F i n a n c i a l D a t a 2014* 2013* 2012* 2011* 2010* *End of year. Overview

Transcription

1 Sovereign* National International TURKEY Corporate Credit Rating Manufacturing & Trade (Plastic Construction Materials) Long Term Foreign Currency BB+ B Local Currency BB+ B Outlook *Assigned by Japan Credit Rating Agency, JCR on July 11, Senior Analyst: Gökhan IYIGUN/ gokhan.iyigun@jcrer.com.tr Short Term FC Stable Stable LC Stable Stable Local Rating BBB- (Trk) A 3 (Trk) Outlook Stable Stable Sponsor Support 2 - Stand Alone B - Foreign Currency BBB- - Local Currency BBB- - Outlook Net Profit Margin (%) ROAA (%) Debt Ratio (%) FC Stable - LC Stable Equity / Total Assets (%) ROAE (%) Net Working Cap. / T. Assets (%) PAKPEN PLASTİK BORU ve YAPI ELEM. SAN. ve TİC. A.Ş. and ITS SUBSIDIARY F i n a n c i a l D a t a * * * * * Total Assets ( USD) 342, ,46 34, , ,648 Total Assets ( TRY) 794,22 748, ,17 55, ,599 Equity ( TRY) 236, , ,575 76, ,84 Net Profit ( TRY) 1,455-13,983 34,777-36,47-3,973 Sales ( TRY) 475,38 422, , ,445 25,618 Net Profit Margin (%) ROAA (%) ROAE (%) Equity / Total Assets (%) Net Working Capital / T. Assets (%) Debt Ratio (%) Asset Growth Rate (%) *End of year Overview Pakpen Plastik Boru ve Yapı Elemenları San. ve Tic. A.Ş. (hereafter, Pakpen, the Company or the Group), was founded in 1989 in Konya. Main activity fields of the Company include the production of polyvinyl chloride (PVC) materials, marketing and sale of PVC doors, windows and shutters in domestic and overseas markets and the production of infrastructure, internal plumbing, sewage, clean water and gas pipes. The Company carries out its production activities through 7 integrated factories in Konya, comprising approximately 25k m2 of facilities, about 12k m2 of which is indoor area. Marketing and sale activities are performed through 5 regional directorates in Istanbul, Ankara, Konya, Izmir and Antalya. The Company has a dealer network of 65 throughout the country. The Company s profile, pipe and insulation products under the brand names of PAKplast, PAKPEN, PAKDoor, PAKForm, PAKsiding, PAKcountry, PakBoard and Pakpanel are offered for sale in almost 1,5 sales points including the sub-dealers. The Company s overseas sales started in 1998, spread to 42 countries and composed 17.7% of its gross sales as of FYE. Moreover, the Company ranked among the Top 5 Largest Industrıal Organization of Istanbul Chamber of Industry, Fortune 5 and Super Brands. As of FYE, the Company s controlling shareholder with a 88.5% stake was Tuza Holding A.Ş., wholly owned by TUZA Family Members. Cofounder Mr. Mehmet TUZA haled a 9.24% stake. Additionally, the Company had a wholly-owned subsidiary (Pakpen Dış Ticaret A.Ş) and an average labor force of 768 FY (FY: 773). Strengths Competitive edge in raw material procurement, manufacturing and sales processes achieved through synergy and economies of scale stemmed from the production of three interrelated main product groups High brand recognition and effective market efficiency contributing to the ability to reflect the cost changes in prices Wide-ranging distribution network leading to a comparatively broad customer base Management strategy emphasising R&D along with innovative and pioneering products, contributing to market efficiency, brand recognition and productivity Continuously increasing sales revenue over the years, contributing to market efficiency and almost steady gross profit margin facilitating future forecasts and planning Balance sheet and receivables/payables term structure generating positive working capital with upward trend, relieving liquidity management Upward growth trend along with supportive legislations and practices providing positive outlook to business sectors Constraints High import dependency inherit in the sector for the supply of raw materials and consequently high effect of oil prices and exchange rates on costs giving rise to difficulty in planning and volatility in profitability Foreign currency position along with decreasing trend, generating volatility potential in profitability and restraining internal equity generation capacity in upward foreign exchange market Relatively high off-balance sheet commitments and contingencies augmenting the risk level and restraining asset quality Comparatively high sales deductions level inherit in the sector, restraining profit generation capacity Increasing trend in NPL ratio along with decreasing provisioning level suppressing asset quality Upward trend in financial liabilities and its short-term weighted structure along with short-term bond issuance projection Relatively high competition in the domestic and overseas plastic construction products sector Publication Date: March 27, 215 Global Knowledge supported by Local Experience Copyright 27 by JCR Eurasia Rating. 19 Mayıs Mah., 19 Mayıs Cad., Nova Baran Plaza No:4 Kat: 12 Şişli-İSTANBUL Telephone: Fax: +9 (212) Reproduction is prohibited except by permission. All rights reserved. All information has been obtained from sources JCR Eurasia Rating believes to be reliable. However, JCR Eurasia Rating does not guarantee the truth, accuracy and adequacy of this information. JCR Eurasia Rating ratings are objective and independent opinions as to the creditworthiness of a security and issuer and not to be considered a recommendation to buy, hold or sell any security or to issue a loan. This rating report has been composed within the methodologies registered with and certified by the SPK (CMB-Capital Markets Board of Turkey), BDDK (BRSA-Banking Regulation and Supervision Agency) and internationally accepted rating principles and guidelines but is not covered by NRSRO regulations.

2 1. Rating Rationale Pakpen Plastik Boru ve Yapı Elemenları San. ve Tic. A.Ş. s rating grades are the conclusion of a rating process that has taken into account all aspects of the Company s consolidated independent audit reports which involve the consolidated financial statements of the Company s one subsidiary as of FYE. JCR Eurasia Rating s own studies and records, information and clarification provided by the Company itself and non-financial figures have also been drawn upon. In addition to the Company s financial indicators regarding equity structure, liquidity position, asset quality, indebtedness, efficiency, growth rates and expected support, the main shareholders financial and non-financial positions, risk exposures, activity markets, problems and expectations in the field of activity were also taken into consideration while determining the risk assessment of the long-term international local currency and foreign currency grades as well as national grades. Prominent Rating Considerations are; Competitive Edge Achieved through Synergy and Economies of Scale Stemmed from the Production of Three Main Product Groups Closely Interrelated The Company s initial field of activity of PVC profile manufacturing expanded to insulation and plastic pipes sectors following 21. The Company became one of the largest plastic-based construction materials and plastic pipe manufacturers in Turkey through its 7 integrated factories and rapidly expanding product range. Pipe, insulation and profile group products are tightly interrelated and generate synergy and economies of scale leading to a competitive edge in raw material procurement, manufacturing and sales processes. High Brand Recognition and Effective Market Efficiency The Company enjoys significant brand recognition and effective market efficiency achieved through its high production capacity, broad product range and wide-ranging distribution network. Accordingly, the Company listed on the Istanbul Chamber of Industry s Top 5 Largest Industrıal Organization List, the Fortune 5 and Super Brands lists. Such achievements contribute to the Company s ability to reflect in its prices the coast changes due to the dependency on the importation of raw materials and resultant effect of oil prices and exchange rates on raw material prices. Wide-ranging Distribution Network Leading to Comparatively Broad Customer Base Marketing and sale activities are performed through 5 regional directorates in Istanbul, Ankara, Konya, Izmir and Antalya. The Company has a dealer network of 65 spread across the country. The Company s pipe, profile and insulation products under the brand names of PAKplast, PAKPEN, PAKDoor, PAKForm, PAKsiding, PAKcountry, PakBoard and Pakpanel are offered for sale in almost 1,5 sales points including sub-dealers. The Company s customer portfolio is mainly composed of commercial, manufacturer and practitioner dealers. Accordingly, the Company enjoys a comparatively broad customer base, contributing to trade volume and brand recognition. The Management Strategy Emphasising R&D along with Innovative and Pioneering Products The Company has adopted a management strategy emphasizing R&D. Accordingly, the Company had a central quality laboratory furnished with the accreditation certificate (TS EN ISO/IEC 1725) about the existence of international standards. Moreover, every independent manufacturing facility has separate smaller production labs. Systematic studies are performed within the coordination of the R&D directorate regarding innovation, improving product quality or standards, increasing productivity and reduction of production costs in products and production process. Consequently, the Company s innovative and pioneering products contribute to its market efficiency, brand recognition and productivity. Continuously Increasing Sales Revenue and Almost Steady Gross Profit Margin Both the gross and net sales revenue of the Company exhibited an ongoing increasing trend over the assessment period of the last six years. While the gross sales revenue of the Company exercised a five-year cumulative growth of %, that of net sales revenue was % due to decreasing share of sales deductions, contributing to market efficiency. Moreover, the Company s gross profit margin displayed an almost steady pattern of 17.5% over the last four years, facilitating future forecasting and planning. Positive Working Capital with Upward Trend The Company s total assets displayed a short-term weighted dispersion over the years with a year-end share of 62.94%. Although the total liabilities had a short-term weighted structure, the short-term assets continuously exceeded short-term liabilities and generated positive net working capital over the years and relieved the liquidity management. Additionally, the net working capital exhibited an upward trend over the assessment period despite the last year deterioration, complicating the liquidity management within the considerations of inventories with the highest share (53.81%) in current assets, days inventories utilization of 232 which is above the average maturity of trade payables of 179 days and term structure of sales. On the other hand, the average maturity of trade receivables of 13 days contributes well to the liquidity management. Growth Trend and Positive Outlook of Business Sectors The Company activities are associated mainly with developments in the Turkish construction and plastic sectors. The construction sector displayed an ongoing, yet decelerating, above GDP growth over the last five years, with the exception of. Provided that there is no further deterioration in the political stability and related macroeconomic outlook, the market conditions in the Turkish Construction industry are not expected to weaken much within the considerations of increasing share of real estate in total foreign direct investments and February 215 Consumer Tendency Survey results covering correction movement in consumer confidence index with downtrend and improving indicators regarding saving and buying or constructing housing possibilities. Moreover, the plastic construction materials sector, the second largest sub-sector of Turkish plastic sector, showed a continuously increasing trend over the last four years with a last year growth of 15.35% in tons due to the increasing domestic consumption and exports. Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 2

