Shaping the Future

SHAPING THE FUTURE

Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report CONTENTS FROM 1928 TO TODAY

Ford Otosan at a Glance 4-5 Sustainability 88-89 Ford Otosan: From Past to Present 6 Sustainability Practices 90 Summary Results 7 Environment 91 Main Indicators 8 Quality 91 Highlights 10 Occupational Health and Safety 91 Values 12 Ethics 92 Vision, Mission and Strategy 13 Human Resources 94 Milestones 14 Corporate Social Responsibility 96

General Assembly 16-17 Corporate Governance 98-99 Ordinary General Assembly Meeting Agenda 18 Corporate Governance Principles Compliance Report 100 Independent Auditor’s Report on the Board of Directors’ 19 Corporate Governance Information Form 104 Annual Report Corporate Governance Compliance Report 112 Board of Directors’ Report 22 Risk Management and Internal Control 120 2020 Guidance 26 Legal Disclosures 122 Dividend Policy 27 Report on Related Party Transactions for 2019 126 Dividend Distribution Proposal 28 Statement of Responsibility 127 Remuneration Policy for the Board of Directors 30 Declaration of Independence 128 and Senior Executives 2020 Board of Directors Member Candidates 31 Financial Statements 130-131 and Other Information Management and Assessments 32-33 Financial Statements and Independent 132 Chairman’s Message 34 Auditor's Report CEO’s Message 36 Ordinary General Assembly Information 208 Board of Directors 38 Document Organization Chart 43 Appendix 4/ Amendments to the Articles of 214 Executive Management 44 Incorporation Developments Following the Report Date 224 “I live and prosper with my country. Ford Otosan in 2019 48-49 Investor Relations 50 As long as democracy exists and thrives, Turkish Automotive Market and Ford Otosan 52 “Coming together is a beginning. Exports 54 so do we. We shall do our utmost to Production and Capacity 56 Keeping together is progress. Highest Commercial Vehicle Production Capacity in Europe 58 strengthen our economy. As our economy Plants and Facilities 60 Working together is success.” Kocaeli Plants 62 prospers, so will democracy and our World Economic Forum Global Lighthouse Network 64 Ford Custom: A Segment-First Plug-in Hybrid 66 standing in the world.” Commercial Vehicle Ford Trucks Growth Strategy 70 Suppliers 74 R&D 77 R&D and Test Centers 81 Vehbi Koç Henry Ford Innovation 84 Digital Transformation 86 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

6 Ford Otosan: From Past to Present

7 Summary Results

8 Main Indicators 10 Highlights Ford Otosan 12 Values

13 Vision, Mission and Strategy 14 Milestones at a Glance

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FORD OTOSAN FROM PAST TO PRESENT SUMMARY RESULTS

1997* 2019 2015 2016 2017 2018 2019 Main Financial Indicators (TL Million) Revenues 16,746 18,289 25,341 33,292 39,209 Production Capacity 10 Export Revenues 10,723 12,287 17,830 27,303 33,375 47,000 455,000 Domestic Revenues 6,023 6,002 7,511 5,989 5,834 (Units) Times Gross Profit 1,860 2,086 2,637 3,459 4,015

Operating Profit 1,036 1,111 1,708 2,285 2,422

EBITDA 1,441 1,567 2,182 2,854 3,198 Production 43,102 9 369,027 Profit Before Tax 866 970 1,481 1,761 1,950 (Units) Times Net Profit 842 955 1,490 1,683 1,959

Earnings Per Share (for Kr 1 nominal value) 2,40 2,72 4,25 4,80 5,58

Exports 501 Cash Position (TL Million) 667 334,455 Cash & Cash Equivalents 980 1,189 1,806 1,393 3,203 (Units) Times Total Financial Debt (2,561) (2,852) (3,604) (4,483) (6,208)

Net Financial Debt (1,580) (1,663) (1,798) (3,090) (3,005)

Exports 16 370 5.9 Financial Ratios (USD) Million Times Billion Current Ratio 1,05 1,09 1,13 1,02 1,17 Liquidity Ratio 0,73 0,79 0,87 0,64 0,87

Net Financial Debt / Tangible Net Worth 0,63 0,64 0,60 1,01 0,78

Net Financial Debt / EBITDA 1,10 1,06 0,82 1,08 0,94 Revenues 850 6.9 8 Current Assets / Total Assets 0,48 0,50 0,57 0,56 0,62 (USD) Million Times Billion Current Liabilities / Total Liabilities 0,71 0,70 0,73 0,78 0,74

Total Liabilities / Total Assets 0,64 0,66 0,69 0,70 0,72

Return on Equity (%) 27.5 30.2 40.3 43.2 42.0 Headcount 3,406 3 10,899 Times Margins (%) Gross Margin 11.1 11.4 10.4 10.4 10.2

EBITDA Margin 8.6 8.6 8.6 8.6 8.2

Operating Margin 6.2 6.1 6.7 6.9 6.2 Market Cap 1.1 4 4.2 Net Income Margin 5.0 5.2 5.9 5.1 5.0 (USD) Billion Times Billion

Other Dividend Payment (TL Million) 400 663 790 1,204 1,284 * The year the shares of Koç Holding and Ford Motor Company in Otosan became equal.

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EBITDA MAIN INDICATORS Record (TL million)

2019 8.2% 3,198 Despite rising costs due to the increase in €/TL rate (12% YoY)

2018 8.6% 2,854 and high inflation rates, as well as decline in domestic sales, we maintained strong profitability in 2019 as EBITDA rose 12% to TL WHOLESALE VOLUME 3,198 million. This was supported by: (1000 Units) 2017 8.6% 2,182

» Higher export demand 2016 8.6% 1,567 2019 334 383 » Positive sales mix and pricing discipline In 2019, sales in the Turkish automotive industry decreased by » Cost reduction actions and strong OpEx control 2015 8.6% 1,441 2018 329 395 23% year-on-year, dropping to 487,471 units with tightening » Recovery observed in Q4 in domestic market observed in all segments: -20% in passenger cars, -27% in light commercial vehicles, -37% in medium commercial vehicles and Margin 2017 297 413 -37% in trucks. Ford Otosan’s domestic wholesale volume was down 26% to 48,464 units. Export volumes rose 2% year-on- 2016 257 373 year, reaching a record level of 334,455 units. Total sales volume NET PROFIT Record decreased by 3%, down to 382,919 units with the impact of (TL million) 2015 254 381 continued contraction in the domestic market.

Export Total 2019 5.0% 1,959 Net financial expenses declined 10% YoY driven by lower net

2018 5.1% 1,683 fx loss, mainly explained by lower devaluation than 2018. Profit before tax rose 11% to TL 1,950 million. Meanwhile, net profit increased by 16% to TL 1,959 million and higher than PBT due 2017 5.9% 1,490 to tax income resulting from deferred tax asset.

REVENUES 2016 5.2% 955 (TL million) Record 2015 5.0% 842

Margin 2019 33.375 39,209 We recorded TL 5,834 million in domestic revenues. Despite 26% decrease in domestic units, contraction in our domestic 2018 27.303 33,292 revenues was limited to 3% thanks to our sales strategy focused DIVIDEND on high-margin products and pricing discipline. Meanwhile, (TL million, gross) 2017 17.830 25,341 our export revenues were up 22% year-on-year, amounting to TL 33,375 million with market growth, continued demand for 2016 12.287 18,289 our products and currency impact. Export volumes increased 2019 1,284 by 2% to a record level of 334,455 units. Total revenues were In 2019, a total gross dividend of TL 1,284 million was paid out in

2015 10.723 16,746 up 18% year-on-year reaching TL 39,209 million due to strong 2018 1,204 two shapes. Distributed dividend increased by 7% YoY while the performance in exports, which constituted 85% of total total dividend paid out by Ford Otosan reached TL 8.6 billion in revenues, up from 82% in 2018. the period from 2004 to 2019. 2017 790

Export Total 2016 663

2015 400

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Share in Turkey’s Total HIGHLIGHTS Automotive Production

Turkey’s Export Champion

USD 25% 5.9 Largest Commercial Billion Vehicle Manufacturing Hub of Ford in Europe 455,000

Unit Production Capacity Share in Turkey’s Commercial Vehicle Production

Turkey’s Commercial Vehicle Leader Highest Employment in 77% Turkish Automotive Industry 34% 10,899 Market Share

Employees

Share in Turkey’s Commercial Vehicle Exports

Third in Most Competent R&D Center Total Automotive in Turkish Automotive Industry Market Share 79% 1,389 10.1% R&D Employees

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VALUES VISION, MISSION AND STRATEGY

STRATEGY

VISION Growth VALUES

Organic and inorganic growth in new markets and existing business areas Our products and services are the upshots of our efforts. Being Turkey’s by developing new products. The more our customers appreciate our products and services, the higher our value will rise. most valuable and most Innovation Providing innovative products and services in all Our employees are the source of our strength. preferred business processes by keeping creativity at the top.

It is our goal to boost the skills and contentment of our employees by providing them with opportunities to self-improve. It is our principle to accomplish industrial “teamwork” that will ensure their participation in all areas. company. Brand

Being the most preferred brand in all our segments by meeting customer Our earnings are an indication of the extent to which needs and expectations. our products and services meet customer expectations. MISSION

We aim to profit so as to provide the resources necessary towards improving our products and services. Providing Employees Being the most preferred workplace by aiming innovative excellence in human resources processes and increasing benefits provided for employees. We continue to work on Digital Transformation, automotive Innovation, Common Culture and Lean products and Customers Transformation processes to realize our vision. services beneficial Being the leader automotive brand with regards to customer satisfaction in sales and to the community. aftersales products and services.

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MILESTONES

Ford Custom Plug-in Hybrid Yeniköy Plant (PHEV) Opening and Capacity named 2020 Vehbi Koç is Anadol, Koç Holding and Gölcük Launch of Production of Increase in International Assigned as First Domestic İnönü Ford Motor Co. Plant Ford First Ford Gölcük Van of Ankara Ford Passenger Car Plant Partnership Equal Opened Custom Courier Plant the Year Dealer Manufactured Opened Shares 1967 1997 2012 2013 1928 1982 2014 2019 2016 1956 2018 2001 1966 1986 2009

Foundations First Ford First Domestic Production F-Max, Gölcük Plant Transit Connect, Technology of Koç-Ford Transit Diesel Engine “Erk” of Ecotorq Winner of the included in First Vehicle Licensing Partnership Manufactured Manufactured Engine, International the Global Exported to Agreements Signed Laid 100% Truck of the Lighthouse the USA with JMC China Engineered Year Award Network by Ford Otosan

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18 Ordinary General Assembly Meeting Agenda

19 Independent Auditor’s Report on the Board of Directors’ Annual Report

22 Board of Directors’ Report

26 2020 Guidance

27 Dividend Policy

28 Dividend Distribution Proposal General

30 Remuneration Policy for the Board of Directors and Senior Executives 31 2020 Board of Directors Member Candidates Assembly

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ORDINARY GENERAL ASSEMBLY MEETING AGENDA CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH

1. Opening and election of Chairmanship Panel, 9. Determination of the number and the term of duty of the TO THE GENERAL ASSEMBLY OF FORD OTOMOTİV SANAYİ A.Ş. members of the Board of Directors and election of the 2. Reading, discussion and approval of the Annual Report of members base on the determined number, election of the 1. Opinion year 2019 prepared by the Board of Directors, Independent Board Members, We have audited the annual report of Ford Otomotiv Sanayi A.Ş. (the “Company”) for the 1 January - 31 December 2019 period. 3. Reading of the summary report of the Independent Audit 10. As per the Corporate Governance Principles, informing Firm of 2019 Fiscal Period, the shareholders regarding the “Remuneration Policy” for In our opinion, the financial information and the analysis made by the Board of Directors by using the information included in members of the Board of Directors and the senior executives the audited financial statements regarding the Company’s position in the Board of Directors’ Annual Report are consistent and 4. Reading, discussion and approval of the Financial Statements and payments made under this policy and approval of the presented fairly, in all material respects, with the audited full set financial statements and with the information obtained in the of 2019 Fiscal Period, “Remuneration Policy” and related payments, course of independent audit.

5. Approval of the member changes in the Board of Directors 11. Determination of the annual gross fees to be paid to the 2. Basis for Opinion during the year as per Article 363 of Turkish Commercial members of the Board of Directors, Code. Our independent audit was conducted in accordance with the Independent Standards on Auditing that are part of the Turkish 12. As per the regulations of the Turkish Commercial Code and Standards on Auditing (the “TSA”) issued by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our 6. Release of the members of the Board of Directors separately Capital Markets Board, approval of the Board of Directors’ responsibilities under those standards are further described in the Auditor’s Responsibilities in the Audit of the Board of Directors’ for year 2019 activities, election for the Independent Audit Firm, Annual Report section of our report. We hereby declare that we are independent of the Company in accordance with the Ethical Rules for Independent Auditors (the “Ethical Rules”) and the ethical requirements regarding independent audit in regulations 7. Approval, or approval with amendments or refusal of the 13. Giving information to the shareholders regarding the issued by POA that are relevant to our audit of the financial statements. We have also fulfilled our other ethical responsibilities in Board of Directors’ proposal for profit distribution for the year donations made by the Company in 2019 and determination accordance with the Ethical Rules and regulations. We believe that the audit evidence we have obtained during the independent 2019 and the distribution date which prepared in accordance of a upper limit for donations to be made in 2020, audit provides a sufficient and appropriate basis for our opinion. with the Company’s Profit Distribution Policy, 14. Under Articles 395 and 396 of the Turkish Commercial 3. Our Audit Opinion on the Full Set Financial Statements 8. Approval, or approval with amendments or refusal of the Code, authorizing: shareholders with management control, Board of Directors’ proposal for amendment of Article No. 6 members of the Board of Directors, senior executives and We expressed an unqualified opinion in the auditor’s report dated 11 February 2020 on the full set financial statements for the of the Company’s Articles of Incorporation with the heading their spouses and relatives related by blood or affinity up 1 January - 31 December 2019 period. “Share Capital” and Article No. 8 of the Company’s Articles to the second degree; and also informing the shareholders of Incorporation with the heading “Transfer Of Shares And regarding the transactions made in this extent in 2019 Establishment Of Rights Of Usufruct On Shares” provided pursuant to the Capital Markets Board's Communiqué on that the necessary approvals have been received from Capital Corporate Governance, Markets Board and the Ministry Trade of Turkey, 15. Wishes and opinions.

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4. Board of Director’s Responsibility for the Annual Report 5. Independent Auditor’s Responsibility in the Audit of the Annual Report

Company management’s responsibilities related to the annual report according to Articles 514 and 516 of Turkish Commercial Code Our aim is to express an opinion and issue a report comprising our opinion within the framework of TCC and Communiqué provisions (“TCC”) No. 6102 and Capital Markets Board’s (“CMB”) Communiqué Serial II, No:14.1, “Principles of Financial Reporting in Capital regarding whether or not the financial information and the analysis made by the Board of Directors by using the information included Markets” (the “Communiqué”) are as follows: in the audited financial statements in the annual report are consistent and presented fairly with the audited financial statements of the Company and with the information we obtained in the course of independent audit. a) to prepare the annual report within the first three months following the balance sheet date and present it to the general assembly; Our audit was conducted in accordance with the TSAs. These standards require that ethical requirements are complied with and b) to prepare the annual report to reflect the Company’s operations in that year and the financial position in a true, complete, that the independent audit is planned and performed in a way to obtain reasonable assurance of whether or not the financial straightforward, fair and proper manner in all respects. In this report financial position is assessed in accordance with the financial information and the analysis made by the Board of Directors by using the information included in the audited financial statements in statements. Also in the report, developments and possible risks which the Company may encounter are clearly indicated. The the annual report are consistent and presented fairly with the audited financial statements and with the information obtained in the assessments of the Board of Directors in regards to these matters are also included in the report. course of audit. c) to include the matters below in the annual report: PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. - events of particular importance that occurred in the Company after the operating year, - the Company’s research and development activities, - financial benefits such as salaries, bonuses, premiums and allowances, travel, accommodation and representation expenses, benefits in cash and in kind, insurance and similar guarantees paid to members of the Board of Directors and senior management.

When preparing the annual report, the Board of Directors considers secondary legislation arrangements enacted by the Ministry of Customs and Trade and other relevant institutions.

Beste Ortaç, SMMM Partner

Istanbul, 21 February 2020

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BOARD OF DIRECTORS’ REPORT International Expansion of F-Trucks Gained Changes to the Board of Directors and Company Momentum with Entry to Western Europe Management Our expansion of Ford Trucks in Central and Eastern Europe At the Ordinary General Assembly Meeting on 15 March 2019, was completed. Meanwhile, we started expanding in Western the number of members on the Board of Directors was set Europe, starting with Spain, Portugal and Italy, bringing our at 14, including two independent members. The Board of total to 43 international markets. Our international truck sales Directors was appointed to serve until the next Ordinary General increased by 37% to 3,003 units while we captured our highest Assembly Meeting that would convene to review the 2019 share in the domestic market in the last 25 years with 31.4%. activities. Detailed information on the changes in the Board of Esteemed Shareholders, Partners and Employees, and 81% overall. Ford Otosan accounted for 25% of Turkey's Directors and Senior Management during the reporting year is total vehicle production and 77% of commercial vehicle Ford Trucks’ new tractor F-MAX, a testament to our available under “Organizational changes during the year” on We would like to welcome you to our 61st Ordinary General production. manufacturing strength and engineering capabilities, received page 123. Assembly Meeting and present the Board of Directors’ Report, “2019 International Truck of the Year” award, which was which covers the activities of Ford Otomotiv Sanayi A.Ş. in 2019 We launched the facelifted Transit in the second half of the year. followed by more truck of the year awards in Russia, Austria and Ford Otosan maintained its leadership in employment in the for your review. The Report will provide detailed information Ford Transit Custom Plug-in Hybrid, a first in its segment, was Slovakia. Turkish automotive industry. As of 2019-end, the number of about the Company and an overview of our operations in 2019 introduced in the last quarter and received 2020 International employees stood at 10,899, including 8,290 hourly and 2,609 as well as the independently audited financial statements as of Van of the Year (IVOTY) award. We have established Ford Otosan Netherlands BV to support salaried employees (2018: total 10,598 employees, consisting 31 December 2019, including the relevant notes for tables and our international expansion efforts for Ford Trucks. of 8,086 hourly and 2,512 salaried employees). Our hourly all other information required by the Capital Markets Board. The First and Only Factory of Ford and the Turkish employees are covered by the Group Collective Bargaining Automotive Industry included in Global Lighthouse Venture Capital Company Gembox (Driventure) Agreement, which was signed between the Turkish Metal Union In 2019, US-China relations, weak global economy and Network Established and the Turkish Employers’ Association of Metal Industries and geopolitical risks were some of the major items on the world’s Following the adoption of Fourth Industrial Revolution and We regard innovation, entrepreneurship, change management will remain in effect until 31 August 2021. agenda. As political uncertainties prevailed in Europe, economic advanced manufacturing technologies through the projects and open innovation as major building blocks on our path growth slackened. Meanwhile, Brexit finally took place. While carried out since 2015, Ford Otosan’s Gölcük Plant was named toward attaining our vision. Aiming to capitalize on the ideas We Closed the Year with Strong Financial Results everything will continue as usual during the one-year transition a Lighthouse Factory by the World Economic Forum (WEF) and born from our in-house entrepreneurship activities, a venture The independently audited financial statements showing the period, the parties will work on free trade agreements. added to the “Global Lighthouse Network”. capital company titled Gembox Teknoloji Girişimleri A.Ş. was results of 2019 operations, as well as the relevant notes to the established in 2019. documents are presented in the Annual Report, starting from Our Leadership in the Turkish Commercial Vehicle Turkey’s Export Champion for Five Consecutive Years page 130. While our sales volumes decreased by 26% due to the Market Further Strengthened Our key export segment, vans upto 3.5 tons in Europe, grew R&D Projects Continued As Part of Product Programs continued tightening in the domestic market, the decline in our In 2019, sales in the Turkish automotive industry, including 2.8% in 2019. Meanwhile, Ford brand maintained its leadership Ford Otosan is a leading product development hub within domestic revenues was limited to 3% thanks to our disciplined trucks, decreased by 23% to 487,671 units. The sales volume in European commercial vehicles for the fifth consecutive the global Ford organization, and carries out R&D projects pricing and positive sales mix, bringing our revenues to TL that declined in the first half of 2019 due to strong base effect, year with 13.8% market share, reaching the highest sales as part of product programs. The R&D spending on various 5.8 billion. Our export volume increased by 2% with ongoing exchange and high interest rates, showed year-on-year increase volume in the last 25 years. In this backdrop, our exports rose product development projects that we have worked on in 2019 market growth and strong demand for our vehicles, reaching from September onward with lower base effect, interest rate to a record 334,455 units. . Ford Otosan, export leader of the amounted to TL 552 million (2018: TL 578 million) before a record level of 334,455 units. Our export revenues rose by cuts and campaigns. Detailed information on the industry is Turkish automotive industry since 2011, became Turkey’s export capitalization, and TL 420 million (2018: TL 369 million) after 22% to TL 33.4 billion with the impact of higher volumes and provided in the Annual Report on pages 52-53. champion for the fifth consecutive year. Ford Otosan accounted capitalization. currency. Even though the total sales volume declined 3% down for 79% of Turkey’s commercial vehicle exports in 2019 and to 382,919 units, our revenues increased by 18% due to strong In the domestic market, Ford Otosan aims for profitability in manufactured 83% of the Transit range sold in Europe. Social Responsibility and Donations export performance, reaching TL 39,209 million. The share of passenger cars and profitable growth in commercial vehicles The Company as well as its employees support several exports in total revenues rose from 82% in 2018 to 85% in 2019. where it is a local manufacturer. The Company sold 49,473 Most Valuable Company on Borsa Istanbul corporate social responsibility projects in education, health, Our profitability remained strong despite the shrinking domestic vehicles in 2019, maintaining its third position in the industry Ford Otosan is the 13th most valuable company on BIST with environment and culture. Among these projects, those that market and the rising costs due to currency impact and inflation. with a market share of 10.1%. Ford Otosan also maintained its a market cap of $4.2 billion. Ford Otosan shares outperformed require higher budgets are generally carried out under the In this environment, increased export demand, a positive sales leadership in total commercial vehicles with a record market the BIST 100 Index by 21% as of year-end, while 77% of its leadership of Vehbi Koç Foundation. Total donations made to mix and pricing discipline, cost reduction actions and strong share of 34%. free float was owned by foreign investors. Investor Relations tax-exempt foundations and associations, including Vehbi Koç OpEx control were instrumental in growing profitability. The Department attended 15 conferences and roadshows during Foundation, amounted to TL 37,368,000 in 2019 (2018: TL recovery seen in the domestic market in the last quarter also Ford Otosan’s Commercial Vehicle Production the year, meeting more than 350 investors and analysts 41,750,000). affected our profitability positively. Accounted for 77% of Turkey’s Total to communicate the Company’s strategic, financial and Ford Otosan, the largest commercial vehicle production hub operational developments. Ford Otosan aims to continuously of Ford in Europe, manufactured 369,027 vehicles in 2019. We deliver value through world-class investor relations services. achieved a capacity utilization rate of 93% in the Gölcük Plant

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Through effective cost management, our operating profit rose Selection of the Independent Audit Firm by 6% to TL 2.422 billion Turkish lira. Our profit before tax Pursuant to the principles defined in accordance with Turkish grew by 11% to TL 1.950 billion and we posted TL 1.959 million Commercial Code No. 6102 and Capital Markets Law No. 6362, net profit with an increase of 16%. The balance sheet as of and upon consultation with the Audit Committee, the Board 31 December 2019 shows TL 3,203 million in cash assets and of Directors has convened on 4 February 2020 and resolved to TL 6,208 million in financial liabilities. The Company closely appoint PwC Bağımsız Denetim ve Serbest Muhasebeci Mali monitors financial risks and adopts a highly cautious approach Müşavirlik A.Ş. for the task of auditing the Company’s financial toward uncertainties. Maximum sensitivity and due diligence is statements and reports for the 2020 accounting period in exercised to keep financial ratios within the basic policy limits addition to performing other activities within the scope of set by the Board of Directors and the Early Determination and applicable laws and regulations. We submit this resolution to Management of Risk Committee. Our key risk management the General Assembly for approval. policies are explained in detail in the Risk Management section of the Annual Report, which also includes summary data 2020 Outlook and Guidance on the nature and levels of risks in the notes of the relevant We adopted a cautious approach in planning 2020. Following financial statements. Investments amounted to TL 1,053 million the decline in the industry over the last two years, we anticipate including R&D spending for new projects and activated product that sales in the Turkish automotive industry will increase in development costs as part of the typical activities undertaken 2020 in an environment of moderate economic growth and every year. relatively favorable interest and inflation rates. Leveraging Ford’s strong positioning in the European market, we expect to Dividend Policy and Dividend Distribution Proposal attain similar levels in exports as in 2019 and to see the positive Our Company pays out dividends in accordance with the impact of our ongoing cost reduction actions on our profitability. provisions of the Turkish Commercial Code, Capital Markets As we enter a capex period for our next generation vehicles, we Board guidelines and regulations, tax legislation and other will continue to work on building a sustainable future with the applicable regulations, as well as the Articles of Association. We added responsibilities of a possible Ford and VW collaboration. adopt a dividend policy that ensures balance and consistency between the interests of shareholders and those of the We will continue to remain focused on prioritizing risk company in compliance with Corporate Governance Principles. management and preserving our robust financial structure. As we charge with confident steps toward our mission of “Being The full Dividend Policy is available on page 27 of this report Turkey’s most valuable and most preferred industrial company”, and on the corporate website (www.fordotosan.com.tr). Ford we will always continue to create value to our country and our Otosan ranks among the most consistent and high dividend- stakeholders as the driver of the Turkish automotive industry, paying companies listed on BIST. The Company continued to Turkey’s export champion and second largest industrial share its increased profitability and cash flow with shareholders enterprise. in 2019. A total of 1,284 million Turkish lira in dividends was paid out in two shapes during the year, setting a new historic record. Esteemed investors, partners and employees; we would like Dividends paid out increased by 7% year-on-year and reached to wholeheartedly thank our founders for their significant $3.9 billion in total since 2004. contribution to the success of Ford Otosan, our investors, partners and our former and current employees, the Turkish As outlined in our Dividend Policy, in accordance with our Metal Union, our suppliers, dealers, customers, and you, our investment and financing policies and in consideration of valuable shareholders. our cash flow, we propose to pay out a gross dividend of TL 1,094,839,200, which corresponds to 312.00 kuruş (265.20 Sincerely, kuruş net) for each share with TL 1 nominal value, after deducting the legally required amounts from the net period Ford Otomotiv Sanayi A.Ş. profit of 2019, and to begin payments on 23 March 2020. The Board of Directors details of our dividend distribution proposal are also presented on page 28 of the report.

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2020 GUIDANCE DIVIDEND POLICY

2019 Actual 2020 Guidance Our Company conducts a dividend policy within the framework of the provisions of the Turkish Commercial Code, Capital Markets Legislation, Tax Regulations and other relevant legislation as well as the provisions of the Articles of Association governing the distribution of profits. In the distribution of Turkish Industry Volume 488 K 580 K - 630 K profit, a consistent and balanced policy is followed between shareholders and Company requirements in line with Corporate Governance Principles. In principle, subject to being covered by the resources existing in legal records, and subject to the decision of the Ordinary or Extraordinary General Assembly Meeting, when required, excluding periods of large investment or severe economic downturn, by taking into consideration Retail Sales Volume 49 K 60 K - 70 K other legislation, financial and market conditions, long-term strategy, investment and financing policies, profitability and cash position, a minimum 50% of the distributable profit for the period calculated within the framework of the Capital Markets Legislation is distributed in the form of cash and/or bonus shares. The dividend distribution date is determined by Exports 334 K 330 K - 340 K the General Assembly and targeted to be within one month after the General or Extraordinary Assembly Meeting date. The General Assembly, or if authorized the Board of Directors, may decide to pay dividends in installments within the framework of Capital Markets Legislation. According to the Company’s Articles of Association, the Board of Directors can distribute an Wholesale Volume 383 K 390 K - 410 K advance.

Production Volume 369 K 370 K - 380 K

CapEx (Tangible Assets) €142 million €180-200 million

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Ford Otomotiv Sanayi A.Ş. 2019 Dividend Distribution Proposal Table (TL) DIVIDEND DISTRIBUTION PROPOSAL 1. Paid-in / Issued Capital 350,910,000 2. Total Legal Reserves (According to Tax Book) 302,763,743 If there is dividend privilege in the Articles of Association, information regarding this privilege: No -

According to According to CMB Tax Book

3. Current Period Profit 1,950,173,375 1,702,972,048 4. Taxes Payable (-) 9,310,814 (21,242,186) The Board of Directors has convened on 18 February 2020 and 5. Net Current Period Profit 1,959,484,189 1,681,729,862 resolved on the following matters, as presented in the attached 6. Losses in Previous Years (-) 0 0 Dividend Distribution Proposal prepared in accordance with 7. Primary Legal Reserve (-) 0 0 Capital Market legislation, article 19 of the Company's Articles 8. NET DISTRIBUTABLE CURRENT PERIOD PROFIT 1,959,484,189 1,681,729,862 9. Donations Made during the Year (+) 37,368,279 of Association, and in consideration of the investment and Donation-Added Net Distributable Current Period Profit on which First Dividend 10. 1,996,852,468 financing policies and cash flow position as specified in the Is Calculated Dividend Distribution Policy, approved by the General Assembly 11. First Dividend to Shareholders on 25 March 2014: -Cash 998,426,234 -Stock 0 - not to retain 5% as general legal reserves as specified in -Total 998,426,234 article 519 of the Turkish Commercial Code since the amount of 12. Dividend Distributed to Owners of Privileged Shares 0 general legal reserve in Tax Procedural Law-compliant records 13. Other Dividend Distributed 0 has already reached 20% of the capital as of 31.12.2019; -To the Employees 0 -To the Members of the Board of Directors, 0 - to retain TL 107,729,370 as general legal reserves from the net -To None Shareholders 0 profit of TL 1,959,484,189 in the financial statements prepared 14. Dividend to Owners of Redeemed Shares 0 in accordance with CMB; to pay out in cash a gross dividend of 15. Second Dividend to Shareholders 96,412,966 16. Secondary Legal Reserves 107,729,370 TL 1,094,839,200, which corresponds to 312.00 kuruş (265.20 17. Statutory Reserves 0 0 kuruş net as specified in the note of the Dividend Distribution 18. Special Reserves 0 0 Proposal table) for each share with TL 1 nominal value and 19. EXTRAORDINARY RESERVES 756,915,619 479,161,292 at the rate of 312.0000% gross (265.2000% net), with TL 20. Other Distributable Resources 0 0 998,426,234 in first installment and TL 96,412,966 TL in -Retained Earnings 0 0 second installment; and to retain the balance TL 756,915,619 as -Extraordinary Reserves 0 0 extraordinary reserves; -Other distributable reserves in accordance with the Law and the Articles of Association 0 0

- to retain TL 107,729,370 as general legal reserves from the Ford Otomotiv Sanayi A.Ş. 2019 Dividend Rates Table net distributable profit of 1,681,729,862 according to the Tax TOTAL DIVIDEND Procedural Law-compliant records, to pay out in cash a gross AMOUNT (TL) / NET DIVIDEND TO BE PAID FOR SHARE dividend of TL 1,094,839,200, and to retain the balance TL DIVIDEND AMOUNT SHARE GROUP DISTRIBUTABLE WITH PAR VALUE OF 1 TL 479,161,292 as extraordinary reserves; CURRENT PERIOD PROFIT (%) CASH (TL) STOCK (TL) RATE (%) AMOUNT (TL) RATE (%) - and to begin dividend payments on 23 March 2020. A 186,114,375 0 9.50 2,6520 265.20 B 428,404,835 0 21.86 3,1200 312.00 The Dividend Distribution Proposal is submitted to the General NET C 426,807,217 0 21.78 2,9640 296.40 Assembly for approval. TOTAL 1,041,326,427 0 53.14

1) There is no privileged share group in the profit. 2) Within the group A shares, %0 withholding tax rate is applied for the dividend amount of TL 10.168.711 corresponding to known legal entities, 15% withholding tax rate is applied for the amount of TL 206.994.899 assuming that the rest of the shares are held by natural persons or foundations that are subject to withholding tax. 3) The %0 withholding tax rate is used when calculating net dividend for all of group B shares which belong to our taxpayer legal entity partners Koç Holding A.Ş and Temel Ticaret A.Ş. 4) The 5% withholding tax rate is used when calculating net dividend for all of group C shares which belong to our limited taxpayer partner Ford Deutschland Holding GmbH.

28 29 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

REMUNERATION POLICY FOR THE BOARD OF 2020 BOARD OF DIRECTORS MEMBER CANDIDATES DIRECTORS AND SENIOR EXECUTIVES

This policy document describes the remuneration system and Performance - Based Bonus of Senior Executives are Rahmi M. Koç applications of the Board of Directors and the Senior Executives calculated according to company performance and individual who have administrative responsibilities, pursuant to the performance. Relevant criteria is summarized below: Ali Y. Koç * Resumes are available Capital Markets Board (CMB) regulations. on pages 38 to 42. Bonus Base Stuart Rowley The fixed salaries to be valid for all the Members of the Board Bonus bases are updated at the beginning of each year and vary of Directors are determined every year at the Ordinary General according to the workload of the executives. William R. Periam Assembly Meeting of the Company. Company Performance Hans Schep Executive Board Members are compensated as per the Company performance is obtained through the calculation Remuneration Policy for Senior Executives, detailed below. at period ends of the financial and operational goals (market İ. Cenk Çimen Performance - based compensation or stock option plans share, exports, foreign activities, efficiency, etc.) given to the cannot be used to determine the remuneration of independent company at the beginning of each year. When determining O. Turgay Durak Board Members. Members of the Board of Directors are paid company goals, sustainability and improvements with according to the principle of per diem deduction taking into respect to the previous years are taken into consideration as Joerg Beyer consideration their term of service. important principles. Lisa K. King Costs borne by the members of the Board of Directors due to Individual Performance their contributions to the company (transportation, telephone, For the determination of individual performance, employee, Ali İhsan İlkbahar insurance, etc. expenditures) can be met by the Company. customer, process, technology and long-term strategy-related Remuneration of Senior Executives consists of two goals are taken into consideration, together with the company Fatma Füsun Akkal Bozok (Independent Member) components: Base salary and performance based bonus. Base goals. For the calculation of individual performance, the salaries of Senior Executives are determined in accordance long-term sustainability improvement principle is observed Leonard Meany (Independent Member) with international standards and legal responsibilities, taking also, outside the financial spheres, as is the case for company into consideration macroeconomic data within the market, performance. The total remuneration amount determined Haydar Yenigün the remuneration policies in the market, size and long-term according to these principles, and paid to the Senior Executives goals of the company, and positions and efficiency levels of the and the members of the Board of Directors during the year, is Dave Johnston individuals. submitted for the information of the partners in the subsequent General Assembly Meeting, in accordance with the regulations.

30 31 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

34 Chairman’s Message

36 CEO’s Message

38 Board of Directors Management and

43 Organization Chart 44 Executive Management Assessments

32 33 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

CHAIRMAN’S MESSAGE the production capacity of our plant by 6% without additional entrepreneurship, change management and open innovation investment and improve employee satisfaction significantly. as important building blocks. In 2019, we founded Gembox And we prepared our plant for large-scale production projects Teknoloji Girişimleri A.Ş., a venture capital company, to develop that we plan to launch in the future. the ideas born from our in-house entrepreneurship efforts. We also aim to build dynamic connections with the startups in the International Expansion of Ford Trucks Continued, Silicon Valley, and Turkey-Europe-Middle East ecosystem in Reaching 244 Locations in 43 Countries order to develop joint projects and/or create greater strategic Our new tractor F-MAX, the winner of the “2019 International value for our Company by investing in them. Our revenues increased by 18% to TL 39 billion, operating profit Truck of the Year” award became a testament to Ford rose 6% to TL 2.4 billion and we posted TL 2.0 billion in net Otosan’s half a century of truck manufacturing strength and Designing the Future for My Country profit with 16% year-on-year increase. experience. We have the engineering capabilities to develop This project was launched under the leadership of Koç Holding and manufacture a complete vehicle end-to-end, including its in 2019 with the goal of building a meaningful future for our Leader in Engineering Service Exports For 4 Years engine, and we are in a position to export the technologies that world, community and people. We are already taking steps We won first prize in the “Architecture, Engineering, Scientific Ford Otosan develops and produces. toward a better, equal and inclusive future to benefit us all. & Other Technical Services” category of the “Service Exports” We are the ones to seize the opportunities that technology survey conducted by the Turkish Services Exporters Association. As part of Ford Trucks’ international expansion, we completed provides and to design the future we want to reach. As part This is a culmination of our engineering excellence and know- the organizational structuring in Central and Eastern Europe, of this project, we hold seminars open to all our employees to Esteemed Shareholders, Partners and Employees, how, made possible with ongoing investments in R&D since and moving to Western Europe, we opened our first facilities communicate the importance of technology and digitalization. 1961. in Spain, Portugal and Italy. We are now sending parts for And we strive to raise awareness about how current problems I am pleased to report that we closed 2019 with strong our heavy commercial vehicles to 17 countries from our spare can be solved with the support of technology. results thanks to record exports andour strategy focused on Dividends Distributed Since 2004 Reached $3.9 parts distribution center opened in 2017 in Poland. We also profitability and cost reduction actions, despite a year of global Billion established Ford Otosan Netherlands BV, incorporated in the 2020 Guidance and local challenges. Our focus on digitalization and innovation, Our strong export performance and cash flow in 2019 enabled Netherlands to support our international truck network. We are We adopted a cautious approach in planning 2020. Slower especially since 2017, brought important achievements. us to distribute TL 1.3 billion in dividends. We also aim to sustain moving forward with firm steps toward our goal of reaching over global growth, US-China relations, the outlook and free We launched award-winning products, marking firsts in our maximum dividend payment policy in 2020. Ford Otosan 350 sales and service locations in 81 countries by 2024. trade agreement negotiations in the aftermath of Brexit, and their segments. We prepared our plants for our upcoming stocks outperformed the BIST 100 index by 21 percentage geopolitical risks are among the main agenda items. We expect investments, planned to begin in 2020, for next generation points in 2019 while the share of foreign investors in our free We are the Pioneers of Autonomous Vehicle to see a relatively positive course after two years of contraction vehicles. We also remained focused on risk management and float was 77%. Development in Turkey in the domestic market. We will continue with our profitability- maintained our robust financial structure. As part of our truck expansion strategy, we entered into an R&D focused strategy, pricing discipline and projects aimed at cost Ford Transit Custom Plug-in Hybrid, a First in its cooperation with AVL, which operates in the field of platooning reduction. All Eyes Were On US-China Relations and Global Segment, Won the 2020 International Van of the Year technology, in 2018. Platooning technology enables heavy Economic Dynamics In 2019 (IVOTY) Award commercial vehicles to follow each other at close range during As we prepare to enter a new investment period for our next In 2019, the relations between the USA and China, the We launched Ford Transit Custom, a first for Ford commercial intercity transportation, resulting in lower fuel consumption and generation vehicles, we will also work on the responsibilities global economy that fared below expectations and regional vehicles, with Plug-in Hybrid technology (PHEV) that enables reduced carbon emissions. that a possible alliance between our partner Ford and VW instabilities were our main agenda items. Despite concerning electric motors and internal combustion engines to work may bring for the Company. We will continue our operations as economic data from Europe, and particularly Germany, , the van together. Ford Transit Custom Plug-in Hybrid was proudly Equipment, software, simulation and road tests of this always with the goal of creating sustainable benefits for all our market, which is our main export segment continued to grow manufactured at our Kocaeli Plants, the largest commercial technology are now successfully completed. This R&D project, stakeholders. with e-commerce and new models. Uncertainty over Brexit vehicle production base in Europe. a first in Turkey, will help reduce operating costs and improve continued throughout the year. As the process became clear safety while enabling the Turkish automotive industry to make I would like to conclude by expressing my sincere gratitude to shortly after the elections in December, we expect the focus to We are the Only Factory in the Ford Universe and significant progress in terms of autonomous and connected my colleagues at Ford Otosan for making it possible for us to shift toward free trade agreements in the upcoming period. in Turkish Automotive Industry to Join Global vehicles. We are very happy to be among the few truck come this far, our partners in the supply industry, our valued Lighthouse Network manufacturers in the world working on autonomous trucks, dealers, our loyal customers and our esteemed shareholders. Ford Otosan, Export Champion of Turkey for 5 The World Economic Forum (WEF) recognized the successful investing in this field, and most importantly, having a prototype Consecutive Years and of the Auto Industry for 9 adoption and implementation and of Fourth Industrial to demonstrate the technology. With warmest regards, Consecutive Years Revolution technologies to shape the future of advanced Ford Otosan maintained its leadership in commercial vehicles manufacturing in our plants and named our Gölcük Plant a We Founded Gembox (Driventure), a Corporate in the domestic market, reaching a record market share of 34% “Lighthouse Factory”. By using technology and digitalization, Venture Capital Company while still ranking third in total industry. With ongoing growth and integrating our employees into the process, we made a On our path toward our vision of “Being Turkey's Most Valuable Ali Y. Koç in the industry and Ford's strategy focused on commercial difference with these activities, carried out by envisioning how and Most Preferred Industrial Company”, we see innovation, Chairman vehicles, our exports reached record levels yet again. the factories of the future will be. We were able to increase

34 35 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

CEO’S MESSAGE We Work with the Silicon Valley Ecosystem for high-efficiency motors. LED conversions for lighting remain in Smart Mobility focus while Suntracker systems are used to bring in sunlight to We have assigned an employee to work on a project conducted illuminate the workshops. The compressed air monitoring and by the World Economic Forum (WEF) on Autonomous Vehicle control system resulted in savings in compressed air consumption. Technology Regulations at Ford’s Palo Alto facilities with the We have six micro scale wind turbines. The atmospheric water objective of closely following the ecosystem in Silicon Valley, generator we have installed delivers 5,700 liters of potable where groundbreaking innovations come to life. This allows us to water annually. Another project is our waste water recycling take an active role in the initiatives that steer and shape the future and treatment plant in Yeniköy. The technology implemented We are Developing Turkey's First Local Transmission of the industry and technologies in a center founded by WEF for enables us to reuse the backwash water by recycling instead for Heavy Commercial Vehicles Industry 4.0. of discharging it as waste. This will result in estimated annual The vehicles we produce at Ford Otosan, one of Ford's global savings of 16,000 m3 of water. As part of United Nations product development centers, are changing the scale of Ford Otosan also builds bridges between Ford and Ford Otosan Sustainable Development Goals “Quality Education”, “Reduced competition in the global heavy commercial vehicle industry. With by holding meetings with Ford Motor Company's Mobility, Data Inequalities” and “Partnerships for the Goals”, we partnered with more than 1,300 R&D employees, we are working on cutting-edge Analytics, Design, Connected Vehicles, and Cloud Technology Young Guru Academy (YGA) and Twin, and launched “Dreams technologies to offer products that can compete in all potential units. Need Knowledge” project. As the private company with the export markets. We will develop and produce Turkey's first highest R&D spending in Turkey, we bring the sets, made possible Dear Shareholders and Stakeholders, domestic heavy commercial vehicle transmission, which we will Proud of Our Awards thanks to YGA’s experience and Twin, collaborating with a brand begin to use in our trucks from 2021 onwards. We have celebrated many awards in 2019, among which was the for the first time, to disadvantaged children across the country We continued to work tirelessly towards our vision of “Being recognition we received for our investor relations program. We to help them realize their dreams with science. We do this Turkey’s most valuable and most preferred industrial company” in Gölcük Plant Joined the Global Lighthouse Network have won the first place in the “Best CFO,” “Best Investor Relations with our F-MAX, the internationally acclaimed vehicle that we 2019, crowning the year with many achievements. We have been working on adopting Fourth Industrial Revolution Professional” and “Best Investor Relations Program” categories in manufactured with our R&D, innovation, design and engineering technologies since 2015 to build the factories of the future. By the Institutional Investor Survey. capabilities. With the support of our engineers and YGA mentors, In the domestic market, where we focus on profitable growth, leveraging Fourth Industrial Revolution technologies to transform the children that receive the autonomous F-MAX sets will acquire our sales volumes were impacted by the shrinking market. Our our Gölcük Plant, we were able to increase our production At Ford Motor Company's annual “President Health and Safety problem solving skills by using technologies such as sensors, retail sales volume declined by 28% to 49,473 units. We further capacity by 6% without any additional investment and saved Award (PHSA)”, our Kocaeli Plant won first prize in the Industrial actuators, coding and artificial intelligence, and with this wing strengthened our leadership in commercial vehicles where our €5.4 million. The digital capacity management and planning Hygiene, Global category and first prize in the Non-Production under their wings, they will shape our future with the knowledge share rose to 34%. Throughout the year, we remained focused tools led to a decrease of 47% in the average die manufacturing Units Occupational Safety and Ergonomics Innovation, they need to realize their dreams. on the key building blocks to attain our profitability goals. The time at our tool-and-die plant, consequently increasing our Europe category while our Eskişehir Plant was recognized as products manufactured at our plants accounted for 74% of our die manufacturing capacity by 31%. We improved employee the manufacturing site with “Best Performance” according to As a pioneer of technology in Turkey, we continue to design the domestic sales while the share of imports in our total sales was engagement by 45% over a four-year period. The robot data accident statistics of the last three years. future of the automotive industry, writing a global success story. limited to 3%. analytics system that we have installed reduced total robot At Ford Otosan, we are improving the future, cities of the future failures by 9%, leading to a decrease of 5% in spare parts We are at the forefront of the companies that drive R&D in Turkey. and driving experiences through mobility solutions we design. This Strong export demand drove our production, which reached consumption. The predictive system we have implemented can We were honored to be recognized as the “Private Company with view of the future is much more than just a dream, more than just 369,027 units despite the contraction in the domestic market. prevent breakdowns that may cause serious damage. Due to the the Highest R&D Spending” in Turkishtime’s survey on “R&D 250, something we talk about because we are already shaping the We achieved a capacity utilization rate of 93% in our Gölcük leadership we have shown in adopting these kind of technologies, Turkey's Top 250 Companies with Highest R&D Expenditures”. future. Plant and 81% in total. We accounted for 25% of total vehicle our Gölcük Plant was named a Lighthouse Factory by the World production and 27% of exports in the Turkish automotive industry. Economic Forum (WEF). We at Ford Otosan are proud to be the Working for a Sustainable Future first automotive company in Turkey and the Ford universe, and We are fully committed to responsible business and adhere to Ford Trucks Reached Record Domestic Market Share one of the four worldwide to join this network. universal principles of sustainability. We have aligned our business with 31.4% with United Nations Sustainable Development Goals and work Our truck export volume surpassed our domestic sales for the We also continued to work on the infrastructure projects that continuously to improve our sustainability performance. In 2019, first time, reaching 3,003 units. Our organizational structuring in will allow us to manage the manufacturing complexity that will we published Ford Otosan Diversity Policy and Anti-Corruption Haydar Yenigün Western Europe began with Spain, Portugal and Italy. Western increase with our next generation vehicle projects, improving Policy. Our energy and water efficiency projects continued. General Manager Europe is of utmost importance for us with its potential to double efficiency, enhancements and testing the production technologies SolarWall technology, which uses renewable solar energy, was our total targeted market size. of the future at our plants. selected for heating, cooling and ventilation in various locations in our facilities. Waste heat recovery systems were installed in the body paint shop. Electric motors were replaced with

