The changes and developments that took place in the international and domestic arena in 2007 demonstrated once again the critical importance of stability and resilience. Similarly, we witnessed once again the importance of being prepared for or even leading such change, as it determines the degree to which economic challenges impact countries and companies.
Koç Holding had an outstanding year in 2007, both financially and operationally, and we owe that to our ability to predict and manage change.
The most significant developments of the year include the spread, to varying degrees, of the global credit and liquidity crisis stemming from the sub-prime crisis in the US housing sector; the deceleration in growth rates of developed countries; a rapid rise in oil prices; and inflationary pressures. Last year, the growth rates in Europe and Japan slowed in the second quarter and the virtual collapse of the US housing market continued to adversely impact the global economy. In contrast, China and India took top ranking among emerging markets, while Russia's growth continued apace in 2007, as it had in previous years. After many years, low income countries in Africa turned in impressive growth performances.
It is estimated that the world economic growth, effected by financial market volatility, will decelerate in 2008 and hover at around 4%. According to IMF forecasts, the risks pertaining to growth have increased worldwide. Growth estimates for the upcoming period are based on the assumption that the credit crunch in international financial markets will end and that markets will normalize. Nevertheless, it is also probable that uncertainty and volatility in financial markets will persist for sometime. The continuation of growth in emerging markets, especially China, India and Russia, is an important trend for Turkey.
Turkey must take full account of the slowdown in Europe given the turmoil in the global economy. Minimizing any decline in exports to the EU is important considering our production capacity. We need to ensure that the pace of inflow of foreign direct investment in recent years is maintained and greenfield investments are encouraged.
Turkey did not experience a change in the economic climate - further evidence of the importance of the structural reforms instituted after 2002, despite a shortfall in meeting economic targets due to the uncertainty surrounding the elections, the loss of pace in the reform process, and the world economic slowdown in 2007. Between 2002 and 2006, the Turkish economy grew at an average rate of 7.2%, outperforming most developing countries and the growth rate in 2007 came in at 4.5% despite the economic challenges.
Looking ahead, it is clear from the higher use of foreign financing and the expanding volume of foreign trade that Turkey will increasingly feel the impact of global competition. Turkey's renewed determination in the European Union accession talks will be essential in overcoming the difficulties in the global competition. Asian and Eastern European economies will become all the more enticing to foreign capital, as they increasingly drive global economic growth.
In order to reap the fruits of change, one must accurately read and manage it. Leading the winds of change and producing change can help companies to capture its benefits.
Koç Group has begun to capitalize on its ability to leverage the whole change process-from anticipating the need for change, to streamlining the potential developments to be brought about by change, with a special focus given to the importance of internalization of this process by all its employees.
Koç Holding's inclusion in Boston Consulting Group's “2008 BCG 100: The 100 Companies in Rapidly Developing Countries that are Challenging the World” listing is a significant indicator of our strong position in the world.
Those who interpret change correctly are in a position to make the best decisions as to the role they assume in the process of change. Therefore, we develop strategies that will strengthen our position, help us focus on our core business lines and to restructure by leveraging the opportunities that arise. We are focusing on business lines that will maximize our profitability and efficiency on a global scale and we are directing our resources and energy to those sectors where we can use them most effectively and maximize the return for our shareholders.
As a result, Koç Group has gone through an intense period of acquisitions and divestitures. During the past three years we have restructured our portfolio to reach the optimal risk-return level. Our aim was to pursue a more focused growth strategy. We have withdrawn from sectors and companies where we saw a relatively smaller contribution to our portfolio in the long term and reduced the number of sectors in which we operate. We decided to focus on energy, consumer durables, automotive and finance as our core sectors because their growth and profitability potential will provide the highest value added to our Group and shareholders.
Koç Group companies operating in other sectors will also seek to be the best in their respective fields, grow organically and continue to pioneer innovation.
While contributing to the Turkish economy with our investments, we are also taking important steps in the field of social responsibility, a cornerstone of our corporate culture. Following the model of our founder, Vehbi Koç, who pioneered social responsibility in Turkey, we are committed to increasing our work to generate social benefits.
We strive to be present in any area where we can serve our community. Our efforts are focused mainly in the areas of education, health, culture, arts, sports and the environment.
Our view of corporate citizenship is focused on efficiency and being proactive in risk management. The way we do business and evaluate our resources is shaped by this vision. It is our goal to use limited resources effectively and with foresight, and to create lasting value through a sustainable approach.
2007 has seen several changes on our Board of Directors. After many years of valuable service, Bülend Özaydınlı resigned from his position as CEO and his seat on the Board of Directors. We will always remember with appreciation his commitment to the Group and the achievements obtained during his tenure. We wish him health, success and happiness.
Sadly, Wayne Booker, a long-time independent member of the Koç Group Board of Directors, passed away last year. We honor him as a valuable manager who worked hard to strengthen the ties between Ford and Koç Group.
The Board has appointed Ali Koç and Prof. Heinrich von Pierer to fill these seats. I welcome them both and wish them every success.
The Koç Group is a large familiy made up of its managers and all its employees. As a team we will move forward in 2008 to new accomplishments and successes, always mindful of our responsibilities to our customers, partners, shareholders and community.
Mustafa Vehbi Koç
Chairman of the Board of Directors
Quoted from 2007 Annual Report.