Message From The Chairman

Dear stakeholders,

A year of challenges - despite the strong growth in the global economy…

According to the current estimates published by the IMF in January 2019, the world economy grew by 3.7% in 2018 and exhibited a strong performance. In spite of this strong growth performance, we will remember 2018 as a year of sweeping and frequent changes in the agenda, dominated by a tense atmosphere in various parts of the world, both economically and politically.

The geopolitical developments experienced in the Middle East, the uncertainty surrounding the Brexit process, a global economic outlook shaped by the impact of the decisions taken by the central banks of developed countries, the slowdown in economic activity in China and volatility in oil prices were the main issues under the spotlight during the year.

The most important issues were the trade wars, mainly led by the USA, with expanding effects from protectionist policies increased worldwide.

Although the outlook in developed economies, which have the largest share in the world economy, contributed significantly to the strong growth performance in 2018, the increasing prominence of the risks facing developing countries affected future global growth prospects.

The IMF reduced its expectations for 2019 growth by 0.2%. As a result, 2019 is expected to be a relatively difficult year for the world economy and economic developments, steered in large part by the US economy, may accelerate the process of shifting the global economy to a new equilibrium.

The direction of the global steel industry will be determined by global growth.

Global steel demand continued to grow in 2018. According to Worldsteel estimates, global steel demand grew by 3.9% in 2018, slightly higher than the rate of global economic growth. This growth was driven by a relative improvement in the economic performance of developing countries and the infrastructure investments implemented in developed countries.

Together with the demand following a strong course, production also increased. In addition to other commodity prices, steel prices have also risen. However, commodity prices declined towards the end of 2018 due to the fact that the protectionist policy measures taken in the steel industry by the USA and the EU reached a point not seen in history.

Given the current developments in the global economy, balanced market conditions are expected to shape the steel industry between 2019 and 2020. On the same assumption, Worldsteel projects that global demand will exhibit a relatively slow increase during 2019, in the order of 1%.

 Our Group continued its healthy and sustainable growth in 2018.

Our Group unwaveringly maintained its activities and investments in 2018 as it strived to offer the high quality products and services needed by our country's industries with its advantages in production, competitive advantages, and its customer- and market-oriented structure.

Focusing on the successful management of price volatility, our Group continued to accelerate its performance against a background of adverse global conditions, taking the right actions at the right time and transforming them into efficiency. Raising the share of value-added products in our product portfolio and the high quality of the products and services we offer our customers provided a valuable contribution to our success.

In 2018, we continued our investments, undertaken to enhance our competitive advantage within the framework of our strategic objectives. Carrying out a total of USD 216 million in investment during the year, we continued our 33 investment projects at Erdemir and İsdemir as we pressed onwards in our strategic growth plan.

In 2018, we produced 9.145 million tons of crude steel and met about 25% of Turkey's crude steel needs. Our final product sales amounted to 8.4 million tons.

Producing ever greater added value for our country's economy in its fields of activity Our Group also continued to capture an important share in exports. In 2018, we exported 1.6 million tons to 200 different customers in 50 countries.

We have stepped up our R&D activities so we are better able to respond to developments in the market in a continuous and effective manner, and to produce the steel grades required by the Turkish industry. We have focused on ideas, products and system renewal projects that will create a competitive advantage in the market with new products, improved quality and size development. We have completed 30 projects at our R&D Center and continue to work unabatedly on 31 projects.

Our Group, which prioritizes efficiency-increasing and cost-cutting, developed 18 new steel grades as a result of the work carried out at the R&D Center in 2018, and increased the number of flat steel product grades to 479.

In 2018, this exemplary performance, which we achieved by overcoming all the difficulties, is the embodiment of the hard work, the strong sense of belonging and a love for one's country of a large family of 12,000 people.

We are ready for the future before it comes

As a group that sets itself apart with its production and service competencies on a global scale, we will continue to shape our strategies with a proactive approach, evaluate investment opportunities, take necessary action by closely monitoring the markets, and to create added value for all our stakeholders with our disciplined work based on foresight.

With our corporate competencies and the experience which we have built up over many years, as well as our vision, our efforts on the axis efficiency, our well-qualified human resources and our belief in the future of our Group, we will achieve many more successes for Turkey.

We would like to express our gratitude to our dear shareholders for their support, who have always stood with us, to our employees who always take us forward, and our customers and suppliers.

Süleyman Savaş Erdem

Chairman of the Board of Directors

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