Ford Otosan 2017 Annual Report 2017 Annual Report Ford Otosan 2017 Annual Report

CONTENTS FROM 1928 TO TODAY

FORD OTOSAN AT A GLANCE 05 FORD OTOSAN IN 2017 47

Ford Otosan from Past to Present 06 Investor Relations 48 Summary Results 07 Turkish Automotive Market and Ford Otosan 50 Main Indicators 08 Exports 52 Highlights 10 Production and Capacity 54 Main Values 11 Suppliers 58 Milestones 12 Plants and Facilities 60 R&D 64 İnnovation 70 Digital Transformation 72 GENERAL ASSEMBLY 15

Ordinary General Assembly Meeting 16 SUSTAINABILITY 75 Independent Auditor’s Report On The Board Of Directors’ 17 Annual Report Sustainability Principles 76 Board of Directors’ Report 20 Environmentally Friendly Production 77 2018 Guidance 24 Quality 80 Dividend Policy 25 Occupational Health and Safety 81 2017 Dividend Distribution Proposal 26 Human Resources 82 Remuneration Policy for the Board of Directors 28 Corporate Social Responsibility 84 and Senior Executives 2018 Board of Directors Member Candidates 29 CORPORATE GOVERNANCE 87

Corporate Governance Compliance Report 88 MANAGEMENT AND ASSESSMENTS 31 Risk Management and Internal Control 96 I live and prosper with my country. Coming together is a beginning, Legal Disclosures 98 As long as democracy exists keeping together is progress, Chairman’s Message 32 Report on Related Party Transactions for 2017 100 CEO’s Message 34 Statement of Responsibility 101 and thrives, so do we. We shall working together is success. Board of Directors 36 Declaration for Independency 102 do our utmost to strengthen our Organization Chart 41 Executive Management 42 economy. As our economy prospers, FINANCIAL STATEMENTS so will democracy and our standing AND OTHER INFORMATION 105 in the world.

Financial Statements and Independent Auditors’ Report 107 VEHBİ KOÇ Ordinary General Assembly to Review 174 Developments Following the Report Date 179 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly Management and Assessments

FORD OTOSAN in 2017 AT A GLANCE Otosan Ford Sustainability Corporate Governance Financial Reports

4 5 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

FORD OTOSAN FROM PAST TO PRESENT SUMMARY RESULTS

2017 Marked the 20th Year of Our Equal Partnership. General General Assembly

1997* 2017 2013 2014 2015 2016 2017

MAIN FINANCIAL INDICATORS (MILLION TL) Revenues 11,405 11,925 16,746 18,289 25,341 Export Revenues 4,106 4,238 10,723 12,287 17,830 PRODUCTION CAPACITY 47,000 9 440,000 Domestic Revenues 7,299 7,687 6,023 6,002 7,511 (Units) Times

Gross Profit 1,128 1,131 1,860 2,086 2,637 Management and Assessments Operating Profit 670 541 1,036 1,111 1,708 EBITDA 856 846 1,441 1,567 2,182 PRODUCTION 43,102 9 373,007 Profit Before Tax 452 390 866 970 1,481 (Units) Times Net Profit 641 595 842 955 1,490 Earnings Per Share (for Kr 1 nominal value) 1,83 1,70 2,40 2,72 4,25

CASH POSITION (MILLION TL) in 2017 EXPORTS 446 Otosan Ford 667 297,396 Cash & Cash Equivalents 238 577 980 1,189 1,806 (Units) Times Total Financial Debt (2,291) (2,350) (2,561) (2,852) (3,604) Net Financial Debt (2,053) (1,773) (1,580) (1,663) (1,798)

EXPORTS 16 million 306 4.9 billion FINANCIAL RATIOS (USD) Times Current Ratio 1,02 1,00 1,05 1,09 1,13 Liquidity Ratio 0,71 0,74 0,73 0,79 0,87

Net Financial Debt / Tangible Net Worth 1,13 0,79 0,63 0,64 0,60 Sustainability Current Assets / Total Assets 0,41 0,41 0,48 0,50 0,57 REVENUES 850 million 8 6.9 billion Current Liabilities / Total Liabilities 0,64 0,66 0,71 0,70 0,73 (USD) Times Total Liabilities / Total Liabilities and Equity 0,63 0,62 0,64 0,66 0,69 Return on Equity 28.7% 21.6% 27.5% 30.2% 40.3%

MARGINS HEADCOUNT 3,406 3 11.501

Times Gross Margin 9.9% 9.5% 11.1% 11.4% 10.4% Corporate Governance EBITDA Margin 7.5% 7.1% 8.6% 8.6% 8.6% Operating Margin 5.9% 4.5% 6.2% 6.1% 6.7% Net Income Margin 5.6% 5.0% 5.0% 5.2% 5.9% MARKET CAP 1.1 billion 5 5.6 billion (USD) Times OTHER Dividend Payment (Million TL) 300 175 400 663 790 * The shares of Koç Holding and in Otosan became equal. Financial Reports

6 7 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

MAIN INDICATORS General General Assembly 8.6% 8.6% 8.6% 5.9% 5.8% 5.3% 5.6% 5.2% 3.5% 5.0% 5.0% 7.5% 2,182 11,501 1,490 3.2% 790 25,341 10,676 10,261 7.1% 9,762 663 1.8% 413 381 1,567 18,289 373 17,830 1,441 341 955 16,746 842 297 6,444 283 400 254 257 Management 12,287 11,925 11,405 641 227 10,723 595 and Assessments 856 846 300 192 7,687 7,299 175

2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017

WHOLESALE VOLUME REVENUES EBITDA NET PROFIT DIVIDEND NUMBER OF in 2017 Ford Otosan Ford (1000 Units) Record (Million TL) Record (Million TL) Record (Million TL) Record (Million TL, gross) Record EMPLOYEES Record

Turkish auto industry contracted 3% Domestic revenues were TL 7,511 million, EBITDA grew 39% YoY to TL 2,182 Net financial expenses rose 66% to Ford Otosan paid a total gross dividend Ford Otosan employed 2,654 white- YoY in 2017 to 977,483 units. While Light up 25% YoY, thanks to pricing strategy million. EBITDA margin remained flat. TL 224 million due to 137% increase in of TL 790 million in 2017. Distributed collar and 8,847 blue-collar employees, Commercial Vehicle (+4% YoY), Medium and positive sales mix. Export revenues Drivers were: higher net fx loss. Despite this pressure, dividend rose by 19% compared to 2016. totaling 11,501 personnel as of 2017-end. Commercial Vehicle (+2%), and Truck rose 45% YoY to TL 17,830 million with ·· Pricing focus to offset the cost impact profit before tax rose 53% YoY to TL The total dividend paid by Ford Otosan In addition to providing the highest (+1%) sales increased, Passenger Car market growth, ongoing strong demand (weak & volatile TL, rising inflation 1,481 million. Net income was up 56% to reached TL 6.1 billion between 2004 and employment in the Turkish automotive Sustainability (-5% YoY) sales declined. Domestic for our products and currency impact. and commodity prices) TL 1,490 million, higher than PBT, due to 2017. industry, Ford Otosan is also the leader in wholesale volume was 115,462 units. Total revenues were up 39% YoY to TL ·· Positive domestic sales mix and focus tax income resulting from deferred tax female employment. In 2017, the number Export volumes grew 16% YoY to 25,341 million. Share of exports in total on high margin products asset. EPS was 4.25 Kr, up from 2.72 Kr a of female employees was 26% in office 297,396 units. Total wholesale volume revenues was 70%, up from 67% in 2016. ·· High Capacity Utilization: Up 8 year ago. workers, 12% in field workers ,and 15% in was up 11% to 412,858 units. pps YoY to 88% with rising export total. demand and 12% more production ·· Cost reduction actions and strong OpEx control Corporate Governance

Export Export Margin Margin Yield

Total Total Note: 2014 numbers reflect the transition to new product range and relevant ramp-up period. Financial Reports

8 9 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

HIGHLIGHTS MAIN VALUES General General Assembly

LEAD HIGHEST VISION STRATEGY COMMERCIAL VEHICLE EMPLOYMENT Being Turkey’s most valuable and most preferred industrial GROWTH company. Organic and inorganic growth in new markets and existing MANUFACTURING IN TURKISH business areas by developing new products.

HUB OF FORD AUTOMOTIVE Management MISSION INNOVATION and Assessments IN EUROPE 11,501 EMPLOYEES Providing innovative products and services in all business Providing innovative automotive products and services processes by keeping creativity at the top. MOST beneficial to the community. BRAND COMPETENT Being the most preferred brand in all segments by meeting R&D CENTER IN TURKISH VALUES customer needs and expectations. in 2017

AUTOMOTIVE INDUSTRY Our products and services are the upshots of our efforts. The EMPLOYEES Otosan Ford 1,234 R&D ENGINEERS more our customers appreciate our products and services, the Being the most preferred workplace by aiming excellence in higher our value will rise. human resources processes and increasing benefits provided for employees. Our employees are the source of our strength. It is our goal to boost the skills and contentment of our employees by providing CUSTOMERS them with opportunities to self-improve. It is our principle to Being the leader automotive brand with regards to customer th Turkey’s Export Turkey’s 4 Place in accomplish “teamwork” that will ensure their participation in all satisfaction in sales and after sales products and services. Champion Commercial Total Automotive areas. Sustainability USD Vehicle Leader Market Share Our earnings are an indication of the extent to which our products and services meet customer expectations. We aim to profit so as to provide the resources necessary towards improving our 4.9 30% 11.9% products and services. Billion Market Share Corporate Governance 22% 67% 72%

OF TURKEY’S TOTAL OF TURKEY’S COMMERCIAL OF TURKEY’S COMMERCIAL AUTOMOTIVE PRODUCTION VEHICLE PRODUCTION VEHICLE EXPORTS Financial Reports

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MILESTONES 1997 2014

Ford Assumes 41% Equity in Yeniköy Plant Opens and General Assembly ‘Ford Otosan’ Otosan Produces its First Courier 1928 1967 2001 2016 Vehbi Koç is Assigned Otosan Produces its

as Ankara Ford Dealer First Transit Management Gölcük Plant opens Ecotorq and Assessments Engine Production Starts in 2017 Ford Otosan Ford 1956 1982

The Foundations of Koç-Ford İnönü Plant Opens 2009 2017 Partnership are Laid Down

First Vehicle Export Capacity Increase Investment in Sustainability to North America Line Started 1961 1966 2012 2013 First Private Corporate Governance R&D Center in 1986 Launch of JMC Engine Automotive Ford & Truck First Domestic Otosan Produces Custom Technology Passenger Car: Turkey’s first Diesel Licensing Anadol Engine ERK Agreements Financial Reports

12 13 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly Management and Assessments

General in 2017 Assembly Otosan Ford Sustainability Corporate Governance Financial Reports

14 15 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

AGENDA OF FORD OTOMOTİV SANAYİ A.Ş. CONVENIENCE TRANSLATION INTO ENGLISH OF ORDINARY GENERAL ASSEMBLY MEETING INDEPENDENT AUDITOR’S REPORT DATED MARCH 19, 2018 ON THE BOARD OF DIRECTORS’ ANNUAL REPORT General General ORIGINALLY ISSUED IN TURKISH Assembly

1. Opening and election of Chairmanship Panel, 12. Under Articles 395 and 396 of the Turkish Commercial To the General Assembly of Ford Otomotiv Sanayi A.Ş. Code, authorizing: shareholders with management control, 2. Reading, discussion and approval of the Annual Report of year members of the Board of Directors, senior executives and their 1. Opinion 2017 prepared by the Board of Directors, spouses and relatives related by blood or affinity up to the second degree; and also informing the shareholders regarding We have audited the annual report of ABC A.Ş. (the “Company”) for the 1 January - 31 December 2017 period. 3. Reading of the summary report of the Independent Audit Firm the transactions made in this extent in 2017 pursuant to of 2017 Fiscal Period, the Capital Markets Board’s Communiqué on Corporate In our opinion, the financial information and the analysis made by the Board of Directors by using the information included in Management

Governance, the audited financial statements regarding the Company’s position in the Board of Directors’ Annual Report are consistent and and Assessments 4. Reading, discussion and approval of the Financial Statements presented fairly, in all material respects, with the audited full set financial statements and with the information obtained in the of 2017 Fiscal Period, 13. Wishes and opinions. course of independent audit.

5. Release of the members of the Board of Directors separately 2. Basis for Opinion for year 2017 activities, Our independent audit was conducted in accordance with the Independent Standards on Auditing that are part of the Turkish 6. Approval, or approval with amendments or refusal of the Standards on Auditing (the “TSA”) issued by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our in 2017

Board of Directors’ proposal for profit distribution for the year responsibilities under those standards are further described in the Auditor’s Responsibilities in the Audit of the Board of Directors’ Otosan Ford 2017 and the distribution date which prepared in accordance Annual Report section of our report. We hereby declare that we are independent of the Company in accordance with the Ethical with the Company’s Profit Distribution Policy, 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 7. Determination of the number and the term of duty of the accordance with the Ethical Rules and regulations. We believe that the audit evidence we have obtained during the independent members of the Board of Directors and election of the audit provides a sufficient and appropriate basis for our opinion. members base on the determined number, election of the Independent Board Members, 3. Our Audit Opinion on the Full Set Financial Statements

8. As per the Corporate Governance Principles, informing We expressed an unqualified opinion in the auditor’s report dated 12 February 2018 on the full set financial statements for the 1 Sustainability the shareholders regarding the “Remuneration Policy” for January - 31 December 2017 period. members of the Board of Directors and the senior executives and payments made under this policy and approval of the “Remuneration Policy” and related payments,

9. Determination of the annual gross fees to be paid to the members of the Board of Directors, Corporate 10. As per the regulations of the Turkish Commercial Code and Governance Capital Markets Board, approval of the Board of Directors’ election for the Independent Audit Firm,

11. Giving information to the shareholders regarding the donations made by the Company in 2017 and determination of a upper limit for donations to be made in 2018, 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 Registration Number 0-1460-0224-0500015 Financial Reports

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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 General General

the Company and with the information we obtained in the course of independent audit. Assembly 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 that the independent audit is planned and performed in a way to obtain reasonable assurance of whether or not the financial b. to prepare the annual report to reflect the Company’s operations in that year and the financial position in a true, complete, information and the analysis made by the Board of Directors by using the information included in the audited financial statements in straightforward, fair and proper manner in all respects. In this report financial position is assessed in accordance with the financial the annual report are consistent and presented fairly with the audited financial statements and with the information obtained in the statements. Also in the report, developments and possible risks which the Company may encounter are clearly indicated. The course of audit. assessments of the Board of Directors in regards to these matters are also included in the report. c. to include the matters below in the annual report: PwC Bağımsız Denetim ve Management

Serbest Muhasebeci Mali Müşavirlik A.Ş. and Assessments − 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 Gücümen, SMMM in 2017 Partner Ford Otosan Ford

Istanbul, 23 February 2018 Sustainability Corporate Governance Financial Reports

18 19 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

Ford Otosan has led exports since 2011, Ford Otosan offers in-house entrepreneurs the opportunity to BOARD OF DIRECTORS’ and in 2017, as in 2016 and 2015, was Turkey’s export champion, realize their innovative ideas. As part of our innovation program, REPORT with export revenues of $4.9 billion. Ford Otosan had 72% over 70 in-house entrepreneurs and 40 different mobility share in Turkey’s total commercial vehicle exports in 2017. It also concepts were tested with Lean Initiative methodology. Four manufactured 80% of Transit product line sold in Europe. The projects with higher customer demand are progressing towards General General

main driver behind our export strength is Ford’s growth-based commercialization. Assembly strategy for Europe. R&D Projects ongoing in line with Product Dear Shareholders, Business Partners, and Employees, 5 points in passenger cars, 1 point in commercial vehicles, and The most valuable automotive company on Borsa Programs 4 points in the overall industry. Istanbul Ford Otosan is a leading product development center within We would like to welcome you to our 59th Ordinary General Ford Otosan reached record high level of market capitalization the Global Ford organization. Our R&D expense on the various Assembly Meeting. We hereby present the Board of Directors Ford Otosan maintained its profitability focus in passenger 2017 with US$5.6 billion. Share price increased by 108% in projects we undertook in 2017 amounted to 512,040,000 TL Report, which covers the activities of Ford Otomotiv Sanayi A.Ş. cars, while aiming to achieve a profitable growth in commercial TL terms, outperforming BIST-100 by 60%. Foreign share before capitalization (2016: 464,603,000 TL), and 317,192,000 in 2017. You will find detailed information about our company vehicles. It ranked fourth in total industry sales with 116,247 units in free float increased to 80% from 67% a year ago. Ford TL after capitalization (2016: 383,844,000 TL). and an assessment of our 2017 operations. The report also and 11.9% market share. Our leadership position in commercial Otosan aims to boost shareholder value consistently by way Management contains our independently audited financial statements as vehicles is cemented with a 30.3% share. delivering corporate governance and investor relations at global Corporate Social Responsibility and Donations and Assessments of December 31, 2017, including the relevant footnotes and all manufactured in the Yeniköy Plant for the global markets has standards. Both our company and employees support a number of other information required by the Capital Markets Board. once again become the most preferred light commercial vehicle corporate social responsibility projects in education, health, and in Turkey. Ford Trucks brand reached 28 countries culture, areas fundamental for our country. Larger initiatives Expansionary monetary policies and ample liquidity supported International expansion continued in the truck segment with are usually directed under the leadership of the Vehbi Koç global capital markets in 2017. Developed countries delivered Decision to increase production capacity while Ford Trucks brand. It reached 28 countries and the export Foundation. Total donations made to tax exempt foundations rising growth rates. Despite the hectic political agenda in delivering record high production volume increased by 49%. and associations in 2017, including those given to the Vehbi Koç Europe, consumer confidence reached its highest level since Ford Otosan is Turkey’s and Europe’s largest commercial vehicle Foundation, amounted to 27,374,000 TL (2016: 22,132,000 TL). in 2017 We designed our trucks with Ecotorq engines with 100% 2001. The Federal Reserve continued to lower interest rates manufacturer. Production volume reached 373,007 units, driven Otosan Ford and scale down its balance sheet. Economic growth in Turkey by strong export demand in 2017. Ford Otosan had 22% share domestic engineering. We signed a license agreement with Changes to our Board of Directors and Company exceeded expectations with increased public investments and in Turkey’s total vehicle production volume, and 67% share in JMC in 2013 for trucks to be manufactured in China, the biggest Management private consumption supported by incentives and the Credit commercial vehicle production. Our production volume grew by truck market in the world, with our technology and became the At the Ordinary General Assembly Meeting held on March 23, Guarantee Fund. The economic recovery in Europe, our main 12% and capacity utilization rate increased by 8 increased by first Turkish automotive company to issue a technology license 2017, the number of members on our Board of Directors was set export market, and in neighboring Russia had a positive impact 8 percentage points. points to reach 88%. abroad. JMC trucks are manufactured by JMC with Ford Otosan at 14 in total, including two independent members. Our Board of on Turkey’s exports. license and engineering resources. They were introduced to the Directors was appointed to serve until the next Ordinary General In line with the higher export demand for Custom model that we market in 2017, and awarded “Chinese Truck of the Year 2018”. Assembly Meeting, which would convene to review the 2017 The volatility index VIX had its least volatile year in decades in launched at the end of 2012, we announced a capacity increase accounts.

the midst of high liquidity and low interest environment. Higher plan on August 2, 2017. The capacity of Gölcük Plant will be Innovation leader of the Turkish automotive Sustainability global risk appetite had a positive impact on the markets. Many increased to 330,000 from 290,000 units in two phases with an industry At the Ordinary General Assembly Meeting on March 23, 2017, stock exchanges including BIST reached record high levels. At investment of $52 million. Upon completion of the investments In line with our goal “to become the most valuable and most James Duncan Farley Jr., elected to the Board of Directors and the same time, weak and volatile Turkish Lira, high inflation, in September 2018, the Company’s total production capacity preferred industrial company in Turkey” we continued our efforts served as Vice Chairman of the Board to represent Class C and rising commodity prices created a challenging operating will rise from 415,000 units to 455,000 units. The first phase to develop innovative ideas and deliver digital transformation shareholders, resigned from this post effective September 8, environment. of the investment was completed in the fourth quarter of 2017. results to bolster these innovations in 2017. 2017, due to changes in his responsibilities at the Ford Motor This increased capacity in Gölcük Plant to 315,000 units, and Company. Steven Robert Armstrong, a member of Board of Firm leader in Turkish commercial vehicle market total capacity to 440,000 units. Our digital transformation program covers a wide range from Directors, was assigned as Vice Chairman of the Board. Joseph In 2017, Turkish automotive industry sales decreased by 3% and customer journey to product, supply chain to production, and Bakaj was nominated to represent Class C shareholders on Corporate amounted to 977,483 units. Passenger car sales decreased by Once again Turkey’s export champion employees to product development. Ford Otosan launched the Board of Directors, to serve until the next Ordinary General Governance 5%, to 722,759 units, due to high base year and rising vehicle The light commercial vehicle segment in Europe, our main this program in 2017 and manages it with 17 major projects, Assembly Meeting. His appointment was approved at the prices as a result of special consumption tax increase and the export market, grew 3.9%, while Ford brand sustained its and a governance method that fosters a sense of ownership Extraordinary General Assembly Meeting held on October 27, currency impact. Light commercial vehicle sales increased by leadership in commercial vehicles with a 13.5% market share. from each unit. We switched from strategy phase to preliminary 2017. Steven Robert Armstrong was elected in place of James 4% to 126,111 units while medium commercial vehicle sales Export volume increased by 16% to 297,396 units. This figure is implementation phase in the digital transformation. Duncan Farley Jr. to the Remuneration Committee. increased by 2% to 107,324 units. Truck sales increased by 1% a historic high for us. to 18,745 units. Share of the passenger cars in the industry decreased by 1 point to 74%. The share of imports increased by Financial Reports

20 21 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

As per the Board of Directors resolution dated December 8, Our profitability demonstrated a positive trend despite a As outlined in our Dividend Policy, in accordance with our Dear investors, business partners and employees, 2017, Ahmet Kınay who served as Assistant General Manager 23% depreciation of TL against the euro, increasing import investment and financing policies, and after deducting for legal at Ford Trucks, retired as of December 31, 2017. Serhan Turfan costs, rising raw material prices and inflation. With higher requirements from 2017 net profits, and taking into account We would like to extend our sincere thanks to our founders who who served as Ford Trucks Director was appointed as Assistant capacity utilization rate driven by strong exports, cost reduction the cash flow situation, we propose to pay out a gross dividend have made vital contributions to the success of Ford Otosan, to General Manager to become effective as of January 1, 2018. measures and effective expense management as well as pricing of 228.0000 Kuruş (193.8000 Kuruş net) for each 1 TL share, our business partners, to all our previous and new employees, General General

Ford Otosan maintained its market lead in employment in the strategy to offset the TL depreciation, higher commodity prices totaling 800,074,800 TL, or 228.0000% gross (193.8000% to the Turkish Metal Union, to our suppliers, to our dealers, to all Assembly automotive industry with 11,501 employees. At the end of 2017, and inflation, we achieved a historic high levels of profitability. net) cash dividend. Payments will be made to our shareholders our customers, and to you our valuable shareholders. we had 11,501 employees with a 12% increase from 2016. Of Revenues increased by 39%, while total cost of sales increased starting from April 2, 2018. Detailed dividend proposal can be these, 8,847 were blue-collar employees, and 2,654 were white- by 40%. In line with this, gross profit increased by 26% and found on page 26 of the report. With sincere regards, collar employees. In comparison, as of December 31, 2016, we reached 2,637 million TL. Operating profit reached 1,708 million had a total of 10,261 employees, with 7,561 blue-collar, and TL, increasing by 54% with effective expense management. Selection of the Independent Audit Firm Ford Otomotiv Sanayi A.Ş. 2,700 white-collar. As a result of our focus on increasing women EBITDA increased to 2,182 million TL, up by 39%. Profit before Pursuant to the guidelines set in accordance with Turkish Board of Directors employment, the number of women employees in the company tax jumped by 53% to 1,481 million TL. Net income increased Commercial Code No. 6102 and Capital Markets Law No. 6362, increased by 26% and reached 1,743. Our employees are by 56% to 1,490 million TL, due to the deferred tax asset and after consultation with the Audit Committee, our Board of covered by the Group Collective Bargaining Agreement, signed calculated in the context of investment incentive certificates. Directors met on February 13, 2018, and selected PwC Bağımsız Management

between the Turkish Metal Union and the Turkish Employers’ Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. for the task and Assessments Association of Metal Industries (MESS), effective until August On December 31, 2017, the balance sheet showed a cash of auditing our company’s financial statements and reports 31, 2017. Group Collective Bargaining Agreement negotiations balance of 1,806 million TL, as opposed to 3,604 million TL for the 2018 accounting period in addition to performing other began at the end of 2017, and were finalized on January 30, financial debt. Our company closely monitors financial risks and activities within the scope of regulations set forth as per the law. 2018. takes a highly cautious approach against such uncertainties. We submit this choice for the approval of the General Assembly. Maximum sensitivity and due diligence go into efforts to keep risk-related financial ratios within the basic policy limits set 2018 Guidance by the Board of Directors and the Early Determination and Turkish automotive industry sales stabilized at 1 million unit in 2017 level between 2015 and 2017. It is projected to remain at similar IN 2017 THE NUMBER OF Management of Risk Committee. We explain our key risk Otosan Ford management policies in the Risk Management section of our levels in 2018. We aim to achieve export figures slightly above OUR WOMEN EMPLOYEES Annual Report. Summaries of the data on the nature and 2017 levels as a result of the moderate growth expectation levels of applicable risks can be found in the footnotes to the of the European light commercial vehicles, which is our main INCREASED BY 26% corresponding financial tables. 939 million TL was spent on export market, and strong market share performance of investments that relate to new projects and maintenance the Ford brand. In line with our profitable growth target, we activities undertaken every year. will maintain our cost reduction measures, and manage our Closed the Year with Solid Financial Results activities in a more efficient and effective manner. We will also You will find, starting from page 107 of the Annual Report, Dividend Policy and Proposal remain steadfast in giving top priority to risk management and preserving our strong financial structure. independently audited financial statements regarding the Our company pays out dividends in accordance with Sustainability results of 2017 operations, as well as the relevant footnotes to the provisions of the Turkish Commercial Code, capital the documents. markets regulations, tax legislation, and other related rules While we progress towards our target “To become Turkey’s and regulations, as well as the sections of our Articles of most valuable and most preferred brand”, as the pioneering Despite a 0.3% fall in domestic sales, domestic revenues Association regarding dividend payouts. Our dividend payout power of the Turkish automotive industry, export leader of the reached 7,511 million TL, a 25% increase thanks to our pricing policy is balanced and consistent, heeding the interests of country, and Turkey’s second largest industrial company, we will strategy and positive sales mix. Our export volumes increased both shareholders and the company in line with corporate always continue to create higher value for our country and our by 16% to 297,396 units, due to strong demand for our vehicles governance principles. You will find our Dividend Policy on page esteemed investors. and market growth. Our export revenues rose by 45% to 17,830 25 of our report and on our corporate website Corporate million TL, thanks to higher sales volumes and exchange rate (www.fordotosan.com.tr). Governance impact. Wholesale volume increased by 11% reaching 412,858 units, while revenues soared 39% amounting to 25,341 million Ford Otosan is among the most committed dividend payers on TL. Exports accounted for 70% of total revenues in 2016, up Borsa Istanbul. The company continued to share its increased from 67% in 2016. profitability and surging cash flow with shareholders in 2017. A total of 790 million TL was paid in dividends in two installments during the year, setting a new historic record. Dividend payment increased by 19% over 2016. Financial Reports

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2018 GUIDANCE DIVIDEND POLICY General General Assembly

2017 A 2018 F 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 profit, a consistent and balanced policy is followed between TURKISH INDUSTRY VOLUME 977 k 950 k - 1,000 m shareholders and Company requirements in line with Corporate Management

Governance Principles. In principle, subject to being covered by and Assessments 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 FORD OTOSAN RETAIL SALES VOLUME 116 k 110 - 120 k or severe economic downturn, by taking into consideration 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 in 2017

the period calculated within the framework of the Capital Otosan Ford EXPORTS 297 k 295 - 305 k Markets Legislation is distributed in the form of cash and/or bonus shares. The dividend distribution date is determined by 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 WHOLESALE VOLUME 413 k 405 - 425 k of Capital Markets Legislation. According to the Company’s Articles of Association, the Board of Directors can distribute an

advance. Sustainability

PRODUCTION VOLUME 373 k 370 - 380 k

CAPEX Corporate (Fixed Assets) 175 mn � 210 - 230 mn � Governance Financial Reports

24 25 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

2017 DIVIDEND DISTRIBUTION Ford Otomotiv Sanayi A.Ş. 2017 Dividend Distribution Proposal Table (TL) 1. Paid-in / Issued Capital 350.910.000 PROPOSAL 2. Total Legal Reserves (According to Tax Book) 254.403.733 If there is dividend privilege in the Articles of Association, information regarding this privilege: No -

According to According to CMB General Tax Book Assembly

3. Current Period Profit 1.481.161.488 1.331.666.319 4. Taxes Payable (-) 8.821.510 (19.511.121) As per the attached Profit Distribution Proposal which prepared 5. Net Current Period Profit 1.489.982.998 1.312.155.198 in accordance with the CMB’s regulations, Article No.19 of the 6. Losses in Previous Years (-) 0 0 Articles of Incorporation of the Company and the investment 7. Primary Legal Reserve (-) 0 0 and financing policies as stated in the Dividend Distribution 8. NET DISTRIBUTABLE CURRENT PERIOD PROFIT 1.489.982.998 1.312.155.198 Policy approved by the General Assembly held on March 25, 9. Donations Made during the Year ( + ) 27.373.844 2014 and considering the cash flow position, it’s resolved to 10. Donation-Added Net Distributable Current Period Profit on which First Dividend Is Calculated 1.517.356.842 present; (i) not to allocate 5 % first rank legal reserve required 11. First Dividend to Shareholders 758.678.421 Management by Article 519 of the Turkish Commercial Code for 2017 since -Cash 758.678.421 and Assessments the amount of first rank legal reserve has already reached -Stock 0 -Total 758.678.421 20 % of share capital in tax books as of 31.12.2017; (ii) to cover 12. Dividend Distributed to Owners of Privileged Shares 0 TL 78.252.930 second rank legal reserve from net income of TL 13. Other Dividend Distributed 0 1.489.982.998 which is in the financial statements prepared -To the Employees 0 within the framework of CMB’s regulations and pay -To the Members of the Board of Directors, 0 228,0000 % gross ( 193,8000 % net) in proportion and -To None Shareholders 0 TL 800.074.800 total gross dividend in cash assuming each 14. Dividend to Owners of Redeemed Shares 0 in 2017 share with a nominal value of 1-TL pays Kr 228,0000 gross 15. Second Dividend to Shareholders 41.396.379 Otosan Ford (Kr. 193,8000 net in accordance with the Dividend Distribution 16. Secondary Legal Reserves 78.252.930 Proposal) and allocate the remaining TL 611.655.268 as 17. Statutory Reserves 0 0 extraordinary reserves; (iii) to cover TL 78.252.930 second rank 18. Special Reserves 0 0 legal reserve from 2017 net income of TL 1.312.155.198 which 19. EXTRAORDINARY RESERVES 611.655.268 433.827.468 is formed in accordance with Tax Procedure Law records, pay 20. Other Distributable Resources 0 0 TL 800.074.800 total gross cash dividend and allocate the -Retained Earnings 0 0 remaining TL 433.827.468 as extraordinary reserves; (iv) and -Extraordinary Reserves 0 0 to determine dividend distribution date as April 02, 2018; to the

General Assembly’s approval. Sustainability -Other distributable reserves in accordance with the Law and the Articles of Association 0 0

Ford Otomotiv Sanayi A.Ş. 2017 Dividend Rates Table TOTAL DIVIDEND AMOUNT (TL) / NET DIVIDEND TO BE PAID DIVIDEND AMOUNT DISTRIBUTABLE FOR SHARE WITH SHARE GROUP CURRENT PERIOD PAR VALUE OF 1 TL PROFIT (%) CASH (TL) STOCK (TL) RATE (%) AMOUNT (TL) RATE (%)

Group A 136.006.659 0 9.13 1,9540 195.40 Corporate Governance Group B 313.065.072 0 21.01 2,2800 228.00 NET Group C 279.066.257 0 18.73 1,9380 193.80 TOTAL 728.137.988 0 48.87

1) There is no privileged share group within the profit. 2) Withholding tax at a rate of 0% is applied for a dividend amounting to TL 7,430,981 belonging to the Koç Holding Retirement and Assistance Fund Foundation and Vehbi Koç Foundation among Group A shares; and a withholding tax at a rate of 15% is applied to the shares corresponding to dividend worth TL 151,265,503 assuming that all these shares are held by real persons. 3) As the entirety of Group B shares belongs to our fully responsible legal entity shareholders, Koç Holding A.Ş and Temel Ticaret A.Ş, a withholding tax at a rate of 0% is applied while the net dividend is calculated for this group. 4) As the entire Group C shares belong to our limited taxpayer-shareholder, Ford Motor Company, a withholding tax at a rate of 15% is applied while the net dividend is calculated for this group. Financial Reports

26 27 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

REMUNERATION POLICY FOR 2018 BOARD OF DIRECTORS THE BOARD OF DIRECTORS MEMBER CANDIDATES AND SENIOR EXECUTIVES General General Assembly

This policy document describes the remuneration system and Bonus Base Rahmi M. Koç * BIRGIT ANNELIES BEHRENDT applications of the Board of Directors and the Senior Executives Bonus bases are updated at the beginning of each year and vary who have administrative responsibilities, pursuant to the according to the workload of the executives. Ali Y. Koç * ·· Board of Directors - Member Candidate Capital Markets Board (CMB) regulations. Ms. Birgit Behrendt holds a business degree from the Administration and Company Performance Steven Armstrong * Business Academy (Verwaltungs- und Wirtschaftsakademie) in Cologne, The fixed salaries to be valid for all the Members of the Board Company performance is obtained through the calculation Germany. She joined Ford in Cologne in 1978 as a commercial apprentice. of Directors are determined every year at the Ordinary General From April 1, 2008 through July 2010, Ms. Behrendt was vice president, at period ends of the financial and operational goals (market William R. Periam * Management Assembly Meeting of the Company. share, exports, foreign activities, efficiency, etc.) given to the Purchasing, , and executive director, Global Programs. and Assessments In 2010, she had moved to Ford’s headquarter in Dearborn, Michigan to company at the beginning of each year. When determining Roelant de Waard * assume the role of executive director, Global Programs and the Americas Executive Board Members are compensated as per the company goals, sustainability and improvements with Purchasing. In this role, Ms. Behrendt oversaw all Purchasing activities for Remuneration Policy for Senior Executives, detailed below. respect to the previous years are taken into consideration as İ. Cenk Çimen * Ford’s North and South America operations while working closely with Performance - based compensation or stock option plans important principles. Product Development on all global vehicle and powertrain programs. cannot be used to determine the remuneration of independent O. Turgay Durak * She was elected a corporate officer and named vice president, Global Board Members. Members of the Board of Directors are paid Individual Performance Programs and Purchasing Operations in Aug. 2013. Ms. Behrendt is vice president, Joint Ventures, Alliances and Commercial Affairs, effective Jan. according to the principle of per diem deduction taking into For the determination of individual performance, employee, Birgit Annelies Behrendt 1, 2018. She was appointed as a Member of the Board of Directors of Ford in 2017 consideration their term of service. customer, process, technology and long-term strategy-related Otosan in March 2018. Otosan Ford goals are taken into consideration, together with the company Joseph Bakaj * Costs borne by the members of the Board of Directors due to goals. For the calculation of individual performance, the FATMA FÜSUN AKKAL BOZOK their contributions to the company (transportation, telephone, long-term sustainability improvement principle is observed Ali İhsan İlkbahar * insurance, etc. expenditures) can be met by the Company. also, outside the financial spheres, as is the case for company ·· Board of Directors - Independent Member Candidate performance. The total remuneration amount determined Fatma Füsun Akkal Bozok Remuneration of Senior Executives consists of two according to these principles, and paid to the Senior Executives (Independent Member Candidate) Mrs. Bozok earned a Bachelor’s Degree in Business Administration from Istanbul University. She also holds an MBA from Boğaziçi University and a components: Base salary and performance based bonus. Base and the members of the Board of Directors during the year, is PhD in Business Administration from İstanbul University. She started her salaries of Senior Executives are determined in accordance submitted for the information of the partners in the subsequent L. Martin Meany * career as an Auditor at Arthur Andersen in 1980. In 1983, she joined Koç with international standards and legal responsibilities, taking General Assembly Meeting, in accordance with the regulations. (Independent Member Candidate) Holding as an auditor at the Internal Audit Department. After serving as an Sustainability into consideration macroeconomic data within the market, Audit Coordinator between 1992 and 2003, she was appointed Finance the remuneration policies in the market, size and long-term Haydar Yenigün * Director in 2003. Mrs. Bozok also worked as a Project Manager between goals of the company, and positions and efficiency levels of the 1995 and 1996 under Koç Group’s MIS Project. Mrs. Bozok continued her career at Koç University between 2006 and 2008 as a member at the individuals. Lisa K. King * Faculty of Computer Systems Supervision and International Finance. Since 2008, she has been a member of the Sabancı University International Performance - Based Bonus of Senior Executives are Finance and Auditing Faculty. Mrs. Bozok was appointed a Board Member calculated according to company performance and individual at Yapı Kredi Bankası in 2004. She also has been serving as a Board performance. Relevant criteria is summarized below: Member at Akiş GYO and Bizim Toptan since 2017. She was appointed a Corporate

member of Board of Directors at Ford Otosan on January 1, 2018. Bozok Governance also holds CMB Credit Rating, Corporate Governance, and Advanced Derivative Licenses.

