2007 and January 1, – December 31, 2006 the earnings per share calculation 




Number of shares outstanding (*) 84.401.850.000 84.401.850.000 

Net profit – TRY 679.425.900 684.864.908 

Profit per share with 0,8050/ 0,8114/ 

1 TRY nominal value TRY / % 80,50% 81,14% 

(*) By the decision taken at Ere¤li Demir ve Çelik Fabrikalar› T.A.fi., general shareholders assembly meeting dated March 

22, 2007, the Company’s paid capital was increased from TRY 487.872.000 to TRY 844.018.500. One share’s nominal 

amount was also changed from TL 500 to New Kurufl 1. 

100



NOTE 43 – CASH FLOW STATEMENT 

Changes in working capital are as follows: 

101 




Short term trade receivables and due from related parties (113.835.189) 67.657.751 

Inventories (19.073.835) (371.827.367) 

Other receivables and current assets (37.558.583) (78.470.510) 

Long term trade receivables 1.552.254 7.866.616 

Other long term receivables and non current assets 378.566 315.230 

Trade payables and due to related parties 161.036.297 (3.948.048) 

Advances received (93.706.843) 129.677.408 

Other short term payables (8.897.564) (35.305.606) 

Long term trade payables and due to related parties (16.874.372) 16.434.289 

Other long term payables 486.846 (308.243) 

(126.492.423) (267.908.480) 

NOTE 44 – OTHER ISSUES AFFECTING THE CONSOLIDATED FINANCIAL STATEMENTS SIGNIFICANTLY OR 

REQUIRED TO BE DISCLOSED FOR CLEAR, UNDERSTANDABLE AND INTERPRETABLE PRESENTATION 

Inflation Adjustment of Shareholders’ Equity Items 

In accordance with the Communiqué on “Amending the Communiqué on the Principles and Procedures for the 

Restatement of Financial Statements in Hyperinflationary Periods (Serial: XI No: 26)”, equity balances are recognized 

at their historic values. Differences arising from their restatement are shown in total under the “Indexation Difference 

from Equity” items. Restatement differences arising from equity items are shown in the shareholders’ equity under the 

“Inflation adjustment of shareholders’ equity” items and include the following: 

Account Name December 31, 2007 December 31, 2006 

Capital 731.967.735 731.967.735 

Treasury shares (8.395.312) (8.395.312) 

Premium in excess of par 124.572.666 124.572.666 

Legal reserves 255.131.956 254.698.485 

Statutory reserves 859.658.451 859.658.451 

Extraordinary reserves 58.399.222 58.399.222 

Special reserves 122.267.534 122.267.534 

TOTAL 2.143.602.252 2.143.168.781 

Adjustments to previous year financial statements and their nature 

As mentioned in Note 2, in order to comply with the presentation of the current period financial statements, comparative 

information are restated when required. Details and amounts of restatements are as follows: 

Restatements in the balance sheet items are as follows: 


Account Name (Previously reported) (Restated) Difference 

Assets: 

Inventory (1) 1.381.439.709 1.382.264.142 824.433 

Receivables from Continuing Construction Contracts (1) 23.841.133 - (23.841.133) 

Total (23.016.700) 

Liabilities: 

Trade Payables (1) 393.956.593 370.939.893 (23.016.700) 

Other Financial Liabilities (2) - 5.158.711 5.158.711 

Other Liabilities (2) ) 5.158.711 - (5.158.711) 

Treasury Shares (3) (15.032.518) (15.031.598) 920 

Inflation adjustment of shareholders’ equity items (3) 2.143.169.701 2.143.168.781 (920) 

Total (23.016.700)




(1) Same kind of advance balances followed under accounts “Receivables from Continuing Construction Contracts” and 

“Trade payables” are netted off and this net balance is shown under inventories. 

(2) Balances followed under accounts starting with 33 in the uniform chart of accounts and presented under “Other 

Liabilities” account in the previous period are classified to “Other Financial Liabilities”. 