3 Additionally, the three acts regarding the construction and real estate sectors effectuated in (Urban Transformation, Reciprocity and 2B) maintains their contribution to sectors outlooks as well as the legislations and regulations regarding the insulation sector such as the building heat insulation, building energy performance regulation and Kyoto Protocol regarding the reduction of greenhouse gas (GHG) emissions. High Dependency on Raw Material Imports The plastic materials manufacturing sub-sectors are highly dependent on the import of raw materials due to insufficient domestic raw material production. Accordingly, in addition to oil prices, the raw material of plastic, exchange rates was included in the factors having a high effecting level on costs, giving rise to difficulty in planning and volatility in profitability, which is an important consideration in a volatile market as it stands. FX Position Generating Volatility Potential in Profitability in Upward Foreign Exchange Market The balance sheet structure of the Company engendered a short foreign exchange position over the years due to higher raw material import volume than exports sales volume as in the overall sector. The Company ratios of FX position to total assets and equity were -1.75% and -36.1%, respectively, as of FYE and decreased from year-end figures of -37.1% and %, respectively. The relatively high short position restrains the Company s profitability figures in periods of increasing exchange rates as in and. Relatively High Off-balance Sheet Commitments and Contingencies The Company s tangible assets had a cost value of TRY mn and net book value of TRY mn, constituting almost 35% of total assets. Off-balance sheet commitments and contingencies of the Company had a year-end value of TRY mn, of which TRY mn was comprised of mortgage, corresponding to 65.97% of tangible assets costs. The relatively high off-balance sheet commitments and contingencies level augmented the risk level and restrained the asset quality. High Sales Deductions Level Inherit in the Sector The sales deductions of the Company, mainly composed of sales discounts, had a share in gross sales of approximately 28% over the last three years and had a year-end value of 27.72%. Comparatively high levels of sales deductions inherent in the sector due to high competitiveness restrain the Company s profit generation capacity. Increasing Trend in NPL Ratio and Decreasing Provisioning Level The doubtful trade receivables of the Company increased by 23% in and amounted to TRY 38.67mn as of FYE. Accordingly, the NPL ratio increased to 16.8% from 13.15%, restraining the asset quality. While the doubtful receivables increased by 23%, the related provisions increased by 3.69% and resulted in a decrease in provisioning level from 78.43% to 66.12%, coming in view as another factor restraining the asset quality. Upward Trend in Financial Liabilities and Its Short-term Weighted Structure The Company ratio of financial liabilities to total assets increased to 51.6% in from 4.2% in, increasing the risk level and restraining profitability through increasing interest expenses. Additionally, the financial liabilities structure of the Company turned to a short-term weighted dispersion of 74.91% due to the two-year bond issuance in transferring from long to short term. The comparatively low level of long term liabilities formed the basis for further growth opportunities via long term funding in accordance with the Company s short-term bond issuance projection. Relatively High Competition in the Domestic and Overseas Plastic Construction Products Sector According to records of Turkish Plastics Industrialists Association (PAGDER), approximately 6,5 manufacturers composed of mostly small and medium sized firms operate in the Turkish Plastic Sector, in which the plastic construction materials sub-sector leads with 23.1% regarding number of firms. This leads to high and unfair competition through price before quality type consumer behavior and unregistered manufacturers, mostly in the pipe sub-sector. With respect to the above mentioned factors, JCR Eurasia Rating has assigned Long Term International Foreign Currency and Local Currency Ratings of BB+ and Long Term National Local Ratings of BBB- (Trk) in JCR Eurasia Rating s notation system. 2. Outlook JCR Eurasia Rating has assigned a Stable outlook on the National Long and Short Term Rating perspectives of Pakpen Plastik Boru ve Yapı Elemenları San. ve Tic. A.Ş. due to high effect of foreign exchange rates on raw material costs, restrained and volatile profitability figures, supressed asset quality through rising NPL ratio, decreasing provisioning level and comparatively high level of off-balance sheet commitments and contingencies, increased financial liabilities with short-term weighted structure and intense competition in the business sectors as well as long market experience, wideranging distribution network, high brand awareness and market efficiency, continuously increasing sales revenue, competitive edge achieved through production and product diversity and bond issuance projection with its probable positive effects on liabilities and balance sheet structure. Additionally, JCR Eurasia Rating has assigned a Stable outlook on the International Long and Short Term Local Currency Rating perspectives of Pakpen Plastik Boru ve Yapı Elemenları San. ve Tic. A.Ş., to be followed closely within the considerations of an upward trend in export sales and effect of foreign exchange rates on raw material costs along with the existing market conditions of high volatility in foreign exchanges. The main driving forces that can call forth a revision in the current outlook status include Company related issues affecting its financial figures along with Turkey s sovereign rating which is highly responsive to domestic and foreign political and economic uncertainties, tensions and developments. Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 3

4 3. Sponsor Support & Stand Alone Assessment Sponsor Support notes and risk assessments mainly reflect the financial and non-financial positions and assistance capability of the major shareholders of Pakpen Plastik Boru ve Yapı Elemenları San. ve Tic. A.Ş., Tuza Holding A.Ş., TUZA Family members and Mr. Mehmet TUZA with the highest direct and indirect shares. It is considered that the Company s legal entity shareholder and the TUZA Family members have the willingness to supply long term liquidity or equity within their financial capability when required, and that they have adequate experience to provide efficient operational support to the Company. The Stand Alone grade has been constituted particularly with respect to Pakpen s long operating track record, versatile market experience achieved through diversified production and product range, high brand recognition, extensive manufacturing facilities, wide-ranging distribution network, influential and reputable customer portfolio, diversified funding sources and qualified human resources. Under these assessments, JCR Eurasia Rating has assigned the Sponsor Support grade as 2 reflecting financial and nonfinancial states and expected support by the shareholders, and a Stand Alone grade of B with the opinion that Pakpen has reached the level of high experience and facilities to manage the incurred risks on its balance sheet without any assistance from its shareholders, on condition that it maintains its efficiency in the market. 4. Company Profile a) History & Activities The roots of the Company date back to 197, the year that Mr. Mehmet TUZA established PAKSU İnşaat Tesisat Malzemeleri San. ve Tic. A.Ş. and began trading of construction products in Konya. Following the experience gained in the sector, Mr. Mehmet TUZA founded Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. in 1989 under the name IBG Pakplastik Plastik Yapı Elemanları Sanayi ve Ticaret A.Ş. and began production of PVC window profiles. The export of Company products began in The Company rapidly expanded its product range of plastic building materials, particularly following the favorable investment environment in 21. The production of PVC building siding was initiated in 21 through the establishment of a siding plant and of PVC panels and PVC sandwich panels in 23 and 24, respectively. The heat insulation material plant was engaged in 25 to produce white (EPS) and colored (XPS) insulating boards. Plants for the manufacturing of indoor plumping pipes and infrastructure pipes plant were engaged in 26 and 27, respectively. In addition, door production began in 27 through additional investment in the siding plant. The years between 27 and saw extensive expansion and investment in automation. Accordingly, the Company become one of the largest plasticbased building materials and plastic pipes manufacturers in Turkey through its operations in three business lines (PVC window and door profiles, plastic pipes and insulation). The Company was ranked on the Top 5 Largest Industrıal Organization as compiled by the Istanbul Chamber of Industry and on the Fortune 5 and Super Brands lists. The Company products under the brand names of PAKplast, PAKPEN, PAKDoor, PAKForm, PAKsiding, PAKcountry, PakBoard and Pakpanel are offered for sale in almost 1,5 sales points, including sub-dealers. The Company s overseas sales started in 1998, spread to 42 countries and composed 17.7% of its gross sales as of FYE. b) Organization & Employees The board of the Holding Company consisted of 3 nonindependent members, Mr. Mehmet TUZA and his two sons, as of FYE. Mehmet TUZA İbrahim TUZA Fuat TUZA Board Members Chairman Vice Chairman Member The organizational chart of the Company is composed of 14 main units (Raw Material Purchasing, Investment & Purchasing, Maintenance, R&D, Operations, Quality, Financial Affairs, Human Resources, IT System, Advertising & PR, Wholesale and Special Projects, Insulation Group Sales, Pipe Group Sales and Profile Group Sales) configured under the General Manager and Executive Board. Moreover, the Company s organizational chart covers 15 sub-units (5 regional offices, in-building pipe sales, infrastructure pipe sales, accounting, finance, investor relations, infrastructure pipe production, inbuilding pipe production, infrastructure pipe technology, profile group production and XPS-EPS) structured under four main units. The Company carries out its production activities through its production facilities located in the Konya Organized Industrial Zone. Facilities are comprised of 7 integrated plants spread over a land area of m2, m2 of which is indoor area. Marketing and sales activities are performed through 5 regional directorates in Istanbul, Ankara, Konya, Izmir and Antalya. The Company has a dealer network of 65 spread across the country. Overseas sales are performed through the wholly-owned subsidiary Pakpen Dış Ticaret A.Ş. The Company had a labor force of 793, of which 69 were union members, as of FYE (FYE: 827 and 61, respectively). The Company signed a three-year collective bargaining agreement with the Petroleum Chemical Rubber Workers Union of Turkey. c) Shareholders, Subsidiaries & Affiliates The following table provides the Company s year-end shareholding structures, paid-capital amounts and realized changes since. The Company s paid capital increased from TRY 9mn to TRY 113mn in and has since remained unchanged. The Company became a subsidiary of Tuza Holding A.Ş. through the transfer of 88.5% of shares in. Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 4