* Resumes are available on page 36 and 40. Financial Reports

28 29 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly Management and Assessments

Management in 2017 and Assessments Otosan Ford Sustainability Corporate Governance Financial Reports

30 31 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

and Turkic Republics, we accelerated our growth by launching vehicles by 2022 with an investment of $11 billion. We are CHAIRMAN’S MESSAGE dealerships in various countries in Europe. In the upcoming happy that Ford Custom, manufactured in Turkey, will also be period we will strengthen our dealer and service network in the launching a hybrid version in 2018. region. In this framework, we launched a spare parts storage facility in Poland in 2017. We believe that the most important factor to achieve our General General

vision of becoming Turkey’s most valuable and most preferred Assembly The European market has an important place in Ford Trucks’ industrial company is digital transformation. With this in global growth plans. Our goal is to export one third of our mind, we started a very comprehensive digital transformation The 20th Anniversary of the Koç-Ford Equal truck production and to make 50% of our exports to European program in 2015. The program, covering a wide range of areas markets. As of 2017, we completed our organization in 28 from customer journey to product, supply chain, production, Partnership was Marked By Our Success countries and we aim to export to over 50 countries by 2020. employees and product development, continues successfully With our flexible business model and proactive management, with 17 major projects. 2017 became one of the most successful years in our history. JMC Trucks, for Which We Hold the Intellectual This year was also the 20th year of the joint venture agreement Property Rights, Were Awarded China Truck of the Ford Otosan offers in-house entrepreneurs the opportunity to we signed in 1997. Portraying our achievements in this period Year 2018 realize their innovative ideas. Four projects with high customer with numbers: Management

We started truck manufacturing in 1982. Today we continue demand out of the 40 different mobility concepts tested by the and Assessments to produce trucks, while exporting our vehicles as well as our innovation program are on their way to be commercialized. ·· Our total production, which was 43,000 units in 1997, reached engineering and technology. Four years ago, we signed license 373,000 units in 2017. agreements with Jiangling Motor Corporation in China, the With all these efforts, we aim to achieve a faster, more flexible, Our Esteemed Shareholders, ·· We reached 297,000 export units, a journey which started biggest truck market in the world, for the production of Ecotorq more productive, more competitive, more profitable and higher Business Partners and Employees, with only 667 vehicles. The export revenues, which were engines that we developed with 100% domestic engineering. value-creating company structure in the long term. US$16 million, increased exponentially to US$4.9 billion. We This agreement is a milestone in technology and engineering As Ford Otosan we have left behind an important year full of are proud to be the export champion of our country for the last success stories and new records. exports. 2018 Outlook three years. in 2017 We planned 2018 with cautious optimism. Growth in ·· In 2009, we became the first company to export vehicles to Otosan Ford We are very proud of our JMC trucks with Ecotorq engines international markets is expected to continue faster than in The World in 2017 the US with Transit Connect. launched in China, the world’s largest truck market at the end of 2017. It will be a year when central banks, especially the US Fed, We left behind a positive year in which expansionary monetary ·· In 2013, we became the first Turkish automotive company to 2017, where they were awarded “China Truck of the Year 2018.” will continue to normalize high liquidity and low interest rates. policies and high liquidity supported the global economy. export a technology license. We will continue to closely monitor the increase in interest Strong growth figures have been achieved in developed ·· Out total revenues increased eight-fold to reach US$6.9 Record Stock Performance and Dividend Payment rates abroad as it is a factor that will increase the borrowing countries, almost completely wiping out the remaining signs billion. Ford Otosan shares rose 108% in TL terms in 2017 when BIST- costs of Turkish companies and determine the amount of funds of the 2008 financial crisis. Despite political uncertainties, ·· The number of employees tripled. Today, we are the largest 100 Index increased 48%. While foreign share in free float allocated to capital markets. consumer confidence in Europe has reached its highest level employer in Turkish automotive with 11,501 employees. increased from 67% to 80%, Ford Otosan was the 14th most since 2001. Although inflation in many developed countries has ·· Our market capitalization increased from $1.1 billion to $5.6 valuable company in Borsa Istanbul with a market capitalization As in the past, we will continue to work, produce, invest, not reached the targeted levels yet, the central banks began to billion. Sustainability stabilize the current expansionary monetary policies. The US of $5.6 billion. and create value added for our country under any and all circumstances, with a mindset of “I exist as long as my country Federal Reserve continued its plan to increase interest rates and We are proud of the value we create for our country and our Ford Otosan, one of the most committed dividend-paying exists and prospers.” downsize its balance sheet throughout the year. The European Group. Central Bank announced that it will scale down liquidity by companies of Borsa Istanbul, distributed 790 million TL in dividends in 2017, representing 19% increase year-over-year. In I would like to take the opportunity to express my deepest reducing the bond purchases from 2018 onward. We Are Investing in a Capacity Increase Due to the upcoming years, dividends will continue to be our priority, in gratitude to our esteemed colleagues from Ford Otosan, our High Export Demand for our Products line with our company strategy focused on creating shareholder valuable suppliers, our loyal customers, and you, our valued In Turkey, the total growth was above expectations, with Ford Otosan is the largest commercial vehicle production center public investments and increased consumption encouraged by value. shareholders. in Turkey as well as in Europe. As a result of the high export Corporate Governance incentives. The Credit Guarantee Fund contributed to economic demand for our Custom model launched in 2013, we took a growth by supporting the activities of small and medium sized We Secure our Place in the Automotive Industry Sincerely yours, decision to increase our production capacity from 415,000 units on a Rapidly Changing Agenda enterprises. The economic recovery in Europe, our main export to 455,000 units with an investment of US$52 million. market, and Russia had a positive impact on Turkey’s exports. Along with the sharing economy in the automotive industry, there is a strong trend of change pioneered by self-driving and Ford Trucks Continued International Growth In an environment of high liquidity and low interest rates, global electric vehicles. All major brands have announced significant Ali Y. Koç In 2011, we obtained the right to distribute and assign risk appetite was also very high. While corporate profits soared, investment plans in this respect. Prototype vehicles have begun Chairman dealerships of Ford Trucks vehicles in 60 countries with the many stock markets reached record highs. to emerge. Our partner Ford is also working on smart mobility, Global Truck Agreement. After the Middle East, Africa, Russia electric and self-driving vehicles, taking quick and solid steps. Ford announced their plan to develop 40 hybrid and electric Financial Reports

32 33 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

CEO’S MESSAGE “Honey Bees are Becoming Engineers” We Are the Most Valuable Automotive Company Gender equality has always been among our priorities. We on BIST have completed the first phase of “Honey Bees are Becoming With a market capitalization of US$5.6 billion, Ford Otosan has Engineers,” one of our most successful social responsibility finished the year as the most valuable automotive company projects, which was initiated to encourage female students on BIST. As a result of its success in environmental, social General General

to become engineers. The project has won a total of nine and governance areas, Ford became one of the 26 Turkish Assembly awards since its inception. We are happy to reach out to 16,370 companies included in the “FTSE4Good Emerging Index” which students, of which 9,873 are girls, as part of the project which is one of the most important indexes used by investors who We Are Proud to be Turkey’s And Europe’s “Most we started with the aim of reaching 8,100 female students in 81 want to invest responsibly. Preferred Brand In Commercial Vehicles” cities. While the European commercial vehicle industry benefited We Have Strong Targets for 2018 from broader economic growth and rose 3.6%, Ford brand We Focus On R&D and Innovation to Become We aim to break new records in exports in 2018. In the first half maintained its leadership position with 13.5% market share. Turkey’s Most Valuable Industrial Company of the year, we will launch the updated Custom and Courier With these two dynamics, which are the main driving powers As the company with the largest R&D organization in Turkish models. We will complete the second and final phase of our automotive, we contribute to the economy of the country with US$52 million investment to increase capacity in August,

of our exports, we increased our exports by 16% and reached Management

297,000 units. We achieved export revenues of $4.9 billion our products as well as engineering exports. We continue to take when our plant is on summer break. Towards the end of the and Assessments and maintained our position as Turkey’s export champion. on more engineering responsibilities, gaining the recognition year, we will launch our new truck in the heavy commercial We exported vehicles and spare parts to 89 countries in five of Ford’s management with our engineering capability. We are vehicle segment. With our leadership in Turkey’s exports and continents. working to be part of the transformation of today’s automotive employment in the automotive industry, we will continue to industry to ensure that our competitive power achieved by increase our contributions to the economy. We implemented the first phase of our capacity increase efficient, flexible and high-quality production as well as R&D investment in the last quarter of 2017. To this end, we have continues to grow. We need innovative perspectives within this Our path to achieve our vision is clear, our goals are set and we framework. We will reach our vision to become “Turkey’s most are more enthusiastic than ever. We have the ability to plan,

reached 170,000 units Custom production capacity and a total in 2017

production capacity of 440,000 units in our three facilities. valuable and most preferred industrial company” by developing and most importantly, we have the power to implement our Otosan Ford The installation of 36 new robots in the Custom line at the new business areas through innovative ideas and digitalization plans. We will continue our work in all areas with our vision to Body Shop and reprogramming of the 34 existing robots in efforts. become “Turkey’s most valuable and most preferred industrial Dear Shareholders and Stakeholders, the Paint Shop were carried out by Ford Otosan employees. company.” We believe that 2018 will be a year when we will These important projects completed by our employees without We have identified our priority areas in Innovation as Digital create more value for all of our stakeholders. Ford Otosan, among the flagship companies in Turkish Industry, external support are invaluable as an indicator of the level Transformation, Smart Production, Customer Experience, had a record year in 2017 across all key performance indicators of our technical expertise. Our total production increased by Interactive Vehicles and Self-Driving Trucks. In this year’s Best Regards, ranging from from exports to production, employment, 12% and reached the highest level in our history with 373,000 Innovation Program, we carried out work on “Innovative Mobility dividends and stock performance. units. While we increased our capacity, we also achieved 88% Solutions for a More Livable Megacity” and “Innovative Smart

capacity utilization in three shifts. Logistics Business Models.” Sustainability Sales in the Domestic Automotive Industry Reached 1 Million Units Our total sales increased by 11% to 413,000 units, the highest This year, we advanced the digital transformation we started Sales in the domestic automotive industry, which reached level in our history. In 2017, 91% of our sales consisted of in 2016. We set out with a new vision to become the most 1 million units in 2015 and 2016 finished the year at 977,000 unit locally manufactured vehicles. Our revenues increased valuable company for our customers, employees and business Haydar Yenigün sales. We are pleased to see that the steady level of the industry by 39% to 25 billion TL. Our net profit increased by 56% partners. We evaluated all of our processes and initiated a General Manager was maintained in 2017 despite increasing vehicle prices due to to 1,490 million TL. digital transformation in each unit as part of a five-year plan. exchange rate and special consumption tax impact. Taking into account the manufacturing needs, we smartly integrate information technology processes into all our facilities

The Number of Women Employees Rose by 26% Corporate Governance At Ford Otosan, we maintained our profitable growth strategy As Turkey’s leader in automotive employment, Ford Otosan without halting production. We are conducting a long-term in commercial vehicles and profitability focus in passenger cars recognizes that our human resources is the guarantee of our effort to ensure that data is protected, all units communicate throughout the year. We strengthened our leading position by success. This year, we increased our employment by 12% year- with one another, collected data is read correctly to make the raising our commercial vehicle sales to 76,397 units and our on-year, reaching the highest employment in our history with best decisions. You can review our Digitization and Innovation market share to 30.3%. Ford Courier, produced only at our 11,501 employees. In our selection and placement process, we efforts in detail later in this report. Yeniköy Plant for the global markets was once again the best- aim to choose 50% women. In 2017, the number of women selling light commercial vehicle of the year in Turkey. employees increased by 26%. The share of women reached 26% in the office, 12% in the field and 15% in total. Financial Reports

34 35 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

BOARD OF DIRECTORS General General Assembly

RAHMİ M. KOÇ ALİ Y. KOÇ STEVEN ARMSTRONG WILLIAM R. PERIAM ROELANT DE WAARD İ. CENK ÇİMEN ·· Honorary Chairman ·· Chairman ·· Vice Chairman ·· Member ·· Member ·· Member ·· Honorary Chairman of Koç Holding A.Ş. ·· Vice Chairman - Koç Holding A.Ş. ·· Ford of Europe Group Vice President ·· CFO - Ford of Europe ·· Vice President, Marketing, Sales and ·· Automotive Group President - Koç and President, Europe, Middle East ·· Member - Corporate Governance Service - Ford of Europe Holding A.Ş.

Board of Directors Management & Africa Committee ·· Member - Remuneration Committee Mr. Rahmi M. Koç is a graduate of the Industrial and Assessments Management and Business Administration ·· Member - Board of ·· Member - Early Determination and Mr. de Waard holds a Master’s degree ·· Member - Early Determination and Mr. Ali Y. Koç capped his undergraduate studies Faculty of Johns Hopkins University (USA). Directors Management of Risk Committee in Economics & Business from Erasmus Management of Risk Committee Rahmi M. Koç spent his entire working life in The at the Management Faculty of Rice University University Rotterdam. He joined Ford Koç Group –started his active career at Otokoç (USA) with an MBA from Harvard Business Born in 1964, Mr. Armstrong has a bachelor’s Mr. Periam earned a bachelor’s degree in Netherlands in 1990. He was appointed as Mr. Çimen has an Industrial Engineering Ankara in 1958 and handed over his Chairman School. He started his career at American degree in business administration from the Management Sciences from Manchester the Sales Manager in 1993 and Marketing degree from Istanbul Technical University. He of the Management Committee position to Express Bank as a Management Trainee and University of East London. During his more than University (UK). He joined Ford as an Manager in 1995. Roelant de Waard moved to completed Executive Development Programs late Mustafa V. Koç in 2003. Since then, he continued as an Investment Analyst at Morgan 25 years in the auto industry, he has held a Investment Analyst in the United Kingdom in Dearborn in 1996 where he became Marketing at Stanford University (USA) and University has been serving as the Honorary Chairman Stanley Investment Bank. Mr. Ali Y. Koç joined variety of senior management and purchasing 1989. He has held multiple senior management Strategy Manager and, in 1998, Marketing of California Los Angeles (USA). He joined at Koç Holding. Koç, who has been a Member Koç Holding in 1997 and held senior-level Koç Group in 1991 as a Management Trainee of the Ford Otosan Board of Directors since positions for Ford, Jaguar , Volvo positions at Ford in the Finance, Credit, Plans Manager at the Large Vehicle Centre. positions until 2010 including new business Cars, and served as chief operating officer Business Development and Business Strategy He returned to Europe in 1999 as the Director at Nasoto. He assumed Sales Coordinator,

1961 and Chairman of the Board since 1972, in 2017 is currently Honorary Chairman of the Ford development and information technologies. of Getrag-Ford Transmissions. He has been departments in the USA, Germany, Brazil and of Operations for Ford Netherlands and Regional Manager and Import Manager Ford Otosan Ford Otosan Board of Directors since 10 December He was the President of Corporate recognized with many awards, including being China. He was appointed Deputy General served as Managing Director Ford Netherlands responsibilities at Otosan Pazarlama from 2012. He was President of the International Communications and IT Group. He has been named a Eurostar by Automotive News in Manager and a Member of the Board of starting from April 2000. In January 2001, he 1993 to 1996. He served as Fleet Sales Chamber of Commerce between 1995 and serving as a Board Member at Koç Holding 2005 for improving supplier relations for Volvo. Directors of Ford Otosan from September 2013 was appointed as Director, Ford of Europe Manager at Ford Otosan from 1996 to 1998 1996, and presently acts as Vice Chairman since 2008 and was elected as Vice Chairman Steven Armstrong was appointed group vice until August 2016. Mr. Periam was appointed as Retail Management, a position he held until and became the General Manager of Otokoç of the Board of Trustees of the Vehbi Koç in February 2016. Ali Y. Koç has been serving president and president of Europe, Middle the Chief Financial Officer of Ford of Europe as March 2002. He was the Vice President FCSD Ankara in 1998. In 2001, he was appointed as Foundation, Chairman of the Board of Trustees on the Board of Directors at Ford Otosan the General Manager of the companies merged at Koç University, Founder and Chairman of East and Africa, Ford Motor Company, June 1, of August 1, 2016 and remains a member of the – Europe (Ford Customer Service Division), since 1997 and was elected as Chairman on under Otokoç. In 2005 his responsibility was Rahmi M. Koç Museum and Cultural Foundation, 2017. Prior to this position, he served as vice Board Directors at Ford Otosan. He also serves from April 2002. From February 2006 until Chairman of Vehbi Koç Foundation American 10 December 2012. Currently, Ali Y. Koç is president and chief operating officer, Ford of as Member of the Corporate Governance and the end of 2008, de Waard was Chairman extended to include the General Manager role Hospital, Founding Member and Honorary the Chairman of Ark İnşaat, Bilkom, Digital Europe, from September 1, 2016. Mr. Armstrong Early Determination and Management of Risk and Managing Director of . From for Birmot A.Ş., also assuming responsibility for Chairman of TURMEPA (Turkish Marine and Panorama, Koç Information and Defence appointed a Ford Otosan Board member and Committees since August 1, 2016. January 2009, he was Vice President of Sales, Avis car rental business. He has been serving Environment Protection Association), Honorary Technologies, Koç Financial Services, Koç vice chairman of the Board of Directors, and Ford of Europe, responsible for 49 markets, as the Automotive Group President at Koç President of the High Advisory Council of Sistem, Koçtaş, Otokar, Otokoç, Setur and Yapı a Member of the Remuneration Committee, including the UK, France, Italy, Spain and Holding since June 2009. He was elected as TÜSİAD (Turkish Industry and Business Sustainability Kredi Bank. Ali Y. Koç also contributes to the effective September 8, 2017. Russia. Roelant de Waard is Vice President of a member of Ford Otosan Board of Directors Association), Member of the Advisory Board country’s social and economic development on March 25, 2014. He has been serving as of TİSK (Turkish Confederation of Employers Marketing, Sales and Service, Ford of Europe, at URAK – National Competition Research the member of the Early Determination and Associations), Honorary Member of the Foreign effective January 1, 2011. Mr. de Waard was Policy Association, Honorary Member of the Association as President, Endeavor Association appointed as Ford Otosan Board Member on Management of Risk Committee since April New York Metropolitan Art Museum’s Board and DEİK, Foreign Economic Relations Board December 9, 2015. 21, 2014 and a member of Remuneration of Trustees and Founding President of the as Board Member. He is also the Vice Chairman Committee since March 27, 2015. Global Relations Forum. Mr. Rahmi M. Koç of TÜSİAD – Turkish Industry and Business received Honorary PhDs from; Johns Hopkins Association and member of the Global University, Eskisehir Anadolu University, İzmir Advisory Council of Bank of America, Harvard Ege University, Ankara Bilkent University, University and CFR. Constanta Ovidius University and Aydın Adnan Menderes University. Rahmi M. Koç was honored Corporate with the “State Medal of Distinguished Service” Governance by the President of Turkey, “Grosses Verdienst Kreuz” (Great Cross of Merit of Germany) by the German government, “Order of Merit of the Italian Republic” by Italy. The Presidency of the Republic of Austria honored him with the Order of Merit and Mr. Rahmi M. Koç was appointed to the rank of (Honorary) Commander of the Most Excellent Order of the British Empire (CBE) and Mr. Rahmi M. Koç was honoured with the most prestigious order of French government “Officier dans L’Ordre National de la Legion D’Honneur”. Financial Reports

36 37 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly

O. TURGAY DURAK LINDA ANN CASH JOSEPH BAKAJ ALİ İHSAN İLKBAHAR MEHMET BARMANBEK L. MARTIN MEANY ·· Member ·· Member ·· Member ·· Member ·· Independent Member ·· Independent Board Member ·· Vice President of Manufacturing - Ford ·· Vice President, Product Development - ·· Member - Corporate Governance ·· Chairman - Early Determination and ·· Audit Committee Member Mr. Durak is a graduate of the Mechanical Committee of Europe Ford of Europe Management of Risk Committee ·· Corporate Governance Committee Management

Engineering Department of Northwestern · Chairman - Remuneration Committee Member and Assessments Mr. Bakaj holds a Mechanical Engineering · University (USA) where he also completed his Ms. Cash holds a Bachelor’s degree in Mr. İlkbahar graduated from Istanbul Technical · Member - Audit Committee degree from the City University London. · Master’s degree in mechanical engineering. Industrial Engineering from Georgia Institute University Mechanical Engineering (MSc.) Mr. Meany started his career as a Graduate Trainee His past experience includes powertrain in Finance, Ford of Europe, in November 1973 and His career commenced at Ford Otosan in of Technology (USA) and a Master’s in and started working as a Manufacturing engineering and extensive noise, vibration and Mr. Barmanbek graduated from the Finance worked in a number of Plant and Central Staffs 1976 as Applications Engineer. In the same business administration from the University Engineer at Otosan in 1964. He spent his harshness (NVH) and chassis work. Before and Economics Department of the Political Financial Analysis positions. He was promoted year, he assumed the position of Product of Phoenix (USA). Ms. Cash joined Ford in entire professional life at Ford Otosan where rejoining Ford of Europe in 2005, Bakaj was Science Faculty of Ankara University in 1963. to Management level in April 1978, as a Product Development and Design Engineer, and by 1984 and has spent her entire career with the he served as the General Manager during senior managing executive officer in charge From December 1963 to January 1977, he and Pricing Specialist followed by assignments 1979 he became the İnönü Engine Plant Project company in manufacturing. With extensive the last 14 years and retired at the beginning in Export Operations, Business Development and of design, product planning, research and was employed at the Ministry of Finance as Leader. In 1982 and 1984, he was assigned experience in lean manufacturing at Ford, of 2000. He was also the Koç Holding Ford Ford of Europe Capacity Planning and Special development for Mazda Motor Corporation and Assistant Tax Inspector, Tax Inspector and as Project Coordination Manager and Project Cash played key roles in North America Group President between 1996-2000. He was Studies. He was appointed Controller, Ford of responsible for the worldwide development Senior Tax Inspector. In February 1977, he Coordination Department Head, respectively. serving as plant manager of the Michigan involved in the construction project of the Europe Commercial Vehicle Product Development in 2017 of all Mazda products. Bakaj was appointed started working at Otosan A.Ş. (Currently Ford In 1986 and 1987, he was designated as Truck assembly facility, chief engineer for in April 1988 working on an all-new Transit Otosan Ford Otosan Engine Plant in Eskişehir İnönü in 1980. Otomotiv Sanayi A.Ş.) as the Finance and Assistant General Manager of Marketing and final assembly for Vehicle Operations in as Vice President Product Development Ford Platform, a Fiesta-based Light Commercial He led the Gölcük Plant project and Connect Accounting Manager. He became the Assistant vehicle and an SUV JV with Nissan. Mr. Meany Assistant General Manager of Purchasing, Manufacturing Engineering, and director of Europe in July 2005 and elected Corporate vehicle project between 1997 and 2000. He General Manager (Administrative -Financial worked as Manager, Eastern European Business respectively. He became the Deputy General of Manufacturing Engineering. Prior to the Officer in August 2005. In January 2007, his was the Chairman of Board of Directors at Affairs) in 1986 and Deputy General Manager in Strategy from May 1991 to June 1995, working on Manager of Ford Otosan in 2000. He started European assignments, she has held a responsibilities were expanded to include Automotive Manufacturers Association for 2000. On June 30, 2002, he retired from Ford market-entry strategies and the establishment of to serve as the General Manager in 2002 series of leadership position within Ford’s Global Programs. Between January 2011 15 years, from 1989 until February 2004. He Otosan, ending his professional career. From operations in the former Soviet Bloc. This included when he also joined the Board of Directors. manufacturing operations including executive and November 2013, Bakaj served as Vice leading negotiations with the Polish Government served as a member of Ford Otosan Board February 2006 to February 2010, he provided From 2007 to 2009, he was the Automotive director of Global Vehicle Operations in President, Powertrain Engineering, responsible for a KD Manufacturing Facility. In July 1995, he of Directors from 1991 to 2012 and he was honorary services as a member of the Board Group President at Koç Holding. He served as Manufacturing Engineering and executive for overseeing all engine and transmission was appointed Manager, Business Strategy for elected again on 25 March 2014. He has also of Directors and treasurer in Koç Executives Deputy CEO of Koç Holding from May 2009 director of Global Manufacturing Business engineering worldwide. He was appointed as New Markets, a global Ford activity led by the been serving as the member of the Corporate Association (KOÇYÖNDER) for 4 years and Dearborn-based Company Vice-Chairman. He led until April 2010 and as CEO and Member of the Office. She was the director of Vehicle Vice President Product Development for Ford Governance Committee since April 21, 2014. he served as the legal auditor of KOÇYÖNDER a cross-functional team developing manufacturing Board of Directors of Koç Holding from April Operations for Ford of Europe, a position of Europe in November 2013 and a Member of the Board of Directors of Ford Otosan in from 2010 to 2013. Mr. Barmanbek was and product plans for Eastern Europe including 2010 to March 31, 2015, Mr. Durak retired at she has held since March 2015. Linda Cash is Sustainability appointed to Arçelik and Ford Otosan Boards Government negotiations for establishment of a age 63. He was Chairman of the Board of the the Vice President of Manufacturing, Ford of September 2017. of Directors as an independent member in manufacturing facility in Russia. He was appointed Automotive Manufacturers Association for 6 Europe since January 1, 2016. At the same time, CFO/Board Member Ford Russia in August 1999. 2012. Mr. Barmanbek has been serving on the years between 2004 and 2010. He served as a she also is a Ford Motor Company senior officer In April 2003, he was appointed Operations Board of Directors of Ford Otosan as an Audit member of the Istanbul Chamber of Industry representing the company. She was appointed Controller, Genk, Belgium Manufacturing Committee member since March 2012. At (ISO) from January 2008 to May 2010 and as Ford Otosan Board member as of Operations during major restructuring actions the same time, he is currently Chairman of completed in 2004 including transfer of Transit was a board member between February 2009 January 8, 2016. the Early Determination and Management of manufacturing operations to Turkey. He was and May 2010. Mr. Durak also was a National Risk, and Remunerations Committees of Ford appointed Director, Business Development, Ford Board Member of International Chamber Of Otosan established on July 10, 2012. of Europe in July 2006 joining the Ford team Commerce from February 2014 to March 2015. negotiating the purchase of former Daewoo manufacturing facilities from the Romanian

Government and minority shareholders. Mr. Meany Corporate was appointed CFO Ford in April 2008. Governance In addition to working with the Ford team on major plant restructuring actions, responsibilities included working with the Romanian Government to -off significant Group Assets excluded from the Share Purchase Agreement. He also served as a Board Member and Deputy Chairman of from 2008 to 2010. Mr. Meany retired in December 2010. He was elected as an independent Board Member of the Ford Otosan Board of Directors on March 29 2016. He has been serving as Chairman of the Corporate Governance Committee since March 31, 2016 and as a member of the Audit Committee since April 6, 2016. He

was appointed as the Chairman of the Corporate Financial Reports Governance Committee on 31 March 2017. 38 39 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

ORGANIZATION CHART General General Assembly

HAYDAR YENİGÜN HAYDAR YENİGÜN LISA K. KING General Manager ·· Member ·· Member ·· General Manager ·· Deputy General Manager

Mrs. King earned a bachelor’s degree in Management

Mr. Yenigün graduated from Yıldız Technical and Assessments University in Mechanical Engineering and joined Management Sciences and Statistics from Ford Otosan in 1987, He found opportunity Loughborough University (UK). Prior to Ford, to serve in many different departments in she worked at Hewlett Packard as an internal production and worked as Project engineer consultant in process improvement, and then between 1992 and 1996 after completing his at Ernst & Young Consulting as a business military duty. He continued serving in different consultant. She joined Ford in 1996 into the positions during the establishment of the Process Leadership team and held a number of LISA positions including starting up a joint venture Kocaeli Plant after the shares of Ford Motor K. KING Company and Otosan A.S. were equalized call center business supporting all Ford call centers globally, and a variety of buying and in 1997. He became Project Leader in 1998. in 2017 purchasing strategy roles. She was appointed He participated in the production process of Deputy General Otosan Ford Global Purchasing Director, Stamping and commercial vehicles design and production Manager processes to be built in the new plant. He Raw Materials in 2008. In 2011, she assumed OĞUZ AHMET CEM GÖKŞEN NURSEL worked as Body Construction Area Manager the role of Purchasing Director, Manufacturing in the Kocaeli Plant between 1999 and 2007, and Transportation. She became the Vice TOPRAKOĞLU KINAY* TEMEL TÖRE SANCAK ÖLMEZ ATEŞ and served as Kocaeli Plant Manager and President, Purchasing FordSollers in Russia Assistant General Manager from 2007 to 2012. and held this role from 2013 until her move AGM AGM AGM AGM Director He was appointed as Ford Otosan General to Chassis in 2015. Following her tenure as Finance and Ford Trucks Kocaeli Plants Material Planning Human Manager and became a Member of the Board Global Purchasing Director, Chassis, she of Directors on 15 February 2012. He is currently was appointed Ford Otosan Deputy General Accounting and New and Logistics Resources a member of the Automotive Manufacturers Manager and member of Board of Directors on Projects Association (OSD) Board of Directors, member September 1, 2016.

of Kocaeli Chamber of Industry Board of Sustainability Directors, member of Turkish Industry and Business Association, Vice Chairman of the Turkish-American Business Council Executive Committee and a member of the International Investors Association (YASED).

ÖZGÜR BURAK GÜVEN BÜLENT Corporate YÜCETÜRK GÖKÇELİK ÖZYURT AKDOĞAN Governance

AGM AGM AGM Director Marketing, Marketing, Purchasing Total Quality Sales and Sales and Aftersales Aftersales

* Mr. Ahmet Kınay retired on December 31, 2017. Mr. Serhan Turfan, who worked as the Director of Ford Trucks, has been appointed as the Assistant General Manager - Ford Trucks effective from January 1, 2018. Financial Reports

40 41 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

EXECUTIVE MANAGEMENT General General Assembly

HAYDAR YENİGÜN LISA K. KING OĞUZ TOPRAKOĞLU AHMET KINAY ÖZGÜR YÜCETÜRK BURAK GÖKÇELİK ·· General Manager ·· Deputy General Manager ·· Assistant General Manager - Finance ·· Assistant General Manager - Ford ·· Assistant General Manager - ·· Assistant General Manager - Product ·· Member - Board of Directors ·· Member - Board of Directors and Accounting (CFO) Trucks Marketing, Sales and After Sales Development ·· Member - Corporate Governance Mrs. King earned a bachelor’s degree in Mr. Gökçelik graduated from the Mechanical Management

Mr. Yenigün graduated from Yıldız Technical Committee Mr. Yücetürk graduated from Mechanical and Assessments Mr. Kınay graduated from the Mechanical University in Mechanical Engineering and Management Sciences and Statistics from Engineering Department at Boğaziçi University Engineering Department of Ruhr University Engineering Department of Middle East joined Ford Otosan in 1987. He found Loughborough University (UK). Prior to Ford, Mr. Toprakoğlu graduated from the Economics in 1995 and completed his Executive MBA (Germany) and completed an MBA at Koç Technical University, and joined Ford Otosan as opportunity to serve in many different she worked at Hewlett Packard as an internal Department of Boğaziçi University in 1991, degree at Koç University in 2002. He joined University. He joined Ford Otosan as a Product a Project Engineer in 1982. He became Internal departments in production and worked as consultant in process improvement, and then and joined Ford Otosan in the same year as Ford Otosan Marketing Department in 1995 Development Engineer in 1988. He became Purchasing Supervisor in 1986 and was then Project engineer between 1992 and 1996. at Ernst & Young Consulting as a business a Financial Specialist. He became Inventory as a Product Specialist. After holding various Compound Construction Team Leader in 1994, appointed as Internal Purchasing Manager He continued serving in different positions consultant. She joined Ford in 1996 into the Planning and Control Specialist in 1993, positions in Marketing & Sales departments Body Construction Development Manager in in 1987. He was the Sales Director from 1997 during the establishment of the Kocaeli Plant Process Leadership team and held a number of Commercial Accounting Team Leader in 1995 as Marketing Strategy Manager, Passenger Car 1997, İnönü Plant Assistant Manager in 2004 to 2000 and appointed Assistant General after the shares of Ford Motor Company and positions including starting up a joint venture and Financial Control Manager in 1998. He Brand Manager and Sales Support Manager, and İnönü Plant Manager in 2006. He became Manager of Purchasing in 2000. He has been Otosan A.S. were equalized in 1997. He became call center business supporting all Ford call worked as the Finance Manager of Ford of he served as the Technical Assistant to the Assistant General Manager of Engineering at Europe from 2002 to 2004. In 2004, he was serving as Assistant General Manager of the Project Leader in 1998. He participated in the centers globally, and a variety of buying and General Manager. He was appointed as Ford Otosan Product Development in 2009. in 2017 appointed as Deputy CFO of Ford Otosan and Ford Trucks since 2010.* production process of commercial vehicles purchasing strategy roles. She was appointed Marketing Manager in 2002. He worked as the He worked as Assistant Director of Engineering Otosan Ford design and production processes to be Global Purchasing Director, Stamping and has been serving as Assistant General Manager European Sales Operations Coordinator at Ford at Ford Motor Company in the UK from 2011 to built in the new plant. He worked as Body Raw Materials in 2008. In 2011, she assumed (CFO) of Finance and Accounting since 2006. of Europe in 2006. He returned to Ford Otosan 2013. He served as Assistant General Manager Construction Area Manager in the Kocaeli the role of Purchasing Director, Manufacturing As of July 3, 2014 he was assigned as Corporate in 2007 as Marketing Director and became the of Engineering at Ford Otosan Product Plant between 1999 and 2007, and served and Transportation. She became the Vice Governance Committee Member. Sales and After Sales Field Operations Director Development from 2013 to 2016. Mr. Gökçelik as Kocaeli Plant Manager and Assistant President, Purchasing FordSollers in Russia in 2009. He has been serving as the Assistant was assigned as Product Development - General Manager from 2007 to 2012. He was and held this role from 2013 until her move General Manager of Marketing, Sales and After Assistant General Manager as of February 1, appointed as Ford Otosan General Manager to Chassis in 2015. Following her tenure as Sales since October 1, 2014. 2016. and became a Member of the Board of Global Purchasing Director, Chassis, she Directors on 15 February 2012. He is currently was appointed Ford Otosan Deputy General a member of the Automotive Manufacturers Manager and member of Board of Directors on Association (OSD) Board of Directors, member September 1, 2016.

of Kocaeli Chamber of Industry Board of Sustainability Directors, member of Turkish Industry and Business Association, Vice Chairman of the Turkish-American Business Council Executive Committee and a member of the International Investors Association (YASED). Corporate Governance

* Mr. Ahmet Kınay retired on December 31, 2017. Mr. Serhan Turfan, who worked as the Director of Ford Trucks, has been appointed as the Assistant General Manager - Ford Trucks effective from January 1, 2018. Financial Reports

42 43 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly

CEM TEMEL GÜVEN ÖZYURT GÖKŞEN TÖRE SANCAK NURSEL ÖLMEZ ATEŞ BÜLENT AKDOĞAN ·· Assistant General Manager - Kocaeli ·· Assistant General Manager - ·· Assistant General Manager – Material ·· Director - Human Resources ·· Director - Total Quality Plants and New Projects Purchasing Planning and Logistics Mrs. Ateş graduated from the Industrial Mr. Akdoğan graduated from the Mechanical Mr. Temel graduated from İstanbul Technical Management Mr. Özyurt graduated from the Mechanical Mrs. Sancak earned a bachelor’s and Master’s Engineering Department of Istanbul University, Engineering Department of Middle East and Assessments University in 1991 and completed a Masters Engineering Department of Istanbul Technical degree in Business Administration Engineering and launched her career as Assistant Technical University in 1985. He started his degree at İstanbul University in 1992. He joined University in 1989, and completed an MBA at from İstanbul Technical University. She Specialist of Method Organization and career as a Valve Specialist at Hidrel Hidrolik. Ford Otosan in 1993 as an engineer in Quality Istanbul University in 1990. In the same year, joined Ford Otosan in 1996 as Purchasing Planning at Migros Türk T.A.Ş. She worked as In 1988, he joined Ford Otosan as an Assembly department. He worked on launching the he joined Ford Otosan as a Method Engineer. Specialist. She became Import Supply Team an executive at the R&D, Planning and Project Method Engineer. He became Project Engineer Press Area between 1998-2008 and served as After taking on various positions in the fields Leader in 2001 and worked as Import Supply Management departments. She managed in 1991 and Product and Process Development Press and Tool & Die Group Manager between of Product Development, Service and Quality Assistant Manager between 2004-2009. She the project leadership of the HR SAP module Team Leader in 1994. In 1999, he took part in 2008-2012. He became Gölcük Assistant Plant Engineering, Export and Sales Planning, he was appointed as Global Supply Operations in Migros- the first practice in Turkey- in the Kocaeli Plant Project Team as Assembly Manager in 2012 and Gölcük Plant Manager became a Project Engineer in the Kocaeli Assistant Manager from 2009 to 2011. She was 1999, which was also rated among the best Area Deputy Manager. In 2007, he became the in 2013. Mr. Temel was assigned as Assistant Plant Project Team in 1997. He worked as the appointed as Part Export, Business & Supply SAP practices worldwide. In 2003, she was acting Quality Assurance Manager, assuming

General Manager – Kocaeli Plants and New Project Leader of the same team from 1998 Chain Flow Design Senior Manager from appointed as HR Director to one of the foreign the position formally between 2008 and 2012. in 2017

Projects as of February 1, 2016. to 1999. In 2000, he was appointed Material 2011 to 2014; and became Central Planning operations of Migros, Ramenka-Ramstore, and He was appointed as Total Quality Director in Otosan Ford Planning Manager. He was appointed as Manager until 2016. She was assigned as carried on with her career as Assistant General 2012. Assistant General Manager, Material Planning Assistant General Manager – Material Planning Manager of HR and Administrative Affairs. and Logistics in 2010 and as Assistant General & Logistics as of February 1, 2016. During her five-year tenure, she led forth the Manager, Purchasing on June 1, 2014. He has implementation and execution of HR systems. been serving as corporate coach at Koç Group In 2008, she was appointed HR and Corporate since 2013. Communications Director, first at Koçtaş and then at Ford Otosan. After completing the ADLER certificate program of coaching in 2013, she received the title of corporate coach and provides executive coaching support in the Group. Sustainability Mrs. Ates was also selected one of “The Most Effective 50 CHRO in Turkey” in 2016, which was arranged by Fortune Turkey&Data Expert. She is currently working in Ford Otosan as HR Director. Corporate Governance Financial Reports

44 45 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly Management and Assessments

Ford Otosan in 2017 in 2017 Otosan Ford Sustainability Corporate Governance Financial Reports

47 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

INVESTOR RELATIONS FORD OTOSAN’S SURGING DIVIDEND PAYMENTS VALUE PROPOSITION (Gross, Million TL) 790 Scale & Growth 663

·· Turkey’s export champion and industry leader in commercial General Assembly vehicles ·· Ford of Europe’s largest vehicle manufacturer in Europe

·· Technology licensing agreements delivering royalty fees with 400 STRONG AND COMMITTED strong growth potential 300 SHAREHOLDER STRUCTURE 175 Resilience & Efficiency Ford Motor Company 41% Koç Holding A.Ş. 41% ·· €-denominated export revenues, including non-€ countries 2013 2014 2015 2016 2017 Ford Motor Company is a global Established in 1926, Koç Holding is ·· Above sector capacity utilization company based in Dearborn, Michigan. Turkey’s leading investment holding ·· Efficient, flexible and low-cost manufacturing and The company designs, manufactures, company and the Koç Group is Turkey’s Management

engineering competency EARNINGS PER SHARE and Assessments markets and services a full line of Ford largest industrial and services group (Nominal Value Kr 1) 4.25 cars, trucks, SUVs, electrified vehicles in terms of revenues, exports, share in Strong Balance Sheet & Prudent Risk Management and Lincoln luxury vehicles, provides Borsa İstanbul’s market capitalization ·· Surging FCF generation following completion of capex cycle financial services through Ford Motor and employment generation. While ·· Rising volumes and profitability driven by new products

Credit Company and is pursuing maintaining its leadership position 2.72 ·· Natural hedge of fx-payables due to fx-denominated export leadership positions in electrification, in Turkey, The Koç Group focuses on 2.40 revenues

autonomous vehicles and mobility sustainable and profitable growth with 1.83 1.70 solutions. Ford employs approximately an aim to be a key player in its region and in 2017 Shareholder Value Creation Otosan Ford 202,000 people worldwide. in the world. ·· Dividend growth with surging FCF 2013 2014 2015 2016 2017 ·· Strong relative share performance in the long term Free Float 18% ·· Commitment to good corporate governance

STRONG SHARE PRICE PERFORMANCE Traded on the Borsa Istanbul since: January 13, 1986 Ticker symbol: FROTO.IS In 2017, BIST-100 appreciated by 48% in TL terms, while Ford OĞUZ TOPRAKOĞLU Paid-in Capital: TL 350,910,000 Otosan gained 108%, making it the most valuable automotive Assistant General Manager – Finance and Accounting Authorized Capital: TL 500,000,000 company in Borsa Istanbul in terms of market cap. Foreign share Member – Corporate Governance Committee Sustainability in free float rose from 67% to 80%. Ford Otosan, a Group A share, is traded on BIST Stars. As a result of its success in environmental, social, and governance INVESTOR RELATIONS PRACTICES IN GLOBAL “Our record production, sales, and export numbers in 2017 reflected positively on our operational results. While domestic practices, Ford Otosan has been included in the BIST STANDARDS wholesale volumes were similar to that of 2016, domestic revenues rose 25% YoY, thanks to pricing strategy and positive sales Sustainability Index and FTSE4Good Emerging Markets mix. Export revenues rose 45% YoY to TL 17,830 million with market growth, ongoing strong demand for our products and Index, one of the most important indices used for responsible Investor Relations Team attended 20 conferences and currency impact. While total wholesale volume increased 11%, revenues were up 39% to TL 25 billion. Throughout the year, investments. roadshows and held over 350 meetings with investors and stong OpEx control and cost reduction actions combined with our pricing strategy enabled us to minimize the impact of TL Corporate

analysts. Quarterly meetings were held with the investment Governance 2017 Main Indicators depreciation and rising commodity and material prices. As a result of strong export demand, our capacity utilization rate rose to community with the attendance of our CFO to discuss financial 88%. We achieved record profitability numbers. Operating Profit, EBITDA, PBT, and Net Profit figures were the highest on record. Closing Price: 60.25 TL results. We distributed TL 790 million in dividends, thanks to our robust cash flow and balance sheet. We finished 2017, a year in which Market Cap: US$ 5.6 billion our share performed strongly, with a record US$5.6 billion market cap and 80% foreign share. Highest Price (intraday): TL 63.00 Lowest Price (intraday): TL 27.55 As Ford Otosan, we aim to continuously increase shareholder value through Corporate Governance and Investor Relations Average Daily Trading Volume: US$ 4.0 million services at global standards. We will continue our operations with such regard in 2018 as well.” Foreign Share in Free Float: 80.4% Financial Reports

48 49 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

TURKISH AUTOMOTIVE PASSENGER CARS LIGHT AND MEDIUM COMMERCIAL VEHICLES (‘000 Units) (‘000 Units) MARKET AND FORD OTOSAN -5% 4% 2% 726 757 130 723 126 122 General General 665 Assembly 587 103 112 96 107 105 85 85 Light TOTAL AUTOMOTIVE MARKET INDUSTRY SHARE OF IMPORTS Commercial (‘000 Units) (%) Medium 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Commercial 78% -3% 75% 74% Passenger 73% 70%

1,004 Cars Passenger car sales decreased by 5% to 722,759 units mainly Light commercial vehicle sales were up 4% to 126,111 units. Ford 1,006 977 due to the increased Special Consumption Tax rates applied to Otosan took 2nd place in the segment with 31,881 unit sales and 885 a share of 25.3%. Ford Courier was the best-selling commercial Management

passenger cars in November 2016, exchange rate pressure, and and Assessments 803 48% 48% 47%

46% vehicle in 2017 with 30,342 unit sales. Light th 44% high base year effect. Ford Otosan finished 2017 in 8 place Commercial Vehicles with 5.5% passenger car market share and 39,850 unit sales. Medium commercial vehicle sales were up 2% to 107,324 units. Ford Otosan maintained its undisputed leadership in this 71% 68% 67% Total 67% segment with 39,333 unit sales and a share of 36.6%. Transit,

Vehicles 64% the leading nameplate in its segment, maintained a market

2013 2014 2015 2016 2017 share higher than the sum of the following three brands. 2013 2014 2015 2016 2017 SHARE OF PASSENGER CARS IN THE TOTAL in 2017 Ford Otosan Ford Source: ODD and TAİD Source: ODD INDUSTRY TRUCK Total industry sales were 977,483 units in 2017, down by 3% Share of imports increased by 5 percentage points in passenger (%) (‘000 Units) over 2016. Ford Otosan took 4th place in the total industry with cars and 1 percentage points in commercial vehicles, while 116,247 units retail sales and 11.9% market share. decreasing by 4 percentage points in total industry. 34 1% 31 28 75% 75% 74% 73% 72% 19 18 ÖZGÜR YÜCETÜRK Assistant General Management 2013 2014 2015 2016 2017 Marketing, Sales and After Sales 2013 2014 2015 2016 2017 Sustainability

Share of Passenger Cars was down to 74%. Heavy truck sales increased 1% to 18,745 units. Ford Otosan was “In 2017, we sold 116,247 vehicles and apart from the global crisis period of 2008 and 2009, we were the only automotive 2nd in the Truck segment with 27.7% market share and 5,183 unit brand to sell over 100,000 vehicles for twelve consecutive years. Having achieved a total market share of 30.3% in commercial sales. vehicles, we became the most preferred automotive brand of 2017. Our Ford Courier model, which was introduced to the market in 2014, was the best-selling commercial vehicle in 2017, as it was in the last two years. Spare parts revenues rose to TL 1.1 billion and we achieved the highest sales of all time. We reaped the benefits of our continuous investments in our brand and new

products with 23 marketing awards in 2017. According to the results of an independent survey conducted by Marketing Turkey Corporate Governance magazine, Ford was selected as Turkey’s most preferred brand for two consecutive years. Parallel to our vision, we initiated FORD OTOSAN MAINTAINED a digitalization process that will renovate all of our customer experience with the main objective to become “Turkey’s most preferred brand”. One of the first products of this project, a mobile application named Ideal, helped our dealers increase their ITS LEADERSHIP IN COMMERCIAL fleet orders by 26%. We achieved a 60% improvement in sales campaign return rates using data analytics. Nearly TL 100 million after-sales revenues were recorded. An application called App Link, first application in the world to recognize Turkish audio VEHICLES WITH A 30.3% instructions that enable mobile banking, with the collaboration of Ford Otosan engineers and Yapı Kredi Bank was launched and offered to our customers with Ford Synch 3 as a good example of Koç Group’s synergy.” MARKET SHARE Financial Reports

50 51 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

EXPORTS FORD CONTINUED TO INCREASE ITS In 2017, Ford successfully sustained its leadership strategy COMMERCIAL VEHICLE MARKET SHARE IN in European commercial vehicles. Ford branded commercial vehicle sales increased by 7% to 352,200 units due to increased EUROPE demand for the Transit Family and Ranger. Ford’s commercial vehicle market share reached its highest level since 1997, at #1 #1 #1 General General

13.5%. Assembly #3 #6 13.2%

13.5% Ford’s growth focused strategy in Europe is a key driving factor 12.6%

11.5% in our exports.

