2011 was quite a successful year for the Borusan Group as our consolidated turnover increased to historic record levels. Also last year, Turkey managed to show a respectable performance and grew by 8.5% as a result of the strong domestic demand. While we effectively managed to increase our market dominance in virtually every business segment that we cater to in the domestic market, and this despite the relatively stagnant conditions of foreign markets, we still succeeded in seizing opportunities as our group export and international revenues climbed to $1.1 billion. Our turnover as a Group grew by 22%, to $4.3 billion, as we obtained a much higher growth in our profit indicators.

The main factors that influenced our operational results in 2011 can be summarized as follows:

• Turkey managed to secure an 8.5% growth in 2011 despite the challenges Europe has had to deal with because of its growing debt load and economic uncertainty. While a record 12% economic expansion was reported in the first quarter of the year, the growth during the second half of the year declined, leveling off for the twelve-month period.
• The primary sectors to which we provide service, including the automotive and white goods segments, exhibited a growth performance in 2011 which was similar to the overall economy. Domestic automotive production rose by 10% to 1.2 million units in 2011, while production of white goods increased by 9% to 20.1 million units, both in spite of the continuous fluctuations in the €/TL exchange rate, the fairly high interest rates offered on consumer financing and the increase implemented regarding special consumption tax levels during the last quarter of the year. As a result 8% and 7% growth was obtained in the flat steel and steel pipe markets respectively.
• The prediction and management of the fluctuation in steel prices became even more challenging not only because of the contraction in real demand, but also because of various other factors, including the increasing cost pressures on manufacturers, stock optimization requirements and the continuation of the global economic crisis. The average steel price in 2011 was 17% higher than in 2010.

When compared with results from the previous year our Steel Group Companies grew by 20% in 2011 as a result of both the expansion in their business volume as well as the 17% increase in product prices. At the same time, the Distributorship Group Companies attained a record business volume and increased revenues by 30% during 2011.

The Steel Group prolifically generated 52% of the overall revenues in 2011 by processing 2.7 million tons of steel. Our steel pipe companies reported sales income of over $870 million, reflecting a 24% increase over 2010 figures, while the turnover of our flat steel companies rose to over $1.3 billion.



As a consequence of the growth in their business volume, our distributorship activities managed to increase their share of the cumulative revenues of the Group to 40%, up from 38% the previous year. The highest business growth rate during 2011, an impressive 75%, came from our Machinery and Power Systems companies which also saw an average 33% rise in revenues last year. Although the domestic market grew by 50% in relation to the previous year, we managed to increase our business volume by 75%, up to 1,670 units. We attained record levels in our power systems sales as a result of the organizational changes and synergy created in both Turkey and Central Asia. We also maintained our leadership in the machinery market of Kazakhstan.

Despite the negative impact on car sales created by the increase in the special Consumption Tax in Turkey last year, in the last quarter of 2011 our Automotive Group companies once again broke their annual sales record by collectively turning over more than 19,000 vehicles and motorcycles. Once again, BMW maintained its indisputable leadership position in the market. Similarly, market leadership in the Land Rover category was also sustained, while sales in the MINI segment more than doubled over 2010 figures.

In keeping with their strategic plans, both Supsan and Manheim Turkey continued to move forward and expand their business volumes during 2011.

The progressive growth pattern of our logistics business continued consistently last year. Yet another optimistic fact was that the ratio of the revenues generated from logistical activities outside the Group increased by 21% in 2011, causing its share in all aspects of the logistics business to increase from 64% in 2010 to 70% in 2011. Our cumulative turnover, on the other hand, increased to $312 million. The second phase of the port investment will be followed by the third phase investment based on our decision to implement ahead of schedule in 2012. This investment will enable us to increase our container capacity to levels that are in line with previously determined strategic targets.

In addition to the positive conditions of the domestic market i n 2011 we successfully managed to increase the ratio of our revenues generated from offshore sales from 23% to 26% this year. While our flat steel companies utilized their production capacities to provide for the rather vibrant demand from the domestic market, the Steel Pipe Group reported a 30% increase in export business volume, to 40 countries in all. By obtaining the maxim um benefit from the demand for petroleum line pipes and boiler tubes, especially the U.S. market, a lasting growth was obtained through customer focused solutions. Meanwhile, our companies operating abroad (such as our machinery and power systems, especially in Kazakhstan, as well as our offshore logistic activities, plus our pipe plant in Vobarno, Italy) were also successful in achieving respectable increases in their business volumes. The consolidated revenues generated from export and international activities grew by 30%, reaching $1.1 billion.



