Ford Otosan Detailed Financial Review

 

FORD OTOSAN

1. COMPANY CHOICE / BACKGROUND

On May 31, 1926, Vehbi Koç registered with the Ankara Chamber of Commerce under the name "Koçzade Ahmet Vehbi Ticarethanesi" and was subsequently elected as the Chairman of the Ankara Chamber of Commerce Board of Directors. The story of Ford Otosan began with the opening of the first Ford agency to trade in automobiles in 1928. Ford Otosan is a Turkish automotive company founded in 1959. With an agreement signed in Cologne on 27 June 1997, Ford and Koç Holding equalized their shares. The decision came into effect after being approved by the Otosan Extraordinary General Assembly meeting on July 24, and thus Ford Otosan was born on this date. Both groups (41%, 41%, 18% publicly traded) had equal capital. Thus, Ford Otosan became a single and large company with its production, marketing, sales and after-sales services. Otosan produced Anadol brand vehicles between 1966 and 1984, and later produced Ford's Taunus, Escort, Transit, Connect and Courier models. Ford Otosan employs more than 10,000 people in total at Kocaeli Gölcük, Yeniköy and Eskişehir İnönü Plants, İstanbul Kartal Spare Parts Center and Sancaktepe R&D Center. In addition to its vehicle exports, Ford Otosan has exported over $320 million in engineering for the last 5 years. As of 2014, a research and development center was put into service in Sancaktepe. Ford Otosan has been among the top three exporting companies in Turkey since 2005, and has been the top exporting company in the automotive industry since 2012. In 2015, it became Turkey's top exporter company. As of 2019, the company is Turkey's second largest industrial enterprise. As of 2015, Ford Otosan has the highest installed production capacity in the Turkish automotive industry with an annual production capacity of 415,000 commercial vehicles, 80,000 engines and 140 thousand transmission units, and Ford is the largest commercial vehicle production center in Europe. With the protocol signed in March 2021, it was decided that the company would invest 2 billion euros in the Kocaeli factory within ten years. According to the statement of Mr. Ali Koç, Deputy Chairman of Ford Otosan and Koç Holding Board of Directors, the turnover of the company has reached the level of 7 Billion $, 65 Billion TL. Germany, the United Kingdom, France, Spain, Poland, Slovenia, Romania and the Netherlands are among the countries that Ford Otosan sells to. The product groups that make up the main income are automotive sub-industry, passenger cars, motor vehicles for transporting goods, and bus-minibuses. Ford Otosan's main competitors in the market include Tofaş, Otokar, Karsan Oto, Anadolu Isuzu and Katmerciler. Ford Otosan grew 5.5 times faster in the market from 1997 to 2021, reaching a market value of 6.0 billion. Although it continues to produce globally in many parts of the world, with the further growth of the market in Europe, the situation will increase for the benefit of the company as the company gains a much more prestigious position.

When we want to summarize Ford Otosan's general information; Ford Otosan offers its employees the opportunity to work as expats in many Ford companies such as Europe, America, Russia and China. In this context, the company not only offers career opportunities abroad, but also creates the opportunity to work together with employees from different countries and cultures. With the Ford R&D center, it has achieved important developments such as the first domestic diesel engine production and the first domestic automobile production. Thus, great importance is attached to studies that will prioritize innovation and innovation within the company. Within the scope of the career development process, in which 2 different career paths consisting of leadership and expertise are offered, employees can advance in managerial or technical roles, and transitions between these career paths are possible. To summarize; As one of Turkey's largest industrial companies, Ford Otosan offers its employees the opportunity to work in a large, global company focused on technology and innovation in their production. Ford Otosan, which has achieved great success since 1959 with the partnership of Koç Group and Ford Motor Company, serves in a global structure as a well-established, reliable and prestigious company.

2. OWNERSHIP & CORPORATE GOVERNANCE ANALYSIS

Owners of the company; It has 41% Ford, 41% Koç Holding and 18% publicly traded capital shares. Ford Otosan has 3 share classes: Ford, Koç and public. The government is not involved in Ford Otosan as an investor. The capital is in the general assembly and the management is in the board of directors. The general assembly is a board where all the shares are represented and all the shareholders are present. Issues about the company are taken to the agenda at the general assembly meeting together with the meeting of the shareholders and resolved. The general assembly is not an elected body, and therefore every shareholder naturally has the right to attend and vote in the general assembly. The board of directors is the governing body of companies and is elected by the general assembly. The obligation of board members to be shareholders has been abolished. With the abolition of this obligation, the company has been able to be managed by a more professional staff. In Ford Otosan's board of directors; Rahmi Koç, Ali Yıldırım Koç, Stuart Rowley, William Periam, Hans Schep, Cenk Çimen, Turgay Durak, Joerg Beyer, Kay Hart, Ali İhsan İlkbahar, Füsun Akkal Bozok, Leonard Meany, Haydar Yenigün and Dave Johnston. When we look at the relations of the board of directors with the senior management and the CEO, there is a relationship that is extremely transparent, informs the public, acts in line with company strategies, and is sensitive and attentive at the point of dividend distribution. For example, there were no significant transactions that needed to be submitted for the approval of the general assembly, as the independent members did not approve. In addition, the minutes of the general assembly are published on the company's website immediately after the meeting and are published on the Financial Affairs Department. It is kept open for inspection by the shareholders. Before the general assembly, together with the member's CV, outside the company the duties he/she performs are also submitted to the information of the shareholders. The Board of Directors holds regular meetings at least three or four times a year with the participation of all members. At these meetings, all activities of the company are reviewed and decisions are taken on important issues.