COMMERCIAL VEHICLE SALES ROSE 3.9% 10.5% IN EUROPE, SUPPORTED BY BROADER OUR EXPORTS REACHED A ECONOMIC GROWTH 2013 2014 2015 2016 2017

RECORD LEVEL OF 297,396 UNITS % CHANGE COUNTRY UNIT SALES 2017 2016 2015

IN 2017 WITH A 16% INCREASE. UK 362,149 -3.6 1.0 15.6 Management

Germany 270,694 4.9 8.5 4.2 and Assessments FORD OTOSAN BECAME TURKEY’S Italy 193,533 -3.4 50.0 12.4 Spain 199,101 15.5 11.2 36.1 #1 7% 13.5% 80% EXPORT CHAMPION ONCE AGAIN France 437,415 7.1 8.2 2.0 Europe 1,995,797 3.9 11.9 11.6 FORD IS THE ANNUAL FORD REACHED FORD OTOSAN’S BEST-SELLING INCREASE THE HIGHEST SHARE IN TRANSIT WITH US$ 4.9 BILLION EXPORT Source: ACEA. Vans up to 3.5 tons. 27 European markets excluding Malta. COMMERCIAL IN FORD’S MARKET SHARE VEHICLES SOLD BY

REVENUES. VEHICLE BRAND IN COMMERCIAL IN EUROPEAN FORD IN EUROPE in 2017 EXPORT MODELS EUROPE VEHICLE SALES COMMERCIAL Otosan Ford VEHICLES MAIN EXPORT MARKETS COURIER 13% SINCE 1997 (Units)

33% TRANSIT 34% GÖKŞEN TÖRE SANCAK Assistant General Manager Material Planning and Logistics Sustainability CUSTOM 53%

“In 2017, Ford Otosan achieved 22% of Turkey’s overall automotive production, 67% of the commercial vehicle production

16% and 72% of the total commercial vehicle exports. We reinforced our record 2016 export performance in 2017 with both

14% record unit sales and revenues. We increased our export sales 16% to 237,396 units –exporting to 86 different countries on EXPORT VEHICLE AND 5 continents. Our Custom exports increased by 21%, Transit by 8%, Courier by 15%, and Cargo by 49% year over year. Ford 9%

8% REVENUES IN SPARE PARTS

8% successfully sustained its leadership position in European commercial vehicles for three consecutive years with increasing 6% 2017: EXPORTS TO market share. As Ford Otosan, we play a crucial role in this success with our timely, flexible, and high quality production. Corporate Governance 4% 3% US$ In addition to vehicle exports, we also exported spare parts to 5 different countries on 4 continents in 2017. Thus, the total 89 number of our export countries reached 89. As part of the technology license agreement signed with China’s Jiangling Motor Corporation, export shipments of Ecotorq engines and parts that are used in JMC branded vehicles have commenced in 2017. COUNTRIES IN 4.9 Ford Otosan’s Yeniköy Port, equipped with 400,000 annual loading and unloading capacity, is currently the only production UK WEST EUROPE EAST EUROPE BELGIUM GERMANY FRANCE SPAIN ITALY BILLION OTHER integrated automotive port in Turkey. In this regard, Ford Otosan remains as the only automotive plant to have its own port, 5 which gives our company a significant competitive advantage against our peers. In 2017, 410,000 units were distributed from All export revenues are €-denominated CONTINENTS our Yeniköy Port that has a Green Port Certificate and is one of the first ports to receive the ISPS certificate as well. ” (including non-€ countries) Financial Reports

52 53 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

With the software we developed and the Wearable Quality PRODUCTION Assurance Equipment we launched within Ford Otosan, inspector AND CAPACITY movement times have been shortened by 15%. Using the software also developed by Ford Otosan, we saved €120,000. At the same time, €10,000 worth of annual license renewal General General

fees has also been saved. This application, which provides an Assembly ergonomic work environment, is the first among Ford all facilities. Our project was awarded second place in International Data Corporation. 88% CAPACITY UTILIZATION RATE THE BEST PLANT BY “FORD PRODUCTION SYSTEM” STANDARDS Ford Otosan’s production increased 12% to 373,007 vehicles in 2017 to meet high export demand. The company operated at Ford Otosan enjoys productivity and competitive advantage 88% capacity utilization rate on a three-shift basis. thanks to a fully established lean manufacturing environment in line with the Ford Production Systems (FPS). Ford Otosan

FORD’S LARGEST COMMERCIAL VEHICLE plants were recognized as the best Ford plants in audits Management and Assessments PRODUCTION BASE IN EUROPE conducted by the Ford Europe FPS office. Ford started implementing its Global Ford Production Systems by consolidating manufacturing processes and development under When opened in 2001, the Kocaeli Plant had an annual one umbrella in 2011. In 2012, Ford Otosan began to train its production capacity of 40,000 Transit vehicles. Since then, it employees in Global Ford Production Systems, and this new has significantly increased its manufacturing capacity, thanks program was launched at Gölcük and İnönü plants in 2013. to its productivity, flexibility, and high quality production. As of 2014, its total capacity increased to 400,000 units spanning 3 Ford Otosan was the first Ford plant in Europe to implement in 2017 products. With the completion of the first phase of the annual this system. In 2014, the system was also launched at the Otosan Ford production capacity increase investment, our capacity increased Yeniköy Plant. Ford Otosan quickly and effectively incorporated to 425,000 units. Global Ford Production Systems, and was named Europe’s best performing plant in this regard. KOCAELI PLANT CAPACITY AND UTILIZATION (‘000)

CEM TEMEL Assistant General Manager Kocaeli Plants and New Projects Sustainability 88%

86% “In 2017, a year of record production, we reached 170,000 units of production capacity by introducing flexible production 82% 81% investments on the Transit line in order to quickly and effectively respond to robust Custom demand at low-cost. Moreover,

*59% in order to benefit from future production technologies, we underwent an organizational change through which the technical team in body and paint shops designed and launched our own robotic automation solutions, reaching 1,017 robots. All robots

425 were programmed by Ford Otosan engineers and all other automation projects were handed to local Turkish manufacturers. 400 400 400 Corporate

As a result, we acquired know-how as well as creating a cost advantage. With the knowledge and experience of our Governance manufacturing engineering, we worked hard on producibility for our Custom and Courier vehicles that will be renewed in 2018 320 and in the designing stages of our new Cargo Truck. Our Yeniköy Plant was named “Best in Class” among all of Ford of Europe factories under “Zero Accidents and Quality Metrics” category. Significant improvements were achieved at our İnönü Plant in Detecting air leakage points and analyzing hard-to-reach terms of quality, cost, and time with the introduction of the new generation body scanning system. In addition to our vehicle areas have become significantly easier using the Innovative Air production and exports, we produced and distributed sheet metal molds of Ford Connect. We implemented €17.5 million cost 2013 2014 2015 2016 2017 Leakage Test with Thermal Camera. reduction projects with the help of our emloyees in 2017 and shared the €756,000 prize with 3,209 employees.” * 2014 numbers reflect the transition to new product range and relevant ramp-up period. Financial Reports

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HIGHEST INSTALLED PRODUCTION CAPACITY Ford Otosan has taken a decision to increase the annual WE ARE INCREASING OUR IN EUROPE production capacity of the Gölcük Plant from 290,000 units to TOTAL PRODUCTION CAPACITY 330,000 units in order to meet increasing export demand. The investment will cost US$52 million and planned for completion 2014 2017 2018 in September 2018. When finalized, the production capacity

415,000 440,000 455,000 General in our three plants will rise from 415,000 units per annum to Assembly 455,000 units per annum.

KOCAELI PLANTS İNÖNÜ PLANT 425,000 Units 15,000 Units Management and Assessments

GÖLCÜK PLANT YENİKÖY PLANT in 2017 Ford Otosan Ford 315,000 Units* 110,000 Units

TRANSİT CUSTOM COURIER CARGO Sustainability 160,000 Units 170,000 Units Corporate Governance

* Total paintshop capacity of the plant Financial Reports

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SUPPLIERS SUPPLIER DIGITAL ERROR REPORTING AND MANAGEMENT SYSTEM

A digital platform was created to send the relevant company a rejection notice and to make sure that they address the issue General General when a quality error originating from the supplier has been Assembly detected. This system

One of the most important stakeholders of our vision “to SUSTAINABILITY ·· Provides a large archive of reject reports and company returns, become Turkey’s most valuable and most preferred industrial ·· Allows for monthly and annual monitoring and automatic company” is our suppliers. The Turkish automotive industry’s Sustainability in every sense is the basis of our relationship reporting of supplier performances, competitive position stems from a network of well-established with our suppliers. We handle sustainability under four main ·· And enables the users to send and track notifications via and experienced suppliers. Today, our suppliers, which make headings: tablets and mobile phones. up about 40% of total automotive exports, offer competitive goods and services with world-class standards by exporting to ·· Competitive pricing and continuous productivity Management the world’s leading producers or producing on-site. As one of ·· Continuity of quality, manufacturing and supply and Assessments the first car manufacturers in Turkey, Ford Otosan supported the ·· Financial strength and health development of many suppliers to reach their current levels and ·· Technical/commercial support for new projects helped the leading global suppliers make investments in Turkey directly or by establishing partnerships. Our contracts are generally designed to be valid for the relevant parts or products until the vehicle in which they are used goes out of service. Ford and Ford Otosan attach great importance

LOCALIZATION to the fact that our suppliers totally comply with the global in 2017

Ford Q1 certification criteria showing their commitment to Otosan Ford Localization is one of the most important areas where we sustainable processes and operations. With this certification, directly and indirectly add value: our suppliers achieve the standards to supply to all Ford factories outside of Turkey. Thus, the number of suppliers who ·· Cost advantage (price per piece, shipping, storage) supply to Ford factories outside Turkey continues to grow. ·· Increasing the capacity utilization of our domestic suppliers to During the Q1 certification process, Ford Otosan provides close make them more efficient enterprises technical support to its suppliers through experienced experts in ·· Increased employment the field. GÜVEN ÖZYURT ·· Reducing the exchange rate risk in our vehicle costs Assistant General Manager

·· Managing any sudden changes in production more Purchasing Sustainability conveniently and at a lower cost ·· Favorable position in domestic official purchases by increasing the domestic added value of our vehicles ·· Important advantage in providing and pricing spare parts “Transparency is what lies underneath our price/cost policy with our suppliers. Every product is parametrically priced and our priority is to determine and update our prices depending on these parameters. For products that are in their first phase Many product groups such as metal sheets, body and chassis parts, plastic parts, seats, installations, rims, rubber, glass and of pricing, we conduct a thorough market research using all of the price alternatives in order to meet the competitive market prices. Commodity prices (steel, plastic, copper, aluminum, rubber etc.) are determined depending on global supply/demand insulation materials are supplied from domestic sources. Our Corporate Governance company holds domestic goods certificate for our products. balance. Almost all of the raw material prices have recently been following an upward trend. In order to minimize the adverse We are constantly developing new ideas and projects to effects of such price increases, we are seeking cheaper raw material sources as well as finding alternative materials or increase our localization. Every local product is parameterized conducting production/design improvements. One of our main raw material costs is sheet metal. We manufacture steel parts and monitored within its own cost components. in our facilities. We take part in Ford’s global procurement and also buy from local suppliers in Turkey. Following the market trends, we work on a contract basis in order to avoid price volatility.” Financial Reports

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PLANTS AND FACILITIES General General Assembly

KOCAELİ PLANTS Yeniköy Plant 2012 Yeniköy Plant was established as Ford Otosan’s third plant. It Gölcük Plant LEAD MANUFACTURING PLANT OF was the first automobile plant established in Turkey in 13 years. On July 23, production of the new Ford models, Transit Opened in 2001, the Gölcük Plant became the world’s Completed in a record time of 16 months, Yeniköy Plant has Custom and Tourneo Custom – newly added to the Transit leading Transit production center in 2004 thanks to its high been known for a number of “firsts.” It was the first and only family – started on a third production line established at the manufacturing quality and the advanced technology used by plant in Turkey where the same project simultaneously included Gölcük Plant.

Turkish workers. The Gölcük Plant is distinguished among global the factory construction, end-to-end vehicle design, prototype Management

Ford production facilities for its exceptional quality standards, production, and production lines. The feasibility studies and and Assessments and has been awarded many prizes both at home and abroad 2014 engineering behind the manufacturing of Ford Courier, which for its environmentally friendly manufacturing. was designed entirely by Turkish engineers, were completed by The production of the next generation Transit started in the Yeniköy Plant Project Team. With a total area of 1.6 million m2, including 340,000 m2 of January and the vehicle has been successfully commissioned indoor space, as well as the plant’s proximity to industry and its throughout the year. Investments worth $850 million in the Courier is Ford’s only commercial vehicle in the B segment own port facilities give Ford Otosan logistical superiority. The Gölcük Plant for the new Transit series and the Yeniköy Plant and is manufactured solely at the Yeniköy Plant before being

facility houses tool and die, press, body, paint and assembly increased the annual capacity of the Kocaeli Facilities from exported to 40 countries. It has an annual production capacity in 2017 shops. Its Central Maintenance, Production Planning, and 320,000 units to 400,000 units per year. of 110,000 units. Otosan Ford Quality Assurance Departments provide common services to the entire facility. Yeniköy Plant has officially been registered to have the best 2015 quality metrics among all of Ford of Europe facilities since 2016.

Investments were completed at the Gölcük Plant to increase Yeniköy Plant is recognized as “employee-centered,” innovative, Custom’s annual manufacturing capacity from 130,000 to efficient, and lifestyle-enhancing thanks to its disability 150,000 units, ensuring production flexibility against higher awareness and environmentally friendly approach, in addition demand. to its sensitivity to occupational health and safety and

employment gender equality. Sustainability

2016 With demonstrated quality, technical, and organizational excellence, Yeniköy Plant is fast becoming Ford’s leading The second Plastic Paint Shop was opened at the Gölcük production center and has been awarded on many platforms. Plant. Following new European emission regulations, the Euro The plant supplied 146 hours of training per person to ensure 6 Panther engine was introduced and first used in the Ford high employee engagement and won both the “Industrial Custom model at the Gölcük Plant. Excellence Award” and the Ford Chairmans’s Leadership Award

for Diversity. Corporate Governance 2017

Investments have been completed to increase the annual THE ONLY FORD COURIER production capacity of Custom vehicles from 150,000 units to 170,000 units. Production capacity of the Gölcük Plant PRODUCTION CENTER increased from 290,000 units to 315,000 units and Kocaeli Plants to 415,000 units. IN THE WORLD Financial Reports

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İnönü Plant Ford Otosan Collaborative Robot Application Sancaktepe R&D Center Sancaktepe Spare Parts Distribution Center İnönü Plant in Eskişehir manufactures Cargo trucks (tractors, was Launched as Part of İnönü Plant Innovation Ford Otosan is Ford’s global engineering hub for heavy With a closed area of 35,000 m2, Ford Otosan Spare Parts road trucks, and construction series) in addition to engines and Projects commercial vehicles and associated diesel engines and engine Distribution Center is the largest facility of its kind in Turkey. engine systems. As a result of investments made in 2014, the Before the launch, Kuka LBR Robot Programming trainings systems. It also provides core support for Ford light commercial It is the hub where all of Ford Otosan’s spare parts, marketing, plant now has total indoor space of 109,024 m2, 1.1 million m2 were given by Belgian instructors. In addition to Ford Otosan vehicle design and engineering. The R&D Center in Sancaktepe sales, and after sales operations are managed. of open area, and an annual truck production capacity of employees, Rotsis personnell, one of Kuka’s integrators, was recognized and registered as an “R&D Center” by the

15,000 units. Furthermore, it can produce up to 75,000 Cargo also participated in these trainings. This contributed to the Ministry of Science, Industry, and Technology in December 2014, Our center is fourth among Ford’s European spare parts Management and Transit model engines and 140,000 Transit model rear development process of the subsidiary industry collaboration. becoming Ford Otosan’s second R&D Center. distribution centers in terms of indoor space capacity, and and Assessments axles each year. To date, the İnönü Plant has manufactured Ford Otosan and Rotsis personnell were the first group to provides services to 177 dealers across Turkey and 78 dealers more than 850,000 engines for more than 220,000 trucks attend the Kuka Robot Programming trainings. The robot was in 59 different countries internationally. The center has a and tractors. In the years ahead, after its product range is first launched on the Puma Engine Assembly Oil Filling Station. 96 percent order fill rate as a result of its effective spare parts finalized, Ford trucks made at İnönü Plant will be exported FORD’S GLOBAL ENGINEERING HUB management, a much higher figure than comparable Ford to approximately 50 countries over three continents. centers. FOR HEAVY COMMERCIAL VEHICLES

Among Ford Europe, İnönü Plant is the only producer of Transit In 2017, a new spare parts distribution center of 750 m2 in in 2017 model rear axles. İnönü Plant produces the Duratorq engines AND THEIR DIESEL ENGINES AND Poland where storage and distribution services are made by Otosan Ford used in Transit vehicles and, following an investment of $100 external purchase methods was opened. With the introduction million, now also produces the new Euro 6 compliant Ecotorq ENGINE SYSTEMS of this distribution center located in Eastern Europe, we aim to engines. Ford Otosan’s new 13-liter Ecotorq engines, whose improve spare parts delivery times and to increase customer intellectual property rights are 100 percent owned by the satisfaction. company, will have a variety of applications, including in heavy Today, with more than 1,200 engineers, Ford Otosan R&D center commercial, industrial, and marine fields. is the largest organization in the Turkish automotive industry, exporting engineering services. İnönü Plant has an R&D Center, an Engine Test Center, a Test

Track, and a Prototype Development Workshop. Detailed Sustainability information can be found on page 64 of our report. SERVICES TO 59 COUNTRIES ABROAD, AND 177 DEALERS IN TURKEY THE ONLY PLANT IN TURKEY

WHERE VEHICLES, DIESEL Corporate Governance ENGINES, AND POWERTRAINS ARE PRODUCED AT THE SAME LOCATION Financial Reports

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R&D General General Assembly

An Established R&D Culture Transit Courier, the Signature Product of Ford The EcoBlue engine will create the substructure of the engine Ford Otosan’s Product Development Department kicked off Otosan in Design and Technology that is compatible with the new Euro 6 and future Euro 7 the first R&D efforts of the Turkish automotive sector in 1961. Ford Otosan started producing Ford Transit Couriers at its emissions. Besides Transit Vehicles, this engine will be in place FORD OTOSAN IS THE ONLY Otosan had produced Turkey’s first domestic passenger car, Yeniköy Plant in March 2014 after successfully completing all at C/ CD type passenger cars (Focus, Mondeo, C-Max, S-Max Anadol, in 1966 and designed the first diesel engine, ERK, in engineering, prototyping, and plant construction and production and Galaxy) which are among common models of Ford Europe, TURKISH COMPANY WHICH CAN 1986. Ford Otosan had developed the Transit Connect model, work in 40 months. Courier is Ford’s first light commercial Ford America and Asia-Pacific and also at all “pick up” vehicles (Ranger / Everest also called T6). its first big project following the establishment of equal B-platform vehicle, and all its engineering work was carried out DEVELOP ENGINE, INTERIOR AND Management partnership with Ford in 1997, a new Cargo truck and Ecotorq, a by Ford Otosan. and Assessments brand new heavy commercial vehicle engine, in 2003. OUTDOOR VISUAL DESIGN AS Ecotorq Engine Family Ford Otosan has all the skills and infrastructure necessary to Developed entirely by Turkish engineers within a short four-year A WHOLE VEHICLE design, develop, and test a vehicle in its entirety, including the period, next generation Ecotorq engine family was awarded engine, from scratch to commercial product. Our company the Grand Prize at the Technology Awards organized by Turkish employs cutting-edge technology to offer competitive products Scientific and Technological Research Council (TUBITAK),

not only in Turkey, but also to all potential export markets, the Technology Development Foundation of Turkey (TTGV), in 2017 including Europe and North America. and the Turkish Industry and Business Association (TUSIAD). Otosan Ford Trucks equipped with new generation Ecotorq The Largest R&D Organization in the Turkish engines compliant with Euro-6 emission standards are being Automotive Industry manufactured in our İnönü Plant since 2016. Today, with more than 1,200 engineers, Ford Otosan R&D center is the largest organization of its kind in the Turkish automotive Duratorq Engine Family industry, and exporting engineering services. Many different The Duratorq Motor Family was built with Ford Otosan projects are undertaken on behalf of Ford Motor Company engineering, and is used in many Ford vehicles, including BURAK GÖKÇELİK and Ford Otosan, including engines, engine systems, body and Transit Custom, Ranger, Everest, and Territory models. The five Assistant General Manager interior design. Many of the Ford Motor Company’s diesel engine cylinder Duratorq, first engine developed by Ford Otosan on Product Development Sustainability calibration and development efforts are performed by Ford behalf of Ford, is installed in new Ford Rangers and Transits Otosan. manufactured for the U.S. market. “Our innovative side, flexibility, and ability to improve processes, make Ford Otosan distinct and preferred. The vision of Ford Particular emphasis is given to innovative ideas regarding fuel EcoBlue Engine Otosan is “Being Turkey’s most valuable and preferred industrial company.” The organization and power to provide this change economy and emission minimization, driver assistance systems, The 2.0L EcoBlue diesel engine, which will be produced at the and improvement already exist in our own engineering team. In order to achieve our PD vision, we have identified key digital testing processes, and analytical method development. İnönü Plant in 2018, will replace the 2.2L Duratorq TDCi engine transformation areas. that is used in Transit and Custom models. Beside its quite ·· Quality Process Mapping: Increasing productivity by automation of repetitive processes and directing our engineers to

Turkey’s Engineering Export Leader form, the new model has higher torque and power at low engine Corporate value-added works, and simplifying steps with low value-added. Governance Ford Otosan, Turkey’s export champion, was rewarded the first speeds and a lower fuel consumption. The new 2.0L EcoBlue’s ·· Increase Virtual Sign-Off: Using virtual prototypes rather than physical prototypes for product verification. prize in “Architectural, Engineering, Scientific & Other Technical basic design and development process were carried out by joint ·· Knowledge & Data Management: Transforming the PD knowledge and data into a more accessible and sustainable structure. Services” category which was held at the “Turkey’s Top 500 leadership of England and Turkey team, the two engineering ·· Customer Centricity: Integrating customer expectations and needs into our projects starting from the early stages of design Service Exporter” survey in 2015 and 2016 by Turkey Exporters’ centers of Ford of Europe. process. Assembly (TIM). Our total engineering export has reached US$ 578 million since 2010. We have also identified key R&D technology focus areas as Electrified Powertrain Engineering, Autonomous Truck, Connected

Vehicles, Light Weighting and CO2 Reduction.” Financial Reports

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A PIONEERING DEVELOPMENT CENTER IN THE Another First from Ford Otosan: Technology and NUMBER OF PATENT APPLICATIONS FORD MOTOR COMPANY UNIVERSE Engineering Exports to China In 2013, Ford Otosan initiated another important first by signing 238 a technology license agreement with China’s Corporation Limited (JMC). This agreement allows production 178 General General

of Ecotorq engines whose intellectual property rights belong to Assembly

Ford Otosan by JMC in China (the world’s largest truck market). 137

In July 2014, another license agreement was signed with the 110

An Engineering Hub For Heavy Commercial Vehicles and Their Diesel Engines same company for the technology used in the chassis, cabin, 80 and components of the current truck models. This agreement enables Ford Otosan to export engineering services to China in addition to generating license revenues. Ford Otosan engineers work with engineers from JMC to localize existing parts, adapt 2013 2014 2015 2016 2017 these to Chinese market conditions, and then deploy them. The launch of “JMC Weilong” trucks was completed in 2017 in Management

China which is the world’s largest truck market. Trucks were and Assessments designed by Ford Otosan via the technology license agreement with the JMC Company for the production of trucks. Those 2002 2007 2012 2016 trucks were developed entirely by Turkish engineers. Moreover, Cargo Cargo Cargo Cargo- New Platform the vehicle was awarded the “Truck of the Year” in China. / New Engine FORD OTOSAN IS THE FIRST Patent Champion of the Turkish Automotive Light Commercial Vehicle Design and Engineering Hub Industry TURKISH COMPANY THAT in 2017

Ford Otosan believes that growth of the automotive industry Otosan Ford in our country on a global scale is only possible through LICENSED TECHNOLOGY the development and expansion of R&D. Developing a new product that meets all standards in the automotive market, INTERNATIONALLY BY SIGNING A where competition is high and technology becomes outdated in a short time, only comes after long-term engineering focus LICENSE AGREEMENT WITH JMC involving advanced technical teams. To create long-term added value for the company, we also focus on commercializing the FOR THE PRODUCTION OF THE 2002 2009 2013 2014 Connect North America Connect New Connect Courier activities involved in this process.

ECOTORQ ENGINE WHICH WAS Sustainability

Our company has submitted 238 patent applications DEVELOPED ENTIRELY BY TURKISH Diesel Engine Design and Engineering Center through the Turkish Patent and Trademark Office in 2017. Five applications of Ford Otosan were filed by Ford Global ENGINEERING IN 2013 Technologies (LLC) which manages Ford Motor Company’s Lion V6 Lion V8 DV5 14 DW10F14 Intellectual Property to the European Patent Office. 65 patent 3.0L 210 PS 4.4L 313 PS 1.5L 120 PS 2.0L 210PS applications were granted by Turkish Patent and Trademark Land Rover, Land Rover Fiesta, Focus, Mondeo, Edge, Office. Our company also creates new strategies about

Jaguar, PSA C-Max, Kuga S-Max, Galaxy Corporate international patent applications with a great pace. Our Governance inventions have been protected internationally by 24 Patent 2010 2011 2012 2013 2014 2016 Cooperation Treaty applications in 2017.

Lion V6 Lion V8 Puma Global Puma 14 Ecotorq 2.7L 190 PS 4.4L 333 PS Upgrade 2.2 L 160PS EU6 Land Rover Land Rover Transit, Custom, Transit, Custom, Ranger, Everest Ranger, Everest Financial Reports

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R&D CENTERS TEST CENTERS General General Assembly

GÖLCÜK SANCAKTEPE İNÖNÜ Gölcük

2013 2014 2014 Engine and vehicle test facilities and an Turkey’s largest automotive R&D Offers an engine test center, prototyping exhaust gas filtration systems laboratory center. There exists engine and vehicle workshop, a Ford Cargo special are available. Light and medium development teams, a design studio, vehicle engineering center, and heavy Engine Test Center Exhaust Emission Systems Vehicle and System commercial vehicle and engine systems cave automatic virtual environment commercial vehicle and engine Test Center Testing Center

are under development. (CAVE), Hardware-in-the-loop (HIL) development sections. Management

simulation and software development. and Assessments Received the Automotive Testing The first Ford facility of its kind in In addition to advanced vehicle Technology International Magazine’s the world. Ford Otosan engages in tests such as road data simulation “2013 MOTOR TEST CENTER” award R&D studies of the exhaust systems assessments, durability tests, and for its innovative approach, superior used in its vehicles to help reduce climatized media lifetime evaluations technology, and efficiency unwanted emissions. for up to 6 axes at both component and system levels, load and displacement, and hardness and spring

coefficient measurements are taken. in 2017 Ford Otosan Ford This center offers a test environment capable of operating between -42 and +85 degrees Celsius, and between 10 and 90 percent relative humidity. Also carried out are thermal aging, trunk systems life, and cold vehicle operation tests under extreme conditions. İnönü

2015 2016 2016 Sustainability

Engine Test Center Test Track Prototyping Workshop

The Engine Test Center provides Thanks to this center, all vehicle road This 1,250 m2 area was designed to services to the global Ford organization tests that require a special test track service nine heavy commercial vehicles

and performs development and can be carried out in-house. There is at the same time. Corporate Governance strength tests on Ecotorq engines, a special section reserved for testing which meet Euro 6 standards in 5 smart drive support systems. different classes. Besides engine tests, assessments of vehicle exhaust and urea systems can be carried out. This center can also evaluate vehicle-level exhaust gas filtering systems, as it has closed circuit cooling towers for productivity and sustainability. Financial Reports

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INNOVATION First theme of the Ford Otosan Innovation Program was “Smart Your Bank in Your Vehicle! Yapı Kredi Mobile App Mobility Solutions for Megacities”. In this context, corporate This November, a project that enables Yapı Kredi applications entrepreneurs had the opportunity to develop business models to become Applink compatible and in-vehicle accessible has that allowed people to transport from point A to point B in been launched with the collaboration of Yapı Kredi and Ford the most convenient way. The second theme was “Smart Otosan engineers. General General

Logistics Business Models”, where corporate entrepreneurs Assembly brought forward business models that enable products and services that enabled efficient ways of moving goods. Ford Otosan Innovation Program enabled more than 70 corporate Ford Otosan is adopting Koç Innovation Program with the main DIGITAL TRANSFORMATION objective to “empower all employees to innovate”. Trainings and entrepreneurs to create and test 40 different smart mobility/ logistics concepts by using Lean Start-up Methodology. 4 communication activities that support cultural transformation Digital Transformation is used to create efficiency and value projects with high customer demand is currently on the way of have started in order to determine an innovation strategy. In through intelligent and sustainable use of digital tools and commercialization. addition, a digital platform used to monitor the innovation methods. It acts as one of the main enablers for the other process was launched in 2016. Digital Transformation, Smart areas of innovation. Production, Customer Experience, Connectivity/Telematics As for the Open Innovation activities; Ford Otosan organized an Management

important event in July to give Turkish start-ups an opportunity and Assessments Interactive Vehicles, and Autonomous Truck are selected as SMART PRODUCTION the main areas of innovation by the Ford Otosan Innovation to join Ford’s global connectivity ecosystem. Startups to be Committee. invited to AppLink Paris Hackathon were determined Building an agile, high value adding and comprehensive by a jury composed of Ford Connected Vehicle and Services production chain with our skilled team, using adaptable, team and Turkey’s leading venture capitalist as well as Ford efficient and self-learning systems at Ford Otosan facilities. Otosan experts. Ford’s SYNC connectivity system enables It brings together technologies such as “Internet of Things”, drivers to voice-control smartphone apps from the driver’s seat “Smart Factory”, and “Cyber / Physical Systems”, and and to access them using a touchscreen. “Industrial Internet”. in 2017 Ford Otosan Ford OpenXC Hackathon at Sancaktepe R&D Center CUSTOMER EXPERIENCE One other open Innovation activity was “OpenXC Hackathon”. In November, nearly 100 software developers participated in this Customer attitudes are changing and online communication organization at our Sancaktepe R&D center. These engineers, channels are becoming increasingly popular. Designing under the mentoring of Ford Otosan specialists, have developed innovative products and services that are developed by taking several Android based software utilizing vehicle data to improve pre, during, and after purchasing processes into consideration in-vehicle customer experience. leads to applications such as digital dealer and service, use of vehicle data, car and ride sharing. Sustainability

CONNECTIVITY/TELEMATICS

Interaction of vehicles between themselves and with the infrastructure as part of a wider transportation ecosystem. The Concept of “City of Tomorrow” It contains a variety of inside/outside vehicle connection Ford Otosan presented its vision of future transportation systems such as navigation, smart powertrain management, solutions under the concept of “City of Tomorrow” at annual

integration with mobile communication channels, fleet “Turkey Innovation and Entrepreneurship Week” organized by Corporate Governance management systems, and infotainment systems. Turkish Exporters Assembly and Republic of Turkey Ministry of Economy. İşeGel and Easy Route, two of the corporate entrepreneurship projects on Smart Mobility, have also been AUTONOMOUS TRUCK introduced. Ford Otosan creates a safer, cleaner, and more efficient transportation ecosystem via its technologies and Development of advanced-technology products and new smart vehicles as well as aiming to improve the quality of life solutions to logistics sector such as advanced detection using these smart cities’ infrastructure. systems, cyber security systems, automatized tests, platooning, and high-def mapping. Financial Reports

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DIGITAL TRANSFORMATION CONNECTED CONNECTED CONNECTED CONNECTED CONNECTED CUSTOMER & MANUFACTURING PRODUCT EMPLOYEE SUPPLY CHAIN DEALER Connecting

Analyzing our General

Digitizing our Transforming Providing digital our suppliers Assembly customers’ manufacturing our way of workspace to to our central demands 7/24 around Industry designing our employees data for just in and offering 4.0 time ordering Awareness and Our vision is “Being Turkey’s most valuable and most preferred Learning Period customized and minimum 2015 industrial company.” We believe that digital transformation is products. the key to improve our business, create new job opportunities, inventory Digital Transformation investment and achieve our vision. We started out by creating a five-year roadmap by reviewing our existing processes and systems. We decision was made. then categorized and kick started our digital transformation studies under 5 sections varying from our dealers to customers, Connected Dealer: Management suppliers to employees, and design to production. We are and Assessments Centralizing all our Manufacturing Customer Centricity: FO-CEP: Allowing RFID intelligently adapting new technologies to our production Awareness and dealer operations Information System: Capturing Customer all our employees Implementation: lines while acknowledging the essential requirements of 2016 Learning Period and connecting Collecting all our Voice Using it in our to perform Using RFID methods cost benefits, quality, continuity, and security. It is our long- their processes to track inventory, them to our next IoT and Machine designs term mission to safely protect the data, to create a solid over mobile counting and generation CRM data into a BIG Data We began to manage Digital communication web within different departments, and to environments logistics Platform CIPS: Connecting our correctly analyze the data in order to make accurate decisions. Transformation as a separate unit Customer vehicles to cloud and We started out with 17 new projects by carefully selecting MOZAIK: Taking Advanced Centricity: Predictive Quality: providing them value in 2017 by assigning Turkey’s first CDO. champions from all departments to become a leading digital talent improvement Production Otosan Ford Capturing Predicting our added services corporation in the automotive industry. We carried out several to a new level Planning: Customer Voice quality issues using projects that generated efficiency and revenue by combining Dynamically Using it in our machine learning. Quality Process Acceleration digital transformation and a plain work environment in order to People Analytics: planning our designs Hence continously Mapping: Digitilazing 2017 Period primarily reach out to our customers and employees. Analyizing our production to adapt increasing our quality all our processes employees and instant changes Field Force amking them lean trying to understand to improve total Automation: We started 17 Digital Transformation Advanced their moods and efficiency and plan Mobilizing our field Production Planning: Knowledge and take action using just in time ordering. projects as well as training our work sales force Dynamically Data Management: this data force. planning our Making knowledge Sustainability İ-Deal: production to adapt centralized and Reshaping our instant changes easily accessible by Acceleration customer journey to improve total all relative parties period 2018 efficiency Smart Forecasting: We started to identify new projects. Forecasting our Predictive next sales using Maintenance: Acting Corporate

Machine Learning before a machine Governance & Data Analysis gets borken. Acceleration 2021 Period Predicting failures well in advance Vision: Becoming Turkey’s leader industrial company in digital transformation and mobility. Financial Reports

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Sustainability Otosan Ford Sustainability Corporate Governance Financial Reports

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SUSTAINABILITY PRINCIPLES ENVIRONMENTALLY FRIENDLY PRODUCTION

“Ford Otosan, the leading company of the Turkish automotive sector, became the first automotive company to General General receive a “Green Office” certificate as part of the WWF-Turkey (World Wildlife Fund) Green Offıce Program for Assembly their efforts to become environmentally sustainable and to reduce their footprint in nature. Moreover, Ford Otosan achieved a first by providing participation in the program with most office workers in a single location in Turkey.” SUSTAINABILITY REPORTING ·· Preparing specific samples of sustainable products and services with consideration of their environmental and social Ford Otosan, the flagship and technological pioneer of the impact and the value creation potential of Ford Otosan’s ·· Train and help employees and contractors to educate and Turkish automotive industry, has been showing strong growth products and services; 19,010,840 develop themselves with respect to environmental awareness performance as well as taking firm steps towards its target ·· Suggesting improvements on sustainability strategies, and the efficient use of energy; of producing sustainable value for the environment and the policies, and objectives. Energy Savings ·· Provide the necessary human resources, as well

society in which it operates. In this context, we present, for the Management as technological and financial resources, to reduce information of our stakeholders, a detailed Sustainability Report Ford Otosan has been included in the BIST Sustainability index and Assessments environmental impacts and increase efficient energy use; in addition to our Annual Report, skillfully balancing the social, since November 2, 2015. ·· Develop energy efficiency projects to decrease greenhouse gas environmental, and economic dimensions of the activities we 4,821.20 emissions from production and other activities, and carry out carry out. As a result of its success in environmental, social, and programs to increase renewable energy use; governance practices, Ford Otosan has been included in the CO Reduction ·· Highlight the need for reduced greenhouse gas emissions and Ford Otosan sustainability reports are prepared in accordance BIST Sustainability Index and as well as FTSE4Good Emerging 2 renewable energy technologies in the design process; with the requirements of the latest global reporting initiative Markets Index, one of the most important indeces used by ·· Increase supplier and stakeholder awareness of green responsible investors. (GRI) G4 reporting principles and standard disclosures. in 2017 economy and energy efficiency, and provide incentives in this Ford Otosan Ford 390,742 m3 regard. You can access our sustainability reports ·· Places heavy emphasis on the biodiversity risks and at www.fordotosan.com.tr. opportunities associated with operational processes. Wastewater Treatment SUSTAINABILITY COMMITTEE Environmental and Energy Management System ·· Ford Otosan production, product, service and activities were In 2015, Ford Otosan established a Sustainability Committee first certified by the ISO 14001 Environmental Management in order to undertake the management, consultancy and 7,218.13 System in 1998. coordination efforts required by our stakeholders in line with the ·· Its environmental and energy management system is based Sustainability social, environmental, economic, and ethical responsibilities on continuous development, and has been integrated with of our company. The Committee reports to the Board of Hazardous Waste Recycling other company management systems such as quality and Directors on the implementation of sustainability measures, occupational safety. areas of opportunity, and the results of activities. The roles and ·· Ford Otosan Kocaeli (Gölcük and Yeniköy) and İnönü plants, responsibilities of the committee include: and Sancaktepe R&D facility have successfully passed all Environmental and Energy Policy environmental inspections with zero non-conformance. ·· Preparing Ford Otosan’s “sustainability strategy and policy,” ·· Meet and even surpass the requirements of applicable ·· Ford Otosan employees’ respect for the environment and and taking action on the specific responsibilities assigned to environmental and energy regulations through the standards environmental awareness during production are the key

this process; Corporate we set and implement; aspects of the company’s responsible development. Governance ·· Preparing a “sustainability roadmap” that is compliant with ·· Work to continuously develop our environmental and energy ·· To further cultivate this appreciation, Ford Otosan asks for an the adopted strategy and policy, and all activities necessary to management systems; ISO 14001 certificate from each supplier as a prerequisite for carry this out; ·· Reduce wastes to minimum, prevent pollution at the source, working together. ·· Ensuring that the sustainability strategy, policy, and objectives use energy efficiently, and reduce the negative impact of our ·· In 2013, Ford Otosan integrated its Environmental are communicated to all stakeholders and the necessary activities on the environment; Management System with the ISO 50001 Energy training is provided; checking that all procedures, works, and ·· Protect the environment and spread this principle to everyone Management System, and received ISO 50001 certification applications are undertaken as required, and that all relevant around us, both in the country and around the world; following an independent audit. data is reported; ·· Determine and mitigate risks associated with emergencies; Financial Reports

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·· In 2017, the Environmental and Energy Management of all units are reviewed using scorecard metrics. Investments Ford Otosan İnönü Plant with energy projects, 571 tons of Products and Materials

Systems of Ford Otosan were evaluated by an independent in energy saving projects are made for departments and CO2 greenhouse gas emissions were prevented by central Ford Otosan continuously strives to reduce negative organization at Gölcük, Yeniköy, İnönü plants and Sancaktepe processes consuming high amounts of energy. The Energy cooling system pump replacement and chimney economizer environmental impacts that arise during a product’s entire life facility. All four locations were assessed for compliance Committee meets periodically to determine what needs to application to the paintshop boiler. Additionally, Dali cycle, including during its manufacturing. With this in mind, both with the ISO 14001 standards, and three locations for the be done for specific processes and facilities and strategies illumination automation systems have applied to the welding energy and environmental aspects are considered starting at General General