Despite increasing competitive circumstances and difficult market conditions in all sectors we effectively increased our gross profitability level from 11% in 2010 to 12% in 2011. Over the past three years we have continued to improve the ratio of our operational expenses to sales, and it once again decreased from 6.9% in 2010 to 6.4% last year. We supported our increasing business scale through efficient cost and expense management. However, as a result of the volatility in currency exchange rates the losses incurred in currency conversion limited the growth of pretax profitability levels. Nevertheless, we efficiently increased our pretax profits level by 26% in comparison to the previous year.



We were successful in increasing the EBITDA level of our Group by 33% in 2011, up to $326 million. Although nearly all of our companies contributed to this increase, the most appreciable performance originated from the activities in the Steel Pipe and Machinery and Power Systems divisions. The ratio of the EBITDA to cumulative sales also improved significantly, from 7% in 2010 to 8% last year.



As a result of the 22% growth in our sales and the average 17% increase in steel prices, our operating capital at the end of the term rose by 15% over 2010 figures. Our desire to obtain maximum benefit from the anticipated rise in steel prices and to make use of sales opportunities in our distributorship business during the first quarter of 2012 played an important role in this increase. Meanwhile, regardless of the competitive market conditions, plus the fact that competitors began to offer longer terms, the structural improvement in our receivables and the rise in collection abilities continued to develop.



$296 million worth of investments were made throughout the Group companies in 2011. As a result, the cumulative amount of investments that have been initiated since 2000 grew closer to $1.7 billion.

The ground-breaking ceremony for Borusan Mannesmann Boru’s new $105 million spiral pipe production facility took place in 2010 and production commenced during the last quarter of 2011 in accordance with previously established plans. The new plant investment, equipped with the latest state-ofthe- art technologies, will produce value-added spiral pipe mostly for the energy sectors in both domestic and foreign markets.

As a result of the higher than projected business volume and capacity utilization rates achieved in our logistics business, following our finalization of the second phase of our port investment for $90 million, the decision was made to move forward and implement the third phase of this venture. This investment is designed to supplement the expansion of our container business.

Concerning our newest strategic business area of energy production, the total volume of investments made to date, including the activities that took place in 2011, rose to $320 million. The Yedigöl Hydroelectric Power Plant, which constitutes the first phase of our investment in Erzurum, began production in October of 2011. The second phase of the project, the Aksu Hydroelectric Power Plant, is scheduled to begin production during the first half of 2012. Our first completed and functioning venture in this area, the 60 MW Bandırma Borasco Wind Energy Plant, produced energy at full capacity during 2011. Also in 2011, we purchased a new 80 MW wind energy production license and, in addition to that, we secured 150 MW of production licenses at various wind auctions. Consequently, our investable portfolio size increased to 550 MW. We foresee that 2012 will be another year of rapid expansion. In order so to increase our portfolio and the investments in the projects that were acquired, we intend to allocate $290 million worth of new funding for our energy business.



Approximately half of our investment expenditures and operational capital needs, which increased in line with our growing business volume in 2011, were financed via sources created through our operations, while the remainder was financed by acquiring long and short term loans. Our net borrowing level increased by 23% in comparison to the previous year, up to $1.471 billion. On the other hand, the debt to net asset balance was maintained at the targeted 60% to 40% optimum level.

Despite the increase in our debt level, our financial expenses remained relatively unchanged in with regard to the previous year as a result of reduced borrowing costs and, more importantly, our efficiency in risk management.





With the aim of enhancing our Group’s more creative, participative, innovative and sensitive climate, in 5-year strategic plans prepared at the end of 2010, our primary initiatives to be implemented should focus on new products/services, social media and sustainability. In addition to the three main themes from our former strategic plans (namely, profitable growth, strategic market positioning and business excellence) we also established the new products/services theme as one of the priorities of our Group. There is a continuous need for a new approach if we are going to grow, prevail over the competition and increase our profits. I firmly believe that the key ingredient to success lies in being focused and creating a change in our corporate atmosphere.

In this regard, we took numerous successful steps in 2011. For example, at each of our companies we worked in the area of setting up the proper processes, organization, and responsible parties in order to develop new products. We settled on products-services concentration areas and set targets that were compatible with our strategies. We established R & D centers at our Borusan Mannesmann Boru and Borusan Lojistik companies. Therefore, in 2011 we began to reap the rewards of new products and services. In the days to follow, we will continue our efforts in this area with a renewed intensity.

