Bringing delicious food to dining tables across Turkey and around the world…

KEREVİTAŞ ANNUAL REPORT 2017 CONTENTS

KEREVITAŞ AT A GLANCE 04 Vision, Mission and Values 08 Our Business 10 Our Factories and Workflows 14 Key Indicators 17 Net Sales Breakdown by Product Category 19 Net Sales Breakdown by Sales Channels 20 Capital Structure 22 Success Story 25 Awards and Successes

MANAGEMENT 26 Message from the Chairman of the Board and CEO 28 Board of Directors 31 Senior Management

2017 ACTIVITIES 34 Development of Turkey’s Frozen and Canned Food Sector and Edible Oil Sector 38 Frozen and Canned Food Business 38 Activities 38 Production 38 Sales and Marketing 38 Distribution 40 Export 40 Products 40 Retail 40 Away from Home Consumption 40 Export 42 Edible Oil Business 42 Activities 42 Production 42 Sales and Marketing 45 Distribution 45 Export 45 Products 45 Retail Products 45 Away from Home Consumption 45 Pastry and Catering Products 45 Industrial Products 46 Brands 47 Investor Relations

SUSTAINABILITY 50 R&D Activities and Investments 52 Human Resources 55 Occupational Health and Safety 56 Environmental Practices 57 Good Agricultural Practices 58 Corporate Social Responsibility

CORPORATE GOVERNANCE 59 Corporate Governance Compliance Report for 2017 67 Risk Management Policies 68 Profit Distribution Proposal 69 Other Issues

FINANCIAL STATEMENTS AND FOOTNOTES 71 Consolidated Financial Statements as of December 31, 2017 and Independent Auditors’ Report

CONTACT KEREVİTAŞ AT A GLANCE Merge of powers…

Exports to more than 70 countries

Countries Africa: Algeria, Ethiopia, Ivory Coast, Gabon, Ghana, Cameroon, Kenya, Libya, Madagascar, Mauritius, Egypt, Mauretania, Nigeria, Sudan, Tanzania, Tunisia

Asia: Afghanistan, Azerbaijan, Bangladesh, United Arab Emirates, Brunei, China, Philippines, Palestine, Georgia, India, Hong Kong, Iraq, Iran, Israel, Qatar, Kazakhstan, Kuwait, Lebanon, Maldives, Uzbekistan, Pakistan, Russia, Taiwan, Saudi Arabia, Syria, Tajikistan, Turkmenistan, Oman, Jordan

Europe: Germany, Albania, Austria, Bosnia-Herzegovina, Bulgaria, Denmark, France, Netherlands, United Kingdom, Spain, Sweden, Italy, Cyprus, Kosovo, Hungary, Macedonia, Malta, Poland, Romania, Greece

South America: Brazil

North America: United States of America, Guadeloupe, Canada

Oceania: Australia 3 KEREVİTAŞ ANNUAL REPORT 2017 Merge of powers…

FROZEN AND CANNED FOOD BUSINESS EDIBLE OIL BUSINESS

Product Categories Product Categories • Bakery Products: Pizza, Puff Pastry, Roll Pastry, Ravioli • Retail-Liquid Oil Flatbread (Pide) and Turkish Pizza (Lahmacun) • Retail-Margarine • Fruits and Vegetables • Away from Home Consumption • Meat Products: Meatballs, Burgers − Pastry and Catering • Potatoes and Croquets − Industrial • Canned Products: Tuna Fish, Sweet Corn, Vegetables • Ghee • Desserts • Seafood Products Brands Bizim Yağ, Teremyağ, Luna, Sabah, Yayla, Brand Halk, Hüner, Ona, Evet, Ustam, Akbis, SuperFresh Akao, Akrim, Arma, Mars, SPY 4 KEREVİTAŞ ANNUAL REPORT 2017 Powerful growth performance in sales and profitability…

NET SALES (TL MILLION) GROSS PROFIT (TL MILLION) +27.5% +20.2%

2,420.7 428.2

356.1 1,898.0

2016 2017 2016 2017

NET OPERATING PROFIT (TL MILLION) EBITDA(*) (TL MILLION) +3.6% +24.5%

108.1 185.5 104.3

149.0

(*) Excluding other income and expenses 2016 2017 2016 2017 from operating activities.

KEREVITAŞ AT A GLANCE 1 Following one of the largest capital increases in recent times, Kerevitaş the leading brand in the frozen food market - completed the acquisition of Besler, the sector leader with a 65% branded market share, and its subsidiary Marsa on November 24, 2017.

After the acquisition of this major company, which will boost our 27% annual growth in 2017 even further, we are ambitious to set higher targets.

We aim to generate permanent value for both the national economy and all our stakeholders with our new, stronger organizational structure.

The 2nd largest food company listed on Borsa İstanbul

TOTAL EMPLOYMENT TOTAL EXPORT

2,558 TL 315.8 MILLION EMPLOYEES

EXPORT DESTINATIONS NUMBER OF FACTORIES >70 5 COUNTRIES

KEREVITAŞ AT A GLANCE 2 Our companies, both leaders in their markets, combine their competitive strengths to create a new entity that operates on a larger scale and achieves a bigger sales volume. We are ambitious to offer wide range of products to our consumers to increase customer satisfaction, and generate greater value for Turkey’s economy.

Thanks to our expanded production capacity and the synergy we created, we took a big step towards becoming one of the world’s top food companies. VISION, MISSION AND VALUES

Vision To be the reliable leader of food industry that is rewarding for all its stakeholders.

Mission To provide the most delicious, most practical and most innovative products in a healthy and reliable value chain and to become the number one solution partner in the kitchen.

4 KEREVİTAŞ ANNUAL REPORT 2017 Values

Consumer satisfaction • We always prioritize consumer needs and demands, and then develop our products accordingly. • We always work passionately to be the market leader and the preferred brand. • We consider consumer benefit prior to each action we take. • We take the initiative to achieve consumer satisfaction and aim to anticipate needs before they arise.

Leadership in quality • We provide consumers easily accessible high-quality products and strong brands with best-in-class services. • We aim to implement the best practices in every aspect of our operations. • We continually raise the quality bar in production and at the service stages.

Innovation • We explore, support and implement new ideas with our entrepreneurial spirit, embracing change and innovation. • We identify fresh opportunities in the market and boost our mobility by rapidly adapting to change. • We pioneer change, create new markets and set the trends in the industry. • We embrace new and diverse opinions. • We monitor innovations and developments closely and aim for continuous improvement with our R&D centers’ studies.

Leadership in collaboration • We value different perspectives and experiences, and benefit from our wealth of diversity. • We consult each other, learn together and develop our skills. We work together as a team towards a common goal. • We welcome everyone’s success as the Company’s success.

Competitiveness • We always start compelling competition across all our operations. • We aim to reach the top in every area where we operate. • We are swift and agile; we work hard and push the limits to provide our customers the best products first. • We measure our performance against our own record and our competitors, and then aim to do better each time.

Results-orientedness • We are always results-oriented and preserve our energy and motivation. • We aim to achieve sustainable results that generate value for all stakeholders. • We put our hearts in our work with our industriousness and drive to succeed, set challenging targets and then achieve them.

KEREVITAŞ AT A GLANCE 5 Bliss for everyone around the dining table...

6 KEREVİTAŞ ANNUAL REPORT 2017 We meet the needs of every kitchen from fruits and vegetables to meat products and edible oil, bakery products to seafood products bringing bliss to dining tables with our healthy and tasty products.

KEREVITAŞ AT A GLANCE 7 OUR BUSINESS A wide and diverse range of products With its extensive distribution network and diverse product range – from frozen and canned food to edible oil products – Kerevitaş enjoys significant competitive advantages over its competitors both in retail and away from home consumption channels.

Frozen and Canned Food

Kerevitaş’s frozen food category includes bakery products, vegetable and fruits, potatoes and croquets, meat products, seafood products and desserts. Canned food category includes canned tuna fish, sweet corn and vegetables.

Production is managed under three categories: • Retail Products • Away from Home Consumption Products • Export Products

Product Categories • Bakery Products − Pizza − Puff Pastry − Roll Pastry − Ravioli − Flatbread (Pide) and Turkish Pizza (Lahmacun) • Fruits and Vegetables • Meat Products − Meatballs − Burgers • Potato and Croquets • Canned Products − Tuna Fish − Sweet Corn − Vegetables • Desserts • Seafood Products

8 KEREVİTAŞ ANNUAL REPORT 2017 Edible Oil

The Group’s Edible Oil Business involves production and sales of 631 SKUs under 33 brands – including Bizim Yağ, Teremyağ, Luna, Ona, Ustam and Evet.

Edible Oil Products • Retail Products: Brand: Bizim Yağ Teremyağ Luna Sabah Yayla Halk Hüner Ona Evet

• Away from Home Consumption Products − Pastry and Catering Oils Brand: Ustam Teremyağ Bizim Yağ − Industrial Oils

KEREVITAŞ AT A GLANCE 9 OUR FACTORIES AND WORKFLOWS Powerful production infrastructure, highly competent human resources

Frozen and Canned Food

TOTAL PRODUCTION 2 CAPACITY FACTORIES 130,000 TONS/YEAR

BURSA FACTORY THE ONLY BRAND LEADER IN BRANDED GENERATING MARKET WITH 131,000 m2 open space PRODUCTS ACROSS 43,000 m2 indoor space EVERY CATEGORY 56% 6 main production lines… IN THE FROZEN AND MARKET SHARE • Bakery products CANNED FOOD SECTOR • Frozen fruits and vegetables • Canned tuna fish • Canned fruits and vegetables 405 • Meat products 97% SKUS UNDER • Coated products BRAND RECOGNITION 14 CATEGORIES

REACHING THE DINING PRODUCT AVAILABILITY TABLES OF AT MORE THAN 21 MILLION 36,000 PEOPLE POINTS 300 11 DISTRIBUTION VEHICLES DIRECT DISTRIBUTION WAREHOUSES 41,000 FREEZERS AFYON-EMİRDAĞ FACTORY

SALES TEAM OF EXPORTS TO MORE THAN 253,000 m2 outdoor space 33,000 m2 indoor space 350 28 COUNTRIES 2 main production lines… PEOPLE ACROSS • Frozen potatoes and croquets • Frozen vegetables 4 CONTINENTS

10 KEREVİTAŞ ANNUAL REPORT 2017 Edible Oil

TOTAL PRODUCTION 3 CAPACITY FACTORIES 658,000 TONS/YEAR

İSTANBUL EDIBLE OIL FACTORY LEADER IN BRANDED 280,000 tons/year capacity TURKEY’S LARGEST MARKET WITH The factory has Turkey’s first and only fraction factory. EDIBLE OIL PRODUCTION CAPACITY 65% MARKET SHARE

631 99% SKUS UNDER BRAND RECOGNITION 33 BRANDS

REACHING THE DINING PRODUCT AVAILABILITY AT MORE THAN TABLES OF ADANA EDIBLE OIL FACTORY 308,000 tons/year 64 MILLION 115,000 PEOPLE POINTS

LEADER IN BOTH PRESENCE IN RETAIL PACKAGED MARGARINE 15.9 MILLION AND MARGARINE HOUSEHOLDS IN BOWL

EXPORTS TO MORE THAN 99% 50 COUNTRIES AVAILABILITY ACROSS OVERSEAS/BRUNEI EDIBLE OIL FACTORY 6 CONTINENTS 70,000 tons/year capacity

KEREVITAŞ AT A GLANCE 11 Expanding further with a broad range of products…

12 KEREVİTAŞ ANNUAL REPORT 2017 With the acquisition of Besler Gıda we aim to be the company that meets the needs of every kitchen and pleases its stakeholders. With our approximately TL 2.5 billion net sales and 15% export rate; we significantly contribute to the national economy and support our stakeholders.

KEREVITAŞ AT A GLANCE 13 KEY INDICATORS Strong financial structure, healthy growth

CONSOLIDATED TOTAL ASSETS REVENUE (TL MILLION) (TL MILLION) FINANCIAL INDICATORS

3,396 2,421

With its 1,898 2,487 comprehensive product range enhanced further with the acquisition of Besler Gıda, 2016 2017 2016 2017 Kerevitaş boosted its total revenues and EBITDA in 2017. SHAREHOLDERS’ EQUITY NET FINANCIAL (TL MILLION) DEBT/EBITDA*

760 5.64

4.17

401

2016 2017 2016 2017

* Net financial debt is calculated by deducting cash and cash equivalents and financial receivables from related parties from total financial debt.

14 KEREVİTAŞ ANNUAL REPORT 2017 GROSS PROFIT NET OPERATING PROFIT EBITDA*** (TL MILLION) (TL MILLION) (TL MILLION)

428.2 108.1 185.5 104.3 356.1

149.0

2016 2017 2016 2017 2016 2017

GROSS PROFIT NET OPERATING EBITDA MARGIN (%) PROFIT MARGIN (%) MARGIN** (%)

5.5 18.8 4.5 7. 8 7.7 1 7.7

2016 2017 2016 2017 2016 2017

** EBITDA is calculated by adding depreciation to operating profit before other income and expenses from operating activities. *** Excluding other income and expenses from operating activities.

KEREVITAŞ AT A GLANCE 15 KEY INDICATORS

Kerevitaş exports amounting to TL 316 million in 2017 in more than 70 countries across 6 continents.

OPERATIONAL INDICATORS

NET NET EXPORT SALES SALES REVENUE (TONS) (TL MILLION) (TL MILLION)

550,959 2,421 315.8 519,248 240.0 1,898

2016 2017 2016 2017 2016 2017

GLOBAL FOOTPRINT EUROPE 20 COUNTRIES OTHER 28.2% 5 COUNTRIES 7%

EXPORTS BY CONTINENTS

AFRICA ASIA 16 COUNTRIES 30 COUNTRIES 22.5% 42.3%

16 KEREVİTAŞ ANNUAL REPORT 2017 NET SALES BREAKDOWN BY PRODUCT CATEGORY 12% Retail-Liquid 24% Retail- Margarine 1% Other Edible Oil 5% Business Unit Ghee Total Net Sales In 2017, the total TL net sales of Edible Oil 1,794 Business Unit is Million TL 1,794 million. 58% Away from Home Consumption

Kerevitaş 26% Consolidated In 2017, the total Frozen and Canned 74% Net Sales Food Edible Oil consolidated TL net sales of 2,421 Kerevitaş is Million TL 2,421 million.

22% 68% Frozen Food Tuna Fish

3% Total Net Sales Canned Fruit of Frozen and In 2017, the total and Vegetables Canned Food Business Unit net sales of Frozen and Canned Food 7% TL Other Business Unit is TL 627 627 million. Million

KEREVITAŞ AT A GLANCE 17 Steady growth driven by an extensive range of products

Kerevitaş maintains its pioneering position in the market by adopting exceptional quality standards in all its business processes – from production to sales.

2017 2016

Net Sales Net Sales Increase in Total Net Sales (TL million) (TL million) Net Sales (%)

Edible Oil Business Unit 1,794 1,426 26

Frozen and Canned Food Business Unit 627 472 33

Consolidated Net Sales 2,421 1,898 28

18 KEREVİTAŞ ANNUAL REPORT 2017 NET SALES BREAKDOWN BY SALES CHANNELS

1% Other 28% Direct sales 13% Export 5% Edible Oil Private label products In 2017, branded Business Unit Total Net Sales products accounted for 95% of Edible Oil TL Business Unit sales. 1,794 Million 54% Indirect sales

26% 74% Frozen and Canned Edible Oil Business Unit Food Business Unit In 2017, the Edible Oil Business

Kerevitaş accounted for Consolidated 74% of Kerevitaş’s Net Sales consolidated total TL net sales of 2,421 TL 2,421 million Million

Net Sales Share (%)

4% 45% Other Direct sales In 2017, Kerevitaş’s Frozen and Canned Frozen and Canned Food Business DondurulmuşFood Business GıdaUnit 15% TotalToplam Net CiroSales generated 45% of Export its sales through the TL 627 Company’s direct Milyon TL 627 sales distribution 19% Million Private label 17% network. products Indirect sales

KEREVITAŞ AT A GLANCE 19 CAPITAL STRUCTURE Strong partners, trustworthy management approach As of the end of 2017, Kerevitaş’s registered capital ceiling is TL 35 million and paid in capital amounting to TL 23.9 million.

December 31, 2017 December 31, 2016

Shareholding Amount Shareholding Amount Name of Shareholders Ratio (%) (TL) Ratio (%) (TL)

Yıldız Holding A.Ş. 46.14% 11,027,595 36.69% 2,290,957

Ufuk Yatırım Yönetim ve Gayr. A.Ş. 10.34% 2,470,502 40.04% 2,500,000

Murat Ülker 9.98% 2,385,664 0.00% -

Ahsen Özokur 8.13% 1,942,160 0.00% -

Trade Türk Gıda Yatırım A.Ş. 7.39% 1,765,600 - -

Other 18.02% 4,308,479 23.27% 1,453,043

Total 100.00% 23,900,000 100.00% 6,244,000

7. 3 9 % 8.13% Trade Türk Gıda Yatırım A.Ş. 18.02% Ahsen Özokur Other

9.98% Murat Ülker 2017 SHAREHOLDING 10.34% STRUCTURE 46.14% Ufuk Yatırım Yönetim ve Gayr. A.Ş. Yıldız Holding A.Ş.

20 KEREVİTAŞ ANNUAL REPORT 2017 KEREVITAŞ AT A GLANCE 21 SUCCESS STORY A proud heritage, a bright future…

1993 Canned tuna fish production starts. 1989 Production 1969 of bakery Export of live products has crayfish has been started begun under (pizza, puff a cooperative pastry, ravioli) society 1980 organization. Frozen fruit and vegetable production 1990 1978 commences. Launch of “Kerevitaş” ‘’SuperFresh’’ was brand. established in Akçalar village, Bursa.

FROZEN AND CANNED FOOD BUSINESS EDIBLE OIL BUSINESS 1994 Liquid and industrial oil production was started.

1995 Production of packaged margarine 1992 and packaged Yıldız Holding industrial oil launched started. its first non-confectionery business with edible oil range.

22 KEREVİTAŞ ANNUAL REPORT 2017 2008 Kerevitaş was acquired by Yıldız Holding. Besler and its subsidiary has been acquired.

Kerevitaş becomes the second largest food company trading on Borsa 2013 İstanbul. Emirdağ Factory was The first R&D established. center in the frozen food sector established. 2017 Brunei Factory has been 1996 2002 2015 established. Production Turkey’s first Turquality of bowl and only fraction brand margarine factory installed. support started. scheme begins. 2016 Besler Food R&D Center certified 1999 by Ministry of First time Industry. production of buttery taste Ona brand margarine in admitted to Turkey. the Turquality incentive program.

2012 AIB (American 2013 Institute Acquisition of of Baking) Marsa by Besler. Food Safety Certification obtained.

KEREVITAŞ AT A GLANCE 23 SUCCESS STORY

Operating five factories, Kerevitaş has a 658,000 tons capacity for edible oil production and 130,000 tons capacity for frozen and canned food production.

TOTAL 130,000 TONS OF FROZEN AND 5 >2,500 CANNED FOOD FACTORIES EMPLOYEES PRODUCTION CAPACITY

SUPERFRESH BRAND 658,000 MARKET LEADER WITH TONS OF EDIBLE OIL 56% PRODUCTION CAPACITY MARKET SHARE

EDIBLE OIL BUSINESS PRODUCT AVAILABILITY UNIT BRANDS MARKET AT OVER LEADER WITH 115,000 65% POINTS MARKET SHARE

EXPORTS TO FROZEN AND CANNED EDIBLE OIL BUSINESS UNIT 6 FOOD BUSINESS UNIT CONTINENTS 97% 99% >70 BRAND RECOGNITION BRAND RECOGNITION COUNTRIES

24 KEREVİTAŞ ANNUAL REPORT 2017 AWARDS AND SUCCESSES

ONA BREAKFAST AND LUNA KEREVİTAŞ BOWL GARNERS RECEIVES THE INTERNATIONAL FEMALE-FRIENDLY TASTE WORKPLACE AND QUALITY AWARD INSTITUTE’S “SUPERIOR TASTE” AWARD

SUPERFRESH “TODAY IS TEREMYAĞ RECEIVES DAY (BUGÜN CRYSTAL APPLE AWARD GÜNLERDEN WITH ITS TEREMYAĞ)” ADVERSTISING ADVERTISING CAMPAIGN CAMPAIGN IS FLATBREAD MAKERS RECEIVED CONCERNED (PİDECİLER THE EFFIE BRONZE DERTLİ). AWARD

MIXX BRONZE AWARD FOR WINNER OF THE TEREMYAĞ DIGITAL İSO LARGE SCALE CAMPAIGN COMPANIES “DESPITE THEIR ENERGY SAVING DIFFERENCES THEIR COMPETITION IN 2017 SECRET IS THE SAME: TEREMYAĞ”

EFFIE FOOD CATEGORY SILVER AWARD FOR TEREMYAĞ DIGITAL CAMPAIGN “DESPITE THEIR DIFFERENCES THEIR SECRET IS THE SAME: TEREMYAĞ”

KEREVITAŞ AT A GLANCE 25 MESSAGE FROM THE CHAIRMAN OF THE BOARD AND CEO Making a difference with an ever-expanding value chain…

With its strong product portfolio, Kerevitaş enables consumers in Turkey and countries across six continents to enjoy a healthy, high-quality nutrition.

Dear Shareholders, Turkey leads OECD countries in Turkey’s second largest publicly terms of economic growth. trading food company... Despite a continued upswing In 2017, Turkey’s economy achieved Following the largest dedicated prevailing in the global economy, remarkable success by posting capital increase in recent times, volatility in geopolitical 11% growth in the third quarter to Kerevitaş acquired Besler, developments led to downward rank as the top performer among Turkey’s market-leader in edible revisions of “optimistic” economic OECD countries. Subsequent to oil production – a company that forecasts across the globe in 2017. this achievement, international incorporates Marsa and produces The impact of the US presidential institutions revised their growth well-known household brands election on the global economy and forecasts for Turkey upward. As including Bizim Yağ, Teremyağ, Luna, uncertainties surrounding the UK’s a result, the sustainable growth and Ona – for TL 904.5 million in exit process from the European performance of Turkey’s economy the fourth quarter of 2017. With Union affected all the economies was validated by global financial this merger, our Company took a trading with the Western world. markets. The BİST 100 Index saw significant step toward becoming Political instability in the Middle East the bullish trend prevailing since Turkey’s second largest listed food further raised concerns across the the start of 2017 gain further company. region as well as around the globe. momentum over the course of the year to reach 115,000 by year’s Diversifying our competitive end. While this robust stock market advantages… performance demonstrated the solid The two leading companies in their dynamism of the Turkish capital respective markets have combined markets, our Company’s shares their strengths via this acquisition well outperformed the country’s while making a vital contribution benchmark index in 2017. to Kerevitaş’s sustainable growth performance. In addition, this merger advanced our transformation into a new entity that operates on a much larger scale and boasts a sizable sales volume. The transformed entity enjoys business process improvements and cost advantages in raw material supply for production as well as advantages arising from Besler’s commitment to excellence, 26 KEREVİTAŞ ANNUAL REPORT 2017 sustainability and its utilization of brand value. In 2017, Kerevitaş’s On behalf of the Board of high technology. These competitive consolidated net sales grew 28% Directors, I would like to thank our advantages allow us to provide our year-on-year to TL 2,421 million esteemed shareholders, consumers, consumers with a wider product while EBITDA rose 25% to stakeholders and valued employees portfolio in order to further boost TL 185 million. for their contributions to the customer satisfaction. Company’s strong business results, In fiscal year 2018, Kerevitaş will and their continued support toward Financial results that bolster our focus on achieving sustainability the achievement of our future goals. targets... in its superior quality standards. Kerevitaş continued to expand its In addition, the Company aims to Yours sincerely, factories and sales organization achieve results that will benefit through new investments in all the stakeholders in our sphere Oğuz ALDEMİR 2017. Additionally, the Company of influence through the synergy Chairman of the Board of Directors successfully executed marketing generated by the Kerevitaş-Besler and CEO activities aimed at increasing its merger.

MANAGEMENT 27 BOARD OF DIRECTORS

Name-Surname Job Title Term of Office Oğuz Aldemir Oğuz Aldemir Chairman 21.07.2015 30.03.2018 Chairman of the Board of Directors Ali Ülker Board Member 30.03.2015 30.03.2018 Mr. Oğuz Aldemir graduated from Ankara University, Zeki Ziya Sözen Board Member 30.03.2015 30.03.2018 Faculty of Political Sciences, Department of Business Vehbi Merzeci Board Member 30.03.2015 30.03.2018 Administration and studied his Executive MBA from Hüseyin Avni University of Chicago, Graduate School of Business, Metinkale Board Member 20.07.2017 30.03.2018 London Campus in 2007. Starting his professional Halil Bülent Independent career in 1993 at Procter & Gamble in the sales and Çorapçı* Board Member 30.03.2015 30.03.2018 marketing departments, Oğuz Aldemir joined Independent Coca-Cola in 1997. Over the next 12 years at Talat İçöz* Board Member 30.03.2015 30.03.2018 Coca-Cola, he served as Chain Stores Manager, Commercial Director for Ukraine Operations, Sales * Mr. Ahmet Murat Yalnızoğlu and Ms. Ceyda Aydede were elected Independent Members of the Board of Directors at the Ordinary General Director of Turkey, General Manager of Azerbaijan and Assembly Meeting for 2017 held on April 11, 2018, replacing Mr. Halil Regional Director of Central Asia, respectively. In 2009, Bülent Çorapçı and Mr. Talat İçöz, whose terms of office had been Mr. Aldemir joined Mey İçki as Executive Board Member expired. and Director of Sales and Distribution; he played an active role in the sale of the company from TPG to Diageo in 2011. Oğuz Aldemir joined Yıldız Holding as Vice President of the Food, Frozen Products and Personal Care Group in 2013. He continues to serve as Group President of the Frozen Food, Edible Oil, Processed Meat and Personal Care Group to this day. He is also chairman of Kerevitaş’ Board of Directors. Oğuz Aldemir is married with one child.

Ali Ülker Board Member Ali Ülker was appointed as of Chairman of Ülker Corporate Group (biscuit, chocolate, candy) in 2005. He began his professional career in 1985 as a trainee in the Quality Control Department of Ülker Gıda A.Ş. Between 1986 and 1998, he worked at the company’s chocolate production factories and at the company’s marketing subsidiary Atlas Gıda Pazarlama A.Ş. as a trainee, sales executive, sales coordinator, product group coordinator and product group manager, respectively. Mr. Ülker was appointed as General Manager of Atlas Gıda Pazarlama A.Ş. in 1998, Deputy Chairman of the Consumer Group for Marketing and Responsible for Chain Stores in 2000, and General Manager of Merkez Gıda Pazarlama A.Ş. in 2001. He was appointed as Deputy Chairman of the Organized Retail Food Group in 2002. Ali Ülker graduated from Boğaziçi University, Faculty of Economics and Administrative Sciences, Economics and Business Administration Departments. Mr. Ülker also attended various academic programs at IMD, Harvard University and Wharton School of Business. He worked on the Internal Kaizen Projects at De Boccard & Yorke Consultancy (1992) and on IESC Sales System Development and Internal Organization Projects (1997). Ali Ülker was born in 1969 and is married with three children. He speaks English and German.

28 KEREVİTAŞ ANNUAL REPORT 2017 Dr. Zeki Ziya Sözen Halil Bülent Çorapçı Board Member Board Member (Independent) Dr. Zeki Ziya Sözen graduated with honors from Middle Halil Bülent Çorapçı was born in Yalova in 1936 and East Technical University, Department of Chemical graduated from İstanbul School of Economics and Engineering and obtained his Master’s degree from the Commerce in 1956. In 1953, he joined same department. He received his Ph.D. from Canada Karamancılar-Gazioğulları Group, serving as an British Columbia University, Department of Chemical executive and auditor in various Group companies. Engineering. Dr. Sözen started his professional career in Mr. Çorapçı continues to serve as a member of the 1985 as Research Manager at Nyköping Energiteknik AB Board of Directors at these companies. He holds a in Sweden. He served as Assistant of the Chairman at Certified Public Accountant license and is registered Yaşar Holding A.Ş., Vice Chairman at Pınar Süt Mamulleri with İstanbul Chamber of Certified Public Accountants San. A.Ş. and CEO at Mis Süt San. A.Ş. Dr. Sözen joined under registration number 34100678. Mr. Çorapçı is a Ülker Group in 1996 as the founding CEO of member of the Tax Council established by the Ministry of Ak Gıda and served as Director of the R&D and Business Finance through relevant law and regulations. He serves Development Group between 2003 and 2009. as an independent member on the Boards of Directors at several companies in the industrial, REIT, and tourism Vehbi Merzeci sectors. Bülent Çorapçı is married with two children and Board Member speaks English. Vehbi Merzeci was born in İstanbul in 1975 and graduated from Uludağ University, Faculty of Economics Talat İçöz and Administrative Sciences, Department of Business Board Member (Independent) Administration. He served as Committee Chairman Talat İçöz was born in Bursa in 1947 and graduated from and Member of the Assembly at İstanbul Chamber of İzmir Maarif Koleji (High School) in 1964-65. He went Commerce and Vice Chairman of the Board of Directors on to graduate from Middle East Technical University, at Water Products Promotion Group (STG). At present, Faculty of Administrative Sciences, Department of Mr. Merzeci serves as Deputy Chairman of the Board Business Administration in 1969. Mr. İçöz studied of Directors at İstanbul Exporters’ Association of at METU, Faculty of Architecture in the same year Fisheries and Animal Products; Member of the Board and obtained his Master’s degree from the Faculty’s of the Sectors Council; and Member of TİM (Turkish Department of City and Regional Planning in 1971. Exporters Assembly). Vehbi Merzeci is also a Member of Between 1966 and 1972, he worked at Tuzcuoğlu Fenerbahçe Sports Club Congress. He is married and International Transportation Services while he studied speaks English. at university. Upon completion of his military service in 1973, Talat İçöz began serving as Investment Projects Hüseyin Avni Metinkale Manager at Ercan Holding A.Ş. While there, he was Board Member involved in various projects, including the MAN Truck Hüseyin Avni Metinkale was born in 1963 and graduated and Bus Project, Mahle Piston Extender Project and from İstanbul Technical University, Department of İstanbul Piston Ring Industry Investment Project. Talat Business Engineering. He started his professional İçöz was appointed General Manager at Burdur Tractor career in 1985 as Project Manager at Albaraka Türk Company in 1978, General Manager of Rekor Rubber Participation Bank, and then worked as Managing Co. in 1981, and Founding Partner, Board Member and Partner at Pripack Ambalaj A.Ş. Since 2001, General Manager at ÖZBA A.Ş. between 1984 and 1991. Mr. Metinkale has held various executive positions at Talat İçöz was elected to Parliament as İstanbul Deputy Yıldız Holding, including Committee Chairman, Member of in 1987, served as Deputy Chairman in the Anavatan the Executive Committee and Director of the Packaging Party and Member of the Parliamentary Committees Group. Since 2008, he has been the General Manager of for the Constitution, Industry and Technology. Mr. İçöz Yıldız Holding. Mr. Metinkale became General Secretary became the founding partner of Çarşı Menkul Değerler for Yıldız Holding’s Boards of Directors in 2010. He is A.Ş. (securities) in 1991 and was engaged in commercial married with four children and speaks English. activities abroad from 1995 to 2000. He served as a consultant in Yıldız Holding A.Ş. between 2002 and 2009. Since 2010, he has taught Turkish Business Environment for MBA students at Bilgi University. Talat İçöz is married with two children and speaks English.