(3) The inflation adjustment difference of Erdemir’s own shares in treasury share adjustment is reclassified to “Inflation 

Adjustment of Shareholders’ Equity Items”. 

Restatements in the income statement items are as the follows: 


Account Name (Previously reported) (Restated) Difference 

Sales Income (1) (4) (7) 4.903.192.586 4.902.266.406 (926.180) 

Cost of Sales (-) (2) (3) (3.899.667.993) (3.897.165.868) 2.502.125 

Operating Expenses – net (5) (6) (179.061.827) (190.899.443) (11.837.616) 

Income and Profit from Other Operations (1) (3) (4) (5) 208.710.833 208.326.322 (384.511) 

Expenses and Losses from Other Operations (-) (2) (6) (7) (137.680.122) (127.033.940) 10.646.182 

Total - 

(1) Dispatch income amounting to TRY 1.089.385 which 

was previously reported in “Sales Income” is reclassified 

to “Income and Profit from Other Operations”. 

(2) Amount equal to TRY (2.151.367) which was previously 

reported in “Expenses and Losses from Other Operations” 

and classified as “Idle Capacity Cost” is reclassified to 

“Cost of Sales”. 

(3) Incentive income amounting to TRY 4.653.492 which 

was previously reported in “Income and Profit from Other 

Operations” is reclassified to “Cost of Sales”. 

(4) Electricity and water sales income amounting to TRY 

1.299.620 which was previously reported in “Income and 

Profit from Other Operations” is reclassified to “Other 

Sales Income”. 

(5) Provisions for accrued unpaid vacations which was 

previously reported in “Operating Expenses” is reclassified 

to “Income and Profit from Other Operations”. 

(6) Payment of Erdemir Foundation amounting to TRY 

7.358.400 which was previously reported in “Expenses 

and Losses from Other Operations” is reclassified to 

“Operating Expenses”. 

(7) Previous year’s sales returns and price differences 

amounting to TRY 1.136.415 which was previously 

reported in “Expenses and Losses from Other Operations” 

is reclassified to “Sales Income”. 

Regarding to December 31, 2006; reclassifications those 

have been made within “Sales Income” and does not 

effect to total balance are as follows: 

- Harbour income previously reported in “Domestic Sales” 

amounting to TRY 20.180.147 TRY is reclassified to “Other 

Income”. 

- By product sales income previously reported in “Domestic 

Sales” amounting to TRY 7.747.953 and reported in 

“Exports” amounting to TRY 5.242.063 is reclassified to 

“Other Income”. 

Additional information about financial instruments 

(a) Capital risk management 

The Group manages its capital through the optimization 

of the debt and the equity balance that minimizes the 

financial risk. 

Through the forecasts regularly prepared by the Group, 

the future capital amount, debt to equity ratio and similar 

ratios are forecasted and required precautions are taken 

to strengthen the capital. 

The capital structure of the Company consists of debt 

which includes the borrowings disclosed in note 6, cash 

and cash equivalents and equity attributable to equity 

holders of the parent, comprising issued capital, reserves 

and retained earnings as disclosed in note 25, 26, 27 and 

28. 

The Group’s board of directors analyzes the capital 

structure through the monthly meetings. In addition to the 

capital structure, the risks associated with each class of 

capital were also evaluated at those meetings. The group 

aims to balance its overall capital structure through the 

payment of dividends, new share issues and share buybacks 

as well as the issue of new debt or the redemption 

of existing debt by considering the decisions of the board 

of directors. 

As of December 31, 2007 and December 31, 2006 the 

net debt/equity ratio is as follows: 


2007 2006 

Total debt 3.474.470.944 3.133.837.484 

Less: Liquid assets 586.242.691 756.989.078 

Net debt 2.888.228.253 2.376.848.406 

Total Equity 6.004.441.237 5.399.232.539 

Total Capital 8.892.669.490 7.776.080.945 

Net Debt / 

Total Capital Ratio 32% 31% 

102



(b) Significant accounting policies 

The Group’s accounting policies about financial instruments are disclosed in note 3 “Summary of Significant Accounting 

Policies, 3.8 Financial Instruments” to the financial statements. 

