Letter from the CEO

Dear Shareholders, Stakeholders, Business Partners, and Esteemed Employees,

Türkiye experienced the most catastrophic earthquakes in the history of the Republic on February 6, 2023. Earthquakes centered in Kahramanmaraş affecting 11 of the country’s provinces deeply saddened us all. Since the first day of the disaster, Sabancı Group and Sabancı Volunteers have been actively providing support across the region. At Sabancı Group, we are also heartbroken by the loss of our colleagues throughout the impact area. We pray for God’s mercy on our deceased colleagues, families, service providers and business partners, and all of our fellow citizens whose lives were lost. We extend our deepest condolences to their bereaved families.

We know that this process is a marathon. We plan to remain on the ground until all wounds are healed in order to build a hopeful future for our nearly 7 thousand employees, their families, and everybody affected by the earthquake throughout the region. It is my hope that Türkiye will recover quickly from this catastrophic disaster. Everyone at Sabancı Group extends their condolences to our grieving nation.

2022 was a year of great uncertainty as the world faced multiple global problems and crises at the same time. Disruption of supply chains and logistics processes caused by the Covid-19 pandemic raised costs in almost every sector of the global economy, triggering worldwide inflation. The war between Russia and Ukraine raised energy prices. Withdrawal of many Western international institutions and companies from Russia, as well as economic sanctions imposed on that country, threw the global economy into disarray. In addition to the diplomatic crisis between NATO and Russia, heated competition in the technology industry, carried over from previous years, spilled over into the political arena, in particular stoking the Taiwan conflict between the United States and China.

Following all these major developments, the concern of billions of people around the world about pandemic disease has been replaced by concerns about heating costs, food supply, and even a hot war. After the pandemic, we came to see how intricately interconnected the world is today, and how a crisis anywhere on the planet can affect us all.

The uncertainty we experienced over the past year made clear two key points: the importance of sustainability in every field and industry, and the importance of anticipating risks and taking effective action.

At Sabancı Group, we have achieved an exceptional performance both financially and operationally despite challenging operating environment shaped by uncertainties and economic slowdown. In 2022, our turnover, EBITDA, and net profit tripled compared to the previous year. Consolidated net profit this reporting period amounted to TL 44 billion. In 2022, Sabancı Group undertook new investments across all of our business lines by ramping up its investment spending by 2.5 times. Our return on equity rose to 45% and our earnings quality further improved compared to previous year. Consequently, our non- bank net financial debt/EBITDA declined further, reaching 0.4x. This exceptional performance clearly demonstrates Holding’s and our Group Companies’ financial excellence approach especially in balance sheet management. This approach will provide an important cushion against volatility, while enabling us to look at future opportunities even during the most difficult time.

In addition to this strong financial performance and in line with our dynamic portfolio management approach, Sabancı Group implemented key portfolio initiatives that enabled it to create more value for its stakeholders in 2022. In this context, we completed the transfer of all our shares in PHILSA and PMSA to Philip Morris Products S.A. (PMP S.A.) and/or its affiliates.

Sabancı Group is aware of the significance of these financial indicators and performance for all the parties in the economy, especially for its stakeholders. However, these indicators on their own do not mean much. Financial performance needs to serve sustainable living. Business achievements need to be a driving force for providing social and environmental benefits. In today’s fast-changing and transforming world, an enterprise must demonstrate the indicators it uses to measure business value that guide its activities, the higher purpose for which employees rally around, and what the organization offers and contributes to the planet, country, and society that it is a part of.

This approach also underlies the Sabancı Group Purpose which succinctly describes our vision and purpose: “We unite Türkiye and the World for a sustainable life with leading enterprises.”

In line with our Group Purpose and aim to become “Sabancı of the World”, a major step toward realizing a major transformation across all Sabancı Group companies was taken with the strategic decision to focus on ‘new economy.’

On the way to position Sabancı Group companies at the top of the global leagues, we plan to invest twice as much over the next five years as compared to the previous five-year period.

While directing 25% of its non-bank investments to existing business lines, Sabancı Group aims to channel 75% of this investment spending in energy and climate technologies, advanced material technologies, and digital technologies – which we call ‘new economy.’

The climate emergency is a reality of today…

Radical steps must be taken not only to fight against climate emergency, but also to guarantee human life in the future and to ensure the sustainability of life on our planet. While the discovery and storage of renewable clean energy and alternative energy sources are promising first steps toward these objectives, the work does not stop there. There are many additional steps to be taken – such as resource allocation and cooperation with the academic world – to find innovative and long-term solutions.

Energy is at the forefront of our business lines that are leading this transformation at Sabancı Group. In 2022, our Enerjisa Üretim company commissioned Türkiye’s first unmanned hydroelectric power plant. Kayseri Erciyes Wind Power Plant (WPP), with an installed capacity of 65 MW, was also put into operation during the year. In addition, Akhisar WPP with an installed capacity of 55 MW was acquired in 2022. Additional wind energy capacity totaling 1,000 MW is scheduled to go into operation in the coming period with an investment of USD 1.2 billion. As a result, Enerjisa Üretim will strengthen its position in Türkiye’s private sector electricity generation by reaching a total installed capacity of about 4.7 GW. By 2023, 57% of the company’s electricity generation will originate from renewable resources.

In the e-mobility sector, Enerjisa Enerji owns a majority stake in Eşarj, which won a tender to install 495 fast charging stations for electric vehicles. This major project is currently underway. At year-end 2022, Eşarj is Türkiye’s first and fastest EV charging station network with 647 charging sockets at 290 public locations, 485 of which are fast charging sockets.