ISO 50001 and ISO 14064-1 standards (Gölcük and Yeniköy, for reducing energy consumption. Our Energy Management and paintshops. Zigbee automation has completed for outdoor the design stage. All tire scraps, batteries, used packaging, and Assembly Kocaeli; İnönü; and Sancaktepe). As a result, 100 percent is audited annually by an independent organization and illumination. Valve jacket application to new installed facilities, other waste generated during product use are collected and success rate was achieved in all locations. followed up systematically using the ISO 50001 management energy scada system to new facilities and cold test projects recycled by the relevant organizations. Ford services and dealers system certified in 2013. In 2017, inspections were carried out were applied. The energy management team’s control and are informed of this. Even after the product’s useful life expires, Atmospheric Emissions in accordance with the ISO 50001 standard at all locations optimization efforts have resulted in a total energy savings of it is re-evaluated at a licensed recycling facility. As a company who has adopted sustainable development as including Kocaeli (Gölcük and Yeniköy), İnönü, and Sancaktepe. 1.2M kWh. a principle, Ford Otosan has never failed to opt for the newest All locations successfully passed the reviews. Likewise, cross Wastewater Treatment and Water Usage and most environmentally friendly process technologies, ever audits are carried out with due care to provide internal ISO A daylight illumination system was applied to production At Ford Otosan production facilities, all domestic and industrial since drawing up the first blueprints of its Gölcük Plant. A 50001 checks. workshops for the use of renewable energy sources in 2017 at wastewater is treated in-house. Wastewater processed suitable example of this is the water-based paint used at the the Ford Otosan Golcuk plant. The wind turbines were applied at the on-site treatment facilities are investigated both at Management

Gölcük Plant Paint Shop. To reduce volatile organic compounds Ford Otosan has also completed energy efficiency and saving in front of exhaust chimnyes in the painshop. In addition, LED our company laboratories and independently accredited and Assessments (VOCs), which cause air pollution, water-based paints are used projects in 2017. Ford Otosan Gölcük Plant with High Efficiency illumination displace projects are in progress. Within the scope laboratories. COD and pH online measurement and automation for painting. This practice is a first for primers at European Ford Heat Recovery Chiller Project, low efficiency chiller has replaced of the Three Efficiency Improvement project were received systems are in Golcuk Plant Wastewater Treatment Plant. plants, and for both primers and finishing coats in the Turkish to high efficiency ones in the paintshop process and the a grant from the Ministry of Energy and Natural Resources In 2017, a secondary control mechanism was established in automotive industry. At the time of drawing the blueprints for recovered heat has used in boiler house. Within the scope of Renewable Energy General Directorate. The projects were Yeniköy Plant Wastewater Treatment Plant for measuring COD, the Yeniköy Plant Paint Shop, the THREE WET PAINT PROCESS the project 1,673 ton CO2 greenhouse gas emission has been supported by the Ministry of Energy and Natural Resources, pH, AKM, fluoride parameters with online automation system. was adopted, the first of its kind in Turkey and with very few prevented. In addition, according to the paint shop data of approximately 30 percent of the total investment cost was However, the Kocaeli Plant is continuously monitores the global precedents reducing the the number of paint chambers Ford Otosan Yeniköy Plant, 1,601 tons of CO2 greenhouse gas awarded by grant. wastewater by online measurement system in the wastewater in 2017 and ovens to one. The need for priming and sanding was also emissions were prevented with the economiser. treatment plant. The usage water requirements of the facilities Otosan Ford eliminated. Subsequently, there were reductions in electricity An electrical savings of 10 % were provided by improvements are provided by well water. Through conservation and saving and natural gas consumption, the use of industrial materials and awareness raising activities in the automation system at of natural resources, significant gains have been achieved and paints, and maintenance, cleaning, labor, and waste the Sancaktepe location. in the process water consumption in the previous years. The costs. At the same time, the world’s most advanced scrubber ELECTRICAL SAVINGS OF 10% WERE wastewater recovery project feasibility studies were carried process, the Dry Scrubber Process, was implemented. With this Environment out at the Gölcük Plant Wastewater Treatment Plant. At the technique, the paint dust produced in the chamber is carried by PROVIDED BY IMPROVEMENTS AND Ford Otosan’s environmental management efforts aim Sancaktepe location, 9% water saving was achieved due to air, and combines with calcite in the units, and separated from to reduce negative impact, support living systems and lowering toilet reservoir volumes, reducing tap flow rates, and the air with special filters. Thanks to the Dry Scrubber system AWARENESS RAISING ACTIVITIES IN bio-diversity, and spread awareness across society. placing labels about awareness. on the chamber floor, no water or chemicals are used inside The company’s efforts to protect biodiversity and local Sustainability the paint chamber. Solvent use is also low. The Dry Scrubber THE AUTOMATION SYSTEM AT THE ecosystems at the Kocaeli Plant were recognized by Turkey’s Waste Management and THREE WET PAINT PROCESS are valuable for offering Ministry of Development as one of the best practices in the field The facility’s waste management system maintains the storage much more efficient, modern, and environmentally friendly SANCAKTEPE LOCATION of sustainability in the country. Ford Otosan’s sustainable and and disposal of hazardous waste in accordance with technical technologies. environmentally friendly production system was presented at and legal standards to avoid adverse environmental impacts. the United Nations Rio+20 Sustainable Development Summit. This is sustained by reducing waste at the source and increasing In 2017, 2/3 Wet Paint and 4 Wet Sealer processes were Under the ISO 14064-1 standard, emissions of direct and recycling. Thanks to these efforts, substantial gains were implemented as part of the New Paint Shop Project to focus indirect greenhouse gases from energy use and other activities realized in the reduction of hazardous waste. At Ford Otosan on environmentally friendly and energy efficient technologies. are calculated and verified by an independent organization. facilities, levels of hazardous and other wastes sent to the Corporate Significant reductions were achieved in industrial materials, regular storage facility are monitored on a monthly basis by Governance paint, maintenance, cleaning, labor cost, and waste materials by Ford Otosan Kocaeli and Inonu Plant greenhouse gas emission using separate scorecard metrics for each department. reducing cabin and oven numbers down to one with the 2/3/4 reports were verified for the monitoring period of 2015 and 2016 Wet Paint and Sealer Projects. by the authorized laboratory and were approved by the Ministry Material usage and waste reduction were provided by different of Environment and Urbanization. The Ford Otosan Climate projects which were waste sealer, waks and solvent decreasing Energy Change Action Plan was revised in 2017. projects and anti masking projects at the Kocaeli Plants. In An Energy Committee monitors the energy savings at Ford addition, paper and paper cup consumption is reduced 10% Otosan plants. The electricity and natural gas consumption and 12% respectively at our Sancaktepe facility. Financial Reports

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QUALITY OCCUPATIONAL HEALTH AND SAFETY General General Assembly

TOTAL QUALITY For this reason; OCCUPATIONAL HEALTH AND SAFETY POLICY Health Center With a proactive approach and an understanding of preventive The Total Quality Directorate supports entire process’ of ·· Implement and carry out effective quality management Ford Otosan fulfills all legal and business requirements related medicine, our Health Centers perform all of the necessary the company that start from the customer and end with the systems in all processes to occupational health and safety in the workplace to establish controls and establish monitoring systems to help prevent customer. Our main philosophy is to improve process that Ford ·· Meet the customer expectation and go beyond the most a secure and positive work environment. Management and occupational diseases, as well as ergonomic and hygienic Otosan and its authorized dealers have experienced starting appropriate, most accurate and most economical solutions in employees work together to consistently achieve improvements problems. Periodic annual health examinations are provided to the fastest way to avoid the issue that may occur in the future with the purchasing of the product by the customer. that eliminate hazards threatening the safety of life and all personnel in our Health Centers, which are open every day Management

production property, including those related to disease, injury, and fire. for 24 hours at each location during both office and production and Assessments QUALITY POLICY ·· Establish university-industry business relationship to develope At Ford Otosan, we believe that management as well as hours. Health Centers respond to emergencies and handle projects to understand, to meet and to exceed customer employee engagement and collaboration are needed to protect several health issues, including those relating to employees Customer satisfaction is our number one priority. expectations employees from the losses that can arise from occupational with disabilities, and also provide training on a variety of topics. ·· Follow up and implement technological developments to accidents. Preventing accidents and losses is the direct and During the 2016-20147 period, our Health Center continued the Ford Otosan continues to operate with the need to go beyond reduce costs and increase profitability joint responsibility of management and staff. Women’s Workshops and Disaster Communication Project are customer expectations and to have excellent product and ·· Continuously improve the quality level by utilizing the team additional significant projects that have contributed to our lives. competent and able to use their talents at the highest level service quality while offering innovative automotive products Production and support departments function in accordance in 2017 and services that will benefit society in the direction of its vision. within the framework of quality systems with this policy when designing, operating, and maintaining Ford Otosan Search and Rescue Team (FOKE) Otosan Ford ·· Establish quality awareness in all employees all facilities and equipment. All employees fully comply with The FOKE Team was founded by employee volunteers during ·· Ensure that all applicable management system standards occupational safety rules and procedures. Both staff and the Gölcük earthquake in 1999. Training methods were renewed (ISO 9001, ISO 14001, ISO 10002, ISO 50001, ISO 27001 management strive very hard and take care to act consistently following an increase in the number of participants in 2011. The and OHSAS 18001) are maintained and that the necessary with this policy. Ford Otosan detects and defines the risks FOKE team responds to disasters, providing voluntary support improvements are carried out to ensure and enforce the associated with occupational health and safety, and establishes to search and rescue efforts. Most recently, they volunteered applicable conditions, and reviews objectives and programs associated with these to take part in the emergency response to the Van earthquake. ·· Increase trainings, cultural and sports activities for continuous risks. Stipulated and implemented by Ford Otosan, this policy The FOKE team participates in joint drills with other Koç Holding development; to raise awareness in all parts of the society is not only communicated to all employees and others working search and rescue teams, and saw an increase in the number

about the benefits provided by these activities. with the company, but is also accessible to public and third of volunteers to 100 with the help of training sessions at the Sustainability ·· Create a fast and effective working system by using parties. Sancaktepe facility. The team continues to train to remain technological facilities in corporate communication with our prepared for search and rescue operations in an event of suppliers and customers Risk Assessment Process disasters and emergencies. ·· Complete every project initiated on time, in full compliance Our Company conducts risk analysis not only for production with the project with the highest level techniques, in the lines, but also for each operation and process. Risk analysis is Five Awards from Ford Global desired qualities and within budget limits performed by the operators directly responsible for the task, and Ford Otosan was awarded five prizes at the President’s Health and ·· Contribute to the country’s economy by being a model is assessed with the participation and approval of specialists Safety Award competition that has been organized under Ford’s organization that respects the environment we are in and umbrella since 1999. The most significant of these five awards,

such as occupational safety experts, process and environmental Corporate Governance constantly improving business volume engineers, and ergonomics professionals. Risk analyses are Ford Global Award, went to our İnönü Plant’s “Deployment of based on reviews of the physical, chemical, ergonomic, and Safety Culture” project under the Recognition & Engagement Are Ford Otosan’s Quality Policies. hygienic risks that could arise during operations. The necessary category. Moreover, Professional of the Year, Best Performance measures against such risks are then taken. Risk analyses are - Lost Time Case Rate, and 2 Lifesaving Awards were also renewed when changes are made to the process or layout plans, granted to our İnönü Plant. new equipment is purchased, a new system is adopted, and following an occupational accident. Risk analyses are reviewed at least once a year, even if none of the above situations occur. Financial Reports

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HUMAN RESOURCES Performance Management System The aim of the system is to manage the performance of the employees objectively in the framework of common principles in order to sustain high performance. At the beginning of the year, the manager and the employee determine the targets General General

together within the scope of company targets. Actual values of Assembly the targets are monitored in six-month periods. Competencies also have an important role in the system beside the targets. Our Vision, Mission and Strategy Training and Development Management Our vision is to make Ford Otosan the most preferred company Our training and development policy enhances individual Recognition, Appreciation and Rewarding and having high employee engagement with innovational success and motivation by providing activities that meet The rewarding of successful works that make a difference Human Resources applications. personal, professional and technical development needs of with the “Achievement Reward System” which supports our Our mission is to develop and implement Human Resources employees in line with company goals and strategies, as well common values and vision is aimed at creating an environment systems based on equal opportunity, being respectful to as contributing to organizational development and success. where employees will be proud and happy when working. The system includes many different programs, including the Most Recognition diversity and ethical values, focusing development, supporting Our training and development calendar is created annually Management high performance in line with the company strategy. according to the needs identified by competency evaluation, Successful Koç Employees, Instant Award, Ford Otosan’s Stars, The employees who have received high performance scores and Assessments performance evaluation and development center applications Suggestion and Improvement System awards. with a perfect attendance record and without penalties in the Our strategies; and the demands of our employees. Individual Development year-end Performance Evaluation are rewarded with a vacation ·· Be among the first 10 of the most preferred companies. Plans are performed each year are based on the strengths and ISE (International Service Employee) with their families. ·· Be the leader HR brand with sustainable and innovational development areas of the employee’s knowledge, skills and Management applications. behavior required by the current and future position. International Service Employees are the important components Disciplinary Board Process ·· Be among the first 10 companies in Best Workplaces in Turkey which make Ford Otosan global and reinforce the cooperation The process is conducted within the framework of Group between Ford Otosan and Ford Motor Company. Being a Collective Labor Agreement. The penalties that can be imposed list according to Employee Engagement Survey reports. Internal Communication in 2017

·· Be respectful to diversity and ethical values with attaching Internal communication activities provide the environment for part of international projects, International employees get by the Disciplinary Board are determined according to the “B) Otosan Ford importance to equal opportunity in all HR applications. employees to get information about all developments related experience of working in different cultures and mainly evaluate Disciplinary Measures” clause of the Group Collective Labor ·· Design, launch HR applications and provide continuity with to Ford Otosan, communicate and share their views with Top their management skills. In 2017, Ford Otosan’s ISE employees Agreement. All monthly-salaried employees are obliged to effectively usage of technology. Management. were assigned in 13 different countries and mainly their comply with the law, the provisions of the legislation and relocation&repatriation processes, performance reviews, talent of their employment contract, the Ford Otosan Code of Recruiting and Talent Management System Compensation Management management processes, compensation & benefits plannings Conduct, the applicable rules and regulations, procedures and We conduct our recruitment processes with the aim of placing It is aimed to increase rewarding efficiency by emphasizing have been followed by Ford Otosan HR Team. instructions of Ford Otosan, and the instructions they receive the right candidate in the right position at the right time by business volume, performance and contributions to business from their managers for completing the task they are asked to valuing the differences within our framework of opportunity with Compensation Management. Ford Otosan gives Industrial Relations perform. Any action or negligence that constitutes a violation of equity strategy and offering equal opportunity without allowing importance to be consistent and fair in accordance with the Our objective is to achieve the Koç Group’s industrial relations this obligation shall be assessed and enforced according to the Sustainability any discrimination. During our selection and placement principle of “equal pay for equal work”, to ensure the balance goals by leveraging our strong human capital. The continuous provisions of this procedure. The Disciplinary Board is chaired by process, our objective is to have one of the two candidates within the company and competitiveness in the market. The development of the employees, protection of their rights and the General Manager, or in the absence of the General Manager, that we recruit to be woman. In 2017, the rate of women basis of compensation management is the grade system at improvement of their working conditions are our main priorities. by the Deputy General Manager. employees was 26% in office employees, 12% in field workers Ford Otosan. Grade system is determined in accordance with and 15% in total. Talent Management System has a big role in the scope of business for all positions and the compensation is Trade Union Processes Congratulation and Non-compliance System terms of discovering the potentials of the our employees and managed in the direction of wage policies. While keeping continuous contact with the union that All employees are obliged to comply with the rules of determining the areas which are open for development. 360° represents our field personnel, we manage the Collective Occupational Health and Safety, Environmental Management, Labor Agreement process and follow up on the allocation and Quality Management and Work Discipline. A Congratulation/ Competency Assesment is applied to all of the office workers Flexible Benefits Program- Flextra Corporate promotion of the rights provided to the field workers within this Non-compliance Form is used to recognize when behaviors rise Governance according to Ford Otosan Behavioral Competencies. In the Flextra is a system through which our employees manage their context. above, or warn when they fall below, the expected standard. process of adapting to the new job, every new employee has flexible benefit budgets by making annual selections within the a orientation coach. The ones who complete the orientation framework of specified rules. are given an engagement survey in order to evaluate the Performance Management Business Lawsuits adapting process and an action plan is prepared accordingly. Performance Based Bonus – BEST Field personnel are subject to performance evaluations twice The court notices related to the employment law are directed a year. In the interim period, the employee’s work attendance is to the Industrial Relations department. The information and In the Human Resources Planning Meetings talent pools are The BEST system is a long-term variable income application. monitored. The year-end performance evaluation is composed documents requested in the court notices are conveyed to the determined as well as the career plans of the employees. The bonus of all team leaders and office employees is of four main considerations: General Qualifications, Measurable issuing court in due course, followed by arrangements such Employees can proceed in either the leadership or the expertise determined in accordance with the performance of the Qualifications, Work Attendance and Judgment of Superiors. as furnishing the names of witnesses to the court, making the path. Company. necessary preparations for discovery, and so on. Financial Reports

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CORPORATE SOCIAL HONEY BEES ARE BECOMING ENGINEERS RESPONSIBILITY Launched during the reporting period, the two-year long “Honey Bees Are Becoming Engineers” campaign will be implemented in 81 schools operated by the Ministry of Education throughout General General

the 81 provinces of Turkey. This corporate social responsibility Assembly project targets the removal of prejudices associated with choices of profession. In addition to adopting a corporate citizenship approach, Ford EQUALITY AT WORK Otosan has launched many social responsibility projects in areas With the gender mainstreaming patterns observed in the 81 such as education, health, culture and arts, and sports to contribute Committed to uphold the basic principle of equality for all Turkish provinces in mind, female students are informed and to efforts to attain national sustainable development objectives. employees, Ford Otosan continues to add individual and social encouraged with regard to employment and engineering. value for its staff through the “Equality At Work” declaration Familiarity with this profession, traditionally seen as a male “I SUPPORT GENDER EQUALITY FOR MY signed in 2013. The company is intent on tackling gender dominated career area, is provided, and families encouraged to support their daughters interested in this discipline. At the end COUNTRY” inequality, and continually stresses the importance of equality Management between men and women at all company activities, including of 2017, 16,370 students across 81 provinces, including 9,873 and Assessments female students, were reached. The corporate social responsibility (CSR) project entitled the recruitment process.

“For My Country” enables Koç Group employees and dealers Goals incorporate their individual entrepreneurship tenets into an ·· To create awareness of the engineering profession in society; area of social responsibility. A bridge is formed between the ACCORDING TO OUR COMPANY ·· To encourage 9th grade female students to become engineers; individual, the company, and society while the individual is ·· To develop awareness of equal opportunity in education and helped to fulfill their task. Since 2006, a general solutions unit POLICY, ONE OF EVERY TWO NEW profession choice for both men and women; has been launched under the companies of the group. Ford in 2017

·· To increase the ratio of female students selecting engineering Otosan Ford Otosan generates sustainable solutions for social issues as NON-MANUAL EMPLOYEES AND as a career; part of its sustainable social vision together with its employees ·· To become a leading and inspiring company in the sector with and dealers. The company also participates in projects that ONE OF EVERY FOUR NEW MANUAL this project supporting gender equality. support a local focus on social issues with its staff and dealers ·· To help expand the country’s labor force by supporting female within the “For My Country” initiative. To move towards an equal EMPLOYEES MUST BE FEMALE employment. society domestically and globally, the company has mobilized its means and resources. In line with its 2015-2017 theme of “I Support Gender Equality,” part of “For My Country,” it has TOTAL NUMBER YEARLY INCREASE IN highlighted sexual discrimination, an issue that can result in

OF OUR FEMALE THE NUMBER OF OUR Sustainability disadvantages in both social and business life for women and EMPLOYEES FEMALE EMPLOYEES men alike.

As part of these projects,

www.balarilarimuhendisoluyor.com ·· A company team of 27 volunteers has been formed 15% 26% to actively support the implementation of the gender mainstreaming awareness project. Volunteer instructors from

Ford Otosan delivered seminars on gender mainstreaming to Corporate Governance 11,544 Ford Otosan employees from October 2015 to January 2018. ·· Ford Otosan’s instructors also continue to deliver seminars on gender equality to Koç group suppliers on a voluntary basis. ·· Training sessions have been organized for Ford Otosan suppliers in collaboration with Açev. After suppliers complete their internal seminars in their companies, Ford Otosan will have reached 30,000 more people in total. Financial Reports

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Corporate in 2017 Governance Otosan Ford Sustainability Corporate Governance Financial Reports

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The Investor Relations Team is responsible for informing the The meetings can be attended by stakeholders and the media. CORPORATE GOVERNANCE shareholders correctly and equally about the company in Executive Management and minimum two Board members are COMPLIENCE REPORT line with the Corporate Disclosure Policy. For achieving this present in the General Shareholders’ Meetings. objective, meetings are organized with the concerned parties, investor conferences and road shows are attended and all Invitations to the Shareholders’ Meetings have been sent out General General

incoming telephone or e-mail questions are answered. During through Public Disclosure Platform, Turkish trade registry Assembly the year, the Team attended 20 conference and roadshows gazette, the Company’s “e-Şirket” and website in accordance and held more than 350 meetings with investors and analysts. with the regulations set by the Turkish Commercial Code and Analyst meetings were held with the participation of CFO after the Capital Markets Board. SECTION I: DECLARATION FOR COMPLIANCE According to the Article 6 in the Communique, confirmation quarterly earnings announcements. WITH THE PRINCIPLES OF CORPORATE for the acceptance of Ford Otosan as a joint venture and determination of the number of independent board members As from 21 days before the date of the Ordinary Shareholders’ GOVERNANCE as two was granted by Capital Markets Board and these Board Any type of information that may affect the way in which Meetings; the agenda of the meeting, the power-of-attorney member candidates are also approved in the General Assembly shareholders exercise such rights is presented to shareholders samples, the Board of Directors’ Report, the Auditor’s Report, Ford Otosan has adhered to the mandatory Corporate meeting. attention in the company website on a regular basis. In addition, the Independent Auditor’s Report, Financial Statements and Governance Principles published by the Capital Markets updated information is available by means of Investor Relations the Dividend Distribution Proposal are made accessible to Board within the scope of “II-17.1 Communique on Corporate Management Compliance to the Corporate Governance Principles stated mobile application. all shareholders for examination purposes at the Company’s and Assessments Governance Principles” in 2017 and compliance for the below that are not mandatory have not been fulfilled yet due to Finance Department and published in the website. In addition, remaining principles has been mostly attained. Full compliance the reasons explained above. The report about the Investor Relations activities is submitted Annual Report including the documents mentioned above and target has not been achieved yet due to the challenges to the attention of Board after year end closure. the other information are given out upon request. encountered in the implementation of some principles, the ·· Related to 1.5.2 Principle: Minority rights have been defined ongoing discussions in Turkey and in the international platform only with the general framework of regulations and not 2.2 Use of Shareholders Rights to Obtain Information There were no demands by the shareholders related to the regarding compliance with certain principles and failure of the outlined for the shareholders having less than one twentieth Ford Otosan does not discriminate among shareholders related agenda of the meetings. current structure to meet such principles in a proper fashion. of capital in the Articles of Association. to their right to obtain and evaluate information. Enquiries in 2017 We are working on the principles that have not been put into directed to Investor Relations, with the exception of information There is no related party or significant transaction in 2017 that ·· Related to 4.3.9 Principle: The evaluation studies continue Otosan Ford practice and application is planned for reinforcing efficient for determining target ratio and timing for woman member considered confidential or a trade secret, are answered in needs General Assembly approval due to the disapproval of management after the completion of administrative, legal and proportion in the Board of Directors. The detailed information writing or by phone by the most authorized person concerning independent board members. technical infrastructure. about the subject is stated in section 5.1 of this report. that particular issue. The “Investors” section in the company’s ·· Related to 4.4.7 Principle: As explained in section 5.1, the corporate website (www.fordotosan.com.tr) includes all kind Some shareholders who want to ask questions have utilized In 2017, Corporate Governance activities include significant members of the Board of Directors are not restricted to take of information and announcements regarding the utilization of their rights at the Shareholders’ Meetings and satisfactory efforts that were made for compliance with the Capital on other duties outside the company. rights by shareholders by using electronic tools effectively as responses were given to these questions during the meeting. Markets Law and related Communiques. Board of Directors and explained in Section 3.1 of this report Board Committees have been established in compliance with (https://www.fordotosan.com.tr/en/investors/investor-relations-home) The Chairman of the Board and the members are granted SECTION II – SHAREHOLDERS Corporate Governance Principles. The Committees founded permission at each Annual Ordinary General Shareholders’ Sustainability in the Board of Directors carried out their activities effectively. 2.1 Shareholder Relations Unit The request for nominating of a private auditor has not been Meeting in accordance with articles 395 and 396 of the Turkish Remuneration Policy for Board and Executive Management set down in the Articles of Incorporation as an individual right; Commercial Code to undertake business that falls into the Investor Relations responsibilities which are described in Article were submitted to the approval of shareholders in the general it has been predicted that the relevant provisions of the Turkish business scope of the company on behalf of themselves or of 11 of the “Communique” are performed by Investor Relations assembly. Information about preferred shares, shareholder Commercial Code will be implemented. There was no request others and to be shareholders in companies that undertake Manager Aslı Selçuk ([email protected]/0216 5647499) rights, organizational changes, candidate members of the during the period of operation for the appointment of a private such business. The members of the Board of Directors are thus and Treasury and Risk Manager Burak Çekmece (bcekmece@ Board, reports for transactions made with related parties were auditor. The Company’s activities are audited periodically by the allowed to take on other duties, with no restrictions, outside of ford.com.tr/0216 5647480) who are direct reports to İ.Oğuz announced three weeks in advance of the general assembly Independent Auditor assigned at the general assembly. the company, within the framework of this permission. meeting. The Company website and annual report have been Toprakoğlu ([email protected]/0262 3156900) the

Assistant General Manager - Finance (CFO). Burak Çekmece Corporate reviewed and revised for full compliance with the principles of 2.3 General Shareholders Meetings Donations and support made in 2016 were subject to a separate Governance and Aslı Selçuk have Capital Market Board Activities Advanced the Capital Markets Board. During the calendar year of 2017, two General Shareholders’ agenda item in 2017 Ordinary General Assembly Meeting and Level License and Corporate Governance Rating Specialist Meetings were held; one ordinary meeting (on March 23rd at donation amount was limited to TL 27.500.000 for 2017. There License which are required in the Communique. Necessary steps will be taken to ensure compliance with Divan İstanbul Elmadağ Oteli, Asker Ocağı Caddesi No:1 Şişli was no change in the donation policy. the principles parallel to the developments in legislation and / İstanbul) and one extraordinary meeting (on October 27th general practice. at Akpınar Mahallesi, Hasan Basri Caddesi No:2 Sancaktepe / The Shareholders’ Meeting Minutes are published in the İstanbul). Both meetings achieved a participation of on average website and made available to all shareholders at the Finance 92% and convened at sessions that were open to the public. Department for examination purposes. Financial Reports

88 89 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

2.4 Voting Rights and Minority Rights conditions, long-term strategy, investment and financing 3.2 Annual Report In a similar manner, the participations of local suppliers are The distribution of the shares representing the issued capital policies, profitability and cash position, minimum 50% of The annual report is prepared in sufficient detail asserted provided to Ford of Europe supplier summit organization to according to the share groups (A,B and C group) is explained in the distributable profit for the period calculated within the in Corporate Governance Principles to ensure complete, improve their potential. the Article 6 (Capital) of Company’s Articles of Association. framework of the Capital Markets Legislation is distributed in true information is presented to the public about company the form of cash or stock. operations in line with the legal requirements. Ford’s Q1 award confirming institutionalisation of sustainable General General

There are no privileged voting rights generally. However, procedures is given to suppliers that have completed necassary Assembly according to the provisions of the Articles of Incorporation, The dividend distribution date is determined by General SECTION IV - STAKEHOLDERS work with the support of Ford Otosan specialists. It is also following quorum conditions are applied: Assembly and targeted to be within one month after General important that certification of local suppliers is made by third or Extraordinary Assembly Meeting date. General Assembly, or 4.1 Disclosure to Stakeholders parties in terms of Working Conditions and Environmental ·· The quorum for Shareholders’ meeting is 60% of Company’s if authorized Board of Directors, could decide to pay dividend Stakeholders are regularly informed by the company about status. total shares and decisions are taken with affirmative vote of in installments within the framework of Capital Markets company policies, procedures for protection of their rights and 60% of total share representatives. In order for the resolutions Legislation. matters concerning them. Detailed feedback workshops are set up by Automotive of the Shareholders’ Meetings to be valid, shareholders Manufacturers Association for developing action plans based representing more than half of B or C group shares must have According to Company’s Articles of Association, Board of Employees are informed by management at every opportunity on supplier engagement survey results. Training participation cast an affirmative vote. Directors can distribute advance dividend with the condition fees of suppliers’ attendance to technical trainings organized

through electronic mail or printed documents. Besides this Management

·· The principle has been set forth that half of the members of being authorized and compliant with Capital Markets type of information-sharing, general and departmental open- about quality and procurement management during a year are and Assessments of the Board of Directors must be elected from candidates Legislation. door meetings are organized for this purpose. Employee union returned with collective social responsibility projects carried out representing Group B and the other half from candidates representatives also attend the general meetings at company on behalf of Ford Otosan and its suppliers. representing Group C shares. One of the candidates TL 400.037.400 gross dividend was paid on April 3, 2017 and TL offices, offering their views. representing Group B and Group C shares must have 389.510.000 gross dividend was paid on October 31, 2017. The best example of this is the “Journey to Hope Mobile Cafe” independent member qualifications stated in Capital Market Stakeholders can report practices which violate regulations Project realized in collaboration with KAÇUV (Hope Foundation Board legislation. 2.6 Transfer of Shares and ethically inappropriate transactions to the Internal Control of Cancer Children’s) to support the treatment of children The restrictions for share transfers are stated in Article 8 of the with cancer. Besides, joint activities are carried out with the

Department to be communicated to the Audit Committee. in 2017 Company’s Articles of Incorporation that is also available in suppliers in order to extend social responsibility projects to the There are no companies that are reciprocal shareholders. Additionally, preparations for establishing Ethical Policy and Otosan Ford the Company website. But there are no constraints or similar Ethics Committee in 2018 are almost completed. supplier network. Another best example of such recent activity Minority rights have been defined only with the general clauses for Group A shares regarding free transfer between is “Chairman’s Leadership Award for Diversity” (CLAD) prize framework of regulations and not outlined for the shareholders shareholders. Explanations about sharing information with shareholders, given by Ford for expanding social gender equality awareness having less than one twentieth of capital in the Articles of investors, dealers, suppliers and other stakeholders have been trainings among the suppliers through our Purchasing Specialist Association. SECTION III - PUBLIC DISCLOSURE AND disclosed in related parts of the report. volunteers. TRANSPARENCY 2.5 Dividend Right 4.2 Stakeholders Participation in the Company The “Recycling Heroes” project that was led by the Purchasing There are no dividend privileged rights in shares. 3.1 The Company’s Website and Its Content Management Specialist volunteers have provided awareness trainings about the importance of recycling to primary school students in The address for access to the Ford Otomotiv Sanayi A.Ş. Some of the activities regarding the participation of Sustainability Our Company conducts a dividend policy within the corporate website is www.fordotosan.com.tr The website is stakeholders in management are as follows: Kocaeli, Gölcük. framework of the provisions of the Turkish Commercial available both in Turkish and English. Code, Capital Markets Legislation, Tax Regulations and other As explained thoroughly in the company’s Corporate It is discussed and a mutual understanding is obtained with the Additionally, Supplier Application Portal project is an on-line relevant legislation as well as the provisions of the Articles of Disclosure Policy; “Corporate” and “Investors” sections of the labor union before changes are made in working conditions, platform in Ford Otosan website where companies wishing to Association governing the distribution of profits. In distribution website encompass Vision, Mission and Strategies, Policies, working environment and employee rights; decisions are taken become Ford Otosan supplier can apply equally and easily. of profit, a consistent and balanced policy is followed between the latest Shareholder and Management structure, the together. shareholders and Company requirements in line with Corporate Company’s Articles of Incorporation, Independent Auditor, Dealers’ participation in management is achieved through the Governance Principles. Dividend Policy is explained in Financial Stock Information, Board Committees, Annual and Quarterly Additionally, labor union and working representatives are “Dealers Council,” which was formed many years ago. This Corporate Governance Reports section in the Annual Report which is available in reports, periodical Financial Statements and Reports, Material included in the decisions taken by participating monthly to Council, made up of representatives elected by dealers, meets Company website. Disclosures, Agendas, Attendee List and meeting minutes of the Health & Safety Council. regularly and develops suggestions concerning company sales, General Shareholders’ Meetings, Independent Auditors’ Reports, after sales and marketing activities together with management In principle, subject to be covered by the resources existing in Investor and Analyst presentations, Corporate Governance During a year, several meetings are held with the local suppliers representatives. There is also a Dealers Meeting organized every legal records, and subject to the decision of the Ordinary or Principles Compliance Report, Sustainability Approach and to review quality, project monitoring, delivery, cost reduction year with the attendance of all dealers. A regional manager is Extraordinary General Assembly Meeting, excluding periods Reports, Standards of Corporate Conduct, Announcements topics and methods for maintaining efficiency and sustainability appointed to each region and meetings are being organized for of large investment or severe economic downturn, by taking made by the company, Awards, Memberships, Contact in supply chain at both sides. A supplier summit is organized regional requirements and assessment. into consideration other legislation, financial and market Information and all related data. annually where high performer mass production suppliers are awarded. Financial Reports

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One of the basic strategies of the company is to achieve perfect Agreement, there is no other representative from the company SECTION V – BOARD OF DIRECTORS Mr. Joseph Bakaj nominated by Class C Shares was assigned customer satisfaction regarding the products and services we appointed to manage employee relations. This relationship to the membership of Board of Directors to serve until the next market. With this aim, many research studies and numerical with the union is essentially the job of the Human Resources 5.1 The Structure and Formation of the Board General Assembly of Shareholders. measurements are carried out by the company and other Directorate. The negotiations for Collective Labor Agreement of Directors independent sources to achieve product quality as well as which were continuing as of 2017 year-end resulted in Except General Manager Haydar Yenigün and Deputy General The Chairman of the Board and General Manager are different General General perfect sales and after-sales services. In addition, a program agreement on January 30, 2018. Manager Lisa K. King, twelve of fourteen members of the Board people. Care is shown by the Board members to spare sufficient Assembly has been exercised to measure dealer satisfaction numerically. of Directors are non-executives as stated in Capital Market’s time for company matters and there is no restriction for duties In the light of the results of these studies and in consideration “Equality and Diversity Strategy” in Ford Otosan focuses on Board Corporate Governance Principles. The resumes of the outside Company. Especially the contribution of independent of customer demands, our activity plans are mapped out fair and unbiased treatment of employee, stakeholders and Board members are included in the related section of Annual members as a result of their experiences does not oblige such to increase product and service quality and consequently suppliers as well as protection of human dignity. A constructive Report. restriction. The resumes and duties outside company are customer satisfaction. and inclusive approach is followed which doesn’t create announced to shareholders before general assembly meeting. discrimination in the relationship with customers, stakeholders Mr. James Duncan Farley Jr., nominated by Class C shares, In addition to the various units in the company working on and suppliers. was elected as a Board member and Vice Chairman following It is considered that diversity in knowledge, experience and total quality, our Customer Relationship Management (CRM) the Ordinary General Assembly held on March 23, 2017. As vision of Board Members will contribute to the Company’s Department works to answer customer needs and eliminate “Declaration on Equality at Work” which summarizes female a result of new role in Ford Motor Company organization, he operations and Board of Director’s efficiency. There are already Management causes of complaints. participation in work ensures equality among women and men resigned from membership of the Board of Directors effective two women members in the Board of Directors. and Assessments in Ford Otosan within the “Equality and Diversity Strategy”. from September 8, 2017. Mr. Steven R. Armstrong who is 4.3 Human Resources Policy currently Board Member was appointed as Vice Chairman and The responsibilities of Nomination Committee are carried out by As in other companies of the Koç Group, the tenet “Our most 4.4 Ethical Rules and Social Responsibility Remuneration Committee member as of this date. Corporate Governance Committee. valuable capital is our human resources” comprises the essence The “Ford Otosan Standards of Corporate Conduct”, that was of human resources policies at Ford Otosan. The vision set created for the purpose of determining basic ethical principles forth in line with HR policies is to make Ford Otosan the most for the company and its employees, was revised for increasing preferred company with high employee engagement by means the effectiveness. Comprising nineteen guidelines, the text of The list of the Board of Directors as of 31.12.2017 is presented below. in 2017 of innovative HR activities. these principles was distributed to and signed by all personnel Ford Otosan Ford working at the company at the time. The same procedure has Indepen- Appointment Membership in Duties Outside Name - Surname Duration The mission is to develop and apply HR systems which are continued to be carried out for personnel joining the company dent Date Board Commities Company focused on people, equal opportunities, respect diversity and after that date. In addition, all employees are issued reminders Rahmi M. Koç No 23.03.2017 12 Months - Koç Honorary Chairman ethical values leading to high performance. of the guidelines once a year. With the latest revision, an on-line

test is made for employees after confirmation to check the Ali Y. Koç No 23.03.2017 12 Months - Koç Holding Vice Chairman Our Human Resources Management strategies are: To be HR comprehension of the standards. brand leader in Turkey by applying sustainable and innovative Steven R. Armstrong No 23.03.2017 12 Months Remuneration Committee Ford Motor Company Man. applications; To be amongst the top 10 preferred companies; Being included also in the company website, Ford Otosan Linda A. Cash No 23.03.2017 12 Months - Ford Motor Company Man. To be amongst the top 10 companies regarding Employee Standards of Corporate Conduct are being updated and Corporate Governance Sustainability Engagement Survey; To respect diversity and ethics in all HR reviewed each year. William R. Periam No 23.03.2017 12 Months Ford Motor Company Man. Committee/Risk Committee applications by keeping equal opportunities for people; To Joseph Bakaj No 08.09.2017 6 Months - Ford Motor Company Man. design and implement integrated HR applications by using Ford Otosan has adopted the principle of developing the technology effectively and ensure sustainability. environment, community and life standards of the people. The Roelant C. de Waard No 23.03.2017 12 Months - Ford Motor Company Man. company’s environmental policies have been announced in our O. Turgay Durak No 23.03.2017 12 Months - The Company principle of announcing job descriptions and annual report and website. The Kocaeli and Inönü Plants both Risk Committee/ performance evaluation criteria is applied. The principles have Environmental Impact Assessment Reports. All of Ford İ. Cenk Çimen No 23.03.2017 12 Months Koç Holding Man. Remuneration Commitee for employee recruitment are documented. The “Employee Otosan facilities are holders of ISO 14000 certificates.

