Annual Report 1999

Business

Other Group Companies

Evaluations

In 1999, the world economic crisis that began in the Far East two years earlier started to improve. It has been estimated that the global economy grew by 3.1% while world trade volume expanded by 4%. In the previous year, these figures stood at 2.4% and 3.5%, respectively. Favorable developments in economic activities and the inflationary effects of oil price increases resulted in an elevation of interest rates. Despite the rapid growth of the US economy in 1999, economic activities in terms of the euro have not reached the desired level causing a strengthening of the US dollar against all currencies, excluding the Japanese yen. It is estimated that the world economy and global trade volume will increase by 3.3% and 6%, respectively in the year 2000.

In Turkey, the stagnation that began in the first quarter of 1999 prevailed during the subsequent quarters, thus the GNP decreased by 6.4% in real terms. The coalition government which came to power in April, brought renewed energy and optimism to the markets with the reforms, including structural reforms, the passing of additional tax regulations, the announcement of a comprehensive money and exchange program, banking and social security reforms and similar actions within the framework of the stand-by agreement with the IMF, they inaugurated. Interest rates began to decline in September and became more evident toward the end of the year.

Parallel to the economic stagnation between January and November 1999, when compared to figures of the previous year, imports decreased by 14.7% to US$ 35.9 billion and exports by 4.2% to US$ 23.7 billion. In spite of the narrowing foreign trade deficit, current account produced a deficit of US$ 507 million due to the decrease in revenue from other goods and services.

Interest rates continued to fall during the first quarter of 1999. Inflation, which began to rise gradually in April as a result of the increase in oil prices, maintained its ascent during successive months reflecting the rise of government account deficits and the negative effects of two major earthquakes. At the end of the year, inflation was 53.1% for wholesale prices, 62.9% year-on-year, 64.9% for retail prices and 68.8% year-on-year.

The Group was negatively affected by; the shrinkage in the Turkish economy, the 5.9% decrease in manufacturing, the decrease of 10 - 12% in the sales of large industrial groups, the 8% drop in expenditures made for durable household goods and especially the 23% decrease in the automotive sector.

The Group could not attain its projected sales targets that in turn influenced pricing policies because of the economic crisis, the sharp decrease in the suitcase trade with Russia and the increased competition brought by imported goods. In this context, the sales of the Group shrank by 7% in terms of volume and resulted in a sales turnover of TL 419 trillion.

The following measures were taken to alleviate the effects of the crisis:

Inventories were reduced,
In spite of a slowdown in international markets, exports were stressed and an export volume of US$ 342 million was achieved, of which 66% went to Europe, 18% to the Middle East and Africa, 9% to the USA and 7% to Australia and Asia,
Investment expenditures decreased paralleling the reduction in demand and were realized at US$ 87 million as compared to US$ 159 million in 1998.

In 1999, glass production volume fell by 10% and sales volume by 7%; stocks dropped by 24%. In spite of the consequences of the crisis, we continue to look ahead with confidence and optimism because:

Şişecam continues to generate funds for future growth,
The market share of our products has been maintained in domestic as well as international markets,
Fixed investments in the last five years have reached US$ 1.2 billion. The IV. Float Line of Trakya Cam was completed, and it started operating in early 2000. This is the largest production investment ever undertaken in such unfavorable economic conditions.

It is certain to obtain more favorable results as economic conditions become more consistent and the technological capacity of Şişecam grows and develops.

Consequently, in the program for the year 2000, Şişecam foresees that sales, exports and glass production volume will increase. Of primary concern is the effective use of human resources, the efficiency of investments, the lessening of the loan burden and the continuation of investments abroad.

Şişecam's own resources and funds have been used to finance most of the important investments realized in recent years. Our capital of TL 23.1 trillion at the end of 1998 increased by TL 55.9 trillion in 1999, covered mostly by shareholders' equity to reach TL 79 trillion.

Türkiye İş Bankası and its subsidiaries were founded on the ideals and principles of the Republic of Turkey. The glass industry, developed with the support and leadership of Türkiye İş Bankası, aims to facilitate everyday life with diversified high quality products, in addition to the contributions it makes to the Turkish economy as a whole. While providing jobs for 13,500 employees, the Şişecam Group strives to keep this ideal as vigorous as it was in the early days of the Republic; aiming at higher levels globally to create a greater corporation.

H. Ersin Özince Adnan Çağlayan
Chairman President