ANNUAL REPORT 2013 Contents 3 Financial Highlights 6 Chairman’s Message 12 Review of 2013 Operations 18 The Role of Borusan Holding 22 Our Corporate Responsibility 32 Borusan Group 34 Steel/Pipe 38 Steel/Flat Steel 46 Distributorship/Automotive 62 Distributorship/Earth Moving Equipment and Power Systems 68 Logistics 74 Energy 79 Independent Auditor’s Report 2 Financial Highlights (USD million) December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 Sales 3.503 4.266 3.976 4.141 Exports 844 1.100 1.144 983 EBITDA 245 326 277 341 Working Capital 875 1.003 1.110 1.091 CAPEX 166 296 352 304 Net Financial Debt 612 866 1.031 1.058 Total Assets 2.591 3.029 3.310 3.390 3 “I am proud to be the founder of Borusan Group, which is one of the most dynamic forces of Turkey’s economy and contributes in the prosperity of our nation.” Asım Kocabıyık Borusan Holding Founder and Honorary Chairman 1924-2012 4 5 A. AHMET KOCABIYIK Chairman’s Message Dear The year 2013 was a critical one in which various new tendencies Shareholders, emerged in the global economy and, from the Turkish point of view, major social and political ruptures were experienced. As far as our Group is concerned, however, in moving another year closer to the 70th anniversary of our founding, we continued as we always have to cruise along on our path of sustainable growth and development. Without a doubt, the turning point in last year’s economic plot was the announcement of the first initiatives by the United States Central Bank, “the FED”, towards a change in policy in May. The FED’s an- nouncement that it would temporarily suspend its policy of financial expansion through bond purchases caused developing countries to suddenly find themselves embroiled in a discussion concerning the mounting fragility of their economies. Previously, in the IMF World Economic Outlook Report, published in April of 2013, it had been predicted that the developing economies would spearhead an im- A. Ahmet Kocabıyık provement in the global economy. However, by the second half of Chairman of the Board the year, these countries, Turkey being foremost among them, were Borusan Holding forced to concentrate on new economic and monetary policies cor- responding to their trade deficits. The global economy in 2013, taken as a whole, appears to have entered a growth trend reflecting the IMF estimates of 3.0% in 2013 and 3.7% in 2014, especially in the light of the recovery indicators in the developed economies, principally in the United States. In this sense, it is possible to say that the worst of the global crises since 2008-2009, especially in the developed economies, is now behind us. However, of course, the degree of this recovery varies from country to country. First of all, among the developed nations, the United States of America is the country that has demonstrated the strongest and quickest recovery. 6 On the European Union front, a positive growth, no matter how small, can be perceived for the first time. However, it is commonly understood that this growth is still fragile and uneven. While the re- gion of Western and Northern Europe, led by Germany, is showing strengthened growth indicators, certain countries remain mired in economic problems, namely Portugal, Ireland, Greece and Spain. Only time will tell whether the EU’s performance will prove to be as strong and sustainable as the economic recovery in the US. In Japan there have also been relatively positive developments. Nonetheless, despite the apparent positive short term results of the new economic policy, termed “Abenomics”, the medium to long term results of these policies, which are based on monetary expansion and a serious devaluation of the national currency, the Yen, remain uncertain. The situation among developing nations, including Turkey, is high- ly ambivalent. Countries in deficit have experienced major market fluctuations. While currency exchange rates have risen, stock markets have fallen and interest rates have increased. However, The Turkish the most important issue is that it is now evident that, according economy to even our most optimistic predictions for the coming period, the exceeded the IMF economies of developing nations, including those of China and India, are entering a period of slowed growth incomparison with growth estimate that of the previous 10 years. for 2013 of 3.8% by achieving an The Turkish economy exceeded the IMF growth estimate for 2013 of 3.8% by achieving an overall growth rate of 4.0% last year. overall growth rate Quarterly growth rates were 2.9% for the first three months of the of 4.0% last year. year, 4.5% for the second quarter, and 4.3% and 4.4% in the final two quarters, respectively. Since Turkey’s 2012 growth rate was 2.1%, last year’s perfor- mance was, in a sense, a good one. This showing placed Turkey, as