MANAGEMENT 29 BOARD OF DIRECTORS

Ahmet Murat Yalnızoğlu* Ceyda Aydede* Board Member (Independent) Board Member (Independent) Murat Yalnızoğlu was born in 1957 and graduated from Ceyda Aydede was graduated from Industrial İstanbul High School. He obtained his Bachelor’s degree Engineering and started her career at Arthur Andersen. from Boğaziçi University and Master’s from University of She later served in various positions at Migros. Florida in Industrial and Systems Engineering. Combining her business experience in various sectors Mr. Yalnızoğlu began his professional career in 1982 as with a professional approach to public relations, Ceyda an entrepreneur in information systems and software Aydede established Global Tanıtım in 1989 and has development. In 1989, he joined Arthur Andersen and executed major PR projects for more than 25 years. Andersen Consulting as Management Consultant These projects obtained many national and international specializing in information technology. Mr. Yalnızoğlu awards for Global Tanıtım while also bringing a high went on to work at Coopers & Lybrand and ARGE degree of recognition through prestigious awards for Consultancy as Senior Executive, Founder and Ms. Aydede. In 2000, Dünya Newspaper named her Partner, delivering various strategic and organizational the “Most Successful Businesswoman in the Public development consultancy projects for some of Turkey’s Relations Sector,” and in 2001 she was named “Best leading companies. Since 2006, his focus has been Professional Representative of the Sector” by Ankara creating effective corporate structures particularly for Public Relations Association and Ankara Chamber of large, multi-business conglomerates. Mr. Yalnızoğlu Commerce. Ms. Aydede, who teaches public relations conducted numerous studies to boost effectiveness of at the graduate level at Yeditepe University, is also a board of directors’ activities, and achieve substantial published author of books on public relations. improvements by structuring the institutions “from the top.” In addition to his work as management consultant, he also serves as a member of the board of directors at several companies. Mr. Yalnızoğlu contributes to propagating the benefits of good management by sharing his experiences in management with civil society, professional organizations and universities, at various seminars and conferences, and on social media.

* Elected as Independent Board Member at the Ordinary General * Elected as Independent Board Member at the Ordinary General Assembly Meeting of 2017 held on April 11, 2018. Assembly Meeting of 2017 held on April 11, 2018.

30 KEREVİTAŞ ANNUAL REPORT 2017 SENIOR MANAGEMENT

Job Title Business Unit

Oğuz Aldemir Group Chairman and CEO Holding

Gülay Çuğu Bal CFO Holding

Şükrü Çin Vice Chairman Edible Oil Business Unit

Zeynep Dilmen General Manager Frozen and Canned Food Business Unit

İrfan Canbaz Group Director for Enterprises and Investments Frozen and Canned Food Business Unit

Hakan Ufat Director of İstanbul Factory Edible Oil Business Unit

Verda Duysak Marketing Director Edible Oil Business Unit

Nalan Özgür Marketing Director Frozen and Canned Food Business Unit

Uğur Tendik Sales Director Edible Oil Business Unit

Tekin Alptekin Sales Director Frozen and Canned Food Business Unit

Ercan Karaefe Export Director Edible Oil Business Unit

Ceyhun Çağlar Foreign Trade Director Frozen and Canned Food Business Unit

Financial Affairs Director and Investor Relations Ergin Dülger Frozen and Canned Food Business Unit Responsible

Adnan Kaplan Financial Affairs and Director of Adana Factory Edible Oil Business Unit

MANAGEMENT 31 Bringing Turkish cuisine to kitchens around the world...

32 KEREVİTAŞ ANNUAL REPORT 2017 While sustaining our organic growth overseas, we will continue to introduce Turkish brands to markets worldwide.

KEREVITAŞ AT A GLANCE 33 DEVELOPMENT OF TURKEY’S FROZEN AND CANNED FOOD SECTOR AND EDIBLE OIL SECTOR Technically suitable storage, loading, transport and distribution Frozen food investments in Turkey began in the early 1970s for export purposes, the local frozen food market began to grow in 1990 when Kerevitaş first introduced its products domestically.

Constituting one of the core are marketed in such a way as to season are cleaned and individually business lines for Kerevitaş, the indicate that they possess this frozen at -40° C rapidly within 5-8 frozen food sector is a major branch characteristic. minutes by applying the “Individual of the food industry. The sector Quick Freezing (IQF)” process. The involves providing appropriate Freezing is the best food process freezes the water contained raw materials for freezing (seed preservation method to maintain the within the products so that the selection, production, procurement); quality, taste, smell and nutritional foodstuffs achieve long life without transporting raw materials to value of foods. Flash-freezing food recourse to additives. factories under proper conditions; at -40° C transforms the water selecting, washing, sizing and within to ice through crystallization, Freezing foodstuff through the IQF processing the raw materials with averting viability of microorganisms method thus involves freezing the techniques specific to the product which lead to spoilage. Freezing also cellular juice in the food with the rest without delay; deep freezing minimizes chemical and biochemical of the fibers and content without and packaging the materials changes to preserve foodstuff at its rupturing the cell membranes. appropriately; using the correct most natural state. Products are picked in-season and technology for their storage, frozen at its freshest and at very low loading, transport, distribution Maintaining temperature at -18°C temperatures, it retains its freshness and consumption; and monitoring in all links of the chain – from and nutritional values to the point of customer feedback. production to transit and the point consumption. of sale – is vital. Consumers who buy The Turkish Food Codex defines products stored in -18° C display While frozen food investments in quick frozen foodstuffs as those cases at points of sale are advised Turkey began in the early 1970s for that have undergone quick-freezing to deliver these products to their export purposes, the local frozen where the zone of maximum freezer or cook them within two food market began to grow in 1990 crystallization is crossed as rapidly hours at most. when Kerevitaş first introduced its as possible, depending on the products domestically. Currently, type of product. The resulting At present, frozen food factories frozen foods are a major segment temperature of the product after employ the IQF (Individual Quick worth about TL 2.8 billion in Turkey. thermal stabilization is continuously Freezing) technique to flash-freeze The segment includes roll pastry , maintained at a level of -18° C or fruit and vegetables individually. flatbread, puff pastry , ravioli, Turkish lower at all points. These items Under this method, raw materials pizza and other bakery products, obtained at the source and in-

34 KEREVİTAŞ ANNUAL REPORT 2017 as well as fruits and vegetables, Frozen foods also offer economic and other key criteria. Planting takes potatoes and croquets, seafood and practical advantages. With place under the supervision of the products and desserts offered via the cleaned and prepared for Company’s agricultural engineers both retail and away from home use packaged products there ise in areas with suitable soil structure consumption channels. the advantage of water and time during the appropriate planting consumption. It saves the consumer season. Specific soil quality, water, The world’s first frozen products water and time since the food was moisture balance and climate to be offered for sale were frozen packaged after it was already conditions are required to cultivate seafood which started being cleaned and prepared for use. each vegetable and fruit type. produced during the 1930s in the Redundant parts such as leaves, Starting with seed selection, the United States, replacing canning and stems, seeds are removed and only field of the produce to be grown is other earlier food storage methods. the edible bits are packed. Therefore, controlled at every step. It is crucial Since that time, this ever-expanding the sum paid for frozen food that the soil is analyzed to determine market has reached approximately purchases involves only the edible suitability for cultivation. The land is USD 119 billion worldwide, with net amount. appropriately prepared for planting, annual per capita consumption in including: its depth, structure and countries such as the US, UK, and Most of the raw and auxiliary texture; the position of the plot and Germany standing at more than materials used in the production the suitability of the production 20 kg. Although Turkey is a of frozen fruits and vegetables of the land; its compliance with market of comparable size, with in Turkey are supplied locally. appropriate sowing and planting consumption standing at 1 kg per Kerevitaş harvests vegetables grown norms; the evenness of spacing; and capita/per annum, it is far from through the joint efforts of contract the absence of weeds in the field. reaching its desired volume potential. farmers and agricultural engineers The field is monitored to ensure it is automatically with its own harvesting adequately watered and fertilized. Frozen food technology was developed as a result of long- running research, hygiene and production standards established methodically. Analyses confirm that frozen foods are better than fresh ones in terms of vitamins and nutrients. Products considered to be fresh produce are actually not as fresh as perceived due to the time elapsed and the storage conditions faced in transit until reaching the market/shelf. As a result, so-called fresh produce ends up losing some of its nutritional content.

Frozen foods, however, are delivered machinery and delivers them to Pest management against diseases to the consumer after undergoing the factory within two to three is performed effectively. After detailed quality control testing and hours. Vegetables that are cleaned, sowing, the crops are grown under are preserved subject to cold chain sorted and washed under hygienic supervision of agricultural engineers rules. No preservatives or chemicals conditions are then flash-frozen until the harvest of the fruits and are used in the freezing process. at -40° C degrees to retain their vegetables. For this reason, as long as they are freshness and nutrients as in that defrosted and cooked in accordance instant. Since the ultimate aim is to with the instructions for use, the protect the freshness and purity of flavors, vitamins, minerals or other Supply of raw materials is one of harvested fruits and vegetables, the valuable nutrients of frozen foods the most crucial considerations crops to be used in the production of are not diminished by the freezing at Kerevitaş factories. Using high frozen fruits and vegetables must be process. quality raw materials is an essential grown in-season, must maintain their requirement to produce high quality natural smell and taste, and must Furthermore, with the frozen food frozen products. As a result, the meet certain standards. technology , it is possible to get process at Kerevitaş begins with Post-harvest, the crops are stacked certain seasonal products in seed selection of the produce to under appropriate conditions and every season at the same quality be grown. Kerevitaş’s agricultural shipped to Kerevitaş factories standard. engineers plant products from seeds without losing their freshness. that are certified, high-yield, and compliant with taste, appearance, 2017 ACTIVITIES 35 DEVELOPMENT OF TURKEY’S FROZEN AND CANNED FOOD SECTOR AND EDIBLE OIL SECTOR

With Turkey’s natural resources, 80 of the nearly 150 types of canned fruits and vegetables available worldwide are produced economically within the country; 50 of these are exported.

Eskişehir Alpu SuperFresh Pea Harvest 36 KEREVİTAŞ ANNUAL REPORT 2017 Every vehicle arriving at the factory first undergoes raw material analyzes by the Quality Control unit. Checks are made against the quality criteria determined for each crop; only the appropriate raw material is admitted into the factory under the supervision of food engineers.

Input controls for other processes outside the premises of frozen fruit and vegetable production (e.g. Bakery Products, Coated Products, Meatball Group, et al.) are also conducted in line with relevant specifications; only ingredients suitable for production are admitted to the factory.

Depending on the type of crop, fruits and vegetables undergo the following production processes: At the next stage, the product is air- With Turkey’s natural resources, 80 Sorting: Categorization of fruits blasted at -40° C and flash frozen of the nearly 150 types of canned and vegetables based on their via the IQF method, bringing the fruits and vegetables available size, radius and similar properties, product’s core temperature to -18° C. worldwide are produced economically selection and removal of foreign Products thus frozen are transferred in within the country; 50 of these are substances, spoiled items, peels, to cold storage warehouses at exported. Almost all the raw material shells and rogue factories. temperatures of -20° C in order to required is supplied domestically. avoid disruption of the cold chain. Washing: Removal of mud, dust and There, the products are stored in Development of Turkey’s Frozen and other material that might be carried refrigerated units until they are Canned Food Sector and Oil Sector along the raw material by cleaning transported in refrigerated vehicles with water. for sale in the target markets. The size of Turkey’s edible oil market averages around 1.5 million tons. Boiling (applied only to vegetables; For the canned food sector, the Consumer products account for 47% fruits are not blanched): Entails process begins with providing of the market and the away from immersing the vegetables in boiling suitable raw materials (seed Home Consumption Channel makes water for a few minutes to halt the selection, cultivation, procurement) up 53%. activity of certain enzymes that and entails the stages of cause it to go dark and rancid. transporting raw material to Palm, soy, rapeseed and sunflower the factories under appropriate are the primary crops for vegetable Precooling: Applied prior to the conditions; selecting, washing, oil extraction worldwide. In Turkey, freezing process, precooling ensures sorting and processing of the raw however, sunflower dominates that the produce is quickly and material through product-specific most of the seed oil and factory oil fully frozen by reducing the core techniques; sterilizing, incubating production. Cottonseed, soybean, temperature and dispels any foreign and packaging of the product in rapeseed, safflower, corn and olive substances that may remain on the appropriate form; storing, loading, are among the other main crops for surface from the final rinse. transporting, distributing in oil extraction. accordance with the technique; and Workflows for other products monitoring customer results after In 2017, Turkey’s retail oil market processed outside the Frozen Fruit consumption. totaled TL 5.8 billion, up 13% and Vegetable production factory year-on-year. Margarine is the best (e.g. Bakery Products, Coated oil category for branding impact. Products, Meatball Group, et al.) Sunflower oil is the largest category are drawn in accordance with the in the market, accounting for a 52% process specifications. share of turnover.

2017 ACTIVITIES 37 FROZEN AND CANNED FOOD BUSINESS A diverse product portfolio at international quality standards Boasting a robust domestic distribution and storage infrastructure for frozen and canned food under the SuperFresh brand, Kerevitaş is the only company enjoying full national coverage thanks to 11 direct distribution warehouses and 52 dealers.

ACTIVITIES

Production The SuperFresh brand is the market of its parent company Yıldız Holding, Operating under the brand name leader with a 56% market share and Kerevitaş steadily strengthens its sales SuperFresh in frozen and canned food, has a high brand awareness of 97%. In and marketing organization in overseas Kerevitaş boasts an advanced production 2017, SuperFresh displayed continuous markets, rapidly reaching new markets infrastructure in this business. The communication efforts that will remain across the globe. Company’s products in this area include on consumers’ agenda and feature bakery products, fruit and vegetable as part of their everyday lives. In Distribution products, potato and croquet products, addition to advertising campaigns of Boasting a strong domestic distribution meat products, seafood products and renewed meatball and pastry products, infrastructure in frozen and canned desserts. The canned product category advertisement for pizza and vegetable food under the Kerevitaş brand, the includes canned tuna fish products, products were also broadcasted over the Company operates cold storage sweet corn and vegetables. course of the year at various times. With warehouses in İstanbul (Kartal), Bursa, Ramadan marking a significant period for Afyon and Antalya. Distribution of Kerevitaş’s production operations are Turkish consumers, the SuperFresh brand SuperFresh branded products are conducted at two main factories. The bolstered its assertion to deliver delicious managed by regional management factory located near Akçalar in Bursa food to dining tables with a customized offices in 11 regions (İstanbul European comprises six main production factories Ramadan communications campaign. Side, İstanbul Asian Side, Bursa, spread across premises totaling Alongside TV campaigns, recipes were Ankara, İzmir, Antalya, Adana, Konya, 131,000 m2 of outdoor area and posted on the Company’s microsite Gaziantep, Çanakkale and Sakarya). 43,000 m2 of total indoor space. The superbiyemek.com and social media. In Outside of these provinces, SuperFresh factory located near Emirdağ in Afyon, addition, digital campaigns, sampling and is served by 52 dealerships across owned by its subsidiary Karma Tarımsal promotion activities at stores and tasting Turkey. Kerevitaş stands out from the A.Ş., is built across 253,000 m2 with events at offices, universities and public competition with a strong logistics 33,000 m2 of indoor space. Products spaces provided direct engagement chain in frozen and canned food and generated through high-tech processes with the target market. These were the diversity of its wide product range. are stored in high capacity cold and dry the primary marketing efforts of the With a keen understanding that proper storage warehouses at the Bursa and SuperFresh brand in 2017. Kerevitaş has positioning is the most crucial feature Afyon factories. Kerevitaş continually a powerful sales and marketing network of success in the frozen food sector, develops its production infrastructure with 11 direct distribution warehouses, the Company has bolstered its reach in line with customer needs and 300 distribution vehicles and 41,000 to consumers via bespoke frozen food expectations. freezer display cases, ensuring product cabinet display case investments availability at more than 36,000 under the Kerevitaş brand since 1990. Sales and Marketing locations across the domestic market. These freezer cabinets display cases Kerevitaş is the only company that With a 350-strong sales and marketing are delivered to the sales points which have products across all categories in team focused on the domestic market, exceed a certain net sales threshold the domestic frozen and canned food the Company enjoys a sustainable under a loan agreement. The special market under its SuperFresh brand. sales-marketing network thanks to its frozen food cabinets display cases strong ties with its dealers. Backed by feature only Kerevitaş products and are the high international brand recognition periodically inspected by Kerevitaş staff. 38 KEREVİTAŞ ANNUAL REPORT 2017 FROZEN AND CANNED FOOD BUSINESS

Frozen Food 130,000 (TONS/YEAR) TOTAL PRODUCTION CAPACITY

LEADER IN BRANDED MARKET WITH 56% SHARE

2017 ACTIVITIES 39 FROZEN AND CANNED FOOD BUSINESS UNIT/ ACTIVITIES Kerevitaş’s frozen and canned food range aimed at away from home consumption includes a wide selection of products – from ravioli to pizza and pastries.

PRODUCTS

Export Retail Export Kerevitaş offers a wide range of Kerevitaş offers a diverse product The products in the exports products globally in its frozen and range in the Retail Products group category of Kerevitaş’s frozen and canned food business under the under frozen and canned food canned food business comprises the SuperFresh brand. With to its wide business. The Company’s products Company’s entire product portfolio. product range and full compliance in this group range from fruit and For more information about the approach to international quality vegetable products to bakery products in this category, please standards, Kerevitaş exports to products, potatoes and croquet visit: http://www.kerevitas.com.tr/tr/ more than 20 countries across products. For more information urunler/ihracat-urunleri six continents under its frozen about the Company’s products in and canned food business. As of this category, please visit: end-2017, the Company leads the http://www.kerevitas.com.tr/urunler/ industry in exporting frozen and perakende-urunler canned foods with exports of USD 5.5 million to Europe, USD 7.5 Away from Home Consumption million to Africa and USD 12.5 million Kerevitaş offers a wide range of to the Middle East and Asia. With product in away from home products these figures, Kerevitaş achieved under frozen and canned food Turkey’s highest export in frozen and business – from ravioli to pizza and canned foods. pastries. For more information about the products in this category, please visit: http://www.kerevitas.com.tr/tr/ urunler/ev-disi-tuketim-urunleri

40 KEREVİTAŞ ANNUAL REPORT 2017 2017 ACTIVITIES 41 EDIBLE OIL BUSINESS Expanding overseas with high quality standards in production… The Group’s Besler margarine range – produced in compliance with EU standards with fully-automated advanced technology under 100% hygienic conditions – is met to high demand from consumers.

ACTIVITIES

Production benchmark for other industrial was the most followed brand on After the acquisition of Besler , enterprises. By obtaining the Food Instagram in FMCG’s Food Category Kerevitaş has started its operations Safety Certificates of AIB (American thanks to its effective digital in edible oil sector. Kerevitaş now Institute of Baking) in 2012 and communication infrastructure. runs its liquid oil and margarine ISO 22000 in 2013, Kerevitaş As part of the 2017 marketing production operations at three maintained its pioneering position campaign, the Company launched factories located in Adana, İstanbul in quality assurance. In 2014, the Turkey’s first and only bespoke and Brunei. Reaching a total Company was awarded ISO 50001 YouTube Cooking Channel “Pastry capacity of 658,000 tons/year Energy Management System is Our Business” focusing solely on across the three factories, the Certification, becoming a leading bakery products. Company’s Marsa Adana Factory enterprise in the industry regarding has Turkey’s largest capacity for a energy management and sustainable As the most innovative brand in factory on a single site. Kerevitaş operations. the market, Ülker Teremyağ was produces liquid oil and margarine and presented with several awards conducts the sales and marketing Sales and Marketing for its communications which rely operations of these products in local Sales processes of the edible oil on consumer insight and stand and overseas markets. At its three business are primarily performed out from the competition in this factories operating at international by Yıldız Holding’s distribution category. The brand received the quality standards, the Company subsidiaries. In the area of marketing, Effie Bronze Award for its “Today manufactures a total 631 SKUs brand-specific campaigns are is Teremyağ Day” advertising under 33 brands, including Bizim Yağ, conducted to great acclaim campaign as well as the Bronze Teremyağ, Luna, Ona, Ustam and from consumers. For Bizim Yağ, Award at MIXX Digital Awards Evet across the Retail, Away from which enjoys a high level of brand for its “Different Styles, the Same Home and Industrial categories. recognition, a TV campaign involving Secret” viral campaign for digital active presence on a cooking platforms. Encouraging women to Serving as a model for the edible oil show for five days/week through be inventive in the kitchen with its industry since it began production, product placements, advertorials Luna brand and embracing the Kerevitaş decided in 1999 to and banners, brought increased “Passion for Food” concept for its establish an Integrated Management recognition as the best performing communications, Kerevitaş ran System (ISO-9001, ISO-14001 OPT cooking show. Furthermore, a “Stoke your Passion for Food” and OHSAS-18001). The Company Ülker Bizim Yağ achieved the highest commercial on TV as well as “A La became the first enterprise to receive engagement on social media and Luna Kitchen” project on digital all three certifications, setting a media, where the target audience is known to spend a lot of time.

42 KEREVİTAŞ ANNUAL REPORT 2017 Edible Oil 658,000 (TONS/YEAR) TOTAL PRODUCTION CAPACITY

LEADER IN BRANDED MARKET WITH 65% SHARE

2017 ACTIVITIES 43 EDIBLE OIL BUSINESS/ ACTIVITIES Kerevitaş’s domestic sales of retail oil products are conducted by market-specific sales companies operating under Yıldız Holding: Horizon for the traditional channel, Pasifik for the modern channel and Teközel for the private label (PL) channel.

44 KEREVİTAŞ ANNUAL REPORT 2017 Besler’s subsidiary Marsa is the Distribution PRODUCTS leading brand in the pastry oils Kerevitaş’s domestic sales of retail category of the away from home products in the oil business are Retail Products consumption market Ustam Pastry conducted by market-specific sales The Group produces the Bizim Yağ, Oils. As part of marketing efforts companies operating under Yıldız Teremyağ, Luna, Sabah, Yayla, Halk for the Ustam brand, Turkey’s first Holding: Horizon for the conventional and Hüner brands under the Retail online pastry chef training platform channel, Pasifik for the contemporary category. For more information “Ustam Akademi (Chef’s Academy)” channel and Teközel for the private about the Company’s products in was launched. Enabling pastry chefs label (PL) channel. The Company’s this category, please visit: to access high-quality training retail oil products thus reach a www.besler.com.tr/tr/urunler/ content via their mobile phones, total of 115,000 points of sale. tuketici-urunleri tablets and computers without time Industrial, pastry and catering sales and space restrictions, the training are distributed by Eksper Gıda, Away from Home Consumption is composed of three modules: another Yıldız Holding subsidiary, in The Group produces the Ustam, Basic Pastry, Boutique Pastry, collaboration with the Company’s Akbis, Akao, Akrim, Bizim Yağ Hygiene HACCP and Occupational corporate sales and distribution brands under the Away from Home Safety. Those completing the department. Exports are shipped Consumption category. For more training receive a participation to more than 50 countries via the information about the Company’s certificate from Boğaziçi University’s Company’s own sales organization. products in this category, please Lifelong Learning Center (BULLC). visit: www.marsa.com.tr and www. Furthermore, training sessions Export besler.com.tr were held at the Gastronomy As of end-2017, Kerevitaş exported Departments of universities and its oil products to 52 countries on – Pastry and Catering Products vocational colleges to introduce six continents. By year’s end, the The Group produces the Teremyağ, the Ustam brand to future pastry Company had shipped 54,000 tons Bizim Yağ, Ustam and Usta brands chefs and raise awareness about the of exports overseas; seven of its under the Pastry and Catering Oils importance of using the correct type brands accounted for 57% of this category. For more information of oil in pastry production. The brand figure. Besler’s subsidiary Marsa was about the Company’s products in communication was further reinforced named the “Most Successful Exporter this category, please visit: by the quarterly Ustam Akademi of the Year” in the category of “Plant www.ustam.com.tr and www.besler. Magazine, advertisements that Oils and Seed Oils.” The Ona brand com.tr appeared in trade magazines (e.g. received continued support in 2017 FoodinLife, Gastronomy, Patisserie under the “Turquality” brand support – Industrial Products by FoodinLife), and participation in scheme introduced by the Ministry of To receive further information key events such as the Çamlıhemşin Economy with the aim of cultivating about the Industrial Oils category, Pastry Chefs Festival. and promoting the “Made in Turkey” under which the Group produces concept. Produced for export several brands, please visit: markets, the Ona Breakfast and Luna www.marsa.com.tr and Bowl products received the “Superior www.besler.com.tr Taste Award” from the International Taste and Quality Institute.

2017 ACTIVITIES 45 BRANDS 65% market share with seven brands in the Retail Group With a diverse product portfolio that includes sunflower oil, corn oil, packaged and bowl margarines, Kerevitaş has been positioned as the market innovator since the launch of Ülker Teremyağ.

Kerevitaş’s edible oil business Since its launch, Ülker Teremyağ with its focus on pastries. In total, leads the market with its branded has been positioned as the market 15.9 million households in Turkey products. With seven brands in the innovator. The brand’s product range consume Besler’s retail products. Retail Group, the Company is the includes Teremyağ classic bowl clear leader commanding a 65% and packaged margarine as well as Marsa, acquired by Kerevitaş during market share. The product portfolio Teremyağ Gourmet Cream bowl and the year, operates with 16 brands includes offerings for varied uses and packaget margarine – Turkey’s first and 261 SKUs as of end-2017. requirements, such as cooking, pastry, and only clotted cream margarine. In Marsa’s operates with includes the buttery taste and breakfast. The November 2017, Kerevitaş launched market leader in pastry oils Ustam; Company is the market leader with Teremyağ Cooking & Pastry brand Evet in vegetable oils category; Ülker Bizim Yağ and enjoys significant to further expand the areas for the Akrim, Akbis, Akao, SPY and Mars competitive advantages with the brand’s use. Meanwhile, Teremyağ in industrial oils category from Ülker Teremyağ, Luna, Sabah, Yayla, Gourmet Cream received the Superior the away from home consumption Halk and Hüner brands. Ülker Bizim Taste Award from the International category aimed at the domestic Yağ brand has the widest product Taste and Quality Institute. market. Ona, Luna, Evin, Evet, range in the market, and includes Sabah and consumer products sunflower oil, corn oil, packaged and Kerevitaş’s Luna brand appears are offered for export to overseas bowl margarine. Ülker Bizim Yağ and with two different margarine bowl markets. Marsa, the leader in away Ülker Teremyağ are Turkey’s favorite products – hazelnut and walnut oil – from home consumption oils market brands in this category, and are on supermarket shelves, while Sabah in Turkey, has a regional leader consumed in 13 million and 9 million brand from the economical category position with export activities. households, respectively. offers block margarine. Halk features packaget and bowl margarine, In the away from home consumption Yayla’s portfolio includes sunflower category, Ustam, Proser, Bizim, oil, block and bowl margarine, and Teremyağ and various industrial Hüner further diversifies the range brand products are on offer internationally.

46 KEREVİTAŞ ANNUAL REPORT 2017 INVESTOR RELATIONS Ongoing communication between current and potential shareholders The Investor Relations Department carries out activities related to implementing Public Disclosure Platform and Central Securities depository institution practices, as well as the Corporate Governance Principles by the Capital Markets Board.

Kerevitaş’s investor relations the General Assembly, including Shareholder Relations Unit activities are conducted by the delivery of the required documents Investor Relations Department based to shareholders and organization Ergin Dülger – Financial Affairs at the Company headquarters. The of the General Assembly meeting, Director Department is managed by Ergin • Monitoring and communicating Mustafa Bolver – Budgeting and Dülger, who has a Capital Markets to the relevant departments any Reporting Manager Activities Level 3 License, as well amendments to legislation, as a Corporate Governance Rating • Performing the activities related Contact Details for the Shareholder License. to the Public Disclosure Platform Relations Unit and Central Registry Agency The Investor Relations Department’s procedures, as well as the Tel.: 0850 209 16 20 primary activities include the Corporate Governance Principles 0850 209 16 32 following: as stipulated by the Capital E-mail: [email protected] Markets Board. • Informing shareholders about the Company’s operations and The Shareholder Relations Unit activities, conducts communications to promote • Responding the questions of the Company to individual and shareholders about the Company institutional investors in Turkey and and partnership rights, abroad, as well as notifications to • Communicating all material event shareholders and potential investors disclosures to investors via Borsa via telephone, fax and e-mail İstanbul, Capital Markets Board ([email protected]). and Public Disclosure Platform (KAP), pursuant to the CMB Communiqué Series: VIII, No: 54, • Conducting the preparations of

2017 ACTIVITIES 47 For sustainable development...

Salihli/Manisa 48SuperFreshKEREVİTAŞ Spinach ANNUAL Harvest REPORT 2017 We cultivate crops with our contracted farmers throughout Turkey across 6,000 hectares of farmland. We contribute to growing the most appropriate crops for each soil type and foster sustainability by developing with balanced and long-term farming plans.