5 PAKPEN PLASTİK BORU ve YAPI ELEM. SAN. ve TİC. A.Ş. Shareholders Structure As of FYE, the shareholder structure of Tuza Holding A.Ş., founded in, is as follows. The Company had a wholly-owned subsidiary, Pakpen Dış Ticaret A.Ş., conducting overseas marketing and sales activities of the Group through a work force of 12 as of FYE. Additionally, the Company had a related party company, Paksu İnşaat ve Sıhhi Tesisat San. ve Tic. A.Ş., mentioned in its year-end audit report. TUZA Family members are sole owners of the company, with Mr. Mehmet TUZA holding a 5% share. The sale of construction and plumping materials constitutes its main activity field. The company has established the sales points and sub-dealer network regarding the sale of natural gas following the attaining of natural gas in Konya. The company had TRY 48.44mn total assets, TRY 7.42mn equity and TRY 4.34mn net sales revenue as of FYE. d) Corporate Governance Tuza Holding A.Ş Mehmet TUZA Güzide TUZA İbrahim TUZA Fuat TUZA Paksu A.Ş..1.1 TOTAL Paid Capital (TRY/) 113, 113, 113, 9, TUZA HOLDİNG A.Ş. Shareholders Structure Share % Share % Mehmet TUZA İbrahim TUZA 7.19 Fuat TUZA 8.57 Güzide TUZA 3.8 TOTAL 1. Paid Capital (TRY) 5, Pakpen Dış Ticaret A.Ş. Main Financial Figures as of FYE TRY () Total Assets 17,314 Equity 1,7 Paid Capital 2, Net Sales 66,137 Pre-tax Profit/Loss 256 Net Profit/Loss 25 As Pakpen is not a publicly listed company, it is not subject to Corporate Governance regulations set by the Capital Markets Board (CMB). On the other hand, highly competitive markets in its activity fields, the structure of activities involving production and export sales and bond issuance in create the necessity of implementing corporate governance related practices. The Company maintains its books of account and prepares its statutory financial statements in accordance with accounting principles in the Turkish Commercial Code and tax legislation. The annual financial results of the Company are subject to independent audit reports prepared in accordance with international financial reporting standards over the years. The Board of Directors consists of 3 members, all of which are TUZA Family members and accordingly none are independent. The chairman of the Board is an utmost qualified shareholder in the Company through the stakes in the Company s legal entity shareholder, Tuza Holding A.Ş.. It is concluded that the Board Members have the adequate qualifications and broad market experience to administer their duties and that the Board successfully performs its duties of leading, supervising and inspecting. Although the Committees (corporate governance, audit and early detection of risk) outlined in the Corporate Governance Principals (CGP) have not yet been established, the Company established an Executive Board comprised of board members and the general manager. Moreover, the Company has not established a separate internal control unit. On the other hand, a management strategy emphasising corporate governance principles has been adopted in recent years. Additionally, the audit firm of the Company has prepared an audit report regarding the establishment of an early detection system and committee and submitted it to Company Board in accordance with the related provision of the Turkish Commercial Code. The Company s website has a comparatively high compliance level with corporate governance principles, includes a separate investor relations heading and provides information and disclosed documentation such as the Company s history, vision and mission statements, quality policy and certificates, environmental policy, affiliates, organization chart, shareholder structure, board structure and board member s CVs, audit and annual reports, articles of association, trade registry information and operating certificate, general meeting minutes, code of ethics, disclosure and notices sent to Public Disclosure Platform, prospectus and circular regarding bond issuance and social responsibility practices. Moreover, the personal backgrounds and CVs of the managerial staff and the disclosure policies and remuneration policy regarding board members and executive managers should be disclosed to the public via the website to realize the principles of corporate governance. Within the scope of social responsibility, the Company actualized an exemplary project of foundation of a technical and industrial vocational high school in. 5. Sector Analysis and Operating Environment The activities and investments of Pakpen are principally concentrated on the production plastic based construction materials. As such, the sector report will be primarily concerned with the global and domestic developments in the wider construction, plastics and plastic construction materials industries. Construction Sector One of the main growth engines of the Turkish economy, the construction sector contributes to economic output not only through principal sector revenues but also more than 15 subsectors including cement, ceramics, wood and glass. The Sector engendered solid sales and construction figures in recent years and completed with success and yet another record in housing units sold, exceeding 1.17mn. The Sector is estimated to provide employment to 1.8mn people, marking its importance to the economy. Furthermore, the sector has a significant presence in neighbouring countries and the wider international market with regard to construction materials exports and overseas contracting projects. In, Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 5

6 the total value of the 393 new projects undertaken by Turkish construction firms in 47 different countries realized a value of USD 31.7bn, indicating a slight yet continuous growth. Turkmenistan, the Russian Federation, Azerbaijan, Iraq and Kazakhstan accounted for 74.3% of the total project value. On the other hand, Turkish contracting companies operating in foreign countries were faced with a very challenging year due to significant economic and political disturbances in key markets such as Libya, Syria, Iraq and Russia which account for the vast majority of contracts. Nevertheless, these companies acquired 255 new contracts amounting to USD 22.5bn in first 9 months of. Between 21 and, there was a sharp rise in the value of new projects undertaken abroad, from USD 2.39bn in 21 to USD 31.3bn in. Total overseas business volume in the same period reached USD 274bn across 7,371 projects. In the first half of, USD 9.98bn worth of new projects across 116 countries, a significantly lower value as the instabilities and security concerns major Iraqi and Libyan markets had a detrimental impact on the growth of construction contracts. With 42 Turkish companies listed on the Top 25 International Contractors List, compiled annually by the Engineering News Record Magazine, Turkey ranked 2nd after China (62 companies). As of 3Q, the share of the sector within GDP realized a value of 5.85%, maintaining its share (3Q: 5.88%). The Sector s growth mimics that of the GDP, with more accentuated hikes and declines. Therefore, the outlook of the sector will be heavily dependent on the economic prospects of Turkey. The growth in housing loans, one of the key indicators concerning demand and activity in the sector, maintained its upward trend and increased to TRY bn as of FYE. As such, growth in housing loans recorded a value of 14.2% during FY, lower than the growth of 29.31% recorded during FY, indicating a slower yet strong growth. The share of housing loans among total loans given by the Turkish banking system recorded a slight drop of around.4% and realized a value of 1.6% as of FY. Statistics obtained from the Turkish Institute for Statistics (TUIK) reveal that construction permits increased by 18.11%, 24.52%, 42.93% and 21.43% in number of buildings, floor area, value and number of flats, respectively. Occupancy permits on the other hand recorded increases of 4.92%, 9.44%, 25.14% and 6.29%, respectively, in the same fields. TURKISH CONSTRUCTION SECTOR's BUILDING PERMITS (New building and additions) Year Number of Buildings Floor Area (m2) Value - ( TRY) Number of Flats 139, ,429,366 11,794,139 97,451 11,9 123,621,864 81,177,868 65,127 14, ,952,913 14,257,399 75, , ,796, ,339, ,69 137, ,664, ,429,279 1,14,678 TURKISH CONSTRUCTION SECTOR's OCCUPANCY PERMITS (Completed or partially completed new buildings and additions) Year Number of Buildings Floor Area (m2) Value - ( TRY) Number of Flats 82,47 85,281,468 11,794, ,755 11,9 123,621,864 81,177,862 65,127 94,75 13,877,581 69,53, , , ,81,938 94,316,4 721, ,49 15,823, ,31, ,527 Following a robust growth in, the construction sector managed to display a satisfactory performance in as well. When the monthly data is examined, a hike in the housing sales as of August is observed, indicating realization of postponed housing investments due to the Presidential elections that took place at the same month. Upon the resolution to a certain extent of the uncertainty and political tensions, housing sales accelerated in the last quarter of. The total sales figure reached 1,165,381 as of FYE, slightly beating the previous year (1,157,19). Therefore, it appeared that the volatility in interest rates and in the local currency markets following the corruption investigations that began on 17 Dec, have been negated to a certain extent. On the other hand, the fluctuations in the currency rates, unfavorable economic outlook in the neighboring regions including the EU, Russia and Middle East might curtail the prospects of the Sector in 215. Year Housing Sales Figures Total Houses Sold 67,98 78,275 71,621 1,157,19 1,165,381 In, upper-end housing market sales displayed a notable slow-down in terms of units sold with the total number of house sales falling to 1,32 from 15,95. On the other hand, net sales revenue declined only slightly to TRY 5,212mn from 5.766mn, indicating much higher prices per unit were achieved, on average, in compared to the previous year, compensating the decline in the number of houses sold. Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 6