36 37 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

BOARD OF DIRECTORS

Rahmi M. Koç Ali Y. Koç Stuart Rowley William R. Periam Hans Schep İ. Cenk Çimen

» Honorary Chairman » Chairman » Vice Chairman » Member » Member » Member » Honorary Chairman of Koç Holding A.Ş. » Vice Chairman » President, Ford of Europe » CFO - Ford of Europe » General Manager, Commercial » Automotive Group President Koç Holding A.Ş. Board of Directors » Member - Remuneration Committee » Member - Corporate Governance Vehicles, Ford of Europe Koç Holding A.Ş. Mr. Rahmi M. Koç earned a Bachelor’s Degree in Busi- ness Administration from Johns Hopkins University Committee » Member - Remuneration Committee Mr. Schep earned a master’s degree in (USA). Rahmi M. Koç started his active career at Mr. Ali Y. Koç capped his undergraduate Mr. Rowley has a Bachelor’s of Engineering » Member - Early Determination and » Member - Early Determination and Otokoç Ankara in 1958. He then became Chairman of Industrial Engineering and Management studies at the Management Faculty of Rice (Hons) degree from the University of Leeds Management of Risk Committee Management of Risk Committee the Executive Committee off Koç Holding in 1970, Vice Science from Eindhoven University of President of the Board in 1975, and Chairman of the University (USA) with an MBA from Harvard and an MBA from the Manchester Business Managing Committee in 1980. He handed over his po- Business School. He started his career at School. He joined Ford Motor Company in Technology. Mr. Schep joined Ford in 1995 Mr. Periam earned a bachelor’s degree in Mr. Çimen has an Industrial Engineering sition to Mustafa V. Koç on 4 April 2003. Rahmi M. Koç American Express Bank as a Management 1990 as Financial Analyst for Ford of Britain. and his experience at Ford includes roles has remained a Board Member and assumed the title Management Sciences from Manchester degree from Istanbul Technical University. He Trainee and continued as an Investment He worked in several management positions as Regional Director of European Sales of Honorary Chairman. Koç, who has been a Member University (UK) and is a Fellow of the completed Executive Development Programs of the Ford Otosan Board of Directors since 1961 and Analyst at Morgan Stanley Investment in Product Development Finance and Operations – responsible for Marketing, Sales Chartered Institute of Management at Stanford University (USA) and University Chairman of the Board since 1972, is currently Honor- Bank. Mr. Ali Y. Koç joined Koç Holding in Manufacturing Finance in Britain and the U.S. and After-Sales in North, Central and Eastern ary Chairman of the Ford Otosan Board of Directors Accountants. He joined Ford as an Investment Europe, North Africa and Central Asia – and of California Los Angeles (USA). He joined since 10 December 2012. Rahmi M. Koç is or has been 1997 and held senior-level positions until before being appointed Finance Director, Ford Analyst in the United Kingdom in 1989. Koç Group in 1991 as a Management Trainee affiliated with many institutions and organisations 2010 including new business development Motor Company Philippines, in January 1998. as Managing Director, Ford Netherlands. He He has held multiple senior management at Nasoto. He assumed Sales Coordinator, including: and information technologies. He was the Between 2000 and July 2004, he was Vice served as Director, Product Marketing, Ford of positions at Ford in the Finance, Credit, Europe, beginning in February 2015. Mr. Schep Regional Manager and Import Manager • The Metropolitan Museum of Art, New York City, President of Corporate Communications and President, Finance, Ford Australia. In 2005 he Business Development and Business Strategy responsibilities at Otosan Pazarlama from Honorary Trustee IT Group. He has been serving as a Board became Chief Financial Officer and Senior Vice is currently General Manager, Commercial departments in the USA, Germany, Brazil and 1993 to 1996. He served as Fleet Sales • Former President of the International Chamber of Member at Koç Holding since 2008 and was President of Volvo Car Corporation in Sweden Vehicles, Ford of Europe and in this role, he Commerce China. He was appointed Deputy General is responsible for leading Ford’s Commercial Manager at Ford Otosan from 1996 to 1998 • Vice Chairman of the Board of Trustees of the Vehbi elected as Vice Chairman in February 2016. before being appointed as Chief Financial Manager and a Member of the Board of and became the General Manager of Otokoç Koç Foundation Ali Y. Koç has been serving on the Board Officer, Ford of Europe, in August 2010. He Vehicles business line in Europe. Mr. Schep was Directors of Ford Otosan from September 2013 Ankara in 1998. In 2001, he was appointed as • Honorary Chairman of the Board of Trustees of the of Directors at Ford Otosan since 1997 and later served in a number of senior level roles appointed as Ford Otosan Board Member on Koç University until August 2016. Mr. Periam was appointed as November 15, 2019. the General Manager of the companies merged • Founder and Chairman of the Board of the Rahmi M. was elected as Chairman on 10 December at Ford in the U.S. from 2012 to 2019, including the Chief Financial Officer of Ford of Europe as under Otokoç. In 2005 his responsibility was Koç Museum and Cultural Foundation 2012. Currently, Ali Y. Koç is the Chairman of positions as Controller; Vice President of • Chairman of the Board of the Vehbi Koç Foundation of August 1, 2016 and remains a member of the extended to include the General Manager role Ark İnşaat, Bilkom, Digital Panorama, Koç Strategy; and Vice President and Chief American Hospital Board Directors at Ford Otosan. He also serves for Birmot A.Ş., also assuming responsibility for • Honorary Chairman and Founding Member of Information and Defence Technologies, Koç Operating Officer, Ford North America. Stuart as Member of the Corporate Governance and Avis car rental business. He has been serving TURMEPA, The Turkish Marine and Environment Financial Services, Koç Sistem, Koçtaş, Otokar, Rowley was appointed to his current position Protection Association Early Determination and Management of Risk as the Automotive Group President at Koç Otokoç, Setur and Yapı Kredi Bank. Ali Y. Koç of Vice President and President, Ford of Ford of • Honorary President of the Advisory Board of the Committees since August 1, 2016. Holding since June 2009. He was elected as Turkish Industrialists’ and Businessmen’s Association also contributes to the country’s social and Europe, effective April 1, 2019 and became Ford a member of Ford Otosan Board of Directors • Member of the Advisory Board of the Turkish economic development at Fenerbahçe as Otosan Board member on May 28, 2019 to Employers Association on March 25, 2014. He has been serving as Chairman, URAK – National Competition serve until the next Ordinary General Assembly • Founding Chairman of the Global Relations Forum the member of the Early Determination and Research Association as President, Executive of Shareholders. This assignment will be Management of Risk Committee since April Board Member of European Club Association, submitted to the approval of the next General Johns Hopkins University, Eskisehir Anadolu University, 21, 2014 and a member of Remuneration Endeavor Association and DEİK, Foreign Assembly meeting. He has been serving as the İzmir Ege University, Ankara Bilkent University, Con- Committee since March 27, 2015. stanta Ovidius University and Aydın Adnan Menderes Economic Relations Board as Board Member. member of the Remuneration Committee since University. He is member of the Global Advisory Council of September 11, 2019.

Service Medals; Bank of America, Harvard University and CFR. “State Medal of Distinguished Service” by the President He is also consultant of Chatham House and of Turkey, “Grosses Verdienst Kreuz” (Great Cross of representative of Turkey at Confederation of Merit of Germany) by the German government, “Order of Merit of the Italian Republic” by Italy, “the Order of British Industry. Merit” by the Presidency of the Republic of Austria and “(Honorary) Commander of the Most Excellent Order of the British Empire (CBE)” and “Officier dans L’Ordre National de la Legion D’Honneur” which is the most prestigious order of French government.

38 39 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

O. Turgay Durak Joerg Beyer Lisa K. King Ali İhsan İlkbahar Füsun Akkal Bozok Leonard Meany

» Member » Member » Member » Member » Independent Member » Independent Board Member » Director Product Development » Ford Global Enterprise Product Line » Member - Corporate Governance » Member - Audit Committee » Audit Committee Member Mr. Durak is a graduate of the Mechanical Ford of Europe Management Lead, Commercial Committee » Chairman - Remuneration Committeeı » Chairman - Corporate Governance Engineering Department of Northwestern Vehicles » Chairman - Early Determination and Committee University (USA) where he also completed his Mr. Joerg Beyer graduated with a diploma Mr. İlkbahar graduated from Istanbul Technical Management of Risk Committee Master’s degree in mechanical engineering. in automotive engineering from Rheinisch- Mrs. King earned a bachelor’s degree in University Mechanical Engineering (MSc.) Mr. Meany holds a Business Management His career commenced at Ford Otosan in Westfälische Technische Hochschule Aachen Management Sciences and Statistics from and started working as a Manufacturing degree from the University College Cork 1976 as Applications Engineer. In the same Mrs. Bozok earned a Bachelor’s Degree in 1991. Since joining Ford in 1990, Beyer has Loughborough University (UK). Prior to Ford, Engineer at Otosan in 1964. He spent his (Ireland). Mr. Meany started his career at year, he assumed the position of Product in Business Administration from Istanbul held a variety of Product Development roles at she worked at Ernst & Young Consulting as entire professional life at Ford Otosan where Finance department, Ford of Europe, in Development and Design Engineer, and by University. She also holds an MBA from Ford Motor Company in Germany, the UK and a business consultant. She joined Ford in he served as the General Manager during 1973. He was appointed Controller, Ford 1979 he became the İnönü Engine Plant Project Boğaziçi University and a PhD in Business the United States – including chief engineer for 1996 and held a number of Purchasing roles the last 14 years and retired at the beginning of Europe Commercial Vehicle Product Leader. In 1982 and 1984, he was assigned Administration from İstanbul University. Mondeo and Fiesta. He is managing director, including responsibility for Raw Materials, of 2000. He was also the Koç Holding Ford Development in April 1988 working on an as Project Coordination Manager and Project She started her career as an Auditor at Product Development, Ford-Werke GmbH, and Chassis Componentry, Manufacturing Group President between 1996-2000. He was SUV JV with Transit and Nissan. Following the Coordination Department Head, respectively. Arthur Andersen in 1980. In 1983, she joined executive director, Engineering, Ford of Europe. Equipment and Transportation, as well as Vice involved in the construction project of the Investment Agreement negotiations with the In 1986 and 1987, he was designated as Koç Holding as an auditor at the Internal Previously, Beyer was executive director, Global President, Purchasing FordSollers in Russia. Otosan Engine Plant in Eskişehir İnönü in 1980. Russian Government for the establishment Assistant General Manager of Marketing and Audit Department. After serving as an Audit Programs, responsible for leading all global She was appointed Ford Otosan Deputy He led the Gölcük Plant project and Connect of a production facility in St. Petersburg, he Assistant General Manager of Purchasing, Coordinator between 1992 and 2003, she was programs developed in Ford’s Development General Manager and member of Board of vehicle project between 1997 and 2000. He was appointed CFO/Board Member Ford respectively. He became the Deputy General appointed Finance Director in 2003. Bozok Centers around the world. He headed the Directors on September 1, 2016. Lisa K. King was the Chairman of Board of Directors at Russia in August 1999. In April 2003, he Manager of Ford Otosan in 2000. He started also worked as a Project Manager between preproduction vehicles and innovation division, was assigned as the Global Enterprise Product Automotive Manufacturers Association for was appointed Operations Controller, Genk, to serve as the General Manager in 2002 1995 and 1996 under Koç Group’s MIS Project. as well as the small car segment with global Line Management Lead, Commercial Vehicles 15 years, from 1989 until February 2004. He Belgium Manufacturing Operations during when he also joined the Board of Directors. Bozok continued her career at Koç University responsibility. on April 1, 2019, and currently serves as a Board served as a member of Ford Otosan Board major restructuring actions completed in 2004 From 2007 to 2009, he was the Automotive between 2006 and 2008 as a member at the Member of Ford Otosan. of Directors from 1991 to 2012 and he was including transfer of Transit manufacturing Group President at Koç Holding. He served as Faculty of Computer Systems Supervision elected again on 25 March 2014. He has also operations to Turkey. He was appointed Deputy CEO of Koç Holding from May 2009 and International Finance. Since 2008, she been serving as the member of the Corporate Director, Business Development, Ford of until April 2010 and as CEO and Member of the has been a member of the Sabancı University Governance Committee since April 21, 2014. Europe in July 2006 joining the Ford team Board of Directors of Koç Holding from April International Finance and Auditing Faculty. negotiating the purchase of former Daewoo 2010 to March 31, 2015, Mr. Durak retired at Füsun Bozok was a Board Member at Yapı manufacturing facilities from the Romanian age 63. He was Chairman of the Board of the Kredi Bankası between 2004 and 2018. She Government and minority shareholders. Mr. Automotive Manufacturers Association for 6 was appointed as an Independent Board Meany was appointed CFO Ford Romania years between 2004 and 2010. He served as a Member at Akiş GYO and Bizim Toptan in in April 2008. After completing his duty, Mr. member of the Istanbul Chamber of Industry 2017 and at Tat Gıda Sanayi, İzocam and Ford Meany retired in 2011. He was elected as (ISO) from January 2008 to May 2010 and Otosan in 2018. Bozok also holds CMB Credit an independent Board Member of the Ford was a board member between February 2009 Rating, Corporate Governance, and Advanced Otosan Board of Directors on 29 March 2016. and May 2010. Mr. Durak also was a National Derivative Licenses. He has been serving as a member of the Board Member of International Chamber Of Audit Committee since April 6, 2016. He was Commerce from February 2014 to March 2015. appointed as the Chairman of the Corporate Governance Committee on 31 March 2017.

40 41 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

ORGANIZATION CHART

HAYDAR YENİGÜN

General Manager

Haydar Yenigün Dave Johnston

» Member » Member » General Manager » Deputy General Manager

Mr. Yenigün graduated from Yıldız Technical Mr. Johnston earned both his Bachelor’s DAVE University in Mechanical Engineering and joined degree in Economics and Master’s degree in JOHNSTON Ford Otosan in 1987, He found opportunity Manufacturing Leadership from Cambridge to serve in many different departments in University. He also holds a CIMA accountancy production and worked as Project engineer qualification. He joined Ford of Britain in Deputy General between 1992 and 1996 after completing his 1995, and through 2003 held a variety of Manager OĞUZ SERHAN CEM GÜVEN GÖKŞEN ALİ RIZA GÜL military duty. He continued serving in different Finance positions in Manufacturing, Product positions during the establishment of the Development, Profit Analysis, and Marketing TOPRAKOĞLU TURFAN TEMEL ÖZYURT TÖRE SANCAK AKSOY ERTUĞ Kocaeli Plant after the shares of Ford Motor and Sales. From 2003-2007, he was Company and Otosan A.S. were equalized seconded to Ford’s then Premier Automotive in 1997. He became Project Leader in 1998. Group, where his postings included serving Assistant Assistant Assistant Assistant Assistant Director Director He participated in the production process of as manufacturing controller at the Land General General General General General commercial vehicles design and production Rover Solihull manufacturing facility, during Manager Manager Manager Manager Manager Human Innovation processes to be built in the new plant. He which time he helped lead a transformation Resources and New worked as Body Construction Area Manager project to improve cost and manufacturing Finance and Ford New Operations Material Ventures in the Kocaeli Plant between 1999 and efficiencies. He served as CFO at Volvo Car 2007, and served as Kocaeli Plant Manager China from 2007-2010 before its sale to Geely Accounting Trucks Projects Planning and and Assistant General Manager from 2007 Automotive Holdings, and then returned to CFO Logistics* to 2012. He was appointed as Ford Otosan Ford as Product Development Controller for General Manager and became a Member of Medium and Large Cars, Asia Pacific and the Board of Directors on 15 February 2012. Africa. Before returning to Europe in 2013, he He is currently Chairman of the Automotive spent two years as CFO of ASEAN region, with Manufacturers Association (OSD). In addition, responsibility for Thailand, Indonesia, Vietnam, he is a member of Kocaeli Chamber of Industry Japan, Philippines and Malaysia, based in the Board of Directors, member of Turkish Industry Regional Headquarters in Bangkok. He served and Business Association and Vice Chairman in two recent roles in Germany as the European of the Turkish-American Business Council PD Controller, and the European Manufacturing ÖZGÜR BURAK MURAT BAŞAK Executive Committee. In 2020, he became Controller. He then performed the role of YÜCETÜRK GÖKÇELİK SENİR ÇALIKOĞLU AKYOL a board member of European Automobile Global Vehicle Program Controller, where Manufacturers’ Association (ACEA) Board of he had overall responsibility for Ford Motor Directors. Company's financial equation for all future Assistant Assistant Assistant Director worldwide vehicles. He served as CFO, Ford General General General Asia Pacific based in Shanghai between 2017 Total Quality Manager Manager Manager and 2018. Mr. Johnston is appointed as Deputy General Manager, Ford Otosan, effective as of 1st August 2019. Before assigning to that role Marketing, Product Purchasing he was CFO, Ford China, between 2018 and Sales and Development 2019. Aftersales

*As of February 1, 2020, Assistant General Manager Material Planning and Logistics will be renamed Directorate Material Planning and Logistics and report to Assistant General Manager Operations. 42 43 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

EXECUTIVE MANAGEMENT

Haydar Yenigün Dave Johnston Oğuz Toprakoğlu Serhan Turfan Özgür Yücetürk Burak Gökçelik

» General Manager » Deputy General Manager » Assistant General Manager » Assistant General Manager » Assistant General Manager » Assistant General Manager » Member » Member CFO Ford Trucks Marketing, Sales and Aftersales Product Development Board of Directors Board of Directors » Member Corporate Governance Committee Mr. Turfan earned his Bachelor’s degree Mr. Yücetürk graduated from Mechanical Mr. Gökçelik graduated from the Mechanical in Mechanical Engineering from Boğaziçi Engineering Department of Ruhr University Mr. Yenigün graduated from Yıldız Technical Mr. Johnston earned both his Bachelor’s Engineering Department at Boğaziçi University University in Mechanical Engineering and joined University in 1995 and completed his Executive in 1995, completed his Executive MBA degree (Germany) and completed an MBA at Koç degree in Economics and Master’s degree in Mr. Toprakoğlu graduated from the Economics Ford Otosan in 1987, He found opportunity MBA degree at Marmara University in 1997. at Koç University in 2002 and completed University. He joined Ford Otosan as a Product Manufacturing Leadership from Cambridge Department of Boğaziçi University in 1991, to serve in many different departments in Started working at Ford Otosan in 1995 as a AMP of Harvard University in 2018. He joined Development Engineer in 1988. He became University. He also holds a CIMA accountancy and joined Ford Otosan in the same year as production and worked as Project engineer Sales Planning & Logistics Specialist. After Ford Otosan Marketing Department in 1995 Compound Construction Team Leader in 1994, qualification. He joined Ford of Britain in a Financial Specialist. He became Inventory between 1992 and 1996 after completing his respectively, he became Sales Support Team as a Product Specialist. After holding various Body Construction Development Manager in 1995, and through 2003 held a variety of Planning and Control Specialist in 1993, military duty. He continued serving in different Leader, Sales Planning Senior Manager, positions in Marketing & Sales departments 1998, İnönü Plant Assistant Manager in 2004 Finance positions in Manufacturing, Product Commercial Accounting Team Leader in 1995 positions during the establishment of the Sales Senior Manager, and Marketing Senior as Marketing Strategy Manager, Passenger Car and İnönü Plant Manager in 2006. He became Development, Profit Analysis, and Marketing and Financial Control Manager in 1998. He Kocaeli Plant after the shares of Ford Motor Manager. In 2010, he was appointed as Service Brand Manager and Sales Support Manager, Assistant General Manager of Engineering at and Sales. From 2003-2007, he was worked as the Finance Manager of Ford of Company and Otosan A.S. were equalized & Spare Parts Director and has held various he served as the Technical Assistant to the Ford Otosan Product Development in 2010. He seconded to Ford’s then Premier Automotive Europe from 2002 to 2004. In 2004, he was in 1997. He became Project Leader in 1998. directorial positions until 2017. After becoming General Manager. He was appointed as worked as Assistant Director of Engineering at Group, where his postings included serving appointed as Deputy CFO of Ford Otosan and He participated in the production process of the Director – Ford Trucks Turkey, Mr. Turfan Marketing Manager in 2002. He worked as the Ford Motor Company in the UK from 2011 to as manufacturing controller at the Land has been serving as Assistant General Manager commercial vehicles design and production was appointed Assistant General Manager – European Sales Operations Coordinator at Ford 2013. He served as Assistant General Manager Rover Solihull manufacturing facility, during (CFO) of Finance and Accounting since 2006. processes to be built in the new plant. He Ford Trucks as of January 1, 2018. of Europe in 2006. He returned to Ford Otosan of Engineering at Ford Otosan Product which time he helped lead a transformation As of July 3, 2014 he was assigned as Corporate worked as Body Construction Area Manager in 2007 as Marketing Director and became the Development from 2013 to 2016. Mr. Gökçelik project to improve cost and manufacturing Governance Committee Member. was assigned as Product Development - in the Kocaeli Plant between 1999 and efficiencies. He served as CFO at Volvo Car Sales and After Sales Field Operations Director Assistant General Manager as of February 1, 2007, and served as Kocaeli Plant Manager China from 2007-2010 before its sale to Geely in 2009. He has been serving as the Assistant 2016. and Assistant General Manager from 2007 Automotive Holdings, and then returned to General Manager of Marketing, Sales and to 2012. He was appointed as Ford Otosan Ford as Product Development Controller for Aftersales since October 1, 2014. General Manager and became a Member of Medium and Large Cars, Asia Pacific and the Board of Directors on 15 February 2012. Africa. Before returning to Europe in 2013, he He is currently Chairman of the Automotive spent two years as CFO of ASEAN region, with Manufacturers Association (OSD). In addition, responsibility for Thailand, Indonesia, Vietnam, he is a member of Kocaeli Chamber of Industry Japan, Philippines and Malaysia, based in the Board of Directors, member of Turkish Industry Regional Headquarters in Bangkok. He served and Business Association and Vice Chairman in two recent roles in Germany as the European of the Turkish-American Business Council PD Controller, and the European Manufacturing Executive Committee. In 2020, he became Controller. He then performed the role of a board member of European Automobile Global Vehicle Program Controller, where Manufacturers’ Association (ACEA) Board of he had overall responsibility for Ford Motor Directors. Company's financial equation for all future worldwide vehicles. He served as CFO, Ford Asia Pacific based in Shanghai between 2017 and 2018. Mr. Johnston is appointed as Deputy General Manager, Ford Otosan, effective as of 1st August 2019. Before assigning to that role he was CFO, Ford China, between 2018 and 2019.

44 45 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Cem Temel Güven Özyurt Murat Senir Gökşen Töre Sancak Ali Rıza Aksoy Gül Ertuğ Başak Çalıkoğlu Akyol

» Assistant » Assistant » Assistant » Assistant » Director » Director » Director General Manager General Manager General Manager General Manager Human Resources Innovation and New Ventures Total Quality New Projects Operations Purchasing Material Planning & Logistics* Mr. Aksoy graduated from İstanbul Technical Ms. Ertuğ graduated from Bosphorous Mrs. Akyol graduated from the Mechanical Mr. Temel graduated from İstanbul Mr. Özyurt graduated from Mr. Senir graduated from University Industrial Engineering Department University, Engineering Faculty, Industrial Engineering Department of Middle East with an MsC degree in 1995, earned his Engineering Department in 1997. In the same Technical University in 1999. In the same year, Technical University in 1991 and the Mechanical Engineering the Mechanical Engineering Ms. Sancak earned a bachelor’s Executive MBA degree from Koç University year, she started working in Ford Otosan she joined Ford Otosan as a Quality Engineer. completed a Masters degree at Department of Istanbul Technical Department of Bogazici University and master’s degree in Business in 2017. He joined Ford Otosan in 1996 as an MP&L Production Planning Department. She She earned a master’s degree in Financial İstanbul University in 1992. He University in 1989, and completed in 1989. He joined Ford Otosan as a Administration Engineering from Industrial Engineer. During the first six years earned her MBA degree from Bosphorous Economics from Bahcesehir University in joined Ford Otosan in 1993 as an an MBA at Istanbul University in Purchasing Engineer in 1992. After İstanbul Technical University. of his career at Ford Otosan, Mr. Aksoy’s University in 2000, Executive MBA degree 2012. After taking on various positions in the engineer in Quality department. 1990. In the same year, he joined taking on various positions in the She completed the “Program responsibilities included Manufacturing, from Koç University in 2006 and PLDA degree Quality Assurance, she worked as a Quality He worked on launching the Ford Otosan as a Method Engineer. Purchasing Department, he worked for Leadership Development” Industrial Engineering, Ford Production System, from Harvard Business School in 2019. In her and Vehicle Evaluation Manager at Yeniköy Press Area between 1998-2008 After taking on various positions in as a New Projects Purchasing at Harvard Business School in Total Productive Maintenance and ISO 9000 Ford Otosan career, she worked in several Plant between 2013-2015. She was appointed and served as Press and Tool the fields of Product Development, Manager from 2002 to 2008 and 2017. She continues Industrial and ISO 14001 projects as a Method Engineer. different functions in the positions of MP&L as the Quality Manager in 2016 and between & Die Group Manager between Service and Quality Engineering, as an Ongoing Projects Purchasing Engineering Ph.D Program at At the end of 2001, he was transferred to the Team Leader (CMMS3 Launch and R/C 2018-2019 she served as Human Resources 2008-2012. He became Gölcük Export and Sales Planning, he Manager from 2008 to 2014. He Özyeğin University. She joined HR Department. He worked as a Manager in HR Coordination), Technical Assistant to General and Industrial Relations Manager of Kocaeli Assistant Plant Manager in 2012 became a Project Engineer in the was appointed as Purchasing Ford Otosan in 1996 as External Applications, Personnel Management and HR Manager, PD Finance Manager and Senior Plants. She has been assigned as Total Quality and Gölcük Plant Manager in 2013. Kocaeli Plant Project Team in Director in 2014. He was assigned Purchasing Specialist. She became operations and Labor Relations departments. Manager, Ford Asia Pacific Finance Controller Director as of January 1, 2020. Mr. Temel was Assistant General 1997. He worked as Project Leader as Assistant General Manager – Import Supply Team Leader in Following his latest assignment as the Industrial for CD Car & Lincoln (Shanghai) and Business Manager – Kocaeli Plants and New of the same team from 1998 to Purchasing as of July 1, 2019. 2001 and worked as Import Supply Relations & Manufacturing Human Resources Strategies Finance Manager. She was Projects from 2016 to 2019. He 1999. In 2000, he was appointed Assistant Manager between 2004- Senior Manager, Mr. Aksoy was appointed as HR assigned as Innovation and New Ventures was assigned as Assistant General Material Planning Manager. He was 2009. She served as Export Supply Director on 30th March 2018. Director as of February 1, 2019. Manager – New Projects as of July appointed as Assistant General Operations Assistant Manager 1, 2019. Manager - Material Planning and from 2009 to 2011. She served as Logistics in 2010 and as Assistant Part Export, Business & Supply General Manager - Purchasing Chain Flow Design Senior Manager on June 1, 2014. He was assigned from 2011 to 2014. She served as Assistant General Manager - as Central Planning Manager Operations as of July 1, 2019. He until 2016. She was assigned as has been serving as corporate Assistant General Manager – coach at Koç Group since 2013. Material Planning & Logistics as of February 1, 2016.

*As of February 1, 2020, Assistant General Manager Material Planning and Logistics will be renamed Directorate Material Planning and Logistics and report to Assistant General Manager Operations.

46 47 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

50 Investor Relations

52 Turkish Automotive Market and Ford Otosan

54 Exports

56 Production and Capacity

58 Highest Commercial Vehicle Production Capacity in Europe

60 Plants and Facilities

62 Kocaeli Plant

64 World Economic Forum Global Lighthouse Network

66 Ford Custom: A Segment-First Plug-in Hybrid Commercial Vehicle

70 Ford Trucks Growth Strategy

74 Suppliers

77 R&D

81 R&D and Test Centers Ford Otosan

84 Innovation 86 Digital Transformation in 2019

48 49 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

INVESTOR RELATIONS Ford Otosan provides regular, up-to-date information for stakeholders via the corporate website, investor presentations and the investor relations mobile application.

First Prize in 2019 “Institutional Investor” EMEA – Automotive Industry Best CFO Surging Dividend Distribution STRONG AND COMMITTED SHAREHOLDER STRUCTURE (TL Million, Gross) Best Investor Relations Professional Best Investor Relations Program Ford Motor Company* Koç Holding A.Ş. 2019 1,284

INVESTMENT CASE 41% 41% 2018 1,204 Ford Motor Company designs, manufactures, Koç Holding, founded in 1926, is Turkey’s 2017 790 markets and services a full line of Ford cars, largest conglomerate in terms of revenues, Scale and Growth trucks, SUVs, electrified vehicles and Lincoln exports, share in Borsa İstanbul’s market luxury vehicles, provides financial services capitalization and employment generation. » Turkey’s export champion and commercial vehicle market 2016 663 through Ford Motor Credit Company and is As it maintains its leadership position leader pursuing leadership positions in electrification, in Turkey, the Koç Group focuses on » Ford’s largest commercial vehicle manufacturing hub in 2015 400 mobility solutions including self-driving services; sustainable and profitable growth with the Europe and connected services. Ford employs mission of being a key player in the region » Strong growth potential in licensing fees approximately 190,000 people worldwide. Free Float and around the world.

% Resilience and Efficiency 18 Growing EPS » €-denominated export revenues with volume guarantees (Nominal Value Kr 1) * Ford Deutschland Holding GmbH: 100% owned by Ford Motor Company. » High capacity utilization » Efficient, flexible and low-cost manufacturing and engineering competency 2019 5,58 Traded on the Borsa Istanbul since: 13 January 1986 Strong Share Price Performance Ticker symbol: FROTO.IS In 2019, BIST-100 rose 25% in TL terms while Ford Otosan share 2018 4,80 Paid-in Capital: TL 350,910,000 price increased 52%, outperforming the index by 21 percentage Strong Balance Sheet and Prudent Risk Management Authorized Capital: TL 500,000,000 points. . In terms of market cap, Ford Otosan ranked as the most 2017 4,25 valuable automotive company and 13th overall among BIST » Surging free cash flow following completion of capex cycle Ford Otosan, a Group A share, is traded on BIST Stars. companies. Foreign share in free float stood at 77%. » Profitability driven by increased capacity and new product 2016 2,72 With its commitment to sustainability, Ford Otosan is also range a constituent of BIST Sustainability Index and FTSE4Good Investor Relations Program in Global Standards » Natural hedge of fx-payables due to fx-denominated export 2015 2,40 Emerging Markets Index. The Investor Relations team attended 15 conferences and revenues roadshows in Turkey and abroad in 2019 and held over 350 2019 Main Indicators meetings with investors and analysts as part of the effective Closing price: TL 70.85 and proactive communication targets. The team met with Value Creation Market Cap: $4.2 billion investors at events in Abu Dhabi, Boston, Dubai, Edinburgh, Highest (intraday): TL 71.55 İstanbul, London, New York, Prague, Singapore, Tallinn, Tokyo » Dividend growth with surging free cash flow Lowest (intraday): TL 41.45 and Warsaw. Following the announcement of the quarterly » Strong relative share performance Foreign Share in Free Float: 77% results, meetings were organized with the CFO to discuss in » Full commitment to sustainability Average Trading Volume: $4.2 million detail with the investment community.

50 51 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

TURKISH AUTOMOTIVE MARKET AND FORD OTOSAN

TOTAL AUTOMOTIVE MARKET PASSENGER CARS LIGHT COMMERCIAL VEHICLES MEDIUM COMMERCIAL VEHICLES (Thousand Units) (Thousand Units) (Thousand Units) (Thousand Units)

2019 488 2019 387 2019 49 2019 43

2018 635 2018 486 2018 66 2018 68

2017 977 2017 723 2017 126 2017 107

2016 1,004 2016 757 2016 122 2016 105

2015 1,006 2015 726 2015 130 2015 112

In the first half of 2019, volumes continued to decline in the Passenger car sales decreased by 20% to 387,256 units. Light commercial vehicle sales were down 27% to 48,629 Medium commercial vehicle sales dropped 37% to 43,175 units. Turkish automotive industry due to the high base effect, Following a profitability-focused strategy in this segment, units. Ford Otosan sold 13,928 units, ranking second in the Ford Otosan sold 17,477 unit, maintaining its undisputable currency and high interest rates. Sales began to pick up starting Ford Otosan sold 15,702 units and ranked 10th with 4.1% market segment with 28.6% market share. leadership in this segment with a record market share September with the impact of lower base year, interest rate share. of 40.5%. Transit, the leading nameplate in its segment, cuts and campaigns, resulting in year-on-year growth. Overall, maintained a market share higher than next five brands 487,671 units were sold with 23% contraction compared to combined. SHARE OF PASSENGER CARS HEAVY TRUCKS 2018. The introduction of Special Consumption Tax incentives, effective from 31 October 2018 and later extended until the end IN THE TOTAL INDUSTRY (Thousand Units) of June 2019 as well as campaigns in the last quarter of the year (%) 79% Ford Otosan maintained boosted the sales figures. its leadership in the 77% 2019 8 total commercial vehicle Ford Otosan maintained its third position in the total industry % 75% 34 segment with a record with 49,473 units sold and 10.1% market share. 74% 2018 12 market share. 72% Ford Transit received 2017 19 “Best Selling Light 2015 2016 2017 2018 2019 2016 18 Ford Otosan Commercial Vehicle of the 2015 34 reached the highest 31.4% truck market share Year” award from Automotive in 25 years. Heavy truck sales decreased by 37% to 7,547 units. Ford Distributers Association. Otosan sold 2,366 units and ranked second with 31.4%, reaching its highest market share in 25 years.

52 53 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

EXPORTS Ford Maintained Its Leadership in Commercial Vehicle Sales in Europe for the 5th Year Ford is Europe’s Best Selling Commercial Vehicle Brand for #1 th #1 the 5 Consecutive Year 14.1% #1 # 1 13.8% 13.5% #1 Main Export Markets Ford Otosan reached record 13.2% (Units) #1 exports with 334,455 units, up Best Year for 12.6% 2% YoY, and was once again United Kingdom Germany Ford Commercial Vehicle 25 30% 19% Sales in 25 Years

Turkey’s export champion for 2015 2016 2017 2018 2019 Poland Western the fifth consecutive year with 3% Europe 12% Ford continues to lead $5.9 billion in export revenues. Belgium France the commercial vehicle Ford Otosan’s Share in In 2019, Ford Otosan accounted for 27% of overall automotive 3% 9% 83% Ford’s Transit Family production and 79% of commercial vehicle production in market in Europe for the Sales in Europe Turkey. Export volume increased by 5% YoY in Custom, 1% in Others Eastern Courier and 47% in F-Trucks models, respectively, while Transit Europe 4% fifth consecutive year. saw 3% decrease due to the impact of the facelift transition 7% and some supplier issues in the second half of the year. We play a significant role in Spain Italy Ford Otosan’s Yeniköy Port, with 400,000 annual loading and 6% 7% this success with our timely, Ford Otosan’s Share in Turkey’s unloading capacity, is currently the only automotive specialty Commercial Vehicle Exports % port integrated with production. This also makes Ford Otosan All exports are €-denominated and volume-guaranteed. flexible and high-quality 79 the only automotive plant to have its own port, which gives the company an important competitive advantage over its peers. production capability. Through the year, 388,410 vehicles were shipped from the Yeniköy Port, which is also among the first ports to receive a Our share in Turkey’s Green Port Certificate and ISPS certificate. total vehicle exports Commercial Vehicle Sales in Europe Rose 2.8% 27% Change (%)

COUNTRY 2015 2016 2017 2018 2019 United Kingdom 15.6 1.0 -3.6 -1.3 2.4 Germany 4.2 8.5 4.9 5.4 6.9 Italy 12.4 50.0 -3.4 -6.0 3.4 Vehicle and spare parts Spain 36.1 11.2 15.5 7.8 0.3 exported to France 2.0 8.2 7.1 4.6 4.5 Poland 16.9 12.3 2.0 12.8 1.5 96 Total 11.6 11.9 3.9 3.1 2.8 countries

Source: ACEA. Light commercial vehicle (up to 3.5 tons) sales. Data includes 27 European countries excluding Malta.

54 55 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

PRODUCTION AND CAPACITY KOCAELİ PLANTS – CAPACITY AND UTILIZATION (Thousand units)

2019 83% 440

2018 84% 440

81% CAPACITY UTILIZATION RATE EUROPE’S LARGEST COMMERCIAL VEHICLE 2017 88% 425 PRODUCTION BASE Although the domestic market kept shrinking, Ford Otosan 2016 82% 400 maintained high production levels due to strong export demand, The Kocaeli Plant, which was opened in 2001 with an initial with 369,027 vehicles rolling off the production lines. The annual production capacity of 40,000 Transit vehicles, Company operated at 81% capacity utilization rate overall on a expanded significantly with efficient, flexible and high quality 2015 81% 400 three-shift basis while this rate was 93% at the Gölcük plant. production. With the addition of Transit, Custom and Courier models, the capacity reached 400,000 units by 2014. Further to Capacity Utilization Rate In 2019, production was halted for 17 working days at the the capacity increase investments , the production capacity of Gölcük Plant for the planned maintenance and repair works. our Kocaeli plants rose to 440,000 units. Heightened demand Meanwhile, Yeniköy and Eskişehir Plants stopped production and shifting of production from other Ford centers to Ford BEST PLANT BY “FORD PRODUCTION SYSTEMS” for 27 and 32 working days, respectively, due to planned Otosan were two key factors in this growth trend. STANDARDS maintenance and repair works, collective vacation leave, inventory planning and similar reasons. With a lean production line layout and fully installed manufacturing system in parallel with Ford Production Systems (FPS), Ford Otosan enjoys the benefits of productivity and competitive edge. Ford Otosan plant complex was recognized as the best Ford plant in inspections conducted by the Ford of Europe FPS office. Ford began the shift toward the Global Ford Production Systems in 2011 by consolidating manufacturing processes and development under one umbrella. Accordingly, training of all Ford Otosan employees on Global Ford Production Systems started in 2012, and the system was deployed in the Gölcük and Eskişehir Plants in 2013.

Ford Otosan became the first company to implement the system within the ecosystem of Ford of Europe in this manners. The system was later deployed in the Yeniköy Plant in 2014. With quick and efficient implementation of the Global Ford Production Systems, Ford Otosan was recognized by Ford of Europe as the best plant to undertake this shift.

Share in Commercial Vehicle Share in Total Vehicle 77% Production in Turkey 25% Production in Turkey

56 57 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

HIGHEST COMMERCIAL VEHICLE 455,000 70,000 140,000 PRODUCTION CAPACITY IN EUROPE TOTAL CAPACITY

Vehicles Engines Rear Axles

Kocaeli Plants Eskişehir Plant 440,000 Units

Gölcük Plant Yeniköy Plant

330,000 Units* 110,000 Units

Custom Transit Courier Trucks Ecotorq Engines Panther Engines Transit Rear Axles 180,000 Units 160,000 Units 15,000 Units 14,000 Units 56,000 Units 140,000 Units

*The paintshop capacity of the Gölcük plant is 330,000 units and in this capacity, Transit and Custom production can rise up to 160,000 and 180,000 units respectively.

58 59 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

PLANTS AND FACILITIES

You can watch the film of our Kocaeli 60 Plants by scanning the QR code61 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

KOCAELİ PLANTS

GÖLCÜK PLANT The Gölcük Plant, opened in 2001, became the world’s leading Transit production center in 2004 thanks to its high Opened in: manufacturing quality, advanced technologies and skilled Turkish workers. The Gölcük Plant stands apart among global Covered area: 2001 Ford manufacturing sites for its exceptional quality standards, and has been recognized with numerous awards both at 340,000 m2 home and abroad for its environment friendly production. The plant’s proximity to supply industry and own port facilities give Ford Otosan logistical superiority. The facility houses Tool- and-Die, Press, Body, Paint and Assembly shops. Its Central Maintenance, Production Planning and Quality Assurance Annual production capacity: Departments provide common services to the entire facility. Total capacity: 180,000 330,000 units Custom The only “Lighthouse Factory” Units 160,000 among Ford facilities with its units Transit adoption of Fourth Industrial Revolution technologies.

2012 2014 2015 2016 2017 2018 2019

On July 23, production of the Production of the next Investments completed The second Plastic Paint Investments completed to Investments to increase the Transit facelifted. Serial new Ford models, Transit generation Transit at the 290,000 unit-capacity Shop opened at the Gölcük increase annual production annual production capacity production of Ford Transit Custom and Tourneo Custom commenced in January and Gölcük Plant with the Plant. Euro 6 Panther engine capacity of Custom vehicles of Custom vehicles from Custom Plug-in Hybrid, a – newly added to the Transit the vehicle rolled of the annual production capacity launched following the from 150,000 units to 170,000 to 180,000 units segment first, and EcoBlue family – commenced. production line successfully of Custom increased from introduction of new European 170,000 units. Production completed. Record level Hybrid models, manufactured during the year. With the 130,000 units to 150,000 emission regulations and capacity of the Gölcük Plant of production achieved at the Gölcük Plant and fully completion of investments units. first used in the Ford Custom increased from 290,000 units with 310,000 units. engineered by Ford Otosan, amounting to $850 million in model at the Gölcük Plant. to 315,000 units and Kocaeli Custom model facelifted. began. the Gölcük Plant for the new Plants to 415,000 units. Investments for Transit, Transit series, and opening of which will be renewed in Gölcük Plant, with its Industry the Yeniköy Plant, the annual 2019, were completed and 4.0 focused activities, named capacity of the Kocaeli Plants test vehicles were produced. a “Lighthouse Factory” by increased from 320,000 units Pre-manufacturing vehicles World Economic Forum to 400,000 units. were produced for the Hybrid (WEF). Electric Transit vehicle, slated for launch in 2019.

62 63 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

WORLD ECONOMIC FORUM Ford Otosan launched a transformation movement to prepare its employees for the factories of the future and began to GLOBAL LIGHTHOUSE NETWORK As a smart factory, Gölcük Plant began to use a enhance their skills through training programs on software, data “Manufacturing Information Systems (MIS) Platform. analytics and artificial intelligence, etc. This allows monitoring factory operations and vehicle production by gathering the data Ford Otosan also built a Vocational High School, which that affects over 700 stations from more features eight different automotive production stages, including than 1,000 data points. operational production stations and an Industry 4.0 laboratory, As the embodiment of the as a service to the community.

factory of the future, Ford 6% Increase in vehicle production capacity On the journey of INDUSTRY 4.0 and Otosan’s Gölcük Plant is hard As the data becomes trackable, data-based maintenance SMART FACTORIES that began in 2015, can be performed while continued quality is assured. Kocaeli Plants and New Projects were managed at work on its adoption of by a one team. In preparation for larger and more 47% Decrease in die manufacturing time Fourth Industrial Revolution comprehensive transformations in the future, management was split into two teams,

technologies since 2015. This » Roadmap created with Ford Otosan engineering New Projects and Operations, » Converting the data from all data generating with an organizational structuring in 2019. Increase in die manufacturing capacity work resulted in Gölcük Plant 31% equipment on site into trackable form » Forming decision making and support mechanisms by being named a “Lighthouse deriving value from data with Industry 4.0 applications. Factory,” making it the Improvement in employee engagement 45% only Ford plant and one of over 4-years the four automotive factories worldwide to join the list. Decline in robot breakdowns with 9% Robot Data Analytics System

Following a comprehensive scanning of more than 1,000 leading manufacturers in all industries and geographical areas Savings with predictive to identify lighthouses, World Economic Forum (WEF) selected $100K only 10 factories in 2019 to include in the “Global Lighthouse maintenance system Network”.

