The conglomerate’s new chairman is sticking with is growth strategy writes Leyla Boulton
Buying a Bulgarian telephone network while expanding a Russian supermarket chain may not seem an obvious growth strategy for Turkey’s biggest industrial conglomerate, which has been criticised for spreading itself too thin.
However, Mustafa Koc, the newly-appointed chairman of Koc Group (pronounced Kotch), is pressing ahead with an aggressive international expansion plan he says will be the key to long-term profitability after a severe domestic recession.
“We need to increase our exports and the volume of our international operations”, says Mr Koc, 43, who succeeded his father as chairman last month.
After a series of acquisitions in Germany, Austria, the UK and Romania last year, Mr Koc is confident he can maintain annual sales growth averaging 14 per cent. The group is aiming for a 33 per cent increase in turnover after a 19 per cent rise last year to €9.7bn ($11.1bn), a third of it generated abroad.
But Koc shares have plunged 42 per cent from a peak of TL24,000 in November 2002 to TL13,900 last Friday, underperforming the market as investors shifted to individual companies within the conglomerate.
For 2002, the group reported pre-tax profits of just €280m ($322m) after a loss of €181m in 2001. Foreign expansion is needed both to grow and to offset domestic instability, as demonstrated by a 10 per cent economic contraction in 2001 which followed a devastating devaluation that year.
But where his father, Rahmi, had set the group the long-term goal of becoming one of the world’s 200 biggest companies, Mr Koc stresses profitability. “You don’t need to be in the top 200 to be profitable and to create value,” he says.
Such an approach could make a difference to the long-term survival of a family empire that is already more professionally-run than most of its peers, but even according to Mr Koc still has some room for improvement.
Compared with his grandfather and father, he says he has no choice but to rely heavily on professional managers and to continue opening up group companies to outside investors.
‘You operate in a more competitive environment and you have to be more international, more transparent, and to put a lot of weight on accountability,” says Mr Koc.
To convince sceptical investors, however, he faces pressure to pare down a portofolio of interests ranging from construction – now in a tie-up with the UK’s Balfour Beatty to secure business in Iraq – to vehicle making joint ventures with Ford and Fiat.
“Koc has to clarify its strategic direction and eliminate those companies unrelated to its strategy,” says one western financial analyst in Istanbul. “Only then will its market value increase.”
Like his respected chief executive, Bulend Ozaydinli, Mr Koc is coy about which sectors are expendable to meet the group’s stated goal of focusing ‘as much as possible on the areas where we have strenght and to be as consumer-orientated as possible”.
“This is a very touchy subject. We don’t have it in our culture to exit from a sector just like that,” says Mr Koc.
For the moment, the group is tidying up its corpotae structure, paving the way for spin-offs further down the road.
This month, it merged all its food-processing companies.
Food retailing interests in the former Soviet Union are also being consolidated with a view to selling a minority stake through an initial public offering.
Mr Koc argues that Turkey’s efforts to stabilise the economy and to join the European Union will also accelerate corporate restructuring.
In banking, for example, as newly-strengthened banking supervisors closed down a host of insolvent banks, Koc last year sold 50 per cent of Kocbank to Italy’s Unicredito.
Mr Koc expects the small and conservatively-run bank to become “one of the top three to four players” in the next couple of years, by focusing on lending to small to medium-sized enterprises.
This will in part depend on the success of further economic reforms-including the elimination of double-digit inflation and the abolition of universal bank deposit insurance.
Similarly, Mr Koc’s ability to streamline the family controlled empire may determine the success of his quest for growth and profitability.
(From Financial Times 19/05/03)