analysis of

ŞİŞE CAM

INITIAL REPORT

Onur Başer & Deniz Akgül

94024910 95020040

I-) Introduction:

Şişe Cam is the founder of the Turkish glass industry and has been operating in glass and it’s integrated products since 1935. Şişe Cam is a successful giant in the glass industry, though it only has 359 employees, this shows that most of its production is based on high-technology output, with low participation of labor. The Company has 10 billion (Turkish lira) authorized capital and 5.6 billion (Turkish Lira) issued capital. Its shares are traded on the national trading market of the Istanbul Stock Exchange.

The groups main business line is flat glass, glass bottles, household glassware. Şişe Cam operates with it’s 27 participations and affiliated companies in the glass sector.

The exports realized in 1994 by the Şişe Cam Group is 308 million USD. The high competitive power of the company has prevented the economic crisis effecting the sector and has even placed Şişe Cam on an international platform. The main issue is to prosper the enlargement and new investment projects in the1995-1997 period to take advantage of the domestic and international potential.

51% of the group’s production consists of flat glass. 31% glass bottles, 15% household glassware products and 1% glass wire. In the domestic market the group has 91% of the flat glass and household products and 98% of the glass packaging market shares. Participation revenues of Şişe Cam for the past three years are shown below.

The Main Shareholders and their participations in the equity capital are :

The income realized from participations for the last five years are shown below:

Year	Participation Revenues (TL Million)	Proportion in Total Revenues (%)
1992	45,813
1993	142,472
1994	387,041	43%
1995	832,548	37%
1996	2,481,756	53%

The Company’s main participation’s and its portion in their equity capital are shown below:

Participation’s	Participation Capital(Thousand TL)	Participation %
Cam Pazarlama A.Ş	826,000,000	82
Soda Sanayi A.Ş.	3,366,000,000	61
Camis Sigorta Hizmetleri A.Ş.	250,000	55
Camtaş Düz Cam Pazarlama A.Ş.	560,000,000	80
Camsar San. Ara. Mal. Paz. A.Ş.	167,000,000	98
Paşabahçe Cam Sanayi A.Ş.	6,832,000,000	52
Çayırova Cam Sanayi A.Ş.	660,000	32
Topkapı Şişe Sanayi A.Ş.	1,983,000,000	35
Cam Elyaf Sanayi A.Ş.	1,690,000,000	30
Anadolu Cam Sanayi A.Ş.	969,000,000	40
White Cap Amb. San. Ve Tic. A.Ş.	36,500,000	18
Ferro Döküm Sanayi ve Tic. A.Ş.	272,000,000	8
İstanbul Porselen San. A.Ş.	176,284,000	32
Trakya Cam Sanayi A.Ş.	7,800,000,000	44
Paşabahçe Perakende Sat. Ltd. Şti.	40,000,000	13
Camiş Menkul Değerler A.Ş.	50,000,000	36
Camiş Ambalaj San. A.Ş.	842,000,000	12
Cam İşleme San. A.Ş.	675,000,000	2
Camiş Madencilik A.Ş.	1,276,429,197	3
Camiş Makina ve Kalıp San. A.Ş.	197,000,000	16
Cam Ambalaj Pazarlama A.Ş.	15,000,000	-
Camiş Jersey Ltd.	1,163,763	40
International Glass Ltd.	45,280	40
Caminter Gmbh	259,029	40
Anadolu Hayat Sigorta A.Ş.	500,000,000	1
İzocam A.Ş.	450,000,000	0.03
Destek Reasürans	350,000,000	0.03
Taşel Türk Alk. İçki ve Şarap End. Ltd.	3,787,560	10

Taking a look from a different perspective at the industry as a whole, reveals that Şişe Cam is in fact a monopolistic company, though there are several other companies competing, 4 out of 5 companies belong to Şişe Cam. As in any monopoly, Şişe Cam has control and dominates the market, and influences the market price through its diverse strategies. As a result of these factors Şişe Cam is by far the most successful and profitable company in this industry.

