Honorary Chairman’s Message

While private sector investments declined in the country, Koç Group reached the highest level of investment in its long, proud history.

Esteemed Shareholders,

I greet you with great pleasure and utmost respect and warmly welcome you to our General Assembly.

I extend my best wishes for a productive meeting, for you and for our Company, where we will review the developments of 2014.

A quick look across the globe reveals that 2014 was a challenging and busy year due to major political and economic developments in various regions and countries.

After suffering a devastating financial crisis a few years ago, the United States economy recovered and embarked on a solid growth trend last year thanks to the comprehensive corrective measures put in place. However, it was now Europe’s turn to stagnate. Meanwhile, China, India and other Far East emerging markets began recording lower rates of economic growth after so many years of double-digit growth. Taking all this into consideration, major international financial institutions such as the IMF and the World Bank are issuing pessimistic forecasts for 2015 and 2016.

While the recent sharp drop in oil prices was initially expected to spark a global economic upturn, it is now thought, and observed, that this positive development will not be able to generate sufficient tailwind to do so.

We are now seeing sovereign and regional Central Bank efforts to implement expansionary monetary policy measures in order to kick-start their respective economies. The announcements and statements of the European, American, Japanese and Chinese Central Banks are currently merely theoretical constructs and their impact is limited to generating positive expectations.

Sectarian and power conflicts in several countries and regions along with related military flare-ups or terrorist attacks taking place alongside all of the aforementioned economic developments are resulting in due concerns and pessimism bubbling up in societies across the world.

Compared to these global developments and uncertainties, Turkey is enjoying a relatively stable period economically. It is a very encouraging sign that stability has been maintained through two major elections.

The strong performance of the Turkish economy, as clearly demonstrated in economic indicators of previous years, was impacted to some degree by the sluggish European markets that Turkey is most dependent on. We observe that the Turkish government recently began to implement new policies and measures to revive domestic demand in order to compensate for the slowdown in foreign markets.

The precipitous decline in oil prices, which will significantly impact many economic indicators as well as the government’s domestic demand-boosting policies, allow us to assess the rest of the year with relative optimism. In the meantime, it is critically important for the continuation of economic and political stability that we follow through and make real progress on the sweeping structural reforms that have been on Turkey’s agenda for some time now.

In my address to you last year, I had proclaimed my full faith in Turkey’s long-term growth potential despite all the headwinds we were facing at that time. Between then and now, we at Koç Group have moved forward with our investments at full speed. As we promised, we launched projects that will contribute billions of dollars to Turkey’s balance of payments. We created thousands of new jobs for our youth and initiated ventures that will equip our human capital with the most advanced technologies. While overall private sector investments declined in the country, Koç Group reached the highest level of investment in its long, proud history.

In the energy industry, Tüpraş’s İzmit refinery was upgraded with state-of-the-technology thanks to a US$ 3 billion investment.

In banking, we spent TL 426 million and expanded our distribution network to over 1,000 branches in order to serve our customers better. We also approved mega investment projects for our automotive companies. Ford Otosan completed and put into service a US$ 1.4 billion new model design and production investment while Tofaş initiated an investment project of similar magnitude. As a result, we created nearly 4,500 new employment opportunities with a total investment expenditure of TL 7.6 billion combined in 2014.

Arçelik has become a recognized brand name not only in Turkey but internationally. Moving up to second place in the European white goods market, Arçelik broke ground on a project to build a manufacturing facility in Thailand to complement its overseas production plants in Romania, Russia, China and South Africa. We built world-class manufacturing hubs in the automotive and white goods industries and increased our production capacity constantly, making outsized contributions to Turkey’s exports and current account balances. In both sectors, we ship more than 60% of our production to export markets.

The Residuum Upgrade Project of Tüpraş, which became operational in 2015, will further enhance our contribution to Turkey’s foreign currency exchange balance. To put it succinctly, we are proud to boost our country’s name in world rankings in various sectors while providing major support to our economy.

As we carry out our diversified commercial and industrial activities, we also need to upgrade our technology continuously. In an era of dizzyingly fast evolving global competition, our companies are building R&D and engineering centers with millions of dollars of investment not only to keep pace but also to become one of the leading players in their markets. In addition to our product exports, we are also selling our technology to overseas markets.

Our Group also continues its strong support for social responsibility projects and initiatives that it has undertaken for many years.

Koç University School of Medicine Training Hospital began admitting patients in October 2014 in the Topkapı district of Istanbul. This 270-bed hospital is equipped at US standards and was built with a US$ 350 million investment.

Other educational, healthcare and cultural initiatives and projects of the Group are continuing at an ever-expanding scope.

Dear Shareholders,

Our next annual meeting will be held during the Group’s 90th anniversary year. We have taken on so many challenges during this long history full of ups and downs; and we worked through them steadily and diligently, registering a countless number of accomplishments along the way. In addition to your unwavering support, our successful results were aided by our innate sense of duty to our country and its people as well as our sustainable, steadfast and dedicated management approach during this period.

As has always been the case in the past, any and all future accomplishments of the Group can only be secured with your contribution, trust and support. I would like to take this opportunity to thank all of our shareholders, customers, dealers, suppliers, subcontractors, business partners, trade unions and employees once again.

Rahmi M. Koç
Honorary Chairman