BAHAR UŞAR SMMM, MBA ISTANBUL, MAY

Transcription

1 A NATIONAL COMPARATIVE ADVANTAGE STUDY OF THE TURKISH CEMENT AND REAL ESTATE INDUSTRY AND THEIR EFFECT ON THE CONSTRUCTION INDUSTRY, EMPLOYMENT AND REGIONAL DEVELOPMENT BAHAR UŞAR SMMM, MBA ISTANBUL, MAY

2 CONTENTS PART I: INTERNAL ANALYSIS 3 PART I.A: INTERNAL ANALYSIS OF FIRMS IN CEMENT SECTOR 3 I.A.1: INTERNAL ANALYSIS OF FIRM NO.01 (Bolu Çimento Sanayii A.Ş.) OF INDUSTRY 3 NO.01 (Cement Sector) I.A.1.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm 3 I.A.1.1.1: Identify or infer the organization's current mission, purpose, and key management 3 values/philosophy I.A.1.1.2: Identify the long-range business objectives and strategies (especially corporate-level and 3 competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase I.A.1.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) 4 I.A.1.1.4: Determine how well the organization has been performing 4 I.A.2: INTERNAL ANALYSIS OF FIRM NO.02 (Mardin Çimento Sanayii ve Ticaret A.Ş.) OF 7 INDUSTRY NO 01 ( Cement Sector) I.A.2.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm 7 I.A.2.1.1: Identify or infer the organization's current mission, purpose, and key management 7 values/philosophy I.A.2.1.2: Identify the long-range business objectives and strategies (especially corporate-level and 7 competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase I.A.2.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) 7 I.A.2.1.4: Determine how well the organization has been performing 8 I.A.3: INTERNAL ANALYSIS OF FIRM NO.03 (Ünye Çimento Sanayii ve Ticaret A.Ş.) OF 11 INDUSTRY NO 01 ( Cement Sector) I.A.3.1:Currnet mission, long range objectives, strategies and performance of the firm 11 I.A.3.1.1: Identify or infer the organization's current mission, purpose, and key management 11 values/philosophy I.A.3.1.2: Identify the long-range business objectives and strategies (especially corporate-level and 11 competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase I.A.3.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) 12 I.A.3.1.4: Determine how well the organization has been performing 12 PART I.B: INTERNAL ANALYSIS OF FIRMS IN SECTOR NO.02 (Real Estate Investment Sector) 15 I.B.1: INTERNAL ANALYSIS OF FIRM NO.01 (Garanti GYO A.Ş.) OF INSUDTRY NO.02 (Real 15 Estate Investment Trust Sector) I.B.1.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm 15 I.B.1.1.1: Identify or infer the organization's current mission, purpose, and key management 15 values/philosophy I.B.1.1.2: Identify the long-range business objectives and strategies (especially corporate-level and 15 competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase I.B.1.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) 16 I.B.1.1.4: Determine how well the organization has been performing 17 I.B.2: INTERNAL ANALYSIS OF FIRM NO.02 (İş GYO A.Ş.) OF INDUSTRY NO.02 (Real 19 Estate Investment Trust Sector) - 2 -

3 I.B.2.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm 19 I.B.2.1.1: Identify or infer the organization's current mission, purpose, and key management 19 values/philosophy I.B.2.1.2: Identify the long-range business objectives and strategies (especially corporate-level and 19 competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase I.B.2.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) 19 I.B.2.1.4: Determine how well the organization has been performing 21 I.B.3: INTERNAL ANALYSIS OF FIRM NO.03 (Vakıf GYO A.Ş.) OF INDUSTRY NO.02 (Real 22 Estate Investment Trust Sector) I.B.3.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm 22 I.B.3.1.1: Identify or infer the organization's current mission, purpose, and key management 22 values/philosophy I.B.3.1.2: Identify the long-range business objectives and strategies (especially corporate-level and 22 competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase I.B.3.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) 22 I.B.3.1.4: Determine how well the organization has been performing 23 PART II: FUNCTIONAL ANALYSIS OF FIRMS 25 PART II.A: FUNCTIONAL ANALYSIS OF FIRMS IN SECTOR 01 (Cement Sector) 25 PART II.A.1:FINANCIAL ANALYSIS OF FIRM NO. 01 (Bolu Çimento Sanayi A.Ş.) IN SECTOR 25 NO. 01 (Cement Sector) PART II.A.1.1:Financial Analysis of Bolu Çimento 25 PART II.A.1.2.: Marketing Management: Marketing Research & Development (Strategic Marketing 33 Policies) PART II.A.1.3:Product Policies 34 PART II.A.1.4: Production/Operation 35 PART II.A.1.5:Human Resources and Organizational Design 36 PART II.A.1.6:Management Information Systems 38 PART II.A.1.7:Research and Development 38 PART II.A.1.8:Total Quality Management 38 PART II.A.2: FUNCTIONAL ANALYSIS OF FIRM NO. 02 (Mardin Çimento Sanayi ve Ticaret 39 A.Ş.) IN SECTOR NO. 01 (Cement Sector) PART II.A.2.1:Financial Analysis of Mardin Çimento 39 PART II.A.2.2: Marketing Management: Marketing Research & Development (Strategic Marketing 47 Policies) PART II.A.2.3:Product Policies 47 PART II.A.2.4: Production/Operations 48 PART II.A.2.5:. Human Resources and Organizational Design 49 PART II.A.2.6:Management Information Systems 50 PART II.A.2.7:Total Quality Management 51 PART II.A.3: FUNCTIONAL ANALYSIS OF FIRM NO. 03 (Ünye Çimento Sanayi ve Ticaret A.Ş.) 52 IN SECTOR 01 (Cement Sector) PART.II.A.3.1:Financial Analysis of Ünye Çimento 52 PART.II.A.3.2: Marketing Management: Marketing Research & Development (Strategic Marketing 59 Policies) PART.II.A.3.3: Product Policies 60 PART.II.A.3.4: Production/Operations 61 PART II.A.3.5:Human Resources and Organizational Design 62 PART II.A.3.6:Management Information Systems 63 PART II.A.3.7:Total Quality Management

4 PART II.B: FUNCTIONAL ANALYSIS OF FIRMS IN SECTOR 02 (Real Estate Trust Companies) 64 PART II.B.1: FUNCTIONAL ANALYSIS OF FIRM NO. 01 (Garanti Gayrimenkul Yatırım Ortaklığı 64 A.Ş.) SECTOR NO. 02 (Real Estate Trust Company.) PART II.B.1.1:Financial Analysis of Garanti GYO 64 PART II.B.1.2:Marketing Management: Marketing Research & Development (Strategic Marketing 75 Policies) PART II.B.1.3:Product Policies 75 PART II.B.1.4:Operations 77 PART II.B.1.5:. Human Resources 77 PART II.B.1.6:International Operations Management 78 PART II.B.1.7:Total Quality Management 78 PART II.B.2:FUNCTIONAL ANALYSIS OF FIRM NO. 02 (Iş Gayrimenkul Yatırım Ortaklığı A.Ş.) 79 IN SECTOR NO. 02 (Real Estate Trust Company) PART II.B.2.1:Financial Analysis of İŞ GYO 79 PART II.B.2.2: Marketing Management: Marketing Research & Development (Strategic Marketing 86 Policies) PART II.B.2.3: Product Policies 86 PART II.B.2.4: Operations 87 PART II.B.2.5: Human Resources and Organizational Design 87 PART II.B.3. FUNCTIONAL ANALYSIS OF FIRM NO. 03 (Vakıf Gayrimenkul Yatırım Ortaklığı 89 A.Ş.) IN SECTOR 02 (Real Estate Trust Company) PART II.B.3.1:Financial Analysis of Vakıf GYO 89 PART II.B.3.2:Marketing Management: Marketing Research & Development (Strategic Marketing 96 Policies) PART II.B.3.3: Product Policies 96 PART II.B.3.4: Operations 96 PART II.B.3.5:Human Resources and Organizational Design 97 PART III:ANALYSİS OF THE EXTERNAL ENVIRONMENT 98 PART III.1.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF 98 FIRM NO:01(Bolu Çimento Sanayii A.Ş.) IN INDUSTRY NO. 01 (Cement Sector) PART III.1.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO. 01 (Bolu Çimento 99 Sanayii A.Ş.) IN INDUSTRY NO. 01 (Cement Sector) PART III.1.A.1.1:External Analysis Of Bolu Çimento 99 PART III.1.A.1.2:Regional Context of Cement Sector 100 PART III.1.A.1.3:National Context of Cement Sector 101 PART III.1.A.1.4:Swot Analysis of Cement Sector 102 PART III.1.A.1.5:Industry Structure 104 PART.III.1.A.1.6: Competitive Environment of the Cement Sector 105 PART III.1.B.1:GENERAL ENVIRONMENT OF FIRM NO.1 (Bolu Çimento Sanayi A.Ş.)IN 108 INDUSTRY NO.01 (Cement Sector) PART III.1.B.1.1: Pest Analysis for Bolu Çimento 108 PART III.1.B.1.1.1:Tax Policy in Turkey 109 PART III.1.B.1.1.2:Employment Laws 112 PART III.1.B.1.1.3: Environmental Regulations 113 PART III.1.B.1.1.4:Political Stability 114 PART III.1.B.1.1.5: Macro Economy 114 PART III.1.B.1.1.6: Economic Growth 114 PART III.1.B.1.1.7: Interest Rates 115 PART III.1.B.1.1.8: Inflation Rates 115 PART III.1.B.1.1.9: Population Growth Rate& Age Distribution 116 PART III.1.B : Migration 116 PART.1.B : R&D Activity 117 PART III.2.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF

5 FIRM 02 (Mardin Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Sector) PART III.2.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF 119 FIRM 02 (Mardin Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Sector) PART III.2.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO. 02 (Mardin Çimento 119 Sanayii ve Ticaret A.Ş.) IN INDUSTRY NO. 01 (Cement Sector) PART III.2.A.1.1:External Analysis of Mardin Çimento 119 PART III.2.A.1.2: Regional Context 120 PART III.2.A.1.3: National Context of Cement Sector 120 PART III.2.A.1.4:Cement Exports 121 PART III.2.A.1.5:Swot Analysis of the Cement Sector 122 PART IIII.2.A.1.6: Industry Structure and Competitive Environment 122 PART III.2.A.1.7: Competitive Environment of Cement Sector 122 PART III.2.B.1:GENERAL ENVIRONMENT OF FIRM NO.2 (Mardin Çimento Sanayii ve Ticaret 122 A.Ş.) IN INDUSTRY NO.01 (Cement Industry) PART III.2.B.1.1:Pest Analysis of Mardin Çimento 122 PART III.2.B.1.1.1:Tax Policy 122 PART III.2.B Employment Laws 122 PART III.2.B Environmental Regulations 122 PART III.2.B Trade Restrictions and Tariffs 123 PART III.2.B Political Stability 123 PART III.2.B Establishing Competition 123 PART III.2.B.1.1.7Interest Rates 124 PART III.2.B Technological Changes 124 PART III.3.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF 125 FIRM NO. 03 (Ünye Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Sector) PART III.3.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO. 03 (Ünye Çimento 126 Sanayii ve Ticaret A.Ş.) IN INDUSTRY NO. 01 (Cement Sector) PART III.3.A.1.1:External Analysis of Ünye Çimento 126 PART III.3.A.1.2: Regional Context of Cement Sector 126 PART III.3.A.1.3:National Context of Cement Sector 127 PART III.3.A.1.4: Cement Exports: 128 PART III.3.A.1.5:Swot Analysis of Cement Sector 129 PART IIII.3.A.1.6: Industry Structure and Competitive Environment 129 PART III.3.A.1.7: Competitive Environment of the Cement Sector 129 PART III.3.B.1:GENERAL ENVIRONMENT OF FIRM NO.3 (Ünye Çimento Sanayii ve Ticaret 129 A.Ş.) IN INDUSTRY NO.01 (Cement Industry) PART III.3.B.1.1: Pest Analysis of Ünye Çimento 129 PART III. 3.B.1.1.1: Tax Policy in Turkey 129 PART III 3.B.1.1.2: Trade Restrictions and Tariffs 129 PART III 3.B.1.1.3: Economic Growth 130 PART III 3.B.1.1.4: Interest Rates 130 PART III 3.B.1.1.5: Exchange Rates 130 PART III 3.B.1.1.6: Population Growth Rate& Age Distribution 131 PART III 3.B.1.1.7: Technological Activity 132 PART III.4.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF 133 FIRM 01 (Garanti GYO A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) PART III.4.A.1:BUSINESS/COMPETITIVE ENVIRONMENT AND SWOT ANALYSIS OF FIRM 134 NO.01 (Garanti GYO A.Ş.) IN INDUSTRY.02 (Real Estate Trust Company) PART III.4.A.1.1: External Analysis Of Garanti GYO 134 PART III.4.A.1.2: SWOT ANALYSIS OF REAL ESTATE INVESTMENT TRUST 135 PART III.4.A.1.3: Regional Context 137 PART III.4.A.1.4: National Context: 137 PART III.4.A.1.5: International Context

6 PART III : Competitive Advantages of the REIT: 145 PART III.4.B.1:GENERAL ENVIRONMENT OF FIRM NO.01 (Garanti GYO A.Ş.) IN INDUSTRY 146 NO.02 (Real Estate Trust Company) PART III.4.B.1.1:Pest Analysis of Garanti GYO 146 PART III.4.B.1.1.1:Tax Policy in Turkey 146 PART III.4.B.1.1.2:Environmental Regulations 147 PART III.4.B.1.1.3:Political Stability 147 PART III.4.B.1.1.4:Macro Economy 147 PART III.4.B.1.1.5:Inflation Rates 148 PART III.4.B.1.1.6:Population Growth Rate& Age Distribution 148 PART III.4.B.1.1.7:Migration 149 PART III.5.A: ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF 150 FIRM 02 (İş GYO A.Ş.)IN INDUSTRY NO.02 (Real Estate Investment Trust) PART III.5.A.1:BUSINESS/COMPETITIVE ENVIRONMENT AND SWOT ANALYSIS OF FIRM 151 NO.02 (İş GYO A.Ş.) IN INDUSTRY.02 (Real Estate Trust Company) PART III.5.A.1.1: External Analysis of İş GYO 151 PART III.5.A.1.2: Regional Context 153 PART III.5.A.1.3: National Context 153 PART III.5.A.1.4: International Context 162 PART III.5.B.1:GENERAL ENVIRONMENT OF FIRM NO.02 (İş GYO A.Ş.) IN INDUSTRY 164 NO.02 (Real Estate Trust Company) PART III.5.B.1.1:Pest Analysis of İş GYO 164 PART III.5.B.1.1.1:Tax Policy in Turkey 164 PART III.5.B.1.1.2:Political Stability 165 PART III.5.B.1.1.3:Macro Economy 165 PART III.5.B.1.1.4:Interest Rates 165 PART III.5.B.1.1.5:Population Growth Rate& Age Distribution 165 PART III.5.B.1.1.6:Migration 165 PART III.6.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF 166 FIRM NO.03 (Vakıf GYO A.Ş.) IN INDUSTRY NO.02 (Real Estate Trust Company) PART III.6.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO.03 (Vakıf GYO A.Ş.) 167 IN INDUSTRY.02 (Real Estate Trust Company) PART III.6.A.1.1: External Analysis of Vakıf GYO 167 PART III.6.A.1.2: Swot Analysis of REIT 167 PART III.6.A.1.3:Regional Context 168 PART III.6.A.1.4:National Context 168 PART III.6.A.1.5: International Context 169 PART III.6.B.1:GENERAL ENVIRONMENT OF FIRM NO.03 (Vakıf GYO A.Ş.) IN INDUSTRY 169 NO.02 (Real Estate Investment Trust Company) PART III.6.B.1.1:Pest Analysis of Vakıf GYO 169 PART III.6.B.1.1.1:Tax Policy in Turkey 169 PART III.6.B.1.1.2:Environmental Regulations 170 PART III.6.B.1.1.3: Economic Factors 170 PART III.6.B.1.1.4:Interest Rates 170 PART III.6.B.1.1.5: Population Growth Rate& Age Distribution 170 PART IV: INTEGRATION OF MAJOR STRATEGIC ISSUES 171 PART 1.A.1: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.01 (Bolu Çimento 173 Sanayi A.Ş.)IN INDUSTRY NO.01 (Cement Industry) PART 1.A.2: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.02 (Mardin 180 Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Industry) PART 1.A.3: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.03 (Ünye Çimento 183 Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Industry) PART 1.B.1: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.01 (Garanti GYO

7 A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) PART 1.B.2: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.02 (İş GYO 190 A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) PART 1.B.3: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.03 (Vakıf GYO 192 A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) PART V: RECOMMENDATIONS AND IMPLEMENTATIONS 194 LIST OF ABBREVIATIONS 201 APPENDICES

8 EXECUTIVE SUMMARY In that project my object is to analysis cement and real estate industry and the important six firms of these sectors. Moreover, I examined to compare the firms according to financial analysis and key performance areas, their SWOT analyses and their own structures in the sector. Especially I analyzed the Mortgage System and its impacts on the cement and real estate industry that is a new model for Turkey was researched deeply. After finalizing the report, I got much more information especially; using my work experience and applying the background and quantities techniques that were utilized from these courses as I suggested to address the some critical issues for the firms. The recommendation part of the report was very challenging because it pushed me to think overall the project by strategically and critically and to determine the managerial strategies of the firms to consolidate the full scope of their business planning process and that affect the total organization and their successful and unsuccessful performances in the sector as well. The tasks of the project provided the fully understanding, of the impacts of the construction sector by comparing and contrasting the local industry with foreign industries. The mixtures of the sectors financial, technological, legal, organizational and ethical structures provided me to comprehensive thoroughly of the sectors. For this reason I learned to analyze the industry and the business units of the firms and reveal the strategic and sufficient issues of the firms business and implement the key issues in direction of the suggestions for using in my futures reports that will be present the top management of the company. In addition the projects and its main requirements and the diagnosis of the major issues of the sectors and the firms were explained deeply and clearly. I believe that preparing this project deeply and properly will provide me a great successful in my work business. I thank to Prof. Dr. E. Abdülgaffar Ağaoğlu for encouraging me to prepare this project successfully

9 ASSESSMENT AUDIT This project contains to analyze the national comparative advantage of the Turkish cement and real estate industry and their effect on the construction industry, employment and regional development in direction on the six important firms of the these sectors. Moreover, there are comparisons these firms according to their own sector. Based on my findings are given below. Internal Analysis of these firms: I examined to identify current missions, long range objectives, strategies and performance, key management values of these firms. I tried to explain the long range business objectives and strategies and I focused particularly on identifying and evaluating the current strategies. Functional Analysis of these firms: I reviewed each of the financial analyses of these firms by using the financial statements and I analyzed the financial conditions from analysis of profitability, fixed charge coverage, liquidity, activity and turnover and market investment community evaluations and relations of these firms. After these issues I analyzed the top level strategic marketing policies, product and pricing polices, customer relations managements and segmentations policies of these firms then I tried to explore locations and capacities of facilities, output allocations, efficiency of these firms. After these researches I also examined the human resources policies, technology strategies and knowledge managements of these firms. Analysis of the External Environment: I reviewed and analyzed important factors, trends and future conditions to identify key opportunities and threats. In addition I analyzed the S.W.O.T Analyses of these firms. After these researches I analyzed international, national and regional contexts by using the industry growth trends, key success factors. In addition I identified the firms activities by using Porters s major 5-forces, industry averages and standard deviations an then I discussed the above analyses in accordance with PEST analyses of these firms. Integration of Major Strategic Issues: I analyzed strategies and policies, strategic business units of these firms by using BCG Growth-Share Matrix, GE/McKinsey Matrix, SWOT-PEST Matrix and Ansoff matrix. Recommendation and Implementation: This part of my projected includes the compares and contrasts of these firms and industries. First of all I analyzed the firms corporate level strategy, competitive strategy and other - 9 -

10 strategies. After that I tried to develop recommendation for these firms that can be reached best, by using potential advantages of their own sector. PROSPECTS FOR FURTHER STUDY The assignments of the project provided the fully understanding of the impacts of the cement and real estates industry throughout the Turkish economy by comparing and contrasting with the foreign industries. The mixtures of the sectors financial, technological, legal, organizational and ethical structures provided me to comprehensive thoroughly of the sectors. For this reason I learned to analyze and review the industry and the business units of the firms and reveal the strategic and sufficient issues of the firms business and implement the key issues in direction of the suggestions for using in my futures reports that will be present the top management of the company

11 PREFACE A motion has been started in real estate demand in 2004 which had decreased because of 1999 earthquake and then 2001 economic crisis. For the current year, demand continues to increase. Economic performance, sustainable growth, political stabilization, European Union process and decreasing inflation-interest rates in recent years made the interest in the sector rise. Actually that trend is not only for Turkey but also for the rest of the world. As a result of fast population increase and urbanization, there is 600,000 annual new real estate need in Turkey. So, need for qualified house rises day by day. Need for real estate becomes more important when we add massive foreign demand for real estate into Turkey s great tourism potential. Foreign investors have been made US $ 1.3 billion real estate investment in Turkey just for year Turkey, which is expected to start European Union process, is seen to show the best performance, especially in Istanbul. Emerging Trends Report, based on 27 cities in Europe, shows Istanbul is ranked 1 city about real estate development expectation (Moscow is ranked 2). Office rents in Istanbul are the cheapest around Europe, so Istanbul has an important potential as I look from that point of view, as well. Let s clarify that positive expectation for the sector by statistical data. House credit stock which was US $ 10 million in 1999, had increased to US $800 million until year Credits, which were defaulted after 2001 February crisis, reached to US$ 1.8 billion as of 2004 end. As of 2005 July, that number is US $ 5 billion. According to that number real estate to GNP ratio is %4. That ratio is %55 in U.S.A., %45 in west Europe, %15 in Mexico and Brazil, the countries seen at the same category with Turkey. If that %4 ratio rises to %15 as it is in Mexico or Brazil, US $50 billion market will not be a dream anymore. By the way Turkish cement sector is the Europe s second largest and the World s seventh largest cement producer with a 36.4 mn tons of clinker and 66.4 mn tons of cement grinding capacities was a bright year for Turkish cement producers because of the new housing projects of construction companies. The long expected sectoral recovery has made an impressive start, thanks to the recovery in both domestic and export sales

12 These data show that these two sectors has big present and future potential because of the high demand of the construction markets and high deprivations of new residential. More important thing, this project provided to develop my understanding the complex business situations of the real economy. I developed my critical and strategic thinking ability by using analyzing methods throughout the firms structures. In addition I implemented my point of view to analyze the key issues and developing appropriate strategies and activities of these firms thought internal environment and the complex external environment. As a result I focused the details of the regional, national and international context by using key performance areas, strategic business units and competitive advantages, strategic planes and policies of these firms

13 ACKNOWLEDGMENTS This graduation project has been carried out for the Department of Master of Business Administration in Yeditepe University in Istanbul, Turkey. First of all, I would like to thank my supervisor, Prof. Dr. E. Abdülgaffar Ağaoğlu at the department of MBA, for his guidance, discussions and comments in different questions. Finally thanks go to my husband and my parents for their lovely support during my stay in. Istanbul Turkey, May 2006 Bahar Uşar

14 INTRODUCTION Turkish cement sector is the Europe s second largest and the world s seventh largest cement producer with 36.4 million tons of clinker and 66.4 million tons of cement grinding capacities. The long expected sectoral recovery has mad and impressive start with the beginning of 2002 thanks to the recovery in both domestic and export sales. With the help of EU accession process domestic and international sales forecasts are very optimistic. In line with the improvement in consumer confidence, people started using more residential loans in the last years. Improvement in the cost and availability of financing is expected to push further growth in demand for property. Increasing foreign interest will also activate property demand for high quality residencies, especially in tourism areas and large cities. By the way, state officials recently announced that they were making preparations to launch the mortgage system in Turkey. In addition the Turkish cement sector offers strong growth potential both on the back of the recovery in construction expenditures which has its foundation in the strengthening macro economic perspective and also on the back of strong export growth with profitable margins. The current fragmented structure of the sector creates an opportunity for potential buyers to increase their market share. On the other hand, analyzing the correlation between REITs and cement sector in this project there are high consistency, due to the organic link between REITs activities and cement demand, the per capita cement consumption is highly correlated with per capita income. Real Investment Trusts (REIT) were introduced to the Turkish capital markets for the first time with the legal framework prepared in 1995 and with the first IPO in They are allowed to investment buildings, land, development projects, real estate back securities, and to a limited extend other capital markets instruments such a government bonds and stocks. Compared with REITs in developed capital markets, Turkish REITs have a tremendous growth potential in the near future due to high expectations placed on them to bring transparency and professionalism to the boarder real estate industry. As discussed in more detail in the later chapters for the fledgling industry, authorities have provided REITs with some important tax incentives, as well as flexibility in managing their portfolios REIT managers to take advantage of both the economic boom and bust periods. With an amendment by the Capital Market Board in 1998, REITs were obligated to make at least 49% of their stock public. Through this new framework, the principles and rules to make REITs more institutional and transparent have been emphasized. In order to promote the formation and growth of the industry, two important tax incentives have been granted to REITs. Specially, REITs are exempted from both corporation tax and income tax giving them an opportunity to compete in an industry, where a large share of transactions are unrecorded and values of properties are widely understand in order to avoid taxes By the way construction of high rise-development, coupled with the planned start of the mortgage market is expected to provide opportunity for REIT. As a result the aim of the project is to calculate the efficiency of selected corporations in the in their existing and competing markets via using the Porter s 5-force model. With the help of a construction sector, it is to be made easier to measure the consistency between the Cement Industry and Real Estate Industry by determining its role and impacts for the Turkish economy

15 On the other hand the mortgage system is the trigger in order to calculate the competitive advantages among these sectors. In order to evaluate the comparative advantages of these sectors; the structure of the company, which is explained by using the strengths, opportunities, weakness and threats of the firms and sectors as well, and which is operated according to the regional, national and international market conditions. In light of the explanations above, this project was prepared to have an idea about cement and real estate industry and the important six firms of the sectors. The project has significant and detail informations regarding the key performance areas, regional, national, international and future prospects of the firms in its own sector

16 PART I: INTERNAL ANALYSIS PART I.A: INTERNAL ANALYSIS OF FIRMS IN CEMENT SECTOR I.A.1: INTERNAL ANALYSIS OF FIRM NO.01 (Bolu Çimento Sanayii A.Ş.) OF INDUSTRY NO.01 (Cement Sector) I.A.1.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm I.A.1.1.1: Identify or infer the organization's current mission, purpose, and key management values/philosophy: Current mission of Bolu Çimento is to maintain continuous profitability by working with productive, effective and high responsible conscious, respecting the society and the environment. 1 Key management values of Bolu Çimento are Creativity, Transparency, Honesty, Respect to the Human and the Environment, Customer and Employee Satisfaction, Perfectionism, Competitiveness, Reliability and OYAK Culture. I.A.1.1.2: Identify the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase. Vision of Bolu Çimento is to become a respected, reliable and leading corporation developing the usage fields of cement and playing a significant role in the country markets. 2 When we look at the vision of Bolu Çimento, Bolu Çimento aims to be one of the leading companies of the cement sector. After completing the capacity increase requirements in 2002, the company had reached clinker production at an amount of 2,6m tones per year and cement production at an amount of 1,32m tones per year. This capacity level made Bolu Çimento produce %4-5 of the cement production of the total Turkish cement sector. In 2006 Bolu Çimento s board of directors have decided to make new investments to increase the current capacity by investing 9,1 million YTL. Because the profit margins in the cement sector is slightly low, this capacity increase will have positive effects in lowering the fixed production costs and increase the profitability of the company. Another long-range objective of the company is to enter foreign cement markets. When we look at the income statement of the company, it can be seen that Bolu Çimento has a domestic focus and there is no any income from export sales. This domestic focus makes the company more sensitive to the national economic fluctuations. According to the declarations of Bolu Çimento s board, entering European and American cement markets will be one of the most important targets of the company. As it can be seen by analyzing the current mission of the company, continuous profitability is the main target. In 2004, Bolu Çimento has invested the ready-mix concrete facilities to Oyak Hazır Beton Sanayi ve Tic. A.Ş. 1 Bolu Çimento Annual Report for the year Bolu Çimento Annual Report for the year

17 as partnership capital. By focusing on the main operations producing of cement and clinker the company has increased its production amount. Another strategy of the company is to use sources effective and productive. That is why, within the scope of investment incentives, Bolu Çimento materialized rehabilitation and purchase of new equipment investments. I.A.1.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms). Until 2004, Bolu Çimento both sold cement group products and ready-mix concrete group products. By the sale of the ready-mix concrete facilities, the company aimed to concentrate more on its core business, the clinker and cement production. Because the company does not have a diversified portfolio of products, it is hard to compare the appropriateness of the company s operations. I.A.1.1.4: Determine how well the organization has been performing. Cement Production of Bolu Çimento Change in Cement Production of Bolu Çimento Cement Production of Bolu Çimento (in tons) Change in Cement Production of Bolu Çimento Year 2000 Year 2001 Year 2002 Year 2003 Year ,00% 20,00% 0,00% -20,00% -40,00% 17,77% 0,58% 5,43% -28,83% Year 2001 Year 2002 Year 2003 Year Total National Cement Production Total National Cement Production (in tons) Cement Production of Bolu Çimento Respect to Tot. Nat. Cement Prod. 6,00% 4,00% Cement Production of Bolu Çimento Respect To Total National Cement Production 5,07% 4,33% 3,98% 3,92% 4,18% Year 2000 Year 2001 Year 2002 Year 2003 Year ,00% 0,00% Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Cement Production Capacity Usage Comparison of Bolu Çimento and the Sector Cement Production Capacity Usage Comparison of Bolu Çimento and the Sector Cement Sales of Bolu Çimento Cement Sales of Bolu Çimento (in tons) 100,00% 80,00% 60,00% 52,91% 54,75% 62,32% 58,46% ,00% ,00% 0,00% Year 2003 Year 2004 Bolu Çimento Sector Year 2002 Year 2003 Year

18 Total Cement Sales of the Sector Change in Cement Sales Comparison Cement Sales of the Sector (in tons) Change in Cement Sales Comparison ,00% 16,00% 18,59% ,00% 8,00% 8,24% 9,61% ,00% 4,49% ,00% Year 2003 Year Year 2002 Year 2003 Year 2004 Bolu Çimento Sector Cement Sales Share of Bolu Çimento in the Sector Clinker Production of Bolu Çimento Cement Sales Share of Bolu Çimento in the Sector Clinker Production of Bolu Çimento (in tons) 5,00% 4,00% 3,00% 4,00% 3,87% 4,18% ,00% ,00% ,00% Year 2002 Year 2003 Year Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Change in Clinker Production of Bolu Çimento Total National Clinker Production Change in Clinker Production of Bolu Çimento Total National Clinker Production (in tons) 16,00% 12,00% 13,78% ,00% 4,00% 0,00% -2,39% -2,12% 0,52% ,00% Year 2001 Year 2002 Year 2003 Year Year 2000 Year 2001 Year 2002 Year 2003 Year

19 Clinker Production of Bolu Çimento Respect to Total National Clinker Production Clinker Production Capacity Usage Comparison of Bolu Çimento and the Sector Clinker Production of Bolu Çimento Respect to Total National Clinker Production Clinker Production Capacity Usage Comparison of Bolu Çimento and the Sector 6,00% 5,00% 4,00% 4,27% 4,19% 4,00% 3,90% 4,12% 100,00% 90,00% 87,86% 84,03% 99,97% 90,08% 3,00% 2,00% 1,00% 0,00% Year 2000 Year 2001 Year 2002 Year 2003 Year ,00% 70,00% Year 2003 Year 2004 Bolu Çimento Sector Clinker Sales of Bolu Çimento Clinker Sales of the Sector Clinker Sales of Bolu Çimento (in tons) Clinker Sales of the Sector (in tons) Year 2002 Year 2003 Year Year 2002 Year 2003 Year 2004 Change in Clinker Sales Comparison Clinker Sales Share of B olu Çimento in the Sector Change in Clinker Sales Comparison Clinker Sales Share of Bolu Çimento in the Sector 10,00% 5,00% 0,00% -5,00% -10,00% -15,00% -20,00% -25,00% 5,58% -6,19% -21,06% -21,37% Year 2003 Year 2004 Bolu Çimento Sector 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 4,41% 3,70% 2,77% Year 2002 Year 2003 Year

20 I.A.2: INTERNAL ANALYSIS OF FIRM NO.02 (Mardin Çimento Sanayii ve Ticarest A.Ş.) OF INDUSTRY NO 01 ( Cement Sector) I.A.2.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm I.A.2.1.1: Identify or infer the organization's current mission, purpose, and key management values/philosophy: Mardin Çimento s mission it to maintain continuous profitability by working with productive, effective and high responsible conscious, respecting the society and the environment. 3 Key management values of Mardin Çimento are Creativity, Transparency, Honesty, Respect to the Human and the Environment, Customer and Employee Satisfaction, Perfectionism, Competitiveness, Reliability and OYAK Culture. I.A.2.1.2: Identify the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase. Vision of Mardin Çimento is to be a successful and leader company developing cement utilization areas and playing an active role in domestic and regional markets. 4 Mardin Çimento is focused on the supply of materials for the construction sector like cement, clinker and ready-mix concrete. Mardin Çimento has the geographic advantage of being close to Iraq market. When we look at the cement sales of the company, we can see that between period, export sales/total sales rate occurred as %18, %48 and %44 relatively. With the huge demand increase in this geographic region, the profit margins of cement sales have incremented. The profit margins of the export sales to Iraq have doubled the profit margins of other exports. When it is thought that the cement demand of Iraq will continue until 2008, Mardin Çimento will have the opportunity to sustain these profit margins. However, the unstable economy of Iraq and the threat of war have negative effects on sales of Mardin Çimento. Beside the exports to Iraq, the company has the ability to enter Syria market. 3 Mardin Çimento Annual Report for the year Mardin Çimento Annual Report for the year

21 I.A.2.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms). Mardin Çimento s operation includes the sale of cement group products and ready-mix concrete group products. Because the company does not have a diversified portfolio of products, it is hard to compare the appropriateness of the company s operations. I.A.2.1.4: Determine how well the organization has been performing. Cement Production of Mardin Çimento Change in Cement Production of Mardin Çimento Cement Production of Mardin Çimento (in tons) Year 2001 Year 2002 Year 2003 Year 2004 Total National Cement Production 40,00% 20,00% 0,00% -20,00% -40,00% Change in Cement Production of Mardin Çimento -11,20% 24,54% 5,75% Year 2002 Year 2003 Year 2004 Cement Production of Mardin Çimento Respect To Total National Cement Production Total National Cement Production (in tons) Cement Production of Mardin Çimento Respect To Total National Cement Production ,00% ,00% 2,00% 3,00% 2,44% 2,83% 2,71% 0 Year 2000 Year 2001 Year 2002 Year 2003 Year ,00% Year 2001 Year 2002 Year 2003 Year 2004 Cement Production Capacity Usage Comparison of Mardin Çimento and the Sector Cement Sales of Mardin Çimento

22 Cement Production Capacity Usage Comparison of Mardin Çimento and the Sector Cement Sales of Mardin Çimento 100,00% 80,00% 60,00% 77,89% 54,75% 82,37% 58,46% ,00% ,00% ,00% Year 2003 Year 2004 Mardin Çimento Sector Year 2002 Year 2003 Year 2004 Cement Sales of the Sector Change in Cement Sales Comparison Cement Sales of the Sector (in tons) Change in Cement Sales Comparison ,00% 10,00% 0,00% 8,24% 11,70% 9,61% Year 2002 Year 2003 Year ,00% -20,00% -19,39% Year 2003 Year 2004 Mardin Çimento Sector Cement Sales Share of Mardin Çimento in the Sector Clinker Production of Mardin Çimento 3,00% 2,50% 2,00% 1,50% 1,00% 0,50% 0,00% Cement Sales Share of Mardin Çimento in the Sector 2,45% 1,86% 1,82% Year 2002 Year 2003 Year Clinker Production of Mardin Çimento (in tons) Year 2001 Year 2002 Year 2003 Year 2004 Change in Clinker Production of Mardin Çimento Total National Clinker Production Change in Clinker Production of Mardin Çimento 16,00% 12,00% 8,28% 8,00% 4,00% 0,00% -7,66% -4,00% -6,59% -8,00% -12,00% Year 2002 Year 2003 Year Total National Clinker Production (in tons) Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Clinker Production of Mardin Çimento Respect to Total National Clinker Production Clinker Production Capacity Usage Comparison of Mardin Çimento and the Sector

23 Clinker Production of Mardin Çimento Respect to Total National Clinker Production Clinker Production Capacity Usage Comparison of Mardin Çimento and the Sector 6,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 2,23% 2,01% 1,82% 1,82% Year 2001 Year 2002 Year 2003 Year ,00% 90,00% 80,00% 70,00% 93,49% 86,35% 90,08% 84,03% Year 2003 Year 2004 Mardin Çimento Sector Clinker Sales of Mardin Çimento Clinker Sales of the Sector Clinker Sales of Mardin Çimento (in tons) Clinker Sales of the Sector (in tons) Year 2002 Year 2003 Year Year 2002 Year 2003 Year 2004 Change in Clinker Sales Comparison Clinker Sales Share of Mardin Çimento in the Sector Change in Clinker Sales Comparison Clinker Sales Share of Mardin Çimento in the Sector 0,00% 0,80% -20,00% -40,00% -60,00% -80,00% -100,00% -120,00% -21,06% -21,37% -77,77% -100,00% Year 2003 Year 2004 Mardin Çimento Sector 0,60% 0,40% 0,20% 0,00% 0,58% 0,16% 0,00% Year 2002 Year 2003 Year

24 I.A.3: INTERNAL ANALYSIS OF FIRM NO.03 (Ünye Çimento Sanayii ve Ticarest A.Ş.) OF INDUSTRY NO 01 ( Cement Sector) I.A.3.1.1: Identify or infer the organization's current mission, purpose, and key management values/philosophy: Current mission of Ünye Çimento is to maintain continuous profitability by working with productive, effective and high responsible conscious, respecting the society and the environment. 5 Key management values of Ünye Çimento are Creativity, Transparency, Honesty, Respect to the Human and the Environment, Customer and Employee Satisfaction, Perfectionism, Competitiveness, Reliability and OYAK Culture. I.A.3.1.2: Identify the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase. Vision of Ünye Çimento is to be a successful and leader company developing cement utilization areas and playing an active role in domestic and regional markets. 6 Ünye Çimento is focused on the supply of materials for the construction sector like cement, clinker and readymix concrete. Ünye Çimento has started export sales to Portugal, Italy and Croatia in Cement export sales have 2,8% and 19,2% shares in the total cement sales of Ünye Çimento relatively in 2003 and The company especially concentrates on export sales to Italy, and tries to set its trade mark in Italy cement market. 5 Ünye Çimento Annual Report for the year Ünye Çimento Annual Report for the year

25 Beside this, the clinker exports have a higher share in total clinker sales of the company. While in 2003, 100% of all the clinker sales were exports; in 2004, 73,9% of all the clinker sales were exports. Here, there are three factors affecting the company badly. One of them is the relatively low rate of USD/YTL parity. The low parity makes the export sales more unattractive. The second reason is the increase in freight charges with the limitations in the number of transport ships because of the appropriateness to European Union standards. Finally, the sales price discounts of Chinese originated companies to enter European markets are another threat. The company has the usage rights of Ünye Port for 49 years, and this opportunity provides a gateway to make exports. The expansion of this port lies between one of the main targets of Ünye Çimento. As it can be seen by analyzing the current mission of the company, continuous profitability is the main target. In 2004, Ünye Çimento has invested the ready-mix concrete facilities to Oyak Hazır Beton Sanayi ve Tic. A.Ş. as partnership capital. By focusing on the main operations producing of cement and clinker the company has increased its production amount. The company completed its pre-calcinations investment in The financing of this investment is provided by the use of $90m bank credits. The interest charges and the exchange rate losses of these credits caused the company not to gain any net income in 2002 and Today, the company has covered a greater amount of these credits and the investment losses have come to an end. I.A.3.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms) Ünye Çimento s operation includes the sale of cement group products and ready-mix concrete group products. Because the company does not have a diversified portfolio of products, it is hard to compare the appropriateness of the company s operations. I.A.3.1.4: Determine how well the organization has been performing. C ement Production of Ünye Çimento Change in Cement Production of Ünye Çimento Cement Production of Ünye Çimento (in tons) Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Total National Cement Production 40,00% 20,00% 0,00% -20,00% -40,00% Change in Cement Production of Ünye Çimento -29,52% 30,15% Year 2001 Year 2002 Year ,73% 11,30% Year 2004 Cement Production of Ünye Çimento Respect To Total National Cement Production

26 Total National Cement Production (in tons) ,00% Cement Production of Ünye Çimento Respect To Total National Cement Production Year 2000 Year 2001 Year 2002 Year 2003 Year ,00% 2,00% 0,00% 2,74% 2,32% 2,76% 2,88% 2,90% Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Cement Sales of Ünye Çimento Cement Sales of the Sector Cement Sales of Ünye Çimento (in tons) Cement Sales of the Sector (in tons) Year 2002 Yea r 2003 Year Year 2002 Year 2003 Year 2004 Change in Cement Sales Comparison C ement Sales Share of Ünye Çimento in the Sector Change in Cement Sales Comparison Cement Sales Share of Ünye Çimento in the Sector 15,00% 4,00% 10,00% 5,00% 8,24% 7,89% 9,61% 9,79% 3,00% 2,00% 2,88% 2,87% 2,88% 0,00% Year 2003 Year 2004 Ünye Çimento Sector 1,00% 0,00% Year 2002 Year 2003 Year 2004 Clinker Production of Ünye Çimento Change in Clinker Production of Ünye Çimento

