CHAIRMAN'S MESSAGE

Ahmet Zorlu

Esteemed Stakeholders,

Return to strong and synchronized growth

In 2017, the global economy was shaped by the central banks’ decisions and geopolitical developments. Pro-growth monetary policies pursued by the world’s major central banks, especially the Federal Reserve Bank (Fed) and the European Central Bank (ECB), yielded positive results and led to an acceleration in the growth rates of the developed countries. Likewise, developing countries also saw a pick up in their growth performance. Consequently, 2017 was a year of global economic growth which went beyond expectations.

It is noteworthy that this synchronized growth was achieved in the presence of geopolitical and political issues in various parts of the world, such as the rising concerns for the protectionist policies of the US President, Donald Trump, Brexit vote in the UK, unfavorable developments in the Middle East and the growing tension between North Korea and the US.

Parallel to the steady improvement in economic growth and employment rates in the US, the Fed has implemented three scheduled rate hikes throughout the year and raised the policy interest rate to the 1.25%-1.50% range as of the end of 2017. The Fed also initiated the process for balance sheet normalization in October. On the other hand, the US Dollar depreciated in international markets due to inflation failing to yield the desired momentum and the failure of the Trump administration to implement its growth plans as fast as expected.

In Europe, however, the Euro has started appreciating, especially from 2Q17, on expectations that the ECB would take steps to tighten liquidity. In 2017, the Eurozone displayed its strongest growth performance since the global crisis in 2008. In parallel to these developments, the ECB decided to reduce the size of its monthly asset purchases and took the initial steps towards monetary policy normalization in 2017. Going through a rebalancing process, the Chinese economy also exhibited signs of returning to a stable growth trajectory in 2017, though not as high as before.

The commodity prices maintained their uptrend in 2017, while developing countries continued to attract capital flows thanks to the supportive liquidity policies on a global basis and investors’ quest for high returns.

With its strong performance, the Turkish economy once again demonstrated its resilience and dynamism.

The Credit Guarantee Fund launched in 2017, the government’s employment campaign and the industry-specific temporary tax cuts boosted domestic consumption and economic growth in Turkey.

Thanks to these incentives and a low base in 2016, the Turkish economy displayed a strong performance in 2017 and recorded a 7.4% growth for the full-year following its record-breaking 11.3% growth in 3Q17.

In return, with the increase in food and energy prices, inflation hit double digits by the end of 2017 while foreign trade deficit and current account deficit continued to remain among the main issues of the Turkish economy.

While economic matters such as inflation, current account deficit, employment and foreign debt will continue to be among the most pressing agenda items in 2018, the geopolitical risks, the reform program and stimulus measures to be implemented by the Turkish government, the Fed’s interest rate decisions and the Brexit process will also have an important impact on the markets and the economy.

Based on the projections that the government would continue with its pro-growth policies and exports would be supported by the recovery in global economy, the Turkish economy is expected to grow at a more moderate 4-5% in 2018, following its strong performance in 2017.

While the ongoing recovery in export and tourism revenues is expected to have a positive impact on the current account deficit, inflation is also projected to recede to single digits towards the end of 2018 thanks to a favorable base effect.

In 2017, Vestel continued to pursue its sustainable and profitable growth plans while also registering notable achievements.

While the SCT exemption on white goods, which was in effect during February - September, spurred a strong growth in our domestic sales volumes, the economic recovery in Europe, our main export market, had a positive impact on our white goods exports.

In the TV segment, Vestel started the production and sales of Toshiba branded TVs for the European market in 2017 under the brand licensing agreement signed with the Toshiba Visual Solutions Corporation. The Toshiba branded TV sales accelerated in the second half of the year following the completion of the new product line-up for the brand in June 2017.

Another important development of 2017 was the groundbreaking for our new washing machine and dryer production plant in July 2017. Planned to become operational in the second half of 2018 with an investment of EUR 70 million, our new plant is designed in line with the Industry 4.0 principles and will have a production capacity of 750,000 washing machines and 750,000 dryers per year.

