CEO’s Assessment

batuaksoy2Esteemed Stakeholders,

I am delighted to share in 2017; Turcas grew its assets and expanded its subsidiary portfolio in spite of Turkey’s volatile economic climate influenced by regional and global developments. We have managed to reduce costs and increase efficiency via intra-group mergers and we kept moving forward with our investment plans for the future at full speed. We made this progress in the face of a volatile year where we felt the repercussions of global and regional developments directly on the Turkish economy. We also activated our third revenue-generating operating company after Shell & Turcas and RWE & Turcas; with the start of commercial operations at Turcas Kuyucak Geothermal. This development was another major milestone in our corporate history.

Shell & Turcas Petrol A.Ş. (STAŞ), the flagship of our investment portfolio operating in the fuel distribution and lubricants industry, recorded sales revenue of TL 19.6 billion and posted TL 321 million net profits in 2017. Meanwhile, earnings before interest, tax, depreciation and amortization (EBITDA) reached TL 961 million. Serving more than 1 million customers each day with 1,011 fuel stations across Turkey, STAŞ continued to lead the sector in gasoline and lubricants sales. The company captured market shares of 24.9% and 25.5%, respectively, in gasoline and lubricants sales as of 2017-end. In addition, STAŞ once again ranked among top 3 companies in diesel sales with 15.1% market share. Throughout the year, STAŞ continued market leadership in retail sales at fuel stations referred to in the industry as “under canopy” sales. While also maintaining leadership in terms of sales per fuel station, STAŞ increased net profits over the prior year.

800 MW Denizli Plant, one of Turkey’s most efficient natural gas fired combined cycle power plants owned by our power generation subsidiary RWE & Turcas South Power Generation ended the year with a 60% capacity utilization rate, 3.8 billion kilowatt-hours of power generation, TL 822 million in net sales revenue and an EBITDA of TL 39 million. These results were achieved despite a nearly 2-month extended maintenance outage.

Our strategy is to diversify our power generation portfolio with renewable resources, create foreign currency- denominated new income streams and enhance revenue diversity. To this end, we started commercial operations at our Turcas Kuyucak Geothermal subsidiary’s 18 MW Kuyucak Geothermal Power Plant located in Aydın and started selling electricity in the framework of Renewable Energy Resources Support Mechanism (YEKDEM) in Q4. I sincerely thank all our staff, partners and stakeholders for their dedicated efforts ensuring this investment to commence operations within the time frame that we had promised our shareholders.

We had set relatively conservative targets for the Company as we entered 2017, primarily due to the geopolitical developments in our surrounding region. However, both the Turkish economy and our Company outperformed expectations in terms of growth rates during the year. As we maintain cautious optimism in 2018, we update our portfolio scenarios on the basis of risk management while assessing new investment opportunities with the same approach.

The global energy industry is going through a major transformation. While the share of renewable energy is growing much faster than conventional resources the role of innovation in the industry is expanding each day, from solar energy and storage technologies to materials diversity thanks to steep declines in investment costs. We closely monitor global energy investment trends to maneuver the Company in the right direction for the medium and long term. Our top priority is to expand our geothermal investments that will allow us to take advantage of the government’s foreign currency- denominated renewable energy resources support mechanism and boost the Company’s foreign currency income. This geothermal expansion strategy will also contribute to Turkey’s local and renewable energy production ambitions. Our second priority is to develop value- generating projects with innovative technology based investments, products and solutions. Besides these two target investment areas, we will also be closely monitoring precious metal investment opportunities in Turkey in 2018 in parallel with the country’s National Energy and Mining Policy.

Last but not least, I would like to share with you that we added to our accomplishments in corporate governance in 2017 with our focus on this key area. As of March 2018, the Company’s Corporate Governance Rating Score increased from 9.48 to 9.57 out of 10. Our corporate governance rating scores have risen steadily and consecutively for the last 8 years. As a result of our efforts, the Company has made great inroads in corporate governance. We are now ranked 6th in Turkey and took the #1 position among oil and energy companies. I thank my valued team members for the outsized roles they played in achieving this success. It is my hope that this accomplishment encourages companies across Turkey to further develop in the corporate governance arena.

As I conclude my remarks, my grateful thanks are extended to all stakeholders for trusting that we will be leveraging our 87-year rooted corporate governance approach. I would also like to thank all our employees for their dedicated efforts to undertake value generating projects worthy of our reputation as “Turkey’s pioneering and prestigious energy investment company.”

Respectfully yours,

Batu Aksoy
CEO and Board Member