Financial Analysis of Two Company

07.7.2012 Bilal Elarslan 2007432031 |
Dokuz Eylul University
Faculty of Business
Business Administration

ManagerialFinance | Financial Analysis of Ülker &Pınar Süt |

List of Contents

Introduction 3
1. Ülker 4
1.1 History of Ülker 4
1.2 About Ülker5
1.3 Shareholder Structure 6
1.4 Subsidaries6
1.5 Wacc of Ülker7
1.6 Leverage8
1.7 Operating and financial leverage of Ülker8
1.8 Beta Analysis9
1.9 Ülker’s Beta Coefficent…………………………………………………………………………………………………………………9
1.10 Additional financial İnformation & key ratios……………………………………………………………………………10
2.Pınar Süt………………………………………………………………………………………………………………………………………. 12
2.1 History Of Pınar Süt…………………………………………………………………………………………………………………….12
2.2 General Overview of Company………………………………………………………………………………………………....13
2.3 Shareholder Structure……………………………………………………………………………………………………………….15
2.4 Wacc of Pınar Süt………………………………………………………………………………………………………………………16
2.5 Leverage…………………………………………………………………………………………………………………………………….17
2.6 Pınar Süt’s Beta coefficent…………………………………………………………………………………………………………18
2.7 Additional informations & key ratios…………………………………………………………………………………………19
Appendix…………………………………………………………………………………………………………………………………………20
References………………………………………………………………………………………………………………………………………22

Introduction
In this research paper I prepared the financial anaıysis of Ülker & Pınar Süt. While preparing this report firstly I have to choose two company Which are; * Ülker * Pınar süt
While preparing this report I really mentioned about what we learned during manegerial finance lessons.
As a result; with this aim, I prepared my term project by combining both acconting methods and my knowledge about finance.

1. ÜLKER

2.1 History of Ülker
1944- Ülker Bisküvi was established in the Eminönü district of Istanbul.It started out as a small bakery with just three workers, producing 200 kg of biscuits per day. A few years later, the Company relocated to the Topkapı district of Istanbul.
1948- Producing a total of 75 tons of biscuits in 1944, Ülker Biscuits tripled its capacity at its Topkapı factory, built in 1948 specifically in order to increase the production volume.
1955- Ülker Biscuits decided to distribute its products throughout Turkey at factory prices and achieved a huge production increase with this innovation.
1970- In line with the growth strategy, Anadolu Gıda Sanayii A.Ş. was founded in Ankara as a multiple-shareholder company and the production capacity of Ülker Biscuits was doubled.
1974- The first biscuit export was made after choosing the Middle East as the target market. Opportunities for international competition were increased with the constitution of the R&D department in the same year.
1979- Ülker products began to be packed in cellophane-based packaging.
2003- Ülker Bisküvi merged under its own title with Anadolu Gıda, whose shares have been quoted on Istanbul Stock Exchange since 1996.
2008- Within the scope of Corporate Governance, the Articles of Association were amended and Corporate Governance and Audit Committees were set up. At the beginning of 2008, Ülker Bisküvi took part in the acquisition of the premium chocolatier brand, Godiva, with a 25.23% share.

2.2 About Ülker
As the first company established within Yıldız Holding, operating its core business for 64 years, Ülker Biscuits serves as the flagship of the Holding both in terms of sales turnover and profitability. According to the Istanbul Chamber of Industry (ICI) in 2009 list of Turkey’s Top 500 Industrial Enterprises, Ülker Biscuits was ranked 104th.
Ülker Biscuits produces biscuits, crackers, chocolate covered biscuits and wafers at its factories in Istanbul/Topkapı and Ankara. As the indisputable leader in the Turkish biscuit industry, Ülker Biscuits also takes its place among the giant food producers of the world, with its 280 assorted biscuit and cracker products that are supplied to both the local and international markets.
In 1996, Ülker Biscuits received the ISO 9002 certification for quality standards in production; and in 2001, it was awarded the HACCP certification for quality standards in food safety. In 2002, it won the top mark of “High Level” in an analysis made by the Europe-based quality certification firm BRC, which further secured its successful position in the field of quality control.
Ülker Biscuits develops new products in its independent laboratories, employing an experienced and innovative R&D staff, always keeping its quality-focused approach. Introducing an average of 60 new products per year to the market, Ülker Biscuits has continued to excel in innovation, thus making Ülker one of the top food brands.
Ülker Biscuits products are exported mainly to the Middle East, Russia and Central Asian Republics, as well as to Europe, Africa and the United States. Ülker Biscuits not only contributes to Turkey’s economy through its exports, but it also successfully represents Turkey’s approach to quality on a global scale.
Ülker Biscuits has an effective quality control system that injects synergy into the entire process from production through consumption; and it continues its investments based on its strategy that is focused on sustainable and profitable growth.
Ülker Biscuits is a consumer-focused company that satisfies its consumers’ needs and expectations at the maximum level, and it has formed a harmonious and lasting relationship with its target group. Surveys conducted in recent years attest to the high levels of loyalty to the Ülker brand. In the “Brands 2008” survey by AC Nielsen, Ülker was ranked first in the biscuit category, and second and third in the categories of “top-of-the-mind” brands and those that consumers feel closest to, respectively.
Local distribution of biscuits and chocolate covered products produced by Ülker Biscuits and its subsidiaries is undertaken by its subsidiary, Atlas Gıda Pazarlama, and other marketing companies of Yıldız Holding, Esas Pazarlama, Merkez Gıda Pazarlama and Rekor Pazarlama. 2.3 Shareholder Structure

