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Message from the Chairman

Dear Shareholders,

We have closed a year characterized with extraordinary developments both in Turkey and the world, with some of these developments certain to have a longterm impact on our country and the world. As unity and solidary gain more prevalence for our country, we see new balances being struck across the globe. In terms of the global economy, 2016 was a year of reduced global trade due to the falling commodity and oil prices slowing economic growth in exporter countries, continuing a trend that started back in 2015.

The end of 2016 was marked with uncertainties affecting all major economies, stronger expansionist policies in the U.S. following the presidential elections, and an increase in fund outflows from developing markets such as Turkey due to expectations of interest rate hikes in developed countries. The volatility in interest and exchange rates increased near the end of the year, necessitating monetary tightening in developing countries. Global growth concerns arising from China, the Brexit, continuing low growth and low inflation in the EU, the rapid expansionist fiscal policies promoted by President Trump of the U.S. since his candidacy and their effects on inflation and interest rates remained the key agenda items of 2016, and these developments need close attention as well in 2017.

From Turkey’s perspective, 2016 was a year of certain exceptional developments as well as growing geopolitical risks. Adding to the negative developments around the world, factors such as the coup attempt of July 15 that threatened the unity and solidarity and the atmosphere of trust and stability of our country; a series of terror attacks that hit various parts of Turkey, including one of our Holding’s valuable assets, Istanbul Airport; growing tension and conflict in Syria and Iraq; the political and economic relations with Russia coming to a halt for the majority of the year; and the rising foreign exchange rates have reduced the investment appetite of the private sector, causing Turkey to fall short of its inflation target once again and become unable to achieve a price stability. Another key indicator in 2016 was the downgrading of Turkey’s credit rating to non-investment grade.

Turkey’s economic performance in 2016 will be remembered as a period of recovery in the first half of the year, followed by a time where the country drifted away from its targets due to political developments, both global and in Turkey’s surrounding region. Despite all these negative developments, we are hopeful and optimistic for the future, thanks to our economy that once again proved its durability, our strong banking system, political stability, robust internal demand, and the reform and incentive initiatives announced by the government.

2017 expectations

Global economic growth is expected to remain under 3 percent in 2017 as well for the sixth consecutive year. While Asia is the region that promises the fastest growth in 2017, developing countries show signs of recuperation due to the recovering oil and commodity prices, which indicates a positive outlook.

In 2017, a close eye must be kept on the protectionist policies by the U.S. led by President Trump and their effects on global trade. These measures are planned for deployment against countries such as China and Mexico, which the U.S. openly points the finger at, and their scale and the reactions they will receive from effected countries represent a significant source of uncertainty and risk. In addition, FED’s interest rate hikes in 2017 and the consequent appreciation of dollar are certain to affect the currency and interest rate policies of all countries, Turkey included. Infrastructure and construction developments in the U.S. and the ECB’s decision to extend its quantitative easing program until the end of 2017 signify positive developments for the global economy. We will be following closely the interaction between and the impacts of the fiscal policies of the Trump administration and the monetary policies FED will adopt. Another development that demands our attention is Brexit’s effect on the economy of the UK and Europe. For the EU, the upcoming elections in France and Germany, and the policies newly elected leaders will adopt will play as important a role as the economic outlook for the coming period.

It is imperative for Turkey to maintain its structural reforms. We have to make progress on significant structural changes that have the potential to reduce our current account deficit, such as increasing the weight of high-added-value goods, alleviating the lack of deposits –the crucial weakness of our banking system–, improving the investment environment for both domestic and foreign investors in line with the Medium-Term Economic Program, and developing sectors that can help set Turkey apart from a global standpoint.

Our country’s outlook for 2017 is the preservation, or even the improvement of the current situation. The main sources of optimism are expectations of continued political stability in the coming term, restabilization in the neighboring countries, enhanced investment and consumption through reform and incentive policies, increased tourism revenues and higher demand in our export markets. In light of these expectations, in 2016 Akfen Holding completed its delisting process that was initiated in December 2015 by ceasing the trade of our company stocks in the stock market in May 2016 upon the CMB’s approval and subsequently redeeming the shares we had bought back as part of our second buyback program.

The most important development in 2016 concerning the Holding, however, was the board’s decision in June for a demerger, involving the reorganization of our areas of activity and partnerships. In this context, Akfen Holding maintained its stake in MIP, TAV Airports, and Akfen Renewable Energy, all companies with optimal capital structure, capacity for strong cash flows, and high dividend yield, while transferring to the group company Akfen Engineering its stake in other companies that engage in airport construction, maritime transportation, hotel investment, thermal energy generation and water distribution, whose investment needs and development is still ongoing, thereby completing the reorganization.

2016 marks our 41st anniversary, and was a year of restructuring for further enhancing our companies’ competitive edge. For 2017, we have set our eyes on infrastructure development opportunities our country offers to sustain Akfen Holding’s growth in sectors like energy. As we watch TAV Airports, the veritable hub of the region, expand its activities across the globe through service companies, we are also closely following how our other companies such as IDO, Akfen REIT and Akfen Water position themselves in line with the status quo.

As in the previous periods, Akfen Holding will remain committed to contribute to our country’s economy and create new employment opportunities. In addition, we will continue in the coming period our social responsibility efforts through our foundation, TIKAV. Akfen, a company that began its life 41 years ago as a heating equipment manufacturer, flourished hand in hand with its affiliates and stakeholders. For that, I would like to thank all employees, affiliates and stakeholders who have contributed to our success for the past 40 years; this unity will remain the source of our strength in the coming period as we endeavor to create value for Turkey.

Chairman of the Board of Directors