7 A series of legislations passed by the Turkish Parliament are expected to have a positive impact on the sector s outlook in the medium and long-term. These include the permitting of the development on land areas of almost 4.1mn acres, the increase in the number of countries whose nationals are allowed to buy Turkish property from 56 to 18 and largescale urban transformation projects expected to last 2 years and create a market worth USD 4bn. Furthermore, the ongoing growth trend in the Turkish economy and the increasing share of the mortgage market in the country s GDP are other important factors that will support the sector s growth in the long-run. On the other hand, the ongoing unrest in Turkey s nearby geography is a factor effecting downward pressure on the sector domestically as well as on Turkish Construction Companies with overseas operations. In addition to the factors listed above, continuous investment in public infrastructure in line with the plans of the General Directorate of Highways, the General Directorate of State Hydraulic Works and the Housing Development Administration of Turkey are important contributions to the sector s growth and development in the long-term. The Ministry of Transport, Maritime Affairs and Communications targets the construction of 5,562km of new highway using the build operate transfer model by 223. According to the ministry web site, Turkey had 2,244km highway as of 31 October. By 223 Turkey projects a total highway length of 7,827km, dual-carriage length of 29, km, for a total highway length of 36,839km. the total road network covered with hot bituminous mixture (HBM) will reach 7,km. low & middle income individuals and increase their housing demand. Despite the modest outlook noted for the sector in the medium and long-term, it suffers from a number of shortcomings in a number of areas. These include the large share of informality within the sector, the relatively short maturity of housing loans limiting access, increasingly short contract terms and difficulties inherent in the financing of new housing projects resulting from high leverage. On the other hand, the technical know-how, high-quality human resources and its international reach are among its major strengths. Sources: Turkish Contractors Association, the Association of Real Estate Investment Companies and TÜİK, BRSA Plastics Industry According to statistics compiled by Plastics Europe, global production of plastics reached 299mn tons as of FYE, representing a 3.82% increase from the FYE figure of 288mn tons. In line with the expansion of the world economy, growth in the plastics industry averaged 8.7% in the 195- period as metal, glass and paper have been increasingly replaced by plastic packaging particularly for foods. China remains the leader in the production of plastic materials with a share of 24.8%, followed by Europe and NAFTA with shares of 2% and 19.4% respectively based on FYE figures. The five largest producers of plastic materials include China, United States, Germany, Saudi Arabia and India with an aggregate share exceeding 53.%. Global Plastics Production by Geography (%) Furthermore, the Turkish Banking Sector maintains its support for Turkish contractors operating abroad. The increase in the overall population by an average of 1.2% a year combined with increases in per capita income and new household formation as a result of new marriages and immigration into large urban centers are the other factors that drive the sector s growth performance. In 215, the Turkish parliament approved the international job safety and health legislation promoted by the International Labor Organization (ILO). According to the law, numerous structures, facilities, tools and equipment used in construction works must comply with ILO standards. The law also gives several rights to the construction workers to prevent occupational hazard. While the law is expected to increase the costs for the construction companies, better safety standards and monitoring is expected to contribute to the Sector as a whole. The Turkish government proposed a series of structural reform and incentive policies, including a subsidy package for prospective house owners in 215. Mortgage loans are allowed to cover at most 75% of the total value of the house by law, meaning that the remaining 25% must be provided by the buyer upfront. According to the new plan, individuals who open a specific savings account with the intention of accumulating funds for the initial payment of the house (25% of the house s value), will receive a 15% governmental support to be added to their savings account balance. This incentive is expected to provide support particularly to the It is anticipated that the global market for plastics will maintain an upward momentum in the forthcoming period and reach USD bn by 22. Growth that will be observed in industries such as packaging, construction and automotive in large emerging markets particularly China, India and Brazil will be the major contributors to demand for plastic products. On the other hand, North America and Europe represent relatively mature markets with new demand stemming largely from bio-based and sustainable alternatives. Some of the largest companies operating in the sector on a global scale include BASF (Germany), E.I. du Pont (USA), Dow Chemical Company (USA), SABIC (Saudi Arabia) and LyondellBasell Industries (Netherlands). According to data from AMI Consulting, global polymer demand is expected to grow by about 5%, reaching more than 3mn tons by 218 as consumption in the developing Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş China Europe NAFTA Rest of Asia Mid East & Africa Latin America Japan CIS

8 world outweighs the slowdown in growth across the developed world. As the greatest polymer consuming region, China now accounts for 3.% of volumes in FY compared with 6.% 3 years ago. On the other hand, the aggregate share of the developed economies of North America, Western Europe and Japan reduced to 32% from approximately 74% in Polyethylene (PE) emerged as the leading product segment for plastics and accounted for 34.9% of total market volume in FY. It is utilized in high volumes across various industries including film and sheet, injection molding, blow molding and pipe manufacturing. The Turkish plastics sector maintained an upward trend over the last 1 years, and continued to grow above the GDP growth rate. The average annual growth rate of the industry for the 2- period attained a value of 1.8%. Furthermore, with a processing capacity of 8.1mn tons, the Turkish Plastics Industry is ranked as the 7th largest on a global scale and 2nd largest in Europe after Germany. The Turkish Plastics Industry has a 1% share in global plastic product exports whilst having a 1.3% share in plastic product imports. Packaging, construction and automotive represent the three leading sectors that drive demand for plastics Turkish Plastics Material Production (Mn Tons) The exports of Turkish plastic material products exhibited a CAGR of 9.8% in quantitative terms and 8.3% in monetary terms for the 28- period. The monetary value of direct exports (USD 3.3bn in FY) remains well below those of other countries such as Italy and Belgium with exports of USD 1bn and USD 5bn respectively. As such, the value of exports per kg of plastic materials produced for Germany and Italy are USD 1.8 and USD 1.2 respectively in comparison to Turkey s 46 cents. Therefore, the Turkish plastics industry largely concentrates on products that have relatively lower added value in comparison to other developed economies in Europe. According to data obtained from the Union of Chambers and Commodity Exchanges of Turkey (TOBB), there are approximately 14, companies operating in the plastics sector, 98. % of which is comprised of SMEs. Statistics from PAGDER (Plastic Industrialists Association) show that 6,499 companies are involved in manufacturing. The total employment opportunities generated by the sector reached 25,. When the numbers of companies are categorized on a sector basis, construction material producers lead the way with a 23.1% share followed by packaging materials producers and producers of household goods with shares of 22% and 9.4% respectively Plastics Production by Industry ( Tons) Packaging 324 Construction 1782 Durable Goods 81 Agriculture 486 Textile 324 Automotive 324 Others 1134 TOTAL 81 The construction and buildings sector enjoy a 2-25% share among all fields of application across the plastics industry. The utilization of plastic products in the construction sector has undergone a rapid increase in comparison to alternative products. Plastic products possess certain competitive advantages compared to other materials including insulation, endurance, cost-effectiveness, low operational and maintenance expenses, ease of hygiene and innovation. According to data published by PLASFED, the plastic construction materials producers met 93% of domestic demand in Turkey, having maintained their growth trend throughout FY. As of FYE, the aggregate value of production attained by the sector reached USD 7.2bn, with exports of USD 1.8bn and a foreign trade surplus of USD 1.3bn which recorded an increase of 7% throughout FY. The production of plastic construction materials increased to 1.7mn tons as of FYE, up from 1.1mn tons figure recorded at FYE28 whilst the monetary value of the sector s output attained a value of USD 7.2bn. On monetary terms, production increased by 12% compared to the previous year whilst its share among the wider plastics industry remained flat at 22%. On the other hand, exports of the sector maintained an upward momentum in the 28- period and reached 713, tons with an aggregate value of USD 1.8bn from 466, tons with a value of 1.3bn. Turkey is currently ranked as the 5th largest exporter of plastic construction materials on a global scale with a market share of 4%. Across the EU, it is the third largest exporter behind Germany and Italy. Turkey exports plastic construction materials to more than 15 countries with the 5 leading markets including Iraq, Russia, Libya, Azerbaijan and Georgia. Exports to ten leading markets comprised 71% of total exports in quantitative terms and 67% in monetary terms. The unit value of plastic construction material exports corresponds to approximately half of the unit value of imported products. On quantitative terms, the sector exports 42% of its aggregate production, however based on value, the corresponding amount falls to 25%, emphasizing the need for greater value-added manufacturing. The unit price per ton of imports underwent an increase of 5% in FY and realized a value of USD 5,889 while the unit export price per ton of exports grew by 2% and attained a value of USD 2,494. As such, there is an increasing gap in favor of imports when the unit prices of imports and exports are compared. It is anticipated that Turkey s strategic location at the heart of a rapidly developing region along with a young demographic and increasing levels of household income which contributes to the demand for qualified residential property are the major factors that will contribute to the growth of the plastic construction materials sector in the medium and long-term. In order to improve the competitiveness of the sector in the long- Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 8