(c) Categories of financial instruments 

Financial 

Loans and Available liabilities at 

December 31, 2006 receivables for sale amortized cost Carrying value Fair Value Note 


Cash and cash equivalents 756.989.078 - - 756.989.078 756.989.078 4 

Trade receivables 760.190.273 - - 760.190.273 760.190.273 7 

Due from related parties 54.737.803 - - 54.737.803 54.737.803 9 

Other financial assets 1.535.010 37.614.079 - 39.149.089 39.149.089 10/16 


Borrowings - - 2.063.147.416 2.063.147.416 2.063.147.416 6 

Trade payables - - 451.627.872 451.627.872 451.627.872 7 

Due to related parties - - 18.797.315 18.797.315 18.797.315 9 

(d) Financial risk management objectives 

The Group manages its financial instruments through a 

separate treasury function which was incorporated for that 

purpose. All the developments in the markets are followed 

just in time. The Group’s corporate treasury function manages 

the financial instrument through daily regular meetings by 

evaluating the domestic and international markets and by 

considering the daily cash inflows and outflows. At the end 

of each day, each Group company prepares a “daily cash 

report”. The information included therein is consolidated by 

the treasury function and used to determine the cash 

management strategies. Additionally, the Group’s quarterly 

payment schedules are followed through the weekly reports 

and annual cash management was followed by the monthly 

reports. 

103 


Financial 

Loans and Available liabilities at 

December 31, 2007 receivables for sale amortized cost Carrying value Fair Value Note 


Cash and cash equivalents 586.242.691 - - 586.242.691 586.242.691 4 

Trade receivables 796.714.222 - - 796.714.222 796.714.222 7 

Due from related parties 132.988.297 - - 132.988.297 132.988.297 9 

Other financial assets 2.219.374 30.899.662 - 33.119.036 33.119.036 10/16 


Borrowings - - 2.305.592.224 2.305.592.224 2.305.592.224 6 

Trade payables - - 575.978.496 575.978.496 575.978.496 7 

Due to related parties - - 35.087.265 35.087.265 35.087.265 9 

Other financial liabilities - - 411.318 411.318 411.318 8 

The Group has no derivative financial instruments. Highly 

liquid instruments are preferred when determining the financial 

instruments. For that purpose, the Group has a right to claim 

the accrued interest on demand deposits when withdrawed 

before the predetermined maturity. 

(e) Market risk 

The Group’s activities expose it primarily to the financial risks 

of changes in foreign exchange rates and interest rates. The 

group utilizes the following financial instruments to manage 

the risks associated with the foreign exchange rates and 

interest rates.



The Group’s sales are realized based on USD denominated 

prices as the production costs are also denominated in USD. 

The same rule applies to the borrowings as USD denominated 

borrowing is preferred. This method provides a natural hedging 

for the changes in the foreign exchange rates. 

The change in the prices are closely monitored by the Group 

regularly and required price adjustments are made without 

any delay. 

The Group prefers variable interest rate for long term borrowings. 

In the current period, there has been no change in the Group’s 

exposure to the market risks or the manner which it manages 

and measures risk when compared to the previous period. 

(f) Foreign currency risk management 

The Group manages the risk which arises out of operational 

and financing agreements by making USD denominated 

sales. As a result, the Group’s inventories are considered 

as liquid assets and the Group attaches importance to the 

balancing of foreign currency position. The Group also 

keeps USD denominated bank deposits to decrease its 

exposure to the foreign currency risk. 

Foreign currency sensitivity 


The company undertakes certain liabilities and assets 

denominated in foreign currencies hence exposures to 

certain exchange rate fluctuations arise. The Group has 

USD denominated liabilities arising mainly from raw material 

purchases. However, the Group’s sales are also USD 

denominated. Therefore the majority of the trade receivables 

are USD denominated. 

The following information details the Group’s sensitivity to 

a 10% increase and decrease in the USD, EUR and JPY. 