27 Clinker Production of Ünye Çimento (in tons) Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Total National Clinker Production Total National Clinker Production (in tons) 100,00% 80,00% 60,00% 40,00% 20,00% 0,00% -20,00% -40,00% Change in Clinker Production of Ünye Çimento -30,93% 95,16% 42,89% 17,18% Year 2001 Year 2002 Year 2003 Year 2004 Clinker Production of Ünye Çimento Respect to Total National Clinker Production Clinker Production of Ünye Çimento Respect to Total National Clinker Production Year 2000 Year 2001 Year 2002 Year 2003 Year ,00% 5,00% 4,00% 3,00% 2,00% 1,00% 0,00% 3,70% 4,03% 2,67% 2,02% 1,41% Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Cement Production Capacity Usage Comparison of Ünye Çimento and the Sector Cement Production Capacity Usage Comparison of Ünye Çimento and the Sector Clinker Production Capacity Usage Comparison of Ünye Çimento and the Sector Clinker Production Capacity Usage Comparison of Ünye Çimento and the Sector 100,00% 90,00% 80,00% 70,00% 60,00% 50,00% 62,42% 56,08% 54,75% 58,46% Year 2003 Year ,00% 90,00% 80,00% 70,00% 88,91% 90,08% 84,03% 75,88% Year 2003 Year 2004 Ünye Çimento Sector Ünye Çimento Sector Clinker Sales of Ünye Çimento Clinker Sales of the Sector

28 Clinker Sales of Ünye Çimento (in tons) Clinker Sales of the Sector (in tons) Year 2002 Year 2003 Year Year 2002 Year 2003 Year 2004 Change in Clinker Sales Comparison Clinker Sales Share of Ünye Çimento in the Sector Change in Clinker Sales Comparison Clinker Sales Share of Ünye Çimento in the Sector 200,00% 15,00% 150,00% 144,04% 12,77% 100,00% 50,00% 76,12% 10,00% 0,00% -50,00% -21,06% -21,37% Year 2003 Year 2004 Ünye Çimento Sector 5,00% 0,00% 5,70% 1,84% Year 2002 Year 2003 Year 2004 PART I.B: INTERNAL ANALYSIS OF FIRMS IN SECTOR NO.02 (Real Estate Investment Sector)

29 I.B.1: INTERNAL ANALYSIS OF FIRM NO.01 (Garanti GYO A.Ş.) OF INSUDTRY NO.02 (Real Estate Investment Trust Sector) I.B.1.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm I.B.1.1.1: Identify or infer the organization's current mission, purpose, and key management values/philosophy: Garanti GMYO defines its mission as raising the value of the investment portfolio by maintaining a consistent growth and thus ensuring that its shareholders benefit the most from their investments to company through both dividends and increase in market value. 7 I.B.1.1.2: Identify the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase. Garanti GMYO aims at to become the most respectable and one of the three largest real estate development companies with regard to investment volume with the synergy created by combining the experience and strength of Doğuş Group in construction and banking industries. 8 Garanti GMYO sees real estate development and investment activities as an efficient and profitable source of income which requires experience and expertise in construction, finance and marketing fields and must be professionally executed within an institutional structure. Garanti GMYO aims at investing in housing development projects that appeals to medium high income groups, has a certain concept approach and unique architectural designs and is financially accessible and in commercial real estates and development projects that can provide regular, low-risk and high rental income. In case of low rental income, sale of housing projects are considered and this way it is aimed that the sales revenue of the real estates and the rental income obtained from the commercial real estates with high rental income which are currently rentable will be balanced in the portfolio and this way the revenues with sales and rental origin will be diversified based on the investment segments. On the other hand, it is also aimed that a balance will be established between the currently rentable real estates and the development projects, and consequently the company will always have a durable cash f low as well as benefit from the high development profits and the potential growth which can be provided by development projects. Another diversification criterion used as the basis for the portfolio is geographical diversity. With this purpose it is paid attention to locate the real estates forming the company portfolio in different regions within the country and it is aimed that the risks of the countries and regions are balanced by investing some amount of capital abroad. In the portfolio of the company, efficiency and liquidity principles are always considered. For the real estates in the portfolio with decreasing efficiencies, measures are taken in order to increase their yield, if necessary, sale opportunities are considered. While keeping the liquidity always strong, the cash and security portfolio is managed actively and professionally. It is also aimed that a yield always exceeding the alternative investment opportunities and costs of funds is achieved. Garanti GMYO also considers the quality standards of Doğuş Group besides commercial pursuits in its investments. It is important that a certain architectural concept and gusto of life exist in the housing projects to be developed, move the quality standards of its class further and is financially reachable. In commercial projects, the value the commercial real estate should increase by the help of creative ideas and leading designs. 7 Garanti GMYO Annual Report for the year Garanti GMYO Annual Report for the year

30 With this purpose, the company tracks the industrial developments with in the country and abroad and undertakes a leading role in application of innovations in Turkey. Garanti GMYO portfolio is intended to be improved consistently and help the investors benefit from the stocks through both dividends and capital gain. However the intended growth will be realized in a secure manner only by use of equity capital and if necessary of low-cost credits in high return projects, not by a risky borrowing policy. I.B.1.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms). Year 2004 Year 2005 I.B.1.1.4: Determine how well the organization has been performing

31 Market Capitalization Paid-in Capital Movement Market Value of Garanti GMYO (in million YTL) Paid-in Capital Movement of Garanti GMYO (in million YTL) ,3 24,4 14,6 29,7 67, ,00 23,25 23,25 23,25 71, Year 2000 Year 2001 Year 2002 Year 2003 Year Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Total Assets Size Net Profit Movement Total Assets Size of Garanti GMYO (in million YTL) Net Profit Movement of Garanti GMYO (in million YTL) , ,4 40, ,1 29,9 0 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Sales/GNP Correlation ,57 4,70 3,97 2,80 0,40 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Net Profit Per Share Garanti GMYO Sales/GNP Correlation Net Profit per Share for Garanti GMYO 0,0018% 0,0017% 100% 0,0012% 80% 60% 0,0006% 0,0000% 0,0003% 0,0002% Year 2002 Year 2003 Year % 20% 0% 32,58% 17,08% 0,55% Year 2002 Year 2003 Year 2004 Portfolio Value

32 Portfolio Value of Garanti GMYO (in million YTL) ,30 3,30 Year 1997 Year ,40 Year ,80 Year ,40 Year ,20 Year 2002 Year ,00 83,50 Year 2004 I.B.2: INTERNAL ANALYSIS OF FIRM NO.02 (İş GYO A.Ş.) OF INSUDTRY NO.02 (Real Estate Investment Trust Sector)

33 I.B.2.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm I.B.2.1.1: Identify or infer the organization's current mission, purpose, and key management values/philosophy: The mission of İş GMYO is to maximize the collective value of its portfolio for its shareholders through stable growth and high profitability. 9 In this respect: İş GMYO has pursued steady growth since the day it was established by means of well-placed investments and through the effective use of its resources. İş GMYO maintains a close lookout for value enhancing opportunities in the sector in line with its goal of securing the highest possible returns for its shareholders. The confidence inspired by the ethical values to which it subscribes and abides by in the conduct of its business and by its openness and transparency in keeping investors informed have strengthened İş GMYO s position in the sector. I.B.2.1.2: Identify the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase. İş GMYO s main strategy is to provide investors with the highest possible returns with minimum levels of risk by achieving a high degree of profitability from a steady stream of rental income on a superior quality portfolio of properties. 10 I.B.2.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms). 9 İş GMYO Annual Report for the year İş GMYO Annual Report for the year

34 I.B.2.1.4: Determine how well the organization has been performing

35 Market Capitalization Paid-in Capital Movement Market Value of İş GMYO (in million YTL) Paid-in Capital Movement of İş GMYO (in million YTL) ,40 306,40 632, ,69 235,69 235,69 329, ,00 190, , Year 2000 Year 2001 Year 2002 Year 2003 Year Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Total Assets Size Net Profit Movement Total Assets Size of İş GMYO (in million YTL) Net Profit Movem ent of İş GMYO (in million YTL) , ,05 - Year ,05 645,14 543,91 364, 87 Year 2001 Year 2002 Year 2003 Year ,67 32,71 20,46 3,47 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Sales/GNP Correlation Net Profit Per Share İş GMYO Sales/GNP Correlation Net Profit per Share for İş GMYO 0,0180% 0,0120% 0,0060% 0,0115% 0,0123% 0,0088% 100% 80% 60% 40% 20% 13,01% 13,88% 31,89% 0,0000% Year 2002 Year 2003 Year % Year 2002 Year 2003 Year 2004 Portfolio Value Portfolio Value of İş GMYO (in million YTL) , , Year 2003 Year

36 I.B.3: INTERNAL ANALYSIS OF FIRM NO.03 (Vakıf GYO A.Ş.) OF INSUDTRY NO.02 (Real Estate Investment Trust Sector) I.B.3.1: Current Mission, Long-Range Objectives, Strategies and Performance of the Firm I.B.3.1.1: Identify or infer the organization's current mission, purpose, and key management values/philosophy: The mission of Vakıf GMYO is to have a diversified, risk degree lowered and high return generating portfolio of real estates. Beside this, providing transparency to real estate sector, supporting urbanism and helping the small investors to participate projects of high quality and large scale. 11 I.B.3.1.2: Identify the long-range business objectives and strategies (especially corporate-level and competitive strategies). Merely describing their business activities is not identifying strategies. Focus particularly on identifying and evaluating the current strategies, since you may be proposing changes to these in the Formulation phase. The main targets of Vakıf GMYO is to grow by adding value to its investments, to sustain profitability and the strong structure of balance sheet, to create projects of high value, to give motivation and job satisfaction to its employees. 12 When we look at Vakıf GMYO s portfolio of assets, we can see that the company mainly concentrates on office buildings and land. Different from other real estate investment trusts, the company has no any investment in shopping centers. I.B.3.1.3: Analyze the appropriateness of the organization's portfolio of businesses (for diversified firms). The portfolio of Vakıf GMYO consists of the real estates listed below. Real Estate End of 2004 End of 2005 Value (million YTL) Value (million YTL) Park Maya 5,10 5,60 Finans Market 3,00 3,35 Üsküp Caddesi 1,45 1,55 Binnaz Sokak 12,11 13,00 Bağdat Cad. 1,23 1,50 Tunalı Hilmi Cad. 1,20 1,34 Arsa - Çayyolu 4,18 5,20 Bakırköy 2,80 2,80 Kadıköy 1,56 1,69 Tunalı Hilmi Cad. 4,07 4,33 Adana 0,00 3,10 Total 36,69 43,45 The company has invested mainly in office buildings and land. The investment shares are as below. 11 Vakıf GMYO Annual Report for the year Vakıf GMYO Annual Report for the year

37 Real Estate Portfolio Distribution of Vakıf GMYO (in million YTL) Land; 5,20 Building; 38,25 Land Building Beside the real estate investments, the company has invested in marketable securities like t-bills, bonds and investment funds. I.B.3.1.4: Determine how well the organization has been performing. Market Capitalization Market Value of Vakıf GMYO (in million YTL) Paid-in Capital Movement Paid-in Capital Movement of Vakıf GMYO (in million YTL) ,14 14,00 10,00 12,35 23,10 6,00 5,00 4,00 3,00 2,00 3,50 4,38 5,00 5,00 5,00 5 1,00 - Year 2000 Year 2001 Year 2002 Year 2003 Year ,00 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Total Assets Size Net Profit Movement Total Assets Size of Vakıf GMYO (in million YTL) Net Profit Movement of Garanti GMYO (in million YTL) 45,00 40,00 35,00 30,00 25,00 20,00 15,00 10,00 11,45 11,46 11,46 9,34 5, 00 0,00 Year 2000 Year 2001 Year 2002 Year ,99 Year ,00 1,50 1,00 0,50 0,00-0,50-1,00-1,50-2,00-2,50 1,77 1,25 0,98 0,19-2,43 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Sales/GNP Correlation Net Profit Per Share Vakıf GMYO Sales/GNP Correlation Net Profit per Share for Vakıf GMYO 0,0030% 0,0020% 0,0024% 100,00% 80,00% 60,00% 0,0010% 0, 0000% 0,0004% 0, 0004% Year 2002 Year 2003 Year ,00% 20,00% 0,00% 19,69% 3,72% 0,00% Year 2002 Year 2003 Year

38 Portfolio Value Portfolio Value of Vakıf GMYO (in million YTL) ,44 33,15 34,56 36, Year ,57 2,68 6,60 0,38 1,06 Year 1997 Year 1998 Year 1999 Year 2000 Year 2001 Year 2002 Year 2003 Year

39 PART II: FUNCTIONAL ANALYSIS OF FIRMS PART II.A: FUNCTIONAL ANALYSIS OF FIRMS IN SECTOR 01 (Cement Sector) PART II.A.1:FINANCIAL ANALYSIS OF FIRM NO. 01 (Bolu Çimento Sanayi A.Ş.) IN SECTOR NO. 01 (Cement Sector). PART II.A.1.1: Financial Analysis of Bolu Çimento There are the measurements of the financial ratios of the company as of Liquidity Year Current Ratio Quick Ratio Fixed Assets/Net Worth Net Working Capital ,31 1,98 0, ,55 2,22 0, ,97 5,13 0, ,06 7,59 0, Asset Utilization-Total Asset Management Year Days to Collect Days to Sell Fixed Asset Asset Total Receivables Inventory Turnover Turnover ,72 0, ,42 0, ,76 0, ,82 0,67 Capital Structure -Leverage Year Debt Ratio Debt To Equity EBIT EBITDA Times Fixed Charges Earned Times Interest Earned % 34% ,142 8, % 29% ,553 4, % 11% ,693 62, % 7% (*) (*) (*) Return on Investment-Profitability Year Profit Gross Margin Net Profit Margin Roe Roa % 23% 17% 16% % 7% 6% 6% % 20% 15% 14% % 30% 21% 20% Ratios Industry Avarage Remarks Current Ratio 2,53 Satisfy Days to Sell Inventory 48 Satisfy Net Profit Margin 20,48% Satisfy Debto to Equity 28,90% Satisfy R OA 11,46% Satisfy

40 Financial Commentary of Bolu Çimento as of 2002: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with YTL and it has ratio of %91 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together with private sector shares as of December 31 st Bolu Çimento invested in public sector debenture, bills and bonds, it has ratio of %90 in Marketable Securities accounts and %28 in current assets. The compounding return rate of the Treasury Bills is %55.8, but the company has profit margin of %40, this shows that profitability of the Treasury Bills is higher than the company s profit margin. Short Term Commercial Receivables: It is the amount of Bolu Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision and maturity checks. The account receivables collection period is 68 days, days to sell inventory is 72 and the account payables payment period is 65 days of the company. The company has YTL notes payables end of the 2002 and the company has the account receivables ratio of %27 in current assets is high, this means the company is working with prompt receivables more than prompt payables. This shows that Bolu Çimento needs the equity only two and a half months to finance its commercial payments. Current Ratio: The company has the current ratio of (2.31.) 2 is the acceptable for the current ratio. This means there are some inactive funds into the company s structure. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, the merchandise inventory with YTL, the kraft product for production with YTL, and the other advanced given with YTL. Quick Ratio: The company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times 1.98 as of Tangible Fixed Assets: Tangible fixed assets demonstrated the amount of the ongoing investments and the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2002 and acquisition cost by the revaluation of the company s fixed assets received in 2001 and the previous years by Bolu Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of the increment capital expenses and properties which are specially deployable after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 68 days, a low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Days to Sell Inventory: A financial measure of a company' s performance that gave an idea of 72 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 1.72 as of

41 Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.72, it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to Real and Artificial persons with YTL, notes payable with YTL discount on notes payable exceeding a 3 month-period with YTL, guarantees received from the company s cement seller and other contractors with YTL and good and services payables with certificates not received with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the company s shareholder s dividend not demanded yet with YTL, expenses which will be paid with YTL, payable tax and funds and social security institution premiums an lb. ins. payable with YTL, VAT calculated for December 2002, other VAT and receivables of the company s employees from December 2002 remunerations and other payables total with YTL. Financial Liabilities: The Financial Liabilities of YTL represents bank loans with YTL and long term credit capital stock and interest with YTL. Long Term Trade Payables: The trade payables of YTL represent the material amount purchased together with Ünye and Mardin Cement Plants with 17 YTL, notes payable with YTL, where YTL, represent the discount on such notes payable. Financial Liabilities: The Financial Liabilities of YTL represents bank loans with YTL Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.29 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 34 means the financing of every assets worth of 100 YTL, the company used 66 YTL equity and borrowings 34YTL. Times Fixed Charges Earned: Company has times fixed charges earned of means the relation between debt related fixed charges and a company s earnings available to meet this charges, and the company s ability could meet its fixed obligations. Times Interest Earned: The Company has the high ratio because the low interest charges. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 40%, it would retain YTL 0.40 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked for marketable securities as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 23% profit margin, for example, means the company has a net income of YTL0.23 for each YTL of sales

42 ROE (Return on Equity): Company has ROE of %17 reveals profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %16, the higher is better because the company is earning more money on less investment. Financial Commentary as of 2003: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %88 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together with private sector shares as of December 31 st Bolu Çimento invested in public sector debenture, bills and bonds, it has ratio of %100 in Marketable Securities accounts and %37in current assets. The compounding return rate of the Treasury Bills is %25.5, but the company has profit margin of %23 this shows that profitability of the Treasury Bills is higher than the company s profit margin. Short Term Commercial Receivables: It is the amount of Bolu Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision and maturity cheques. The account receivables collection period is 82 days, days to sell inventory is 48 and the account payables payment period is 39 days of the company. The company has YTL notes payables end of the 2003, and the company has the account receivables ratio of %37 in current assets is high, this means the company is working with prompt receivables more than prompt payables. This shows that Bolu Çimento needs the equity three months to finance its commercial payments. Current Ratio: The company has the current ratio of 2.55, 2 is the acceptable for the current ratio. This means there are some inactive funds into the company s structure. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, the merchandise inventory with YTL, the Kraft product for production with YTL, and the other advanced given with YTL. Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times 2.22 as of Tangible Fixed Assets: Tangible fixed assets demonstrated the amount of the ongoing investments and the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2003 and acquisition cost by the revaluation of the company s fixed assets received in 2002 and the previous years by Bolu Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of the increment capital expenses and properties which are specially depletable after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL Total Asset Management:

43 Average Collection Period: The Company s average collection period 82 days means a low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 48 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 1.42 as of Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.67, it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to Real and Artificial persons with YTL, notes payable with YTL discount on notes payable exceeding a 3 month-period with YTL, guarantees received from the company s cement seller and other contractors with YTL and good and services payables with certificates not received with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the company s shareholder s dividend not demanded yet with YTL, short term portion with installments under the code no 4811 of the tax liabilities belonging to the force major period declared as a result of the earthquake of 1999 with YTL, payable tax and funds and social security institution premiums with YTL and other payables total with YTL. Financial Liabilities: The Financial Liabilities of YTL represents bank loans with YTL and long term credit capital stock and interest with YTL. Long Term Trade Payables: The trade payables of YTL represent the material amount purchased together with Ünye and Mardin Cement Plants with 17 YTL, notes payable with YTL, where YTL, represent the discount on such notes payable. Financial Liabilities: The Financial Liabilities of YTL represents bank loans with YTL Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.22 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 29 means the financing of every assets worth of 100 YTL, the company used 71 YTL equity and borrowings 29YTL. Times Fixed Charges Earned: Company has times fixed charges earned of means the relation between debt related fixed charges and a company s earnings available to meet this charges, and the company s ability could meet its fixed obligations. Company paid the high dividend as of 2003 so this ratio is low. Times Interest Earned: The Company has the high ratio because the low interest charges. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rational is that company would yield

44 greater returns by investing their earnings into other projects and borrowing, at a lower cost of capital than what it is currently paying for its current debt, to meet its debt obligations. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 23%, it would retain YTL 0.23 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 7% profit margin, for example, means the company has a net income of YTL0.07 for each YTL of sales. The COS is very high as of 2003 so the net profit margin is low. ROE (Return on Equity): Company has ROE of %6 reveals profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %6, the higher is better because the company is earning more money on less investment. Financial Commentary as of 2004: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %97 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together with private sector shares as of December 31 st Bolu Çimento invested in public sector debenture, bills and bonds, it has ratio of %100 in Marketable Securities accounts and %53 in current assets. The compounding return rate of the Treasury Bills is %20,8 but the company has profit margin of %61 this shows that profitability of the company much higher than Treasury Bill s profitability Short Term Commercial Receivables: It is the amount of Bolu Çimento s receivables form cement and ready-mix, concrete clients, bill receivables and doubtful receivables provision and time cheques. The account receivables collection period is 78 days, days to sell inventory is 56 and the account payables payment period is 53 days of the company. The company has YTL notes payables end of the 2004, and the company has the account receivables ratio of %26 in current assets is high, this means the company is working with prompt receivables more than prompt payables. This shows that Bolu Çimento needs the equity about two and a half months to finance its commercial payments. Current Ratio: The company has the current ratio of 6, 2 is the acceptable for the current ratio. This means there are more inactive funds into the company s structure such as T-Bills which return s is less than company s profitability. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, the Kraft product for production with YTL, and the other advanced given with YTL. Quick Ratio: The Company has quick ratio 5. This shows that the company s ability to pay off the obligations excluding the inventories times 5 as of

45 Tangible Fixed Assets: The total amount of the investments of the fixed assets bought in 2003 and before, subject to the depreciation and with their values revaluated by adjusting coefficients of the related years together with the addition of fixed assets amount of 2004 on their net values after deduction of the accumulated depreciation. Intangible Fixed Assets: The amount remaining from the expenses made on assets subject to exhaustion and expenses made for capital increase after subtracting their amortizing shares. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may signal an underlying problem in the company's operations. Total Asset Management: Average Collection Period: The Company s average collection period 76 days means a low ratio implies the company should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the firm. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 56 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 1.76 as of There is not the investment in the company s structure. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.69, it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to Real and Artificial persons with YTL, notes payable with YTL discount on notes payable exceeding a 3 month-period with YTL, guarantees received from the company s cement seller and other contractors with YTL and good and services payables with certificates not received with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the company s shareholder s dividend not demanded yet with YTL, short term portion with installments under the code no 4811 of the tax liabilities belonging to the force major period declared as a result of the earthquake of 1999 with YTL, payable tax and funds and social security institution premiums with YTL and other payables total with YTL. Financial Liabilities: The Financial Liabilities of YTL represents long term credit capital stock and interest with YTL and the other financial liabilities with YTL. Long Term Trade Payables: The trade payables of 15 YTL represent the material amount purchased together with Nye and Mardin Cement Plants with 15 YTL

46 Financial Liabilities: It is the amount of 2 YTL between the company s liabilities of financial leasing processes and the debit cost of postponed financial leasing. Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can he lp investors determine a company's level of risk. The company has the ratio of 0.10 is less than 1. D ebt to Equity: Com pany has the debt to equity ratio of % 11 means the financing of every assets worth of 100 YTL, the company used 89 YT L equity and borrowings 11YTL. A high debt/equity ratio generally means a company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. But the company s ratio is not high means company used the internal resources for financing the assets. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this is to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures. Times Fixed Charges Earned: Company has times fixed charges earned of 1.69 means the relation between debt related fixed charges and a company s earnings available to meet this charges, and the company s ability could meet its fixed obligations. Times Interest Earned: The Company has high ratio because the very low interest charges. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rational is that company would yield greater returns by investing their earnings into other projects and borrowing, at a lower cost of capital than what it is currently paying for its current debt, to meet its debt obligations. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 61%, it would retain YTL 0.61 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher pr ofit margin indicates a more profitable company that has better control over its c osts compared to its competitor s. Profit margin is displayed as a percentage; a 20% profit margin, for example, m eans the company has a net income of YTL0.20 for each YTL of sales. COS is low comparison with th e 2003 so either the profit margin or net profit margin is high as of ROE (Return on Equity): Company has ROE of %15 reveals YTL profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %14, the higher is better because the company is earning more money on less investment

47 Financial Commentary As of 2005: (*) The company s annual report has not declared as of the process of the project report. C urrent and Quick Ratio: The com pany has current ratio of 9 which is so high means there are inactive funds i n the structure of the Bolu Çimen to. The industry average is l ower than the company so the company is more liquid. On the other hand Bolu Çimento has quick ratio of 8 means company has the strong assets to pay off the current obligations excluding the inventories. Fixed Asset Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 1.82 as of There is not the investment in the company s structure. Debt to Equity and Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.07 is less than 1. Industry average of this ratio is higher than the company means company uses the equity more than the other firms in the sector. On the other hand Company has the debt to equity ratio of % 7 means the financing of every assets worth of 100 YTL, the company used 93 YTL equity and borrowings 7YTL means company is financing the assets with the equity mostly. Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 45%, it would retain YTL 0.45 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. On the other hand the industry average of the net profit margin is lower than the company. This is positive effect for the company. PART II.A.1.2.: Marketing Management: Marketing Research & Development (Strategic Marketing Policies) Market Policies: When we look at the market policies of Bolu Çimento, it can be seen that the company markets its products only nationwide. Because the most important cost item is the transportation cost, Bolu Çimento prefers to enter the local markets that are close to its facilities to take cost advantage. Also, Bolu Çimento established Oyak Beton in 2004 in continue its operations in ready-mix concrete market. As of 2005, the cement market mainly consists of the below group of companies: cooperation with Adana Çimento and Ünye Çimento to Group Title of Companies Sabancı Group 5 Facilities Akçansa, Oysa, Çimsa, Exportaciones-Sabancı, Karçimsa, Ladik Çimento and Standart Çimento Lafarge Group 8 Facilities Aslan Çimento, Ereğli Çimento, Lafarge-Yibitaş Çimento Oyak Group 5 Facilities Bolu Çimento, Mardin Çimento, Ünye Çimento, Adana Çimento and Elazığ Çimento Italcementi Group 5 Facilities Set Çimento

48 PART II.A.1.3: Product Policies The company s main products are various kinds of packed and bulk cement. Beside these, clinker which is a raw material for the production of cement takes the second important product place. By the transfer of ready- mainly on cement type products. Gray cement mix concrete business to Oyak Beton, the company concentrates types are the company s most valuable products. Sales Allocation of Bolu Çimento Year 2001 Year 2002 Y 03 ear 20 Yea r 2004 Cement Ready-mix Concrete Clinker Crushed Stone Various types of the company s products are as below: Cement Products - Portland Cement - Composite Cement - Sulfur-Resistant Cement - Portland Composite Cement - Pozzolanic Cement - Trass Cement - Blast Furnace Slag Cement Clinker Products - Portland Cement Clinker - Sulfur-Resistant Cement Clinker - Low-Alkali Clinker Warehousing and Distributional Policies: Bolu Çimento s main facility is located in Bolu. This geographic region gives Bolu Çimento the advantage of being close to three regions Marmara, Black Sea and Central Anatolia. When we think of high transportation costs, this location provides competitive advantage to the company. Also, the company has two packing facilities in Ank ara and Istanbul. Profit and Pricing Policies: To reach sustainable growth is one of main targets of Bolu Çimento. When we look at the below table, we can see that operating profitability of the company is at attractive level Gross Sales ,00 100% ,00 100% ,00 100% Sales Discounts ,00-1% ,00-1% ,00-1% Net Sales ,00 99% ,00 99% ,00 99% Cost of Goods Sold ,00-60% ,00-76% ,00-62% Gross Sales Income ,00 39% ,00 23% ,00 38% Also, because the cement sector is an oligopolistic market, sometimes the group of companies operating in cement sector can deal to increase the cement prices. In the past, Turkish Competition Authority has penalized the cement sector companies with the reason of increasing cement prices illegally

49 When we look at the decreasing times of inflation rates, we can see that cement product prices have steadily incremented to take the advantage of construction sector s picking-up. Customer Relations Management and Segmentation Policies: The product demand of the customers, are evaluated by the related department management and if found relevant, met within the conditions of the contract signed with the customer. The deliveries to the dealers are realized within the conditions of the dealer contract. All types of the cements are produced in conformity with TSEN standards (Production Sufficiency and Conformity with the Turkish Standards Certificate No: /261) published by the Turkish Standards Institute. It is guaranteed that the cement produced in the facilities is in conformity with TS-EN 197/1/March 2002 Cement Section 1: Combination, Specialties and Conformity of General Cements and the company displays the logo that represent the TSE standards on the product packing. Also Bolu Çimento has the CE document, issued by the standardization agents of EU member countries, for its products they sell and export, as of The customer complaints that are received are examined by a technical team formed with the participation of sales, quality control and production units. After the source of the problem is identified it is finalized by the application of suitable corrector and preventions processes as required by the procedures of Bolu Çimento Quality Management Systems. Bolu Çimento organizes Customer Satisfaction surveys for its customers to be finalized in January-February. The survey forms are posted to its pre-elected customers and to all dealers. The results of these surveys are presented to higher management and unit managements after being evaluated by the Sales Management. PART II.A.1.4: Production/Operations Location and capacities of facilities: The company has the ability to produce 2,6 million tons cement and 1,35 million tons clinker per year. Bolu Çimento has completed its production automation project in 2002 and after this period the company has reached today s production capacity level. When we look at the sales amounts and the capacity level, it is clear that the company needs no any excess capacity. While the company s cement production capacity usage is 52,9% and 62,3% in 2003 and 2004 respectively, clinker productions usage rates are 87,9% and 99,9% in 2003 and Location and capacities of Bolu Çimento s facilities are as below. Bolu Main Facility 1- Preblending of tons stock capacity, 2- One unit of Limestone Breaker (350 tons/h), 3- One unit of Limestone Breaker (450 tons/h), 4- One unit of Clay Breaker (240 tons/h), 5- One Vertical Farina Mill 375 tons/h (dry production), 6- One Vertical Coal Mill 30 tons/h (dry production), 7- One Rotating Kiln tons clinker/day capacity, 8-3 units of Cement Grinding Mills 280 tons/h, ÇM 1 = 75 tons/h, ÇM 2 = 75 tons/h, ÇM 3 = 130 tons/h 9- Cement Stock Capacity: tons, 6 units Cement Silos x tons capacity, 1 unit Cement Silo x tons capacity, 1 unit Cement Silo x tons capacity 10-4 units Packed Cement Packing Line 100 Tons/h, 11-5 units Open Filling Facilities 120 tons/h, 1 unit Filling Facility 100 tons/h, 12- Electro and Jet Filters for Environment Pollution,

50 Ankara Grinding and Packing Facility: 1-2 Units x Clinker Stock Silo tons Capacity, 2- Cement Stock Capacity: tons, 2 Cement Silos x tons capacity, 1 Cement Silo x tons capacity, 3-1 Breaker (300 tons/h) 4-1 Cement Mill (100 tons/h), 5-2 Packed Cement Packing Line 100 tons/h, 6-3 Open Filling Units (100 tons/h) İstanbul Samandıra Cement Packing Facility: 1- Packing Weighbridge 00 tons/h capacity, 2-2 Cement Silos x 600 tons Output allocation Output Allocation of Bolu Çimento Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Cement Clinker Ready-mix Concrete Crushed Stone Efficiency: Because cement sector is one of the most competent sectors of Turkey, efficiency plays a very important role as a success factor. Inventory Levels: Bolu Çimento prefers to keep inventory at an average level of 10% of total sales. Year End Year-End Inventories / Total Sales Rate 11% 9% 10% Quality Objectives and Results: Maintaining the continuity and product quality is vital for the company. Because the cement market is very competitive, product quality has an important effect on sales. To ensure the level of product quality, the company holds Quality Management System Certificate. PART II.A.1.5: Human Resources and Organizational Design Top/general management and key staff resources Board of Directors Chairman: Celalettin Çağlar Deputy Chairman: İbrahim Tülü

51 Members: Şinasi Demir, Enis Sinan Kuru, Ali Rıza Altıparmak, Ali Kamil Uzun, Güney Arık, Metin Yaşar Yükselen Board of Auditors Ferit Aydın, Mustafa Tokgöz, Abdullah Belge General Manager K. Ümit Özel Employee/labor/personnel relations: When we look at the corporate values statement of Bolu Çimento, employee satisfaction is one of these values. The company s quality policy includes improving the education and participation of the personnel. The equality principle is the main concern and no discrimination of any kind can be made among the personnel. Every year Employee Satisfaction Survey is materialized so as to measure the satisfaction of personnel, to designate the issues of complaint and to make necessary improvements. The Proposal Evaluation Committee evaluates the proposals collected in the Proposal Boxes and in the Digital Proposal System. Education is one of the inevitable elements of the company s Human Resources Policy. The employees who undergo a detailed orientation education at recruitment are given chances to improve their professional skills with continuous training under developments principles. All the education programs they take and their contribution to the company are recorded and shall be considered later in carrier improvement. Necessary positions and titles are designated to run the relations with the employees. Logistic Services Manager is assigned to handle administrative, educational and labor affairs; Quality Control Manager is assigned to handle labor health and safety, Quality and environment management systems. Organization structure General Manager (K. Ümit Özel) Asst. General Manager (Memiş Vanlı) Accounting Manager (Ertuğrul Akdaş) Sales Manager (Selim Öztürk) Logistic Serv. Manager (M. L. Gürses) Quality Control Manager (Nurdan Öney) Production Manager (İrfan Yorulmaz) Technical Serv. Manager (Ali Rıza Tunçbilek)

52 Organizational Culture: Because Bolu Çimento is one of Oyak Group companies, Oyak culture plays an important role in the organizational culture of the firm. Most of the top management members are previously employed for other Oyak Group companies. For example, Chairman of Bolu Çimento - Celalettin Çağlar also performs as the CEO of Oyak Automotive Group. PART II.A.1.6: Management Information Systems Bolu Çimento will start to use Oracle e-business management system in its operations in the early All of Oyak Cement Group of companies has started to use this module. This e-business module helps the companies to better analyze of the operations like finance, production, logistics, human resources and maintenance management. PART II.A.1.7: Research and Development The company decided to establish a research and development department in order to operate parallel with scientific developments in PART II.A.1.8: Total Quality Management The company holds Environmental Management System Certificate (TS-EN-ISO 14001) and Quality System Certificate (TSE-ISO-EN 9000) given by Turkish Standards Institution. Nonetheless, the company is qualified to hold the OHSAS Safety and Health at Work Management Certificate given by Syndicate of Cement Producing Employers. (ÇMİŞ)

53 PART II.A.2: FUNCTIONAL ANALYSIS OF FIRM NO. 02 (Mardin Çimento Sanayi ve Ticaret A.Ş.) IN SECTOR NO. 01 (Cement Sector). PART II.A.2.1: Financial Analysis of Mardin Çimento There are the measurements of the financial ratios of the company as of Liquidity Year Current Ratio Quick Ratio Fixed Assets/Net Worth Net Working Capital ,08 4,00 0, ,94 3,50 0, ,83 5,00 0, ,00 6,64 0, Asset Utilization-Total Asset Management Year 365/Avarage Collection 365/Inventory Fixed Asset Asset Total Period Turnover Turnover Turnover ,02 0, ,61 0, ,06 0, ,96 0,57 Capital Structure -Leverage Year Debt Ratio Debt To Equity EBIT EBITDA Times Fixed Times Interest Charges Earned Earned % 18% , , % 15% ,097 19, % 13% ,305 33, % 14% (*) (*) (*) Return on Investment-Profitability Year Profit Gross Margin Net Profit Margin Roe Roa % 35% 18% 16% % 21% 16% 14% % 35% 24% 21% % 55% 31% 31% Ratios Industry Average Remarks Current Ratio 2,53 Satisfy Days to Sell Inventory 48 Satisfy Net Profit Margin 20,48% Satisfy Debto to Equity R OA 28,90% Satisfy 11,46% Satisfy

54 Financial Commentary of Mardin Çimento as of 2002: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %99 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury st Bills together with private sector shares as of December Mardin Çimento invested in public sector debenture, bills and bonds, it has ratio of %94 in Marketable Securities accounts and %27 in current assets. The compounding return rate of the Treasury Bills is %55.8, but the company has profit margin of %43, this shows that profitability of the Treasury Bills is higher than the company s profit margin. Short Term Commercial Receivables: It is the amount of Mardin Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision. The account receivables collection period is 13 days, days to sell inventory is 50 and the account payables payment period is 92 days of the company. This shows that Mardin Çimento pays off the trade liabilities about one month after collection of the trade receivables and selling the inventories. Current Ratio: The company has the current ratio of 5, 2 is the acceptable for the current ratio. This means there are some inactive funds into the company s structure. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, the merchandise inventory with YTL, the Kraft product for production with YTL, and the other advanced given with YTL. Quick Ratio: When I analyze the quick ratio is so high of the company. This shows that the company s ability is to pay off the obligations excluding the inventories times 4 as of is the acceptable for the quick ratio. Tangible Fixed Assets: Tangible fixed assets demonstrated the amount of the ongoing investments and the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2002 and acquisition cost by the revaluation of the company s fixed assets received in 2001 and the previous years by Mardin Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of the increment capital expenses and properties which are specially depletable after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 13 days means high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 50 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 1.02 as of

55 Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.47 it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to vendors with YTL, discount on payable with YTL, guarantees received from the company s cement seller and other contractors with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the company s shareholder s dividend not demanded yet with YTL, expenses which will be paid with YTL, payable tax and funds and social security institution premiums a lb. ins. payable with YTL. Financial Liabilities: The financial liabilities of YTL represents bank credits with YTL and long term credit, capital and interest with YTL. Long Term Trade Payables: The trade payables of YTL represent the material amount purchased with YTL, the discount on such payables with YTL. Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.15 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 18 means the financing of every assets worth of 100 YTL, the company used 82 YTL equity and borrowings 18 YTL. Times Fixed Charges Earned: Company has times fixed charges earned of means the relation between debt related fixed charges and a company s earnings available to meet this charges, and the company s ability could meet its fixed obligations. Times Interest Earned: The Company has the high ratio because the low interest charges. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 43%, it would retain YTL 0.43 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 35% profit margin, for example, means the company has a net income of YTL 0.35 for each YTL of sales. ROE (Return on Equity): Company has ROE of %18 reveals profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the

56 operations of the company. Company has ROA of %16, the higher is better because the company is earning more money on less investment. Financial Commentary as of 2003: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %99 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together with private sector shares as of December 31 st Mardin Çimento invested in public sector debenture, bills and bonds, it has ratio of %99 in Marketable Securities accounts and %59 in current assets. The compounding return rate of the Treasury Bills is %25.5, but the company has profit margin of %39,but the company has profit margin of %61 this shows that profitability of the company much higher than Treasury Bill s profitability Short Term Commercial Receivables: It is the amount of Mardin Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision. The account receivables collection period is 13 days, days to sell inventory is 33 and the account payables payment period is 42 days of the company. This shows that Mardin Çimento needs the equity only four days to finance its commercial payments. Current Ratio: The company has the current ratio of 3.94, 2 is the acceptable for the current ratio. This means there are some inactive funds into the company s structure. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, the merchandise inventory with YTL, the Kraft product for production with YTL,. Quick Ratio: The company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times 2 as of Tangible Fixed Assets: Tangible fixed assets demonstrated the amount of the ongoing investments and the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2003 and acquisition cost by the revaluation of the company s fixed assets received in 2002 and the previous years by Mardin Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of the increment capital expenses and properties which are especially deployable after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 13 days means a high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 33 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 1.61 as of

57 Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.63, it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to Real and Artificial persons with YTL, discount on payable with YTL, guarantees received from the company s cement seller and other contractors with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the company s shareholder s dividend not demanded yet with YTL, short term portion with installments under the code no 4811 of the tax liabilities belonging to the force major period declared as a result of the earthquake of 1999 with YTL, payable tax and funds and social security institution premiums with YTL and other payables total with YTL. Financial Liabilities: The Financial Liabilities of YTL represents bank loans with YTL Long Term Trade Payables: The trade payables of YTL represent the material amount purchased with YTL, YTL represents the discount on such payables. Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.13 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 15 means the financing of every assets worth of 100 YTL, the company used 85 YTL equity and borrowings 15 YTL. Times Fixed Charges Earned: Company has times fixed charges earned of means the relation between debt related fixed charges and a company s earnings available to meet this charges, and the company s ability could meet its fixed obligations. Times Interest Earned: The Company has the high ratio because the low interest charges. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 39%, it would retain YTL 0.39 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 21% profit margin, for example, means the company has a net income of YTL 0.21 for each YTL of sales. ROE (Return on Equity): Company has ROE of %16 reveals profit a company generates with YTL stockholders invested in it

58 ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %14, the higher is better because the company is earning more money on less investment. Financial Commentary as of 2004: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %99 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury st Bills together with private sector shares as of December Mardin Çimento invested in public sector debenture, bills and bonds, it has ratio of %99 in Marketable Securities accounts and %73 in current assets. The compounding return rate of the Treasury Bills is %20,8 but the company has profit margin of %46 this shows that profitability of the company much higher than Treasury Bill s profitability Short Term Commercial Receivables: It is the amount of Mardin Çimento s receivables form cement and ready-mix, concrete clients, bill receivables and doubtful receivables provision. The account receivables collection period is 16 days, days to sell inventory is 39 and the account payables payment period is 55 days of the company. The company has YTL notes payables end of the 2004, and the company has the account receivables ratio of %26 in current assets is high, this means the company is working with prompt receivables more than prompt payables. This shows that Bolu Çimento does not need the equity for financing its commercial payments. Current Ratio: The company has the current ratio of 6, 2 are the acceptable for the current ratio. This means there are more inactive funds into the company s structure such as T-Bills which return s is less than company s profitability. Inventories: The inventories total of YTL represents raw materials with YTL; the semi finished goods with YTL, the finished goods with YTL, the merchandise inventory with YTL the Kraft product for production with YTL, and the other advanced given with YTL. Quick Ratio: The Company has quick ratio 5. This shows that the company s ability to pay off the obligations excluding the inventories times 5 as of Tangible Fixed Assets: The total amount of the investments of the fixed assets bought in 2003 and before, subject to the depreciation and with their values revaluated by adjusting coefficients of the related years together with the addition of fixed assets amount of 2004 on their net values after deduction of the accumulated depreciation. Intangible Fixed Assets: The amount remaining from the expenses made on assets subject to exhaustion and expenses made for capital increase after subtracting their amortizing shares. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may signal an underlying problem in the company's operations

