Koç sees light at the end of tunnel

Koç Holding, Turkey’s biggest conglomerate with interests ranging from durable goods and automobiles to energy and finance, has been hit hard by the global crisis, board chairman Mustafa Koç admits openly.

The holding’s sales for the first half of the year stood at 19.9 billion Turkish Liras, compared to 28.2 billion liras in the first half of last year. Net profits in the same period retreated 61 percent to 667 million liras. Still, Koç said he is optimistic about closing the year with an annual rise in revenue. “In 2010, a 2 percent growth would be perfect,” he told Fortune Turkey.

“I would guess that business would be normal again starting from the middle of next year,” the monthly magazine quoted the chairman of the board of directors at Koç Holding as saying in its November issue. “Growth acceleration to 5 to 6 percent is crucial to prevent unemployment and keep the economy at a certain level. This year, the economy is predicted to post a 6 percent contraction. But looking at the picture from a relative perspective, Turkey was not affected from this crisis as much as other countries. And the reason is the structural reforms the financial sector undertook starting from 2001. In this respect, we are very lucky.”

The Justice and Development Party government is “doing what is necessary” against the crisis, Koç said, noting that Economy Minister Ali Babacan is “adequately competent” on all issues. “They have also announced a medium-term economic program. I predict that there will be some ongoing talks [abroad]. Thus, the situation is under control,” he added.

Dealing with the IMF

Regarding a possible deal with the International Monetary Fund, or IMF, Koç said the Turkish economy would not go through a hardship after what it has seen thus far. “But if a deal was struck in the beginning, the stock market would not have fallen so much and the U.S. dollar would not have risen so much,” he added. “In accordance with the medium-term program, an IMF deal could be a good tool for financing growth. If not, we would be able to finance it with other means, but a deal might be good.”

The Istanbul Stock Exchange’s benchmark ISE-100 index hit 21,228 points on Nov. 20 last year, but has gained more than 122 percent since, closing Friday at 47,184 points. The U.S. dollar, which rose to an all-time high of 1.8080 liras on March 9, closed Friday at 1.5054 liras.

Due to the crisis, “export markets completely halted,” Koç said.

“Especially in white goods and autos, we export nearly 60 percent of our production, mostly to Western Europe,” he added. “We tried to lay off as few employees as possible. We closed factories for a month and undertook serious cost-cutting measures. We decreased our credits. But now things are returning to normal.”

The government’s temporary tax reductions from April to the end of October also helped normalize sales, the board chairman said, adding: “We were able to deplete all our stocks and dealers were able to take a breath. We are seeing the end of the year, more or less.”

Due to the crisis, the group has had to postpone many investments in the white goods and automotive sectors, Koç, 49, told Fortune Turkey.

Timely divestment

Reflecting on the group’s pre-crisis divestment strategy, which included selling the retail chain Migros, the heater and boiler maker Demirdöküm and the fiberglass manufacturer İzocam, Koç said the group did what it had to do under the circumstances. “We have reshaped our portfolio starting from 2002,” he said. “We focused on four main sectors and those companies were outside of that focus. Also, the purchase of Tüpraş [Turkey’s biggest refiner] necessitated a serious asset sale.”

These asset sales meant $2.5 billion in liquidity for the group, cash that strengthened Koç’s hand during the crisis. “The sales were concluded in May and the crisis struck in September,” he said. “God was on our side!”

A second European brand, after Grundig, in the white-goods sector for next year would be good for Arçelik, Turkey’s biggest home-appliances maker, Koç said. “Grundig is a good brand, especially in German-speaking countries, but it has worn out,” he said. “If we see a younger brand in good terms, we will evaluate it. Brands that we might work together with in the future are Goranje, Zanussi and Index.”

In the energy field, Koç Holding aims to raise its power-plant capacity to 2,000 to 3,000 megawatts from the current level of 350 megawatts. “For this, we will either construct a power plant or purchase an existing one. This is a serious plan,” Koç said.

Russian energy giant Lukoil has approached Koç many times to form a partnership in Tüpraş, but the group has “refused politely,” Koç added. It is also “out of the question” for Koç Holding to take part in intergovernmental projects such as Nabucco or South Stream, he said.

TÜSİAD supports Doğan Group

Commenting on the record tax levy imposed on the Doğan Media Group, Koç, who is also the High Advisory Council chairman of the Turkish Industrialists’ and Businessmen’s Association, or TÜSİAD, said the association is “giving the necessary support” to the Doğan group.

“This is a very subjective decision,” he told Fortune Turkey, referring to the tax levy. “These arbitrary practices should not happen. We always requested an independent tax administration and now [the current tax administration] is being questioned in this aspect. Having said that, TÜSİAD never felt any political pressure.”

Regarding the decision by Chairwoman Arzuhan Doğan Yalçındağ to leave her post, Koç said she “carried forward this duty for two years with great altruism.”

“We asked her to stay for two more years,” he said. “She first accepted, but then decided to leave as four years would be too long. Thus we will elect a new chairperson.”

Koç said he has “a personal favorite” for the post, but declined to say who. “I have never thought of being the chairperson,” he said. “I really do not have the time to do it.”