Corporate Governance Corporate Engagement Survey” distributed every year measures employee Company’s social responsibility projects and activities are Ali İhsan İlkbahar No 23.03.2017 12 Months - Governance Committee satisfaction, loyalty and pinpoint areas for development, explained separately in the related sections of the Annual facilitating steps for improvement. Report and Sustainability Reports. Haydar Yenigün No 23.03.2017 12 Months - - Ford Otosan obtained the right to enter “BIST Sustainability” Lisa K. King No 23.03.2017 12 Months - - The company has signed a 3 year agreement in December 2014, and “FTSE4Good Emerging” Indices after the success in Risk Comm.Pres./ effective from September 1st 2014, with blue colored personnel environmental, social and management areas, which are Mehmet Barmanbek Yes 23.03.2017 12 Months Remun. Comm. Pres/ - through Turkish Metals Union. Except union representatives followed by investors responsive to these topics. Audit Comm./ who are appointed in accordance with the Collective Labor Corp.Gov.Committee Pres/ L. Martin Meany Yes 23.03.2017 12 Months - Audit Committee. Financial Reports

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The candidate declarations and resumes of two independent Board of Directors foresee the probability of conflict of interest 5.4 Risk Management and Internal Control members are evaluated in Corporate Governance Committee and if exist, assess the relevant consequences and take Mechanism and Board of Directors meetings dated 12.01.2017 and necessary actions for the benefit of the Company during its The primary goals of Ford Otosan in risk management are to 13.01.2017 respectively. All the independent board members operations. foresee, manage, monitor the potential risks in each area and to have submitted their independence declarations to Corporate prepare action plans for risk and crisis management in advance. General General

Governance Committee and no condition which cancels the The Board of Directors evaluates the compliance to the The Board of Directors, Early Determination and Management of Assembly independency has been observed in 2017. regulations and potential fraud risks in the related party Risk Committee, Audit Committee and Executive Management transactions prudently. of the Company are regularly informed about the risks. Detailed 5.2 Board of Directors Operating Principles explanations regarding Risk Management and Risk Control The principles of activity of the Board of Directors have been 5.3. Number, Structure and Independence systems could be found in “Risk Management” section of the set out in Articles 10,11 and 12 of the Articles of Incorporation. In of Committees established by the Board of Annual Report. summary, according to the Turkish Commercial Code and the Directors provisions of the Articles of Incorporation, the Board of Directors Audit Committee, comprising Mehmet Barmanbek and Leonard 5.5 Strategic Objectives of the Company is authorized to take all decisions other than those procedures Martin Meany, meets before the regular meetings of the Board. The past performance and degree of reaching the strategic that are required to be taken at the General Shareholders’ It reviews the quarterly financial statements and presents targets developed in line with the manner described in the Management

Meeting. opinion to the Board of Directors. The working principles of the “Principles of Activity of the Board of Directors” section are and Assessments committee have been put forth in a written set of procedures. announced to the public by Annual/Interim reports and The Board of Directors meets regularly at least three or Reviewing and monitoring detailed data about the company’s company website. four times during the year with the participation of all of its financial status, independent audit and internal control members. At these meetings, all the activities of the company mechanisms and presenting all views and decision drafts 5.6 Financial Rights are reviewed and decisions are taken on important matters. In to the Board of Directors are among the duties of the Audit The remuneration criteria of the Executive Management and addition to these regular meetings, the Board of Directors may Committee. Board members is announced in the “Information Document” meet to take decisions on matters deemed necessary with a three weeks prior to General Assembly meeting dated 23 March in 2017 simple majority of members or in accordance with Article 390/4 Corporate Governance Committee, which aims to enhance 2017 and put into practice afterwards. The total payments to Otosan Ford of the Turkish Commercial Code the Board may take a decision corporate governance activities and carry out Nomination Board members and Executive Management within scope of without actually convening. According to the provisions of the Committee responsibilities, consists of four members, Leonard remuneration policy are evaluated by Remuneration Committee Articles of Incorporation, members representing more than Martin Meany as President, Ali İhsan İlkbahar, William Richard and Board of Directors annually and announced to the public half of B and C group shares who are not independent must Periam and İ.Oğuz Toprakoğlu as members. in the footnotes of our financial statements. The company have cast an affirmative vote in the meeting for the resolutions. has not lent any amounts to any of the members of its Board In the calendar year of 2017, twenty-seven Board of Directors’ Early Determination and Management of Risk Committee, of Directors nor to its executives, nor has it extended credit to resolutions are taken and four of them are circular type BOD which aims to establish risk management system, consists of them, nor offered any guarantees in their favor that might lead resolutions. three members, Mehmet Barmanbek as President, İsmail Cenk to conflict of interest. Çimen and William Richard Periam as members. Sustainability The agendas for the regular meetings are prepared by the Board of Director’s Secretarial Office in consideration of previous Remuneration Committee, which aims to determine benefits decisions and decisions that need to be taken on certain provided to executive management, consists of three members, matters. Agendas for other meetings are defined by subjects Mehmet Barmanbek as President, İ.Cenk Çimen and James which are required by law to be decided upon by the Board. Duncan Farley Jr. as members. Since James Duncan Farley Jr. resigned from Board of Directors membership on September The Board of Directors Secretarial duty is managed by the 8th, 2017, Steven Robert Armstrong was assigned to this Assistant General Manager - Finance (CFO). Committee. Corporate Governance

Since no member has opposed to decisions taken at the The members, working principles and responsibilities of the meetings in recent years, no indication of opposition has been established committees are announced as Special Case made in the minutes and consequently no such report has been Disclosure to the public and published in company website. made to the auditors Board Members and Senior Executives have “Directors and Officers Liability Insurance”. The executive members of the Board have not taken on duties in the committees. Financial Reports

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RISK MANAGEMENT Another main risk management tool related to operational B. EARLY DETERMINATION AND MANAGEMENT process is Business Continuity Plan (BCP) which enables OF RISK COMMITTEE ACTIVITIES AND INTERNAL CONTROL critical operations or products to be continuously delivered as a consequence of business interruptions ranging from Early Determination and Management of Risk Committee catastrophic natural disasters to equipment breakdowns. It is a has been founded with the purpose of early determination General General set of predefined strategies and procedures for responding to and and managing of risk which may jeopardize the Company’s Assembly recovering from a disaster. existence, development, sustainability and establishing an effective risk management system. All departments prepared their own BCP’s based on agreed A. RISK MANAGEMENT Liquidity Risk Ford Otosan keeps cash, credit commitment and factoring procedures and defined forms. After they were completed, all The Committee had six meetings in 2017. Risk reporting white collared personnel have been trained for awareness and The primary goal of Ford Otosan in risk management is to capacity to maintain 21 days’ cash outflow for managing activities and the Committee evaluations are periodically BCP teams are trained for their functions and roles in the plan. foresee, manage, monitor the potential risks in each area and to the liquidity risk. Within this context, Euro 80 Million credit submitted to the attention of Board of Directors. Information Technology Department has reviewed and approved prepare action plans for risk and crisis management in advance. commitment and Euro 125 Million equivalent factoring all of them. BCP’s have been tested for validation under the Board of Directors, Early Determination and Management of agreements are established with financial institutions if C. INTERNAL CONTROL SYSTEM AND required. As of December 31, 2017 net financial debt is leadership of managers responsible for BCP’s internally and cross Risk Committee, Audit Committee and Executive Management INTERNAL AUDIT Management

tested between departments for four different disaster scenarios and Assessments of the Company are regularly informed about the risks. TL 1.798 Million. by Risk Manager for final validation. Finally they have been Policies, procedure and instructions included in process flows uploaded to Ford Otosan ISO system and printed copies are now Risk Management section which has been established under Interest Rate Risk are important part of the internal control system. In addition The policy objective is to balance the maturities of interest kept in and outside the company. The BCP’s up–to-dateness is Treasury Department, led the establishment of cross functional to these, Ford Otosan applies an internal control plan annually bearing assets and liabilities. Interest bearing assets are ensured by department tests performed internally and tested by ERM (Enterprise Risk Management) team. ERM team consisting which covers all company operations. With this structure, over directed to short term financial investments. Split between fixed Risk Manager annually with a drill based on a disaster scenario. of department representatives at management level identifies, 3000 control points are being tested as an assurance to the and variable interest rate for long term credits is targeted as measures, prioritizes and manages Ford Otosan’s financial, Board of Directors and shareholders related to the accuracy of %50 / %50. Furthermore, emergency action plans which describe the operational, strategic and legal risks at monthly ERM meetings Company’s operations. in 2017 implementation of necessary steps in cases of explosion or and prepares the action plans. “Impact and Probability Chart” is Otosan Ford natural disaster are prepared, ensuring operability through used to measure the risks; “Impact Severity Classification Chart” Foreign Exchange Risk The Audit Committee periodically monitors internal control The ratio of the net foreign exchange position (after natural regular trainings and tests. is utilized for impact severity. Risk Management section is and internal audit activities, reviews and approves annual hedge) to Equity is targeted within +/- 10% in the Balance responsible for reporting ERM studies to Ford Otosan Executive audit plans as a subcommittee of Board of Directors. The Audit Sheet. Natural hedge calculation involves addition of FX Strategic Risks Management and to “Early Determination of Risk Committee”. Committee provides opinion on the financial reports for the denominated inventory to the assets and exclusion of loans In order to maintain the continuity of business portfolio, Ford approval of Board of Directors and provides recommendations subject to capitalization and hedge from FX denominated Otosan regularly carries out project development studies and The company monitors the risk management under four to BOD where required. liabilities. As of December 31, 2017 net FX position is TL 113 submits their results to Board of Directors’ periodic evaluation. categories. Million. Total export and import amounts are TL 17.830 Million With the annually updated long term plans, the Company Koc Holding, Ford Motor Company and Internal Control reviews the risks and opportunities related to the business and TL 11.792 Million respectively in 2017. Sustainability Financial Risks Department perform regular audits in the Company on an model. Credit Risk annual basis. Ford Otosan authorized dealers and services are Direct Debiting System, which is an effective way to guarantee Capital Risk also audited for their transactions with Ford Otosan periodically Ford Otosan’s objectives when managing capital are to Legal Risks the receivables, is applied to dealer receivables from domestic by dealer audit function, present in internal control department. continue providing maximum returns for shareholders, maintain The Company’s Legal team monitors the legislation regularly, vehicle and spare-part sales. Most of the export sales are made All denunciations and complaints about Ford Otosan related an optimal capital structure to reduce the cost of capital and informs the personnel and leads training activities to prevent to Ford Motor Company and its affiliates with an average term operations are reviewed, investigated and finalized by internal ensure sustainability. The Company monitors the capital on the any incompliance with the regulations. Any important of 14 days for vehicle shipments. Foreign sales that are made to control department. All control issues identified during the basis of “net total financial debt to tangible net worth” ratio discrepancies and serious litigation requirements are being parties other than Ford Motor Company are guaranteed through internal control, internal audit or external audit processes which is targeted to be less than 1.25 reported to “Audit Committee” and “Early Determination letter of credit, guarantee letter, export credit insurance, Ford are evaluated, corrective actions are planned and tracked for Corporate and Management of Risk Committee” and action plans are Governance Credit limit or advance payments. implementation to improve internal control systems by internal The explanations about Company’s indebtedness and capital determined. control department. Results of these reports are presented to structure are presented in the relevant sections of Annual The Audit Committee regularly which consists of independent Report. Board members.

Operational Risks Ford Otosan manages business processes such as quality, efficiency, customer satisfaction, information security, pricing according to the predetermined targets and metrics. Financial Reports

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LEGAL DISCLOSURES D. INFORMATION ON THE EXTRAORDINARY Based on the calculations made in accordance with the tax GENERAL ASSEMBLY MEETING HELD IN THE regulations, TL 389.510.100 dividend to be distributed by paying gross Kr 111,00 (%111,00) and net Kr 94,35 (%94,35) YEAR for each share with a nominal value of 1-TL in accordance with the dematerialization regulations of Merkezi Kayıt Ford Otomotiv Sanayi A.Ş.’s Extraordinary General Assembly General General

Kuruluşu A.Ş. (Central Registry Agency Corporation) starting Assembly Meeting was held on October 27, 2017 Friday at 11:00 to from October 31, 2017. The decision is accepted by unanimity review and resolve the agenda specified below at Company with acceptance votes corresponding to TL 323.868.142,51. Headquarters located at “Akpınar Mahallesi, Hasan Basri A. CAPITAL Caddesi No:2, Sancaktepe / İstanbul (Tel: +90 216 564 71 00, Faks: +90 216 564 73 85)”. Following decisions have been E. ORGANIZATIONAL CHANGES WITHIN THE Paid-in / Issued Capital: 350,910,000 TL made: YEAR Authorized Capital: 500,000,000 TL ·· In accordance with article 363 of TCC, Mr. James Duncan Mr. James Duncan Farley Jr (Vice Chairman of Board of Directors), B. SHAREHOLDER STRUCTURE Farley Jr, member of Board of Directors, resigned from who was elected to the Board of Directors, nominated by Class

membership of the Board of Directors due to change of C shares during the Ordinary General Assembly on March 23, Management position in Ford Motor Company organization effective from 2017, resigned from membership of the Board of Directors due and Assessments Share in Capital Publicly Title of Shareholder Group Number of Share Total (TL) Type of Privilage (%) Traded September 08, 2017. Mr. Joseph Bakaj has been appointed to change of position in Ford Motor Company organization effective from September 08, 2017. Steven Robert Armstrong, Vehbi Koç Foundation A 355,844,870 3,558,449 1.0% - No by Board of Directors’ resolution dated September 08, 2017 as the member of Board of Directors to serve until the next who is currently member of Board of Directors, is assigned as "Koç Holding Retirement and A 325,920,231 3,259,202 0.9% - Hayır General Assembly of Shareholders is accepted by the majority the Vice Chairman of Board of Directors. Mr. Joseph Bakaj, who Other Shareholders A 6,278,607,009 62,786,070 17.9% - Yes of votes corresponding to TL 310.417.215,91 and rejection votes was nominated by Class C Shareholder Ford Motor Company, is A GROUP TOTAL 6,960,372,110 69,603,721 19.8% - corresponding to TL 13.450.926,60. assigned to membership of Board of Directors to serve until the

·· - Approval or approval with amendments or refusal of next General Assembly of Shareholders. The appointment was in 2017 Ford Otosan Ford Management the Board of Directors’ proposal will be discussed by taking accepted at the Extraordinary General Meeting held on October Koç Holding A.Ş. B 13,495,335,714 134,953,357 38.5% No Privileged into consideration, the Company’s Dividend Distribution 27, 2017. Mr. Steven Robert Armstrong has been elected as a Management Policy, long-term strategy, investment and financing policies, member of the Remuneration Committee instead of Mr. James Temel Ticaret ve Yatırım A.Ş. B 235,588,500 2,355,885 0.7% No Privileged profitability and cash position. According to the Dividend Duncan Farley Jr. B GROUP TOTAL 13,730,924,214 137,309,242 39.1% Communiqué numbered II-19.1, TL 389.510.100 to be paid to shareholders as dividend in cash, out of TL 389.510.100, Mr. Cemal Ahmet Kınay, who is Assistant General Manager (Ford Management which is subject to distribution according to the records Trucks), shall retire from the company effective from December Ford Motor Company C 14,399,703,676 143,997,037 41.0% No Privileged prepared in accordance with Tax Procedure Law, TL 7.014.685 31, 2017. - Mr. Serhan Turfan, who has been acting as Director- C GROUP TOTAL 14,399,703,676 143,997,037 41.0% to be covered from other reserves, TL 97.275.756 to be Ford Trucks Turkey, is assigned as Assistant General Manager

(Ford Trucks) effective from January 01, 2018. Sustainability Total 35,091,000,000 350,910,000 100.0% covered from legal reserves, TL 281.659.657 to be covered from extraordinary reserves and TL 3.560.002 to be covered from retained earnings, and out of TL 38.951.010 second C. SHARE INFORMATION rank legal reserve, which will be allocated: TL 701.468 to be covered from other reserves, TL 9.727.576 to be covered Current List of Other Exchanges or Organized Markets where the Company’s Capital Market Instruments are Listed or Traded from legal reserves, TL 28.165.966 to be covered from extraordinary reserves and TL 356.000 to be covered from Title of Holder First Trade Date Country Exchange Market ABCD Group retained earnings. In accordance with the financial statements

prepared within the framework of Capital Markets Board Corporate Governance Stock 13.01.1986 Turkey Borsa Istanbul BIST Stars A regulations, out of TL 389.510.100 proposed to be paid as dividend in cash, TL 97.275.756 to be covered from legal reserves and TL 292.234.344 to be covered from extraordinary Ford Otosan Shares are Traded in the Following Market and Included in the Following Indices: reserves; out of TL 38.951.010 second rank legal reserve, BIST KOCAELI / BIST METAL PRODUCTS, MACH. / BIST 100-30 / BIST 100 / BIST 50 / BIST INDUSTRIALS / BIST ALL SHARES / which will be allocated: TL 9.727.576 to be covered from legal BIST STARS / BIST DIVIDEND / BIST DIVIDEND 25 / BIST SUSTAINABILITY INDEX reserves and TL 29.223.434 to be covered from extraordinary reserves. Financial Reports

98 99 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

REPORT ON RELATED PARTY STATEMENT OF TRANSACTIONS FOR 2017 RESPONSIBILITY General General Assembly

FORD OTOMOTİV SANAYİ A.Ş. BOARD OF Statement Of Responsibility Prepared Per Cmb’s Financial Reporting Communique Series N0: Ii-14.1., Article 9 DIRECTORS 2016 REPORT ON RELATED PARTY Board Of Director’s Resolution Regarding The Annual Report TRANSACTIONS PREPARED AS PER ARTICLE Resolution Date : 23/02/2018 199 OF THE TURKISH COMMERCIAL CODE Resolution Number : 2018/06

The Result As per CMB regulations; attached Annual Report for 2017 , prepared by Company management and audited by PwC Bağımsız Management

Pursuant to Article 199 of the Turkish Commercial Code No. Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. , that has been prepared under Turkish Code of Commerce and CMB’s and Assessments 6102 (“TCC”), which went into effect on July 1, 2012, Ford Communiqué Series No: II.14.1 “Communique On Principles of Financial Reporting in Capital Markets” (“Communique”) Otomotiv Sanayi A.Ş. Board of Directors is obliged to annually prepare an affiliation report stating the relationship between ·· Has been analysed, the company and the parent company and other subsidiaries ·· To the best of our knowledge and inline with our Company roles and responsibilities, in all material respects, does not contain any of that parent company in the first quarter of the year. The untrue representations or any omissions that would lead to misleading conclusions as at disclosure date, necessary explanations about all of the transactions of Ford ·· To the best of our knowledge and inline with our Company roles and responsibilities, the Annual report prepared in line with the Otomotiv Sanayi A.Ş., made with the relevant parties, are cited Communique, fairly reflect the Company’s progress and performance, financial position and possible significant risk and uncertainity, in 2017

in footnote number 26 in the financial report. Otosan Ford and we hereby represent and state that we are responsible over the disclosures. It is stated in the Report prepared by Ford Otomotiv Sanayi A.Ş. Board of Directors on February 23, 2018 that, “In all Best Regards, transactions made between Ford Otomotiv Sanayi A.Ş. and FORD OTOMOTİV SANAYİ A.Ş. the parent company and other subsidiaries of that parent company in 2017, it is precipitated that, in the event that the transactions were made, or the measures were taken or not taken, a counter action was applied to each transaction. There

were no measures taken or not taken which cause losses to the Sustainability company, and there were no transactions made or measures taken that require compensation within this frame”.

Mehmet Barmanbek L. Martin Meany Oğuz Toprakoğlu Audit Committee Member Audit Committee Member Assistant General Manager -CFO Corporate Governance Financial Reports

100 101 Ford Otosan 2017 AnnualFaaliyet Report Raporu Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

DECLERATION FOR DECLERATION FOR INDEPENDENCY INDEPENDENCY General General Assembly

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 e. I have strong ethic standards, professional reputation and 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 expertise to make effective contributions to the business 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 of the Company, make objective business decisions in case 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 of conflict of interest between the shareholders of the 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 Company and protect the rights of the stakeholders of the regard I also confirm that; Company. regard I also confirm that; Company. Management a. In the last five years, there has not been any recruitment f. I am going to devote my time to fulfill my duties in full extent a. In the last five years, there has not been any recruitment f. I am going to devote my time to fulfill my duties in full extent and Assessments relationship between the Company, the partnerships and keep track of the activities of the Company. relationship between the Company, the partnerships and keep track of the activities of the Company. (which possess the Company’s managerial control or have (which possess the Company’s managerial control or have substantial influence therein), the partners (who possess g. In the last 10 years, I have not served as the Independent substantial influence therein), the partners (who possess g. In the last 10 years, I have not served as the Independent the Company’s managerial control or have substantial Board Member of Ford Otomotiv Sanayi A.Ş. more than 6 the Company’s managerial control or have substantial Board Member of Ford Otomotiv Sanayi A.Ş. more than 6 influence therein), the legal entities (managerial control of years. influence therein), the legal entities (managerial control of years. which is possessed by the aforesaid partners), and me, my which is possessed by the aforesaid partners), and me, my spouse, and my relatives by blood/marriage descending ğ. I do not serve as an independent board member in more spouse, and my relatives by blood/marriage descending ğ. I do not serve as an independent board member in more in 2017

down to second degree for managerial positions, having than three companies (managerial control of which is held down to second degree for managerial positions, having than three companies (managerial control of which is held Otosan Ford been established so to assume significant duties and by the Company, or by the partners who hold the managerial been established so to assume significant duties and by the Company, or by the partners who hold the managerial responsibilities, that no more than 5% of the capital, or control of the Company), and as a whole in five companies responsibilities, that no more than 5% of the capital, or control of the Company), and as a whole in five companies voting rights, or preferential rights has been possessed being traded in the stock exchange, voting rights, or preferential rights has been possessed being traded in the stock exchange, collectively, or individually, that no other commercial collectively, or individually, that no other commercial relationship with similar features has also been established, h. I have not been registered, and announced in the name of the relationship with similar features has also been established, h. I have not been registered, and announced in the name of the legal entity, which is elected as the board member. legal entity, which is elected as the board member. 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

responsibilities) within, or become the board member of Leonard Martin Meany responsibilities) within, or become the board member of Sustainability the companies (from which the Company purchases/sells January 11, 2017 the companies (from which the Company purchases/sells Fatma Füsun Akkal Bozok substantial goods or services under respective agreements), substantial goods or services under respective agreements), January 14, 2018 particularly for corporate auditing (tax, legal, internal audits particularly for corporate auditing (tax, legal, internal audits 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, Corporate Governance

ç. 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, d. I am not a resident in Turkey under the Revenue Tax Law d. I am a resident in Turkey under the Revenue Tax Law No.193 No.193 (“RTL”) dated December 31, 1960. (“RTL”) dated December 31, 1960. Financial Reports

102 103 Ford Otosan 2017 Annual Report Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford General General Assembly Management and Assessments

Financial in 2017 Reports Otosan Ford Sustainability Corporate Governance Financial Reports

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CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH To the Board of Directors of Ford Otomotiv Sanayi A.Ş. General General A. Audit of the Financial Statements Assembly

1. 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 2017 and the statement of profit or loss, statement of other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and the notes to the financial statements and a summary of significant accounting policies and financial statement notes.

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at 31 Management

December 2017, and its financial performance and its cash flows for the year then ended in accordance with Turkish Accounting and Assessments Standards (“TAS”).

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 in 2017

report. We hereby declare that we are independent of the Company in accordance with the Ethical Rules for Independent Auditors Otosan Ford (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 Sustainability statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Corporate Governance

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 Financial Reports

106 107 Ford Otosan 2017 Annual Report at a Glance at Ford Otosan Otosan Ford

Key Audit Matters How our audit addressed the Key Audit Matter Key Audit Matters How our audit addressed the Key Audit Matter

Cash Flow Hedge Accounting (Notes 2 and 28) Warranty Provisions (Notes 2, 8 and 16)

Based on the manufacturing agreements with Ford Motor - We tested the official definition and documentation of The Company has warranty provisions amounting to - When calculating the warranty provision, the management General General Assembly Company, the Company associates sales of specific models risk management’s target and strategy, which causes the TRY231,525 thousand as of 31 December 2017. makes assumptions based on the number of vehicles of commercial vehicles subject to export by the end of 2022 Company to hedge against cash flow risk. We also tested the subject to warranty, the length of the warranty period, and with long term loans denominated in Euros, borrowed for completeness and accuracy of data and the assumptions We focused on this matter during our audit for the reasons the warranty claims in the previous periods. We tested the the investments related to manufacturing of such vehicles. used in the hedge accounting work with the support of our below: effectiveness of the controls during the estimation process. Sales subject to the agreement are denominated in Euro subject matter experts. and are affected by the TRY/EUR exchange rate fluctuations. - The warranty provision of TRY231,525 thousand is a liability - We confirmed that unit managers approve the unit cost The Company hedges the foreign exchange rate risk with the - We reviewed the effectiveness of the cash flow hedge. We in the statements. The amount of the warranty provision is estimations per vehicle. We tested unit costs through sampling borrowings obtained in the same currency. tested whether the range of increase/decrease in the fair material. by detailed tests. value of the revenue planned for in future and the increase/

We focused on this matter during our audit for the reasons decrease in fair value of the borrowings are between 80% - The Company provides a standard warranty service and - To test the data on which the estimations are based, the Management and Assessments below: and 120%. optional roadside assistance, extended warranty and spare number of vehicles sold were agreed to the sales reports. part warranty services for any vehicle sold domestically. Sales reports were reconciled to the sale accounts. - The cash flow hedge losses which are classified under equity - We checked the agreements related to the vehicle sales and The Company calculates the current period warranty as of 31 December 2017 amount to TRY503,120 thousand. whether sales volumes and prices of the vehicles subject provision based on the actual warranty expense per vehicle - Foreign exchange rates are considered when estimating This amount is material in terms of the financial statements. to cash flow hedging agree with the budget approved by in the previous period. The warranty cost per vehicle is the warranty cost per vehicle. We confirmed that the management. We checked whether methods used for approved twice a year by management and is calculated for foreign exchange rate, which is a forward-looking estimate - Cash flow hedge accounting is structurally complex and its calculating vehicle costs comply with the agreement. each vehicle model, based on the technical department’s used when calculating the warranty provision, is the same

audit requires professional expertise. Mistakes that might experience and warranty claims in the past also complying foreign exchange rate used in the budget approved by the in 2017 Ford Otosan Ford occur when calculating and accounting for this subject may - We reviewed repayment plans for the borrowings with the instructions of Ford Motor Company. Since the management. We also evaluated the reasonableness of the affect the financial statements significantly. denominated in Euro by reviewing the loan agreements and warranty cost per vehicle is determined in Euro, foreign warranty provision considering the fluctuations of the foreign obtaining bank confirmations. We checked to what extent exchange rate estimation is also included in the calculation. exchange rate. monthly borrowing payments cover monthly sales. Fluctuation of the foreign exchange rates may affect the financial statements materially. - We tested the actual warranty expenses realised in the current - We checked the mathematical accuracy of the accounting period on a sampling basis based on the movements of the bookings related to this subject. warranty provision amounting to TRY231,525 thousand.

- 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 Sustainability periods. We have no significant findings resulting from our work related to cash flow hedge accounting. - 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. Corporate Governance - We assessed the sufficiency of the financial statement disclosures related to warranty expenses.

We have no significant findings resulting from our work related to warranty provisions. Financial Reports

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4. Other Matters • Assess the internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. The financial statements of Ford Otomotiv Sanayi A.Ş. were audited by another audit firm whose audit report dated 14 February 2017 expressed an unqualified opinion. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. General General

5. Responsibilities of Management and Those Charged with Governance for the Financial Statements Assembly • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence The Company management is responsible for the preparation and fair presentation of the financial statements in accordance with obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s TAS, and for such internal control as management determines is necessary to enable the preparation of financial statements that ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in are free from material misstatement, whether due to fraud or error. our auditor’s report to the related disclosures in the consolidated 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. In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going However, future events or conditions may cause the Company to cease to continue as a going concern. concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Management

Those charged with governance are responsible for overseeing the Company’s financial reporting process. and Assessments We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit 6. Auditor’s Responsibilities for the Audit of the Financial Statements and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Responsibilities of independent auditors in an independent audit are as follows: 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 Our aim is to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, independence, and where applicable, related safeguards. whether due to fraud or error, and to issue an independent auditor’s report that includes our opinion. Reasonable assurance in 2017 expressed as a result of an independent audit conducted in accordance with SIA is a high level of assurance but does not guarantee From the matters communicated with those charged with governance, we determine those matters that were of most significance in Ford Otosan Ford that a material misstatement will always be detected. Misstatements can arise from fraud or error. Misstatements are considered the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we the basis of these financial statements. 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. As part of an independent audit conducted in accordance with SIA, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement in the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis Sustainability for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Corporate Governance Financial Reports

110 111 Ford Otosan 2017 Annual Report

CONTENTS at a Glance at Ford Otosan Otosan Ford

B. Other Responsibilities Arising From Regulatory Requirements Statement of financial position 114 - 115 Statement of profit or loss 116 1. No matter has come to our attention that is significant according to subparagraph 4 of Article 402 of Turkish Commercial Code Statement of other comprehensive income 117 (“TCC”) No. 6102 and that causes us to believe that the Company’s bookkeeping activities concerning the period from 1 January to 31 December 2017 period are not in compliance with the TCC and provisions of the Company’s articles of association related to Statement of changes in equity 118 General General

financial reporting. Statement of cash flows 119 Assembly Notes to the financial statements 120-173 2. In accordance with subparagraph 4 of Article 402 of the TCC, the Board of Directors submitted the necessary explanations to us NOTE 1 Organization and nature of the operations 120 and provided the documents required within the context of our audit. NOTE 2 Basis of presentation of financial statements 120-137

3. In accordance with subparagraph 4 of Article 398 of the TCC, the auditor’s report on the early risk identification system and NOTE 3 Segment reporting 137 committee was submitted to the Company’s Board of Directors on 12 February 2018. NOTE 4 Cash and cash equivalents 137 NOTE 5 Financial assets 137 NOTE 6 Financial liabilities 138 PwC Bağımsız Denetim ve

NOTE 7 Trade receivables and payables 139-141 Management

Serbest Muhasebeci Mali Müşavirlik A.Ş. and Assessments NOTE 8 Other receivables and payables 141 NOTE 9 Inventories 142 NOTE 10 Property, plant and equipment 143-145 NOTE 11 Intangible assets 145 Beste Gücümen, SMMM NOTE 12 Prepaid expenses 147 Partner NOTE 13 Provisions, contingent assets and liabilities 147-149 in 2017 Istanbul, 12 February 2018 NOTE 14 Commitments 149 Ford Otosan Ford NOTE 15 Employee benefits 150-151 NOTE 16 Other current assets 151 NOTE 17 Equity 152-154 NOTE 18 Revenue and cost of sales 155 NOTE 19 Research and development expenses, marketing expenses, general administrative expenses 156 NOTE 20 Expenses by nature 157 NOTE 21 Other operating income / expenses 157

NOTE 22 Financial income 158 Sustainability NOTE 23 Financial expenses 158 NOTE 24 Tax assets and liabilities 158-161 NOTE 25 Earnings per share 162 NOTE 26 Related party disclosures 162-167 NOTE 27 Financial instruments and financial risk management 167-171 NOTE 28 Derivative financial instruments 171-172

NOTE 29 Income expenses from investing activities 172 Corporate Governance NOTE 30 Deferred revenue 172 NOTE 31 Other non current liabilities 173 NOTE 32 Government incentives and grants 173 NOTE 33 Subsequent events 173 NOTE 34 Disclosure of other matters 173 Financial Reports

112 113 Total assets Deferred tax asset Prepaid expenses Intangible assets Property, plant andequipment Trade receivables Financial assets Non-current assets Derivative financial assets Current tax assets Other current assets Prepaid expenses Inventories Other receivables Trade receivables Cash andcash equivalents Current assets Assets 114 The accompanying notes form anintegral part ofthese financial statements. 2018. Financial statements for theperiodended 1January -31December 2017 were approved for issueby theBoard ofDirectors on12February (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) STATEMENT OFFINANCIALPOSITION AS AT 31DECEMBER 2017 AND31DECEMBER 2016 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport -Duefrom third parties - Duefrom third parties - Duefrom third parties - Duefrom related parties Notes 28 26 24 24 10 16 12 12 11 8 9 4 5 7 7 31 December 2017 Current period 6,827,040 12,011,740 5,184,700 3,536,220 1,805,945 2,057,267 1,299,746 1,152,490 626,443 690,337 Audited 404,561 101,979 311,292 17,406 3,002 4,531 521 - 31 December 2016 Prior period 9,286,152 4,675,977 4,610,175 3,302,745 1,054,426 1,362,949 1,189,033 552,563 Audited 556,314 213,526 178,333 794,771 18,756 59,011 1,464 1,757 504 - Current liabilities Liabilities The accompanying notes form anintegral part ofthese financial statements. (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) STATEMENT OFFINANCIALPOSITION AS AT 31DECEMBER 2017 AND31DECEMBER 2016 FORD OTOMOTİV SANAYİ A.Ş. Short-term borrowings Short-term portionoflong-term borrowings Trade payables Other payables Short-term provisions Deferred revenue Long-term borrowings Non-current liabilities Net profit for theperiod Retained earnings Restricted reserves -Losses oncash flow hedges Other comprehensive income /(loss) to bereclassified inprofit or loss Other comprehensive income /(loss) notto bereclassified underprofit or loss Share premium Inflation adjustments on capital Paid-in capital Equity Long-term provisions Current tax liabilities Employee benefit liabilities Total liabilities andequity Derivative financialliabilities Deferred revenue Other non-current liabilities -Bankborrowings -Bankborrowings -Dueto third parties -Dueto related parties -Dueto third parties -Dueto related parties -Otherprovisions -Bankborrowings - Gains onremeasurements and/orreclassification of available-for-sale financial assets - Losses onremeasurements ofdefined benefit plans -Otherprovisions -Provision for employment termination benefits Notes 30 30 28 26 26 24 15 15 17 13 13 31 8 6 6 6 7 31December 2017 Current period 3,695,859 2,266,204 6,049,677 Ford Otosan 2017 FinancialReport 12,011,740 (503,120) 1,489,983 2,921,390 2,074,147 1,820,167 1,061,621 895,559 254,404 (14,001) 350,910 184,092 audited 722,259 153,484 169,285 159,614 56,385 15,608 115,631 10,929 27,920 31,438 6,390 7,450 187 8 31December 2016 Previous period 4,307,860 9,286,152 3,163,619 (336,189) 1,503,855 1,878,584 1,814,673 1,823,160 955,308 284,207 (14,019) 350,910 102,299 576,703 audited 136,240 130,326 794,183 771,572 100,115 75,620 16,890 27,920 18,763 76,129 4,757 8,811 115 8 - -

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Deferred tax income Current tax expenses Earnings pershare withanominalvalue Kr 1 Net profit from continued operations Tax income /(expense) from continued operations Profit before tax from continued operations Financial expenses Financial income Operating profit before financialincome / (expense) Expenses from investing activities Income from investing activities Cost ofsales Revenue Continuing operations Profit from operating activities Other expenses from operating activities General administrative expenses Marketing expenses The accompanying notes form anintegral part ofthese financial statements. Gross profit Other income from operating activities Research anddevelopment expenses 116 (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) STATEMENT OFPROFIT ORLOSS FOR THEYEARS ENDED31DECEMBER 2017 AND31DECEMBER 2016 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Notes 29 29 24 24 25 23 22 18 18 19 19 19 21 21 31 December 2017 Current period (22,704,095) 25,341,290 (544,303) (249,480) (278,508) 1,489,983 1 January- (786,231) 2,637,195 1,705,130 1,708,174 (317,192) 1,481,161 460,462 562,262 (3,407) audited (19,511) 4,25 Kr 28,333 8,822 363 31 December 2016 Previous period (16,203,045) 2,086,062 (448,266) (383,844) (225,038) (445,194) 18,289,107 1 January- (199,316) (14,863) 1,105,183 955,308 (20,414) 1,111,024 (6,263) audited 281,426 970,171 970,171 310,182 2,72 Kr 5,551 422 Total comprehensive income Other comprehensive (loss) /income Taxes relating to cash flow hedges reclassification adjustments on available-for-sale financial assets Taxes relating to gains /(losses) onremeasurements or Other comprehensive income taxes to bereclassified to profit or loss (Losses) /gains oncash flow hedges adjustments onavailable-for-sale financial assets (Losses) /gains onremeasurements orreclassification Other comprehensive income to bereclassified to profit or loss Taxes Relating to Remeasurements ofDefined Benefit Plans Other comprehensive income tax notto bereclassified to profit or loss Gains /(losses) onremeasurements ofdefined benefit plans Other comprehensive income notto bereclassified to profit or loss Other comprehensive income Net profit (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) STATEMENT OFOTHER COMPREHENSIVE INCOME FOR THEYEARS ENDED31 DECEMBER 2017 AND31DECEMBER 2016 FORD OTOMOTİV SANAYİ A.Ş. The accompanying notes form anintegral part ofthese financial statements. Notes 17 17 17 17 17 17 31 December 2017 Current period Ford Otosan 2017 FinancialReport (208,664) 1,489,983 (168,195) 1 January- 1,321,788 audited (1,350) 41,733 (5) 68 23 31 December 2016 Previous period (188,324) 1 January- (227,226) 955,308 766,984 (15,458) audited 45,445 (306) 3,091 6,130 117

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 118 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport STATEMENT OF CHANGES IN EQUITY FOR PERIODS 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)

Other Other comprehensive comprehensive income income to be not to be reclassified in reclassfied in profit or loss profit or loss Retained Earnings

Gains / (losses) on remeasurements Gains / (losses) and / or on Inflation reclassification Cash flow remeasurements Paid in adjustments Share of available-for-sale hedge of defined Restricted Accumulated Net Total capital on capital premium financial assets reserve benefit plans Reserves profit Profit equity

Balances at 350,910 27,920 8 11,066 (154,408) (1,652) 438,411 1,545,689 841,911 3,059,855 1 January 2016 Profit for the period ------955,308 955,308 Other comprehensive - - - 5,824 (181,781) (12,367) - - - (188,324) income / (loss)

Total comprehensive - - - 5,824 (181,781) (12,367) - - 955,308 766,984 income

Transfers ------64,567 777,344 (841,911) -

Dividends paid ------(218,771) (444,449) - (663,220) (Note 17)

Balances at 350,910 27,920 8 16,890 (336,189) (14,019) 284,207 1,878,584 955,308 3,163,619 31 December 2016

Balances at 350,910 27,920 8 16,890 (336,189) (14,019) 284,207 1,878,584 955,308 3,163,619 1 January 2017

Profit for the period ------1,489,983 1,489,983 Other comprehensive - - - (1,282) (166,931) 18 - - - (168,195) income / (loss)

Total comprehensive - - - (1,282) (166,931) 18 - - 1,489,983 1,321,788 income

Transfers ------77,200 878,108 (955,308) -

Dividends paid ------(107,003) (682,545) - (789,548) (Note 17)

Balances at 350,910 27,920 8 15,608 (503,120) (14,001) 254,404 2,074,147 1,489,983 3,695,859 31 December 2017

The accompanying notes form an integral part of these financial statements. Cash andcash equivalents at theendofperiod Cash andcash equivalents at thebeginning oftheperiod Net increase /(decrease) incash andcash equivalents Interest Received Interest paid Dividends Paid Repayments ofborrowings Proceeds from borrowings Cash flows used by financing activities Dividends received Cash advances given Purchase ofintangible assets Purchase ofproperty, plant andequipment Proceeds from sales ofproperty, plant andequipment Cash flows used ininvesting activities Taxes paid Payments related withprovisions for employee benefits Payments related withotherprovisions Interest received Interest paid Cash flows generated from /(used in)operations Increase /(decrease) inotherpayables (Increase) /decrease inotherassets Increase /(decrease) intrade payable (Increase) /decrease inprepaid expenses (Increase) /decrease ininventories Adjustments for unearned financingincome Adjustments for tax expenses Adjustments for interest income Adjustments for dividendincome Adjustments for warranty provisions Adjustments for lawsuit and/orpenalty provisions (Increase) /decrease intrade receivable Changes inworking capital Other adjustments for whichcash effects are investing orfinancing cash flow Adjustments for gain /(loss) onsales ofproperty, plant andequipment Adjustments for deferred financing expense Adjustments for interest expense Adjustments for otherprovisions Adjustments for provisions related withemployee benefits Adjustments for impairment loss ofinventories Adjustments for depreciation andamortisation expense Adjustments to reconcile profit for theperiod Net profit for theperiod Cash flows generated from /(used in)operating activities (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) STATEMENT OFCASH FLOWS FOR THEPERIODS ENDED31DECEMBER 2017 AND2016 FORD OTOMOTİV SANAYİ A.Ş. The accompanying notes form anintegral part ofthese financial statements. Notes 10,11 29 29 24 23 22 15 13 13 21 21 17 4 9 31 December 2017 Current period (605,875) (1,213,698) 2,304,890 (2,141,327) (590,897) 2,158,569 (789,548) (938,317) (332,578) Ford Otosan 2017 FinancialReport 1,188,540 2,333,775 (195,396) 1,802,917 (129,440) 1,489,983 (164,923) (132,959) (215,383) (139,378) 1,176,370 (116,290) (42,968) (74,896) (10,442) 379,690 (52,251) 473,624 614,377 188,087 (11,364) (8,822) audited 177,790 42,394 (1,326) 1,211,171 127,813 115,416 12,706 72,361 37,753 3,395 8,041 (351) 351 571 571 31 December 2016 Previous period (818,294) (1,911,685) (663,220) 1,188,540 1,612,405 (102,135) (374,652) (419,075) (585,715) 1,780,922 (110,259) 208,396 1,783,411 930,238 (118,674) (23,885) (46,622) 980,144 955,308 (22,587) (90,710) (77,448) (86,777) 456,387 (14,522) (92,716) 194,898 302,813 155,559 (21,147) 118,062 audited 93,596 36,650 54,598 40,739 14,863 14,863 16,439 10,425 14,267 6,263 22,311 (422) 7,372 903 422 119

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Total White collar Blue collar 120 of Turkish FinancialReporting Standards, its appendixandinterpretations. Board (“CMB”)on13June2013whichispublished onOfficial Gazette numbered 28676. TAS, Turkish Accounting Standards, comprise “Communiqué on the Principles of Financial Reporting In Capital Markets” (“the Communiqué”) announced by the Capital Markets by thePublic Oversight Accounting andAuditing Standards Authority (“POA”) that are set outinthecommuniqué numbered II-14,1 The accompanying financial statements have been prepared in accordance with Turkish Accounting Standards (“TAS”) promulgated in accordance withaccounting principles issued by theTurkish Commercial Code (“TCC”) andtax legislation. The Company maintain its legal books ofaccount andprepare theirstatutory financial statements (“Statutory Financial Statements”) FInancial reporting standards 2.1 Basis ofpresentatIon NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS İnönü plant, totally 1,508employees as of31December 2017 (31December 2016:1.585). branch, conducted with 248 employees in R&D centre in Kocaeli plant, and conducted with 84 employees in R&D centre in Eskişehir Research anddevelopment operations whichare also subject to service export isconducted with1,176 employees inSancaktepe The numberofthepersonnel employed withrespect to categories by theCompany as of periodendsare as follows: (R&D) centre located inSancaktepe, İstanbul. Additionally, theCompany has aspare part distribution warehouse, sales andmarketing departments andaresearch anddevelopment engines andpowertrain plant whichmanufactures for trucks andTransit vehicles. a Yeniköy plant inwhichtheTransit Courier vehicle ismanufactured andinits Eskişehir İnönücompound; aCargo truckplant and In its Kocaeli compound; theCompany has aGölcük plant inwhichtheTransit andTransit Custom vehicles are manufactured and registered office address ofthe Company isAkpınarMahallesi, Hasan Basri Cad. No:2 Sancaktepe, İstanbul. Koç Group ofCompanies. The Company islisted ontheBorsa İstanbul (“BIST”) where 17.89% ofits shares are currently quoted. The those vehicles. The Company was established in1959 andpresently operates as ajointventure between Ford Motor Company andthe vehicles, primarily commercial vehicles, imports andsells passenger cars andmanufactures andimports andsells spare parts of Ford Otomotiv Sanayi A.Ş. (the “Company”) isincorporated anddomiciled inTurkey andmanufactures, assembles andsells motor NOTE 1-ORGANIZATION ANDNATURE OFTHEOPERATIONS (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport December 2017 10,835 2,663 8,172 Average December 2016 10,593 7,844 2,749 December 2017 11,501 2,654 8,847 Year end December 2016 10,261 2,700 7,561 financial statement disclosure can beimproved. liabilities arisingfrom financing activities. The amendmentis part oftheIASB’s Disclosure Initiative, which continues to explore how 2017. These amendments introduce anadditional disclosure that willenable users offinancial statements to evaluate changes in - Amendments to TAS 7 ‘Statement ofcash flows’ ondisclosure initiative, effective from annual periods beginning onor after 1January (a) The new standards, amendments andinterpretations whichare effective as at 31December 2017 are as follows: own activity. The Company has applied the new and revised standards and interpretations issued by the KGK as of 1 January 2017 and related to its The new standards, amendments andinterpretations 2.2 Amendments andinterpretations inthestandards same amounthave been reclassified under current tax assets accordingly. In order to beconsistent withthefinancial statements of current period, other current assets have been decreased by TL1,757 the have been provided withthecomparative financialinformation, for theperiodbetween 1January 2016and31December 2016. income, thestatement ofcash flows andthe statement ofchanges in equity for theperiodbetween 1January and31December 2017 comparative financialinformation of31December 2016andthe statement ofprofit or loss, the statement ofother comprehensive position and performance. The statement of financialposition of the Company at 31December 2017 has been provided with the The financial statements ofthe Company include comparative financialinformation toenable the determination ofthefinancial Comparatives ofpriorperiods’ financial statements The financial statements ofthe Company are prepared onthe basis of a going concern assumption. concernGoing Company’s functional andpresentation currency isaccepted as TL. cost basis. Except for thefinancial assets andderivative instruments measured at fair value, thefinancial statements are prepared on ahistorical been prepared inaccordance withthisdecision. financial reporting standards issued by theCMB(“CMBFinancial Reporting Standards”). The Company’s financial statements have accounting isnolonger required for companies operating inTurkey andpreparing theirfinancial statements in accordance withthe With thedecision taken on 17 March 2005, theCMBannounced that, effective from 1January 2005, theapplication of inflation 2.1 Basis ofpresentation (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. CONTINUED) Ford Otosan 2017 FinancialReport 121