3. FINANCIAL ANALYSIS

Liquidity Comment:

When we look at the liquidity analysis, we can say that the Current ratio is above 1 every year and it is close to 1 only in 2018. When we compare it with the sector data, we can say that the data of the company is below the sector data.

When we look at the acid test ratio, it is clear that the first two years are negative below 1, and it will not be able to pay its short-term liabilities from easily converted assets. However, when we look at the last two years, we can observe that the acid test rate is above 1 and even above the sector data.

In the first two years, the cash ratio was low, but in the last two years, the company has increased its cash and cash equivalents and has achieved an increase in the cash ratio. When we look at the sector data, the cash ratio of the company is lower than the sector data only in the first year, the cash ratio of the company for the last 3 years is higher than the cash ratio of the sector.

When we look at the stock dependency ratio, we can say that the ratio is high only in the first year, and it is dependent on the stocks of the company, but in the last 3 years, the stock dependency ratio of the company has decreased and the company has become dependent on the stocks. When we compare it with the sector data, we can observe that it is above the sector only for the first two years, but below the sector for the last two years.

Financial Structure Comment: When the financial structure of the company is examined; it is seen that the company mainly uses debt in its financing. In addition, when the interest coverage ratio is analyzed, it is seen that the interest coverage ratio is lower in the sector and the interest burden is high. Finally, it can be said that the financing policy follows a profit-oriented strategy path.

Especially when we look at the financial leverage ratio, we can say that the company's debt is high, it is over 70% every year, but it can easily benefit from financial leverage. Because the return on equity of each year is higher than the return on capital used.

Profitability Comment: When we look at the profitability analysis, we can say that the gross profit is below the sector and the reason for this is that the costs are high. We can observe that the gross profit is the same in the first two years, it tends to increase after 2019, the operating profit decreased when we moved from 2018 to 2019, even the data of these two you were below the sector, but after 2019 it increased in 2020, 2021 and even above the sector data. We can see that the net profit margin was almost the same in the first two years and increased in the last two years. Compared to the sector, we can see that it is above the sector every year.

Activity and Cash Cycle Commentary:

We observe that the collection period for the receivables is good, but this period gets longer as each year progresses. In fact, we see that the payment period for the last year and the collection period for the receivables are the same. According to the sector, the collection period of its receivables is good, but the collection period of its receivables tends to increase. If this scenario is repeated in other years, it may experience difficulties in debt payments.

It does not experience any problems during the disposal of its stocks. The company disposes of its stocks in a shorter time than the industry, but we can say that the time to dispose of stocks has increased in the last year compared to other years.

We can say that the payment period of the company is normal and the payment period is extended over the years, which affects the company better. It is seen that the company's debt payment period is longer than the time to collect its receivables and dispose of its stocks, and we can say that the company has no difficulty in paying its debts.

We observe that the cash transaction cycle is 14 in the first year, 14 in the second year, 15 in the third year, and 32 in the last year. We can only say that the cash transaction cycle is higher in the last year compared to other years, but the data for all years is in a much better condition compared to the sector data.

Overview and Dipnotes:

As a vertical analysis, short-term assets increase by percentage in total assets compared to each passing year, and long-term assets decrease every year compared to total assets. The reason for this is that we can say that in long-term assets, the company mainly holds land, buildings, land and equipment. Since these have an operating life, they lose value from depreciation every year. We can see that the percentage of Trade receivables is higher in current assets in 2018, 2019, but in the last two years, Cash and cash equivalents are higher in current assets as a percentage. The reason for this is that we can see in the cash flow statement that there is an increase in cash and cash equivalents with the increase in cash inflows in the operating activities of the company and the decrease in cash outflows in financial activities. When we look at the stocks, we can say that it decreased from 2018 to 2019, due to the decrease in the products, imported vehicles and vehicle spare parts covering the stocks of the company. We know that there is an increase in stocks from 2020 to 2021, the main source of which is the increase of almost 3.5 in the raw material the company has in stock. When we look at the short-term liabilities, we can say that it tends to increase every year (Trend analysis) and is weighted as a percentage in total liabilities and equity (Vertical). In short-term liabilities, the company mainly prefers trade payables and in long-term liabilities, the company prefers financial borrowing. The company makes its short-term debts in TL and EURO, and its long-term debts only in EURO. In Equity, we can say that the undistributed profit in the first two years is more weighted, and the net period profit in the last 2 years is more weighted(Vertical). The reason why the net period profit is weighted in the Equity as a percentage (Vertical) increase to the previous years (Trend) is related to the increase in the stock certificate. When we look at the Sales in years, we can observe that the sales tend to increase every year(Trend), and the sales are mostly from foreign sales. In terms of sales, Transit Custom is mostly sold every year, it tends to increase every year and decreases only when 2019-2020 is passed and we can observe that the company turned to Ford(Trucks) that year. When we look at the Cost of Sales, we can say that it increases (trend) every year, but it is at the same rate in the first two years and decreases in percent in 2020 and 2021 (vertical). We can say that most of the expenses are 80%-90% of the first material and material expenses almost every year. We can see that almost all of the R&D, Marketing and general administrative expenses are predominantly personnel expenses. Financial expenses mainly consist of foreign exchange income and expenses. When we look at the net profit for the period, we can see that there is no problem and that it is on an incremental slope every year. In addition, I would like to add that in the increase of costs, we can observe that the company has repair and development works in some of its factories due to the investment it made in the factories in the past, and that it has increased the production of truck-type vehicles in recent years by making a product mix in order to reduce finances and earn high profits.