10% is the sensitivity rate used when reporting foreign 

currency risk internally to key management personnel and 

represents management’s assessment of the possible 

change in foreign exchange rates. 

The profit or loss which will arise when the inventories are 

sold may change the effect if the foreign currency rates 

maintain this level in the long term. 

On the balance sheet as of December 31, 2007, if TRY 

devaluates/evaluates against USD by 10% and all other 

variables remains the same, as a result of the foreign 

exchange losses or gain arising from the USD denominated 

assets and liabilities, net income after capitalization on fixed 

assets would have been TRY 10.765.336 (December 31, 

2006: TRY 9.314.903) (before capitalization: TRY 

81.555.364) lower / higher. 


devaluates/evaluates against EUR by 10% and all other 


exchange losses or gain arising from the EUR denominated 

assets and liabilities, net income after capitalization on 

fixed assets would have been TRY 17.096.138 (31 

December 2006: TRY 15.440.014) (before capitalization 

TRY 49.134.150) lower / higher. 


devaluates/evaluates against JPY by 10% and all other 


exchange losses or gain arising from the JPY denominated 

assets and liabilities, net income after capitalization on 

fixed assets would have been TRY 6.400.335 (December 

31, 2006: TRY 927.491) (before capitalization TRY 

12.015.761) lower / higher. 


devaluates/evaluates against other foreign currencies 

which are not significant by 10% and all other variables 

remains the same, as a result of the foreign exchange 

gain or losses arising from those assets and liabilities, net 

income after capitalization on fixed assets would have 

been TRY 992.823 (December 31, 2006: TRY 2.466) 

(before capitalization TRY 992.823) higher / lower. 

(g) Interest rate risk management 

The majority of the Group’s borrowings has variable interest 

rate. In addition, through the use of demand deposits that 

the Group has a right to claim the accrued interest on 

demand deposits when withdrawn before the 

predetermined maturity, the Group minimizes the interest 

rate risk by increasing the share of variable rate 

denominated assets in the balance sheet. 

Furthermore, for borrowings denominated in foreign 

currencies, except for USD, by borrowing in currencies 

that bear lower interest rates, the group minimizes the 

interest rate risk. In addition, a higher interest rate applied 

to the trade receivables with a maturity when compared 

to the interest rate exposed for trade payables. 

Interest rate sensitivity 

The following sensitivity analysis is based on forecasted 

interest rate changes for the liabilities denominated in 

variable interest rates. The information details the Group’s 

sensitivity to a 0,50% for USD and EUR, 0,25% for JPY, 

1,00% TRY denominated interest rates increase and 

decrease. 

104



The Group’s net income after capitalization on fixed assets 

would have been TRY 2.239.208 (December 31, 2006: 

TRY 1.510.354) (before capitalization TRY 7.451.879) lower 

/ higher. The main reason is the Group’s variable interest 

rate bearing financial liabilities. 

(h) Credit risk management 

Trade receivables consist of a large number of customers, 

spread across diverse industries and geographical areas. 

There is no risk concentration on few customers. For the 

majority of trade receivables, there are sufficient collateral 

and/or credit limits. Ongoing credit evaluation is performed 

on the financial condition of accounts receivable. 

The Group does not have any significant credit risk exposure 

to any single counterparty. 