9 run, greater levels of state support should be provided to increase investment and R&D activity in order to ensure greater contribution to Turkey s balance of payments. As of FYE, 252 firms in the plastics sector enjoyed foreign ownership with the five leading investors including Germany, Italy, France, Netherlands and Iran. According to PLASFED, 31 companies featured among the 5 Largest Industrial Enterprises List compiled by the Istanbul Chamber of Industry (ISO) based on sales revenues. The five largest companies namely included PETKIM, Brisa Bridgestone, Sasa Polyester Sanayi, Turk Pirelli and TUSAŞ. On the other hand, the five largest centers with the highest level of plastics production include Istanbul, Bursa, Izmir, Ankara and Kayseri that have an aggregate output of 6.3mn tons corresponding to 78% of the countrywide total. Similarly, the distribution of plastics companies across the country resemble a similar pattern to that of industry with 91.3% of firms located in 12 cities. Total exports by the plastics sector stood at USD 5.6bn as of FYE. 34 firms were ranked among the Leading 1 Exporter Companies List compiled on an annual basis by the Turkish Exporters Assembly. (TIM) The exports of 34 companies equated to 51.% (USD 2.9bn) of total plastic and raw material exports and 2% of Turkey s total exports. The share of the largest players in industry s output and exports is declining in contrast to SMEs in recent years. Based on the monetary value of exports, the largest companies namely include Petkim, Türk Pirelli Lastikleri A.Ş., Sasa Polyester, Korozo Ambalaj and Köksan Ambalaj. The largest export destinations include Germany, Russia, Italy, Egypt and Iran. having peaked in FY with USD 885mn and dropped to USD 732mn in FY. Dependence on imports for raw material requirements is one of the most pressing issues facing the plastics industry in Turkey. The dependency rate on imports is currently estimated as approximately 86.% (FYE: 88.%) with Turkey being one of the leading net importers of polymers such as polyethylene (PE), polypropylene (PP) and polyvinylchloride (PVC). The average export unit price for plastic raw materials was USD 1,689 per ton in FY, indicating a rise of 2% from the FY figure. PETKIM is by far the largest investor in Turkey in the field of petrochemicals and is unable to meet current market demand whilst it remains difficult to attract foreign investors into the sector. The dependence on raw materials coupled with high import taxes becomes more significant in times of economic instability which increases vulnerability to fluctuations in exchange rates, contributing to the cost-base of manufacturers. Large falls in crude oil and naphta prices from the beginning of FY215 onwards led to a substantial drop in petrochemical feedstock costs across Europe which can have a positive effect on company margins Turkish Plastic Raw Material Imports (USD bn) The capacity utilization rates of companies operating in the sector dipped in FY29 with the onset of the global economic recession and attained a value of 64.3%. However, with the rise in demand, utilization rates underwent a recovery in the following period and peaked in FY with a rate of 76.2%. In general, the capacity utilization rates resembled that of the wider trend in the manufacturing sector and reached 72.6% in FY which was slightly below that of the wider manufacturing industry (74.6%) General Manufacturing Plastics and Rubber Capacity Utilisation Rates (%) Despite some of the issues mentioned above, the Turkish plastics industry continues to be highly attractive in the medium and long-term due to rising per capita income, urbanization, young demographics and the anticipated growth in the packaging and construction sectors. Furthermore, in line with the government s 223 agenda which projects exports of USD 5bn for the chemicals industry, the export of plastic and rubber products is estimated to reach USD 23.3bn. Sources: Plastics Europe, TUIK, Turkish Plastic Industrialists Federation (PLASFED), Turkish Plastics Industry Foundation (PAGEV), Turkish Plastic Industrialists Federation (PLASFED) 6. Financial Foundation a) Financial Indicators & Performance The Company s total asset size increased by 6.5% and In line with the growth in processing capacity, the sector amounted to TRY 794.2mn as of FYE. The Company invested approximately USD 6.4bn in machinery and exhibited a continuously positive and fluctuating asset growth equipment in the 23- period, 8% of which has been pattern over the last five years and realised a five-year imported. The investment in machinery and equipment cumulative growth of 9.82% as of FYE. The main followed a similar pattern to the trend in economic growth Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş Indices Relating to Size

10 factors of the last year asset growth were the increases of 11.8% in inventories, 7.93% in tangible assets of which half of it derived from revaluation, 8.83% in trade receivables and 185.3% in trade receivables due from related parties. The Company showed a steep growth in mainly due to a 48.67% increase in tangible assets through TRY 19.17mn investment and TRY 89.91mn revaluation and 2.41% and 6.36% increases in inventory and trade receivables, respectively ANNUAL The Company carries out its manufacturing activities through 7 factories. Moreover, the Company holds a certain stock level due to its field of activity and in accordance with the management strategy adopted. Accordingly, the asset distribution of the Company exhibited an almost similar pattern over the years with the highest share in tangible assets and after inventories and receivables, respectively. Intangible Assets + Others Inventories (Net) Liquid Assets+Marketable Securities Asset Growth Rates (%) Asset Distribution (%) CUMULATIVE 1.45 Activities in the three business lines of PVC window and door profiles, plastic pipes and insulation produced a continuously increasing gross profit over the last five-year assessment period. The Company realised five-year cumulative growths of %, % and % in net sales, gross sales and gross export sales, respectively. The gross export sales, with the main export markets of France and Azerbaijan, held a 17.67% share in gross sales and actualised a net sales generation capacity of 72.28% as of FYE Tangible Assets Trade & Other Receivables & Leasing 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % Indices Relating to Profitability The Company ratio of cost of sale to total sale showed an almost steady pattern and stood immediately below the maximum international reference value over the last four years depending on market conditions and raw material price movements. Direct raw materials and supplies coast constitutes 84.95% of total coast of finished goods. The gross profit margin of the Company displayed an almost stable pattern over the last four years, ranging between 16.87% and 18.51% over the last two years and fluctuating slightly due to differential sales deductions, mainly composed of sale discounts, and cost of sales. An almost steady gross profit margin level enables more accurate future forecasts and facilitates planning. The gross profit from principal activities increased by 16.21% and amounted to TRY 82.82mn as of FYE. A 1.15% increase in sales deductions against 36.64% increase in net sales led to the steep increase in gross profit growth Net Sales Gross Sales Gross Export Sales TRY (,) Cost of Sales / Total Net Sales (%) Gross Profit from Principal Activities Growth (%) Gross Profit Margin (%) % 6% 4% 2% % -2% -4% The Company s profitability ratios of ROAA and ROAE exhibited mostly negative and fluctuating pattern over the assessment period between and considering the Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 1

11 pre-tax profit and average total assets and equity. The main factors suppressing the profitability ratios are activities and financing expenses. Foreign exchange gains/losses are the main factor of the fluctuating pattern On the other hand, the annual average equity and total assets of the Company exhibited comparatively high income generation capacities over the years despite a slight decelerating trend and stood at 294.2% and 86.66%, respectively, as of FYE ROAA (%) ROAE (%) b) Asset Quality The Company s total asset exhibited a continuously current assets weighted dispersion along with an almost steady level ranging between 6% and 65% over the years due to comparatively high trade receivables and inventories amounts. Inventories were the largest item among current assets, followed by trade receivables and cash to a smaller extent. Current assets weighted asset dispersion together with the average maturity of trade receivables of 13 days and which was below the average maturity of trade payables of 179 days relieved the liquidity management and lowered the risk level % T. Income / Equity (%) T. Income / T. Assets (%) 6.72% 39.28% Current Assets / T. Assets (%) Noncurrent Assets / T. Assets (%) 65.84% 34.16% 65.11% 34.89% 61.93% 38.7% 62.94% 37.6% 6% 5% 4% 3% 2% 1% 7% 6% 5% 4% 3% 2% 1% % The NPL ratio of the Company exhibited an upward trend over the last five years and increased to 16.8% in from 9.9% in. A higher increase in doubtful receivables than that of trade receivables together with decreasing provisioning level pressured down the asset quality. Accordingly, a 23% increase in doubtful receivables against an 8.83% increase in trade receivables resulted in an increase in the NPL ratio from 13.15% to 16.8% in. Additionally, the provisioning level decreased to 66.12% from 78.43% in the last year. 9.9 NPL % Trend Line c) Funding & Adequacy of Capital 16.8 The Company s equity level exhibited a stable pattern at 3% over the last three years and stayed slightly below the international reference values and average of publicly traded companies in the plastic materials sector during the assessment period. Year end figures were 29.78% and TRY mn, respectively. While Company equity increased by 46.72% over the last two years, the cash generation capacity of the equity remained limited due to its structure comprised of approximately fifty-fifty paid-capital and revaluation funds. The funding needs derived from asset growths were satisfied mostly through external funding sources of borrowings and TRY 1mn bond issuance with a two-year maturity in. Accordingly, the share of financial liabilities exhibited an upward trend since and stood at the highest share of 51.6% as of FYE. The Company s debt ratio and equity level among its liabilities remained almost at the same level since the share capital increase from TRY 9mn to TRY 113mn in following fluctuations due to increasing trade volume and inventories. Both ratios remained around the national Equity+Minority Interest (%) Advances Received (%) Other Liabilities (%) Trade Payables (%) Financial Liabilities (%) Resource Distribution % % % 9% 8% 7% 6% 5% 4% 3% 2% 1% Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 11

