2007 will be a year of transition for us…    ( 19 August 2007 / TekBorsa)

Noting that they have excluded low-turnover and low-profit products from their tables, S. Aykan Sözüçetin, General Director of Penguen Gıda, states that the company has marked 2007 as a year of transition. The drought has caused a lot of loss in the agriculture industry this year, which has pushed the prices upwards. This is directly reflected on company’s balance sheets. In the face of changes, Penguen Gıda is reorganizing its position in the industry. S. Aykan Sözüçetin, General Director of Penguen Gıda Sanayi, has commented on the changes in the industry for our magazine. tekBORSA: What kind of problems does the agriculture face? S.Aykan Sözüçetin: Turkey is an agrarian state. However, it is unable to fully use its agriculture potential. A lot of countries gain great success in agriculture with the support of latest technologies. We have recently started drip irrigation in the face of the water scarcity danger. On the other hand, a country’s agriculture should match the demand of that country’s industries. We should launch the use of special industrial seeds at once, prioritize R&D efforts and cooperate with leaders in agriculture such as the Netherlands or other countries. Moreover, division of agriculture land through inheritance should be promptly prevented. As large farms turn into gardens, the efficiency drops. What should be done to resolve the problems in agriculture? SÖZÜÇETİN: From my point of view, we should get rid of exporting raw materials as soon as possible. Whenever we penetrate supermarkets around the world with our own brands that, I believe, will be the point of progress. What does 2007 bring for Penguen? SÖZÜÇETİN: Scarcity of water has become a real problem this year. By coincidence, vegetable prices are still good on a few products but in general I cannot say we are having a good year. Weather conditions change harshly with the products growing fast but then drying at once sometimes. This leads to the loss of harvest. A particular increase this year is observed in the sowing of beans and we are expecting to have a good harvest. However, nature itself is present in the nature of our work. We process agricultural products and weather conditions affect our work. This year has witnessed serious problems. We are facing hard weather conditions and abnormal prices due to the growing demand. How is the drought affecting your sales and profitability? SÖZÜÇETİN: This year is going to be a transition year for us. We now tend to manufacture more profitable products and we are focusing on places that are in our opinion more efficient for the company to use as retail channels. We will soon start harvesting the fruits of the efforts we have undertaken, but because our business is seasonal, products manufactured during the summer remain in stocks during the whole winter period, which is why the products currently manufactured are going to be sold in 2008. Therefore, if we complete this year of transition without loss and manage the business very, our sales and profitability will increase. We can see this from the point we have reached so far. Considering the harvest, our sales and financial results we are sating that yes, we do face some problems under these conditions but we also succeed in balancing them. While we are badly surprised by the falling profits, on the other hand, the situation offers an opportunity. How does the exchange rate affect you as an exporter? SÖZÜÇETİN: Turkish lira has gained a lot of value against foreign currencies, which has led us to increase our prices proportionally. We import no input materials. If we used imported input materials like they do in the textile industry, we would not be affected by the growing value of the lira because we would export the final product whatever the exchange rate. But we use no imported inputs and export the final product with the exports constituting 65 percent of our total production. Therefore, our profit margins are affected. On the other hand, the drought has a positive effect on the profit margins. The drought allows us to preserve our narrowing profit margin while not manufacturing in volumes we used to manufacture in the past. Europe needs Turkey because of Turkey’s agriculture output. And we are benefiting from this. Of course, we would wish the exchange rate remained at the level we want to remain. Then we would be at a real advantage. But because we are company that uses bank loans, low exchange rates balance our debts. Did your profit margins narrow because of the exchange rate? SÖZÜÇETİN: Due to the change in the rate of exchange, we are trying to make our costs more affordable and sell our products at a better price. The margin narrowed considerably on some of our products with countries competing with us selling those products at more affordable prices. This is why we decided to stop or considerably decrease the manufacturing of a few products this year. To be honest, despite this radical decision our company is still planning to keep its market share at home and abroad. Are you facing capacity problems because of the narrowing margins? SÖZÜÇETİN: It is a well known fact that the use of capacity has increased in our industry during the second half of the year. Since the harvest period, our company has been operating at 100 of its capacity. We expect this to continue at the same rate until December, which is the last month of the season. Pursuant to strategic decisions made, products with low turnover and low profit have been completely removed from our product range within this period and all our resources have been allocated to products with high profit margin and turnover. Since these products are going to be sold in the last quarter of this year and particularly in 2008, 2007 is actually going to be a kind of a transition year of us. Could you comment on the decrease in your stocks compared to 2006? SÖZÜÇETİN: A decrease in our stocks is observed. The reason is the fall of production in 2007. Of course, since we manufacture at the end of the season, most of our products have been sold in 2006. And because this has been converted into cash, we have started 2007 with loss stocks. Talking about this year, our consumers will notice a change in our new brand and new image on the market and will be offered a very different Penguen experience. What are your forecasts for 2008? SÖZÜÇETİN: It is rather difficult to make forecasts for 2008 due to the nature of the agriculture industry. However, I believe that it is going to be a better year than 2007. Our most busy period is from May until the end of October with this period accounting for 80 percent of our production. Therefore, dividing the year into two parts, we can see the great differences between them. These periods are periods of busy sales. Therefore, the sales we have conducted will have positive results in 2007 in terms of profitability and turnover. But more of such results will be seen in 2008, which is why I believe that 2008 is going to be better. We now conduct our weekly meetings every two or three days depending on the harvest and financial progress, thus taking measure against negative impacts. Therefore, despite the role of 2007 for us as a transition year, I expect good performance during this period. Could you please tell us about your growth targets? SÖZÜÇETİN: We at Penguen aim an annual growth of 10 percent. But because our work is related to agricultural products, the might face difficulties in attaining those targets. However, we struggle to attain such targets by moving them to other groups. This year we gathered and set 4-year targets for our company – something we have last done years ago. We wrote done our mission and we already had written quality and environmental policies, which we have now reviewed. We are changing our image among consumers What kind of work do you conduct for the efficiency of the Penguen brand on the market at home? Aykan Sözüçetin : In line with the strategic decisions we have made, we are trying to further advance the position of the Penguen brand on the market at home. We plan to enhance the Penguen brand both operationally and as a brand. Through a process of reorganization, we claim that in canned food, we can attain the success we have attained in the preserves line. This is impossible to achieve in the short term because it takes time to reach out to the consumer and it takes time for the consumer to accept a brand. In this context, we undertake concrete efforts to reach out to the customer, starting by renewing our website. We are changing our face perceived by consumers. Our packaging and labels are also changing.

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