Within the scope of our social media initiative, and for a more interactive and creative atmosphere at work, we successfully established our own web-based social network, similar to Facebook, for Borusan employees only. Called “The Borusans”, it connects more than 3,000 of our workers and is the first of its kind in Turkey.

Concerning the sustainability initiative, we created a comprehensive project in 2011 to determine the environmental sustainability strategy of our companies, as well as to identify areas of opportunity and improvement. We have carefully planned the steps our Group companies will be taking with regards to sustainability. We have focused our efforts on the areas of energy efficiency and the reduction of carbon emissions. We are following through with these efforts within the framework of the road map we have established across the Group. In terms of our contribution to the environment, the expertise we have attained in our renewable energy portfolio and power systems activities provides us, undoubtedly, with additional competence.

The value created by the contributions and efforts of all our workers in the attainment of all the operational results and the success reached in all of the corporate initiatives during 2011 is worthy of mention. I congratulate all our Borusan workers who have targeted maximum business volume and profitability in continuing operations while always trying to stay one step ahead by endeavoring to create a difference with their bold and innovative perspective. In 2012 we will continue to collectively create a difference by searching for inventive solutions and pushing our profitability to higher levels. As always, the greatest source of our success will once again rest on the shoulders of our highly esteemed human resources.




In 2011, the cumulative global steel output rose to 1.5 billion tons. While the annual rise in global steel production actually slowed from 15% in 2010 to 7% last year, the domestic output, on the other hand, actually increased by 2% in comparison to the previous year, up to 17%. As a result of this growth the production of raw steel in Turkey in 2011 reached a record annual level of 34 million tons. Because the rate of increase in the output of the sector was more than double the rate of domestic economic growth Turkey was ranked among the fastest growing countries in the global steel sector. Turkey was the second largest producer in Europe and tenth biggest in the world.


Last year was quite a successful one for Borusan Mannesmann Boru as the domestic steel pipe sector grew by 7%. The Company saw a 30% increase in exports and expanded its business volume in first quality products to 700,000 tons. This was a direct consequence of both an increase in primarily foreign demand from segments that are considered as strategic growth areas, as well as the contraction in domestic sales, which occurred as a result of increased competition. The output of high value-added products, including pressurized, special and spiral pipes, amounted to a 50% share of the total production.

Customer specific solutions helped increase our sales volume to developing export markets, while a more lasting growth target was determined for existing markets. Nearly 53% of the business volume consisted o f exports to 40 countries. The 2011 revenues of Borusan Mannesmann Boru increased to $763 million, a growth of 21% over the previous year’s figures.

Another positive development in 2011, in terms of strategic plans, was the completion of the spiral pipe production plant investment which primarily caters to the target of investing in high value added products to increase our competitive strength.

The year 2011 was one of transformation for Borusan Mannesmann Boru. As a result of both the implementation of measures designed to initiate a return to profitable balances and a profitability focused approach in both domestic and export markets the highest profit margins of all time were attained last year. In 2011 the EBITDA level of $67 million was substantially higher than the figures from 2010.


As the largest company within the Group, Borçelik had a rather thriving year in 2011 with regard to the successful implementation of all its targets. The Company effectively reinforced its market share and competitive strength in accordance with its strategic targets and the shipment records that were attained. The efforts towards the development of new products and services were also accelerated.

In 2011 the adverse affects of the financial crisis were especially noticeable in terms of the demand originating from Europe, as more emphasis was given to domestic sales because of the drop in exports with regard to the previous year. The turnover increased by 3%, up to 1.4 million tons, in comparison to figures from 2010. Our market shares in galvanized steel and cold rolled steel stood at 30% and 19%, respectively.

Last year the EBITDA level of Borçelik increased to $92 million, a growth of 8%.

As a result of the new Adana Steel Service Center which was opened as a part of the geographical expansion plans, as well as its integration with Borçelik, Kerim Çelik reached an all time high in terms of goods shipped and turnover, which topped $314 million. The total volume of goods shipped, meanwhile, amounted to 416,000 tons. Kerim Çelik made a large portion of its purchases from Borçelik and was therefore able to guarantee on time delivery while providing its customers with the highest quality merchandise. When compared to the previous year, the EBITDA level of Kerim Çelik increased by 104%, up to $13 million.