Decrease in electricity consumption 1.7% per vehicle

Reduction in spare parts consumption 4.9% for machinery and equipment The improvements achieved at Ford Otosan’s Gölcük Plant through digital production and advanced automation, without additional investment:

kWh/vehicle Reduction in compressor 1.3% power consumption 64 65 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

FORD CUSTOM: A SEGMENT-FIRST PLUG-IN HYBRID COMMERCIAL VEHICLE

» Zero-emission driving capability » No range anxiety » Simple charging 2020 International Van of the » No compromise to load volume and payload Year (IVOTY) Award » 13.6 kWh lithium-ion battery

PERFORMANCE

» Pure-electric driving range of 56km, zero-emission driving range » Over 500 km total range using petrol engine range extender

With four Selectable » CO2 emissions: 60 g/km » Fuel efficiency 2.7 l/100km EV Drive Modes, the vehicle CHARGING TIME enables the driver to use » Domestic 240-volt 10-amp power supply: 4.3 hours the battery option optimally. » Commercial type-2 AC vehicle charger: 2.7 hours

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YENİKÖY PLANT Yeniköy Plant ranks at the top among all Ford of Europe ESKİŞEHİR PLANT new 13-liter Ecotorq engines, with all intellectual property rights facilities with the best quality metrics since 2016. As a result owned by the company, will have a variety of applications Opened in: of the projects implemented, the plant has been achieving the Opened in: including heavy commercial, industrial, and marine segments. best energy efficiency levels per vehicle in the ecosystem of Eskişehir Plant is home to an R&D Center, an Engine Test Center, Covered area: 2014 Ford of Europe for the last three years. Covered area: 1982 a Test Track and a Prototype Development Workshop. More information is provided on pages 82 and 83 of this report. 122,000 m2 As part of the digital transformation activities, assisted by 118,000 m2 Industry 4.0 applications, processes to eliminate paper and Ford Otosan’s Collaborative Robot Project, implemented as part plastic waste from quality procedures were introduced in of innovation projects, is actively used at the Eskişehir Plant. support of our “Ecofriendly Factory” strategy. “Wastewater With the Robot Programming Training Center formed within the Recovery Project” was implemented to reduce water factory, competencies have been improved, enabling the design consumption. of short and basic programs at the plant. Annual production capacity: Annual production capacity: As part of the bench renovation plan, capacities and efficiency 110,000 units Courier Yeniköy Plant also ranks as Ford 15,000 70,000 140,000 within the Motor Area Factory continues to improve with better trucks engines rear axles regulation. of Europe’s best manufacturing (for Transit and (for Transit) trucks) The innovative solutions implemented in 2019 include the smart 2 site with 30 gr/m in VOC storage area, second level sub-assembly stations, machining Yeniköy Plant, Ford Otosan’s third factory, became the first plant quality data collection system supporting the smart factory to be built after 13 years in the Turkish automotive industry. (Volatile Organic Compound) Eskişehir Plant manufactures Ford Trucks (tractors, road infrastructure and high-tech measurement equipment. Completed in a record time of only 16 months, Yeniköy Plant trucks and construction series) in addition to engines and has been known for a number of “firsts”. It was the first and values in 2019. The activities engine systems for light and heavy commercial vehicles. With only plant in Turkey where the same project ran simultaneously, the investments made in 2014, the plant now has an annual The only plant in Turkey to including factory construction, end-to-end vehicle design, aimed at reducing chemical truck production capacity of 15,000 units. Furthermore, it can prototype production, and production lines. Yeniköy Plant’s produce up to 70,000 engines for trucks and Transit models manufacture vehicle, diesel proximity to supply industry and own port facilities, shared by materials and improving energy and 140,000 rear axles for Transit models annually. To date, the Gölcük Plant, give Ford Otosan an advantage in logistics. the Eskişehir Plant has manufactured more than 933,000 engine and powertrains in Yeniköy Plant is recognized as a “employee-focused,” innovative, engines and over 225,000 trucks and tractors. Ford Trucks, efficiency resulted in lower 2CO efficient, and lifestyle-enhancing manufacturing site with its manufactured at the Eskişehir Plant, aims to reach 81 export the same facility. accessibility for people with disabilities, environment friendly emissions by 34,000 tons. markets on three continents by 2024. Eskişehir Plant also approach, female employment ratio and occupational health happens to be Ford of Europe’s only manufacturing site that and safety practices. produces rear axles for Transit models. With the capacity The actions taken to reduce consumption of natural resources increase investment that began in 2018, Eskişehir Plant was The feasibility studies and engineering behind the at its office buildings earned Yeniköy Plant the Green Office able to export 70,000 axle pipes to North America. manufacturing of Ford Courier, which was designed entirely Diploma of the WWF-Turkey Green Office Network. by Turkish engineers, were completed by the Yeniköy Plant The assembly lines were upgraded with a new welding plant Project Team. Courier is Ford’s only commercial vehicle in the and paint shop to accommodate the production of the new B segment and is manufactured solely at the Yeniköy Plant for F-MAX tractor and are now delivering more effective, efficient export to 37 countries. and technologically advanced output. The massive line of welding robots installed on the welding line works with over In line with its vision of becoming Ford’s leading production 90% performance. The paint shop e-coat line was put into hub, Yeniköy Plant demonstrates technical, quality and operation with a versatile infrastructure and installation. It organizational excellence and continues to be recognized can process a wide range of products, including truck cabins, on various platforms for its achievements. At Ford Motor chassis arms for truck and Transit models and sub-assembly Company's annual “President’s Health and Safety Awards parts for Transit models. With the extended assembly lines, (PHSA)”, the Plant won first prize in the Industrial Hygiene, two different truck groups, such as FTruck and F-MAX, can be Global category for its “Flexible Fume Extraction System”. produced on the same line.

In addition to the Duratorq engines used in Transit vehicles, the Please scan the QR code to view the video Eskişehir Plant now produces the new Euro 6 compliant Ecotorq of Eskişehir Plant. engines following an investment of $100 million. Ford Otosan’s 68 69 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

FORD TRUCKS GROWTH STRATEGY INTERNATIONAL SALES DOMESTIC MARKET SHARES BY YEARS (Units) (%)

2019 3,003 2019 31.4

2018 2,200 2018 28.5

Local The Entire Sales and Product Line-up 2017 1,500 2017 27.7 Aftersales Revamped Network 2016 976 2016 28.1 Restructured Spare Parts F-MAX won 2015 1,008 2015 23.3 Distribution International Center for Heavy Truck of the Year Trucks Structured The New 1846T Commercial awards from as a Separate Tractor Vehicles Opened Russia, Austria Business Line Launched in Poland and Slovakia EXPORT MARKETS SALES AND AFTERSALES LOCATIONS

2011-2018 2019 2024 2011-2018 2019 2024 Europe 13 19 34 Europe 98 171 254

Africa 8 8 24 Africa 14 17 35

Middle East 9 9 13 Middle East 13 14 21

Russia and Eurasia 6 7 10 Russia and Eurasia 33 42 50

Total 36 43 81 Total 158 244 360 2011 2017 2013 2019 2016 2018 2010

Expansion into Production of Ecotorq F-MAX named Export Markets Engines, Completely International Began Designed by Ford Otosan Truck of the Year Engineers, Commenced

New Licensing and Expansion into Construction Engineering Western Europe Trucks Line Agreement began with Spain, Launched Signed with JMC Portugal and Italy

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SANCAKTEPE R&D CENTER SANCAKTEPE SPARE PARTS DISTRIBUTION CENTER Largest R&D Center of Strong performance Turkish automotive industry with 97% fill rate

With 45,000 m2 of total storage area including an indoor space Ford Otosan is Ford’s global engineering hub for heavy of 35,000 m2, Ford Otosan Spare Parts Distribution Center commercial vehicles and related diesel engines and engine is the largest facility of its kind in Turkey. It is the hub where systems. The company also provides core support for Ford’s Ford Otosan’s all spare parts, marketing, sales and aftersales light commercial vehicle design and engineering processes. operations are managed. Our center ranks fourth among Ford’s European spare parts distribution centers in terms of indoor Sancaktepe R&D Center was recognized and registered as space capacity and provides services to 147 dealers across an “R&D Center” by the Ministry of Science, Industry and Turkey and 62 dealers in 54 countries. The center has a 97% fill Technology in December 2014, becoming Ford Otosan’s second rate thanks to its effective parts management, a much higher “R&D Center”. Today, with 1,389 R&D employees, including figure than comparable Ford centers. The bonded warehouse 1,058 engineers, Ford Otosan “R&D Center” is the largest used for imported parts also contributes to operational organization in the Turkish automotive industry and an exporter efficiency. of engineering services. The level of engineering excellence and know-how, achieved and constantly enhanced with ongoing investments in R&D since 1961, has made Ford Otosan the A new spare parts distribution leader of service exports for the last four years. In 2019, Ford 2 Otosan won Turkish Services Exporters Association’s “Service center, spread on 1,000 m , Exports” award in the “Architecture, Engineering, Scientific and Other Technical Services” category. was opened in 2017 in Poland where storage and distribution Serving Serving Dealers in services are outsourced. The center, which serves the Ford The Voice Picking System, which 1,389 4 accelerates spare parts distribution Trucks aftersales service centers operations, improves efficiency and makes it easier for the workers to 147 54 in Europe, aims to improve pick the orders, is used at the Ford Otosan Spare Parts Distribution R&D Employees Turkey’s Leading lead delivery times of spare Center as a first in Turkey. With the Exporter of Services implementation of sustainability Dealers in Turkey Countries parts and increase customer practices, approximately 40% of the warehouse is heated by solar energy satisfaction. with “Solar Wall”. There are also plans for 2020 to use two autonomous Please scan the QR code to view the video of Sancaktepe R&D Center. The spare parts distribution center in Poland offers fast delivery vehicles (Automated Guided Vehicle option for urgently needed parts with delivery guarantee within - AGV) developed by Ford Otosan, 24 hours. We export parts to 17 countries via Poland and to 54 including equipment and software, countries in total through all of our spare parts distribution to transport the products within the centers. warehouse.

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SUPPLIERS Industry 4.0 Activities with Manufacturers Preparing a Common Culture Code in Collaboration The company collaborated with Ford Global to determine the with Ford Otosan and Its Suppliers ‘Ford Manufacturers Industry 4.0 Assessment Criteria’ that will Work on drafting a Common Culture Code, which will provide a enable monitoring the Industry 4.0 activities of Ford Otosan’s reference source that Ford Otosan and its suppliers will use as manufacturers and gathering all manufacturer activities in a a guideline for the ‘business partnership’, began in 2019. For this single place. Ford Otosan manufacturers’ Industry 4.0 activities purpose, one-on-one meetings and workshops were conducted were studied and eight of these were found to meet the criteria. with suppliers and Ford Otosan employees. The plan for 2020 The target for 2020 is to offer training programs on Industry 4.0 is to finalize the draft of the Common Culture Code and move to Turkish automotive industry’s competitive position stems from a Sustainability to all Ford Otosan manufacturers. the deployment phase. network of well-established and experienced suppliers. As one Sustainability in every sense lies at the core of our relationship of the first automotive manufacturers in Turkey, Ford Otosan with our suppliers. We address sustainability under four main Establishing a Purchasing Office for Ford of Europe Ford of Europe began to move has always supported the development of numerous suppliers headings: in Turkey to help them reach their current levels and also assisted some This would enable providing Ford Motor Company with sourcing its purchasing operations of the leading global suppliers in their investments in Turkey, » Competitive pricing and continuous productivity support for passenger car production by taking advantage of either directly or by establishing partnerships. » Continuity of quality, manufacturing and supply the effective supplier network in Turkey, and also create synergy from India to Ford Otosan » Financial strength and health by increasing the ratio of local content in commercial vehicles. Sancaktepe offices in 2019 and Localization » Technical/commercial support for new projects Localization is one of the most important areas where completed the moving process we directly and indirectly add value. Some advantages of Supplier agreements are generally designed to be valid until localization for the company and the country are: the vehicle in which the relevant parts or products are used is in January 2020. discontinued. Ford and Ford Otosan expect the suppliers to » Cost benefits (unit price, shipping, storage) fully comply with the global Ford Q1 certification criteria that » Increasing the capacity utilization of our local suppliers to help demonstrate their commitment to sustainable processes and them become more efficient businesses operations. » More employment » Reducing the exchange rate risk in our vehicle costs Ford Otosan Purchasing Platform » Managing any sudden changes in production more This platform, which will digitalize all end-to-end purchasing conveniently and at lower costs processes, is designed to advance the process with real- » Favorable position in domestic official purchases with higher time data entry and approval from the internal (Purchasing, locally made content Engineering, Material Planning/Supply, Financial Affairs) and » Important advantage in sourcing and pricing spare parts external (Supplier) stakeholders that are part of the process. In all of our subsequent or parallel processes, The company holds domestic goods certificate for its products. We aim for: Today, many product groups used in our vehicles are supplied from domestic sources as we constantly develop new projects » Accessible information for all (Corporate memory), to increase our localization ratios. The localization of the entire » Transparency and traceability at every stage, value chain, not only the end product, is our ultimate goal to » Mobile and electronic approvals, maximize added value. » E-signatures instead of original signatures, and » Systematic standards and discipline with measurement and Our strategic priority is to maintain and improve our localization reporting of all processes. ratios by increasing the share of locally sourced or produced electronic components, which gain prominence with new In 2019, strategic priorities were identified and set in line with technologies, as well as developing lighter and more durable the purchasing strategy and vision. Transformation work new materials. Accordingly, we support the development of commenced with the vision of eliminating processes that do not local suppliers that bring new technologies to Turkey and align with the priorities, where possible, and simplifying them foreign suppliers that invest in our country. with a lean approach. The first step of the redesigned process, which adopted a user-friendly, trackable, guiding and total benefit approach, was implemented.

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R&D

ESTABLISHED R&D CULTURE Ford Otosan has all

Ford Otosan’s Product Development Department kicked off the the capabilities and first R&D activities in the Turkish automotive industry in 1961, producing Turkey’s first domestic passenger car, Anadol, in 1966 infrastructure required to and launching the first locally developed and produced diesel design, develop and test engine, Erk, on to market in 1986. Ford Otosan’s first major project following the establishment of the equal partnership a vehicle in its entirety, with Ford in 1997, was Transit Connect, a model designed and developed in-house, and its production started in 2002. The including the engine, Ecotorq engine, designed from scratch, and the new Cargo truck that used this engine, went into production in 2003. Over the from scratch to product. years, similar projects followed these pioneering works, as the R&D function of Ford Otosan reached global automotive R&D center status with many firsts to its name.

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The company employs cutting-edge technology to offer TRANSIT COURIER, EMBODIMENT OF FORD F-MAX: 2019 INTERNATIONAL TRUCK OF THE YEAR by Ford Otosan within the framework of the technology license competitive products developed by a highly-skilled R&D OTOSAN DESIGN AND TECHNOLOGY agreement with JMC for the production of trucks, including workforce not only for Turkey but also all potential export In 2018, Ford Otosan launched its new tractor F-MAX, designed the engines. Those trucks were developed entirely by Turkish markets, including Europe and North America. Ford Otosan started producing Ford Transit Courier at its by 1,200 R&D employees, with 500 PS power, 2.5-meter cab engineers. The vehicle won the “Truck of the Year” award in China. Yeniköy Plant in March 2014 after successfully completing all width, and advanced technologies. Developed to operate even THE LARGEST R&D ORGANIZATION IN THE TURKISH engineering, prototyping, and plant construction and production in extreme conditions as the culmination of five years of hard R&D PROJECTS SUPPORTED BY AUTOMOTIVE INDUSTRY work within 40 months. Courier, fully engineered by Ford work, F-MAX was tested in 11 countries across four continents INTERNATIONAL FUNDS Otosan, is Ford’s first B-platform light commercial vehicle. for 5 million kilometers. F-MAX won the International Truck Ford Otosan has the largest R&D organization in the Turkish of the Year Award at the IAA Commercial Vehicles 2018 in Ford Otosan is a project partner to many European Union- automotive industry, exporting engineering services with 1,389 ECOTORQ ENGINE FAMILY Hannover, where it made its world debut. Developed by Turkish funded research projects, particularly the Horizon 2020 program R&D employees. As part of the ongoing research and product engineers with a focus on the future technologies, F-MAX funding. Together with leading teams of the industry and related development activities for Ford Motor Company and Ford Developed entirely by Turkish engineers in as little as four years, is Ford’s first heavy commercial vehicle with ConnecTruck technological fields, Ford Otosan teams work on a wide array Otosan, several projects in different scales are carried out on the new generation Ecotorq Eu6 engine family won the Grand connectivity, which enables functions such as map-supported of R&D activities including software innovations, development engine and powertrain systems, interior and exterior body, Prize at the Technology Awards organized by Turkish Scientific cruise control, remote diagnostics and over-the-air software of control systems for optimum emissions in heavy service chassis systems, and electrical and electronic systems of the and Technological Research Council (TUBITAK), the Technology updates. vehicles, exploration of recycling opportunities for the precious vehicles. Following the technological transformation in the Development Foundation of Turkey (TTGV), and the Turkish metals used in the automotive industry, modeling and testing automotive industry, and in addition to conventional automotive Industry and Business Association (TUSIAD). Ford Cargo Trucks, Ford Otosan’s R&D engineers are currently working on Turkey’s of electric vehicles and their components, development of products and services, advanced R&D studies are carried out equipped with new generation Ecotorq engines, compliant with first locally developed transmission, which will be installed in autonomous vehicles, development of programmable systems on a wide array of topics including reduction of CO2 emissions, Euro 7 emission standards are manufactured in the Eskişehir Ford Trucks vehicles in 2020. for smart vehicles, automotive applications of visible light connected vehicles, autonomous vehicles, electric vehicles and Plant since 2016. communication, and 5G technologies for assisted, connected electrification as well as light vehicle technologies. Investments In 2018, Ford Otosan signed a collaboration agreement with and autonomous mobility. in the R&D infrastructure also continue. DURATORQ ENGINE FAMILY AVL List GmbH to develop the platooning technology to be used in F-MAX trucks. The objectives of the technology that will LEADER IN ENGINEERING EXPORTS Duratorq Motor Family, engineered by Ford Otosan, is used in emerge from this collaboration are reducing fuel consumption F-MAX, developed by Turkish several Ford vehicles, including Transit, Transit Custom, Ranger, and carbon dioxide emissions, and improving driving safety in Ford Otosan, Turkey’s export champion, won first prize in Everest, and Territory models. The five-cylinder Duratorq, the heavy commercial vehicles used in intercity transportation. engineers by focusing on the the “Architectural, Engineering, Scientific & Other Technical first engine developed by Ford Otosan for Ford, powers the new Services” category of the “Turkey’s Top 500 Service Exporters Ford Ranger, and Transit models manufactured for the U.S. technologies of the future, 2019” survey by Turkish Exporters’ Assembly (TIM), confirming market. Please scan the QR code to view its leadership in engineering exports for the fourth consecutive the platooning video. won the International Truck year. Our total engineering exports since 2010 reached $ 697 ECOBLUE ENGINE of the Year Award. million. The core design and development phases of the new 2.0L ANOTHER FIRST FROM FORD OTOSAN: EXPORTING Ford Otosan has launched numerous different projects, EcoBlue diesel engine were carried out by the Ford UK and TECHNOLOGY AND ENGINEERING TO CHINA including the Euro 6-compliant Global Duratorq engines Ford Otosan teams working at the engineering centers for Ford used in Transit, Custom, Ranger and Everest models, and the of Europe. Production of the new 2.0L EcoBlue diesel engine, FIn 2013, Ford Otosan marked another first by signing a premium diesel engine with a sequential twin-turbocharger which replaced the 2.2L Duratorq TDCi engine used in Transit technology license agreement with China’s Jiangling Motors used in vehicles such as the Mondeo, Edge, S-MAX, and Galaxy. and Custom models began in 2018 at the İnönü Plant. Besides Corporation Limited (JMC). This agreement allows production Calibration of the Euro 6.1 and Euro 6.2-complaint diesel its quietness, the new engine also delivers higher torque and of Ecotorq engines, whose intellectual property rights belong to engines used in the new models of Ford Fiesta, which ranks power at low engine speeds and lower fuel consumption. Ford Otosan, by JMC in China (the world’s largest truck market). among Ford Motor Company’s most popular models, is an EcoBlue engine has an architecture that is compatible with the In 2014, another license agreement was signed with the same excellent example of the projects undertaken by Ford Otosan new emission limits expected to be introduced soon. In addition company for the technology used in the chassis, cabin, and engineers. to Transit vans, this engine can also be used for many years in components of the current truck models. This agreement C/CD type passenger cars (Focus, Mondeo, C-Max, S-Max and enables Ford Otosan to export engineering services to China in Galaxy), which are among the models that Ford Europe, Ford addition to generating license revenues. Ford Otosan engineers America and Asia Pacific all sell, as well as in all diesel versions work with engineers from JMC to localize existing parts, adapt of certain pickup trucks (Ranger / Everest). these to Chinese market conditions, and then deploy them. The launch of “JMC Weilong” trucks was completed in 2017 in Ford Otosan is the only Turkish company capable of designing China, is the world’s largest truck market. Trucks were designed the whole vehicle including the engine, and interior and exterior looks.

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A PIONEERING DEVELOPMENT CENTER IN THE R&D AND TEST CENTERS FORD MOTOR COMPANY UNIVERSE

An Engineering Hub for Heavy Commercial Vehicles and Their Diesel Engines

GÖLCÜK SANCAKTEPE ESKİŞEHİR

Gölcük is home to engine and vehicle Sancaktepe is Turkey’s largest Eskişehir facility is home to an engine test facilities and an exhaust gas automotive R&D center, which operates test center, prototyping workshop, a Ford filtration systems laboratory. Light and with engine and vehicle development Cargo special vehicle engineering center, medium commercial vehicle and engine teams, and features a design studio, and and heavy commercial vehicle and 2002 2007 2012 2016 2018 systems are also developed here. augmented virtual reality (CAVE) and engine development sections. Cargo Cargo Cargo Cargo - New Platform/ F-MAX hardware-in-the-loop (HIL) software New Engine development chambers. The Material Analysis Center launched in 2019 within Sancaktepe R&D Center conducts Light Commercial Vehicle Design and Engineering Hub Material Characterization and Damage Analysis studies.

GÖLCÜK TEST CENTER

2002 2009 2013 2014 Engine Test Center Exhaust Emission Systems Vehicle and System Connect North America Connect New Connect Courier Test Center Testing Center

2013 2014 2014 Recognized with the Automotive The first Ford facility of its kind in Endurance and functionality tests of Diesel Engine Design and Engineering Center Testing Technology International the world. Ford Otosan engages in vehicle parts and systems are carried Magazine’s “2013 Engine Test Center R&D studies on the exhaust systems out according to the scenarios that the of the Year” award for its innovative used in its vehicles to help reduce customers can experience. The multi- Lion V6 DV5 14 DW10F14 approach, superior technology, and the release of unwanted emissions axis shaking table in the facility simulates 3.0L 210 PS Lion V8 1.5L 120 PS 2.0L 210PS 4.4L 313 PS efficiency. to nature. the data collected from the road. Tests, Land Rover, Fiesta, Focus, Mondeo, Edge, such as thermal aging, cold start and Jaguar, PSA Land Rover C-Max, Kuga S-Max, Galaxy 2017 2018 lifetime tests of the frame systems, can Infrastructure upgrades were As part of the development be conducted in the climatic laboratory, 2010 2011 2013 2014 2018 completed, and the two engine test efforts for ecofriendly exhaust which provides extreme climatic cells were tailored for petrol and LNG systems, different exhaust models conditions of up to 90 percent humidity 2012 2016 engine tests for safety purposes. were created and deposit dosing between -42˚/+85˚ C. Thanks to the embedded electronic control systems Lion V6 Lion V8 Puma Global Puma 14 Ecotorq EcoBlue algorithms were developed. infrastructure, fatigue cycles of the 2.7L 190 PS 4.4L 333 PS Upgrade 2.2 L 160PS EU6 2018 As a first in Turkey, Euro-6D emission chassis and frame parts are performed Land Rover Land Rover Transit, Custom, Transit, accreditation was obtained for in a dynamic force-controlled manner. Ranger, Everest Custom, commercial vehicles. Energy efficiency Performance tests of mechanical fittings Ranger, was improved with the fully digitalized are carried out with a special pneumatic Everest facility infrastructure. system and software. 80 81 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

ESKİŞEHİR TEST CENTER

Prototype Engine and Engine Test Center Vehicle and System Testing Center Eskişehir Vehicle Test Track Single-Cylinder Research Engine Powertrain Systems Testing Center Transmission Assembly Center 2014 2014 2016 2016 2018 2013 This Center is the first facility in Turkey This 1,250-m2 area was designed to The 61,365-square meter facility is the In the laboratory with two modules This is the first test center capable This center is where all prototype that is capable of testing 13-liter and assemble, dismantle and check nine first and most comprehensive test track including an optical module where a of conducting heavy commercial engines for Ford Otosan projects are larger engines. The Engine Test Center heavy commercial vehicles concurrently. in Turkey. Vehicle endurance tests are combustion image up to 110 bars of in- transmission tests in Turkey. produced. Engines can be assembled provides services to the global Ford carried out on the track, which have cylinder internal combustion pressure Transmission test systems are the only concurrently in six stations. All organization and conducts development special surfaces. The tracks are also can be captured and the high-pressure example in Europe in terms of test information required to design all and strength tests in five chambers on used for design development activities, module where tests up to 310 bar in- methodology. Two new transmission equipment used in the assembly and Ecotorq engines, which meet Euro 6 which improve vehicle characteristics like cylinder internal combustion pressure test chambers were built, and the dismantling of the engines is available. standards in. Besides engines, vehicle vehicle dynamics, driving comfort, and can be performed, basic research can existing two engine test chambers were All collected data is monitored instantly exhaust and urea systems can also be cabin noise levels. A special section is be carried out for engines with a 1-2.5 converted into the transmission test via computers. Before the assembled tested. This center can also evaluate dedicated to testing smart drive support liters/cylinder unit cylinder volume. chamber. The chambers were designed engines are shipped to different vehicle-level exhaust gas filtering systems. Static cabin crash tests of The laboratory and the single-cylinder flexibly for conversion, allowing engine locations, they are hot tested and then systems, as it has closed circuit cooling the heavy commercial vehicles can be research engine, which allows for or transmission tests to be performed signed off. The Center also supports the towers for productivity and sustainability. performed at the facility. Since late 2019, advanced emission measurements depending on the requirement. global Ford organization. Life tests of Since the entire building is equipped payload tests can also be tested in heavy of different combustion mechanisms, These chambers also enable testing uniaxial joints can also be performed at with state-of-the-art technologies, it can commercial vehicles. alternative fuels, and combustion of clutches, clutch linings and gear the Center. be accessed from different locations to system equipment, were designed and systems, as well as VECTO (efficiency) examine the requested data. Engine tests developed by Ford Otosan teams with simulations. Since 2017, transmissions of heavy can be conducted with remote access local cooperation. commercial vehicles can be assembled while the infrastructure is monitored by and dismantled. The existing prototype an automation system. assembly stations, with their flexible structures, are at a level to assemble Since 2018, the test chambers are different prototypes when needed. capable of testing at “sea level” conditions, thanks to special equipment. Testing capabilities of the three test chambers have been improved, as the Center can now conduct tests that resemble to those of emissions.

In 2019, technological infrastructures have been put in place to perform alternative fuel (CNG, LNG) applications in heavy commercial vehicle engines.

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INNOVATION

commercial vehicles as a first. The power generation product Ford Otosan also builds key bridges between Ford and Ford range, developed for industrial engine applications with the Otosan by holding meetings with Ford Motor Company's engineering strength of Ford Otosan, was used in the products mobility, data analytics, design, connected vehicles and cloud of Teksan, a leading power generator company in Turkey, and technology units. launched on to the market. Work on developing marine engine, At Ford Otosan, we regard innovation, entrepreneurship, change Ford Otosan Innovation Program natural gas engine and public transport bus engine as main and Gembox Teknoloji Girişimleri A.Ş. – Driventure management and open innovation as cornerstones on the path Ford Otosan Innovation Program is a brand new innovation auxiliary motors is ongoing to complement the industrial engine In 2019, we founded Gembox Teknoloji Girişimleri A.Ş., a venture toward our vision. In 2019, Ford Otosan Innovation and New process where idea owners can personally implement their product family. capital company. At Gembox, we will take advantage of the Ventures Directorate was established to spread the innovation ideas. The idea owner, called ‘Fikirbaz’ can turn into an “In- ideas born from our in-house entrepreneurship efforts. We will culture across the entire organization and to encourage House Entrepreneur” in this process. For each highlighted Joint Activities with the Startup Ecosystem also aim to build dynamic connections with the startups in systematic value generation. Meanwhile, training programs and project, Idea Maturation Teams (FOT), including the idea in Silicon Valley Silicon Valley, and Turkey-Europe-Middle East ecosystem in seminars continued throughout the year to promote innovation owner, are formed and a rich “Corporate Entrepreneurship” Ford Otosan assigned an employee to a project conducted by order to develop joint projects and/or create greater strategic and digitalization culture within the company. training program is delivered to these teams. The process is the World Economic Forum (WEF) on Autonomous Vehicle value for our company by investing in them. supported by external consultants who specialize in Corporate Technology and Regulations at Ford’s Palo Alto facilities with Ford Otosan Innovation Portal ‘Fikirhane’, the Entrepreneurship. the objective of closely following the ecosystem in Silicon Demo Day ’19: Meeting Point of Ideas Designing the Future Valley, the place where groundbreaking innovations in smart Ford Otosan Demo Day, featuring 19 open innovation activities Ford Otosan Innovation Committee has defined our priority mobility come to life. To make the most of this opportunity, we and organized in cooperation with İTÜ Core (İTÜ Çekirdek) to areas as Digital Transformation, Smart Production, Customer have assumed an active role in efforts that drive the industry build a bridge with the entrepreneurship ecosystem, was held Experience, Connectivity and Autonomous Truck. and shape the future of technology in the “Autonomous & at Sancaktepe R&D Center. 13 initiatives with focus areas in Mobility” groups at the center established by WEF for Industry connected vehicle technology, electrification, smart mobility, Ecotorq Engine Series: Power Generation 4.0 since March 2019. This has given us a chance to meet more image processing technologies and material development ‘Fikirhane’ (Idea House) is Ford Otosan’s new Idea Management Product Range than 15 Fortune 500 companies, over 10 Investment Funds and technology, etc. were invited. In the plenary session, entrepreneurs System. Idea Management System is a communication software The locally produced Ecotorq 9L and 12.7L diesel engines, Corporate Investment Funds, and more than 10 Acceleration had the opportunity to present their projects and value propositions that allows employees to share their ideas and monitor their with intellectual and industrial rights wholly owned by Ford and Incubation centers about an initiative that creates more to Ford Otosan employees and stakeholders of the Koç status, and enables liking, commenting on and discussing these Otosan, are manufactured for Ford Trucks since 2016. In 2019, than 40 end-technology initiatives on “Autonomous freight Innovation Program. Following the presentations, the judges ideas with the owners and system administrators. Ecotorq engines were used in an industry other than heavy transport”. scored the entries and then selected the winner of the day.

DIGITAL SMART CUSTOMER AUTONOMOUS CONNECTIVITY TRANSFORMATION PRODUCTION EXPERIENCE TRUCK

It involves development of products Digital transformation means utilizing Smart production involves transforming Mobility preferences of customers are Connectivity means interaction of with advanced technologies such as digital tools and methods intelligently the existing processes at Ford Otosan changing as online communication vehicles with one another and with the advanced detection systems, cyber and sustainably to create efficiency and facilities to become more competitive channels are spreading fast and wide. urban infrastructure as part of a wider security systems, automated tests, value. Digital transformation is a direct and flexible by leveraging smart and The objective is to design applications transportation ecosystem. It involves aerodynamic gains via platooning, and enabler of other innovation fields. efficient production, material, planning such as mobile service, innovative dealer a wide range of on-board and external high-def mapping, and bringing new and logistics systems. It brings together and aftersales service organizations, connection systems such as navigation, solutions to the logistics sector with technologies such as “Internet of vehicle and ride share by considering smart engine systems integrated with these products. Things”, “Smart Factories”, “Cyber/ before, during and after purchasing mobile communication channels, Physical Systems” and “Industrial processes. fleet management systems, and Internet”. infotainment systems. 84 85 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

DIGITAL TRANSFORMATION integrated predictive maintenance into our energy monitoring We also introduced 32 new features in our iDEAL project at our and warning system that enabled us to monitor energy dealers. The fast, accurate and innovative services we deliver consumption. We also reduced the number of line stops and helped us improve dealer and customer satisfaction. increased efficiency. We added new digital processes to our FOCEP app, which With the smart scheduling project, which leverages instant data enables our employees to perform their routine corporate from the production lines, we began using artificial intelligence procedures on the mobile platform. By digitalizing processes in our line planning, achieving over 7,000 hours of efficiency such as toll collections and travel requests, we made the lives We regard digital transformation as the key to improving our Ford Otosan Began To See Results of Digital annually. of our employees easier. business, creating new job opportunities and achieving our Transformation In 2019 vision. We categorized our digital transformation activities for production lines by bringing information about the vehicle The smart service catalog project that we deployed in aftersales Furthermore, our new employee communication portal went under five headings to encompass our entire value chain that the operator is working on to connected digital, wearable service locations enabled us to display all parts with 3D images. live with new features to facilitate communication among including dealers, customers, suppliers, employees, design and screens. This resulted in saving paper worth TL 1 million. This resulted in improved customer satisfaction and service employees and a new user interface enabling access to all apps production. In 2019, we followed the roadmap that we created efficiency by ensuring that the right part is used in the right from a single screen. by reviewing our existing processes and systems, continued to We digitalized our energy management system. We installed vehicle in the right way. work on our projects without slowing down, and began to get a system at Kocaeli Plants that allowed us to see total energy With our investments in Robotic Process Automation (RPA) the results we anticipated. consumption instantly, and we also achieved 1.3 million kW We moved forward with our “one big factory” concept with systems, we fully automated 21 processes, which resulted in efficiency in our energy consumption by leveraging analytics. We our predictive smart inventory and parts order project by 8,000 hours of efficiency. interconnecting our own systems with the systems in the plants of our suppliers.

CONNECTED CONNECTED CONNECTED CONNECTED CONNECTED CUSTOMER & MANUFACTURING SUPPLY PRODUCT EMPLOYEE DEALER CHAIN

We analyze our customers’ demands We digitalize production around We transform the way we design. We provide a digital workspace for our We connect our suppliers to our central 24/7 and offer customized products and Industry 4.0 employees. data and management system for just-in- services. We analyze customer feedback and use time ordering and minimum inventory We gather and process all IoT and the information to develop new products. We make the necessary infrastructure We centralize all our dealer operations production data on a single Big Data available for all our employees to operate We implement digitalization projects in and connect them to our centralized CRM platform. With connected vehicles, we focus on the in mobile systems. our storage and logistics systems. system. collected data and value-added services. We predict potential quality issues and We analyze employee data and use data Production is continually and dynamically We collect customer complaints and adopt a proactive approach. We simplify process with a lean approach analytics for improved satisfaction and re-scheduled to accommodate all factors. product reviews dynamically, and update and move them to the digital medium. retention. our designs accordingly. Production is continually and dynamically re-scheduled to accommodate all factors. We work to centralize company We build better decision making We empower the field sales force to sell in information and make it accessible. mechanisms by feeding the learning mobile channels. We leverage predictive maintenance to systems with our employees’ long years of ensure machines are maintained before knowledge and experiences. We change the customer journey radically. they break down. We create opportunities for each and We predict dealers’ next orders by model every employee to provide creative, and quantity using our data. effective and productive contributions by automating routine procedures without any added value.

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90 Sustainability Practices

91 Environment

91 Quality

91 Occupational Health and Safety

92 Ethics

94 Human Resources 96 Corporate Social Responsibility Sustainability

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SUSTAINABILITY PRACTICES ENVIRONMENT QUALITY

In addition to our vehicle emission reduction targets, we also Total Quality Department supports all business processes SUSTAINABILITY REPORTING SUSTAINABILITY COMMITTEE adopt a responsible production approach in our own operations that start and end with the customer. Our main philosophy is and encourage our suppliers to follow suit. We integrate to improve the entire customer experience that Ford Otosan Ford Otosan, the powerhouse and technological pioneer of the Ford Otosan’s Sustainability Committee, formed in 2015, reports digitalization and innovation into our business processes and and its authorized dealers deliver starting from the moment a Turkish automotive industry, is fully committed to responsible to the Board of Directors and is focused on aligning Ford Otosan invest in projects that create efficient and smart production product is purchased. business and adheres to universal principles of sustainability. with the United Nations Sustainable Development Goals. processes. We have aligned our business with United Nations Sustainable Development Goals and work continuously to improve our The Committee’s roles and responsibilities include: We prioritize environmental and energy management to combat For more information on our Quality Policy, sustainability performance. Our sustainability efforts are global climate change. We also support work toward United please scan the QR code. presented in the Annual Report and in more detail in the » Preparing Ford Otosan’s “Sustainability Strategy and Policy” Nations Sustainable Development Goals with various activities. Sustainability Report. » Creating a “Sustainability Roadmap” These include: Responsible Consumption and Production » Ensuring that the sustainability strategy, policy and objectives (Goal 12) and Climate Action (Goal 13). By focusing on energy Ford Otosan prepares its Sustainability Reports within the are communicated to all stakeholders efficiency, we continue to reduce greenhouse gas emission guidelines of the Global Reporting Initiative (GRI) and in » Making sure that necessary training is provided, monitoring levels year on year in line with our targets. Life Below Water and accordance with the core option of G4 Sustainability Reporting all procedures, activities and practices are properly executed, Life on Land (Goals 14 and 15). We aim to drive urgent action Standards. reporting relevant data to combat climate change and its impacts (Goal 13). We also support reduction of carbon footprint (Goal 13) and ensuring Our Sustainability Reports are available at Ford Otosan is a constituent of BIST Sustainability Index and Responsible Production and Consumption (Goal 12). www.fordotosan.com.tr. FTSE4Good Emerging Markets Index. We manage our products and services in accordance with ISO 14001:2015 Environmental Management System and ISO 50001 OCCUPATIONAL Energy Management System. We also require our suppliers to hold ISO 14001:2015 Environmental Management System HEALTH AND SAFETY certificate as a prerequisite of working with them to manage our indirect environmental impact. We aim to create a safe and healthy work environment by meeting all legal and business requirements related to In 2019, the company implemented 11 energy efficiency-related occupational health and safety. Ford Otosan is committed to projects across all its sites. identifying and defining the potential occupational health and safety risks in the workplace, and implementing and reviewing With the Green Office program, events were organized to raise objectives and programs associated with these risks. environmental awareness while the measures taken included elimination of single-use plastics. For more information on our Occupational Health and Safety Policy, please scan the QR code. For more information on our Environmental and Energy Policy, please scan the QR code.

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ETHICS

In all its business and operations, Ford Otosan adopts the ANTI-CORRUPTION POLICY principle of adhering to the laws, the international conventions that Turkey is a party to, United Nations Global Compact, and Ford Otosan adopts a zero risk approach to fighting corruption. acting truthfully with integrity, accountability and transparency. The Anti-Corruption Policy and the procedures and instructions Implementing these principles requires the individual introduced as part of this policy are defined with this approach. commitment and accountability of each Ford Otosan employee No acts of bribery, corruption or abuse, , in favor of or against in terms of these high standards of integrity. This principle, the company, no matter how big or small, will be tolerated. which Ford Otosan has upheld since its establishment, was officially declared as part of the company’s Code of Ethics, The employees are provided information about Ford Otosan’s which became effective in 2018 following its approval by the anti-corruption methods and processes during anti-corruption Board of Directors. Ethics Committee, Internal Control and trainings. To date, 3,345 office employees have taken “Anti- Ethics Committee, and Ethical Evaluation Board were formed Bribery and Anti-Corruption Training”. Ford Otosan values the with the redesigned governance structure to ensure compliance importance of ensuring that all individuals and organizations with the Ethics Policy across the Company. In addition, the that have a business relationship with the company to carry office of Ethics Coordination was established for effective out their activities in accordance with Global Compact and handling and monitoring of the reported ethical violations. ethical rules. In addition to our employees, our suppliers also participate in Ford Otosan Anti-Corruption Training programs. This has enabled coordination and handling of all reported In 2019, our ethics policy was shared with our dealers and ethical violations from single office, and an ethics reporting line, suppliers with the aim of supporting our business partners to an ethics reporting email address and an ethics communication sustain their values and emphasizing Ford Otosan’s ethical form were added to the existing reporting channels. To ensure values. compliance with its Code of Conduct and Ethical Rules, Ford Otosan regularly informs Board members, employees and To ensure that the Code of Conduct and Ethical Rules are representatives acting on behalf of Ford Otosan about these implemented, Ford Otosan informs its employees and also principles and guidelines. Ford Otosan also takes all claims of measures their knowledge levels annually. violation very seriously, investigates them thoroughly, and if a In 2019, 30 different communication activities were carried violation is determined, implements the necessary sanctions, out to inform field and office employees about Ethics and takes remedial actions, and introduces necessary updates and Compliance and to raise awareness across the company. improvements in the Code of Conduct and Ethical Rules in accordance with current requirements. During the internal control and audit activities within the reporting period, no materially significant situation in violation Number of reported incidents and the results of the of regulations or company policies related to bribery and investigations in 2019 are provided in the following table: corruption risks was found in business operations. Similarly, no materially significant negative situation regarding bribery Number of Incidents Reported to Ford Otosan’s and corruption was observed in the current dealer and supplier 65 Ethics Communication Channels operations.

Number of Disciplinary Actions on the Reported Incidents 24

For more information on our Anti-Corruption For more information on our Ethics Policy, Policy, please scan the QR code. please scan the QR code.

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HUMAN RESOURCES

Ford Otosan has a total of 10,899 employees, of which 24% are TRAINING HOURS BY EMPLOYEES salaried employees and 76% are hourly employees. To ensure healthy and robust talent management, we aim to attract the right people to the right positions within our company Office 51 and to unlock their potential through effective training and development opportunities. We also support our existing talent Field 54 with the principles of diversity and inclusiveness, which are part of our corporate culture and business conduct. Overall 53

FEMALE – MALE EMPLOYEE RATIOS

Office

Female Male 27% 73%

Field

Female Male 12% 88%

EDUCATION LEVELS EDUCATION LEVELS Field Employees Office Employees

Overall Graduate 0.1% PhD 1.3%

Female Male Undergraduate 2.5% Graduate 27.8%

16% 84% High School 71.2% Undergraduate 65.7%

Vocational High School 19.5% High School 1.7%

Middle School 6.1% Vocational High 3.4% For more information on Human Resources, School please scan the QR code. Elementary School 0.5%

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CORPORATE SOCIAL RESPONSIBILITY DIVERSITY AT FORD OTOSAN “DREAMS NEED KNOWLEDGE” PROJECT

Ford Otosan published its diversity policy in 2019 as a We partnered with Young Guru Academy (YGA) and sign of its focus on respecting human rights. Twin, and launched “Hayaller Bilgi İster” (“Dreams Need Knowledge”), a project that aims to make big dreams More information on our Diversity Policy is available come true rather than just chasing after dreams. YGA under the Policies section on our website. provides a basis for conscientious and well-informed, In addition to contributing to the economic development of the DESIGNING THE FUTURE FOR MY COUNTRY trained young people to create projects to benefit country and increasing its global competitiveness, Ford Otosan humanity and to find viable solutions to social issues also carries out a number of social responsibility projects in This project was launched under the leadership of Koç Holding through innovation. On the other hand, Twin, which many fields including education, healthcare, culture, arts and in 2019 with the goal of building a meaningful future for our WOMAN EMPLOYEE RATIO IN TOTAL produces fun and instructive robotics and coding sets sports on the path to achieving the Sustainable Development world, community and people. We are already taking steps WORKFORCE 16% to stimulate and develop children's imagination, is an Goals in line with its corporate citizenship approach. toward a better, equal and more inclusive future to serve us important brand focused on ensuring that every child all. We are the ones that will seize the opportunities that Our company policy stipulates that 1 out of 4 employees hired has access to science and creating equal opportunities in technology provides and design the future we want to reach. for field work and 1 out of 2 employees hired for office work education. Ford Otosan, as the private company with the As part of this project, we hold seminars open to all our must be woman. Ford Otosan is the first automotive company highest R&D spending in Turkey, aims to share its know- I SUPPORT GENDER EQUALITY FOR MY colleagues to communicate the importance of technology and to support “Society of Women Engineers Istanbul”, employ how and experience with the children that will shape the COUNTRY digitalization and we try to raise awareness about how current the most women and receive the “Equal Opportunity Model” future. With the support of Ford Otosan engineers and problems can be solved with the support of technology. certificate from KAGİDER. YGA mentors, the children that receive the autonomous The objective of the corporate social responsibility F-MAX sets will acquire problem solving skills by using (CSR) project “For My Country” is to encourage Koç technologies such as sensors, actuators, coding and Group employees and dealers to bring their personal IMPROVING VOCATIONAL EDUCATION artificial intelligence. During the two-year project, these sets entrepreneurship tenets into social responsibility. The will be delivered to children in schools with limited means. project builds a bridge of responsibility between the Ford Otosan donates all the vehicles used during the individual, the company and the community. Since 2006, testing stages of the projects to vocational high schools to the project has created a wide umbrella of solutions help develop the engine motor and technical departments To view the video, introduced by Group companies. in these schools. In one year, approximately 80 vehicles please scan the QR code. were delivered to vocational high schools in more than Ford Otosan, together with its employees and other 50 provinces. stakeholders, generates sustainable solutions for social issues, which are identified as part of its sustainable community vision. The company, together with its To view the video, employees and dealers, has also launched community please scan the QR code. support projects related to various social issues under the “For My Country” umbrella. In this regard, “Gender Equality” activities have been carried out with suppliers for three years. Along with the ongoing project, the number of EQUALITY AT WORK women working for suppliers continues to rise. Ford Otosan is committed to upholding the basic principle of equality for all employees, and fights against gender inequality within the scope of the Equality at Work Declaration signed in 2013, emphasizing the importance of gender equality in all company activities, including the recruitment process.

For more information on our Equality at Work Declaration, please scan the QR code.

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100 Corporate Governance Principles Compliance Report

104 Corporate Governance Information Form

112 Corporate Governance Compliance Report

120 Risk Management and Internal Control 122 Legal Disclosures Corporate 126 Report on Related Party Transactions for 2019

127 Statement of Responsibility 128 Declaration of Independence Gorvernance

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CORPORATE GOVERNANCE PRINCIPLES BOARD OF DIRECTORS OPERATING PRINCIPLES COMPLIANCE REPORT Except General Manager Haydar Yenigün and Deputy General Manager Dave Johnston, twelve of fourteen members of the Board of Directors are non-executives as stated in CMB’s Corporate Governance Principles. The resumes of the Board members are included in the related section of Annual Report. DECLARATION FOR COMPLIANCE Main Corporate Governance Principles that are not mandatory and not been fulfilled yet are stated below. Additional The list of the Board of Directors as of 31.12.2019 is presented Corporate Governance Principles which were announced by the information about the topic is provided in the relevant sections below. Capital Markets Board (CMB) initially in July 2003 are adopted of the annual report. There is no conflict of interest in our by our Company and applied to the greatest extent. Ford Company due to incompliance of noncompulsory principles. Otosan has adhered to the mandatory Corporate Governance The Chairman of the Board and General Manager are different Principles within the scope of “II-17.1 Corporate Governance » Related to 1.4.2 Principle: The issues within the scope of BOD Member Appointment Membership in Independent Duration Duties Outside Company Communique” in 2019 and compliance for the remaining “Voting Rights” are regulated in the pertinent clauses of Name - Surname Date Board Committees principles has been mostly attained. Full compliance target Articles of Incorporation present in our website. has not been achieved yet due to the challenges encountered » Related to 1.5.2 Principle: Minority rights have been defined Rahmi M. Koç No 15.03.2019 12 Months Koç H. Honorary Chairman in the implementation of some principles, the ongoing only with the general framework of regulations and not Ali Y. Koç No 15.03.2019 12 Months Koç Holding Vice Chairman discussions both in domestic and international platform outlined for the shareholders having less than one twentieth regarding compliance with certain principles and failure of the of capital in the Articles of Association. Stuart John Rowley No 28.05.2019 10 Months Remuneration Committee Ford Motor Company Man. current structure to meet such principles appropriately. We are » Related to 4.4.5 Principle: Although there is no written working on the principles that have not been put into practice regulation related to the convention of Board Meetings, our Lisa K. King No 15.03.2019 12 Months Ford Motor Company Man. and application can be evaluated for reinforcing efficient Company has well established processes about this subject. Corporate Governance management after the analysis of administrative, legal and » Related to 4.4.7 Principle: The members of the Board of William R. Periam No 15.03.2019 12 Months Ford Motor Company Man. Committee / Risk Committee technical infrastructure. Directors are not restricted to take on other duties outside the company due to significant contribution of their business and Joerg M. Alfred Beyer No 15.03.2019 12 Months Ford Motor Company Man. In 2019, Corporate Governance activities were put into sectoral experience to the Board of Directors. practice in line with the Capital Markets Law and related » Related to 4.5.5 Principle: Knowledge and experience of Board Johan Egbert Schep No 15.11.2019 4 Months Ford Motor Company Man. Communiques. Board of Directors and Board Committees have Members is taken into consideration for the assignment of been established in compliance with Corporate Governance committee members who can be employed in more than O. Turgay Durak No 15.03.2019 12 Months - Principles. The selection and announcement of independent one committee. The members who work in more than one Risk Committee / İ. Cenk Çimen No 15.03.2019 12 Months Koç Holding Man. Board Members to the public were made according to committee enhance the communication and cooperation Remuneration Committee the legislation before general shareholders meeting. The opportunities between related committees. Corporate Governance Committees founded in the Board of Directors carry out their » Related to 4.6.1 Principle: There is no specific performance Ali İhsan İlkbahar No 15.03.2019 12 Months - Committee activities effectively. Information about preferred shares, evaluation study at Board of Directors level. shareholder rights, organizational changes, candidate members » Related to 4.6.5 Principle: The financial payments to Executive Haydar Yenigün No 15.03.2019 12 Months - of the Board, reports for transactions made with related Management are announced to the public as a total figure parties were announced three weeks in advance of the general in the Ordinary Shareholders meeting and in financial notes Dave Johnston No 11.09.2019 6 Months - assembly meeting. The Company website and annual report parallel to the general practice. Risk. Comm. Pres. / Remun. have been reviewed and revised for full compliance with the Fatma Füsun Akkal Bozok Yes 15.03.2019 12 Months - Comm. Pres. / Audit Comm. principles of CMB. 2019 Corporate Governance Compliance Report and Corporate Governance Data Form which were prepared per CMB’s According to the Article 6 in the Communique, confirmation regulation No:2/49 dated 10.01.2019 and approved by our Board Corp. Gov. Committee Pres. / L. Martin Meany Yes 15.03.2019 12 Months - for the acceptance of Ford Otosan as a joint venture and of Directors are available in the Annual Report (pages 104-119) Audit Comiittee determination of the number of independent board members and also accessible in our Company’s corporate governance as two was granted by CMB after this acknowledgement subject section in Public Disclosure Platform. (https://www.kap.org.tr/ Board member candidates were also approved in the general en/) assembly meeting.

