EİS ECZACIBAŞI İLAÇ, SINAİ VE FİNANSAL YATIRIMLAR SANAYİ VE TİCARET A.Ş. BOARD OF DIRECTORS REPORT - PDF

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BOARD OF DIRECTORS REPORT AS OF 30 JUNE 2011 Page No: 1 1. Reporting period This report is prepared in accordance with the Capital Markets Boards Communiqué Serial XI No 29, Principles of Financial Reporting

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BOARD OF DIRECTORS REPORT AS OF 30 JUNE 2011 Page No: 1 1. Reporting period This report is prepared in accordance with the Capital Markets Boards Communiqué Serial XI No 29, Principles of Financial Reporting in Capital Markets for EİS Eczacıbaşı İlaç, Sınai ve Finansal Yatırımlar Sanayi ve Ticaret A.Ş., its Subsidiaries, Joint Ventures and Associates; and it includes information on important developments that took place during the financial year January 1 30 June 2011, along with the impact of these on financial tables and explanations on any critical risk or uncertainties that may be arising from these for the rest of the financial year. 2. Authorized boards for the period Board of Directors Name - Surname Responsibility F. Bülent Eczacıbaşı Chairman Non Executive R. Faruk Eczacıbaşı Vice Chairman Non Executive Dr. O. Erdal Karamercan Member Non Executive M. Sacit Basmacı Member Non Executive Levent A. Ersalman Member Non Executive Sedat Birol Member General Manager Board of Auditors Name - Surname Tayfun İçten Selahattin Okan Responsibility Auditor Auditor The Board of Directors and Auditors have been elected at the General Assembly dated 6 May 2011 to act for a year. The Board of Directors is authorized to take all business decisions with the exception of decisions that must be taken at the General Assembly as specified in the Articles of Association. There are no Managing Directors at the Board of Directors and Auditors. 3. Amendments made to the Articles of Association during the reporting period and reasons It has been unanimously resolved at the extraordinary General Assembly Meeting held on 6 May 2011 for the year 2010 that Article 4 of the company s articles of association, titled Purpose and Scope be amended as approved by authorization No: 1649, of 11 February 2011, of the Capital Markets Board, and authorization No: 1283 of 1 March 2011, of Ministry of Industry and Trade and the registration thereof is pending. Page No: 2 4. Shareholding structure and changes in share capital The Company s share capital is TRL 548,208,000 and it has not been changed during the reporting period. The shareholders owning more than 10% of the share capital and their proportion of ownership are as follows: Eczacıbaşı Holding A.Ş. % Eczacıbaşı Yatırım Holding Ortaklığı A.Ş. % Profit distribution policy and ratio At the General Assembly held on 24 May 2011, it was decided to distribute cash dividends amounting to gross 7% (net 5.95%) of the profit. Distribution of dividends started on 25 May Key factors affecting the Company s performance, changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes, investment and dividend policies implemented to enhance the Company s performance The Company has a holding structure with its subsidiaries, joint ventures and associates. Therefore, the Company s disclosures under this article are provided within the context of business segments it is involved in and the associated companies operating within these business segments as listed below: Business Segment Segment/Market Health Sector Original pharmaceutical market Hospital supplies Dialysis treatment Health services Nuclear medicine Consumer Products Sector Cosmetics market Hairdressers products market Consumer products market Trade Title EİP Eczacıbaşı İlaç Pazarlama A.Ş. Eczacıbaşı İlaç Ticaret A.Ş. Eczacıbaşı-Baxter Hastane Ürünleri Sanayi ve Ticaret A.Ş. RTS Renal Tedavi Hizmetleri Sanayi ve Ticaret A.Ş. Eczacıbaşı Sağlık Hizmetleri A.Ş. Eczacıbaşı-Monrol Nükleer Ürünler Ticaret ve Sanayi A.Ş. EBC Eczacıbaşı-Beiersdorf Kozmetik Ürünler San. ve Tic. A.Ş. Eczacıbaşı-Schwarzkopf Kuaför Ürünleri Pazarlama A.Ş. Girişim Pazarlama Tüketim Ürünleri Sanayi ve Ticaret A.Ş. Page No: 3 Real estate development: Property development Eczacıbaşı Gayrimenkul Geliştirme ve Yatırım A.Ş. Kanyon (*) Ormanada Project (**) Other Ceramic tiles market Export services Vitra Karo Sanayi ve Ticaret A.Ş. Ekom Eczacıbaşı Dış Ticaret A.Ş. (*) Includes the whole Kanyon Office Block, which appears under the Company s assets, and half of the Shopping Mall. (**) In December 2007, the Company bought half of 22 plots of land with a total area of 196, m 2 located at Sarıyer İlçesi, Uskumru Mahallesi, Yorgancı Çiftliği Mevkii. Project details are provided in section Health Sector For the joint ventures active in the original pharmaceutical market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: The reference pricing system applied by the Ministry of Health and global budget application managed by the Social Security Institution, The licensing process of the Ministry of Health, Introduction of the GMP (Good Manufacturing Practices) requirement for the imported products pending license and consequently prolongation of the process The speed of entry of licensed products to the Social Security Institution s (SSI) reimbursement list, Obligatory discounts to state institutions imposed by the SSI are the key factors affecting performance. As a precaution to the possible negative impact of these, the Company has been adding OTC products to its portfolio, which are easier to license and unregulated. Investment and dividend policies implemented to enhance the Company s performance: Companies active in this segment are marketing and sales operations with no manufacturing activity. Therefore, a policy to distribute all distributable profit has been adopted. Page No: 4 For the joint venture active in the hospital supplies market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: The main factors affecting the performance of the Company are uncertainties observed in global markets and the Turkish market, competition, and exchange rate fluctuations. As a precaution to these changing conditions, the Company maintains its competitiveness without deviating from quality and operating expenses are kept under close scrutiny against possible