12 reference values over the last three years along with a slight improvement The Company s total resources had a short term liabilities weighted dispersion with a year-end value of 53.2%. Short-term liabilities increased by 36.45% to TRY 33.67mn from TRY mn as of FYE due to the conversion of the financial liabilities structure to a short-term weighted dispersion within the scope of the two-year bond issuance in. The comparatively low level of long term liabilities share formed the basis for further growth opportunities via long term funding in accordance with the Company s shortterm bond issuance projection Although the Company had a short-term weighted total resources dispersion, the current assets level continuously stayed above it, contributing to risk level and liquidity management Debt Ratio (%) Equity / Liabilities (%) Accordingly, the Company s net working capital was positive, and more importantly, followed an increasing trend over the years resulting in a year-end amount of TRY 78.76mn. These figures contribute to the risk level. On the other hand, Short Term Liabilities / Total Assets (%) Long Term Liabilities / Total Assets (%) Equity+Minority Interest / Total Assets (%) Short Term Liabilities / Total Assets (%) Current Assets / Total Assets (%) Sept the decline in the last year deteriorated the liquidity ratios to below reference values, complicating the liquidity management within the considerations of inventories with the highest share (53.81%) in current assets, the term structure of sales and a days inventories utilization of 232 which is above the average maturity of trade payables of 179 days. On the other hand, the average maturity of 13 days for trade receivables contributes to liquidity management. 37, Net working capital - TRY () 7, Risk Profiles & Management a) Risk Management Organization & Its Function General Informatıon The operating strategies of the Company are determined by the executive committee, composed of board members and general manager, through assessment of internal and external events that could have significant impact on the Company balance sheet. Additionally, the risk monitoring committee, composed of board chairman, general manager and relevant senior managers, assess the credit limits of dealers and corporate customers and their compliance with the Company s credit policy. Moreover, the stated committee takes necessary precautions against possible credit risks and improves the processes. The Company s financial risk management strategy aims the use of optimal method covering derivatives that will ensure the control of financial uncertainties, preserve gross profit margin and support the external source/debt structure that would minimize the parity risk. When the appropriate market and cost conditions occur, futures, options and swap instruments are used. b) Credit Risk 44,96 94, ,145 18, 16, 14, 12, 1, 78,757 8, 6, 4, 2, The Company is exposed to credit risk due to its receivables mainly composed of trade receivables from its dealers and corporate customers. Trade receivables derived from Company operations totaling TRY 15.8mn as of FYE constituted 21.73% of the total asset size and represented the major source of credit risk for the Company. The Company s credit risk management strategy aims to have a trade receivables portfolio with minimized default risk through banking system instruments of letter of guarantee, direct debiting system and credit insurance and with low average maturity enabling high level of liquidity. Moreover, the Company tries to minimize its credit risk exposure through setting credit limits for each dealer, obtaining sufficient collateral if necessary and spot selling for risk customers. The Trend Line Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 12

13 Company s NPL ratio exhibited an upward trend over the review period and stood at above reference values of 16.8% as of FYE. On the other hand, the sale of long standing NPL with weak collection capability is in the Company s mid-term agenda, which would contribute to asset quality of upcoming periods. c) Market Risk The Company monitors its market risk under the headings of interest rate and currency risks. While the Company s interest bearing assets were fixed interest rated, the interest bearing liabilities were variable rated as of FYE. The Company works to minimize interest rate risk through adjusting the interest rate composition of its financial liabilities according to market conditions. The sensitivity analysis of 1% change in interest rate resulted with a negligible variance range of (+/-) TRY 224k in the Company s year-end pre-tax profit. The Company s foreign currency denominated assets and liabilities derived from export sales and raw material import leads to foreign currency risk exposure. The Company s foreign currency denominated liabilities continuously exceeds the foreign currency denominated assets due to its import weighted raw material procurement. Accordingly, the Company has a continuing short FX position which has the edge during the periods of decreasing exchange rates. These risks are monitored through the analysis of the foreign currency position. The Company s year-end net short FX position was TRY 85.37mn and the net profit of the Company had a variance range of (+/-) TRY 8.54mn, 3.91% of the year-end equity, in the case of a 1% increase or decrease in exchange rates with the assumption that all other variables will remain constant as of FYE. Moreover, the 68% raw material and supplies weighted dispersion of inventories, corresponding to approximately 9-day raw material need of the Company, provides hedging for foreign currency risk exposure. Additionally, the Company s FX position regarding total assets and equity exhibited an ongoing improvement over the last four years. d) Liquidity Risk Liquidity risk arises from shortfalls in meeting net funding requirements. Short-term financial liabilities and trade payables are the major components of liquidity risk for the Company. The Company had a significantly high liquid assets level of 62.94% as of FYE due to high inventories. Moreover, the Company s current assets size remained higher than the short term liabilities during the assessment period of 28 to, resulting in a positive net working capital of TRY 78.76mn with a 119% current assets to short-term liabilities ratio as of FYE. The Group manages its funding of actual and forecasted financial obligations by maintaining the availability of a sufficient number of high quality loan providers. As of February 2, 215, credit lines worth TRY mn, of which 64.85% (TRY mn) consisted of cash lines, have been extended to the Company by 18 financial institutions. Of this, 68.45% has been drawn upon, with a cash free line amounting to TRY 52.82mn. Accordingly, the above stated issues remarkably lessen the Company s liquidity risk exposure level. 8. Budget & Debt Issue a) Budget The estimated budget projection submitted by the Company is shown in the table below. The projection covers the debt instrument issuance related issues. The budget does not envisage a significant growth over the next two years in accordance with its medium-term corporate strategy which aims to strengthen the financial structure to increase the capability of utilizing a future opportunity. Balance Sheet TRY Actual Budgeted Current Asset 499,72, ,882,32 522,65,571 Cash&Cash Equivalents 1,398,662 14,884,943 17,91,698 Trade Receivables 183,19, ,813,418 26,459,985 Inventories 254,853, ,824, ,345,18 Other 51,358,78 51,358,78 51,358,78 Non-Current Asset 294,31, ,12, ,242,125 Tangible Assets 274,733,36 272,534, ,673,687 Intangible Assets 241, , ,937 Other 4,731,255 4,731,255 4,731,255 Deffered Taxes 14,595,246 14,595,246 14,595,246 Total Asset 794,22,26 786,984, ,37,696 Short Term Liabilities (STL) 42,963,61 327,792, ,2,927 Financial Liabilities 33,665,63 16,558, ,728,17 Trade Payables 81,53, ,439, ,498,346 Other 35,794,474 35,794,474 35,794,474 Long Term Liabilities (LTL) 136,613,97 21,837, ,8,972 Financial Liabilities 11,734, ,958, ,22,1 Provisions 3,53,148 3,53,148 3,53,148 Deffered Taxes 31,348,823 31,348,823 31,348,823 Equity 236,445, ,354, ,25,797 Share Capital 113,, 113,, 113,, Other Reserves & Reveluation 12,489,387 12,489,387 12,489,387 Prior Years' Profit and Losses 1,5,75 2,956,166 23,865,189 Net Profit 1,455,416 2,99,23 35,851,221 Total Liabilities 794,22,26 786,984, ,37,696 Pre-tax Profit -1,91,557 2,99,23 35,851,221 Annual Asset Growth % Equity/Total Asset % ROAA % ROAE % The major assumptions and outcomes of the projected budget are as follows: No paid-capital increase over the projection period Annual weighted average price increases ranging between 4% and 5% for each product group Quantity based growths of 4%, 6% and 1% in 216, 217/218 and 219, respectively Approximately 8.7% annual improvement in gross sales revenue over the next two years Gross profit margin ranging between 18.8% and 18.71% over the projection period Continuous improvement in EBITDA from TRY 69.73mn in 215 to TRY 19.51mn in 219 along with EBITDA Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 13