Shareholders of Ülker company dated 31/12/2010 is as follows.
Shareholders Share(TRY) (%)
Yıldız Holding A.Ş. 106.999.435 39,84
Others 161.600.565 60,16
Capital 268.600.000 100

1.4 Subsideries
Ülker Biscuits, the flagship of Yıldız Holding, associated with a number of companies within the Holding, It has developed a strong portfolio synergistic structure with both vertical and horizontal integration.
Under this mutually beneficial structure, Ülker Biscuits and other companies within Yıldız Holding, each occupy a leading position in their sectors. In addition to various biscuit facilities in cities in Anatolia, Ülker Biscuits has developed a dynamic production process that reaches into all branches of the food industry, including high quality flour, butter and packaging facilities.

1.5 Weighted Average Cost of Capital
Corporations create value for shareholders by earning a return on the invested capital that is above the cost of capital. WACC is an expression of this cost and is used to see if certain intended investments or strategies or projects or purchases are worthwhile to undertake. WACC is expressed as a percentage, like interest. WACC of Ülker Company is %12,1. This means that investments should be made that give return higher than the WACC of %12,1.
WACC= (Wi x ri) + ( Wp x rp) + ( Ws x rn)
Tax rate: 20%

1.6 Leverage
Leverage refers to the effects that fixed costs have on the returns that shareholders earn. By “fixed costs” we mean costs that do not rise and fall with changes in a firm’s sales. Firms have to pay these fixed costs whether business conditions are good or bad. A firm with more leverage may earn higher returns on average than a firm with less leverage, but the returns on the more leveraged firm will also be more volatile. Managers can influence leverage in their decisions about how the company raises money to operate. The amount of leverage in the firm’s capital structure the mix of long-term debt and equity maintained by the firm can significantly affect its value by affecting return and risk. The more debt a firm issues, the higher are its debt repayment costs, and those costs must be paid regardless of how the firm’s products are selling. Because leverage can have such a large impact on a firm, the financial manager must understand how to measure and evaluate leverage, particularly when making capital structure decisions.

Operating leverage is concerned with the relationship between the firm’s sales revenue and its earnings before interest and taxes (EBIT) or operating profits. When costs of operations (such as cost of goods sold and operating expenses) are largely fixed, small changes in revenue will lead to much larger changes in EBIT.

Financial leverage is concerned with the relationship between the firm’s EBIT and its common stock earnings per share (EPS). On the income statement, you can see that the deductions taken from EBIT to get to EPS include interest, taxes, and preferred dividends. Taxes are clearly variable, rising and falling with the firm’s profits, but interest expense and preferred dividends are usually fixed. When these fixed items are large (that is, when the firm has a lot of financial leverage), small changes in EBIT produce larger changes in EPS.
Total leverage is the combined effect of operating and financial leverage. It is concerned with the relationship between the firm’s sales revenue and EPS. 1.7 Operating and Financial Leverage of Ülker in 2011

Sales Revenue 10.445.022.950 Less: COGS (9.243.511.780) Operating Leverage Gross Profit 1.201.511.170 Less: Operating Expenses (46.450.461) EBIT 1.155.060.709 Total Less: Interest 18.799.809 Leverage Net profit before tax 1.136.260.900 Financial Leverage
Less: Taxes 137.983.993
Net profit after taxes 998.276.907
Less: Preferred stock dividends (518.995.890)
Earnings available for common (EAC) 479.281.017

1.8 Beta Analysis
Systematic risk beta coefficient is a measure of a security. In other words, it is the relationship the performance of securities market with the average performance. It is coefficient of the change in response to a unit change in securities market.
The market beta coefficient is accepted to be 1 for every time. In theory, all forms of securities in the market can be said that the beta coefficient equal to 1 in the totals.
We can make 3 different beta coefficient is interpretation. 1- Beta coefficient of 1, 2- Beta coefficient is higher than 1, 3- Beta coefficient is lower than 1.