KEREVITAŞ AT A GLANCE 49 R&D ACTIVITIES AND INVESTMENTS Projects involving advanced technology and deep knowledge In 2017, Kerevitaş invested TL 60.5 million in fixed tangible assets for edible oil business and TL 26 million in the frozen food business.

In 2017, Kerevitaş made total technology and deep knowledge. Working closely with public investment amounting to With strong links to Turkey’s product institutions providing R&D support, TL 26 million in the frozen food development ecosystem, Kerevitaş Kerevitaş obtained an Investment business. These expenditures Frozen Food Group R&D Center has Incentive Certificate (No: 106867) included sales display case and already submitted the necessary from the General Directorate of vehicle purchases as well as pre-registration documents for one Incentives, Implementation and machinery and upgrade investments TÜBİTAK/TEYDEB (Technology Foreign Investments of the Ministry in the bakery products, fruit and and Innovation Funding Programs of Economy on September 19, vegetables and auxiliary factories. Directorate under the Scientific and 2012. The validity of the three-year On September 06, 2017, the Technological Research Council) certification was then extended Company’s main shareholder Yıldız funded 1501 R&D project. In addition, until February 11, 2017. The lines Holding established a R&D center the Center successfully continued of support incorporated in the for the Frozen Food Group in the research related to various European Investment Incentive Certificate Kerevitaş Factory. Targeting the Union projects. Furthermore, include 100% customs exemption, goal of continuous development, the Center delivered a poster value-added tax (VAT) exemption, Kerevitaş Frozen Food Group presentation on “The Determination two-year duration employer share R&D Center employs 21 staff with of Peroxidase Enzyme Inactivation support for insurance premiums, significant qualifications in the Parameters in Vegetables” at the and a 50% tax discount. The total field. The R&D Center, which has First International University-Industry amount of projected investment in significant capabilities in product Business Association R&D and the Investment Incentive Certificate development, is currently working Innovation Congress organized by is TL 10,875,414. As of December on 10 projects involving advanced Manisa Celal Bayar University on 31, 2017, the actual investment November 18-19, 2017. under the incentive certificate amounted to TL 7,985,424. (December 31, 2016: TL 7,573,648).

50 KEREVİTAŞ ANNUAL REPORT 2017 Placing great emphasis on R&D activities in the Edible Oil Business, Kerevitaş established Turkey’s first R&D Center in the vegetable oil and margarine sector.

In 2017, Kerevitaş invested margarine sector. Employing 22 staff of Agriculture stand out due to TL 60.5 million in fixed tangible with relevant qualifications in the their extensive scope. In addition assets for the Edible Oil Business. field, the Center has Turkey’s best to executing the new TEYDEB and Committed to continuing product equipped oil technologies piloting European Union projects, Kerevitaş development and capacity expansion factories. The Center also undertakes recorded TL 7.4 million in R&D efforts in its oil business, Kerevitaş original projects involving cutting- spending at the Center in 2017. has TL 27.5 million worth of capital edge technology. The main objective investments scheduled for 2018. The of the TEYDEB projects conducted Furthermore, efforts were made bulk of total investment spending by the R&D Center is developing to improve the quality of existing include capital investments at high added value products that are products. Kerevitaş successfully the Brunei Factory, R&D center currently imported due to lack of local continued efforts to develop the investments, ice condenser production in Turkey. current product portfolio of the installation and electrolysis system Edible Oil Business. From this investments. Among the projects underway, product portfolio, the Ona brand two TÜBİTAK-supported TEYDEB was admitted to the Turquality Placing great emphasis on R&D 1501 projects on separate themes Support Program as of November activities in the Edible Oil Business, and a TAGEM (General Directorate 21, 2015. The brand will benefit from Kerevitaş established Turkey’s first of Agricultural Research Policies) Turquality brand incentives under R&D Center in the vegetable oil and project supported by the Ministry the program until 2020.

PROJECTS Date Supporting Organization Cocoa Butter Equivalent (CBE) Oil Development 2011-2013 TÜBİTAK-TEYDEB Oil Development to Oil Trays for High Sugar Content Cakes 2015-2018 TÜBİTAK-TEYDEB High Quality Trans Free Cocoa Butter Replacer (CBR) Development 2015-2018 TÜBİTAK-TEYDEB Encapsulated Natural Microbial Preservative 2018-2020 TAGEM Olive Coating Oil (To Stop Olives from Growing Mold) 2018-2020 TÜBİTAK-TEYDEB Smart Packaging Project (To Extend Shelf Life of Bowl Margarine) 2019-2021 EU-EURIPIDES Detection of the Amount of Safflower Oil Mixed into Sunflower Oil 2019-2020 TÜBİTAK-TEYDEB

SUSTAINABILITY 51 HUMAN RESOURCES Enhancing interaction and synergy through diverse skills

Kerevitaş conducts its business Performance and Career Management skills and manage their careers. processes for recruitment, career The business results of Kerevitaş staff Furthermore, ad hoc project teams planning, development and training are evaluated within the framework of are set up and staff rotations are within the framework of its Human a performance management system organized across departments and Resources Policy and Staff Directive. based on targets and competencies. Group companies. This effort aims All Company employees’ rights are According to this system, employees to help employees gain a better guarenteed to ensure that they are are evaluated in terms of goals, understanding of the Company; free from any discrimination and competencies and potential by the enhance employee communication mistreatment, Kerevitaş did not management. Personnel are then and synergy by bringing together receive any complaints or grievances referred to Career Development diverse perspectives and varied of discrimination in 2017. Programs based on the feedback competencies; and contribute to the they receive in their evaluation. development of the employees. In The Company’s Human Resources addition, staff are expected to be Policy encompasses the following: The Performance and Career actively engaged in projects. Management System is designed • Measuring the performance of to contribute to both individual and Recruitment all employees and ensuring that organizational development; provide Kerevitaş defines the main objective success criteria are managed employees with tools to develop and of the recruitment process as in accordance with these direct their careers; offer training and selecting people who embrace the measurements, development opportunities for their values adopted by the organization, • Employing transparent career advancement. The system who have the core competencies management, is also structured to ensure that its sought in an employee, and who • Providing easy access to Company performance, career, succession, possess the specific functional executives, talent management and competencies required by the • Ensuring the staff are comfortable training/development processes particular business line. with expressing their thoughts, function in an integrated manner. • Emphasizing business discipline, The methods employed by the • Encouraging employees to work Kerevitaş places great importance on Company in the selection and together with a team spirit, the career expectations, professional placement processes depend on the • Delivering equal opportunities and personal development of its candidate profile. Processes employ to successful staff in terms of employees. The Company provides one or more of the recruitment training, remuneration and career its staff with the appropriate tools, or in certain cases, all of development, environment to develop their them, as well as the following • Promoting social activities. test and inventory applications.

52 KEREVİTAŞ ANNUAL REPORT 2017 Competency-based interviews and case A sales premium system, which is studies conducted with experienced designed to encourage high performance, candidates and fresh graduates are also is available for sales staff as and when different. The primary aim of the Company required. in this process is to use the correct methodology for monitoring the technical Training and Development and behavioral requirements of the job, Kerevitaş offers employees various using appropriate methods and placing specialization programs, professional the most suitable candidates who best fit and personal development trainings the open positions. and leadership development programs. These efforts ensure that personnel can Remuneration and Benefits plan for their personal development and Kerevitaş’s remuneration system is professional career advancement. governed by a common tier structure and based on job content. Under this system, Executive preparation, executive jobs are assessed through a specified development and leadership development job evaluation method that is designed programs are offered to staff based on the to create a fair, competitive and market needs and expectations of the Company compatible wage policy. Annual market and the workforce. wage surveys are also consulted to determine the Company’s remuneration Kerevitaş’s learning and development tools practices. include the following: • Learning and Development A market rate and performance-based Catalogue/Leadership Development remuneration policy is applied across Programs, Kerevitaş with a view toward supporting • Mentoring and Coaching, the Company’s strategy and competitive • Professional Expertise Programs, advantages. • Foreign Language Training/Conference and Summit Attendance, Performance-Based Remuneration • Standard Training Schemes, The Company’s white-collar employees are • Electronic Libraries and Online evaluated within the framework of a target Development Tools, and competency-based performance • Orientation Program. management system at the end of the year. These personnel are rewarded with an annual performance premium.

SUSTAINABILITY 53 HUMAN RESOURCES

HUMAN RESOURCES PROFILE Undergraduate degree and 20 years and higher more 2% 6% 1-5 10-15 years years 62% 8% Blue Collar Blue Collar Seniority Education Status 5-10 High years school and lower 20% 15-20 years Associate 89% 4% degree 9%

15-20 years 1-5 years Associate degree Undergraduate 9% degree 50% 6% and higher

10-15 77% years 14% White Collar White Collar Seniority Education Status

5-10 High years school 20 years and 22% and lower more 17% 5%

AGE DISTRIBUTION

45 and more Rate of female 14% employees 30 and less 31% 29%

31-44 years 57%

54 KEREVİTAŞ ANNUAL REPORT 2017 OCCUPATIONAL HEALTH AND SAFETY

In Kerevitaş, the number of training sessions held to help build a sustainable occupational safety culture increased 80% year-on-year and reached 9 hours per employee.

As one of Turkey’s largest food Internal Communication: Establishing manufacturers, Kerevitaş places great internal communication channels to emphasis on occupational health and enhance occupational health and safety. safety. Aiming for full compliance with legal and regulatory requirements Safe Workplace: Providing the technical and achievement of a “Zero Accident” infrastructure at international standards risk vision, the Company embraces a to generate a sustainable occupational sustainable occupational health and safety culture. safety culture across the organization. Thanks to an insightful workforce, Risk Management and Process Overview: occupational health and safety is an Outlining the Risk Management integral part of the corporate culture. Overview through the Occupational Reducing the Lost Time Frequency Rate Safety Committee established with the (LTFR) by 60% in 2017 compared to involvement of the Leadership Team. the previous year, the Company also mitigated the Accident Severity Rate In Kerevitaş, the number of training (ASR) by 84%. sessions held to help build a sustainable occupational safety culture increased Kerevitaş’s sustainable occupational 80% year-on-year and reached nine safety culture is based on the following hours per employee. In line with the core concepts: objective of strengthening internal communication channels for occupational Leadership and Engagement: Actively health and safety, the Company launched supporting employee training to achieve an Occupational Safety Manual, a Digital common occupational safety goals at Occupational Safety Screen, and SMS executive levels. applications. As a result of the Risk Management Analysis, risks that required Training and Development: Providing measures be taken were identified in periodic occupational health and safety five key areas: human resources, quality, trainings for employees and continuous production, technical, and supply chain. improvement in line with common goals.

SUSTAINABILITY 55 ENVIRONMENTAL PRACTICES

Conducting its business activities in full compliance with applicable environmental legal and regulatory requirements, Kerevitaş takes all necessary measures to avoid environmental pollution at its production factories. As a result, the Company faced no complaints or grievances in this area in 2017.

As an enterprise operating in the Combating Climate Change food industry, Kerevitaş is focused on Kerevitaş conducted all its production mitigating the environmental impact processes during fiscal year 2017 in of its operations. Conducting its line with its goal of combating climate business activities in full compliance change. The Company implements with applicable environmental legal numerous projects related to the efficient and regulatory requirements, Kerevitaş use of resources, particularly agricultural takes all necessary measures to avoid resources; effective water and waste environmental pollution at its production management; and conservation of energy. factories. As a result, the Company With these efforts, the Company is faced no complaints or grievances in this steadily reducing its energy consumption area in 2017. Operating in line with the per unit ton produced at its Bursa HACCP Quality Management System, Factory, which manufactures frozen and the Company observes international canned food. Kerevitaş aims to expand environmental standards in all its these energy conservation efforts at the business processes – from raw material Bursa Factory, which minimize carbon supply to waste management. While emissions from its operations, to its other providing its employees customized production factories in the coming period. training in environmental sustainability, the Company focuses particularly on Drip Irrigation in Contracted Agricultural mitigating the environmental impact of its Land production factories. Kerevitaş encourages drip irrigation on agricultural land that supplies the Company with raw materials on a contract basis. This practice significantly reduces the use of natural resources, while also boosting productivity.

56 KEREVİTAŞ ANNUAL REPORT 2017 GOOD AGRICULTURAL PRACTICES

Committed to conscious production, Kerevitaş supports sustainable farming practices by providing fertilization, pesticide and spraying training to farmers.

Conducting all its business processes Kerevitaş supports sustainable farming within the framework of sustainability, practices by providing fertilization, Kerevitaş supports good agricultural pesticide and spraying training to farmers. practice (GAP) s in order to provide While contracted farmers received healthy products to customers and training support in these key areas, the execute production processes effectively raw materials obtained were dispatched and quickly. Viewing its support of for testing by the Quality Department production and farmers among its for pesticide residue, GMO and heavy core strategic priorities, the Company metal analysis. Test results validated produced potatoes, sweet corn, peas, the absence of pesticide residues, heavy green beans, spinach, broccoli and metals and GMOs in the raw materials. cauliflower across 5,020 hectares of contracted farmland in 2017. Farmers cultivating a total 2,250 Supplying certified seeds, fertilizers and hectares of farmland for sweet corn agrochemicals to contracted farmers, production were informed of benefits Kerevitaş also produced 4,700 tons of and encouraged to adopt drip irrigation. certified potato seeds during the year. Sweet corn was also introduced as a Committed to conscious production, second crop after the pea harvest across 200 hectares.

RATIO OF CONTRACTED RATIO OF CONTRACTED RAW FARMERS MATERIAL SUPPLY +16% +21%

86% 89% 77% 78% 70% 68%

2015 2016 2017 2015 2016 2017

SUSTAINABILITY 57 CORPORATE SOCIAL RESPONSIBILITY

Seeing the Company’s social investments as critically important as its industrial investments, Kerevitaş supports cultural, artistic, sports and educational projects that promote social development.

Kerevitaş conducts its corporate social investments, Kerevitaş supports cultural, responsibility activities under the umbrella artistic, sports and educational projects of its parent company, Yıldız Holding. that promote social development. In The Company considers corporate social addition to acting as a pioneer that responsibility as an obligation arising moves the food and beverage industry from its role as a producer. By generating forward, Kerevitaş also places emphasis a wide range of choices for the individual on projects that will benefit society. food needs of the community, making the Working tirelessly to fulfill its duty food offerings accessible and affordable, to build a better society, Kerevitaş and executing an open and responsible delivers projects and undertakes communications strategy, the Company various sponsorships in sports, arts and encourages healthy eating and physical education through its parent company, activity. Kerevitaş conducts all its Yıldız Holding. business operations with the community’s health as its top priority consideration. Seeing the Company’s social investments as critically important as its industrial

58 KEREVİTAŞ ANNUAL REPORT 2017 CORPORATE GOVERNANCE COMPLIANCE REPORT FOR 2017

PART I – STATEMENT OF Pursuant to Article 4.6.5 of the The following Corporate Governance COMPLIANCE WITH CORPORATE “Corporate Governance Principles,” Principles Compliance Report GOVERNANCE PRINCIPLES the remuneration of members of is also disclosed publicly on the the Board of Directors and senior Company’s corporate website www. Pursuant to the Capital Markets managers, as well as all other kerevitas.com.tr and on http://www. Board (CMB) Communiqué and benefits granted to these parties, kerevitas.com.tr/tr/yatirimci-iliskileri/ Article 17 of Capital Markets Law are publicly disclosed in the Annual kurumsal/kurumsal-yonetim-ilkeleri- No: 6362, dated December 6, 2012, Report. However, the disclosures are uyum-raporu and II-17.1 “Corporate Governance not made individually but collectively Communiqué” announced on March as benefits extended to the Board of PART II – SHAREHOLDERS 1, 2014, issuance of a Corporate Directors and senior management. Governance Compliance Report and 2.1 Investor Relations Department compliance with specified Corporate There is no explicit provision in the Kerevitaş’s investor relations Governance Principles became Articles of Association granting activities are conducted by the mandatory for companies trading on shareholders the right to call for Investor Relations Department Borsa İstanbul (BIST). Accordingly, a “private audit” at the General based at the Company Kerevitaş resolved to closely adhere Assembly. The regulations of the headquarters. The Department is to the mandatory requirements Turkish Commercial Code and managed by Ergin Dülger, who holds imposed by the CMB. Further efforts the Capital Markets Board are a Capital Markets Activities Level to ensure compliance with the deemed sufficient to request a 3 License, as well as a Corporate non-mandatory principles in the private auditor. Every shareholder’s Governance Rating License. Communiqué are currently underway. right to request a private audit is “recognized” within the framework of The Investor Relations Department’s The reasons relating to the regulations of Turkish Commercial primary activities include the non-applicable sections of the Code No. 6102 that entered into following: Corporate Governance Principles are force on July 01, 2012. − Informing shareholders about as follows: the Company’s operations Although the non-mandatory and activities, responding to No model or mechanism was created principles yet to be implemented shareholder enquiries about the for stakeholders to participate have caused no conflicts of interest Company or the exercise of their in the Company’s management. among shareholders to date, the partnership rights, However, the Independent Members Company nevertheless aims to − Communicating all material event of the Board of Directors ensure implement the rest of the Corporate disclosures to investors via Borsa that all stakeholders as well as the Governance Principles in due time. İstanbul, Capital Markets Board Company and shareholders are duly and Public Disclosure Platform represented in the management. Even though the ultimate aim is to (KAP), pursuant to the CMB Kerevitaş takes into consideration fully comply with the non-mandatory Communiqué Series: VIII, No: 54, the advice, suggestions and opinions Corporate Governance Principles, full − Conducting the preparations of of employees, suppliers, various compliance has not been achieved the General Assembly, including non-governmental organizations and as of yet due to the difficulties delivery of the required documents all other stakeholders. faced in implementation of certain to shareholders and organization clauses. In addition, some of the of the General Assembly meeting, Some members of the Board of principles do not correspond to the − Monitoring and communicating Directors assume duties on multiple current structure of the market and to the relevant departments any committees. the Company. Work is underway amendments to legislation, regarding adoption of the principles − Performing the activities related that have not yet been implemented. to the Public Disclosure Platform These principles will be adopted and Central Registry Agency following completion of the relevant procedures, as well as the administrative, legal, and technical Corporate Governance Principles infrastructure procedures that will as stipulated by the Capital contribute to effective management Markets Board. of the Company. CORPORATE GOVERNANCE 59 CORPORATE GOVERNANCE COMPLIANCE REPORT FOR 2017

The Shareholder Relations Unit any general assembly meeting in The Company does not grant conducts communications to person; and that all companies any privileges to share groups or promote the Company to individual trading on the stock exchange are shares. There is no and institutional investors in Turkey obliged to set up and maintain a cross-shareholding between and abroad, as well as notifications system allowing online participation the Company and any of its to shareholders and prospective in general assembly meetings shareholders. The Company does investors via telephone, fax and and voting; the electronic general not practice cumulative voting. e-mail ([email protected]). assembly convenes on the same date running in parallel with the The Articles of Association Shareholder Relations Unit physical general assembly. does not contain any provision Ergin Dülger – Financial Affairs prohibiting proxy voting by Director The Company’s Ordinary General persons who are not themselves Mustafa Bolver – Budgeting and Assembly meeting for 2016 was held shareholders of the Company. Reporting Manager on March 31, 2017. Furthermore, the General Assembly convened at an 2.5 Dividend Rights Contact Details for the Investor extraordinary session to discuss the Kerevitaş has a clear and Relations Department: acquisition of Besler Gıda ve Kimya consistent Profit Distribution Tel: +90 850 206 16 20/ Sanayi ve Ticaret A.Ş. on November Policy determined in accordance +90 850 206 16 32 14, 2017. As a result, Kerevitaş held with the Turkish Commercial Code, Fax: +90 212 676 01 29 two General Assembly meetings over Capital Markets Law, Tax Law, E-mail: [email protected] the course of the year. other relevant laws, rules and regulations, and the Company’s 2.2 Shareholders’ Right to 2.4 Voting and Minority Rights Articles of Association. This Policy Information According to the Articles of was submitted for the approval Except for information that is Association, each share of the of shareholders at the General considered to be either trade secret Company has one vote. Assembly, detailed in the annual or insider information, all written report and disclosed to the general or verbal requests received from Any shareholder who is entitled public via the corporate website. investors for information during to attend General Assembly the reporting period were met. We meetings may attend the meetings The Company’s Profit Distribution provided our shareholders with all electronically in accordance Policy is determined in accordance the information required to exercise with Article 1527 of the Turkish with the provisions of the Turkish their shareholder rights robustly Commercial Code. Pursuant to the Commercial Code, Capital Markets via the annual report, material Regulation on the General Assembly Law, Tax Law, other relevant disclosures, and replies to individual of Joint Stock Companies to Be laws, rules and regulations and enquiries. Auditing principles and Held via Electronic Means, the the article related to profit procedures are outlined in Article Company may set up an electronic distribution in the Company’s 16 of the Company’s Articles of General Assembly system or procure Articles of Association, while Association. No requests for private any system developed for this taking into due consideration the audits were raised by shareholders purpose to ensure that shareholders Company’s strategies, operational during fiscal year 2017. are able to attend, express their performance, financial situation views, make suggestions, and and market developments. 2.3 General Assembly Meetings cast their votes via electronic Pursuant to Article 1527 of Turkish communication means. Pursuant to Subject to approval of the General Commercial Code (TCC) No. 6102, the relevant provision in the Articles Assembly at the proposal of dated January 13, 2011 stipulating of Association, shareholders and the Board of Directors, and any that online participation in general their proxies are allowed to exercise amendments thereof, and also assembly meetings, making their respective rights at any subject to the legislation in force proposals and statements online, General Assembly meeting, under in Turkey, Kerevitaş resolves to and online voting shall have the aforementioned regulations via the distribute profits corresponding same legal force in all aspects electronic system set up for this to at least 10% of the net as participating and voting in purpose. distributable period profit as cash dividends and/or as dematerialized 60 KEREVİTAŞ ANNUAL REPORT 2017 shares, with the proviso that the cash flow requirements the Company 3.2 Company Website and Its PART IV – STAKEHOLDERS are taken into consideration. Contents The Company website can be 4.1 Stakeholder Information The profit distribution proposal of accessed at www.kerevitas.com.tr In cases when there is no regulatory the Board of Directors, consisting and the Company’s investor relations or contractual framework governing of the Company’s Profit Distribution website is located at http://www. the rights of stakeholders, Policy, Capital Markets Board kerevitas.com.tr/tr/yatirimci-iliskileri Kerevitaş endeavors to protect regulations and the details set The following information is available stakeholder rights in good faith forth in the Corporate Governance on the website for the purposes of and within means available to the Principles, is included in the annual informing our shareholders: Company with due consideration to report and communicated to the the reputation of the Company. public via the Public Disclosure About the Company Platform and the website of the • Code of Conduct Furthermore, Kerevitaş employees Company. • Information about the Board of have access to the circulars and Directors and Senior Management announcements through the The Policy is reviewed annually • Committees Company’s internal portal, and by the Board of Directors in light • Company’s Shareholding Structure important announcements are of domestic and global economic • Organizational Chart conveyed promptly to all employees conditions and any possible • Information on Commercial via e-mail. setbacks, the circumstances of Register and Company Profile ongoing projects, and the financial • Articles of Association There are no restrictions that resources of the Company. • Financial Statements and Notes obstruct or inhibit stakeholders • Annual Reports from contacting the Corporate The Profit Distribution Policy adopts • Material Event Disclosures Governance Committee or the a balanced approach between the • Compliance Report on Corporate Audit Committee about any interests of shareholders and the Governance Principles Company transactions they deem interests of the Company. Under the • Information on the General either unethical or in breach Company’s Profit Distribution Policy, Assembly (Notice, Agenda, of applicable regulations. All dividends are distributed equally to Proceedings, List of Attendees, stakeholders may contact these all existing shares as of the date of Proxy Voting Form Template, and committees via any means of distribution, with no privileges. The General Assembly Information communication they prefer. Company does not issue advance Document) dividends. • Corporate Information Policy 4.2 Stakeholder Participation in • Policies Management 2.6 Share Transfers • Investor Presentations According to the Articles of There are no provisions in the • List of Corporate Insiders Association, the Board of Directors Company’s Articles of Association • Frequently Asked Questions has at least five, and at most that bar or restrict the shareholder seven, members who are elected from freely transferring shares. 3.3 Annual Report by the General Assembly upon The Company’s Annual Report is nomination by various shareholders PART III – PUBLIC DISCLOSURE compiled in compliance with CMB’s as prescribed by the Articles of AND TRANSPARENCY II-17.1 “Corporate Governance Association. The current Board Communiqué,” Corporate of Directors is comprised of 3.1 Information Policy Governance Principles, and other seven members, two of whom Kerevitaş outlined an Information clauses specified in the relevant are independent members. The Policy based on transparency legislation to ensure full and Company does not have any and accuracy to ensure that each accurate access of shareholders and practices related to stakeholder shareholder and stakeholder has the public to information related to participation in management. equal and impartial access to follow the Company’s business activities. company developments and public disclosures. The Information Policy is disclosed to the public at www.kerevitas.com.tr. CORPORATE GOVERNANCE 61 CORPORATE GOVERNANCE COMPLIANCE REPORT FOR 2017

4.3 Human Resources Policy treatment factories as stipulated by The Board of Directors is Kerevitaş has an established and law. No complaints in this area were comprised of executive and effectively implemented Human received by the Company during non-executive members, with Resources Policy. Issues within this the reporting period. Prompted by a non-executive members framework such as recruitment keen awareness that the industry it representing the majority of Board policies, career planning, employee operates in requires well-qualified, members. Non-executive members development and training policies highly skilled human resources in also include independent members, are outlined within the Staff the face of supply challenges due to satisfying all of the criteria set out Directive. The rights of all Company the nature of the national education in the Capital Markets Law, who employees are secured in a way system, the Company aims to have the capabilities to perform that ensures they are free from cater to requests for internship their duties with impartiality, and any discrimination or ill-treatment. placements from secondary and who can dedicate sufficient time The Company did not face any higher education institutions to the and effort to monitor the functions complaints or grievances of maximum extent possible. While of the Company and fulfill all the discrimination in 2017. the Code of Ethics adopted by responsibilities vested to them as Yıldız Holding is generally applied independent members. The Company’s Human Resources across all its subsidiaries including Policy encompasses the following: Kerevitaş, the details of the Code Approval is sought from the − Measuring the performance of of Ethics will be disclosed to General Assembly for the all employees and ensuring that shareholders on the Company’s Chairman and Members of the success criteria are managed website as part of the Information Board of Directors regarding their in accordance with these Policy. involvement in or association with measurements, companies operating in the same − Employing transparent PART V – BOARD OF DIRECTORS business area of the Company, in management, person or on behalf of others in − Providing easy access to Company 5.1 Structure and Organization of the line with the relevant articles of the executives, Board of Directors Turkish Commercial Code (TCC). − Ensuring the staff are comfortable The Company’s Board of Directors with expressing their thoughts, consists of 7 members. Subsequent The membership of the Board of − Emphasizing business discipline, to the General Assembly Meeting Directors of Kerevitaş Gıda Sanayi − Encouraging employees to work where the Members of the Board of A.Ş. was elected at the Ordinary together with a team spirit, Directors are elected, a Chairman General Assembly Meeting on − Delivering equal opportunities and Deputy are appointed with a March 30, 2015 to serve for three to successful staff in terms of resolution on the division of duties years. training, remuneration and career and responsibilities. development,

− Promoting social activities. Details of the Company’s Board of Directors follow below:. 4.4 Code of Conduct and Social Responsibility Name-Surname Job Title Term of Office Guided by its sense of responsibility, Oğuz Aldemir Chairman 21.07.2015 30.03.2018 recognition of duty and depth of Ali Ülker Member 30.03.2015 30.03.2018 expertise arising from operating in the food industry, Kerevitaş aims to Zeki Ziya Sözen Member 30.03.2015 30.03.2018 generate added value that meets Vehbi Merzeci Member 30.03.2015 30.03.2018 society’s needs in the most efficient Hüseyin Avni Metinkale Member 20.07.2017 30.03.2018 manner and at the highest quality level. Therefore, the Company takes Halil Bülent Çorapçı* Independent Member 30.03.2015 30.03.2018 all necessary measures to mitigate Talat İçöz* Independent Member 30.03.2015 30.03.2018 environmental pollution that may arise from its production activities. * At the Ordinary General Assembly Meeting on April 11, 2018, Mr. Ahmet Murat Yalnızoğlu and Ms. The Company also established Ceyda Aydede were elected to serve as Independent Board Members replacing Mr. Halil Bülent Çorapçı and Mr. Talat İçöz, whose terms of office had expired.

62 KEREVİTAŞ ANNUAL REPORT 2017 INDEPENDENCE DECLARATION

The Independence Declarations submitted by the Independent Members of the Board of Directors are presented below:

INDEPENDENCE DECLARATION

I hereby declare and affirm for the information of the Board of Directors, shareholders and all other relevant parties that:

I am a candidate for independent board membership on the Board of Directors at Kerevitaş Gıda Sanayi ve Ticaret A.Ş. (“Company”), pursuant to relevant laws, rules and regulations, Articles of Association of the Company, and the criteria issued in the Capital Markets Board’s Communiqué on Corporate Governance, and also affirm that,

In the last five years, I, my spouse or my up to second degree blood or affinity relatives is/are not or has/have not been employed as key management personnel; has/have not had ordinary or privileged shareholding transactions or has/have not been involved in any material business dealings with the Company, its subsidiaries and any other legal entities that Company shareholders with direct or indirect control of 5% or more of the Company shares have executive or capital associations with,

In the last five years, I am not or have not been employed by or have not been a board member of an entity that conducted all or part of the Company’s activities or organizations on the basis of a contractual relationship including particularly audit, rating or consultancy services,

In the last five years, I have not been a partner, employee or board member at an entity providing significant goods or services to the Company,

I do not hold more than a 1% share in the Company capital and that these shares are not privileged,

I have professional skills, knowledge and experience to fulfill my duties as an independent board member,

I am not in full-time employment at a government organization or other public institution at present, and according to the Income Tax Law, I am deemed a tax resident in Turkey,

I have robust ethical standards, professional reputation and experience to ensure I make positive contributions to the Company’s business activities, maintain my impartiality in conflicts of interest between the Company and its shareholders, and freely take decisions by considering the rights of stakeholders,

I will dedicate sufficient time to follow the progress of the Company’s business activities and to duly fulfill the requirements of responsibilities I undertake.