(i) Liquidity risk Management 

Ultimate responsibility for liquidity risk management rests 

with the board of directors, which has built an appropriate 

liquidity risk management framework for the management 

of the Group’s short, medium and long-term funding and 

liquidity management requirements. The 

Less than More than Carrying 

December 31, 2007 6 months 6-12 months 1 year Adjustments amount 

Short Term Liabilities 908.161.828 245.726.027 - (16.915.386) 1.136.972.469 

Financial Liabilities – net 103.794.267 17.576.745 - (155.759) 121.215.253 

Short Term Portions of Long 

Term Borrowings – net 228.038.169 190.740.279 - (14.281.939) 404.496.509 

Finance Lease 

Payables – net 260.166 - - (65.220) 194.946 

Trade Payables – net 540.981.961 37.409.003 - (2.412.468) 575.978.496 

Due to Related Parties 35.087.265 - - - 35.087.265 

Long Term Liabilities 238.625 - 1.818.084.405 (38.226.196) 1.780.096.834 

Long Term Borrowings – net - - 1.818.084.405 (38.203.943) 1.779.880.462 

Financial Lease 

Payables 238.625 - - (22.253) 216.372 


Short Term Liabilities 456.023.011 549.543.024 - (74.965.758) 930.600.277 

Financial Liabilities – net 66.928.386 391.215.128 - (17.871.089) 440.272.425 

Short Term Portions of Long 

Term Borrowings – net 65.889.652 87.280.101 - (52.579.109) 100.590.644 

Trade Payables – net 304.407.658 71.047.795 - (4.515.560) 370.939.893 

Due to Related Parties 18.797.315 - - - 18.797.315 

Long Term Liabilities - - 2.239.639.284 (636.666.958) 1.602.972.326 

Long Term Borrowings – net - - 2.153.584.724 (631.300.377) 1.522.284.347 

Trade Payables – net - - 86.054.560 (5.366.581) 80.687.979 

105 


Group manages liquidity risk by continuously monitoring 

forecasted and actual cash flows and matching the maturity 

profiles of financial assets and liabilities and maintaining 

adequate funds and reserves. 

Liquidity risk tables 

Conservative liquidity risk management includes maintaining 

sufficient cash, availability of sufficient amount of borrowings 

and funds and ability to settle market positions. 

The risk of funding actual and forecasted possible 

obligations is managed by maintaining availability of 

sufficient number of high quality loan providers. 

The following table details the Group’s expected maturity 

for its non derivative financial assets. The tables below 

have been drawn up based on the undiscounted 

contractual maturities of the financial assets. The adjustment 

column represents the possible future cash flows 

attributable to the instrument included in the maturity 

analysis which are not included in the carrying amount of 

the financial liability on the balance sheet.



The critical decisions taken when Group’s accounting 

policies being applied 

Borrowing Costs 


The Group capitalizes the borrowing costs those are 

directly related with purchasing, building or producing of 

a specified asset, directly as a part of the cost of that 

specialized asset. The value of borrowing costs during a 

capitalization can not go beyond the value of borrowing 

costs assumed on its capitalization period. Out of this 

borrowing costs are written on financial statements in the 

assumed period. 

Building of facilities has been started before year 2007, 

but borrowing costs of facilities having taken into 

commercial undertaking in year 2007 have been capitalized 

till inauguration date, from the beginning of following 

month, borrowing costs have been accounted as 

expenditures. 

In the case that this method taken bases during the 

accounting of borrowing costs by the executive managers; 

that management, in the perspective of “Consistency 

Concept”, have been applying to all of the borrowing costs 

concerned with gaining of all specialized assets, building 

or directly related with production. 

106

To The Board of Directors of 

ERE⁄L‹ DEM‹R ve ÇEL‹K FABR‹KALARI T.A.fi. 

Corporation's; 

Name : Ere¤li Demir ve Çelik Fabrikalar› T.A.fi. 

Headquarters : ANKARA 

Capital : Issued Capital TRY 844.018.500. 

Field of Activity : Production and Sales of Iron and Steel 

Name and Term of Appointment 

of the Auditor(s) and whether 

they're shareholders or not : Fatma CANLI 

Term : March 2007 – March 2010 

Not a shareholder 

Dilek SADIKO⁄LU 

Term : March 2007 – March 2009 

Not a shareholder 

Number of Board Meetings 

Attended and Audit Committee 

Meetings Held : In 2007, 16 Board of Directors meetings were held 

and Auditing Committee attended all of these 16 Meetings. 

The scope of the auditing work 

on the Company's accounts, 

books, documents, the dates on 

which the auditing was conducted 

and the conclusions reached : Consequent to our examinations on Company's 

legal books in Ere¤li on June 30, 2007 and 

December 31, 2007, it was concluded that they had 

been kept in conformity with the Turkish Commercial 

Code and the Taxation Procedures Act and as a 

result of our spot checks it was understood that the 

records in the ledgers had been duly corresponding 

their respective vouchers. 