59 Total Asset Management: Average Collection Period: The Company s average collection period 16 days means a high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 39 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 2.06 as of There is not the investment in the company s structure. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.59, it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to Real and Artificial persons with YTL, discount on payable with YTL, guarantees received from the company s cement seller and other contractors with YTL. Other Short Term Liabilities: Other Short Term Payabl es of YTL represent the company s shareholder s dividend not deman ded yet with YTL, payable tax and funds and social security institution premiums with YTL and other payables total with YTL. Financial Liabilities: It is the amount of YTL represents the bank loan with YTL Long Term Trade Payables: The trade payables of YTL represent the material amount purchased with and discount on payables with YTL Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.11 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 13 means the financing of every assets worth of 100 YTL, the company used 87 YTL equity and borrowings 13YTL. A high debt/equity ratio generally means a company has been aggre ssive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. But the company s ratio is not high means company used the internal resources for financing the asset s. If a lot of debt is used to finance i ncreased operations (high debt to equity), the company could potentially generate more earnings than it would have without t his outside finan cing. I f this is to increase earnings by a greater amount than the debt cost (interest), then the shareholders bene fit as more earnin gs are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures. Times Fixed Charges Earned: Company has times fixed charges earned of means the relation between debt related fixed charges and a company s earnings available to meet this charges, and the company s ability

60 could meet its fixed obligations. Times Interest Earned: The Company has high ratio because the very low interest charges. Ensuring interest payments to debt holders and preventing bankruptcy depends mainly on a company's ability to sustain earnings. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rational is that company would yield greater returns by investing their earnings into other projects and borrowing, at a lower cost of capital than what it is currently paying for its current debt, to meet its debt obligations. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 46%, it would retain YTL 0.46 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 35% profit margin, for example, means the company has a net income of YTL 0.35 for each YTL of sales. ROE (Return on Equity): Company has ROE of %24 reveals profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %21, the higher is better because the company is earning more money on less investment. Financial Commentary As of 2005: (*) The company s annual report has not declared as of the process of the project report. Current and Quick Ratio: The company has current ratio of 7 which is so high means there are inactive funds in the structure of the Mardin Çimento. The industry average is lower than the company so the company is more liquid. On the other hand Mardin Çimento has quick ratio of 6.64 means company has the strong assets to pay off the current obligations excluding the inventories. Fixed Asset Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 2.96 as of There is not the investment in the company s structure. Debt to Equity and Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.12 is less than 1. Industry average of this ratio is higher than the company means company uses the equity more than the other firms in the sector. On the other hand Company has the debt to equity ratio of %14 means the financing of every assets worth of 100 YTL, the company used 86 YTL equity and borrowings 14YTL means company is financing the assets with the equity mostly. Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 56%, it would retain YTL 0.56 from each

61 YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. On the other hand the industry average of the net profit margin is lower than the company. This is positive effect for the company. Company has the high profitability ratio. PART II.A.2.2: Marketing Management: Marketing Research & Development (Strategic Marketing Policies) Market Policies: 47% of the company s sales are composed of exports in 2004, while this rate is 48% in Mardin Çimento takes the advantage of Iraq and Syrian markets a lot. The company entered Syrian market in 2004, which Mardin Çimento had no sales since The most important opportunity for the cement sector companies is the Iraq market as a result of the war. The sales to Iraq have a great share in the total exports while sales to Syria have a lower share. When we think that the war will come to an end in 2 or 3 years, this market will bring opportunities only for this period. When we think that, the major cost for cement sales is the transportation, the company has the greatest advantage among all the Turkish competitors. I think that, while the company is trying to take the advantage of Iraq market, it must make plans for the sustainable sales internally. The company will focus on the government investments for the new highway construction between Viranşehir-Habur and the project for dam construction in Ilısu. PART II.A.2.3: Product Policies The company s main products are various kinds of packed and bulk cement. Beside these, clinker which is a raw material for the production of cement takes the second important product place. Gray cement types are the company s most valuable products. Sales Allocation of Mardin Çimento Year 2001 Ye ar Year Year 2 4 Cement Ready-mix Concrete Clinker Various types of the company s products are as below: Cement Products Clinker Products Ready-mix - Portland Cement - Portland Cement Clinker - C14 - Sulfur-Resistant Cement - C16 - Portland Composite Cement - Pozzolanic Cement - C20 - C25 - C30 Concrete Warehousing and Distributional Policies: Mardin Çimento s main facility is located in Mardin. The company is planning to invest in another facility near the main facility in In the southeast region of Turkey, there

62 are three cement producing companies and the facility having the greatest capacity belongs to Mardin Çimento. The firm takes the advantage of using railway transportation to Iraq. Profit and Pricing Policies: The great demand from Iraq market helps the prices increase. As of 2004, the cement export sales prices are much higher than internal sales prices. The sales to Iraq and Syria and are received in cash, so there is no any problem in collection. When we look at the below table, we can see that operating profitability of the company is at attractive level. VERTICAL ANALYSIS Gross Sales ,00 100% ,00 100% ,00 100% Sales Discounts ,00-8% ,00-9% ,00-4% Net Sales ,00 92% ,00 91% ,00 96% Cost of Goods Sold ,00-52% ,00-55% ,00-52% Gross Sales Income ,00 40% ,00 36% ,00 45% Customer Relations Management and Segmentation Policies: The product demand of the customers, are evaluated by the related department management and if found relevant, met within the conditions of the contract signed with the customer. The deliveries to the dealers are realized within the conditions of the dealer contract. All types of the cements are produced in conformity with TSEN standards (Production Sufficiency and Conformity with the Turkish Standards Certificate No: /261) published by the Turkish Standards Institute. It is guaranteed that the cement produced in the facilities is in conformity with TS-EN 197/1/March 2002 Cement Section 1: Combination, Specialties and Conformity of General Cements and the company displays the logo that represent the TSE standards on the product packing. Also Mardin Çimento has the CE document, issued by the standardization agents of EU member countries, for its products they sell and export, as of The customer complaints that are received are examined by a technical team formed with the participation of sales, quality control and production units. After the source of the problem is identified it is finalized by the application of suitable corrector and preventions processes as required by the procedures of Mardin Çimento Quality Management Systems. Mardin Çimento organizes Customer Satisfaction surveys for its customers to be finalized in January-February. The survey forms are posted to its pre-elected customers and to all dealers. The results of these surveys are presented to higher management and unit managements after being evaluated by the Sales Management. PART II.A.2.4: Production/Operations Location and capacities of facilities: The company has one facility that is located in Mardin. When we look at the sales amounts and the capacity level, it is clear that the company needs no any excess capacity. While the company s cement production capacity usage is 54,8% and 58,5% in 2003 and 2004 respectively, clinker productions usage rates are 86,4% and 93,5% in 2003 and I think that, the company s new facility investment decision is taken by the expectation of future sales. The information regarding the facility s capacity is as below. Production Unit Company Quality & Capacity 2004 Production (Tons/Year) Concasor Miag Hammered 350 Tons/h Capacity double rotors Farina Mill K.H.D.A.G. 175 Tons/h capacity single cabin

63 Rotating Kiln K.H.D.A.G. Dry System 1850 Tons/day capacity Cement Mill F.L.Smith 1. Cement Mill 85 Tons/h Cement Mill 85 Tons/h Packing Haver Und Boecker + 5 units 460 Tons/h capacity Domestic Production As of this report s date, the company s clinker production capacity is 0,64 million tons/year and cement production capacity is 1,28 million tons/year. The company has decided to increase its clinker production capacity by an investment that costs 45 million Euro. This new facility is planned to start production in the late After the realization of the new production line, the company s clinker production capacity will reach to 1,72 million tons/year and cement production will reach 2,1 million tons/year. Output Allocation Output Allocation of Mardin Çimento Year 2001 Year 2002 Year 2003 Year 2004 Cement Clinker Ready-mix Concrete Inventory Levels: Mardin Çimento prefers to keep inventory at a rate as listed below. Year End Year-End Inventories / Total Sales Rate 14% 7% 9% Quality Objectives and Results: Maintaining the continuity and product quality is vital for the company. Because the cement market is very competitive, product quality has an important effect on sales. To ensure the level of product quality, the company holds Quality Management System Certificate. PART II.A.2.5: Human Resources and Organizational Design Top/general management and key staff resources Board of Directors Chairman: Celalettin Çağlar Deputy Chairman: Saim Demirel Members: Safter Sevinç, Mehmet K. Kalyon, Savaş Boybat, Doğa Soysal, Güney Arık. Board of Auditors Turan Özkışlalı, İsmet Durmaz, Osman Adıgüzel

64 General Manager and Assistant General Manager Kemal Doğansel and Metin Paşaoğlu. Employee/labor/personnel relations: Within the scope of Harmonizing Works on Corporate Management Principles the following principles are designated on Human Resources Policy: Equal opportunities are maintained for the persons with equal conditions. The employees are informed on the personnel rights, carrier and company possibilities. Secure working environment and conditions are supplied for the personnel. Prevent employees form maltreatment and discrimination. The Human Resources Policy has been constituted and the procedures for employee engagements are in action, the annual training programs are run, personnel rights are preserved and targets are set according to the procedures and on time. Representatives are assigned to run the relations with the personnel. A workplace representative is assigned for the union members and the Logistic Services Manager represents the non-union members. Organization structure K. Doğansel (General Manager) M. Paşaoğlu (Asst. General Manager) İ. Tazegül (Accounting Manager) M. Kökipek (Quality Control Manager) A. Sarıbay (Technical Services Manager) M. Demir (Logistic Services Manager) K. Yenice (Production Manager) Organizational Culture: Because Mardin Çimento is one of Oyak Group companies, Oyak culture plays an important role in the organizational culture of the firm. Most of the top management members are previously employed for other Oyak Group companies. For example, Chairman of Mardin Çimento - Celalettin Çağlar also performs as the CEO of Oyak Automotive Group. PART II.A.2.6: Management Information Systems Mardin Çimento will start to use Oracle e-business management system in its operations in the early All of Oyak Cement Group of companies have started to use this module. This e-business module helps the companies to better analyze of the operations like finance, production, logistics, human resources and maintenance management

65 PART II.A.2.7: Total Quality Management The company holds Environmental Management System Certificate (TS-EN-ISO 14001) and Quality System Certificate (TSE-ISO-EN 9000) given by Turkish Standards Institution. Nonetheless, the company is qualified to hold the OHSAS Safety and Health at Work Management Certificate given by Syndicate of Cement Producing Employers. (ÇMİŞ)

66 PART II.A.3: FUNCTIONAL ANALYSIS OF FIRM NO. 03 (Ünye Çimento Sanayi ve Ticaret A.Ş.) IN SECTOR 01 (Cement Sector). PART.II.A.3.1: Financial Analysis of Ünye Çimento There are the measurements of the financial ratios of the company as of Liquidity Year Current Ratio Quick Ratio Fixed Assets/Net Worth Net Working Capital ,6 1,24 1, ,9 0,80 1, ,1 1,13 1, ,3 5,25 0, Asset Utilization-Total Asset Management Year 365/Avarage Collection 365/Inventory Fixed Asset Asset Total Period Turnover Turnover Turnover ,36 0, ,47 0, ,63 0, ,95 0,52 Capital Structure -Leverage Year Debt Ratio Debt To Equity EBIT EBITDA Times Fixed Charges Times Interest Earned Earned % 101% NA NA % 52% NA NA % 66% NA NA % 25% (*) (*) (*) Return on Investment-Profitability Year Profit Gross Margin Net Profit Margin Roe Roa ,5% 0,05% -35% -17% % 2% 1% 1% % 16% 11% 8% % 48% 25% 25% Ratios Industry Average Remarks Current Ratio 2,53 Satisfy Days to Sell Inventory 48 Unsatisfy Net Profit Margin 20,48% Satisfy Debto to Equity 28,90% Satisfy ROA 11,46% Satisfy

67 Financial Commentary of Ünye Çimento as of 2002: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with YTL and it has ratio of %99 in the cash accounts. Short Term Commercial Receivables: It is the amount of Ünye Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision. The account receivables collection period is 25 days, days to sell inventory is 105 and the account payables payment period is 81 days of the company. This shows that Mardin Çimento pays off the trade liabilities about two months after collection the trade receivables and selling the inventories. Current Ratio: The company has the current ratio of 1.6, 2 are the acceptable for the current ratio. The company does not ability enough the inventories to cash. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, other stocks with YTL, commodity with les value provision with YTL, and the other advanced given with YTL. Quick Ratio: When I analyze the quick ratio is so high of the company. This shows that the company s ability is to pay off the obligations excluding the inventories times 1.24 as of is the acceptable for the quick ratio. Fixed Assets to Net Worth: The Company has Fixed Asset to Net Worth of % 45 means the financing of every fixed assets worth of 154 YTL, the company used 100 YTL equity and borrowings 54 YTL. Tangible Fixed Assets: Tangible fixed assets demonstrated the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2002 and acquisition cost by the revaluation of the company s fixed assets received in 2001 and the previous years by Ünye Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of properties which are specially depletable after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 25 days means high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 105 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.36 as of This is not good for the company because return of the fixed assets is low of the company

68 Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.28 it also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. But company s profit margin low also total asset turnover is low. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to vendors with YTL, guarantees received from the company s cement seller and other contractors with YTL, and other payables with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the debts to shareholders with YTL, debts to the stage which were postponed with YTL, payable tax and funds and social security institution premiums a lb. ins. payable with YTL and other payables with YTL. Short Term Financial Liabilities: The financial liabilities of YTL represents bank credits with YTL and long term credit, capital and interest with YTL. Long Term Financial Liabilities: The financial liabilities of YTL represents bank credits with YTL Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.50 is less than 1. But it is so high means company tends to the liabilities to finance the assets, by the way Ünye Çimento has the loss as of Debt to Equity: Company has the debt to equity ratio of % 101 means the financing of every assets worth of 100 YTL, the company used 49.9YTL equity and borrowings 50.01YTL. A high debt/equity ratio generally means the company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. Times Fixed Charges Earned: Company has the amount of loss as of 2002 Times Interest Earned: Company has the amount of loss as of 2002 Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 0.5%, it would retain YTL 0.05 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. The ratio is really low because of the high interest payments. Company invested pre-calcination work so used the bank credits and paid high interest. Net Profit Margin: The Company has costs that have increased at a greater rate than sales; it leads to a lower profit margin. This is an indication that costs need to be under better control. Profit margin is displayed as a percentage; a 0.05% profit margin, for example, means the company has a net income of YTL for each YTL of sales. ROE (Return on Equity): Company has the amount of loss equity in the company. as of There is not return on

69 ROA (Return on Assets): Company has the amount of loss as of There is not return on assets in the company. Financial Commentary as of 2003: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %99 in the cash accounts. Short Term Commercial Receivables: It is the amount of Ünye Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision. The account receivables collection period is 39 days, days to sell inventory is 92 and the account payables payment period is 74 days of the company. This shows that Mardin Çimento needs the equity two months to finance its commercial payments. Current Ratio: The company has the current ratio of 1.9, 2 is the acceptable for the current ratio. The company does not ability enough the inventories to cash. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, commodity with YTL, les value provision with YTL, and the other advanced given with YTL. Quick Ratio: The Company has quick ratio This shows that the company s ability is not enough to pay off the obligations excluding the inventories as of Tangible Fixed Assets: Tangible fixed assets demonstrated the amount of the ongoing investments and the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2003 and acquisition cost by the revaluation of the company s fixed assets received in 2002 and the previous years by Ünye Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of the increment capital expenses and properties which are especially deployable after decreasing portion of cremation. Fixed Assets to Net Worth: The Company has Fixed Asset to Net Worth of % 45 means the financing of every fixed assets worth of 114 YTL, the company used 100 YTL equity and borrowings 14 YTL. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 39 days means a high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 92 days took a company to turn its inventories into sales. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.47 as of This is not good for the company because return of the fixed assets is low of the company

70 Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.38, It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover, but company s profit margin also total asset turnover are low. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to vendors with YTL, guarantees received from the company s cement seller and other contractors with YTL, and other payables with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the debts to shareholders with YTL, payable tax and funds and social security institution premiums a lb. ins. payable with YTL and other payables with YTL. Short Term Financial Liabilities: The financial liabilities of YTL represents long term credit, capital and interest with YTL. Long Term Financial Liabilities: The financial liabilities of YTL represents bank credits with YTL Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.3 is less than 1. But it is so high means company tends to the liabilities to finance the assets, by the way Ünye Çimento has the little profit as of Debt to Equity: Company has the debt to equity ratio of % 52 means the financing of every assets worth of 100 YTL, the company used 52 YTL equity and borrowings 48 YTL. Times Fixed Charges Earned: Company has the negative amortizations of the fixed assets is more than the net income. Times fixed charges earned because the Times Interest Earned: Company has the negative Times interest earned because the amortizations of the fixed assets and the interest charges are more than the net income. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 12%, it would retain YTL 0.12 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. The ratio is really low because of the high interest payments. Net Profit Margin: The Company has costs that have increased at a greater rate than sales; it leads to a lower profit margin. This is an indication that costs need to be under better control. Profit margin is displayed as a percentage; a 2% profit margin, for example, means the company has a net income of YTL 0.02 for each YTL of sales. The net profit margin is low because the investment of the company paid more interest for this investment. ROE (Return on Equity): Company has the little profit so the ratio of %1 as of There is little profitability the company generates with money stockholders invested in it. ROA (Return on Assets): Company has the little profit so the ratio of %1 as of

71 Financial Commentary as of 2004: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with , YTL and it has ratio of %99 in the cash accounts. Short Term Commercial Receivables: It is the amount of Ünye Çimento s receivables form cement and ready-mix, concrete clients and doubtful receivables provision. The account receivables collection period is 33 days, days to sell inventory is 92 and the account payables payment period is 59 days of the company. This shows that Ünye Çimeto needs the equity about two months to finance its commercial payments. Current Ratio: The company has the current ratio of 2.1, 2 is the acceptable for the current ratio. Inventories: The inventories total of YTL represents raw materials with YTL, the semi finished goods with YTL, the finished goods with YTL, commodity with YTL and the other advanced given with YTL. Quick Ratio: The Company has quick ratio 1.13 this shows that the company s ability to pay off the obligations excluding the inventories times 1.13 as of Tangible Fixed Assets: Tangible fixed assets demonstrated the total pay advanced and net values after the rebate of accumulated depreciation from the amount of fixed assets added in 2004 and acquisition cost by the revaluation of the company s fixed assets received in 2003 and the previous years by Ünye Çimento according to the tax legislation law. Intangible Fixed Assets: It is amount of the increment capital expenses and properties which are specially depletable after decreasing portion of cremation. Fixed Assets to Net Worth: The Company has Fixed Asset to Net Worth of 1.38 means the financing of every fixed assets worth of 138 YTL, the company used 100 YTL equity and borrowings 38 YTL. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may signal an underlying problem in the company's operations. Total Asset Management: Average Collection Period: The Company s average collection period 33 days means a high ratio implies either that a company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient. Asset turnover measures a firm's efficiency at using its assets in generating sales or revenue the higher the number the better. It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover. Days to Sell Inventory: A financial measure of a company's performance that gave an idea of 92 days took a company to turn its inventories into sales

72 Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.63 as of This is not good for the company because return of the fixed assets is low of the company. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.48, It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover, but company s profit margin also total asset turnover are low. Leverage: Short Term Trade Payables: The trade payables of YTL represent the payables to vendors with YTL, guarantees received from the company s cement seller and other contractors with YTL, and other payables with YTL. Other Short Term Liabilities: Other Short Term Payables of YTL represent the debts to shareholders with YTL, pay able tax and funds and social security institution premiums a lb. ins. payable with YTL and other payab les with YTL. Short Term Financial Liabilities: The financial liabilities of YTL represents long term credit, capital and interest with YTL. Long Term Financial Liabilities: The financial liabilities of YTL represents bank credits with YTL Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.45 is less than 1. But it is so high means company tends to the liabilities to finance the assets. Debt to Equity: Company has the debt to equity ratio of 0.66 means the financing of every assets worth of 100 YTL, the company used 66 YTL equity and borrowings 44 YTL. A high debt/equity ratio generally means the company has been aggressive in financing its growth with debt. This can result in volatile earnings as a result of the additional interest expense. If a lot of debt is used to finance increased operations (high debt to equit y ), the company could potentially generate more e arnings than it would have without this outside financing. If this is to increase earnings by a greater amount than the deb t cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and bu siness activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures. Times Fixed Charges Earned: Company has the negative Times fixed charges earned because the amortizations of the fixed assets is more than the net income. Times Interest Earned: Company has the negative Times interest earned because the amortizations of the fixed assets and the interest charges are more than the net income. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 25%, it would retain YTL 0.25 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately

73 banked as net income. The ratio is really low because of the high interest payments of the pre-calcination investment. Net Profit Margin: The Company has costs that have increased at a greater rate than sales; it leads to a lower profit margin. This is an indication that costs need to be under better control. Profit margin is displayed as a percentage; a 16% profit margin, for example, means the company has a net income of YTL 0.16 for each YTL of sales. This ratio get higher because return of the investment ROE (Return on Equity): Company has the little profit so the ratio of %11 as of There is little profitability comparison with equity the company generates with money stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings were generated from invested capital (assets). The ROA figure gives investors an idea of how effectively the company is converting the money it has to invest into net income. The higher the ROA number, the better, because the company is earning more money on less investment, but company has the little profit in comparison with the total assets so the ratio of %8 as of Financial Commentary As of 2005: (*) The company s annual report has not declared as of the process of the project report. Current and Quick Ratio: The company has current ratio of 6.3 which is so high means there are so many in active funds in the structure of the Ünye Çimento and the company s assets is increasing comparison with the end of 2002, By the way the current ratio of the company is higher than the sector average On the other hand Ünye Çimento has quick ratio of 5.25 means the company has the strong assets to pay off the current obligations excluding the inventories. Fixed Asset Turnover: Fixed asset turnover measures the com pany s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.95 as of 2005 is getting higher than the previous years. There is not the investment in the company s structure. Debt to Equity and Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.25 is less than 1. Industry average of this ratio is higher than the company means company uses the equity more than the other firms in the sector. On the other hand Company has the debt to equity ratio of %25 means the financing of every assets worth of 100 YTL, the company used 75 YTL equity and borrowings 25 YTL means company is financing the assets with the equity mostly. Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 45%, it would retain YTL 0.45 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. On the other hand the industry average of the net profit margin is lower than the company. This is positive effect for the company. Company has the high profitability ratio. PART.II.A.3.2: Marketing Management: Marketing Research & Development (Strategic Marketing Policies) Market Policies: Although the company s main sales are domestic, the export sales will start to increase their shares in total sales. 25% of the company s sales are composed of exports in 2004, while this rate is 14% in

74 2003. The company enters Spanish, Portuguese and Italian cement markets in the recent years. Beside this, the company s export sales and product quality help the company to contact with foreign customers when they want to invest in Turkey. For example, Ünye Çimento dealt with an Austrian company Strabag Österreich in order to supply cement for this company s Muratlı Dam and HES Facilities constructions. The company is concentrated on gray types of cement products. The amount of transportation costs make the company not direct to foreign markets since Because the location of Ünye Port is close to Ünye Çimento s facilities, the company invested in reconstruction of this port and uses this port as a gateway to foreign markets. Also, Ünye Çimento established Oyak Beton in 2004 in cooperation with Adana Çimento and Bolu Çimento to continue its operations in ready-mix concrete market. PART.II.A.3.3: Product Policies The company s main products are various kinds of packed and bulk cement. Beside these, clinker which is a raw material for the production of cement takes the second important product place. By the transfer of ready- concrete business to Oyak Beton, the company concentrates mainly on cement type products. Gray cement mix types are the company s most valuable products. Sales Allocation of Ünye Çimento Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Cement Ready-mix Concrete Clinker Various types of the company s products are as below: Cement Products - Portland Cement - Composite Cement - Portland Composite Cement Clinker Products - Portland Cement Clinker Warehousing and Distributional Policies: The company has three facilities in Ünye/Ordu, Rize and Ünye Port. Unye Port brings competitive advantages to the company in terms of export sales. Like all the cement firms, the company prefers to promote its cement type products within its geographic area. Profit and Pricing Policies: The company s profitability is improved by the effect of the pre-calcination investment starting from This investment helped the company to decrease cost of goods sold at a rate of 10%. In the year 2002, that the investment is realized, the company could not succeed to gain profit because of the bank credits interest payments and foreign exchange losses

75 VERTICAL ANALYSIS Gross Sales ,00 100% ,00 100% ,00 100% Sales Discounts ,00-2% ,00-3% ,00-7% Net Sales ,00 98% ,00 97% ,00 93% Cost of Goods Sold ,00-97% ,00-84% ,00-70% Gross Sales Income ,00 0% ,00 12% ,00 23% Customer Relations Management and Segmentation Policies: The product demand of the customers, are evaluated by the related department management and if found relevant, met within the conditions of the contract signed with the customer. The deliveries to the dealers are realized within the conditions of the dealer contract. All types of the cements are produced in conformity with TSEN standards (Production Sufficiency and Conformity with the Turkish Standards Certificate No: /261) published by the Turkish Standards Institute. It is guaranteed that the cement produced in the facilities is in conformity with TS-EN 197/1/March 2002 Cement Section 1: Combination, Specialties and Conformity of General Cements and the company displays the logo that represent the TSE standards on the product packing. Also Ünye Çimento has the CE document, issued by the standardization agents of EU member countries, for its products they sell and export, as of The customer complaints that are received are examined by a technical team formed with the participation of sales, quality control and production units. After the source of the problem is identified it is finalized by the application of suitable corrector and preventions processes as required by the procedures of Ünye Çimento Quality Management Systems. Ünye Çimento organizes Customer Satisfaction surveys for its customers to be finalized in January-February. The survey forms are posted to its pre-elected customers and to all dealers. The results of these surveys are presented to higher management and unit managements after being evaluated by the Sales Management. PART.II.A.3.4: Production/Operations Location and capacities of facilities: The company has the ability to produce 1,8 million tons cement and 1,5 million tons clinker per year. The company has reached this capacity levels by an investment that costs 90 million Euro in When we look at the sales amounts and the capacity level, it is clear that the company needs no any excess capacity. While the company s cement production capacity usage is 56,1% and 62,4% in 2003 and 2004 respectively, clinker productions usage rates are 75,9% and 88,9% in 2003 and Ünye Çimento s main facility is located in Ünye/Ordu. Beside this, the company has pumping and packing facilities in Çayeli/Rize and Ünye Port. The company has the right to use Ünye Port for a period of 49 years. Output allocation Output Allocation of Ünye Çimento Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Cement Clinker Ready-mix Concrete

76 Inventory Levels: Ünye Çimento prefers to keep inventory at a rate as listed below. Year End Year-End Inventories / Total Sales Rate %23 %21 %18 PART II.A.3.5: Human Resources and Organizational Design Top/general management and key staff resources Board of Directors Chairman: Celalettin Çağlar Deputy Chairman: Süleyman Rıza Bülbül Members: Cevdet Kurnaz, Ali Rıza Kahveci, Naci Türkmen, Savaş Boybat and Güney Arık. Board of Auditors Bahir Zeki Sarı, Sami Karahan, Ayhan Metin. General Manager and Assistant General Manager H. İlker Güner and Fuat Ayanoğlu Employee/labor/personnel relations: When we look at the corporate values statement of Bolu Çimento, employee satisfaction is one of these values. The company s quality policy includes improving the education and participation of the personnel. The equality principle is the main concern and no discrimination of any kind can be made among the personnel. Every year Employee Satisfaction Survey is materialized so as to measure the satisfaction of personnel, to designate the issues of complaint and to make necessary improvements. The Proposal Evaluation Committee evaluates the proposals collected in the Proposal Boxes and in the Digital Proposal System. Education is one of the inevitable elements of the company s Human Resources Policy. The employees who undergo a detailed orientation education at recruitment are given chances to improve their professional skills with continuous training under developments principles. All the education programs they take and their contribution to the company are recorded and shall be considered later in carrier improvement. Necessary positions and titles are designated to run the relations with the employees. Logistic Services Manager is assigned to handle administrative, educational and labor affairs; Quality Control Manager is assigned to handle labor health and safety, Quality and environment management systems

77 Organization structure H. İ. Güner (General Manager) F. Ayanaoğlu (Asst. General Manager) A. Ulupınar (Asst. General Manager) A. Yalçın (Accounting Manager) N. Topçu (Quality Control Manager) H. Uysal (Technical Services Manager) N. Üstündağ (Logistic Services Manager) A. Geçer (Production Manager) Organizational Culture: Because Ünye Çimento is one of Oyak Group companies, Oyak culture plays an important role in the organizational culture of the firm. Most of the top management members are previously employed for other Oyak Group companies. For example, Chairman of Ünye Çimento - Celalettin Çağlar also performs as the CEO of Oyak Automotive Group. PART II.A.3.6: Management Information Systems Ünye Çimento will start to use Oracle e-business management system in its operations in the early All of Oyak Cement Group of companies have started to use this module. This e-business module helps the companies to better analyze of the operations like finance, production, logistics, human resources and maintenance management. PART II.A.3.7: Total Quality Management The company holds Environmental Management System Certificate (TS-EN-ISO 14001) and Quality System Certificate (TSE-ISO-EN 9000) given by Turkish Standards Institution. Nonetheless, the company is qualified to hold the OHSAS Safety and Health at Work Management Certificate given by Syndicate of Cement Producing Employers. (ÇMİŞ)

78 PART II.B: FUNCTIONAL ANALYSIS OF FIRMS IN SECTOR 02 (Real Estate Trust Companies) PART II.B.1: FUNCTIONAL ANALYSIS OF FIRM NO. 01 (Garanti Gayrimenkul Yatırım Ortaklığı A.Ş.) SECTOR NO. 02 (Real Estate Trust Company.) PART II.B.1.1: Financial Analysis of Garanti GYO There are the measurements of the financial ratios of the company as of Liquidity Year Current Ratio Quick Ratio Fixed Assets/Net Worth Net Working Capital ,82 472,82 0, ,04 168,29 0, ,62 66,62 0, ,0 48,99 0, ,85 Asset Utilization-Total Asset Management Year 365/Avarage Collection Period 365/Inventory Turnover Fixed Asset Turnover Asset Total Turnover 2002 NA NA 0,09 0, NA NA 0,02 0, NA NA 0,02 0, NA NA Capital Structure -Leverage Year Debt Ratio Debt To Equity EBIT EBITDA Times Fixed Charges Earned Times Interest Earned ,08% 0,078% ,2% 0,201% , % 10% , % Return on Investment-Profitability Year Profit Gross Margin Net Profit Margin Roe Roa % 62% 10,84% 10,78% % 13% 15% 15% % 43% 0,48% 0,44% % 4% Ratios Industry Avarage Remarks Current Ratio 4,72 Satisfy Net Profit Margin 66,94% Satisfy Debto to Equity 13,83% Satisfy ROA 6,79% Unsatisfy

79 Financial Commentary of Garanti GYO as of 2002: Liquidity: Total Assets: The basic purpose is to ensure stable growth of the investment portfolio of the company. The real estates and the securities in the portfolio demonstrate a stable growth in the years. Total Assets of the company increased by 1.199% in the last five years and reached 40.3 trillion TL. Net Asset Value: The investment which will increase the company s share in the sector will continue. Net Asset value, which shows the value of investment portfolio of the company less liabilities increased by 6.297% since its foundation and reached 72.9 trillion TL and 2001, this increase was 35%. Thus, the share of the company in total net assets value of REIT sector reached %7. Liquid Assets: The company effective treasury management increased profitability and the liquid of the company. Bu there inactive funds in the company s structure. There are YTL in the bank accounts and this is 99.99% of the cash accounts. Liquid assets composed of cash and securities increased by 193% compared 2001 liquidity policies and reached 14.7 trillion TL. Thus company investment could be financed with the company sources

80 Current Ratio: The Company has the current ratio of because of sectors and the structure of the company. Company invested the marketable securities and the real estates to diversify the portfolio. Company works with equity and does not need the external resources. Quick Ratio: This is the same with the current ratio because there are not any inventories. In the assets. Tangible Fixed Assets: Tangible fixed assets demonstrated the total pay advanced, net values and ongoing investments after the rebate of accumulated depreciation from the amount of fixed assets added in 2002 and acquisition cost by the revaluation of the company s fixed assets received in 2001 and the previous years by Garanti GYO according to the tax legislation law. The construction in progress of the company with and 74% of the tangible assets. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities Total Asset Management: Average Collection Period: There are not any trade receivables. Days to Sell Inventory: There are not any trade receivables Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.09 as of The value of the fixed assets , by the way the sales of the company very little comparison with the fixed assets. On the other hand the one of the activities of the company is to invest the real estate and in real estate development project. The high value of the fixed assets is reasonable and meaningful. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.07, It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover, but company s profit margin also total asset turnover are low. Leverage: Total Liabilities: The Company has a risk free financial structure by not having short a long term liabilities. Total short and long term liabilities of the company are only 47 billion TL. This liability free-structure created a significant financial advantage during crisis and played important role in profitability of the company

81 Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of is less than 1. Debt to Equity: Company has the debt to equity ratio of %0.078 means the financing of every assets worth of 100 YTL, the company used YTL equity and borrowings 0.78 YTL. The low debt to equity ratio means the company has been smooth in financing its growth with debt because company doe not need the outsource to finance the assets. Times Fixed Charges Earned: The company does not have lease payment, interest charges, dividend payment etc. Times Interest Earned: The Company does not have any interest charges. Profitability: Net Sales: Net sales grew significantly as a result of efficiency focused management. The net sales of the company increased 152% and reached 4.5 trillion TL. As this figure does not include interest revenues, it indicated the success of company in real estate portfolio management. In 2002 two real estate which could not provide satisfactory efficiency were sold. Net Profit: Despite economic crisis in 2002, successful management created an explosive profitability. Net profit of the company increased by 169% compared to 2001 and reached 7.5 trillion. 38% total profit was proceeds of real estate sale during the year, 11% rentals and 50% interest revenues. Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 77%, it would retain YTL 0.77 from each

82 YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: The Company has costs that have increased at a greater rate than sales; it leads to a lower profit margin. This is an indication that costs need to be under better control. Profit margin is displayed as a percentage; a 62% profit margin, for example, means the company has a net income of YTL 0.62for each YTL of sales. ROE(Return on Equity): Company has ROE of %10.84 reveals YTL profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %10.78, reveals YTL return from YTL assets. Financial Commentary of Garanti GYO as of 2003: Liquidity: Total Assets: In 2003 the company acquired a new commercial real estate and developed its security and cash portfolio. The total assets of the company which increased by 1.491% in the last six years, reached 49.4 trillion TL by increasing 22% compared to The share of the company s total assets among total assets of the sector reached 4%. Net Asset Value: The net asset value which shows value of the company s portfolio reached TL 81.5 trillion. The net assets of the company displayed the stable growth since its foundation with 6.931% increase. The share of the company in total net assets value of REIT sector reached 7%. The company will continue its investment to enhance its share in the Sector

83 Current Ratio: The Company has the current ratio of because of sectors and the structure of the company and diversification of the portfolio. Company works wit equity and does not need the external sources. Inventories: There are not any inventories in the assets. Quick Ratio The Company has the quick ratio of because there are not any inventories in the assets. Tangible Fixed Assets: Tangible fixed assets demonstrated the total pay advanced, net values and ongoing investments after the rebate of accumulated depreciation from the amount of fixed assets added in 2003 and acquisition cost by the revaluation of the company s fixed assets received in 2002 and the previous years by Garanti GYO according to the tax legislation law. The construction in progress of the company with , 71% of the tangible assets. Intangible Fixed Assets: It is amount of properties after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities Total Asset Management: Average Collection Period: There are not any trade receivables. Days to Sell Inventory: There are not any trade receivables Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.02 as of The value of the fixed assets , by the way the sales of the company very little comparison with the fixed assets. On the other hand the one of the activities of the company is to invest the real estate and in real estate development project. The high value of the fixed assets is reasonable and meaningful. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.01, It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover, but company s profit margin also total asset turnover are low. Leverage: Total Liabilities: The Company has a risk free financial structure by not having short a long term liabilities, and this indicates significant growth potential. Convenient borrowings, depending on the economic conjecture may bring significant increases in portfolio value. The total debts/net assets value of the sector is around %8 whereas it is 0% for the company

84 Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.02 is less than 1. Debt to Equity: Company has the debt to equity ratio of % means the financing of every assets worth of 100 YTL, the company used 98 YTL equity and borrowings 2 YTL. The low debt to equity ratio means the company has been smooth in financing its growth with debt because company doe not need the outsource to finance the assets. Times Fixed Charges Earned: The company does not have lease payment, interest charges, dividend payment as of 2003 Times Interest Earned: The Company has the high ratio because the low interest charges. However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rational is that company would yield greater returns by investing their earnings into other projects and borrowing, at a lower cost of capital than what it is currently paying for its current debt, to meet its debt obligations. Profitability: Net Profit: In 2003, as a result of the recession in the real estate sector and the decline in the interest rates, the net profit remained at 2002 levels, at TL 7.6 trillion. The 13% of the net profit comes from rentals, %87 from interest revenues and no real estate was sold during the year. The profitability of the company compared to its net assets value is 11% and its net profit margin 13% and these rates above the sector average. The profit is expected to increase in 2004 and following years with the new project. Profitability Ratios: Whereas the liquidity rate of the company is 1.70, its asset and liquidity profitability is at 15%, net profit margin is at 13% level. When compared to the sector in general, company is the relatively more liquid

85 Financial Commentary of Garanti GYO as of 2004: Liquidity: Total Assets: In 2004, the assets of the company continued to grow steadily thanks to Evidea Joint Venture and GKY subsidiary. While the net assets of the company adjusted according to the inflation is 93.7 trillion TL its assets adjusted to according to the UFRS standards is 92.5 trillion TL Liquid Assets: The liquid assets consisting of cash and securities reached at 22.1 trillion TL in 2004 according to the UFRS standards. The point achieved despite of the cash outflow for the affiliates Evidea and GKY is a result of an effective treasure management. The liquid assets forms 25% percent of the company portfolio. Current Ratio: The Company has the current ratio of because of sectors and the structure of the company. Company works wit equity and does not need the outsourcers. Inventories: There are not any inventories in the assets. Quick Ratio The Company has the quick ratio of because there are not any inventories in the assets. Tangible Fixed Assets: Tangible fixed assets demonstrated the total pay advanced, net values and ongoing investments after the rebate of accumulated depreciation from the amount of fixed assets added in 2003 and acquisition cost by the revaluation of the company s fixed assets received in 2004 and the previous years by Garanti GYO according to the tax legislation law. The construction in progress of the company with YTL, 71% of the tangible assets. Intangible Fixed Assets: It is amount of properties after decreasing portion of cremation. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities

86 Total Asset Management: Average Collection Period: There are not any trade receivables. Days to Sell Inventory: There are not any trade receivables Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.02 as of The value of the fixed assets YTL, by the way the sales of the company very little comparison with the fixed assets. On the other hand the one of the activities of the company is to invest the real estate and in real estate development project. The high value of the fixed assets is reasonable and meaningful. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.01, It also indicates pricing strategy: companies with low profit margins tend to have high asset turnover, while those with high profit margins have low asset turnover, but company s profit margin also total asset turnover are low. Leverage: Total Liabilities: The amount of 8.2 trillion TL which forms the 94% percent of short long term liabilities of an amount 8.7 trillion consists of the payments on account received Evidea project. Debt Ratio: Debt ratio of greater than 1 i ndicates that a compa ny has more de bt than asse ts a debt ratio of less than 1 indicates that a company has more assets than debt. Use d in conjunction with other measures of financial health, the debt ratio can help investors de termine a company's level of risk. The company has the ratio of is less than 1. The company has the assets which are the 10 times of the debts. Debt to Equity: Company has the debt to equity ratio of %0.10 means the financing of every assets worth of 100 YTL, the company used 90 YTL equity and borrowings 10 YTL. The low debt to equity ratio means the company has been smooth in financing its growth with debt because company does not need the external resources to finance the assets. Times Interest Earned: The Company has the ratio of However, a high ratio can indicate that a company has an undesirable lack of debt or is paying down too much debt with earnings that could be used for other projects. The rational is that company would yield greater returns by investing their earnings into other projects and borrowing, at a lower cost of capital than what it is currently paying for its current debt, to meet its debt obligations

87 Net Profit: Despite the falling interest rates and the start of new investments, the profit of the company achieved according to the UFRS standards is billion TL With respect to previous years; this figure is 3.3 trillion according to historical cost standard. Since the sales from the going investments will be invoiced following the completion of the projects, their reflection on the net profit figures will be delayed. Financial Commentary of Garanti GYO as of 2005: Total Assets: the Company s assets experienced stable growth in 2005, thanks to the Evidea and Doğuş Power Center projects as well as the subsidiary GKY, consolidated asset value of the company reached TL million. Liquid Assets: Liquid assets, which are composed of cash and securities, reached TL 28.7 million by the end of the 2005.This successful performance, which was achieved despite significant cash outflow to the Evidea, Maslak and GKY projects, is a result of effective treasury management. Liquid assets constitute 20% of the company s portfolio. The company has current assets ratio of 48.99, this ratio is higher than the sector average, and Company is more liquid because of the marketable investments. Total Liabilities: Total liabilities and long term liabilities stand at TL according to the company s balance sheet. TL million or 97% of this comes from advance payments received for the Evidea project. Company has the debit to equity ratio of 0.02 and it is lower than the sector average, company has the powerful equity and does not need the external resources to finance the fixed assets

88 Net Profit: Despite the fall in interest rates and ongoing investment projects, the net profit of the company was TL 5.2 million in Since invoices for sales under ongoing projects are going to be issued upon the completion of the relevant projects, these revenues will become part of the net profit only after a certain delay. Company has net profit margin of % higher than the sector average because of the extra ordinary income are shown below: Gain on sale of marketable sec. and interest income on the deposits : Increment in value of investment property under construction : Increment in value of investment property : Total : EBITDA: The Company s EBITDA was TL 5.4 million. This was based from the balance sheet which was not adjusted the inflation ROA: The industry average for this ratio %6.79 but the company has the ratio f 3.71 because of the high fixed assets value