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 122 15 isannual accounting periodsbeginning onorafter 1January 2018. ordinary activities ofanentity, whichwillbetreated as revenue generated from contracts withcustomers. The effective date ofTFRS accounting for andmeasuring thesale of certain non-financial assets (e.g. property, plant and equipment) that are not related to the model inthestandard describes therequirements for revenue recognition andmeasurement. The standard establishes amodelfor with Customers. This published standard also includes amendments to IASB inApril2016to clarify IFRS 15. The new five-phase - TFRS 15"Revenue from contracts withcustomers’"; InSeptember 2016, theTFRS published theRevenue Standard from Contracts position andperformance anddoes notexpected to have any significant impact. without applying otherstandard requirements. The Company isintheprocess ofassessing theimpact ofthestandard onfinancial apply early provisions for thepresentation of gains orlosses offinancialliabilities designated as "fair value change, profit or loss" only, on orafter 1January 2018 and early application ofall requirements ofthe standard ispermitted. Alternatively, entities may prefer to developed to better correlate riskmanagement economics withaccounting practices. TFRS 9iseffective for annual periodsbeginning loss table due to a decrease in the fair value of the financial liability, it deals with the issue. The standard also includes a hedging model their financialliabilities at fair value, inthe form ofa so-called "own credit risk"that results inthe recording of income intheprofit or credit losses to beaccounted for more timely. Inaddition, IFRS 9requires that banks andotherentities choose anoptionto measure applied to all financial instruments subject to impairment accounting with a forward 'expected credit loss' model that will enable and cash flow characteristics that are managed withinfinancial assets. Thereupon, asingle model has been established that can be and hedge accounting. TFRS 9 relies onarational, single classification andmeasurement approach that reflects thebusiness model TFRS 9combines thethree aspects ofthefinancialinstruments accounting project: classification and measurement, impairment - TFRS 9 "Financial Instruments - Classification and Disclosure"; The UPS has issued TFRS 9 Financial Instruments in January 2016. amount to thetax authority. employer isobliged to withhold anamountfor theemployee’s tax obligation associated withashare-based payment andpay that introduces anexception to theprinciples inIFRS 2that willrequire anaward to betreated as ifitwas wholly equity-settled, where an share-based payments andtheaccounting for modifications that change an award from cash-settled to equity-settled. Italso effective from annual periods beginning on or after 1 January 2018. This amendment clarifies the measurement basis for cash-settled, - Amendments to IFRS 2, “Share based payments” onclarifying how to account for certain types ofshare-based payment transactions, the new standards andinterpretations have entered into force, unless otherwise stated. statements for theyear thenended. The Company willmake necessary changes to affect its financial statements and footnotes after effective for the current reporting periodandhave notbeen early adopted by the Company as ofthedate ofapproval ofthefinancial (b) The following new standards, interpretations andamendments have been issued as of31December 2017, whichare notyet These amendments should beapplied retrospectively for annual periodsbeginning onorafter 1January 2017. - Annual improvements 2014-2016; TFRS 12,’Disclosure ofinterests inotherentities’ regarding clarification ofthe scope ofthe standard. certain otheraspects ofaccounting for deferred tax assets. accounting for deferred tax where anasset ismeasured at fair value andthat fair value isbelow theasset’s tax base. Italso clarify - Amendments TAS 12 ‘Income Taxes’, effective from annual periodsbeginning onor after 1January 2017. Theamendments clarify the 2.2 Amendments andinterpretations inthestandards (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport · standards: - Annual improvements 2014-2016, effective from annual periods beginning on or after 1January 2018. These amendments impact 2 must besupported by evidence. To conclude ifaproperty has changed use there should beanassessment ofwhether theproperty meets thedefinition. This change or after 1January 2018. These amendments clarify that to transfer to, orfrom, investment properties there must beachange inuse. Amendment to IAS 40, “Investment property” relating to transfers ofinvestment property, effective from annual periodsbeginning on · · approach. The amended standard will: periods beginning onorafter 1January 2018. These amendments introduce two approaches: an overlay approach andadeferral - Amendments to IFRS 4, “Insurance contracts” regarding theimplementation ofIFRS 9, ‘Financial instruments’, effective from annual for consideration. contract is, or contains, a lease if thecontract conveys the right to control the use of an identified asset for aperiod of time in exchange the very least, thenew accounting modelfor lessees isexpected to impact negotiations between lessors andlessees. UnderTFRS 16, a lease (as well as theguidance onthecombination andseparation ofcontracts), lessors willalso be affected by thenew standard. At lessees. Forlessors, theaccounting stays almost thesame. However, as theTASB has updated theguidance onthedefinition of a optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by a lease liability reflecting future lease payments anda ‘right-of-use asset’ for virtually all lease contracts. The TASB has included an between afinance lease (on balance sheet) andanoperating lease (off balance sheet). TFRS 16 now requires lessees to recognise TAS 17 andisafar-reaching change inaccounting by lessees inparticular. UnderTAS 17, lessees were required to make adistinction - TFRS 16 ‘Leases’, effective from annual periodsbeginning onor after 1January 2019, This standard replaces the current guidance in a significant effect onthefinancial positionandperformance ofthe Company. sales are provided for theservice andrevenue can bereliably measured. Therefore, itisnotexpected that thenew standard willhave parts willbeaccounted for whentransferring therisks andbenefits related to theproduct whendelivering theproduct and service spare parts andservices, andthere isusually asingle obligation to act. Inparallel withtheprevious periods, sales ofvehicles andspare information willbeprovided inthefootnotes ofthefinancial statements. The Company's sales are comprised of sales of vehicles, retroactive application. Ifmodified retroactive application ispreferred, priorperiodswillnotbe restated but comparative quantitative Early application is allowed. Two alternative applications are presented for transition to TFRS 15; full retroactive application or modified 2.2 Amendments andinterpretations inthestandards (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENT (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. · · · and IFRS 10effective 1January 2018. IFRS 1, “First-time adoption ofIFRS”, regarding thedeletion ofshort-term exemptions for first-time adopters regarding IFRS 7, IAS 19, 39. 9 until2021. The entities that defer theapplication ofIFRS 9willcontinue to apply theexisting financialinstruments standard IAS give companies whose activities are predominantly connected withinsurance anoptionaltemporary exemption from applying IFRS the volatility that could arise whenIFRS 9isapplied before thenew insurance contracts standard isissued; and give allcompanies that issueinsurance contracts theoptionto recognise inothercomprehensive income, rather thanprofit or loss, S (CONTINUED) Ford Otosan 2017 FinancialReport 123

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 124 risk ofchange infair value (Note 4). deposits at banks andhighly liquidshort-term investments, withmaturity periodsofless thanthree months, whichhas insignificant Cash andcash equivalents are carried inthestatement offinancialposition at cost. Cash and cash equivalents include cash onhand, Cash andcash equivalents The principal accounting policies adopted inthe preparation ofthese financial statements are set outbelow: 2.3 Summary ofsignificant accounting policies The Company willevaluate theeffects oftheabove amendments onits operations andwillapply themfrom the effective date. including taxable income, expense, asset orliability, tax base andtax rates. include acertain amountinthetax calculation. TFRS Comment 23;applicable whenatax practice isvague andthere are uncertainties especially ifanexpense isrecognized as adeduction orifthetax return isuncertain inthetax statement regarding whether ornotto income taxes. Tax application uncertainty arises whenatax application by acompany isunknown to thetax authority. Forexample, - TFRS Comment 23provides guidance onhow to measure andaccount for deferred tax calculations whenthere are uncertainties in Liabilities andContingent Assets' standard instead ofIAS 12. clarified that ifuncertainty in tax practices had previously been applied, theuncertainty should apply to IAS 37 'Provisions, Contingent interpretation clarifies some oftheuncertainties intheapplication of TAS 12Income Tax Standard. IFRS Interpretation Committee - TFRS Comment 23"Uncertainties intaxation" are effective for annual reporting periodsbeginning onor after 1January 2019. This entities that issueinvestment contracts withvoluntary participation features. TFRS 4, whichallows awiderange ofapplications. TFRS 17 willchange thebasis ofinsurance contracts andtheaccounting ofall - IFRS 17 "Insurance Contracts" is effective for annual reporting periods beginning on or after 1 January 2021. This standard replaces where multiple payments /receipts are made. The guidance aimsto reduce diversity inpractice. priced inaforeign currency. The interpretation provides guidance for whenasingle payment /receipt ismade as well as for situations 2018. This IFRIC addresses foreign currency transactions orparts oftransactions where there is consideration that isdenominated or - IFRS 22, “Foreign currency transactions and advance consideration”, effective from annual periods beginning on or after 1 January The financial status ofthe Company andits impact onits performance are assessed. · 2.2 Amendments andinterpretations inthestandards (Continued) 2. BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport · annual periodsbeginning onorafter 1January 2018. Early application isallowed. or loss reflected is valid at thetimeofinitial recognition of each subsidiary orbusiness partnership. The amendmentwillapply to or directly through anenterprise orsimilar enterprise itisclear that theability to choose to measure thefair value difference inprofit are accounted for inaccordance withTFRS 9FinancialInstruments ifinvestments inassociates orjointventures are held indirectly IAS 28"Investments inassociates andjointventures": This amendmentclarifies that investments in associates andjoint ventures income /expense”. (Notes 7and26). Foreign exchange gain /loss andcredit finance charges oftrade payables are classified under “otheroperating Trade payables are recognized at initialcost andsubsequently measured at amortized cost usingeffective interest rate method Trade payables plan are notassociated withinventories andare recognized as cost ofsales (Note 9). production facilities. Idle timeexpenses arisingfrom theceases inproduction otherthanplanned inthe factory’s annual production and selling expenses. The allocation offixed production overheads to the costs of conversion is based onthenormal capacity ofthe cost ofborrowing. Net realizable value istheestimated selling price intheordinary course ofbusiness, less thecosts ofcompletion basis. Cost elements included ininventories are materials, labour andanappropriate amountoffactory overheads andexclude the Inventories are valued at the lower of cost or net realizable value. The cost of inventories is determined on the moving monthly average Inventories Company’s bank accounts at theduedates (Notes 7and26). collection ofthereceivables withinthelimits granted to thedealers. Trade receivables are transferred by thecontracted banks to the “Direct DebitSystem” (DDS). Within thissystem whichisalso named as Direct Collection System; thecontracted banks warrant the income inthecurrent period. The Company collects receivables arising from domestic vehicles and spare parts sales through the If theimpairment amountdecreases dueto anevent occurring after thewrite-down, the release oftheprovision iscredited to operating effective interest rate oftheoriginated receivables at inception. the present value ofallcash flows, including amounts recoverable from guarantees and collateral, discounted based ontheoriginal all amounts due. The amountoftheprovision isthedifference between the carrying amountandthe recoverable amount, being A credit riskprovision for trade receivables isestablished ifthere isobjective evidence that theCompany willnotbeable to collect the renegotiation conditions withthese debtors are considered. their performance after the statement ofthe financial position date up totheissuing date of thefinancial statements and furthermore, than thekey accounts andrelated parties, are assessed withtheir prioryear performances, theircredit riskinthecurrent market, and receivables that have collection riskdueto current economic conditions. Duringtheimpairment test for receivables, debtors, other Provision for doubtful receivables isanestimated amountthat management believes to reflect for possible future losses on existing income /expense”. is significant. Foreign exchange gain / loss andcredit finance income of trade receivables are classified under “otheroperating Short-term receivables withnostated interest rate are measured at theoriginalinvoice amountunless theeffect ofimputinginterest Trade receivables as aresult ofproviding goods orservices by theCompany directly to adebtor are carried at amortized cost. Trade receivables andallowance for trade receivables 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport 125

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 126 that occur subsequent to theperiodwhenimpairment loss was recorded. of previously recorded impairment losses, incases where increases intherecoverable value oftheasset can beassociated withevents in use. Impairment losses are recognized inthestatement ofprofit or loss. Impairment losses on assets can be reversed, to the extent by which thecarrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price and value changes incircumstances indicate that thecarrying amountmay notberecoverable. Animpairment loss isrecognized for theamount All assets are reviewed for impairment losses including property, plant andequipment andintangible assets whenever events or Impairment oflong-lived assets Other intangible assets Capitalized improvement expenses Rights 3-5years The estimated useful lifetimes ofsuchassets are as follows: commercial vehicles, are capitalized as discussed inNote 2Research anddevelopment expenses (Note 11). period dependingontheproject’s lifetime. Development costs, comprising ofengineering design incurred for theproduction ofnew Intangible assets are carried at cost less accumulated amortization. Amortization is calculated usingthe straight-line method over a Intangible assets comprise computer software, rights, leasehold improvements anddevelopment costs. Intangible assets of therespective asset (Note 10). as they are incurred. Repair andmaintenance expenditures are capitalized ifthey result inanenlargement orsubstantial improvement included inincome / expense from investing activities. Repair andmaintenance expenses are charged to thestatement ofprofit or loss Gains orlosses ondisposals ofproperty, plant andequipment are determined by comparing proceeds withcarrying amounts andare Land isnotdepreciated as itisdeemed to have anindefinite useful life. Motor vehicles 9-15 years Furniture andfixtures Moulds andmodels Machinery andequipment Buildings 14.5-36 years Land improvements 14.5-30 years The depreciation periodsfor property andequipment, whichapproximate theeconomic useful lives ofassets concerned, are as follows: method based ontheestimated useful lives oftheassets. Property, plant andequipment are carried at cost less accumulated depreciation. Depreciation isprovided usingthestraight-line Property, plant andequipment 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport 4-14.5 years Project lifetime 5-25 years 5years Project lifetime effective tax legislation as of statement of financial position date. Current year tax liability consists oftax liability onthetaxable income calculated according to currently enacted tax rates andto the Current periodincome tax Taxes include current periodincome taxes anddeferred taxes. Taxes onincome Dividends payable are recognized as anappropriation ofprofit intheperiodwhichthey are declared (Notes 17 and 29). Ordinary shares are classified as equity. Dividendson ordinary shares are recognized in equity intheperiodwhichthey are declared. Share capital anddividends the face values ofthose shares ordifferences between the face values andthe fair value ofshares issued for acquired companies. Share premium represents differences resulting from the sale ofthe Company’s subsidiaries and associates’ shares at aprice exceeding Share premium dividend income accounts. Interest anddividendsassociated to theavailable-for-sale financial assets are accounted under corresponding interest income and losses are transferred to theincome statement. the income statement. Ifthedifference between the cost andthe fair value ofthe available-for-sale securities ispermanent, gains and available-for-sale securities are sold, collected orotherwise disposed of, related deferred gains andlosses inequity are transferred to sale debt securities are thedifferences between the fair value ofsuch securities andtheiramortised costs at the reporting date. When net oftax under “financial assets fair value reserve”. Unrealised gains and losses arisingfrom changes inthe fair value of available-for- Unrealised gains andlosses arisingfrom changes inthefair value ofsecurities classified as available-for-sale are accounted in equity using valuation techniques suchas discounted cash flow analysis andoptionpricingmodels. active markets are measured based oncurrent bidprices. Ifthemarket for afinancial asset isnot active, the fair value isdetermined by Available-for-sale financial assets are subsequently measured at fair value. Available-for-sale financial assets that are quoted in be sold to raise operating capital, inwhichcase they are included incurrent assets. intention ofholding theinvestments for less than12monthsfrom thestatement offinancialposition date orunless they willneed to in interest rates are classified as available-for-sale. These are included innon-current assets unless management has the express Investments intended to beheld for anindefinite periodoftime, andwhichmay be sold in response to aneed for liquidity orchanges Financial assets 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport 127

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 128 Exported service sales are recorded whentheservice isdelivered and theamountofrevenue can bemeasured reliably. revenue” (Note 30). Forexport sales significant riskand rewards are transferred to thebuyer on FAS, “Final Assignment to Ship” terms. leasing period. (Note 30). The revenue recognised onlease revenue for theperiodsover 1year isrecognized as “Long term deferred monitored as deferred income through allocating thedifference between theprice paid by the customers andtheirbuyback price to “Other Non-Current Liabilities” (Note 31). Sales, whichare subject to buyback commitment, are evaluated as operating lease and commitment, whichshallmost likely beapplied, thesales made inthisscope are notrecognized as revenue andmonitored under received by thebuyer orwhenthelegal title ispassed to thebuyer. ButiftheCompany makes asales agreement with buyback For domestic vehicle andspare parts sales, significant riskand rewards are transferred to thebuyer when goods are delivered and flow to theentity. amount ofrevenue can bereliably measured anditisprobable that thefuture economic benefits associated withthetransaction will incurred orto beincurred whenthegoods are delivered, therisks andrewards ofownership ofthegoods are transferred, whenthe Revenue comprises theinvoiced value for the sale ofgoods andservices. Revenues are recognized onanaccrual basis at thefair values sales services & Goods Revenue recognition the initialrecognition ofanenterprise merger are recognized as income orloss intheincome statement. (which, insuchcases, thedeferred tax regarding the related items are also recognized directly intheequity) orthose whichresult from Current anddeferred taxes except those whicharetax eitherrelated to theitems directly recognized intheequity as receivable orpayable deferred and Current legally enforceable rightto offset current tax assets against current tax liabilities (Note 24). Deferred tax assets anddeferred tax liabilities related to income taxes levied by thesame taxation authority are offset whenthere is a expected to beavailable to utilize deferred tax assets partially orfully. differences can beutilized. Carrying values ofdeferred tax assets are decreased to the extent necessary, iffuture taxable profits are not temporary differences to the extent that itisprobable that taxable profit willbe available against whichthe deductible temporarily Deferred tax liability iscalculated onalltaxable temporary differences whereas deferred tax assets are recognized for alldeductible income tax. during theperiodswhendeferred tax assets willbeutilized ordeferred tax liabilities willbesettled, are used to determine deferred will affect thefuture period tax charges based onthe tax legislation. Currently enacted tax rates, which are expected to be effective liabilities and theircarrying values for financial reporting purposes. Tax bases of assets andliabilities comprise of theamounts that Deferred income tax isprovided, usingtheliability method, for temporary differences arisingbetween the tax bases of assets and Deferred tax 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport ) (Notes 18and21). difference between the fair value andthenominalamountof consideration is recognized as interest income onan accrual basis transaction, thefair value oftheconsideration isdetermined by discounting allfuture receipts usinganimputed rate ofinterest. The Net sales represent theinvoiced value ofgoods shipped less sales returns. When thearrangement effectively constitutes afinancing 2.3 Summary ofsignificant accounting policies (Continued) 2. BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) sales isanothermethod inthemanagement ofthecredit risk(Note 7). Bank letters ofcollaterals received from dealers for theexceeding part ofDDS limit, regarding domestic vehicle sales andspare part The use ofDDS for receivables from dealers isaneffective way to decrease thecredit risk. dealers through arranged banks andcollects its trade receivables from banks at theduedate through theuse ofDirect DebitSystem. individual counterparty islimited. The Company covered its credit riskfrom domestic vehicle sales to dealers by setting credit limits for and thecredit riskarisingfrom transactions withsuchdealers isregularly monitored by management andtheaggregate riskto any receivables are duemainly from dealers andrelated parties. The Company has established effective control procedures over its dealers Ownership offinancial assets involves therisk that counterparties may beunable to meet the terms oftheir agreements. All trade risk Credit Financial instruments andfinancial riskmanagement Foreign currency exchange rates used by theCompany at thetimeofstatement offinancialposition dates are as follows: income /expenses andfinancialincome / expense inthe statement ofprofit or loss (Notes 21, 22, 23and 27). of suchtransactions andfrom thetranslation ofmonetary assets andliabilities are recognized undertheotheroperating rates prevailing at thestatement ofthefinancialposition dates. Foreign currency exchange gains or losses arisingfrom the settlement Monetary assets andliabilities denominated inforeign currencies have been translated into TLat theCentral BankofTurkey exchange Transactions inforeign currencies duringtheyear have been translated at theexchange rates prevailing at thedates ofthetransactions. Foreign currency transactions andbalances and theinterest rate that isto beeffective untilits maturity date. Interest income isrealized onatimeperiodbasis andtheaccrued income isdetermined by taking into account thevalid interest rate Dividend income from thestock investments are recordedincome whenthestockholders become entitled to receive adividend. interest and Dividend (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. 31 December 2017 31 December 2016 TL /USD 3.7719 3.5192 TL /Euro 3.7099 4.5155 Ford Otosan 2017 FinancialReport TL /GBP 5.0803 4.3189 129

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 130 production andsales intherelated monthscan increase theforeign assets (Note 27). statement offinancialposition foreign exchange exposure. In addition to this, distribution oftheamount export orientated Excess cash is invested mainly in hard currency to balance the net foreign currency assets and liabilities andin order to minimize the Committee andregular Board ofDirector’s meetings. and liabilities into TL. This riskismonitored by key management personnel through Early Determination ofRiskandManagement The Company isexposed to foreign exchange riskthrough theimpact ofrate changes onthetranslation offoreign currency assets risk exchange Foreign lines from highquality lenders. The ability to fundtheexisting andprospective debtrequirements ismanaged as necessary by obtaining adequate committed funding risk Funding Company makes limited use ofinterest rate swaps, to hedge its floating rate borrowings, ifneeded. Management uses short-term interest bearing financial assets to manage thematurities ofinterest bearing assets andliabilities. The risk rate Interest in case arequirement for use arises. The Company maintains acredit commitment amountingto Euro 80millionandfactoring agreement amountingto Euro 125million management keeps cash, credit commitment andfactoring capacity to maintain 21days cash outflows to manage the liquidity risk. future debtrequirements ismanaged by having an adequate number ofquality loan providers constantly available. The Company an adequate amountofcommitted credit facilities andthe ability to close out market positions. The riskoffundingcurrent and Prudent liquidity riskmanagement includes maintaining sufficient cash andmarketable securities, the availability offunding from risk Liquidity in equity securities. available-for-sale. The Company limits theavailable-for-sale financial assets inorder to manage theprice riskarisingfrom investments The Company isexposed to equity securities price riskbecause ofinvestments classified onthe statement offinancial position as risk Price with letter ofcredit, letter ofguarantee orcash payment. 45 days inaverage. The collection ofreceivables resulting from export sales to customers otherthanFord Motor Company issecured export vehicle sales regularly. Receivables from Ford Motor Company andits subsidiaries, except vehicle sales, are collected in business agreements withFord Motor Company. Receivables from Ford Motor Company andits subsidiaries are collected in14 days for Export sales mainly consist ofsales to Ford Motor Company andits subsidiaries. Collection terms andconditions are specified inthe 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Net financialdebt/ tangible equity ratio Tangible equity Net financialdebt 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS ( According to thedecision ofCompany management, thisratio isexpected not to exceed 1,25. equivalents, whereas tangible equity iscalculated as equity, as shown inthestatement offinancialposition minusintangible assets. debt divided by tangible capital. Net financialdebtis calculated as total shortand long term borrowings minus cash and cash The Company monitors capital on the basis of the “net financial debt to tangible capital ratio”. This ratio is calculated as net financial capital to shareholders, issuenew shares orsell assets to reduce debt. In order to maintain oradjust thecapital structure, theCompany may adjust theamountofdividendspaid to shareholders, return capital. provide returns for shareholders benefits for other stakeholders and to maintain anoptimal capital structure to reduce the cost of The Company’s objectives whenmanaging capital are to safeguard theCompany’s ability to continue as agoing concern inorder to management risk Capital (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. liabilities are considered to approximate theirrespective carrying values dueto theirshort-term nature. evaluated andrecognized withtheirdiscounted costs by usingtheeffective rate of interest method. The fair values ofother monetary Bank borrowings are recorded over theirfair value ofwhich the transaction costs are discounted. Inthefollowing periods, they are Financial assets measure fair value, maximising theuse ofrelevant observable inputs andminimisingtheuse ofunobservable inputs. The Company uses valuation techniques that are appropriate inthecircumstances andfor whichsufficient data are available to or liability, assuming that market participants act intheireconomic best interest. The fair value ofanasset oraliability ismeasured usingtheassumptions that market participants would use whenpricingtheasset The principal orthemost advantageous market must beaccessible to by theCompany. - Intheabsence ofaprincipal market, inthemost advantageous market for theasset orliability. - Intheprincipal market for theasset orliability, or liability takes place either: measurement date. The fair value measurement isbased onthepresumption that thetransaction to sell theasset ortransfer the that would bereceived to sell anasset orpaid to transfer aliability inanorderly transaction between market participants at the The Company measures derivatives andavailable for sale financial assets at fair value at each reporting date. Fair value istheprice Fair value offinancialinstruments

CONTINUED) 31 December 2017 Ford Otosan 2017 FinancialReport 3,005,522 1,798,102 0.60 31 December 2016 1,663,097 2,611,056 0.64 131

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 132 the actuarial (gain) /loss ofemployee benefits are recognized under other comprehensive income. in accordance withtheTurkish Labour Law (Note 15). According to theamendments onTAS 19 “Employee Benefits”, Company arising from theretirement oftheemployees orreasons except for resignation andbehaviours stated inlabour law, calculated Provision for employee benefits represent thepresent value ofthe estimated total reserve ofthefuture probable obligation ofthe a) Defined benefit plan Provision for employee benefits the asset. The borrowing costs include othercosts incurred dueto borrowing andinterest. which take long time to get ready for use and sale, borrowing costs related to production or construction are integrated to the cost of redemption value isrecognized inthestatement ofprofit or loss over theperiodofborrowings (Note 6). With respect to assets are stated at amortized cost usingtheeffective yield method; any difference between proceeds (net of transaction costs) and the Borrowings are recognized initially at theproceeds received, net oftransaction costs incurred. Insubsequent periods, borrowings Borrowings andborrowing costs based onobservable market data. instruments andconsist offorward foreign currency purchase andsale contracts. Fair value isdetermined usingvaluation methods positive andas liabilities whenthefair value isnegative. The fair value differences ofthe Company are reflected inderivative financial entered into andare subsequently measured at fair value. Derivative financialinstruments are recognized as assets ifthe fair value is Derivative financialinstruments are initially recognized at thetransaction cost reflecting the fair value atthe date ofthe contract is contracts isdetermined by usingvaluation methods based onobservable data inthemarket. fair value onthedate the derivative contract isentered into andsubsequently remeasured at fair value. The fair value ofinterest swap The Company has entered into swap transactions inorder to manage its interest rate risk. Swap transactions are initially recognized at until theforecast transaction orfirm commitment affects profit or loss. revoked, any cumulative gain orloss previously recognised inothercomprehensive income remains inothercomprehensive income the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as ahedge is no longer expected to occur, thecumulative gain orlosses previously recognised inequity are transferred to theincome statement. If hedged firm commitment or forecasted transaction affects theincome statement. Ifthe forecast transaction orfirm commitment is the asset orliability. Otherwise, amounts recognised under equity are transferred to theincome statement intheperiodwhich gains and losses previously recognised under equity are transferred from equity and included in the initial measurement of the cost of reserves”. Where theforecasted transaction orfirm commitment results inthe recognition ofanon-financial asset orofaliability, the Changes inthefair value ofderivatives, designated as cash flow hedges andqualified as effective, are recognised in equity “hedgingas or ahighly probable forecast transaction andcould affect profit and loss are designated as cash flow hedges bythe Company. Hedges ofexposures to variability incash flows that are attributable to a particular risk associated witha recognised asset orliability Cash flow hedge accounting liabilities are considered to approximate theirrespective carrying values dueto theirshort-term nature. evaluated andrecognized withtheirdiscounted costs by usingtheeffective rate ofinterest method. The fair values ofothermonetary Bank borrowings are recorded over theirfair value ofwhichthetransaction costs are discounted. Inthefollowing periods, they are Financial liabilities 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport ) income inthecurrent period. amount decreases, in the case of an event occurring after the provision is accounted for, the related amount is classified as other an outflow of resources willbe required to settle theobligation, and a reliable estimate oftheamount can bemade. Iftheprovision Provisions are recognized whentheCompany has apresent legal orconstructive obligation as aresult ofpast events, itisprobable that Provisions impact ismaterial, itisalso discounted. “Long-term provisions for employee benefits” are composed oftheunused vacation days accrued intheperiodincurred andifthe c) Otheremployee benefits the Company pays these premiums. These premiums are reflected to thepersonnel expenses whenthey are accrued (Note 15). The Company isobliged to pay social insurance contributions to theSocial Security Institution. Nootherobligation exists as long as b) Defined contribution plan 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS ( expenditures inprogress (Note 11). basis over the project lifetime. Impairment test for the assets is performed annually within the recognition period of the development that have been capitalized are amortized from thecommencement ofthecommercial production oftheproduct onastraight-line Development costs previously recognized as expense are notrecognized as anasset inasubsequent period. Development costs - Ifnecessary technological, financialandother resources can beprovided to complete theproject. - Ifthere’s apotential market orcan beproved that itisused withintheCompany, - Ifthegood willbesold orwillbeused withintheCompany, - Ifthetechnological feasibility can bemeasured, - Ifthecost related to theproducts can bedefined andonly ifthe cost can bemeasured reliably, and recognized as expense as incurred. Research expenditure isrecognized as anexpense as incurred. Costs, except for listed below are classified as development expenditures Research anddevelopment expenses reclassified warranty reserves to be expected to be realized inone year as current provision (Note 13). Warranty expenses are recognized onanaccrual basis for amounts estimated based onpriorperiods’ realization.provision The Company has expenses Warranty Provision for dealer stock sales premium expenses isaccounted based onthelast approved salespremium premium programme (Note 13). sales for Provisions (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. CONTINUED) Ford Otosan 2017 FinancialReport 133

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 134 charged. related party transaction isatransfer ofresources, services orobligations between related parties, regardless ofwhether aprice is (or ofaparent oftheentity). (vii) Aperson identified in(a)(i)has significant influence overtheentity orisamemberofthe keymanagement personnel oftheentity (vi) The entity iscontrolled orjointly controlled by aperson identified in(a). reporting entity. Ifthereporting entity isitself suchaplan, thesponsoring employers are also related to thereporting entity. (v) The entity isapost-employment benefit plan for thebenefit ofemployees ofeither the reportingentity oranentity related tothe (iv) Oneentity isajointventure ofathird entity andtheotherentity isanassociate ofthethird entity. (iii) Bothentities are jointventures ofthesame third party. other entity isamember). (ii) Oneentity isanassociate orjointventure oftheother entity (or anassociate orjointventure ofamembergroup ofwhichthe is related to theothers). (i) The entity andthereporting entity are members ofthesame group (which means that each parent, subsidiary andfellow subsidiary (b) Anentiyisrelated to areporting entity ifany ofthefollowing condition applies: (iii) isamemberofthekey management personnel ofthereporting entity orofaparent ofthereporting entity. (ii) has significant influence over the reportingentity; or, (i) has control orjointcontrol over thereporting entity, (a) Aperson oraclose memberofthat person’s family isrelated to areporting entity ifthat person: Parties are considered related to thecompany (reporting entity) if; Related parties straight-line basis over the lease term incurred innegotiating andarranging anoperating lease are added to thecarrying amountoftheleased asset andrecognized ona Rental income from operating leases isrecognized onastraight-line basis over theterm oftherelevant lease. Initialdirect costs leasing Operational Leasing -theCompany as thelessor straight-line basis over thelease term incurred innegotiating andarranging anoperating lease are added to thecarrying amountoftheleased asset andrecognized ona Rental income from operating leases isrecognized onastraight-line basis over theterm oftherelevant lease. Initialdirect costs leases Operating Leasing -theCompany as thelessee 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport CONTINUED ) obtaining anasset that follows thesettlement its liability. Financial assets andliabilities are offset whenthere isa legal basis, intention to disclose net amountof related assets andliabilities or Offsetting (Note 33). subsequent to thestatement offinancialposition date, the Company makes thenecessary corrections onthefinancial statements statement offinancialposition is authorized for issue. Inthe case that events requiring an adjustment to thefinancial statements occur publicly announced; include allevents that take place between thestatement offinancialposition date andthedate whenthe Subsequent events andannouncements related to net profit or even declared after other selective financial information has been Subsequent events statements andtreated as contingent assets orliabilities (Note 13). occurrence ofoneormore uncertain future events notwholly withinthecontrol oftheCompany are notincluded inthefinancial Possible assets orobligations that arise from past events and whose existence willbeconfirmed only by theoccurrence ornon- Contingent assets andliabilities assets withless thanthree monthsto maturity (Note 4). and cash equivalents include cash andbank deposits andtheinvestments that are readily convertible into cash andhighly liquid The cash flows due to financing activities indicate the cash obtained from financial arrangements and used intheir repayment. Cash (investments inproperty, plant andequipment andfinancialinvestments). The cash flows due to investing activities indicate the Company cash flows that are used forandobtained from investments The cash flows raised from operating activities indicate cash flows due tothe Company’s operations. In thestatement ofcash flows, cash flows duringtheperiod are classified underoperating, investing orfinancing activities. Reporting ofcash flows in whichthey were issued andfor each earlier year (Note 25). adjusted inrespect ofbonusshares issues withoutacorresponding change inresources, by givingthemretroactive effect for the year For thepurpose ofearnings pershare computations, theweighted average numberofshares outstanding duringtheyear has been making apro-rata distribution ofshares shares") ("bonus to existing shareholders from retained earnings andtherevaluation surplus. of shares that have been outstanding during therelated year concerned. InTurkey, companies can increase their share capital by Earnings pershare disclosed inthestatement ofprofit or loss are determined by dividingnet earnings by the weighted average number Earnings pershare and directors reporting directly to thegeneral manager (Note 26). The Company defines its key management personnel as board ofdirectors’ members, general managers, assistant general managers 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. CONTINUED) Ford Otosan 2017 FinancialReport 135

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 136 (Note 24). 31 December 2016 since presumptions that the Company will have taxable profit in the forthcoming periods are found to be sufficient advantages obtained within the context of investment incentive certificates. Deferred tax asset is recorded as of31 December 2017 and calculated over any temporary differences in cases whenthe occurrence of taxable profit is probable, taken into consideration of tax (f) Deferred tax assets are recognized whentheoccurrence oftaxable profit isprobable inthe forthcoming years. Deferred tax asset is performed andbased onvehicle quantity, warranty periodandhistorical claims (Note 13). technical andfinancialimprovements to estimate thepossible warranty expense per vehicle. Provision calculations are realistically (e) Incalculation ofthewarranty provision, theCompany considers thehistorical warranty expenses incurred addition to planned determines theamountofprovisions based onthebest forecasts. is evaluated by theCompany’s Legal Counsellor andby theManagement team taking into account expert opinions. The management (d) Indetermination ofthelegal case provisions, thepossibilities oflosing thecase andtheliabilities that willarise ifthecase islost allocate provisions for inventory impairment (Note 9). personnel’s opinion and inventory waiting time is considered. If expected net realizable value is less than cost, the Company should (c) Discounted inventory price list isused to calculate inventory impairment. Where thesales price cannot bepredicted, technical debt restructuring isconsidered (Note 7). (b) Indetermination oftheimpairment oftrade receivables, thefactors suchas debtor credibility, historical payment performance and are used. The details regarding thecalculation are disclosed inprovision for employee benefits (Note 15). (a) Incalculation oftheemployee benefit provision actuarial assumptions relating to turnover ratio, discount rate and salary increase reported amounts ofrevenues andexpenses duringthereporting year. Actual results could differ from those estimates. amounts ofassets andliabilities and disclosure ofcontingent assets andliabilities at thedate ofthefinancial statements andthe The preparation of financial statements require management to make estimates and assumptions that affect certain reported 2.5 Significant accounting estimates anddecisions effect ofchanges in accounting estimates affecting current andfuture periodsis recognized inthe current periodand prospectively. financial statements. The effect ofchanges in accounting estimates affecting the current periodis recognized inthe current period; the Material changes inaccounting policies and estimates ormaterial errors are corrected retrospectively; by restating thepriorperiod 2.4 Accounting policies, changes inaccounting estimates anderrors are shown as otherincome intheincome statement. recognized by netting from costs ofproperty, plant andequipment andintangible assets. Incentives whichare notsubject to assets and theCompany has met allconditions required. Government grants andincentives regarding thecapitalized projects, costs are Government grants andincentives are recognized at fair value whenthere isassurance that these grants andincentives willbereceived Government grants andincentives 2.3 Summary ofsignificant accounting policies (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Interest income accrual Cash andcash equivalents inthecash flow statement Banks -foreign currency demanddeposits Banks -TLdemanddeposits Banks -TLtimedeposits Banks -foreign currency timedeposits Savunma Sanayi A.Ş. (Otokar) (*) Otokar Otomotiv ve Available-for-sale financial assets: interest rate for theTLtimedeposits is14.91%, (31December 2016:10.94%). weighted average interest rate for Euro denominated timedeposits is2.24% (31December 2016:1.77%) andtheweighted average The maturity periodoftimedeposits isupto three monthsandthere isnoblockage /restriction oncash andcash equivalents. The NOTE 4-CASH ANDCASH EQUIVALENTS operating results, resources to beallocated to thesegment andassessment ofperformance are managed inthisrespect. business segments. Consequently, the business activities of the Company are considered to be in one operating segment and the their products are similar. Furthermore, theCompany structure has been organized to operate inonesegment rather thanseparate of production processes, classification of customers in terms of risk for their products and services andmethods used to distribute selling motor vehicles andspare parts. The Company’s operating segments, nature andeconomic characteristics ofproducts, nature The Company, whichisincorporated anddomiciled inTurkey, has primaryoperation ofmanufacturing, assembling, importingand NOTE 3-SEGMENT REPORTING to development costs inprogress (Note 11). regarding those capitalized costs annually. As of31December 2017 and31December 2016, there isnoimpairment determined related (h) Development costs related to continuing projects are capitalized andtheCompany management perform impairment test account theiruseful lives that are stated inNote 2(Notes 10and11). (g) The Company recognizes depreciation andamortization for its property, plant andequipment andintangibles by taking into 2.5 Significant accounting estimates anddecisions (Continued) NOTE 2-BASIS OFPRESENTATION OFFINANCIALSTATEMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. NOTE 5- (*) The Company’s shareholding inOtokar was stated at market value at 31December 2017 and31December 2016whichisassumed to approximate its fair value. FINANCIALASSETS Ownership rate (%)

0.59 31 December 2017 Amount 17,406 17,406 Ownership rate (%) 31 December 2017 31December 2016 Ford Otosan 2017 FinancialReport 1,805,945 1,802,917 1,039,955 724,578 35,399 3,028 2,985 0.59 31 December 2016

1,188,540 1,189,033 405,696 Amount 751,380 30,805 18,756 18,756 659 493 137

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance - USD Total short-term borrowings - Euro 2023 2022 2021 2020 2019 2018 Payment period Unrealised foreign exchange differences Effect of cash flows 1 January 138 The payment schedules oflong-term bank borrowings as of31December 2017 and31December 2016are as follows: - Euro Long-term borrowings: - Euro Short-term borrowings: 6. FINANCIALLIABILITIES (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport borrowings: Short-term portionoflong-term 31 December The movement offinancial liabilities as of31December 2017 and2016is as follows: (31 December 2016-TL1,188,529) (Note 13). The letters ofbank guarantee given to financialinstitutions in connection with borrowings amounting to TL1,432,410 31December 2017 31December 2017 Effective interest Effective interest rate (%) rate (%) 0.84 1.80 1.62 2.41 TL Amount TL Amount 1,783,880 1,820,167 1,061,621 1,820,167 722,259 910,746 150,875 722,259 31December 2016 31 December 2017 31December 2016 Effective interest Effective interest 3,604,047 1,820,167 2,852,130 rate (%) rate (%) 588,355 366,299 Total TL 489,827 186,965 163,562 551,302 150,517 75,257 2017 0.92 1.96 1.50 1.57 31 December 2016 TL Amount TL Amount 1,503,855 1,503,855 2,852,130 2,560,766 1,348,275 1,503,855 (130,763) 630,804 576,703 Total TL 578,550 274,403 140,768 444,441 576,703 771,572 176,769 422,127 29,692 2016 - Less: Provision for doubtful receivables Less: Unearned credit finance income Doubtful receivables Trade receivables Short-term trade receivables: Deposits andguarantees given Long-term trade receivables: Less: Unearned credit finance expense Trade payables Trade payables: guarantee, export credit insurance, Ford credit limitorupfront cash collection. The collection ofreceivables from export sales otherthanFord Motor Company iskept underguarantee withletter ofcredit, letter of (31 December 2016:0.96%). domestic sales ofspare parts turnover is70 days (31 December 2016: 70 days) and discounted by 1.32% monthly effective interest rate The average turnover ofreceivables related to vehicle sales to domestic distributors is25days (31December 2016:25days), NOTE 7-TRADE RECEIVABLES ANDPAYABLES (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. rate (31December 2016:0.96%). The average turnover oftrade payables is60 days (31December 2016:60 days) anddiscounted by 1.32%monthly effective interest 31 December 2017 31 December 2017 31 December 2017 Ford Otosan 2017 FinancialReport 1,304,279 2,921,390 1,299,746 2,941,886 (20,496) 1,317,031 (17,285) (4,533) 3,002 3,002 4,533 31 December 2016 31 December 2016 31 December 2016 799,304 1,823,160 1,832,582 802,670 794,771 (7,899) (4,533) (9,422) 4,533 1,464 1,464 139