Of all the companies competing in the glass industry are 5 companies which are traded in the Istanbul Stock Exchange. Four of these five companies are owned by Şişe Cam. The results of the latest balance sheet announcements made by these 5 companies are shown as follows:

From SPK’s book, financial ratios of Şişe Cam is examined on the part of Holding Sector. The other 4 companies are examined on the Non-metalic Mineral Products Sector. To compare Şişe Cam efficiently I created a Glass Sector. In the following analyses we re-calculated the arithmetic average and standard deviation of all 5 glass companies.

II-) Analysis Of Profitability Performance :

A-) Profitability(%):

1-) Gross Profit Margin:

	1992	1993	1994	1995	1996
Şişe Cam	30.90	18.92	40.56	45.19	42.75
Average of Sector	39.62	39.39	46.63	47.43	41.72
Standard Deviation	12.78	15.17	6.96	8.62	2.79

The gross profit margin is the measure of profitability of the companies products. When we look to the chart we can easily see that on the average Şişe Cam has lower gross profit margin rate than the sector. However, the standard deviations are high. So, we can say that Şişe Cam has approximately same gross profit margin with its Sector. This indicates a good result. Because, it shows that Şişe Cam is operating profitable as its competitors[1].

2-) Net Profit Margin :

	1992	1993	1994	1995	1996
Şişe Cam	61.96	131.44	128.73	231.99	300.18
Avg. of Sector	19.76	40.47	46.40	62.66	66.58
Std. Deviation	24.76	51.17	47.11	95.56	130.70

Net profit is the profit after all expenses have been deducted. When we look to the Net Profit Margin of Şişe Cam it has increased enormously from 1992 to 1996. 1994 Crisis did not affect Şişe Cam’s profit margin too much. (It is really interesting, the management of Şişe Cam made a good job in this depression year). By the way, when we look to the Glass Sector, the averages are not good when compared to Şişe Cam.

If we look at the Gross Profit Margin Chart we see that Şişe Cam has seems to have equal gross profits with the industry, however when consider the net profit margin graph we notice that their is a considerable variation from the industry. This is due to the fact that Şişe Cam has managed its operating costs efficiently and effectively.

3-) Return on Assets:

	1992	1993	1994	1995	1996
Şişe Cam	6.58	9.57	12.28	18.65	20.87
Avg. of Sector	8.30	16.12	22.52	17.16	8.84
Std. Deviation	8.64	6.45	11.30	7.37	8.39

The ratio of net income available to common stockholders divided by the total assets. It is a measure of the productivity of the assets regardless how the assets are financed. It is a measure of profitability. Şişe Cam has an improving trend on ROA. This numbers indicates that the Şişe Cam’s management has used companies assets efficiently. They could manage to increase this profitability every year.

Although the industry was better than Şişe Cam between 1992 and 1994, the overall ROA of the industry has declined after 1994.

4-) Return on Equity:

	1992	1993	1994	1995	1996
Şişe Cam	7.16	10.51	14.90	22.05	22.40
Avg. Sector	12.46	28.64	36.90	29.18	14.94

The rate of return upon the stockholders’ equity in the business. The return on equity ratio, looks at the return earned by management on the stockholders’ investment. Şişe Cam had efficiently used the investment which were made by its stockholders’. Like ROA , return on equity was at impressive levels until 1994. In the following years industry ROE decreased by a significant level.

B-) Share Performance:

1-) Dividend Payout Ratio:

	1992	1993	1994	1995	1996
Şişe	92	83	91.36	87.59	0
Avg. of Sector	68	77.50	65.53	76.13	38.33
Std. Deviation	38.56	13.08	16.45	13.56	43.61

The overall dividend payout policy of Şişe Cam has been higher than the industry level. Most of the investors are keen on dividend before purchasing the stocks. For this reason investors are attracted to Şişe Cam’s stocks more than any other stock in this industry. In 1996 they did not pay any dividends. Due to the fact that management decided to increase the retained earnings of Şişe Cam.

2-) Dividend Yield(%):

	1992	1993	1994	1995	1996
Şişe Cam	3.64	13.33	2.35	2.39	0
Avg. Sector	2.22	12.93	3.11	6.37	0.52
Std. Deviation	2.15	9.28	1.60	4.55	0.81

Dividend yield is the dividends expressed as a rate of return on the market price of common stock. The variability of Şişe Cam’s dividend yields is closed to the overall average the industry.