89 The company has the income other operation is so high shown below: PART II.B.1.2: Marketing Management: Marketing Research & Development (Strategic Marketing Policies) Market Policies Main investment strategy is residents for middle-high income group and low-risk and high rental income from shopping malls and business centers. The company plans to sell the resident portfolio if planned rental income level cannot be reached. The resident projects are planned to be realized mainly in Istanbul. On the other hand, it is also aimed that a balance will be established between the currently rentable real estates and the development projects, and consequently the company will always have a durable cash flow as well as benefit from the high development profits and the potential growth which can be provided by development projects. Another diversification criterion used as the basis for the portfolio is geographical diversity. With this purpose it is paid attention to locate the real estates forming the company portfolio in different regions within the country and it is aimed that the risks of the countries and regions are balanced by investing some amount of capital abroad. In the portfolio of the company, efficiency and liquidity principles are always considered. For the real estates in the portfolio with decreasing efficiencies, measures are taken in order to increase their yield, if necessary, sale opportunities are considered. While keeping the liquidity always strong, the cash and security portfolio is managed actively and professionally. It is also aimed that a yield always exceeding the alternative investment opportunities and costs of funds is achieved. Garanti REIT also considers the quality standards of Doğuş Group besides commercial pursuits in its investments. It is important that a certain architectural concept and gusto of life exist in the housing projects to be developed, move the quality standards of its class further and is financially reachable. In commercial projects, the value the commercial real estate should increase by the help of creative ideas and leading designs. With this purpose, the company tracks the industrial developments within the country and abroad and undertakes a leading role in application of innovations in Turkey. Some of company s investments and target customers are as below: Evidea Project s (in Çekmeköy) target customers are residents from middle-high income group. GKY Real Estate Investments SA that is established in Romania invest in residential construction. Doğuş Power Center s (in Maslak) target customers are shopping mall investors and tenants. PART II.B.1.3:Product Policies Evidea Housing Project in Çekmeköy, Istanbul Doğuş Power Center in Maslak Commercial Property in Taksim (on the ground floor of The Marmara Hotel) Commercial Property in Levent (on the Nispetiye Street) Commercial Property in Şişli (on the Büyükdere Street)

90 Commercial Property in Etiler (on the Nispetiye Street) Shopping Mall in Antalya (Antalya 2000 Plaza) Housing Project in Bucharest, Romania Portfolio Breakdown of Garanti GMYO is as of 2004 end. Profit and Pricing Policies The company s operating profitability is very low and the existing operating profits are mainly consisted of interest income from t-bills. Because the firm is publicly traded, every year an appraising firm determines the rental prices and the value of real estate investments. That is why; it is hard for the company to examine a price that is below the similar value in nature. Nonetheless, one of the company s main strategies is to sell the real estates that do not bring rental income at the desired level. The company s operational profitability between the years is as below: VERTICAL ANALYSIS Gross Sales ,00 100% ,00 100% ,00 100% Sales Discounts 0,00 0% 0,00 0% 0% Net Sales ,00 100% ,00 100% ,00 100% Cost of Goods Sold ,00-23% ,00-45% ,00-62% Gross Sales Income ,00 77% ,00 55% ,00 38% Operating Expenses ,00-19% ,00-295% ,00-264% Operational Income ,00 57% ,00-241% ,00-226% Income from Other Operations ,00 103% ,00 853% ,00 619% Losses from Other Operations ,00-1% ,00-2% ,00-129% Financing Expenses 0,00 0% 0,00 0% 0,00 0% Operating Profit/Loss ,00 160% ,00 610% ,00 263% Segmentation Policies The company s main tenants are Doğuş Group Companies. Beside this, the company aims to sell its housing project to middle-high income group

91 PART II.B.1.4: Operations Except Antalya Business Center and the investment in Romania, all of the company s real estates are located in Istanbul. Inventory Levels The company s main inventories are the real estates that are acquired for trading. Inventory levels between the years 2002 and 2004 are as below: (million YTL) Year 2002 Year 2003 Year 2004 Trading Properties ,5 PART II.B.1.5: Board of Directors Human Resources Chairman: Hüsnü Akhan Deputy Chairma n: Ali Rıza Sarıkaya Members: Ergun Özen, Adnan Memiş, Kubilay Cinemre, Haluk Doğançay, Mehmet Ogan Karatuna. General Manager: Kürşat Tuncel. Corporate Governance, Investor Relations and Human Resource Garanti REIT does its best for compliance with the principles of corporate governance published by Capital Markets Board. To this end, relations with the shareholders are performed as a function under the department of financial and administrative affairs. The department in question is commissioned with replies to applications to the company either in writing or via internet. The department can be accessed via the headquarters address of the company or mail through the internet. The shareholders may take information in relation with the company also by following the public disclosure statements made in the Stock Exchange. In addition, the company announces to its investors up-to-date important information on its internet site. There is no provision regarding appointment of a private auditor in the articles of association of Garanti REIT. The company is obliged to have independent audit within the framework of Capital Market Legislation apart from its interior auditors. The company makes its annual shareholders meeting invitations within the framework of the provisions of Turkish Commercial Code and Capital Market Legislations, and declares on at least two daily newspapers. The shareholders may participate the meeting either by delivering a shareholder blockage letter certifying the fact that they are shareholders, or by disclosing their share certificates to the company, they are free to ask questions and obtain information. The shareholders holding (A) group share certificates which are possessed by T. Garanti Bankası A.Ş. have the privilege to nominate candidates to the board of directors. T.Garanti Bankası A.Ş. is also the leading, partner of the company. There is no relation of mutual participation between the partners of the company. No privilege regarding distribution of company profit and the provisions of Capital Market Legislation is abode by in this subject. The profit to be distributed every year is determined in the shareholders meeting upon the proposal of the board of directors, and distributed within the period suggested by the legislation. There is no restriction regarding assignment of the shares of the company. Company top management forms and is responsible for the disclosure policy of the company. The company sends public disclosure statements to the Stock Exchange and Capital Markets Board for conditions listed in the Capital Market Legislation. Company shares are not quoted in any stock exchange other than Istanbul Stock Exchange

92 No sanctions were applied against Garanti REIT due to inadequate or untimely statement of public disclosures. Every statement made is also announced from the internet site. There is no real person among the major shareholders of the company. 49% of the company is open to public, and the shares to the bearer are traded in the Stock Exchange. The members of the board of directors and the general manager have all kinds of insider information regarding the company. There is no practice for participation of the beneficiaries to the management. The company has no distinct human resources policy declared to the public. The practices of Doğuş Group are followed with regard thereto. There are no members responsible for execution in the board of directors. Two members of the board of directors consisting of seven persons are independent members and have no relation with Doğuş Group. There is no restriction on the duties the members may undertake out side of the company. There are restrictive provisions of Capital Market Legislation are followed with regard to the qualifications of the members. The Board of Directors announces the vision, mission and strategic targets of the company through its internet site and activity report. The authorities and responsibilities and the criteria for election are set forth in the articles of association. Each member has an equal right to vote in the board of directors and meetings are held on the basis of at least once a month secretariat of which realized by the company. There is no reached decision regarding lifting of the prohibition of transactions with and competition against the company. An Audit Committee consisting of two members and reporting to the board of direct or sis commissioned for ratification of the information disclosed on the financial tables. Every year, the company pays attendance fee determined by the general board to the independent board of directors. PART II.B.1.6: International Operations Management Having been realized with a 50% participation of Yapı Kredi Koray REIT, other than this project, an affiliate named "GKY Real Estate Investments SA" is established in Romania again with the 50% participation of the same company and this company started research studies in order to develop housing projects on the land it purchased in Bucharest for 3 million EURO with an area of m2. PART II.B.1.7: Total Quality Management In the competitive conditions of today, product and service quality are gradually getting more important. Thus, in order to guarantee product and service quality, ISO-9000 series quality system standards are established by ISO (International Organization for Standardization). The quality systems used by the companies are certificated under supervision of independent institutions. Garanti REIT is the only company in its industry that has ISO-9001;2000 quality certificate. Having been approved as a result of the inspection executed by TUV Sudwest TGK, our quality system is registered once more upon the inspection made in 2004 and thus it is again certified that management processes of Garanti REIT maintains transparency, liability and professionalism features and that the management system that is established fulfills the international standards

93 PART II.B.2: FUNCTIONAL ANALYSIS OF FIRM NO. 02 (Iş Gayrimenkul Yatırım Ortaklığı A.Ş.) IN SECTOR NO. 02 (Real Estate Trust Company). PART II.B.2.1: Financial Analysis of İŞ GYO There are the measurements of the financial ratios of the company as of Liquidity Year Current Ratio Quick Ratio Fixed Assets/Net Worth Net Working Capital ,57 5,57 0, ,92 7,92 0, ,84 84,84 0, ,91 41,91 0, Asset Utilization-Total Asset Management Year 365/Avarage 365/Inventory Fixed Asset Asset Total Collection Period Turnover Turnover Turnover ,000 0,07 0, ,000 0,09 0, ,000 0,06 0, ,000 0,05 0,05 Capital Structure -Leverage Year Debt Ratio Debt To Equity EBIT EBITDA Times Fixed Charges Earned Times Interest Earned ,375% 5,786% ,00 NA NA ,602% 2,671% ,00 NA NA % 3% ,00 NA NA % 5% ,00 NA NA Return on Investment-Profitability Year Profit Gross Margin Net Profit Margin Roe Roa % 97% 5,97% 5,64% % 75% 5% 5% % 279% 13,50% 13,12% % 86% 4% 4% Ratios Industry Average Remarks Current Ratio 4,72 Satisfy Net Profit Margin 66,94% Satisfy Debto to Equity 13,83% Satisfy ROA 6,79% Unsatisfy

94 Financial Commentary of İŞ GYO as of 2002: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks accounts with ytl and it has ratio of %100 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together as of December 31 st İş GYO invested in public sector debenture, bills and bonds, it has ratio of %98 in Marketable Securities accounts and %24 in current assets. Company had the income from the marketable securities. Current Ratio: The company has the current ratio of 5.57, 2 is the acceptable for the current ratio. This means there are government funds to diversify the company s portfolio. Inventory: There are not the inventories in the company because of the activities of the company. The company s inventories shows consisting of the costs of developing real estate projects with YTL and 65% of the current assets. Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times 5.57 as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %99 of the fixed assets of the portfolio. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 2 days means a high ratio means, company collects the receivables quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.07 as of Bu the company s sector invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.06; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.04 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 94 means the financing 100 YTL, the company used 94 YTL equity and borrowings 6 YTL. of every assets worth of Profitability:

95 Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 79%, it would retain YTL 0.79 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 97% profit margin, for example, means the company has a net income of YTL 0.97 for each YTL of sales. ROE (Return on Equity): Company has ROE of %5.97 reveals profit a company generates with YTL stockholders invested in it. The company works with the very high equity so the ratio is low. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %5.64, the higher is better because the company is earning more money on less investment. Financial Commentary of İŞ GYO as of 2003: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with YTL and it has ratio of %99.99 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury st Bills together as of December İş GYO invested in public sector debenture, bills and bonds, it has ratio of %98 in Marketable Securities accounts and %21 in current assets. Current Ratio: The company has the current ratio of 7.92, 2 is the acceptable for the current ratio. This means there are government funds to diversify the company s portfolio. Inventory: There are not the inventories in the company because of the activities of the company. The company s inventories shows consisting of the costs of developing real estate projects with YTL and 84% of the current assets. The details of the inventories shown below: İstanbul Beşiktaş I. Region : İstanbul, Şişli : Construction Expenses : Research and Project Ex. : Land Arrangement : Other : Total : Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times 7.92 as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %67 of the fixed assets of the portfolio. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management:

96 Average Collection Period: The Company s average collection period 6 days means a high ratio means, company collects the receivables quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.09 as of Bu the company s sector invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.07; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of is less than 1. Debt to Equity: Company has the debt to equity ratio of % 2.67 means the financing of every assets worth of 100 YTL, the company used 97 YTL equity and borrowings 3 YTL. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 53%, it would retain YTL 0.53 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 75% profit margin, for example, means the company has a net income of YTL 0.75 for each YTL of sales. ROE (Return on Equity): Company has ROE of %5 reveals profit a company generates with YTL stockholders invested in it. The company works with the very high equity so the ratio is low. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %5, the higher is better because the company is earning more money on less investment. Financial Commentary of İŞ GYO as of 2004: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with YTL and it has ratio of %100 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together with as of December 31 st İş GYO invested in public sector debenture, bills and bonds, it has ratio of %83 in Marketable Securities accounts and %11 in current assets. Current Ratio: The company has the current ratio of 84.84, 2 is the acceptable for the current ratio. This means there are government funds to diversify the company s portfoli o and the company does not need the liabilities because of the generating more income and sufficient equity

97 Inventory: There are not the inventories in the company be cause of the activities of the company. The company s inventories shows consisting of the c osts of developing real estate project s with YTL and 72% of the current assets. The details of the inventories shown below: İstanbul Beşiktaş I. Region : İstanbul, Şişli : Construction Expenses : Research and Project Ex. : Land Arrangement : Other : Total : Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %71 of the fixed assets of the portfolio. Net Working Ca pital: A measure of the company's effici ency and its short-term financial health. The working capital ratio is calcu lated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short- company's underlying operational efficiency. term liabilities. Working capital also gives investors an idea of the Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may signal an underlying problem in the company's operations. Total Asset Management: Average Collection Period: The Company s average collection period 8 days means a high ratio means, company collects the receivables quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.06 as of Bu the company invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.05; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.3 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 3 means the financing of every assets worth of 100 YTL, the company used 97 YTL equity and borrowings 3 YTL

98 The company s ratio is not high means company used the internal resources for financing the assets. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this is to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 44%, it would retain YTL 0.46 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 128% profit margin, for example, means the company has a net income of YTL 1.28 for each YTL of sales. This ratio is so high because of the other operating income. ROE (Return on Equity): Company has ROE of %13.5 reveals profit a company generates with YTL stockholders invested in it. The company works with the very high equity so the ratio is low. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %13.12, the higher is better because the company is earning more money on less investment. Financial Commentary of İŞ GYO as of 2005: Liquidity: Cash-Banks& Marketable Securities: The balance of the banks account with YTL and it has ratio of %100 in the cash accounts. The marketable securities represent the amount of Public Bonds and Treasury Bills together with as of December 31 st İş GYO invested in public sector debenture, bills and bonds, it has ratio of %83 in Marketable Securities accounts and %11 in current assets. Current Ratio: The company has the current ratio of are the acceptable for the current ratio. This means there are government funds to diversify the company s portfolio. And the company does not need the liabilities because of the generating more income and sufficient equity. The industry average is lower than company s ratio because the company invested the marketable securities. Inventory: Inventor is carried at restated acquisition costs by applying corresponding coefficients for their respective acquisition date. Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %74 of the fixed assets of the portfolio. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with

99 YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may signal an underlying problem in the company's operations. Total Asset Management: Average Collection Period: The Company s average collection period 18 days means a high ratio means, company collects the receivables quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.05 as of Bu the company invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.05; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.5 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 5 means the financing of every assets worth of 100 YTL, the company used 95 YTL equity and borrowings 5 YTL. The company s ratio is not high means company used the internal resources for financing the assets. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this is to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures. The industry average is very high, but company mostly works with the equity. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 44%, it would retain YTL 0.44 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; an 86% profit margin, for example, means the company has a net income of YTL 0.86 for each YTL of sales. This ratio is so high because of the other operating income. Net profit margin average of the sector is lower than the company. This is very positive effect for the company activities and investments

100 ROE (Return on Equity): Company has ROE of %4 reveals profit a company generates with YTL stockholders invested in it. The company works with the very high equity so the ratio is low. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %4, the higher is better because the company is earning more money on less investment. The sector s average is higher then the company s ratio. Because company s fixed assets value is very high. Comparison with the Real Estate Trust Companies shown are below: Garanti GYO Garanti GYO-2005 Rental Income (in million YTL) İş GYO İş GYO-2005 Vakif GYO Vakif GYO Garanti GYO-2004 Garanti GYO-2005 Buildings and Investments (in million YTL) İş G YO-2004 İş G YO-2005 Vakif GYO-2004 Vakif GYO-2005 PART II.B.2.2: Marketing Management: Marketing Research & Development (Strategic Marketing Policies) Market Policies The company has various investments in business centers, shopping malls, office buildings, land property, entertainment centers and residents. PART II.B.2.3: Product Policies İş Towers 2 & 3, Levent / Istanbul Kule Çarşı, Levent / Istanbul İş Tower, Ankara Maslak Business Center, Maslak / Istanbul Tatilya Entertainment Center, Istanbul Seven Seas Hotel, Manavgat / Antalya Solaris Plaza Shopping Mall, Marmaris / Muğla İş Bank Office Building, Ulus / Ankara İş Bank Office Building, Kızılay / Ankara İş Bank Office Building, Antalya Kanyon Project including cinema and entertainment center, office block and residents, Istanbul (will be completed in 2006) Real Market Project, İstanbul Land close to İş Towers, 4. Levent / Istanbul

101 Profit and Pricing Policies As seen below, the company has a very high profitability in 2002 and The company s operational profitability between the years is as below: VERTICAL ANALYSIS Gross Sales ,00 100% ,00 100% ,00 100% Sales Discounts 0,00 0% 0,00 0% 0% Net Sales ,00 100% ,00 100% ,00 100% Cost of Goods Sold ,00-21% ,00-47% ,00-54% Gross Sales Income ,00 79% ,00 53% ,00 46% Operating Expenses ,00-6% ,00-7% ,00-8% Operational Income ,00 73% ,00 46% ,00 37% Income from Other Operations ,00 29% ,00 32% ,00 27% Losses from Other Operations ,00-4% ,00-80% ,00-6% Financing Expenses 0,00 0% 0,00 0% ,00 0% Operating Profit/Loss ,00 97% ,00-2% ,00 59% PART II.B.2.4: Operations Location of Real Estates İş GMYO distributed its investments among the various regions of Turkey. The company has tourism sector investments in Mediterranean Region, business centers in Ankara and Istanbul. Inventory Levels The company s main inventories are the real estates that are acquired for trading. Inventory levels for the years 2004 and 2005 are as below: (million YTL) Year 2003 Year 2004 Trading Properties 110,7 132,4 PART II.B.2.5: Human Resources and Organizational Design Board of Directors Chairman: Gürman Tevfik Vice Chairman: Buket Himmetoğlu Members: İrfan Tufan Karaoğlu, Haldun Baydar and Kemal Şahin. Board of Auditors Mukadder Gündem, Tuncay Güler and Ertuğrul Senem. Personnel Relations The objectives and strategies spelled out in the company s human resources policy are designed to ensure that qualified human resources are recruited and hired; that they are put to the best possible use through effective organization and a high level of motivation; that equal opportunities for personal development are given to each individual; and that satisfactory career opportunities are provided to every one

102 Within the framework of the Company s Codes of Ethics, each employee is respected as an individual, is guaranteed all the rights to which he is entitled by law, and is provided with all the means necessary to ensure a safe and healthy environment in which to work. What is expected of employees in return is that they espouse the Company s performance focused approach to management and recognize that their personal involvement is what will create value for customers and shareholders. Every relationship that employees enter into in the course of their work should be upright and arm s-length. The employees must not adopt attitudes or engage in actions that are contrary to law and they are required to report to management immediately any proposal to secure personal benefits for them. As spelled out in the Company s Personnel Regulations, all personnel-related decisions, including those involving fringe benefits, are carried out and implemented by the Department of Financial and Administrative Affairs. During the reporting period the company received no complaints concerning discriminatory treatment. Organization structure General Manager (T. Tanes) Asst. General Manager (H. Demir) Investment and Project Development Manager (T.A.Ormancı) Risk Management and Invetor Relations Manager (A. Şahin) Accounting and Finance Manager (T. Gürdal)

103 PART II.B.3. FUNCTIONAL ANALYSIS OF FIRM NO. 03 (Vakıf Gayrimenkul Yatırım Ortaklığı A.Ş.) IN SECTOR 02 (Real Estate Trust Company) PART II.B.3.1: Financial Analysis of Vakıf GYO There are the measurements of the financial ratios of the company as of Liquidity Year Current Ratio Quick Ratio Fixed Assets/Net Worth Net Working Capital ,66 280,66 0, ,69 327,69 0, ,94 46,94 0, ,8 44,84 0, Asset Utilization-Total Asset Management Year 365/Avarage Collection Period 365/Inventory Turnover Fixed Asset Turnover Asset Total Turnover NA 0,04 0, NA 0,06 0, ,40 NA 0,35 0, NA NA 0,07 0,05 Capital Structure -Leverage Year Debt Ratio Debt To Equity EBIT EBITDA Times Fixed Charges Earned Times Interest Earned ,4% 0,4% ,00 NA NA ,3% 0,3% ,00 NA NA ,9% 0,9% ,00 NA NA ,7% 0,7% ,00 NA NA Return on Investment-Profitability Year Profit Gross Margin Net Profit Margin Roe Roa % 18% 0,49% 0,49% % -155% -6% -6% % 9% 2,37% 2,34% % 210% 12% 12% Ratios Industry Avarage Remarks Current Ratio 4,72 Satisfy Net Profit Margin 66,94% Satisfy Debto to Equity 13,83% Satisfy ROA 6,79% Satisfy

104 Financial Commentary of Vakıf GYO as of 2002: Liquidity: Cash-Banks& Marketable Securities: The marketable securities represent the amount of Public Bonds and st Treasury Bills together as of December Vakıf GYO invested in public sector debenture, bills and bonds, it has ratio of %98 in Marketable Securities accounts and %11 in current assets. Current Ratio: The company has the current ratio of , 2 is the acceptable for the current ratio. This means there are very little current liabilities in the balance sheet. Company mostly works with equity and diversifies the portfolios with the marketable securities. Inventory: There are not the inventories in the company because of the activities of the company. The company s inventories shows consisting of the costs of developing real estate projects with YTL and 95% of the current assets. Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %99 of the fixed assets of the portfolio. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 7 days means a high ratio means, company collects the receivables quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.04 as of Bu the company s sector invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.03; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.04 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 0.4 means the financing of every assets worth of 100 YTL, the company used 96 YTL equity and borrowings 4 YTL

105 Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 82%, it would retain YTL 0.82 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 19% profit margin, for example, means the company has a net income of YTL 0.19 for each YTL of sales. This ratio is low comparison with the profit margin because the operation expenses are high as of ROE (Return on Equity): Company has ROE of %0.49 reveals YTL stockholders invested in it profit a company generates with ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %0.49, the higher is better because the company is earning more money on less investment. Financial Commentary of Vakıf GYO as of 2003: Liquidity: Cash-Banks& Marketable Securities: The marketable securities represent the amount of Public Bonds and Treasury Bills together as of December 31 st Vakıf GYO invested in public sector debenture, bills and bonds, it has ratio of %99 in Marketable Securities accounts and %19 in current assets. Current Ratio: The company has the current ratio of , 2 is the acceptable for the current ratio. This means there are very little current liabilities in the balance sheet. Company mostly works with equity and diversifies the portfolios with the marketable securities. Inventory: There are not the inventories in the company because of the activities of the company. The company s inventories shows consisting of the costs of developing real estate projects with YTL and 95% of the current assets. Quick Ratio: The Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %99 of the fixed assets of the portfolio. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. Total Asset Management: Average Collection Period: The Company s average collection period 2 days means a high ratio means, company collects the receivables quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio

106 of 0.06 as of Bu the company s sector invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.04; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a compa ny has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company' s level of risk. The compan y has the ratio of 0.03 is less than 1. Debt to Equity: Company has the debt to equity r atio of % 0. 3 means the financing of every assets worth of 100 YTL, the company used 97 YTL equity and borrowings 3 YTL. Profitability: Gross Profit Margin : This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 51%, it would retain YTL 0.51 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: Company has the loss as of the 2003 because of the extraordinary expenses. ROE (Return on Equity): Company has the loss as of the 2003 because of the extraordinary expenses. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %0.6, the higher is better because the company is earning more money on less investment. Financial Commentary of Vakıf GYO as of 2004: Liquidity: Cash-Banks& Marketable Securities: The marketable securities represent the amount of Public Bonds and st Treasury Bills together as of December Vakıf GYO invested in public sector debenture, bills and bonds, it has ratio of %100 in Marketable Securities accounts and %64 in current assets. Current Ratio: The company has the current ratio of 46.94, 2 are the acceptable for the current ratio. This means there are very little current liabilities in the balance sheet. Company mostly works with equity and diversifies the portfolios with the marketable securities. Inventory: There are not the inventories in the company because of the activities of the company. The company s inventories shows consisting of the costs of developing real estate projects with YTL and 35% of the current assets. The company mostly completed the projected as of 2004 Quick Ratio: The Company has quick ratio this shows that the company s ability to pay off the obligations excluding the inventories times as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %99 of the fixed assets of the portfolio

107 Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to another; slow collection may signal an underlying problem in the company's operations. Total Asset Management: Average Collection Period: The Company s average collection period 0.4 days means a high ratio means, company collects the receivables so quickly. Fixed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.35 as of The company s sector invests the real estates so the value of the fixed assets is so high but this year completion of the projects, the sales of the company is high, the ratio is high comparison with the previous years. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.35, It also indicates the sector strategy, because the real estate trust companies have to invest the buildings, but this year the sale of the company is so high means the ratio is high. Leverage: Debt Ratio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.09 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 0.9 means the financing of every assets worth 100 YTL, the company used 91 YTL equity and borrowings 9 YTL. The company s ratio is not high means company used the internal resources for financing the assets. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this is to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothin g, so it is a delica te balance. This is what the leverage effect is about and what the debt/equity ratio measures. Profitability: Gr oss Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 16%, it would retain YTL 0.16 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banke d as net income. This year COS is really high and the ratio is low comparison with the previous years. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a 9% profit margin, for example, of

108 means the company has a net income of YTL 0.09 for each YTL of sales. This ratio is low comparison with the profit margin because the extra ordinary expenses are high as of ROE( Return on Equity): Company has ROE of % reveals YTL profit a company generates with YTL stockholders invested in it. RO A ( Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operati ons of the company. Company has ROA of %2.34 the higher is better because the company is earning more money on less investment. Financial Commentary of Vakıf GYO as of 2005: Liquidity: Cash-Banks& Marketable Securities: The marketable securities represent the amount of Public Bonds and st Treasury Bills together as of December Vakıf GYO invested in public sector debenture, bills and bon ds, it has ratio of %99 in Marketable Securities accounts and %25 in current assets. Current Ratio: The company has the current ratio of 44.84, 2 is the acceptable for the current ratio. This mea ns there are very little current liabilities in the balance sheet. Company mostly works with equity and diversifies the portfolios with the marketable securities. The industry average is lower than company s ratio because the company invested the marketable securities. Inventory: All projects were completed. As of Qu ick Ratio: the Company has quick ratio This shows that the company s ability to pay off the obligations excluding the inventories times as of Tangible Fixed Assets: Tangible fixed assets consists the buildings with YTL which is the %99 of the fixed assets of the portfolio. Net Working Capital: A measure of the company's efficiency and its short-term financial health. The working capital ratio is calculated as: current assets minus current liabilities. The company s net working capital with YTL. A positive and strong working capital means that the company is able to pay off its short-term liabilities. Working capital also gives investors an idea of the company's underlying operational efficiency. Money that is tied up in inventory or money that customers still owe to the company can't be used to pay off any of its obligations. So, if a company is not operating in the most efficient manner (slow collection) it will show up in the working capital. This can be seen by comparing the working capital from one period of time to anothe r; slow collection may signal an underlying problem in the company's operations. Tota l Asset Management: Fix ed Assets Turnover: Fixed asset turnover measures the company s efficiency at using its fixed assets in generating sales or revenue - the higher the number the better. The company has the fixed assets turnover ratio of 0.7 as of The company s sector invests the real estates so the value of the fixed assets is so high and the ratio is low. Total Asset Turnover: Asset turnover measures the company s efficiency at using its assets in generating sales or revenue - the higher the number the better. The company s is 0.05; it also indicates the sector strategy, because the real estate trust companies have to invest the buildings, so the ratio is low

109 Leverage: Debt R atio: Debt ratio of greater than 1 indicates that a company has more debt than assets a debt ratio of less than 1 indicates that a company has more assets than debt. Used in conjunction with other measures of financial health, the debt ratio can help investors determine a company's level of risk. The company has the ratio of 0.07 is less than 1. Debt to Equity: Company has the debt to equity ratio of % 0.7 means the financing of every assets worth of 100 YTL, the company used 93 YTL equity and borrowings 7 YTL. The company s ratio is not high means company used the internal resources for financing the assets. If a lot of debt is used to finance increased operations (high debt to equity), the company could potentially generate more earnings than it would have without this outside financing. If this is to increase earnings by a greater amount than the debt cost (interest), then the shareholders benefit as more earnings are being spread around to the same amount of shareholders. However, the cost of this debt financing may outweigh the return that the company generates on the debt through investment and business activities and become too much for the company to handle. This might lead to bankruptcy, which would leave shareholders with nothing, so it is a delicate balance. This is what the leverage effect is about and what the debt/equity ratio measures. On the other hand the industry average is 13.83; company s ratio is lower than the sector. This provides positive effect for the company. Profitability: Gross Profit Margin: This number represents the proportion of each YTL of revenue that the company banks as gross profit. Company's gross margin for the most recent quarter is 68%, it would retain YTL 0.68 from each YTL of revenue generated, to be put towards paying off general and administrative expenses and ultimately banked as net income. Net Profit Margin: A higher profit margin indicates a more profitable company that has better control over its costs compared to its competitors. Profit margin is displayed as a percentage; a % profit margin, for example, means the company has a net income of YTL for each YTL of sales. This ratio is high comparison with the profit margin because the extra ordinary income is high as of Extra ordinary Incomes: Income from collection of the doubtful receivables : YTL Income from Treasury Bills and Bonds : YTL Total : YTL Net profit is higher than the sector because of the extra ordinary income of the company. ROE(Return on Equity): Company has ROE of %12 reveals YTL profit a company generates with YTL stockholders invested in it. ROA (Return on Assets): ROA tells you what earnings are generated from invested capital. The assets of the company are comprised of both debt and equity. Both of these types of financing are used to fund the operations of the company. Company has ROA of %11.52 the higher is better because the company is earning more money on less investment. The ratio is satisfied because the sector average is the low

110 PART II.B.3.2: Marketing Management: Marketing Research & Development (Strategic Marketing Policies) Market Policies The company is fully concentrated in business properties and land investments. There is no any housing project or any shopping centers in its portfolio. PART II.B.3.3: Product Policies The company s main investments are as below: Park Maya Business Property, Levent / Istanbul Finans Market Business Property, Çankaya / Ankara Three Office Properties, Üsküp Street, Çankaya / Ankara Business Property, Binnaz Street, Çankaya / Ankara Land, Çayyolu / Ankara Business Place, Bağdat Street / Istanbul Two Business Places, Tunalı Hilmi Street / Ankara Business Place, İstasyon Street, Bakırköy / Istanbul Business Place, Muvakkithane Street, Kadıköy / Istanbul Profit and Pricing Policies The company s operating profitability is not at a satisfying rate through the years. Interest income from t-bills has a great portion in the existing operating profits. Because the firm is publicly traded, every year an appraising firm determines the rental prices and the value of real estate investments. That is why; it is hard for the company to examine a price that is below the similar value in nature. The company s operational profitability between the years is as below: VERTICAL ANALYSIS Gross Sales ,00 100% ,00 100% ,00 100% Sales Discounts 0,00 0% 0,00 0% 0,00 0% Net Sales ,00 100% ,00 100% ,00 100% Cost of Goods Sold ,00-18% ,00-49% ,00-84% Gross Sales Income ,00 82% ,00 51% ,00 16% Operating Expenses ,00-101% ,00-56% ,00-7% Operational Income ,00-19% ,00-6% ,00 9% Income from Other Operations ,00 38% ,00 50% ,00 10% Losses from Other Operations -116,00 0% -502,00 0% ,00 0% Financing Expenses 0,00 0% 0,00 0% 0,00 0% Operating Profit/Loss ,00 18% ,00 45% ,00 18% Segmentation Policies The company mainly concentrates on the office buildings in Çankaya / Ankara and valuable regions of Istanbul. PART II.B.3.4: Operations The investments of the company are distributed in Ankara and Istanbul

111 Inventory Levels The company s main inventories are the real estates that are acquired for trading. Inventory levels between the years 2002 and 2004 are as below: (million YTL) Year 2002 Year 2003 Year 2004 Trading Properties 12,5 12,6 5,7 PART II.B.3.5: Human Resources and Organizational Design Top/general management and key staff resources Board of Directors Chairman: Hasan Özer. Deputy Chairman: Kerim Karakaya. Members: Sadık Altınkaynak, M. Zeki Adlı, Yusuf Doğru, Kemal Tunahan Akman and Ahmet Kartal. Board of Auditors Yunus Aluç and Fethi Barut. Personnel relations Human resource policy is examined according to the Personnel Strategy on Company Mission, Competence, Responsibility Principles. The equality principle is the main concern and no discrimination of any kind can be made among the personnel. Organization structure General Manager Finance Coordinator Project Development Coordinator Accounting Manager

112 PART III: ANALYSIS OF THE EXTERNAL ENVIRONMENT PART III.1.A: ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF FIRM NO:01(Bolu Çimento Sanayii A.Ş.) IN INDUSTRY NO. 01 (Cement Sector): SWOT Analysis of the Bolu Çimento Strengths: Capital investment. %70 of cement sales are made to industrialized regions of Turkey. The location of the main facility helps the company has a local market including Marmara, Black Sea and Central Anatolia. 13 Production technology is at European rivals level (renovated in 2002). Raw materials and machine equipment can be locally supplied. Oyak Group s Support. Oyak Group Companies prefer to buy cement from group companies in case of a construction project. Being close to European market when we compare with the south-east Asian rivals. No needs any excess capacity investment. Strong cash and cash equivalents position against a very low level of trade payables. Healthy financial position. Know-how experience is much. Holds ISO Certificate. 14 Weakness All sales are domestic Could not manage to acquire one of Rumeli Group s facilities, so if a new facility investment is needed, it takes two years to take Environmental Effect Valuation Report. Geographical positions of the facilities are far from export trade routes and transportation costs are high. Low rate of total capacity usage High energy costs (fuel & electricity). About 23-24% of total input for cement production is electricity cost and unit price for electricity is 7-9 cent in Turkey while 4-4,5 cent in Europe. Investment incentives, that allow firms to deduct investment expenditures from taxable income, came to an end in This affects badly the production sector companies who make high amount of investment expenditures to increase capacity. When we think of current capacity usage rates, as of 2004, the cement sector companies use 62% or clinker capacity to produce 99% of cement capacity. If Bolu Çimento desires to increase its cement capacity usage, it will need additional clinker capacity investment. High transportation costs and less use of railway transportation. Excess cash position should be invested more in the firm s core business. Opportunities Government declaration on building km new motorway and half of this amount will be built by ready-mix concrete. 15 Mortgage Act Bill (may consist a boosting demand for housing - with lengthening of maturities and declining interest rates, real-estate sector has already been on an upward trend, which supports the cement demand) 16 Strong recovery in construction sector makes cement an attractive investment. There is a direct relationship with GDP per capita and cement consumption per capita. Falling interest rates create strong stimulus for residential demand Bolu Çimento Annual Report for the year Bolu Çimento Annual Report for the year

113 Metro and tube passage constructions in Istanbul and İzmit Körfez Bridge construction. Monthly credit volume provided to construction sector firms by banks doubled itself starting from September Membership convergence to European Union will have a positive effect on export sales. TOKI s public housing projects Threat Domestic economic conditions and fluctuations affect the company one-to-one. Increasing carbon (CO2) raw material for cement production prices in the world (at October the price was 8.72/ton while at Jan 2006 the price was 21.10/ton) 19 Lack of political risk insurance Purchasing power is still very weak. An appropriate and healthy mortgage system coupled with declining interest rates will give an impetus to the construction sector through helping low income families to purchase a house. Asian originated cement producers enter European market by decreasing prices. High facility establishment costs in Europe make foreign investors more interest in Turkish cement sector. (One third of the sector belongs to foreign investors) Possible restrictions on the petro-coke imports may increase the input costs of cement product when we think that this input has a 30% share in total production costs. 20 Limitation on governmental investments. Stock value of Bolu Çimento moves parallel to the general level of Istanbul Stock Exchange averages and this shows the company can directly be affected in case of economic instability. PART III.1.A.1: BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO. 01 (Bolu Çimento Sanayii A.Ş.) IN INDUSTRY NO. 01 (Cement Sector): PART III.1.A.1.1: External Analysis Of Bolu Çimento Turkish cement industry was plagued by the three major problems of over-supply, low capacity utilization rates, and severe price competition. Cement consumption in developing countries tends to grow strongly in response to demand as they undertake essential infrastructure projects and attempt to keep up with their rising populations. At some point however the projects are completed and demand begins to fall, eventually reaching the equilibrium of a mature market. This same pattern of development has been taking place in Turkey: percapita cement production, which was 512 kgs a year in 1998, is expected to reach 800 kgs within two decades but then drop down to about a steady 600 kgs. 21 Bolu Çimento is the member of the Oyak group which is the biggest group in the Turkey. Bolu Çimento generates all products to sell only domestic markets because the high cost of the freight charges. The company is affected dramatically by the economical conditions because the company works with only local firms in Turkey. The stability and refreshment of the Turkish economy in recent years the company wants to sell the products to foreign companies and to gain foot hold in effective industry in abroad. Bolu Çimento sells the products of 30% to the nearest company to Bolu and 70% to the Oyak Group, so the company has the wide range of the regions in Turkey. On the other hand the activity of the Bolu Çimento that includes the dense urbanization from Istanbul to Ankara has the competitive advantages for the increasing of the sales. 17 Ata Invest Cement Sector Evaluation Report Credit Suisse Building Materials and Construction Research Report

114 But there is a handicap for the company because of the absence of the foreign sales of the company. In the process of the crisis Bolu Çimento felt the significantly for the strategies of the sales and in recent years wants to gain in new an effective industry in abroaf for the increasing of the export potential. Especially the company wants to enter the American and British markets because the company has the advantages power of the marketing for the low based alkali products. Bolu Çimento has been awarded an TS-EN-ISO 9002 Quality Assurance System certificate. According to September 2002 figures published by Turkish Cement Manufacturers Association, Bolu Çimento is responsible for 34% of cement sales in the Black Sea region and a 5% share of such sales nationwide. Because of its physical location, Bolu Çimento has a broad sales hinterland extending from the Marmara region to the Western Black Sea and down into Central Anatolia. 22 As a result of its pricing policy in 2002, Bolu Çimento managed to defend its market share in territories close to it, increasing its profitability by reducing the adverse impact of shipping charges on its prices. Bolu Çimento s first priority for 2003 is to continue defending its current 57% share of cement sales in nearby territories and to pursue further growth to the extent that market conditions permit. PART III.1.A.1.2: Regional Context of Cement Sector Marmara Region Marmara is the leading region in terms of production and sales figures. Production rose to 11 million tonnes in The increasing demand for big residential projects in the region has sustained vigorous cement demand in the Marmara Region. Meanwhile, with industrialised cities in the region, recovering construction expenditures in the private sector has been another demand factor for the region. In the first half of 2005, domestic cement sales in the region grew by 10% while exports also posted a credible 8% growth. The region accounts for 28% of total domestic cement production, 10 percentage points higher than its nearest successor, the Central Anatolian Region. Meanwhile, the region s share in the domestic sales and exports were 27% and 32%, respectively. When the domestic market was weaker, the region was directing its sales to export markets. As domestic demand has recovered, the region s share in the domestic market rose from 24% in 2001 to 27% in 2004, while the share in total exports decreased to 32% from 40%. 23 Black Sea Region Production in Black Sea region grew by 11% between , mainly on the back of sales to the domestic market. Lafarge, Oyak and Sabancı Group are currently the leading players in the Black Sea Region. Production in the region has reached 2.5 mn tons in the first half, already signing a 26% YoY improvement. However it should be noted that the geographical conditions of the regions limits transportation possibilities, which is a drawback for the growth in this region. 22 Bolu Çimento Annual Report for the year İş Investment Cement Privatization Research Report,

115 Capasity (000 Tonnes) Plant Group Clinker Cement EV -USD (Million) EV Clinker Cap. $/Tonnes Bolu Oyak Group Ünye Oyak Gr.-Naving Hld.-Nuh Bt The numerical analysis is just one piece of the pricing puzzle, depending on the location, it is possible to estimate the further commercial potential for both the domestic market and export markets, which will factor into the decision making. However, there is more to count in the bids of the potential buyers. Opportunity cost of not buying a plant will be another key driver for the bidders. Who will buy the plant is as important as who will not buy the plant, for the future of the sector. Meanwhile, Oyak Group has explicitly announced its interest in the privatization of Erdemir. After failing to buy Tupras on 12 September, Oyak Group will be in a stronger position to bid for Erdemir. A negative result from the Erdemir privatization auction, which is expected to be completed before the sale of the Uzan cement plants, could focus Oyak Group s commitment to bidding for the cement plants. 24 PART III.1.A.1.3: National Context of Cement Sector The Turkish cement sector offers strong growth construction expenditures which has its perspective and also on the back of strong fragmented structure of the sector creates market share. Meanwhile, the Turkish sector peers, create the fact that further stimulus steadily growing Turkish market. However, competition will be the key issue in determining prices. Many domestic players take this privatization as a to-be or not-to-be issue for their future, and are therefore ambitious to buy plants to strengthen their positions in the market. There are already some foreign cement companies operating in the market in partnership with domestic players, frequently named in the media as interested parties. Meanwhile due to the large scale of the capacities to be sold, some foreign players not currently operating in the Turkish cement market are looking to seize this opportunity for a rapid entry into the domestic markets. It is impossible to foresee the results of the auctions at the moment. What is clear is that the completion of the sale will pull sector multiples higher, regardless of who the buyer is. Interested domestic companies: Sabancı Group (Akcansa and Cimsa, OYSAC with Oyak Group), Oyak Group (has shares in Adana Cement, Bolu Cement, Mardin Cement, Unye Cement and OYSAC with Sabancı Holding), SANKO, Baticim and GISAD REIT have so far explicitly announced their interest in the plants. 25 Meanwhile, Oyak Group formed a consortium consisting four listed cement companies and two unlisted companies to evaluate investment opportunities in the cement sector. The financial strength of the listed companies forming the consortium are summarized below İş Investment Cement Privatization Research Report,

