Valued shareholders:

The catastrophic earthquakes that struck Kahramanmaraş on 6 February 2023 plunged our entire nation into the deepest sorrow. Among the most devastating natural disasters in the history of our Republic, they caused massive losses of life and property across a broad region. May God have mercy on the souls of those who perished. To their survivors I offer my most heartfelt hopes and wishes for a speedy recovery.

As a nation we have locked together to hasten to the victims’ aid and bind up their wounds. From the moment the first news of the earthquakes was received, Tofaş and its sister companies mobilized every means at their disposal in order to make whatever contribution they might in every way possible. They will all continue to do so in the future as well. I sincerely believe that through national solidarity we can put these trying times behind us.

Let me now share with you my views and assessments of developments and of Tofaş’s operations in 2022.

Having made significant progress towards recovery from the adverse effects of the pandemic in 2021, the global economy was shaken yet again by the outbreak of Russia’s war on Ukraine at the beginning of 2022. The increases in energy and food prices caused by this conflict further accelerated inflationary trends throughout the world while disruptions in international supply chains and transportation networks created huge difficulties for businesses.

With inflation in the United States and in eurozone countries reaching levels not seen in many a year, monetary authorities generally felt compelled to raise their policy rates. The most serious consequence of that was a worldwide slowdown in growth rates. In its 2023 January World Economic Outlook report, the IMF stated that excepting only the 2019 global financial crisis and the acute phase of the Covid-19 pandemic, the current global growth profile is the weakest seen since 2001. The report announced that global growth is expected to slow from 3.4% in 2022 to 2.9% in 2023.

The Turkish economy for its part grew by 6.2% in the first nine months of 2022. Although the biggest contributor to that performance was domestic consumption, growth was also supported by net exports. Driven by global imbalances in supply and demand, by costlier energy and food, and by the impact of higher exchange rates on prices, CPI inflation rose persistently. According to the twelve-month averages, it closed at 72.31%.

Despite Turkey’s successful export performance last year, the country’s foreign trade deficit widened. This was primarily due to higher energy and commodity prices and to accelerating gold imports. While strong rises in services and tourism revenues helped constrain current account deficit growth to a degree, Europe’s looming economic recession is likely to hammer Turkey’s export performance in the period ahead.

Despite rising inflation, Turkey’s central bank (TCMB) reduced its policy rate by 500 basis points to 9%, further widening the inflation rate/interest rate gap and thus exerting even more pressure on the Turkish lira. While TCMB measures to rein in credit growth did moderate exchange rate movements late in the year, they also made it considerably more difficult for individuals and companies to borrow TL. Taking all currently available data into account, the IMF for its part says that while the Turkish economy is likely to have grown by 5.5% overall in 2023, it is expected to grow by 3% in 2022.

A YEAR OF CONFRONTING AND MANAGING CHALLENGES

Already struggling with rapidly-increasing raw material and energy costs and with soaring exchange rates, the Turkish automotive industry also found it necessary in 2022 to contend with production bottlenecks arising from supply-side issues, especially those associated with microchips. Notwithstanding such problems, the sector increased its total output by 6% year-on and produced 1,352 thousand vehicles.

Despite recession and changes in demand-side parameters throughout the world, especially in European countries that make up its biggest market, the Turkish automotive industry’s USD 31 billion in 2022 export earnings corresponded to a year-on rise of 5.5% and a 12.2% share of the country’s total export trade.

Turning now to the home market, passenger and light commercial vehicle sales were up by 6.2% year-on and amounted to 783,283 units. Detailing this performance we see that car (592,600 units) and LCV (190,623 units) sales grew by 5.5% and 8.6% respectively last year.

A COMMANDING SECTORAL PRESENCE GROWS STRONGER

Even in so challenging a year as this however, Tofaş produced a total of 264 thousand units and the 123 thousand units that it shipped abroad corresponded to 12% of the country’s automotive exports.

In 2022 Tofaş’s share of Turkey’s passenger & light commercial vehicle market was up by two percentage points and reached 19.2%. Its Fiat brand was once again the national market leader, this time for the fourth year in a row. Consistently the country’s most popular car in all seven years since its launch, Fiat Egea’s production run passed the one-million unit mark in 2021. Having further strengthened its market position with the introduction of Sedan, Hatchback, Cross, and Cross Wagon body types that year, Tofaş unveiled its Fiat Egea Cross Wagon model in 2022.

Spending more on R&D than most other companies in Turkey and as one of the Stellantis group’s foremost production & engineering centers, Tofaş is looking especially to grow its operations in automotive software development. The company intends to expand its R&D ecosystem collaborations and to increase its exports of such high added-value products and services in the period ahead.

HOPEFUL AND CONFIDENT TOWARDS THE FUTURE…

Tofaş abides by the principle of sustainability in all business processes from procurement to production and it focuses on further improving its sustainability performance through the deployment of leading-edge technologies. It is likewise keeping a close watch in developments associated with the European Union’s Green Deal industrial plan and resolutely continuing its efforts to become a carbon-neutral company in keeping with the Koç Group’s overall carbon-transformation program. Tofaş will continue to contribute to efforts to contribute to worldwide prosperity by undertaking socially supportive products consistent with UN Sustainable Development Goals while also improving its own environmental, social, and corporate governance performance and increasing the value that it creates for all of its stakeholders.

Tofaş’s agile-management approaches, its coherent investment policies, and its competitive competencies facilitate its adaptation to rapidly-changing business dynamics and enable it to prudently manage the risks that confront it. The company’s strong operational and financial results are tangible evidence of its successful performance on these fronts. Tofaş will continue to invest out of its belief in the country’s bright future.

2023 will be the year in which the Republic of Turkey celebrates its first centenary. I believe that it will also be a year in which Tofaş, confident of its past and benefitting from its steadily growing corporate competencies, will once again register successes of which we can all be proud.

With that in mind, I therefore take this opportunity to offer my sincerest thanks to all Tofaş stakeholders for their support of and contributions to the successful results that the company has achieved.

Very truly yours,

Ömer M. Koç
Chair of the Board of Directors