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance - Amountofriskcovered by guarantees - Provision for impairment (-) -Overdue (gross bookvalue) Net bookvalue ofimpaired assets - Amountofriskcovered by guarantees reporting date (Notes 26, 7, 8, 4) The maximum ofcredit riskexposed at the 31 December 2016 overdue butnotimpaired Net bookvalue offinancial assets that are are neitheroverdue norimpaired Net bookvalue ofthefinancial assets that - Amountofriskcovered by guarantees guarantees - The maximum ofcredit riskcovered by otherwise classified as overdue orimpaired whose terms have been renegotiated The carrying amountoffinancial assets - Provision for impairment (-) -Overdue (gross bookvalue) Net bookvalue ofimpaired assets - Amountofriskcovered by guarantees overdue butnotimpaired Net bookvalue offinancial assets that are otherwise classified as overdue orimpaired whose terms have been renegotiated - The carrying amountoffinancial assets are neitheroverdue norimpaired Net bookvalue ofthefinancial assets that 140 The maximum exposure oftheCompany to credit riskas of31December 2017 and31December 2016isas follows: NOTE 7-TRADE RECEIVABLES ANDPAYABLES (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport guarantees - The maximum ofcredit riskcovered by reporting date (Notes 26, 7, 8, 4) The maximum ofcredit riskexposed at the 31 December 2017 Related party Related party 1,362,949 2,010,378 2,057,267 1,340,961 160,000 160,000 46,889 21,988 Trade receivables Trade receivables ------1,298,698 1,298,956 1,299,746 791,095 729,657 (4,533) (4,533) 794,771 Other Other 4,533 4,533 3,676 1,048 853 258 ------Related party Related party Otherreceivables Otherreceivables ------Other Other 504 504 521 521 ------Deposit inbank Deposit inbank 1,188,540 1,188,540 1,802,917 1,802,917 ------Risk covered by guarantees Risk covered by guarantees 1-5 years overdue 1-5 years overdue 1-3 monthsoverdue 3-12 monthsoverdue 3-12 monthsoverdue 1-3 monthsoverdue Other Rent accruals Sales premium accruals 1-30 days overdue 1-30 days overdue Other miscellaneous receivables Other receivables Taxes and fundspayable Other payables 31 December 2016 31 December 2017 NOTE 8-OTHER RECEIVABLES ANDPAYABLES The aging schedule ofreceivables that are overdue butnotimpaired isas follows; NOTE 7-TRADE RECEIVABLES ANDPAYABLES (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Motor Company. The Company’s overdue related party receivables are related to thelong term engineering service charges andspare parts exports to 31 December 2017 31 December 2017 Related party Related party Ford Otosan 2017 FinancialReport 46,889 56,385 21,988 42,234 10,169 37,591 2,440 8,359 6,493 5,792 1,901 7,757 2,161 365 521 521 - - - Trade receivables Trade receivables 31 December 2016 31 December 2016 43,609 76,129 17,465 3,676 1,048 Other Other 3,456 6,343 8,712 504 308 504 464 853 258 141 261 49 171 15 -

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Less: Provision for impairment offinished goods and vehicle spare parts Other Spare parts Vehicle spare parts 31 December Import vehicles intransitGoods Change withintheperiod Finished goods 1 January Raw materials 142 balance withintheyear isas follows: The Company has accounted theexpenses dueto theimpairment ofinventories as part ofcost ofsales andthemovement inthe facilities. The allocation offixed production overheads to finished goods costs of conversion is based onthenormal capacity ofthe production NOTE 9-INVENTORIES (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport or whenthey are classified as slow moving inventories. The reversal ofprovisions has been accounted under cost of sales (Note 18). The Company has provided aprovision for impairment ontheinventories whentheirnet realizable values are lower thantheircosts 31 December 2017 1,152,490 1,156,396 410,330 (3,906) 189,613 214,519 169,971 (1,326) 114,479 32,470 25,014 3,906 5,232 2017 31 December 2016 1,059,658 1,054,426 200,055 304,206 289,056 127,888 (5,232) 89,740 29,087 19,626 5,232 4,329 2016 903

FORD OTOMOTİV SANAYİ A.Ş. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)

NOTE 10 - PROPERTY, PLANT AND EQUIPMENT

Land Machinery & Models& Fixture& Vehicles Construction Land improvements Buildings equipment moulds furniture (*) in progress Total

1 January 2017 Cost 12,269 155,317 938,595 2,406,475 2,097,201 382,723 91,150 93,680 6,177,410 Accumulated depreciation - (71,313) (370,831) (1,145,067) (1,053,373) (219,873) (14,208) - (2,874,665)

Net book value 12,269 84,004 567,764 1,261,408 1,043,828 162,850 76,942 93,680 3,302,745

For the period ended 31 December 2017

Opening net book value 12,269 84,004 567,764 1,261,408 1,043,828 162,850 76,942 93,680 3,302,745

Additions - 8,346 14,953 179,274 282,925 25,754 31,467 90,737 633,456

Transfers - 48 24,209 30,378 8,505 176 6,129 (69,445) -

Disposals - - (724) (15,622) (2,199) (824) (5,715) - (25,084)

Depreciation charge - (5,853) (31,458) (140,655) (175,000) (32,667) (10,382) - (396,015)

Disposals from accumulated - - 724 14,919 2,159 642 2,674 - 21,118 depreciation

Closing net book value 12,269 86,545 575,468 1,329,702 1,160,218 155,931 101,115 114,972 3,536,220

31 December 2017

Cost 12,269 163,711 977,033 2,600,505 2,386,432 407,829 123,031 114,972 6,785,782

Accumulated depreciation - (77,166) (401,565) (1,270,803) (1,226,214) (251,898) (21,916) - (3,249,562) Ford Otosan 2017 FinancialReport Net book value 12,269 86,545 575,468 1,329,702 1,160,218 155,931 101,115 114,972 3,536,220

The Company compared the borrowing cost of investment loans in foreign currency to the market loan interest denominated in TL and foreign exchange differences and interest costs equal to an amount of TL 9,857 (31 December 2016: TL 5,882) has been recognized under property, plant and equipment according to the cumulative approach within the context of TMS 23 as of 31 December 2017.

There is no collateral, pledge or mortgage on tangible assets as of 31 December 2017 and 2016.

(*)The Company makes a part of its truck sales with buyback commitment and trucks sold in this scope are monitored in “Vehicles” under Property, Plant and Equipment and their cost value amounts to TL 103,636

143 (31 December 2016: TL 74,886).

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 144 Ford Otosan 2017 FinancialReport FORD OTOMOTİV SANAYİ A.Ş. NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)

NOTE 10 - PROPERTY, PLANT AND EQUIPMENT

Land Machinery & Models & Fixture & Construction Land improvements Buildings equipment moulds furniture Vehicles (*) in progress Total

1 January 2016 Cost 12,269 150,449 905,799 2,287,633 1,941,079 344,843 74,226 45,465 5,761,763 Accumulated depreciation - (66,616) (339,275) (1,012,441) (892,703) (193,167) (6,843) - (2,511,045)

Net book value 12,269 83,833 566,524 1,275,192 1,048,376 151,676 67,383 45,465 3,250,718

For the period ended 31 December 2016 Opening net book value 12,269 83,833 566,524 1,275,192 1,048,376 151,676 67,383 45,465 3,250,718

Additions - 3,846 10,124 110,111 153,094 42,795 33,673 93,592 447,235

Transfers - 2,155 23,237 15,931 3,838 13 203 (45,377) -

Disposals - (1,133) (565) (7,200) (810) (4,928) (16,952) - (31,588)

Depreciation charge - (5,615) (31,633) (139,504) (161,480) (31,156) (9,132) - (378,520)

Disposals from - 918 77 6,878 810 4,450 1,767 - 14,900 accumulated depreciation

Closing net book value 12,269 84,004 567,764 1,261,408 1,043,828 162,850 76,942 93,680 3,302,745

1 January 2016 Cost 12,269 155,317 938,595 2,406,475 2,097,201 382,723 91,150 93,680 6,177,410

Accumulated depreciation - (71,313) (370,831) (1,145,067) (1,053,373) (219,873) (14,208) - (2,874,665)

Net book value 12,269 84,004 567,764 1,261,408 1,043,828 162,850 76,942 93,680 3,302,745

Associated withconstruction inprogress Accumulated amortisation Cost 31 December 2017 Net bookvalue Marketing expenses (Note 19) Closing net bookvalue General administrative expenses (Note 19) Amortisation charge Additions Opening net bookvalue For theperiodended 31December 2017 Net bookvalue Cost ofproduction (Note 18) Research anddevelopment expenses (Note 19) (31 December 2016:None). As of31December 2017, there isnocapitalized interest costs andforeign exchange differences in accordance withTMS23 There isnofully depreciated intangible assets as of31December 2017. Accumulated amortisation Cost 1 January 2017 The allocation ofdepreciation expense as of31December 2017 and2016isas follows: (31 December 2016:None). As of31December 2017, there isnocapitalized interest costs andforeign exchange differences in accordance withTMS23 NOTE 10-PROPERTY, PLANTANDEQUIPMENT (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. NOTE 11-INTANGIBLE ASSETS (45,405) (36,497) (8,908) 55,093 40,352 Rights 9,688 9,688 3,855 3,855 14,741 Development (303,302) (235,286) 349,087 349,087 (68,016) 418,593 652,389 653,879 418,593 (1,490) cost cost inprogress Development 330,166 330,166 201,059 330,166 129,107 129,107 129,107 - - - 31 December 2017 Ford Otosan 2017 FinancialReport 396,015 367,067 (5,475) (6,160) 16,328 1,008 (685) Other 6,483 1,396 1,396 1,008 7,556 1,073 1,428 8,221 2,971 31 December 2016 (354,867) 1,045,204 (277,258) 690,337 690,337 552,563 378,520 (77,609) 552,563 829,821 352,537 215,383 14,330 Total 2,723 1,493 7,437 145

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Ford Otosan 2017 Financial Report Ford Otosan 2017 Financial Report

FORD OTOMOTİV SANAYİ A.Ş. FORD OTOMOTİV SANAYİ A.Ş.

NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2017 NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2017 a Glance at Ford Otosan Ford (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)

NOTE 11 - INTANGIBLE ASSETS (CONTINUED) NOTE 12 -PREPAID EXPENSES

Short-term prepaid expenses: 31 December 2017 31 December 2016 Development Development 1 January 2016 Rights Other Total Advances given for inventories 86,338 53,091 cost cost in progress Other prepaid expenses 15,641 5,920 Cost 31,101 649,415 52,669 6,460 739,645 101,979 59,011 Accumulated amortisation (29,106) (165,992) - (4,827) (199,925) Assembly General

Net book value 1,995 483,423 52,669 1,633 539,720

For the period ended 31 December 2016 Long-term prepaid expenses: 31 December 2017 31 December 2016 Opening net book value 1,995 483,423 52,669 1,633 539,720 Advances given for investments (*) 300,805 178,333 Additions 9,785 4,464 76,438 23 90,710 Other prepaid expenses 10,487 - Disposals (534) - - - (534) 311,292 178,333 Amortisation charge (7,925) (69,294) - (648) (77,867)

(*) Advances given for investments are related to the Company’s new vehicle investments. TL 244,988 (31 December 2016: TL 133,801) is given to domestic vendors as mould Management Disposals from accumulated amortisation 534 - - - 534 advances and TL 55,817 (31 December 2016: TL 44,532) is given for the new project investments. and Assessments Closing net book value 3,855 418,593 129,107 1,008 552,563

31 December 2016 NOTE 13 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES Cost 40,352 653,879 129,107 6,483 829,821

Accumulated amortisation (36,497) (235,286) - (5,475) (277,258) The Company recognizes 2, 3 and 4 years of warranty provision for the vehicles sold by dealers for malfunctions described in the sales agreements. Warranty expense provision is estimated by considering vehicles under warranty as of the balance sheet date and Net book value 3,855 418,593 129,107 1,008 552,563 warranty claims of vehicles sold in previous years on a model basis.

Short-term provisions: The allocation of amortisation charges of intangible assets relating to 31 December 2017 and 2016 is as follows:

31 December 2017 31 December 2016 in 2017 Otosan Ford

31 December 2017 31 December 2016 Warranty expense provision 108,900 93,567 Cost of production (Note 18) 69,734 70,824 Provisions for sales premium (*) 50,714 42,673

General administrative expenses (Note 19) 4,502 4,434 159,614 136,240

Research and development expenses (Note 19) 2,804 2,391 (*) Provisions for sales premium is composed of expense accruals related with dealer vehicle stock at the reporting date (Note 2). Marketing expenses (Note 19) 472 88 Associated with construction in progress 97 130 Long-term provisions:

77,609 77,867 31 December 2017 31 December 2016 Sustainability Warranty expense provision 122,625 60,820

Provisions for lawsuits 46,660 39,295

169,285 100,115

The movement of provisions for lawsuits during the period is as follows: 2017 2016 1 January 39,295 39,395 Paid during the period (5,341) (7,472) Corporate Governance Corporate Additions during the period 12,706 7,372

31 December 46,660 39,295 Financial Reports

146 147 31 December Additions duringtheperiod(Note 19) D. Total amountofothercollaterals /pledges /mortgages given TL Paid duringtheperiod parties, for thepurpose ofconducting thebusiness activities C. Total amountofcollaterals /pledges /mortgages given to assure debts ofthird Letters ofguarantees given to otherparties Letters ofguarantee given to customs USD 1 January B. Total amountofcollaterals /pledges /mortgages given for participations included inentire consolidation A. Total amountofcollaterals /pledges /mortages given for its own Legal entity Letters ofguarantee given to financialinstitutions due to bank loans 148 Letters ofguarantee given Letters ofguarantee andletters ofcredit Movements inthewarranty expense provision duringtheperiodisas follows: NOTE 13-PROVISIONS, CONTINGENT ASSETS ANDLIABILITIES (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Collaterals, pledges andmortgages given by theCompany The allocation ofcollaterals, pledges andmortgages as of31December 2017 and31December 2016as follows: Euro C section iii. Total amountofcollaterals /pledges /mortgages given for third parties that donotfall into fall into BandC sections ii.Total amountofcollaterals /pledges /mortgages given for otherrelated companies that donot i. Total amountofcollaterals /pledges /mortgages given for theparent company 31December 2017 Origiinal currency 293,866 40,013 18,395 TL equivalent 1,496,274 1,326,954 150,925 18,395 31 December 2017 31 December 2017 Original currency 31December 2016 (110,949) 1,496,274 1,496,274 1,496,274 1,432,410 154,387 292,482 231,525 188,087 49,762 40,013 15,384 14,102 2017 ------31 December 2016 31 December 2016 TL equivalent 1,085,078 1,241,276 1,241,276 1,241,276 (102,787) 1,188,529 1,241,276 154,387 155,559 140,814 101,615 41,696 15,384 11,051 2016 ------USD Euro Between 1year to 5years Within 1year TL Letters ofguarantee received as follows: As of31December 2017 and31December 2016, total amountofthecollaterals, pledges andmortgages obtained by theCompany are NOTE 13-PROVISIONS, CONTINGENT ASSETS ANDLIABILITIES (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Operational lease commitments Future lease payments undernon-cancellable operating leases oftheCompany isas follows: Operational lease commitments · · · · b) The Company, also committed to Türkiye İhracat Kredi Bankası A.Ş(Eximbank); Euro 160,000,000 for theyear 2017. amount equal to Euro 80,000,000 istransacted through Yapı Kredi andEuro 80,000,000 istransacted through İşBankası, totalling 40,000,000 withİşBankası A.Ş., totally Euro 80,000,000, theCompany isrequired to ensure that its export proceeds upto an a) Based ontheoneyear credit agreements made in2017, amountingto Euro 40,000,000 withYapı Kredi andamountingto Euro Commitments related withbank loans used by theCompany are as follows: NOTE 14 -COMMITMENTS Such financial ratios are met by the Company as of31December 2017 and31December 2016. The long-term bank borrowing agreements related to theinvestments require theCompany to comply withcertain financial ratios. Other · · · · With 8monthsterm credit amountingto Euro 105,000,000 used inSeptember 2017 anexport amountofEuro 105,000,000, With 8monthsterm credit amountingto Euro 35,000,000 used inJune2017 anexport amountofEuro 35,000,000, With 8monthsterm credit amountingto Euro 35,000,000 used inMay 2017 anexport amountofEuro 35,000,000, With 8monthsterm credit amountingto USD 40,000,000 used inDecember 2017 anexport amountofUSD 40,000,000, 31December 2017 Original currency 213,657 13,358 4,602 TL equivalent 291,333 213,657 60,318 17,358 31 December 2017 Original currency 31December 2016 Ford Otosan 2017 FinancialReport 73,006 18,335 10,053 8,282 7,169 396 31 December 2016 TL equivalent 100,996 73,006 26,596 14,592 8,844 5,748 1,394 149

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Other Withholding income tax payable Turnover rate to estimate theprobability ofretirement (%) Net discount rate Social security premiums payable Provision for unused vacation pay liability Expected salary increase rate (%) Provision for employment termination benefits Salaries andsocial charges payable Discount rate (%) 150 accordingly, thefollowing actuarial assumptions were used inthecalculation ofthetotal liability TFRS requires actuarial valuation methods to bedeveloped to estimate theCompany’s obligation underdefined benefit plans, future probable obligation oftheCompany arisingfrom theretirement oftheemployees. The liability is not funded, as there is no funding requirement. The provision has been calculated by estimating the present value of the (31 December 2016:TL4,297.21). The amountpayable consists ofonemonth’s salary limited to amaximum ofTL5,001.76 for each year ofservice as ofJanuary 1, 2018 25 years ofservice (20 years for women) andachieves theretirement age (58for women and60 for men). service andwhose employment isterminated withoutduecause, orwhoiscalled upfor military service, dies orretires after completing Under theTurkish Labour Law, theCompany isrequired to pay termination benefits to each employee whohas completed one year of There are noagreements for pensioncommitments otherthanthelegal requirement as explained below: Provision for employment termination benefits: Provision for employee benefits: (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Liabilities for employee benefit obligations: NOTE 15-EMPLOYEE BENEFITS 31 December 2017 31 December 2017 31 December 2017 184,092 153,484 110,644 40,402 30,298 131,726 21,758 2,748 96.0 11.8 6.5 4.9 31 December 2016 31 December 2016 31 December 2016 102,299 130,326 110,025 22,989 20,301 36,991 40,181 2,138 95.6 10.8 6.0 4.5 31 December Actuarial (gains) /losses Paid duringtheperiod Current year service cost Other Change inprovision for employee benefits Interest cost Prepaid taxes andwithholding 1 January VAT to bededucted (*) Rate (%) in January 2018. (*) VAT to bededucted includes export VAT receivables related to November andDecember 2017. VAT receivables amounting to TL148,432 for November 2017 was collected NOTE 16-OTHER CURRENT ASSETS 31 December 2017 isbelow: The sensitivity analysis oftheassumptions whichwas used for thecalculation ofprovision for employee benefits as of Movements intheprovision for employee benefits duringthe year are as follows: (July 1-31December 2016:TL4,297.21) has been used inthecalculations. the reserve for employee benefits once a year, themaximum amountofTL5,001.76 which was effective asofJanuary 1, 2018 applied represents theexpected real rate after adjusting for theanticipated effects offuture inflation. Since the Company calculates The principal assumption isthat themaximum liability for each year ofservice willincrease inlinewithinflation. Thus thediscount rate NOTE 15-EMPLOYEE BENEFITS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Sensitivity level 0,5% decrease 6,414 (4,4) Net discount rate 0,5% increase (5,922) (5,4) Turnover rate related to theprobability 31 December 2017 0,5% decrease Ford Otosan 2017 FinancialReport 404,561 (10,442) 110,025 (4,430) 131,726 371,827 20,052 of retirement 20,316 12,682 (23) 11,850 2017 95,5 31 December 2016 0,5% increase 213,526 196,050 (14,522) 110,025 87,579 15,458 12,445 9,065 4,863 4,363 13,113 2016 96,5 151

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Inflation adjusted paid in capital Inflation adjustment to share capital Total Other (Publicly Held) Koç Holding Emekli ve Yardım Sandığı Vakfı Vehbi Koç Vakfı Ford Motor Company Temel Ticaret ve Yatırım A.Ş. Koç Holding A.Ş. Shareholders 152 rate. Companies distribute dividendinaccordance with themethod defined intheirdividendpolicy orarticles ofincorporation. taken ingeneral assembly andalso inconformity withrelevant legislations. The communiqué does notconstitute aminimum dividend 1, 2014. Companies distribute dividendsinaccordance with theirdividendpayment policies settled anddividendpayment decision Listed companies distribute dividendinaccordance withtheCommuniqué No. II-19.1 issued by the CMBwhichiseffective from February transferred to paid-in share capital. Other equity items shallbecarried at theamounts calculated based onTAS. Adjustment to share capital has nouse otherthanbeing dividend distribution orcapital increase yet, shallbeclassified under “Retained earnings”, - thedifference due to theinflation adjustment of “Restricted reserves” and “Share premium” andtheamount has not been utilized in Adjustment to Share Capital’’, - “the difference arisingfrom the “Paid-in Capital” andnotbeen transferred to capital yet, shallbeclassified underthe “Inflation valuation differences shallbe classified as follows numbered 28676, “Share Capital”, “Restricted Reserves” and “Share Premiums” shall be carried at their statutory amount. The Communiqué”) announced by theCapital Markets Board ofTurkey (“CMB”)onJune13, 2013which ispublished onOfficial Gazette In accordance withCommuniqué numbered II-14.1 “Communiqué onthePrinciples ofFinancialReporting InCapital Markets” (“the reserves”, theamountofrestricted reserves isTL254,404 as of31December 2017 (31December 2016:TL284,207). In accordance withCMBFinancialReporting Standards, theCompany classified theabove mentioned reserves under “Restricted reserve does notexceed at therate of50%thepaid-in capital. distributions inexcess of5%thepaid-in capital, UndertheTCC; thelegal reserves can beused only to offset losses, unless legal reaches 20%ofthe Company’s paid-in capital. The second legal reserve isappropriated at therate of10%perannumallcash TCC stipulates that thefirst legal reserve isappropriated outof statutory profits atthe rate of5%perannum, untilthe total reserve The legal reserves consist of first and second reserves, appropriated in accordance with the Turkish Commercial Code (“TCC”). The There are 35,091,000,000 unitofshares (31December 2016:35,091,000,000 unit) withanominalvalue ofKr 1each. Adjustment to share capital represents therestatement effect of cash and cash equivalent contributions to share. The composition oftheCompany’s paid-in capital as of31December 2017 and31December 2016isas follows: NOTE 17 -EQUITY (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Share Group A A A C B B

31 December 2017 378,830 350,910 134,953 143,997 27,920 62,786 3,559 2,356 3,259 percentage (%) Shareholders 38,46 41,04 17,89 0,93 0,67 100 1,01 31 December 2016 378,830 350,910 134,953 143,997 27,920 62,786 3,559 2,356 3,259 percentage (%) Shareholders 38,46 41,04 17,89 0,93 0,67 100 1,01 Losses onremeasurements ofdefined benefit plans Losses oncash flow hedges Gains onremeasurement and/or reclassification of available-for sale financial assets Share premium Inflation adjustments on capital Total equity Net income for theperiod Issued capital at 31December 2017 and31December 2016are as follows: In accordance withCommuniqué No:II-14,1, “Communiqué onthePrinciples ofFinancialReporting InCapital Markets”, equity schedule TL cash dividend was distributed). 350,910 and in November 2016, the full TL 1 share will be TL 89.00 gross (net 75.65 Kr) amounting to TL 312,310; a total of 663,220 full TL1. The Company made thedividendpayment inNovember. (InApril2016, 100%ofthegross TL1share (TL85.00 Kr) willbeTL dividends at therate of111%gross, withatotal amount ofTL389,511 as fullTL1,11 gross (Kr 94.35 net) for each share withavalue of In accordance withtheExtraordinary General Assembly Meeting dated as ofOctober 27, 2017, theCompany has decided to distribute net) for each share withavalue offullTL1. The Company made thedividendpayment inApril2017. the net profit ofthe year 2016, at the rate of114% gross (96.90% net), witha total amountofTL400,037 as fullTL1.14 gross (Kr 96.90 In accordance with the General Assembly Meeting dated as of March 23, 2017, the Company has decided to distribute dividends from dividend for shareholders ispaid incash. members oftheboard ofdirectors orto theemployees; andnodividendcan bedistributed to these persons unless thedetermined other reserves, to transfer profits to thesubsequent year or to distribute dividends to theholders ofusufruct right certificates, tothe in thearticle ofassociation orinthedividenddistribution policy ofthecompany are set aside, nodecision may bemade to set aside In accordance with the Turkish Commercial Code (TCC), unless the required reserves and the dividend for shareholders as determined year-end financial statements ofthe Company. In addition, dividendcan bedistributed by fixed or variable instalments and advance dividend can be paid in accordance withprofit on NOTE 17 -EQUITY (CONTINUED) Restricted reserves Restricted (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Retained earnings Retained - Extraordinary reserves - Inflation adjustment to equity - Legal reserves 31 December 2017 3,695,859 Ford Otosan 2017 FinancialReport 1,489,983 1,645,846 2,074,147 2,074,147 (503,120) 254,404 254,404 (14,001) 350,910 428,301 15,608 27,920 8

31 December 2016 1,878,584 3,163,619 (336,189) 1,450,283 955,308 284,207 284,207 (14,019) 350,910 428,301 16,890 27,920 153 8

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 31 December Losses oncash flow hedges Actuarial gains /(losses) Other reserves Share premium (Losses) gains onremeasurement and/or reclassification of available-for-sale financial assets Other reserves Share premium Extraordinary reserves 1 January income andexpense underequity are as follows: The net oftax effects ofthechanges inthe statement ofother comprehensive income andthe effects ofthechanges in accumulated statement ofcomprehensive income. 31 December 2017, fair value change (negative) amountingto TL(1,282) net ofdeferred tax, (31December 2016:TL5,824) isshown in Otokar shares whichare publicly traded inBIST are valued at theirclosing price as of31December 2017 and31 December 2016. As of amount ofextraordinary reserves can be utilized inissuingbonusshares, cash dividenddistribution andoffsetting accumulated losses. Inflation adjustment difference in equity canbeutilized inissuingbonusshares andin offsetting accumulated losses; the carrying 154 31 December 2016 31 December 2017 31 December 2017 and31December 2016are as follows: The readjusted amounts andequity inflation adjustment differences ofthehistorical values shown above forthe year ended NOTE 17 -EQUITY (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Extraordinary reserves Legal reserves Legal reserves Issued capital Issued capital 2,085,408 1,645,846 Historical Historical 2,251,168 1,450,283 254,404 284,207 350,910 350,910 values values 8 8 - - 2,707,389 2,541,629 (333,318) (501,513) Adjusted Adjusted 2,014,991 1,819,428 (166,931) 342,960 378,830 378,830 (1,282) 313,157 values values 2017 361 361 50 50 18 Equity inflation Equity inflation adjustment adjustment differences differences (144,994) (333,318) 456,221 456,221 (181,781) 369,145 369,145 (12,367) 58,753 58,753 27,920 27,920 5,824 2016 353 353 50 50 Less: Discounts Total cost ofsales Other sales Cost oftrade goods sold Total production cost Changes infinished goods Domestic sales Depreciation andamortization expenses (Notes 10and11) Production overhead costs Raw material cost Export sales Summaries ofcost ofproduction as of31December 2017 and 2016are as follows: Units ofvehicle sales: NOTE 18-REVENUEANDCOST OFSALES (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Transit Custom Transit Transit Courier Passenger vehicles Cargo Ranger New Transit Connect Domestic sales 115,462 29,080 35,549 33,543 5,190 7,642 1,747 2,711 31 December 2017 Export sales 297,396 157,502 100,181 37,864 1,309 482 26 32 Total sales 412,858 165,144 129,261 34,025 73,413 6,499 2,743 1,773 Domestic sales 115,786 33,236 27,629 5,509 37,451 2,887 2,037 7,037 31 December 2017 31 December 2017 31 December 2016 (22,704,095) (19,653,050) (17,893,433) 25,341,290 (3,051,045) (1,249,605) (885,660) Ford Otosan 2017 FinancialReport 17,830,091 (436,801) 8,272,097 Export sales (73,211) 124,762 257,246 129,792 33,063 93,077 402 877 24 11 31 December 2016 31 December 2016 (16,203,045) (13,870,058) (12,343,575) (1,032,889) (2,332,987) 18,289,107 Total sales 12,286,677 6,737,600 (810,467) (423,361) (70,233) 373,032 136,829 120,706 33,638 75,297 70,514 6,386 2,898 2,061 155

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Ford Otosan 2017 Financial Report Ford Otosan 2017 Financial Report

FORD OTOMOTİV SANAYİ A.Ş. FORD OTOMOTİV SANAYİ A.Ş.

NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2017 NOTES TO FINANCIAL STATEMENTS FOR THE PERIOD ENDED 1 JANUARY - 31 DECEMBER 2017 a Glance at Ford Otosan Ford (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.) (Amounts expressed in thousands of Turkish Lira (“TL”) unless otherwise indicated.)

NOTE 19 - RESEARCH AND DEVELOPMENT EXPENSES, MARKETING EXPENSES, GENERAL ADMINISTRATIVE EXPENSES NOTE 20 - EXPENSES BY NATURE

31 December 2017 31 December 2016 The classification of expenses by nature for the year ended at 31 December 2017 and 2016 is as follows:

Marketing expenses 31 December 2017 31 December 2016 Warranty expenses (Note 13) (188,087) (155,559) Raw material cost (17,893,433) (12,343,575) Advertising expenses (90,695) (85,708) General Assembly General Cost of trade goods sold (3,051,045) (2,332,987) Personnel expenses (83,242) (69,632) Personnel expenses (1,004,888) (872,414) Vehicle transportation expenses (59,350) (49,419) Other operational expenses (734,956) (695,465) Spare parts transportation and packaging expenses (25,237) (19,656) Other overhead costs (585,438) (488,547) Dealer and service development expenses (23,417) (14,991) Financial expenses (786,231) (445,194) Export expenses (19,333) (11,303) Depreciation and amortization expenses (472,099) (454,764) Depreciation and amortization expenses (Notes 10 and 11) (3,443) (2,811) Other operational expenses (278,508) (199,316) Other (51,499) (39,187) Management

Expenses from investing activities (3,407) (6,263) and Assessments (544,303) (448,266) Changes in finished goods (73,211) (70,233)

Total Expenses (24,883,216) (17,908,758) 31 December 2017 31 December 2016

General administrative expenses Personnel expenses (103,730) (92,080) NOTE 21 - OTHER OPERATING INCOME / EXPENSES

Legal, consulting and auditing expenses (34,798) (28,532) 31 December 2017 31 December 2016

Grants and donations (27,374) (22,132) Other operating income Foreign exchange gains related to trade receivables and payables 212,701 117,234

Organization expenses (14,220) (14,500) in 2017 Otosan Ford

Depreciation and amortization expenses (Notes 10 and 11) (12,723) (11,871) Credit finance income 139,378 92,716

New project administrative expenses (12,349) (12,851) License fees income 15,481 12,401

Travel expenses (7,011) (7,010) Provisions no longer required 14,047 -

Repair, maintenance and energy expenses (4,659) (3,312) Price difference and claim recovery 10,877 10,677

Duties, taxes and levies (4,038) (5,697) Rent income 5,368 5,172

Other (28,578) (27,053) Commission income 7,057 6,008

Adjustments of prior period corporate income tax 3,302 2,316 Sustainability (249,480) (225,038) Other 52,251 34,902

460,462 281,426 31 December 2017 31 December 2016

Research and development expenses 31 December 2017 31 December 2016

Personnel expenses (153,748) (166,361) Other operating expenses Project costs (108,297) (170,480) Credit finance charges (177,790) (118,062)

Mechanization expense (24,378) (17,604) Foreign exchange losses related to trade receivables and payables (95,109) (76,684)

Depreciation and amortization expenses (Notes 10 and 11) (19,132) (16,721) Other (5,609) (4,570)

Other (11,637) (12,678) Governance Corporate (278,508) (199,316) (317,192) (383,844) Financial Reports

156 157 Gains from derivative instruments Interest income Gains from derivative instruments Interest income Foreign exchange gains Foreign exchange gains losses cannot becarried back to offset profits from previous periods. Under theTurkish taxation system, tax losses can becarried forward to offset against future taxable income for up to five years. Tax on theirfindings. have therightto audit tax returns, andtherelated accounting records onwhichthey are based, andmay issuere-assessments based Tax returns are openfor five years from thebeginning ofthe year that follows thedate offilingduringwhich timethe tax authorities 158 Tax Office withinthe25 In Turkey, there isno procedure for afinalanddefinitive agreement on tax assessments. Companies file their tax declarations to the this amountcan berefunded orany otherfinancialdebt to the state can be deducted. tax declaration oftheinstitutions to begiven inthefollowing year. Ifthetemporary tax amountpaid remains inspite oftheindictment, The temporary tax paid duringtheyear belongs to that year andisdeducted from thecorporation tax that willbecalculated over the included incapital, nowithholding tax shallbeapplicable. corporations to resident corporations is not subject to a withholding tax. Furthermore, in the event the profit is not distributed or not liable to income andcorporation tax, non-resident real persons, non-resident corporations. Dividenddistribution by resident 15% withholding tax rate applies to dividendsdistributed by resident corporations resident real persons except for, those whoare tax deductions (e.g. research anddevelopment expenditures deduction). Nofurthertax ispayable unless theprofit isdistributed. disallowable expenses, corporate income tax exemptions (participation exemption, investment incentive, etc.) andcorporate income (December 31, 2016-20%). Corporate tax ispayable at arate of20%onthetotal income oftheCompany after adjusting for certain many oftheprovisions came into force effective from January 1, 2006. Accordingly, the corporate tax rate for thefiscal year 2017 is20% Corporate Tax Law was amended by theLaw No, 5520dated June13, 2006. Law No, 5520came into force as of21June2006, but NOTE 24 -TAX ASSETS ANDLIABILITIES NOTE 23-FINANCIALEXPENSES NOTE 22-FINANCIALINCOME (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport th ofthefourth monthfollowing the close ofthefinancial year. 31 December 2017 31 December 2017 (786,231) (722,396) (42,394) 562,262 482,835 (21,441) 74,896 4,531 31 December 2016 31 December 2016 (445,194) (388,753) (40,739) (15,702) 287,595 310,182 22,587 - Current years’ profit tax liability Prepaid tax andwithholding The Company’s net tax position as of31December 2017 and31December 2016are as follows: this amounthas been deducted from thetotal deferred tax asset. The Company utilized discounted corporate taxation amountingto TL167,371 (31December 2016:TL 66,129) inthecurrent year and made intheframework oftherelated new investment incentive certificates. As ofthedate ofthebalance sheet, theinvestment expenditures amountingto TL2,814,923 (31December 2016:TL2,229,638) was expenses exceeds TL1billion, theCompany can benefit from the additional 10% rate of contribution to investment. to investment. Since thePrivileged Investment Incentive Certificate amounting to TL1,194,398 received for theNewGeneration Transit investments willbenefit from the5. Region contributions according to thenew incentive regulation andhas a40% rate of contribution related to Ford Transit, andFord Transit Custom models whose production isstill going oninduring2016. The an amountofTL849,160 because ofreplacement andfactory modernization investments whichshallbemade infollowing periods use in the year 2018 in the Eskişehir Inönü plant. Additionally, the Company has obtained primaryinvestment incentive certificate at rate ofcontribution to investment for theexpanding investment for theproduction ofEuro 6emissiontrucks whichwillbeputinto Transit vehicles. In December 2014, the Company received a privileged investment incentive amounting to TL 331,362 and with a 40% incentive certificate amounting to TL187,379 for theproduction ofnew 6and4 cylinder engines for theproduced Ford Cargo andFord in thelightcommercial vehicle segment. Inaddition to vehicle investments, in2013, theCompany acquired aprivileged investment Transit modelandaprivileged investment incentive certificate amounting to TL 697,394 for thenew model Transit Courier investment decree acquired aprivileged investment incentive certificate amounting to TL1,194,398 for theinvestment ofits new generation became effective onJune 19, 2012. The Company revalued its existing investments andwithinthe scope ofabove mentioned new The decree onGovernment Subsidies for Incentives re-regulating investment incentives was published intheofficial gazette and 559,295) was made andsubject to document expenditures iscompleted. date, intheframework oftherelated investment incentive certificates, aninvestment expense ofTL559,295 (31December 2016:TL investment islocated inthe1. Region andhas a30%rate ofcontribution to investment. As ofthestatement ofthefinancialposition effective on16July 2009. Within the scope ofthisdecree, the Company acquired a large-scaled investment incentive certificate subject The decree onGovernment Subsidies for Incentives regulating investment incentives was published in the official gazette and became return for thelegal tax. As of31December 2017, theCompany utilised R&Dincentive exemption amountingofTL518,523 (31December 2016:TL414,086) in and utilizes R&Ddeduction exemption at therate of100%for theportionofexpenses allowed by theCode. of thesame Code, theCompany makes calculation withintheframework oftherelated legislation over theR&Dexpenses incurred, The Company capitalizes theR&Dexpenses made withinthescope oftheCode no5746 inits legal books. According to theprovisions participation certificates andinvestment trusts shares) are exempt from corporate. Dividend gains from shares incapital ofanothercorporation subject to resident taxpaying (except dividendsfrom investment funds There are many exceptions to theInstitutions Tax Law. These exceptions to theCompany are explained below: NOTE 24 -TAX ASSETS ANDLIABILITIES ( Current year corporate tax expense (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. CONTINUED) 31 December 2017 Ford Otosan 2017 FinancialReport (6,390) (19,511) 13,121 31 December 2016 (20,414) 22,171 1,757 159

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Other Investment incentive exemption Research anddevelopment deductions Continuing operations tax income /(expense) Deferred tax income Other deferred tax Current year tax expense Current year tax effect of cash flow hedge (*) Effective tax rate Current year corporate tax expense Income before tax: 160 December 2016usingthecurrent enacted tax rates isas follows: The breakdown ofcumulative temporary differences andthe resulting deferred tax assets andliabilities as at 31December 2017 and31 which willberealized in2018, 2019 and2020, andwith20%tax for those which willberealized after 2021andonwards. Therefore, deferred tax assets andliabilities as of31December 2017 are calculated with22%tax rate for thetemporary differences Certain Tax Laws andSome OtherLaws”, corporate tax rate for theyears 2018, 2019 and2020has increased from 20%to 22%. In accordance withtheregulation numbered 7061, published inOfficial Gazette on5 December 2017, "Law ontheAmendment of differences between the statement offinancial position prepared underTFRS andfinancial statements prepared for taxpurposes. The Company calculates deferred tax assets andliabilities from thetemporary differences identified duringthe evaluation ofthe 2017 and2016current tax ratio based onincome before tax isas follows: Calculation ofthetax expense reconciliation usingthecurrent periodtax expense inthestatement ofprofit or loss as at 31December transactions. (*)The amountrepresents thetax effect ofthe reclassisfication made between the statement ofincome andother comprehensive income relating to the cash flow hedge The taxation onincome for theperiodsended 31December 2017 and2016are as follows; NOTE 24 -TAX ASSETS ANDLIABILITIES (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport 31 December 2017 31 December 2017 (296,232) 1,481,161 (41,733) 103,705 192,295 (19,511) 70,066 28,333 8,822 8,822 9,054 %20 31 December 2016 31 December 2016 (194,034) (14,863) (14,863) (45,445) (20,414) 50,996 87,885 970,171 82,817 8,469 5,551 %20 Net deferred tax asset Income accruals andother Tangibles andintangibles Deferred tax liabilities: Deferred tax asset, net Inventories Warranty expense provision Deferred tax asset, net Inventories Inventories Provision for employee benefits Warranty expense provision Warranty expense provision Expense accruals andother Provision for employee benefits Expense accruals andother Investment incentive tax asset Deferred tax assets: Employee benefits provision Expense accruals andotherprovisions Investment incentive tax asset Deferred tax assets: Income accruals andother Investment incentive tax asset Deferred tax assets: Income accruals andother Tangible andintangible assets Deferred tax liabilities: Tangible andintangible assets Deferred tax liabilities: NOTE 24 -TAX ASSETS ANDLIABILITIES ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. The deferred tax movement table ispresented below: CONTINUED) 31 December 2017 1 January 2016 1 January 2017 Cumulative temporary differences 4,825,350 (286,054) (266,801) 1,531,760 1,459,592 502,533 4,037,011 (18,440) (12,440) 398,708 740,039 556,314 718,283 231,525 26,380 22,004 30,878 131,726 20,323 18,224 72,168 6,676 17,516 61,211 7,428 Charged Statement Charged Statement income /(expense) income /(expense) 31 December 2016 of profit orloss as of profit orloss as 4,591,472 3,987,624 1,522,471 1,430,271 306,055 (19,253) (5,864) 50,996 70,066 (5,694) 154,387 110,025 92,200 25,205 42,987 24,924 10,555 19,642 33,381 21,756 2,686 4,346 (873) (752) 1,397 income statement as income statement as income /(expense) income /(expense) Deffered tax assets /(liabilities) 31 December 2017 comprehensive comprehensive Charged to Charged to (307,604) Ford Otosan 2017 FinancialReport (291,918) 626,443 934,047 (15,686) 764,963 50,520 26,345 86,416 (306) 5,803 2,785 3,091 (5) 68 63 ------31 December 2016 31 December 2016 31 December 2017 (304,494) (286,054) (286,054) 860,808 (291,918) 626,443 (18,440) (18,440) (15,686) 740,039 740,039 556,314 556,314 764,963 50,520 22,004 22,004 30,878 30,878 26,345 86,416 5,803 6,676 6,676 61,211 61,211 161