This year, we established Sabancı Climate Technologies company to carry our renewable energy investments beyond Türkiye while making strategic investments in various US-based venture capital funds and start-ups. During the year, Sabancı Group made a fund investment as a result of its strategic partnership with Safar Partners in the United States, as well as direct investments in high profile start-ups Commonwealth Fusion Systems and Quaise Energy. Our investments in
these models of disruptive innovation in energy and climate technologies demonstrate our vision of becoming a playmaker in the world of the future, as well as our purpose to unite Türkiye and the World. In line with our goal to form a renewable energy portfolio in the USA, we completed the acquisition of a project license to establish a 272 MW solar power plant in that region. While completing the engineering, procurement, and construction contract (EPC) processes for the power plant investment, we aim for the project to be completed by mid-2024.

In recent years, Sabancı Group has embraced digital transformation. We have made great advances in this arena particularly in industrial production and R&D, as well as with the digitization of business processes of our Group companies. Sabancı Group has recorded its biggest leap forward in advanced material technologies, one of the focal areas of its digital transformation, at Kordsa. This year, Kordsa signed a strategic cooperation agreement with Toledo Solar Inc., a manufacturer of new generation thin-film solar panels based in Ohio, USA. Additionally, Kordsa acquired Italy-based Microtex Composites, a producer of carbon fiber fabrics and prepregs for the super luxury automotive industry and motor sports in Europe. In 2022, Kordsa announced a USD 20 million cord fabric investment in North America and a USD 22 million investment in Türkiye. Meanwhile, the company’s existing domestic and international investments are operating with robustness and stability. Our Brisa company acquired Arvento to facilitate synergy efforts among Sabancı Group companies and bolstered our strategic focus on creating value from data. By focusing on customer-oriented transformation and digitalization, Teknosa ramped up its efforts to transform into a digital platform with physical stores. In 2022, Teknosa implemented its marketplace business model with great success.

At Sabancı Group, we aim to step up our investments in cyber security, digital marketing, advanced data analytics, and the internet of things – our four main focus areas in digital technology. Through SabancıDx, the Group acquired SEM, operating in data-driven digital marketing. We are actively supporting early-stage startups in Türkiye with our corporate venture capital fund, Sabancı Ventures. We support entrepreneurs both within and outside the Group in implementing their ideas via Sabancı ARF Almost Ready to Fly program. This initiative started within the Holding and has already received a large number of applications from promising entrepreneurs. With these and similar efforts, Sabancı Group is leading the way in spreading an open innovation culture across the business world and playing a central role in Türkiye’s technological development.

The importance of sustainability and digital technologies is increasing every day around the globe. Sabancı Group’s pioneering role in these burgeoning areas is a key factor driving continuous development at the Group and its ability to create value for all its stakeholders.

In 2022, Sabancı Group demonstrated its strength on the global stage once again at the annual meeting of the World Business Council for Sustainable Development (WBCSD) in Tokyo. We have been a member of WBCSD since 2020. The Group participated at the highest level in WBCSD, one of the world’s most effective business platforms in the field of sustainability. Sabancı Group shared its best practices with WBCSD attendees. The resoundingly positive feedback we obtained at this major event in Tokyo showed us that we are on the right track. Our participation at this annual meeting encouraged us to further pursue the concept of sustainable life and strengthened our resolve in this critical field.

Efforts to fulfill our responsibilities in social and governance areas as well as the environmental domain using an integrated approach to sustainability is moving forward at full pace.

We have transformed the Sabancı Republic Day Campaign – initiated last year in Adana, the founding site of our Group – into Türkiye’s highest attended social responsibility initiative this year.

Sabancı Group has expanded the impact area of its volunteer work from 11 provinces two years ago to 48 provinces in 2022. Sabancı Volunteers carried out the fieldwork throughout the year on four main topics: Preparing Youth for the Future, Women’s Participation in the Workforce, Preventive Response against the Climate Emergency, and Supporting Biodiversity. We renovated schools and built classrooms so that Türkiye’s children could receive education in better conditions. We provided technology trainings to 1,400 women to integrate them into the workforce. We also raised awareness of gender equality among 4,200 young people.

This year, Sabancı Group took measures to have an impact on 75 thousand hectares of forest area to address the climate emergency. For rapid response to wildfires, we built eight fire pools – one in Adana and Çanakkale, and three in Antalya and Muğla – each with a 600- ton capacity. We planted 208 thousand saplings in 2022. We collected eight tons of waste from Türkiye’s forests. In addition, Sabancı Group carried out dozens of other projects and efforts that will improve the country environmentally and socially. On November 10, we dedicated all our volunteer work to Türkiye’s Great Leader Mustafa Kemal Atatürk, as we did the previous year.

Dear Stakeholders,

We are also very happy to see that our many achievements this fiscal year were recognized by investors. In 2022, our discount rate declined to 25% while our net asset value recorded strong growth. These key indicators demonstrate the extent to which our Group Purpose and strategic priorities were embraced by our investors.

As we have emphasized many times in the past, Sabancı Group implements pioneering and exemplary practices to achieve its medium-term goals, especially in the target categories of growth, return on capital, and sustainability.

During this fiscal year, we boosted the maximum amount of funds allocated to our Sabancı Holding share buyback program from TL 1.75 billion to TL 3.25 billion. This stock repurchase program was launched the prior year to provide a more appealing long-term investment opportunity to our investors. The share buyback effort continued successfully in 2022.

In the coming period, together with our investors, we aim to maintain Sabancı Group as one of the most important players in the world’s value ecosystem.

We see our ‘new economy’ investments as going hand in hand with our vision of ‘Sabancı of the World’. Sabancı Group will have a strong presence in the technologies of the future on a global scale, while continuing to mobilize its gains abroad for Türkiye and its economy.

I would like to express my endless gratitude to you for accompanying Sabancı Group on this journey.

Yours sincerely,

Member of the Board of Directors and CEO