World steel prices, which were highly volatile in 2005 and 2006, moderated somewhat in 2007. The year began with a sharp price increase, followed by a mild decrease, and peaked again in the last quarter. Currently, during the first half of 2008, expectations are now in favor of an upward trend due to the pressure of rising raw material prices and a slow-down in Chinese exports.

The Pipe Group
The domestic steel pipe market demonstrated an increase, reaching approximately 1.8 million tons by the end of 2007, or a growth of 3%. This increase was mainly attributable to construction and precision pipes where the demand developed along with the growth trend in the Turkish economy. It is also important to note that Turkey has become a bridge for energy distribution and has also achieved a primary status as a production base for European and Far Eastern automotive producers. Therefore, there is corollary increase in demand for large diameter main line pipes, longitudinally welded natural gas pipes and special pipes.

Borusan Mannesmann Boru (BMB), the flagship of our Pipe Division, strengthened its position with a revenue growth of 21% and a volume growth of 6%. BMB strengthened its share in the domestic market by restructuring its regions and increasing its dealer network, which now numbers 140. The Company increased its shares in both the water and gas sectors, as well as via its sales of pressure pipes at the high end of the market, making BMB the clear market leader. The high value added special pipe sales, mainly directed towards the automotive sector, increased by 11%.

In 2007, one third of the Pipe Group’s sales came from export markets, mostly in Canada, the USA, Israel, Algeria, Iran, Germany and England. Through the production and services provided in Halkalı (Turkey) and Italy, BMB is since for a while well-known among main European producers. The Company’s successful tenders, awarded for spiral pipes for oil and natural gas transport line projects in Algeria and Hungary, are proof of its strong performance. Also in 2007, BMB signed the largest contract in its history, both in terms of value and tonnage. The Elba project, totaling $ 170 million and 100,000 tons, was the key for entering the US market and securing a firm position as a global competitor. In this breakthrough venture, BMB will single-handedly meet the need for the procurement of a new 312-kilometer pipeline, which will increase the amount of natural gas transported to the eastern and southeastern region of the United States, particularly to the state of Georgia.

In order to shift towards more value-added products and to strengthen our penetration of the oil and gas markets, BMB invested $ 31 million in 2007. The investment at our İzmit plant increased its capacity for spiral pipe production by 50,000 tons, bringing it up to 200,000 tons. We have initiated an investment in Spain that will help meet the increasing demand in the Spanish domestic market for spiral pipe production. Meanwhile, the capacity at our Gemlik plant was also increased by 50,000 tons in order to better serve the automotive industry by providing thick wall hollow sections and pipes which are suitable for chrome plating.

In 2008, Borusan Mannesmann Boru will celebrate the 50th anniversary of its founding.

Vobarno, our Italian precision tube subsidiary, increased its sales volume by 21% and reported $ 44 million in revenue in 2007. The composition of its sales remained unchanged last year, with one half going to export markets in Germany, France and the Espana.

Total sales for Paslanmaz Boru, our Group’s stainless steel pipe producer, reached $ 14 million in 2007, reflecting a growth of 10%.


The Flat Steel Group
In 2007, Turkey proved to be one of the fastest growing steel producers in the world with a growth rate of 10.5%, producing a total of 25.8 million tons. Turkey ranked 11th in the world and 3rd in Europe in 2007 in steel production. The country’s 2008 production figures are expected to reach 29 million tons.

In terms of flat steel, Turkey’s consumption in 2007 increased by 6% to 10.1 million tons.
The sector witnessed several announcements concerning major flat steel investments. It
is expected that these new liquid steel and rolling capacities will become operative by
2010. Upon completion of those investments, the domestic flat steel production will likely
be able to meet the entire internal demand. In 2007, cold-rolled (CR) and galvanized
products consumption stood at 2.3 and 1.5 million tons, respectively.

Borusan Flat Steel Group revenues grew by 25% in 2007. Domestic consumer industries such as automotive and white goods increased their production last year by 11% and 5%, respectively. Consequently, Borçelik directed a substantial portion of its flat steel production capacity towards the domestic market, resulting in sales of $ 796 million, an increase of 24% over 2006 figures.

The volume of total sales, which includes both domestic and foreign markets, rose by 11% in 2007. Borçelik’s growth was mainly attributable to the sale of cold rolled and galvanized products.

With an investment of $ 138 million, Borçelik is currently increasing its total rolling capacity to 1.6 million tons, which will become operative in the last quarter of 2008.

Kerim Çelik, the steel service center, increased its sales volume last year by 34% and overall revenues were up 47%, amounting to $ 160 million. The new investment in our steel service center in the Bursa region, which was initiated in 2007, will help Kerim Çelik’s future growth. This upgrading will enable the Company to improve its level of service as a channel for Borçelik.


Distributorship
The Automotive Group
The BMW Group’s global retail sales rose to record levels in 2007, as evidenced by an increase of 9% to 1,500,678 vehicles in all representative brands of BMW, MINI and Rolls Royce. Land Rover also achieved a global sales record for the second year running by selling 226,395 vehicles worldwide, an increase of 18% compared to the previous year.