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people. Care is shown by the Board members to spare sufficient The agendas for the regular meetings are prepared by the The members, working principles and responsibilities of the time for company matters and there is no restriction for duties Board of Director’s secretarial office in consideration of previous established committees are announced as Special Case outside Company. Especially the significant contribution of resolutions and decisions that need to be taken on certain Disclosure to the public and published in company website. independent members business and sectoral experience to the matters with consultation from Board members. Agendas for Board of Directors does not oblige such restriction. The resumes other meetings are defined by subjects which are required by The executive members of the Board have not taken on duties and duties outside company are announced to shareholders law to be decided by the Board of Directors. in the committees. before general assembly meeting. It is considered that diversity in knowledge, experience and vision of Board Members will Corporate Governance Committee, which aims to enhance The Board Committees did not need to utilize independent contribute positively to the Company’s operations and Board of corporate governance activities and carry out Nomination expert opinion in 2019 related to their operations. Director’s efficiency. Committee responsibilities, consists of four members, Leonard Martin Meany as President, Ali İhsan İlkbahar, William Richard RISK MANAGEMENT AND INTERNAL CONTROL The operating principles of the Board of Directors have been Periam and İ.Oğuz Toprakoğlu as members. set out in Articles 10,11 and 12 of the Articles of Incorporation. The primary goals of Ford Otosan in risk management are to In summary, the Board of Directors is authorized to take all The candidate declarations and resumes of two independent foresee, manage, monitor the potential risks in each area and to decisions other than those procedures that are required to be members are evaluated and confirmed in Corporate Governance prepare action plans for risk and crisis management in advance. taken at the General Shareholders’ Meeting according to the Committee and Board of Directors meetings dated 04.01.2019 The Board of Directors, Early Determination and Management of Turkish Commercial Code and the provisions of the Articles of and 07.01.2019 respectively. All the independent board Risk Committee, Audit Committee and Executive Management Incorporation. members have submitted their independence declarations of the Company are regularly informed about the risks. Detailed to Corporate Governance Committee and no condition which explanations regarding Risk Management and Internal Control The Board of Directors meets regularly at least three or cancels the independency has been observed in 2019. systems can be found in “Risk Management” section of the four times during the year with the participation of all of its Annual Report. members. At these meetings, all the activities of the company Audit Committee, comprising Fatma Füsun Akkal Bozok and are reviewed and decisions are taken on important matters. In Leonard Martin Meany, meets before the regular meetings of the addition to these regular meetings, the Board of Directors may Board or for subjects that need to be discussed per regulations. meet to take decisions on matters deemed necessary with a It reviews the quarterly financial statements and presents simple majority of members or in accordance with Article 390/4 opinion to the Board of Directors. The working principles of the of the Turkish Commercial Code the Board may take a decision committee have been put forth in a written set of procedures. without actually convening. According to the provisions of the Reviewing and monitoring detailed data about the company’s Articles of Incorporation, members representing more than half financial status, independent audit and internal control of B and C group shares who are not independent must have mechanisms and presenting all views and decision drafts to the Board of Directors are among the duties of the Audit Committee and these activities were carried out in 2019. cast an affirmative vote in the meeting for the resolutions. In the calendar year of 2019, thirty-four Board of Directors’ resolutions Early Determination and Management of Risk Committee, are taken, five of them being circular type BOD resolutions. which aims to advise Board of Directors for establishing risk The Board of Directors secretarial duty is managed by the management system, consists of three members, Fatma Füsun Assistant General Manager - Finance (CFO). Akkal Bozok as President, İsmail Cenk Çimen and William Richard Periam as members. In 2019 seven meetings were held Since no member has opposed to decisions taken at the by Early Determination and Management of Risk Committee. meetings in recent years, no indication of opposition has been made in the minutes and consequently no such report has been Remuneration Committee, which aims to determine benefits made to the auditors. provided to executive management, consists of three members; Fatma Füsun Akkal Bozok as President, İ.Cenk Çimen and Board of Directors foresees the possibility of conflict of Steven Robert Armstrong as members. Since Steven Robert interest and if exist, assess the relevant consequences and Armstrong resigned from Board of Directors on 11.09.2019 due take necessary actions for the benefit of the Company during to job change in Ford Motor Company organization, Stuart John its operations. Moreover, the Board of Directors evaluates the Rowley was appointed to Remuneration Committee replacing compliance to the regulations and potential fraud risks in the Steven Robert Armstrong effective same date. related party transactions prudently.

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CORPORATE GOVERNANCE INFORMATION FORM 1.5. Minority Rights

Whether the scope of minority rights enlarged (in terms of content or the Not extended. ratio) in the articles of the association

If yes, specify the relevant provision of the articles of association. -

1.6. Dividend Right

1. SHAREHOLDERS It is available on our corporate website with the title of The name of the section on the corporate website that describes the Investors-Corporate Governance-Policies. 1.1. Facilitating the Exercise of Shareholders Rights dividend distribution policy https://www.fordotosan.com.tr/documents/Documents/ yatirimci_iliskileri/Dividend_Policy_en.pdf The number of investor meetings (conference, seminar/etc.) organised by 15 Conference / 350 Meeting the company during the year Minutes of the relevant agenda item in case the board of directors proposed to the general assembly not to distribute dividends, the reason Dividend is distributed. 1.2. Right to Obtain and Examine Information for such proposal and information as to use of the dividend.

The number of special audit request(s) - PDP link to the related general shareholder meeting minutes in case the board of directors proposed to the general assembly not to distribute Dividend is distributed. The number of special audit requests that were accepted at the General - dividends Shareholders' Meeting

1.3. General Assembly General Assembly Meetings Link to the PDP announcement that demonstrates the information https://www.kap.org.tr/en/Bildirim/819981 requested by Principle 1.3.1. (a-d) General Meeting Date 15.3.2019 / 14.11.2019

Whether the company provides materials for the General Shareholders' The number of information requests received by the company regarding Presented. - Meeting in English and Turkish at the same time the clarification of the agenda of the General Shareholders' Meeting Shareholder participation rate to the General Shareholders' Meeting 92% The links to the PDP announcements associated with the transactions that are not approved by the majority of independent directors or by unanimous There is no such transaction. votes of present board members in the context of Principle 1.3.9 Percentage of shares directly present at the GSM -

The links to the PDP announcements associated with related party Percentage of shares represented by proxy 92% transactions in the context of Article 9 of the Communique on Corporate There is no such transaction. Governance (II-17.1) It is available on our corporate website with the title of Investors - Specify the name of the page of the corporate website that contains Announcements - General Assembly. the General Shareholders' Meeting minutes, and also indicates for each The links to the PDP announcements associated with common and https://www.fordotosan.com.tr/en/investors/announcements/general- resolution the voting levels for or against continuous transactions in the context of Article 10 of the Communique on https://www.kap.org.tr/en/Bildirim/819984 assembly Corporate Governance (II-17.1) Specify the name of the page of the corporate website that contains all The name of the section on the corporate website that demonstrates the The upper limit for donations and grants is determined every year at the questions asked in the general assembly meeting and all responses to - donation policy of the company General Assembly and there is no other policy. them

The PDP link related to the General Shareholder's Meeting where the The number of the relevant item or paragraph of General Shareholders' The relevant link to the PDP with minute of the General Shareholders' - upper limit for donations and grants is determined: Meeting minutes in relation to related party transactions Meeting where the donation policy has been approved https://www.kap.org.tr/en/Bildirim/748092 The number of declarations by insiders received by the board of directors 0 The number of the provisions of the articles of association that discuss the Article 15 participation of stakeholders to the General Shareholders' Meeting The link to the related PDP general shareholder meeting notification https://www.kap.org.tr/en/Bildirim/819981 Identified stakeholder groups that participated in the General The General Assembly was held open to the public, including Shareholders' Meeting, if any stakeholders and the media without the right to speak.

1.4. Voting Rights

Whether the shares of the company have differential voting rights No

In case that there are voting privileges, indicate the owner and percentage - of the voting majority of shares.

The percentage of ownership of the largest shareholder 41.04%

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2. DISCLOSURE AND TRANSPARENCY 3.2. Supporting the Participation of the Stakeholders in the Corporation’s Management

2.1. Corporate Website Name of the section on the corporate website that demonstrates the internal regulation addressing the participation of employees on There is no public link to internal regulations. management bodies Corporate Governance - Board of Directors, Executive Team, Policies, Specify the name of the sections of the website providing the information Shareholder Structure, Code of Conduct, Articles of Incorporation, requested by the Principle 2.1.1. Corporate Governance Reports, Trade Registry; Announcements - Both unionized and non-unionized colleagues Material Disclosures, General Assembly, Financial Announcements participate in the management with different methods and share their views. With the Employee Engagement Survey conducted It is available on our corporate website with the title of Investors If applicable, specify the name of the sections of the website providing the every year, the opinion of each of our -Corporate Governance - Shareholder Structure Corporate bodies where employees are actually represented list of shareholders (ultimate beneficiaries) who directly or indirectly own colleagues is taken anonymously in the form of https://www.fordotosan.com.tr/en/investors/corporate-governance/ more than 5% of the shares. questionnaires and open-ended responses. shareholder-structure Information about the company is shared with employees, dealers and other stakeholders through various communication meetings and List of languages for which the website is available Turkish and English questions and comments of these stakeholders are also taken.

2.2. Annual Report 3.3. Human Resources Policy

The role of the board on developing and ensuring that the company has a The Board of Directors checks this function is performed effectively. The page numbers and/or name of the sections in the Annual Report that succession plan for the key management positions demonstrate the information requested by principle 2.2.2. a) The page numbers and/or name of the sections in the Annual Report It is available on our corporate website with the title of Sustainability - that demonstrate the information on the duties of the members of the The name of the section on the corporate website that demonstrates the Sustainability Policies - Declaration on Equality at Work. board of directors and executives conducted out of the company and human resource policy covering equal opportunities and hiring principles. https://www.fordotosan.com.tr/documents/Documents/Surd_ declarations on independence of board members Also provide a summary of relevant parts of the human resource policy. b) The page numbers and/or name of the sections in the Annual Report Raporlari/FO_DECLARATION_ON_EQUALITY_AT_WORK.pdf that demonstrate the information on committees formed within the board a) Board of Directors and Declaration for Independency structure c) The page numbers and/or name of the sections in the Annual Report b) Number, Structure and Independence of Commitees established by Whether the company provides an employee stock ownership programme There is not an employee stock ownership programme. that demonstrate the information on the number of board meetings in a the Board of Directors year and the attendance of the members to these meetings The name of the section on the corporate website that demonstrates the It is available on our corporate website with the title of Sustainability - ç) The page numbers and/or name of the sections in the Annual Report c) The Structure and Formation of the Board of Directors human resource policy covering discrimination and mistreatments and the Sustainability Policies - Code of Conduct and Ethical Rules. that demonstrate the information on amendments in the legislation which measures to prevent them. Also provide a summary of relevant parts of the https://www.fordotosan.com.tr/documents/Documents/Surd_ may significantly affect the activities of the corporation ç) Material Developments Regarding Company Operations human resource policy. Raporlari/FO_calisma_ilkeleri_13_06_16(1).pdf d) The page numbers and/or name of the sections in the Annual Report that demonstrate the information on significant lawsuits filed against the d) Material Developments Regarding Company Operations The number of definitive convictions the company is subject to in relation corporation and the possible results thereof 4 e) The page numbers and/or name of the sections in the Annual Report e) Material Developments Regarding Company Operations to health and safety measures that demonstrate the information on the conflicts of interest of the corporation among the institutions that it purchases services on matters f) Material Developments Regarding Company Operations 3.5. Ethical Rules and Social Responsibility such as investment consulting and rating and the measures taken by the corporation in order to avoid from these conflicts of interest g) Sustainability Principles and Corporate Social Responsibility f) The page numbers and/or name of the sections in the Annual Report It is available on our corporate website with the title of Investors - that demonstrate the information on the cross ownership subsidiaries that The name of the section on the corporate website that demonstrates the Corporate Governance - Policies. the direct contribution to the capital exceeds 5% code of ethics https://www.fordotosan.com.tr/documents/Kurumsal_Politikalar/ g) The page numbers and/or name of the sections in the Annual Report Code_of_Ethics_EN.pdf that demonstrate the information on social rights and professional training of the employees and activities of corporate social responsibility in respect of the corporate activities that arises social and environmental results The name of the section on the company website that demonstrates It is available on our corporate website with the title of Sustainability. the corporate social responsibility report. If such a report does not exist, https://www.fordotosan.com.tr/documents/Documents/Surd_ provide the information about any measures taken on environmental, Raporlari/ford-otosan-cevre-ve-enerji-politikasi-EN.pdf social and corporate governance issues. https://www.fordotosan.com.tr/en/sustainability/sustainability-reports

3. STAKEHOLDERS It is available on our corporate website with the title of Sustainability - 3.1. Corporation’s Policy on Stakeholders Any measures combating any kind of corruption including embezzlement Sustainability Policies - Anti-Corruption Policy. and bribery https://www.fordotosan.com.tr/documents/Anti-Corruption- The name of the section on the corporate website that demonstrates the - Policy_2019.pdf employee remedy or severance policy

The number of definitive convictions the company was subject to in 97 relation to breach of employee rights

The position of the person responsible for the alert mechanism (i.e. Internal Audit Manager, HR Director, Chief Legal Counsel, Company whistleblowing mechanism) Ethics Coordinator

The contact detail of the company alert mechanism https://www.fordotosan.com.tr/en/corporate/about-ford-otosan/ethics

106 107 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

4. BOARD OF DIRECTORS-I Composition of Board of Directors

Activity of the Board of Directors Whether The Whether She/ Link To PDP Whether the Director Has At Date of the last board evaluation conducted - Whether The First He is the Director Notification That Independent Least 5 Years’ Name, Surname of Whether Executive Independent Election Who Ceased Includes The Director Considered Experience On Board Member Director Or Not Director Date To to Satisfy The Independency By The Nomination Audit, Accounting Whether the board evaluation was externally facilitated - Or Not Board Independence or Declaration Committee And/Or Finance Not Or Not Whether all board members released from their duties at the GSM All board members are released form their duties.

Not Name(s) of the board member(s) with specific delegated duties and No delegation has been made among the members of the Board of Ali Y. KOÇ Non-executive independent 7/24/97 authorities, and descriptions of such duties Directors. director Number of reports presented by internal auditors to the audit committee or 3 Not any relevant committee to the board Stuart Non-executive independent 5/28/19 JOHN ROWLEY Specify the name of the section or page number of the annual report director that provides the summary of the review of the effectiveness of internal Risk Management and Internal Control controls Not Rahmi M. Non-executive independent 2/11/61 KOÇ Name of the Chairman Ali Y. Koç director

Not Osman Turgay Name of the CEO Haydar Yenigün Non-executive independent 4/10/02 DURAK director

If the CEO and Chair functions are combined: provide the link to the Not - Ali İhsan relevant PDP annoucement providing the rationale for such combined roles Non-executive independent 3/25/14 İLKBAHAR director Link to the PDP notification stating that any damage that may be caused Not by the members of the board of directors during the discharge of their - İsmail Cenk Non-executive independent 3/25/14 duties is insured for an amount exceeding 25% of the company's capital ÇİMEN director

The name of the section on the corporate website that demonstrates Not - Joerg M. Alfred current diversity policy targeting women directors Non-executive independent 3/15/19 BEYER director

The number and ratio of female directors within the Board of Directors 2 (14%) Not William Richard Non-executive independent 9/11/13 PERIAM director

Not Johan Egbert Non-executive independent 11/15/19 SCHEP director

Not Dave Executive independent 9/11/19 JOHNSTON director

Not Haydar Executive independent 2/15/12 YENİGÜN director

Not Lisa Katharine Non-executive independent 8/3/16 KING director

https://www. Fatma Füsun Akkal Independent Non-executive 3/19/18 kap.org.tr/en/ - - Yes BOZOK director Bildirim/819981

https://www. Leonard Martin Independent Non-executive 3/29/16 kap.org.tr/en/ - - Yes MEANY director Bildirim/819981

108 109 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

4. BOARD OF DIRECTORS-II 4. BOARD OF DIRECTORS-III

4.4. Meeting Procedures of the Board of Directors 4.5. Board Committees-II

Number of physical board meetings in the reporting period (meetings in It is available on our corporate website with the title of Investors - 27 Specify where the activities of the audit committee are presented in your person) Corporate Governance - Board Committees. annual report or website (Page number or section name in the annual https://www.fordotosan.com.tr/documents/Documents/board- report/website) Director average attendance rate at board meetings 60% committees/AUDIT-COMMITTEE.PDF

It is available on our corporate website with the title of Investors - Whether the board uses an electronic portal to support its work or not Webex system is used. Specify where the activities of the corporate governance committee are Corporate Governance - Board Committees. presented in your annual report or website (Page number or section name https://www.fordotosan.com.tr/documents/Documents/board- in the annual report/website) Number of minimum days ahead of the board meeting to committees/CORPORATE-GOVERNANCE-COMMITTEE.PDF There is no determination in this direction. provide information to directors, as per the board charter Specify where the activities of the nomination committee are presented in The name of the section on the corporate website that demonstrates There is no determination in this direction. your annual report or website (Page number or section name in the annual Its duties are fullfilled by the Corporate Governance Committee. information about the board charter report/website)

Number of maximum external commitments for board members as per the There is no determination in this direction. It is available on our corporate website with the title of Investors - policy covering the number of external duties held by directors Specify where the activities of the early detection of risk committee are Corporate Governance - Board Committees. presented in your annual report or website (Page number or section name https://www.fordotosan.com.tr/documents/Documents/board- in the annual report/website) 4.5. Board Committees committees/EARLY-DETERMINATION-COMMITTEE.PDF

Page numbers or section names of the annual report where information Number, Structure and Independence of Commitees Established by the It is available on our corporate website with the title of Investors - about the board committees are presented Board of Directors Specify where the activities of the remuneration committee are presented Corporate Governance - Board Committees. in your annual report or website (Page number or section name in the https://www.fordotosan.com.tr/documents/Documents/board- Link(s) to the PDP announcement(s) with the board committee charters https://www.kap.org.tr/en/Bildirim/750267 annual report/website) committees/REMUNERATION-COMMITTEE.PDF

4.6. Financial Rights Composition of Board Committees-I Specify where the operational and financial targets and their achievement Name-Surname of Whether Committee Whether Board are presented in your annual report (Page number or section name in the Board of Directors' Report and Chairman's Message Names Of The Board Committees Committee Members Chair Or Not Member Or Not annual report)

It is available on our corporate website with the title of Investors - Audit Committee Fatma Füsun Akkal Bozok No Independent director Specify the section of website where remuneration policy for executive and Corporate Governance - Policies. non-executive directors are presented. https://www.fordotosan.com.tr/documents/Documents/yatirimci_ Audit Committee Leonard Martin Meany No Independent director iliskileri/RemunertionPolicy.pdf Specify where the individual remuneration for board Corporate Governance Committee Leonard Martin Meany Yes Independent director members and senior executives are presented in your Remunarion Policy for the Board of directors and Senior Executives annual report (Page number or section name in the annual Notes to the Financial Statements - Note 26 (m) report) Corporate Governance Committee Ali İhsan İlkbahar No Board member

Corporate Governance Committee William Richard Periam No Board member Composition of Board Committees-II Corporate Governance Committee İ. Oğuz Toprakoğlu No Not board member The Number Of Early Determination and Management of Risk The Percentage The Percentage Of The Number Of Fatma Füsun Akkal Bozok Yes Independent director Names Of The Board Reports On Its Committee Of Non-executive Independent Directors Meetings Held In Committees Activities Submitted Early Determination and Management of Risk İ. Cenk Çimen No Board member Directors In The Committee Person Committee To The Board

Early Determination and Management of Risk William Richard Periam No Board member Committee Audit Committee 100% 100% 3 3

Remuneration Committee Fatma Füsun Akkal Bozok Yes Independent director Corporate Governance 75% 25% 3 3 Committee Remuneration Committee İ. Cenk Çimen No Board member Early Determination and Management of Risk 100% 33% 7 7 Board member - Vice Remuneration Committee Stuart John Rowley No Committee Chairman Remuneration Committee 100% 33% 1 1

110 111 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

CORPORATE GOVERNANCE COMPLIANCE REPORT Company Compliance Status Not Yes Partial No Exempted Explanation Applicable

1.4. VOTING RIGHTS

1.4.1 - There is no restriction preventing shareholders from exercising their shareholder X rights.

Company Compliance Status 1.4.2 - The company does not have shares that carry X privileged voting rights. Not Yes Partial No Exempted Explanation 1.4.3 - The company withholds from exercising Applicable Ford Otomotiv San. A.Ş does its voting rights at the General Shareholders' not have any financial asset Meeting of any company with which it has cross- X 1.1. FACILITATING THE EXERCISE OF SHAREHOLDER RIGHTS (shareholding) relationship ownership, in case such cross-ownership provides which brings domination. management control. 1.1.2 - Up-to-date information and disclosures which may affect the exercise of shareholder X rights are available to investors at the corporate 1.5. MINORITY RIGHTS website. 1.5.1 - The company pays maximum diligence to the X exercise of minority rights. 1.2. RIGHT TO OBTAIN AND REVIEW INFORMATION

1.2.1 - Management did not enter into any transaction that would complicate the conduct X Minority rights are not granted of special audit. to those who have less than 20% of the share capital by 1.5.2 - The Articles of Association extend the use the Articles of Association. of minority rights to those who own less than one 1.3. GENERAL ASSEMBLY X Rights are provided within twenthieth of the outstanding shares, and expand the framework of the general the scope of the minority rights. 1.3.2 - The company ensures the clarity of the regulations in the legislation. General Assembly agenda, and that an item on the X There was no demand from the agenda does not cover multiple topics. investors regarding this issue.

1.3.7 - Insiders with privileged information have informed the board of directors about transactions conducted on their behalf within the scope of the There is no such a process 1.6. DIVIDEND RIGHT X company's activities in order for these transactions notification. to be presented at the General Shareholders' 1.6.1 - The dividend policy approved by the General Meeting. Shareholders' Meeting is posted on the company X website.

1.3.8 - Members of the board of directors who are 1.6.2 - The dividend distribution policy comprises concerned with specific agenda items, auditors, the minimum information to ensure that the and other related persons, as well as the officers shareholders can have an opinion on the procedure X X who are responsible for the preparation of the and principles of dividend distributions in the financial statements were present at the General future. Shareholders' Meeting. 1.6.3 - The reasons for retaining earnings, and their X Dividends are distributed. allocations, are stated in the relevant agenda item. 1.3.10 - The agenda of the General Shareholders' Donations and aids were Meeting included a separate item detailing the included with a separate article X amounts and beneficiaries of all donations and in the agenda of the General 1.6.4 - The board reviewed whether the dividend contributions. Assembly . policy balances the benefits of the shareholders X and those of the company.

1.3.11 - The General Shareholders' Meeting was held open to the public, including the stakeholders, X without having the right to speak.

112 113 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Company Compliance Status Company Compliance Status

Not Not Yes Partial No Exempted Explanation Yes Partial No Exempted Explanation Applicable Applicable

1.7. TRANSFER OF SHARES 3.1. CORPORATION'S POLICY ON STAKEHOLDERS

3.1.1 - The rights of the stakeholders are protected pursuant to the relevant regulations, contracts and X Transfer of unlisted shares and within the framework of bona fides principles. some regulations about the usufruct rights' of shares are 3.1.3 - Policies or procedures addressing regulated in the Company's stakeholders' rights are published on the X articles of association (rule company's website. 1.7.1 - There are no restrictions preventing X number 8) which is also shares from being transferred. 3.1.4 - A whistleblowing programme is in place for accessible from the corporate X website. There are no provisions reporting legal and ethical issues. that complicate or restrict the transfer of Group A shares 3.1.5 - The company addresses conflicts of traded on the stock exchange. interest among stakeholders in a balanced X manner.

3.2. SUPPORTING THE PARTICIPATION OF THE STAKEHOLDERS IN THE CORPORATION'S MANAGEMENT 2.1. CORPORATE WEBSITE 3.2.1 - The Articles of Association, or the internal regulations (terms of reference/manuals), regulate X 2.1.1 - The company website includes all elements X the participation of employees in management. listed in Corporate Governance Principle 2.1.1.

3.2.2 - Surveys/other research techniques, consultation, interviews, observation method 2.1.2 - The shareholding structure (names, The shareholding structure is etc. were conducted to obtain opinions from X privileges, number and ratio of shares, and described on the Company's stakeholders on decisions that significantly beneficial owners of more than 5% of the issued X corporate website. There is no affect them. share capital) is updated on the website at least real person who has more than every 6 months. 5% of the share. 3.3. HUMAN RESOURCES POLICY

2.1.4 - The company website is prepared in other 3.3.1 - The company has adopted an employment selected foreign languages, in a way to present policy ensuring equal opportunities, and X X exactly the same information with the Turkish a succession plan for all key managerial content. positions.

3.3.2 - Recruitment criteria are X 2.2. ANNUAL REPORT documented. 3.3.3 - The company has a policy on human resources development, and organises trainings for X 2.2.1 - The board of directors ensures that the employees. annual report represents a true and complete view X of the company's activities. 3.3.4 - Meetings have been organised to inform employees on the financial status of the company, X remuneration, career planning, education and health.

2.2.2 - The annual report includes all elements 3.3.5 - Employees, or their representatives, X were notified of decisions impacting them. listed in Corporate Governance Principle 2.2.2. X The opinion of the related trade unions was also taken.

3.3.6 - Job descriptions and performance criteria have been prepared for all employees, announced X to them and taken into account to determine employee remuneration.

3.3.7 - Measures (procedures, trainings, raising awareness, goals, monitoring, complaint mechanisms) have been taken to prevent X discrimination, and to protect employees against any physical, mental, and emotional mistreatment. 114 115 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Company Compliance Status Company Compliance Status

Not Not Yes Partial No Exempted Explanation Yes Partial No Exempted Explanation Applicable Applicable

3.3.8 - The company ensures freedom of 4.2.4 - Information on the functioning and association and supports the right for collective X effectiveness of the internal control system is X bargaining. provided in the annual report.

3.3.9 - A safe working environment for employees is 4.2.5 - The roles of the Chairman and Chief X X maintained. Executive Officer are separated and defined.

3.4. RELATIONS WITH CUSTOMERS AND SUPPLIERS 4.2.7 - The board of directors ensures that the Investor Relations department and the corporate 3.4.1 - The company measured its customer governance committee work effectively. The board X satisfaction, and operated to ensure full customer X works closely with them when communicating and satisfaction. settling disputes with shareholders.

3.4.2- Customers are notified of any delays in X handling their requests. Although there is executive 4.2.8 - The company has subscribed to a Directors liability insurance for the Koç and Officers liability insurance covering more than X 3.4.3 - The company complied with the quality Group companies, the amount is 25% of the capital. standards with respect to its products and X less than the specified ratio. services.

3.4.4 - The company has in place adequate controls to protect the confidentiality of sensitive 4.3. STRUCTURE OF THE BOARD OF DIRECTORS X information and business secrets of its customers and suppliers.

3.5. ETHICAL RULES AND SOCIAL RESPONSIBILITY Providing diversity in knowledge, experience and vision will make 3.5.1 - The board of the corporation has adopted a a positive contribution to the X code of ethics, disclosed on the corporate website. 4.3.9 - The board of directors has approved activities of the Company and the policy on its own composition, setting a the effective working of the minimal target of 25% for female directors. Board of Directors. The current 3.5.2 - The company has been mindful of its X social responsibility and has adopted measures to X The board annually evaluates its composition Board structure also reflects this prevent corruption and bribery. and nominates directors so as to be compliant perspective. There is no policy for with the policy. the minimum female member 4.1. ROLE OF THE BOARD OF DIRECTORS rate in the Board of Directors. The rate of female board members is 14% currently. 4.1.1 - The board of directors has ensured strategy and risks do not threaten the long-term interests of X the company, and that effective risk management is in place.

4.1.2 - The agenda and minutes of board meetings 4.3.10 - At least one member of the audit indicate that the board of directors discussed committee has 5 years of experience in audit/ X and approved strategy, ensured resources were X accounting and finance. adequately allocated, and monitored company and management performance.

4.2. ACTIVITIES OF THE BOARD OF DIRECTORS

4.2.1 - The board of directors documented its meetings and reported its activities to the X shareholders.

4.2.2 - Duties and authorities of the members of the board of directors are disclosed in the annual X report.

4.2.3 - The board has ensured the company has an internal control framework adequate for its X activities, size and complexity.

116 117 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Company Compliance Status Company Compliance Status

Not Not Yes Partial No Exempted Explanation Yes Partial No Exempted Explanation Applicable Applicable

4.4. BOARD MEETING PROCEDURES 4.5. BOARD COMMITTEES

Most of the members of the Board of The assignment 4.4.1 - Each board member attended the majority of X Directors were physically of the committees are made the board meetings in person. attended by taking into consideration the the meetings. knowledge and experience of our Board members under the rules of the relevant regulations. 4.5.5 - Board members serve in only one of the X Some of our Board members Board's committees. All the information and are assigned to more than documents about the agenda of one committee. Members The Board of Directors have been who are involved in more 4.4.2 - The board has formally approved a minimum sent to all members before the than one committee ensure time by which information and documents relevant meetings since over the years communication and increase X to the agenda items should be supplied to all board consistently. There is cooperation opportunities. members. no any Company regulation about the deadline of this process. In accordance with the principles of the committees, it is possible for the committees to claim 4.5.6 - Committees have invited persons to the opinions from the independent meetings as deemed necessary to obtain their X professionals. However, views. committee members did not Although there is possibility claim any independent expert 4.4.3 - The opinions of board members that could to provide feedback, no opinion. not attend the meeting, but did submit their notification/ information from X opinion in written format, were presented to other the Board members, who could members. not attend the meeting, had been sent to the Board members. 4.5.7 - If external consultancy services are used, The committees did not receive the independence of the provider is stated in the X any consultancy services. annual report.

4.4.4 - Each member of the board has one 4.5.8 - Minutes of all committee meetings are kept X X vote. and reported to board members.

Even though there is no any 4.6. FINANCIAL RIGHTS written regulation, the Company 4.4.5 - The board has a charter/written internal has held long lasting and rules defining the meeting procedures of the X 4.6.1 - The board of directors has conducted There is no consistent processes how to do a board performance evaluation to review performance board. X the meetings of the Board of whether it has discharged all its responsibilities evaluation study was conducted Directors. effectively. at Board level.

4.4.6 - Board minutes document that all 4.6.4 - The company did not extend any loans to items on the agenda are discussed, and board its board directors or executives, nor extended their X resolutions include director's dissenting opinions if lending period or enhanced the amount of those any. loans, or improve conditions thereon, and did not X extend loans under a personal credit title by third parties or provided guarantees such as surety in favour of them.

The work experience and sectoral experiences of the members The payments made to the of the Board of Directors are 4.4.7 - There are limits to external commitments members of the Board of not restricted from other duties Directors and senior executives of board members. Shareholders are informed of 4.6.5 - The individual remuneration of board X outside the company due to their are publicly disclosed in the board members' external commitments at the members and executives is disclosed in the annual X significant contribution to the footnotes of financial statements General Shareholders' Meeting. report. Board of Directors. The resumes and General Assembly meeting of our board members are in parallel with the general included in our annual report. practices.

118 119 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

RISK MANAGEMENT AND INTERNAL CONTROL Operational Risks B. EARLY DETERMINATION AND MANAGEMENT OF Ford Otosan monitors business processes with operational risk RISK COMMITTEE ACTIVITIES potential with several indicators, and manages these processes that include quality, efficiency, employee, customer satisfaction, Early Determination and Management of Risk Committee information security and pricing according to predetermined has been formed with the objectives of early determination targets. and managing of risks that may jeopardize the Company’s existence, development, sustainability, and establishing an Another key risk management tool related to operational effective risk management system. The Committee is being A. RISK MANAGEMENT Exports to parties other than Ford Motor Company are processes is Business Continuity Plan (BCP), which enables headed by independent Board Member Mrs. Füsun Akkal Bozok. guaranteed through letter of credit, guarantee letter, export critical operations or products to be continuously delivered in the The Committee’s other members are Mr. İ. Cenk Çimen and Mr. The primary goal of Ford Otosan in risk management is to receivable insurance, credit lines or advance payments. aftermath of business interruptions ranging from catastrophic William R. Periam who are also Board Members. foresee, manage, monitor the potential risks in each area and to natural disasters to equipment breakdowns. BCP is a set of prepare action plans for risk and crisis management in advance. Liquidity Risk: Ford Otosan keeps cash, credit commitment predefined strategies and procedures for responding to and The Committee convened six times in 2019. Risk reporting Board of Directors, Early Determination and Management of and factoring capacity to maintain 21 days’ of cash outflow recovering from disaster scenarios. activities and the Committee evaluations are periodically Risk Committee, Audit Committee and Executive Management for managing the liquidity risk. Accordingly, Euro 100 million submitted to the attention of Board of Directors. of the Company are regularly informed about the risks. credit commitment and Euro 120 million equivalent factoring After all the departments prepared their own BCPs based on agreements are secured with financial institutions if required. As agreed procedures and defined forms, all white-collar employees C. INTERNAL CONTROL SYSTEM AND INTERNAL Risk Management unit, under Treasury Department, led the of 31 December 2019 net financial debt is TL 3,005 million. were delivered awareness training while BCP teams were AUDIT establishment of the cross-functional ERM (Enterprise Risk instructed about their functions and roles in the plan. Information Management) team. In 2019, spreading Risk Management Interest Rate Risk: The policy is focused on balancing the Technology Department has reviewed and approved all of them. In addition to following policies, procedures and instructions culture from executive management to every single employee maturities of interest bearing assets and liabilities, and BCPs have been tested for validation under the leadership of included in process flows as key parts of the internal control in the Company was targeted. For this purpose, the ERM team managing them with natural hedges. Interest bearing assets are managers responsible for BCPs internally and cross tested system, Ford Otosan also applies an internal control plan consisting of department representatives and coordinators directed to short term financial investments. between departments for four different disaster scenarios by the annually that covers all company operations. With this identified financial, operational, strategic and legal risks of Risk Manager for final validation. Finally, they have been uploaded structure, over three thousand control points are tested as an their own departments, defined how to measure them, and As a policy objective, %50/%50 split between fixed and to Ford Otosan ISO system and printed copies are now retain in assurance for the Board of Directors and shareholders about the began to prioritize and create action plans for managing those variable interest rate for long term credits is targeted. and outside the company. The BCPs up-to-dateness is ensured accuracy of the Company’s operations. risks with support from their upper management. This allowed by department-level tests performed internally and tested by the senior executives to be actively involved in the Company’s Risk Foreign Exchange Risk: The ratio of the net foreign exchange Risk Manager annually with a drill based on a disaster scenario. The Audit Committee periodically monitors the internal control Management. Risk files and meeting minutes were recorded position to Equity is targeted within +/- 10% in the Balance and internal audit activities, reviews and approves annual and uploaded to a shared area on the Company servers. The Sheet. Protection against foreign exchange risks due to some Furthermore, emergency action plans that describe the audit plans as a subcommittee of Board of Directors. The Audit “Corporate Risk Management Working Group” led by the long-term Euro-denominated loans that the company utilizes to implementation of necessary steps in cases of explosion or Committee provides opinion on the financial reports for the Corporate Risk Management Officer convened every two finance its investments is ensured through export agreements natural disaster are prepared, ensuring operability through regular approval of Board of Directors and provides recommendations months in an interactive setting to the Company’s and began with Ford Motor Company. Investment loans are associated trainings and tests. to BOD where required. to develop action plans. In 2019, team leaders to trainings on with tangible asset acquisitions and some of the exchange rate the subject and contributed to identifying the business risks. and interest amounts related to these loans are added to asset Strategic Risks Every year, Koç Holding, Ford Motor Company and Internal “Impact and Probability Chart” is used to measure the risks costs. As of 31 December 2019 net FX position is TL 43 million Ford Otosan conducts regular project development studies to Control Department conduct regular audits within the and “Impact Severity Classification Chart” for impact severity. plus. Total export and import amounts were TL 33,375 million maintain the continuity of its business portfolio and submits Company. Ford Otosan’s authorized dealers and services are Risk Management unit is responsible for reporting all of these and TL 17,467 million, respectively in 2019. their results periodically to the Board of Directors for review. also audited for their transactions with Ford Otosan periodically activities to the Executive Management at Ford Otosan and to With annually updated long-term plans, the Company reviews by the dealer audit function of the internal control department. “Early Determination of Risk Committee”. Capital Risk: Ford Otosan’s objectives when managing capital the risks and opportunities related to the business model. All denunciations and complaints about Ford Otosan related are to continue providing maximum return for shareholders, operations are reviewed, investigated and finalized by internal The company monitors the risk management under four maintain an optimal capital structure to reduce the cost of Legal Risks control department. All control issues identified during the categories. capital and ensure sustainability. The Company monitors the The Company’s Legal team monitors the legislation regularly, internal control, internal audit or external audit processes capital on the basis of “Net Total Financial Debt to Earnings informs the employees and leads training activities to prevent are evaluated, corrective actions are planned and tracked Financial Risks Before Interest, Depreciation and Amortization” ratio, for which any incompliance with the regulations. Any important for implementation to improve internal control systems by Credit Risk: Direct Debiting System, which is an effective way the target is not to exceed 2.5. discrepancies and serious litigation requirements are internal control department. Results of these reports are to guarantee collection of receivables, is applied to dealer reported to “Audit Committee” and “Early Determination regularly presented to the Audit Committee, which consists of receivables from domestic vehicle and spare-part sales. A More information on the Company’s indebtedness and capital and Management of Risk Committee” and action plans are independent Board members. significant portion of exported vehicles is sold to Ford Motor structure is provided in relevant sections of Annual Report. determined. Company and its affiliates with an average term of 14 days.

120 121 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

LEGAL DISCLOSURES D. INFORMATION ON THE EXTRAORDINARY Ms. Lisa Katharine King, who has been acting as Deputy General ASSEMBLY MEETING WITHIN THE REPORTING Manager, will take a new role within Ford Europe organization PERIOD and therefore has left the Company. Ms. Lisa Katharine King's Board membership will continue. Mr. Dave Johnston is assigned Ford Otomotiv Sanayi A.Ş.’s Extraordinary General Assembly as Deputy General Manager effective from August 1, 2019 Meeting was held on November 14, 2019 at 11:00 to review and resolve the agenda specified below at the Company Mrs. Birgit Annelies Behrendt resigned from membership Headquarters located at “Akpınar Mahallesi, Hasan Basri of the Board of Directors due to leave of position in Ford A. CAPITAL Caddesi No:2, Sancaktepe / İstanbul (Phone: +90 216 564 71 Motor Company organization effective from May 28, 2019. 00, Fax: +90 216 564 73 85)”. Following decisions have been Mr. Stuart John Rowley is assigned to the membership of Paid-in / Issued Capital: 350.910.000 TL made: Board of Directors to serve until the next General Assembly Authorized Capital: 500.000.000 TL of Shareholders. This assignment was accepted at the Pursuant to the Dividend Communiqué no. II-19.1, total dividend Extraordinary General Assembly meeting on November 14, 2019. B. SHAREHOLDER STRUCTURE of TL 431,619,300.00 to be paid to shareholders as dividend in cash; out of the distributable dividend of TL 431,619,300.00 Mr. Cemil Cem Temel who has been acting as the Assistant Title of Total Share in Capital Type of Publicly according to the records prepared in accordance with Tax General Manager (Kocaeli Plants & New Projects) is assigned Group Number of Share Shareholder (TL) (%) Privilage Traded Procedure Law, TL 238,008,067.72 TL to be covered from to the Assistant General Manager (New Projects) position Vehbi Koç extraordinary reserves, TL 176,830,852.28 to be covered from effective from July 1, 2019. A 355,844,870 3,558,449 1.0 - No Foundation legal reserves, and TL 16,780,380.00 to be covered from Koç Holding other capital reserves; out of TL 43,161,930.00 second rank Mr. Güven Özyurt who has been acting as the Assistant General Pension and A 325,920,231 3,259,202 0.9 - No Assistance legal reserve to be retained, TL 23,800,806.77 to be covered Manager (Purchasing) is assigned to the Assistant General Foundation from extraordinary reserves, TL 17,683,085.23 to be covered Manager (Operations) position which is newly created effective Other Shareholders A 6,278,607,009 62,786,070 17.9 - Yes from legal reserves, and TL 1,678,038.00 to be covered from July 1, 2019.

A GROUP TOTAL 6,960,372,110 69,603,721 19.8 - from other capital reserves; out of the cash dividend of TL 431,619,300.00 according to financial statements prepared Mr. Murat Senir who has been acting as the Purchasing Director within the framework of Capital Markets Board regulations, is assigned as the Assistant General Manager (Purchasing) Koç Holding A.Ş. Management B 13,495,335,714 134,953,357 38.5 No Privileged TL 254,788,447.72 to be covered from extraordinary reserves effective from July 1, 2019. and TL 176,830,852.28 to be covered from legal reserves; out Temel Ticaret ve Management B 235,588,500 2,355,885 0.7 No Yatırım A.Ş. Privileged of TL 41,161,930.00 second rank legal reserve to be retained, Mr. Steven Robert Armstrong (Vice Chairman of Board of TL 25,478,844.77 to be covered from extraordinary reserves Directors), who was elected to the Board of Directors, left from B GROUP TOTAL 13,730,924,214 137,309,242 39.2 and TL 176,830,852.28 to be covered from legal reserves; out membership of the Board of Directors due to change of position of TL 43,161,930.00 second rank legal reserve to be retained, in Ford Motor Company organization effective from September Ford Motor Management C 14,399,703,676 143,997,037 41.0 No Company* Privileged TL 25,478,844.77 to be covered from extraordinary reserves 11, 2019. and TL 17,683,085.23 to be covered from legal reserves; C GROUP TOTAL 14,399,703,676 143,997,037 41.0 based on the calculations in accordance with tax regulations, Mr. Stuart John Rowley, who is currently member of Board TOTAL 35,091,000,000 350,910,000 100 TL 431,619,300.00 dividend to be distributed by paying of Directors, is assigned as the Vice Chairman of Board of *Ford Deutschland Holding GmbH: 100% owned by Ford Motor Company. gross Kr 123.00 (123.00%) and net Kr 104.55 (104.55%) for Directors. Mr. Dave Johnston is assigned to membership of each share with a nominal value of 1 TL; and to make the Board of Directors to serve until the next General Assembly of C. SHARE INFORMATION dividend distribution in accordance with the dematerialization Shareholders. The appointment resolution was accepted at regulations of Merkezi Kayıt Kuruluşu A.Ş. (Central Registry the Extraordinary General Assembly meeting on November 14, Current List of Other Exchanges or Organized Markets where the Company’s Capital Market Instruments are Listed or Traded Agency) starting from November 19, 2019. The decision is 2019. Mr. Stuart John Rowley has been elected as a member accepted by the majority of votes, with aye votes corresponding of the Remuneration Committee instead of Mr. Steven Robert to TL 322,149,038.91 and nay votes corresponding to TL 40,839. Armstrong. Title of Holder First Trade Date Country Exchange Market

Mr. Roelant Christiaan de Waard, who was elected to the Stock 13/01/1986 Turkey Borsa İstanbul A.Ş. BIST Stars - Group 1 E. ORGANIZATIONAL CHANGES DURING THE YEAR Board of Directors, resigned from membership of the Board Ms. Saibe Gül Ertuğ, who has been acting as Business Strategies of Directors due to change of position in Ford Motor Company Ford Otosan Shares Are Traded In The Following Market And Included In The Following Indices: Finance Senior Manager, is assigned as Innovation and New organization effective from November 15, 2019. Mr. Johan Egbert BIST KOCAELI / BIST METAL PRODUCTS, MACH. / BIST 30 / BIST 100 / BIST 50 / BIST INDUSTRIALS / BIST STARS / Ventures Director effective from February 1, 2019. Schep is assigned to the membership of Board of Directors to BIST DIVIDEND / BIST DIVIDEND 25 / BIST SUSTAINABILITY INDEX

122 123 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

serve until the next General Assembly of Shareholders. This Some Legislative Changes with Material Impact on assignment will be submitted to the approval of the General the Company’s Activities Assembly at the next meeting. There were no legislative changes that could materially impact the company’s activities within the reporting period. Mr. Bülent Akdoğan who has been acting as the Director – Total Quality shall retire from the company effective from December Conflicts of Interest Between the Company and 31, 2019. Providers of Services There has been no conflict of interest with providers of Mrs. Oya Başak Akyol who has been acting as Senior Manager consultancy and rating services. – Industrial Relations and Manufacturing HR is assigned as Director – Total Quality effective from January 1, 2020. Information on Subsidiaries and Affiliates with more than 5% Direct Equity F. COMPANY ACTIVITIES AND MATERIAL Gembox Teknoloji Girişimleri A.Ş was established with 100% DEVELOPMENTS IN COMPANY ACTIVITIES contribution to capital by Ford Otosan capital in order to carry out research, development, consultancy, engineering and Lawsuits with Material Impact on the Company’s incubation activities and to invest in companies and initiatives Financial Position and Activities and Their Potential established in these areas. Consequences No lawsuits that could materially affect the company’s financial For the central management of the Company's Ford Trucks position and activities were filed against the Company within exporting activities, Ford Otosan Netherlands BV was founded the reporting period. with 100% contribution to capital by Ford Otosan capital.