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Earnings pershare withnominalvalue ofKr 1each Less: Unearned credit finance income Weighted average numberofshares withnominal Net income for theyear (TL) Other Otokoç Otomotiv Ticaret ve Sanayi A.Ş. Due from group companies (*): Ford Motor Company andits subsidiaries 162 Sanayi A.Ş. isduein25days onaverage andsales ofspare parts isduein70 days onaverage. have avehicle andspare parts trade connection. As mentioned inNote 7, theCompany’s receivables from Otokoç Otomotiv Ticaret ve Per thedomestic dealership agreement between Ford Otomotiv Sanayi A.Ş. andOtokoç Otomotiv Ticaret ve Sanayi A.Ş., theCompanies with Ford Motor Company. Receivables from theFord Motor Company are duein14 days andreceivables are collected regularly. Export sales mainly consist ofsales to Ford Motor Company. Payments terms andconditions are specified inthebusiness agreements (*) The Company’s shareholders’ subsidiaries andaffiliate. Due from shareholders: parties: related from receivable Trade i) a) Receivables from related parties: as follows: The related party balances at 31December 2017 and31December 2016andthetransactions withrelated parties duringtheyear are parties. statements, shareholder companies, shareholders andfinancialfixed assets andother group companies’ assets are shown as related financial and administrative decisions. The Company, is controlled by Koç Holding A.Ş. andFord Motor Company. Inthefinancial Related party can bedefined according to whether oneofthe companies has control over theothers orhas significant effect on its NOTE 26-RELATED PARTY DISCLOSURES NOTE 25-EARNINGS PERSHARE (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport 31 December 2017 31 December 2017 35,091,000,000 2,057,267 1,444,291 1,489,983 1,444,291 619,403 621,139 4,25 Kr (8,163) 1,736 31 December 2016 31 December 2016 35,091,000,000 1,362,949 892,540 955,308 892,540 475,091 (4,682) 474,021 2,72 Kr 1,070 Less: Unearned credit finance expense Other Ram Sigorta Aracılık Hizmetleri A.Ş. AKPA Dayanıklı Tüketim LPG ve Akaryakıt Ürünleri Pazarlama A.Ş. Otokoç Otomotiv Ticaret ve Sanayi A.Ş. Koçtaş Yapı Marketleri Sanayi ve Ticaret A.Ş. Opet FuchsMadeni Yağ Sanayi ve Ticaret A.Ş. Yapı ve Kredi Bankası A.Ş. Setur Servis Turistik A.Ş. Koç Holding A.Ş. Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş. b) Payables to related parties: NOTE 26-RELATED PARTY DISCLOSURES (CONTINUED) Koç FinansmanA.Ş. Due to shareholders: parties related to payables Trade i) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ram DışTicaret A.Ş. Ford Motor Company andits subsidiaries ii) Other payables to related parties related to payables Other ii) (*) The Company’s shareholders’ subsidiaries, business associates andaffiliates. Zer Merkezi Hizmetler ve Ticaret A.Ş. Trade payables dueto related parties (*): 31 December 2017 31 December 2017 Ford Otosan 2017 FinancialReport 895,559 760,742 135,842 760,742 (1,025) 45,224 31,438 14,058 56,218 10,458 4,464 3,029 3,403 13,277 1,960 4,196 3,193 7,703 97 31 December 2016 31 December 2016 698,913 794,183 698,913 95,804 34,060 10,958 18,763 27,150 6,695 (534) 3,299 2,434 2,843 8,578 1,370 7,342 2,331 7,031 163 476

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Less: Financialexpense from credit purchases Other Tanı Pazarlama İlet. Hiz. A.Ş. Opet Petrolcülük A.Ş. Ram Sigorta Aracılık Hizmetleri A.Ş. (**) Opet FuchsMadeni Yağ Sanayi ve Ticaret A.Ş. Koçtaş Yapı Marketleri Ticaret A.Ş. Less: Financialincome from credit sales Other Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş. Ürünleri Pazarlama A.Ş. AKPA Dayanıklı Tüketim LPG ve Akaryakıt Koç Holding A.Ş. (*) Otokoç Otomotiv Ticaret ve Sanayi A.Ş. Setur Servis Turistik A.Ş. Otokoç Otomotiv Tic. ve San. A.Ş. (**) Ford Motor Company (*) Ram DışTicaret A.Ş. Zer Merkezi Hizmetler ve Ticaret A.Ş. Domestic purchases: 164 through theagency ofRam Sigorta Aracılık Hizmetleri A.Ş. (**) Contains paid andaccrued premium amounts for theperiodsended 31December 2017 and2016withinthecontext ofinsurance policies signed withinsurance companies to thecompany withinthecontext of Services”“11-Intra-group innumbered 1General Communique aboutconcealed Gain Distribution by Transfer Pricing. (*) Itincludes service costs that are based onfinance, law, planning, tax andmanagement provided by Koç Holding A.Ş. to the companies withinthegroup organisation, invoiced d) Material, service andfixed asset purchases from related parties: (**) The Company has avehicle andspare parts trade inaccordance withdomestic dealer agreement withOtokoç Otomotiv Ticaret ve Sanayi A.Ş. (*) The Company, exports vehicle, spare parts andengineering service to Ford Motor Company. c) Sales to related parties: NOTE 26-RELATED PARTY DISCLOSURES ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport CONTINUED) 206,038 201,966 Material 136,008 (4,072) 11,903 19,951 11,532 5,215 21,117 312 1January -31December 2017 ------379,678 379,678 273,877 Service 30,250 20,510 19,250 17,485 9,620 2,270 6,416 ------31 December 2017 Fixed assets 19,520,380 19,559,982 2,098,534 17,461,276 (39,602) 23,646 23,646 13,272 9,915 205 223 172 31 ------31 December 2016 13,795,996 13,769,290 12,088,758 605,290 1,705,926 609,362 (26,706) 136,008 295,199 (4,072) 30,250 27,400 20,510 32,522 11,934 19,951 9,620 11,532 2,270 Total 6,951 5,215 1,312 Less: Financialexpense from credit purchases Other Tanı Pazarlama İlet. Hiz. A.Ş. Opet Petrolcülük A.Ş. Opet FuchsMadeni Yağ Sanayi ve Ticaret A.Ş. Ram Sigorta Aracılık Hizmetleri A.Ş.(**) Koçtaş Yapı Marketleri Ticaret A.Ş. Ürünleri Pazarlama A.Ş. AKPA Dayanıklı Tüketim LPG ve Akaryakıt Koç Holding A.Ş. (*) Setur Servis Turistik A.Ş. Otokoç Otomotiv Ticaret ve Sanayi A.Ş. Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş. Ram DışTicaret A.Ş. Ford Motor Company andsubsidiaries Zer Merkezi Hizmetler ve Ticaret A.Ş. Domestic purchases: g) Donations to related parties andfoundations, included ingeneral administrative expenses: f) License fees received from JianglingMotors Corporation, asubsidiary ofFord Motor Company, included inotherincome: e) License fees paid to Ford Motor Company included incost ofsales: Material, vehicle andservice purchases from abroad: d) Material, service andfixed asset purchases from related parties (Continued): NOTE 26-RELATED PARTY DISCLOSURES (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş.

Material (2,803) 155,517 152,714 99,676 15,825 18,372 9,260 8,433 3,911 40 ------225,796 1 January -31December 2016 326,511 326,511 Service 25,906 26,663 19,657 9,090 11,436 2,229 5,734 ------31 December 2017 31 December 2017 31 December 2017 31 December 2017 Ford Otosan 2017 FinancialReport 11,019,457 148,358 Assets 26,369 19,779 19,779 15,481 17,647 1,754 156 216 6 ------31 December 2016 31 December 2016 31 December 2016 31 December 2016 499,004 7,547,333 501,807 244,384 (2,803) 25,906 29,083 99,676 20,479 128,112 15,825 19,657 28,417 9,090 12,401 5,930 9,266 8,433 2,229 Total 3,911 165

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance - Foreign currency timedeposits - Foreign currency demanddeposits - TLdemanddeposits Yapı ve Kredi Bankası A.Ş. Yapı ve Kredi Bankası A.Ş. - TLtimedeposits Yapı ve Kredi Bankası A.Ş. Otokar Otomotiv ve Savunma Sanayi A.Ş. Yapı ve Kredi Bankası A.Ş. Koç FinansmanA.Ş Koç FinansmanA.Ş 166 employer’s contribution ofunemployment insurance andtheattendance fees. Compensation of key management personnel includes salaries, premiums, Social Security Institution employer’s contribution, and directors reporting directly to thegeneral manager (Note 2). The Company defines its key management personnel as board ofdirectors’ members, general managers, assistant general managers l) Compensation of key management personnel: k) Dividendincome: j) Interest income: customers by dealers andare recorded as sales discounts inthestatement ofprofit or loss. Commissions paid to Koç Tüketici FinansmanıA.Ş. andYapı ve Kredi Bankası A.Ş. are credit commissions related to sales to enduser i) Commission expense: ı) Commission income: Deposits inrelated banks: h) The details ofdeposits inrelated banks andloans obtained from related banks: NOTE 26-RELATED PARTY DISCLOSURES ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport CONTINUED) 31 December 2017 31 December 2017 31 December 2017 31 December 2017 31 December 2017 105,630 171,288 116,196 113,572 10,484 8,005 57,716 7,057 2,785 4,272 2,561 351 - 31 December 2016 31 December 2016 31 December 2016 31 December 2016 31 December 2016 251,506 269,161 117,263 94,768 22,495 6,008 4,760 17,416 4,278 1,730 239 422 - presented below: 2016. The carrying amountoftheCompany's foreign currency denominated assets andliabilities, categorized by currency have been The table below summarizes the Company's exposure to foreign currency exchange rate risk at 31 December 2017 and 31 December 27. FINANCIALINSTRUMENTS ANDFINANCIALRISKMANAGEMENT their leaving, the remaining balance iscomposed ofshort-term benefits. (31 December 2016: TL 25,918). TL 2,390 of this amount is related to payments made to the key management personnel as a part of The total amountofcompensation given to key management personnel oftheCompany as of31December 2017 isTL33,611 l) Compensation ofkey management personnel (Continued): NOTE 26-RELATED PARTY DISCLOSURES ( (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. 2. Monetary financials assets (including cash and cash equivalents) to TL1,862,921 as of31December 2017 (31December 2016TL2,082,685). currency exchange riskarisingfrom its Euro denominated long-term loans withexport agreements signed withFord Motor Company. The TLequivalent ofsuchloans amount (*) The Company’s net foreign exchange position ismainly dueto long-term Euro denominated loans obtained to fundits investments. The Company ishedging for theforeign 13. Other 12. Financialliabilities (*) 11. Shortterm liabilities (8+910) 10. Othermonetary liabilities 9. Financialliabilities (*) 8. Trade payables 7. Total assets (4+6) 6. Non-current assets (5) 5. Monetary financial assets 4. Current assets (1+23) 3. Other 1. Trade receivables 31December 2017 (1 +25-891012) 17. Net monetary foreign currency (liabilities) /assets (7 -15) 16. Net foreign currency (liabilities) /assets position 15. Total liabilities (11+14) 14. Long term liabilities (12+13) CONTINUED ) (1,863,096) (1,749,605) (Functional 2,753,868 4,676,238 2,926,633 2,926,633 1,922,370 currency) 1,043,634 1,667,304 1,820,166 1,783,879 964,733 102,204 215,695 5,256 TL - - 40,000 79,807 79,807 65,331 65,331 40,104 14,476 32,001 25,331 6,774 7,702 USD ------Ford Otosan 2017 FinancialReport (397,553) (416,253) 978,904 403,093 342,509 425,727 190,882 361,644 581,351 581,351 553,177 197,508 22,634 41,334 Euro 651 - - (1,783) (1,783) 1,885 1,885 1,429 GBP 167 456 102 102 102 ------

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Other foreIgn currency denomInated net -(loss) / gaIn Other foreign currency denominated- hedged amount Other foreign currency denominated net (liabilities) /assets Change inotherforeign currency against TL Euro net- gain /(loss) Euro net hedged amount Euro net (liabilities) /assets Change inEuro against TL USD net- gain /(loss) USD net hedged amount USD net assets /(liabilities) Change inUSD against TL 12. Financialliabilities (*) 11. Shortterm liabilities (8+910) 10. Othermonetary liabilities 9. Financialliabilities (*) 8. Trade payables 7. Total assets (4+6) 6. Non-current assets (5) 5. Monetary financial assets 4. Current assets (1+23) 3. Other 2. Monetary financials assets (including cash and cash equivalents) 1. Trade receivables 168 Appreciation /depreciation inforeign currency 31 December 2017 Company arises from long-term Euro investments. The Company isexposed to foreign exchange riskprimarily against Euro andpartly against USD. The foreign exchange riskofthe Foreign exchange risk 31 December 2016 NOTE 27 -FINANCIALINSTRUMENTS ANDFINANCIALRISKMANAGEMENT (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport (1 +25-891012) 17. Net monetary foreign currency (liabilities) /assets (7 -15) 16. Net foreign currency (liabilities) /assets position 15. Total liabilities (11+14) 14. Long term liabilities (12+13) 13. Other (1,968,089) (1,832,865) (Functional 2,175,000 3,754,475 1,503,856 1,579,475 currency) 1,921,610 1,921,610 1,348,274 958,509 820,276 752,258 210,843 75,619 6,450 TL - - (5,662) 69,460 69,460 68,244 68,244 40,000 22,468 27,858 40,114 6,878 1,216 USD 386 - - - - - Increase by 10% (179,515) 186,292 (493,992) (906) 5,460 (906) (523,917) 5,460 6,777 946,060 Profit /(loss) before taxation 452,068 452,068 425,746 405,363 520,314 325,482 193,505 164,708 237,052 50,308 20,383 - - 1,327 Euro - - Decrease by 10% (186,292) (5,460) (1,038) (1,038) (5,460) (6,777) 179,515 1,008 1,047 1,047 GBP 906 906 39 9 9 9 ------Other foreign currency denominated net -(loss) /gain Other foreign currency denominated- hedged amount Other foreign currency denominated net (liabilities) /assets Change inotherforeign currency against TL Financial liabilities Floating interest rate financialinstruments Euro net- gain /(loss) Euro net hedged amount Euro net (liabilities) /assets Change inEuro against TL USD net- gain /(loss) Financial liabilities Total importamount USD net hedged amount USD net assets /(liabilities) Change inUSD against TL Financial assets Fixed interest rate financialinstruments Total export amount Appreciation /depreciation inforeign currency 31 December 2016 NOTE 27 -FINANCIALINSTRUMENTS ANDFINANCIALRISKMANAGEMENT (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. The Company’s interest rate sensitive financialinstruments are as follows: risk rate Interest denominated borrowings andtrade payables ismanaged through assets denominated inforeign currency. risk, theCompany follows a balanced foreign currency position policy. The foreign currency exposure arisingfrom foreign currency The Company’s net assets are exposed to foreign exchange riskwhicharises from export sales. To minimize its foreign currency The comparative amounts for total export andimportamounts for theyear ended 31December 2017 and2016are as follows: 2016: TL2,470) dueto higher/lower interest expense. variables held constant, profit before tax for the year would have been lower / higher by TL2,495 at 31December 2017 (31December If theinterest rates offloating interest-bearing Euro denominated borrowings were 100 basis points higher/ lower withallother 31 December 2017 31 December 2017 Increase by 10% Ford Otosan 2017 FinancialReport 17,830,091 1,885,646 (183,266) 11,791,955 1,764,533 208,268 1,718,401 25,002 (448) (448) Profit /(loss) before taxation 428 428 - - 31 December 2016 31 December 2016 Decrease by 10% (208,268) 12,286,677 (25,002) 1,234,960 8,208,716 183,266 1,157,076 1,617,170 (428) (428) 169 448 448 - -

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Level 3:Valuation techniques that does notcontain observable market inputs Level 2:Othervaluation techniques that includes direct orindirect observable inputs Level 1:Market price valuation techniques for thedetermined financialinstruments traded inmarkets (unadjusted) inputs, usingthethree-level hierarchy, as follows: The Company classifies the fair value measurement offinancialinstruments reported at fair value according totheir source of valuation Fair value hierarchy table Trade payables Financial liabilities instruments Non-derivative financial 31 December 2016 170 Trade payables Financial liabilities instruments Non-derivative financial 31 December 2017 The table below shows theliquidity riskarisingfrom financialliabilities ofthe Company: risk Liquidity NOTE 27 -FINANCIALINSTRUMENTS ANDFINANCIALRISKMANAGEMENT (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport Other liabilities Other liabilities instruments Derivative financial liabilities Derivative financial -Related party -Related party -Other -Other -Related party -Related party -Other -Other 3,604,047 2,852,130 2,921,390 1,823,160 895,559 794,183 56,385 31,438 18,763 76,129 Value value Book Book 187 Total contractual Total contractual cash outflow cash outflow 3,702,568 2,941,886 2,927,145 1,832,582 896,585 794,717 56,385 31,438 18,763 76,129 187 2,941,886 1,832,582 485,287 401,094 896,585 months months Up to 3 Up to 3 794,717 56,385 31,438 18,763 76,129 - 3-12 months 3-12 months 1,310,866 Between Between 954,750 ------1,540,259 1,830,415 Between Between 1-5 years 1-5 years 187 ------Longer than Longer than 76,000 5 years 5 years 31,042 ------Total liabilities Derivative financialliabilities Liabilities at fair value Total assets Derivative financialliabilities Total liabilities Financial asset available-for-sale -Otokar Liabilities at fair value Total assets Derivative financialliabilities as follows: As of31December 2017 andDecember, 312016, theCompany’s hierarchy table for its assets andliabilities recorded at fair value are NOTE 27 -FINANCIALINSTRUMENTS ANDFINANCIALRISKMANAGEMENT (CONTINUED) Derivative financialinstruments: December 2017 isTL187 anditisclassified as long - term liabilities. which isthesubject offinancialhedge as of31December 2017. The fair value oftheinterest rate swap transaction calculated as of31 contract suchas maturity, payment, interest rate change dates are inlinewiththecritical conditions oftheforeign currency borrowing, maturity of3November 2019 amountingto Euro 51,428,571 withinterest rate swaping. The critical conditions ofthesettlement The Company hedged theinterest rate riskarisingfrom cash flows related to theborrowing used as of31December 2017 withthe securing aportionofthefloating rate loans from international markets through long term swap transactions. The Company uses long term floating rate foreign currency loans from international markets. The Company hedges interest rate risk by NOTE 28-DERIVATIVE FINANCIALINSTRUMENTS (i.e., derived from prices). (**) Fair value iscalculated from inputs otherthanquoted prices included withinLevel 1that are observable for theasset orliability, eitherdirectly (i.e., as prices) orindirectly (*) Fair value iscalculated at market prices pertheStock Exchange market at thereporting date. Derivative financial assets Assets at fair value 31 December 2016 (i.e., derived from prices). (**) Fair value iscalculated from inputs otherthanquoted prices included withinLevel 1that are observable for theasset orliability, eitherdirectly (i.e., as prices) orindirectly (*) Fair value iscalculated at market prices pertheStock Exchange market at thereporting date. Financial asset available-for-sale -Otokar Derivative financial assets Assets at fair value 31 December 2017 (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Level 1(*) Level 1(*) 17,406 18,756 18,756 17,406 ------31 December 2017 Level 2(**) Level 2(**) Ford Otosan 2017 FinancialReport 4,531 4,531 187 187 187 187 ------31 December 2016 Level 3 Level 3 171 ------

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance Long term deferred revenue Advances received Derivative financial assets NOTE 30-DEFERREDREVENUE Loss onsale ofproperty, plant andequipment Gain onsale ofproperty, plant andequipment Dividend income Amount recycled from othercomprehensive income to statement ofprofit or loss Amount recognized inothercomprehensive income 172 Expense from investing activities Income from investing activities NOTE 29 -INCOME ANDEXPENSES FROM INVESTING ACTIVITIES Cash flow hedge reserve: of estimated export revenue from 1April2013to December 2022withlong-term financialborrowings. (hedged item). Intheframe ofthemanufacturing agreement signed withFord Motor Company, theCompany willassociate aportion with investment expenditures (non-derivative hedging instrument) andhighly probable forecast transaction export sales receivables There isaneffective foreign currency cash flow hedge relationship between foreign currency long-term financialborrowings related foreign currency forward transaction calculated as of31December 2017 isTL4,531 andclassified under current assets inthe balance sheet. January 2018, theCompany entered into forward foreign exchange transactions inthesame amountofits loans. The fair value ofthe In order to hedge the foreign exchange riskarisingfrom the repayment ofsome its Euro denominated loans, whichwillmature in NOTE 28-DERIVATIVE FINANCIALINSTRUMENTS (CONTINUED) (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. Ford Otosan 2017 FinancialReport 31 December 2017 31 December 2017 31 December 2017 31 December 2017 31 December 2017 31 December 2017 (183,786) 208,664 392,450 (3,407) (3,407) 10,929 10,929 7,450 4,531 7,450 4,531 363 351 12 31 December 2016 31 December 2016 31 December 2016 31 December 2016 31 December 2016 31 December 2016 227,226 (6,263) (75,775) 303,001 (6,263) 4,757 8,811 4,757 8,811 422 422 - - - Other non-current liabilities (*) statements, required for thepurpose ofunderstanding andinterpreting thefinancial statements. There are noothermatters otherthanstated above, whichwould materially affect orthat would have material effect onthefinancial NOTE 34-DISCLOSURE OFOTHER MATTERS 2019. is amemberandtheTurkish Metal Unionissigned as of30January 2018, effective for theperiodbetween 1 September 2017 -31 August The negotiation process oftheCollective Labor Agreement between Turkish Metal Industrialists' Union(MESS) ofwhichtheCompany NOTE 33-SUBSEQUENT EVENTS Region and40%incentive ratio supports inaccordance withnew incentives legislation. Transit Custom models whose production isstill going oninduring2016. The aforementioned investments shallbenefit from 5th and factory modernization investments whichshallbemade infollowing periodsrelated to Ford Transit, Ford Transit Courier andFord Additionally, the Company has obtained primary investment incentive certificate at an amount of TL 849,160 because of replacement year 2018 intheEskişehir Inönüplant. contribution to investment for theexpanding investment for theproduction ofEuro 6emissiontrucks whichwillbeputinto use in the In December 2014, theCompany received aprivileged investment incentive amountingto TL331,362andwitha40%rate of expenses exceeds TL1billion, theCompany can benefit from the additional 10% rate of contribution to investment. to investment. Since thePrivileged Investment Incentive Certificate amounting to TL1,194,398 received for theNewGeneration Transit cylinder engines for theproduced Ford Cargo andFord Transit vehicles. Subject investment incentives has a40%rate ofcontribution in 2013, the Company acquired a privileged investment incentive certificate amounting to TL187,379 for the production of new 6 and 4 TL 697,394 for thenew modelTransit Courier investment inthelightcommercial vehicle segment. Inaddition to vehicle investments, to TL1,194,398 for the investment ofits new generation Transit modelandaprivileged investment incentive certificate amounting to to benefit from privileged investment incentive regarding new decree, acquired aprivileged investment incentive certificate amounting regulating investment incentives, whichwas published inthe official gazette in2013and became effective on 19June2012, andin order Additionally, theCompany revalued its existing investments withinthescope ofthedecree onGovernment Subsidies for Incentives re- related incentive intax calculations. has 30%contribution rate to investment withinthescope ofCouncil ofMinisters’ Decision numbered andbenefits 2009/15199 from The Company has completed its New Generation Transit andNew Transit Custom factory investment amountingto TL559,295 which NOTE 32-GOVERNMENT INCENTIVES ANDGRANTS commitments are 3years onaverage. (*) The Company makes apart ofits fleet truckwith buyback commitments and sales made withinthis scope are followed under “OtherNon-Current Liabilities”. The buyback NOTE 31-OTHER NONCURRENT LIABILITIES (Amounts expressed inthousands ofTurkish Lira (“TL”) unless otherwise indicated.) NOTES TO FINANCIALSTATEMENTS FOR THEPERIODENDED1JANUARY -31DECEMBER 2017 FORD OTOMOTİV SANAYİ A.Ş. 31 December 2017 Ford Otosan 2017 FinancialReport 115,631 115,631 31 December 2016 75,620 75,620 173

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 174 All rightholders andstakeholders as well as thepress are invited to theGeneral Assembly Meeting. prejudice to theprovisions ofelectronic voting regarding thevoting ofeach item ontheagenda. At theOrdinary General Assembly Meeting, thevoters shalluse openvoting system by raising hands, without certificates. Accordingly, shareholders participatingGeneral inthe Assembly donotneed to block theirshares. Markets Law, therightto attend theGeneral Assembly andvoting rights shallnotbeconditional ondepositing theshare Pursuant to Paragraph 4ofArticle 415ofTurkish Commercial Code No. 6102 andParagraph 1ofArticle 30ofthe Capital 00)216 56471 to ensure that they comply withtheprovisions oftheby-laws for theElectronic Shareholders Meeting. Central Registry Agency, ourCompany’s website at www.fordotosan.com.tr orfrom theCompany Headquarters (Tel: 0 Shareholders intending to vote viatheElectronic General Meeting System are requested to obtain information from the attached withintheinvitation to thegeneral assembly meeting document shallnotbeaccepted, given ourlegal liability. proxy documents whichdonotcomply withtherequirements oftheaforementioned Communiqué, andthesample form document isnotrequired from aproxy appointed electronically through theElectronic General Meeting System. The Proxy Collection through Invitation, enacted on24 December 2013andpublished inOfficial Gazette No. 28861. A proxy proxy documents issued inaccordance withtherequirements oftheCommuniqué No. II-30.1, Use ofProxy Vote and our Company, orfrom thecorporate website at www.fordotosan.com.tr andshallsubmitto theCompany thenotarized or shallobtain aproxy sample form from Yapı Kredi Yatırım Menkul Değerler A.Ș. (Yapı Kredi Plaza /Levent-Istanbul), electronically viathe Electronic General Assembly System, shallprepare theirproxy documents as perthelegislation, Shareholders unable to attend themeeting inperson, save for therights andobligations oftheones participating the Electronic General Meeting System oftheCentral Registry Agency (CRA) three weeks prior to themeeting. İstanbul, Kocaeli Gölcük Plant, İnönüPlant, ontheCompany’s corporate website at www.fordotosan.com.tr, andin Capital Markets Board regulations shallbemade available to theshareholders at Company Headquarters inSancaktepe of theBoard ofDirectors, along withthefollowing agenda andtheMemorandum containing theinformation required by Governance Compliance Report, andtheBoard ofDirectors’ Annual Report, including thedividenddistribution proposal In accordance withthelegal requirements, 2017 FinancialStatements, theIndependentAuditor’s Report, theCorporate reviewed, thefollowing agenda willbediscussed, andaresolution regarding theagenda willbereached. 315 5500, Faks: +902123155515)”. At themeeting, theactivities oftheCompany for thefiscal year 2017 willbe at 14:00 at theaddress of “Divan Istanbul Hotel -Asker Ocağı Caddesi No:134367 Şişli /İstanbul (Tel: +90212 Ford Otomotiv Sanayi A.Ş.’s Ordinary General Assembly Meeting shallbeconvened on19 March 2018Monday 1. INVITATION TO THE19 MARCH 2018ORDINARY GENERAL ASSEMBLY MEETING REVIEW FINANCIALYEAR2017 ORDINARY GENERAL ASSEMBLY TO DOCUMENT FOR THE19 MARCH 2018 FORD OTOMOTİV SANAYİ A.Ş. INFORMATION Ford Otosan 2017 FinancialReport Total Publicly Held Ford Motor Company Foundation and Assistance Koç Holding Pension Foundation Vehbi Koç Yatırım A.Ş. Temel Ticaret ve Koç Holding A.Ş. Mersis IDNumber:0649002036300014 Trade Registry andNumber:İstanbul Ticaret Sicil Müdürlüğü /73232 Company Address: AkpınarMah. Hasan Basri Cad. No:234885Sancaktepe /İstanbul BOARD OFDIRECTORS FORD OTOMOTİV SANAYİ A.Ş. It issubmitted to theshareholders withduerespect. will notreceive aseparate registered invitation letter for themeeting. Pursuant to theCapital Markets Law, shareholders holding registered shares that are traded onthestock exchange Structure Shareholding The voting rights ofourshareholders, are provided inthefollowing table: group BandChave privilege for Board ofDirectors membership election. There isno privilege inCompany’s Articles of Incorporation regarding voting rights. Share 2.1. Capital Structure andVoting Rights: agenda below. Othermandatory general explanations are provided inthissection. Governance Communiqué No. II-17.1, enacted 3January 2014, are made intherelated articles ofthe The additional explanations required pursuant to Capital Markets Board (CMB) Corporate 2. ADDITIONALEXPLANATIONS INVIEWOFCMBREGULATIONS Group Share A A A C B B

350.910.000 134.953.357 143.997.037 62.786.070 Share (TL) Amount of 3.558.449 2.355.885 3.259.202 Percentage of Share (%) 100.00 38.46 41.04 17.89 0.93 0.67 1.01 35.091.000.000 14.399.703.676 6.278.607.009 13.495.335.714 235.588.500 355.844.870 325.920.231 Ford Otosan 2017 FinancialReport Vote Percentage of Vote (%) 100.00 38.46 41.04 0.93 17.89 0.67 1.01 175

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 176 in accordance withtheDividendDistribution Table format provided inthe DividendCommuniqué numbered II-19.1 andthe 01.01.2017 –31.12.2017; net profit amountofTL1.489.982.998 has been obtained. The dividend payment proposal drawn up by PwCBağımsız Denetim ve Serbest Muhasebeci MaliMüşavirlik AnonimŞirketi covering theaccounting periodbetween and Capital Markets Law andrelated regulations in compliance withTurkish FinancialReporting Standards and audited According to ourfinancial statements, prepared by our Company withintheframework ofthe Turkish Commercial Code the Company’s Profit Distribution Policy, distribution for theyear 2017 andthedistribution date whichprepared inaccordance with 6. Approval, orapproval withamendments orrefusal oftheBoard ofDirectors’ proposal for profit and accounts for theyear 2017 shallbesubmitted to theGeneral Assembly for its approval. Pursuant to theTCC andBylaws, therelease ofourBoard ofDirectors members for theactivities, transactions 5. Release ofthemembers oftheBoard ofDirectors separately for year 2017 activities, www.fordotosan.com.tr for review ofourshareholders, shallbeprovided to ourshareholders for theirevaluation andapproval. Headquarters, ontheElectronic General Assembly Portal oftheCRA, andontheCompany website and Capital Markets Law are posted three weeks priorto theGeneral Assembly meeting at ourCompany Information aboutourfinancial statements and legal statutory accounts, which, pursuant to the TCC, bylaws 4. Reading, discussion andapproval oftheFinancialStatements of2017 Fiscal Period, to theGeneral Assembly meeting, willbesubmitted to theinformation ofourshareholders inGeneral Assembly meeting. Headquarters, Electronic General Assembly Portal oftheCRA andCompany website www.fordotosan.com.tr, three weeks prior Independent Audit Report created as perTCC, Regulation andCapital Markets Board legislation andmade available at Company 3. Reading ofthesummaryreport oftheIndependentAudit Firmof2017 Fiscal Period, weeks before theGeneral Assembly meeting anditshallbepresented for perusal andapproval ofourshareholders. Agency andonthecorporate website oftheCompany at www.fordotosan.com.tr for review ofourshareholders three announced at theHeadquarters ofourCompany, ontheElectronic General Assembly portal oftheCentral Registry shall begiven onthe2017 Annual Report that includes theCorporate Governance Compliance Report, whichhas been Within theframework oftheTCC, theRegulation andtheCapital Markets Law andrelated regulations, information 2. Reading, discussion andapproval oftheAnnual Report ofyear 2017 prepared by theBoard ofDirectors, person willbeappointed as Secretary. The Chairmanmay also appointadequate numberofvote-collectors. elected to chairtheGeneral Assembly meeting. Within theframework oftheGeneral Assembly Principles, at least one (“Regulation” or “General Assembly Regulation”), andGeneral Assembly Principles Article 7, aChairmanshallbe Stock Companies andRepresentatives oftheMinistry ofCustoms andCommerce to bePresent inthese Meetings” Ministry ofCustoms andCommerce regarding Principles andProcedures ofGeneral Assembly Meetings ofJoint Within theframework oftheprovisions of “Turkish Commercial Code (TCC) no. 6102” and “The Regulation ofthe 1. Openingandelection ofChairmanship Panel, ASSEMBLY MEETINGDATED 19 MARCH 2018 3. ANNOUNCEMENTS PERTAINING TO THEAGENDA ARTICLES OFTHEORDINARY GENERAL No suchrequest ismade for theOrdinary General Assembly Meeting for 2017 activities. 2.3. Information regarding demandsofshareholders for placing anarticle ontheagenda: accounting period, orplanned for theupcoming accounting periods. There are nomanagerial oroperational changes that has orthat willsubstantially affect the Company’s activities intheprevious Affect the Activities ofour Company: 2.2. Managerial andOperational Changes inOurCompany orourSubsidiaries’ whichmay Significantly Ford Otosan 2017 FinancialReport Distribution Policy, long-term strategy, investment andfinancingpolicies, profitability andliquidity, is provided inAppendix1. Dividend Manual announced inaccordance withthesaid Communiqué, andtaking into account theCompany’s Dividend 9. Determination oftheannual gross fees to bepaid to themembers oftheBoard ofDirectors, TL 33.611.078 -ofbenefits were provided for senior management ofFord Otomotiv Sanayi A.Ş. in2017. Policy created for thispurpose isattached as Appendix3. As specified by footnote No. 26of2017 Financial Statements, the General Assembly Meeting agenda to enable theshareholders to share theiropinionsonthesame. Remuneration of Directors’ members andsenior management shallbemade available inwritingandincluded as aseparate article on According to CMB’s mandatory Corporate Governance Principle No. 4.6.2, theprinciples for theremuneration ofBoard made underthispolicy andapproval ofthe “Remuneration Policy” andrelated payments, “Remuneration Policy” for members oftheBoard ofDirectors andthesenior executives andpayments 8. As pertheCorporate Governance Principles, informing theshareholders regarding the Independence Declarations ofBoard ofDirectors candidates are provided inAppendix2. of Directors by Board ofDirectors’ resolution andhas submitted to theapproval of CMB. The CVs and Mr. Leonard MartinMeany andMrs. Fatma FüsunAkkal Bozok as theIndependentMembers oftheBoard The Board of Directors, uponreceipt oftheproposal ofCorporate Governance Committee, has designated the independence criteria as defined intheCMB’s mandatory CorporateGovernance Principles. Directors even iftheirterms ofoffice have not expired. 2ofthe elected Board members are required to meet a 3year periodinlinewiththeTCC regulations. General Assembly may decide ontherenewal oftheBoard of with aneven numberofmembers andconsisting ofat least 8members, elected by theGeneral Assembly for According to Article 10oftheCompany’s Articles ofIncorporation, Company ismanaged by aBoard ofDirectors of theBoard ofDirectors shallbeelected incompliance withtheCMB’s Corporate Governance Communiqué No. II-17.1. New members willbeelected to replace Board members whose terms ofoffice have expired. In addition, IndependentMembers TCC andBylaws andtheprinciples governing theselection ofmembers oftheBoard ofDirectors intheArticles ofIncorporation. The numberofmembers ontheBoard ofDirectors andtheirterms ofoffice shallbe designated in accordance withCMB regulations, election ofthemembers based onthedetermined number, election oftheIndependentBoard Members, 7. Determination ofthenumberandterm ofduty ofthemembers oftheBoard ofDirectors and foundations andassociations in2017. The upperlimitofdonations to bemade in2018shall bedecided by theGeneral Assembly. payments made must beprovided to shareholders at theGeneral Assembly. Donations totaling TL27.373.844 were made to by theGeneral Assembly, incases not specified intheArticles ofIncorporation, andinformation concerning the donations and Pursuant to Article 6oftheCMB’s Communiqué on DividendsNo. II-19.1, thelimitofdonations to bemade must bedetermined in 2017 anddetermination ofaupperlimitfor donations to bemade in2018, 11. Givinginformation to the shareholders regarding thedonations made by theCompany the context oftheregulations. This decision shallbesubmitted to theGeneral Assembly for ratification. financial reports for thefinancial year 2018and to let it conduct theother activities that fallwithin its purview within Denetim ve Serbest Muhasebeci Mali Müşavirlik AnonimŞirketi serve as theindependentauditors oftheCompany’s the opinionofAudit Committee, theBoard ofDirectors resolved at their13.02.2018 meeting to have PWC Bağımsız In accordance withtheTurkish Commercial Code andCapital Markets Board regulations, andtaking into consideration Board ofDirectors’ election for theIndependent Audit Firm, 10. As pertheregulations oftheTurkish Commercial Code andCapital Markets Board, approval ofthe shareholders as perourRemuneration Policy submitted for theapproval theshareholders as peritem 8oftheagenda. The annual gross remuneration to bepaid to themembers oftheBoard ofDirectors in2018shall bedetermined by the Ford Otosan 2017 FinancialReport 177

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 178 13. Wishes andopinions. the General Assembly andtheshareholders shallbeinformed that nosuchtransaction took place in2017 inthisrespect. the General Assembly. To fulfill the requirements ofthese regulations, permissionshallbe sought from theshareholders at Information aboutsaid transactions must beincluded as aseparate article ontheagenda andrecorded into theminutes of the behalf ofothers, orwas involved inthesame business as that oftheCompany as unlimited partner inanothercompany. with theCompany orits subsidiaries, competed withthecompany inthesame lineofbusiness ontheirown behalf oron relatives upto thesecond degree ofblood oraffinity engaged inasignificant business transaction creating a conflict of interest informed intheevent that shareholders having managerial control, shareholder board members, senior management and Pursuant to theCapital Markets Board Mandatory Corporate Governance Principles No. 1.3.6, theGeneral Assembly shallbe Ban andondoingBusiness withtheCompany andBorrowing for theCompany. Assembly, as stipulated inthefirst subsection ofArticles 395 and 396 ofthe TCC entitled Competition The members oftheBoard ofDirectors can dobusiness only withtheapproval oftheGeneral pursuant to theCapital Markets Board's Communiqué onCorporate Governance, also informing theshareholders regarding thetransactions made inthisextent in2017 their spouses andrelatives related by blood oraffinity up tothe second degree; and with management control, members oftheBoard ofDirectors, senior executives and 12. UnderArticles 395 and396 oftheTurkish Commercial Code, authorizing: shareholders Ford Otosan 2017 FinancialReport second year, itwillberaised as consumer price index (CPI) ratio. In thefirst year, all social benefits willbeincreased by23%. Forthe wages willberaised as consumer price index (CPI) ratio. third andfourth sixmonthsperiods oftheagreement, hourly that thewages notexceed 1.50TL/hour. Forthesecond, TL/ houradded to hourly wages just once underthecondition 1.60 TL/hourwas decided. Foreach fullyear oftheseniority, 0.10 months andanequal wage increase of Hourly wages are set per9TL/hourfor thefirst six and Turkish Metal Union. According to thisagreement; of Metal Industries (MESS), whichourcompany isamember, 31.08.2019 was signed between Turkish Employers Association Collective Labor Agreement for theperiodof01.09.2017- 30 January 2018 THE REPORT DATE DEVELOPMENTS FOLLOWING Ford Otosan 2017 FinancialReport 179

Management Ford Otosan Financial Reports Corporate Governance Sustainability Ford Otosan in 2017 General Assembly and Assessments at a Glance 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: +90 262 315 50 00 [email protected] Central Registration System T: +90 216 564 74 99 Number (MERSIS) İnönü Plant 6151881823298226 Bozüyük - Kütahya Yolu Üzeri 8.km Burak Çekmece 26670 İnönü / Eskişehir Treasury and Risk Manager Authorized Capital T: +90 222 213 20 20 (Responsible for Compliance 500,000,000 TL with Capital Markets Law) Sancaktepe Spare Parts [email protected] Paid-in Capital Distribution Center T: +90 216 564 74 80 350,910,000 TL Akpınar Mah. Hasan Basri Cad. No:2 34885 Sancaktepe / İstanbul Alçin Hakca T: +90 216 564 71 00 Investor Relations Specialist [email protected] Sancaktepe Engineering Center T: +90 216 564 74 95 Akpınar Mah. Hasan Basri Cad. No:2 34885 Sancaktepe / İstanbul T: +90 216 664 90 90 WEBSITE

www.fordotosan.com.tr

This Annual Report (“Report”), including the Board of Directors’ Report about the operations and financials of 2017, 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 19th of March 2018 Monday at 14.00 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 FM DATA İLETIŞIM of information based on/omitted from the content of this report. It is believed that all information in the Report was accurate www.data-iletisim.com at the time of preparation. The Company rejects any responsibility for errors that may occur during writing or printing. 0212 662 78 00