adversities in market conditions. Due to the technical problems suffered by its primary shareholder Baxter at its Ireland- Castlebar manufacturing facilities in the first half of 2011, Eczacıbaşı-Baxter Hastane Ürünleri has successfully realized the peritoneal dialysis solution production for many EU countries and caught a significant export opportunity. It is expected that such production activities continue till the end of September. Investment and dividend policies implemented to enhance the Company s performance: The installed capacity is revised every year and in light of sales targets for the coming years, required investments are made where a deficiency is observed. The Company adopted the principle of distributing profits fully as dividends for as long as such action had no negative impact on its financial structure. At the General Assembly meeting of 14 April 2011 it has been resolved that a gross dividend amount of 7 million TL be distributed to the shareholders at any time to be specified by the Board of Directors in any case no later than 31 December For the associate active in the dialysis treatment market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: Market conditions, competition and the dialysis session charges announced by the Social Security Institution are the main factors affecting the performance of the Company. On a Turkish Lira basis, the session charges were fixed from February 2005 to 2010 when a 5% increase bringing the price to TRL 145 became effective on April 1, As energy and fuel expenses, which constitute 10% of operating expenses, recorded price increases above inflation and other expenses (personnel, rent etc.) increased as much as the rate of inflation; while session prices had a much smaller increase applied much later, profitability was negatively affected. Under these circumstances, increasing sales and reducing expenses has become a policy priority. Page No: 5 Investment and dividend policies implemented to enhance the Company s performance: The main investment items are machinery procurement and rental improvements related to capacity increases or renovation. In principle, investments are financed through increases in equity capital. In line with a resolution on quota and planning measures in effect since February 2009, the Ministry of Health limited new dialysis center permits based on regional capacity occupation ratios. For the associate active in the health services market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: Key factors affecting the performance of Eczacıbaşı Sağlık Hizmetleri are; Changing macroeconomic indicators (In an economic crisis, fewer patients go to hospitals creating problems in enrolling patients in nursing homes. Also, during such times, some patients receiving home care services opt for employing unqualified health personnel due to cost concerns.), The problems observed in recruiting nurses, who constitute the majority of personnel. Investment and dividend policies implemented to enhance the Company s performance: In order to lower the impact of adversities and improve performance, Eczacıbaşı Sağlık Hizmetleri is continuously striving to decrease costs by operating more efficiently. Eczacıbaşı Sağlık Hizmetleri is a service company active exclusively in sales and marketing, with no manufacturing operations. An important investment item for the Company in the coming term will be increasing the number of nursing homes. For the associate active in the nuclear medicine sector; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: The performance of Eczacıbaşı-Monrol Nükleer Ürünler is closely tied to the health policies adopted by the authorities (Ministry of Health, Ministry of Finance, Reimbursement Agencies). Inclusion of the Company s products in the reimbursement schemes and the conditions of reimbursement affect the performance directly. As the Company creates a consumer market for the products it produces, it creates employment and value added both directly and indirectly. Investment and dividend policies implemented to enhance the Company s performance: In order to improve its performance, Eczacıbaşı-Monrol Nükleer Ürünler carries out promotional activities to introduce its products and enhance their usage. In line with this, it invests to increase its geographical coverage. The Company carries out R&D activities to broaden its product portfolio and introduces the developed products to the market. Page No: Consumer Products Sector For the joint-venture active in the cosmetics market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: The growth rate of the cosmetics market had been below expectations for the last few years. Annual market growth for 2010 was 11%. In 2011 new players are expected to enter the market, and thus, the market is not expected to shrink. The market developments are observed mostly at pharmacies and direct sales channels which are increasingly preferred by the consumers. This may affect the performance of the Company. As the retail sector is getting more organized, the ratio of sales through chain stores is increasing day by day. This is mainly an outcome of the increase in the number of cosmetics chain stores. The current ratio of 55% to 45% for sales through chain stores and traditional outlets (perfumeries, wholesalers, pharmacies, local markets) respectively is expected to become 60% for chain stores and 40% for traditional outlets in two years time. The sales and distribution arm of Eczacıbaşı-Beiersdorf Kozmetik Ürünler, Girişim Pazarlama Tüketim Ürünleri, is adjusting its organization and structure to better adapt to this new trend. For the joint venture active in the professional hairdressers products market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: The key factors affecting the performance of Eczacıbaşı-Schwarzkopf Kuaför Ürünleri are the activities of the competitors and, as almost all of the products are imported, economic variables starting with the foreign exchange rates. Precautionary policies include following up market data closely and making use of financial instruments to hedge foreign exchange risks. In order to increase market share new products are imported in line with the health and fashion trends; training programs are offered to hairdressers