Investments in subsidiaries as of 31 December 2019 are as follows:

31 December 2019 31 December 2018

Ownership Ownership Amount Amount rate (%) rate (%)

Investment in subsidiaries

Gembox Teknoloji Girişimleri Anonim Şirketi 100 2,500 - -

Ford Otosan Netherlands BV 100 1 - -

2,501 -

These investments are carried at cost and are not included in the scope of consolidation since their financial statements do not have a significant effect on the financial statements of the Company.

124 125 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

REPORT ON RELATED PARTY STATEMENT OF RESPONSIBILITY PREPARED PER TRANSACTIONS FOR 2019 CMB’S FINANCIAL REPORTING COMMUNIQUE SERIES N0: II-14.1., ARTICLE 9

FORD OTOMOTIV SANAYI A.Ş. BOARD OF BOARD OF DIRECTOR’S RESOLUTION REGARDING THE ANNUAL REPORT DIRECTORS 2019 REPORT ON RELATED PARTY Resolution Date: 21/02/2020 TRANSACTIONS PREPARED AS PER ARTICLE 199 Resolution Number: 2020/09 OF THE TURKISH COMMERCIAL CODE As per CMB regulations; attached Annual Report for 2019 , prepared by Company management and audited by PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. , that has been prepared under Turkish Code of Commerce and CMB's The Result Communiqué Series No: II.14.1 “Communique On Principles of Financial Reporting in Capital Markets” (“Communique”) Pursuant to Article 199 of the Turkish Commercial Code no. 6102 (“TCC”), which went into effect on July 1, 2012, The Corporate Governance Compliance Report and the Corporate Governance Information Form prepared in compliance with the Ford Otomotiv Sanayi A.Ş. Board of Directors is obliged to Corporate Governance Communiqué of the Capital Markets Board (Communiqué) and the formats specified by the CMB's resolution annually prepare an affiliation report stating the relationship dated 10.01.2019; between the company and the parent company and other subsidiaries of that parent company in the first quarter of the » Has been analysed, year. The necessary explanations about all of the transactions » To the best of our knowledge and inline with our Company roles and responsibilities, in all material respects, does not contain any of Ford Otomotiv Sanayi A.Ş., made with the relevant parties, untrue representations or any omissions that would lead to misleading conclusions as at disclosure date, are cited in footnote number 26 in the financial report. It is » To the best of our knowledge and inline with our Company roles and responsibilities, the Annual report prepared in line with the stated in the Report prepared by Ford Otomotiv Sanayi A.Ş. Communique, fairly reflect the Company’s progress and performance, financial position and possible significant risk and uncertainity, Board of Directors on February 21, 2020 that, “In all transactions made between Ford Otomotiv Sanayi A.Ş. and the parent and we hereby represent and state that we are responsible over the disclosures. company and other subsidiaries of that parent company in 2019, it is precipitated that, in the event that the transactions Best Regards, were made, or the measures were taken or not taken, a FORD OTOMOTİV SANAYİ A.Ş. counter action was applied to each transaction. There were no measures taken or not taken which cause losses to the company, and there were no transactions made or measures taken that require compensation within this frame”.

Fatma Füsun Akkal Bozok Leonard Martin Meany Oğuz Toprakoğlu Audit Committee Member Committee Member Assistant General Manager -CFO

126 127 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

DECLARATION OF INDEPENDENCE DECLARATION OF INDEPENDENCE

I hereby declare that I am a candidate for independent board e. I have strong ethic standards, professional reputation and I hereby declare that I am a candidate for independent board d. I am a resident in Turkey under the Revenue Tax Law membership at the Board of Directors of Ford Otomotiv expertise to make effective contributions to the business membership at the Board of Directors of Ford Otomotiv No.193 (“RTL”) dated December 31, 1960. Sanayi A.Ş. (“Company”) under related regulations, Articles of of the Company, make objective business decisions in case Sanayi A.Ş. (“Company”) under related regulations, Articles of Association of the Company and the criteria stated in Capital of conflict of interest between the shareholders of the Association of the Company and the criteria stated in Capital e. I have strong ethic standards, professional reputation and Markets Board’s Communiqué on Corporate Governance. In that Company and protect the rights of the stakeholders of the Markets Board’s Communiqué on Corporate Governance. In that expertise to make effective contributions to the business regard I also confirm that; Company. regard I also confirm that; of the Company, make objective business decisions in case of conflict of interest between the shareholders of the a. In the last five years, there has not been any recruitment f. In the last 10 years, I have not served as the Independent a. In the last five years, there has not been any recruitment Company and protect the rights of the stakeholders of the relationship between the Company, the partnerships Board Member of Ford Otomotiv Sanayi A.Ş. more than 6 relationship between the Company, the partnerships Company. (which possess the Company’s managerial control or have years. (which possess the Company’s managerial control or have substantial influence therein), the partners (who possess substantial influence therein), the partners (who possess f. I am going to devote my time to fulfill my duties in full extent the Company’s managerial control or have substantial g. I do not serve as an independent board member in more the Company’s managerial control or have substantial and keep track of the activities of the Company. influence therein), the legal entities (managerial control of than three companies (managerial control of which is held influence therein), the legal entities (managerial control of which is possessed by the aforesaid partners), and me, my by the Company, or by the partners who hold the managerial which is possessed by the aforesaid partners), and me, my g. In the last 10 years, I have not served as the Independent spouse, and my relatives by blood/marriage descending h. control of the Company), and as a whole in five companies spouse, and my relatives by blood/marriage descending Board Member of Ford Otomotiv Sanayi A.Ş. more than 6 down to second degree for managerial positions, having being traded in the stock exchange, down to second degree for managerial positions, having years. been established so to assume significant duties and been established so to assume significant duties and responsibilities, that no more than 5% of the capital, or i. I have not been registered, and announced in the name of the responsibilities, that no more than 5% of the capital, or ğ. I do not serve as an independent board member in more voting rights, or preferential rights has been possessed legal entity, which is elected as the board member. voting rights, or preferential rights has been possessed than three companies (managerial control of which is held collectively, or individually, that no other commercial collectively, or individually, that no other commercial by the Company, or by the partners who hold the managerial relationship with similar features has also been established, relationship with similar features has also been established, control of the Company), and as a whole in five companies Leonard Martin Meany being traded in the stock exchange, b. I have not become the partner of (by 5% and above), worked b. I have not become the partner of (by 5% and above), worked in a managerial position (to assume significant duties and in a managerial position (to assume significant duties and h. I have not been registered, and announced in the name of the responsibilities) within, or become the board member of responsibilities) within, or become the board member of legal entity, which is elected as the board member. the companies (from which the Company purchases/sells the companies (from which the Company purchases/sells beyan ederim. substantial goods or services under respective agreements), substantial goods or services under respective agreements), particularly for corporate auditing (tax, legal, internal audits particularly for corporate auditing (tax, legal, internal audits Fatma Füsun Akkal Bozok included), rating, and consultation during the periods, when included), rating, and consultation during the periods, when the aforementioned goods or services are purchased/sold, the aforementioned goods or services are purchased/sold, c. I have skills, knowledge and expertise to fulfill my duties as c. I have skills, knowledge and expertise to fulfill my duties as an independent board member of the Company, an independent board member of the Company, d. I am not going to work full-time in public institutions and ç. I am not going to work full-time in public institutions and corporations (except academic membership), as being corporations (except academic membership), as being stipulated in the respective regulations, after I will be elected stipulated in the respective regulations, after I will be elected as member, as member,

128 129 Financial Statements and 132 Financial Statements and Independent Auditor's Report

208 Ordinary General Assembly Information Document 214 Appendix 4/ Amendments to the Articles of Incorporation Other Information 224 Developments Following the Report Date 131 FORD OTOMOTİV SANAYİ ANONİM ŞİRKETİ CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT CONVENIENCE TRANSLATION INTO ENGLISH OF ORIGINALLY ISSUED IN TURKISH FINANCIAL STATEMENTS AT 31 DECEMBER 2019 TOGETHER WITH AUDITOR’S REVIEW REPORT INDEPENDENT AUDITOR’S REPORT

To the General Assembly of Ford Otomotiv Sanayi A.Ş.

(ORIGINALLY ISSUED IN TURKISH) A. Audit of the financial statements

1. Our opinion

We have audited the accompanying financial statements of Ford Otomotiv Sanayi A.Ş. (the “Company”) which comprise the statement of financial position as at 31 December 2019, the statement of profit or loss, the statement of other comprehensive income, the statement of changes in equity and the statement of cash flows for the year then ended and notes to the financial statements comprising a summary of significant accounting policies.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 December 2019, and its financial performance and its cash flows for the year then ended in accordance with Turkish Financial Reporting Standards (“TFRS”).

2. Basis for opinion

Our audit was conducted in accordance with the Standards on Independent Auditing (the “SIA”) that are part of Turkish Standards on Auditing issued by the Public Oversight Accounting and Auditing Standards Authority (the “POA”). Our responsibilities under these standards are further described in the “Auditor’s Responsibilities for the Audit of the Financial Statements” section of our report. We hereby declare that we are independent of the Company in accordance with the Ethical Rules for Independent Auditors (the “Ethical Rules”) and the ethical requirements regarding independent audit in regulations issued by POA that are relevant to our audit of the financial statements. We have also fulfilled our other ethical responsibilities in accordance with the Ethical Rules and regulations. We believe that the audit evidence we have obtained during the independent audit provides a sufficient and appropriate basis for our opinion.

3. Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. Key audit matters were addressed in the context of our independent audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. BJK Plaza, Süleyman Seba Caddesi No:48 B Blok Kat:9 Akaretler Beşiktaş 34357 İstanbul - Turkey T: +90 212 326 6060 F: +90 212 326 6050, www.pwc.com.tr Mersis Numaramız 0-1460-0224-0500015

132 133 Key Audit Matters How the key audit matter was addressed in the audit Key Audit Matters How the key audit matter was addressed in the audit

Cash Flow Hedge Accounting Warranty Provisions (Notes 2 and 13) (Notes 2 and 28) The Company has warranty provisions amounting to - When calculating the warranty provision, the management Based on the manufacturing agreements with Ford Motor - We tested the official definition and documentation of TRY209,168 thousand as of 31 December 2019. makes assumptions based on the number of vehicles Company, the Company associates sales of specific models risk management’s target and strategy, which causes the subject to warranty, the length of the warranty period, and of commercial vehicles subject to export by the end of 2026 Company to hedge against cash flow risk. We also tested the We focused on this matter during our audit for the reasons the warranty claims in the previous periods. We tested the with long term loans denominated in Euros, borrowed for completeness and accuracy of data and the assumptions below: effectiveness of the controls during the estimation process. the investments related to manufacturing of such vehicles. used in the hedge accounting work with the support of our Sales subject to the agreement are denominated in Euro subject matter experts. - The warranty provision of TRY209,168 thousand is a liability - We confirmed that unit managers approve the unit cost and are affected by the TRY/EUR exchange rate fluctuations. in the financial statements as of 31 December 2019. The estimations per vehicle. We tested unit costs through The Company hedges the foreign exchange rate risk with the - We reviewed the effectiveness of the cash flow hedge. We amount of the warranty provision is material. sampling by detailed tests. borrowings obtained in the same currency. tested whether the range of increase/decrease in the fair value of the revenue planned for in future and the increase/ - The Company provides a standard warranty service and - To test the data on which the estimations are based, the We focused on this matter during our audit for the reasons decrease in fair value of the borrowings are between 80% optional roadside assistance, extended warranty and spare number of vehicles sold were agreed to the sales reports. below: and 120%. part warranty services for any vehicle sold domestically. The Sales reports were reconciled to the sale accounts. Company calculates the current period warranty provision - The cash flow hedge losses which are classified under - We checked the agreements related to the vehicle sales and based on the actual warranty expense per vehicle in the - Foreign exchange rates are considered when estimating equity as of 31 December 2019 amount to TRY705,427 whether sales volumes and prices of the vehicles subject previous period. The warranty cost per vehicle is approved the warranty cost per vehicle. We confirmed that the thousand. This amount is material in terms of the financial to cash flow hedging agree with the budget approved by twice a year by the management and is calculated for foreign exchange rate, which is a forward-looking estimate statements. management. We checked whether methods used for each vehicle model, based on the technical department’s used when calculating the warranty provision, is the same calculating vehicle costs comply with the agreement. experience and warranty claims in the past also complying foreign exchange rate used in the budget approved by the - Cash flow hedge accounting is structurally complex and its with the instructions of Ford Motor Company. Since the management. We also evaluated the reasonableness of audit requires professional expertise. Mistakes that might - We reviewed repayment plans for the borrowings warranty cost per vehicle is determined in Euro, foreign the warranty provision considering the fluctuations of the occur when calculating and accounting for this subject may denominated in Euro by reviewing the loan agreements and exchange rate estimation is also included in the calculation. foreign exchange rate. affect the financial statements significantly. obtaining bank confirmations. We checked to what extent Fluctuation of the foreign exchange rates may affect the monthly borrowing payments cover monthly sales. financial statements materially. - We tested the actual warranty expenses realised in the current period on a sampling basis based on the movements - We checked the mathematical accuracy of the accounting Warranty provision calculation is determined to be a Key Audit of the warranty provision amounting to TRY209,168 bookings related to this subject. Matter since it involves estimations bearing an inherent risk of thousand. misstatement. - We assessed the sufficiency of the financial statement - We tested the reasonableness of the actual warranty disclosures related to the cash flow hedge accounting. expenses with the warranty provisions set aside in previous periods.

- Warranty provisions are calculated based on cost per vehicle estimations, considering the actual claims in the past and also technically and financially planned developments. We performed a sensitivity analysis on these estimations and assessed their impact.

- We assessed the sufficiency of the financial statement disclosures related to warranty expenses.

134 135 4. Responsibilities of Management and Those Charged with Governance for the Financial Statements Key Audit Matters How the key audit matter was addressed in the audit The Company management is responsible for the preparation and fair presentation of the financial statements in accordance with Application of TFRS 16, “Leases” and its impacts TFRS, and for such internal control as management determines is necessary to enable the preparation of financial statements that are on the financial statements and notes to the free from material misstatement, whether due to fraud or error. financial statements (Notes 2,6 and 33) In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, TFRS 16, “Leases” (“TFRS 16”) is effective for periods beginning - We undestood and evaluated the significant processes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either on or after 1 January 2019. The application of the new standard affecting financial reporting related to the adoption of TFRS intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. resulted in the recognition of right of use assets amounting 16. to TRY 99,714 thousand and increase in financial lease Those charged with governance are responsible for overseeing the Company’s financial reporting process. liabilities amounting to TRY 89,253 thousand. The Company - We inquired with the Company management and has preferred the simplified transition method in the first understood their assessment regarding the transition 5. Auditor’s Responsibilities for the Audit of the Financial Statements time adoption of TFRS 16 and has not restated comparative process to TFRS 16 and assessed the compliance of their financial statements. assessment with the transition rules of the standard. Responsibilities of independent auditors in an independent audit are as follows:

The amounts recognized as a result of the adoption of - We evaluated the compliance of the simplified transition Our aim is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, TFRS 16 are significant for the financial statements and method applied by the Company in the transition period to whether due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance expressed the determination of the accounting policy requires the the provisions related to transition. as a result of an independent audit conducted in accordance with SIA is a high level of assurance but does not guarantee that a assessment of the Company management. In addition, the material misstatement will always be detected. Misstatements can arise from fraud or error. Misstatements are considered material measurement of the right of use assets and financial lease - We recalculated the right of use assets and related financial if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis liabilities are based on significant estimates and assumptions lease liabilities recognised in the financial statements by of these financial statements. of the management. The substantial part of these estimates using rates such as interest rate, rent increase rate etc. for are interest rates used to discount cash flows and assessment the selected lease contracts that are in scope of TFRS 16. As part of an independent audit conducted in accordance with SIA, we exercise professional judgment and maintain professional of options to extend or terminate lease contracts. Nevertheless, scepticism throughout the audit. We also: the notes to the financial statements of the Company as of 31 - We evaluated the compliance of inputs used in the December 2019 are significantly affected by the application of calculation like rent increase rate, interest rate etc for these • Identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, design and perform TFRS 16. selected contracts. audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud Therefore, the impacts of the first time adoption of TFRS 16 - We selected the lease contracts used in the calculation may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. on the financial statements and the notes to the financial of right of use assets and financial lease liabilities on a statements are determined as a key audit matter for our audit. sample basis and tested the compliance of the term of • Assess the internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but the lease contacts and the assessment of the extension not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. options applied if such options exist with the provision of the contract.

- We tested the disclosures in the financial statements in relation to the application of TFRS 16 and evaluating the adequacy of such disclosures.

136 137 • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures B. Other Responsibilities Arising from Regulatory Requirements made by management.

1. No matter has come to our attention that is significant according to subparagraph 4 of Article 402 of Turkish Commercial Code • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence (“TCC”) No. 6102 and that causes us to believe that the Company’s bookkeeping activities concerning the period from 1 January obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s to 31 December 2019 period are not in compliance with the TCC and provisions of the Company’s articles of association related to ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our financial reporting. auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our independent auditor’s report. However, future events 2. In accordance with subparagraph 4 of Article 402 of the TCC, the Board of Directors submitted the necessary explanations to us and or conditions may cause the Company to cease to continue as a going concern. provided the documents required within the context of our audit.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the 3. In accordance with subparagraph 4 of Article 398 of the TCC, the auditor’s report on the early risk identification system and financial statements represent the underlying transactions and events in a manner that achieves fair presentation. committee was submitted to the Company’s Board of Directors on 11 February 2020.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and PwC Bağımsız Denetim ve significant audit findings, including any significant deficiencies in internal control that we identify during our audit. Serbest Muhasebeci Mali Müşavirlik A.Ş.

We provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence. We also communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Beste Ortaç, SMMM Partner İstanbul, 11 February 2020

138 139 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Ford Otosan General Management Ford Otosan Corporate Financial Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports

Ford Otomotiv Sanayi A.Ş. STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 AND 2018 (Amounts expressed in thousands Turkish Lira (“TRY”) unless otherwise stated.) CONTENTS Current period Previous period audited audited Notes 31 December 2019 31 December 2018 Statements of Financial Position 141 Assets Statements of Profit Or Loss 143 Current assets 10,156,798 7,395,461 Statements of Other Comprehensive Income 144 Statements of Changes in Equity 145 Statements of Cash Flows 146 Cash and cash equivalents 4 3,202,952 1,392,772 Notes To The Financial Statements 147 Trade receivables NOTE 1 Organization and Nature of the Operations 147 - Due from related parties 26 2,547,130 2,082,263

NOTE 2 Basis of Presentatıon of Financial Statements 147 - Due from third parties 7 1,557,963 1,058,926

NOTE 3 Segment Reporting 168 Other receivables NOTE 4 Cash and Cash Equivalents 169 - Due from third parties 8 1,870 2,788 NOTE 5 Financial Investments 169 Inventories 9 1,827,399 1,864,645 NOTE 6 Financial Liabilities 169 Prepaid expenses 12 178,382 74,375 NOTE 7 Trade Receivables and Payables 171 NOTE 8 Other Receivables and Payables 173 Other current assets 16 841,102 919,692 NOTE 9 Inventories 174 NOTE 10 Property, Plant and Equipment 175 Non-current assets 6,249,574 5,788,979 NOTE 11 Intangible Assets 177 NOTE 12 Prepaid Expenses 178 Financial assets 5 22,355 12,408

NOTE 13 Provisions, Contingent Assets and Liabilities 178 Trade receivables NOTE 14 Commitments 180 - Due from third parties 7 2,903 2,954 NOTE 15 Employee Benefits 181 Property, plant and equipment 10 4,436,548 3,922,747 NOTE 16 Other Current Assets 182 Intangible assets 11 831,196 823,342 NOTE 17 Equity 183 Right of use assets 33 99,714 - NOTE 18 Revenue and Cost of Sales 186 NOTE 19 Research and Development Expenses, Marketing Expenses, General Administrative Expenses 187 Prepaid expenses 12 204,211 382,420 NOTE 20 Expenses by Nature 188 Deferred tax assets 24 650,146 644,175 NOTE 21 Other Operating Income/Expenses 188 Investments accounted for by the equity method 32 - 933 NOTE 22 Financial Income 189 Investments in associates and joint ventures 35 2,501 - NOTE 23 Financial Expense 189

NOTE 24 Tax Assets and Liabilities 189 Total assets 16,406,372 13,184,440 NOTE 25 Earnings Per Share 193 NOTE 26 Related Party Disclosures 193 Financial statements for the period ended 1 January - 31 December 2019 were approved for issue by the Board of Directors on 11 February NOTE 27 Financial Instruments and Financial Risk Management 198 2020. NOTE 28 Derivative Financial Instruments. 203 NOTE 29 Income/Expenses From Investing Activities 203 NOTE 30 Deferred Income 204 NOTE 31 Other Non Current Liabilities 204 NOTE 32 Investments Accounted for by the Equity Method 204 NOTE 33 Right of Use Assets 205 NOTE 34 Government Incentives and Grants 206 NOTE 35 Investments in Associates and Joint Ventures 207 NOTE 36 Subsequent Events 207

NOTE 37 Disclosure of Other Matters 207 The accompanying notes form an integral part of these financial statements.

140 141 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Ford Otomotiv Sanayi A.Ş. Ford Otomotiv Sanayi A.Ş. STATEMENTS OF FINANCIAL POSITION AS AT 31 DECEMBER 2019 AND 2018 STATEMENTS OF PROFIT OR LOSS FOR THE YEARS ENDED 31 DECEMBER 2019 AND 2018 (Amounts expressed in thousands Turkish Lira (“TRY”) unless otherwise stated.) (Amounts expressed in thousands Turkish Lira (“TRY”) unless otherwise stated.)

Current period Previous period Current period Previous period audited audited audited audited Notes 31 December 2019 31 December 2018 1 January- 1 January- Liabilities Notes 31 December 2019 31 December 2018 Current liabilities 8,645,371 7,219,612 Continuing operations Current borrowings Revenue 18 39,209,019 33,292,030 - Bank borrowings 6 2,589,213 2,030,806 Short- term portion of long-term borrowings Cost of sales 18 (35,193,802) (29,833,459) - Bank borrowings 6 1,025,728 773,457

- Lease liabilities 6 33,169 - Gross profit 4,015,217 3,458,571 Trade payables - Due to related parties 26 884,554 703,567 - Due to third parties 7 3,660,866 3,319,120 Marketing expenses 19 (649,102) (507,218) Other payables General administrative expenses 19 (372,893) (312,143) - Due to related parties 26 20,617 31,321 Research and development expenses 19 (419,583) (368,568) - Due to third parties 8 54,541 34,661 Other income from operating activities 21 633,778 581,129 Deferred revenue 30 23,830 13,219 Short-term provisions Other expenses from operating activities 21 (785,389) (566,898) - Other provisions 13 121,102 155,227

Employee benefit liabilities 15 220,273 149,611 Profit from operating activities 2,422,028 2,284,873 Current tax liabilities 24 11,478 8,530 Derivative financial liabilities 28 - 93 Income from investing activities 29 422 410

Non-current liabilities 3,096,080 2,071,589 Expenses from investing activities 29 (714) (3,855)

Share of profit / (loss) of invesments accounted for 32 (933) (94) Long Term Borrowings by the equity method - Bank borrowings 6 2,503,852 1,678,554 - Lease liabilities 6 56,084 - Long-term provisions Operating income before financial income / (expense) 2,420,803 2,281,334 - Provision for employment termination benefits 15 287,884 196,368 - Other provisions 13 174,740 136,680 Financial income 22 1,185,601 1,981,623 Deferred revenue 30 10,838 7,479 Financial expenses 23 (1,656,231) (2,501,845) Other non-current liabilities 31 61,235 52,508 Derivative financial liabilities 28 1,447 - Profit from continuing operations before tax 1,950,173 1,761,112 Equity 17 4,664,921 3,893,239

Paid-in capital 350,910 350,910 Tax income/ (expense) from continuing operations 9,311 (77,916) Inflation adjustments on capital 27,920 27,920 Tax expenses for the period 24 (21,242) (16,969) Share premium 8 8 Deferred tax (expense) / income 24 30,553 (60,947) Other comprehensive income/ (loss) not to be reclassified under profit or loss - Losses on remeasurements of defined benefit plans (2,060) (279) Net profit 1,959,484 1,683,196 - Gains from financial assets measured at fair value 20,309 10,859 through other comprehensive income Other comprehensive income / (loss) to be reclassified in profit or loss" Earnings per share with a nominal value Kr 1 25 5.58 Kr 4.80 Kr -Losses on cash flow hedges (705,427) (794,287) Restricted reserves 302,764 370,599 Retained earnings 2,711,013 2,244,313 Net profit for the period 1,959,484 1,683,196

Total liabilities and equity 16,406,372 13,184,440 The accompanying notes form an integral part of these financial statements. The accompanying notes form an integral part of these financial statements.

142 143 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

- - Total Total

Ford Otomotiv Sanayi A.Ş. equity STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2019 AND 2018 96,529 1,683,196 1,683,196 1,401,002 1,401,002 (282,194) 1,959,484 1,959,484 2,056,013 2,056,013 4,664,921 4,664,921 3,893,239 3,893,239 3,893,239 (1,284,331) 3,695,859 3,695,859 (Amounts expressed in thousands Turkish Lira (“TRY”) unless otherwise stated.) (1,203,622)

- - - -

Current period Previous period Net Profit audited audited 1,683,196 1,683,196 1,683,196 1,959,484 1,959,484 1 January- 1 January- 1,959,484 1,683,196 1,683,196 1,683,196 1,489,983 1,959,484 1,959,484 (1,683,196) Notes 31 December 2019 31 December 2018 (1,489,983) - - - - Net profit 1,959,484 1,683,196 - - profit 1,371,375 1,371,375 1,556,517 1,556,517 2,711,013 2,711,013 2,074,147 Retained Earnings Retained Other comprehensive income / (expense) 2,244,313 2,244,313 (1,089,817) (1,201,209) Accumulated Accumulated - - - - Other comprehensive income not to be reclassified to profit or loss - - (Losses) / gains on remeasurements of defined benefit plans 17 (2,226) 17,153 (2,413) 126,679 126,679 118,608 118,608 254,404 302,764 302,764 Reserves 370,599 370,599 370,599 (194,514)

Gains/(losses) from financial assets measured at Restricted 17 9,947 (4,998) fair value through other comprehensive income

------

Other comprehensive income tax not to be reclassified to profit or loss hedge reserve 88,860 88,860 88,860 88,860 (291,167) (291,167) Cash flow (503,120) (705,427) Taxes relating to remeasurements of defined benefit plans 17 445 (3,431) (794,287) (794,287) to be to Other income Taxes relating to gains / (losses) from financial assets measured profit or loss or profit 17 (497) 249 in reclassfied at fair value through other comprehensive income comprehensive ------

Other comprehensive income to be reclassified to profit or loss 13,722 13,722 13,722 (279) (279) (1,781) (1,781) Gains / (2,060) Other comprehensive income relating to cash flow hedges 17 113,390 (373,028) (14,001) of defined (losses) on (losses) benefit plans" benefit

Other comprehensive income taxes to be reclassified to profit or loss remeasurements ------Other income

Taxes relating to cash flow hedges 17 (24,530) 81,861 be not to reclassified Gain / in profit or loss or in profit 9,450 9,450 9,450 9,450 comprehensive 10,859 10,859 15,608 (4,749) (4,749) 20,309 income

Other comprehensive (loss) / income 96,529 (282,194) measured at fair value value fair at from (losses) through other through comprehensive assets financial ------8 8 8 8 Total comprehensive income 2,056,013 1,401,002 Share premium ------27,920 27,920 27,920 27,920 Inflation Inflation on capital adjustments adjustments ------capital Paid-in 350,910 350,910 350,910 350,910

The accompanying notes form an integral part of these financial statements. Balances at January 1, 2018 1, January at Balances Profit for the period Profit Other comprehensive (loss) income/ income comprehensive Total Transfers 17) (Note Dividends paid Balances at December 31, 2018 31, December at Balances 2019 1, January at Balances for the period (loss) Profit/ income comprehensive Total Transfers 2019 31, December at Balances Other comprehensive income/ income/ Other comprehensive (loss) 17) (Note Dividends paid Ford Otomotiv Sanayi A.Ş. Sanayi Otomotiv Ford AND 2018 2019 ENDED 31 DECEMBER THE YEARS FOR IN EQUITY OF CHANGES STATEMENTS stated.) otherwise unless (“TRY”) Lira Turkish in thousands expressed (Amounts statements. financial of these part an integral form notes accompanying The

144 145 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Ford Otomotiv Sanayi A.Ş. Ford Otomotiv Sanayi A.Ş. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2019 AND 2018 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER (Amounts expressed in thousands Turkish Lira (“TRY”) unless otherwise stated.) (Amounts expressed in thousands Turkish Lira (“TRY”) unless otherwise stated.) Current period Previous period audited audited Notes 31 December 2019 31 December 2018 1. ORGANIZATION AND NATURE OF THE OPERATIONS Cash flows generated from operating activities 3,007,664 2,176,407 Net profit for the period 1,959,484 1,683,196 Adjustments to reconcile profit or loss 2,047,580 1,718,170 Ford Otomotiv Sanayi A.Ş. (the “Company”) is incorporated and domiciled in Turkey and manufactures, assembles and sells motor Adjustments for depreciation and amortisation expense 10,11,33 775,988 569,203 vehicles, primarily commercial vehicles, imports and sells passenger cars and manufactures and imports and sells spare parts of Adjustments for impairment loss of inventories 9 (6,182) 18,941 those vehicles. The Company was established in 1959 and presently operates as a joint venture between Ford Motor Company and the Adjustments for provisions related with employee benefits 176,709 40,816 Koç Group of Companies. The Company is listed on the Borsa İstanbul (“BIST”) where 17.89% of its shares are currently quoted. The Adjustments for lawsuit and/ or penalty provisions 13 10,688 11,084 registered office address of the Company is Akpınar Mahallesi, Hasan Basri Cad. No: 2 Sancaktepe, İstanbul. Adjustments for warranty provisions 13 213,256 106,426 Adjustments for other provisions (14,419) (3,459) In its Kocaeli compound; the Company has a Gölcük plant in which the Transit and Transit Custom vehicles are manufactured and a Adjustments for dividend income 29 (422) (410) Yeniköy plant in which the Transit Courier vehicle is manufactured and in its Eskişehir compound; a Ford Trucks truck plant and engines Adjustments for interest income 22 (130,798) (104,777) and powertrain plant which manufactures for trucks and Transit vehicles. Adjustments for interest expense 23 84,684 52,952 Adjustments for tax expenses 24 (9,311) 77,916 Additionally, the Company has a spare part distribution warehouse, sales and marketing departments and a research and development Adjustments for unearned financing income 21 (212,193) (185,498) (R&D) centre located in Sancaktepe, İstanbul. Adjustments for deferred financing expense 21 533,692 341,463 Adjustments for loss on sales of property, plant and equipment 29 714 3,855 The number of the personnel employed with respect to categories by the Company as of period ends are as follows: Other adjustments for which cash effects are investing or financing cash flow 624,241 789,564 Undistributed profits of investments accounted for by the equity method 32 933 94 Changes in working capital (434,244) (876,546) Average Period end Decrease/(increase) in trade receivable (943,931) 200,967 2019 December 2018 December 2019 December 2018 December (Increase) / decrease in inventories 25,498 (734,965) Hourly 8,230 8,383 8,290 8,086 (Increase) / decrease in prepaid expenses (135,142) 21,099 Increase/ (decrease) in trade payable 505,827 231,959 Salaried Aylık ücretli 2,516 2,584 2,609 2,512 (Increase) / decrease in other assets 81,631 (512,961) 10,746 10,967 10,899 10,598 Increase/ (decrease) in other payables 31,873 (82,645) Cash flows generated from operations 3,572,820 2,524,820 Research and development operations which are also subject to service export is conducted with 1,058 employees in Sancaktepe Interest paid (553,614) (326,558) branch, conducted with 222 employees in R&D centre in Kocaeli plant, and conducted with 109 employees in R&D centre in Eskişehir Interest received 229,099 159,277 Payments related with provisions for employee benefits 15 (16,757) (15,260) plant, totally 1,389 (31 December 2018: 1,413) employees as of 31 December 2019. Payments related with other provisions (205,590) (151,043) Taxes paid (18,294) (14,829) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS Cash flows used in investing activities (1,048,828) (1,144,606) Proceeds from sales of property, plant and equipment 3,261 46,090 2.1 Basis of presentation Purchase of property, plant and equipment (1,093,013) (889,983) Purchase of intangible assets (146,607) (235,473) Financial reporting standards Cash advances given and payables 187,109 (64,623) Dividends received 29 422 410 The Company maintains its legal books of account and prepare their statutory financial statements (“Statutory Financial Statements”) Acquisition of subsidiaries - (1,027) in accordance with accounting principles issued by the Turkish Commercial Code (“TCC”) and tax legislation. Cash flows used in financing activities (149,628) (1,443,697) Proceeds from borrowings 6,237,381 2,759,195 The financial statements of the Group have been prepared in accordance with the Turkish Financial Reporting Standards, (“TFRS”) Cash outflows related to borrowings (5,119,841) (3,051,482) and interpretations as adopted in line with international standards by the Public Oversight Accounting and Auditing Standards Dividends Paid 17 (1,284,331) (1,203,622) Authority of Turkey (“POA”) in line with the communiqué numbered II-14.1 “Communiqué on the Principles of Financial Reporting In Interest paid (65,021) (53,842) Capital Markets” (“the Communiqué”) announced by the Capital Markets Board of Turkey (“CMB”) on June 13, 2013 which is published Interest Received 129,826 106,054 on Official Gazette numbered 28676. Cash outflows on debt payments from leasing agreements (47,642) - Net increase/ (decrease) in cash and cash equivalents 1,809,208 (411,896) Cash and cash equivalents at the beginning of the period 1,391,021 1,802,917 Cash and cash equivalents at the end of the period 4 3,200,229 1,391,021

The accompanying notes form an integral part of these financial statements.

146 147 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Ford Otomotiv Sanayi A.Ş. Ford Otomotiv Sanayi A.Ş. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2019 NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2019 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.1 Basis of presentation (Continued) 2.2 Amendments and interpretations in the standards (Continued)

The financial statements are presented in accordance with “Announcement regarding with TAS Taxonomy” which was published on 15 - Amendment to TAS 28, ‘Investments in associates and joint venture’; effective from annual periods beginning on or after 1 January April 2019 by POA and the format and mandatory information recommended by CMB. 2019. These amendments clarify that companies account for long-term interests in associate or joint venture to which the equity method is not applied using TFRS 9. The amendments will not have an impact on the financial position or performance of the Company. Except for the financial assets and derivative instruments measured at fair value through other comprehensive income, the financial statements are prepared on a historical cost basis. - TFRS 16, ‘Leases’; effective from annual periods beginning on or after 1 January 2019, with earlier application permitted if TFRS 15, ‘Revenue from Contracts with Customers’ is also applied. This standard replaces the current guidance in TAS 17 and is a farreaching The company’s functional and presentation currency is accepted as TRY. change in accounting by lessees in particular. Under TAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). TFRS 16 now requires lessees to recognise a lease liability reflecting future Going concern lease payments and a ‘right of use asset’ for virtually all lease contracts. The IASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting The financial statements of the Company are prepared on the basis of a going concern assumption. stays almost the same. However, as the IASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting Comparatives of prior periods’ financial statements model for lessees is expected to impact negotiations between lessors and lessees. Under TFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The effects of The financial statements of the Company include comparative financial information to enable the determination of the financial the amendment are explained in the related notes and accounting policies. position and performance. The statement of financial position of the Company at 31 December 2019 has been provided with the comparative financial information of 31 December 2018 and the statement of profit or loss, the statement of other comprehensive - IFRIC 23, ‘Uncertainty over income tax treatments’; effective from annual periods beginning on or after 1 January 2019. This IFRIC income, the statement of cash flows and the statement of changes in equity for the period between 1 January and 31 December 2019 clarifies how the recognition and measurement requirements of TAS 12 ‘Income taxes’, are applied where there is uncertainty over have been provided with the comparative financial information, for the period between 1 January 2018 and 31 December 2018. income tax treatments. The IFRS IC had clarified previously that TAS 12, not TAS 37, ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred and 2.2 Amendments and interpretations in the standards current income tax assets and liabilities where there is uncertainty over a tax treatment.

The new standards, amendments and interpretations An uncertain tax treatment is any tax treatment applied by an entity where there is uncertainty over whether that treatment will be accepted by the tax authority. For example, a decision to claim a deduction for a specific expense or not to include a specific item of The Company has applied the new and revised standards and interpretations issued by the POA as of 1 January 2019 and related to income in a tax return is an uncertain tax treatment if its acceptability is uncertain under tax law. IFRIC 23 applies to all aspects of its own activity. income tax accounting where there is an uncertainty regarding the treatment of an item, including taxable profit or loss, the tax bases of assets and liabilities, tax losses and credits and tax rates. The Company is in the process of assessing the impact of the standard on (a) The new standards, amendments and interpretations which are effective as at 31 December 2019 are as follows: financial position or performance of the Company.

- Amendment to TFRS 9, ‘Financial instruments’; Effective from annual periods beginning on or after 1 January 2019. This amendment - Annual improvements 2015 - 2017; effective from annual periods beginning on or after 1 January 2019. These amendments include confirm that when a financial liability measured at amortised cost is modified without this resulting in de-recognition, a gain or loss minor changes to: should be recognised immediately in profit or loss. The gain or loss is calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. This means that the difference cannot be spread • TFRS 3, ‘Business combinations’ - a company remeasures its previously held interest in a joint operation when it obtains control of over the remaining life of the instrument which may be a change in practice from TAS 39. The amendments will not have an impact on the business. the financial position or performance of the Company. • TFRS 11, ‘Joint arrangements’ - a company does not remeasure its previously held interest in a joint operation when it obtains joint control of the business. • TAS 12, ‘Income taxes’ - a company accounts for all income tax consequences of dividend payments in the same way. • TAS 23, ‘Borrowing costs’ - a company treats as part of general borrowings any borrowing originally made to develop an asset when the asset is ready for its intended use or sale.

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.2 Amendments and interpretations in the standards (Continued) 2.3 Summary of significant accounting policies

The Company is in the process of assessing the impact of the standard on its financial position and performance. The principal accounting policies adopted in the preparation of these financial statements are set out below:

- Amendments to TAS 19, ‘Employee benefits’ on plan amendment, curtailment or settlement’; effective from annual periods beginning Cash and cash equivalents on or after 1 January 2019. These amendments require an entity to: Cash and cash equivalents are carried in the statement of financial position at cost. Cash and cash equivalents include cash on hand, • Use updated assumptions to determine current service cost and net interest for the reminder of the period after a plan deposits at banks and highly liquid short-term investments, with maturity periods of less than three months, which has insignificant amendment, curtailment or settlement; and risk of change in fair value (Note 4). • Recognise in profit or loss as part of past service cost, or a gain or loss on settlement, any reduction in a surplus, even if that surplus was not previously recognised because of the impact of the asset ceiling. Trade receivables, impairment loss and expected credit losses

The Company is in the process of assessing the impact of the standard on its financial position and performance. Trade receivables as a result of providing goods or services by the Company directly to a debtor are carried at amortized cost. Short- term receivables with no stated interest rate are measured at the original invoice amount unless the effect of imputing interest is (b) The new standards, amendments and interpretations which are not yet effective as at 31 December 2019 are as follows: significant. Foreign exchange gain/loss and credit finance income of trade receivables are classified under “other operating income/ expense”. - Effective from Annual periods beginning on or after 1 January 2020. These amendments to TAS 1, ‘Presentation of financial statements’and TAS 8, ‘Accounting policies, changes in accounting estimates and errors’, and Provision for doubtful receivables is an estimated amount that management believes to reflect for possible future losses on existing consequential amendments to other TFRSs. receivables that have collection risk due to current economic conditions. During the impairment test for receivables, debtors, other than the key accounts and related parties, are assessed with their prior year performances, their credit risk in the current market, and i) Use a consistent definition of materiality throughout TFRSs and the Conceptual Framework for Financial Reporting. their performance after the statement of the financial position date up to the issuing date of the financial statements and furthermore, ii) Clarify the explanation of the definition of material; and the renegotiation conditions with these debtors are considered. iii)Incorporate some of the guidance in TAS 1 about immaterial information. A credit risk provision for trade receivables is established if there is objective evidence that the Company will not be able to collect - Amendments to TFRS 3 - definition of a business; Effective from annual periods beginning on or after 1 January 2020. This amendment all amounts due. The amount of the provision is the difference between the carrying amount and the recoverable amount, being revises the definition of a business. According to feedback received by the IASB, application of the current guidance is commonly the present value of all cash flows, including amounts recoverable from guarantees and collateral, discounted based on the original thought to be too complex, and it results in too many transactions qualifying as business combinations. The amendments will not effective interest rate of the originated receivables at inception. have an impact on the financial position or performance of the Company. If the impairment amount decreases due to an event occurring after the write-down, the release of the provision is credited to operating - Amendments to IFRS 9, IAS 39 and IFRS 7 - Interest rate benchmark reform; effective from annual periods beginning on or after 1 income in the current period January 2020. These amendments provide certain reliefs in connection with interest rate benchmark reform. The reliefs relate to hedge accounting and have the effect that IBOR reform should not generally cause hedge accounting to terminate. However, any hedge The Company measures the allowance for trade receivables at an amount equal to the "expected life-time credit losses" (except ineffectiveness should continue to be recorded in the income statement. Given the pervasive nature of hedges involving IBOR-based for realized impairment losses) where the trade receivables are not impaired for some reason. Expected credit losses are a weighted contracts, the reliefs will affect companies in all industries. estimate of the likelihood of credit losses over the expected life of a financial instrument.

- IFRS 17, ‘Insurance contracts’; effective from annual periods beginning on or after 1 January 2021. This standard replaces IFRS 4, which In the calculation of expected credit losses, the Company takes into account past credit loss experience as well as forecasts for the currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting future. by all entities that issue insurance contracts and investment contracts with discretionary participation features. The amendments will not have an impact on the financial position or performance of the Company. The Company uses a provisioning matrix to measure the expected credit losses on trade receivables. Depending on the number of days the maturities of trade receivables are exceeded, certain maturity ratios are calculated and these ratios are reviewed at each reporting period and revised where necessary. Expected credit losses are accounted for under "other income / expense from operating activities" in the income statement.

The Company collects receivables arising from domestic vehicles and spare parts sales through the “Direct Debit System” (DDS). Within this system which is also named as Direct Collection System; the contracted banks warrant the collection of the receivables within the limits granted to the dealers. Trade receivables are transferred by the contracted banks to the Company’s bank accounts at the due dates (Notes 7 and 26).

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.3 Summary of significant accounting policies (Continued) 2.3 Summary of significant accounting policies (Continued)

Inventories The estimated useful lifetimes of such assets are as follows:

Inventories are valued at the lower of cost or net realizable value. The cost of inventories is determined on the moving monthly average Rights 3 - 5 years basis. Cost elements included in inventories are materials, labour and an appropriate amount of factory overheads and exclude the Capitalized improvement expenses Project lifetime cost of borrowing. Net realizable value is the estimated selling price in the ordinary course of business, less the costs of completion Other intangible assets 5 years and selling expenses. The allocation of fixed production overheads to the costs of conversion is based on the normal capacity of the production facilities. Idle time expenses arising from the ceases in production other than planned in the factory’s annual production Impairment of long-lived assets plan are not associated with inventories and are recognized as cost of sales (Note 9). All assets are reviewed for impairment losses including property, plant and equipment and intangible assets whenever events or Trade payables changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value Trade payables are recognized at initial cost and subsequently measured at amortized cost using effective interest rate method (Notes in use. 7 and 26). Foreign exchange gain/loss and credit finance charges of trade payables are classified under “other operating income/ expense”. Impairment losses are recognized in the statement of profit or loss. Impairment losses are recognized in the statement of profit or loss. Impairment losses on assets can be reversed, to the extent of previously recorded impairment losses, in cases where increases in Property, plant and equipment the recoverable value of the asset can be associated with events that occur subsequent to the period when the impairment loss was recorded. Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided using the straight-line method based on the estimated useful lives of the assets. Financial assets

The depreciation periods for property and equipment, which approximate the economic useful lives of assets concerned, are as follows: Classification and Measurement

Land improvements 14,5 - 30 years The Company classified its financial assets in three categories; financial assets carried at amortized cost, financial assets carried at Buildings 14,5 - 36 years fair value though other comprehensive income, financial assets carried at fair value though profit of loss, Classification is performed Machinery and equipment 5 - 25 years in accordance with the business model determined based on the purpose of benefits from financial assets and expected cash flows. Moulds and models Project lifetime Management performs the classification of financial assets at the acquisition date. Furniture and fixtures 4 - 14,5 years Motor vehicles 9 - 15 years “Financial assets carried at amortized cost”, assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest, whose payments are fixed or predetermined, which are not actively traded and Land is not depreciated as it is deemed to have an indefinite useful life. which are not derivative instruments are measured at amortized cost. The Group’s financial assets carried at amortized cost comprise “trade receivables" and "cash and cash equivalents” in the statement of financial position. The aforementioned assets are initially Gains or losses on disposals of property, plant and equipment are determined by comparing proceeds with carrying amounts and are measured at fair values and measured at amortized cost using the effective interest rate method in subsequent reporting Gains included in income/expense from investing activities. Repair and maintenance expenses are charged to the statement of profit or loss and losses resulting from the valuation of non-derivative financial assets measured at amortized cost are recognized in the income as they are incurred. Repair and maintenance expenditures are capitalized if they result in an enlargement or substantial improvement statement. of the respective asset (Note 10). “Financial assets carried at fair value through profit or loss”, they consist of financial assets that are measured at amortized cost and Intangible assets whose fair value changes are reflected in other comprehensive income. Gains and losses arising from the valuation of such assets are recognized in the income statement. Intangible assets comprise computer software, rights, leasehold improvements and development costs.