116 International players It is worth noting that the median EV/cement capacity multiple of international peers is $167 per tonne, which is substantially higher than the Turkish cement sector s median EV/Cement capacity multiple of $120, making Turkish cement sector an attractive and relatively cheap investment area for international players. There are currently six foreign players in partnership with domestic players reported to have an interest in the sales of the plants. Orascom recently entered the market, buying some Baticim shares in September. The Egyptian company recently announced capacity expansion plans in Jordan and is ambitious to grow further in the Mediterranean market. 26 Sale of these plants is also an opportunity for other international players looking to enter the market. World giants not currently present in the Turkish cement market may seize on these auctions as an opportunity to enter the market. There are currently 16 cement companies trading on the Istanbul Stock Exchange, with widely There are currently 16 cement companies trading on the Istanbul Stock Exchange, with widely different production and sales capacities. The pie chart below shows the share of the main players in the sector according to their clinker capacities, illustrating the highly fragmented structure of the sector. A comparison with the European market illustrates how fragmented the Turkish cement market is. In European markets, market leaders usually seize around 25% of the market. As is obvious from the above pie chart, Sabanci Holding, the leading player in the Turkish cement sector operates 18% of the capacity in the sector and is very closely followed by the second biggest market player, Oyak Group, which has a 15% share. It is then followed by Rumeli Group, which owns almost 12% of Turkish clinker capacity. The result of the upcoming auctions will therefore precipitate a major change in the ownership structure of the sector, with a significant proportion of the sector s capacity changing hands. It is worth noting that there will not be a block sale and the plants will be sold independently, where interested parties will bid for each of the plants. PART III.1.A.1.4:Swot Analysis of Cement Sector: Strengths of the Cement Sector The achievements in the past two decades are striking. Government ownership no longer exists, but capacity in Turkey has doubled. In an intensely competitive setting, almost 20 operators have output in excess of 1 million tons per annum. With such competition, domestic cement prices are among the lowest compared to developing 26 İş Investment Cement Privatization Research Report,

117 and developed markets alike. World-best foreign operators such as Heidelberger, La Farge, and Italcementi have a significant presence in the market, but domestic companies nevertheless own a majority of the capacity. Further, Turkey has become the fourth largest cement exporter in the world, behind only Thailand, Japan, and 27 Indonesia. The cement industry accounts for about 0.3 percent of GDP in Turkey. With clinker (crystallized, semi-finished product) capacity of 35 million tons, Turkey is one of the major cement producers in Europe. Cement consumption per capita is 500 kilograms and is expected to increase in the coming decades since Turkey is a developing country and will continue to make infrastructure investments as GDP per capita improves. Construction activities in Turkey are extremely sensitive to the macroeconomic environment, with the effect that domestic cement consumption closely tracks GDP developments. Weaknesses of the Cement Sector Productivity has risen steadily and shows every promise of continuing to do so. While labor productivity is at only 50 percent of US levels and is lower than another developing country benchmark, Thailand, capital productivity in this investment-intensive industry is at 87 percent of US levels. With energy accounting for almost one-half of factor inputs, it is important that Turkey is benchmarking at 118 versus the US in terms of energy productivity. 28 Notwithstanding the accomplishments, the picture is not perfect. Further productivity gains mainly labor will come only as Turkey continues to increase the scale and capacity utilization in the sector. Specifically, the industry in Turkey must move its average utilization from 84 percent to closer to the 95 percent achieved in the US, and it must solve for the fact that only 4 of the 39 plants in Turkey are at, or above, minimum efficient scale (by comparison, 9 of 12 in Thailand are above minimum). Achieving this will almost certainly require plant consolidations. However, substantial government incentives to build new capacity have disrupted this consolidation process in the past and, though to a lesser degree, still threaten to. Opportunities of the Cement Sector: Productivity in the cement industry in Turkey demonstrates the power of successful privatization and effective liberalization. In a period of less than 20 years, the industry has made the transition from being fully under government control, in terms of both ownership and price and market management, to a situation in which the government exercises almost no direct influence on industry developments. Foreign ownership has risen to about one-third of the market and total factor productivity (TFP) is at 84 percent of US levels, with the potential to rise slightly higher than the US. Importantly, labor productivity in particular has shown a sustained rate of improvement throughout the period. Turkey should achieve its potential well within the next 10 to 12 years, if no market distortions conspire to inhibit its doing so. In this context, the only serious risk appears to be if the government were to provide incentives, directly or indirectly, for the construction of new capacity. Throughout the 1990s the government provided major compensation for the creation of new capacity. At the peak in the mid-1990s, these incentives exceeded US $1 billion dollars per year. The incentives created a barrier to the exit of low-productivity producers because stronger players preferred to build new capacity, utilizing the attractive grant opportunities, rather than acquire existing players and consolidate capacity. In 2001 the government distanced itself one full step from the incentive process by empowering the Turkish Cement Manufacturers Association to govern handouts. However, the government still provides funds in 2001 incentive certificates valued at US $200 million were issued. Threats of the Cement Sector The disruption of market forces remains and full productivity gains are still threatened. 27 McKinsey Global Institute Cement Sector Report McKinsey Global Institute Cement Sector Report

118 There is only one thing that the Turkish government needs to do to maximize the likelihood that productivity in the cement industry will reach its potential: stop incentives in any form. PART III.1.A.1.5: Industry Structure Industry Evolution: Prior to the 1980s, the cement industry was fully under government control. Most of the built-in capacity was government-owned and all cement companies were members of the Cement Industry Association of Turkey, which set prices and controlled where a company was to s ell its product. By the late 1990s, privatization of all cement plants had taken place through IPOs and block sales to private investors. Privatization also brought international best practice players, who came into the market through the acquisition of government owned plants. This combination of developments has created a fragmented market, in which a significant share (one-third) is held by foreign players. MARKET SHARES OF CEMENT PRODUCERS

119 Industry segmentation by type of player Cement production is a two-tier process. First, raw materials are crystallized in kilns producing a semi-finished product called clinker. Clinker is then processed in grinding facilities and sometimes mixed with other byproducts. There are two types of cement producers in Turkey: integrated plants, which produce clinker as well as cement, and grinding plants, which are dependent on the clinker produced by integrated plants. Grinding plants are typically located where inexpensive by products are readily available (e.g., close to integrated steel producers) while integrated plants tend to be located close to sources of raw materials. Since raw materials are abundant throughout Turkey, integrated plants are widespread. Industry segmentation by product There are three types of end products in the industry: Bagged cement has a large share in domestic consumption in Turkey (55 percent of domestic sales). Typically, bagged cement contains a high proportion of by-products that are added in the grinding process, and is used in making lower-strength concrete. Bulk cement comprises 89 percent of exports and 21 percent of domestic sales. Manufacturers of prefabricated construction materials, ready-mix concrete sellers, and construction companies doing large-scale projects consume most of the bulk cement in Turkey. Ready-mixed concrete is produced directly by some players in the industry, who basically mix cement with aggregates and water to deliver a ready-to-use mixture to a construction site. PART.III.1.A.1.6: Competitive Environment of the Cement Sector Productivity Performance: As with other capital-intensive sectors, in the study analyzed total factor productivity (TFP) in the Turkish cement industry. Three different sources of productivity are calculated: labor, capital, and energy, where each is defined as ton of output per unit of input. Energy productivity was included because energy costs constitute a high share of the total finished goods cost of cement in Turkey; energy productivity is calculated by averaging fuel and power efficiencies. The table shows, total factor productivity in the sector is estimated to be 84 percent of the US level. While labor productivity in Turkey is much lower than the US benchmark, capital productivity is relatively good and energy productivity surpasses the US level. Although labor productivity still lags, it has improved significantly since

120 the onset of privatization. The table shows that it has doubled in the last decade, as the effects of privatization began to be felt. It is also informative to note that Turkey s relatively high-energy productivity is significant in holding total energy costs per unit of output at levels only 50 percent higher than in the US, despite energy prices that are almost double those in the US. LABOR PRODUCTIVITY DEVELOPMENT*

121 The highest cost of the inputs is the electric energy, its proportion is %23-24 of the costs of the inputs. Long awaited consolidation: It is widely believed that the long awaited consolidation might finally be just around the corner, following the sale of the plants. It is obvious that the upcoming sale process is an important milestone for the sector. Current domestic players are enthusiastic to buy plants both to strengthen their competitive advantage, raise their production capacity and build up their share in the market. While international players currently operating in the market are eager to expand their market share, the auctions also mark a great opportunity for other international players not currently present in the domestic market to enter the market. The question on everyone s lips is who will buy how many plants. If the current big players buy the bulk of the plants, they will significantly increase their capacity and will lead the sector by far. However, competition will be a key issue. The Competition Board will not allow any party to have a market share of more than 50% in any one particular region. Therefore big groups such as Sabanci Holding might take advantage of their presence in different regions, for example using Akcansa and Cimsa to overcome this constraint. 29 Although a major sea-change is expected in the structure of the cement sector after the sale, it will not be the end of the story, but instead the start of a new chapter. If the long awaited consolidation takes place after the sale, small MCap cement companies might become targets for mergers and acquisitions. With a change in the competition dynamics, we may see some strategic partnerships emerge. Consolidation, if realized, might lead to fewer players in the sector and a concentration of capacity among fewer companies. This would change the current demand-driven pattern in the sector to a supply-driven one, and would lead to price increases. All of these direct and indirect effects of the privatization will create a leverage effect for the companies in the sector. Just as an incoming tide lifts all ships, the sales process represents a rising tide for the whole Turkish cement sector. More concretely, we expect the EV/clinker capacity multiples to converge to international peer group averages. As the cement sector will take a new shape, we foresee the current multiples in the cement sector to rise after the sale, on the back of the anticipated consolidation, sustained strong demand and continued increase in prices Gedik Yatırım Cement Sector Research Report 30 Gedik Yatırım Cement Sector Research Report

122 Strong recovery in construction sector makes cement an attractive investment. Due to the organic link between construction activities and cement demand, the per capita cement consumption is highly correlated with per capita income. The graph below indicates that the same relationship exists in Turkey. The recent recovery in GDP figures has just been reflected to cement demand. Turkey has a per capita cement consumption of approximately 420 kg, far below the 1,087 kg in Spain, and the 1,005 kg in Greece. The per capita cement consumption has a tendency to increase until per capita GDP reaches roughly $10,000. Turkey s per capita GDP was $4,200 in 2004, which tells us that there is a great deal of room for growth in per capita cement consumption.. After being badly hurt by the big earthquakes in 1999 and the economic crises of , the Turkish construction sector has been on a recovering trend since Due to the strengthening macro economic framework and successful disinflation process, real interest rates have been decreasing, leading to an increase in demand for residential loans. The expected implementation of a mortgage system at the end of 2005 or in early 2006 will be another factor boosting demand for housing. The cement sector will be in a leveraged position, benefiting from the recovering construction sector in the coming periods. PART III.1.B.1: GENERAL ENVIRONMENT OF FIRM NO.1 (Bolu Çimento Sanayi A.Ş.)IN INDUSTRY NO.01 (Cement Sector) PART III.1.B.1.1: Pest Analysis for Bolu Çimento The tax policy of Turkey is not efficient and the tax rates are very high, by the way the tax incentives are decreasing for the company that wants to invest. On the other hand there many tax incentives for the manufacturing company like Bolu Çimento. When I analyze the employment rights there is unhealthy view for the employment and the system will need implement important issues like EU criteria. When I analyze the environmental regulations that there so many restrictions for the foreign investors. The local firms has huge proportioned, because of the restrictions and irregularity the foreign investors strain to enter the Turkish industry. By the way the increasing rate of the GNP and decreasing the interest rates are very important for the company because the company which manufactures and needs the credit to invest. Stability and new regulations of the Turkish economy seems the opportunity for Bolu Çimento

123 The high immigration and population ratios and high demand for the construction sector may be opportunity for the Bolu Çimento because the company works through the Marmara Region significantly. On the other hand the deficiency of the R&D and technological investigation are the handicap for Bolu Çimento because the Turkish cement companies work under minimum efficient scale that is important factor on the production. PART III.1.B.1.1.1: Tax Policy in Turkey Certain tax policies distort investment decision. Bureaucratic red tape' remains a significant problem. Obtaining the approval of both national and local officials for essential permits is a time consuming and often frustrating process." The government has taken steps to simplify the bureaucracy by reducing the number of steps that it takes to open a new business. 31 The authorities are strengthening tax administration to reduce tax evasion and deal with the informal economy. Turkey has a sizable unrecorded economy and tax compliance is weak. Consequently, tax rates are high and a key medium-term objective is to reduce them. However, the authorities agreed that tax enforcement needed to be addressed first. Drawing on FAD (Financial Administration) technical assistance, a comprehensive tax administration reform program is underway, with the necessary legislation (a new structural benchmark). On the other hand government constituted new tax incentives as of 2005 which are below 1-Exclusion of Investment Deduction: Being valid from , with the Law numbered 5479, Article 19 of the Income Tax Law headed Exclusion of Investment Deduction on business and agricultural earnings has been abolished, and Temporary Article 69, attached to this Law, has arranged transition period applications. According to this; 32 Exclusions which are not deductible before the date of , by reason of insufficient earnings in previous years, Exclusions which will be calculated on account of investment expenditures which will be begun from within the context of incentive certificates based on applications submitted before the date of , in investments which begun within the framework of Additional Articles1-6 of the Income Tax Law abolished previously, Exclusions which will be calculated on account of investment expenditures following this date, given that providing economic and technical integrity with investments began before the date of within the scope of Article 19 of Income Tax law, can be deducted as exclusion of investment deduction. 2-Deduction of Research & Development Being valid from , %40 of research and development expenditures realized in the structure of enterprise and those which are oriented to new technology and searching of knowledge can be deducted from the income declared by annual tax return

124 3-Tax Incentives in Industrial Zones Incentives oriented to income and corporate taxpayers doing business in industrial zones take place in Incentive of Investments and Employment Law numbered To those who function in these regions should be supported in income tax withholding, support in employer shares of insurance premium, free investment space and energy support. 4-Tax Incentives in Technology Developing Zones Gains derived from software and research& development activities in technology developing zones by the taxpayers who do business in mentioned zones are excluded from income and corporate tax till Wages of researcher, software programmer and research & development personnel related to these jobs in these zones are excluded from income tax till Gains acquired within the scope of application of Technology Developing Zones Law numbered 4691 by executive companies of technology developing zone are also excluded from income or corporate tax till These exclusions shall be also applied to the executive company of Scientific and Technological Research Council of Turkey (TÜBİTAK)- Technology Free Zone of Marmara Research Center, to the income and corporate taxpayers doing business in this zone and to the wages of researcher, software programmer and research & development personnel working in this zone. ( Technology Developing Zones Law Temporary Article 2, Corporate Tax Circular 6) Within the period in which the gains of entrepreneurs doing business in technology developing zones are excluded from income or corporate tax, delivery and services which are manufactured only in these zones and in the form of system management, data management, business applications, sectoral, internet, mobile and military command control application software are also excluded from value added tax. (Value Added Tax Law Temporary Article 20) 5-Tax Incentive Applied in Free Zones Free zones considered as out of customs areas, Taxpayers who has license to function in free zones which founded due to law numbered 3218 are excluded from: Income and corporation tax limited to the time in their license for the income they derived in these zones. Income tax of the personnel wages until the date of Every kind of tax and fees about the functions in these zones until Separately incomes of the taxpayers derived in these zones are excluded from income and corporation tax until the annual taxation period of full membership date to European Union (Free Zones Law temporary article 3) (Corporate Tax circular 13) (Corporate Tax General communiqué 85) Goods and services in free zones are excluded from VAT also. (Value Added Tax Law a.16/1-c, Value Added Tax Law 17/4-ı, Value Added Tax Law General communiqué 39,93) 6-Tax Incentive Applied in Emergency Free Zones and Priority Development Areas. By the law numbered 4325 it is aimed to increase investment and employment by applying tax incentives and

125 providing free government lands for the investors in emergency zones and priority development areas. 34 a. Income and Corporation Tax Exclusion: Gains of taxpayers in emergency zones who began work between are excluded from income and corporation tax for 5 taxation years including investment period as long as they employ 10 or more workers actually and continuously. (Law numbered 4325,a.3) (4325/ General communiqué serial number 1) b. Income and Corporation Tax Deduction: Beginning from the end of exclusion time and ending at if 10 or more workers actually and continuously employed in workplaces of the province, a deduction in income and corporation tax will be made at the rate of worker count determined (Law numbered 4325,a.3) (4325/ General communiqué serial number 1) c. Free Investment Place: In the priority development areas, lands belonging to the treasury can be assigned to real or legal persons for free in case of investments consisting at least 10 persons of employment and have incentive certificate. (Law numbered 4325, a.8) (4325/ General communiqué serial number 1) 7-Tax Incentive Applied in Organized Industrial Zones Incentives directed to the income and corporation taxpayers located in organized industrial zones are in Incentive of Investment and Employment Law numbered Taxpayers functioning in these regions covering the provinces in scope of the law numbered 5084 were given income tax withholding incentive, employer contribution incentive, free investment land allocation and energy support. 35 a. Income Tax Withholding Incentive: (Law numbered 5084 a.3, a.7/h and General Communiqué of support for investment and employment serial numbe r 1 and number 2) b. Employer s Contribution Incentive: (Law numbered 5084, a.4, a.7/h) c. Fre e Investment Place Assignment: (Law numbered 5084, a.5) d. Energy Support: (Law numbered 5084, a.6, a.7/h) Separately body of organized industrial zones is exempt from all types of tax and fees about the operation of Organized Industrial Zones Law. Wastewater fee is not taken from the zones operating a water treatment plant. (Law n.4562, a.21)

126 Land and work-place deliveries of economic entities formed for the foundation of organized industrial zones are exempt from Value Added Tax (Value Added Tax Law a.17/4-k) Economic entities founded by public body or professional institution with real and legal entities, using all of its income to meet the requirements of these places, to prepare the infrastructure of organized industrial zones with small industrial sites and to ensure the common requirements such as: land, electricity, gas, steam and water are exemp t from corporation tax. (Corporate Tax Law a.7/25) Buildings in organized Industrial regions benefit from real estate tax exclusion following the 5 years of their completion. (Real Estate Tax Law a.5/f) 8-T ax Incentives for Rising Investment and Employment In la w numbered 5084 which directed to rise of investment and employment, Income tax withholding incentive will be applied following the completion of the investment in provinces until for beginner investors or creating employment opportunities. 36 No income tax withholding from the wages of new personnel. Payment of employer contribution by the treasury. Energy support. Investment place free of charge. When the law was put into force there was 36 provinces enclosed but as a result of the changes made in the law; tax, insurance premium incentives and energy support subjects were taken in scope of law and 13 more provinces added whose social economical development value determined negative by State Planning Organization so the number of provinces benefiting from the incentives risen to 49. a. Income Tax Withholding Incentive: (Law numbered 5084 a.2, a.3, a.7/h and General Communiqué of support for investment and employment serial numbe r 1 and number 2) b. Employer s Contribution in. Insurance Premium Incentive: (Law numbered 5084, a.4) c. Fre e Investment Place Allocation: (Law numbered 5084, a.5) d. Energy Support: Be changed as (Law numbered 5084, a.6) PAR T III.1.B.1.1.2: Employment Laws The qu alifications of the labor force shall be improved in order to increase international competitiveness and ongoing training activities shall be strengthened in line with technological developments. Importance shall be given to improve the vocational and technical formal and informal education in order to fulfill labor force needs of the economy. New organizational models shall be developed to enable practical cooperation with the business environment in order to increase the effectiveness and productivity of vocational and technical

127 education. Labor Legislation shall be harmonized with international norms and standards, particularly with the norms and standards of the ILO and the EU. Turkish regulations are burdensome. According to the U.S. Department of Commerce, "In general, labor, health and safety laws and policies do not distort or impede investment, although legal restrictions on discharging employees may provide a disincentive to labor-intensive activity in the formal economy. Unregistered Employment is widespread, 2003 Labor force participation low and falling The acquis in the social field includes minimum standards in the areas of labour law, equality, health and safety at work and anti-discrimination. The Member States participate in social dialogue at European level and in EU policy processes in the areas of employment policy, social inclusion and social protection. The European Social Fund is the main financial tool through which the EU supports the implementation of its employment strategy and contributes to social inclusion efforts. Turkey has made some progress in the area of social policy and employment. In the area of labour law, progress was limited. A regulation on the establishment of the wage guarantee fund was issued in October 2004 with the aim of transposing the acquis related to the protection of employees in the event of the insolvency of their employer. The fund will be managed by the Turkish Employment Agency (İŞKUR). Turkey still needs to address several shortcomings in the transposition of some directives, as reported in last year s Regular Report. These include among others the directives on collective redundancies, transfer of undertakings and information on individual employment conditions. The scope of application of the labour law is still too limited, as certain sectors or categories of businesses (for example agricultural businesses with fewer than 50 employees) are excluded from it. The sectoral working time directives and the directives on European works council and posting of workers remain to be transposed. Turkey also needs to prepare for the transposition of the directives supplementing the statutes of the European company and the European cooperative society with regard to the involvement of employees as well as the information. 37 PART III.1.B.1.1.3: Environmental Regulations Turkey's legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. The court system is overburdened, however, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. The judicial system is also perceived to be susceptible to external influence and to be biased against outsiders. 37 European Commission Turkey 2005 Progress Report

128 PART III.1.B.1.1.4: Political Stability The main objective for the improvement of industrial sectors emphasized in the Eighth Five Year Development Plan is to increase competitiveness and productivity of the industry, and to promote and maintain sustainable growth within an outward oriented structure, in the face of increased global competition. This objective will be achieved within the framework of market principles and in compliance with international agreements. The industry shall have a structure, in which it will utilize, as possible, domestic resources, produce in compliance with environmental norms, take into consideration consumer health and preferences, use well-qualified labor, apply a strategic management approach, attach importance to R&D, generate technology, create original designs and trademarks and thus take its proper place in international markets. Special importance shall be attached to supporting small and medium sized enterprises, improving innovation system and encouraging new entrepreneurs. Within the framework of the development plans and international commitments of the country, main objective of incentive policies is the promotion of both domestic and foreign investments in order to decrease the regional disparities, to increase the competitiveness of the industry and to generate new employment opportunities. 38 PART III.1.B.1.1.5: Macro Economy The main target of long-term macroeconomic policies is to provide sustainable economic growth, to decrease the inflation rate to the level of EU requirements and to increase the competitiveness of the economy. For this purpose, great importance has been attached to the achievement of macroeconomic stability and realization of structural reforms. Within the applied economic program, structural reforms including agricultural subsidy, social security, public fiscal management and transparency, tax policy, privatization and control and supervision of banking system is being implemented. Furthermore, the government has implemented the Urgent Action Plan, which includes specific measures related to industry. It is also foreseen that improvements to be achieved in other areas of the economy will contribute to the sustainable development of the industry. Industrial policy will be constituted by taking into consideration three main components of growth; namely innovations, investments and exports. The problems of industrial sectors will be solved by action plans based on flexible and sector oriented reforms in the light of the proposals and priorities of the sector representatives. In this framework, objectives and policies related to the development of industry. PART III.1.B.1.1.6: Economic Growth Turkish Economy GNP Growth Rate 38 IMF Country Report No:

129 Robust economic performance was underpinned by strong fiscal consolidation and rigorous monetary policies. Since mid-2004, macroeconomic trends have further improved, building upon the cumulative impact of successive rounds of structural reforms and crucially, the adoption of a responsive fiscal and monetary policy mix. Real GNP growth accelerated from 5.9% in 2003 to 9.9% year-on-year in 2004, helped by strong private consumption growth, which was driven by lower interest rates, increased consumer lending and a surge in private sector investment in machinery and equipment. In the first half of 2005, growth slowed down to 4.5%, close to potential growth estim ates, and was broadly equally distributed amongst expenditure components. PART III.1.B.1.1.7: Interest Rates Turkish Economy Interest Rates The Central Bank of Turkey s handling of monetary policy has continued to be impressive, with inflation rates falling sharply. The government s continued fiscal discipline has played a key role in this accomplishment. 39 The current policy response to capital inflows reintroducing foreign exchange purchase auctions, allowing modest real appreciation of the exchange rate, and cutting interest rates gradually is appropriate. Closer coordination between the Central Bank and the Treasury in sharing the cost of accumulating reserves should help strengthen monetary and debt management. Bolu çimento works with local markets and tries to gain foothold the attractive foreign factor. For this strategy exchange rates will be very important for the company. PART III.1.B.1.1.8: Inflation Rates Turkish Economy Inflation Rate

130 The slowing in growth of domestic demand occurred against the background of a temporary blip in private consumption in 2004, following pent-up demand, which had built up after the 2001-crisis. After a significant fall in consumer price inflation, from 21.6% in 2003 to 8.6% in 2004, the disinflation process continued. Consequently, annual inflation in September 2005 amounted to 8%. Fiscal discipline continued to be strong. 40 PART III.1.B.1.1.9: Population Growth Rate& Age Distribution For the medium term, Turkey has considerable growth potential. Aside from the output gap still to be closed in the short run, growth in labor supply should be rapid, both because of Turkey s high population growth rate and underemployment in agriculture. The urban population that represents about 70 percent of the population and getting larger incoming years. 41 Distribution of Population By Age Groups PART III.1.B : Migration Urbanization 42 Turkey has been urbanizing at a rapid rate. Reasons for the urbanization are that: 1) Population growth has increased in Turkey, 2) Rural fertility is higher than urban fertility and consequently pressure on land is a major, factor leading to migration, 3) Higher incomes in urban areas promote rural-urban migration; 4) Expansion of credit to landowners and developments in better transportation facilitated migration 5) Most importantly, there is an institutionalization of migration whereby migrants go to urban areas with hope and for rational reasons. The inconsistency in state development policies is striking in relation to the emphasis on relationships between urban industrialization and economic policy on the one hand and the rural development and social policy on the other. Industrialization is the keystone of Turkish economic policy with 3 goals being sought: 1) Industrialization, 2) Economic independence 3) State initiative in industrialization. Metropolises

131 YEARS Total Population Urban Population Proportion of Urban Population (%) Rural Population Urbanization Rate Proportion Of Rural Population (%) Periods % ,605,176 10,221, ,383, ,347,719 13,271, ,075, ,736,957 16,064, ,672, ,664,458 23,238, ,426, ,473,035 28,958, ,514, ,420,000 38,660, ,759, ,407,000 39,708, ,698, ,388,000 40,823, ,564, ,363,000 41,924, ,438, ,332,000 43,036, ,295, At the end of the high migration to development cities means the decreasing the construction demand that will help the company to decrease the sales. PART.1.B : R&D Activity Framework conditions that are more conducive to private investment in R&D, as well as ensuring better use of public financing for industrial research should be provided. In order to enhance the technological potential of industry, improvement of university-industry collaboration, establishment of technological support and development centers, new techno parks and technology institutes will be encouraged. Furthermore, the existing R&D supports shall be increased. Technology Development Regions will be established for the purposes of integrating and enhancing the scientific and technological infrastructure capacity of universities, private and public sector, adapting the SMEs to the new and advanced technologies and developing new product and production processes. R&D activities in the fields of advanced applications such as, information and communication technologies, new materials, aerospace and space technologies, nuclear technologies, oceanography, technologies on utilizing and exploiting undersea potentials and clean energy technologies, especially biotechnology, genetic engineering and software development shall be supported. Joint R&D activities with university-public-private sector cooperation shall be encouraged. The industrial property system in Turkey shall be improved and training and promotion programs shall be organized to that end. The public procurement policy shall be oriented towards improving the scientific, technological and industrial potential of the country. Innovation capabilities of the enterprises will be expanded through training, and international cooperation. The share of R&D investment in GDP should be increased to 1.5 % and the number of full time-equivalent R&D personnel per 10 thousand economically active people should be increased to 20. These explanations shows that Turkey need the technological development all over the sector. By the way the company completed its investment as of 2002 to help the maximization of productivity and capacity

132 PART III.2.A:ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF FIRM 02 (Mardin Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Sector) Swot Analysis of Mardin Çimento Strengths Capital investment Production technology is at European rivals level. Oyak Group s Support Oyak Group Companies prefer to buy cement from group companies in case of a construction project. Raw materials and machine equipment can be locally supplied. No needs any excess capacity investment. Strong cash and cash equivalents position against a very low level of trade payables. Cash sales to Iraq Market. Railway transport opportunity to Iraq sales. Healthy financial position. Geographic location brings great competitive advantage in terms of exports. Know-how experience is much. Holds ISO Certificate. 43 Weakness Could not manage to acquire one of Rumeli Group s facilities, so if a new facility investment is needed, it takes two years to take Environmental Effect Valuation Report. Low rate of total capacity usage Profit margin of export sales are half of domestic sales High energy costs (fuel & electricity). About 23-24% of total input for cement production is electricity cost and unit price for electricity is 7-9 cent in Turkey while 4-4,5 cent in Europe. Investment incentives, that allow firms to deduct investment expenditures from taxable income, came to an end in This affects badly the production sector companies who make high amount of investment expenditures to increase capacity. When we think of current capacity usage rates, as of 2004, the cement sector companies use 82% or clinker capacity to produce 93% of cement capacity. If Mardin Çimento desires to increase its cement capacity usage, it will need additional clinker capacity investment. High transportation costs and less use of railway transportation. Excess cash position should be invested more in the firm s core business. Opportunities Iraq Market (rebuilding of Iraq) New trade agreement with Syria (cutting customs duties 3%) Government declaration on building km new motorway and half of this amount will be built by ready-mix concrete. 44 Mortgage Act Bill (may consist a boosting demand for housing - with lengthening of maturities and declining interest rates, real-estate sector has already been on an upward trend, which supports the cement demand) Strong recovery in construction sector makes cement an attractive investment. 45 There is a direct relationship with GDP per capita and cement consumption per capita. Falling interest rates create strong stimulus for residential demand. Monthly credit volume provided to construction sector firms by banks doubled itself starting from September Mardin Çimento Annual Report

133 Membership convergence to European Union will have a positive effect on export sales. TOKI s public housing projects Highway construction between Viranşehir-Habur The project for dam construction in Ilısu. Threats Acquisition of Rumeli Gaziantep Çimento by Sanko which is so close to Iraq and Syrian markets. Acquisition of Rumeli Şanlıurfa Çimento by Türkerler İnşaat which is so close to Iraq and Syrian markets. Acquisition of Rumeli Ergani Çimento by Limak which is inside the company s domestic market. Potential terror threat. Increasing carbon (CO2) raw material for cement production prices in the world (at October the price was 8.72/ton while at Jan 2006 the price was 21.10/ton) 47 Lack of political risk insurance Purchasing power is still very weak. An appropriate and healthy mortgage system coupled with declining interest rates will give an impetus to the construction sector through helping low income families to purchase a house. Asian originated cement producers enter European market by decreasing prices. Foreign investors interest in Turkish cement sector. (One third of the sector belongs to foreign investors) Possible restrictions on the petro-coke imports may increase the input costs of cement product when we think that this input has a 30% share in total production costs. Limitation on number of transport ships according to the European Union accordance conditions may increase the transportation costs. Relatively low level of USD/TRY parity makes exports unattractive. Limitation on governmental investments. Stock value of Mardin Çimento moves parallel to the general level of Istanbul Stock Exchange averages and this shows the company can directly be affected in case of economic instability. PART III.2.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO. 02 (Mardin Çimento Sanayii ve Ticaret A.Ş.) IN INDUSTRY NO. 01 (Cement Sector): PART III.2.A.1.1:External Analysis of Mardin Çimento Mardin Cement, a cement subsidiary of the OYAK Group, became the only company to make it to the list of the top 100 companies from the Asia-Pacific and European countries. Mardin Çimento exported goods worth USD 6.3 million, increasing the volume of its foreign sales by 12% in The Company, which has been awarded a TS-EN-ISO 9002 Quality Assurance System certificate, has an annual production capacity of 640 thousand tons of clinker and 1.3 million tons of cement. The Company has two ready-mix concrete plants located in different provinces. In addition to exporting, Mardin Çimento also makes sales to domestic markets as well. Last year the Company exported 70 thousand tons to Northern Iraq under the United Nations program there. In 2002, Mardin Çimento distinguished itself as a company that expanded the scope of the OYAK Cement Group s operations, playing an influential role in the national market as well as in the markets of neighboring countries and conducting its activities within the framework of a common vision of being a respected, leading, and trusted company. Regarding the happiness of its customers and employees as one of its underlying corporate values, Mardin Çimento is a company that enjoys the admiration of the people of Mardin and is respected everywhere throughout the region Credit Suisse Building Materials & Construction Report 48 Oyak Holding Annual Report

134 Thirty-five million tons of cement were produced in Turkey in 2003, 21% of which was exported the same year. The cement industry will remain one of the most important of Turkey s industrial sectors for the foreseeable future and this importance will encourage vigorous efforts to increase operational productivity and effectiveness. The cement industry is one that is particularly susceptible to variations in economic growth and stability. On the other hand Middle Eastern markets are undergoing rapid expansion and growth. The war in Iraq in the first half of 2003 and its subsequent developments have turned the region into a vibrant international market. In 2003, Mardin Çimento exported USD 22.4 million worth of goods. Under an agreement with Syria, it exported 250,000 tons of cement to that country. Mardin Çimento is the most sold and best-known brand of cement in Iraq and Syria today. The Company is determined to exploit its advantages in the best way possible and to increase the volume of business it does in this region. Finally, after Iraq war the company s export sales is increasingly significantly, the high demand for the reconstruction of the Iraq is providing the effective competitive advantage for the firm because of the location of the company. This is also opportunities for the company. PART III.2.A.1.2: Regional Context: South East Anatolian Region The production in this region has risen significantly in recent years, both on the back of increasing domestic demand and also a strong export stimulus from the reconstruction efforts in Iraq. The favorable prices in the 49 Iraqi market enable the companies in this region to enjoy strong margins. Sanko and Oyak Group are the main players in this region. The vigorous demand and strong margins in the Iraqi and Syrian markets make the plants in these regions attractive for many bidders. Note that this region boasts the highest EV per tonne of clinker capacity, at $301. Capasity (000 Tonnes) Plant Group Clinker Cement EV -USD (Million) EV Clinker Cap. $/Tonnes Mardin Cement Oyak Group The numerical analysis is just one piece of the pricing puzzle, depending on the location, it is possible to estimate the further commercial potential for both the domestic market and export markets, which will factor into the decision making. However, there is more to count in the bids of the potential buyers. Opportunity cost of not buying a plant will be another key driver for the bidders. Who will buy the plant is as important as who will not buy the plant, for the future of the sector. Meanwhile, Oyak Group has explicitly announced its interest in the privatization of Erdemir. After failing to buy Tupras on 12 September, Oyak Group will be in a stronger position to bid for Erdemir. A negative result from the Erdemir privatization auction, which is expected to be completed before the sale of the Uzan cement plants, could focus Oyak Group s commitment to bidding for the cement plants. 49 İş Investment Cement Sector Research Report

135 PART III.2.A.1.3: National Context of Cement Sector The Turkish cement sector offers strong growth construction expenditures which has its perspective and also on the back of strong fragmented structure of the sector creates market share. Meanwhile, the Turkish sector peers, create the fact that further stimulus steadily growing Turkish market. However, competition will be the key issue in determining prices. Many domestic players take this privatization as a to-be or not-to-be issue for their future, and are therefore ambitious to buy plants to strengthen their positions in the market. There are already some foreign cement companies operating in the market in partnership with domestic players, frequently named in the media as interested parties. Meanwhile due to the large scale of the capacities to be sold, some foreign players not currently operating in the Turkish cement market are looking to seize this opportunity for a rapid entry into the domestic markets. It is impossible to foresee the results of the auctions at the moment. What is clear is that the completion of the sale will pull sector multiples higher, regardless of who the buyer is. Interested domestic companies: Sabancı Group (Akcansa and Cimsa, OYSAC with Oyak Group), Oyak Group (has shares in Adana Cement, Bolu Cement, Mardin Cement, Unye Cement and OYSAC with Sabancı Holding), SANKO, Baticim and GISAD REIT have so far explicitly announced their interest in the plants. Meanwhile, Oyak Group formed a consortium consisting four listed cement companies and two unlisted companies to evaluate investment opportunities in the cement sector. The financial strength of the listed companies forming the consortium are summarized below. PART III.2.A.1.4: Cement Exports: The Iraq war is the opportunity for the Turkey, because of the reconstruction of the country, and the distance of the Turkey to Iraq. DEVELOPMENT OF THE EXPORTS FOR TURKEY Years Cement % Clinker % Cement & Clinker %

136 DEVELOPMENT OF THE EXPORTS ACCORDING TO THE COUNTRIES Countries % Iraq ,5 Italy ,8 U.S.A ,0 Portugal ,5 Nigeria ,4 Israel ,9 Spain ,5 Syria ,4 France ,4 N.C.T.R ,0 PART III.2.A.1.5: SWOT Analysis of the Cement Sector SWOT Analysis of the cement sector has been determined under the title of Bolu Çimento in previous section. PART IIII.2.A.1.6: Industry Structure and Competitive Environment Industry Structure and Competitive Environment of the cement sector has been determined under the title of Bolu Çimento in previous section. PART III.2.A.1.7: Competitive Environment of Cement Sector Competitive Environment of Cement Sector of the cement sector has been determined under the title of Bolu Çimento in previous section. PART III.2.B.1: GENERAL ENVIRONMENT OF FIRM NO.2 (Mardin Çimento Sanayii ve Ticaret A.Ş.) IN INDUSTRY NO.01 (Cement Industry) PART III.2.B.1.1: Pest Analysis of Mardin Çimento Mardin Çimento is the most important company for the Oyak Group and Turkey. Because the company works with the nearest Asia, the Iraq war is the most important opportunity for the company. Iraq is reconstructing an need to rebuild so Mardin Çimento has significant location and sell its production to Iraq. For this activity Mardin Çimento became the exporter company for working Iraq s reconstruction. By the way the economic conditions of Turkey and high demand for the cement may company the most popular in southeastern region. The trade barrier, changing in exchange rates, interest rates and political stability affect the company directly. PART III.2.B.1.1.1: Tax Policy Tax Policy for the cement sector has been determined under the title of Bolu Çimento in previous section. PART III.2.B Employment Laws The qualifications of the labour force shall be improved in order to increase international competitiveness and ongoing training activities shall be strengthened in line with technological developments. Importance shall be given to improve the vocational and technical formal and informal education in order to fulfill labour force needs of the economy

137 New organisational models shall be developed to enable practical cooperation with the business environment in order to increase the effectiveness and productivity of vocational and technical education. Labour Legislation shall be harmonised with international norms and standards, particularly with the norms and standards of the ILO and the EU. PART III.2.B Environmental Regulations Turkey's legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. The court system is overburdened, however, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. The judicial system is also perceived to be susceptible to external influence and to be biased against outsiders. 50 PART III.2.B Trade Restrictions and Tariffs Turkey's weighted average tariff rate in 2003 was 2 percent, down from the 4.5 percent for 1999 reported in the 2005 Index, based on World Bank data. According to the World Trade Organization, "import licences are maintained on health, sanitary, phytosanitary, and environmental grounds." Turkey applies EU policies on nonagricultural imports from third countries. Based on the lower tariff rate, as well as a revision of the trade factor methodology, Turkey's trade policy score is 0.5 point better this year. PART III.2.B Political Stability Sustainable development has three aspects, economic, social and environmental. The main aim is to ensure economic and social development by protecting human health, ecological balance and cultural, historical and aesthetical values. Importance shall be attached on public reconciliation and participation towards a solution of environmental problems. In order to integrate environmental policies with economic and social policies, economic means shall be utilised. For the prevention of air pollution, emission factors shall be determined in all sectors and an emission inventory shall be drawn up. Environmentally friendly technologies shall be given priority in the determination of industrial policies and new industrial investments. Local manufacturers shall be informed and encouraged to use them. rrangements shall be made towards increasing the effectiveness of the Environment Impact Assessment (EIA) process. PART III.2.B Establishing Competition Among the objectives of the competition policies is to protect competition by preventing abuse of dominant position by dominant undertakings and prohibiting the agreements, decisions and practices which prevent, restrict or distort competition within the markets for goods and services. Mergers and acquisitions shall be assessed to avoid creating or strengthening a dominant position as a result of which competition is significantly impeded within a certain market. The assessment of mergers and acquisitions takes into consideration the internationalization of markets in line with the developments experienced in world trade as a result of rapid globalization. The existing legislation will be implemented effectively to ensure that imports do not cause unfair competition and do not harm the consumers and the environment. New arrangements and amendments shall be made when required. 50 IMF Country Report No. 04/

138 PART III.2.B Interest Rates The Central Bank of Turkey s handling of monetary policy has continued to be impressive, with inflation rates falling sharply. The government s continued fiscal discipline has played a key role in this accomplishment. The current policy response to capital inflows reintroducing foreign exchange purchase auctions, allowing modest real appreciation of the exchange rate, and cutting interest rates gradually is appropriate. Closer coordination between the Central Bank and the Treasury in sharing the cost of accumulating reserves should help strengthen monetary and debt management. Decreasing interest rates affect the company directly because of the high demand of the construction sector also cement too. PART III.2.B Technological Changes The company completed the pre-calcination investment that helps the company cost efficiency and product maximization. The deficiency of the technological development in Turkey affects the company significantly

139 PA RT III.3.A: ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF FIRM 03 (Ünye Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Sector) SWOT Analysis of Ünye Çimento Strengths Capital investment. Completion of pre-calcination investment decreased the costs by 10,7% on a foreign currency basis. 51 Ünye Port s usage right. Production technology is at European rivals level. (renovated in 2002) Oyak Group s Support Oyak Group Companies prefer to buy cement from group companies in case of a construction project. Raw materials and machine equipment can be locally supplied. Being close to European market when we compare with the south-east Asian rivals. No needs any excess capacity investment. Strong cash and cash equivalents position against a very low level of trade payables. Healthy financial position. Being close to Ünye Port. Know-how experience is much. Holds ISO Certificate. 52 Weaknesses Could not manage to acquire one of Rumeli Group s facilities, so if a new facility investment is needed, it takes two years to take Environmental Effect Valuation Report. Low rate of total capacity usage Profit margin of export sales are half of domestic sales High energy costs (fuel & electricity). About 23-24% of total input for cement production is electricity cost and unit price for electricity is 7-9 cent in Turkey while 4-4,5 cent in Europe. Investment incentives, that allow firms to deduct investment expenditures from taxable income, came to an end in This affects badly the production sector companies who make high amount of investment expenditures to increase capacity. When we think of current capacity usage rates, as of 2004, the cement sector companies use 62% or clinker capacity to produce 90% of cement capacity. If Ünye Çimento desires to increase its cement capacity usage, it will need additional clinker capacity investment. High transportation costs and less use of railway transportation. Excess cash position should be invested more in the firm s core business. Opportunities Government declaration on building km new motorway and half of this amount will be built by ready-mix concrete. 53 Mortgage Act Bill (may consist a boosting demand for housing - with lengthening of maturities and declining interest rates, real-estate sector has already been on an upward trend, which supports the cement demand) Strong recovery in construction sector makes cement an attractive investment. There is a direct relationship with GDP per capita and cement consumption per capita. Falling interest rates create strong stimulus for residential demand. 51 Ünye Çimento Annual Report Ünye Çimento Annual Report

