ANNUAL REPORT 2 014 Printed on 100% recycled paper ANNUAL REPORT 2014 Contents 3 Financial Highlights 6 70 Years of Borusan 10 Chairman’s Message 16 Review of 2014 Operations 20 Borusan World 22 Borusan Kocabıyık Foundation 28 Borusan Group 30 Steel/Pipe 36 Steel/Flat Steel 42 Distributorship/Automotive 58 Distributorship/Earth Moving Equipment and Power Systems 66 Logistics 72 Energy 77 Independent Auditor’s Report 2 Financial Highlights (USD million) December 31, 2010 December 31, 2011 December 31, 2012 December 31, 2013 December 31, 2014 Sales 3.503 4.266 3.976 4.141 4.499 Exports 844 1.100 1.144 983 1.103 EBITDA 245 326 277 341 328 Working Capital 875 1.003 1.110 1.091 1.198 CAPEX 166 296 352 304 323 Net Financial Debt 612 866 1.031 1.058 1.164 Total Assets 2.591 3.029 3.310 3.390 3.880 3 “Throughout my life, I believed that people come first and companies exist to serve them.” Asım Kocabıyık Borusan Holding Founder and Honorary Chairman 1924-2012 5 e have been working for Turkey for 70 years, taking our place in every area of life and adding value. We are enormously proud of serving society for 70 years. Our pipes bring life-giving water to fields and transform houses into warm homes with natural gas. Every day, our products are vital for innumerable journeys, delivering powerW to automobile engines. We provide the raw materials that are essential for industry and development. We produce environmentally-friendly energy and use it in production. Our construction machinery builds roads, dams, and cities, and our generators ensure life continues uninterrupted. For 70 years, we have worked with our stakeholders to add value to life. Our customers are our stakeholders - we share their goals and aspirations. We stand by them and are driven by their needs. Together, we initiate projects that improve the quality of life. We are celebrating our 70th anniversary as a global group operating in world markets due to the high business standards to which we adhere, the result of the trust we have built with our stakeholders and the support and strength they give us. This trust has been unwavering for 70 years. The entire family of Borusan will continue to produce value as we strive to improve the well-being of society. 6 We have been a leading actor in the national economy for 70 years. Our products and services have touched the lives of millions. We have made countless friendships. We have exceeded limitations through our enthusiasm for producing and sharing, and we have added value to every area of life. Our intrinsic values will continue to illuminate our path. 1944 1958 1960 1968 Borusan Group’s The first industrial Kerim Çelik started Borusan Boru’s 4.000 first company İstikbal investment was operating as Borusan’s square meter plant at Ticaret, started intilated as Borusan initial investment into Sefaköy was relocated its activites in the Boru Industry LTD was the steel industry. to the new 58.000 iron-steel trade founded. square meter modern and exporting of facility at Halkalı. agricultural products. 1969 1970 1972 1973 Borusan Boru had its Supsan was founded Borusan Holding Originally founded to first $100.000 export in Sefaköy, İstanbul to was founded and all be active in interstate order to Syria. Turkey’s manifacture valves and Borusan companies transport Boru leading heavy industry valve accessories for were merged under the Nakliyat, also began machinery manufacturer internal combustion name of Holding. to offer customs, port Borusan Engineering engines. operations and storage was founded. services as of 1983. 1974 1975 1977 1983 Supsan started Borusan established its Borusan Yatırım was Borusan established its production with a first facility in Gemlik. founded. The Company first port inGemlik. license from the U.S. joined the major Borusan based company companies which Eaton S.r.L. have been operating in steel, distribution and integrated logistics industries up to the present. 1984 1989 1990 1992 Borusan Oto became Bortrans, which Turkish private sector’s The Asım Kocabıyık the Turkish distributor of primarily engages in ship first cold flat steel Culture and Education BMW AG. rental, port operations, manufacturer Borçelik Foundation was marine transport, and was founded and founded by Asım various businesses, was operations commenced Kocabıyık and his family. also founded. in 1994. 1993 1994 1996 1997 Borusan Chamber Borusan Makina Borusan Yatırım went Borusan Makina Orchestra was founded. commenced operations. public. became representative of Caterpillar in Azerbaijan, Georgia, Turkmenistan, and Kazakhstan. Borusan Culture and Arts Center was founded. 8 1998 1999 2000 2001 Borusan Oto, became Borusan Chamber Borusan Lojistik was Borusan Mannesmann the Turkish distributor Boru bought the Italian for Land Rover. Orchestra was founded. The company reorganized as a put into service its based Structo Vobarno Within the framework factory. With the signing of the partnership philharmonic orchestra. second port in Gemlik agreement signed with up for a $140 milllion Mannesmannröhen Werke with an investment of investment with its AG merged its operations 18 million dollars. French partner Arcelor, with Borusan Boru under Borçelik initiated a the name of Borusan capacity expansion and Mannesmann Boru. a galvanized flat steel investment project. 