Intangible assets are carried at cost less accumulated amortization. Amortization is calculated using the straight-line method over a period depending on the project’s lifetime. Development costs, comprising of engineering design incurred for the production of new commercial vehicles, are capitalized as discussed in Note 2 Research and development expenses (Note 11).

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.3 Summary of significant accounting policies (Continued) 2.3 Summary of significant accounting policies (Continued)

“Financial assets carried at fair value through other comprehensive income”, are the asset is held within a business model whose Deferred tax assets and deferred tax liabilities related to income taxes levied by the same taxation authority are offset when there is a objective is to hold assets in order to collect contractual cash flows and the contractual terms of the financial asset give rise on legally enforceable right to offset current tax assets against current tax liabilities (Note 24). specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Gains or losses on the related financial assets are recognized in other comprehensive income, except for impairment losses or gains or losses. If Current and deferred income tax the assets whose fair value difference is recognised under consolidated other comprehensive income statement are sold, valuation differences classified under consolidated other comprehensive income statement are classified under “Retained Earnings/(Losses)”. Current and deferred taxes except those which are either related to the items directly recognized in the equity as receivable or payable (which, in such cases, the deferred tax regarding the related items are also recognized directly in the equity) or those which result from At initial recognition, an entity may make an irrevocable election to present in other comprehensive income subsequent changes in the initial recognition of an enterprise merger are recognized as income or loss in the income statement. the fair value of an investment in an equity instrument. If an entity makes the election, it shall recognise in profit or loss dividends from that investment. Revenue recognition

Share premium The Company adopted TFRS 15 “Revenue From Contracts with Customers” from 1 January 2018 which proposes a five step model framework mentioned below for recognizing the revenue. Share premium represents differences resulting from the sale of the Company’s subsidiaries and associates’ shares at a price exceeding the face values of those shares or differences between the face values and the fair value of shares issued for acquired companies. - Identification of customer contracts, - Identification of performance obligations Share capital and dividends - Determination of transaction price in the contract, - Allocation of price to performance obligations, Ordinary shares are classified as equity. Dividends on ordinary shares are recognized in equity in the period in which they are declared. - Recognition of revenue when the performance obligations are fulfilled. Dividends payable are recognized as an appropriation of profit in the period in which they are declared (Notes 17 and 29). The Company recognized revenue from its customers only when all of the following criteria are met: Taxes on income - The parties to the contract have approved the contract (in writing, orally or in accordance with other customary business practices) Taxes include current period income taxes and deferred taxes. and are committed to perform their respective obligations, - Company can identify each party’s rights regarding the goods or services to be transferred, Current period income tax - Company can identify the payment terms for the goods or services to be transferred, - The contract has commercial susbtance, Current year tax liability consists of tax liability on the taxable income calculated according to currently enacted tax rates and to the - It is probable that Company will collect the consideration to which it will be entitled in exchange for the goods or services that will effective tax legislation as of statement of financial position date. be transferred to the customer

Deferred tax Goods & services sales

Deferred income tax is provided, using the liability method, for temporary differences arising between the tax bases of assets and Revenue comprises the invoiced value for the sale of goods and services. Revenues are recognized on an accrual basis at the fair values liabilities and their carrying values for financial reporting purposes. Tax bases of assets and liabilities comprise of the amounts that incurred or to be incurred when the goods are delivered, the risks and rewards of ownership of the goods are transferred, when the will affect the future period tax charges based on the tax legislation. Currently enacted tax rates, which are expected to be effective amount of revenue can be reliably measured and it is probable that the future economic benefits associated with the transaction will during the periods when the deferred tax assets will be utilized or deferred tax liabilities will be settled, are used to determine deferred flow to the entity. income tax. For domestic vehicle and spare parts sales, significant risk and rewards are transferred to the buyer when goods are delivered and Deferred tax liability is calculated on all taxable temporary differences whereas deferred tax assets are recognized for all deductible received by the buyer or when the legal title is passed to the buyer. But if the Company makes a sales agreement with buyback temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporarily commitment, which shall most likely be applied, the sales made in this scope are not recognized as revenue and monitored under differences can be utilized. Carrying values of deferred tax assets are decreased to the extent necessary, if future taxable profits are not “Other Non-Current Liabilities” (Note 31). Sales, which are subject to buyback commitment, are evaluated as operating lease and expected to be available to utilize deferred tax assets partially or fully. monitored as deferred income through allocating the difference between the price paid by the customers and their buyback price to leasing period. (Note 30). The revenue recognised on lease revenue for the periods over 1 year is recognized as “Long term deferred revenue” (Note 30).

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.3 Summary of significant accounting policies (Continued) 2.3 Summary of significant accounting policies (Continued)

The vehicles with repurchase commitments are classified in tangible assets (Note 10). The vehicles are amortised during the repurchase Foreign currency transactions and balances commitment period. For export sales significant risk and rewards are transferred to the buyer on FAS, “Final Assignment to Ship” terms. Exported service sales are recorded when the service is delivered and the amount of revenue can be measured reliably. Transactions in foreign currencies during the year have been translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies have been translated into TRY at the Central Bank of Turkey exchange Net sales represent the invoiced value of goods shipped less sales returns. When the arrangement effectively constitutes a financing rates prevailing at the statement of the financial position dates. Foreign currency exchange gains or losses arising from the settlement transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The of such transactions and from the translation of monetary assets and liabilities are recognized under the other operating income/ difference between the fair value and the nominal amount of the consideration is recognized as interest income on an accrual basis expenses and financial income/expense in the statement of profit or loss (Notes 21, 22, 23 and 27). (Notes 18 and 21). Foreign currency exchange rates used by the Company at the time of statement of financial position dates are as follows: When another party is involved in providing goods or services to a customer, the group determines whether the nature of its promise is a performance obligation to provide the specified goods or services itself or to arrange for the other party to provide those goods TRY/USD TRY/EUR TRY/GBP or services. The Company is a principal if it controls a promised good or service before the Company transfers the good or service 31 December 2019 5,9402 6,6506 7,7765 to a customer. When a Company that is a principal satisfies a performance obligation, it recognizes as revenue the gross amount of 31 December 2018 5,2609 6,0280 6,6528 consideration which it expects to be entitled to in exchange for those goods or services. The Company is an agent if its performance obligation is to arrange for the provision of goods or services by another party. Financial instruments and financial risk management The Company is an agent if the performance obligation is to act as an intermediary for the provision of goods or services by other parties and does not reflect the revenue for the performance obligation to the financial statements. Credit risk

The Company pays customer premiums to its dealers based on their performance results. Amounts calculated as of the balance sheet Ownership of financial assets involves the risk that counterparties may be unable to meet the terms of their agreements. All trade date are recognized in other payables in the balance sheet and in revenue as discounts in revenue in the statement of profit or loss receivables are due mainly from dealers and related parties. The Company has established effective control procedures over its dealers and the credit risk arising from transactions with such dealers is regularly monitored by management and the aggregate risk to any The Company provides legal warranty commitment to its customers depending on the type of goods and the location of sale between individual counterparty is limited. The Company covered its credit risk from domestic vehicle sales to dealers by setting credit limits for 2-3-4 years. These legal warranty commitments are mandatory by regulations, do not have a separate price apart from the good and dealers through arranged banks and collects its trade receivables from banks at the due date through the use of Direct Debit System. are not separately sold. The use of DDS for receivables from dealers is an effective way to decrease the credit risk.

Revenue from extended warranty and maintenance package Bank letters of collaterals received from dealers for the exceeding part of DDS limit, regarding domestic vehicle sales and spare part sales is another method in the management of the credit risk (Note 7). The Company sells extended warranty to its customer for the period after the termination of legal warranty provided for all goods. The price of extended warranty and maintenance package are determined separately from the price of the goods and it is a separate Conditions are specified in the business agreements with Ford Motor Company. Receivables from Ford Motor Company and its performance obligation in the contract. Therefore, the Company treats the service that will be provided due to the sale of extended subsidiaries are collected in 14 days for export vehicle sales regularly. Receivables from Ford Motor Company and its subsidiaries, warranty as a separate performance obligation. except vehicle sales, are collected in 45 days in average. The collection of receivables resulting from export sales to customers other than Ford Motor Company is secured with letter of credit, letter of guarantee or cash payment. The Company determines at contract inception whether it satisfies the performance obligation over time or satisfies the performance obligation at a point in time. The Company delivers the control of services related to the sale of extended warranty and maintenance Price risk packages over time and it fulfills the performance obligation of those over time. Therefore, Company measures the delivery status of its performance obligation and recognize revenue in the consolidated financial statements accordingly. The Company is exposed to equity securities price risk because of investments classified on the statement of financial position as financial assets at fair value through other comprehensive income. The Company limits the financial assets at fair value through other Dividend and interest income comprehensive income in order to manage the price risk arising from investments in equity securities.

Dividend income from the stock investments are recorded when the stockholders become entitled to receive a dividend. Interest income is realized on a time period basis and the accrued income is determined by taking into account the valid interest rate and the interest rate that is to be effective until its maturity date.

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2.3 Summary of significant accounting policies (Continued) 2.3 Summary of significant accounting policies (Continued)

Liquidity risk 31 December 2019 31 December 2018 Net financial debt 3,005,094 3,090,045 Prudent liquidity risk management includes maintaining sufficient cash and marketable securities, the availability of funding from EBITDA (*) 3,198,016 2,854,076 an adequate amount of committed credit facilities and the ability to close out market positions. The risk of funding current and future debt requirements is managed by having an adequate number of quality loan providers constantly available. The Company Net financial debt / EBITDA (*) 0.94 1.08 management keeps cash, credit commitment and factoring capacity to maintain 21 days cash outflows to manage the liquidity risk. (*) EBITDA (Earnings before tax depreciation and interest) covering the last four quarters. The Company maintains a credit commitment amounting to Euro 100 million and factoring agreement amounting to Euro 120 million in case a requirement for use arises. Fair value of financial instruments Interest rate risk The Company measures derivatives and financial assets whose fair value changes reflected into other comprehensive income at fair Management uses short-term interest bearing financial assets to manage the maturities of interest bearing assets and liabilities. The value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly Company makes limited use of interest rate swaps, to hedge its floating rate borrowings, if needed. transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: Funding risk - In the principal market for the asset or liability or The ability to fund the existing and prospective debt requirements is managed as necessary by obtaining adequate committed funding lines from high quality lenders. - In the absence of a principal market, in the most advantageous market for the asset or liability.

Foreign exchange risk The principal or the most advantageous market must be accessible to by the Company.

The Company is exposed to foreign exchange risk through the impact of rate changes on the translation of foreign currency assets The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset and liabilities into TRY. This risk is monitored by key management personnel through Early Determination of Risk and Management or liability, assuming that market participants act in their economic best interest. Committee and regular Board of Director’s meetings. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to Excess cash is invested mainly in hard currency to balance the net foreign currency assets and liabilities and in order to minimize the measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. statement of financial position foreign exchange exposure. In addition to this, distribution of the amount of the export orientated production and sales in the related months can increase the foreign assets (Note 27). Financial assets

Capital risk management Foreign currency balances are translated into TRY at the exchange rates prevailing at the balance sheet date. These balances are estimated to be close to the book value. Certain financial assets, including cash and cash equivalents, are carried at cost and are The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern in order to considered to approximate their respective carrying values due to their short-term nature. The carrying values of trade receivables provide returns for shareholders benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of along with the related allowances for uncollectibility are estimated to be their fair values. capital. In order to maintain or adjust the capital structure, the Company may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Financial liabilities

The Company monitors capital on the basis of the “net financial debt to earnings before interest tax and depreciation”. This ratio is Bank borrowings are recorded over their fair value of which the transaction costs are discounted. In the following periods, they are calculated as net financial debt divided by EBITDA (earnings before interest tax and depreciation) of last four quarters. Net financial evaluated and recognized with their discounted costs by using the effective rate of interest method. The fair values of other monetary debt is calculated as total short and long term borrowings minus cash and cash equivalents. The company management expects, this liabilities are considered to approximate their respective carrying values due to their short-term nature ratio not to exceed 3.5.

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.3 Summary of significant accounting policies (Continued) 2.3 Summary of significant accounting policies (Continued)

Cash flow hedge accounting Provision for employee benefits

Hedges of exposures to variability in cash flows that are attributable to a particular risk associated with a recognised asset or liability a) Defined benefit plans or a highly probable forecast transaction and could affect profit and loss are designated as cash flow hedges by the Company. Provision for employee benefits represent the present value of the estimated total reserve of the future probable obligation of Changes in the fair value of derivatives, designated as cash flow hedges and qualified as effective, are recognised in equity as “hedging the Company arising from the retirement of the employees or reasons except for resignation and behaviours stated in labour law, reserves”. Where the forecasted transaction or firm commitment results in the recognition of a non-financial asset or of a liability, the calculated in accordance with the Turkish Labour Law (Note 15). According to the amendments on TAS 19 “Employee Benefits”, the gains and losses previously recognised under equity are transferred from equity and included in the initial measurement of the cost of actuarial (gain)/loss of employee benefits are recognized under other comprehensive income. the asset or liability. Otherwise, amounts recognised under equity are transferred to the income statement in the period in which the hedged firm commitment or forecasted transaction affects the income statement. If the forecast transaction or firm commitment is b) Defined contribution plans no longer expected to occur, the cumulative gain or losses previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is The Company is obliged to pay social insurance contributions to the Social Security Institution. No other obligation exists as long as revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income the Company pays these premiums. These premiums are reflected to the personnel expenses when they are accrued (Note 15). until the forecast transaction or firm commitment affects profit or loss. c) Other employee benefits The Company has entered into swap transactions in order to manage its interest rate risk. Swap transactions are initially recognized at fair value on the date the derivative contract is entered into and subsequently remeasured at fair value. The fair value of interest swap “Long - term provisions for employee benefits” is composed of the unused vacation days accrued in the period incurred and if the contracts is determined by using valuation methods based on observable data in the market. impact is material, it is also discounted.

Derivative financial instruments are initially recognized at the transaction cost reflecting the fair value at the date of the contract is Provisions entered into and are subsequently measured at fair value. Derivative financial instruments are recognized as assets if the fair value is positive and as liabilities when the fair value is negative. The fair value differences of the Company are reflected in derivative financial Provisions are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that instruments and consist of forward foreign currency purchase and sale contracts. Fair value is determined using valuation methods an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. If the provision based on observable market data. amount decreases, in the case of an event occurring after the provision is accounted for, the related amount is classified as other income in the current period. Investments accounted for by the equity method Provisions for sales premium Under the equity method, the investment in an associate or joint venture is initially recognized at cost. The carrying amount is increased or decreased to recognise the investor’s share of profit or loss of the investee after the date of the acquisition. The investor’s share Provision for dealer stock sales premium expenses is accounted based on the last approved sales premium programme (Note 13). of profit or loss of the investee is recognised in the investor’s profit or loss. Distributions (dividends etc.) received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount are necessary for the change in the investor’s Warranty provisions proportionate interest in the investee arising from changes in the investee’s other comprehensive income. Such adjustments include revaluation of property, plant and equipment or foreign currency translation differences. The investor’s proportionate interest in the Warranty expenses are recognized on an accrual basis for amounts estimated based on prior periods’ realization. The Company has investee arising from changes are accounted in the investee’s other comprehensive income. reclassified warranty reserves to be expected to be realized in one year as current provision (Note 13).

Borrowings and borrowing costs Research and development expenses

Borrowings are recognized initially at the proceeds received, net of transaction costs incurred. In subsequent periods, borrowings Research expenditure is recognized as an expense as incurred. Costs, except for listed below are classified as development expenditures are stated at amortized cost using the effective yield method; any difference between proceeds (net of transaction costs) and the and recognized as expense as incurred: redemption value is recognized in the statement of profit or loss over the period of the borrowings (Note 6). With respect to assets which take long time to get ready for use and sale, borrowing costs related to production or construction are integrated to the cost of - If the cost related to the products can be defined and only if the cost can be measured reliably, the asset. The borrowing costs include other costs incurred due to borrowing and interest. - If the technological feasibility can be measured, - If the good will be sold or will be used within the Company, - If there’s a potential market or can be proved that it is used within the Company, - If necessary technological, financial and other resources can be provided to complete the project.

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.3 Summary of significant accounting policies (Continued) 2.3 Summary of significant accounting policies (Continued)

Development costs previously recognized as expense are not recognized as an asset in a subsequent period. Development costs Earnings per share that have been capitalized are amortized from the commencement of the commercial production of the product on a straight-line basis over the project lifetime. Impairment test for the assets is performed annually within the recognition period of the development Earnings per share disclosed in the statement of profit or loss are determined by dividing net earnings by the weighted average number expenditures in progress (Note 11). of shares that have been outstanding during the related year concerned. In Turkey, companies can increase their share capital by making a pro-rata distribution of shares ("bonus shares") to existing shareholders from retained earnings and the revaluation surplus. Related parties For the purpose of earnings per share computations, the weighted average number of shares outstanding during the year has been adjusted in respect of bonus shares issues without a corresponding change in resources, by giving them retroactive effect for the year Parties are considered related to the Company (reporting entity) if; in which they were issued and for each earlier year (Note 25).

(a) A person or close member of that person’s family is related to a reporting entity: Reporting of cash flows

If that person, In the statement of cash flows, cash flows during the period are classified under operating, investing or financing activities.

(i) has control or joint control over the reporting entity, The cash flows raised from operating activities indicate cash flows due to the Company’s operations. (ii) has significant influence over the reporting entity or, (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. The cash flows due to investing activities indicate the Company cash flows that are used for and obtained from investments (investments in property, plant and equipment and financial investments). (b) An entity is related to a reporting entity if any of the following condition applies: The cash flows due to financing activities indicate the cash obtained from financial arrangements and used in their repayment. Cash (i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow and cash equivalents include cash and bank deposits and the investments that are readily convertible into cash and highly liquid subsidiary is related to the others). assets with less than three months to maturity (Note 4). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). Contingent assets and liabilities (iii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. Possible assets or obligations that arise from past events and whose existence will be confirmed only by the occurrence or non- (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related occurrence of one or more uncertain future events not wholly within the control of the Company are not included in the financial to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting statements and treated as contingent assets or liabilities (Note 13). entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). Subsequent events (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity) Subsequent events and announcements related to net profit or even declared after other selective financial information has been related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price publicly announced; include all events that take place between the statement of financial position date and the date when the is charged. statement of financial position is authorized for issue. In the case that events requiring an adjustment to the financial statements occur subsequent to the statement of financial position date, the Company makes the necessary corrections on the financial statements The transaction with the related party is the transfer of resources, services or liabilities between a reporting entity and a related party, (Note 36). regardless of whether or not it is for a fee. Offsetting The Company defines its key management personnel as board of directors’ members, general managers, assistant general managers and directors reporting directly to the general manager Financial assets and liabilities are offset when there is a legal basis, intention to disclose net amount of related assets and liabilities or (Note 26). obtaining an asset that follows the settlement its liability.

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2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED)

2.3 Summary of significant accounting policies (Continued) 2.4 Accounting policies, changes in accounting estimates and errors (Continued)

Government grants and incentives i) The Company has the right to operate the asset (or to direct others to operate the asset in a manner that it determines) throughout the period of use, without the supplier having the right to change those operating instructions or Government grants and incentives are recognized at fair value when there is assurance that these grants and incentives will be received ii)The Company designed the asset (or specific aspects of the asset) in a way that predetermines how and for what and the Company has met all conditions required. Government grants and incentives regarding the capitalized projects, costs are purpose the asset will be used throughout the period of use recognized by netting from costs of property, plant and equipment and intangible assets. Incentives which are not subject to assets are shown as other income in the income statement. The Company recognizes right of use asset and lease liability at the start date of lease after evaluation of aforementioned criterias.

2.4 Accounting policies, changes in accounting estimates and errors Right of use asset

Material changes in accounting policies and estimates or material errors are corrected retrospectively; by restating the prior period At the commencement date, the Company shall measure the right-of-use asset at cost. The cost of the right-of-use asset shall financial statements. The effect of changes in accounting estimates affecting the current period is recognized in the current period; the comprise: effect of changes in accounting estimates affecting current and future periods is recognized in the current period and prospectively. a) The amount of the initial measurement of the lease liability, The Company applied first time application requirements of TFRS 16 “Leases” out of the new standards, amendments and b) Any lease payments made at or before the commencement date, less any lease incentives received; interpretations effective from 1 January 2019 in line with the requirement of transition of the related standards. c) Any initial direct costs incurred by the Company d) An estimate of costs to be incurred by the Company in dismantling and removing the underlying asset, restoring the site on which The effects of this standard-related accounting policy change and the first-time implementation of the relevant standards are as it is located or restoring the underlying asset to the condition required by the terms and conditions of the lease, unless those costs are follows: incurred to produce inventories.

TFRS 16 “Leases” Standard To apply a cost model, the Company shall measure the right-of-use asset at cost:

Company - As a Lessee a) Less any accumulated depreciation and any accumulated impairment losses and b) Adjusted for any remeasurement of the lease liability At inception of a contract, the Company shall assess whether the contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Company shall apply the depreciation requirements in TAS 16 Property, Plant and Equipment in depreciating the right-of-use asset. To assess whether a contract conveys the right to control the use of an identified asset for a period of time, the Company shall assess whether, throughout the period of use, the customer has both of the following: The Company shall apply TAS 36 Impairment of Assets to determine whether the right-of-use asset is impaired and to account for any impairment loss identified. - The contract includes an identified asset (identification of an asset in a clear or implicitly specified form in the contract), - A capacity portion of an asset is an identified asset if it is physically distinct and represents substantially all of the capacity of the Lease liability asset (the asset is not an identified asset if the vendor has a fundamental right to substitute the asset for the duration of its use and obtain an economic benefit from it) At the commencement date, the Company shall measure the lease liability at the present value of the lease payments that are not paid - The Company has the right to obtain almost all of the economic benefits that will be derived from the use of the identified asset. at that date. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. - The right to direct the use of the identified asset. The Company has the right to direct the use of an identified asset throughout the If that rate cannot be readily determined incremental borrowing interest rate shall be used for discounting. period of use only if either: At the commencement date, the lease payments included in the measurement of the lease liability comprise the following payments a) The Company has the right to direct how and for what purpose the asset is used throughout the period of use for the right to use the underlying asset during the lease term that are not paid at the commencement date: b) the relevant decisions about how and for what purpose the asset is used are predetermined and: a) Fixed payments, less any lease incentives receivable; b) Variable lease payments that depend on an index or a rate, initially measured using the index or Rate as at the commencement date c) Payments of penalties for terminating the lease, if the lease term reflects the lessee exercising an option to terminate the lease.

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2.4 Accounting policies, changes in accounting estimates and errors (Continued) 2.4 Accounting policies, changes in accounting estimates and errors (Continued)

After the commencement date, the Company shall measure the lease liability by: The reconciliation of the operating lease agreements followed under TAS 17 prior to the first application date and t the lease liabilities recognized under TFRS 16 in the financial statements as of 1 January 2019 is as follows a) Increasing the carrying amount to reflect interest on the lease liability; b) Reducing the carrying amount to reflect the lease payments made; and 1 January 2019 c) Remeasuring the carrying amount to reflect any reassessment or lease modifications, or to reflect revised in-substance fixed lease Operating lease commitments disclosed in accordance with TAS 17 143,048 payments. - Short-term leases (-) (3,942)

Extension and early termination options - Low value leases (-) - - Contracts reassessed as service agreements (-) -

The lease liability is determined by considering the extension and early termination options in the contracts. Most of the extension - Adjustments as a result of extension and termination options - and early termination options included in the contracts are composed of the options that are jointly applicable by the Company and the lessor. The Company determines the lease term by the extension of the lease, if such extension and early termination options are Lease liability recognised under TFRS 16 (not discounted) 139,106 at the Company's discretion and the use of the options is reasonably certain. If there is a significant change in the circumstances, the evaluation is reviewed by the Company. Lease liability recognised under TFRS 16 (discounted) 111,103 Variable lease payments - Short-term lease liability 33,370 - Long-term lease liability 77,733 Lease payments arising from some of the Company's lease agreements consist of variable rent payments. These variable lease payments, which are not included in TFRS 16, are recorded as rent expense in the related period in the income statement. The incremental annual borrowing rate applied to the lease liabilities on 1 January 2019 was 4.60% for Euro and 28% for TRY.

Practical expedient The details of the right-of-use assets recognised by each asset type in financial statements as of 31 December 2019 and 1 January 2019 are as follows: Contracts for short-term lease agreements with a rental period of less than 12 months and information technology equipment leases

(mainly printers, laptops, mobile telephones, etc.), which are determined as low value by the Company, have been evaluated under the 31 December 2019 1 January 2019 exception of the TFRS 16 Leases Standard anf these payments are recognized as an expense in the period in which they are incurred. Building 38,942 50,003

Machinery and equipment 47,481 63,310 Company - As Lessor Vehicles 13,291 23,715 The Company has no significant activity as a lessor. Total right-of-use assets 99,714 137,028

Transition to TFRS 16 “Leases” The practical expedients applied in transition

The Company applied TFRS 16, “Leases”, which superseded TAS 17, “Leases”, and accounted for in the financial statements by using Within the scope of the transition, the following practices defined in TFRS 16 are adopted within the scope of the Company policies. “cumulative effect method” on the transition date of 1 January 2019. In accordance with the simplified transition method defined in standard, no restatement has been required in the comparative information of the financial statement and has no impact on retained a) The leases which have a lease term of 12 months or less are exempted. Although the rental period is 1 year or less; The Company has earnings. an option to extend the lease and is reasonably certain that it will use the extension right option (for example, if there is a significant amount of private cost investment related to the asset subject to the leasing and that the investment has been amortized for more On first time adoption of TFRS 16 “Leases”, the Company recognised lease liabilities in relation to leases which had previously been than 1 year). the agreement is included in the scope of TFRS 16. classified as ‘operating leases’ under the principles of TAS 17 “Leases” before 1 January 2019. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of the transition date. The b) Low value leases mainly printer, laptop, mobile phone, etc. information technology equipment) are excluded. right to use assets are accounted for at an amount equal to the lease obligations (adjusted for the amount of prepayed or accrued lease payments) within the scope of simplified transition application in the related standard.

166 167 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (CONTINUED) 4. CASH AND CASH EQUIVALENTS

2.5 Significant accounting estimates and decisions The maturity period of time deposits is up to three months and there is no blockage/restriction on cash and cash equivalents. The weighted average interest rate for foreign currency denominated time deposits is 0.17% (31 December 2018: 1.85%) and the weighted The preparation of financial statements require management to make estimates and assumptions that affect certain reported average interest rate for the TRY time deposits is 10.99% (31 December 2018: 23.48%). amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. 31 December 2019 31 December 2018 Banks - TRY time deposits 2,615,719 875,225 (a) In calculation of the employee benefit provision actuarial assumptions relating to turnover ratio, discount rate and salary increase Banks - foreign currency time deposits 544,884 486,369 are used. The details regarding the calculation are disclosed under provision for employee benefits (Note 15). Banks - TRY demand deposits 36,427 27,296 (b) In determination of the impairment of trade receivables, the factors such as debtor credibility, historical payment performance and Banks - foreign currency demand deposits 3,199 2,131 debt restructuring is considered (Note 7). Cash and cash equivalents in the cash flow statement 3,200,229 1,391,021 (c) Discounted inventory price list is used to calculate inventory impairment. Where the sales price cannot be predicted, technical Interest income accrual 2,723 1,751 personnel’s opinion and inventory waiting time is considered. If expected net realizable value is less than cost, the Company should allocate provisions for inventory impairment (Note 9). 3,202,952 1,392,772 (d) In determination of the legal case provisions, the possibilities of losing the case and the liabilities that will arise if the case is lost is evaluated by the Company’s Legal Counsellor and by the Management team taking into account expert opinions. The management 5. FINANCIAL ASSETS determines the amount of the provisions based on the best forecasts.

(e) In calculation of the warranty provision, the Company considers the historical warranty expenses incurred addition to planned 31 December 2019 31 December 2018 technical and financial improvements to estimate the possible warranty expense per vehicle. Provision calculations are realistically Ownership rate (%) Amount Ownership rate (%) Amount performed and based on vehicle quantity, warranty period and historical claims (Note 13). Financial assets at fair value through other (f) Deferred tax assets are recognized when the occurrence of taxable profit is probable in the forthcoming years. Deferred tax asset comprehensive income is calculated over any temporary differences in cases when the occurrence of taxable profit is probable, taken into consideration of Otokar Otomotiv ve Savunma Sanayi A.Ş. (Otokar) (*) 0.59 22,355 0.59 12,408 tax advantages obtained within the context of investment incentive certificates. Deferred tax asset is recorded as of 31 December 22,355 12,408 2019 and 31 December 2018 since presumptions that the Company will have taxable profit in the forthcoming periods are found to be sufficient (Note 24). (*) The Company’s shareholding in Otokar was stated at market value at 31 December 2019 and 31 December 2018, which is assumed to approximate its fair value. (g) The Company recognizes depreciation and amortization for its property, plant and equipment and intangibles by taking into account their useful lives that are stated in Note 2 6. FINANCIAL LIABILITIES (Notes 10 and 11). (h) Development costs related to continuing projects are capitalized and the Company management perform impairment test Short-term financial liabilities regarding those capitalized costs annually. As of 31 December 2019 and 31 December 2018, there is no impairment determined related Bank borrowings 31 December 2019 31 December 2018 to development costs in progress (Note 11). Effective Effective Amount Amount interest rate (%) interest rate (%) 3. SEGMENT REPORTING - EUR 0.82 2,565,458 0.74 2,020,474 - TRY - 23,755 - 10,332 The Company, which is incorporated and domiciled in Turkey, has primary operation of manufacturing, assembling, importing and 2,589,213 2,030,806 selling motor vehicles and spare parts. The Company’s operating segments, nature and economic characteristics of products, nature of production processes, classification of customers in terms of risk for their products and services and methods used to distribute Short-term portion of long-term financial liabilities their products are similar. Furthermore, the Company structure has been organized to operate in one segment rather than separate Bank borrowings business segments. Consequently, the business activities of the Company are considered to be in one operating segment and the - EUR 1.71 1,025,728 1.61 773,457 operating results, resources to be allocated to the segment and assessment of performance are managed in this respect. 1,025,728 773,457

Lease liabilities - EUR 4.60 23,361 - - - TRY 28 9,808 - - 33,169 - 1,058,897 773,457 Total short-term financial liabilities 3,648,110 2,804,263

168 169 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

6. FINANCIAL LIABILITIES (CONTINUED) 6. FINANCIAL LIABILITIES (CONTINUED) The movement of financial liabilities as of 31 December 2019 and 2018 is as follows:

Long-term financial liabilities 2019 2018 Bank borrowings 31 December 2019 31 December 2018 1 January 4,482,817 3,604,047

Effective Effective Effect of TFRS 16 (Note 2) 111,103 - interest rate (%) Amount interest rate (%) Amount Effect of cash flows 1,069,898 (292,287) - EUR 1.81 2,503,852 1,61 1,678,554 Unrealised foreign exchange differences 510,851 1,171,947 2,503,852 1,678,554 Changes in TFRS 16 - lease liabilities 13,714 -

Change in accrual of interest 19,663 (890)

Lease liabilities 31 December 2019 31 December 2018 31 December 6,208,046 4,482,817 Effective Effective interest rate (%) Amount interest rate (%) Amount - EUR 4.60 34,917 - - 7. TRADE RECEIVABLES AND PAYABLES

- TRY 28 21,167 - - 31 December 2019 31 December 2018

56,084 - Short - term trade receivables

Total long-term financial liabilities 2,559,936 1,678,554 Trade receivables 1,572,755 1,086,298 Doubtful receivables 4,533 4,533 The payment schedules of long-term bank borrowings as of 31 December 2019 and 31 December 2018 are as follows: Less: unearned credit finance income (14,792) (27,372) 1,562,496 1,063,459 31 December 2019 31 December 2018 Less: provision for doubtful receivables (4,533) (4,533)

Payment period 1,557,963 1,058,926 2020 - 670,934

2021 1,074,945 486,232 The average turnover of receivables related to vehicle sales to domestic distributors is 25 days (31 December 2018: 25 days), domestic 2022 699,547 243,671 sales of spare parts turnover is 70 days (31 December 2018: 70 days) and discounted by 1.27% monthly effective interest rate (31 2023 411,161 186,997 December 2018: 2.23%).

2024 175,768 90,720 The collection of receivables from export sales other than Ford Motor Company is kept under guarantee with letter of credit, letter of 2025 71,997 - guarantee, export credit insurance, Ford credit limit or upfront cash collection. 2026 70,434 -

2,503,852 1,678,554 31 December 2019 31 December 2018 Long - term trade receivables The letters of bank guarantee given to financial institutions in connection with borrowings amounting to TRY3,043,957 (31 December 2018: Deposits and guarantees given 2,903 2,954 TRY2,201,762) (Note 13). 2,903 2,954

31 December 2019 31 December 2018 Trade payables Trade payables 3,690,149 3,364,101

Less: unearned credit finance expense (29,283) (44,981)

3,660,866 3,319,120

The average turnover of trade payables is 60 days (31 December 2018: 60 days) and discounted by 1.27% monthly effective interest rate (31 December 2018: 2.23%).

170 171 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

7. TRADE RECEIVABLES AND PAYABLES (CONTINUED) 7. TRADE RECEIVABLES AND PAYABLES (CONTINUED)

The maximum exposure of the Company to credit risk as of 31 December 2019 and 31 December 2018 is as follows: The aging schedule of receivables that are overdue but not impaired is as follows:

Trade receivables Other receivables Trade receivables Deposit 31 December 2019 Related party Other Related party Other in bank 31 December 2019 Related party Other The maximum of credit risk exposed at the reporting date 1 - 30 days overdue 36,025 1,130 2,547,130 1,557,963 - 1,870 3,200,229 (Note 26, 7, 8, 4) 1 - 3 months overdue 4,037 611 - The maximum of credit risk covered by guarantees 235,000 1,556,766 - - - 3 - 12 months overdue 4,899 693 Net book value of the financial assets that are neither 2,502,170 1,555,514 - 1,870 3,200,229 overdue nor impaired 1 - 5 years overdue - 15 44,961 2,449 Net book value of financial assets that are overdue but not impaired 44,961 2,449 - - - Risk covered by guarantees - 1,252 - Amount of risk covered by guarantees - 1,252 - - -

Net book value of impaired assets - - - - - The Company’s overdue related party receivables are related to the long-term engineering service charges and spare parts exports to - Overdue (gross book value) - 4,533 - - - Ford Motor Company.

- Provision for impairment (-) - (4,533) - - - Trade receivables - Amount of risk covered by guarantees - - - - - 31 December 2018 Related party Other 1 - 30 days overdue 18,203 4,204

1 - 3 months overdue 4,812 2,360 Trade receivables Other receivables Deposit 3 - 12 months overdue 31,540 2,121 31 December 2018 Related party Other Related party Other in bank 1 - 5 years overdue 7,066 37 The maximum of credit risk exposed at the reporting date 2,082,263 1,058,926 - 2,788 1,391,021 (Note 26, 7, 8, 4) 61,621 8,722

- The maximum of credit risk covered by guarantees 225,000 1,057,997 - - - Risk covered by guarantees - 7,793

Net book value of the financial assets that are neither 2,020,642 1,050,204 - 2,788 1,391,021 overdue nor impaired 8. OTHER RECEIVABLES AND PAYABLES Net book value of financial assets that are overdue but not impaired 61,621 8,722 - - -

- Amount of risk covered by guarantees - 7,793 - - - Other receivables 31 December 2019 31 December 2018

Net book value of impaired assets - - - - - Other miscellaneous receivables 1,870 2,788

- Overdue (gross book value) - 4,533 - - - 1,870 2,788

- Provision for impairment (-) - (4,533) - - -

- Amount of risk covered by guarantees - - - - - Other payables 31 December 2019 31 December 2018 Taxes and funds payable 26,694 19,624

Sales premium accruals 14,478 8,033

Other 13,369 7,004

54,541 34,661

172 173 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Ford Otomotiv Sanayi A.Ş. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2019 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) -

9. INVENTORIES 11,512 Total (15,487) 1,110,943 3,922,747 (593,167) 8,700,416 3,922,747 7,604,960 4,436,548 4,436,548 (3,682,213)

31 December 2019 31 December 201 (4,263,868) Raw materials 838,126 638,408 - - - - Finished goods 230,731 412,139 -

Goods in transit 420,851 328,890 87,327 129,687 132,050 132,050 129,687 129,687 132,050 Import vehicles 27,530 90,427 (89,690) in progress

Vehicle spare parts 239,680 277,117 Constructions

Spare parts 47,635 40,682 1,387 Other 39,511 99,829 1,239 23,577 74,142 74,142 (4,921) 56,407 68,226 89,643 (3,547) (11,819) 56,407 1,844,064 1,887,492 (15,501)

Less: provision for impairment of finished goods and vehicle spare parts (16,665) (22,847) (*) Vehicles

1,827,399 1,864,645 265 2,300 48,613 (2,376) 165,786 449,351 182,139 182,139

The allocation of fixed production overheads to finished goods costs of conversion is based on the normal capacity of the production 165,786 495,853 (313,714) (32,449) furniture facilities. (283,565) Fixture and Fixture

The Company has accounted the expenses due to the impairment of inventories as part of cost of sales and the movement in the balance within the year is as follows: 1,991 74,660 (2,675) moulds 588,641 1,430,828 1,742,706 1,742,706 (350,739) 3,550,828 2,890,202 1,430,828 (1,808,122) 2019 2018 (1,459,374) Models and Models 1 January 22,847 3,906 Change within the period (6,182) 18,941 13,113

31 December 16,665 22,847 5,402 (5,649) 337,286 1,451,608 (167,870) (1,411,727) 2,863,335 1,451,608 3,208,085 (1,574,195) 1,633,890 1,633,890 equipment equipment

The Company has provided a provision for impairment on the inventories when their net realizable values are lower than their costs and Machine or when they are classified as slow moving inventories. The reversal of provisions has been accounted under cost of sales (Note 18). 577 265 16,953 (1,232) 568,357 554,313 554,313 568,357 (30,607) 1,016,609 1,000,623 Buildings (432,266) (462,296) - 3 (8) Land 8,546 (6,581) 197,442 105,442 188,904 107,402 107,402 105,442 (83,462) (90,040) improvements ------Land 12,269 12,269 12,269 12,269 12,269 12,269 Ford Otomotiv Sanayi A.Ş. Sanayi Otomotiv Ford 2019 - 31 DECEMBER THE PERIOD ENDED 1 JANUARY FOR THE FINANCIAL STATEMENTS TO NOTES indicated.) otherwise unless (“TRY”) Lira of Turkish in thousands expressed (Amounts PLANT AND EQUIPMENT PROPERTY, 10. For the period ended 31 December 2019 31 December For the period ended book value Opening net Additions Disposals from Disposals depreciation accumulated Cost Transfers charge Depreciation book value net Closing 2019 31 December 2019 31 December depreciation Accumulated 1 January 2019 1 January exchange and foreign in TRY denominated interest loan the market to currency in foreign loans of investment cost the borrowing compared Company The 23 TAS of context within the approach cumulative to the according equipment and plant under property, recognized been has costs No interest differences. TRY). 2018: 9,355 (31 December 2019 of 31 December as and 2018. 2019 of 31 December as assets on tangible or mortgage pledge is no collateral, There to amounts value and Equipment their cost Plant under Property, “Vehicles” in monitored are in this scope sold and trucks commitment with buyback truck sales of its a part makes Company (*) The 2018: TRY46,359). (31 December TRY63,655 174 Cost depreciation Accumulated book value Net 175 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

- Ford Otomotiv Sanayi A.Ş. NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2019 Total

34,084 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) 903,207 (84,029) 6,785,782 3,536,220 (466,735) 3,922,747 3,922,747 7,604,960 3,536,220 (3,682,213) (3,249,562)

10. PROPERTY, PLANT AND EQUIPMENT (CONTINUED) - - - - -

The allocation of depreciation expense as of 31 December 2019 and 2018 is as follows: 114,972 114,972 98,573 114,972 132,050 (81,495) 132,050 132,050 31 December 2019 31 December 2018 in progress Cost of production (Note 18) 558,703 431,261 Constructions Research and development expenses (Note 19) 18,400 17,817 General administrative expenses (Note 19) 11,474 9,387 9,162 3,532 Marketing expenses (Note 19) 3,075 3,028 101,115 19,983 101,115 68,226 123,031 (11,819) 56,407 56,407 (21,916) (9,886) (67,499) Vehicles Associated with construction in progress 1,515 5,242 593,167 466,735

11. INTANGIBLE ASSETS 1,315 3,342 (1,612) 39,792

155,931 Development Development 155,931 449,351 407,829 165,786 165,786 1 January 2019 Rights Other Total (32,982) furniture

(251,898) cost cost in progress (283,565)

Fixture and Fixture Cost 72,230 1,037,848 162,777 7,822 1,280,677 Accumulated amortisation (57,253) (393,622) - (6,460) (457,335) Net book value 14,977 644,226 162,777 1,362 823,342 1,825 16,975 (3,618) 490,413 moulds

1,160,218 For the period ended 31 December 2019 1,160,218 2,386,432 (234,985) 2,890,202 1,430,828 1,430,828 (1,226,214) (1,459,374) Opening net book value 14,977 644,226 162,777 1,362 823,342 Models and Models Additions 23,962 3,511 119,053 81 146,607 Transfers - - - - - Amortisation charge (14,782) (123,688) - (283) (138,753) 10,185 33,518 Closing net book value 24,157 524,049 281,830 1,160 831,196 239,836 (10,524) (151,109) 1,329,702 (1,411,727) 2,863,335 1,329,702 1,451,608 1,451,608 2,600,505 (1,270,803) equipment equipment

Machine and Machine 31 December 2019 Cost 96,192 1,041,359 281,830 7,903 1,427,284 Accumulated amortisation (72,035) (517,310) - (6,743) (596,088) 767

9,521 Net book value 24,157 524,049 281,830 1,160 831,196 (767) 14,836 977,033 575,468 (31,468) 568,357 568,357 575,468 1,000,623 Buildings (401,565) (432,266) There is no fully depreciated intangible assets as of 31 December 2019. As of 31 December 2019, there is no capitalized interest costs and foreign exchange differences in accordance with TAS 23 (31 December 2018: None). 9

(9) Development Development

Land 1 January 2018 Rights Other Total 14,607 163,711 10,595 cost cost in progress 86,545 86,545 (6,305) (77,166) 188,904 105,442 105,442 (83,462) Cost 55,093 652,389 330,166 7,556 1,045,204 Accumulated amortisation (45,405) (303,302) - (6,160) (354,867) improvements ------Net book value 9,688 349,087 330,166 1,396 690,337 Land 12,269 12,269 12,269 12,269 12,269 12,269 For the period ended 31 December 2018 Opening net book value 9,688 349,087 330,166 1,396 690,337 Additions 17,137 121,323 96,747 266 235,473 Transfers - 264,136 (264,136) - - Amortisation charge (11,848) (90,320) - (300) (102,468) Closing net book value 14,977 644,226 162,777 1,362 823,342

31 December 2018 Cost 72,230 1,037,848 162,777 7,822 1,280,677

Net book value Net 31 December 2018 31 December Cost depreciation Accumulated Ford Otomotiv Sanayi A.Ş. Sanayi Otomotiv Ford 2019 - 31 DECEMBER THE PERIOD ENDED 1 JANUARY FOR THE FINANCIAL STATEMENTS TO NOTES indicated.) otherwise unless (“TRY”) Lira of Turkish in thousands expressed (Amounts (CONTINUED) PLANT AND EQUIPMENT PROPERTY, 10. 2018 1 January Cost depreciation Accumulated Transfers Disposals from Disposals depreciation accumulated Net book value Net 2018 31 December For the period ended book value Opening net Additions charge Depreciation book value net Closing Accumulated amortisation (57,253) (393,622) - (6,460) (457,335) Net book value 14,977 644,226 162,777 1,362 823,342

176 177 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

11. INTANGIBLE ASSETS (CONTINUED) 13. PROVISION, CONTINGENT ASSETS AND LIABILITIES (CONTINUED)

The allocation of amortisation charges of intangible assets relating to 31 December 2019 and 2018 is as follows: Long - term provisions 31 December 2019 31 December 2018 31 December 2019 31 December 2018 Warranty expense provision 120,902 86,354

Cost of production (Note 18) 126,162 92,758 Provisions for lawsuits 53,838 50,326

General administrative expenses (Note 19) 9,157 6,236 174,740 136,680 Research and development expenses (Note 19) 2,553 2,798 Marketing expenses (Note 19) 855 653 The movement of provisions for lawsuits during the period is as follows:

Associated with construction in progress 26 23 2019 2018

138,753 102,468 1 January 50,326 46,660 Paid during the period (7,176) (7,418) 12. PREPAID EXPENSES Additions during the period 10,688 11,084

Short - term prepaid expenses 31 December 53,838 50,326 31 December 2019 31 December 2018 Advances given for inventorie 153,224 52,664 The movement of provisions for lawsuits during the period is as follows:

Other prepaid expenses (*) 25,158 21,711 2019 2018

178,382 74,375 1 January 194,326 231,525 Paid during the period (198,414) (143,625)

Long - term prepaid expenses Additions during the period (Note 19) 213,256 106,426

31 December 2019 31 December 2018 31 December 209,168 194,326 Advances given for investments (**) 178,319 365,428

Other prepaid expenses (*) 25,892 16,992 Letters of guarantee and letters of credit

204,211 382,420 31 December 2019 31 December 2018 Letters of guarantee given to financial institutions due to bank loans 3,043,957 2,201,762 (*) The prepaid expenses related to operating leases are classified under right of use assets as of 1 January 2019 under TFRS 16. (**) Advances given for investments are related to the Company’s new vehicle investments. TRY148,753 (31 December 2018: TRY250,412) is given to domestic vendors as Letters of guarantee given to customs 71,097 64,871 mould advances and TRY29,566 (31 December 2018: TRY115,016) is the advance given for the new project investments. Letters of guarantees given to other parties 14,977 15,110

13. PROVISION, CONTINGENT ASSETS AND LIABILITIES 3,130,031 2,281,743

The Company recognizes 2, 3 and 4 years of warranty provision for the vehicles sold by dealers for malfunctions described in the Letters of guarantee given sales agreements. Warranty expense provision is estimated by considering vehicles under warranty as of the balance sheet date and 31 December 2019 31 December 2018 warranty claims of vehicles sold in previous years on a model basis. Original currency TRY amount Original currency TRY amount EUR 467,753 3,110,835 375,527 2,263,678 Short - term provisions TRY 19,196 19,196 17,997 17,997 31 December 2019 31 December 2018 USD - - 13 68 Warranty expense provision 88,266 107,972

Provisions for sales premium (*) 32,836 47,255 3,130,031 2,281,743

121,102 155,227

(*) Provisions for sales premium is composed of expense accruals related with dealer vehicle stock at the reporting date (Note 2).