1.9 Ülker’s Beta Coefficient
Ülker beta coefficient is higher than 1 that is 1,02. So it represents the market price of securities will rise or fall more than the market. Beta coefficient that is higher than 1 is more risky than less than 1.
Hence the beta coefficient of securities is less than 1 also reduces the risk of the portfolio. Therefore, in emerging markets (bull market), while beta coefficient higher than 1 which is providing higher returns than stock market, in falling market (bear market) makes a higher damage. For this reason, the falling stock markets prefers beta coefficient less than 1. ß >1 the share movement is faster than the index (high risk and high volatility). And volatility is average price of a security or market fluctuation feature that is shown in a short time interval. Volatility of a high-speed change in the price of securities and properties of extreme volatility are seen. The higher the beta coefficient causes increasing in volatility of securities. Ford coefficient is high and its volatility is increasing of securities.
Parameter
Parameter | Coefficient | Standard Error | T- value | A | 0.42 | 0.54 | 0.77 | Beta | 1.02 | 1.027 | 0.99 |

F=92.616472228 r2=0.614915957 STD error=0.155688307 1.10 Additional Information on financial Instruments a) Capital risk management

The Group controls its capital with the liability / total capital ratio.Net liability is divided by total capital in this ratio. Cash and cash equivalents are substracted from total loans to calculate the net liability. The shareholder’s equity is added to net liabilties to calculate the total capital. b) Liquidity risk management
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities. The funding risk of the current and prospective debt demands is managed by maintaining the availability of lenders with high quality and in sufficient number

The following table presents the maturity of Group’s non-derivative financial liabilities. The table includes both interest and principal cash flows.