140 Monthly credit volume provided to construction sector firms by banks doubled itself starting from September Membership convergence to European Union will have a positive effect on export sales. TOKI s public housing projects. Threats Acquisition of Rumeli Ladik Çimento (which is close to Ünye) by Akçansa the biggest rival. IMC Mining Firm s new facility construction in Ünye with 180 million USD investment. Increasing carbon (CO2) raw material for cement production prices in the world (at October the price was 8.72/ton while at Jan 2006 the price was 21.10/ton) Lack of political risk insurance Purchasing power is still very weak. An appropriate and healthy mortgage system coupled with declining interest rates will give an impetus to the construction sector through helping low income families to purchase a house. Asian originated cement producers enter European market by decreasing prices. Foreign investors interest in Turkish cement sector. (One third of the sector belongs to foreign investors) Possible restrictions on the petro-coke imports may increase the input costs of cement product when we think that this input has a 30% share in total production costs. Relatively low level of USD/TRY parity makes exports unattractive. Limitation on governmental investments. Stock value of Ünye Çimento moves parallel to the general level of Istanbul Stock Exchange averages and this shows the company can directly be affected in case of economic instability. PART III.3.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF Sanayii ve Ticaret A.Ş.) IN INDUSTRY NO. 01 (Cement Sector): FIRM NO. 03 (Ünye Çimento PA RT III.3.A.1.1: External Analysis of Ünye Çimento Ünye Çimento last year significantly lowered its operating costs as a result of an investment that it completed and commissioned on 19 October The Company s pre-calcination investment has resulted in a 10.7% reduction (on a foreign currency basis) in fixed costs while also increasing clinker production capacity to 1.5 million tons and cement production capacity to 1.8 million tons a year. The pre-calcination investment was begun in 1999 and completed in 2002 at a total investment cost of USD 90 million that will significantly 54 increase its effectiveness and productivity. Ünye Çimento has five ready-mix concrete plants located in different provinces as well as a pumping and packaging plant at the Limanköy port facilities in Rize and storage and loading facilities in Ünye. Ünye Çimento produces high-quality cement conforming to TSE standards that its production has been awarded a TS-EN-ISO 9002 Quality Assurance System certificate. PART III.3.A.1.2: Regional Context of Cement Sector Central Anatolia Region Central Anatolia accounts for 20% of the domestic cement market, and sales in the region jumped by 30% YoY in the first half of 2005 thanks to the mass construction taking place in the region, which also suggests strong potential for cement consumption in the coming periods Oyak Holding Annual Report İş Investment Research Report

141 Vicat, Yibitas-Lafarge, Set-Italcementi, Oyak Group and Sabancı Group are the active players in the region. Black Sea Region Production in Black Sea region grew by 11% between , mainly on the back of sales to the domestic market. Lafarge, Oyak and Sabanci Group are currently the leading players in the Black Sea Region. 56 Production in the region has reached 2.5 mn tonnes in the first half, already signing a 26% YoY improvement. However it should be noted that the geographical conditions of the regions limits transportation possibilities, which is a drawback for the growth in this region. Capasity (000 Tonnes) Plant Group Clinker Cement EV -USD (Million) EV Clinker Cap. $/Tonnes Bolu Oyak Group Ünye Oyak Gr.-Naving Hld.-Nuh Bt The numerical analysis is just one piece of the pricing puzzle, depending on the location, it is possible to estimate the further commercial potential for both the domestic market and export markets, which will factor into the decision making. However, there is more to count in the bids of the potential buyers. Opportunity cost of not buying a plant will be another key driver for the bidders. Who will buy the plant is as important as who will not buy the plant, for the future of the sector. Meanwhile, Oyak Group has explicitly announced its interest in the privatization of Erdemir. After failing to buy Tupras on 12 September, Oyak Group will be in a stronger position to bid for Erdemir. A negative result from the Erdemir privatization auction, which is expected to be completed before the sale of the Uzan cement plants, could focus Oyak Group s commitment to bidding for the cement plants. PART III.3.A.1.3: National Context of Cement Sector The Turkish cement sector offers strong growth construction expenditures which has its perspective and also on the back of strong fragmented structure of the sector creates market share. Meanwhile, the Turkish sector peers, create the fact that further stimulus steadily growing Turkish market. However, competition will be the key issue in determining prices. Many domestic players take this privatization as a to-be or not-to-be issue for their future, and are therefore ambitious to buy plants to strengthen their positions in the market. There are already some foreign cement companies operating in the market in partnership with domestic players, frequently named in the media as interested parties. Meanwhile due to the large scale of the capacities to be sold, some foreign players not currently operating in the Turkish cement market are looking to seize this opportunity for a rapid entry into the domestic markets. It is impossible to foresee the results of the auctions at the moment. What is clear is that the completion of the sale will pull sector multiples higher, regardless of who the buyer is. 56 İş Investment Research Report

142 Interested domestic companies: Sabancı Group (Akcansa and Cimsa, OYSAC with Oyak Group), Oyak Group (has shares in Adana Cement, Bolu Cement, Mardin Cement, Unye Cement and OYSAC with Sabancı Holding), SANKO, Baticim and GISAD REIT have so far explicitly announced their interest in the plants. Meanwhile, Oyak Group formed a consortium consisting four listed cement companies and two unlisted companies to evaluate investment opportunities in the cement sector. The financial strength of the listed companies forming the consortium are summarized below. PART III.3.A.1.4: Cement Exports: The Iraq war is the opportunity for the Turkey, because of the reconstruction of the country, and the distance of the Turkey to Iraq. DEVELOPMENT OF THE EXPORTS FOR TURKEY Years Cement % Clinker % Cement&Clinker % DEVELOPMENT OF THE EXPORTS ACCORDING TO THE COUNTRIES

143 PART III.3.A.1.5:Swot Analysis of Cement Sector Swot Analysis of the cement sector has been determined under the title of Bolu Çimento in previous section. PART IIII.3.A.1.6: Industry Structure and Competitive Environment Industry Structure and Competitive Environment of the cement sector has been determined under the title of Bolu Çimento in previous section. PART III.3.A. 1.7: Competitive Environment of the Cement Sector Competitive Environment of the Cement Sector of the cement sector has been determined under the title of Bolu Çimento in previous section. PART III.3.B.1: GENERAL ENVIRONMENT OF FIRM NO.3 (Ünye Çimento Sanayii ve Ticaret IN INDUSTRY NO.01 (Cement Industry) PART III.3.B.1.1: Pest Analysis of Ünye Çimento The modernization and capacity increase investments that were begun at Ünye Çimento in 1999 have been completed and the mill s precalcination unit was launched on 19 October This project was one of the biggest investments ever undertaken in the Turkish cement industry and on its own it has been responsible for reducing Ünye Çimento s production costs by 10.7% on a foreign-currency basis. Because of the cost of this investment the company suffered loss as of The company invested by using the foreign sources, but high increasing the exchange rates and interest rates caused the high crisis for the company. By the way the company exports its product so the changes in exchange rates are very important variables for this situation too. This means that the company is affected by the fluctuation on the exchange rates and the interest rates significantly. 57 The underconstruction of technology are very limited in Turkey that is very important problem for the manufacturer company decreases its productivity. By the way restrictions and barrier to enter the Turkish industry affects the company directly because company works with the external markets directly. PART III. 3.B.1.1.1: Tax Policy in Turkey Tax Policy in Turkey for the cement sector has been determined under the title of Bolu Çimento in previous section. PART III 3.B.1.1.2: Trade Restrictions and Tariffs Turkey's weighted average tariff rate in 2003 was 2 percent, down from the 4.5 percent for 1999 reported in the 2005 Index, based on World Bank data. According to the World Trade Organization, "import licences are maintained on health, sanitary, phytosanitary, and environmental grounds." Turkey applies EU policies on nonagricultural imports from third countries. Based on the lower tariff rate, as well as a revision of the trade factor methodology, Turkey's trade policy score is 0.5 point better this year. 58 A.Ş.) On the other hand Turkey welcomes foreign investment but maintains a number of formal and informal barriers. The 2003 Foreign Investment Law liberalized rules governing foreign direct investment, guaranteed domestic treatment, and removed minimum capital requirements. Broadcasting, aviation, maritime transportation, and value-added telecommunications services companies and port facilities must be at least Oyak Holding Annual Report Industrial Policy for Turkey, DPT August

144 percent Turkish-owned. The U.S. Department of Commerce notes "a number of obstacles: excessive bureaucracy, weaknesses in the judicial system, high and inconsistently collected taxes, weaknesses in corporate governance, sometimes unpredictable decisions taken at the municipal level, and frequent, sometimes unclear changes in the legal and regulatory environment." The International Monetary Fund reports that both residents and non-residents may hold foreign exchange accounts. There are few restrictions on payments and transfers. Reporting requirements apply to some capital transactions. Non-residents face restrictions on the purchase of real estate, but foreign companies may acquire real estate through a Turkish legal entity or local partnership. PART III 3.B.1.1.3: Economic Growth T urkish Economy GNP Growth Rate Increasing the GNP means the locomotive sector of the Turkey that construction sector will get larger and this will affect the firm s sales and profitability. PART III 3.B.1.1.4: Interest Rates Turkish Economy Interest Rates The decreasing the interest rates are the most important for the company to supply the construction firms its production. PART III 3.B.1.1.5: Exchange Rates Turkey offers important insights on the challenges and limitations of empirically analyzing the effectiveness of intervention. Among emerging market economies, Turkey is one of the few countries with a (managed) floating

145 exchange rate regime, where daily intervention data, albeit somewhat incomplete, is available. During the period studied here (March 2001 October 2003), the country implemented substantial economic reforms, lived through bouts of domestic political uncertainty, and was hit by contagion from financial market shocks. 59 Turkey s exit from a crawling peg in February 2001 shifted the burden of price discovery to the foreign exchange market at a time when it was still undeveloped. During the crawling peg exchange rate regime, the foreign exchange market was heavily influenced by the Central Bank of Turkey (CBT), with most banks trading bilaterally with the CBT rather than among themselves. At the time of the exit from peg foreign exchange market liquidity was low, hedging instruments were virtually nonexistent, and financial institutions were caught with sizable short foreign currency positions and with limited capacity to manage foreign exchange risk. As a result, low turnover in the foreign exchange market may have been a dominant factor in the determination of the exchange rate compared to CBT s interventions, at least during the early phases of the period analyzed here. Since the floatation of the lira, the CBT s interventions have undergone several phases. The CBT initially sold foreign exchange through auctions to sterilize the liquidity injections associated with the Turkish Treasury s use of external financial resources. These were combined with discretionary interventions to smooth exchange rate volatility related to negative external developments and domestic political problems. The CBT began conducting pre-announced (timing and amount) foreign exchange sale auctions in March Preannounced auctions were designed to enhance the transparency of official intervention and minimize their price impact. Auctions remained the main form of intervention throughout 2001, with brief interludes of discretionary intervention in lieu of or in parallel with preannounced auctions. Throughout 2001, the CBT sold US$6.5 billion in foreign exchange, enabling financial institutions to cover their short positions. The month of April 2002 marked the beginning of the second set of intervention phases, characterized by foreign exchange purchase operations. The move from foreign exchange sales to purchases was driven in part by reverse currency substitution engendered by growing confidence in the policy formulation and implementation, and a pick up in capital inflows. Foreign exchange purchases first through preannounced auctions, then on a discretionary basis were suspended in July 2002 amidst uncertainties before the November 2002 general elections, but resumed in May 2003 as uncertainties faded and reverse currency substitution continued. Exchanges ratios are very important Ünye Çimento because company exports its products. PART III 3.B.1.1.6: Population Growth Rate& Age Distribution The urban population that represents about 70 percent of the population and getting larger incoming years Issues Arising from Turkey s Membership Perspective Report, Eurostat Turkish Statistical Institute

146 Distribution of Population By Age Groups This table shows increasing population this means Turkey will need more construction and it can help the company to increase its cement sales. PART III 3.B.1.1.7: Technological Activity The modernization and capacity increase investments that were begun at Ünye Çimento in 1999 have been completed and the mill s precalcination unit was launched on 19 October This project was one of the biggest investments ever undertaken in the Turkish cement industry and on its own it has been responsible for reducing Ünye Çimento s production costs by 10.7% on a foreign-currency basis. Another project that was carried out under Ünye Çimento s investment program involved repairing the damage that Ünye s port facilities suffered from in a natural disaster that occurred in Thanks to this work, the facilities are once again at the service of the national economy. PART III.4.A: ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF FIRM NO.01 (Garanti GYO A. Ş.) IN INDUSTRY NO.02 ( Real Estate Trust Company) Swot Analysis of Garanti GYO Strengths Corporate Tax Exemption. Portfolio Management Operations Gains are subject to 0% withholding tax. Valuable real estate portfolio. Strong cash and cash equivalents position against a very low level of trade payables. Doğuş Group Companies support. Strong Brand Name. 68% of the company s investment portfolio consists of business centers and office building which bring higher return than other real estate investment tools. All of these investments are in the valuable business regions of Istanbul. 61 GKY Real Estate Investment SA that is established in Romania brings competitive advantage to the firm in terms of foreign real estate market investments. This subsidiary is established in cooperation with Yapı Kredi Koray GMYO. 62 Weaknesses Most of the company s commercial properties are hired by Doğuş Group Companies like Garanti Bankası and Doğuş Otomotiv. Liquidity position should be invested in core business in order to have higher returns. 61 Garanti GMYO Annual Report Garanti GMYO Annual Report

147 Operational profitability in the last three years is at an unattractive level. The company s profit is mainly constituted mainly from t-bill interest income. Low share of housing projects may miss the opportunity that will be generated from Mortgage Act. As of 2004, only 3% of company s portfolio consists of housing projects. Opportunities Pension Funds, which is recently developing in Turkey, may tend to include real estate investments in their portfolio in order to generate long-run but low-risky returns. Real Estate is a popular and traditional investment tool in Turkey for years. Decreasing interest rates make the investors more interest in real estate sector. Mortgage Act Bill (may consist a boosting demand for housing - with lengthening of maturities and declining interest rates, real-estate sector has already been on an upward trend). Because the company in housing projects does not hold many housing projects other than Evidea Project, new investments may bring satisfying returns. Demand increase in foreign investors by the effect of membership convergence to European Union. (especially in Mediterranean and Aegean Regions) It is expected that this trend will develop further and in a more organized fashion under the direction of reliable and reputable companies. Decreasing interest rates and increasing credit pay back maturities make people direct towards residential credits. Mutual fund investors interest in Turkish real estate investment trusts may strengthen the capital structure. Change in life styles in the metropolis regions from living in downtowns to rural but close to city areas. This shift in life style brings site building opportunity to construction firms. Zoning Law is targeted to curb illegal and unlicensed construction activity in the country. This law will provide a regulated, registered and well planned environment that will pave the path for new projects undertaken by institutionizalized firms. TOKI s public housing projects. Foreign investors interest is very low as of 2005 and this hot prospect sector will definitely attract attention with its profitability. This may increase market capitalization.. Turkish REITs have a tremendous growth potential in the near future due to high expectations placed on them to bring transparency and professionalism to the broader real estate industry. In the aftermath of the earthquakes, REITs have received considerable attention as the future leaders of high quality housing supply. According to the Emerging Trends Report prepared among the 27 European cities, Istanbul is ranked first in terms of real estate development expectations. Because main assets of Garanti GMYO are in Istanbul, this may attract attention of foreign investors and brings competitive advantage. 63 In the developing countries, the total residential credit to GNP rate is about 10-15%, while this rate is about 40% in US. As of the year 2005, this rate is realized 2,5% and this rate has the potential to increase when we compare it with the similar developing countries. Increase in residential credits will definitely provide improvement to the real estate sector. Mortgage Act Bill includes an exemption for the interest payments form Bank and Insurance Transactions Tax that will provide a % 5 tax advantages. The steady population increase in Turkey will create stable demand for housing and average house gap per year. 64 The vacancy rate in A-class office buildings is at the lowest level of the history and this will create demand to business properties. 65 Rental rates of business properties per square meter in terms of foreign currency is currently at the half of 1997 values. 63 Raymond James Sector Research Report

148 The interest of Arabic-origin firms to domestic real estate markets Threats The quality of the existing real estates is hard to meet the increasing demand. This situation will cause an upward movement in real estate prices. Although there is an upward movement in the real estate sector, the construction sector could not show the same development and its share in GNP is steadily decreasing over years. Tight monetary policy of the government in terms of investments. This policy makes the construction sector concentrate on residential projects or abroad investments. Economic crises. Turkey is located on a seismic zone carrying high risk of potential earthquakes. Possibility of political instability and its effect on financial markets. Possibility of a disagreement in the membership convergence period to European Union. PART III.4.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO.01 (Garanti GYO A.Ş.) IN INDUSTRY.02 (Real Estate Trust Company) PART III.4.A.1.1: External Analysis of Garanti GYO Garanti REIT sees real estate development and investment activities as an efficient and profitable source of income which requires experience and expertise in construction, finance and marketing fields and must be professionally executed within an institutional structure. Garanti REIT aims at investing in housing development projects that appeals to medium-high income groups, has a certain concept approach and unique architectural designs and is financially accessible and in commercial real estates and development projects that can provide regular, low-risk and high rental income. In case of low rental income, sale of housing projects are considered and this way it is aimed that the sales revenue of the real estates and the rental income obtained from the commercial real estates with high rental income which are currently rentable will be balanced in the portfolio and this way the revenues with sales and rental origin will be diversified based on the investment segments. On the other hand, it is also aimed that a balance will be established between the currently rentable real estates and the development projects, and consequently the company will always have a durable cash f low as well as benefit from the high development profits and the potential growth which can be provided by development projects. Another diversification criterion used as the basis for the portfolio is geographical diversity. With this purpose it is paid attention to locate the real estates forming the company portfolio in different regions within the country and it is aimed that the risks of the countries and regions are balanced by inv e sting some amount of capital abroad. In the portfolio of the company, efficiency and liquidity principles are always considered. For the real estates in the portfolio with decreasing efficiencies, measures are taken i n order to increase their yield, if necessary, sale opportunities are considered. While keeping the liquidity always strong, the cash and security portfolio is managed actively and professionally. It is also aimed that a yield always exceeding t he alternative investment opportunities and costs of funds is achieved. Garanti REIT al so considers the quality standards of Doğuş Group besides commercial pursuits in its investments. It i s important that a certain architectural concept and gusto of life exist in the housing projects to be developed, move the quality standards of its class further and its financially reachable. In commercial project s, the value the commercial real estate should increase by the help of creative ideas and leading designs. With this purpose, the company tracks the industrial developments with in the country and a broad and underta kes a leading role in application of innovations in Turkey. Garanti REIT portfolio is intended to be improved consistently and help the investors benefit from the stocks through both dividends and capita l gain. However the intended growth will be realized in a secure manner only by use of equity capital and if necessary of low-cost credits in high return projects, not by a risky borrowing policy

149 PART III.4.A.1.1: SWOT ANALYSIS OF REAL ESTATE INVESTMENT TRUST An Overview of he Real Estate Investment Trust A r eal estate investment trust (REIT) is a corporation or a business trust that combines the capital of many investors to acquire (or provide financing for) various real estate assets. Appearing first in the 1994, there are now 9 REITs in the Turkey A REIT is a company that invests its assets in real estate holdings. Investors get a share of the earnings, depreciation, etc. from the portfolio of real estate holdings that the REIT owns. REITs are becomi ng a strategic business and planning tool for a corporation's real estate. 66 Structures of Real Estate Investment Trusts The REIT industry has a diverse profile; which offers many attractive opportunities to investors. There are three different investment approaches for REITs; equity, mortgage, and hybrid. Equity REITs: Equity REIT own real estate. Their revenue comes principally from rent. This type of REITs are the most common. Investors have a relatively steady dividend payout, and the real estate often provides capital appreciation. Traditional investments include office buildings, houses, apartments, and shopping centers, but some new equity REITs are formed existing properties and real estate partnerships through an Umbrella Real Estate Investment Trusts (UPREIT) (Deloitte & Touchle; 1997). UPREITs are different from traditionally equity REITs. UPREITs are a limited partnership structure is utilized, with the REIT functioning as general partner. Both holders of real estate partnership interest and REITs can benefit from the UPREIT. The REIT benefits by acquiring real property without having to generate capital to purchase the property. Mortgage REITs: Mortgage REITs loan money to real estate owners. Revenues are derived from interest earned on mortgage loans. Also some mortgage REITs invest in residuals of mortgage-based securities. Mortgage REITs generally do not own property, and income can be affected by fluctuations in interest rates and loan defaults. Hybrid REITs: A combination of equity and mortgage REITs, hybrid REITs own property and also loan funds to owners of real estate. Hybrid REITs has all advantage of equity REITs and mortgage REITs. While it has the potential for both capital appreciation and loss, it also provides income but does not mature with a repayment of principal. It can provide the long term investor with an attractive yield at relatively low risk, and an opportunity to diversify into incomegenerating commercial real estate. Strengths: A REIT is essentially a corporation or business trust that combines the capital of many investors to acquire or provide financing for all forms of real estate. The investors have a much more liquid investment than this do when directly investing in real estate. REITs are mutual funds for real estate. The REIT industry raises important capital for the industry, the housing market and related industries and for retail services industries. REITs traditionally pay out all of their taxable income and, in many cases, 90% of their funds from operations in the form of dividends and distributions to shareholders. 67 A corporation or trust that qualifies as a REIT generally does not pay corporate income tax. This is a unique feature and one of the most attractive aspects of a REIT. This means that nearly all of a REIT's income can be distributed to shareholders, and there is no double taxation of the income to the shareholder. Differences in information: In real estate transaction, there are differences in information between partiesbuyer and seller. There are so many informations at the field 66 McKinsey Sector Report Merkez Securities Sector Report

150 Interest Rates: The decreases in the interest rates and the profits in other investment tools have made the real estate sector more and more attractive recently. Increasing demand for real estate shows that the sector is getting in a developing process. Tax Treatment: Real estate is accorded favorable or unfavorable tax treatment, and tax advantages can be key factors in an investment decision, Current income: usually stable and often provides an attractive return; Liquidity: shares of publicly traded REITs are readily converted into cash because they are traded on the major stock exchanges; Professional management: REIT managers are skilled, experienced real estate professionals; Performance Monitoring: a REIT's performance is monitored on a regular basis by independent directors of the REIT, independent analysts, independent auditors, and the business and financial media. This scrutiny provides the investor a measure of protection and more than one barometer of the REIT's financial condition. Weaknesses: Financial Weaknesses: Financial weakness of local construction companies has caused most of the current building stock to have low architectural and technical quality, compared to the EU countries` standards. For these reasons, high quality office property stock, hence investment alternatives for foreign investors are currently scarce. Liquidity Real estate is not mobile or portable, and transaction is difficult because of legal institutions, and the large indivisibility of size. Operating Restrictions: Change in construction costs Fluctuation in market segments Fluctuation in rate of exchange Technology and Funding Difficulties Traditional operators still make much less use of design for manufacturing (DFM) technologies than do their modern counterparts. The use of tunnel molds and pre-cast panels to enable greater standardization is rarely part of their métier. However, a much greater problem within the traditional segment and particularly among single-plot Multi Family Housing (MFH) and large-scale single-family housing (SFH) developments financed by construction cooperatives is the artificial slowdown of projects as a consequence of funding difficulties. These difficulties afflict the effective organization of functions and tasks (OFT). Identically scaled projects can experience 20 percent differences in productivities based on differences in workflows. And at times, even large-scale MFH and SFH operators face major project scheduling difficulties because of fluctuations in cash flows. We estimate that, all effects considered, macroeconomic instability accounts for more than 75 percent of Turkey s total labor productivity gap in residential construction. Opportunity: The advent of a well-functioning mortgage market would ameliorate many of the fund-flow challenges currently facing the industry. Enabling buyers to pay for houses entirely at the time of purchase would enable builders to build to inventory, and thereby to maximize both the benefits of scale and project smoothing

151 Turkey need not be a victim of this deadlock. It can kick-start a viable mortgage regime, one that would enable a significant portion of new housing to be built within the structure of assured fund flows, even while real interest rates remain high. Threats: Increasing the interest rates is the most important threat for the REIT. By the way tight monetary policy may be threat for the threat because if the firm s activities does not include the housing projects. PART III.4.A.1.2: Regional Context Overview of Istanbul as the Metropolitan City of Turkey Because investment opportunities into the real estate markets in developed regions are limited due to the settling prices, international funds and investors are expected to be gearing towards developing countries such as Turkey. The economical figures after the 2001 economic crisis and the regulatory reforms in the banking sector enabled the improving Turkish economy to get on a better level compared to last years. The decrease in the inflation rate and the increase in the GNP growth rate are the most significant signs of the improvement in 68 Turkish economy. Following these improvements in the economy, on December 17, 2004, the EU decided to begin membership negotiations with Turkey and presented October 2005 as the start date. This development has increased the foreign investment interest in Turkey. One of the indicators of this increased interest is the new activity in the real estate sector. When we inspect the Turkish real estate sector, we need to start with Istanbul, in which approximately 40% of Turkish economy runs and 20% of all country`s population lives. As the date for membership meetings is getting closer, a significant increase in the number and amount of foreign investments can be observed. Foreign investors have an increasing interest in the residential market because of the activities aiming to initiate the mortgage system in Turkey. The current housing credit system in Turkey addresses a very small high income group because the purchasing power in Turkey is relatively insufficient. The examples of Greece and Spain show that the implementation of the mortgage system increases the purchasing power because it is spread over a very long term and causes a substantial increase in the prices of residential buildings. 69 For the mortgage system to be fully established, the interest rates need to decrease further. The economic performance in recent years has showed that it is likely that the interest rates will continue falling down. The interest rate levels required for an efficient mortgage system is expected to be reached in a couple of years. Foreign investors want to take positions before the interest rates drop further. In addition, the fact that in Turkey, a capital gains from a sale of real estate, for a period of 4 years, is tax-exempt makes such an investment advantageous. Most of the foreign institutional investors are currently adopting their strategies of investing into fixed income properties in Turkey. They are seeking to purchase office, retail and industrial buildings with long term rent leases by credible tenants. However, considering the last 10 years, the average growth rate of Turkey has always exceeded the growth rate of the construction sector. As a result, high quality office buildings are scarce and the existing supply consists of older buildings. Financial weakness of local construction companies has caused most of the current building stock to have low architectural and technical quality, compared to the EU countries` standards. For these reasons, high quality office property stock, hence investment alternatives for foreign investors are currently scarce. PART III.4.A.1.3: National Context: Real estate sector in Turkey is a labour-concentrated sector and feeds about 200 sub-sectors. The sector has a great role in the fight against unemployment and increasing the aggregate production and income. Because of this great role, when the national economy comes into crises and booms, real estate sector is one of the first sectors that are affected. Since the fourth quarter of 2003 the general economy in Turkey is in a developing Housing Financing in Turkey

152 process. Present economic activity and increasing income levels, make people claim higher quality projects that can serve them a life style. The decreases in the interest rates and the profits in other investment tools have made the real estate sector more and more attractive recently. Increasing demand for real estate shows that the sector is getting in a developing process. According to the data from DPT (State Planning Organization) 1 unit of investment into real estate sector comes back to the national economy as 2,5 units. This makes real estate sector as a sub-sector of construction sector a great employment tool. Today %58 of construction activity in Turkey consists of real estate investments. When we look at the residential property market an excess of 2,6 million units exists in the sector. On the other hand, according to the 8th 5-year development plan of DPT, units are needed to be built by the end of the year 2005 (the plan has been made for the years ). At the same time there is an excess in supply and a deficit in demand. It seems like a paradox is coming out. The reason is that the most of the units of this excess are old, insecure for living in or illegally constructed without needed permits from public. This paradox shows that the main problem of the sector is not with the number of units, but it is with the standards of housing. Real Estate Industries in Turkey & Great potential of the sector Increasing population annual house gap Real Estate is the traditional investment instrument for Turkish public Demand for qualified houses Development of long term financing system City cycling projects Mortgage Expectations Migration from rural to urban Unsaturated housing market Low prices compared to other countries Annual demand of dwellings Increased public sensitivity to quality & reliability Renewal & reinforcement requirements Need for urban regeneration

153 New Trends in the Real Estate Sector of Turkey There are residential segment of demand below A-Luxurious Projects: The sector tends to middle scale apartments. B-Residences in Metropolises: The sector tends to residences in metropolises to construct and prefer for real estate having proper zoning. C-Earthquake Resistant Appropriate and Registered New Projects: Turkey located on a seismic zone carrying high risk of potential earthquakes. Long Term Housing Financing in Turkey Citizens are in the Turkey looking forward to purchasing homes through mortgages. The mortgages popularity increased in The Turkey as of Almost everyone is enthusiastic about the issue and waiting for the laws to be enacted system to be operational. Mortgages expected to give a strong boost to the real estate sector. Development in Turkish Housing Loans Market

154 March 10, 2006, Housing Loan Stock ~ US$ 11.2 billion and monthly interest rates are 10 years loans shown below: 70 TL Loans: 0.99% FX Loans: 0.59% Aggregate housing loans stock ~ 3% of the GNP shown below in the world: 53% in the USA, 40% in European Countries, 5-15% in Developing Countries. Plenty of potential for growth in Turkish real estate industry, market volume is to reach US$45-50 billions in the mid-term. Development of the Consumer Credits: Million (YTL) % Consumer ,7 Credits Residential ,6 Vehicle Loan ,8 Consumer Loan ,9 Other , ,8 71 The consumer credits % TOKI Residential Vehicle Other Credit Cards Toki can be translated to English as housing development administrating office. It can be accepted as the biggest developer of Turkey working dependent on Turkish government. TOKI manages the real estate development and urban development projects of the government in seven different methods;

155 1. Real estate development on TOKI s own sites One of the basic activities of TOKI is housing development on TOKI s own lands, which means the lands of government housing units were developed between the years 1984 and 2003 by TOKI. From the beginning of 2003 till the end of 2004, projects of totally housing units have initiated on the lands of TOKI in 75 cities of Turkey. TOKI works getting the lands of the government, which are appropriate for housing development. These housing units are specially built for poor citizens, widows, orphans, handicapped peo ple, and the citizens who work for the public sector with considerably low prices. 2. Transformation projects of illegal housing units in cooperation with municipalities TO KI cooperates with municipalities of especially big cities like Istanbul, Ankara or Izmir to prevent the illegal housing -which is one of the biggest problems of municipalities, and to transport these units into legal and moder n housing units. With this scope, units have been projected in 35 cities. The objective of this activity is to expand the project especially in big cities. 3. Operations to meet the needs in the regions which are damaged from natural disasters TO KI has some official rights to acquire sites from the government depending on the scope of their projects as subsidies, for housing development without any fee and to supply credits to the development projects in these regions, which are affected from disasters like earthquakes. These units are sold to the citizens, which are affected from disasters being paid in 20 years without any interest rates. 4. Source development projects Projects of housing units involve a serious financial source. In order to supply the needed source for the projects, TOKI develops income-sharing projects on valuable lands in especially big cities. The method of these projects is to build and sell the units on valuable lands to create source and to use these sources to develop projects for the people with low incomes. In the scope of source development projects it has been planned to build housing units in 30 big cities in Turkey. The housing units that TOKI produced are sold in different methods; Selling by drawing lots; if the demand for the units that will be sold is higher than the supply in the subject project, selling process of these units is applied by drawing lots. Buyers of these units pay between 10% and 25% of the price in advance and the rest with monthly payments in 8 to 10 years. These monthly payments are increased according to the increases in the officials wages Open sale method; the units, which are not sold in the process of selling by drawing lots are sold openly. The payments in this method are as in the preceding method some percentage paid in advance and the rest in monthly payments. By public auction; this method is used in the selling process of income and prestige projects to create source for the institution. The aim is to get the highest possible revenue. Selling to the poor; specially produced housing units are sold to the poor in first method selling by drawing lots. In this method 5% of the price is paid in advance and the rest is paid as monthly payments in 15 to 20 years. Sector Companies in Turkey

156 Proposed Mortgage System & Its Effects to the Real Estate Sector Mortgage system will cover 70% of the population and has big portion of the middle and upper income group. Construction of the annual demand is housing units with proper zoning and quality. The sector has limited international standards and there are institutional investments in the real estate sector. There are Shantytowns and illegal occupation on state which are owned lands and 55% of the total housing stock. The Turkey has old and poor quality housing stock and needs new housing projects. PART III.4.A.1.4: International Context

157 Globalizations of Real Estate Investments: A-International investments in real estate 73 More than 25% of investment in property in Europe during last two years made by international institutions, Asia & Americas experiencing similar inflows, Real estate: No longer the comfortably domestic business like it was before, Real estate investments becoming complex: Sophisticated new investment vehicles for more transparency, liquidity & effective tax structures B-Investment Characteristics of Securitized Real Estate 74 Liquidity Security Diversification High risk-adjusted rates of return Competitive nominal rates of return Low performance correlation with other asset classes Lower volatility than other asset classes Acts as a hedge against unexpected inflation European Property Investments Investment into European property breaks the 100 billion barrier for the first time. European Property Investment

158 Cross-border investment falls slightly to 32 billion, accounting for 31% of total European investment. Outside the EU-15 Central and Eastern Europe (CEE) The total value of transactions in 2004 was almost 3.9 billion, a year-on-year increase of 64% already shows signs that the 4 billion threshold will be broken. Central and Eastern Europe (CEE)

159 German investors asserted their presence on the CEE investment market, with a 35% share of total acquisitions by value. After the German investors, the highest levels of activity were generated by buyers from the USA, Ireland & France. Globalization of REIT S Model 75 There are so many successful applications in the global REIT industry in the world shown below: Public traded Self administrated Closed ended REIT industry in the USA: -300 public and private REIT swith total portfolio of is abut US$ 500 billions. RE IT industry in the Japan: -A total portfolio of US$15 billions in only five years. REIT industry in the UK: The model is in the UK calls Property Investment Fund which has a great role in rental estates and new horizons for the market. With UK, 80% OF Europe including France, Netherlands and Belgium will be using the REIT model. These developments will inspire and force countries like Germany and Spain to establish their own REIT models. Globalization of the REIT s The Turkish Market First the REIT model established Turkey 1997, and 10 REIT listed in the Istanbul Stock Exchange and the total portfolio is US$ 1.5 billions. A mile stone for the change in real estate industry brought international standards and quality fostering foreign investment. The REIT plays an important role in urban regeneration process in the Turkey. PART III.4.B.1.5: Competitive Advantages of the REIT: A motion has been started in real estate demand in 2004 which had decreased because of 1999 earthquake and then 2001 economic crisis. For the current year, demand continues to increase. Economic performance, sustainable growth, political stabilization, European Union process and decreasing inflation-interest rates in recent years made the interest in the sector rise. 76 Actually that trend is not only for Turkey but also for the rest of the world. As a result of fast population increase and urbanization, there is 400,000 annual new real estate need in Turkey. So, need for qualified house rises day by day. Need for real estate becomes more important when we add massive foreign demand for real estate into Turkey s great tourism potential. Foreign investors have been made US $ 1.3 billion real estate investment in Turkey just for year Turkey, which is expected to start European Union process, is seen to show the best performance, espacially in Istanbul. Emerging Trends Report, based on 27 cities in Europe, shows Istanbul is ranked 1city about real estate development expectation (Moscow is ranked 2). Office rents in Istanbul are the cheapest around Europe, so Istanbul has an important potential as we look from that point of view, as well. Let s clarify that positive expectation for the sector by statistical data. House credit stock which was US $ 10 million in 1999, had increased to US $800 million until year Credits which were defaulted after 2001 February crisis, reached to US $ 1.8 billion as of 2004 year end. As of 2005 July,that number is US $ 5 billion. According to that McKinsey Sector Report

160 number real estate to GNP ratio is %4. That ratio is %55 in U.S.A., %45 in west Europe, %15 in Mexico and Brasil, the countries seen at the same category with Turkey. If that %4 ratio rises to %15 as it is in Mexico or Brasil, US $50 billion market will not be a dream anymore. PART III.4.B.1:GENERAL ENVIRONMENT OF FIRM NO.01 (Garanti GYO A.Ş.) IN INDUSTRY NO.02 (Real Estate Investment Trust Company) PART III.4.B.1.1:Pest Analysis of Garanti GYO Company further expect that the reforms will continue uninterruptedly in the road to European Union, and that the new stand-by agreement for three years undersigned with IMF and the opportunity of going into debt for another $10 billion USD provided by this agreement will have a positive effect on achieving these goals. In this period, company considers that foreign investments will grow, the interests will continue to decrease and the inflation goals will be achieved. Company also consider that despite the growth in the income from tourism and export, the current accounts deficit will carry on in parallel with the increase in investments and thus import. Construction industry was not able to achieve a rapid growth in 2004, although it is very significant with regard to its share in employment and the industries it influences; the shrinkage period having started in 1992 ended but the ongoing large dependence of the entire industry to public investments prevented construction industry from taking the advantage of the economical developments. Due to the investments deferred in accordance with the strict budget policy, construction industry aimed at overseas and private sector investments. Real estate industry, involving also the company, realized a significant growth thanks to the factors such as the increase of the opportunities for use of housing credits by the decreasing real interests as well as the decrease of the yields of alternative investments means and the emergence of the deferred housing demand. The performance of legal preparations for "mortgage" credits was also another cause of the increase in the interest in real estates. While housing sales only in Istanbul increased with more than 40%, the credits from banks reached at an amount of 3,2 quadrillion TL (billion YTL) with an increase of 154%. The European Union perspective led foreigners to make real estate investments in Turkey. Housing and shopping center segment s particularly provided satisfactory income. Also in year 2005, a significant return particularly in housing sector and in commercial real estate industry, due to growing the investments of foreign retailers which entered Turkish market recently and the demand created by the revitalizing economic activity. However, because of the lack of instant response from high quality real estate supply to the real estate demand created by the rapid decrease of interests experience high increases in prices in some locations and segments. By the way the changes of the exchange rate are very important for the company because the company is the important investment tool in the sector. Migration and population growth rate are the determinant boost the construction demand and affect the company directly. PART III.4.B.1.1.1: Tax Policy in Turkey Certain tax policies distort investment decision. Bureaucratic red tape' remains a significant problem. Obtaining the approval of both national and local officials for essential permits is a time consuming and often frustrating process." The government has taken steps to simplify the bureaucracy by reducing the number of steps that it takes to open a new business. 77 The authorities are strengthening tax administration to reduce tax evasion and deal with the informal economy. Turkey has a sizable unrecorded economy and tax compliance is weak. Consequently, tax rates are high and a key medium-term objective is to reduce them. However, the authorities agreed that tax enforcement needed to be addressed first. Drawing on FAD technical assistance, a comprehensive tax administration reform program is underway, with the necessary legislation (a new structural benchmark)

161 Tax Incentives For Real Estate Trust Companies According to article 8 of Corporation Law the real estate companies revenues are exception from the tax. PART III.4.B.1.1.2: Environmental Regulations Turkey's legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. The court system is overburdened, however, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. The judicial system is also perceived to be susceptible to external influence and to be biased against outsiders. 78 PART III.4.B.1.1.3: Political Stability Sustainable development has three aspect s, economic, social and environmental. The main aim is to ensure economic and social development by protecting human health, ecological balance and cultural, historical and aesthetical values. Importance shall be attached on public reconciliation and participation towards a solution of environmental problems. In order to integrate environmental policies with economic and social policies, economic means shall be utilised. For the prevention of air pollution, emission factors shall be determined in all sectors and an emission inventory shall be drawn up. Environmentally friendly technologies shall be given priority in the determination of industrial policies and new industrial investments. Local manufacturers shall be informed and encouraged to use them. arrangements shall be made towards increasing the effectiveness of the Environment Impact Assessment (EIA) process. PART III.4.B.1.1.4: Macro Economy The main target of long-term macroeconomic policies is to provide sustainable economic growth, to decrease the inflation rate to the level of EU requirements and to increase the competitiveness of the economy. For this purpose, great importance has been attached to the achievement of macroeconomic stability and realization of structural reforms. Within the applied economic program, structural reforms including agricultural subsidy, social security, public fiscal management and transparency, tax policy, privatization and control and supervision of banking system is being implemented. Furthermore, the government has implemented the Urgent Action Plan, which includes specific measures related to industry. 79 It is also foreseen that improvements to be achieved in other areas of the economy will contribute to the sustainable development of the industry. Industrial policy will be constituted by taking into consideration three main components of growth; namely innovations, investments and exports. The problems of industrial sectors will be solved by action plans based on flexible and sector oriented reforms in the light of the proposals and priorities of the sector representatives. In this framework, objectives and policies related to the development of industry. 78 Industrial Policy for Turkey, DPT, August European Commission Turkey 2005 Progress Report

162 Interest Rates Turkish Economy Interest Rates The Central Bank of Turkey s handling of monetary policy has continued to be impressive, with inflation rates falling sharply. The government s continued fiscal discipline has played a key role in this accomplishment. PART III.4.B.1.1.5: Inflation Rates Turkish Economy Inflation Rate The slowing in growth of domestic demand occurred against the background of a temporary blip in private consumption in 2004, following pent-up demand, which had built up after the 2001-crisis. After a significant fall in consumer price inflation, from 21.6% in 2003 to 8.6% in 2004, the disinflation process continued. Consequently, annual inflation in September 2005 amounted to 8%. Fiscal discipline continued to be strong. PART III.4.B.1.1.6: Population Growth Rate& Age Distribution For the medium term, Turkey has considerable growth potential. Aside from the output gap still to be closed in the short run, growth in labor supply should be rapid, both because of Turkey s high population growth rate and underemployment in agriculture. The urban population that represents about 70 percent of the population and getting larger incoming years

