THE PRESIDENT'S MESSAGE

The year 2015 will go down in history as a year full of highly important events for the world, our region, our neighbours, Turkey and the Tekfen Group.

Economic issues dominated the global agenda throughout the year. The question of when monetary expansion and low interest rates, initiated in developed countries, especially the US, after the 2008 global economic crisis, would draw to an end was finally answered in 2015: the US Federal Reserve increased interest by 0.25% in December and further gradual increases are forecast. On the other hand, economic recovery worldwide and, in particular, in the European Union, has been slower than desired. This has caused a decline in oil prices and hindered growth of those economies dependent on oil revenues. It has also made growth difficult for exportdependent economies like that of China. As a result, it is correct to say that the difficult post-2008 economic conditions were still with us at the end of 2015.

The political instability and upheaval plaguing our region and neighbours escalated in 2015. The civil war in Syria worsened and became an international issue. Regional unrest reduced Turkey's exports to the Middle East and led to a serious deterioration in relations with Russia, one of Turkey's major trading partners. Then there is the enormous influx of refugees from the civil war in Syria, which has a tragic human dimension and carries great economic cost to Turkey and other countries in the region. The intensity of the refugee crisis has international political ramifications that may even threaten freedom of movement within the European Union.

Turkey felt the impact of these global and regional economic and political developments intensely throughout 2015. In addition, the country facing two general elections in the year, had been enveloped in an election atmosphere for virtually all of 2015.

Under these conditions, the Turkish economy grew by 3.4% between January-September, which is a rather modest figure by its own standards. Growth in various sectors diverged: 2.5% in manufacturing industry, 8.9% in agriculture and a mere 0.4% in construction.

Despite modest growth, inflation rose in 2015. The annual inflation with respect to consumer prices, which was 8.17% in 2014, rose to 8.81% in 2015. The pass through from the increase in the foreign exchange rates to prices played a crucial role in the inflation rise. Compared to that of 2014, the US$ exchange rate climbed by 25% against the lira and that of the euro rose by 13% in 2015.

Besides economic stagnation and rising foreign exchange rates, low oil prices in 2015 also had a favourable impact on Turkey's foreign trade balance. The annual current account deficit declined from a 2014 close of US$43.6 billion to a 2015 close of US$32.2 billion. Further, this reduction in the current account deficit came while Turkey's exports of goods had declined by 9% due to the aforementioned global and regional factors.

In the face of all these challenging economic and political conditions, Tekfen Group achieved a satisfying financial performance in 2015. The Group had revenues of TRY3,888 million, EBITDA of TRY294 million, and net profits of TRY193 million. At the end of 2015, Tekfen Group had assets of TRY5,626 million and equity of TRY2,085 million.

In 2015, our Contracting Group, one of Tekfen's two largest business operations, had revenues of TRY2,153 million and net profits of TRY42 million. As of the end of the year, it had a backlog of approximately US$1.7 billion.

Our Agri-Industry Group, Tekfen's other major business area, had revenues of TRY1,659 million and net profits of TRY75 million. Anticipation of a reduction in VAT, which was on the agenda before the November elections, encouraged dealers to postpone fertilizer purchases which in turn resulted in sales below expectations in the last quarter of 2015. The VAT on fertilizers was reduced from 18% to 1% and soon after altogether waived in February 2016. As a result, sales to picked up in early 2016. Major investment at the Samsun Production Facilities to safeguard the Group's need for raw materials continued apace. This investment, totaling US$335 million, is Tekfen's largest ever and, the new facilities' opening, in the last days of 2015, will improve the Agri-Industry's financial performance even further.

The Real Estate Group's HEP Istanbul Project in Esenyurt, Istanbul proceeded successfully in 2015 in construction, pre-sale and marketing activities. The Group did not record major revenues or profits in 2015 because the HEP project is scheduled for completion in 2017 while the Izmir Mixed-use Project, a joint venture with the Rönesans Group, is still in the development stage.

Tekfen Group will celebrate its 60th anniversary in 2016 and it aims to crown this special year with a strong financial performance. My appreciation goes to the entire Tekfen family for its success in 2015 and I extend my regards to our stakeholders for their consistent support.

Osman Birgili
President, Tekfen Group of Companies