Machinery Valuation

ARVES Machinery Valuation Department Head; our founding company partner of 20% share, CMB Licensed Real Estate Valuation Specialist, Mechanical Engineer, Esteemed Mustafa YILDIZHAN provides professional service in ARVES Machinery Valuation Department with his experience over 8 years in Real Estate + Machine Valuation.

ARVES Machinery Valuation Department provides high quality valuation services to the financial institutions, private companies, leasing companies, public institutions and, in short, to every sector in need, with its professional and sectoral experience.  As a result of the field work, the legal status of the machineries and equipment valuated on-site is investigated in the relevant chamber of commerce, and it is researched whether or not there is a commercial enterprise pledge record. The necessary information with respect to the valuation of the machineries is obtained by examining the machinery manufacturers and the second hand trading markets. Invoices and other documents obtained from the company are examined and the matched analyzes are performed. As a result of the table study, the last stage of the valuation, the physical, technological and functional depreciation of the machineries are taken into consideration, and a report is prepared through valuation as a result of some valuation methods.

1. What are Machinery and Equipment?

Machinery is a system that converts the generated energy into work or other kind of energy. Machineries consist of one or more mechanisms. It is a combination of mechanisms assembled to convert any type of energy into another energy or to create a certain effect. Equipment is a combination of tools, instruments, fittings and so on required to maintain functionality of the machinery mechanism.

In general, Machinery and Equipment are the material or physical assets that are considered to be used continuously in the operations of the enterprise, and represent the amounts remaining after deducting the relevant amortizations.

2. Sectoral Status of the Machinery Industry:

The Machinery Sector is a leading sector with triggering power as it has a high value-added rate, necessitates the production of technology, creates a large sub-industry network, decreases the investment costs, creates an employment area for the qualified personnel, reduces foreign dependency and foreign trade deficit as well as provides input for many sectors.

The machinery sector in our country has reached a foreign trade volume of $34.5 billion in 2012, and the share of the machinery sector exports in total exports has approached 7% as of this year. This rate should increase to 20% in 2023 in order for the machinery sector to receive 100 billion dollars share from the targeted $500 billion export in 2023.

In 2012, the exports-imports coverage rate of the sector was 39.2%. The future measures to increase this level are of great importance for the machinery sector and many other sectors for which this sector provides input.

2.1 Status of the Sector in the Global Economy and the EU States:

In the development process of countries, the importance of the machinery manufacturing industry in the manufacturing industry increases steadily. Parallel to this increase trend; in 2011, the total global trade amounted to $33.2 trillion, while total global machinery trade amounted to $3.00 trillion. The share of the machinery sector in global trade was of 9% as of 2011.

2.2 General Situation of the Sector in Turkey

The machine manufacturing industry is the driving force of the industrialization of our country as in the whole world, and shall be the cornerstone of the development of our country in the future. The Turkish machinery industry has performed an annual growth rate of approximately 20% since 1990.

As in many countries, the vast majority of the machinery manufacturers in Turkey are SMEs, and this structure provides the opportunity to give a more flexible and rapid response to the changing economic conditions and technological developments. The advantage of cheap labor force and advanced engineering skills of SMEs operating in the sector are the factor that increase the competition chance of the machinery manufacturers in the international markets. In the Turkish machinery industry, all kinds of parts and components are produced at high quality and competitive prices. The domestic input rate in the production process is around 80-85%.

2.3 Sub-Groups of the Sector and Primary Products Manufactured

There are around 20 sub-product groups in the machinery industry. Although there is no standard classification for these groups, the groups which are frequently mentioned in the sector are listed in Table 2.

(Source: Republic of Turkey Ministry of Science, Industry and Technology-Machinery Sector Report)

3. Importance of Machinery Valuation

Valuation of the items such as machinery, equipment, vehicles, auxiliary facilities, fixtures, etc. which have an important place in the determination of industrial facilities as well as the determination of their useful life require special expertise and experience.

The machinery valuation operations in our country are carried out professionally by the CMB and BRSA licensed real estate valuation companies. The valuation operations of the fixed assets belonging to the publicly traded joint stock companies operating in the CMB and the pledge operations that ensure collateral for the loan amount provided by the BRSA-affiliated financial institutions (banks, factoring companies, etc.) to their customers require the machinery valuation studies.

Regarding the valuation operations of the fixed assets belonging to the publicly traded joint stock companies operating in the CMB, until 2005, the financial statements and the financial balance sheets to lead the future of the company were prepared by taking into account the statement “Depreciation Based Economic Assets”, according to the related communiques of the Ministry. The weakness in the practice was neglected in the asset valuation because the machinery and equipment, which had been used actively within the enterprise but had completed their useful life, were disposed of according to the statement “Depreciation Based Economic Assets”.

Under these circumstances, although the old machines, which are used actively in the production stage under periodical maintenance, significantly contribute to the company, the value stated in the financial statements was calculated below the market value since they were not taken into account in the financial statements (in item “253-Machinery and Equipment” in the uniform chart of accounts).

After 2005, following the rearrangement of the accounting and financial statements prepared by the related companies within the framework of the international standards and the application principles, the revaluation of the fixed assets and the useful life study have been made compulsory to be performed by the licensed real estate valuation company as authorized by the CMB.

Especially, the valuation transactions of the fixed assets belonging to the publicly traded companies operating in the CMB have gained more importance by virtue of the new Turkish Commercial Code, which entered into force in July 2012. Within the framework of the European Union harmonization process and the Turkish Commercial Code, it is obvious that, in the near future, the companies whose paid-in capital is below a certain limit shall be obliged to perform valuation operations for their fixed assets. Taking into consideration all these developments, it is important for the companies which are subject to independent auditing within the framework of the related laws, regulations and standards (IAS, IFRS, TAS, TCC, CMB etc.) to obtain professional service from Real Estate Valuation Companies authorized by the CMB and BRSA in order to have machinery and equipment valuation and useful life studies carried out.

In the pledge operations regarding the real estates that ensure collateral for the loan amount provided by the BRSA-affiliated financial institutions (banks, factoring companies, etc.) to their customers, the machinery expertise reports prepared by the real estate valuation companies are taken into consideration. The machineries and equipment in the machinery expertise report prepared by the real estate valuation companies are registered as appurtenance clause on the deed of the relevant land registry.

Within the framework of the application regulation “Procedures and Principles to be Followed in the Registration of the Cross-Border Financial Leasing Transactions”, while the registration procedures of aircraft, vessel, medical device and machinery equipment requiring advanced technology are carried out by the “Undersecretariat of Treasury and Foreign Trade”, the authorization for the registration process has been given to the “Banking Regulation and Supervision Agency”. It is possible to receive opinion of the real estate valuation companies authorized by BRSA with regard to due diligence and valuation of the said machineries and equipment.

As of July 2015, there were 132 real estate valuation companies and 1,968 real estate valuation specialists that were registered in TDUB (Union of the Turkish Valuation Specialists) and authorized by the CMB. The number of the CMB licensed real estate valuation specialists operating as mechanical engineers is estimated to be in the range of 30-40.  Due to the fact that the number of the licensed real estate valuation specialists is very low, the number of the licensed mechanical engineers carrying out machinery valuation operations on-site is restricted, and the number of the mechanical engineers with technical outfit and experience required basically for machinery valuation is little if any, we believe that the knowledge and professional-sectoral experience of the valuation companies and their mechanical engineers are of great importance.

ARVES Gayrimenkul Değerleme ve Danışmanlık A.Ş. provides real estate valuation services as well as professional machinery valuation services.