Message From The Chairman

Our Group Has Continued Its Process Of Modernization And Improvement In Line With The Principle Of High Quality Production, And Closed The Year 2017 With A Clutch Of New Records In Production And Sales.

Dear stakeholders,

In 2017, OYAK Mining Metallurgy Group recorded its strongest ever performance.

OYAK Mining Metallurgy Group, which determined its 2017 strategy as “growth over our strong bases”, increased its production and efficiency, and achieved strong operational and financial results. To summarize, it continued to generate lasting value for Turkey’s economy and its stakeholders.

Our Group has continued its process of modernization and improvement in line with the principle of high quality production, and closed the year 2017 with a clutch of new records in production and sales.

Strong and broad-based growth in the global economy

In 2017, growth in the world economy reached its highest level since the global economic crisis. The recovery, which started in the second half of 2016, gathered pace in 2017, at last ushering in a return to strong and broad-based global growth.

In addition to the economic performance of the USA and China, which are the world’s largest consumers of commodities, the recovery in global industry raised commodity prices to record highs. The manufacturing industry Purchasing Managers Index (PMI), which is one of the most important parameters of steel consumption, reached historical highs both on a global and a regional level.

In 2017, our country, which had achieved an average annual growth rate of 6.7% during the 2010-2016 period, once again approached the levels of growth it was recording before the global crisis broke out. It is estimated that Turkey closed the year 2017 with economic growth of 7%.

Upward movement of steel prices is supported by increasing demand on a global scale.

Global crude steel production amounted to 1.7 billion tons in 2017, marking an increase of 5.3% YoY. The official capacity utilization rate exceeded 70%.

Turkey sets a new record in crude steel production in the same period. Strong domestic demand and buoyant export markets were the key forces driving production and consumption to exceed their previous year’s levels. Steel production increased by 13% YoY to reach 37 million tons, while steel consumption increased by 5.5% YoY to 36 million tons.

In our opinion, our industry will sustain its strong and vigorous performance in 2018, with production and consumption continuing to grow.

Rounding off a performance that reinforces shareholder and stakeholder value

While our Group’s main business theme was “sustainable profitability” in 2017, we focused on deploying our existing capacities to the maximum.

We have determined reducing our costs as our primary goal, by using all our inputs efficiently.

While we have balanced our cost base by taking into account the world steel sector average and the optimal level, we have taken our determination in the field of efficiency to a level that supports our sustainability in every aspect. Our capacity utilization exceeded the global average.

Our group single-handedly accounted for 25% of all production in Turkey, producing 9.2 million tons of crude steel. OYAK Mining Metallurgy Group, which sold 8.96 million tons of finished products in the year, added 14 new product grades to its flat steel product range. Having increased the exports by 10% YoY, our Group exported 1.2 million tons of steel to 45 countries over a wide geographical area.

The capacity utilization rate of Erdemir and İsdemir, our group companies, stood at 97% in 2017. The labor time spent on the production of end products, which is considered to be another important indicator, stood at as 2.64 man hours per ton at Erdemir and 1.82 man hours per ton at İsdemir.

Our Group has transferred the success it has achieved in its operations to its financial performance and has continued to develop the value it has offered to its stakeholders, especially its shareholders and investors. Our Company had USD 7.5 billion of assets at the end of 2017, while we wrote USD 1,496 million of EBITDA during the year, marking an impressive 67% increase, with an EBITDA margin of 29.2%. Our net profit for the period stood at USD 1,030, with a net profit margin of 20.1%.

Our financial success was also reflected to our share price performance in 2017. According to figures provided by the Borsa İstanbul, Erdemir achieved the second highest increased in market capitalization, at TL 17,080 million. Erdemir shares posted a gain of 95%, vastly outperforming the BIST 100 index, which increased by 48%. Meanwhile, İsdemir achieved the success of being one of the BIST companies to post the highest increase in market capitalization.

I would like to express my gratitude for our operational and financial results, where we reached every major goal that we had set for 2017.

We continued to improve our product range.

To develop product diversity is a natural cycle and an indispensable goal at the same time for OYAK Mining Metallurgy Group. Our Group is focused on meeting customer expectations at the highest level with the product range that it continuously develops. It is also focused on improving its competitive position.