14 margins ranging between 13.3% and 14.6% over the projection period Debt collection period of 13 days and debt repayment period of 11 days Continuous improvement in inventory turnover period from 2 days in 215 to 16 days in 219 2% gross profit margin excluding amortization Integrating the above stated projection with the last five years growth series result in a projected cumulative assets growth rate of 95.46% between 29 and FYE % 11% 1% 99% 98% 97% 96% 95% Cash Generated in the Period/Cash Used in the Period Threshold 11.7% 1.71% 1.52% 1% 1% 1% 1% 1% 99.93% 96.78% Cumulative Equity Growth Rate % Cumulative Asset Growth Rate % Cumulative Liability Growth Rate % % Budget-215 Budget-216 Cash Obtained from Equity Cash Obtained from Activities Cash Obtained from Liabilities Cash Obtained from Assets Share of the Cash Generating Channels % 1% % 8% 7% 6% % % 3% b) Debt Issue The Company mainly funds its operations via equity, advances received, trade payables, loans from financial institutions and debt instrument issuance. The Company realized a TRY 1mn bond issuance with two-year maturity in. The above stated quite achievable growth projection and operating activities are expected to be financed through cash credit lines of TRY 52.82mn available as of February, 215 as well as projected debt instrument issuance of TRY 8mn in 215 with terms to be determined depending on market conditions. The planned bond issue accounted for 1.7% of total assets and 33.83% of equity of the Company s year-end figures. We, as JCR Eurasia Rating, are of the opinion that the stated levels are acceptable and will not lead to any adverse effect on the Company s cash flow available for debt service. 2% 1% % 4% 4% 3% 3% 2% 2% 1% 1% % Budget-215 Budget-216 Cash at the End of the Period/Liabilities 3.44% 2.81% 2.4% 1.86%.99% Budget-215 Budget-216 As seen in the cash and fund flow statements and graphs related with cash sources and cash utilization, the Company s period-end cash amounts will increase over the projection periods, relieving the liquidity management and debt service capability. CASH FLOW & FUND FLOW STATEMENTS- Summary (TRY / ) Budget-215 Budget-216 CASH AT THE BEGINNING OF THE PERIOD 3,779 1,846 1,399 14,885 Cash Generated in the period 669, , ,6 582,251 Cash Obtained from Assets 291 8,842 57, Cash Obtained from Liabilities 16, ,172 54,944 11,59 Cash Obtained from Activities 434, ,56 524,346 57,331 Cash Obtained from Equity 74,679 16,719 Cash Used in the Period 662, , , ,234 Cash Used for Assets Acquisition 21,525 55,495 16,36 24,167 Cash Used for Liabilities Repayments 13, ,75 82,891 2,587 Cash Paid for Activities 451,93 488,23 533, ,48 Cash Withdrawn from Equity Tax for the Period -4,281-3,357 Net Cash Generated During the Period 7, ,486 3,17 Cash at the End of the Period 1,846 1,399 14,885 17,92 According to the budget estimations and the previous performance of the Company, interest payments could be paid off without financial stress through generated internal sources. Moreover, taking into account the Company s asset and equity growth performance in the previous periods, the Company s projections are quite achievable. We, as JCR Eurasia Rating, believe that the Company has the potential to fulfill its obligations in a timely manner depending on the preservation of its market efficiency and income streams as well as absence of severe fluctuations in the financial markets. Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 14

15 (Year end) (Year end) (Year end) (Year end) (Year end) (Year end) (Year end) (Year end) As % of As % of As % of PAKPEN PLASTİK BORU ve YAPI ELEM. SAN. ve TİC. A.Ş. and ITS SUBSIDIARY BALANCE SHEET - ASSET USD TRY TRY TRY TRY TRY TRY TRY Assets Assets Assets Growth Growth Growth TRY (Converted) (Original) (Average) (Original) (Average) (Original) (Average) (Original) (Original) (Original) (Original) Rate Rate Rate I. CURRENT ASSETS 215,498, ,72, ,693, ,665,98 48,14, ,362, ,734,71 333,15, A. Liquid Assets 4,484,38 1,398,662 1,622,24 1,845,746 7,312,54 3,779,261 12,565,649 21,352, B. Marketable Securities..... n.a 1.Bond n.a n.a n.a n.a n.a n.a 2.Share Certificates n.a n.a n.a n.a n.a n.a 3.Other n.a n.a n.a n.a n.a n.a 4.Provision for Decrease in Value of Marketable Securities (-) n.a n.a n.a n.a n.a n.a C. Trade Receivables & Leasing 74,338, ,383, ,392,62 158,41, ,663, ,924, ,489, ,54, Customers & Notes Receivables 14,723,967 34,143,48 34,889,65 35,634,721 33,359,57 31,84,293 25,86,31 2,528, Other Receivables 55,956,22 129,756, ,176,723 12,596, ,868, ,14, ,467,737 13,794, Doubtful Trade Receivables 16,67,429 38,657,58 35,43,179 31,429,3 29,228,669 27,28,37 24,747,399 22,466, Provision for Doubtful Trade Receivables (-) -11,22,669-25,56,468-25,15,86-24,651,143-24,35,776-23,96,49-21,473,19-18,985, Rediscount on Notes Receivables (-) -1,989,531-4,613,523-4,61,541-4,67,559-4,487,814-4,368,68-4,58,793-3,749, D. Due From Related Parties (net) 4,642,973 1,766,59 7,27,27 3,773,824 3,919,85 4,64,346 12,381,924 2,699, E. Other Receivables 11,248,189 26,83,425 32,475,73 38,867,981 33,99,379 29,112,776 22,231,955 15,351, Other Receivables 11,248,189 26,83,425 32,475,73 38,867,981 33,99,379 29,112,776 22,231,955 15,351, Other Doubtful Receivables n.a n.a n.a n.a n.a n.a 3.Rediscounts on Other Notes Receivables (-) n.a n.a n.a n.a n.a n.a 4.Provision for Other Doubtful Receivables (-) n.a n.a n.a n.a n.a n.a F. Live Assets (net) n.a n.a n.a n.a n.a n.a G. Inventories (net) 115,952, ,883,76 255,467, ,51,81 21,23, ,995, ,712, ,429, H. Contract Progress Income (net) n.a n.a n.a n.a n.a n.a I. Deferred tax Assets 4,531,114 1,57,21 9,82,373 9,97,544 7,292,16 5,486,776 4,747,969 4,9, J. Other Current Assets 31,72 698, , , , ,55 64,674 29, Other Current Assets 31,72 698, , , , ,55 64,674 29, Provision for Other Current Assets (-) n.a n.a n.a n.a n.a n.a II. NON-CURRENT ASSETS 126,914, ,31, ,693,47 285,85, ,946,52 188,86,962 18,81, ,813, A. Trade Receivables & Leasing 67,56 155,495 13,46 15, ,343 1,159,26 579, n.a 1. Customers & Notes Receivables & Leasing 82, , 156,5 122, 754,221 1,386, , n.a 2. Other Receivables n.a n.a n.a n.a n.a n.a 3. Doubtful Trade Receivables n.a n.a n.a n.a n.a n.a 4. Provision for Doubtful Trade Receivables (-) n.a n.a n.a n.a n.a n.a 5. Rediscount on Notes Receivables (-) -15,311-35,55-26,4-16, , , , n.a B. Due From Related Parties (net) n.a n.a n.a n.a n.a n.a C. Other Receivables 55,748 1,277,13 6,788,791 12,3,451 8,844,622 5,388,793 4,812,13 4,235, Other Receivables 55,748 1,277,13 6,788,791 12,3,451 8,844,622 5,388,793 4,812,13 4,235, Other Doubtful Receivables n.a n.a n.a n.a n.a n.a 3.Rediscounts on Other Notes Receivable (-) n.a n.a n.a n.a n.a n.a 4.Provision for Other Doubtful Receivables (-) n.a n.a n.a n.a n.a n.a D. Financial Fixed Assets (net) n.a n.a n.a n.a n.a n.a 1. Long Term Securities (net) n.a n.a n.a n.a n.a n.a 2. Affiliates (net) n.a n.a n.a n.a n.a n.a 3. Subsidiaries (net) n.a n.a n.a n.a n.a n.a 4.Other Financial Fixed Assets (net) n.a n.a n.a n.a n.a n.a E. Tangible Assets 119,453,8 276,999, ,82, ,641,35 214,63, ,62,15 16,423, ,227, F. Other Fixed Assets 6,843,586 15,869,592 15,953,754 16,37,916 12,838,45 9,638,894 14,994,597 2,35, TOTAL ASSETS 342,413, ,22,26 771,386, ,751,5 644,96, ,169,77 523,544,237 55,918, Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 15