The period of recovery which began in 2010 across the majority of global markets and in the automotive sector continued on a consistent basis during most of 2011. The retail sales volume of the BMW Group, including all vehicle models under the BMW, MINI and Rolls-Royce brands, was reported at 1.7 million units. As a result of its 14% business growth the Company maintained its position as one of the leading luxury class automobile manufacturers in the world. Land Rover, on the other hand, improved its global sales to 224,000 units, an increase of 23% over the previous year.

Favorable economic balances, low interest and foreign currency exchange levels, as well as consumer oriented marketing activities, all served to contribute to the growing demand in the Turkish passenger vehicle market, especially during the first half of 2011. Despite mounting consu mer interest and the special consumption tax levels during the second half of the year the passenger vehicle market still managed to increase by 16%, totaling 593,000 units. Simultaneously, retail sales in the luxury segment climbed by 17%, to 48,000 units. The premium SUV market grew by 7% as compared to 2010 and cumulative sales in that segment rose to 7,000.

During 2011 our retail sales of BMW increased to 15,018 vehicles, while MINI and Land Rover rose to 1,735 and 2,139 units, respectively. Therefore, revenues of the Automotive Group climbed higher in 2011, to $916 million, indicative of a 26% annual increase over 2010 figures. As price reductions and low profit margins dominated competition in the sector, the rate of growth in profits was slightly below that of the increase in unit sales. Still, our EBITDA level amounted to $68 million.


Supsan also witnessed a thriving and profitable year in 2011 as it managed to outperform the auto sector in terms of growth. Under the license of Eaton Inc. the Company sold 7.3 million valves and registered a turnover of $26 million. Combined exports to the United States and Italian mark ets climbed closer to the 3.5 million units. The export volume of original equipment manufacturer (OEM) valves independent of Eaton increased to 200,000 units. Meanwhile, the growth trend sustained over the past seven years in the domestic spare parts market continued. The highest figure on record was attained in 2011 in the sale of products offered in connection with valves.

Supsan also successfully passed inspections set in place by Audi, Porsche, Ferrari and Mercedes last year. In addition to Bentley and Aston Martin, the Company was also chosen to become a supplier for Russian Avtovaz, which is quite important in terms of strategic gain.

At the same time, Supsan maintained its status as a pioneering and exemplary company for its implementation of the 6 Sigma and Lean methodologies, as well as initiated and executed important efficiency projects in 2011.


As the country’s first multi-brand secondhand automobile platform Manheim Türkiye, established in 2008 as a joint venture with Manheim, the leading American car remarketing company, continues to be a vital part of the Borusan Group’s developing automotive distributorship network. Manheim Türkiye increased its number of member dealerships to 1,835 and facilitated the marketing of close to 40,000 vehicles in 2011. Of this figur e, the number of vehicles marketed at open auctions increased to 12,745. The average number of member dealers attending weekly auctions rose markedly to 530.





The year 2011 brought about a global increase in the sale of new machine due both to the continuation of the expansion taking pl ace in the construction sectors of developing countries and the renewal of fleets by developed countries, despite the stagnation of their sectors. The Caterpillar Group, of which we are a distributor in Turkey and the surrounding geographical area, also managed to increase its consolidated turnover to around $60 billion, a growth of 41% over 2010 figures. This was a consequence of its improved product quality, investments initiated to raise production capacity and the increasing sales performance in most regions. Profitability, on the other hand, increased by 83%, to $4.9 billion.


The highest growth in turnover and profitability performance was achieved by the CAT distributorship. In 2011, machinery market in Turkey grew by 54% over figures from the previous year, up to 10,070 units. In turning over 1,669 new machines, Borusan Makina ve Güç Sistemleri not only s urpassed its sales targets but also improved on all former unit sales and revenue records. The Company also maintained its role of market leadership in Turkey by generating 17% of all the sector’s business volume.

In Kazakhstan, Borusan Makina maintained its market leadership position among distributors of machinery of western origin. The overall sales volume in this category increased by 67% in comparison to the previous year. It was also quite a flourishing year as revenues of the Power Systems segment increased fivefold over 2010 figures.

Business volumes and profitability levels in Electric Power Systems of the energy, diesel generator, marine and petroleum markets increased in all countries where Borusan has operations. The Power Systems commercial unit has enhanced construction, energy, marine and petroleum related business models with turnkey projects and increased involvement not only in regions were it is currently active (including Turkey, Kazakhstan, Kyrgyzstan, Georgia and Azerbaijan), but it has also taken on a n even more comprehensive regional role as projects were also secured in such countries as Tunisia, Egypt and Afghanistan.