Yours sincerely, Halil Bülent ÇORAPÇI

CORPORATE GOVERNANCE 63 CORPORATE GOVERNANCE COMPLIANCE REPORT FOR 2017

INDEPENDENCE DECLARATION

I hereby declare and affirm for the information of the Board of Directors, shareholders and all other relevant parties that:

I am a candidate for independent board membership on the Board of Directors at Kerevitaş Gıda Sanayi ve Ticaret A.Ş. (“Company”), pursuant to relevant laws, rules and regulations, Articles of Association of the Company, and the criteria issued in the Capital Markets Board’s Communiqué on Corporate Governance, and also affirm that,

In the last five years, I, my spouse or my up to second degree blood or affinity relatives is/are not or has/have not been employed as key management personnel; has/have not had ordinary or privileged shareholding transactions or has/have not been involved in any material business dealings with the Company, its subsidiaries and any other legal entities that Company shareholders with direct or indirect control of 5% or more of the Company shares have executive or capital associations with,

In the last five years, I am not or have not been employed by or have not been a board member of an entity that conducted all or part of the Company’s activities or organizations on the basis of a contractual relationship including particularly audit, rating or consultancy services,

In the last five years, I have not been a partner, employee or board member at an entity providing significant goods or services to the Company,

I do not hold more than a 1% share in the Company capital and that these shares are not privileged,

I have professional skills, knowledge and experience to fulfill my duties as an independent board member,

I am not in full-time employment at a government organization or other public institution at present, and according to the Income Tax Law, I am deemed a tax resident in Turkey,

I have robust ethical standards, professional reputation and experience to ensure I make positive contributions to the Company’s business activities, maintain my impartiality in conflicts of interest between the Company and its shareholders, and freely take decisions by considering the rights of stakeholders,

I will dedicate sufficient time to follow the progress of the Company’s business activities and to duly fulfill the requirements of responsibilities I undertake.

Yours sincerely, Talat İÇÖZ

64 KEREVİTAŞ ANNUAL REPORT 2017 5.2 Code of Conduct of the Board of 5.3 Number, Structure, and 5.3.3 Early Risk Detection Directors Independence of Committees under Committee The Board of Directors shall perform the Board of Directors Pursuant to the relevant clause and execute the duties assigned to 5.3.1 Audit Committee of the Capital Markets Board’s it by the provisions of the Turkish The Audit Committee is responsible Corporate Governance Principles Commercial Code, Capital Markets for ensuring that the Company’s Communiqué, the Company Board, other relevant laws, rules and financial and operational activities established an Early Risk Detection regulations, as well as the Articles of are performed in a robust manner. Committee to operate under the Association and resolutions adopted Operating under the Board Board of Directors. The Committee by the General Assembly thereof. of Directors, the Company is is charged with the early detection All businesses and transactions charged with overseeing the of risks that may jeopardize not stipulating a General Assembly Company’s accounting system, the existence, development resolution according to law and audit and disclosure of financial and continuity of the Company; the Articles of Association are information, and the functioning adoption and implementation of conducted by the Board of Directors. and effectiveness of the internal necessary measures to mitigate As it performs the duties and audit system. Consisting of two these risks; and the execution of responsibilities assigned to it, the independent board members, the other risk management efforts. The Board of Directors may delegate Audit Committee meets at least Committee meets at least once these in part to the committees four times a year. In 2017, the Audit every three months and presents established under the Company Committee met four (4) times. the results of its meeting to the and/or to Company executives, Mr. Halil Bülent Çorapçı serves as Board of Directors. In 2017, the provided that this exercise does Chairman of the Audit Committee Early Risk Detection Committee not absolve the Board of its and Mr. Talat İçöz serves as Member met eight (8) times. responsibilities. of the Committee. Mr. Halil Bülent Çorapçı serves The Company’s Board of Directors 5.3.2 Corporate Governance as Chairman of the Early Risk convened 49 (forty-nine) times Committee Detection Committee, and during the reporting period between The Corporate Governance Mr. Hüseyin Avni Metinkale serves 01.01.2017 and 31.12.2017; the Committee was established in line as Member of the Committee. Board adopted a total of 49 with the Capital Markets Board’s (forty-nine) resolutions at these Corporate Governance Principles The members of the Committee meetings. The Board of Directors Communiqué. The Committee are elected from among the meets as regularly and as often as monitors the Company’s business membership of the Board of necessary to effectively conduct its and governance processes in Directors within the current business and affairs. The Chairman accordance with the Corporate structure of the Board. of the Board of Directors sets the Governance Principles of the CMB. agenda of the board meetings in Due to its organizational structure, consultation with the other members the Board of Directors did not of the Board and the Company’s institute a separate Selection Chief Executive/General Manager. Committee and Remuneration Committee; instead, the Board The Board of Directors shall meet charged the Corporate Governance with a quorum of at least more Committee with fulfilling the duties than one-half of the number of of these committees. The Corporate members and resolve by a majority Governance Committee meets at of members present at the meeting. least four times a year. In 2017, the In the event of a tie, the issue shall Committee convened five (5) times. be discussed again at the next Mr. Halil Bülent Çorapçı serves as meeting. The proposal shall be the Chairman of the Corporate deemed rejected if there is a tie at Governance Committee, and Mr. the second meeting. No dissenting Talat İçöz and Mr. Ergin Dülger serve opinions were expressed against as Members of the Committee. the decisions taken by the Members of the Board of Directors during the meetings held over the 2017 operating period. CORPORATE GOVERNANCE 65 CORPORATE GOVERNANCE COMPLIANCE REPORT FOR 2017

5.4 Risk Management and Internal Our aim is to effectively identify our with these goals. At the end of each Audit Committee customers’ needs and expectations operating period, the Company’s The Company’s risk management and to respond to them in full, in performance is evaluated against related activities are carried order to maintain our pioneering the specified targets. out by the Early Risk Detection position in the industry. The policies Committee. The Company is also and targets that we have set 5.6 Remuneration of the Board of audited regularly by the auditing for this purpose are mandatory. Directors departments of its parent company Employees in all units and levels The guidelines for remuneration of (Yıldız Holding A.Ş.) and an across the organization must work in senior executives of the Company independent audit firm. The findings accordance with the were laid out in writing. These of these audits are communicated to Quality/HACCP Management guidelines were presented to the the members of the Audit Committee System. Our objective is to work shareholders under a separate and the Board of Directors. The diligently at every stage of our agenda item at the Ordinary workflows and procedures of the operations – from sourcing the raw General Shareholders’ Meeting held Company, in addition to the duties material to delivering the products on March 31, 2017 and published and responsibilities of employees are to their final destination. Our top in the Company’s annual report monitored within the framework of priority is to strive to generate and on the corporate website. risk management and are subject to added value to our stakeholders No other benefits are provided ongoing audits and inspections. across the entire production process, to the Chairman and Members of which extends from the seed to the the Board of Directors except for 5.5 Strategic Objectives of the table. the remuneration and attendance Company fee determined by the General Kerevitaş’s first and foremost We aim to implement our digital Assembly. The level of pay for each strategic objective is to stand out transformation projects in order Member of the Board of Directors as a company that respects its to be a trailblazer in terms of is determined separately by the customers; engages employees at digitalization and business methods General Assembly according to the every level of the organization to in our industry; achieve sustainable financial position of the Company. participate in management of the growth and success; develop With regard to the Board Members Company; embraces continuous consistently; implement fresh elected at the Ordinary General and non-formal learning; strives to business strategies in the most Assembly on March 30, 2015, continuously enhance the efficient and agile way; conduct our it was resolved to only pay the quality/HACCP management business operations at lower costs Independent Members a monthly system without compromising on but with higher productivity; and gross salary of TL 5,000. During the quality and safety of food under improve the lives of, add value to the reporting period, no loans were any circumstance; closely follows and, hence, win the hearts of our extended to Board Members or the technological advancements consumers and our employees. senior managers; in addition, no in the industry; remains innovative guarantees such as sureties were and entrepreneurial; respects the Kerevitaş has set long-term goals, granted and no credit factories environment and the law; and above developed 3-year strategic plans were provided as a personal loan all, values people. and drawn up annual budgets in line through a third party to the Board membership or senior management.

66 KEREVİTAŞ ANNUAL REPORT 2017 RISK MANAGEMENT POLICIES

Corporate risk management efforts at Kerevitaş consist of a systematic process implemented across the entire organizational structure of the Company. The enterprise risk management process is influenced by the Company’s Board of Directors, senior management as well as the entire workforce. The aim is to determine strategies for identifying potential incidents that may affect Kerevitaş, manage risks and provide an acceptable level of assurance for the Company to achieve its goals.

The Company’s risk management activities are overseen by the Risk Committee. The Company is also audited regularly by the auditing departments of its parent company (Yıldız Holding A.Ş.) and an independent audit firm. The findings of these audits are communicated to the members of the Audit Committee and the Board of Directors. The workflows and procedures of the Company, and duties and responsibilities of employees, are monitored within the framework of corporate risk management and are subject to ongoing audits and inspections.

Risk management activities of Kerevitaş are overseen by the Early Risk Detection Committee. The Company is also audited regularly by the auditing departments of its parent company (Yıldız Holding A.Ş.) and an independent audit firm. The findings of these audits are communicated to the members of the Audit Committee and the Board of Directors. The workflows and procedures of the Company, and duties and responsibilities of employees, are monitored within the framework of corporate risk management and are subject to ongoing audits and inspections.

CORPORATE GOVERNANCE 67 PROFIT DISTRIBUTION PROPOSAL

Kerevitaş’s Profit Distribution Policy is formulated based on the provisions of the Turkish Commercial Code, Capital Markets Law, Tax Law, other relevant laws, rules and regulations as well as the relevant article in the Company’s Articles of Association related to profit distribution in light of the Company’s strategies, operational performance, financial condition and market developments. Subject to the approval of the General Assembly upon the proposal of the Board and any amendments thereof, and also subject to legislation in force in Turkey, the Company resolves to distribute profits corresponding to at least 10% of the net distributable period profit as cash dividends and/or as dematerialized shares, with the proviso that the cash flow requirements the Company are taken into consideration. The profit distribution proposal of the Board of Directors, consisting of the Company’s Profit Distribution Policy, Capital Markets Board regulations and the details set forth in the Corporate Governance Principles is included in the annual report and communicated to the public on the website of the Company and on the Public Disclosure Platform within the statutory periods. The Policy is reviewed annually by the Board of Directors in view of domestic and global economic conditions and any possible setbacks, the circumstances of ongoing projects, and the financial resources of the Company. The Profit Distribution Policy adopts a balanced approach between the interests of shareholders and the interests of the Company. Under the Company’s Profit Distribution Policy, dividends are distributed equally to all existing shares as of the date of distribution, with no privileges. The Company does not issue advance dividends.

Pursuant to the Board of Directors resolution on March 13, 2018, although the Company had accrued profits as of December 31, 2017 according to Turkish Financial Reporting Standards, due to the absence of profits according to the Tax Procedures Code, it was resolved to maintain the period loss of 2017 as accumulated loss.

68 KEREVİTAŞ ANNUAL REPORT 2017 OTHER ISSUES

Number, Structure and Independence of Committees Established under the Board of Directors

Audit Committee The Audit Committee is responsible for ensuring that the Company’s financial and operational activities are performed in a robust manner. Consisting of two independent board members, the Audit Committee meets at least four times a year. In 2017, the Audit Committee met four (4) times.

Corporate Governance Committee The Corporate Governance Committee was established in line with the Capital Markets Board’s Corporate Governance Principles Communiqué. The Committee monitors the Company’s business and governance processes in accordance with the Corporate Governance Principles of the CMB. The Corporate Governance Committee meets at least four times a year. In 2017, the Corporate Governance Committee convened five (5) times.

Early Risk Detection Committee The Early Risk Detection Committee was established to operate under the Board of Directors. The Committee is charged with the early detection of risks that may jeopardize the existence, development and continuity of the Company; adoption and implementation of necessary measures to mitigate these risks; and the execution of other risk management efforts in line with the provisions of the Capital Markets Board’s Corporate Governance Principles Communiqué. The Committee meets at least once every three months and presents the results of its meeting to the Board of Directors. In 2017, the Early Risk Detection Committee met eight (8) times.

Rights Provided to Board Members and Senior Managers The guidelines for remuneration of senior executives of the Company were laid out in writing. These guidelines were presented to the shareholders under a separate agenda item at the Ordinary General Shareholders’ Meeting held on March 31, 2017 and published in the Company’s annual report and on the corporate website.

No other benefits are provided to the Chairman and Members of the Board of Directors except for the remuneration and attendance fee determined by the General Assembly. The level of pay for each Member of the Board of Directors is determined separately by the General Assembly according to the financial position of the Company. With regard to the Board Members elected at the Ordinary General Assembly on March 30, 2015, it was resolved to only pay the Independent Members a monthly gross salary of TL 5,000. During the reporting period, no loans were extended to Board Members or senior managers; in addition, no guarantees such as sureties were granted and no credit factories were provided as a personal loan through a third party to the Board membership or senior management.

Significant Events after the Reporting Period No significant events occurred that affected the Company’s operations subsequent to the reporting period.

CORPORATE GOVERNANCE 69 70 KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED 31 DECEMBER 2017 TOGETHER WITH INDEPENDENT AUDITORS’ REPORT

(CONVENIENCE TRANSLATION IN TO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH) (CONVENIENCE TRANSLATION OF INDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH) INDEPENDENT AUDITOR’S REPORT

To the General Assembly of Kerevitaş Gıda Sanayi ve Ticaret A.Ş.

A) Report on the Audit of the Consolidated Financial Statements

1) Opinion

We have audited the consolidated financial statements of Kerevitaş Gıda Sanayi ve Ticaret A.Ş. (“the Company”) and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Turkish Accounting Standards (TAS).

2) Basis for Opinion

We conducted our audit in accordance with the standards on auditing issued by Capital Markets Board and the Standards on Independent Auditing (“SIA”) which is a part of Turkish Auditing Standards published by the Public Oversight Accounting and Auditing Standards Authority (“POA”). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Independent Auditors (“Code of Ethics”) published by the POA, together with the ethical requirements that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a 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 consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we don’t provide a separate opinion on these matters.

72 KEREVİTAŞ ANNUAL REPORT 2017 Key Audit Matter How the matter was addressed in the audit Business Combinations Under Common Control(Enterprise) The Company has concluded the acquisition process of Through our audit, following audit procedures were performed the entire shares of the Besler Gıda ve Kimya Sanayi ve regarding the aforementioned share acquisition: Ticaret A.Ş. (“Besler”), a subsidiary of Yıldız Holding A.Ş, which holds the majority of its shares. Due to fact that the • A business combination under common control as per TFRS 3 is companies partaking in the aforementioned transaction have defined as a business combination where all merging entities or been controlled by the same parent shareholder before and ventures are controlled by the same person or persons before and after the acquisition, the transaction is defined as business after the business combination and this control is not transitory. combinations under common control. Thus, the transaction There are no provisions regarding the recognition of the business is recognized in the financial statements in compliance with combination under common control in TFRS 3. Therefore, the the method of merger of rights as per the principle decision entities undergoing business combination under common control of the Public Oversight, Accounting and Auditing Standards are required to select an appropriate accounting policy within the Authority (“POA”). hierarchy presented in the paragraphs 10-12 of “TAS 8 Accounting Policies, Changes in Accounting Estimates and Errors”. In this The financial statements as of 31 December 2016 and 31 scope, acknowledging that the business combination has taken December 2015 have been readjusted and merged as a result place in the most recent period, the “merger of rights” method was of the applications of the business combination under common applied and the financial statements were readjusted and were control. presented comparatively. • The process and the work determined by the Management Pursuant to the foregoing, the regularity and the application regarding the business combination under common control were of the method of merging of rights due to the acquisition of assessed, the Besler shares, is considered a key audit matter. • The accounting accuracy of the merger of rights method applied in the recognition of the relevant acquired entity, due to the (See: Note 1 and Note 2 of the consolidated financial acquisition being included in the scope of “business combinations statements.) under common control,” was monitored,

Revenue Recognition Whether the sufficient information was disclosed in the notes regarding the merger of rights method was assessed.

The revenue is recognized financial statements of the Through our audit, following audit procedures were performed Group take cognizance of sales discounts, incentives and regarding the fair, accurate and complete recognition of the sales other discounts provided in the context of the various discounts, incentives and other discounts: sales contracts with the customers. Due to the sales discounts, incentives and other discounts regarding the • The design and implementation of key controls determined by the sales transactions in the period ended 31 December 2017 Management was studied to ensure that sales discounts are made constituting a complex area for the fair, accurate and in compliance with the contracts, complete estimation, the revenue recognition is considered a • The controls applied over the system were tested with the support key audit matter. of the internal experts in our audit company, • In addition to the controls, the rates integrated with the system for (See: Note 2.5 and Note 18 of the consolidated financial specified contracts prepared according to the client type were also statements.) compared with the relevant contractual provisions, • The relevant accounting records and transactions were tested by sampling method in order to determine whether sales discounts and other discounts are accounted in accurate amounts and in the appropriate periods, • An assessment was made on whether the aforementioned sales discount accounts are taken into consideration during the verification tests and external agreements applied under the scope of financial verification procedures implemented to test the trade receivable accounts, • The completeness and accuracy of data used in the audit of sales discounts, incentives and other discounts were controlled and the calculations made by the management were redone,

Additionally, the adequacy of the disclosures given was assessed within the scope of TAS.

FINANCIAL STATEMENTS AND FOOTNOTES 73 Key Audit Matter How the matter was addressed in the audit Revaluation of Land and Buildings Through our audit, following audit procedures were As of 31 December 2017, Group’s subsidiary ‘Besler’, performed regarding the revaluation of land and buildings: has started to recognize its land and buildings with their fair values in order to comply with the common • The technical competency and impartiality of the property accounting policies with the Group Company. As of 31 revaluation company was assessed and the relevant December 2017, the fair values of land and buildings licenses, contracts and statements presented were are presented in the consolidated financial statements, controlled, and the effect of the change regarding the fair value • Valuation studies prepared for each property were obtained presentation in the current period is accounted under and audit work ensued on the valuation reports where the shareholders’ equity. fair value increase is at higher levels, • An alternative independent valuation institution (“external Under this scope, land and buildings are valued at fair expert”) was assigned by us for the control of the value reflecting the market conditions of the balance valuation reports where the fair value increase is at sheet date in accordance with the valuation reports higher levels, the resulting data was conferred and the obtained from licensed property valuation institutions appropriateness of valuation reports were evaluated, under the provisions of Capital Markets Legislation. Fair • The cost amounts of the relevant properties were checked values determined with the comparison of precedents to confirm whether the calculations made regarding the method reflecting the current transaction prices for the fair value increase amount are accurate, precedent property for rent or sale in the immediate • The accuracy of the valuation method is evaluated vicinity of the relevant property. This matter is of together with the use purposes of the relevant properties, importance for our audit since the aforementioned and the land registry of relevant properties are compared property are in significant amounts in the consolidated with the square meters used in the calculation of the fair financial statements and the valuations utilize certain values, estimations (such as, bargaining share, location • The data used in the calculation of the average value of amendment, etc.). Pursuant to the foregoing, the the precedent per square meter as calculated by the revaluation of land and buildings is considered a key valuation company is compared with the market condition audit matter. through a sampling method and sensitivity of the estimates such as the bargaining share and the location (See: Note 2.5 and Note 9-10 of the consolidated amendment over the total value is assessed, financial statements.) The fair values given in the valuation reports are compared with the notes. It has been assessed whether the fair value amounts given in the notes and financial records comply with the valuation reports and whether the note disclosures are sufficient within the scope of the TAS.

4) Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with TAS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

74 KEREVİTAŞ ANNUAL REPORT 2017 5) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

Responsibilities of independent auditors in an independent audit are as follows:

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the standards on auditing issued by Capital Markets Board and SIA will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the standards on auditing issued by Capital Markets Board and SIA, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated 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 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.)

• Obtain an understanding of 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 Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in 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 auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

FINANCIAL STATEMENTS AND FOOTNOTES 75 We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

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

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

B) Report on Other Legal and Regulatory Requirements

In accordance with paragraph four of the Article 398 of the Turkish Commercial Code No. 6102 (“TCC”), the auditor’s report on the system and the committee of early detection of risk has been submitted to the Board of Directors of the Company on 8 March 2018.

In accordance with paragraph four of the Article 402 of the Turkish Commercial Code No. 6102 (“TCC”), nothing has come to our attention that may cause us to believe that the Group’s set of accounts and financial statements prepared for the period 1 January-31 December 2017 does not comply with TCC and the provisions of the Company’s articles of association in relation to financial reporting.

In accordance with paragraph four of the Article 402 of TCC, the Board of Directors provided us all the required information and documentation with respect to our audit.

The engagement partner on the audit resulting in this independent auditor’s report is Özkan Yıldırım.

DRT BAĞIMSIZ DENETİM VE SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED

Özkan Yıldırım, SMMM Partner

İstanbul, 8 March 2018

76 KEREVİTAŞ ANNUAL REPORT 2017 CONTENTS PAGE

CONSOLIDATED STATEMENT OF FINANCIAL POSITION 78-79

CONSOLIDATED STATEMENT OF INCOME 80

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME 81

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 82

CONSOLIDATED STATEMENT OF CASH FLOWS 83

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 84-152

NOTE 1 GROUP’S ORGANIZATION AND NATURE OF OPERATIONS 84-85 NOTE 2 BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 86-114 NOTE 3 SEGMENT REPORTING 115 NOTE 4 RELATED PARTY DISCLOSURES 116-118 NOTE 5 TRADE RECEIVABLES AND PAYABLES 119 NOTE 6 OTHER RECEIVABLES AND PAYABLES 120 NOTE 7 INVENTORIES 121 NOTE 8 PREPAID EXPENSES AND DEFERRED REVENUE 121 NOTE 9 INVESTMENT PROPERTIES 121-122 NOTE 10 PROPERTY, PLANT AND EQUIPMENT 123-126 NOTE 11 INTANGIBLE ASSETS 126-127 NOTE 12 GOVERMENT GRANTS AND INCENTIVES 127 NOTE 13 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES 128 NOTE 14 COMMITMENT AND CONTINGENCIES 129 NOTE 15 PAYABLES RELATED TO EMPLOYEE BENEFITS 130-131 NOTE 16 OTHER ASSETS AND LIABILITIES 132 NOTE 17 CAPITAL AND RESERVES 132-133 NOTE 18 REVENUE AND COST OF SALES 134 NOTE 19 GENERAL ADMINISTRATIVE EXPENSES, SELLING AND MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES 134-135 NOTE 20 OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES 135-136 NOTE 21 INCOME AND EXPENSES FROM INVESTMENT ACTIVITIES 136 NOTE 22 FINANCIAL INCOME AND EXPENSES 136 NOTE 23 TAXATION 137-139 NOTE 24 EARNING PER SHARE / (LOSS) 140 NOTE 25 FINANCIAL INSTRUMENTS 140-142 NOTE 26 FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT 143-151 NOTE 27 CASH AND CASH EQUIVALENTS 152 NOTE 28 INTEREST IN OTHER ENTITIES 152 NOTE 29 SUBSEQUENT EVENTS 152

FINANCIAL STATEMENTS AND FOOTNOTES 77 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

Restated(*) Restated(*) Current Year Prior Year Prior Year Notes 31 December 2017 31 December 2016 31 December 2015 ASSETS Current Assets 1.840.522.941 1.799.554.899 1.265.964.407 Cash and cash equivalents 27 439.356.378 15.761.144 14.451.597 Trade receivables 5 573.697.313 512.728.898 434.354.809 - Trade receivables from related parties 4 354.496.792 319.610.808 261.224.153 - Trade receivables from third parties 219.200.521 193.118.090 173.130.656 Other receivables 6 438.350.302 891.429.629 473.967.211 - Other receivables from related parties 4 433.440.457 881.295.945 467.649.824 - Other receivables from third parties 4.909.845 10.133.684 6.317.387 Derivative financial instruments - 5.672.955 - Inventories 7 335.427.244 330.442.127 277.073.452 Prepaid expenses 8 18.608.057 17.141.460 44.263.408 Current income tax assets 23 6.530.927 178.014 86.433 Other current assets 16 28.552.720 26.200.672 21.767.497 Non-Current Assets 1.555.646.653 687.365.191 733.896.288 Other receivables 6 414.100.768 13.706.438 214.985.772 - Other receivables from related parties 4 413.830.301 12.903.735 214.693.201 - Other receivables from third parties 270.467 802.703 292.571 Financial investments 25 4.448.844 4.448.844 4.448.844 Investment properties 9 254.103.000 169.418.700 96.009.100 Property, plant and equipment 10 819.153.047 432.574.428 365.042.661 Intangible assets 11 6.276.331 3.628.805 1.870.365 Prepaid expenses 8 6.792.807 4.551.699 4.445.574 Deferred tax assets 23 33.279.349 40.940.247 32.243.331 Other non-current assets 16 17.492.507 18.096.030 14.850.641 TOTAL ASSETS 3.396.169.594 2.486.920.090 1.999.860.695

(*) Restatement effects have been explained in Note 2.

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

78 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

Restated(*) Restated(*) Current Year Prior Year Prior Year Notes 31 December 2017 31 December 2016 31 December 2015 LIABILITIES Current Liabilities 1.670.561.503 2.011.005.572 1.364.852.364 Short-term borrowings 25 874.584.800 1.294.229.271 1.069.618.993 Short-term portion of long-term borrowings 25 119.849.469 251.993.106 69.554.295 Trade payables 5 447.963.684 2 6 7. 8 0 7. 8 4 1 193.100.033 - Trade payables to related parties 4 64.106.593 56.127.653 44.758.713 - Trade payables to third parties 383.857.091 211.680.188 148.341.320 Other payables 6 187.255.439 166.486.437 8.433.564 - Other payables to related parties 4 187.255.439 165.444.825 4.961.940 - Other payables to third parties - 1.041.612 3.471.624 Payables related to employee benefits 15 11.871.050 10.035.452 6.935.305 Deferred income 8 2.043.075 3.180.216 3.619.530 Current income tax liabilities 23 9.304.481 4.970.223 2.401.564 Short-term provisions 12.469.813 9.419.568 8.424.620 - Short-term provisions for employee benefits 15 11.314.586 8.609.684 8.354.982 - Other short-term provisions 13 1.155.227 809.884 69.638 Other current liabilities 16 5.219.692 2.883.458 2.764.460 Non-Current Liabilities 965.619.985 74.689.368 271.670.047 Long-term borrowings 25 400.102.168 38.724.556 254.792.573 Other payables 6 479.385.000 54.724 54.724 - Other payables to related parties 4 479.385.000 - - - Other payables to third parties - 54.724 54.724 Long-term provisions 25.473.247 22.169.536 11.876.121 - Long-term provisions for employee benefits 15 25.473.247 22.169.536 11.876.121 Deferred tax liabilities 23 60.659.570 13.740.552 4.946.629 Total Liabilities 2.636.181.488 2.085.694.940 1.636.522.411

EQUITY 759.988.106 401.225.150 363.338.284 Equity Attributable to holders of the Company 593.179.427 289.011.581 270.892.718 Equity Paid in share capital 17 23.900.000 6.244.000 6.244.000 Share premium 886.860.880 - - Other comprehensive income or expenses not to be reclassified to profit or loss 341.636.859 88.358.202 51.212.763 - Gains on revaluation of property, plant and equipment 17 306.101.471 51.115.284 51.432.598 - Actuarial loss on post employment termination benefit obligation 17 (8.951.134) (7.243.604) (219.835) - Gains on revaluation of investment properties 44.486.522 44.486.522 - Other comprehensive income or expenses to be reclassified to profit or loss 46.747.084 40.356.385 26.026.588 - Currency translation differences 46.747.084 40.356.385 26.026.588 Restricted reserves appropriated from profit 17 34.656.534 31.930.256 30.344.476 Effect of business combinations under common control (909.376.861) (4.876.861) (4.876.861) Prior years’ profit 114.893.278 160.355.972 237.645.310 Net profit / (loss) for the year 53.861.653 (33.356.373) (75.703.558) Equity holders of the parent 593.179.427 289.011.581 270.892.718 Non-Controlling Interests 166.808.679 112.213.569 92.445.566 Total Equity 759.988.106 401.225.150 363.338.284 TOTAL LIABILITIES AND EQUITY 3.396.169.594 2.486.920.090 1.999.860.695

(*) Restatement effects have been explained in Note 2.

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

FINANCIAL STATEMENTS AND FOOTNOTES 79 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

Restated(*) Current Year Prior Year 1 January- 1 January- Notes 31 December 2017 31 December 2016 Revenue 18 2.420.708.265 1.898.018.981 Cost of sales (-) 18 (1.992.515.999) (1.541.871.600) Gross profit 428.192.266 356.147.381

General administrative expenses (-) 19 (56.883.531) (57.439.248) Selling and marketing expenses (-) 19 (222.344.777) (178.247.641) Research and development expenses (-) 19 (2.117.344) (3.721.632) Other income from operating activities 20 34.062.247 27.937.575 Other expenses from operating activities (-) 20 (72.781.729) (40.414.813) OPERATING PROFIT 108.127.132 104.261.622

Income from investment activities 21 214.328.754 63.781.873 Expenses from investment activities (-) 21 (34.586.618) (80.112.165) OPERATING PROFIT BEFORE FINANCIAL INCOME / (EXPENSE) 287.869.268 87.931.330

Financial income 22 - 5.672.955 Financial expenses (-) 22 (191.599.970) (103.840.988) PROFIT/ (LOSS) BEFORE TAX 96.269.298 (10.236.703)

Tax expense (29.590.373) (6.663.635) - Current income tax expense (-) 23 (13.511.327) (12.298.491) - Deferred tax (expense) / income 23 (16.079.046) 5.634.856 PROFIT / (LOSS) FOR THE YEAR 66.678.925 (16.900.338)

Profit / (loss) for the year attributable to: Non-controlling interests 12.817.272 16.456.035 Equity holders of the parent 53.861.653 (33.356.373)

Earnings / (losses) per share (Kr) 24 7,00 (5,34)

(*) Restatement effects have been explained in Note 2.