The number and results of 

examinations carried out in 

accordance with Article 353, 

Clause 1, Paragraph 3 of the 

Turkish Commercial Code :Cash counts were performed at the Company 

Headquarters on 31.03.2007, 30.04.2007, 

31.05.2007, 30.06.2007, 31.07.2007, 31.08.2007, 

30.09.2007, 31.10.2007, 30.11.2007, 31.12.2007 by 

us and it was established that the cash holdings were 

in accordance with the book entries and the findings 

were recorded as such.

The dates and results of 

examination carried out in 

accordance with Article 353, 

Clause 1, Paragraph 4 of the 

Turkish Commercial Code : During audits conducted at the Company's Ere¤li 

offices on 31.03.2007, 30.04.2007, 31.05.2007, 

30.06.2007, 31.07.2007, 31.08.2007, 30.09.2007, 

31.10.2007, 30.11.2007 and 31.12.2007; it was 

established that the negotiable instruments of all 

kinds submitted as security for safekeeping 

conformed to the book entries. 

Complaints or reports of 

irregularities and actions taken : None 

We have audited the accounts and activities of Ere¤li Demir ve Çelik Fabrikalar› T.A.fi. for the period 

of 01.01.2007-31.12.2007 in accordance with the Turkish Commercial Code, the Company's Articles 

of Association, other relevant legislations and generally accepted accounting standards and principles. 

We are of the opinion that the attached Balance Sheet dated 31.12.2007, the items of which we approve, 

accurately reflects the financial standing of the Company on that date and that the Income Statement 

for the period 01.01.2007-31.12.2007 is an accurate representation of the results of operations for the 

period. 

We hereby request that the Balance Sheet and the Income Statement be approved and the Board of 

Directors discharged from liability. 

(*) Enclosed, Minute Of Dissent 

ERE⁄L‹ DEM‹R ve ÇEL‹K FABR‹KALARI T.A.fi. 

AUDITING COMMITTEE 

Fatma CANLI 

Auditor 

Dilek SADIKO⁄LU (*) 

Auditor

Ere¤li Demir ve Çelik Fabrikalar› T.A.fi. (Erdemir) 

Minute of Dissent to the Audit Committee Report 

With the reasons that were submitted by the Privatization Administration at the 

General Assembly of March 30, 2006, about the Company's financial statements as of 

December 31, 2005 and also the grounds shown for the subsequent litigation no: 

2006/218 pending before the 3 rd Commercial Court of Ankara; taking into 

consideration the Capital Market Board's decision no: 21/561 of 05.05.2006 which 

reads: “Taking into consideration that Company's financial statements as of 

December 31, 2005 were prepared in accordance with a new set of accounting 

standards (IAS/IFRS) instead of the standard (Communiqué XI No: 25) that was 

applied in the interim periods of 2005 and this change resulted a significant impact on 

the net profit of the respective period (TRY 152.329.914), and that net profit of the 

Company for the year 2005 was decreased (TRY 43.595.953) due to provisions that 

were not stated in the interim financial statements for the 3, 6 and 9 month-periods of 

2005, in order to ensure that the public is informed accurately, it has been decided 

that, the Company's consolidated financial statements as of December 31, 2005 

should be revised in accordance with the set of accounting standards that were used 

in the interim periods and should be announced to the public, and should be 

immediately presented to the General Assembly for approval.”, and consequently 

taking into consideration of the effect of the financial statements dated December 31, 

2005 on the financial statements for the period of January 1, 2007 - December 31, 2007, 

I think that the financial statements for the period of January 1, 2007 - 

December 31, 2007 should be prepared according to Capital Market Board's regulations 

instead of IFRS, therefore this Minute of Dissent was stated by myself in the report of 

the Auditing Committee. 

Dilek SADIKO⁄LU 

Auditor

OYAK ERDEM‹R - ERDEMİR

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