178 179 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

13. PROVISION, CONTINGENT ASSETS AND LIABILITIES (CONTINUED) 14. COMMITMENTS (CONTINUED)

The allocation of collaterals, pledges and mortgages as of 31 December 2019 and 31 December 2018 as follows: • With 8 months term credit amounting to Euro 40,000,000 used in October 2019 an export amount of Euro 40,000,000, • With 8 months term credit amounting to Euro 105,000,000 used in November 2019 an export amount of Euro 105,000,000, Collaterals, pledges and mortgages given by the Company 31 December 2019 31 December 2018 • With 8 months term credit amounting to Euro 30,000,000 used in December 2019 an export amount of Euro 30,000,000, • With 2 years term credit amounting to Euro 44,000,000 used in December 2019 an export amount of Euro 44,000,000.

A.Total amount of collaterals/pledges/mortages given for its own legal entity 3,130,031 2,281,743 15. EMPLOYEE BENEFITS B.Total amount of collaterals/pledges/mortgages given for participations included in entire consolidation - -

C.Total amount of collaterals/pledges/mortgages given to assure debts of - - Liabilities for employee benefit obligations third parties, for the purpose of conducting the business activities 31 December 2019 31 December 2018 D. Total amount of other collaterals/pledges/mortgages given - - Salaries and social charges payable 125,962 72,350 i. Total amount of collaterals/pledges/mortgages given for the parent company - - Social security premiums payable 35,681 34,523 ii. Total amount of collaterals/pledges/mortgages given for other related companies that do not - - fall into B and C sections Withholding income tax payable 53,977 38,877 iii. Total amount of collaterals/pledges/mortages given for Other 4,653 3,861 - - third parties that do not fall into C section 220,273 149,611 3,130,031 2,281,743 As of 31 December 2019 and 31 December 2018, total amount of the collaterals, pledges and mortgages obtained by the Company are as follows: Provision for employee benefits 31 December 2019 31 December 2018 Letters of guarantee received Provision for employment termination benefits 256,208 170,925 31 December 2019 31 December 2018 Provision for unused vacation pay liability 31,676 25,443 Original currency TRY amount Original currency TRY amount 287,884 196,368 TRY 146,014 146,014 99,778 99,778

EUR 3,035 20,188 12,955 78,093 Provision for employment termination benefits USD 122 722 251 1,320

166,924 179,191 There are no agreements for pension commitments other than the legal requirement as explained below.

Under the Turkish Labour Law, the Company is required to pay termination benefits to each employee who has completed one year of Other service and whose employment is terminated without due cause, or who is called up for military service, dies or retires after completing 25 years of service (20 years for women) and achieves the retirement age (58 for women and 60 for men). The long-term bank borrowing agreements related to the investments require the Company to comply with certain financial ratios. Such financial ratios are met by the Company as of 31 December 2019 and 31 December 2018. The amount payable consists of one month’s salary limited to a maximum of full TRY6,730.15 for each year of service as of 1 January 2020 (31 December 2018: Full TRY6,017.60). 14. COMMITMENTS The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the Commitments related with bank loans used by the Company are as follows: future probable obligation of the Company arising from the retirement of the employees. a) The Company has signed a 1-year loan commitment agreement with İşbank amounting to EUR 100,000,000 in 2019. With this agreement the company committed to pass the export value of EUR 200,000,000 through its accounts. As of 31 December 2019, this commitment have been fulfilled. b) The Company, also committed to Türkiye İhracat Kredi Bankası A.Ş. (Eximbank):

• With 8 months term credit amounting to Euro 110,000,000 used in June 2019 an export amount of Euro 110,000,000, • With 8 months term credit amounting to Euro 50,000,000 used in July 2019 an export amount of Euro 50,000,000,

180 181 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

15. EMPLOYEE BENEFITS (CONTINUED) 17. EQUITY

TFRS requires actuarial valuation methods to be developed to estimate the Company’s obligation under defined benefit plans, The composition of the Company’s paid-in capital as of 31 December 2019 and 31 December 2018 is as follows: accordingly, the following actuarial assumptions were used in the calculation of the total liability:

Shareholders Shareholders 31 December 2019 31 December 2018 Shareholders Share group 31 December 2019 percentage (%) 31 December 2018 percentage (%) Net discount rate (%) 4.67 5.65 Koç Holding A.Ş. B 134,953 38.46 134,953 38.46

Turnover rate to estimate the probability of retirement (%) 95.73 96.05 Temel Ticaret ve Yatırım A.Ş. B 2,356 0.67 2,356 0.67

Ford Deutschland Holding Gmbh C 143,997 41.04 143,997 41.04

The principal assumption is that the maximum liability for each year of service will increase in line with inflation. Thus the discount rate Vehbi Koç Vakfı A 3,559 1.01 3,559 1.01 applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Since the Company calculates Koç Holding Emekli ve Yardım Sandığı Vakfı A 3,259 0.93 3,259 0.93 the reserve for employee benefits once a year, the maximum amount of full TRY6,730.15 which was effective as of 1 January 2020 Other (Publicly traded) A 62,786 17.89 62,786 17.89 (31 December 2018: Full TRY6,017.60) has been used in the calculations. 350,910 100 350,910 100

Movements in the provision for employee benefits during the year are as follows: Inflation adjustment to share capital 27,920 27,920

2019 2018 Inflation adjusted paid in capital 378,830 378,830

1 January 170,925 131,726 Adjustment to share capital represents the restatement effect of cash and cash equivalent contributions to share. Interest cost 28,613 15,504

Current year service cost 71,201 56,108 There are 35,091,000,000 unit of shares (31 December 2018: 35,091,000,000 unit) with a nominal value of Kr 1 each. Paid during the period (16,757) (15,260)

Actuarial gains 2,226 (17,153) The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (“TCC”). The TCC stipulates that the first legal reserve is appropriated out of statutory profits at the rate of 5% per annum, until the total reserve 31 December 256,208 170,925 reaches 20% of the Company’s paid-in capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the paid-in capital, Under the TCC; the legal reserves can be used only to offset losses, unless legal The sensitivity analysis of the assumptions which was used for the calculation of provision for employee benefits as of 31 December reserve does not exceed at the rate of 50% of the paid-in capital. 2019 is below:

Turnover rate related to the In accordance with CMB Financial Reporting Standards, the Company classified the above mentioned reserves under “Restricted Net discount rate probability of retirement reserves”, the amount of restricted reserves is TRY302,764 as of 31 December 2019 (31 December 2018: TRY370,599). (%) 0,5 base (%) 0,5 base (%) 0,5 base (%) 0,5 base Sensitivity level decrease increase decrease increase In accordance with Communiqué numbered II-14.1 “Communiqué on the Principles of Financial Reporting In Capital Markets” (“the Rate (%) (4.2) (5.2) 95.2 96.2 Communiqué”) announced by the Capital Markets Board of Turkey (“CMB”) on 13 June, 2013 which is published on Official Gazette Change in provision for employee benefits 17.725 (16.180) (5.550) 5.850 numbered 28676, “Share Capital”, “Restricted Reserves” and “Share Premiums” shall be carried at their statutory amount. The valuation differences shall be classified as follows:

- “the difference arising from the “Paid-in Capital” and not been transferred to capital yet, shall be classified under the “Inflation 16. OTHER CURRENT ASSETS Adjustment to Share Capital’’; 31 December 2019 31 December 2018 - the difference due to the inflation adjustment of “Restricted reserves” and “Share premium” and the amount has not been utilized in dividend distribution or capital increase yet, shall be classified under “Retained earnings”; VAT to be deducted (*) 704,166 741,115

Deferred VAT 107,891 149,616 Other equity items shall be carried at the amounts calculated based on TAS. Adjustment to share capital has no use other than being Prepaid taxes and withholding 21,501 15,643 transferred to paid-in share capital. Other 7,544 13,318

841,102 919,692

(*) VAT to be deducted includes export VAT receivables related to November and December 2019. VAT return for November amounting to TRY279,291 has been collected in January 2020.

182 183 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

17. EQUITY (CONTINUED) 17. EQUITY (CONTINUED)

Listed companies distribute dividend in accordance with the Communiqué No. II-19.1 issued by the CMB which is effective from 1 The readjusted amounts and equity inflation adjustment differences of the historical values shown above for the year ended 31 February, 2014. Companies distribute dividends in accordance with their dividend payment policies settled and dividend payment December 2019 and 31 December 2018 are as follows: decision taken in general assembly and also in conformity with relevant legislations. The communiqué does not constitute a minimum Equity inflation dividend rate. Companies distribute dividend in accordance with the method defined in their dividend policy or articles of incorporation. Historical Adjusted adjustment In addition, dividend can be distributed by fixed or variable instalments and advance dividend can be paid in accordance with profit on 31 December 2019 values values differences year-end financial statements of the Company. Issued capital 350,910 378,830 27,920 Legal reserves 302,764 361,517 58,753 In accordance with the Turkish Commercial Code (TCC), unless the required reserves and the dividend for shareholders as determined Extraordinary reserves 2,282,712 2,651,857 369,145 in the article of association or in the dividend distribution policy of the company are set aside, no decision may be made to set aside Share premium 8 361 353 other reserves, to transfer profits to the subsequent year or to distribute dividends to the holders of usufruct right certificates, to the members of the board of directors or to the employees; and no dividend can be distributed to these persons unless the determined Other reserves - 50 50 dividend for shareholders is paid in cash. 2,936,394 3,392,615 456,221

In accordance with the Ordinary General Assembly Meeting dated as of 15 March 2019, the Company has decided to distribute dividends at the rate of 243% gross (net %206.55), with a total amount of TRY852,711 as full TRY2.43 gross (Kr 206.55 net) for each Equity inflation 31 December 2018 share with a value of full TRY1 and the Company made the dividend payment in April 2019. In accordance with the Ordinary General Historical Adjusted adjustment values values differences Assembly Meeting dated as of 14 November 2019, the Company has decided to distribute dividends at the rate of 123% gross, with Issued capital 350,910 378,830 27,920 a total amount of TRY431,620 as full TRY1.23 gross (Kr 104.55 net) for each share with a value of full TRY1 and the Company made Legal reserves 370,599 429,352 58,753 the dividend payment in November 2019. (In April 2018 full TRY 2.28 of the gross TRY1 share (net Kr 193.80) will be %228 rate TRY 800,075 and in November 2018, full TRY1.15 of the gross TRY1 share (net Kr 97.75) will be %115 rate TRY403,547; total of TRY1,203,622 Extraordinary reserves 1,816,012 2,185,157 369,145 cash dividend was distributed). Share premium 8 361 353 Other reserves - 50 50 In accordance with Communiqué No: II-14.1 “Communiqué on the Principles of Financial Reporting In Capital Markets”, equity schedule 2,537,529 2,993,750 456,221 at 31 December 2019 and 31 December 2018 are as follows:

31 December 2019 31 December 2018 Inflation adjustment difference in equity can be utilized in issuing bonus shares and in offsetting accumulated losses; the carrying amount of extraordinary reserves can be utilized in issuing bonus shares, cash dividend distribution and offsetting accumulated losses. Issued capital 350,910 350,910

Inflation adjustments on capital 27,920 27,920 Otokar shares which are publicly traded in BIST are valued at their closing price as of 31 December 2019 and 31 December 2018. As of 31 Share premium 8 8 December 2019, fair value change amounting to TRY9,450 net of deferred tax, (31 December 2018: TRY(4,749)) is shown in statement Gains from financial assets measured at fair value through other comprehensive income 20,309 10,859 of comprehensive income. Losses on cash flow hedge (705,427) (794,287)

Losses on remeasurements of defined benefit plans (2,060) (279) The net of tax effects of the changes in the statement of other comprehensive income and the effects of the changes in accumulated income and expense under equity are as follows:

Restricted reserves 302,764 370,599 2019 2018 - Legal reserves 302,764 370,599 1 January (783,707) (501,513) Gains/(losses) from financial assets measured at fair value through other comprehensive income 9,450 (4,749) Retained earnings 2,711,013 2,244,313 Actuarial gains/(losses) (1,781) 13,722 - Inflation adjustment to equity 428,301 428,301 Gains/(losses) on cash flow hedges 88,860 (291,167) - Extraordinary reserves 2,282,712 1,816,012 31 December (687,178) (783,707)

Net income for the period 1,959,484 1,683,196

Total equity 4,664,921 3,893,239

184 185 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

18. REVENUE AND COST OF SALES 19. RESEARCH AND DEVELOPMENT EXPENSES, MARKETING EXPENSES, GENERAL ADMINISTRATIVE 2019 2018 EXPENSES Export sales 33,375,426 27,303,441 2019 2018 Domestic sales 6,571,460 6,686,164 Research and development expenses Other sales 192,863 178,762 Personnel expenses (206,444) (172,800) Less: discounts (930,730) (876,337) Project costs (122,421) (122,119) 39,209,019 33,292,030 Mechanization expenses (51,310) (40,315)

Units of vehicle sales Depreciation and amortization expenses (Notes 10, 11 and 33) (22,954) (20,615)

2019 2018 Other (16,454) (12,719)

Domestic sales Export sales Total sales Domestic sales Export sales Total sales (419,583) (368,568) Transit Custom 3,394 175,985 179,379 4,690 168,174 172,864

Transit 12,972 116,805 129,777 16,350 120,154 136,504 2019 2018 Transit Courier 16,768 38,941 55,709 19,659 38,553 58,212 Marketing expenses Passenger Vehicles 11,460 53 11,513 18,987 160 19,147 Warranty expenses (Note 13) (213,256) (106,426) Ford Trucks 2,841 2,671 5,512 3,526 1,817 5,343 Personnel expenses (129,234) (105,385) Ranger 821 - 821 1,496 34 1,530 Advertising expenses (99,704) (113,153) Transit Connect 208 - 208 1,060 - 1,060 Vehicle transportation expenses (39,676) (47,590) 48,464 334,455 382,919 65,768 328,892 394,660 Spare parts transportation and packaging expenses (39,397) (34,020)

Export expenses (31,097) (20,206) Summaries of cost of production as of 31 December 2019 and 2018 are as follows: Depreciation and amortization expenses (Notes 10, 11 and 33) (14,278) (3,681)

Dealer and service development expenses (7,983) (10,579) 2019 2018 Other (74,477) (66,178) Cost of raw material (29,476,279) (25,007,429) (649,102) (507,218) Production overhead costs (1,737,003) (1,478,408)

Amortization expenses (Notes 10, 11 and 33) (714,539) (524,019)

Changes in finished goods (175,226) 178,679 2019 2018

General administrative expenses Total production cost (32,103,047) (26,831,177) Personnel expenses (151,548) (123,324)

Legal, consulting and auditing expenses (50,231) (37,315)

Cost of trade goods sold (3,090,755) (3,002,282) Grants and donations (37,368) (41,750)

New project administrative expenses (28,111) (22,854) Total cost of sales (35,193,802) (29,833,459) Depreciation and amortization expenses (Notes 10, 11 and 33) (22,676) (15,623) Organization expenses (22,311) (21,995)

Repair, maintenance and energy expenses (8,515) (5,687)

Transportation and travel expenses (7,231) (6,825)

Duties, taxes and levies expenses (7,061) (3,601)

Other (37,841) (33,169)

(372,893) (312,143)

186 187 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

20. EXPENSES BY NATURE 22. FINANCIAL INCOME

The classification of expenses by nature for the periods ended at 31 December 2019 and 2018 is as follows: 2019 2018 Foreign exchange gains 1,054,803 1,876,846 2019 2018 Interest income 130,798 104,777 Raw material cost (29,476,279) (25,007,429) 1,185,601 1,981,623 Cost of trade goods sold (3,090,755) (3,002,282)

Financial expenses (1,656,231) (2,501,845)

Personnel expenses (1,498,932) (1,238,444) 23. FINANCIAL EXPENSES Other operational expenses (894,442) (746,500)

Other expenses from operating activities (785,389) (566,898) 2019 2018

Depreciation and amortization expenses (774,447) (563,938) Foreign exchange losses (1,539,611) (2,420,188)

Other overhead costs (725,299) (641,474) Interest expenses (84,684) (52,952)

Expense from investment accounted for by equity method (933) (94) Other (31,936) (28,705)

Expenses from investing activities (714) (3,855) (1,656,231) (2,501,845) Changes in inventories (175,226) 178,679

Total expenses (39,078,647) (34,094,080) 24. TAX ASSETS AND LIABILITIES

21. OTHER OPERATING INCOME/EXPENSES Corporate Tax Law was amended by the Law No, 5520 dated 13 June, 2006. Law No, 5520 came into force as of 21 June 2006, but many of the provisions came into force effective from 1 January , 2006. Accordingly, the corporate tax rate for the fiscal year 2019 is 22% (31

2019 2018 December 2018: %22). Corporate tax is payable on the total income of the Company after adjusting for certain disallowable expenses, corporate income tax exemptions (participation exemption, investment incentive, etc.) and corporate income tax deductions (e.g. Other operating income research and development expenditures deduction). No further tax is payable unless the profit is distributed. Foreign exchange gains related to trade receivables and payables 337.840 304.957

Unearned financial income 212,193 185,498 15% withholding tax rate applies to dividends distributed by resident corporations resident real persons except for, those who are License income 14,940 18,554 not liable to income and corporation tax, non-resident real persons, non-resident corporations. Dividend distribution by resident Rent income 13,422 8,222 corporations to resident corporations is not subject to a withholding tax. Furthermore, in the event the profit is not distributed or

Price difference and claim recovery 4,671 10,527 included in capital, no withholding tax shall be applicable.

Commission income 3,932 4,653 The temporary tax paid during the year belongs to that year and is deducted from the corporation tax that will be calculated over the Other 46,780 48,718 tax declaration of the institutions to be given in the following year. If the temporary tax amount paid remains in spite of the indictment, 633,778 581,129 this amount can be refunded or any other financial debt to the state can be deducted.

2019 2018 In Turkey, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax declarations to the Tax Office within the 25th of the fourth month following the close of the financial year. Other operating expenses

Unearned financial expense (533,692) (341,463) Tax returns are open for five years from the beginning of the year that follows the date of filing during which time the tax authorities Foreign exchange losses related to trade receivables and payables (243,331) (223,322) have the right to audit tax returns, and the related accounting records on which they are based, and may issue re-assessments based Other (8,366) (2,113) on their findings. (785,389) (566,898) Under the Turkish taxation system, tax losses can be carried forward to offset against future taxable income for up to five years. Tax losses cannot be carried back to offset profits from previous periods.

188 189 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

24. TAX ASSETS AND LIABILITIES (CONTINUED) 24. TAX ASSETS AND LIABILITIES (CONTINUED)

There are many exceptions to the Institutions Tax Law. These exceptions to the Company are explained below: As of the date of the balance sheet, the investment expenditures amounting to TRY4,447,874 (31 December 2018: TRY3,560,573) was made in the framework of the related new investment incentive certificates. Dividend gains from shares in capital of another corporation subject to resident taxpaying (except dividends from investment funds participation certificates and investment trusts shares) are exempt from corporate. The Company utilized discounted corporate taxation amounting to TRY264,575 (31 December 2018: TRY137,870) in the current year and this amount has been deducted from the total deferred tax asset. The Company capitalizes the R&D expenses made within the scope of the Code no 5746 in its legal books. According to the provisions of the same Code, the Company makes calculation within the framework of the related legislation over the R&D expenses incurred, The Company’s net tax position as of 31 December 2019 and 31 December 2018 are as follows: and utilizes R&D deduction exemption at the rate of 100% for the portion of expenses allowed by the Code. 31 December 2019 31 December 2018

As of 31 December 2019, the Company utilised R&D incentive exemption amounting of TRY492,495 (31 December 2018: TRY554,087) Current year corporate tax expense (21,242) (16,969) in return for the legal tax. Prepaid tax and withholding 9,764 8,439 Current years’ profit tax (liability) (11,478) (8,530) The Company realizes fixed asset investments with incentives within the scope of 2009 Decisions of the Council of Ministers on State Aid in Investments 2009 numbered 2009/15199 and 2012/3305, which regulates the investment legislation. The taxation on income for the periods ended 31 December 2019 and 2018 are as follows

The investment projects in which the Company has completed its investment processes and continued to benefit from the contribution 2019 2018 amounts to the investment deserved are as follows; Current year corporate tax expense (21,242) (16,969) - An investment of TRY559,295 has been made between 2010 and 2013 for the Transit and Transit Custom model investments at Kocaeli Current year tax effect of cash flow hedge(*) 24,530 (81,861) Gölcük Plant. The investment contribution rate of this project is 30%. Deferred tax charged to statement of profit or loss 6,023 20,914 - An investment of TRY1,300,573 has been made between 2013 and 2017 at Kocaeli Gölcük Plant for Transit expenditures. The investment Deferred tax (expense)/income 30,553 (60,947) contribution rate of this project is 50%. Continuing operations tax income / (expense) 9,311 (77,916)

(*) The amount represents the tax effect of the reclassisfication made between the statement of income and other comprehensive income relating to the cash flow hedge - For the new model Transit Courier investment, which started production with the establishment of the Kocaeli Yeniköy Plant, an transactions. investment expenditure of TRY798,311 was made between 2013-2016. The contribution rate of the project is 40%. Calculation of the tax expense reconciliation using the current period tax expense in the statement of profit or loss as at 31 December - Eskişehir Plant has two incentive certificates related to engine and truck production. The Company received an investment incentive 2019 and 2018 and current tax ratio based on income before tax is as follows: certificate for the new 6 and 4-cylinder Engine Production project to be used in Trucks and Transit vehicles worth of TRY187,379 in Eskişehir in 2013, and a second Investment Incentive Certificate for the Euro 6 Emission Truck Production project amounting to TRY331,362. The 31 December 2019 31 December 2018 investment contribution rate of these projects is 40%. Income before tax 1.950.173 1.761.112

Effective tax rate %22 %22 Investment periods for the incentives of Eskişehir Factories have been completed and incentive closure process is continuing with the Ministry of Industry. Current year tax expense (429.038) (387.445) Research and development deductions 108.349 121.899

The Company’s project which has ongoing investment process and continues to benefit from the investment contribution is as follows; Investment incentive exemption 324.535 193.221 Other 5.465 (5.591) - In 2016, an investment incentive certificate amounting to TRY849,160 was obtained for the renovation and factory modernization 9.311 (77.916) investments of the Transit, Transit Courier and Transit Custom models at the Gölcük and Yeniköy plants. Investment expenditures are continuing within the scope of this project and the contribution rate of the project to investment is 40%. The Company calculates deferred income tax assets and liabilities by taking into account the effects of temporary differences arising from the different assessments between TFRS and statutory financial statements. With the decision of the Council of Ministers, 15 points were added to the investment contribution rates for the investments to be realized in 2017, and the 15 points advantage that was added to the existing investment contributions was extended with the decisions of the In accordance with the regulation numbered 7061, published in Official Gazette on 5 December 2017, "Law on the Amendment of Council of Ministers for the investments of 2018 and 2019. Certain Tax Laws and Some Other Laws”, corporate tax rate for the years 2018, 2019 and 2020 has increased from 20% to 22%. Therefore, deferred tax assets and liabilities as of 31 December 2019 are calculated with 22% tax rate for the temporary differences which will be realized in 2019 and 2020, and with 20% tax for those which will be realized after 2021 and onwards.

190 191 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

24. TAX ASSETS AND LIABILITIES (CONTINUED) 25. EARNINGS PER SHARE 2019 2018 The breakdown of cumulative temporary differences and the resulting deferred tax assets and liabilities as at 31 December 2019 and Net profit for the year 1,959,484 1,683,196 31 December 2018 using the current enacted tax rates is as follows: Weighted average number of shares with nominal 35,091,000,000 35,091,000,000

Earnings per share with nominal value of Kr 1 each 5.58 Kr 4.80 Kr Cumulative temporary differences Deferred tax assets / (liabilities) 31 December 2019 31 December 2018 31 December 2019 31 December 2018 Deferred tax assets 26. RELATED PARTY DISCLOSURES Investment incentive tax asset (5,007,169) (4,190,692) 880,274 820,314 Expense accruals and other provision (419,710) (283,018) 90,754 60,838 Related party can be defined according to whether one of the companies has control over the others or has significant effect on Employee benefits provision (256,208) (170,925) 51,241 34,185 its financial and administrative decisions. The Company, is controlled by Koç Holding A.Ş. and Ford Deutschland Holding GmbH, a Warranty expense provision (209,168) (194,326) 43,599 41,961 subsidiary of Ford Motor Company. In the financial statements, shareholder companies, shareholders and financial fixed assets and Inventories (81,053) (79,505) 17,832 17,491 other group companies’ assets are shown as related parties. (5,973,308) (4,918,466) 1,083,700 974,789 The related party balances at 31 December 2019 and 31 December 2018 and the transactions with related parties during the year are Deferred tax liabilities as follows: Tangible and intangible assets 2,114,036 1,563,960 (422,807) (312,792) Income accruals and other 48,307 81,744 (10,747) (17,822) a) Receivables from related parties 2,162,343 1,645,704 (433,554) (330,614) Net deferred tax asset 650,146 644,175 i) Trade receivable from related parties

The deferred tax movement table is presented below: 31 December 2019 31 December 2018 Charged to Charged to Due from shareholders statement of comprehensive profit or loss as income statement as Ford Motor Company and its subsidiaries 1,953,440 1,580,589 1 January 2019 income/(expense) income/(expense) 31 December 2019 1,953,440 1,580,589 Deferred tax liabilities Tangible and intangible assets (312,792) (110,015) - (422,807)

Income accruals and other provision (17,822) 7,572 (497) (10,747) Due from group companies (*) Deferred tax assets Otokoç Otomotiv Ticaret ve Sanayi A.Ş. 597,362 513,489 Investment incentive tax asset 820,314 59,960 - 880,274 Other 1,967 1,166 Expense accruals and other 60,838 29,916 - 90,754 Provision for employee benefits 34,185 16,611 445 51,241 599,329 514,655 Warranty expense provision 41,961 1,638 - 43,599 Inventories 17,491 341 - 17,832 Less: unearned credit finance income (5,639) (12,981) Deferred tax asset, net 644,175 6,023 (52) 650,146 2,547,130 2,082,263 Charged to Charged to statement of comprehensive (*) The Company’s shareholders’ subsidiaries and affiliate. profit or loss as income statement as 1 January 2018 income/(expense) income/(expense) 31 December 2019 Deferred tax liabilities Export sales mainly consist of sales to Ford Motor Company. Payments terms and conditions are specified in the business agreements Tangible and intangible assets (291,918) (20,874) - (312,792) with Ford Motor Company. Export vehicle receivables from the Ford Motor Company are due in 14 days and receivables are collected Income accruals and other provision (15,686) (2,385) 249 (17,822) regularly. Deferred tax assets Investment incentive tax asset 764,963 55,351 - 820,314 Per the domestic dealership agreement between Ford Otomotiv Sanayi A.Ş. and Otokoç Otomotiv Ticaret ve Sanayi A.Ş., the Expense accruals and other 86,416 (25,578) - 60,838 Companies have a vehicle and spare parts trade connection. As mentioned in Note 7, the Company’s vehicle sales receivables from Provision for employee benefits 26,345 11,271 (3,431) 34,185 Otokoç Otomotiv Ticaret ve Sanayi A.Ş. is due in 25 days on average and sales of spare parts is due in 70 days on average. Warranty expense provision 50,520 (8,559) - 41,961 Inventories 5,803 11,688 - 17,491 Deferred tax asset, net 626,443 20,914 (3,182) 644,175

192 193 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

26. RELATED PARTY DISCLOSURES (CONTINUED) 26. RELATED PARTY DISCLOSURES (CONTINUED) b) Payables to related parties c) Sales to related parties 2019 2018 i) Trade payables to related parties Ford Motor Company (*) 32,403,630 26,673,909

Otokoç Otomotiv Tic. ve San. A.Ş. (**) 1,625,290 1,618,047 31 December 2019 31 December 2018 Other 243 603 Due to shareholders 34,029,163 28,292,559 Ford Motor Company and its subsidiaries 702,729 513,781

702,729 513,781 Less: financial income from credit sales (61,149) (51,681) Due to group companies (*) 33,968,014 28,240,878 Zer Merkezi Hizmetler ve Ticaret A.Ş. 77,603 72,532 (*) The Company, exports vehicle, spare parts and engineering service to Ford Motor Company. Ram Dış Ticaret A.Ş. 33,250 47,228 (**) The Company has a vehicle and spare parts trade in accordance with domestic dealer agreement with Otokoç Otomotiv Ticaret ve Sanayi A.Ş.

Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş. 19,522 24,669 d) Material, service and fixed asset purchases from related parties Otokoç Otomotiv Ticaret ve Sanayi A.Ş. 11,635 19,261 2019 Eltek Elektrik Enerjisi İthalat İhracat ve Toptan Ticaret A.Ş. 10,763 - Material Service Fixed assets Total Setur Servis Turistik A.Ş. 8,870 14,714 Domestic purchases Ingage Dijital Pazarlama A.Ş. 6,918 3,838 Zer Merkezi Hizmetler ve Ticaret A.Ş. 31,801 316,556 171 348,528 Opet Fuchs Madeni Yağ Sanayi ve Ticaret A.Ş. 4,821 3,873 Ram Dış Ticaret A.Ş. 149,983 - - 149,983 Koçtaş Yapı Marketleri Sanayi ve Ticaret A.Ş. 3,482 2,763 Eltek Elektrik Enerjisi İth. İhr. ve Toptan Tic. A.Ş. - 66,460 - 66,460 AKPA Dayanıklı Tüketim LPG ve Akaryakıt Ürünleri Pazarlama A.Ş. 348 1,507 Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş. - 45,004 21,022 66,026 Ram Sigorta Aracılık Hizmetleri A.Ş. 262 93 Setur Servis Turistik A.Ş. - 36,793 - 36,793 Other 5,904 2,069 Koç Holding A.Ş. (*) - 33,399 - 33,399 183,378 192,547 Ingage Dijital Pazarlama A.Ş. - 32,213 484 32,697

Otokoç Otomotiv Ticaret ve Sanayi A.Ş. - 15,475 12,311 27,786 Less: unearned credit finance expense (1,553) (2,761) Opet Petrolcülük A.Ş. 21,523 - - 21,523 884,554 703,567 AKPA Dayanıklı Tüketim LPG ve Akaryakıt 18,248 - - 18,248 Ürünleri Pazarlama A.Ş. (*) The Company’s shareholders’ subsidiaries, business associates and affiliates. Opet Fuchs Madeni Yağ Sanayi ve Ticaret A.Ş. 16,662 - - 16,662 ii) Other payables to related parties Koçtaş Yapı Marketleri Ticaret A.Ş. 15,374 - 41 15,415 Ram Sigorta Aracılık Hizmetleri A.Ş. (**) - 12,127 - 12,127

31 December 2019 31 December 2018 Tanı Pazarlama İlet. Hiz. A.Ş. - 746 - 746 Koç Holding A.Ş. 14,699 9,676 Other 1,516 7,525 1,388 10,429

Koç Finansman A.Ş. 4,005 13,220 321,567 499,838 35,417 856,822

Yapı ve Kredi Bankası A.Ş. 1,913 8,425 Less: Financial expense from credit purchases (11,043) - - (11,043) 20,617 31,321 310,524 499,838 35,417 845,779

(*) It includes service costs that are based on finance, law, planning, tax and management provided by Koç Holding A.Ş. to the companies within the group organisation, invoiced to the company within the context of “11-Intra-group Services” in numbered 1 General Communique about concealed Gain Distribution by Transfer Pricing. (**) Contains paid and accrued premium amounts for the period ended 31 December 2019 and period ended 2018 within the context of insurance policies signed with insurance companies through the agency of Ram Sigorta Aracılık Hizmetleri A.Ş.

194 195 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

26. RELATED PARTY DISCLOSURES (CONTINUED) 26. RELATED PARTY DISCLOSURES (CONTINUED) d) Material, service and fixed asset purchases from related parties (continued) h) The details of deposits in related banks and loans obtained from related banks

2018 Deposits in related banks

Material Service Fixed assets Total 31 December 2019 31 December 2018

Domestic purchases Yapı ve Kredi Bankası A.Ş. Zer Merkezi Hizmetler ve Ticaret A.Ş. 28,140 308,865 789 337,794 - TRY time deposits 272,676 401,422 Ram Dış Ticaret A.Ş. 171,415 - - 171,415 - Foreign currency time deposits 100,206 14,468 Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş. - 32,809 21,470 54,279 - TRY demand deposits 25,241 10,713 Setur Servis Turistik A.Ş. - 50,988 - 50,988 - Foreign currency demand deposits 574 992 Otokoç Otomotiv Ticaret ve Sanayi A.Ş. - 811 33,108 33,919 398,697 427,595 AKPA Dayanıklı Tüketim LPG ve Akaryakıt 24,495 - - 24,495 Ürünleri Pazarlama A.Ş. ı) Loans from related banks Koç Holding A.Ş. (*) - 24,100 - 24,100 Opet Fuchs Madeni Yağ Sanayi ve Ticaret A.Ş. 16,695 - - 16,695 31 December 2019 31 December 2018 Koçtaş Yapı Marketleri Ticaret A.Ş. 13,245 - 55 13,300 Yapı ve Kredi Bankası A.Ş. - 10,331 Ram Sigorta Aracılık Hizmetleri A.Ş. (**) - 12,722 - 12,722 - 10,331 Opet Petrolcülük A.Ş. 6,148 - - 6,148 Tanı Pazarlama İlet. Hiz. A.Ş. - 2,166 - 2,166 Ingage Dijital Pazarlama A.Ş. - 13,764 - 13,764 i) Commission income

Other 2,259 6,930 11,706 20,895 2019 2018

262,397 453,155 67,128 782,680 Yapı ve Kredi Bankası A.Ş. 2,169 1,831 Koç Finansman A.Ş. 1,763 2,822 Less: financial expense from credit purchases (7,392) - - (7,392) 3,932 4,653 255,005 453,155 67,128 775,288

j) Commission expense Material, vehicle and service purchases from abroad 2019 2018 2019 2018 Koç Finansman A.Ş. 47,944 75,577 Ford Motor Company and its subsidiaries 15,591,722 13,929,034 Yapı ve Kredi Bankası A.Ş. 38,266 46,018

86,210 121,595 e) License fees paid to Ford Motor Company included in cost of sales 2019 2018 Commissions paid to Koç Tüketici Finansmanı A.Ş. and Yapı ve Kredi Bankası A.Ş. are credit commissions related to sales to end user customers by dealers and are recorded as sales discounts in the statement of profit or loss. 111,770 110,504

k) Interest income f) License fees received from Jiangling Motors Corporation, a subsidiary of Ford Motor Company, included in other income 2019 2018 2019 2018 Yapı ve Kredi Bankası A.Ş. 14,124 15,706 14,940 18,554

l) Dividend income g) Donations to related parties, establishments and foundations, included in general administrative expenses 2019 2018 Otokar Otomotiv ve Savunma Sanayi A.Ş. 422 410 2019 2018 35,484 40,223

196 197 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) m) Compensation of key management personnel 31 December 2018 TRY equivalent The Company defines its key management personnel as board of directors’ members, general manager, assistant general managers (Functional and directors reporting directly to the general manager (Note 2). currency) USD EUR Other 1. Trade receivables 1,786,228 12,648 285,283 - 2. Monetary financials assets (including cash and cash equivalents) 488,525 196 80,724 634 Compensation of key management personnel includes salaries, premiums, Social Security Institution employer’s contribution, 3. Other 338,156 8,400 48,767 - employer’s contribution of unemployment insurance and the attendance fees. 4. Current assets (1 + 2 + 3) 2,612,909 21,244 414,774 634 5. Monetary financial assets - - - - The total amount of compensation given to key management personnel of the Company as of 31 December 2019 is TRY41,952 (31 6. Non-current assets (5) - - - - December 2018: TRY35,263). 7. Total assets (4 + 6) 2,612,909 21,244 414,774 634 8. Trade payables 754,269 16,366 108,289 10,778 The table below summarizes the Company's exposure to foreign currency exchange rate risk at 31 December 2019 and 31 December 9. Financial liabilities (*) 2,793,931 - 463,493 - 2018. The carrying amount of the Company's foreign currency denominated assets and liabilities, categorized by currency have been 10. Other monetary liabilities 5,871 - 974 - presented below: 11. Short term liabilities (8 + 9 + 10) 3,554,071 16,366 572,756 10,778 12. Financial liabilities (*) 1,678,554 - 278,460 -

31 December 2019 13. Other 29,341 - 4,867 - 14. Long term liabilities (12+13) 1,707,895 - 283,327 - TRY equivalent (Functional 15. Total liabilities (11 + 14) 5,261,966 16,366 856,083 10,778 currency) USD EUR Other 16. Net foreign currency (liabilities)/assets position (7 - 15) (2,649,057) 4,878 (441,309) (10,144) 1. Trade receivables 2,343,969 10,022 343,494 - 17. Net monetary foreign currency (liabilities)/assets (2,957,872) (3,522) (485,209) (10,144) 2. Monetary financials assets (including cash and cash equivalents) 548,085 400 82,026 177 (1 + 2 + 5 - 8 - 9 - 10 - 12)

3. Other 424,397 25,230 41,279 -

4. Current assets (1 + 2 + 3) 3,316,451 35,652 466,799 177 Foreign exchange risk 5. Monetary financial assets - - - - The Company is exposed to foreign exchange risk primarily against Euro and partly against USD. The foreign exchange risk of the 6. Non-current assets (5) - - - - Company arises from long-term Euro investments. 7. Total assets (4 + 6) 3,316,451 35,652 466,799 177

8. Trade payables 939,804 39,549 104,807 895 31 December 2019 9. Financial liabilities (*) 3,614,548 - 543,492 - Profit/(loss) before taxation 10. Other monetary liabilities 37,663 - 5,663 - Appreciation/depreciation in foreign currency Increase by 10 (%) Decrease by 10 (%) 11. Short term liabilities (8 + 9 + 10) 4,592,015 39,549 653,962 895 Change in USD against TRY 12. Financial liabilities (*) 2,538,769 - 381,735 -

13. Other 1,447 - 218 - USD net assets/(liabilities) (2,315) 2,315 USD net hedged amount - - 14. Long term liabilities (12+13) 2,540,216 - 381,953 - USD net- gain/(loss) (2,315) 2,315 15. Total liabilities (11 + 14) 7,132,231 39,549 1,035,915 895

16. Net foreign currency (liabilities)/assets position (7 - 15) (3,815,780) (3,897) (569,116) (718) Change in EUR against TRY

17. 17. Net monetary foreign currency (liabilities)/assets (4,238,730) (29,127) (610,177) (718) EUR net (liabilities)/assets (378,496) 378,496 (1 + 2 + 5 - 8 - 9 - 10 - 12) EUR net hedged amount 385,920 (385,920) EUR net- gain/(loss) (7,424) 7,424 (*) The Company’s net foreign exchange position is mainly due to long - term Euro denominated loans obtained to fund its investments. The Company is hedging for the foreign currency exchange risk arising from its Euro denominated long-term loans with export agreements signed with Ford Motor Company. The TRY equivalent of Change in other foreign currency against TRY such loans amount to TRY3,859,197 as of 31 December 2019 (31 December 2018: TRY2,632,800). As of 31 December 2019, the Company has a total of TRY50,715 (31 December 2018: TRY84,935) of the product to be issued. Other foreign currency denominated net (liabilities)/assets (766) 766 Other foreign currency denominated- hedged amount - - Other foreign currency denominated net - (loss)/gain (766) 766

198 199 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) 27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED)

31 December 2018 Financial liabilities

Profit/(loss) before taxation If the interest rates of floating interest-bearing Euro denominated borrowings were 100 basis points higher/lower with all other Appreciation/depreciation in foreign currency variables held constant, profit before tax for the year would have been lower/higher by TRY1,081 at 31 December 2019 (31 December Increase by 10 (%) Decrease by 10 (%) 2018: TRY2,016) due to higher/lower interest expense Change in USD against TRY USD net assets/(liabilities) 2,566 (2,566) Liquidity risk

USD net hedged amount - - The table below shows the liquidity risk arising from financial liabilities of the Company: USD net- gain/(loss) 2,566 (2,566)

Total Change in EUR against TRY Book contractual Up to Between Between Longer than 31 December 2019 value cash outflow 3 months 3 - 12 months 1 – 5 years 5 years

Non-derivative financial instruments EUR net (liabilities)/assets (266,021) 266,021

EUR net hedged amount 263,280 (263,280) Financial liabilities 6.118.793 6.258.060 1.580.488 2.047.583 2.476.887 153.102

EUR net- gain/(loss) (2,741) 2,741 Lease liabilities 89.253 123.591 10.441 31.324 81.642 184

Change in other foreign currency against TRY Trade payables -Related party 884.554 886.107 886.107 - - - -Other 3.660.866 3.690.149 3.690.149 - - - Other foreign currency denominated net (liabilities)/assets (1,452) 1,452

Other foreign currency denominated- hedged amount - - Other liabilities Other foreign currency denominated net - (loss)/gain (1,452) 1,452 -Related party 20.617 20.617 20.617 - - - -Other 54.541 54.541 54.541 - - -

The comparative amounts for total export and import amounts for the year ended 31 December 2019 and 2018 are as follows: Derivative financial liabilities

31 December 2019 31 December 2018 Derivative financial instruments 1.447 1.447 - - 1.447 -

Total export amount 33,375,426 27,303,441 Total Total import amount 17,467,167 15,236,754 Book contractual Up to Between Between Longer than 31 December 2018 value cash outflow 3 months 3 - 12 months 1 – 5 years 5 years

Non-derivative financial instruments The Company’s net assets are exposed to foreign exchange risk which arises from export sales. To minimize its foreign currency Financial liabilities 4.482.817 4.576.740 799.078 2.011.021 1.665.184 101.457 risk, the Company follows a balanced foreign currency position policy. The foreign currency exposure arising from foreign currency denominated borrowings and trade payables is managed through assets denominated in foreign currency. Lease liabilities ------

Interest rate risk Trade payables - Related party 703.567 706.328 706.328 - - - The Company’s interest rate sensitive financial instruments are as follows: -Other 3.319.120 3.364.101 3.364.101 - - - 31 December 2019 31 December 2018

Fixed interest rate financial instruments Other liabilities - Related party 31.321 31.321 31.321 - - - Financial assets 3,160,603 1,361,594 -Other 34.661 34.661 34.661 - - - Financial liabilities 4,874,051 2,967,869

Floating interest rate financial instruments Derivative financial liabilities

Financial liabilities 1,333,995 1,514,948 Derivative financial instruments 93 93 - 93 - -

200 201 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

27. FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT (CONTINUED) 28. DERIVATIVE FINANCIAL INSTRUMENTS

Fair value hierarchy table The Company uses long term floating rate foreign currency loans from international markets. The Company hedges interest rate risk by securing a portion of the floating rate loans from international markets through long term swap transactions. The Company classifies the fair value measurement of financial instruments reported at fair value according to their source of valuation inputs, using the three-level hierarchy, as follows: The Company hedged the interest rate risk arising from cash flows related to the borrowing used as of 31 December 2019 with the maturity of 23 May 2024 amounting to EUR150,000,000 with interest rate swapping. The critical conditions of the settlement contract Level 1: Market price valuation techniques for the determined financial instruments traded in markets (unadjusted). such as maturity, payment, interest rate change dates are in line with the critical conditions of the foreign currency borrowing, which is the subject of financial hedge as of 31 December 2019. The fair value of the interest rate swap transaction calculated as of 31 December Level 2: Other valuation techniques that includes direct or indirect observable inputs. 2019 is TRY1,447 and it is classified as long - term liabilities.

Level 3: Valuation techniques that does not contain observable market inputs. Derivative financial instruments 31 December 2019 31 December 2018 As of 31 December 2019 and 31 December 2018, the Company’s hierarchy table for its assets and liabilities recorded at fair value are Derivative financial liabilities 1,447 93 as follows: 1,447 93

31 December 2019 Level 1 (*) Level 2 (**) Level 3 There is an effective foreign currency cash flow hedge relationship between foreign currency long-term financial borrowings related Assets at fair value with investment expenditures (non-derivative hedging instrument) and highly probable forecast transaction export sales receivables Derivative financial assets - - - (hedged item). In the frame of the manufacturing agreement signed with Ford Motor Company, the Company will associate a portion Financial asset available-for-sale - Otokar 22,355 - - of estimated export revenue from 1 April 2013 to November 2026 with long- term financial borrowings. Total assets 22,355 - -

Liabilities at fair value Cash flow hedge reserve 31 December 2019 31 December 2018 Derivative financial liabilities - 1,447 -

Total liabilities - 1,447 - Amount recognized in other comprehensive income 327,765 788,991

Amount recycled from other comprehensive income to statement of profit or (loss) (441,155) (415,963) (*) Fair value is calculated at market prices per the Stock Exchange market at the reporting date. (**) Rayiç değeri, birinci seviyenin içerdiği borsa fiyatlarının dışında ilgili varlık için dolaysız (fiyat gibi) veya dolaylı (fiyatlardan türetilen) gözlemlenebilen girdilerden (113,390) 373,028 hesaplanmıştır.