3-) Price-Earning Ratio:

	1992	1993	1994	1995	1996
Şişe Cam	6.91	24.67	27.86	17.67	27.95
Avg. of Sector	3.83	14.32	14.35	9.79	16.17
Std. Deviation	6.28	6.35	7.62	4.92	9.15

This ratio shows the dollar amount investors will pay for each 1$ of current earnings. P/E ratios are higher for firms with high growth prospects, other things held constant, but they are lower for riskier firms. The P/E ratio reflects the investors concerning the company’s future performance. When we look P/E ratio of Şişe Cam except 1992, it has a good dividend policy and is above the industry.

Market Value/Book Value:

	1992	1993	1994	1995	1996
Şişe Cam	0.49	2.59	3.69	5.69	10.82
Avg. Sector	1.26	3.57	7.10	3.72	5.56
Std. Deviation	1.38	1.53	5.60	1.32	3.28

The ratio of a stock’s market price to it’s book value gives an indication of how the investors regard the company. Şişe Cam has consistently high rates of return on it’s assets, and it’s market value is well in excess of their book values.

Earnings Per Share(TL):

	1992	1993	1994	1995	1996
Şişe Cam	119	121	186	571	559
Avg. Sector	251	827.41	3640.68	828.66	413.82
Std. Deviation	347	758.63	6425.54	320.36	353.99

EPS is net income applicable to each share of common stock. The higher the EPS the better. After 1994 Şişe Cam has increased by far, which is a favourable situation for common stockholders. However when we compare with its sector, we will see that it is really in bad condition.

In 1994, there is an abnormal difference between the average glass sector and Şişe Cam. When we examine this situation we will see that Denizli Cam has an earning per share of 15,116.7. However the biggest company of Glass Industry which is Şişe Cam has a rate of 186.07

III-) Analysis Of Financial market reaction :

This is the values of Şişe Cambetween 20 January 1997 and 29 January 1997. As seen in the article, Şişe Camhas increased its total authorized capital from 10 trillion to 50 trillion TL. When we analyze this situation, until this news had announced there is a slight increase in the stock prices. But when they announced it increased 13% and the following day it reached to peak level of 31% increase. After this event the stock price gradually declined to it’s equilibrium price. With the use of this information speculators have gained profits.

Stock Price Of Şişe Cam:

As you can see from the chart from 1996 to last periods of 1997 Şişe Cam showed a good performance on its stock prices. There is an increasing trend of close prices. Due to the monopolistic condition and high net profits Şişe Cam is a good stock to invest. However, most of the investors on Turkey did not use the financial ratios to evaluate the company. I think this is the biggest mistake. Because, these ratios are reflecting the exact position of Şişe Cam. But our investors rely on Technical Analysis, because it is easy to calculate (by usage of computers) and it says “BUY” or “SELL”. (which the financial ratios do not say any restrict things like this). As a result, they should not buy or sell their investments on the decisions of these technical analysis, but they can get clues from them.

IV-) Summary:

In today’s dynamic environment, successful performance for company’s is becoming more challenging day by day. Şişe Cam is a very successive company in it’s industry, after analysed it seems that it has an impressive performance. However, keep in mind that Şişe Camis a monopoly in this industry. If there was free competition, would Şişe Cam have been this successful? We don’t know, it depends. But one thing is for certain, more competition would lead to higher quality and force companies for better performance. Şişe Cam may have the capability of doing much better but with someone to push, Şişe Cam may never be aware of this, or may innovate itself rather slowly. More competition is necessary for the growth of the industry and for the growth of the economy. The government should prevent monopolies such as Şişe Cam and support smaller companies to increase competition for a more healthier,reliable and stronger economy.

V-) Bibliographies :

1-) Brigham, Eugene F. 1995. Fundementals of Financial Management. 7^th Edition

New York: Dryden Press

2-) Ekonomik Trend Year:6 Number:28 6-12 July 1997

3-) IMKB Haftalık Bülten Year:12 number:4 24 January 1997

4-) Merkez Bankası. Şirketler Yıllığı 1995 Ankara

5-) Paramatik Number:206, 9-15 November 1997

6-) SPK, Şirketler Yıllığı, 1997

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[1] As I mentioned before 4 out of 5 companies are belong to Şişe Cam. So there is not a pure competion. Due to this the ratios tend to be equal.