163 Distribution of Population By Age Groups PART III.4.B.1.1.7: Migration Urbanization Turkey has been urbanizing at a rapid rate. Reasons for the urbanization are that: 1) Population growth has increased in Turkey, 2) Rural fertility is higher than urban fertility and consequently pressure on land is a major, factor leading to migration, 3) Higher incomes in urban areas promote rural-urban migration; 4) Expansion of credit to landowners and developments in better transportation facilitated migration 5) Most importantly, there is an institutionalization of migration whereby migrants go to urban areas with hope and for rational reasons. The inconsistency in state development policies is striking in relation to the emphasis on relationships between urban industrialization and economic policy on the one hand and the rural development and social policy on the other. Industrialization is the keystone of Turkish economic policy with 3 goals being sought: 81 1) Industrialization, 2) Economic independence 3) State initiative in industrialization. Metropolises YEARS Total Population Urban Population Proportion of Urban Population (%) Rural Population Urbanization Rate Proportion Of Rural Population (%) Periods % , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ,

164 PART III.4.A: ANALYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF FIRM NO.02 (İş GYO A.Ş.) IN INDUSTRY NO.02 (Real Estate Trust Company) SWOT Analysis of İş GYO Strengths Corporate Tax Exemption. Turkey s most valuable real estate portfolio. Strong cash and cash equivalents position against a very low level of trade payables. İş Bank s support. Portfolio Management Operations Gains are subject to 0% withholding tax. Strong Brand Name. As of 2005, İş GMYO holds 39% of all the total investments of the real estate investment trusts market % of all the investments are related with real estate sector while the remaining 7% is invested in money market instruments. 83 İş Bank provides credits to investors who want to acquire residents from İş GMYO s projects. For example, individual investors acquiring residents from Kanyon Project is financed by İş Bank s providing of long-term residential credits. 99% of the real estates are hired. Investments in tourism sector have great prospective. Weaknesses Liquidity position should be invested in core business in order to have higher returns. Low share of housing projects may miss the opportunity that will be generated from Mortgage Act. Because the Mortgage Act Bill will bring advantages to low and middle income groups, İş GMYO cannot benefit from these advantages because of its current portfolio structure. Opportunities Pension Funds, which is recently developing in Turkey, may tend to include real estate investments in their portfolio in order to generate long-run but low-risky returns. Real Estate is a popular and traditional investment tool in Turkey for years. Decreasing interest rates make the investors more interest in real estate sector. Mortgage Act Bill (may consist a boosting demand for housing - with lengthening of maturities and declining interest rates, real-estate sector has already been on an upward trend) Because the company does not hold many housing projects other than Kanyon Project, new investments in housing projects may bring satisfying returns. Demand increase in foreign investors by the effect of membership convergence to European Union. (especially in Mediterranean and Aegean Regions) It is expected that this trend will develop further and in a more organized fashion under the direction of reliable and reputable companies. Decreasing interest rates and increasing credit pay back maturities make people direct towards residential credits. Mutual fund investors interest in Turkish real estate investment trusts may strengthen the capital structure. Change in life styles in the metropolis regions from living in downtowns to rural but close to city areas. This shift in life style brings site building opportunity to construction firms İş GYO Annual Report

165 Zoning Law is targeted to curb illegal and unlicensed construction activity in the country. This law will provide a regulated, registered and well planned environment that will pave the path for new projects undertaken by institutionizalized firms. TOKI s public housing projects Foreign investors interest is very low as of 2005 and this hot prospect sector will definitely attract attention with its profitability. This may increase market capitalization. Turkish REITs have a tremendous growth potential in the near future due to high expectations placed on them to bring transparency and professionalism to the broader real estate industry. In the aftermath of the earthquakes, REITs have received considerable attention as the future leaders of high quality housing supply. According to the Emerging Trends Report prepared among the 27 European cities, Istanbul is ranked first in terms of real estate development expectations. Because main assets of İş GMYO are in Istanbul, this may attract attention of foreign investors and brings competitive advantage. In the developing countries, the total residential credit to GNP rate is about 10-15%, while this rate is about 40% in US. As of the year 2005, this rate is realized 2,5% and this rate has the potential to increase when we compare it with the similar developing countries. Increase in residential credits will definitely provide improvement to the real estate sector. Mortgage Act Bill includes an exemption for the interest payments form Bank and Insurance Transactions Tax that will provide a % 5 tax advantages. The steady population increase in Turkey will create stable demand for housing and average house gap per year. The vacancy rate in A-class office buildings is at the lowest level of the history and this will create demand to business properties. Rental rates of business properties per square meter in terms of foreign currency is currently at the half of 1997 values. The interest of Arabic-origin firms to domestic real estate markets Threats The quality of the existing real estates is hard to meet the increasing demand. This situation will cause an upward movement in real estate prices. Although there is an upward movement in the real estate sector, the construction sector could not show the same development and its share in GNP is steadily decreasing over years. Tight monetary policy of the government in terms of investments. This policy makes the construction sector concentrate on residential projects or abroad investments. Economic crises Turkey is located on a seismic zone carrying high risk of potential earthquakes. Possibility of political instability and its effect on financial markets. Possibility of a disagreement in the membership convergence period to European Union. PART III.5.A.1:BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO.02 (İş GYO A.Ş.) IN INDUSTRY.02 (Real Estate Trust Company) PART III.5.A.1.1: External Analysis of İş GYO İş GYO has a market capitalization of about USD 472 million, which corresponds to some 63% of the sector s market capitalization, while at USD 570 million; its net assets represent about 57% of the sector s. REITs are required to maintain investment portfolios at least 50% of which consists of real estate properties, rights over real es tate properties, and real estate property-related projects. Furthermore they must also diversify their portfolios in terms of sector, region, and type of property. Portfolio investments of the REITs traded on ISE as of 31 December 2004 by value. Properties such as office buildings, shopping centers, car parks, hotels, entertainment centers, etc are all lumped together under the category of Buildings. Investments in such properties make up about 71% of the total investment portfolio. Investments in money and capital market

166 instruments on the other hand account for 11% of total portfolios while ongoing projects make up 10%. Assuming that the current improvement in the national economy continues, the percentage of ongoing real estate projects in the overall portfolio may be expected to rise. Looking at the firm s portfolio as of 31 December 2004, 57% of its value was in office buildings, 17% was in hotels and entertainment centers, 11% was in ongoing projects (specifically the Kanyon project), 8% was in shopping centers, and 7% was in money and capital market instruments. As required by law, ongoing projects are shown in terms of the realized cost of investment outlays incurred as of the portfolio valuation date. 93% of the firm s portfolio investments are in the real estate sector and concentrated on its core business. With the completion of the Kanyon project, the share of shopping center investments in firm s overall portfolio will increase in terms of both value and gross leasable area (GLA). 84 The Kanyon project continued on schedule in 2004 while other investments were undertaken to further increase the yields on the Company s portfolio. The Kanyon Project Located on approximately 250,000 m2 of land under construction, the Kanyon project consists of a 27-story office building, a housing block of 179 units, and a four-story shopping center that will contain about 198 independent sections and a cinema. The Kanyon project is being undertaken as a joint venture with Eczacıbaşı ilaç Sanayi ve Ticaret A.Ş.. (Eczacbaşı Pharmaceuticals) in which costs and proceeds are to be shared It is being financed entirely out of Company s own equity resources. The last installment on the land for the Kanyon project was paid on 1 July 2004 and the project land is now free and clear. At year-end 2004, the rough construction work was ready for its certificate of substantial completion. Total concrete poured: 148,276 m3; total rebars used: 26,702 tons; total walls manufactured: 41,179 m2; total plastering: 46,958 m2. Tenders for infrastructure, mechanical and installation works, elevators and escalators, electrical installation, aluminium siding, phase I architectural and finishing construction works, and stone facading were requested in 2004 and contracts for these works have been signed. Manufacturing has begun in line with the project s schedule. As of the date of this report, the business of tendering the architectural and finishing construction works of the housing block was still in progress. The entire project is scheduled for completion in the spring of During the year, the firm of Kanyon Management, Operations and Marketing Ltd. Co. was set up to manage and market the Kanyon complex within the framework of the Condominium Ownership Law (Statute 634). This company s startup capitalization was YTL 100,000 in which fl Real Estate Investment Trust Co. and Eczacıbaşı Holding Co. each control a 50% stake. Kanyon Limited was registered on 6 October 2004 and the Company s staffing was completed in December of the same year. Sales of the project s residential units began in June and half of them were sold by October without any active advertising efforts having to be made. As of year-end 2004, 70% of the 179 units had been sold from which Company collected about YTL 24.2 as its share. These sales are about 20% more than had been expected in The most serious risks faced by the Kanyon project s construction work and marketing activities are all directly associated with macroeconomic developments that have an impact on the construction industry was a year in which the ongoing improvement in the national economy was sustained, interest rates continued to fall, and credit maturities grew longer. These trends fueled the Kanyon project s construction and marketing activities with the result that sales exceeded targets. An agreement has been entered into with Türkiye İş Bankası to finance up to 90% of the selling price of Kanyon project residential apartments by means of loans from that bank. Under the terms of this agreement, if the bank decides to extend a home-purchase loan, Eczacıbaşı Pharmaceuticals Co. and İş REIT guarantee its repayment to Türkiye İş Bankası only until a mortgage has been established over the property in favor of the bank. During 2004 a total of approximately YTL 32 million (not including VAT) was incurred as project related outlays including the YTL 12.9 million that was paid as the final installment on the project s land. On the other hand public-sector mass-housing projects, preparations launched by local governments to create new settlement areas, plans to introduce a mortgage financing system of a sort that is widely used around the world in the country this year, and an increase in private-sector investment are all hopeful signs that the outlook in the real estate sector is that of an imminent and much-needed recovery. It is thought that the mortgage system will have a favorable impact on the real estate sector. The foundations for the system will be laid in 2005; however the functionability indeed the viability of the system depends on there being no unexpected negative 84 İş GYO Annual Report

167 developments in the economy and that the current declines in both inflation and interest rates will continue and become permanent. The prospects are far from gloomy: after experiencing a steady attrition in production and sales since 1998, the real estate sector regained strength in 2004 and it looks like this trend will continue in 2005 as well. This recovery of course is having a significant impact on real estate investment trusts (REITs), whose activities are closely linked to the construction industry. As a result of the mortgage system will affect the company directly. PART III.5.A.1.2: Regional Context Overview of Istanbul as the Metropolitan City of Turkey Residential Market in Istanbul During the financial crises period between 2001 and 2003 the demand for residential property suffered significantly. The economy has been in a recovery process, accompanied by falling interest rates and inflation. Even though the interest rates are still high for the mortgage system, by considering the economic performance of the country, the government units started to prepare the infrastructure needed for the system. This system is also expected to provide many opportunities in the residential real estate market. There are comprehensive studies that both the government and SPK (Sermaye Piyasasi Kurulu Capital Markets Board) carry out. The current residential loan usage for housing in Turkey is interesting. According to the findings, only 3% of the population in Turkey uses residential loans whereas the ratio of total residential loans to GNP is only 0.3% in Turkey. This rate is 0.5% in Romania, 40% in the EU countries and 50% in the USA. There are some reasons behind this situation. First, the longest term for the existing residential loans is 60 months for loans in Turkish Lira and 180 months for loans in foreign currencies, which makes it impossible to have loan installments as low as rent levels. Second, the application of variable interest loans are prohibited in the consumer legislation and fixed interest rate loans impose all of the economic and the political risks on the borrower. Third and most importantly, since 55% of the existing residential stock in Turkey has no construction license, many low income people are able to attain unlicensed housing without having to execute the legal transfer operations, which is an obligation in the use of residential loans. Potential use of mortgage credits is not very difficult to predict because of the facts that the residential demand in the country is about 350,000 housing units per year and that 60% of Turkey s population is under the age of 20. The mortgage system will allow people to purchase houses on long term credits with maturities of 20, 30 or 40 years and with installments that are no higher than the rental rates of the houses. There are four major factors that affect the demand for residential real estate in Istanbul: closeness to transportation junctions, closeness to destinations where large holdings plan to invest, closeness to existing or planned shopping malls and closeness to office and production facilities that are supported with powerful sub-centers. The demand for residential real estate in Istanbul was affected significantly by Marmara earthquake of The fear for a future earthquake which is predicted to happen in the next 30 years, encouraged many residents of old buildings especially in the urban areas to search for newer buildings which are constructed after the 1999 earthquake complying with the earthquake safety regulations. According to the Emerging Trends in Real Estate Europe-2005 prepared by ULI and PwC, Istanbul ranks first among 27 European metropolises according to development prospects

168 According to Emerging Trends in Real Estate Europe-2005 prepared by ULI and PwC, Istanbul ranks 13th among 27 European metropolises according to risk adjusted development prospects. PAR T III.5.A.1.3: National Context: Opportunities of The Real Estate Sector in Turkey: The limitation of the bank deposit guarantees means Real Estate Market Boom Real estate is the most conventional and profitable instrument Proposed of mortgage system means residential project for mid level income group There are new investments of REIT & Developers There is stability in economic indicators & exchange rates The residential prices increased % in $ in the year 2004 Annual Construction permits by units increased; 2002: , 2003: , 2004: , 2005 Q3:

169 New Trends in the Real Estate Sector Of Turkey There are residential segment of demand below: a) Luxurious Projects: The sector tends to middle scale apartments. b) Residences in Metropolises: The sector tends to residences in metropolises to construct and prefer for real estate having proper zoning. c) Earthquake Resistant Appropriate and Registered New Projects: Turkey located on a seismic zone carrying high risk of potential earthquakes

170 Development of Construction Sector 85 Total new buildings and additions by use of buildings

171 Completed or partially completed new building and additions Year Number of Buildings Floor Area M2 Value

172 Completed or partially completed new building and additions by use of buildings Year Total (1) % (2) % (3) % (4) % (5) % (1)Residential Buildings (2)Commercial (3)Industrial (4)Social (covers medical social and cultural) (5)Others (covers religious administrative and others)

173 New buildings and addition by use of buildings Year Total (1) & (2) % (3) % (4) % (5) % (1)Residential Buildings (2)Commercial (3)Industrial (4)Social (covers medical social and cultural) (5)Others (covers religious administrative and others)

174 Number of residential building average area and number of dwelling Years (1) (2) (3) (4) (5) (6) (7) (1)Number of residiental buildings (2)Number of dwelling units (3)Rate of change (4)Average of dwelling units (5)Average cost of dwelling units (6)Construction cost per square meter (7)Production of dwelling units per thousand populations

175 Building construction cost index and rate of changes Y ears (*) Total % (1) % (2) % (3) % (1)Apartment house 4, 5 and 6 store (2)House 1 and 2 storey (3)Other (commercial administrative and medical buildings.) (*):First 14 years show the General Cost, next 14 years show the Labor Total, next 14 years show Machines Total, next 14 years show Material Total

176 Development of the Consumer Credits: Development of the Consumer Credits for the REIT sector has been determined under the title of Garanti GMYO in previous section. TOKI Toki can be translated to English as housing development administrating office. Information about TOKİ has been determined under the title of Garanti GMYO in previous section. Sector Companies in Turkey Sector Companies in Turkey of the REIT sector has been determined under the title of Garanti GMYO in previous section. Proposed Mortgage System & Its Effects to the Real Estate Sector When the mortgage financing system goes into operation, it will contribute to the creation of a natural pool of buyers who will be ready and able to buy into housing projects that REITs develop and for this reason, REITs can be expected to become more involved in the housing sector in the future. In addition, the efforts that are being made to set up a mortgage financing system are likely to increase the interest that foreign investors take in investing in real estate properties in Turkey, both directly on their own and indirectly through REITs. Comparison of Housing Loans Market PART III.5.A.1.4: International Context Securitization is low, will continue to grow at 10%+ pa and demand for real estate will continue to see REIT markets develop

177 The Global Real Estate Universe Benefits and Competitive Advantages of REITs The REIT s has diversification, low-risk, high yielding investment, also benefit large-scale sector has international standards, quality assu rance and control. Sec tor is also confidential for foreign real estate projects. The investors and easy access to financial markets. The sector provides re-constructio n and rehabilitation of cities. On the other hand sector coordinates between the government, public and illegal occupants of state-owned lands and facilitates sale leaseback financing by industrial corporations, financial institutions and insurance companies, access to foreign investment funds and global investors. The companies in this sector have transparency operations and audit for financials. Globalization of REIT S Model Globalization of REIT S Model has been determined under the title of Garanti GMYO in previous section. PART III.5.A.1.5: Competitive Advantages: Turkey will only unlock the full productivity potential in construction sector if it solves its macroeconomic volatility. It need not wait, however, to launch a viable mortgage market even as it awaits a sustained state of lower interest rates. If, at the same time, policymakers successfully tackle strict enforcement of construction codes, they will help to drive out the less-productive informal and unproductive players. Finally, if they reorganize fund flows to assign more revenue-generating responsibilities to municipalities (from the state), policymakers can provide land develo pment incentives to municipalities. Such measures will help ensure that the forecasted, substantially increased level of housing ne ed is converted into demand, and this demand is met by the most productive segments of the industry. It bears repeating: the demand for housing in Turkey over at least the next decade will be enormous. If policymakers can create the right conditions, the demand can be met. And it can be met with a high level of productivity that, due to the sector s large size, will contribute substantially to overall economic growth, while creating over 100,000 new jobs just within the sector. If the government fails to get macroeconomic volatility under control and if it does not ensure the creation of a mortgage market that covers at least a substantial portion of demand then it is at risk of both failing to deliver one of the basic needs of its growing population and of constraining an important source of productivity growth in the economy. Foreigners Real Estate Purchases in Turkey July 2003: Government eased restrictions on foreigners property purchases 53,000 foreigners from 68 countries have properties in Turkey

178 Europeans purchased houses in various cities & on the Aegean and Mediterranean coasts US$2 billion real estate investment of foreigners in 2004 The easement article has been canceled and enacted again In global world economy, easing the restrictions for foreigners is very important to attract international investment Turkey s reform program to remove administrative barriers & red tape According to the new Law, individuals can purchase a maximum of sqm, and maximum 5% of a city PART III.5.B.1:GENERAL ENVIRONMENT OF FIRM NO.02 (İş GYO A.Ş.) IN INDUSTRY NO.02 (Real Estate Investment Trust Company) PART III.5.B.1.1:Pest Analysis of İş GYO Despite the generally positive outlook in the economy however the construction industry did not achieve the rates of growth expected of it. Because of its status as an engine of economic growth and as a creator of employment, the construction industry is of vital importance to a national economy. Since 2001 however, the construction industry in Turkey as been undergoing a steady contraction even while the economy has been growing. Even in the face of the strong economic growth of recent years, chronically high unemployment rates remain the most crucial economic problem that Turkey faces and this unemployment is directly related to the persistent contraction from which the construction industry has been suffering. Public-sector mass-housing projects, preparations launched by local governments to create new settlement areas, plans to introduce a mortgage financing system of a sort that is widely used around the world in our country this year, and an increase in private-sector investment are all hopeful signs that the outlook in the real estate sector is that of an imminent and much-needed recovery. It is thought that the mortgage system will have a favorable impact on the real estate sector. The foundations for the system will be laid in 2005; however the functionability indeed the viability of the system depends on there being no unexpected negative developments in the economy and that the current declines in both inflation and interest rates will continue and become permanent. The prospects are far from gloomy: after experiencing a steady attrition in production and sales since 1998, the real estate sector regained strength in 2004 and it looks like this trend will continue in 2005 as well. This recovery of course is having a significant impact on real estate investment trusts (REITs), whose activities are closely linked to the construction industry. Finally the company has correlation between the construction sector. The fluctuations of the construction sectors will affect the company. The changes of the interest rates, exchange rates and inflation rates are the major factors for this sector. Construction sector is the locomotive sector and has high consistency with REIT, any crisis in industry also sales trends may drift the company significantly. The stability in the economy and high demand in YTL tend people to invest in real estates. On the other hand growth rate of the population an urbanization affect the company directly. PART III.5.B.1.1.1:Tax Policy in Turkey Certain tax policies distort investment decision. Bureaucratic red tape' remains a significant problem. Obtaining the approval of both national and local officials for essential permits is a time consuming and often frustrating process." The government has taken steps to simplify the bureaucracy by reducing the number of steps that it takes to open a new business. Tax Incentives For Real Estate Trust Companies According to article 8 of Corporation Law the real estate companies revenues are exception from the tax

179 PART III.5.B.1.1.2: Political Stability The main objective for the improvement of industrial sectors emphasized in the Eighth Five Year Development Plan is to increase competitiveness and productivity of the industry, and to promote and maintain sustainable growth within an outward oriented structure, in the face of increased global competition. This objective will be achieved within the framework of market principles and in compliance with international agreements. The industry shall have a structure, in which it will utilize, as possible, domestic resources, produce in compliance with environmental norms, take into consideration consumer health and preferences, use well-qualified labor, apply a strategic management approach, attach importance to R&D, generate technology, create original designs and trademarks and thus take its proper place in international markets. Special importance shall be attached to supporting small and medium sized enterprises, improving innovation system and encouraging new entrepreneurs. Within the framework of the development plans and international commitments of the country, main objective of incentive policies is the promotion of both domestic and foreign investments in order to decrease the regional disparities, to increase the competitiveness of the industry and to generate new employment opportunities. PART III.5.B.1.1.3: Macro Economy Macro Economy has been determined under the title of Garanti GMYO in previous section. PART III.5.B.1.1.4: Interest Rates Turkish Economy Interest Rates The current policy response to capital inflows reintrod ucing foreign exchange purchase auctions, allowing modest real appre ciation of the exchange rate, and c utting interest rates gradually is appropriate. Closer coordination between the Central Bank and the Treasury in sharing the cost of accumulating reserves should help strengthen monetary and debt management. PART III.5.B.1.1.5: Population Growth Rate& Age Distribution Population Growth Rate& Age Distribution for the REIT sector has been determined under the title of Garanti GMYO in previous section. PART III.5.B.1.1.6: Migration Migration for the REIT sector has been determined under the title of Ga ranti GMYO in previous section

180 PART III.6.A:ANA LYSIS OF THE EXTERNAL ENVIRONMENT AND SWOT ANALYSIS OF FIRM NO.03 (Vakıf GYO A.Ş.) IN INDUSTRY NO. 02 (Real Estate Trust Company) SWOT Analysis of Vakıf GYO Strengths Corporate Tax Exemption. Valuable real estate portfolio. Vakıflar Bank s support. Portfolio Management Operations Gains are subject to 0% withholding tax. Although most of other real estate investments trusts are concentrated mainly in Istanbul market, Vakıf GMYO distributed its investments in Istanbul and Ankara. Strong Brand Name. Level of trade payables is very low. Weaknesses Concentrated only in land and business center markets. Liquidity position should be invested in core business in order to have higher returns. Vakıf GMYO concentrated only in the business properties for office buildings and land as investment tools. Amount of equity invested is very low when compared with other real estate investment trusts. Most of the company s commercial properties are hired by T. Vakıflar Bank T.A.O. and Vakıf Yatırım A.Ş. Lack of housing projects may miss the opportunity that will be generated from Mortgage Act. Opportunities Pension Funds, which is recently developing in Turkey, may tend to include real estate investments in their portfolio in order to generate long-run but low-risky returns. Real Estate is a popular and traditional investment tool in Turkey for years. Decreasing interest rates make the investors more interest in real estate sector. Mortgage Act Bill (may consist a boosting demand for housing - with lengthening of maturities and declining interest rates, real-estate sector has already been on an upward trend) Because the company does not hold any housing projects, new investments in housing projects may bring satisfying returns. Demand increase in foreign investors by the effect of membership convergence to European Union. (especially in Mediterranean and Aegean Regions) It is expected that this trend will develop further and in a more organized fashion under the direction of reliable and reputable companies. Decreasing interest rates and increasing credit pay back maturities make people direct towards residential credits. Mutual fund investors interest in Turkish real estate investment trusts may strengthen the capital structure. Change in life styles in the metropolis regions from living in downtowns to rural but close to city areas. This shift in life style brings site building opportunity to construction firms. Zoning Law is targeted to curb illegal and unlicensed construction activity in the country. This law will provide a regulated, registered and well planned environment that will pave the path for new projects undertaken by institutionizalized firms. TOKI s public housing projects Foreign investors interest is very low as of 2005 and this hot prospect sector will definitely attract attention with its profitability. This may increase market capitalization. Turkish REITs have a tremendous growth potential in the near future due to high expectations placed on them to bring transparency and professionalism to the broader real estate industry

181 In the aftermath of the earthquakes, REITs have received considerable attention as the future leaders of high quality housing supply. In the developing countries, the total residential credit to GNP rate is about 10-15%, while this rate is about 40% in US. As of the year 2005, this rate is realized 2,5% and this rate has the potential to increase when we compare it with the similar developing countries. Increase in residential credits will definitely provide improvement to the real estate sector. Mortgage Act Bill includes an exemption for the interest payments form Bank and Insurance Transactions Tax that will provide a % 5 tax advantages. The steady population increase in Turkey will create stable demand for housing and average house gap per year. The vacancy rate in A-class office buildings is at the lowest level of the history and this will create demand to business properties. Rental rates of business properties per square meter in terms of foreign currency is currently at the half of 1997 values. The interest of Arabic-origin firms to domestic real estate markets Threats The quality of the existing real estates is hard to meet the increasing demand. This situation will cause an upward movement in real estate prices. Although there is an upward movement in the real estate sector, the construction sector could not show the same development and its share in GNP is steadily decreasing over years. Tight monetary policy of the government in terms of investments. This policy makes the construction sector concentrate on residential projects or abroad investments. Economic crises Turkey is located on a seismic zone carrying high risk of potential earthquakes. Possibility of political instability and its effect on financial markets. Possibility of a disagreement in the membership convergence period to European Union. PART III.6.A.1: BUSINESS/COMPETITIVE ENVIRONMENT OF FIRM NO.03 (Vakıf GYO A.Ş.) IN INDUSTRY.02 (Real Estate Trust Company) PART III.6.A.1.1: External Analysis of Vakıf GYO Vakıf GYO has the business centers in Istanbul and Ankara. The company weights the trade project in which through the company s strategic business planning process. The company has half of the total shares of the real estates located in Eskişehir road which has square meters. The environment of Eskişehir road is the most important region for the urbanization corridor for Ankara. Between the center of the city and the land, there are many important public offices which are Ministry of Industry and Trade, Ministry of foreign affairs, Ministry Labor and Social Security, Prime Ministry, Chamber of Accounts, Undersecretariat of Treasury and Foreign Trade, National Security Council, Turkish Atomic Energy Authority, The Chamber of Commerce, Head Office of Halk Bankası, ODTU Campus Building. On the other hand the company tries to consider to be partner with Dubai International for the work of the investment that are in the land of municipality. This activity view s the effective project for the company because Vakıf GYO will work with the foreign equity and get more gain if the project is completed. The decreasing the interest rates and mortgage system will be affect the company positively. PART III.6.A.1.2: Swot Analysis of REIT Swot Analysis of REIT has been determined under the title of Garanti G MYO in previous section

182 PART III.6.A.1.3: Regional Context The company investment portfolio covers tw o regions that are Istanbul and Ankara. The investment in Ankara is very valuable because of the location. On the other hand diversification of po rtfolio provid es to affect signif icantly from any important risk. PART III.6.A.1.4: National Context: Real Estate Industries in Turkey Great potential of the sector Increasing population annual house gap Real Estate is the traditional investment instrument for Turkish public Demand for qualified houses Development of long term financing system City cycling projects Mortgage Expectations Migration from rural to urban Unsaturated housing market Low prices compared to other countries Annual demand of dwel lings Increased public sensitivity to quality & reliability Renewal & reinforcement requirements Need for urban regeneration Proposed Mortgage System & Its Effects to the Real Estate Sector Mortgage system will cover 70% of the population and has big portion of the middle and upper income group. Construction of the annual demand is housing units with proper zoning and quality. The sector has limited international standards and there are institutional investments in the real estate sector. There are Shantytowns and i llegal occupation on state which are owned lands and 55% of the total housing stock. The Turkey h as old and poor quality housing stock and needs new housing projects

183 PART III.6.A.1.5: International Context Globalizations of Real Estate Investments & International investments in real estate More than 25% of investment in property in Europe during last two years made by international institutions, Asia & the Americas experiencing similar inflows, Real estate: No longer the comfortably dom estic business like it was before, Real estate investments becoming complex: Sophisticated new investment vehicles for more transparency, liquidity & effective tax structures Investment Characteristics of Securitized Real Estate Liquidity Security Diversification High risk-adjusted rates of return Competitive nominal rates of return Low performance correlation with other asset classes Lower volatility than other asset classes Acts as a hedge against unexpected inflation Globalization of REIT S Model Globalization of REIT S Model for the REIT sector has been determined under the title of Garanti GMYO in previous section. Competitive Advantages: Vakıf GYO has valuable real estate portfolio, and Vakıflar Bank support. The company invested include İstanbul and Ankara. This provides to distribute the portfolio risks among the regions. PART III.6.B.1:GENERAL ENVIRONMENT OF FIRM NO.03 (Vakıf GYO A.Ş.) IN INDUSTRY NO.02 (Real Estate Investment Trust Company) PART III.6.B.1.1: Pest Analysis of Vakıf GYO The firms activities include business center means there are not any diversifications on its portfolio. This means the tight government cost and regulation policy affects the company directly. The mortgage system and the stability on the Turkish economy and the interest rates are related with the firm s activities. On the other hand tax incentives of the Turkish tax authorities make the REIT attractive because the firm s activities are not subject to the tax base. By the way demographics and migration are key drivers of structural demand for property and affect the company significantly. PART III.6.B.1.1.1:Tax Policy in Turkey Tax Incentives For Real Estate Trust Companies According to article 8 of Corporation Law the real estate companies revenues are exception from the tax

184 PART III.6.B.1.1.2: Environmental Regulations Turkey's legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. The court system is overburdened, however, which sometimes results in slow decisions and judges lacking sufficient time to grasp complex issues. The judicial system is also perceived to be susceptible to external influence and to be biased against outsiders. PART III.6.B.1.1.3: Economic Factors Turkey has the outstanding economic performance in last 3 years and tries to achieve the sustainable growth. By the way a few years ago Turkey faced to high inflation and interest rates, but today the inflation and interest rates are decreasing. On the other hand the indicators show the productivity and confidence are increasing. The EU Pre-accession Economic Program, EU accession talks started to apply and implement and the new Stand-By arrangement with the IMF will constitute soonest. 86 PART III.6.B.1.1.4: Interest Rates Turkish Economy Interest Rates The Central Bank of Turkey s handling of monetary policy has continued to be impressive, with inflation rates falling sharply. The government s continued fiscal discipline has played a key role in this accomplishment. PART III.6.B.1.1.5: Population Growth Rate& Age Distribution Population Growth Rate& Age Distribution for the REIT sector has been determined under the title of Garanti GMYO in previous section. 86 European Commission Turkey Progress Report

185 PART IV: INTEG RATION OF MAJ OR STRATEGIC ISSUES BCG Growth Shar e Matrix The Boston Consulting Group matrix method is based on the product life cycle theory that can be used to determine what pr iorities should be gi ven in the product portfolio of a business unit. To ensure long-term value creation, a company should have a portfolio of products that contains both highgrowth products in need of cash inputs and low-growth products that generate a lot of cash. It has two dimensions: market share and market growth. The basic idea behind it is that the bigger the market share a product has or the faster the product s market grows the better it is for the company. Placing products in the BCG matrix results in 4 categories in a portfolio of a company as described below. Ansoff Business Strategy Model The product/market grid of Ansoff is a model that has proven to be very useful in business unit strategy processes to determine business growth opportuni ties. The product/market grid has two dimensions: products and markets. Over these two dimensions, four growth strategies can be formed: Market Penetration: Company strategies based on market penetration normally focus on changing incidental clients to regular clients, an d regular client into hea vy clients. Typical systems are volume discounts, bonus cards and customer relationship manag ement. Market Development: Company strategies based on market development often try to lure clients away from competitors or introd uce existing prod ucts in foreign markets or introduce new brand names in a market. Product Development: Company strategies based on product develo pment often try to sell other products to (regular) clients. This can be accessories, add-ons, or completely new products. Often existing communication channels are leveraged. Diversification: Company strategies based on diversification are the most risky type of strategies. Often there is a credibility focus in the communication to explain why the company enters new markets with new products. Various types of strategies in the Ansoff Business Strategy Model matrix results in 4 categories in a company as described below

186 GE / McKinsey Matrix The GE matrix / McKinsey matrix is a model to perform a business portfolio analysis on the strategic business units of a corporation. A business portfolio is the collection of strategic business units that make up a corporation. The optimal business portfolio is one that fits perfectly to the company s strengths and helps to exploit the most attractive industries or markets. The GE / McKinsey matrix is a later and more advanced form of the BCG matrix. It is more sophisticated than the BCG matrix in three aspects: 1. Market (industry) attractiveness replaces market growth as the dimension of industry attractiveness. Market attractiveness includes a broader range of factors other than just the market growth rate that can determine the attractiveness of an industry / market. 2. Competitive strength replaces market share as the dimension by which the competitive position of each SBU is assessed. Competitive strength likewise includes a broader range of factors other than just the market share that can determine the competitive strength of an SBU. 3. Finally the GE / McKinsey matrix works with a 3*3 grid, while the BCG matrix has only 2*2. This also allows for more sophistication. Placing products in the GE/ McKinsey matrix results in 94 categories in a portfolio of a company as described below

187 PART 1.A.1: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.01 (Bolu Çimento Sanayi A.Ş.)IN INDUSTRY NO.01 (Cement Industry) BCG Growth Share Matrix Implementation for Bolu Çimento Bolu Çimento has mainly three strategic business units; cement product types, clinker and ready-mix concrete. Cement Business: The Company s cement business has shown a significant development beginning from the year Together with the development in production, the cement sales are improved. When we think that, the national cement market has started to g row since the beginning of 2002, the company s market share in the domestic market is incrementing. As of 2004, the company holds 5,3% of the domestic cement sector, but there is no any export sale. The lack of entering into international market makes the total market share drop to 4,2%. Because, the cement business is very competitive with its many players having high capacities, Bolu Çimento s cement business unit s share in the national market is low as of (Except Akçansa who has above 10% market share, all of the competitors of national market has shares lower than 10%) As a result, the company should invest more in cement business to make this question mark generate more cash and increase its share both in national and international markets. business unit to Bolu Çimento Cement Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a 1% 5% 18% National Production Change -17% 9% 7% 11% Company Domestic Sales Change n/a 0% 4% 19% Company Export Sales Change n/a n/a n/a n/a Total Company Sales Change n/a 0% 4% 19% Total Domestic Sales Change -20% 7% 5% 9% Total Export Sales Change 16% 14% 24% 11% Total Market Sales Change -16% 8% 8% 10% Production Share 4,3% 4,0% 3,9% 4,2% Domestic Sales Share 5,2% 4,9% 4,9% 5,3% Export Sales Share 0,0% 0,0% 0,0% 0,0% Total Sales Share 4,3% 4,0% 3,9% 4,2% Clinker Business: The Company s clinker business has shown a significant development in Together with the development in production, the clinker sales are diminished. The reason for this decrease is to meet domestic demand for the cement. Because the clinker is a semi-finished good for cement production, the producers prefer to use clinker internally instead of selling to 3 rd parties. Because there is no any data about the distribution of clinker sales among competitors, it is impossible to know which company is the leader in the clinker sales. Bolu Çimento has about 11% market share in domestic clinker sales while there is no any export sale

188 In 2002, Bolu Çimento used 99% of its clinker production capacity to produce 62% of its cement production capacity. In this case, if there is an upward shift in cement sales, the company will not find the opportunity to sale clinker to domestic market because all of the clinker production will be consumed in order to produce clinker. T he national clinker market has started to grow since the beginning of 2002, when we take account the change in production. The decrease in the clinker sales is not an identifying data because inner-company consumption ri ses. The company s in the domestic clinker sales business is low as of As a result, if the company s cement sales will increase in the following year and no any additional clinker capacity increase investment is done, the clinker sales business will come to an end. That is why; an increase in capacity will surely bring satisfying sales. As a result, the company should invest more in clinker business to make this question mark generate more cash and increase its share both in national and international markets. business unit to Bolu Çimento Clinker Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -2% 1% 14% National Production Change -1% 3% 3% 8% Company Domestic Sales Change n/a 70% 6% -6% Company Export Sales Change n/a n/a n/a n/a Total Company Sales Change n/a 70% 6% -6% Total Domestic Sales Change n/a 6% 1% -25% Total Export Sales Change 62% 31% -32% -19% Total Market Sales Change 158% 22% -21% -21% Production Share 4,2% 4,0% 3,9% 4,1% Domestic Sales Share 5,3% 8,5% 8,9% 11,1% Export Sales Share 0,0% 0,0% 0,0% 0,0% Total Sales Share 2,0% 2,8% 3,7% 4,4% Ready-mix Concrete Business: As shown in very detailed tables of this study s previous sections, the company s ready-mix concrete sales are at 3% level since When we look at the Turkish ready-mix concrete market, there is a steady increase in total market s production and sales volume. In this market, Bolu Çimento manages to protect its market share but could not manage to increase its market share. As of 2004, this question mark business unit is liquidated and sold to Oyak Beton. Bolu Çimento - Ready-mix Concrete Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a 17% 6% -74% National Production Change -17% 13% 5% 18%

189 Total Company Sales Change n/a 17% 6% -74% Total Market Sales Change -17% 13% 5% 18% Production Share 3,0% 3,1% 3,1% 0,7% Total Sales Share 3,0% 3,1% 3,1% 0,7% Ansoff Business Strategy Model Implementation for Bolu Çimento When we look at the sales distribution of Bolu Çimento, it can be seen that the company is fully focused on local cement market and does not have any export sales. Because of the company s facilities locations, it is hard for the company to enter international markets as a result of high transportation costs. This situation makes it hard to enter into new markets. The existing local markets are distributed among existing suppliers and the level of competition among these firms is so high. As a result, entering into new markets is hard for Bolu Çimento. The level and quality of production for most of the competing firms is at same level. Most of the rivals have the ability to produce brand-new types of cement. By the way, Turkish firms being first in the world s most exporting countries list shows that local production quality and product variety is over world averages. This shows that there is no any trend in the world and Turkey in the direction of researching for a new product type or a player s having a different kind of product other than others. As a result, Bolu Çimento is fo llowing a market penetration strategy. To increase volume of sales and market share, the company is trying to find new customers form the existing cement market and creating brand loyalty to change incidental clients to regular clients. The company plays its card in the current market with current products. GE / McKinsey Matrix Implementation for Bo lu Çimento Market Attractiveness Cement sector with its connection to construction sector is one of the most important production sectors of Turkey. This market is steadily growing after the 2001 crisis as it can be seen from above tables. So, we can e asily claim that the market size and market growth is at an attra ctive level. Cement Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 National Production Change n/a -17% 9% 7% 11% Total Market Sales Change n/a -16% 8% 8% 10% Clinker Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 National Production Change n/a -1% 3% 3% 8% Total Market Sales Change n/a 62% 22% -21% -21% Ready-mix Concrete Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 National Production Change n/a -17% 13% 5% 18% Total Market Sales Change n/a -17% 13% 5% 18% Pricing trends of the cement sector is shown in the table below. As it can be seen from the table, the cement prices have incremented from 30 $/ton to 53 $/ton level. This movement must be evaluated together with the market growth

190 Competitive intensity and rivalry of the cement sector is at a very high level. The table below shows the market shares of the biggest competing firms in the cement sector. Group Production Capacity (million tons) Market Share (%) Sabancı ,98 Oyak ,24 Italcementi ,27 Çimentaş ,10 Vicat ,60 Yibitaş-Lafarge ,38 Batıçim ,48 Lafarge ,31 Limak ,90 Sanko ,60 Oyak / Sabancı ,78 Oyak / Gama 953 1,42 G eographical distributions of cement plants in Turkey are as below. The 57 cement production facility is operating in the various regions of Turkey

191 There are many entry barriers to enter the cement sector. First of all, the competence is very high and most of the companies have completed their investments and technology renovation, so they are at the minimum efficient scale point. Second, the Competition Authority is very strict to give new approval for the start-up of companies. Beside this, the amount of investments necessary to construct production facilities is about million $ level. At last, it takes two years to take Environmental Effect Valuation Report from official authorities to receive production approval. D emand variability of the sector is mainly dependent on the local construction sector and international offers. The table below shows the construction sector s and GNP s growth shares. It is easy to see that construction sector has been growing since the beginning of 2002 and this growth creates a huge demand for the cement sector products. Another condition for the demand variability is the international offers. The tables below show the cement and clinker exports of Turkey in terms of exporting countries and export volumes. It can be claimed that, there has been an increase in the export sales beginning from The development in export volumes reached to 60% level between period. Also, most of the exporting countries except Iraq are developed ones and the demand form these countries are hard to be damaged because of an economic crisis or a political instability. So, it can be claimed that the demand power from international markets bring continuous advantages to domestic cement producers. Turkey's Cement Exporting Countries Cement & Clinker Export Volumes 100% 80% 60% 40% 20% 10,00 8,00 6,00 4,00 4,48 2,11 5,21 3,41 5,96 4,46 7,36 3,04 8,21 2,47 7,74 2,79 0% Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 IRAQ ITALY USA PORTUGAL NORTHERN CYPRUS SPAIN ISRAEL FRANCE OTHER COUNTRIES 2,00 0,00 Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Year 2005 Cement Exports Clinker Exports

192 There are two main types of cement products, gray and white. Most of the domestic cement producers prefer to produce gray-type cement. In Turkey, more than 90% of the white-type cement market is held by Çimsa (one of Sabancı Group Companies). Bolu Çimento, Mardin Çimento and Ünye Çimento are all in the gray-type cement market. The level of production and product quality of most of the domestic companies are at European level. All of the three companies subject to our report have the ability to produce all cement type products. Beside this, Bolu Çimento has the most variety of products. As a conclusion, white-type cement is new to Turkey and other than this type s products; it is hard to differentiate products. The table below shows the six cement producer company s profitability that is publicly traded. Three of these firms are subject to our study ant the remaining ones are the most important rivals in the cement sector. When we look at the table, the operating profitability of all the companies are steadily increasing after the 2001 crisis. Nonetheless, net incomes of all the companies are growing too. By analyzing this scheme, it can be claimed that the sector s general profitability level is at an attractive level. FIRM Year 2002 Year 2003 Year 2004 Operating Income BOLU Operating Income to Total Sales 25% 8% 20% ÇİMENTO Net Income Net Income to Total Sales 22% 7% 20% Operating Income MARDİN Operating Income to Total Sales 23% 20% 32% ÇİMENTO Net Income ÜNYE ÇİMENTO AKÇANSA NUH ÇİMENTO ASLAN ÇİMENTO AVERAGE Competitive Advantages Net Income to Total Sales 32% 19% 34% Operating Income Operating Income to Total Sales -19% -5% 11% Net Income Net Income to Total Sales -61% 2% 15% Operating Income Operating Income to Total Sales 9% 5% 18% Net Income Net Income to Total Sales 7% 13% 17% Operating Income Operating Income to Total Sales 25% 2% 17% Net Income Net Income to Total Sales 21% 11% 14% Operating Income Operating Income to Total Sales 5% -3% 5% Net Income Net Income to Total Sales 3% 1% 3% Operating Income Operating Income to Total Sales 11% 4% 17% Net Income Net Income to Total Sales 4% 9% 17% Bolu Çimento s market share and market share growth for cement, clinker and ready-mix concrete are as below. The company is increasing its market share as years pass. Bolu Çimento Year 2001 Year 2002 Year 2003 Year 2004 Cement Sales Share 4,3% 4,0% 3,9% 4,2% Cement Sales Share Change n/a -7% -3% 8% Clinker Sales Share 2,0% 2,8% 3,7% 4,4%

