Ömer M. Koç
Chairman of the Board of Directors

IN THE PERIOD AHEAD TOFAŞ WILL CONTINUE TO FURTHER REINFORCE ITS STATURE AS AN ORGANIZATION THAT SHAPES THE FUTURE.

Valued shareholders:

THE GLOBAL ECONOMY IS GOING THROUGH A CRITICAL PERIOD.

The global economy’s growth trend remained on course once again in 2018. However much progress has been made in overcoming the 2008 global financial crisis and the problems that it led to, it remains a fact that national income figures in most of the countries that suffered from that crisis have yet to return to their pre-2008 levels. In addition to persistent geopolitical risks, the international agenda remains seriously fraught with the threat that trade wars pose for the newly-recovering momentum of global growth and trade.

Severe volatilities were experienced in developing country markets in 2018. Having raised interest rates four times last year however, the US Federal Reserve Bank’s announcement that it would do so only twice in 2019 generally nourished expectations that there would be no additional worsening of developing-country risk perceptions.

In its January 2019 World Economic Outlook report, the International Monetary Fund stuck with its 3.7% global growth estimate for 2018 “despite weaker performance in some economies, notably Europe and Asia.” The fund also said that the global economy is projected to grow at 3.5% in 2019 and at 3.6% in 2020.

TURKEY’S ECONOMIC GROWTH HAS LOST ITS MOMENTUM.

Having grown by 7.2% and 5.3% in the first two quarters of 2018 respectively, third-quarter exchange rate volatilities exerted increasing pressure that boosted inflation and interest rates, constrained economic activity, and depressed consumer demand. The result was that Turkish economic growth shrank to just 1.6%.

Driven also by exchange rate movements, external demand was observed to support growth to a significant degree and it played an important role in the net growth in exports in the last quarter of the year. The deficit in the current balance continued to shrink in parallel with the slowdown in economic activity. The foreign trade balance and favorable course of net tourism revenues also contributed to the current-balance improvement.

In the period immediately ahead, we have strong expectations that the Turkish economy will embark upon a new path of equilibrium but this will depend on the degree to which the government’s New Economic Plan materializes and structural reforms are successful.

TOFAŞ MAINTAINED ITS STRONG STANCE IN WHAT WAS A DIFFICULT YEAR FOR OUR INDUSTRY.

The factors having the greatest impact on the Turkish automotives industry in 2018 were exchange rate volatilities and increases and rising inflation. While there was a serious contraction in domestic demand in the second quarter of the year, tax relief introduce during the last two months restored some vigor to the sector.

Overall output in the Turkish automotives industry was down by 8.59% year-on with a total of 1,550,150 units being produced. There was a 35% contraction in the market for automobiles and light commercial vehicles, with 620,937 units being sold. Car sales, which alone account for 78% of the entire market, were down by 33% year-on while in the case of light commercial vehicles, the contraction was on the order of 42%. While exports were down (by just 1.04%) to 1,318,869 units, their net value rose by 10.8% and reached the USD 232 million level.

The sector’s 2018 leader with domestically-made vehicles accounting for 91% of its total sales, Tofaş also distinguished itself as the firm investing more in R&D than any other in the industry. One of the leading players in the Turkish automotives industry, Tofaş successfully repeated its performance by contributing 19% of the sector’s total output and 18% of its exports in 2018.

The Fiat Egea Sedan, for whose development and manufacture Tofaş is responsible, is exported to about fifty countries in Europe and elsewhere around the world. Since its introduction to the market in November 2015, total sales of the Fiat Egea Sedan in the domestic market have so far reached 117,506 units and earned the car the reputation as Turkey’s best-selling model in each of the last three years. The Fiat Egea Sedan once again demonstrated that it was the premier choice of customers with sales of 33,650 units in Turkey during 2018. The Fiat Egea family, whose members are sold in export markets under the names of “Fiat Tipo” and “Dodge Neon”, continues to register strong sales.

In addition to the problems caused by the exchange and inflation rate spiral, the greatest risks that confront our sector in 2019 are slower growth in the EU market, the foreseeable (and unforeseeable) scenarios to which the Brexit process may yet give rise, and global-level trade wars.

We believe that our sector’s production strengths and export potential will enable it to overcome such obstacles however. As one of the engines of that sector, Tofaş’s production capacity and R&D strengths as well as its unshakable positions in national and international markets will ensure that our company will continue to further reinforce its stature as an organization that orchestrates the future.

TOWARDS AN EVEN STRONGER FUTURE BACKED BY A HALF-CENTURY OF PRIDE…

Fifty years ago when Tofaş’s foundations were laid it was with the vision of its founder Vehbi Koç to make the Turkish people car-owners. In the half century since then, our company has been playing an important role in the growth and development of Turkey’s automotives industry and has been successfully representing it in international markets with the vehicles that it offers.

Tofaş’s story is a fine example not only of what can successfully be achieved when Turks work together towards a goal that they all believe in but also of a sincere spirit of collaboration between two big industrial groups like Koç Holding and Fiat Chrysler Automobiles.

Today we are proud witnesses to the success of a record-breaking automotives industry powerhouse that is the direct outcome of landmark investments and successful projects that have been undertaken by a strong partnership whose mutual understanding and confidence have been continuing for half a century.

Benefiting from the strengths of its advanced R&D center and as the only automotives company in Turkey that makes both passenger and commercial vehicles, Tofaş has become a value-adding leader of the Turkish automotives industry by virtue of the foreign trade surplus and employment that it generates.

Tofaş’s principles, experience, and competencies give it a strong growth reflex. I take great pleasure in noting the value which our company creates for its stakeholders and for the country as a whole and I want to reiterate our determination to continue courageously and responsibly undertaking new investments and ventures in order to build upon that value because of the importance that we give to globalization, innovation, technology, and creativity.

In closing I sincerely thank all of our stakeholders for being partners in our successes.

Very truly yours,

Ömer M. Koç
Chairman of the Board of Directors