Within the scope of our targets of optimizing production and efficiency at İsdemir, the new Air Separation Plant, which we implemented under the Linde Gaz partnership, entered operation at the end of 2017. We consider this project, which increases the oxygen, nitrogen and argon production capacity on the İsdemir site, as an indirect step towards contributing to our product development efforts and, more importantly, to lowering our cost base.

The galvanizing line, installation work on which is currently ongoing, will produce some materials which are currently imported, in addition to producing wide galvanized materials which are required by the automotive industry.

Our Group has also started installation work of a heat treatment facility for the production of high added-value and abrasion resistant steels.

Full steam ahead in our R&D investments

We are an ambitious member of a global industry, in which new dynamics are emerging in each passing period, and competitive conditions are developing on the basis of many parameters.

For this reason, it is absolutely vital that we develop new products and production technologies that we raise our product quality and standards, that we increase efficiency, and that we are able to respond to our customers’ product and service requirements.

In this great equation, we regard R&D activities as the driving force of our future and a fundamental competence.

In this respect, we continued our investment in developing the Erdemir R&D Simulation Center in 2017. The first phase of the Raw Material R&D Simulation and Product Development and the R&D Simulation laboratory project were successfully completed. Our R&D Center, which will continue to provide services with a stronger infrastructure in 2018, will provide a key contribution to our corporate competencies, our endurance and the value proposition that we offer to our customers.

Investing in people is the priority of OYAK Mining Metallurgy Group.

We regard our human resources as our most important asset and the architects of our future.

While focusing on the future, we are determined to develop our human resources and equip them with current competencies. In this respect, we attach great importance to our educational activities. We are moving forward with projects that represent the best practice in our sector, which we believe will gain recognition in academic literature. At the same time, we also aim to add surplus value to our Group through innovative management practices in the field of human resources.

With the Talent Management and Excellence Model, which we are in the process of spreading to the whole group, we are focused on exploring and promoting talent within our group.

One of the matters that we attach great importance to in the field of human resources is occupational health and safety (OHS).

Our goal is to reach a “zero accidents” level in our group. Achieving the position of being a steel producer to have had no registered accidents for 365 days is our fundamental priority.

Targeting a decent working environment in all units of our Group, we accept occupational health and safety as a basis for business continuity and take important steps in the field of process safety.

We share our knowledge, experience and practices in the field of OHS systematically on the Group scale, and we constantly monitor our OHS performance metrics, conduct our audits periodically and take necessary actions proactively.

We take the OHS issue beyond being a managerial issue with our “I Produce Safely (Güvenli Üretiyorum)” project. We consider this to be a corporate social responsibility project that is unprecedented in any business in our country.

OYAK Mining Metallurgy Group will develop its long-term strategies in 2018.

Our long-term strategy envisages that we will take growth steps towards develop our competitive power in all areas.

Our group will continue to work towards the following goals to strengthen its long-term leadership:

  • to increase its capacity by realizing new investments that will carry its leading and competitive position in global and national markets forward into the future.
  • to develop qualified product diversification

Attaching priority to taking advantage of the potential offered by the markets with a proactive approach, and prioritizing organic growth in Turkey, our group works not only to improve its market share through capacity investments and new breakthroughs, but also to hit the ground running gains in a while range of areas such as efficiency, R&D and innovation, and the effective and accurate management of human resources.

We thank our stakeholders for their contributions.

Our Group aims to grow with great strides in 2018 and beyond, to reflect the opportunities offered by the global steel market to its performance with the right strategies, and to achieve growth which exceeds global steel sector averages.

I believe in my heart that the management teams of our companies, which have become distinguished with their proven success in team work, and our workforce of approximately 12,000 employees will ensure our Group reaches its growth targets easily under the guidance of our Board of Directors. On behalf of myself and my team, I would hereby like to extend my sincere gratitude to all of our stakeholders, especially our domestic and foreign customers, our shareholders and employees.

Süleyman Savaş Erdem

Chairman of the Board of Directors

© 2017 Erdemir Group. All Rights Reserved.