193 Clinker Sales Share Change n/a 39% 34% 19% Ready-mix Concrete Share 3,0% 3,1% 3,1% 0,7% Ready-mix Concrete Share Change n/a 4% 0% -78% The company has strong assets and up-to-date production technology. The facilities of the company are renovated in 2002 and reached today s level. While the company s main facility is in Bolu, it has two other facilities in Ankara and Istanbul. The locations of these facilities help the company to market its products in three most cement demanding regions of Turkey Marmara Region, Black Sea Region and Central Anatolia Region. The cement and clinker production capacities of the firm and their shares in the total market are as below. Cement Capacity of Bolu Çimento and the Sector Clinker Capacity of Bolu Çimento and the Sector Year 2003 Year Year 2003 Year 2004 Capacity of Bolu Çimento Total Capacity of the Sector Capacity of Bolu Çimento Total Capacity of the Sector The relative brand strength of the company is at a good position when compared with other competitors. Not only Oyak Group reputation in Turkey is very strong, but also this Group s investments in domestic cement market amounts to more than 14% of the sector. Although company is fully concentrated in local market, with the help of its brand loyalty, it maintains the position in the market. Because the company is one of Oyak Group Companies, it has the competitive advantage of accessing to financial resources of the group. Relative profit margins of the company are expressed in the BCG Growth Share matrix section of this study, so I did not prefer to give information about it in this part. The chairman of Bolu Çimento is both the CEO of the Oyak Automotive and Cement Group of Companies. This provides a coordination opportunity for Bolu Çimento in its relations with the Oyak Group

194 PART 1.A.2: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.02 (Mardin Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Industry) BCG Growth Share Matrix Implementation for Mardin Çimento Mardin Çimento has mainly three strategic business units; cement product types, clinker and ready-mix concrete. Cement Business: The Company s cement business has shown a significant development beginning from the year By the new investment in cement business to decrease costs and increase capacity, the company steadily increased its cement sales. While the national cement market has started to grow since the beginning of 2002, Mardin Çimento s cement production and sales have been increasing in a parallel direction. The company s cement production share over total national cement production stays the same over for the last three years. While the company could not manage to increase its share in production side of the market, it did not lose its market share. When we look at the sales side, the company s cement sales have been developed since While the company s sales share in domestic market is decreasing, export sales have increased much, thanks to Iraq market. Because the cement business is very competitive with its many players having high capacities, Mardin Ç imento s cement business unit s share in the total national market is low as of Beside this, company has the advantage of location in terms of exports, which gives the opportunity to enter international markets. As a re sult, the company should invest more in cement business to make this question mark business unit to generate more cash and increase its share both in national and international markets. Mardin Çimento - Cement Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -11% 25% 6% National Production Change -17% 9% 7% 11% Company Domestic Sales Change n/a -21% -22% 15% Company Export Sales Change n/a 101% 232% -1% Total Company Sales Change n/a -12% 23% 7% Total Domestic Sales Change -20% 7% 5% 9% Total Export Sales Change 16% 14% 24% 11% Total Market Sales Change -16% 8% 8% 10% Production Share 3,0% 2,4% 2,8% 2,7% Domestic Sales Share 3,3% 2,5% 1,8% 1,9% Export Sales Share 1,4% 2,4% 6,5% 5,7% Total Sales Share 3,0% 2,4% 2,8% 2,7%

195 Clinker Business: As seen below, the company s clinker sales are at a very low level and there is no any domestic and export sale in that is why, I did not prefer to add this business unit to my appraisal. Mardin Çimento - Clinker Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -8% -7% 8% National Production Change -1% 3% 3% 8% Company Domestic Sales Change n/a 116% -78% -100% Company Export Sales Change n/a n/a n/a n/a Total Company Sales Change n/a 116% -78% -100% Total Domestic Sales Change n/a 6% 1% -25% Total Export Sales Change 62% 31% -32% -19% Total Market Sales Change n/a 22% -21% -21% Production Share 2,2% 2,0% 1,8% 1,8% Domes tic Sales Share 0,9% 1,8% 0,4% 0,0% Export Sales Share 0,0% 0,0% 0,0% 0,0% Total Sales Share 0,3% 0,6% 0,2% 0,0% Ready-mix Concrete Business: As shown in very detailed tables of this study s previous sections, the company s ready-mix concrete sales cannot reach a desired level since When we look at the Turkish ready-m ix concrete market, there is a steady increase in total market s production and sales volume. In this market, Mardin Çimento has a low market share and could not manage to increase its market share in this marke t. As of 2004, the ready-mix concrete sales can be evaluated as a question mark business unit. Mardin Çimento - Ready-mix Concrete Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -6% 12% -1% National Production Change -17% 13% 5% 18% Total Company Sales Change n/a -6% 12% -1% Total Market Sales Change -17% 13% 5% 18% Production Share 0,6% 0,5% 0,5% 0,4% Total Sales Share 0,6% 0,5% 0,5% 0,4% Ansoff Business Strategy Model Implementation for Mardin Çimento When we look at the sales distribution of Mardin Çimento, it can be seen that the company is focused both on local and near-east Asia cement markets. Because of the company s facilities locations, it is hard for the company to enter another international market as a result of high transportation costs. The existing local markets are distributed among existing suppliers and the level of competition among these firms is so high. The

196 purchase of two cement facilities that previously belong to Rumeli Group by Sanko and Limak consist a threat for the company s local markets. The level and quality of production for most of the competing firms is at same level. Most of the rivals have the ability to produce brand-new types of cement. By the way, Turkish firms being first in the world s most exporting countries list shows that local production quality and product variety is over world averages. This shows that there is no any trend in the world and Turkey in the direction of researching for a new product type or a player s having a different kind of product other than others. As a result, Mardin Çimento follows two strategies; market penetration strategy for local markets and market development for North Iraq and Syria markets. To increase volume of sales and market share in the local market, the company is trying to find new customers form the existing cement market and creating brand loyalty to change incidental clients to regular clients. The company plays its card in the current market with current products. Thanks to rebuilding of Iraq, the company found the opportunity to enter this new market with its current products and share of exports reach to 50% of total sales. GE / McKinsey Matrix Implementation for Mardin Çimento Market Attractiveness Since information about domestic market is given under title of Bolu Çimento, it is not repeated in this part. Competitive Advantages The company has strong assets and up-to-date production technology. The facilities of the company are renovated in 2002 and reached today s level. The company s main facility is in Mardin. The location of this facility helps the company to market its products both in domestic market and Iraq market. The cement and clinker production capacities of the firm and their shares in the total market are as below. Cement Capacity of Mardin Çimento and the Sector Clinker Capacity of Mardin Çimento and the Sector Year 2003 Year Year 2003 Year 2004 Capacity of Mardin Çimento Total Capacity of the Sector Capacity of Mardin Çimento Total Capacity of the Sector The relative brand strength of the company is at a good position when compared with other competitors. Not only Oyak Group reputation in Turkey is very strong, but also this Group s investments in domestic cement market amounts to more than 14% of the sector. Although company is fully concentrated in local market, with the help of its brand loyalty, it maintains the position in the market. Because the company is one of Oyak Group Companies, it has the competitive advantage of accessing to financial resources of the group. Relative profit margins of the company are expressed in the BCG Growth Share matrix section of this study, so I did not prefer to give information about it in this part. The chairman of Mardin Çimento is both the CEO of the Oyak Automotive and Cement Group of Companies. This provides a coordination opportunity for Mardin Çimento in its relations with the Oyak Group

197 PART 1.A.3: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.03 (Ünye Çimento Sanayii ve Ticaret A.Ş.)IN INDUSTRY NO.01 (Cement Industry) BCG Growth Share Matrix Implementation for Ünye Çimento Ünye Çimento has mainly three strategic business units; cement product types, clinker and ready-mix concrete. Cement Business: The Company s cement business has shown a significant development beginning from the year By the new investment in cement business to decrease costs and increase capacity, the company s teadily increased its cement sales. When we think that, the national cement market has started to grow since the beginning of 2002, the company s market share in this business has been incrementing at a very low rate (both in terms of production share and total sales share). Because, the cement business is very competitive with its many players having high capacities, Ünye Çimento s cement business unit s share in the national market is lo w as of Beside this, company has the advantage of location in terms of exports, which gives the opportunity to enter international markets. As a result, the company should invest more in cement business to make this question mark business unit to generate more cash and increase its share both in national and international markets. Ünye Çimento Cement Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -30% 30% 12% 11% National Production Change n/a -17% 9% 7% 11% Company Domestic Sales Change n/a -15% 13% 5% -9% Company Export Sales Change n/a n/a 538% 832% 638% Total Company Sales Change n/a -15% 13% 8% 10% Total Domestic Sales Change n/a -20% 7% 5% 9% Total Export Sales Change n/a 16% 14% 24% 11% Total Market Sales Change n/a -16% 8% 8% 10% Production Share 2,7% 2,3% 2,8% 2,9% 2,9% Domestic Sales Share 3,1% 3,3% 3,5% 3,5% 3,0% Export Sales Share 0,0% 0,0% 0,1% 0,4% 2,6% Total Sales Share 2,7% 2,8% 2,9% 2,9% 2,9% Clinker Business: The Company s clinker business has shown a significant development beginning from the year As of 2001, the company was producing clinker only for its own production and no any sales of clinker could be observed. By the new investment in clinker business, the company steadily increased its clinker sales. When we think that, the national clinker market has started to grow since the beginning of 2002, the company s market share in this business has been incrementing. Because, the clinker business is very competitive with its many players having high capacities, Ünye Çimento s clinker business unit s share in the market is low as of The company should invest more in clinker business to make this question mark business unit to generate more cash and increase its market share

198 Ünye Çimento Clinker Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -31% 95% 43% 17% National Production Change n/a -1% 3% 3% 8% Company Domestic Sales Change n/a n/a n/a n/a n/a Company Export Sales Change n/a n/a n/a 154% 30% Total Company Sales Change n/a n/a n/a 144% 76% Total Domestic Sales Change n/a 62% 6% 1% -25% Total Export Sales Change n/a 62% 31% -32% -19% Total Market Sales Change n/a 62% 22% -21% -21% Production Share 2,0% 1,4% 2,7% 3,7% 4,0% Domestic Sales Share 0,1% 0,0% 0,2% 0,0% 8,4% Export Sales Share 0,0% 0,0% 2,6% 9,8% 15,7% Total Sales Share 0,0% 0,0% 1,8% 5,7% 12,8% Ready-mix Concrete Business: As shown in very detailed tables of this study s previous sections, the company s ready-mix concrete sales cannot reach a desired level since When we look at the Turkish ready-mix concrete market, there is a steady increase in total market s production and sales volume. In this market, Ünye Çimento could not manage to increase its market share in this market. As of 2004, this question mark business unit is liquidated and sold to Oyak Beton. Ünye Çimento - Ready-mix Concrete Year 2000 Year 2001 Year 2002 Year 2003 Year 2004 Company Production Change n/a -49% 43% -7% -81% National Production Change n/ a -17% 13% 5% 18% Total Company Sales Change n/a -49% 43% -7% -81% Total Market Sales Change n/a -17% 13% 5% 18% Production Share 1,06% 0,64% 0,82% 0,72% 0,12% Total Sales Share 1,06% 0,64% 0,82% 0,72% 0,12% Ansoff Business Strategy Model Implementation for Ünye Çimento When we look at the sales distribution of Ünye Çimento, it can be seen that the company is focused both on local and European cement markets. Because of the company s facilities locations (Ünye Port), it is much easy for the company to tend international markets. The existing local markets are distributed among existing suppliers and the level of competition among these firms is so high

199 The level and quality of production for most of the competing firms is at same level. Most of the rivals have the ability to produce brand-new types of cement. By the way, Turkish firms being first in the world s most exporting countries list shows that local production quality and product variety is over world averages. This shows that there is no any trend in the world and Turkey in the direction of researching for a new product type or a player s having a different kind of product other than others. As a result, Ünye Çimento follows two strategies; market penetration development for European markets. strategy for local markets and market To increase volume of sales and market share in the local market, the company is trying to find new customers form the existing cement market and creating brand loyalty to change incidental clients to regular clients. The company plays its card in the current market with current products. By the help of its location, the company found the opportunity to enter this new market with its current products and share of exports reach to 25% of total sales. Especially in Italy, the company is on the way of creating a reputable trade mark. When we think of the price levels that are higher than domestic prices, the company should focus more on European market by giving the local market enough importance. GE / McKinsey Matrix Implementation for Ünye Çimento Market Attractiveness Since information about domestic market is given under title of Bolu Çimento, it is not repeated in this part. Competitive Advantages The company has strong assets and up-to-date production technology. The facilities of the company are renovated in 2002 and reached today s level. While the company s main facility is in Ünye, it has another facility in Rize. The location of the main facility helps the company to market its products both in the local market and international market. Being close to Ünye Port is vital for the company indeed. The cement and clinker production capacities of the firm and their shares in the total market are as below. Cement Capacity of Ünye Çimento and the Sector Clinker Capacity of Ünye Çimento and the Sector Year 2003 Year 2004 Capacity of Ünye Çimento Total Capacity of the Sector Year 2003 Year 2004 Capacity of Ünye Çimento Total Capacity of the Sector The relative brand strength of the company is at a good position when compared with other competitors. Not only Oyak Group reputation in Turkey is very strong, but also this Group s investments in domestic cement market amounts to more than 14% of the sector. Although company is fully concentrated in local market, with t he he lp of its brand loyalty, it maintains the position in the market. Because the company is one of Oyak Group Companies, it has the competitive advantage of accessing to financial resources of the group

200 Relative profit margins of the company are expressed in the BCG Growth Share matrix section of this study, so I did not prefer to give information about it in this part. The chairman of Ünye Çimento is both the CEO of the Oyak Automotive and Cement Group of Companies. This provides a coordination opportunity for Ünye Çimento in its relations with the Oyak Group

201 PART 1.B.1: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.01 (Garanti GYO A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) BCG Growth Share Matrix Implementation for Garanti GMYO Garanti GMYO has five types of strategic business units: Business Centers, Shopping Malls, Housing Projects and Office Buildings. Business Centers: Garanti GMYO is planning to construct a business center for the tenants who need large amount of rentable space (like furniture, automotive, technology products and textile products sellers) that is called Doğuş Power Center in Maslak. This project is being planned to be completed in the early The power center concept of the project will be applied at first time in Turkey. Because the project is not completed as of this study s date, it cannot be evaluated as a product. No any income is received from this project. Shopping Malls: Garanti GMYO owns 56,8% of Antalya 200 Plaza, located in Antalya. Shopping malls are the real estate inv estment trusts most profitable investments. Although the growth rate of shopping malls is high, Garanti GMYO s share in total market is low. As a result, this strategic business unit can be identified as question mark. Housing Projects: Garanti GMYO has two projects for housing. First one is being planned to be constructed in Romania, thanks to a 50 % partnership with Yapı Kredi Koray REIT established in Romania. Because the project is not completed as of this study s date, it cannot be evaluated as a product. No any income is received from this project. Second one is Evidea Project that is being planned to be constructed in Çekmeköy, İstanbul. The project is developed by a joint venture established by Yapı Kredi Koray REIT. W hen we assume that, the growth rate of the housing projects is high as given in details in previous parts of this study and the relative market share of Garanti GMYO s housing projects are small in the total housing market, this strategic business unit should be evaluated as question mark. Office Buildings: Garanti GMYO has office buildings located in different regions of Istanbul. They are placed in Taksim, Levent, Şişli and Etiler. All of the tenants of these office buildings are Doğuş Group Companies. As a result, the maximum levels of earnings that can be gained from these real estates have a ceiling. When we assume that, the growth rate of the office buildings rental market is high as given in details in previous parts of this study, the vacancy level of a-class office buildings is at the lowest point and the relative market share of Garanti GMYO s office building projects are small in the total market, this strategic business u nit should be evaluated as question mark. Ansoff Business Strategy Model Implementation for Garanti GMYO Garanti GMYO has five types of strategic business units: Business Centers, Shopping Malls, Housing Projects and Office Buildings. Business Centers: Product Development (new product Doğuş Power Center for the existing market). Shopping Malls: Market Penetration (existing product for the existing market) Housing Projects: Product Development (new product Evidea Project s long-term maturities backed by Garanti Bank and Yapı Kredi Bank residential credits for the existing market) Office Buildings: Market Penetration (existing product for the existing market)

202 GE / McKinsey Matrix Implementation for Garanti GMYO Market Attractiveness Real estate investment sector is a developing market and in the long-range it will be one of the most important markets of Turkey. This market is steadily growing after the 2001 crisis as it can be seen from above tables. So, w e can easily claim that the market size and market growth is at an attractive level. Firm Portfolio V. Share Portfolio V. Share Portfolio V. Share Alarko Gayrimenkul Y.O % % % Atakule Gayrimenkul Y.O % % % Egs Gayrimenkul Y.O % % % Garanti Gayrimenkul Y.O % % % İhlas Gayrimenkul Y.O % % % İş Gayrimenkul Y.O % % % Nurol Gayrimenkul Y.O % % % Vakıf Gayrimenkul Y.O % % % Yapı Kredi Koray G.Y.O % % % % % % Market Growth Share n/a 13,5% 66,4% Because the valuation of investments is realized by independent firms and the valuation is done according to the market value of real estates. As a result, increase in the portfolio value of REIT firms is adjacent to market price changes. So, we can claim t hat there is an increasing pricing trend in the market. Competitive intensity and rivalry of the real estate sector is at a very high level. The table above shows the market shares of all the competing firms in the REIT sector. All of them are publicly traded. Level of entry barriers for the sector is at a high level. First of all, the start-up costs are high. Second, every real estate investment trust must be publicly offered. At last, the ability to have high quality and valuable real estates is dependent on having strong financial resources. D emand variability of the real estate sector is dependent on the general situation of the national economy. The decreasing inflation rates and increasing GNP have a direct effect on real estate demand. B ecause real estate sector is very extensive, it is easy to differentiate products. In the sector, some firms like İş GMYO and Garanti GMYO can tend to realize different projects like Kanyon Project (housing & entertainment & shopping mall) and Doğuş Power Center (shopping mall for large reailers). Competitive Advantages Garanti GMYO has valuable assets in its product portfolio. The company has a relatively low market share in terms of portfolio value. The table below shows the company s portfolio market share in : Year 2002 Year 2003 Year 2004 Garanti GMYO s Portfolio Value/Total Market Value 7,0% 5,8% 4,3% Market Share Growth n/a -17,7% -25,6% The company s profit amounts and remaining two firms profits are as below. It is easy to see that Garanti GMYO is not at a desired profitable level

203 Net Profit Movement of Garanti GMYO (in million YTL) ,70 Year ,80 7,57 Year ,97 0,40 Year 2004 Net Profit Movement of İş GMYO (in million YTL) ,47 20,4630,6732,71 Year 2000 Year ,11 Year 2004 Net Profit Movement of Vakıf GMYO (in million YTL) 2,00 1,00 0,00-1,00-2,00-3,00 1,25 1,77 0,19 Year Year Year ,43 0,98 Year Year Because the company s main investor is Garanti Bank, it has the ability to easily reach financial and investment resources

204 PART 1.B.2: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.02 (İş GYO A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) BCG Growth Share Matrix Implementation for İş GMYO İş GMYO has many types of strategic business units: Business Centers, Shopping Malls, Housing Projects, Office Buildings, Hotel and Entertainment Center. Business Centers: İş GMYO owns three important business centers; İş Tower 2 & İş Tower 3 in Istanbul and İş Tower in Ankara. İş Bank is the tenant of these real estates. When we assume that, the UgrowthU rate of the business centers is high as given in details in previous parts of this study and the relative market share of İş GMYO s business center projects are big in the total market, this strategic business unit should be evaluated as Ustar.U Shopping Malls: İş GMYO owns Kule Çarşı in Istanbul and Solaris Shopping Center in Muğla. Shopping malls are the real estate investment trusts most profitable investments. Although the Ugrowth rateu of shopping malls is high, İş GMYO s share in total market is UhighU. As a result, this strategic business unit can be identified as Ustar.U Office Buildings: İş GMYO has office buildings located in different regions of Istanbul, Ankara and Antalya. They are placed in prestigious regions like Maslak, Ulus and Kızılay. All of the tenants of these office buildings are İş Group Companies. As a result, the maximum levels of earnings that can be gained from these real estates have a ceiling. When we assume that, the UgrowthU rate of the office buildings rental market is high as given in details in previous parts of this study, the vacancy level of a-class office buildings is at the lowest point and the relative market share of İş GMYO s business center projects are small in the total market, this strategic business unit should be evaluated as Uquestion mark.u Hotel: İş GMYO owns the Seven Seas Hotel in Antalya. The company acquired this hotel with the aim future prospects in the tourism sector. When we assume that, the UgrowthU rate of the tourism market is high as given in details in previous parts of this study and the relative market share of İş GMYO s tourism project is small in the total market, this strategic business unit should be evaluated as Uquestion mark.u Entertainment Center: İş GMYO owns Tatilya Entertainment Center s land property. This business should be evaluated as UstarU when we think the UgrowingU market and the relatively UhighU market share. Housing Project: The Kanyon project is being undertaken as a joint venture with Eczacıbaşı İlaç Sanayi ve Ticaret A.Ş. in which costs and proceeds are to be shared The Kanyon project, which is not completed as of this study s date, is consists of a 27-story office building, a housing block of 179 units, and a four-story shopping center that will contain about 198 independent sections and a cinema. This business unit should be evaluated as UstarU when we think the UgrowingU market and the relatively UhighU market share. Ansoff Business Strategy Model Implementation for İş GMYO İş GMYO has five types of strategic business units: Business Centers, Shopping Malls, Housing Projects, Office Buildings, Hotel and Entertainment Center. Business Centers: Market Penetration (existing product for the existing market) Shopping Malls: Market Penetration (existing product for the existing market) Housing Projects: Product Development (new product Kanyon Project for the existing market). Office Buildings: Market Penetration (existing product for the existing market) Hotel: Market Penetration (existing product for the existing market)

205 Entertainment Center: Diversification (new product Tatilya for the new market entertainment sector) GE / McKinsey Matrix Implementation for İş GMYO Market Attractiveness Since information about domestic market is given under title of Garanti GMYO, it is not repeated in this part. Competitive Advantages İş GMYO has the most valuable and variety of assets in its product portfolio among all the real estate investment trusts. The company has the highest market share in terms of portfolio value. The table below shows the company s portfolio market share in : Year 2002 Year 2003 Year 2004 İş GMYO s Portfolio Value/Total Market Value 46,4% 46,8% 38,9% Market Share Growth n/a 0,9% -16,9% The company s profit amounts and remaining two firms profits are as below. It is easy to see that İş GMYO is at a much desired profitable level. Net Profit Movement of Garanti GMYO (in million YTL) ,70 Year ,80 7,57 Year ,97 0,40 Year 2004 Net Profit Movement of İş GMYO (in million YTL) ,47 20,4630,6732,71 Year 2000 Year ,11 Year 2004 Net Profit Movement of Vakıf GMYO (in million YTL) 2,00 1,00 0,00-1,00-2,00-3,00 1,25 1,77 0,19 Year 2000 Year 2001 Year ,43 0,98 Year Year Because the company s main investor is İş Bank, it has the ability to easily reach financial and investment resources

206 PART 1.B.3: INTEGRATION OF MAJOR STRATEGIC ISSUES FOR FIRM NO.03 (Vakıf GYO A.Ş.)IN INDUSTRY NO.02 (Real Estate Trust Company) BCG Growth Share Matrix Implementation for Vakıf GMYO Vakıf GMYO has one type of strategic business unit: Office Buildings. Although the company has land property investment, because the aim is to create office building on this land, it is not included in the appraisal. Office Buildings: Vakıf GMYO has office buildings located in different regions of Istanbul and Ankara. They are placed in prestigious regions like Bakırköy, Kadıköy, Bağdat Street, Levent and Çankaya. An important share of all the tenants of these office buildings are Vakıf Group Companies. As a result, the maximum levels of earnings that can be gained from these real estates have a ceiling. When we assume that, the UgrowthU rate of the office buildings rental market is high as given in details in previous parts of this study, the vacancy level of a-class office buildings is at the lowest point and the relative market share of Vakıf GMYO s housing projects are small in the total market, this strategic business unit should be evaluated as Uquestion mark.u Ansoff Business Strategy Model Implementation for Vakıf GMYO Vakıf GMYO has one type of strategic business unit: Office Buildings. The strategy that is being implemented is Market Penetration (existing product for the existing market). GE / McKinsey Matrix Implementation for Vakıf GMYO Market Attractiveness Since information about domestic market is given under title of Garanti GMYO, it is not repeated in this part. Competitive Advantages Although Vakıf GMYO has prestigious real estates in its portfolio, the total values of these assets do not provide superior competitive advantages to the company. Beside this, most of the company s investments are tent by Vakıf Group Companies. Unless this situation comes to an end, the firm will not have the chance to increase its market share. The hiring of most of company s investments by Vakıf Group Companies prevents the company to have a strong brand name. Against all, the strong brand name of Vakıf brings advantage to the firm. The company has a low market share in terms of portfolio value. The table below shows the company s portfolio market share in : Year 2002 Year 2003 Year 2004 Vakıf GMYO s Portfolio Value/Total Market Value 3,3% 3,2% 2,3% Market Share Growth n/a 3,0% 28,1% The company s profit amounts and remaining two firms profits are as below. It is easy to see that Vakıf GMYO is not at a desired profitable level

207 Net Profit Movement of Garanti GMYO (in million YTL) Net Profit Movement of İş GMYO (in million YTL) Net Profit Movement of Vakıf GMYO (in million YTL) ,70 Year ,80 7,57 Year ,97 0,40 Year ,47 20,4630,6732,71 Year 2000 Year ,11 Year ,00 1,00 0,00-1,00-2,00-3,00 1,25 1,77 0,19 Year Year Year ,43 0,98 Year Year Because the company s main investor is Vakıf Bank, it has the ability to easily reach financial and investment resources

208 PART V: RECOMMENDATIONS AND IMPLEMENTATIONS Bolu Çimento Sanayii A.Ş.: The firm s current strategy is to expand the activities and gain foot hold in efficient foreign markets. The firm s current mission and objectives are to achieve sustainable profitability through showing respect to society and environment working with an understanding efficiency and high understanding of responsibility. By the way the company prefers to enter the local markets that are close to its facilities to take cost advantage. Corporate level strategy of Bolu Çimeto was to invest the pre-calcination to provide the minimum cost efficient and get more profit from its sales. By the way company works with low rate of capacity is amount of 50% means there is waste capacity in the company s structure. This prevents to compensate the high demand of the construction sector. Competitive strategy of Bolu Çimento is to get more and efficient market share and grow successfully. The company had not preferred to enter external markets because of the high cost of transportation and location of facilities of the firm. But the some of other main competitors in the sector export its products and get more profit form the external markets, Turkey is at first ranking among cement exporting countries. On the other hand the company wants to sell more products and get more profit from the local markets. Implementations: When I look at the market share of the company is amount 5% of cement sector. This ratio seems insufficient but Oyak Group get larger share from the market and that provides the company strong brand name. When I analyze the Bolu Çimento and also cement sector the energy cost are so high this prevent the increase the profitability. According to these explanations company should invest to enter new markets and expand the capacity in order to get larger market share from the industry. On the hand to increase the productivity of the company should create maximum cost efficiency and decrease overheads by increasing product capacity usage. When I analyze the product capacity, company should invest for the clinker production because company uses the clinker for semi finished goods to product cement. As of 2004, the company uses 99% of its clinker capacity to produce 62% of its cement product. That why if the company manages to enter new markets or increasing its cement sales to existing markets, it will need additional supplies of clinker. In order not to be dependent to external suppliers, the company should invest to increase it clinker capacity. Entering new markets with its existing and new products will provide to increase capacity usage and increase profitability of the company. The company did not merge with any firms of Rumeli Group and expand the egde of the its markets. For this reason company should merge the exporter companies which locate near the Turkey s neighbors in order to enter external markets and develop its market share in the foreign markets. Metro and tube passage constructions in Istanbul and İzmit Körfez Bridge construction. For this reason company should expand its market share in order to get more share from sector

209 As a result, the company has sufficient liquids to realize these investments that are declared above. As is seen from the financial statement, the company has waste liquidations. In order to seek new markets and get large market share, company should expend these waste funds for its market research, because the profitability of its own activities are higher than the marketable securities profitability. General overview of the sector: If all the barriers are removed in the cement sector, particularly elimination of government incentives together with removal of barriers in the overall economy., the output of the sector will definitely grow and growth of sector will significantly increase the level of employment that will provide to increase the amount of the cement sector in GDP. Mardin Çimento Sanayii ve Ticaret A.Ş. The firm s current strategy is to become a respected, reliable and leading corporation developing the usage fields of cement and playing a significant role in country and neighbor country markets The firm s current mission and objectives are to achieve sustainable profitability through showing respect to society and environment working with an understanding productivity, efficiency and high understanding of responsibility. Corporate level strategy of Mardin Çimento is the most sold and best-known brand of cement in Iraq and Syria today. The Company is determined to exploit its advantages in the best way possible and to increase the volume of business it does in this region. Competitive strategy of Mardin Çimento exports its products in addition to supplying local markets. The Company has cement and clinker production facilities and two readymix concrete plants. The company is called one of the best 200 small companies outside the United States. Mardin Çimento, another regional cement producer, exported products to northern Iraq during and it ranked third among hundred public cement companies in terms of increased profitability on the previous years that I analyzed. In addition to exporting, Mardin Çimento also makes sales to domestic markets as well. Mardin Çimento distinguished itself as a company that expanded the scope of the OYAK Cement Group s operations, playing an influential role in the national market as well as in the markets of neighboring countries and conducting its activities within the framework of a common vision of being a respected, leading, and trusted company. Regarding the happiness of its customers and employees as one of its underlying corporate values, Mardin Çimento is a company that enjoys the admiration of the people of Mardin and is respected everywhere throughout the region. Implementations: Primary factors that promote the company s competitiveness in foreign markets are its natural resources, economic integration with Nearest Asia, geographical proximity to the Nearest Asia market, trained work force, well established industrial base, the progress achieved in infrastructure and technology systems, and generally stability of the inflation and exchange rates together with the existence of a large domestic market and the liberal economic policies in force of Turkey. Highway construction will be started between Viranşehir-Habur. For this reason company expand its activities in order to get share from this business. In light of these explanations that are below, company should continue and expand its external sales by investing new projects, and use the benefits of closeness to the Nearest Asia countries

210 The company could not manage to acquire one of Rumeli Group s facilities, so if a new facility investment is needed, it takes two years to take Environmental Effect Valuation Report. For this reason the company should invest for increasing its capacity usage to expand the its market share in the domestic and foreign markets By the way investment incentives, that allow firm to deduct investment expenditures from taxable income, came to an end in This affects badly the company who makes high amount of investment expenditures. General overview of the sector: The government should let market forces play out without the distortion of incentives since these incentives not only result in unproductive and unfeasible investments in the sector, but also distort the nature of competition in the industry by preventing companies from buying each other and increasing exit barriers, thereby penalizing all players. Ünye Çimento Sanayii ve Ticaret A.Ş. The firm s current strategy is to become a respected, reliable and leading corporation developing the usage fields of cement and playing a significant role in world markets. The firm s current mission and objectives are to achieve sustainable profitability through showing respect to society and environment, aiming continuous improvement and development, and working with an understanding of productivity, efficiency and high understanding of responsibility. Corporate level strategy of Ünye Çimento is to produce high-quality cement conforming to TSE standards. The Company also has five ready-mix concrete plants and recently completed an important pre-calcination investment that will significantly increase its effectiveness and productivity. Ünye Çimento also gives great importance to the well-being of society, its employees, and the environment. Competitive strategy of Ünye Çimento plans to increase its expertise in the production and sale of ready-mix concrete. By the way company undertook substantial amount of investment, it has been responsible for reducing Ünye Çimento s production Implementations: Important factors that promote the firm s competitiveness in foreign markets are its natural resources, geographical proximity to the Central and Eastern European Countries, trained work force, well established industrial base. In light of these explanations that are below, company should continue and expand its external sales by investing new projects, and use the benefits of closeness to the Central and Eastern Europe countries. The company could not manage to acquire one of Rumeli Group s facilities, so if a new facility investment is needed; it takes two years to take Environmental Effect Valuation Report. For this reason the company should invest for increasing its capacity usage to expand the its market share in the domestic and foreign markets By the way investment incentives, that allow firm to deduct investment expenditures from taxable income, came to an end in This affects badly the company who makes high amount of investment expenditures. General overview of the sector: The Turkish government has successfully privatized the cement industry and created an environment in which competition thrives and in which productivity should approach its full potential over time. In fact, the recommendation to the government is simply to eliminate the granting of incentives for new capacity investments the only distortion for which it is responsible

211 Garanti GMYO A.Ş. The firm s current strategy is to aim at to become the most respectable and one of the three largest real estate development companies with regard to investment volume with the synergy created by combining the experience and strength of Doğuş Group in construction and banking industries. The firm s current mission and objectives are to define its mission as raising the value of the investment portfolio by maintaining a consistent growth and thus ensuring that its shareholders benefit the most from their investments to company through both dividends and increase in market value. Corporate level strategy of Garanti REIT is to see real estate development and investment activities as an efficient and profitable source of income which requires experience and expertise in construction, finance and marketing fields and must be professionally executed within an institutional structure. Garanti REIT aims at investing in housing development projects that appeals to medium high income groups, has a certain concept approach and unique architectural designs and is financially accessible and in commercial real estates and development projects that can provide regular, low-risk and high rental income. In case of low rental income, sale of housing projects are considered and this way it is aimed that the sales revenue of the real estates and the rental income obtained from the commercial real estates with high rental income which are currently rentable will be balanced in the portfolio and this way the revenues with sales and rental origin will be diversified based on the investment segments. On the other hand, it is also aimed that a balance will be established between the currently rentable real estates and the development projects, and consequently the company will always have a durable cash f low as well as benefit from the high Competitive strategy of Garanti REIT is to aim that a balance will be established between the currently rentable real estates and the development projects, and consequently the company will always have a durable cash f low as well as benefit from the high development profits and the potential growth which can provided by development projects. Garanti REIT also considers the quality standard s of Doğuş Group besides commercial pursuits in its investments. It is important that a certain architectural concept and gusto of life exist in the housing projects to be developed, move the quality standards of its class further and is financially reachable. Implementation Most of the company s commercial properties are hired by Doğuş Group Companies such as Garanti Bankası and Doğuş Otomotiv. This situation may constrict the company s range of portfolios. The company should invest different areas to distribute its risk of portfolio. When I analyze the firm s financial statements, the company gets more income from other activities such as interest income from marketable securities, and dividend income. I think company should use these funds its core business to expand its portfolio and get more share from the sector. On the other hand its operational profitability does not appear lucrative in the last three years. I mean the company should enter new markets such as new residential projects with the giant in the sector. When I analyze firm s business portfolio that has low share from housing project may miss the opportunity of the mortgage system in the sector. The company should tend to housing project to maximize the profitability and take bold steps from the mortgage system that will constitute in recent years

212 Pension Funds, which is recently developing in Turkey, may tend to include real estate investments. In order to generate long-run but low-risky returns company should tend this sector in order to get large market share. Change in life styles in the metropolis regions from living in downtowns to rural but close to city areas. This shift in life style brings site building opportunity to construction firms. For this reason expand its housing portfolio to the far of the big cities. Foreign investors interest is very low as of 2005 and this hot prospect sector will definitely attract attention with its profitability. If the company interested in these purpose, it may increase market capitalization of the company. The steady population increase in Turkey will create stable demand for housing and average house gap per year for this reason company should ten to housing projects. The vacancy rate in A-class office buildings is at the lowest level of the history and this will create demand to business properties. For this reason company should tend to this type of business. İş GYO A.Ş. The firm s current strategy is to achieve a high degree of profitability from a steady stream of rental income on a superior quality portfolio of properties, İş REIT s goal is to provide investors with the highest possible returns with minimum levels of risk. In all its activities, İş REIT strives to contribute to the creation of a dynamic, sound, and professional real estate market in Turkey. The firm s current mission and objectives are to maximize the collective value of our portfolio for our shareholders through stable growth and high profitability. In this respect: İş REIT has pursued steady growth since the day it was established by means of well-placed investments and through the effective use of its resources. İş REIT maintains a close lookout for value enhancing opportunities in the sector in line with its goal of securing the highest possible returns for its shareholders. The confidence inspired by the ethical values to which it subscribes and abides by in the conduct of its business and by its openness and transparency in keeping investors informed have strengthened İş REIT s position in the sector. Corporate level strategy of İş REIT The Company s basic function is that of portfolio management for which purpose it invests in completed real estate properties or in real estate projects in order to secure rental income. In the broadest sense, the risks inherent in securing rental income from real estate properties are attritions in tenants ability to pay due to general economic difficulties, oversupply where properties are located, and natural disasters. Taking into account the risks to which it may be exposed, the company leases the properties in its portfolio primarily to private individuals and to national and international firms and organizations that have a solid reputation in their areas of activity and are financially sound. To ensure stability in its portfolio revenues, special care is given to diversifying the types of real estate properties in the portfolio and the currencies in which the leases are denominated. When making investment decisions, the quality of the property to be invested in and the immediate availability of tenants for it are its foremost priorities. For this reason, oversupplies that may occur in the places where its properties are located do not have a significant impact on the occupancy rates of its portfolio

213 All of the properties in its portfolio are insured at their current market value against all risks. In addition, according to their nature and associated use not only its properties but also their tenants and visitors are covered against foreseeable risks. Competitive strategy of İş REIT is to seek to provide its shareholders with the highest possible return on their investments. In line with this, İş REIT remains on the lookout for other opportunities in the sector that would enhance shareholder value. Company lets out all the contracts for its real estate projects only to firms that are knowledgably experienced, financially strong, and technically competent. In order to ensure that the cash resources needed for projects will be fully available when they are required, its cash assets are carefully structured according to currency type and maturity structure; in addition, The company does not need borrowing, in order to finance on going projects, because of the rental income from its existing real estate portfolio significantly strengthens its cash flow creation ability. Implementation The company has high liquidation may tend the core business to get more profit from impacts. mortgage system s On the other hand the company should tend to housing project but its low share of housing projects may miss the opportunity that will be generated from Mortgage Act. Pension Funds, which is recently developing in Turkey, may tend to include real estate investments. In order to generate long-run but low-risky returns company should tend this sector in order to get large market share. Change in life styles in the metropolis regions from living in downtowns to rural but close to city areas. This shift in life style brings site building opportunity to construction firms. For this reason expand its housing portfolio to the far of the big cities. Foreign investors interest is very low as of 2005 and this hot prospect sector will definitely attract attention with its profitability. If the company interested in these purpose, it may increase market capitalization of the company. The steady population increase in Turkey will create stable demand for housing and average house gap per year for this reason company should ten to housing projects. The vacancy rate in A-class office buildings is at the lowest level of the history and this will create demand to business properties. For this reason company should tend to this type of business. Vakıf GMYO A.Ş. The firm s current strategy is to grow by adding value to its investments, to sustain profitability and the strong structure of balance sheet, to create projects of high value, to give motivation and job satisfaction to its employees. The firm s current mission and objectives is to have a diversified, risk degree lowered and high return generating portfolio of real estates. Beside this, providing transparency to real estate sector, supporting urbanism and helping the small investors to participate projects of high quality and large scale. Corporate level strategy of Vakıf REIT: When I look at Vakıf GMYO s portfolio of assets, we can see that the company mainly concentrates on office buildings and land. Different from other real estate investment trusts, the company has no any investment in shopping centers

214 Competitive strategy of Vakıf REIT is to get larger market share from Ankara to build business center. Implementation When I analyze the company s portfolio I see that mostly has business center. There is not a wide range of portfolio. For this reason company does not distribute its portfolio risk. For this reason company should expand its portfolio with housing projects and shopping centers. Pension Funds, which is recently developing in Turkey, may tend to include real estate investments. In order to generate long-run but low-risky returns company should tend this sector in order to get large market share. Change in life styles in the metropolis regions from living in downtowns to rural but close to city areas. This shift in life style brings site building opportunity to construction firms. For this reason expand its housing portfolio to the far of the big cities. Foreign investors interest is very low as of 2005 and this hot prospect sector will definitely attract attention with its profitability. If the company interested in these purpose, it may increase market capitalization of the company. The steady population increase in Turkey will create stable demand for housing and average house gap per year for this reason company should ten to housing projects. The vacancy rate in A-class office buildings is at the lowest level of the history and this will create demand to business properties. For this reason company should tend to this type of business

215 LIST OF ABBREVIATIONS FATFH: Financial Action Tax Force FAD: Financial Administration TOKİ: Housing Development Administrating Office EIA: Environmental Impact Assessment EU: European Union MASAK: Financial Crimea Investigation Board ILO: International Labor Organization TUBITAK: Technological Research Council of Turkey IMF: International Monetary Fund ISKUR: Turkish Employment Agency CBD: Central Business District GNP: General National Product GDP: General Domestic Product R&D: Research and Development DPT: State Planning Organization GYO: Gayrimenkul Yatırım Ortaklığı IPO: Initial Public Offering REIT: Real Estate Investment Trust

216 APPENDICES