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

80 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

Restated(*) Current Year Prior Year 1 January- 1 January- Notes 31 December 2017 31 December 2016 PROFIT / (LOSS) FOR THE YEAR 66.678.925 (16.900.338)

OTHER COMPREHENSIVE INCOME: Items not to be reclassified to profit or (loss) 295.038.617 36.050.598 - Gains on revaluation of property, plant and equipment 17 335.994.031 - - Gains on revaluation of investment properties - 51.465.418 - Actuarial loss on post-employment termination benefit obligation 17 (2.454.578) (9.682.957) - Other comprehensive income not to be reclassified to profit or (loss), tax effect (38.500.836) (5.731.863) Items to be reclassified to profit or (loss) 9.129.491 20.843.197 - Currency translation differences 9.129.491 20.843.197

Other Comprehensive Income 304.168.108 56.893.795

TOTAL COMPREHENSIVE INCOME 3 7 0. 8 4 7. 0 3 3 39.993.457

Total comprehensive income for the year attributable to: Non-controlling interests 57.316.024 21.874.594 Equity holders of the parent 313.531.009 18.118.863

(*) Restatement effects have been explained in Note 2.

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

FINANCIAL STATEMENTS AND FOOTNOTES 81 - - (2.106.591) 23.739.436 39.993.457 Total Equity Total (12.100.957) 3 7 0 . 8 4 7. 0 3 3 (65.760.872) 401.225.150 401.225.150 759.988.106 904.516.880 405.359.720 363.338.284 (904.500.000) ------interests 57.316.024 (2.106.591) 21.874.594 (2.720.914) 92.445.566 92.445.566 112.213.569 112.213.569 166.808.679 Non-controlling Non-controlling - - - 18.118.863 23.739.436 312.914.154 (9.380.043) 289.011.581 289.011.581 313.531.009 593.179.427 of the parent of (65.760.872) 270.892.718 904.516.880 Equity holders holders Equity (904.500.000) - - - - (1.318.314) 10.772.251 Net profit / Net profit 53.861.653 33.356.373 75.703.558 53.861.653 (85.157.495) (33.356.373) (75.703.558) (33.356.373) (33.356.373) (loss) for the year for (loss) ------Retained Earnings Retained (751.301) Prior years’ Prior years’ 238.396.611 (9.380.043) 114.893.278 (77.289.338) (36.082.651) 237.645.310 160.355.972 160.355.972 profit / (losses) profit ------control business business 8.782.485 Effect of (4.876.861) (4.876.861) (4.876.861) (13.659.346) combinations combinations under common under common (909.376.861) (904.500.000) ------reserves 207.939 2.726.278 1.585.780 Restricted Restricted from profit from 30.136.537 31.930.256 31.930.256 34.656.534 30.344.476 appropriated appropriated ------886.860.880 886.860.880 Share premium Share ------other other Currency Currency income or income 6.390.699 differences translation translation 14.329.797 46.747.084 26.026.588 40.356.385 40.356.385 26.026.588 profit or loss profit Accumulated Accumulated reclassified to to reclassified comprehensive comprehensive expenses to be to expenses ------Gains on properties revaluation revaluation 44.486.522 44.486.522 44.486.522 44.486.522 of investment investment of ------benefit 980.483 obligation (219.835) (1.707.530) (1.200.318) (7.023.769) termination termination (8.951.134) employment employment (7.243.604) (7.243.604) Actuarial gain Actuarial / (loss) on post on post / (loss) to profit or loss profit to ------Accumulated other comprehensive comprehensive other Accumulated (317.314) 51.115.284 51.115.284 income or expenses not to be reclassified be reclassified to not or expenses income 115.875.156 51.432.598 254.986.187 306.101.471 (64.442.558) and equipment plant, property property plant, Gains / (losses) Gains / (losses) on revaluation of of on revaluation ------capital 6.244.000 17.656.000 6.244.000 6.244.000 6.244.000 Paid in share in share Paid 23.900.000 The accompanying notes form an integral part of these consolidated financial statements. consolidated these part of an integral form notes The accompanying Balances as of 31 December 2017 December 31 as of Balances Total comprehensive income comprehensive Total Dividends Transfers Effect of business combinations under of business Effect control common Capital increase Capital Balances as of 1 January 2017 1 January as of Balances Balances as of 31 December 2016 December 31 as of Balances Total comprehensive income comprehensive Total Dividends Transfers Balances as of 1 January 2016 (Restated) 2016 1 January as of Balances Effect of business combinations under of business Effect control common Restatement effect (Note 2) (Note effect Restatement Balances as of 1 January 2016 (Previously 2016 (Previously 1 January as of Balances reported) CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT REPORT ENGLISH OF THE INDEPENDENT AUDITORS’ INTO TRANSLATION CONVENIENCE 2.6) IN TURKISH (Note ISSUED ORIGINALLY FINANCIAL STATEMENTS AND CONSOLIDATED A.Ş. VE TİCARET SANAYİ GIDA KEREVİTAŞ SUBSIDIARIES AND ITS IN EQUITY OF CHANGES STATEMENT CONSOLIDATED 2017 DECEMBER THE YEAR ENDED 31 FOR stated.) otherwise unless (“TL”) Lira in Turkish expressed (Amounts

82 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

Restated(*) Current Year Prior Year 1 January- 1 January- Notes 31 December 2017 31 December 2016 Cash flows from operating activities 248.368.906 48.271.496 Profit/loss for the year 66.678.925 (16.900.338) Adjustments to reconcile profit/loss for the year 96.049.486 128.652.476 Adjustments related to depreciation and amortization expenses 10,11 38.682.247 32.254.172 Adjustments related to provision for/reversal of impairment loss 5.985.060 3.523.114 - Adjustments related to provisions for doubtful receivables 5 5.615.360 2.746.294 - Adjustments related to impairment of inventories 7 369.700 776.820 Adjustments related to provisions 12.673.539 10.262.445 - Adjustments related to provisions of employee benefits 15 11.673.539 10.128.948 - Adjustments related to provisions of lawsuit 13 1.000.000 133.497 Derivative financial instruments 5.672.955 (5.672.955) Adjustments related to interest income, expenses and commission expenses 97.182.384 61.475.035 - Adjustments related to interest expense 22 132.110.512 75.084.542 - Adjustments related to interest income and commission expenses 21 (34.928.128) (13.609.507) Financial exchange differences 22 53.642.648 28.600.628 Brand sales income 21 (62.076.428) - Adjustments related to tax expense/income 23 29.590.373 6.663.635 Adjustments related to gain/loss on fair value 21 (84.684.300) (8.367.291) Adjustments related to gain/loss on disposal of non-current assets 21 (451.792) 108.654 - Adjustments related to gain/loss on disposal of current assets (451.792) 108.654 Dividend income 21 (167.200) (194.961) Changes in working capital 108.901.924 (46.484.029) Adjustments related to increase in trade receivables (67.094.625) (81.297.385) - Increase in trade receivables from third parties (32.208.641) (22.910.730) - Increase in trade receivables from related parties (34.885.984) (58.386.655) Adjustments related to increase in inventories (5.354.817) (54.145.495) Adjustments related to decrease in other receivables 299.882 13.154.365 Adjustments related to increase in trade payables 180.155.843 74.707.808 - Increase in trade payables to third parties 172.176.903 63.338.868 - Increase in trade payables to related parties 7.978.940 11.368.940 Increase in other payables 895.641 1.096.678 Cash generated from operations 271.630.335 65.268.109 Cash outflow from paid in employee benefit provisions 15 (7.731.447) (9.403.898) Taxes paid 23 (15.529.982) (7.592.715) Cash flows from investing activities (366.364.013) (302.129.302) Payments for purchase of property, plant and equipment and intangible assets (86.803.268) (104.223.091) - Payments for purchase of property, plant and equipment 10 (86.194.064) (101.493.490) - Payments for purchase of intangible assets 11 (609.204) (2.729.601) Proceeds from sale of property, plant and equipment and intangible assets 1.453.577 145.976 Interest income from investment activities 34.928.128 13.609.507 Brand sales income 21 62.076.428 - Net changes in other receivables from related parties 46.928.922 (211.856.655) Dividend income 167.200 194.961 Cash outflow from acquisition of interest in subsidiaries (425.115.000) - Cash flows from financing activities 538.062.881 240.060.838 Cash inflows from financial borrowings 25 1.686.985.179 1.702.098.541 Cash outflows from repayments of borrowings 25 (1.947.340.310) (1.531.604.593) Cash outflows from repayment of obligations under financial leases (7.086.347) (17.874.230) Dividends paid (12.100.957) (2.106.591) Interest paid (108.722.178) (70.935.174) Capital increase and share premium 17 904.516.880 - Changes in other payables to related parties 21.810.614 160.482.885

Net increase/(decrease) in cash and cash equivalents before the effect of exchange rate changes 420.067.774 (13.796.968)

Effects of exchange rate changes on cash and cash equivalents 3.527.460 15.106.515

Net increase/(decrease) in cash and cash equivalents 423.595.234 1.309.547

Cash and cash equivalents at the beginning of the year 27 15.761.144 14.451.597

Cash and cash equivalents at the end of the year 27 439.356.378 15.761.144

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

FINANCIAL STATEMENTS AND FOOTNOTES 83 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 1 – GROUP’S ORGANISATION AND NATURE OF OPERATIONS

Kerevitaş Gıda Sanayi ve Ticaret Anonim Şirketi (“Kerevitaş” or “the Company”) and its subsidiaries (“Group”) main operations are producing and trading frozen and canned vegetables and fruits, frozen and canned sea food, frozen pastry products, croquettes, canned tuna fish, oil and margarine. Group distributes frozen and canned products that are produced in Bursa and Afyon facilities throughout Turkey through its dealers and own direct distribution channels as well as exports its products. Kerevitaş was initially established in 1978, to export its sea food and has been one of the pioneer food companies since 1990 with “Superfresh” brand. The Company’s registered office address is Üniversite Mahallesi Avcılar İstanbul.

There are six production lines in Bursa plant, which are frozen vegetables and fruits, canned tuna fish, frozen pastry products, canned vegetables and fruits and sea food. There are two main production lines in Afyon, which are frozen potato and vegetables.

Kerevitaş acquired Besler Gıda ve Kimya Sanayi ve Ticaret A.Ş. (“Besler”) which is operating in margarine and oil businesses on 24 November 2017 for an amount of TL904.500.000.

Besler has two operative production plants of oil and margarine in Pendik / İstanbul and Adana. The third production plant of Besler was established in the end of 2017 in Sultanate of Brunei.

The Company is registered to the Capital Markets Board (“CMB”) and its shares have been quoted on the Borsa İstanbul (“BIST”) since 1994.

As of 31 December 2017 and 2016, the principal shareholders and their respective shareholding rates in the Company are as follows:

31 December 2017 31 December 2016 (%) (%) Yıldız Holding A.Ş. 46,14 36,69 Ufuk Yatırım Yönetim ve Gayrimenkul A.Ş. 10,34 40,04 Murat Ülker 9,98 - Ahsen Özokur 8,13 - Trade Türk Gıda Yatırım A.Ş. 7,39 - Other 18,02 23,27 100 100

As of 31 December 2017, the number of employees of the Group is 2.558 (31 December 2016: 2.440).

84 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 1 - GROUP’S ORGANISATION AND NATURE OF OPERATIONS (Continued)

The subsidiaries included in the consolidation scope of the Group as of 31 December 2017 and 2016 and respective effective ownership rates are as follows:

Ratio of Direct and Indirect Effective Ownership Rates % Subsidiaries 31 December 2017 31 December 2016 Nature of business Ekzimer Dış Ticaret Gıda San. A.Ş. 100,00 100,00 Import and Export Food Product Manufacturing and Selling of Ancoker Su Ürünleri San. Tic. A.Ş. 100,00 100,00 Frozen Food Products Manufacturing and Selling of Mersu Su Ürünleri San. Tic. A.Ş. 100,00 100,00 Frozen Food Products Manufacturing and Storing Karma Tarımsal Üretim ve Tic. A.Ş. 100,00 100,00 Agricultural Products Besler Gıda ve Kimya San. Ve Tic. Manufacturing and Selling of Oil A.Ş.(*) 100,00 - and Margarine Berk Enerji Üretimi A.Ş.(**) 88,07 - Electricity Production Manufacturing and Marketing of Oil Marsa Yağ Sanayi ve Tic. A.Ş.(**) 70,00 - and Margarine Western Foods and Packaging SDN BHD(**) 70,00 - Marketing Activities

(*) The Group acquired Besler Gıda ve Kimya Sanayi Ticaret A.Ş. from 51% shares of Yıldız Holding A.Ş., 13,50% shares of Murat Ülker, 11% shares of Ahsen Özokur, 10% shares of Arı Rafine ve Yağ Sanayi A.Ş., 5% shares of Metin Yurdagül, 3% shares of Ataman Yıldız, 2,50% shares of Orhan Özokur and 2% shares of Fatma Betül Ülker, for an amount of TL904.500.000 on 24 November 2017. (**) Indirect ownership through Besler.

Acquisition of Besler Shares

The Group acquired Besler Gıda ve Kimya San. ve Tic. A.Ş. on 24 November 2017 from its ultimate parent Yıldız Holding. Since both companies are controlled by the same parent before and after the acquisition, this transaction has been identified as business combinations under common control and accounted under “pooling of interests” method in the accompany financial statements, in accordance with the principles of Public Oversight Accounting and Auditing Standards Authority dated July 21, 2013.

In the accompanying consolidated financial statements assets and liabilities of the entities subject to the business combinations under common control, are recognized at their carrying amounts and financial statements are consolidated from the beginning of the financial year in which the business combination takes place. Similarly, comparative consolidated financial statements are restated retrospectively for comparison purposes. As a result of these transactions, no goodwill was recognized. The difference arising in the restated 31 December 2015 and 2016 consolidated financial statements.

Approval of the financial statements

The consolidated financial statements as of and for the year ended 31 December 2017 have been approved by the Board of Directors on 8 March 2018 and signed by Chief Executive Officer Zeynep Dilmen and Financial Affairs Director Ergin Dülger. General Assembly has authority to change the financial statements.

FINANCIAL STATEMENTS AND FOOTNOTES 85 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

2.1 - Basis of Presentation

Statement of Compliance in TAS

The accompanying financial statements are prepared in accordance with the requirements of Capital Markets Board (“CMB”) Communiqué Serial II, No: 14.1 “Basis of Financial Reporting in Capital Markets”, which was published in the Official Gazette No:28676 on 13 June 2013. The accompanying financial statements are prepared based on the Turkish Accounting Standards and interpretations (“TAS”) that have been put into effect by the Public Oversight Accounting and Auditing Standards Authority (“POA”) under Article 5 of the Communiqué.

The financial statements and disclosures have been prepared in accordance with the resolution of CMB dated 7 June 2013 about the “illustrations of financial statements and application guidance”.

The consolidated financial statements have been prepared on the historical cost basis except for revaluation of property, plant and equipment. Historical cost is generally based on the nominal or original cost of assets when acquired by the Company.

Foreign currency translation

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The results and financial position of each entity are expressed in TL, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

Preparation of Financial Statements in Hyperinflationary Economies

In accordance with the communique issued by CMB, for companies that operate in Turkey and prepare their financial statements applying Turkish Accounting Standards, it is decided not to apply inflation accounting from 1 January 2005 which is published on 17 March 2005 numbered 11/367. Accordingly, as of 1 January 2005 No:29 “Financial Reporting in Hyperinflationary Economies” (“TAS 29”) wasn’t applied.

Comparative Information and Restatement of Prior Period Consolidated Financial Statements

Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give information about financial position and performance. In order to maintain consistency with current year consolidated financial statements, comparative information is recategorised and significant changes are disclosed if necessary.

The Group has restated its prior year financial statements regarding the changes in accounting policies. The effects of these restatements are as follows.

As per the principle related to “Accounting for business combinations under common control” of the Public Oversight, Accounting and Auditing Standards Authority issued in the Official Gazette dated 21 July 2013, business combinations under common control shall be accounted through restating previous period’s financial statements via the pooling of interest method. Accordingly, the Group restated its consolidated balance sheet at 31 December 2016 and 2015, the consolidated statement of comprehensive income and cash flows for the year ended at 31 December 2016 as explained in detail in Note 1.

86 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

The Group has made some reclassifications and adjustments on the prior year’s financial statements in current year. Nature and effects of these restatements are expressed below: o Group has retrospectively restated deferred tax calculation in 2015 and 2016 because of mathematical errors. o Group has reclassified some payables under other “current liabilities” to “other payables to third parties”. o Group has reclassified accruals in the nature of “trade payables” from “short term provisions” to “trade payables to third parties”. o Group has reclassified foreign exchange difference amounting to TL6.138.403, which was previously accounted under expenses for investing activities, to cost of sales. o Group has decided to apply “cost method” to “Machinery and equipment” which were previously accounted under “Fair value model”. o Group decided not to separate financing element on sales and purchases performed under general market conditions, based on a change in accounting policy stated in Note 2.2. The only exception is transactions made out of general market conditions. Group has retrospectively restated its financial statements according to accounting policies stated in Note 2.2.

FINANCIAL STATEMENTS AND FOOTNOTES 87 88 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6)

KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements Restated Prior Year Reported Prior Year restatements Restated Prior Year 31 December 2016 with eliminations 31 December 2016 31 December 2016 with eliminations 31 December 2016 Combined Elimination Consolidated ASSETS Current Assets 243.006.524 - 243.006.524 1.569.617.830 - 1.569.617.830 1.812.624.354 (13.069.455) 1.799.554.899 Cash and cash equivalents 1.047.182 - 1.047.182 14.713.962 - 14.713.962 15.761.144 - 15.761.144 Trade receivables 109.662.787 - 109.662.787 416.135.566 - 416.135.566 525.798.353 (13.069.455) 512.728.898 Other receivables 3.233.316 - 3.233.316 888.196.313 - 888.196.313 891.429.629 - 891.429.629 Derivative financial instruments - - - 5.672.955 - 5.672.955 5.672.955 - 5.672.955 Inventories 123.574.431 - 123.574.431 206.867.696 - 206.867.696 330.442.127 - 330.442.127 Prepaid expenses 4.196.275 - 4.196.275 12.945.185 - 12.945.185 17.141.460 - 17.141.460 Current income tax assets 23.466 - 23.466 154.548 - 154.548 178.014 - 178.014 Other current assets 1.269.067 - 1.269.067 24.931.605 - 24.931.605 26.200.672 - 26.200.672 Non-Current Assets 361.813.744 (68.998.287) 292.815.457 394.549.734 - 394.549.734 687.365.191 - 687.365.191 Other receivables 190.646 - 190.646 13.515.792 - 13.515.792 13.706.438 - 13.706.438 Financial investments 1.373.594 - 1.373.594 3.075.250 - 3.075.250 4.448.844 - 4.448.844 Investment properties - - - 169.418.700 - 169.418.700 169.418.700 - 169.418.700 Property, plant and equipment 308.825.865 (79.505.555) 229.320.310 203.254.118 - 203.254.118 432.574.428 - 432.574.428 Intangible assets 2.833.020 - 2.833.020 795.785 - 795.785 3.628.805 - 3.628.805 Prepaid expenses 61.610 - 61.610 4.490.089 - 4.490.089 4.551.699 - 4.551.699 Deferred tax assets 30.432.979 10.507.268 40.940.247 - - - 40.940.247 - 40.940.247 Other non-current assets 18.096.030 - 18.096.030 - - - 18.096.030 - 18.096.030 TOTAL ASSETS 604.820.268 (68.998.287) 535.821.981 1.964.167.564 - 1.964.167.564 2.499.989.545 (13.069.455) 2.486.920.090

CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements Restated Prior Year Reported Prior Year restatements Restated Prior Year 31 December 2016 with eliminations 31 December 2016 31 December 2016 with eliminations 31 December 2016 Combined Elimination Consolidated LIABILITIES Current Liabilities 609.562.610 - 609.562.610 1.414.512.417 - 1.414.512.417 2.024.075.027 (13.069.455) 2.011.005.572 Short-term borrowings 252.997.574 - 252.997.574 1.041.231.697 - 1.041.231.697 1.294.229.271 - 1.294.229.271 Short-term portion of long-term borrowings 5.649.106 - 5.649.106 246.344.000 - 246.344.000 251.993.106 - 251.993.106 Trade payables 171.083.851 1.965.967 173.049.818 107.827.478 - 107.827.478 280.877.296 (13.069.455) 2 6 7. 8 0 7. 8 4 1 Trade payables to related parties 63.922.461 - 63.922.461 5.274.647 - 5.274.647 69.197.108 (13.069.455) 56.127.653 Trade payables to third parties 107.161.390 1.965.967 109.127.357 102.552.831 - 102.552.831 211.680.188 - 211.680.188 Other payables 165.448.386 (1.565.832) 163.882.554 2.603.883 - 2.603.883 166.486.437 - 166.486.437 Other payables to related parties 165.444.221 - 165.444.221 604 - 604 165.444.825 - 165.444.825 Other payables to third parties 4.165 (1.565.832) (1.561.667) 2.603.279 - 2.603.279 1.041.612 - 1.041.612 Payables related to employee

FINANCIAL STATEMENTS ANDFOOTNOTES benefits 6.312.205 - 6.312.205 3.723.247 - 3.723.247 10.035.452 - 10.035.452 Deferred income 1.908.031 - 1.908.031 1.272.185 - 1.272.185 3.180.216 - 3.180.216 Current income tax liabilities 78.213 - 78.213 4.892.010 - 4.892.010 4.970.223 - 4.970.223 Short-term provisions 4.767.618 (1.965.967) 2.801.651 6.617.917 - 6.617.917 9.419.568 - 9.419.568 Short-term provisions for employee benefits 4.634.121 - 4.634.121 3.975.563 - 3.975.563 8.609.684 - 8.609.684 Other short-term provisions 133.497 (1.965.967) (1.832.470) 2.642.354 - 2.642.354 809.884 - 809.884 Other current liabilities 1.317.626 1.565.832 2.883.458 - - - 2.883.458 - 2.883.458 Non-Current Liabilities 47.500.739 - 47.500.739 27.188.629 - 27.188.629 74.689.368 - 74.689.368 Long-term borrowings 38.724.556 - 38.724.556 - - - 38.724.556 - 38.724.556 Other payables 54.724 - 54.724 - - - 54.724 - 54.724 Long-term provisions 8.280.452 - 8.280.452 13.889.084 - 13.889.084 22.169.536 - 22.169.536 Long-term provisions for employee benefits 8.280.452 - 8.280.452 13.889.084 - 13.889.084 22.169.536 - 22.169.536 Deferred tax liabilities 441.007 - 441.007 13.299.545 - 13.299.545 13.740.552 - 13.740.552 Total Liabilities 657.063.349 - 657.063.349 1.441.701.046 - 1.441.701.046 2.098.764.395 (13.069.455) 2.085.694.940

89 90 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6)

KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements Restated Prior Year Reported Prior Year restatements Restated Prior Year 31 December 2016 with eliminations 31 December 2016 31 December 2016 with eliminations 31 December 2016 Combined Elimination Consolidated EQUITY Equity holders of the parent (52.243.081) (68.998.287) (121.241.368) 410.252.949 - 410.252.949 289.011.581 - 289.011.581 Paid in share capital 6.244.000 - 6.244.000 76.000.000 - 76.000.000 82.244.000 (76.000.000) 6.244.000 Other comprehensive income or expenses not to be reclassified to profit or loss 114.643.948 (64.759.872) 49.884.076 38.474.126 - 38.474.126 88.358.202 - 88.358.202 - Gains / (losses) on revaluation of plant, property and equipment 115.875.156 (64.759.872) 51.115.284 - - - 51.115.284 - 51.115.284 - Actuarial loss on post employment termination benefit obligation (1.231.208) - (1.231.208) (6.012.396) - (6.012.396) (7.243.604) - (7.243.604) - Gains / losses on revaluation of investment properties - - - 44.486.522 - 44.486.522 44.486.522 - 44.486.522 Other comprehensive income or expenses to be reclassified to profit or loss - - - 40.356.385 - 40.356.385 40.356.385 - 40.356.385 Restricted reserves appropriated from profit 207.939 - 207.939 31.722.317 - 31.722.317 31.930.256 - 31.930.256 Effect of business combinations under common control (13.659.346) - (13.659.346) (67.217.515) - (67.217.515) (80.876.861) 76.000.000 (4.876.861) Prior years’ profit/losses (85.908.796) (1.318.314) (87.227.110) 247.583.082 - 247.583.082 160.355.972 - 160.355.972 Net profit/loss for the year (73.770.826) (2.920.101) (76.690.927) 43.334.554 - 43.334.554 (33.356.373) - (33.356.373) Non-Controlling Interests - - - 112.213.569 - 112.213.569 112.213.569 - 112.213.569 Total Equity (52.243.081) (68.998.287) (121.241.368) 522.466.518 - 522.466.518 401.225.150 - 401.225.150 TOTAL LIABILITIES AND EQUITY 604.820.268 (68.998.287) 535.821.981 1.964.167.564 - 1.964.167.564 2.499.989.545 (13.069.455) 2.486.920.090

CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

Kerevitaş Besler Effects of Reported Prior Effects of Reported Prior Year restatements with Restated Prior Year Period 31 December restatements with Restated Prior Year 31 December 2015 eliminations 31 December 2015 2015 eliminations 31 December 2015 Combined Elimination Consolidated ASSETS Current Assets 321.017.151 - 321.017.151 952.104.968 - 952.104.968 1.273.122.119 (7.157.712) 1.265.964.407 Cash and cash equivalents 4.085.728 - 4.085.728 10.365.869 - 10.365.869 14.451.597 - 14.451.597 Trade receivables 102.679.990 - 102.679.990 338.832.531 - 338.832.531 441.512.521 (7.157.712) 434.354.809 Other receivables 100.063.998 - 100.063.998 373.903.213 - 373.903.213 473.967.211 - 473.967.211 Derivative financial instruments ------Inventories 107.290.387 - 107.290.387 169.783.065 - 169.783.065 277.073.452 - 277.073.452 Prepaid expenses 6.014.939 - 6.014.939 38.248.469 - 38.248.469 44.263.408 - 44.263.408 Current income tax assets 66.459 - 66.459 19.974 - 19.974 86.433 - 86.433 Other current assets 815.650 - 815.650 20.951.847 - 20.951.847 21.767.497 - 21.767.497 Non-Current Assets 339.827.639 (65.760.872) 274.066.767 459.829.521 - 459.829.521 733.896.288 - 733.896.288

FINANCIAL STATEMENTS ANDFOOTNOTES Other receivables 180.514 - 180.514 214.805.258 - 214.805.258 214.985.772 - 214.985.772 Financial investments 1.373.594 - 1.373.594 3.075.250 - 3.075.250 4.448.844 - 4.448.844 Investment properties - - - 96.009.100 - 96.009.100 96.009.100 - 96.009.100 Property, plant and equipment 303.505.605 (79.505.555) 224.000.050 141.042.611 - 141.042.611 365.042.661 - 365.042.661 Intangible assets 1.311.513 - 1.311.513 558.852 - 558.852 1.870.365 - 1.870.365 Prepaid expenses 107.124 - 107.124 4.338.450 - 4.338.450 4.445.574 - 4.445.574 Deferred tax assets 18.498.648 13.744.683 32.243.331 - - - 32.243.331 - 32.243.331 Other non-current assets 14.850.641 - 14.850.641 - - - 14.850.641 - 14.850.641 TOTAL ASSETS 660.844.790 (65.760.872) 595.083.918 1.411.934.489 - 1.411.934.489 2.007.018.407 (7.157.712) 1.999.860.695

91 92 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6)

KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements with Restated Prior Year Reported Prior Year restatements with Restated Prior Year 31 December 2015 eliminations 31 December 2015 31 December 2015 eliminations 31 December 2015 Combined Elimination Consolidated LIABILITIES Current Liabilities 581.437.054 - 581.437.054 790.573.022 - 790.573.022 1.372.010.076 (7.157.712) 1.364.852.364 Short-term borrowings 382.460.987 - 382.460.987 687.158.006 - 687.158.006 1.069.618.993 - 1.069.618.993 Short-term portion of long-term borrowings 69.554.295 - 69.554.295 - - - 69.554.295 - 69.554.295 Trade payables 112.633.307 2.368.769 115.002.076 85.255.669 - 85.255.669 200.257.745 (7.157.712) 193.100.033 Trade payables to related parties 47.885.626 - 47.885.626 4.030.799 - 4.030.799 51.916.425 (7.157.712) 44.758.713 Trade payables to third parties 64.747.681 2.368.769 67.116.450 81.224.870 - 81.224.870 148.341.320 - 148.341.320 Other payables 5.862.299 (1.688.252) 4.174.047 4.259.517 - 4.259.517 8.433.564 - 8.433.564 Other payables to related parties 4.961.431 - 4.961.431 509 - 509 4.961.940 - 4.961.940 Other payables to third parties 900.868 (1.688.252) (787.384) 4.259.008 - 4.259.008 3.471.624 - 3.471.624 Payables related to employee benefits 4.027.418 - 4.027.418 2.907.887 - 2.907.887 6.935.305 - 6.935.305 Deferred income 1.672.767 - 1.672.767 1.946.763 - 1.946.763 3.619.530 - 3.619.530 Current income tax liabilities - - - 2.401.564 - 2.401.564 2.401.564 - 2.401.564 Short-term provisions 4.149.773 (2.368.769) 1.781.004 6.643.616 - 6.643.616 8.424.620 - 8.424.620 Short-term provisions for employee benefits 4.149.773 - 4.149.773 4.205.209 - 4.205.209 8.354.982 - 8.354.982 Other short-term provisions - (2.368.769) (2.368.769) 2.438.407 - 2.438.407 69.638 - 69.638 Other current liabilities 1.076.208 1.688.252 2.764.460 - - - 2.764.460 - 2.764.460 Non-Current Liabilities 55.668.300 - 55.668.300 216.001.747 - 216.001.747 271.670.047 - 271.670.047 Long-term borrowings 51.260.573 - 51.260.573 203.532.000 - 203.532.000 254.792.573 - 254.792.573 Other payables 54.724 - 54.724 - - - 54.724 - 54.724 Long-term provisions 3.884.802 - 3.884.802 7.991.319 - 7.991.319 11.876.121 - 11.876.121 Long-term provisions for employee benefits 3.884.802 - 3.884.802 7.991.319 - 7.991.319 11.876.121 - 11.876.121 Deferred tax liabilities 468.201 - 468.201 4.478.428 - 4.478.428 4.946.629 - 4.946.629 Total Liabilities 637.105.354 - 637.105.354 1.006.574.769 - 1.006.574.769 1.643.680.123 (7.157.712) 1.636.522.411

CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements with Restated Prior Year Reported Prior Year restatements with Restated Prior Year 31 December 2015 eliminations 31 December 2015 31 December 2015 eliminations 31 December 2015 Combined Elimination Consolidated EQUITY Equity holders of the parent 23.739.436 (65.760.872) (42.021.436) 312.914.154 - 312.914.154 270.892.718 - 270.892.718 Paid in share capital 6.244.000 - 6.244.000 76.000.000 - 76.000.000 82.244.000 (76.000.000) 6.244.000 Other comprehensive income or expenses not to be reclassified to profit or loss 116.855.639 (64.442.558) 52.413.081 (1.200.318) - (1.200.318) 51.212.763 - 51.212.763 - Gains / (losses) on revaluation of plant, property and equipment 115.875.156 (64.442.558) 51.432.598 - - - 51.432.598 - 51.432.598 - Actuarial loss on post employment termination benefit obligation 980.483 - 980.483 (1.200.318) - (1.200.318) (219.835) - (219.835) - Gains / losses on revaluation of investment properties ------Other comprehensive income or expenses to be reclassified to profit or loss - - - 26.026.588 - 26.026.588 26.026.588 - 26.026.588

FINANCIAL STATEMENTS ANDFOOTNOTES Restricted reserves appropriated from profit 207.939 - 207.939 30.136.537 - 30.136.537 30.344.476 - 30.344.476 Effect of business combinations under common control (13.659.346) - (13.659.346) (67.217.515) - (67.217.515) (80.876.861) 76.000.000 (4.876.861) Prior years’ profit/losses (751.301) - (751.301) 238.396.611 - 238.396.611 237.645.310 - 237.645.310 Net profit/loss for the year (85.157.495) (1.318.314) (86.475.809) 10.772.251 - 10.772.251 (75.703.558) - (75.703.558) Non-Controlling Interests - - - 92.445.566 - 92.445.566 92.445.566 - 92.445.566 Total Equity 23.739.436 (65.760.872) (42.021.436) 405.359.720 - 405.359.720 363.338.284 - 363.338.284 TOTAL LIABILITIES AND EQUITY 660.844.790 (65.760.872) 595.083.918 411.934.489 - 1.411.934.489 2.007.018.407 (7.157.712) 1.999.860.695

93 94 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6)

KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements with Restated Prior Year Reported Prior Year restatements with Restated Prior Year 31 December 2016 eliminations 31 December 2016 31 December 2016 eliminations 31 December 2016 Combined Elimination Consolidated Revenue 461.890.263 9.832.312 471.722.575 1.418.841.433 27.346.764 1.446.188.197 1.917.910.772 (19.891.791) 1.898.018.981 Cost of sales (-) (347.247.520) (5.894.915) (353.142.435) (1.204.457.730) (3.978.491) (1.208.436.221) (1.561.578.656) 19.707.056 (1.541.871.600) Gross profit / (loss) 114.642.743 3.937.397 118.580.140 214.383.703 23.368.273 237.751.976 356.332.116 (184.735) 356.147.381

General administrative expenses (-) (19.954.432) - (19.954.432) (37.484.816) - (37.484.816) (57.439.248) - (57.439.248) Selling and Marketing expenses (-) (102.230.921) - (102.230.921) (76.124.390) - (76.124.390) (178.355.311) 107.670 (178.247.641) Research and development expenses (-) (1.409.441) - (1.409.441) (2.312.191) - (2.312.191) (3.721.632) - (3.721.632) Other income from operating activities 14.141.119 (9.832.312) 4.308.807 50.898.467 (27.346.764) 23.551.703 27.860.510 77.065 27.937.575 Other expenses from operating activities (-) (19.704.558) 5.894.915 (13.809.643) (36.722.064) 10.116.894 (26.605.170) (40.414.813) - (40.414.813) OPERATING PROFIT / (LOSS) (14.515.490) - (14.515.490) 112.638.709 6.138.403 118.777.112 104.261.622 - 104.261.622

Income from investment activities 2.211.319 - 2.211.319 61.800.037 - 61.800.037 64.011.356 (229.483) 63.781.873 Expenses from investment activities (-) (738.154) - (738.154) (73.235.608) (6.138.403) (79.374.011) (80.112.165) - (80.112.165) OPERATING PROFIT/LOSS BEFORE FINANCIAL INCOME / (EXPENSE) (13.042.325) - (13.042.325) 101.203.138 - 101.203.138 88.160.813 (229.483) 87.931.330

Financial income - - - 5.672.955 - 5.672.955 5.672.955 - 5.672.955 Financial expenses (-) (71.842.042) - (71.842.042) (32.228.429) - (32.228.429) (104.070.471) 229.483 (103.840.988) PROFIT / (LOSS) BEFORE TAX (84.884.367) - (84.884.367) 74.647.664 - 74.647.664 (10.236.703) - (10.236.703)

Tax (expense) / income 11.114.592 (2.920.101) 8.194.491 (14.858.126) - (14.858.126) (6.663.635) - (6.663.635) - Current income tax expense (-) (294.011) - (294.011) (12.004.480) - (12.004.480) (12.298.491) - (12.298.491) - Deferred tax (expense) / income 11.408.603 (2.920.101) 8.488.502 (2.853.646) - (2.853.646) 5.634.856 - 5.634.856 PROFIT / (LOSS) FOR THE YEAR (73.769.775) (2.920.101) (76.689.876) 59.789.538 - 59.789.538 (16.900.338) - (16.900.338)

Profit / (loss) for the year attributable to: Equity holders of the parent (73.769.775) (2.920.101) (76.689.876) 43.333.503 - 43.333.503 (33.356.373) - (33.356.373) Non-controlling interests - - - 16.456.035 - 16.456.035 16.456.035 - 16.456.035

CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Comparative Information and Restatement of Prior Period Consolidated Financial Statements (Continued)

Kerevitaş Besler Effects of Effects of Reported Prior Year restatements with Restated Prior Year Reported Prior Year restatements with Restated Prior Year 31 December 2016 eliminations 31 December 2016 31 December 2016 eliminations 31 December 2016 Combined Elimination Consolidated PROFIT / (LOSS) FOR THE YEAR (73.769.775) (2.920.101) (76.689.876) 59.789.538 - 59.789.538 (16.900.338) - (16.900.338)

OTHER COMPREHENSIVE INCOME: (2.211.691) (317.330) (2.529.021) 59.422.816 - 59.422.816 56.893.795 - 56.893.795 Items not to be reclassified to profit or loss (2.211.691) (317.330) (2.529.021) 38.579.619 - 38.579.619 36.050.598 - 36.050.598 - Gain/loss on revaluation of investment property - - - 51.465.418 - 51.465.418 51.465.418 - 51.465.418 - Actuarial loss on post-employment termination benefit obligation (2.764.613) - (2.764.613) (6.918.344) - (6.918.344) (9.682.957) - (9.682.957) - Other comprehensive income not to be reclassified to profit or (loss), tax effect 552.922 (317.330) 235.592 (5.967.455) - (5.967.455) (5.731.863) - (5.731.863) Items to be reclassified to profit or loss - - - 20.843.197 - 20.843.197 20.843.197 - 20.843.197 - Currency translation differences - - - 20.843.197 - 20.843.197 20.843.197 - 20.843.197 FINANCIAL STATEMENTS ANDFOOTNOTES TOTAL COMPREHENSIVE INCOME (75.981.466) (3.237.431) (79.218.897) 119.212.354 - 119.212.354 39.993.457 - 39.993.457 Total comprehensive income for the year attributable to: Equity holders of the parent (75.981.466) (3.237.431) (79.218.897) 97.337.760 - 97.337.760 18.118.863 - 18.118.863 Non-controlling interests - - - 21.874.594 - 21.874.594 21.874.594 - 21.874.594

95 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Going Concern

The consolidated financial statements of the Group are prepared on a going concern basis.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company and its subsidiaries. Control is achieved when the Company:

• has power over the investee; • is exposed, or has rights, to variable returns from its involvement with the investee; and • has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a subsidiary begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Specifically, income and expenses of a subsidiary acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the date the Company gains control until the date when the Company ceases to control the subsidiary.

Profit or loss and each component of other comprehensive income are attributed to the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies.

All intragroup assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation.

96 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.1 - Basis of Presentation (Continued)

Changes in the Group’s ownership interests in existing subsidiaries

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non- controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

When the Group loses control of a subsidiary, a gain or loss is recategorised in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. All amounts previously recategorised in other comprehensive income in relation to that subsidiary are accounted for as if the Group had directly disposed of the related assets or liabilities of the subsidiary (i.e. reclassified to profit or loss or transferred to another category of equity as specified/permitted by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39, when applicable, the cost on initial recognition of an investment in an associate or a joint venture.

2.2 - Changes in Accounting Policies

Significant changes in accounting policies have been applied retrospectively and prior period consolidated financial statements are restated. Group decided to apply “Fair value model” to land and land improvements and buildings in accordance with TAS 16 – Property, Plant and Equipment. Group has decided to apply “cost model” to “Machinery and equipment” that are revalued with “Fair value model” in prior periods in accordance with accounting policy of the Group’s main shareholder Yıldız Holding.

The Group has analyzed the financial effects on sales and purchase and amendment the accounting policy according to TAS 18. The Group has decided not to book finance income or expense on sales and purchase when sales and purchased are at market conditions and to book only when sales and purchase are out of the market conditions. Therefore, financial effect on sales and purchase have been retrospectively restated.

If any significant accounting errors are found out, changes are applied retrospectively and prior year’s financial statements are restated.

2.3 - Changes in Accounting Estimates and Errors

If changes in accounting estimates and errors are for only one period, changes are applied in the current year but if the estimated changes affect the following periods, changes are applied both on the current and following years prospectively. In the current year, there are not any material errors and changes in accounting estimate methods of the Group.

If any significant accounting errors are found out, changes are applied retrospectively and prior year’s financial statements are restated.

FINANCIAL STATEMENTS AND FOOTNOTES 97 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.4 - New and Revised Turkish Accounting Standards a) Amendments to IFRSs that are mandatorily effective for the current year

Recognition of Deferred Tax Assets for Unrealized Amendments to IAS 12 Losses1 Amendments to IAS 7 Disclosure Inıtiative1 Annual Improvements to IFRS Standards 2014–2016 Cycle IFRS 12 1

1 Effective for annual periods beginning on or after 1 January 2017.

Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses

The amendments clarify how an entity should evaluate whether there will be sufficient future taxable profits against which it can utilize a deductible temporary difference.

The application of these amendments has had no impact on the Group’s consolidated financial statements as the Group already assesses the sufficiency of future taxable profits in a way that is consistent with these amendments.

Amendments to IAS 7 Disclosure Inıtiative

This amendments require an entity to provide disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both cash and non-cash changes.

The Company’s liabilities arising from financing activities consist of borrowings (note 25) and certain other financial liabilities (note 25).

Annual Improvements to IFRS Standards 2014–2016 Cycle

IFRS 12: IFRS 12 states that an entity need not provide summarized financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held for sale. The amendments clarify that this is the only concession from the disclosure requirements of IFRS 12 for such interests.

The application of these amendments has had no effect on the Company’s financial statements as none of the Company’s interests in these entities are classified, or included in a disposal group that is classified, as held for sale.

98 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.4 - New and Revised Turkish Accounting Standards (Continued)

New and revised IFRSs in issue but not yet effective:

TFRS 9 Financial Instruments1 TFRS 15 Revenue from Contracts with Customers1 Sale or Contribution of Assets between an Investor and its Amendments to TFRS 10 and TAS 28 Associate or Joint Venture Classification and Measurement of Share-Based Payment Amendments to TFRS 2 Transactions1 TFRS Interpretation 22 Foreign Currency Transactions and Advance Consideration 1 Amendments to TAS 40 Transfers of Investment Property Annual Improvements to TFRS Standards 2014–2016 Cycle TFRS 11, TAS 281 Amendments to TAS 28 Long-term Interests in Associates and Joint Ventures2

1 Effective for annual periods beginning on or after 1 January 2018. 2 Effective for annual periods beginning on or after 1 January 2019.

TFRS 9 Financial Instruments

TFRS 9 issued in November 2009 introduced new requirements for the classification and measurement of financial assets / liabilities and for derecognition and for general hedge accounting.

Key requirements of TFRS 9:

• All recognized financial assets that are within the scope of TFRS 9 are required to be subsequently measured at amortized cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortized cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at FVTOCI. All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under TFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading nor contingent consideration recognized by an acquirer in a business combination) in other comprehensive income, with only dividend income generally recognized in profit or loss.

• with regard to the measurement of financial liabilities designated as at fair value through profit or loss, TFRS 9 requires that the amount of change in the fair value of a financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of such changes in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability’s credit risk are not subsequently reclassified to profit or loss. Under TAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

FINANCIAL STATEMENTS AND FOOTNOTES 99 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.4 - New and Revised Turkish Accounting Standards (Continued)

New and revised IFRSs in issue but not yet effective (Continued):

TFRS 9 Financial Instruments (Continued)

• in relation to the impairment of financial assets, TFRS 9 requires an expected credit loss model, as opposed to an incurred credit loss model under TAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognized.

The new general hedge accounting requirements retain the three types of hedge accounting mechanisms currently available in TAS 39. Under TFRS 9, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify for hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is also no longer required. Enhanced disclosure requirements about an entity’s risk management activities have also been introduced.

The Group is assessing the effects of new standards, amendments and improvements to its financial performance.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. IFRS 15 will supersede the current revenue recognition guidance including IAS 18 Revenue, IAS 11 Construction Contracts and the related Interpretations when it becomes effective.

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Specifically, the Standard introduces a 5-step approach to revenue recognition:

• Step 1: Identify the contract(s) with a customer • Step 2: Identify the performance obligations in the contract • Step 3: Determine the transaction price • Step 4: Allocate the transaction price to the performance obligations in the contract • Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation

Under IFRS 15, an entity recognizes revenue when (or as) a performance obligation is satisfied, i.e. when ‘control’ of the goods or services underlying the particular performance obligation is transferred to the customer.

Far more prescriptive guidance has been added in IFRS 15 to deal with specific scenarios. Furthermore, extensive disclosures are required by IFRS 15.

The IASB issued Clarifications to IFRS 15 in relation to the identification of performance obligations, principal versus agent considerations, as well as licensing application guidance.

The Group is assessing the effects of new standards, amendments and improvements to its financial performance.

100 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.4 - New and Revised Turkish Accounting Standards (Continued)

New and revised IFRSs in issue but not yet effective (Continued):

Amendments to TFRS 10 and TAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

This amendment clarifies the treatment of the sale or contribution of assets from an investor to its associate or joint venture.

Amendments to TFRS 2 Classification and Measurement of Share-Based Payment Transactions

The amendments clarify the standard in respect of the share-based payment arrangement has a ‘net settlement feature’, such an arrangement should be classified as equity-settled in its entirety, provided that the share-based payment would have been classified as equity-settled had it not included the net settlement feature.

TFRS Interpretation 22 Foreign Currency Transactions and Advance Consideration

The interpretation addresses foreign currency transactions or parts of transactions where:

• there is consideration that is denominated or priced in a foreign currency; • the entity recognizes a prepayment asset or a deferred income liability in respect of that consideration, in advance of the recognition of the related asset, expense or income; and • the prepayment asset or deferred income liability is non-monetary.

The Interpretations Committee came to the following conclusion:

• The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. • If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt.

Amendments to TAS 40 Transfers of Investment Property

The amendments to TAS 40:

• Amends paragraph 57 to state that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change of use occurs if property meets, or ceases to meet, the definition of investment property. A change in management’s intentions for the use of a property by itself does not constitute evidence of a change in use.

• The list of examples of evidence in paragraph 57(a) – (d) is now presented as a non-exhaustive list of examples instead of the previous exhaustive list.

Annual Improvements to TFRS Standards 2014–2016 Cycle

• TFRS 1: Deletes the short-term exemptions in paragraphs E3–E7 of TFRS 1, because they have now served their intended purpose.

• TAS 28: Clarifies that the election to measure at fair value through profit or loss an investment in an associate or a joint venture that is held by an entity that is a venture capital organisation, or other qualifying entity, is available for each investment in an associate or joint venture on an investment-by-investment basis, upon initial recognition.

FINANCIAL STATEMENTS AND FOOTNOTES 101 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.4 - New and Revised Turkish Accounting Standards b) New and revised IFRSs in issue but not yet effective:

Amendments to TAS 28 Long-term Interests in Associates and Joint Ventures

This amendment clarifies that an entity applies TFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture but to which the equity method is not applied.

The Group evaluates the effects of these standards, amendments and improvements on the consolidated financial statements.

2.5 - Summary of Significant Accounting Policies

Related Parties

A related party is a person or entity that is related to the entity that is preparing its financial statements. a) A person or a close member of that person’s family is related to a reporting entity if that person:

(i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

(b) An entity is related to a reporting entity if any of the following conditions applies:

(i) The entity and the reporting entity are members of the same group (which means that each parent, subsidiary and fellow subsidiary is related to the others). (ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). (ii) Both entities are joint ventures of the same third party. (iv) One entity is a joint venture of a third entity and the other entity is an associate of the third entity. (v) The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. (vi) The entity is controlled or jointly controlled by a person identified in (a). (vii) A person identified in (a)(i) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).

A related party transaction is a transfer of resources, services or obligations between a reporting entity and a related party, regardless of whether a price is charged.

102 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Revenue

Revenue is measured at the fair value of the consideration received or receivable. Net sales is reduced for estimated and realized customer returns, rebates, commissions and taxes related with sales.

Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

• The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; • The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; • The amount of revenue can be measured reliably; • It is probable that the economic benefits associated with the transaction will flow to the entity; and • The costs incurred or to be incurred in respect of the transaction can be measured reliably.

Dividend and interest income:

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably).

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

Inventories

Inventories are stated at the lower of cost and net realizable value. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to make the sale. When the net realizable value of inventory is less than cost, the inventory is written down to the net realizable value and the expense is included in statement of profit or loss in the period the write-down or loss occurred. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of changed economic circumstances, the amount of the write-down is reversed. The reversal amount is limited to the amount of the original write-down. Inventories have been valued with weighted average cost method.

FINANCIAL STATEMENTS AND FOOTNOTES 103 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Property, Plant and Equipment

Land and buildings held for use in the production or supply of goods or services, or for administrative purposes, are stated in the consolidated statement of financial position at their revalued amounts, being the fair value at the date of revaluation, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. Revaluations are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at the end of each reporting period.

Any revaluation increase arising on the revaluation of such land and buildings is recognized in other comprehensive income and accumulated in equity, except to the extent that it reverses a revaluation decrease for the same asset previously recognized in profit or loss, in which case the increase is credited to profit or loss to the extent of the decrease previously expensed. A decrease in the carrying amount arising on the revaluation of such land and buildings is recognized in profit or loss to the extent that it exceeds the balance, if any, held in the properties revaluation reserve relating to a previous revaluation of that asset.

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group’s accounting policy. Such properties are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Depreciation on revalued buildings is charged to profit or loss. On the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is transferred directly to retained earnings. Unless the subsequent sale or retirement of a revalued property, the attributable revaluation surplus remaining in the properties revaluation reserve is not transferred to retained earnings. Freehold land is not depreciated.

Fixtures and equipment are stated at cost less accumulated depreciation and accumulated impairment losses.

Depreciation is recognized so as to write off the cost or valuation of assets, other than freehold land and properties under construction, less their residual values over their useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. However, when there is no reasonable certainty that ownership will be obtained by the end of the lease term, assets are depreciated over the shorter of the lease term and their useful lives.

104 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Property, Plant and Equipment (Continued)

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

Estimated useful life of property, plants and equipment’s are shown below:

Useful Life (Year)

Buildings 10-50 Land improvements 8-50 Machinery and equipment’s 3-25 Furniture and fixtures 3-50 Motor vehicles 4-10 Leasehold improvements 3-5

Leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Leases - the Group as lessee

Assets held under finance leases are initially recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an expense on a straight-line basis over the lease term (the incentives that are received for lease contracts that are recognized in profit or loss on a straight-line basis). Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

Intangible Assets

Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. Estimated useful life of intangible assets are between 2 and 15 years.

FINANCIAL STATEMENTS AND FOOTNOTES 105 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Intangible Assets (Continued)

Derecognition of intangible assets

An intangible asset is derecognized from statement of financial position on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

Impairment of Tangible and Intangible Assets Other Than Goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

106 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in the statement of profit or loss in the period in which they are incurred.

Financial Instruments

Financial assets

Financial assets are classified into the following specified categories: financial assets as ‘at fair value through profit or loss’ (FVTPL), ‘held-to-maturity investments’, ‘available-for-sale’ (AFS) financial assets and ‘loans and receivables’. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. A regular way purchase or sale of financial assets shall be recognised using trade date accounting or settlement date accounting. When a financial asset is recognised initially, the Group measures it at its fair value plus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or financial liability.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets designated as at Fair value through profit or loss.

Financial assets at Fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as held for trading unless they are designated as hedges.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables (including trade and other receivables, bank balances and cash, and others) are measured at amortized cost using the effective interest method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effect of discounting is immaterial.

FINANCIAL STATEMENTS AND FOOTNOTES 107 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Financial Instruments (Continued)

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. The Group’s cash and cash equivalents are classified under the category of ‘Loans and Receivables’.

Recognition and derecognition of financial assets

The Group recognises a financial asset or a financial liability in its statement of financial position when, and only, the entity becomes a party to the contractual provisions of the instrument. The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another party. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. An entity shall remove a financial liability from its statement of financial position when, and only, the obligation specified in the contract is discharged or cancelled or expires.

Financial liabilities

When a financial liability is recognised initially, the Group measures it at its fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial liability. After initial recognition, the Group measures all financial liabilities at amortised cost using the effective interest method.

Derivative financial instruments

The derivative instruments of the Group mainly consist of foreign exchange forward instruments. These derivative instruments, even though providing effective economic hedges under the Group risk management position, do not generally qualify for hedge accounting under the specific rules and are therefore treated as derivatives held for trading in the consolidated financial statements. The fair value changes for these derivatives are recognized in the consolidated financial statements.

If the fair value change of derivative financial instruments is positive or not, the change affected at assets or liabilities in the balance sheet.

108 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Financial Instruments (Continued)

Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss where the financial liability is either held for trading or it is designated as at fair value through profit or loss. Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial liability and is included in the ‘other gains and losses’ line item.

Other Financial Liabilities Other financial liabilities, including borrowings, are immediately measured at fair value, net of transactions costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognised on an effective yield basis.

The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Effect of Exchange Differences

The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). The results and financial position of each entity are expressed in TL, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than TL (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognized in profit or loss in the period in which they arise except for:

• Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets where they are regarded as an adjustment to interest costs on those foreign currency borrowings; • Exchange differences on transactions entered into in order to hedge certain foreign currency risks (see below for hedging accounting policies); and • Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur, which form part of the net investment in a foreign operation, and which are recognized in the foreign currency translation reserve and recognized in profit or loss on disposal of the net investment.

Assets and liabilities of the Group’s foreign operations, are presented in TL considering exchange rates valid at the reporting date. Income and expenses are translated by using the average rate calculated for the year when the transaction occurred, unless significant fluctuation has happened in exchange rates. In case of any significant fluctuation in exchange rates, the transaction is translated by using the exchange rate at the transaction date. The translation difference is accounted under comprehensive income as a component of equity.

FINANCIAL STATEMENTS AND FOOTNOTES 109 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Earnings Per Share

Earnings per share disclosed in the consolidated statement of comprehensive income are determined by dividing net earnings by the weighted average number of shares that have been outstanding during the related period. In Turkey, companies can increase their share capital by making a pro-rata distribution of shares (“bonus shares”) to existing shareholders from retained earnings on equity items. Such kind of bonus shares are taken into consideration in the computation of earnings per share as issued share certificates. For the purpose of earnings per share computations, the weighted average number of shares outstanding during the period has been adjusted in respect of bonus shares issues without a corresponding change in resources, by giving them retroactive effect for the year in which they were issued and each earlier year.

Events After the Reporting Period

Events after the reporting period are those events that occur between the balance sheet date and the date when the financial statements are authorized for issue, even if they occur after an announcement related with the profit for the year or public disclosure of other selected financial information.

The Group adjusts the amounts recognized in its financial statements if adjusting events occur after the balance sheet date.

Provisions, Contingent Assets and Liabilities

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

Reporting of Financial Information According to Department

The Group’s main operations are producing and trading frozen and canned vegetables and fruits, frozen and canned sea food, frozen pastry products, croquettes, canned tuna fish, oil and margarine. The Group management has determined the operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions.

The Group’s management has separated its operations two segments which are canned products and margarine. Segment reporting is disclosed in Note 3.

Government Grants and Incentives

Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

110 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognized as deferred revenue in the consolidated statement of financial position (balance sheet) and transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable.

The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation, including property under construction for such purposes. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. Gains or losses arising from changes in the fair values of investment properties are included in the profit or loss in the year in which they arise.

An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from disposal. Any gain or loss arising on derecognition of the property is included in profit or loss in the period in which the property is derecognized.

Transfers are made to or from investment property only when there is a change in use. For a transfer from investment property that is measured at fair value to owner occupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupied property becomes an investment property that is measured at fair value, the Group accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

Fair value of investment property is determined by valuation companies which must have enough experience in valuation of investment property and must have CMB valuation certificate. Investment properties are shown in level 2 in hierarchy table.

Business Combinations

Business combinations under common control

The Group recognizes business combinations under common control by using pooling of interest method in the consolidated financial statements. Accordingly:

• No goodwill is recognized in the financial statements due to the recognition of business combinations under common control by using the pooling of interests method; • In applying the pooling of interests method, financial statements are restated as if the business combination was effected and presented comparatively as of the beginning of the reporting period when the common control existed; • As it would be appropriate for parent company to consider the inclusion of business combinations under common control to financial statements, for consolidation purposes, financial statements including combination accounting are restated in accordance with IAS as if the financial statements are prepared in accordance with IAS prior and subsequent to the date that Company’s controlling party has common control over entities. • In order to eliminate potential assets-liabilities difference arising from business combinations within the scope of under common control transactions, “Effect of business combination under common control” account has been used as an offset account.

FINANCIAL STATEMENTS AND FOOTNOTES 111 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

Income Taxes

Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis.

Income tax expense represents the sum of the tax currently payable and deferred tax.

Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from ‘profit before tax’ as reported in the consolidated statement of profit or loss because of items of income or expense that are taxable or deductible in other years and it excludes items that are never taxable or deductible. The Group’s current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

Deferred tax

Deferred tax liability or asset is recognized on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases which are used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis.

112 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (Continued)

For the purposes of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment property over time, rather than through sale. The management reviewed the Group’s investment property portfolios and concluded that none of the Group’s investment properties are held under a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. Therefore, the management has determined that the ‘sale’ presumption set out in the amendments to TAS 12 is not rebutted. As a result, the Group has not recognized any deferred taxes on changes in fair value of the investment properties as the Group is not subject to any income taxes on the fair value changes of the investment properties on disposal.

Current and deferred tax for the period

Current and deferred tax are recognized as in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity.

Employee Benefits

Termination and retirement benefits:

Under Turkish law and union agreements, lump sum payments are made to employees retiring or involuntarily leaving the Group. Such payments are considered as being part of defined retirement benefit plan as per TAS 19 (Revised) Employee Benefits (“TAS 19”).

The retirement benefit obligation recognized in the consolidated statement of financial position represents the present value of the defined benefit obligation. The actuarial gains and losses are recognized in other comprehensive income.

Statement of Cash Flows

In statement of cash flows, cash flows are classified according to operating, investing and financing activities.

Share Capital and Dividends

Common shares are classified as equity. Dividends on common shares are recognized in equity in the period in which they are approved and declared.

Critical judgments in applying the Group’s accounting policies

In the process of applying the Group’s accounting policies, which are described in Note 2.5, management has made the following judgments that have the most significant effect on the amounts recognized in the financial statements (apart from those involving estimations, which are dealt with below):

Useful life of tangible and intangible assets

Group is calculated the depreciation and amortization the Group’s accounting policies, which are described in Note 2.5.

FINANCIAL STATEMENTS AND FOOTNOTES 113 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2.5 - Summary of Significant Accounting Policies (continued)

Deferred taxes on investment property

It is concluded in the calculation of deferred tax liabilities and deferred tax assets generated from investment property owned by the Group that economic benefits from investment properties have not been held within the scope of a business model which pursue to use the whole rather than sell it. Gain on sales from investment property is subject to taxation of 10% rate. 10% of deferred tax liability is calculated from the difference between the fair value and the tax base of the investment property.

Deferred taxes

Deferred tax assets and liabilities are recorded using substantially enacted tax rates for the effect of temporary differences between book and tax bases of assets and liabilities. Currently, there are deferred tax assets resulting from operating loss carry-forwards and deductible temporary differences, all of which could reduce taxable income in the future. Based on available evidence, both positive and negative, it is determined whether it is probable that all or a portion of the deferred tax assets will be realized. The main factors which are considered include future earnings potential; cumulative losses in recent years; history of loss carry-forwards and other tax assets expiring; the carry- forward period associated with the deferred tax assets; future reversals of existing taxable temporary differences; tax-planning strategies that would, if necessary, be implemented, and the nature of the income that can be used to realize the deferred tax asset.