was indicated in the Global Macro Outlook Report prepared by the international ratings agency Moody’s, among the world’s 20 largest economies. Furthermore, the report listed Turkey as the country with the 5th highest growth rate. The increasingly positive perception, whether from inside or out- side the country, of the path that the Turkish economy is pursuing was due to such developments as the payment of the final install- ment of the country’s debt to the IMF in the first six months of the year and the good news on the economic front with the improved ratings from Moody’s and JCR, the international ratings agencies. In addition to this, also contributing to Turkey’s good reputation are the political initiatives contributing to the medium to long range social stability of the country, plus the creation of a strong sense of confidence in the future. 7 CHAIRMAN’S MESSAGE In contrast to this, the Gezi Park events that erupted in June and The third significant point con- which drew millions of people into the streets, along with the re- cerns our unshakeable belief A. AHMET KOCABIYIK sulting deaths that occurred, contributed to a dramatic question- in innovative products and ing of the country’s political stability. In this context, the negative services in the 21st century. An perception generated in the last six months both within the coun- indispensible part of being a try, but especially overseas, played an intensifying role concerning global player, and creating and the effects on the Turkish economy of the turbulence created by preserving a sustainable com- the FED’s change in policy. petitive advantage, is to main- tain focus on high value-added On the other hand, however, the government’s remaining faith- and innovative products and ful to the principle of financial discipline and the Turkish Central services. Bank’s deficit controls and effective monetary policy aimed espe- cially at controlling internal consumption and demand, managed In 2013, we commenced work to provide a correct and appropriate response, effectively limiting on the development of over 60 the impact of these unfavorable developments. Also contributing new products and services, as This year we in a positive way to this was the growth in credit volume in the well as business models, with banking industry, along with macro-level precautions taken by the over 100 of our employees. have carried out government. One of the projects we carried investments worth out in this area is a fully sep- How was the Borusan Group able to accomplish its arate company set up under $304 million. performance in 2013 against the backdrop of the the aegis of Borusan Logis- A substantial pluses and minuses of the international and domestic tics, namely ETA (Elektronik part of this economies? Taşımacılık Ağı Taşımacılık ve Tic. A.Ş.), which holds the sum comprises I would like to emphasize five important points concerning our distinction of being Turkey’s investments in the Group. First of all, there is the subject of profitable growth, which first and only electronic trans- is given major emphasis by our Group. The year 2013 was one portation network. In the first energy industry of profitable growth in which Borusan achieved the targets it set year of its establishment, ETA made by Borusan for itself. Our total turnover was $4.1 billion. With the acquisition today offers transportation for Mannesmann in of the Balnak Logistics company, our total number of employees over 2,000 SME members and rose to 7,000 persons. Despite the fact that we are involved on a 4,000 truck operator members. the United States, large scale in heavy industry, last year the percentage of female as well as Borusan employees working for our Group rose to 16%. This matter, re- Our investments are the fourth EnBW Energy. garding increasing the employment of women in our country, is major matter I consider impor- one to which we give special importance. tant. This year we have carried out investments worth $304 The second important point relates to our Group’s vision for devel- million. A substantial part of this opment. Since its founding, the Borusan Group has established sum comprises investments in a number of partnerships with global leaders in their respective the energy industry made by industries, in line with our goal of becoming a global player. Thus, Borusan Mannesmann in the we have grown by closely following emerging opportunities in United States, as well as Boru- both domestic and international markets. san EnBW Energy. The turnover from overseas sales currently stands at approxi- From the perspective of the mately 25% of our overall revenue. I can say with confidence that, Turkish steel industry, with an from 2014 onwards, we are going to increase this percentage to unprecedented strategic in- even higher levels.