Chairman’s Message

We have concluded 2018, with all the good and bad. Although it was a tough year in many aspects, both Turkey and Borusan managed to overcome challenges.

The global economy saw a strong synchronized growth last year. The growth performance and demand for consumption was above expectations in the global markets, the US and the EU in particular, while China was successful enough to perform growth that met expectations. This affirmed that the level of inflation would also remain above expectations. The Fed, however, tightened its monetary policy for 2018 in the face of this robust economic outlook and started to cut down on its balance sheet - resulting in a considerable slowdown in global growth during the second half of the year, with an impact on developing countries like Turkey in particular.

Many other developments had an adverse effect on the economy, with quantifiable outcomes. We faced a series of issues, including trade disputes between the US and China that could dampen the global growth notably in the midterm; political uncertainties hovering over Europe, particularly Brexit; as well as trade tariffs mutually implemented or slated to be implemented. These developments did not only mark the previous year, they made it difficult to deliver a more optimistic outlook for 2019.

Turkey had a rough patch in 2018. Developments around fiscal and monetary policies, macroeconomic indicators and the geopolitical outlook resulted in a pressing devaluation, bringing along a steep deterioration in inflation outlook in the second half of the year. However, with a relatively stable course attained in the last quarter of 2018, we have seen these indicators rapidly getting back on track.

We have also observed that the relatively limited impact of economic issues and the remarkable normalization in economic indicators were clearly a result of the sound and prompt steps taken in monetary, fiscal and economic policies to revive the economy. Optimism prevailing in the global economy helped Turkey recover from a serious economic shock with limited harm. In 2019, it would be important - for sustainable economic balances - to implement an economic reform where such short-term precautions are replaced by long-term solutions.

As the world and Turkey were going through these developments, our Group remained true to monetary discipline and its corporate tradition of financial risk management, thus coming through a challenging period with limited impact. There were two developments with a particular impact on Borusan and other players in the sector: The US raised the customs tax on steel imports to 50% solely for Turkish manufacturers. Even when faced with such a decision by the US, which corresponds to a significant volume in the export portfolio of our Group, we were able to effectively manage our relationships with both customers and increased costs arising from the additional tariffs, helping us achieve our quantity-based goals at satisfactory profitability levels. The second development was the conversion of our automotive sales and rental contracts into Turkish lira upon the Decree no. 32, dated November 16, 2018.

The companies within our Group adapted to this change swiftly and managed consequent financial risks. In 2018, we pursued the goal of maintaining a right and healthy cash cycle and preserving liquidity, and we will maintain our uncompromising focus on managing all risks properly in 2019.

Borusan succeeded in delivering a robust performance despite all the challenges faced in 2018, with TL 23 billion in revenues and TL 1.7 billion in EBITDA.

With strategic plans, smart management of liquidity and cash flow, and state-of-the-art business methodologies in place, Borusan can be compared to a ship reaching the port by breaking the waves in inclement weather. Borusan has become a global player in different business areas, and solidified a structure where the Company can make up for potential risks and issues in a given market with growth in another market. Almost all of our companies do not rely on a single market for performance. Indeed, in 2018 we generated 35% of our group revenue from international operations.

Another advantage I believe is essential: our corporate culture enables us to adapt our way of doing business to the current conditions of the business world and technological advances, without having to compromise on our core values. And the key here is innovation, our focus on R&D and digitalization, and our unswerving investments in these areas.

In 2019, we will keep seizing and even creating opportunities as we take measures against all the challenges presented by the market. Our core focus will be managing our cash flow, debt level, sales, orders and stocks at optimum levels under the current market conditions.

There is no doubt that one of the most important developments for Borusan in 2018 was the changeover in our Senior Management. As of January 1, 2019, I have taken over the role of a much more executive Group CEO, in addition to my role as the Chairman, in order to assume a personal duty in preparing Borusan Group and the family members for the upcoming periods. As our Group will be celebrating its 75th anniversary next year, my goal is to take on a personal role in bringing up the third generation of the Kocabıyık Family and to finalize on time the process of establishing the future’s senior management, by working closely with the professional staff.

In our annual report, you will find a comprehensive description of the activities and results of Borusan Holding and affiliates in the last year. I want to emphasize that all Borusan employees worked selflessly and professionally throughout the year to achieve these results.

Together, we will keep carrying Borusan to a better future.

Kind regards,

Ahmet Kocabıyık
Chairman and Group CEO
Borusan Holding