Income taxes

The Group operates in various tax jurisdictions and is subject to the related tax regulations. Significant judgment is required to determine the Group provision for income taxes. The Group estimates its liabilities for tax obligations as well as the utilization of available loss carry forwards. When the final tax outcome is known, the actual positions may vary from these estimates and adjustments to deferred income tax positions may be required.

Provision for impairment of inventories

A provision has been provided for inventories that are not expected to be used and are slow moving. The Group has also provided provision for inventories with net realizable values lower than costs.

Provision for doubtful receivables

A provision has been provided for receivables that are not expected to be collectible and those that have not been collected for a long time.

2.6 – Convenience Translation into English of Consolidated Financial Statements

The accounting principles described in Note 2 (defined as Turkish Accounting Standards/Turkish Financial Reporting Standards) to the accompanying consolidated financial statements differ from International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board with respect to the application of inflation accounting, classification of some income statement items and also for certain disclosure requirements of the POA.

114 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 3 – SEGMENT REPORTING

Kerevitaş Gıda Sanayi ve Ticaret Anonim Şirketi (“Kerevitaş” or “the Company”) and its subsidiaries’ (“Group”) main operations are producing and distributing frozen and canned vegetables and fruits, frozen and canned sea food, frozen pastry products, croquettes, canned tuna fish and edible oil. Operating segments are determined and reported in a manner consistent with the reporting provided to the Board of Directors and their strategic decision making processes.

The Board of Directors and top management monitor the operations of the Group on the basis of the different business units, which are “frozen and canned food” and “edible oil”.

The information for 1 January – 31 December 2017 and 2016 are as follows:

31 December 2017 Frozen and Oil and Consolidation Canned Margarine Adjustments Total Revenue (Note 18) 627.351.665 1.793.356.600 - 2.420.708.265 Intersegment revenue - 24.808.298 (24.808.298) - Revenue 627.351.665 1.818.164.898 (24.808.298) 2.420.708.265 Operating Profit(*) 13.972.349 132.976.237 (101.972) 146.846.614

Other income from operating activities (Note 20) 6.920.265 27.040.010 101.972 34.062.247 Other expenses from operating activities (-) (Note 20) (15.245.858) (57.535.871) - (72.781.729) Operating Profit 5.646.756 102.480.376 - 108.127.132

Depreciation and amortization expense (Note 19) 25.086.324 13.595.923 - 38.682.247 EBITDA 39.058.673 146.572.160 (101.972) 185.528.861

Investment expenditures 26.135.597 60.667.671 - 86.803.268

(*) Profit before other income / expense from operating activities. EBITDA has calculated by sum of profit before other income / expense from operating activities and depreciation and amortization expenses.

31 December 2016 Frozen and Oil and Consolidation Canned Margarine Adjustments Total Revenue (Note 18) 471.722.575 1.426.296.406 - 1.898.018.981 Intersegment revenue - 19.891.791 (19.891.791) - Revenue 471.722.575 1.446.188.197 (19.891.791) 1.898.018.981 Operating Profit(*) (4.337.555) 121.184.085 (107.670) 116.738.860

Other income from operating activities (Note 20) 4.308.807 23.551.703 77.065 27.937.575 Other expenses from operating activities (-) (Note 20) (13.809.643) (26.605.170) - (40.414.813) Operating Profit (13.838.391) 118.130.618 (30.605) 104.261.622

Depreciation and amortization expense (Note 19) 19.101.228 13.152.944 - 32.254.172 EBITDA 14.763.673 134.337.029 (107.670) 148.993.032

Investment expenditures 26.092.055 83.742.394 - 109.834.449

(*) Profit before other income / expense from operating activities. EBITDA has calculated by sum of profit before other income / expense from operating activities and depreciation and amortization expenses.

EBITDA is not a measurement instrument that is prescribed in TAS and it cannot be comparable other entities calculations.

FINANCIAL STATEMENTS AND FOOTNOTES 115 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 4 – RELATED PARTY DISCLOSURES

Due to related parties, due from related parties and summary of significant transactions with related parties as of 31 December 2017 and 2016 are as follows.

Trade receivables from related parties 31 December 2017 31 December 2016 Pasifik Tük.Ürün. San.ve Tic. A.Ş. 84.872.065 75.683.633 Teközel Gıda Marka Hizm.San.ve Tic. A.Ş. 78.794.574 55.284.508 Eksper Tüketim Mad. Sat. ve Paz. A.Ş. 52.859.908 54.548.828 Ülker Bisküvi San. A.Ş. 43.220.779 36.231.561 Horizon Hızlı Tüketim Ürünleri Paz. ve Tic. A.Ş. 40.019.590 37.074.594 Biskot Bisküvi Gıda San. Tic. A.Ş. 27.594.234 21.455.677 Önem Gıda San. ve Tic. A.Ş. 10.752.854 10.334.839 Ülker Çikolata San. A.Ş. 6.954.673 5.707.247 Natura Gıda San. ve Tic. A.Ş. 1.528.937 10.472.301 G2M Dağıtım Pazarlama A.Ş. 1.487.311 1.787.825 PNS Pendik Nişasta San. A.Ş. 1.130.861 1.037.707 İstanbul Gıda Dış Tic. A.Ş. 4.298 9.484.283 Other 5.276.708 507.805 354.496.792 319.610.808

Trade payables to related parties 31 December 2017 31 December 2016 Yıldız Holding A.Ş. 59.570.972 52.677.142 Önem Gıda San. ve Tic. A.Ş. 2.565.265 2.462.929 Penta Teknoloji Ürünleri Dağıtım Tic. A.Ş. 119.277 7.815 İzsal Gayrimenkul Geliştirme A.Ş. 105.205 30.008 Aytaç Gıda Yatırım A.Ş. 60.202 573.192 Unmaş Unlu Mamuller San. ve Tic. A.Ş. 38.580 22.261 Bizim Toptan Satış Mağazaları A.Ş. 27.000 19.143 Şok Marketler Ticaret A.Ş. 18.399 - Other 1.601.693 335.163 64.106.593 56.127.653

Due from related party and due to related party balances comprise purchasing and selling goods and services. Supply of goods comprise of mainly acquisition of raw material. Average maturity of trade payables to related parties is 90 days.

Other receivables from related parties 31 December 2017 31 December 2016 Yıldız Holding A.Ş.(*) 422.669.481 881.295.945 Şok Marketler Ticaret A.Ş. 10.770.976 - 433.440.457 881.295.945

Other non-current receivables from related parties 31 December 2017 31 December 2016 Yıldız Holding A.Ş.(*) 413.830.301 12.903.735 413.830.301 12.903.735

(*) The relevant amounts comprise loans granted to Yıldız Holding. The average collection term for receivables is between July 2018 – February 2019 and the average interest rate is 13,35%-15,85% for TL and 3,65% for Euro receivables.

116 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 4 – RELATED PARTY DISCLOSURES (Continued)

Other payables to related parties 31 December 2017 31 December 2016 Yıldız Holding A.Ş. 187.255.439 165.444.825 187.255.439 165.444.825

Other non-current payables to related parties 31 December 2017 31 December 2016 Yıldız Holding A.Ş.(*) 479.385.000 - 479.385.000 -

(*) TL 904.500.000 of the funds raised by the capital increase on 24 November 2017, have been used to acquired Besler shares. Yıldız Holding’s stake payment of TL 479.385.000, was agreed to be made via installments up to 24 months.

There are not any commitment and contingencies arising from transactions and balances with related parties. (31 December 2016: None).

1 January- 1 January- Sales of goods 31 December 2017 31 December 2016 Horizon Hızlı Tüketim Ürünleri A.Ş. 365.871.476 221.034.233 Pasifik Tük. Ürün. San. ve Tic. A.Ş. 345.471.477 283.238.590 Eksper Tüketim Mad. Sat. ve Paz. A.Ş. 155.854.793 121.393.080 Ülker Bisküvi San. A.Ş. 151.583.966 107.173.258 Teközel Gıda Hiz. San. ve Tic. A.Ş. 101.568.821 180.746.701 Biskot Bisküvi Gıda San. Tic. A.Ş. 87.213.097 62.177.220 Önem Gıda San. ve Tic. A.Ş. 43.139.183 35.040.364 Ülker Çikolata San. A.Ş. 25.631.904 17.253.752 İstanbul Gıda Dış Tic. A.Ş. 14.906.239 43.490.521 PNS Pendik Nişasta San. A.Ş. 10.085.310 9.324.886 Natura Gıda San. ve Tic. A.Ş. 6.582.822 10.904.789 G2M Dağıtım Pazarlama A.Ş. 2.985.155 3.905.171 Bizim Toptan Satış Mağazaları A.Ş. 2.690.919 1.983.910 Kellog Med Gıda Tic. Ltd. Şti. 1.716.915 1.509.398 Other 8.980.284 6.945.777 1.324.282.361 1.106.121.650

1 January- 1 January- Purchase of goods and services 31 December 2017 31 December 2016 Yıldız Holding A.Ş. 20.138.456 18.947.360 Önem Gıda San. ve Tic. A.Ş. 7.392.103 8.266.056 Aytaç Gıda Yatırım San. Tic. A.Ş. 898.733 1.539.917 Bizim Toptan Satış Mağazaları A.Ş. 469.646 167.518 Örgen Gıda San. ve Tic. A.Ş. 271.653 1.112.258 İzsal Gayrimenkul Geliştirme A.Ş. 338.607 303.908 Penta Teknoloji Ürün.Dağ.Tic. A.Ş. 194.092 208.507 PNS Pendik Nişasta San. A.Ş. 76.920 - Horizon Hızlı Tük.az. Sat.Tic. A.Ş. 13.797 84.110 Other 472.307 886.865 30.266.314 31.516.499

FINANCIAL STATEMENTS AND FOOTNOTES 117 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 4 – RELATED PARTY DISCLOSURES (Continued)

1 January - 1 January - Service, rent and other income 31 December 2017 31 December 2016 Kellog Med Gıda Tic. Ltd. Şti. 621.272 539.819 Pakyağ Endüstriyel 115.693 105.907 Pasifik Tük.Ürün. San.ve Tic. A.Ş. 113.613 156.091 PNS Pendik Nişasta San. A.Ş. 86.178 - Eksper Tüketim Mad. Sat. ve Paz. A.Ş. 28.362 145.873 Horizon Hızlı Tüketim Ürünleri A.Ş. 13.662 12.232 Other 81.855 21.903 1.060.635 981.825

1 January - 1 January - Commission and financial expense 31 December 2017 31 December 2016 Yıldız Holding A.Ş. 57.716.067 20.894.292 Pervin Finansal Kiralama A.Ş. 401.993 - Other 199.042 218.912 58.317.102 21.113.204

1 January - 1 January - Investment income 31 December 2017 31 December 2016 Yıldız Holding A.Ş. 29.286.550 11.924.619 Şok Marketler Ticaret A.Ş. 9.130.000 - Eksper Tüketim Mad. Sat. ve Paz. A.Ş. - 135.436 Other 231.503 243.392 38.648.053 12.303.447

Key management compensation:

Key management personnel of the Company consist of the members of Board of Directors and members of Executive Board. The compensation of key management personnel comprises salaries, bonus, health insurance and transportation. The compensation of key management during the years are as follows:

1 January - 1 January - 31 December 2017 31 December 2016 Salaries and other benefits 10.329.603 10.677.138 10.329.603 10.677.138

118 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 5 – TRADE RECEIVABLES AND PAYABLES

As of 31 December 2017 and 2016 trade receivables of the Group are as follows:

Current trade receivables 31 December 2017 31 December 2016 Trade receivables 191.831.868 149.452.644 Notes receivable 42.888.148 48.611.421 Income accruals 2.005.300 6.759.898 Provision for doubtful receivables (-) (17.524.795) (11.705.873) Trade receivables, net 219.200.521 193.118.090 Trade receivables from related parties (Note 4)(*) 354.496.792 319.610.808 573.697.313 512.728.898

(*) Trade receivables from related parties arise mainly from sales of goods.

Movements of provision for doubtful receivables as of 31 December 2017 and 2016 are as follows:

Movement of Provision for Doubtful Receivables 2017 2016 Opening balance (11.705.873) (8.931.172) Charge for the year (Note 20) (5.615.360) (2.746.294) Currency translation gain/loss (510.850) (177.002) Collections (Note 20) 307.288 148.595 End of the period (17.524.795) (11.705.873)

Current trade payables 31 December 2017 31 December 2016 Trade payables 383.469.615 211.680.188 Expense accruals 387.476 - Trade payables, net 383.857.091 211.680.188 Trade payables to related parties (Note 4)(*) 64.106.593 56.127.653 447.963.684 2 6 7. 8 0 7. 8 4 1

(*) Trade payables to related parties arise mainly from supply of goods and services.

FINANCIAL STATEMENTS AND FOOTNOTES 119 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 6 - OTHER RECEIVABLES AND PAYABLES

Other Receivables

Other Current Receivables 31 December 2017 31 December 2016 Other receivables from related parties (Note 4) 433.440.457 881.295.945 Other miscellaneous receivables 4.909.845 10.133.684 438.350.302 891.429.629

Other Non-Current Receivables 31 December 2017 31 December 2016 Other non-current receivables from related parties (Note 4) 413.830.301 12.903.735 Deposits and guarantees given 270.467 802.703 414.100.768 13.706.438

Other Payables

Other Current Liabilities 31 December 2017 31 December 2016 Other payables to related parties (Note 4) 187.255.439 165.444.825 Other miscellaneous liabilities - 1.041.612 187.255.439 166.486.437

Other Non-Current Liabilities 31 December 2017 31 December 2016 Other non-current liabilities to related parties (Note 4) 479.385.000 - Other miscellaneous liabilities - 54.724 479.385.000 54.724

NOTE 7 – INVENTORIES

31 December 2017 31 December 2016 Raw materials 148.620.492 140.016.411 Work in process 87.872.706 98.415.590 Finished goods 80.596.729 76.452.164 Trade goods 8.948.527 11.019.431 Other inventory 9.924.529 5.418.907 Provision for impairment of inventory (-) (535.739) (880.376) 335.427.244 330.442.127

As of 31 December 2017 and 2016, details of the provision for impairment based on inventory types are as follows:

31 December 2017 31 December 2016 Work in process - (107.083) Finished goods (535.739) (772.633) Trade goods - (660) (535.739) (880.376)

120 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 7 – INVENTORIES (Continued) Movements of provision for impairment of inventories as of 31 December 2017 and 2016 are as follows:

2017 2016 Opening balance (880.376) (812.076) Charge for the year (Note 20) (535.739) (776.820) Provisions no longer required(*) (Note 20) 714.337 708.520 Reversal of provisions (Note 20) 166.039 - End of period (535.739) (880.376)

(*) The provisions reversed due to sales in the current period are recognized in cost of goods sold.

NOTE 8 – PREPAID EXPENSES AND DEFERRED REVENUE

Short-Term Prepaid Expenses 31 December 2017 31 December 2016 Advances given for inventory purchases 16.074.721 14.571.471 Prepaid expenses 2.504.921 2.563.939 Job advances 28.415 6.050 18.608.057 17.141.460

Long-Term Prepaid Expenses 31 December 2017 31 December 2016 Advances given for fixed asset purchases 6.783.385 4.385.908 Prepaid expenses 9.422 165.791 6.792.807 4.551.699

Short-Term Deferred Income 31 December 2017 31 December 2016 Advances received 1.005.774 1.550.787 Deferred income 1.037.301 1.629.429 2.043.075 3.180.216 NOTE 9 – INVESTMENT PROPERTIES

Transfer to 1 January investment Fair value 31 December Cost Value 2017 Transfers property change(*) 2017 Land, building, machinery and equipment 169.418.700 - - 84.684.300 254.103.000 169.418.700 - - 84.684.300 254.103.000

(*) Changes is the fair value of investment properties are recognized in the income statement.

Transfer to 1 January investment Fair value 31 December Cost Value 2016 Transfers property(**) change(*) 2016 Land, building, machinery and equipment 96.009.100 445.309 13.131.582 59.832.709 169.418.700 96.009.100 445.309 13.131.582 59.832.709 169.418.700

(*) Changes is the fair value of investment properties are recognized in the income statement amounting to TL 8.367.291 and recognised in equity amounting to TL 51.465.418. (**) Includes transfers to investment properties from tangible assets and recognized with fair value in the current period.

The Group has earned rent income from its investment properties amounting to TL 6.279.199 in the current period. (31 December 2016: TL 5.534.897)

FINANCIAL STATEMENTS AND FOOTNOTES 121 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 9 – INVESTMENT PROPERTIES (Continued)

Fair value of investment properties

31 December 2017 Level 1 Level 2 Level 3 Investment properties - 254.103.000 - Total - 254.103.000 -

31 December 2016 Level 1 Level 2 Level 3 Investment properties - 169.418.700 - Total - 169.418.700 -

As of 31 December 2017 and 2016, fair value of investment properties have been determined by an independent valuation expert. Gain or loss on fair value changes of investment properties is included in the income statement. The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities, Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly, Level 3: Inputs for the asset or liability that are not based on observable market data

Valuation techniques used to derive level 2 fair values.

Level 2 fair values of investment properties have been derived using the sales comparison approach. Sales prices of comparable land and buildings in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot.

122 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 10 – PROPERTY, PLANT AND EQUIPMENT

Currency Changes in fair translation 31 December Cost Value 1 January 2017 Additions Disposals Transfers value differences 2017 Land 62.284.923 3.330 - 17.730.800 315.439.667 - 395.458.720 Land Improvements 4.871.528 110.000 - 149.222 10.344.378 - 15.475.128 Buildings 131.685.458 53.888 (37.740) 73.542.024 21.305.126 - 226.548.756 Machinery and Equipment 390.450.060 2.842.399 (854.334) 40.980.589 - - 433.418.714 Motor Vehicles 11.810.709 144.348 (887.021) 2.617.204 - 18.606 13.703.846 Furniture and Fixtures 34.875.332 1.996.532 (378.365) 2.349.876 - 8.130 38.851.505 Leasehold Improvements 3.871.700 694.476 - - - - 4.566.176 Other Tangible Fixed Assets 43.279.988 5.747.595 (4.168.475) (27.800) - - 44.831.308 Construction in Progress 89.641.366 74.601.496 - (145.549.029) - 6.088.835 24.782.668 772.771.064 86.194.064 (6.325.935) (8.207.114) 347.089.171 6.115.571 1.197.636.821

Currency Changes in fair translation 31 December Accumulated Depreciation 1 January 2017 Additions Disposals Transfers value differences 2017 Land Improvements (3.113.697) (185.213) - - (4.689.219) - (7.988.129) FINANCIAL STATEMENTS ANDFOOTNOTES Buildings (46.271.790) (2.415.862) 4.247 3.879.654 (6.405.921) - (51.209.672) Machinery and Equipment (227.313.193) (22.189.964) 651.248 - - - (248.851.909) Motor Vehicles (9.490.027) (1.826.643) 878.955 - - (1.658) (10.439.373) Furniture and Fixtures (23.100.662) (2.997.525) 327.353 - - (1.035) (25.771.869) Leasehold Improvements (2.339.914) (743.776) - - - - (3.083.690) Other Tangible Fixed Assets (28.567.353) (6.327.838) 3.756.059 - - - (31.139.132) (340.196.636) (36.686.821) 5.617.862 3.879.654 (11.095.140) (2.693) (378.483.774)

Net Book Value 432.574.428 819.153.047

123 124 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6)

KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 10 – PROPERTY, PLANT AND EQUIPMENT (Continued)

Transfers to Currency investment translation 31 December Cost Value 1 January 2016 Additions Disposals Transfers property differences 2016 Land 62.497.880 - - - (212.957) - 62.284.923 Land Improvements 4.703.434 79.737 - 384.764 (296.407) - 4.871.528 Buildings 137.823.720 837.044 (45.000) 920.455 (7.850.761) - 131.685.458 Machinery and Equipment 379.256.078 6.431.184 (597.611) 38.271.644 (32.911.235) - 390.450.060 Motor Vehicles 9.995.881 727.735 (141.994) 1.199.717 - 29.370 11.810.709 Furniture and Fixtures 31.100.521 1.592.699 (125.763) 2.748.621 (453.152) 12.406 34.875.332 Leasehold Improvements 3.117.879 46.250 - 707.571 - - 3.871.700 Other Tangible Fixed Assets 43.435.058 2.264.082 (2.419.152) - - - 43.279.988 Construction in Progress 34.101.836 95.126.117 - (45.089.376) - 5.502.789 89.641.366 706.032.287 107.104.848 (3.329.520) (856.604) (41.724.512) 5.544.565 772.771.064

Transfers to Currency investment translation 31 December Accumulated Depreciation 1 January 2016 Additions Disposals Transfers property differences 2016 Land Improvements (3.076.457) (119.579) - - 82.339 - (3.113.697) Buildings (46.265.936) (2.911.852) 3.625 - 2.902.373 - (46.271.790) Machinery and Equipment (231.962.607) (20.949.902) 418.640 - 25.180.676 - (227.313.193) Motor Vehicles (8.830.596) (799.614) 141.994 - - (1.811) (9.490.027) Furniture and Fixtures (21.375.955) (2.242.019) 91.480 - 427.542 (1.303) (23.100.255) Leasehold Improvements (2.022.118) (318.203) - - - - (2.340.321) Other Tangible Fixed Assets (27.455.957) (3.530.547) 2.419.151 - - - (28.567.353) (340.989.626) (30.871.716) 3.074.890 - 28.592.930 (3.114) (340.196.636)

Net Book Value 365.042.661 432.574.428

TL 84.795.494 of construction in progress comprises production facility investment of Western Foods Company in Sultanate of Brunei.

CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 10 – PROPERTY, PLANT AND EQUIPMENT (Continued)

The Group decided to apply “Fair value model” to land, land improvements and buildings in accordance with TAS 16 – Property, Plant and Equipment as of 31 December 2017. The revaluation was performed by Nova Gayrimenkul Değerleme A.Ş. authorized by Capital Markets Board.

The fair value of land, land improvements and buildings was based on market comparable approach and cost approach.

Revaluation of property, plant and equipment is amounting to TL306.101.471 after deferred tax under equity as of 31 December 2017 and 2016.

Land, land improvement and buildings have been accounted with revaluation method. If the Group recognized land, land improvements and buildings at historical cost, net book value of land, land improvement and building would be respectively TL23.340.530, TL1.494.708 and TL155.238.844.

There are not any fixed assets acquired through financial lease in the current period (31 December 2016: TL5.611.358): There are mortgages on property, plant and equipment amounting to TL158.900.815 as of 31 December 2017 (31 December 2016: TL164.908.880).

The table below analysis financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

Level 1: Quoted prices in active markets for identical assets or liabilities, Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly, Level 3: Inputs for the asset or liability that are not based on observable market data.

Valuation techniques used to derive level 2 fair values

Level 2 fair values of investment properties have been derived using the sales comparison approach. Sales prices of comparable land and buildings in close proximity are adjusted for differences in key attributes such as property size. The most significant input into this valuation approach is price per square foot.

31 December 2017 Level 1 Level 2 Level 3 Land - 395.455.390 - Land improvement - 7.490.329 - Buildings - 175.339.084 - Total - 578.284.803 -

31 December 2016 Level 1 Level 2 Level 3 Land - 61.153.353 1.131.570 Land improvement - 1.329.620 428.211 Buildings - 50.293.909 35.119.759 Total - 112.776.882 36.679.540

FINANCIAL STATEMENTS AND FOOTNOTES 125 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 10 – PROPERTY, PLANT AND EQUIPMENT (Continued)

The movement of property, plant and equipment’s that classified as level 3 are as follows:

1 January- 1 January- 31 December 2017 31 December 2016 Opening 36.679.540 42.271.931 Additions 3.330 416.439 Disposals - (41.375) Current year depreciation (1.409.242) (1.430.228) Transfers 94.086.245 (4.537.227) Transfers from 3.level to other levels (129.359.873) - End of the period - 36.679.540

NOTE 11 – INTANGIBLE ASSETS

31 December Cost Value 1 January 2017 Additions Disposals Transfers 2017 Rights 10.437.534 465.150 - 634.393 11.537.077 Development expenses - - (293.712) 3.693.067 3.399.355 Other intangible assets 599.230 144.054 - - 743.284 11.036.764 609.204 (293.712) 4.327.460 15.679.716

31 December Accumulated Amortization 1 January 2017 Additions Disposals Transfers 2017 Rights (7.232.601) (1.724.108) - - (8.956.709) Development expenses - (85.865) - - (85.865) Other intangible assets (175.358) (185.453) - - (360.811) (7.407.959) (1.995.426) - - (9.403.385)

Net Book Value 3.628.805 6.276.331

31 December Cost Value 1 January 2016 Additions Disposals Transfers 2016 Rights 7.706.568 2.319.671 - 411.295 10.437.534 Other intangible assets 189.300 409.930 - - 599.230 7.895.868 2.729.601 - 411.295 11.036.764

31 December Accumulated Amortization 1 January 2016 Additions Disposals Transfers 2016 Rights (5.878.865) (1.353.736) - - (7.232.601) Other intangible assets (146.638) (28.720) - - (175.358) (6.025.503) (1.382.456) - - (7.407.959)

Net Book Value 1.870.365 3.628.805

126 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 11 – INTANGIBLE ASSETS (Continued)

Allocation of depreciation and amortization expenses as of 31 December 2017 and 2016 are as follows:

31 December 2017 31 December 2016 Cost of sales (Note 18) (28.544.074) (24.835.113) Selling and marketing expense (Note 19) (7.794.775) (5.834.411) General administration expenses (Note 19) (2.054.153) (1.488.525) Research and development expenses (Note 19) (289.245) (96.123) (38.682.247) (32.254.172)

NOTE 12 - GOVERNMENT GRANTS AND INCENTIVES

On 19 September 2012, the Company received Investment Incentive Certificate no. 106867 from the General Directorate of Incentives and Foreign Investment. The initial validity period of the certificate was 3 years and the validity period of the aforementioned document was extended until 11 February 2017. The support elements stipulated by the Investment Incentive Certificate were as follows: 100% customs exemption, value added tax exemption, 2 year support of employer’s share of social security premium and 50% tax deduction. The total amount of investment stipulated in the Investment Incentive Certificate was TL10.875.414. As of 31 December 2017, the investment amount realized under the incentive certificate was TL7.985.424 (31 December 2016: TL7.573.648).

On 31 August 2016, the Company received Investment Incentive Certificate no. 125488 from the General Directorate of Incentives and Foreign Investment. The certificate is valid until 28 June 2019. The support elements stipulated by the Investment Incentive Certificate were as follows: 100% customs exemption, value added tax exemption, 7 year support of employer’s share of social security premium, 80% Investment Contribution Rate and 40% tax deduction. The total amount of investment stipulated in the Investment Incentive Certificate was TL 15.600.000. As of 31 December 2017, the investment amount realized under the incentive certificate was TL 3.017.808. (31 December 2016: TL874.359)

On 1 November 2017, the Company received Investment Incentive Certificate no. 133479 from General Directorate of Incentive Implementation and Foreign Investments. The certificate is valid until 21 July 2020. The support elements stipulated by the Investment Incentive Certificate were as follows: 100% customs exemption, value added tax exemption, 2 year support of employer’s share of social security premium, 50% tax deduction. The total amount of investment stipulated in the Investment Incentive Certificate was TL 10.500.000. As of 31 December 2017, the investment amount realized under the incentive certificate was TL 81.500.

FINANCIAL STATEMENTS AND FOOTNOTES 127 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 13 – PROVISIONS, CONTINGENT ASSETS AND LIABILITIES

Contingent Assets and Liabilities

Contingent assets and liabilities as of 31 December 2017 and 2016 are as follows:

Contingent assets 31 December 2017 31 December 2016 Letters of guarantee received 161.649.765 139.728.228 Pledges and mortgages received 7.515.670 9.722.170 169.165.435 149.450.398

Contingent liabilities 31 December 2017 31 December 2016 Mortgages given 91.131.785 94.908.880 Commercial pledges given 70.000.000 70.000.000 Letters of guarantee given 92.178.759 39.424.888 253.310.544 204.333.768

Lawsuit filed by the Group 31 December 2017 31 December 2016 Tax Litigation(*) 357.378 357.378 357.378 357.378

(*) The lawsuit has been filed against the Foreign Trade Tax Office regarding the abandonment of VAT and Tax Penalties in the Istanbul 6th Tax Court was won and has been appealed by the relevant Tax Office and the file is expected to be returned from the appeal.

Other current provisions 31 December 2017 31 December 2016 Provisions for lawsuit 1.133.497 133.497 Provisions for sales premium 21.730 676.387 1.155.227 809.884

Movement of provisions for lawsuit 2017 2016 Opening 133.497 - Charge for the period (Note 20) 1.000.000 133.497 End of the period 1.133.497 133.497

128 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 14 – COMMITMENT AND CONTINGENCIES

Guarantee, pledge and mortgages given by the Group

Guarantee, pledge and mortgages (“GPM”) in respect of commitment and contingencies realized in the ordinary course of business given for the years ended 31 Decembers are as follows:

31 December 2017 31 December 2016 Original Original Currency Amount TL Equivalent Currency Amount TL equivalent A. CPMs given for Company’s own legal personality TL 214.640.374 214.640.374 TL 148.951.418 148.951.418 US Dollar 10.150.000 38.284.785 US Dollar 10.150.000 35.719.880 B. CPMs given on behalf of fully consolidated companies TL 385.385 385.385 EURO 5.300.000 19.662.470 C. CPMs given in the normal course of business activities on behalf of third parties - - - - - D. Total amount of other CPMs - - - - - i. Total amount of CPMs given on behalf of the parent - - - - - ii. Total amount of CPMs given to on behalf of other Group companies which are not in scope of B and C - - - - -

FINANCIAL STATEMENTS ANDFOOTNOTES iii. Total amount of CPMs given on behalf of third parties which are not in scope of C - - - - - 253.310.544 204.333.768

As of 31 December 2017, the Group has export commitment USD 78.500.000 and EUR 5.000.000 (31.12.2016: EUR 5.300.000). Fulfil of the export commitment period is two years. 129 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 15 – PAYABLES RELATED TO EMPLOYEE BENEFITS

Payables related to employee benefits 31 December 2017 31 December 2016 Due to personnel 6.041.635 5.580.782 Social security premiums payable 5.829.415 4.454.670 11.871.050 10.035.452

Current provisions for employee benefits 31 December 2017 31 December 2016 Provisions for performance premium 6.664.769 3.852.607 Provisions for unused vacations 4.649.817 4.369.020 Other provisions - 388.057 11.314.586 8.609.684

Non-current provisions for employee benefits 31 December 2017 31 December 2016 Provisions for employee termination benefits 25.473.247 22.169.536 25.473.247 22.169.536

The movement of provisions for performance premium as of 31 December 2017 and 2016 are as follows:

2017 2016 Opening balance 3.852.607 3.335.997 Charge for the year 6.664.769 3.852.607 Cash payments during the year (3.852.607) (3.335.997) End of the period 6.664.769 3.852.607

The movement of provisions for unused vacations as of 31 December 2017 and 2016 are as follows:

2017 2016 Opening balance 4.369.020 4.771.038 Charge for the year 900.327 1.214.585 Used (619.530) (1.616.603) End of the period 4.649.817 4.369.020

130 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 15 – PAYABLES RELATED TO EMPLOYEE BENEFITS (Continued)

Provision for Employee Termination Benefit

In accordance with the existing labour law in Turkey, the Group is required to make up lump-sum payments to employees who have completed one year of service and whose employment is terminated without cause or who retire (age of 58 for women, age of 60 for men) or completed service years of 20 for women or 25 for men, are called up for military service or die.