to improve their skills and promote the use of products; support activities are organized to tie in more hair salons and periodic promotional campaigns are developed. For the associated active in the consumer products market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: As of year-end 2007 Eczacıbaşı Girişim Pazarlama Tüketim Ürünleri moved its production to a modern plant within the Gebze Organized Industrial Zone, from its old production facility located at Çerkezköy. The fact that the new manufacturing plant is located close to the main warehouse as well as having its own warehouse resulted in significant improvements in storage and transportation costs. Page No: 7 The Company keeps investing in new systems to improve its current sales infrastructure. Within this context, to manage the dealers effectively, a dealer automation system was established where dealers sales and stocks can be monitored daily on a product basis. In 2008 a system that would enable the dealers to place orders automatically was established and became operational. A CPM (Commercial Promotion Management) Project for the chain stores channel that would allow all the dealers to effectively use the sales funds, and a CRM (Customer Relationship Management) Project for the out of home channel were both completed in Our company has started the sales and distribution of SMA brand infant food as of April In 2008 a video conference system was established in between the head office, regional offices and the production facility. This system would enable the Company to achieve significant savings on transport and travel expenses. 6.3 Real estate development: Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: Kanyon: Competition has been intensifying since 2008 with the opening of new shopping centers. Despite this, Kanyon still is able to differentiate itself from the competition and manages to attract a loyal customer base. In response to increasing competition and the economic fluctuations, the marketing plan is enriched, and by means of applying an optimum stand rental pricing policy, operations in this area are being developed. An increase in retail turnover has been observed since May 2009 which also continued in Kanyon s strong and weak points within this market structure can be summarized as follows: STRENGTHS Central location / Being preferred at summer weather conditions Different architectural design Open air shopping Heavy emphasis on leisure, culture and art elements OPPORTUNITIES Conceptual uniqueness Vicinity to a dense office population High income region WEAKNESSES Affected by adverse weather conditions in winter Traffic density Gaps in the brand mix THREATS New shopping centers Kanyon s luxury image Page No: 8 The strong demand the retail market had shown to shopping centers caused the rental rates to rise and the retailers that rented their spaces at these high prices started facing difficulties at the end of 2008, when the impact of the economic crisis started to be felt, to the extent that some had to close down their stores. In this crisis environment retailers have become reluctant to open new stores and the shopping centers have started evaluating applications more meticulously. To replace the shops that closed down, Kanyon is now looking for brands that have higher potential to attract consumers and create more traffic. At the same time efforts concentrate on strengthening the brand mix and the brand gaps have already started being filled. Kanyon carries out systematic activities as a favorite shopping center: art activities, programs for kids and campaigns; and ecologic living space Organikanyon are among these. Huge inflated toys designed for kids every weekends during summer, 6D cinema leisure center Fungate for kids aims to place Kanyon as a shopping center preferred by families. With a cooperation of Virgin Radio and Kanyon, Kanyon now has a radio station and Virgin Radio DJs are broadcasting from Kanyon with both their closed circuit programs and national broadcasting. Virgin Radio Kanyon is developed in line with the Kanyon s image as young and innovative, and aims to attract young clients. Paying attention to the increasing importance of social media and digital marketing Kanyon started using these channels more effectively in its marketing communications and investments. Paying attention to the increasing importance of social media and digital marketing Kanyon started using these channels more effectively in its marketing communications and investments. Various activities have been carried out on favorite social platforms such as Facebook, Twitter, Foursquare in an effort to increase the prominence and awareness of Kanyon. KanyonFit Project, one of the Kanyon digital applications has been awarded the gold prize at the international contest 2010 ICSC Solal Marketing Awards. Real estate development: Key factors affecting the performance of Eczacıbaşı Gayrimenkul Geliştirme ve Yatırım are the investment decisions of the investors it is serving with real estate development projects and the overall outlook of the sector. Ongoing real estate development projects are proceeding as planned. As the clients served have decided land development and building would be their primary area of activity, their investment decisions are expected to remain intact in the short to medium term. The construction sector, in which the company is active, felt the economic crisis most. Despite this, the Company will keep its unique standing in the market with its high quality orientation, outstanding architectural approach and the projects it develops with an aspiration to establish brand names. Page No: Other For the associate active in the ceramic tiles market; Key factors affecting the Company s performance, significant changes that took place in the operating environment of the Company and the policies adopted by the Company in response to these changes: In 2010 Vitra Karo performed better as compared to Despite the fact that the impacts of the global economic crisis starting in late 2008 have lessened at home and in the foreign relevant markets in 2010, now political instability took the stages in the Middle East, one of the major emerging markets in Sale
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