The year 2011 was also a good one for Turkey in terms of used and rental business. There was a 26% increase in revenue generated by the rental fleet, which consists of 230 machines. Plans are underway to expand the rental fleet by approximately 60% during 2012.

Also in 2011, the organization and product range of the machine business unit continued its development with the introduction of new products. In addition to the Metso and Hoist products that were added earlier to the portfolio, last year Caterpillar’s Tunnel Boring Machines (TBM), Genie brand Aerial Work Platforms (AWP), Wacker Neuson construction equipment and the rental distributorship of Atlas Copco and Kaeser Compressors were also obtained.

By the end of 2011, the EBITDA level increased by 46% over 2010 figures and topped $76 million.

When compared with 2010 results, the after sales service revenues in Turkey and Central Asia grew by 10% and 21%, respectively.


Despite the contraction in demand and slowing growth rates across the majority of the world economies, the fact that Turkey had the second highest economic growth rate was a huge advantage to logistics companies who play a bridging role between raw materials and end users. Borusan Lojistik registered a substantially successful year in 2011 as all operational t argets were attained and revenues increased by 13%, up to $312 million, even though devaluation during this time was higher than 20%. The overall growth trend was maintained as profitability levels were in line with expectations.


In order to better provide for the increasing demand from the southern Marmara region and improve the management of business volume, an expansion investment was set in place back in 2009. As a result, the general cargo, container and vehicle handling capacities at the Gemlik Port was increased to 5.7 million tons, 400,000 TEU and 250,000, respectively. Planning efforts for the third phase of the investment began in 2011. The actual investment itself is scheduled to commence in 2012.

In line with its organizational vision of “Leadership Across Borders In Logistics”, and in keeping with its initiative to expand geographically, Borusan Lojistik fully financed the establishment of Borusan Logistics International Kazakhstan, founded during the last quarter of 2011, and added it to its impressive list of subsidiaries in the U.S., Europe, North Africa and the Middle East. In addition to the management of the country headquarters, the International Transporting Services, which was positioned as a sub business division in 2010, has en abled the Company to take on even more of a dynamic role in transportation activities in Turkey, as well as between other close geographical regions.

The EBITDA level of Borusan Lojistik stood at $38 million in 20 11.


Last year was an important one for Borusan, not only because of the expansion of our portfolio, but also because of the fact that the restructuring process of Borusan EnBW Enerji gained momentum. Perhaps one the most significant developments in this regard was the completion of construction of the first phase at the Erzurum Yedigöl Hydroelectric Power Plant as the facility became commercially operational on October 14, 2011. The Aksu Hydroelectric Power Plant, which constitutes the second phase of the project, is scheduled to be brought online during the first quarter of 2012.

The long awaited evaluation process of the wind energy production licenses that were submitted as far back as November 1, 2007 was completed following the auctions that were realized during 2011. The outcome of this process gave Borusan EnBW Enerji a better opportunity to clarify its wind energy production portfolio and plan the process of investments. Including the licenses acquired during the wind auctions at the end of 2011, plus the other license acquisitions, Borusan EnBW Enerji continued to expand the size of its investable portfolio to 550 MW and $375 million by the e nd of 2011.


During 2012 Borusan EnBW Enerji will focus not only on the actu al implementation of projects that are moving into the investment phase but will also speed up efforts designed to improve Company processes. Borusan EnBW Enerji will continue to fervently pursue strategic plans that target increasing the energy production portfolio closer to the 2000 MW mark by 2020.


In conclusion, we embarked on our journey into the year 2012 based on expectations of a slowdown in economic expansion. However, our business growth predictions for all of our companies have either been slightly increased, or at the very least, maintained in line with 2011 standards.
Nevertheless, we still continue to believe that we will always be able to do better and achieve higher profitability targets in the process.

In accordance with our strategic plans, a higher ratio of value-added j obs among our total business volume will constitute the cornerstone of high profitability.

Our successes in 2012 will be of vital importance in the attainment of the lofty and exciting targets we have set for ourselves in the 2011 - 2015 Strategic Plan.

The creation of new products and services will undoubtedly be pivotal in terms of the difference created. And, as always, we will continue to draw strength from our highly experienced, dynamic and open minded personnel, as we enthusiastically continue to implement our sustainable plans for development.

Finally, I wish continued success and prosperity to each one of our Group companies, as well as to my other colleagues at Borusan, as we continue on this exciting journey.

With warmest regards,
Agah Uğur
CEO
Borusan Holding