In contrast, the Turkish domestic passenger car market experienced a slight contraction of 4% in 2007, realizing sales of 357,465 retail units. The luxury and SUV segments, on the other hand, expanded by 25% and 17%, respectively, compared to 2006.

In this environment of diminishing sales and tough competition in the automotive sector, Borusan Otomotiv was able to achieve its sales targets in 2007 and maintain its market leadership position in the luxury segment through its strong products, competent sales team and efficient planning. Our Automotive Group’s net sales revenue rose to $ 559 million last year, an increase of 42% over 2006 figures, due to an overall growth in sales volume of 33%.

BMW distinguished itself from its competitors last year by its sales volume growth of 46%. With this outstanding sales success in 2007, Borusan Otomotiv maintained its undisputed leadership position as the largest BMW importer worldwide. By selling a total of 2,270 Land Rover vehicles in 2007, Borusan Otomotiv became the leader in the premium 4x4 segment. Additionally, MINI was also number one in its sector, garnering a 49% share of the market, thanks to a sales growth of 107%. In 2007, MINI sold 799 vehicles of wholesale sales, up substantially over its 2006 volume sales of 386 units.

Borusan Otomotiv’s rental car business continued its growth pattern in 2007 with 145 units rented and sale of used cars increased last year by 28%, reaching 1,123 units. It’s used car/new car ratio was 23:77.Under the production license of the global leader Eaton Inc., Supsan produced 6.4 million units of engine valves resulting in a sales volume of 6.3 million units and a turnover amounting to $ 22.3 million. Moreover, exports to Italy and the USA increased by 21% to 4.1 million units.

Otomax, Turkey’s first “multi-branded second-hand automobile platform,” has close to 500,000 registered users of its website and 560 member dealers. Its auction operations, which target vehicle sales from fleet owners to intermediary institutions, were started in 2004. In 2007 alone, more than 6,000 vehicles were sold in weekly held auctions.

At the beginning of 2008, Otomax entered into a 50-50 partnership with Manheim, world’s largest provider of vehicle auction and remarketing services. With this joint venture, auction sales will operate in Turkey under the brand of Borusan Manheim, while the Otomax brand will continue to be used for internet and magazine operations.

The Earth Moving Equipments and Power Systems Group
From the perspective of the worldwide fiscal situation, the economic uncertainty in the US adversely affected the earthmoving equipment (EME) market. Sales decreased by 9% in the US and 5% in Canada. While other global markets for earthmoving equipment grew by 12%, the Turkish market witnessed the sale of 9,750 units, an increase of 7%.

Borusan’s Caterpillar products distributorship continued its consistent growth on both the domestic and international markets fronts in 2007. In sustaining its profitability level, consolidated Caterpillar revenue grew by 31% last year, reaching $ 663 million. While the Central Asia region recorded its highest sales and profitability, making a significant contribution to the Group’s overall profits, our Iran business tripled its 2006 performance.

In a decelarating domestic market, Borusan Makina achieved 6% growth in its EME sales volume, maintaining its leadership in the market. In 2008, our share of the domestic EME market is expected to increase by 2% due to the growing demand of municipalities and the increased activity in mining and energy investments.

With a rental fleet of 123 units, the Company was able to continue its leadership in the EME rental market by doubling its revenue target. In the coming years, Borusan Makina will focus more on the rental business by making a further $ 7.5 million investment in 2008. Moreover, our sales of used machines numbered 358, up by 14% over 2006 figures.

Our service and parts operations also improved in both quality and efficiency and reached its targets for 2007. In compliance with Caterpillar’s worldwide “Contamination Control Program” all of Borusan Makina’s service plants were brought to the five-star level. In 2008, our product support business will feature special campaigns for the target segment, more customer-focused programs and customer support agreements. We anticipate these initiatives will lead us to a growth of 9% this year.

In Kazakhstan, Borusan Makina sustained its leadership position in 2007 among western-made equipment. Despite the fluctuations in the Kazakhstan economy experienced during the second half of 2007, our volume of EME sales increased by 42%.

Thankfully, the agriculture sector was revived due to increasing grain prices. Borusan Makina has set an ambitious target of tripling its 2007 revenue by increasing its market share in this sector. As a result of a $ 6 million Component Rebuilt Center investment in Kazakhstan, our customer support business will experience a new growth surge starting from 2008. This investment will also support our business of rental and used units in the future.

A deeper penetration into the Kazakh power systems market is targeted for 2008 which will lead to sustainable growth and profitability.

The year 2007 was a time of high performance for Borusan Power Systems in Turkey. A weak energy market was compensated for by an increased performance in the Marine and Investor Diesel segments. Our innovative customer financing solutions in cooperation with CAT Finance led to an important competitive advantage for Power Systems.