31 December 2018 Level 1 (*) Level 2 (**) Level 3 29. INCOME AND EXPENSES FROM INVESTING ACTIVITIES Assets at fair value 2019 2018 Derivative financial assets - - - Income from investing activities Financial asset available-for-sale - Otokar 12.408 - - Dividend income 422 410 Total assets 12.408 - - 422 410 Liabilities at fair value Derivative financial assets - 93 - 2019 2018 Total liabilities - 93 - Expense from investing activities

(*) Fair value is calculated at market prices per the Stock Exchange market at the reporting date. Loss on sale of property, plant and equipment (714) (3,855) (**) Fair value is calculated from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices). (714) (3,855)

202 203 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

30. DEFERRED REVENUE 33. RIGHT OF USE ASSETS 31 December 2019 31 December 2018 During the period, the Company has capitalized TRY143,782 of right of assets. As of 31 December 2019, the net book value of the right Short-term deferred revenue 13,311 6,704 of use assets is TRY99,714. As of 31 December 2019 and 1 January 2019, the balances of the right of use assets and the depreciation Advances received 10,519 6,515 and amortization expenses in the related period are as follows: 23,830 13,219

Machinery and Buildings Vehicles Total equipments 31 December 2019 31 December 2018 As of 1 January 2019 50,003 63,310 23,715 137,028 Long-term deferred revenue 10,838 7,479

10,838 7,479 For the period ended 31 December 2019

Additions 4,747 1,124 883 6,754

Period depreciation and amortization expenses (15,808) (16,953) (11,307) (44,068) 31. OTHER NON CURRENT LIABILITIES

31 December 2019 31 December 2018 As of 31 December 2019 38,942 47,481 13,291 99,714

Other non-current liabilities (*) 61,235 52,508 Distribution of depreciation expenses of right of use assets as of 31 December 2019 is follows: 61,235 52,508

31 December 2019 (*) The Company makes a part of its fleet truck with buyback commitments and sales made within this scope are followed under “Other Non-Current Liabilities”. The buyback commitments are 3 years on average. Cost of sales (Note 18) 29,674

32. INVESTMENTS VALUED BY EQUITY METHOD Marketing expenses (Note 19) 10,348 General administrative expenses (Note 19) 2,045

The Company has a 25% share in Rezervis Mobil Teknoloji A.Ş., which was established for the purpose of developing, improving and Research and development expenses (Note 19) 2,001 acquiring the algorithmic based application that remodeling the individual and collective use of the means of transportation within 44,068 the scope of supporting innovation. In the event that Rezervis Mobil Teknoloji A.Ş. has decided to terminate its activities, the Company has allocated provision for its existing investments. a) The details of the investments valued by the equity method are as follows

31 December 2019 31 December 2018 Ownership rate (%) Amount Ownership rate (%) Amount Rezervis Mobil Teknoloji A.Ş. 25 - 25 933 - 933 b) Movements in the provision for investments valued by the equity method during the year are as follows:

2019 2018

1 January 933 1,027

Profit/(losses) share (933) (94)

31 December - 933

204 205 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

34. GOVERNMENT INCENTIVES AND GRANTS 35. INVESTMENTS IN ASSOCIATES AND JOINT VENTURES

The Company realizes fixed asset investments with incentives within the scope of 2009 Decisions of the Council of Ministers on State Gembox Teknoloji Girişimleri A.Ş was established with 100% contribution to capital by Ford Otosan capital in order to carry out Aid in Investments 2009 numbered 2009/15199 and 2012/3305, which regulates the investment legislation. research, development, consultancy, engineering and incubation activities and to invest in companies and initiatives established in these areas. The investment projects in which the Company has completed its investment processes and continued to benefit from the contribution amounts to the investment deserved are as follows; For the central management of the Company's Ford Trucks exporting activities, Ford Otosan Netherlands BV was founded with 100% contribution to capital by Ford Otosan capital. - An investment of TRY559,295 has been made between 2010 and 2013 for the Transit and Transit Custom model investments at Kocaeli Gölcük Plant. The investment contribution rate of this project is 30%. Investments in subsidiaries as of 31 December 2019 are as follows:

- An investment of TRY1,300,573 has been made between 2013 and 2017 at Kocaeli Gölcük Plant for Transit expenditures. The 31 December 2019 31 December 2018 investment contribution rate of this project is 50%. Ownership Ownership Amount Amount rate (%) rate (%) - Investment expenditure of TRY798,311 was made between 2013 and 2016 for the new model Transit Courier investment, which Investment in subsidiaries started production with the establishment of the Yeniköy Plant in Kocaeli. The investment contribution rate of this project is 40%. Gembox Teknoloji Girişimleri Anonim Şirketi 100 2,500 - -

- Eskişehir Plant has two incentive certificates related to engine and truck production. The Company received an investment incentive Ford Otosan Netherlands BV 100 1 - - certificate for the new 6 and 4-cylinder Engine Production project to be used in Trucks and Transit vehicles worth TRY187,379 in 2,501 - Eskişehir in 2013, and a second Investment Incentive Certificate for the Euro 6 Emission Truck Production project amounting to TRY331.362 It has received. The investment contribution rate of these projects is 40%. These investments are carried at cost and are not included in the scope of consolidation since their financial statements do not have 34. GOVERNMENT INCENTIVES AND GRANTS (CONTINUED) a significant effect on the financial statements of the Company.

The investment periods for the incentives of Eskişehir Factories have been completed and the incentive closure process is continuing 36. SUBSEQUENT EVENTS with the Ministry of Industry. There are no disclosures that arise from the balance sheet date to the reporting date. The Company’s project which has ongoing investment process and continues to benefit from the investment contribution is as follows; 37. DISCLOSURE OF OTHER MATTERS - In 2016, an investment incentive certificate amounting to TRY849,160 was obtained for the renovation and factory modernization investments at the Gölcük and Yeniköy Factories related to Transit, Transit Courier and Transit Custom models, which are currently There is no other issue that significantly affects the financial statements or needs to be explained in order for the financial statements being produced at Kocaeli Factories. Investment expenditures are continuing within the scope of this project and the contribution rate to be clear, interpretable and understandable. of the project to investment is 40%.

With the decision of the Council of Ministers, 15 points were added to the investment contribution rates for the investments to be realized in 2017, and the 15 points advantage that was added to the existing investment contributions was extended with the decisions of the Council of Ministers for the investments of 2018 and 2019.

206 207 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

Ford Otosan General Management Ford Otosan Corporate Financial Ford Otosan General Management Ford Otosan Corporate Financial Sustainability Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports at a Glance Assembly and Assessments in 2019 Governance Reports FORD OTOMOTIV SANAYİ A.Ş. INFORMATION DOCUMENT FOR THE 16 MARCH 2020 ORDINARY GENERAL ASSEMBLY TO REVIEW FINANCIAL YEAR 2019 1. INVITATION TO THE 16 MARCH 2020 ORDINARY GENERAL ASSEMBLY MEETING 2. ADDITIONAL EXPLANATIONS IN VIEW OF CMB REGULATIONS Ford Otomotiv Sanayi A.Ş.’s Ordinary General Assembly Meeting shall be convened on 16 March 2020 Monday at 15:00 at the address of “Divan Istanbul Hotel - Asker Ocağı Caddesi No:1 34367 Şişli / İstanbul (Tel: +90 212 315 55 00, Faks: +90 212 315 55 15)”. The additional explanations required pursuant to Capital Markets Board (CMB) Corporate Governance Communiqué No. II-17.1, At the meeting, the activities of the Company for the fiscal year 2019 will be reviewed, the following agenda will be discussed, enacted 3 January 2014, are made in the related articles of the agenda below. Other mandatory general explanations and a resolution regarding the agenda will be reached. are provided in this section.

In accordance with the legal requirements, 2019 Financial Statements, the Independent Auditor’s Report, the Corporate Governance 2.1. Capital Structure and Voting Rights: Compliance Report, amendments to the articles incorporation and the Board of Directors’ Annual Report, including the dividend There is no privilege in Company’s Articles of Incorporation regarding voting rights. Share group B and C have privilege for distribution proposal of the Board of Directors, along with the following agenda and the Memorandum containing the information Board of Directors membership election. required by Capital Markets Board regulations shall be made available to the shareholders at Company Headquarters in Sancaktepe İstanbul, Kocaeli Gölcük Plant, Eskişehir Plant, on the Company’s corporate website at www.fordotosan.com.tr, The voting rights of our shareholders, are provided in the following table: and in the Electronic General Meeting System of the Central Registry Agency (CRA) three weeks prior to the meeting.

Percentage Percentage Shareholders unable to attend the meeting in person, save for the rights and obligations of the ones participating electronically Shareholding Share Amount of of Share Vote of Vote Structure Group Share (TL) via the Electronic General Assembly System, shall prepare their proxy documents as per the legislation, or shall obtain a proxy (%) (%) sample form from Yapı Kredi Yatırım Menkul Değerler A.Ș. (Yapı Kredi Plaza / Levent Istanbul), our Company, or from the corporate website at www.fordotosan.com.tr and shall submit to the Company the notarized proxy documents issued in accordance Koç Holding A.Ş. B 134.953.357 38,46 13.495.335.714 38,46 with the requirements of the Communiqué No. II-30.1, Use of Proxy Vote and Proxy Collection through Invitation, enacted on

24 December 2013 and published in Official Gazette No. 28861. A proxy document is not required from a proxy appointed Temel Ticaret ve B 2.355.885 0,67 235.588.500 0,67 electronically through the Electronic General Meeting System. The proxy documents which do not comply with the requirements Yatırım A.Ş. of the aforementioned Communiqué, and the sample form attached within the invitation to the general assembly meeting document shall not be accepted, given our legal liability. Vehbi Koç Foundation A 3.558.449 1,01 355.844.870 1,01

Shareholders intending to vote via the Electronic General Meeting System are requested to obtain information from the Central Koç Holding Pension Registry Agency, our Company’s website at www.fordotosan.com.tr or from the Company Headquarters (Tel: 0 216 564 71 00) and Assistance A 3.259.202 0,93 325.920.232 0,93 to ensure that they comply with the provisions of the by-laws for the Electronic Shareholders Meeting. Foundation

Pursuant to Paragraph 4 of Article 415 of Turkish Commercial Code No. 6102 and Paragraph 1 of Article 30 of the Capital Ford Deutschland C 143.997.037 41,04 14.399.703.676 41,04 Markets Law, the right to attend the General Assembly and voting rights shall not be conditional on depositing the share certificates. Holding GmbH Accordingly, shareholders participating in the General Assembly do not need to block their shares. Publicly Held A 62.786.070 17,89 6.278.607.009 17,89 At the Ordinary General Assembly Meeting, the voters shall use open voting system by raising hands, without prejudice to the provisions of electronic voting regarding the voting of each item on the agenda. Total 350.910.000 100,00 35.091.000.000 100,00

In accordance to the Law No.6698 on Protection of Personal Data, you can access detailed information on processing of your personal data by our Company in Ford Otomotiv Sanayi A.Ş. Policy on the Protection and Processing of Personal Data published at www.fordotosan.com.tr. 2.2. Managerial and Operational Changes in Our Company or our Subsidiaries’ which may Significantly Affect the Activities of our Company: All right holders and stakeholders as well as the press are invited to the General Assembly Meeting. There are no managerial or operational changes that has or that will substantially affect the Company’s activities in the previous accounting period, or planned for the upcoming accounting periods. Material Event Disclosures made by our company according Pursuant to the Capital Markets Law, shareholders holding registered shares that are traded on the stock exchange will not receive to the relevant regulations can be found at www.kap.org.tr. a separate registered invitation letter for the meeting. 2.3. Information Regarding Demands of Shareholders for Placing an Article on the Agenda: It is submitted to the shareholders with due respect. No such request is made for the Ordinary General Assembly Meeting for 2019 activities.

FORD OTOMOTİV SANAYİ A.Ş. BOARD OF DIRECTORS Company Address: Akpınar Mah. Hasan Basri Cad. No:2 34885 Sancaktepe /İstanbul Trade Registry and Number: İstanbul Ticaret Sicil Müdürlüğü / 73232-0 Mersis ID Number : 0649002036300014

208 209 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report

3. ANNOUNCEMENTS PERTAINING TO THE AGENDA ARTICLES OF THE ORDINARY GENERAL ASSEMBLY MEETING 7. Approval, or approval with amendments or refusal of the Board of Directors’ proposal for profit distribution for the DATED 16 MARCH 2020 year 2019 and the distribution date which prepared in accordance with the Company’s Profit Distribution Policy, According to our financial statements, prepared by our Company within the framework of the Turkish Commercial Code and Capital 1. Opening and Election of Chairmanship Panel, Markets Law and related regulations in compliance with Turkish Financial Reporting Standards and audited by PwC Bağımsız Within the framework of the provisions of “Turkish Commercial Code (TCC) no. 6102” and “The Regulation of the Ministry of Denetim ve Serbest Muhasebeci Mali Müşavirlik 4 Anonim Şirketi covering the accounting period between 01.01.2019 – 31.12.2019; Customs and Commerce regarding Principles and Procedures of General Assembly Meetings of Joint Stock Companies and net profit amount of TL 1.959.484.189 has been obtained. The dividend payment proposal drawn up in accordance with the Representatives of the Ministry of Customs and Commerce to be Present in these Meetings” (“Regulation” or “General Dividend Distribution Table format provided in the Dividend Communiqué numbered II-19.1 and the Dividend Manual announced Assembly Regulation”), and General Assembly Principles Article 7, a Chairman shall be elected to chair the General Assembly in accordance with the said Communiqué, and taking into account the Company’s Dividend Distribution Policy, long-term strategy, 3 meeting. Within the framework of the General Assembly Principles, at least one person will be appointed as Secretary. investment and financing policies, profitability and liquidity, is provided inAppendix 2. The Chairman may also appoint adequate number of vote-collectors. 8. Approval, or approval with amendments or refusal of the Board of Directors’ proposal for amendment of Article No. 6 of the 2. Reading, Discussion and Approval of the Annual Report of Year 2019 Prepared by the Board Of Directors, Company’s Articles of Incorporation with the heading “Share Capital” and Article No. 8 of the Company’s Articles Within the framework of the TCC, the Regulation and the Capital Markets Law and related regulations, information shall be of Incorporation with the heading “Transfer of Shares And Establishment Of Rights Of Usufruckt On Shares” provided given on the 2019 Annual Report that includes the Corporate Governance Compliance Report, which has been announced at the that the necessary approvals have been received from Capital Markets Board and the Ministry of Trade of Turkey; Headquarters of our Company, on the Electronic General Assembly portal of the Central Registry Agency and on the corporate In case the required approvals have been received from Capital Markets board and the Minisrty of Trade of Turkey until the General website of the Company at www.fordotosan.com.tr for review of our shareholders three weeks before the General Assembly meeting Assembly meeting date; amendment of Company’s Articles of Incorporation provided together with the related Board of and it shall be presented for perusal and approval of our shareholders. Directors’ Resolution in Appendix 4, will be submitted to the approval of General Assembly.

3. Reading of the Summary Report of the Independent Audit Firm of 2019 Fiscal Period, 9. Determination of the number and the term of duty of the members of the Board of Directors and election of the members Independent Audit Report created as per TCC, Regulation and Capital Markets Board legislation and made available at Company based on the determined number, election of the Independent Board Members, Headquarters, Electronic General Assembly Portal of the CRA and Company website www.fordotosan.com.tr, three weeks prior The number of members on the Board of Directors and their terms of office shall be designated in accordance with CMB regulations, to the General Assembly meeting, will be submitted to the information of our shareholders in General Assembly meeting. TCC and Bylaws and the principles governing the selection of members of the Board of Directors in the Articles of Incorporation. New members will be elected to replace Board members whose terms of office have expired. In addition, Independent 4. Reading, Discussion and Approval of the Financial Statements of 2019 Fiscal Period, Members of the Board of Directors shall be elected in compliance with the CMB’s Corporate Governance Communiqué No. II-17.1. Information about our financial statements and legal statutory accounts, which, pursuant to the TCC, bylaws and Capital Markets Law are posted three weeks prior to the General Assembly meeting at our Company Headquarters, on the Electronic According to Article 10 of the Company’s Articles of Incorporation, Company is managed by a Board of Directors with an even number General Assembly Portal of the CRA, and on the Company website www.fordotosan.com.tr for review of our shareholders, of members and consisting of at least 8 members, elected by the General Assembly for a 3 year period in line with the shall be provided to our shareholders for their evaluation and approval. TCC regulations. General Assembly may decide on the renewal of the Board of Directors even if their terms of office have not expired. 2 of the elected Board members are required to meet the independence criteria as defined 5. Approval of the member changes in the Board of Directors during the per year as per Article 363 Turkish Commercial Code., in the CMB’s mandatory Corporate Governance Principles. In accordance with article 363 of TCC, Mr. Roelant Christiaan de Waard, member of Board of Directors, resigned from membership of the Board of Directors due to change of position in Ford Motor Company organization effective from November 15, 2019. The Board of Directors, upon receipt of the proposal of Corporate Governance Committee, has designated Mr. Leonard Martin Meany Mr. Johan Egbert Schep has been appointed by Board of Directors’ resolution dated November 15, 2019 as the member and Mrs. Fatma Füsun Akkal Bozok as the Independent Members of the Board of Directors by Board of Directors’ 06.01.2020 of Board of Directors to serve until the next General Assembly of Shareholders. This assignment will be submitted to the approval resolution and has submitted to the approval of CMB at 16.01.2020. The CVs and Independence Declarations of Board of the General Assembly. of Directors candidates are provided in Appendix 1.

The CVs of Mr. Johan Egbert Schep prepared according to CMB’s Corporate Governance Principle No. 1.3.1 are submitted in Appendix 1.

6. Release of the members of the Board of Directors separately for year 2019 activities, Pursuant to the TCC and Bylaws, the release of our Board of Directors members for the activities, transactions and accounts for the year 2019 shall be submitted to the General Assembly for its approval.

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10. As per the Corporate Governance Principles, informing the shareholders regarding the “Remuneration Policy” the behalf of others, or was involved in the same business as that of the Company as unlimited partner in another company. for members of the Board of Directors and the senior executives and payments made under this policy and Information about said transactions must be included as a separate article on the agenda and recorded into the minutes of approval of the “Remuneration Policy” and related payments, the General Assembly. To fulfill the requirements of these regulations, permission shall be sought from the shareholders at According to CMB’s mandatory Corporate Governance Principle No. 4.6.2, the principles for the remuneration of Board of the General Assembly and the shareholders shall be informed that no such transaction took place in 2019 in this respect. Directors’ members and senior management shall be made available in writing and included as a separate article on the General Assembly Meeting agenda to enable the shareholders to share their opinions on the same. Remuneration Policy created for this To fulfill the requirements of these regulations, permission shall be sought from the shareholders at the General Assembly. purpose is attached as Appendix 3. As specified by footnote No. 26 of 2019 Financial Statements, benefits were provided for senior Some of the shareholders having managerial control, shareholder board members, senior management and relatives management informed Ford Otomotiv Sanayi A.Ş. in 2019. up to the second degree of blood or affinity are also board members at several Koç Group companies including those with similar operations to our Company. In 2019, there has not been any material transaction which requires notification 11. Determination of the annual gross fees to be paid to the members of the Board of Directors, in accordance with Corporate Governance Principle No. 1.3.6 of the Corporate Governance Communique. The annual gross remuneration to be paid to the members of the Board of Directors in 2019 shall be determined by the shareholders as per our Remuneration Policy submitted for the approval the shareholders as per item 10 of the agenda. 15. Wishes and Opinions. 12. As per the regulations of the Turkish Commercial Code and Capital Markets Board, approval of the Board of Directors’ election for the Independent Audit Firm, APPENDICES: In accordance with the Turkish Commercial Code and Capital Markets Board regulations, and taking into consideration the opinion of the Audit Committee, the Board of Directors resolved at their 04.02.2020 meeting to have PWC Bağımsız Appendix 1 CVs of Board of Directors Candidates and Independence Declarations of Independent Board Member Candidates Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi serve as the independent auditors of the Company’s (on pages 38-42 and pages 128-129) financial reports for the financial year 2020 and to let it conduct the other activities that fall within its purview within Appendix 2 2019 Dividend Distribution Proposal (on pages 28-29) the context of the regulations. This decision shall be submitted to the General Assembly for ratification. Appendix 3 Remuneration Policy for Board of Directors and Executive Management (on page 30) Appendix 4 Amendments to the Articles of Incorporation (on page 214) 13. Giving information to the shareholders regarding the donations made by the Company in 2019 and determination of a upper limit for donations to be made in 2020, Pursuant to Article 6 of the CMB’s Communiqué on Dividends No. II-19.1, the limit of donations to be made must be determined by the General Assembly, in cases not specified in the Articles of Incorporation, and information concerning the donations and payments made must be provided to shareholders at the General Assembly. Donations totaling TL 37.368.279 (35.261.454 Vehbi Koç Foundation; 2.106.825 others.) were made to foundations and associations in 2019. The upper limit of donations to be made in 2020 shall be decided by the General Assembly.

14. Under Articles 395 and 396 of the Turkish Commercial Code, authorizing: shareholders with management control, members of the Board of Directors, senior executives and their spouses and relatives related by blood or affinity up to the second degree; and also informing the shareholders regarding the transactions made in this extent in 2018 pursuant to the Capital Markets Board's Communiqué on Corporate Governance,

The members of the Board of Directors can do business only with the approval of the General Assembly, as stipulated in the first subsection of Articles 395 and 396 of the TCC entitled Competition Ban and Ban on doing Business with the Company and Borrowing for the Company.

Pursuant to the Capital Markets Board Mandatory Corporate Governance Principles No. 1.3.6, the General Assembly shall be informed in the event that shareholders having managerial control, shareholder board members, senior management and relatives up to the second degree of blood or affinity engaged in a significant business transaction creating a conflict of interest with the Company or its subsidiaries, competed with the company in the same line of business on their own behalf or on

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APPENDIX 4/ CURRENT TEXT NEW TEXT

AMENDMENTS TO THE ARTICLES OF INCORPORATION ARTICLE 6: SHARE CAPITAL ARTICLE 6: SHARE CAPITAL

6.1. The Company has accepted the registered share capital 6.1. The Company has accepted the registered share capital system according to the provisions of the Capital Markets Law system according to the provisions of the Capital Markets With the decision of the Board of Directors dated February 12, 2020 and numbered 2020/6, since the Company shareholder Ford and adopted the registered share capital system under the Law and adopted the registered share capital system under Motor Company transferred its Group C shares in the Company in the quantity of 14.399.703.676 to Ford Deutschland Holding GmbH permission nr. 16 issued by the Capital Markets Board on the the permission nr. 16 issued by the Capital Markets Board on as of December 30, 2019 and this change requires an amendment to the Articles of Incorporation (“AOI”); it is decided to amend Article date of 09.03.1982. the date of 09.03.1982 No. 6 of the Company’s AOI with the heading “Share Capital” and Article No. 8 of the Company’s AOI with the heading “Transfer Of Shares And Establishment Of Rights Of Usufruct On Shares” as hereinafter appear; and accordingly obtain necessary permissions 6.2. The registered share capital ceiling of the Company is TL 6.2. The registered share capital ceiling of the Company is TL from Capital Markets Board and Ministry of Commerce; and to submit the following new text that includes the 500,000,000 (Five hundred million Lira) and it is divided into 500,000,000 (Five hundred million Lira) and it is divided into amendments to the approval of the shareholders at the first General Assembly of Shareholders. 50,000,000,000 (fifty billion) shares each with a nominal 50,000,000,000 (fifty billion) shares each with a nominal value of 1 (One) Kuruş. value of 1 (One) Kuruş.

6.3. The permission granted by the Capital Markets Board for 6.3. The permission granted by the Capital Markets Board for the upper limit of the registered share capital is valid for the the upper limit of the registered share capital is valid for the years 2017-2021 (5 years). Even if the permitted registered years 2017-2021 (5 years). Even if the permitted registered share capital ceiling is not reached by the end of the year 2021, share capital ceiling is not reached by the end of the year 2021, in order for the Board of Directors to take a capital increase in order for the Board of Directors to take a capital decision after 2021, the necessary authorization shall be increase decision after 2021, the necessary authorization shall obtained from the general assembly of shareholders for a new be obtained from the general assembly of shareholders for a term of up to 5 years pursuant to the permission of the Capital new term of up to 5 years pursuant to the permission of the Markets Board for the same amount or for a new ceiling. If such Capital Markets Board for the same amount or for a new ceiling. authorization is not taken, capital increase can not be done If such authorization is not taken, the Company will be deemed with Board of Directors decision. to have exited from the registered share capital system.

6.4. The issued share capital of the Company is TL 6.4. The issued share capital of the Company is TL 350,910,000 (Three hundred and fifty million nine hundred 350,910,000 (Three hundred and fifty million nine hundred and ten thousand Lira) and it is divided into 35.091.000.000 and ten thousand Lira) and it is divided into 35.091.000.000 (thirty five billion ninety one million) registered shares in total, (thirty five billion ninety one million) registered shares in total, consisting of three groups of Group A, Group B and Group C consisting of three groups of Group A, Group B and Group C shares, each with a nominal value of 1 (one) Kuruş. shares, each with a nominal value of 1 (one) Kuruş.

6.5. The issued share capital of the Company has been fully 6.5. The issued share capital of the Company has been fully paid-in free of any collusion. paid-in free of any collusion.

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6.6. Distribution of the shares representing the issued share capital, among the groups of shares is 6.6. Distribution of the shares representing the issued share capital, among the groups of shares is as listed below. as listed below.

Share Number of Nominal Value Share Share Number of Nominal Value Share Shareholders Shareholders Group Shares TL Percentage (%) Group Shares TL Percentage (%)

Group A

Other Shareholders A 6,960,372,110 69,603,721,10 19.8352 Other Shareholders A 6,960,372,110 69,603,721,10 19.8352

Koç Holding A.Ş. B 13,495,335,714 134,953,357,14 38.4581 Koç Holding A.Ş. B 13,495,335,714 134,953,357,14 38.4581

Temel Ticaret ve Yatırım A.Ş. B 235,588,500 2,355,885,00 0.6714 Temel Ticaret ve Yatırım A.Ş. B 235,588,500 2,355,885,00 0.6714

Group B Total 13,730,924,214 137,309,242,14 39.1295 Group B Total 13,730,924,214 137,309,242,14 39.1295

Group C Group C

Ford Deutschland Ford Motor Company C 14,399,703,676 143,997,036,76 41.0353 C 14,399,703,676 143,997,036,76 41.0353 Holding GmbH

Total 35,091,000,000 350,910,000,00 100.0000 Total 35,091,000,000 350,910,000,00 100.0000

6.7. Ford Motor Company, holding Group C shares of the Company, is entitled to the provisions of the Codeon Direct Foreign 6.7. Ford Deutschland Holding GmbH, a subsidiary of Ford Motor Company, which holds Group C shares of the Company, Investments and the relevant positive law by virtue of the Decree of the Council of Ministers, ref. 6/9910, dated 02.05.1968. is entitled to the provisions of the Law on Encouragement of Foreign Capital No. 6224, Law on Direct Foreign Investments and the relevant positive law by virtue of the Decree of the Council of Ministers, ref. 83/6465, dated 21.04.1983. 6.8. The Company's share capital can be increased or decreased according to the relevant provisions of the Turkish Commercial Code and Capital Markets regulations, as deemed necessary. The Board of Directors, starting from 2017 to the end of 2021, 6.8. The Company's share capital can be increased or decreased according to the relevant provisions of the Turkish Commercial is authorized to resolve to increase the issued share capital of the Company by issuing new shares up to the registered share Code and Capital Markets regulations, as deemed necessary. The Board of Directors, starting from 2017 to the end of 2021, is capital ceiling, if and when deemed necessary, in accordance with the related provisions of the Capital Markets Law, and authorized to resolve to increase the issued share capital of the Company by issuing new shares up to the registered share to restrict the rights of the holders of preference shares, to restrict the pre-emptive rights of the existing shareholders, capital ceiling, if and when deemed necessary, in accordance with the related provisions of the Capital Markets Law, and and to issue preference shares or shares at a premium or shares below its nominal value. Provided, however, the power to to restrict the rights of the holders of preference shares, to restrict the pre-emptive rights of the existing shareholders, and to issue restrict the pre-emptive rights on newly issued shares cannot be used in such manner to cause inequality among the shareholders. preference shares or shares at a premium or shares below its nominal value. Provided, however, the power to restrict the pre-emptive rights on newly issued shares cannot be used in such manner to cause inequality among the shareholders. 6.9. All of the shares of the Company are registered shares. The Company shares shall be registered and monitored according to the principles of dematerialization. 6.9. All of the shares of the Company are registered shares. The Company shares shall be registered and monitored according to the principles of dematerialization.

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ARTICLE 8 – TRANSFER OF SHARES AND ESTABLISHMENT ARTICLE 8 – TRANSFER OF SHARES AND ESTABLISHMENT ARTICLE 8 – TRANSFER OF SHARES AND ESTABLISHMENT ARTICLE 8 – TRANSFER OF SHARES AND ESTABLISHMENT OF RIGHTS OF USUFRUCT ON SHARES OF RIGHTS OF USUFRUCT ON SHARES OF RIGHTS OF USUFRUCT ON SHARES OF RIGHTS OF USUFRUCT ON SHARES

Only the persons, which are registered in the share ledger of Only the persons, which are registered in the share ledger of c. For the sake of protection of the economic independence of c) For the sake of protection of the economic independence the Company as per the records kept with the Central Registry the Company as per the records kept with the Central Registry the Company, if and when any person or a group of persons of the Company, if and when any person or a group of persons Agency shall be recognized by the Company as shareholders or Agency shall be recognized by the Company as shareholders or acting together is willing to directly or indirectly acquire shares acting together is willing to directly or indirectly acquire shares holders of rights of usufruct on shares. holders of rights of usufruct on shares. equal to or more than 5% in total of the share capital of the equal to or more than 5% in total of the share capital of the Company. Company. (1) Transfer of Registered Non-Public Shares: 1) Transfer of Registered Non-Public Shares: (i) Provided, however, if a shareholder willing to transfer its (i) Provided, however, if a shareholder willing to transfer its The transfer of the registered shares which are not traded on The transfer of the registered shares which are not traded on shares (the “Transferring Shareholder”), firstly, offers such shares (the “Transferring Shareholder”), firstly, offers such the stock exchange market , including the pre-emptive rights the stock exchange market , including the pre-emptive rights shares (the “Offered Shares”), at the bidding price and terms of shares (the “Offered Shares”), at the bidding price and terms of attached to them, shall require the approval of the Company. attached to them, shall require the approval of the Company. the potential buyer (the “Potential Buyer”) which reflects the the potential buyer (the “Potential Buyer”) which reflects the Provided, however, each shareholder may freely transfer its Provided, however, each shareholder may freely transfer its prevailing market conditions (the “Offered Price and Terms”), prevailing market conditions (the “Offered Price and Terms”), shares to the other shareholders holding the same group shares to the other shareholders holding the same group to the other non-public group of shareholders (“Offerees”) pro- to the other non-public group of shareholders (“Offerees”) pro- of shares, or its direct shareholders or its direct or indirect of shares, or its direct shareholders or its direct or indirect rata to the shareholding of the Offerees among the Company’s rata to the shareholding of the Offerees among the Company’s affiliates and subsidiaries or may establish rights of usufruct affiliates and subsidiaries or may establish rights of usufruct total non-public shares in accordance with the following total non-public shares in accordance with the following on its shares in favor of such shareholders/parties. on its shares in favor of such shareholders/parties With regard procedure, then the Transferring Shareholder will be entitled procedure, then the Transferring Shareholder will be entitled to the transfer of shares by the shareholders to a third party to freely transfer the Offered Shares to the Potential Buyer at to freely transfer the Offered Shares to the Potential Buyer at With regard to the transfer of shares by the shareholders to or establishment of rights of usufruct on such shares in favor the Offered Price and Terms. the Offered Price and Terms. a third party or establishment of rights of usufruct on such of a third party, other than the holders of the same group of shares in favor of a third party, other than the holders of the shares, or their direct shareholders, or their direct or indirect In such case, the Transferring Shareholder will grant an option In such case, the Transferring Shareholder will grant an option same group of shares, or their direct shareholders, or their affiliates and subsidiaries the Company may only refuse the right to the Offeree(s) for the purchase of the Offered Shares right to the Offeree(s) for the purchase of the Offered Shares direct or indirect affiliates and subsidiaries the Company may demand for its approval and consent for such share transfer or which shall be exercised within a period of 30 (thirty) days which shall be exercised within a period of 30 (thirty) days only refuse the demand for its approval and consent forsuch for establishment of rights of usufruct thereon based on any or and if the whole of the Offered Shares is not purchased by the and if the whole of the Offered Shares is not purchased by the share transfer or for establishment of rights of usufruct all of the following material reasons (the “Material Reasons”): Offeree(s) in such option period of 30 days, the Transferring Offeree(s) in such option period of 30 days, the Transferring thereon based on any or all of the following material reasons Shareholder may, upon completion of the process specified in Shareholder may, upon completion of the process specified in (the “Material Reasons”): a) In order to maintain the joint management of the Company Article 8.1 (ii), freely transfer the Offered Shares to the Potential Article 8.1 (ii), freely transfer the Offered Shares to the Potential under the partnership of Koç Holding A.Ş. and Ford Group (Ford Buyer at the Offered Price and Terms and such transfer shall Buyer at the Offered Price and Terms and such transfer shall a. In order to maintain the joint management of the Company Motor Company and companies directly or indirectly owned by be recorded in the share ledger of the Company. If a purchase be recorded in the share ledger of the Company. If a purchase under the partnership of Koç Holding A.Ş. and Ford Motor Ford Motor Company with more than 50% share) if and when notice for the Offered Shares is served by more than one notice for the Offered Shares is served by more than one Company, if and when any person, which is not a member of any person, which is not a member of Koç Group or Ford Group Offeree, then each of such Offerees may purchase the Offered Offeree, then each of such Offerees may purchase the Offered Koç Group or Ford Group is willing to acquire shares or rights is willing to acquire shares or rights of usufruct thereon; Shares pro-rata to its shareholding among the total number of Shares prorata to its shareholding among the total number of of usufruct thereon; non-public shares held in the Company by such Offerees. If and non-public shares held in the Company by such Offerees. If and b) If and when a competing company or entity (the when only one of the Offerees wishes to acquire the Offered when only one of the Offerees wishes to acquire the Offered b. If and when a competing company or entity (the “Competitor”) or owner, operator, or partner (including private Shares, only whole ofthe Offered Shares will be purchased by Shares, only whole of the Offered Shares will be purchased by “Competitor”) or owner, operator, or partner (including private or venture capital funds and their partners) of a Competitor, such Offeree. such Offeree or venture capital funds and their partners) of a Competitor, or any director or employee of a Competitor, regardless of its or any director or employee of a Competitor, regardless of its position therein, or its spouses and family members, or any If the Transferring Shareholder fails to offer the Offered Shares If the Transferring Shareholder fails to offer the Offered Shares position therein, or its spouses and family members, or any companies or entities directly or indirectly controlled by the to the Offerees as specified above, then the Company may to the Offerees as specified above, then the Company may companies or entities directly or indirectly controlled by the above are willing to acquire shares; refuse the demand for its approval for such share transfer refuse the demand for its approval for such share transfer above are willing to acquire shares; based on any or all of the Material Reasons. based on any or all of the Material Reasons.

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(ii) Besides (and even if such procedure is applied) with (ii) Besides (and even if such procedure is applied) with In the event that no purchase request received from the In the event that no purchase request received from the the procedure described in Article 8.1(i), the Company may the procedure described in Article 8.1(i), the Company may Notified Shareholders within the Notice Period or the Notified Notified Shareholders within the Notice Period or the Notified purchase the Offered Shares at their actual value applicable purchase the Offered Shares at their actual value applicable Shareholders are willing to purchase only a portion of the Shareholders are willing to purchase only a portion of the at the moment the sales notice is served (the “Actual Value”) at the moment the sales notice is served (the “Actual Value”) Offered Shares, within no later than 15 (fifteen) days after Offered Shares, within no later than 15 (fifteen) days after the on behalf of itself, other shareholders or the third parties. on behalf of itself, other shareholders or the third parties. For the expiry of the Notice Period, the Company may purchase: expiry of the Notice Period, the Company may purchase: (a) all For this purpose, the Company will send a notification to this purpose, the Company will send a notification to the (a) all of the Offered Shares if none of Notified Shareholders of the Offered Shares if none of Notified Shareholders serves a the other group of shareholders of the non-public shares other group of shareholders of the nonpublic shares (“Notified serves a purchase request, or (b) the remaining portion of purchase request, or (b) the remaining portion of the Offered (“Notified Shareholders”), requesting them to notify the Shareholders”), requesting them to notify the Company of their the Offered Shares if the Notified Shareholders are willing to Shares if the Notified Shareholders are willing to purchase Company of their intention to purchase the Offered Shares intention to purchase the Offered Shares at their Actual Value purchase only a portion of the Offered Shares, on behalf of only a portion of the Offered Shares, on behalf of itself or third at their Actual Value in 20 (twenty) days (“Notice Period”). in 20 (twenty) days (“Notice Period”). Thereupon, if whole itself or third parties, in its sole discretion, at the Actual Value. parties, in its sole discretion, at the Actual Value. Otherwise, the Thereupon, if whole of the Offered Shares are requested to of the Offered Shares are requested to be purchased by the Otherwise, the Transferring Shareholder may freely transfer Transferring Shareholder may freely transfer all of the Offered be purchased by the Notified Shareholders within the Notice Notified Shareholders within the Notice Period, the Company all of the Offered Shares to the Potential Buyer at the Offered Shares to the Potential Buyer at the Offered Price and Terms Period, the Company will purchase the Offered Shares from will purchase the Offered Shares from the Transferring Price and Terms and such transfer shall be recorded in the and such transfer shall be recorded in the Company share the Transferring Shareholder at their Actual Value on behalf Shareholder at their Actual Value on behalf of the Notified Company share ledger. For the avoidance of doubt, in order to ledger. For the avoidance of doubt, in order to withhold of the Notified Shareholders. In this case, each of the Notified Shareholders. In this case, each of the Notified Shareholders withhold its approval for the transfer of the Offered Shares by its approval for the transfer of the Offered Shares by the Shareholders may purchase the Offered Shares pro-rata to its may purchase the Offered Shares pro-rata to its shareholding the Transferring Shareholder to the Potential Buyer by way of Transferring Shareholder to the Potential Buyer by way of shareholding in the total number of non-public shares held in the total number of non-public shares held by the Notified purchasing the Offered Shares at the Actual Value according purchasing the Offered Shares at the Actual Value according by the Notified Shareholders in the Company. If only one of Shareholders in the Company. If only one of the Notified to the provisions of this Article, the Company shall be obliged to the provisions of this Article, the Company shall be obliged the Notified Shareholders is willing to purchase the Offered Shareholders is willing to purchase the Offered Shares, the to purchase all of the Offered Shares at the Actual Value either to purchase all of the Offered Shares at the Actual Value either Shares, the Company will purchase only whole of the Offered Company will purchase only whole of the Offered Shares on on behalf of itself, the Notified Shareholders or third parties as on behalf of itself, the Notified Shareholders or third parties as Shares on behalf of such Notified Shareholder. behalf of such Notified Shareholder. stipulated in this Article 8.1(ii). stipulated in this Article 8.1(ii).

(iii) In the transactions carried out by the Company and the (iii) In the transactions carried out by the Company and the decisions taken by the Company pursuant to the procedures decisions taken by the Company pursuant to the procedures stipulated in Articles 8.1 (i) and 8.1 (ii), the member(s) of the stipulated in Articles 8.1 (i) and 8.1 (ii), the member(s) of the Board of Directors nominated by the Transferring Shareholder Board of Directors nominated by the Transferring Shareholder or shareholders owning the same group of shares held by or shareholders owning the same group of shares held by the Transferring Shareholder, other than the independent the Transferring Shareholder, other than the independent members appointed in accordance with the regulations of the members appointed in accordance with the regulations of the Capital Markets Board, shall not be entitled to participate in Capital Markets Board, shall not be entitled to participate in such negotiations of the Board of Directors and shall not have such negotiations of the Board of Directors and shall not have any voting rights in the Board of Directors meeting. In this case, any voting rights in the Board of Directors meeting. In this case, such decisions shall require the affirmative vote of the simple such decisions shall require the affirmative vote of the simple majority of the remaining members of the Board of Directors majority of the remaining members of the Board of Directors who shall be regarded in meeting and voting quorum. who shall be regarded in meeting and voting quorum.

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If the transferee does not explicitly declare that it has If the transferee does not explicitly declare that it has For the purposes of this Article, the Actual Value of the Offered For the purposes of this Article, the Actual Value of the Offered purchased the subject shares in its own name purchased the subject shares in its own name and account, the Shares shall be determined by the Company. If and when Shares shall be determined by the Company. If and when and account, the Company may refuse to register such transfer Company may refuse to register such transfer in the company the Transferring Shareholder objects to the Actual Value the Transferring Shareholder objects to the Actual Value in the company share ledger. share ledger. determined by the Company, then and in this case, the Actual determined by the Company, then and in this case, the Actual Value shall be determined by an independent audit firm having Value shall be determined by an independent audit firm having In the event of acquisition of shares by inheritance or portioning In the event of acquisition of shares by inheritance or portioning no direct or indirect shareholding or management relations no direct or indirect shareholding or management relations of inheritance or under a prenuptial agreement or through of inheritance or under a prenuptial agreement or through with the Company or the Transferring Shareholder (the with the Company or the Transferring Shareholder (the forced execution proceedings, the Company may reject such forced execution proceedings, the Company may reject such “Independent Audit Firm”), or by consultancy firms operating “Independent Audit Firm”), or by consultancy firms operating share transfer provided that the Company proposes to the share transfer provided that the Company proposes to the under a license, know-how or similar agreements entered under a license, know-how or similar agreements entered acquirer to purchase its shares at the Actual Value. acquirer to purchase its shares at the Actual Value. into with the members of such Independent Audit Firms, or into with the members of such Independent Audit Firms, or by intermediary institutions holding both an authorization by intermediary institutions holding both an authorization certificate for underwriting of public offerings and an certificate for underwriting of public offerings and an authorization certificate for investment counseling or by non- authorization certificate for investment counseling or by non- deposit banks. deposit banks.

(iv) The provisions of this Article 8.1 shall apply to the transfer (iv) The provisions of this Article 8.1 shall apply to the transfer of the pre-emptive rights attached to the non-public registered of the pre-emptive rights attached to the non-public registered shares mutatis mutandis and in case of transfer of Group B or shares mutatis mutandis and in case of transfer of Group B Group C shares to third parties, such shares, including the or Group C shares to third parties, such shares, including the preemptive rights which are not utilized by Group B or Group preemptive rights which are not utilized by Group B or Group C shareholders or offered to public, shall convert to Group A C shareholders or offered to public, shall convert to Group A shares. shares.

(v) The part of the Group A shares to be acquired by the Group (v) The part of the Group A shares to be acquired by the Group B shareholders, which shall increase the amount of the existing B shareholders, which shall increase the amount of the existing Group B shares to the amount of the existing Group C shares, Group B shares to the amount of the existing Group C shares, shall be automatically converted into the Group B shares. shall be automatically converted into the Group B shares.

2. Transfer of Listed and Publicly Traded Registered Shares: 2. Transfer of Listed and Publicly Traded Registered Shares: The transfer of the listed and publicly traded shares shall be The transfer of the listed and publicly traded shares shall be regulated by the Capital Markets Board. regulated by the Capital Markets Board.

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DEVELOPMENTS FOLLOWING NOTES THE REPORT DATE

JANUARY 17, 2020 In the first year, all social benefits will be increased by 20%. For the second year, it will be raised as consumer price index During the negotiation for Collective Labor Agreement process (CPI) ratio. between Turkish Employers Association of Metal Industries (MESS), which our company is a member, and Turkish Metal FEBRUARY 14, 2020 Union, Turkish Metal Union informed our Company that strike decision has been taken and the strike date to be determined As of February 1, 2020, Assistant General Manager Material later by Turkish Metal Union for all of our businesses. Planning and Logistics will be renamed Directorate Material Planning and Logistics and report to Assistant General JANUARY 22, 2020 Manager Operations.

During the negotiation for Collective Labor Agreement process between Turkish Employers Association of Metal Industries (MESS), which our company is a member of and Turkish Metal Union, our Company was informed that the lockout decision was taken by MESS against the strike decision taken by the Turkish Metal Union and the lockout application date is to be determined later.

JANUARY 29, 2020

Collective Labor Agreement for the period of 01.09.2019- 31.08.2021 was signed between Turkish Employers Association of Metal Industries (MESS), which our company is a member, and Turkish Metal Union. According to this agreement;

For the first six months period of the agreement 0.30 TL improvement has been made for the employees whose hourly wages are below 12 TL/hour just once under the condition that the wages do not exceed 12 TL/hour. 17 percent increase on hourly wages was decided for all of the employees over this improvement. For the second six months period of the agreement, hourly wages will be increased 6 percent (if inflation rate will be higher than 6 percent, the difference between wage increase and inflation rate will be added to the wage increase). For the following third and fourth six months periods of the agreement, hourly wages will be raised as consumer price index (CPI) ratio.

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NOTES NOTES

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Trade Name CENTERS INVESTOR RELATIONS Ford Otomotiv Sanayi A.Ş. CONTACTS Kocaeli Plants Trade Registry Number Denizevler Mah. Ali Uçar Cad. No:53 Aslı Selçuk 73232 Gölcük/Kocaeli Investor Relations Manager T: 0262 315 50 00 [email protected] Central Registration System T: +90 216 564 74 99 Number (MERSIS) Eskişehir Plant 0649002036300014 Yenice Mah. Ford Otosan Fabrika Bahar Efeoğlu Ağar Sahası Küme Evler No:1-1 Investor Relations Specialist Authorized Capital 26670 İnönü/Eskişehir [email protected] 500.000.000 TL T: 0222 213 20 20 T: +90 216 564 78 59

Paid-in Capital Sancaktepe Spare Parts Burak Çekmece 350.910.000 TL Distribution Center Treasury and Risk Manager Akpınar Mah. Hasan Basri Cad. No:2 (Responsible for Compliance 34885 Sancaktepe/İstanbul with Capital Markets Law) T: 0216 564 71 00 [email protected] T: +90 216 564 74 80 Sancaktepe Engineering Center Akpınar Mah. Hasan Basri Cad. No:2 WEBSITE 34885 Sancaktepe/İstanbul T: 0216 664 90 90 www.fordotosan.com.tr

INVESTOR RELATIONS MOBILE APPLICATION

This Annual Report (“Report”), including the Board of Directors’ Report about the operations and financials of 2019, Auditors’ Report, Financial Statements and the Independent Audit Report, was prepared in compliance with the legal regulations in force, to be presented to the Ordinary General Assembly of Ford Otosan A.Ş. (Company) to take place on the 16th of March 2020 Monday at 15.00 in Divan Hotel Istanbul, Elmadağ at the address Asker Ocağı Caddesi No. 1, 34367 Şişli, Istanbul. The Report was written only to inform the shareholders, and does not serve the purpose to lay the ground for any investment decision. The opinions stated in the Report regarding the future and projections reflect the Company Management’s view on the future situation; their materialization may differ depending on the variables and assumptions that yield the projections. Accordingly, the Company or Members of the Board of Directors, advisors or employees cannot be held liable for any information or communication conveyed as part of this Report or for any direct or indirect loss and damages that may be incurred on any individual because of information based on/omitted from the content of this report. It is believed that all information in the Report was accurate at the time of preparation. The Company rejects any responsibility for errors that may occur during writing or printing.

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