2006 2007 2008 2009 Borçelik’s second Borusan Holding Otomax, joined forces hot dipped galvanizing entered into the with the global sector production line energy sector by leader of the second- Borusan Holding and GALVA 2 was bought purchasing 70% of hand automotive Germany’s third largest online as a part of the controlling shares market, the U.S. based energy company EnBW AG decided to form an the modernization belonging to Maya Manheim. equal partnership. investment. Energy. Borusan Holding became one of the first three Borusan Holding companies from Turkey signed the United who has signed the Nations (UN) Global Cancun Declaration Compact, consisting against global of 10 articles on warming. In order to human rights, encourage women’s working standards, entrepreneurship, Afyonkarahisar Asım environmental protection Kocabıyık Microfinance and anti-corruption. Branch was opened. 2010 2011 2012 2012 Borusan Holding joined Borusan Holding’s Borusan Lojistik the “World Business Head Office in Rumeli acquired Balnak Council for Sustainable Hisarı, Perili Köşk was Lojistik and became Development” as the converted into an office- the leader in its sector. second member from museum. It became The pipe manufacturing Turkey. the first office-museum facility with an annual of contemporary art capacity of 250 in Turkey with the thousand tons that was established by Borusan name “Borusan Mannesmann in Gemlik, started operations. Contemporary”. The Company made a decision to establish a pipe manufacturing facility with an annual capacity of 300 thousand tons in USA by investing 150 million dollars. Borusan Holding signed the United Nations Women Borusan Holding Empowerment Founder and Principles and Honorary Chairman therefore pledged Mr. Asım Kocabıyık to support women’s passed away. empowerment. 2013 Borusan started a corporate social responsibility project titled as “My Mom’s Job is My Future”, in order to support women employment in Turkey in cooperation with Ministry of Family and Social Policies and Ministry of Science, Industry and Technology. Gemlik Borusan Microfinance Branch was opened in order to support women entrepreneurship. 9 Chairman’s Dear Shareholders, he world economy was beset by levels of geopolitical risks and international uncertainties in 2014 that we Message have not witnessed for many years. However, Turkey produced relatively stable economic performance despite two difficult nationwide elections and the T shadow of regional geopolitical risks. Against this background, we made significant advances towards becoming a global corporation in 2014. Coinciding with our 70th anniversary, these developments strengthened our commitment to becoming a Turkey based multicultural corporation active on five continents within ten years. Developments Overshadowing the World Economy Four important developments marked the world economy in 2014. First, the US distanced itself from the economies of other developed countries in terms of employment and inflation. This gave the Federal Reserve room to prepare to raise interest rates, which is the next step towards normalization of US monetary policy. Second, the decision of Greece to go to early elections, together with an already weak economic outlook and the necessity to impose new austerity measures, made the A. Ahmet Kocabıyık associated risk a major concern for Europe once again. Third, Chairman of the Board long simmering geopolitical risks in our region exploded and Borusan Holding grew. Fourth, changing petroleum supply balances caused a rapid, sustained drop in crude oil prices. The US economy returned to sustainable growth after a long hiatus. While contracting 2.1% in the first quarter of 2014 due to extraordinary winter conditions, the US economy grew by a phenomenal 4.6% in the second quarter, and 5% in the third and ended the year with an annual growth rate 2.4%. The IMF projects that the US economy will consolidate its existing performance to grow by 3.6% in 2015. Adding to these positive developments in economic growth and the rapid recovery in employment and wages, 2014 saw the return towards normalization of US monetary policy. Following all these events, A. AHMET KOCABIYIK even if the FED takes only minimal actions in 2015, it has indicated that it will raise interest rates and that the future could see further significant changes in the financial context. In contrast to events unfolding in the US economy, the EU economy continues to suffer. While Euro Zone economies grew in 2014, albeit weakly, they had to contend with deflation. Unfortunately, the measures taken to address the situation have been inadequate and undermined confidence in the possibility urkey held two tense and politically risky elections for growth.