2. PINAR SÜT

3.4 History of Pınar Süt
1975 - Pınar Süt is established in İzmir as the Middle East’s biggest dairy processing complex and Turkey's first UHT (ultra-high temperature processed) milk and packaged dairy products manufacturing plant.
1976 - The company begins producing Turkey’s first processed cheese and chocolate milk.
1978 - Pınar sliced kashkaval cheese and Pınar spreadable cheese are introduced to consumers.
1980 - A Kraft-Pınar joint venture is launched. Pınar Süt introduces its Deram, Raglet, Maribo, and Cheddar cheese varieties.
1982 - The company begins exporting milk, cheese, butter, yoghurt, and strawberry milk to Central Europe, Cyprus, and the Middle East.
1983 - Pınar Yem is set up to provide high quality feeds to the Pınar Süt’s raw milk suppliers. Pınar Mayonnaise, Turkey’s first domestically-manufactured mayonnaise goes on sale.Pınar Beyaz, Turkey’s first spreadable cheese, and Pınar Whipped Topping, a powdered whipped topping both go into production.
1984 - Pınar Süt begins exporting its labaneh, milk, yoghurt drink, butter, yoghurt, cheese, whipped topping, and mayonnaise products to Kuwait, Cyprus, and Germany.
1985 - Labaneh is launched in the Turkish market under the name “Pınar Labaneh”.
1992 - Pınar Süt is awarded the Turkish Standards Institute’s (TSE) “Golden Packaging” award for the introduction of the first foil-sealed yoghurt container.
Form Milk, Turkey’s first low-fat milk, and Çikolasüt, chocolate milk made with real, natural chocolate, go on sale.
1993 - Pınar Süt becomes the first company in its sector to be awarded TS ISO 9002 Quality Management System certification.
1994 - Pınar Süt receives another TSE“Golden Packaging” award for its 10-liter bag-in-box pack design.
Having successfully demonstrated its compliance with European standards in terms of production, sales, and after-sales services, Pınar Süt becomes the first dairy products company to receive TS ISO 9001 Quality Management System certification.
1995 - Pınar “long-life” fruit yoghurts and prepared desserts go into production.
Turkish consumers are introduced to Pınar light (low-fat) and extra light yoghurts and to low-fat, triangular cheese.
1997 - Pınar Süt opens its Eskişehir plant.
1999 - Pınar Süt introduces its “Denge” line of lactose-free, high-calcium, and vitaminenhanced milks.
2000 - As a result of investments at the Eskişehir plant, Pınar Süt launches the world’s first continuous-process production of cream-top yoghurt.
2001 - UHT milk supplied in plastic bottles goes into production.
2003 - Under an agreement with Sodima, Pınar Süt launches production of fruit yoghurts in Turkey.
2004 - Pınar introduces its Kafela, Karamela, and Çikolasüt line of products in packaging specially designed to appeal to young people.
Pınar Süt is awarded TS 13001 HACCP Food Safety System certification.
2005 - Turkey’s first organic milk and first prebiotic and probiotic dairy products are introduced to the market.
2007 - Pınar’s YOPİ line of calcium-, protein-,and vitamin-enhanced dairy products for children goes into production.
2008 - Pınar Süt becomes the first company in Turkey’s dairy industry to undertake a Lean 6 Sigma operational excellence and productivity project.
Pınar Milk for Kids, a milk specially designed for child nutrition, is introduced to the market.
2009 - Pınar lemonade and tropical fruit drink are introduced to the market.
2010 - Pınar Kido with Biscuit, Honey Flavored Pınar Kid's Milk, and Pınar Breakfast Cream Cheese products go on sale. 3.5 General Overview of Pınar Süt
The pioneer of many firsts in its sector since the day it was founded, Pınar Süt makes use of the most modern technology available to produce and supply consumers with the milk and dairy products that are essential to good nutrition.
The first to introduce the concept of healthy milk and dairy products in Turkey
When it was originally founded in İzmir in 1975, Pınar Süt was the most advanced dairy processing complex in Europe and the Middle East. Pınar Süt was the first brand to introduce and entrench the concept of wellness, standardized milk and dairy products in Turkey.
The Pınar brand, earning a deserved reputation as “Source of Dynamism, Health, Pleasure and Life”, became the preferred choice of Turkish consumers while also making huge contributions both to the growth and development of the Turkish Animal husbandry stock raising and food industries and also to the well-being of new generations of children.
Pınar Süt’s principal business activity is the production and sale of dairy products (milk, yoghurt, yoghurt drink, traditional and modern cheeses, butter, cream) as well as of fruit juices, mayonnaise, ketchups, puddings, honey, sauces, jams and jellies, desserts, and powdered products.
A leading role in increased dairy production in Turkey
Pınar Süt introduced the first “long-life” UHT milk packaged in aseptic containers in Turkey in 1975. Operating from plants located in İzmir and Eskişehir, the company has remained the leading brand in Turkey’s dairy products industry ever since. Making use of the most modern technology available, Pınar Süt produces and supplies consumers with the milk and dairy products while also playing a leading role in increased dairy production through its year-round support for more than 35,000 suppliers of raw milk.
Pınar Süt procures its superior-quality raw milk under agreements with more than 200 of Turkey’s biggest dairy farms, which are contractually obligated to produce to EU norms. By serving as these farms’ biggest customer, Pınar Süt fosters its own “total quality” concepts among them as well. From the moment that it is harvested, raw milk is registered by means of a computerized system that keeps regular track of herd and animal health data throughout all production stages.
To ensure its freshness and quality, Pınar Süt picks up its suppliers’ raw milk twice a day (morning and evening) from more than 300 milk collection and chilling centers and it takes it immediately to its processing plant. Individual dairy producers are subject to strict monitoring and controls by local laboratories while all milk must be controlled by the advanced technology equipped laboratories at the company’sİzmir and Eskişehir plants before being accepted.
A regional force
Pınar Süt is moving rapidly towards becoming a regional force in its hinterland by exporting milk and dairy products to many countries around the world. Pınar Süt’s raw milk collection and chilling centers are inspected every year for the conformity with the EU standards by an EU commission. The company provides its suppliers with continuous support on the matter of developing and maintaining farms that are free of all diseases, which is a prime requisite for exporting milk and dairy products to EU countries. Through projects conducted jointly with government agricultural agencies in Turkey, an ongoing effort is made to ensure that raw milk production satisfies EU norms.
According to the third-quarter 2009 sectoral results of the Turkish Customer Satisfaction Index survey, Pınar Süt ranked first in its sector with the highest (82%) level of customer satisfaction in the milk and dairy products category. This survey, which is conducted regularly by KalDer (Turkish Quality Association) and which also analyzes competition in Turkey, is the second most comprehensive poll of its kind after those conducted in the United States.