Previously crowned with the “TPM Excellence” and “Excellence in Consistent TPM Commitment” Awards for its successful TPM (Total Productive Maintenance) practices implemented since 2010, Vestel once again sealed its success with the receipt of the “Special Award for TPM Achievement” in 2017. The fact that Vestel is the first TV manufacturer in the world to be awarded with the TPM Special Award demonstrates our strength in manufacturing.

Meanwhile, Vestel Beyaz Eşya, which received the “TPM Excellence Award” in 2014, took its operations a step further and was deemed worthy of the “Award for Excellence in Consistent TPM Commitment” in 2017. This achievement made Vestel Beyaz Eşya the first and only household appliances company in the world to simultaneously receive this award for its six production facilities.

We have the upper hand in adapting to Industry 4.0.

The implementation of TPM activities for years provides Vestel with an advantage in adapting to Industry 4.0.

What we ultimately want to achieve with our digital transformation named as VESTEL 4.0 is a “Smart Factory” where all processes are carried out by artificial intelligence software.

Our competency in software is one of our major strengths in transition to Industry 4.0.

We foresee that this transition will also change the profile of our human resources with workers doing manual work being replaced with employees who are capable of designing, developing and controlling manufacturing processes.

In addition to bringing increased levels of productivity and significant cost savings in manufacturing, the Industry 4.0 transformation will also serve towards our goal of maximizing customer satisfaction.

With this transformation, Vestel will be able to offer higher value added products to the market faster than before, thus improving its global competitiveness.

We are working incessantly to deliver on our promise of making Vestel City the first manufacturing facility in Turkey to complete this transformation.

360-degree corporate sustainability

As part of our 360-degree corporate sustainability vision, we use our advantages in R&D and innovation to expand our sustainable product portfolio.

The levels of efficiency we have reached in energy and water consumption can be seen clearly in our manufacturing processes and record-breaking products. Continuing our efforts to improve energy efficiency further, we contribute towards building a sustainable future.

The fact that Vestel Beyaz Eşya has recently received the Water Footprint Verification, a first in its industry in Turkey, represents a great example of our achievements.

As one of our numerous international certificates, this document indicates the standard we have reached in water consumption and highlights the importance we attach to the efficient use of natural resources.

We are also taking important steps in other fields which constitute the main pillars of our sustainability approach, such as customer services and training and development of human resources. While we provide support to our R&D activities through the training programs at Vestel Technology Academy, we also improve the quality of our customer services and strengthen our human resources under our continuous improvement approach by offering training courses at various platforms, mainly at Vestel Retail Academy and Vestel Service Academy.

The “Customer-Friendly Brand” and “Customer-Friendly Organization” Certificates, which we have received in 2017, marking a first in our industry, indicate Vestel’s perfectionist service approach and the level it has reached in customer services.

A striking example of the integration of technology into social responsibility

We believe that a happy future can be built in a world where women, men, children and the disabled, are actively and collectively engaged to create value without any discrimination. To this end, we consider our Accessibility Project as one of the striking examples of integrating techology into the area of social responsibility.

Our Accessibility Project is designed to allow people with disabilities to access the world of Vestel without any obstacles throughout all processes from the production plant to the end-user, from the Company website to customer services.

Employment of the disabled and other social responsibility projects for individuals with disabilities constitute the complementary aspects of this project.

We were very proud to see our project represent Turkey at the 2017 UN Conference of Parties.

Vestel was recognized as the “Enterprise with the Highest Off-Quota Employment of Disabled People” and increased the total number of its disabled employees to 440 in 2017.

Proud steps to the future...

As a global manufacturing giant which designs the future ahead, Vestel makes a name in new areas as well. Our smartphone Venus, which stands out with its high standards and performance and which we believe, will secure a stronger position in the future with its constantly improving new models, is one of the elements which demonstrates Vestel’s innovative vision. Developing and expanding its smart home and smart city platforms, Vestel is also set to make a name in these areas in the future. Our achievements in innovation and competencies in R&D foster our belief that Vestel will be one of the companies to shape the future.

Our Company’s fundamental purpose of existence is to devotedly work for a more livable world and a wealthier Turkey. I would like to extend my gratitude to each member of the great Vestel family and to all of our stakeholders, who have shared our dreams and achievements and accompanied our journey to the top.

Kind regards,

Ahmet Nazif Zorlu
Chairman