SABANCI PREPARES FOR FUTURE BEYOND FINANCE

18.05.2007

By Peter Marsh

Published: May 18 2007

Sabancı Holding, one of Turkey's biggest industrial conglomerates, intends to reduce the company's focus upon financial services as part of a drive for expansion during the next few years, according to Guler Sabancı, Chairman of the Group.

Ms. Sabancı told the Financial Times she particularly wanted to put more emphasis on three divisions of the company - power generation, retailing and cement - on the grounds that they offered bigger growth opportunities in the next decade, particularly in operations outside Turkey.

Ms. Sabancı said she was studying several options for new investments, including acquisitions, in these three fields, particularly in eastern Europe.

"At the moment we get about half of our consolidated revenues from financial services and half from everything else, but I'd like to see the ratio switchto more like 40/60 in thenext few years," Ms. Sabancı said.

On the face of it, the planned shift seems surprising since financial services last year provided nearly three-quarters of Sabancı's operating profits, even in a difficult year for this part of the group.

But Sabancı reckons opportunities for expanding in finance outside Turkey will be limited. "We are not moving away from financial services but growing other [divisions] faster," the company said.

Ms. Sabancı said the company had a "good opportunity to become a regional operator [in countries close to Turkey]" in specificfields of manufacturingand retailing.

Sabancı intends to more than double its annual sales by 2015. While 10 per cent of last year's revenues came from outside Turkey, this figure could be increased to 15-20 per cent during the next few years, Ms Sabancısaid. Sales for Sabancı in 2006 came to TL16.9bn; 20 per cent up on the TL14.1bn in 2005, with financial services accounting for 51per cent.

But in spite of the rise in revenue, Sabancı suffered a 22 per cent fall in pre-tax profits to TL1.bn last year, from TL1.4bn in 2005, weighed down by a lower return from its financial services operations, which comprises mainly banking.

In 2006, this part of the company produced operating profits of TL1.75bn, out of a total operating return of TL2.2bn.

In 2005, financial services accounted for operating profits of TL2.1bn, compared with overall operating profits of TL2.5bn.

The company attributed the earnings fall in financial services to the sudden rise in Turkish interest rates last summer, caused by the need to protect the lira against a rash of investor selling. The tightening in monetary policy slowed the Turkish economy and pushed up borrowing costs for Sabancı's banks, which include Akbank, one of Turkey's biggest financial institutions.

Brushing off these problems, Ms. Sabancı said she saw "a lot of very good opportunities ahead" both in Turkey and outside.

Sabancı has identified Romania as a growth target for its electronics goods retailing division, which has recently established a chain of shops in this country, and considers setting up similar networks in Bulgaria and Ukraine.

In its new energy generation division - which Sabancı operates as a joint venture with Verbund, an Austrian power distributor, and is building several power stations in Turkey - Sabancı is weighing "potential investments" in countries including Kazakhstan, Ms Sabancı says.

However, the three divisions Ms Sabancı is keento see grow make onlysmall amounts of money at present. In 2006, operating profits from Sabancı's cement and retailing divisions came to TL246m and TL20m respectively, while earnings from its energy operations, which are relatively new, were negligible and not disclosed.

Other large parts of Sabancı's non-financial services operations - which Ms Sabancı also said had good growth prospects, both inside and outside Turkey- include bus manufacturing, automotive retailing,tyre-cord production and chemicals.

The company said the planned diversification outside of financial services was unrelated to the fall in profits for financial services last year - which it expects to be temporary.

Three-quarters of the shares in Sabancı are held by the Sabancı family, with the rest listed on the Istanbul stock exchange.