3.6 Shareholder Structure The issued capital of the Company is 44.951.051,25 Turkish Lira. Each share of this capital is amounting to 1 Cent, 1.728.000 A group registered shares, 1.260.000 B group registered shares and 4.494.806,325 C group bearer shares 4.495.105.125 shares. The Company does not have any privileges regarding distribution of profit. The Company has privileges regarding voting power in the establishment of board members. The business and administration of the Company is managed by the Board of Directors consisting of 5 or 9 members to be elected within the frame of the provisions of the Turkish Trade Code by the General Assembly among the partners or from outside of the Company. In case the Board of Directors consists of 5 people, 3 members shall be elected from the candidates, which A-Group shareholders shall nominate and 1 candidate which the B-group shareholders shall nominate and 1 candidate, which C-Group shareholders shall nominate. If the Board of Directors consists of 7 people, 4 members shall be elected from the candidates, which A-Group shareholders shall nominate and 2 candidate which the B-group shareholders shall nominate and 1 candidate, which C-Group shareholders shall nominate. If the Board of Directors consists of 9 people, 5 members shall be elected from the candidates, which A-Group shareholders shall nominate and 3 candidate which the B-group shareholders shall nominate and 1 candidate, which C-Group shareholders shall nominate. If resolved by the Board of Directors, an Executive Director can be assigned. The President of the Board of Directors and the Executive Director is elected among the members representing A-Group shares.THE CAPITAL AND SHAREHOLDER STATUS OF PINAR SÜT MAMÜLLERİ SANAYİ A.Ş. SHAREHOLDERS | SHARE RATE (%) | STOCKS AMOUNT (TL) | YAŞAR HOLDİNG A.Ş. | 61,18 | 27.503.257.789.000 | 3rd PARTY | 38,82 | 17.447.793.461.000 | TOTAL | 100,00 | 44.951.051.250.000 | |

3.7 Weighted Avarege Cost of Capital
Corporations create value for shareholders by earning a return on the invested capital that is above the cost of capital. WACC is an expression of this cost and is used to see if certain intended investments or strategies or projects or purchases are worthwhile to undertake. WACC is expressed as a percentage, like interest. WACC of Pınar Süt Company is %12,1. This means that investments should be made that give return higher than the WACC of %11.6.
WACC= (Wi x ri) + ( Wp x rp) + ( Ws x rn)
Tax rate: 20%

3.8 Leverage of Pınar süt
Financial leverage is concerned with the relationship between the firm’s EBIT and its common stock earnings per share (EPS). On the income statement, you can see that the deductions taken from EBIT to get to EPS include interest, taxes, and preferred dividends. Taxes are clearly variable, rising and falling with the firm’s profits, but interest expense and preferred dividends are usually fixed. When these fixed items are large (that is, when the firm has a lot of financial leverage), small changes in EBIT produce larger changes in EPS.
Total leverage is the combined effect of operating and financial leverage. It is concerned with the relationship between the firm’s sales revenue and EPS.

3.9 Beta Analysis of Pınar Süt

3.10 Additional Information on financial Instruments a) Financial highlights: (TL million) | 2011 | 2010 | % change | Total assets | 532.6 | 479.0 | 11.2 | Shareholders’ equity | 384.8 | 350.2 | 9.9 | Financial liabilities | 15.0 | 20.0 | -25.0 | Sales revenues | 577.1 | 480.7 | 20.1 | Profit before taxation on income | 71.4 | 71.2 | 0.3 | Net period profit | 60.1 | 57.8 | 4.0 | Earnings per share (TL) | 1.3365 | 1.2863 | 3.9 |

b) Financial ratios | 2011 | 2010 | Total liabilities/Total assets (%) | 27.75 | 26.88 | Total liabilities/Shareholders’ equity (%) | 38.41 | 36.77 | Return on sales (%) | 10.41 | 12.03 | Current assets/Current liabilities | 1.92 | 2.17 | Equity turnover ratio | 1.50 | 1.37 | Net financing costs/Net sales (%) | 0.67 | 0.94 | Net financing costs/Shareholders’ equity (%) | 1.00 | 1.29 | c) Revenue & Net Income

The tables gives us a brief information related to revenue and net income of Pınar Süt.

Appendix
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ii)

References
Food Industry Report 2011
GITMAN Lawrence, ZUTTER Chad, Principles of Managerial Finance http://seekingalpha.com/article/427611-ülker-remains-one-of-our-best-ideas http://uk.reuters.com/business/quotes/financialHighlights?symbol=.IS http://www.valuebasedmanagement.net/methods_wacc.html http://www.ülker.com.tr/en/financial-statements.htm http://www.4-traders.com/PINAR-SUT-MAMULLERI-SANAY-6495545/financials/ http://markets.ft.com/Research/Markets/Tearsheets/Financials?s=PNSUT:IST http://www.pinar.com.tr/ Ülker 2011 Annual Report
Pınar Süt 2011 Annual Report