The main focus areas for 2008 will be the development of our retail sub-dealership network and business of rental and used units. New business initiatives are also under consideration in order to achieve our strategic plan goals. In order to better service to our power systems clients, we are in the process of obtaining ISO 10002 certification.


Logistics
Our third party logistics services focus on standard services such as transportation, warehousing and customs clearance all over the world. Additionally, as economies become more global, customers both in Turkey and abroad expect their logistics service suppliers to extend operations to international markets. Steady economic growth in Turkey, coupled with a healthy growth in the region, has boosted demand for efficient, high quality logistics suppliers. As Turkish industries globalize and become more exposed to international competition, the current outsourcing rate of 38% is likely to reach the higher levels prevalent in developed countries. Growth is primarily anticipated in warehousing, consolidation in transportation management and value added integrated services.

Borusan Lojistik operates its port and 3PL businesses with a focus on creating synergy through service diversification, service integration, regional coverage, efficiency and know-how. Services such as general cargo, container and vehicle parks that are offered at Gemlik are integrated with other value added services under the ‘Port +’ concept. The company is targeting to become a powerful regional player in 3PL operations by 2010 with planned subsidiaries in Spain and Kazakhstan joining current subsidiaries established in Iran, Algeria, the Netherlands and the UAE.

The Company generated a turnover of $ 175 million in 2007. The volume of land transportation business grew by 20% last year, totaling 4.6 million tons. Borusan Gemlik Port achieved record setting business volumes in all its fields of activity with increases of 19% in general cargo handling amounting to 2.5 million tons, 18% in container handling and 6% in vehicle parking. Top brand new customers were added to our customer portfolio in the Container line and Ro-Ro services.

In 2007, Borusan Lojistik’s overall warehousing capacity rose by 84% and now covers an area of 188,000 m². Also the Köseköy Pre-Delivery Inspection Service and Storage Facility, which serves key OEMs in the automotive sector, expanded its capacity from 190,000 m² to 232,000 m².

The Borusan Gemlik Port is also being expanded to better meet the growing demand and business volumes in its South Marmara region. The first stage of the most recent investment, with a projected cost of nearly $ 100 million, began in January of 2008 and is scheduled for completion by the first half of 2010.


Telecommunications
The year 2007 was of great importance in this industry since the Turkish Telecommunication Authority (TK) approved the regulation allowing alternative operators to provide local telephony services.

Borusan Telekom has been operating in 19 cities in Turkey with 31 points of presence (POPs), as well as in Vienna and Frankfurt with 2 POPs. In just a short time, the Company has already attained a commendable level of success. It is ranked second on the prestigious “Deloitte Technology Fast 50 Turkey 2007” list. Furthermore, Borusan Telekom is among the top one hundred fastest growing technology companies in the EMEA region. In addition on these accolades, it is noteworthy that 33% of Capital magazine’s “Largest 500 Companies in Turkey” are customers of Borusan Telekom.

According to the “Bilişim 500” study conducted by Interpromedya, Borusan Telekom is the alternative operator with the highest revenue among fixed telephony services. In the same study, the Company is ranked fourth among IT companies in terms of its export revenue.

In the middle of 2007, Borusan Telekom was granted a License for Infrastructure Management. It has completed projections to provide high quality and wide-ranging services over high capacity fiber circuits.

We believe that Borusan Telekom has created a sound base to build the future growth in the telecom sector through new investments in infrastructure and new customer services.

In 2008 Borusan Holding shall be seeking to identify the opportunities how to create more value from its telecom sector. Within this content the necessity to invest further in the business also may lead the disinvestment in whole or in part from this business line or team up with a strong strategic investor.

Energy
At the end of 2006, as part of its strategic direction, Board of Directors of Borusan Holding decided to invest in energy sector. The vision is to be one of the recognized electricity generators of Turkey. The Turkish market currently is dominated by the state owned generators. Privatization of some parts of the current portfolio as well as granting new licences for Greenfield investments to meet the growth in demand in the coming years shall mean that in the next ten years, private sector shall play a much more significant role in the generation, distribution and trading in Turkish electricity market.

Even though our primary objective is to invest in renewable energy sources such as wind and hydro, as well as exploring the opportunities in alternative energy resources, we fully recognize the importance of creating a well balanced portfolio for the purpose of serving key customers.

To achieve these goals Borusan Enerji started its journey by acquiring 70 % stake in Maya Enerji which owned a hydro power station licence of 52 MW in the first half of the year.

Since then Maya Enerji successfully participated in new wind farm and hydro dam licence tenders as well as acquiring licences from the market place and reached a licence portfolio of 225 MW’s by the year end.

Borusan’s objective for 2008 is to reach a well balanced licence portfolio of more than 800 MW’s and start the capital expenditure on at least 100MW.

In conclusion, we are proud to say that Borusan Group as a whole and each of its business units are in a very strong position to meet the challenges of 2008 and further.

2008’s agenda shall be to ensure the continuation of the growth and operational profitability, while committing to large scale step growth investments for 2009 and beyond.

Executive Office
Agah Uğur
CEO