16 (Year end) (Year end) (Year end) (Year end) (Year end) (Year end) (Year end) (Year end) As % of As % of As % of PAKPEN PLASTİK BORU ve YAPI ELEM. SAN. ve TİC. A.Ş. and ITS SUBSIDIARY BALANCE SHEET-LIABILITIES+EQUITY USD TRY TRY TRY TRY TRY TRY TRY Assets Assets Assets Growth Growth Growth TRY (Converted) (Original) (Average) (Original) (Average) (Original) (Average) (Original) (Original) (Original) (Original) Rate Rate Rate I. SHORT TERM LIABILITIES 181,535,95 42,963,61 364,742,272 38,52, ,23,18 257,885,12 273,42, ,199, A. Financial Liabilities 13,952,436 33,665,63 23,78, ,49, ,516,667 16,542,611 16,889,715 17,236, B. Trade Payables 35,147,498 81,53,533 89,63,394 96,623,254 13,479,377 11,335,5 132,461,37 154,587, C. Due to Related Parties n.a n.a n.a n.a n.a n.a D. Other Financial Liabilities n.a n.a n.a n.a n.a n.a E. Advances Received 13,276,238 3,786,269 4,264,3 49,741,79 44,69,261 38,396,731 31,362,845 24,328, F. Contract Progress Ongoing Construction Contracts (net) n.a n.a n.a n.a n.a n.a G. Deferred Tax Liabilities 34,174 79,247 88,776 98,34 49, n.a n.a n.a H. Provisions for Liabilities 91,42 211, , , ,691 9, ,19 179, I Other Liabilities 2,34,157 4,717,6 5,15,299 5,313,592 3,916,871 2,52,149 2,193,268 1,866, II. LONG TERM LIABILITIES 58,912, ,613,97 179,286, ,959, ,834, ,79, ,547, ,385, A. Financial Liabilities 43,871,718 11,734, ,683, ,633, ,838,51 11,43, ,559, ,75, B. Trade Payables n.a n.a n.a n.a n.a n.a C. Due to Related Parties 2,753,33 5,56,66 n.a n.a n.a n.a n.a -1. D. Other Financial Liabilities 477, ,644 n.a n.a n.a n.a n.a -1. E. Advances Received n.a n.a n.a n.a n.a n.a F. Contract Progress Ongoing Construction Contracts (net) n.a n.a n.a n.a n.a n.a G. Deferred Tax Liabilities 13,518,833 31,348,823 3,831,945 3,315,66 22,147,73 13,98,339 13,13,112 12,279, H. Provisions for Liabilities 1,522,337 3,53,148 2,77,397 2,1,645 1,832,5 1,654,355 1,555,47 1,456, I. Other Liabilities (net) 15,849 31,698 71, ,9 n.a n.a.1 n.a TOTAL LIABLITIES 24,448, ,576,77 544,28,499 53,48,29 457,37, ,594,867 46,589, ,584, F- EQUITY 11,964, ,445, ,358, ,27,76 187,922,8 157,574,84 116,954,444 76,334, a) Prior year's equity 94,126, ,27,76 187,922,8 157,574,84 116,954,444 76,334,48 94,568, ,83, b) Equity (Added from Internal & External Resources in the Current Year) 7,21,47 16,719,377 45,699,38 74,678,698 6,571,22 46,463,345 23,231, n.a c) Minority Interest n.a n.a n.a n.a n.a n.a h) Profit & Loss 627,632 1,455,416-6,263,681-13,982,778 1,397,335 34,777, ,212-36,469, TOTAL LIABILITY 342,413, ,22,26 771,386, ,751,5 644,96, ,169,77 523,544,237 55,918, USD Rates 1=TRY Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 16

17 PAKPEN PLASTİK BORU ve YAPI ELEM. SAN. ve TİC. A.Ş. and ITS SUBSIDIARY INCOME STATEMENT TRY I. Principal Activity Revenues 82,817,671 71,262,985 76,358,157 58,243,86 35,26,686 A. Sales Revenues (Net) 475,38,38 422,39, ,466,46 342,445,298 25,618,451 1.Domestic Sales 541,47, ,746,19 54,893,75 424,311, ,486,8 2.Export Sales 116,195, ,113,532 65,93,285 71,224,78 47,478,452 3.Sales Deductions (-) -182,294, ,468, ,52, ,9, ,346,81 B. Cost Of Sales (-) -41,488, ,816,9-338,829, ,894,24-218,318,28 C. Service Revenues (net) 6,938,374 7,1, ,75 1,568,95 1,65,631 D. Other Revenues From Principal Activities 2,59,363 1,677,7 1,782,51 2,122,97 1,255,884 1.Interest 2,59,363 1,677,7 1,782,51 2,122,97 1,255,884 2.Dividend 3.Rent 4.Other GROS PROFIT & LOSS FROM PRINCIPAL ACTIVITIES 82,817,671 71,262,985 76,358,157 58,243,86 35,26,686 Activities Expenses (-) -34,96,69-37,93,87-24,944,41-29,164,741-27,453,929 NET PROFIT & LOSS FROM PRINCIPAL ACTIVITIES 48,72,981 34,169,115 51,414,116 29,78,345 7,752,757 Income & Profit From Other Activities 534,67 2,246,77 2,6,491 2,419,518 1,538,197 Expenses & Losses From Other Activities (-) Financing Income 1,342,288 14,711,38 1,488,933 Financing Expenses (-) -52,438,419-55,2,26-28,47,119-76,136,269-15,544,983 OPERATING PROFIT & LOSS -1,84,543-18,64,321 39,778,868-44,638,46-4,765,96 Net Monetary Position exc. And Other Profit & Loss (+/-) -61,14 34,354 4,6,253 17,367-12,163 PRETAX PROFIT & LOSS -1,91,557-18,263,967 43,785,121-44,531,39-4,777,259 Taxes (-/+) 3,356,973 4,281,189-9,7,674 8,61,169 84,591 NET PROFIT FOR THE PERIOD 1,455,416-13,982,778 34,777,447-36,469,87-3,972,668 Total Income 668,477, ,794, ,48,437 51,647,477 47,898,177 Total Expense -67,379,16-616,58, ,695, ,178, ,675,436 NET INCOMES OR EXPENSES FOR THE PERIOD -1,91,557-18,263,967 43,785,121-44,531,39-4,777,259 Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 17

18 PAKPEN PLASTİK BORU ve YAPI ELEM. SAN. ve TİC. A.Ş. and ITS SUBSIDIARY FYE FYE FYE FINANCIAL RATIOS % I. PROFITABILITY Relationship Between Capital and Profit ROAE - Pre-tax Profit / Equity (avg.) ROAA - Pre-tax Profit / Total Assets (avg.) Total Income / Equity (avg.) Total Income / Total Asset (avg.) Economic Rentability (( Financing Expenses + Pre-tax Profit)/ (Total Liabilities) (avg.) Operating Profit / Total Assets (avg.) Financial Expenses / Inventories Ratio (avg.) Return on Avg. Long Term Sources Relationship Between Sales and Profit Gross Profit Margin of Operating = Ordinary Activities Incomes / Net Sales Income Operating Matgin = Operating Incomes / Net Sales Income Net Profit Margine = Net Profit / Net Sales Income Cost of Sales / Net sales Income Activities Expenses / Net Sales Income Financing Expenses / Net Sales Income EBIT = (Gross Profit + Financing Expenses) / Net Sales Income Relationship Between Financing Liabilities and Profit Interest Coverage Ratio 1 = Pre Tax Profit + Financing Expenses / Financing Expenses Interest Coverage Ratio 2 = Net Profit + Financing Expenses / Financing Expenses Structure of Income and expenditure account Financing Expenses / T. Assset (avg.) Financial Liabilities / T. Assets II. LIQUIDITY (Liquid Assets + Marketable Securities) / T. Assets (Liquid Assets +Marketable Securities) / T. Liabilities Net Working Capital / Total Assets Liquid Assets / Equity Current Ratio Acid Test Ratio Cash Ratio Inventories / Current Asset Inventories / Total Asset Inventories Dependency Ratio Short Term Receivables / Total Current Assets Short Term Receivables / Total Assets III. CAPITAL and FUNDING Equity / Total Assets Equity / Liabilities Net Working Capital/Total Resources Equity generation/prior year s equity Internal equity generation/prior year s equity Tangible Assets/Total Asset Financial Fixed Assets/(Equity +Long Term Liabilities)... Minority Interest/Equity... IV. EFFICIENCY Net Profit Margine Growth Net Sales Growth Equity Growth Asset Growth Inventories Turnover Days Inventories Utilization Receivables Turnover 1, , ,556.5 Days' Accounts Receivable Efficiency Period Payables Turnover Days Payments In Accounts Payables Cash Turnover Cycle Current Assets Turnover Net Working Capital Turnover Tangible Assets Turnover Fix Asset Turnover Equity Turnover Asset Turnover Export sales/total sales V. ASSET QUALITY Non-Performing Receivables / Total Receivables Non-Performing Asset / Total Assets Financial Fixed Assets / Non-Current Assets... VI. SENSITIVITY OF FOREIGN CURRENCY Total Foreign Currencies Position/Asset Total Foreign Currencies Position/Equity VII. INDEBTEDNESS Debt Ratio Short Term Liabilities/Total Asset Long Term Liabilities/Total Asset Long Term Liabilities/(Equity+ Long term Liabilities) Fixed Asset/Liabilities Fixed Asset/(Long Term Liabilities +Equity) Short Term Liabilities/ T. Liabilities Short Term Financial Liabilities/Short Term Liabilities Tangible Assets/Long Term Liabilities Financial Liabilities/Total Liabilities Off Balance Liabilities/(Assets +Off Balance Liabilities) Off Balance Liabilities/(Equity +Off Balance Liabilities) Pakpen Plastik Boru ve Yapı Elemanları San. ve Tic. A.Ş. 18