Such payments are calculated on the basis of 30 days’ pay maximum TL 4.732,48 as at 31 December 2017 (31 December 2016: TL 4.297,21) per year of employment at the of pay applicable at the date of retirement or termination.

Reserve for retirement pay is computed and reflected in the financial statements on a current basis. The reserve has been calculated by estimating the present value of future probable obligation of Group from the retirement of the employees. The calculation was based upon the retirement pay ceiling announced by the Government. International Accounting Standard No. 19 (“IAS 19”) “Employee Benefits” requires actuarial valuation methods to be developed to estimate the enterprise’s obligation under defined benefit plans. Accordingly, the following actuarial assumptions are used in the calculation of the total liability:

The principal assumption is that the maximum liability for each year of service will increase in line with inflation. Thus, the discount rate applied represents the expected real rate after adjusting for the anticipated effects of future inflation. Consequently, in the accompanying consolidated interim financial statements as at 31 December 2017, the provision has been calculated by estimating the present value of the future probable obligation of the Group arising from the retirement of the employees. The provision at 31 December 2017 has been calculated assuming an annual inflation rate of 7% and a discount rate of 11,81% resulting in a real discount rate of approximately 4,5% (31 December 2016: 4%). It is planned that retirement rights will be paid to employees at the end of concession periods. Accordingly, present value of the future probable obligation has been calculated based on the concession periods. Estimated amount of retirement pay not paid due to voluntary leaves is also taken into consideration as 6,12% for employees with 0-15 years of service, and 0% for those with 16 or more years of service. Ceiling amount of TL 5.001,76 which is in effect since 1 January 2018 is used in the calculation of Groups’ provision for retirement pay liability (1 January 2017: TL 4,426.16).

The provision has been calculated by assuming inflation rate and voluntary employee withdrawal.

• A change of 1% in discount rate as at 31 December 2017, employee severance indemnity would have increase / (decrease) amount in TL 102.275. • A change in voluntary employee withdrawal rate while other estimations are fixed as at 31 December 2017, employee severance indemnity would have increase / (decrease) amount in TL 359.793.

The movement of provisions of employee termination benefit as of 31 December 2017 and 2016 are as follows:

2017 2016 Opening balance 22.169.536 11.876.121 Service cost 2.294.287 3.960.379 Interest cost 1.814.156 1.101.377 Actuarial loss 2.454.578 9.682.957 Cash severance payments during the year (3.259.310) (4.451.298) End of the period 25.473.247 22.169.536

FINANCIAL STATEMENTS AND FOOTNOTES 131 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 16 – OTHER ASSETS AND LIABILITIES

Other Current Assets 31 December 2017 31 December 2016 Deferred VAT 13.956.004 19.000.106 Other VAT 14.596.716 7.200.566 28.552.720 26.200.672

Other Non-Current Assets 31 December 2017 31 December 2016 Deferred VAT 17.492.507 18.096.030 17.492.507 18.096.030

Other Current Liabilities 31 December 2017 31 December 2016 Taxes and funds payables 5.066.713 2.883.458 Other current liabilities 152.979 - 5.219.692 2.883.458

NOTE 17 – CAPITAL AND RESERVES

As of 31 December 2017, the Group’s statutory nominal value of authorized and paid-in share capital is TL 23.900.000 (31 December 2016: TL 6.244.000) and consists of 2.390.000.000 registered shares (31 December 2016: 624.000.000) having par value of TL 0,01 (31 December 2016: TL 0,01) each.

The Group’s shareholders and their share in the capital as of 31 December 2017 and 2016 are as follows:

31 December 2017 31 December 2016 Shareholders Share % Amount Share % Amount Yıldız Holding A.Ş. 46,14 11.027.595 36,69 2.290.957 Ufuk Yatırım Yönetim ve Gayr. A.Ş. 10,34 2.470.502 40,04 2.500.000 Murat Ülker 9,98 2.385.664 - - Ahsen Özokur 8,13 1.942.160 - - Trade Türk Gıda Yatırım A.Ş. 7,39 1.765.600 - - Other 18,02 4.308.479 23,27 1.453.043 Total 100 23.900.000 100 6.244.000

In accordance with the issuance certificate approved by the Capital Markets Board with its decision no. 40/1366 dated 10 November 2017, the capital has increased from TL 6.244.000 to TL 23.900.000. The shares issued with a nominal value of TL 17,656,000 were issued and 1 TL nominal share with TL 51,23 value and total of TL 904,516,880. The current shareholders’ right to acquire new shares is completely restricted and capital increase was realized in Wholesale Market of Borsa İstanbul by Yıldız Holding A.Ş., Trade Turkish Food Investment Inc., Murat Ülker, Ahsen Özokur, Fatma Betül Ülker, Metin Yurdagül and Orhan Özokur as of 24 November 2017.

132 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 17 – CAPITAL AND RESERVES (Continued)

Dividend Paid

Dividend paid on 2016 profit amounted to TL 12.100.957 (31 December 2016: TL2.106.591. Dividend per share amounted to TL 0,16 (31 December 2016: TL0,03).

Restricted Reserves and Retained Earnings

The legal reserves consist of first and second legal reserves, appropriated in accordance with the Turkish Commercial Code. The first legal reserve is appropriated out of historical statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the historical paid-in share capital. The second legal reserve is appropriated after the first legal reserve and dividends, at the rate of 10% per annum of all cash dividend distributions.

As of 31 December 2017, restricted reverses is amounting to TL 36.656.534 (31 December 2016: TL31.930.256). There are no remaining period profit and other sources subject to profit distribution after deducting previous year losses recorded in statutory records of the Company.

Restricted reserves 31 December 2017 31 December 2016 Legal reserves 34.656.534 31.930.256 34.656.534 31.930.256

Gains / losses on revaluation of property, plant and equipment 2017 2016 Opening balance 51.115.284 51.432.598 Gain on revaluation of property plant and equipment 335.994.031 - Deferred tax expense of revaluation of property plant and equipment (38.991.752) (317.314) Minority effect (42.016.092) - End of the period 306.101.471 51.115.284

The Group decided to apply “Fair value model” to land, land improvements and buildings in accordance with “TAS 16 – Property, Plant and Equipment” as of 31 December 2017. The revaluation was performed by Nova Gayrimenkul Değerleme A.Ş. authorized by Capital Markets Board.

As of 31 December 2017 and 2016, revaluation fund under equity balance is amounting to TL 306.101.471 after deferred tax.

Actuarial loss on post-employment termination benefit obligation 2017 2016 Opening balances (7.243.604) (219.835) Actuarial loss (2.454.578) (9.682.957) Deferred tax on actuarial loss 490.916 1.936.591 Minority effect of actuarial loss 256.132 722.597 End of the period (8.951.134) (7.243.604)

FINANCIAL STATEMENTS AND FOOTNOTES 133 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 18 – REVENUE AND COST OF SALES

1 January - 1 January - 31 December 2017 31 December 2016 Domestic Sales 2.422.509.795 1.934.511.715 Export Sales(*) 315.868.996 240.083.086 Other income 8.125.527 4.349.991 Gross sales 2.746.504.318 2.178.944.792 Sales returns and discounts (-) (325.796.053) (280.925.811) Net sales 2.420.708.265 1.898.018.981 Cost of Sales (-) - Raw materials (1.763.799.008) (1.334.502.908) - Labour costs (90.447.563) (80.637.932) - Depreciation and Amortization Expense (Note 10-11) (28.544.074) (24.835.113) - Energy costs (13.119.530) (11.768.745) - Manufacturing overhead costs (96.605.824) (90.126.902) Cost of sales (-) (1.992.515.999) (1.541.871.600) Gross profit 428.192.266 356.147.381

(*) The Group decided to retrospectively reclassify export registered sales in export sales

NOTE 19 – GENERAL ADMINISTRATIVE EXPENSES, SELLING AND MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES

1 January 1 January Selling and marketing expenses 31 December 2017 31 December 2016 Advertisement expenses (68.673.511) (57.842.054) Transportation expenses (47.869.634) (37.160.576) Personnel expenses (47.802.199) (38.981.362) Outsourced expenses (17.273.964) (12.455.374) Rent expenses (8.960.793) (7.198.295) Depreciation and amortization expenses (Note 10-11) (7.794.775) (5.834.411) Energy expenses (7.357.498) (5.539.462) Maintenance and repair expenses (4.810.380) (2.750.862) Export expenses (1.488.530) (856.733) Travel expenses (1.224.515) (997.561) Consultancy expenses (560.224) (288.774) Other (8.528.754) (8.342.177) (222.344.777) (178.247.641)

134 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 19 – GENERAL ADMINISTRATIVE EXPENSES, SELLING AND MARKETING EXPENSES, RESEARCH AND DEVELOPMENT EXPENSES (Continued)

1 January 1 January General administrative expense 31 December 2017 31 December 2016 Personnel expenses (22.346.773) (25.024.400) Outsourced expenses (19.160.213) (17.222.804) Consultancy expenses (5.857.014) (5.917.553) Depreciation and amortization expense (Note 10-11) (2.054.153) (1.488.525) Energy expenses (1.180.290) (1.037.382) Rent expenses (1.072.754) (1.574.419) Communication expenses (600.736) (572.070) Travel expenses (267.956) (343.994) Office expenses (137.792) (218.439) Trademark copyrights expenses (110.980) (285.640) Other (4.094.870) (3.754.022) (56.883.531) (57.439.248)

1 January 1 January Research and development expenses 31 December 2017 31 December 2016 Personnel expenses (1.270.356) (2.311.734) Depreciation expense (Not 10-11) (289.245) (96.123) Outsourced expenses (244.214) (422.478) Consultancy expenses (196.316) (630.467) Analysis expenses (48.481) (75.654) Other (68.732) (185.176) (2.117.344) (3.721.632)

1 January 1 January Expense by nature 31 December 2017 31 December 2016 Personnel expenses (161.866.891) (146.955.428) Depreciation and amortization expenses (38.682.247) (32.254.172) (200.549.138) (179.209.600)

NOTE 20 – OTHER INCOME AND EXPENSE FROM OPERATING ACTIVITIES

1 January 1 January Other Income from Operating Activities 31 December 2017 31 December 2016 Foreign exchange gains from operating activities 18.277.459 14.756.757 Rent income 6.279.199 5.354.897 Service income 2.962.909 5.181.956 Released and reversed provisions for impairment of inventory (Note 7) 880.376 708.520 Provisions no longer required of doubtful receivables (Note 5) 307.288 148.595 Other 5.355.016 1.786.850 34.062.247 27.937.575

FINANCIAL STATEMENTS AND FOOTNOTES 135 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 20 – OTHER INCOME AND EXPENSE FROM OPERATING ACTIVITIES (Continued)

1 January 1 January Other Expense from Operating Activities 31 December 2017 31 December 2016 Foreign exchange losses from operating activities (40.942.310) (22.513.971) Donation and aid expense (11.027.403) (7.276.615) Provision expenses for doubtful receivables (Note 5) (5.615.360) (2.746.294) Finance charges on term sales (2.557.048) - Official board fees for capital increase (1.966.878) - Provision expenses of lawsuits and penalties (Note 13) (1.000.000) (133.497) Provision expenses for impairment of inventories (Note 7) (535.739) (776.820) Other (9.136.991) (6.967.616) (72.781.729) (40.414.813) NOTE 21 – INCOME AND EXPENSE FROM INVESTMENT ACTIVITIES

1 January 1 January Income from Investment Activities 31 December 2017 31 December 2016 Gain on fair value of investment property (Note 9) 84.684.300 8.367.291 Income from sale of Brands (*) 62.076.428 - Interest income 34.928.128 13.609.507 Foreign exchange gains on investing activities 31.889.523 40.791.670 Gain on sale of fixed assets 583.175 818.444 Dividend income 167.200 194.961 214.328.754 63.781.873

(*) TL 50.846.428 of brand selling income comprises sales of Bizim Mutfak brand and its’ intellectual property to Ajinomoto Co Inc. Since the brand is an internally generated brand, it was not recognised as intangible asset and so there is no disposal of intangible asset.

1 January 1 January Expense from Investment Activities 31 December 2017 31 December 2016 Foreign exchange loss on investing activities (34.455.235) (79.185.067) Loss on sale of fixed assets (131.383) (927.098) (34.586.618) (80.112.165) NOTE 22 – FINANCIAL INCOME AND EXPENSE

1 January 1 January Financial income 31 December 2017 31 December 2016 Gains on derivative instruments - 5.672.955 - 5.672.955

1 January 1 January Financial expense 31 December 2017 31 December 2016 Interest expense (108.359.830) (62.267.094) Foreign exchange losses (53.642.648) (28.600.628) Commission expenses (23.750.682) (12.817.448) Losses on derivative instruments (5.672.955) - Financial expense on employee termination benefit (173.855) (155.818) (191.599.970) (103.840.988)

136 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 23 - TAXATION

Currrent income tax liabilities 31 December 2017 31 December 2016 Current income tax expense 13.511.327 12.298.491 Less: prepaid taxes (10.737.773) (7.506.282) 2.773.554 4.792.209

The breakdown of accumulated temporary differences and deferred tax asset and liabilities provided using principal tax rate as of 31 December 2017 and 2016 are as follows:

Total temporary differences Deferred tax assets / (liabilities) 31 December 2017 31 December 2016 31 December 2017 31 December 2016 Provisions for employee termination benefits 25.473.247 22.169.536 5.094.649 4.433.907 Provisions for doubtful receivables 5.966.928 2.356.934 1.312.724 471.387 Provisions for lawsuit 1.133.497 133.497 249.369 26.699 Provision for impairment on inventories 535.739 880.376 117.863 176.075 Deferred financial expense - 808.296 - 161.659 Provision for unused vacation 4.649.817 4.369.020 980.023 873.804 Changes in inventory 966.645 487.114 193.329 97.423 Undelivered sales - 130.919 - 26.184 Carry-forward tax losses (*) 166.851.540 222.388.707 33.781.405 44.477.741 Discount on financial liabilities (218.860) (356.977) (48.149) (71.395) Deferred financial income 1.126.350 2.916.896 225.270 583.379 Impairment on investment accounted through cost method 2.500.000 2.500.000 500.000 500.000 Provision of performance premium 6.664.769 3.852.607 1.433.415 770.521 Foundation and organisation expenses 927.144 927.144 185.429 185.429 Correction of fair value on derivative instruments - (5.672.955) - (1.134.591) Government grants and incentives 11.084.732 8.448.007 22.169 16.895 Net differences between the carrying values and tax bases of investment properties (203.676.837) (123.997.458) (20.471.601) (12.037.917) Net differences the carrying values and tax bases of property, plant and equipment and intangible assets and revaluation increase (447.554.288) (103.473.910) (50.540.724) (11.352.429) Other (1.982.476) (5.019.573) (415.392) (1.005.076) Net deferred tax assets (425.552.053) 33.848.180 (27.380.221) 27.199.695

(*) As of 31 December 31 2017, based on projections and future estimations deferred tax asset is not recognized derived from unused tax losses amounting to TL 136.717.837. (31 December 2016: TL 33.787.094). Tax losses of TL 136.717.837 comprises of TL 51.585.084 for the year 2013, TL 18.358.283 for the year 2014, TL 62.814.236 for the year 2015 and TL 3.960.234 for the year 2016 and expiration years is 2018, 2019, 2020 and 2021 respectively.

FINANCIAL STATEMENTS AND FOOTNOTES 137 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 23 - TAXATION (Continued)

Movements in deferred tax assets as of 31 December 2017 and 2016 are as follows:

2017 2016 Opening 27.199.695 27.296.702 Charged to profit or loss (16.079.046) 5.634.856 Actuarial gain charged to equity 490.916 1.936.591 Difference of revaluation charged to equity (38.991.786) (7.668.454) End of the period (27.380.221) 27.199.695

Income tax expense for the years ended 31 December comprised the following items:

31 December 2017 31 December 2016 Current income tax expense (13.511.327) (12.298.491) Deferred tax income (16.079.046) 5.634.856 Total tax income (29.590.373) (6.663.635)

The reconciliation of the current tax income and current profit before tax are as follows:

Total charge for the year can be reconciled to the accounting profit as 1 January 1 January follows: 31 December 2017 31 December 2016 Profit / (loss) from operations before tax 96.269.298 (10.236.703) Domestic income tax rate 20% 20% Tax income / (expense) at the domestic income tax rate (19.253.860) 2.047.341 Expenses that are not deductible in determining taxable profit (9.325.466) (9.539.636) Deferred tax provision (20.951.656) (6.757.419) Unused tax losses not recognised as deferred tax assets (182.754) 984.760 Revenue that is exempt from taxation 13.411.861 5.281.353 Other tax expenses 6.711.502 1.319.966 Income tax expense recognised in profit or loss (29.590.373) (6.663.635)

138 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 23 - TAXATION (Continued)

Corporate Tax

The Group is subject to Turkish corporate taxes. Provision is made in the accompanying financial statements for the estimated charge based on the Group’s results for the years and periods. Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis.

Corporate tax is applied on taxable corporate income, which is calculated from the statutory accounting profit by adding back non-deductible expenses, and by deducting dividends received from resident companies, other exempt income and investment incentives utilized.

The effective tax rate in 2017 is 20% (2016: 20%) for the Group.

In addition to corporate taxes, companies should also calculate income withholding taxes on any dividends distributed, except for companies receiving dividends who are Turkish residents and Turkish branches of foreign companies. Income withholding tax applied in between 24 April 2003 – 22 July 2006 is 10% and commencing from 23 July 2006, this rate has been changed to 15% upon the Council of Minister’s’ Resolution No: 2006/10731. Undistributed dividends incorporated in share capital are not subject to income withholding tax.

Deferred Tax

The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between its financial statements as reported for IFRS purposes and its statutory tax financial statements. These differences usually result in the recognition of revenue and expenses in different reporting periods for IFRS and tax purposes and they are given below.

Tax rate used in the calculation of deferred tax assets and liabilities was %22 over temporary timing differences expected to be reversed in 2018, 2019 and 2020, and %20 over temporary timing differences expected to be reversed in 2021 and the following years (2016: 20%).

In Turkey, the companies cannot declare a consolidated tax return, therefore subsidiaries that have deferred tax assets position were not netted off against subsidiaries that have deferred tax liabilities position and disclosed separately.

FINANCIAL STATEMENTS AND FOOTNOTES 139 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 24 – EARNING PER SHARE / (LOSS)

1 January 1 January 31 December 2017 31 December 2016 Net gain / (loss) for the year attributable to equity holders of the parent 53.861.653 (33.356.373) Weighted average number of shares 7.695.178 6.244.000 Earning per share / (loss) 7,00 (5,34)

NOTE 25 – FINANCIAL INSTRUMENTS

Financial Investments

31 December 2017 31 December 2016 Financial investments 6.948.844 6.948.844 Impairment on financial investments shares (-) (2.500.000) (2.500.000) 4.448.844 4.448.844

Group’s financial investment Doruk Gıda Pazarlama Ltd. Şti. is accounted for cost method due to immateriality. Impairment recognized on the shares of Doruk Gıda Pazarlama Ltd. Şti.

Movements of provisions for impairment of financial investment for the year ended at 31 December are as follows:

2017 2016 Opening balance (2.500.000) (2.500.000) Addition - - End of the period (2.500.000) (2.500.000)

Borrowings

Short term borrowings 31 December 2017 31 December 2016 Short term foreign currency loans 327.855.532 764.648.611 Short term (“TL”) loans 545.609.744 522.467.981 Short term portion of long term foreign currency loans 63.993.448 246.344.000 Short term portion of long term (“TL”) loans 55.856.021 5.649.106 Short term financial lease labilities - net(*) 1.119.524 7.112.679 994.434.269 1.546.222.377

(*) As of 31 December 2017 short term financial lease liabilities are amounting to USD103.941 and TL726.499 (31 December 2016: EUR37.766, USD979.372 and TL3.525.965).

140 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 25 – FINANCIAL INSTRUMENTS (Continued)

As of 31 December 2017 and 31 December 2016 short term portion of long term borrowings are as follows:

31 December 2017 Weighted average effective interest Original Currency Maturity rate (%) Original Amount TL Equivalent USD April 2018 1,01 39.960.065 150.725.369 March 2018- EUR October 2018 2,84 53.399.094 241.123.611 January 2018- TL November 2018 17,27 601.465.765 601.465.765 993.314.745

31 December 2016 Weighted average effective interest Original Currency Maturity rate (%) Original Amount TL Equivalent USD April 2017 - September 2017 3,98 205.993.738 724.933.164 EUR July 2017 EURIBOR+0,75 5.300.000 19.662.471 EUR February 2017 2,91 71.807.050 266.396.976 January 2017- TL December 2017 14,33 528.117.087 528.117.087 1.539.109.698

Long term borrowings 31 December 2017 31 December 2016 Long term (“TL”) loans 400.000.000 37.529.196 Long term financial lease liabilities - net (*) 102.168 1.195.360 400.102.168 38.724.556

(*) As of 31 December 2107 long term financial lease liabilities are amounting to TL102.168 (31 December 2016: USD104.198 and TL828.666).

FINANCIAL STATEMENTS AND FOOTNOTES 141 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 25 – FINANCIAL INSTRUMENTS (Continued)

As of 31 December 2017 and 31 December 2016 long term borrowings are as follows:

31 December 2017 Weighted average effective inte Original Currency Maturity rest rate (%) Original Amount TL Equivalent January 2019- TL bank loans February 2019 15,28 400.000.000 400.000.000 - 400.000.000

31 December 2016 Weighted average effective interest Original Currency Maturity rate (%) Original Amount TL Equivalent TL bank loans April 2018 14,00 37.529.196 37.529.196 37.529.196

Short and long term loans payment schedule are as follows:

31 December 2017 31 December 2016 2017 - 1.546.222.377 2018 994.434.269 38.421.589 2019 400.102.168 302.967 1.394.536.437 1.584.946.933

Short and long term financial lease liabilities payment schedule are as follows:

2017 Payments Interest Liability 2018 1.197.710 78.186 1.119.524 2019 104.419 2.252 102.168 1.302.129 80.438 1.221.692

2016 Payments Interest Liability 2017 7.713.334 600.655 7.112.679 2018 1.170.604 81.915 1.088.689 2019 104.419 2.252 106.671 8.988.357 684.822 8.308.039

Movement of borrowings 2017 2016 Opening 1.576.638.894 1.373.394.950 Foreign exchange differences 53.642.648 28.600.628 Increase in interest accrual 23.388.334 4.149.368 Addition 1.686.985.179 1.702.098.541 Disposal (1.947.340.310) (1.531.604.593) End of the period 1.393.314.745 1.576.638.894

142 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT a) Capital Risk Management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and maintain an optimal capital structure to reduce the cost of capital.

The shareholders of the Company in order to maintain or modify capital structure, can change the amount of dividends paid to shareholders, return capital to shareholders, issue new shares and sell assets to decrease financing needs.

The Group monitors capital using net debt / capital ratio, which is net financial liabilities to related parties divided by total capital. The Group includes within net financial debt, borrowings, less cash and cash equivalents and financial receivables from related parties. Total capital is the sum of total equity and net financial debt.

For the years ended 31 December, net financial debt / total capital ratios are as follows:

31 December 2017 31 December 2016 Total financial borrowings 2.061.176.876 1.750.391.758 Other receivables from related parties 847.270.758 894.199.680 Less: Cash and cash equivalents (Note 27) 439.356.378 15.761.144 Net financial debt 774.549.740 840.430.934 Total equity 759.988.106 401.225.150 Total capital 1.534.537.846 1.241.656.084 Net debt / total capital ratio 0,50 0,68 b) Financial Risk Overview

The Group has exposure to the credit risk, liquidity risk, market risk and operational risk from its use of financial instruments. The Group’s risk management activities are focused minimizing the negative effect of uncertain market conditions on the Group’s financial performance.

Risk management, Risk management activities are conducted by a realistic organizational structure and it is fully supported. The Group’s finance department identifies and evaluates the financial risk and tries to reduce the risks with the Group’s operation units.

FINANCIAL STATEMENTS AND FOOTNOTES 143 144 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6)

KEREVİTAŞ ANNUAL REPORT 2017 KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued)

b.1) Credit Risk

Credit Risks Exposed According to Types of Financial Instruments

Receivables Trade Receivables Other Receivables 31 December 2017 Related Parties Third Parties Related Parties Third Parties Deposits at Banks

Maximum credit risk exposed as of balance sheet date(*) 354.496.792 219.200.521 847.270.758 5.180.312 438.566.428 - Secured portion of the maximum credit risk by guarantees(**) - 25.215.090 - - - A. Net book value of financial assets that are neither past due nor impaired 354.496.792 184.904.878 847.270.758 5.180.312 438.566.428 B. Net book value of financial assets that are past due but not impaired - 34.295.643 - - - - Secured portion of the net book value by guarantees, etc. - 9.877.457 - - - C. Net book value of the impaired assets ------Past due (gross amount) - 17.524.795 - - - - Impairment - (17.524.795) - - - - Secured portion of the net book value by guarantees ------Not past due (gross amount) ------Impairment ------Secured portion of the net book value by guarantees ------Not past due (gross amount) - - - - - D. Off-balance sheet items include credit risk - - - - -

(*)When the amount is determined, factors that increase credit reliability, such as collateral received, are not considered. (**)Guarantee letters consist of guarantee letters from customers, collateral surety and mortgages. CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued)

b.1) Credit Risk (Continued)

Receivables Trade Receivables Other Receivables 31 December 2016 Related Parties Third Parties Related Parties Third Parties Deposits at Banks Derivatives

Maximum credit risk exposed as of balance sheet date(*) 319.610.808 193.118.090 894.199.680 10.936.387 15.245.709 5.672.955 - Secured portion of the maximum credit risk by guarantees(**) - 73.466.365 - - - - A. Net book value of financial assets that are neither past due nor impaired 285.814.734 180.048.826 894.199.680 10.936.387 15.245.709 5.672.955 B. Net book value of financial assets that are past due but not impaired 33.796.074 13.069.264 - - - - - Secured portion of the net book value by guarantees, etc. - 6.310.213 - - - - C. Net book value of the impaired FINANCIAL STATEMENTS ANDFOOTNOTES assets ------Past due (gross amount) - 11.705.873 - - - - - Impairment - (11.705.873) - - - - - Secured portion of the net book value by guarantees ------Not past due (gross amount) ------Impairment ------Secured portion of the net book value by guarantees ------Not past due (gross amount) ------D. Off-balance sheet items include credit risk ------

(*)When the amount is determined, factors that increase credit reliability, such as collateral received, are not considered. (**)Guarantee letters consist of guarantee letters from customers, collateral surety and mortgages. 145 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued) b.1) Credit Risk (Continued)

As of 31 December 2017 and 2016, the aging of trade receivables that are past due but not impaired are as below:

31 December 2017 31 December 2016 Past due up to 30 days 31.004.889 22.400.767 Past due 1 - 3 months 1.337.344 18.740.315 Past due 3 - 12 months 1.717.582 1.115.127 Past due 1 - 5 year 235.828 4.609.129 Total past due receivables 34.295.643 46.865.338 Secured portion of receivables by guarantees 9.877.457 6.310.213 b.2) Liquidity Risk

The Group has access to funding sources from banks and keeps certain level assets as cash and cash equivalents. The Group continuously assesses liquidity risk by identifying and monitoring changes in funding required in meeting business goals and targets set in terms of the overall Group strategy.

The followings are carrying amounts, contractual cash flows and the contractual maturities of financial liabilities are as follows.

Contractual Maturities

Non-Derivative Financial Liabilitie Total Contractual Cash Outflows Less than 3 to 1 to 31 December 2017 Carrying value (I+II+III) 3 months (I) 12 months (II) 5 years (III) Financial liabilities 1.394.536.437 1.519.153.812 208.685.195 895.714.576 414.754.041 Trade payables 383.857.091 383.857.091 242.286.860 141.570.231 - Trade payables to related parties 64.106.593 64.106.593 64.106.593 - - Other payables to related parties 666.640.439 666.640.439 187.255.439 - 479.385.000 Payables to employees 11.871.050 11.871.050 11.871.050 - - Total Liabilities 2.521.011.610 2.645.628.985 714.205.137 1.037.284.807 894.139.041

146 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued) b.2) Liquidity Risk (Continued)

Contractual Maturities

Non-Derivative Financial Liabilities Total Contractual Cash Outflows Less than 3 to 1 to 31 December 2016 Carrying value (I+II+III) 3 months (I) 12 months (II) 5 years (III) Financial liabilities 1.584.946.933 1.644.252.869 386.512.297 1.211.572.726 46.167.846 Trade payables 211.680.188 213.298.335 159.423.892 53.874.443 - Trade payables to related parties 56.127.653 56.209.487 56.209.487 - - Other payables 1.096.336 1.096.336 1.041.612 - 54.724 Other payables to related parties 165.444.825 165.444.825 165.444.825 - - Payables to employees 10.035.452 10.035.452 10.035.452 - - Total Liabilities 2.029.331.387 2.090.337.304 778.667.565 1.265.447.169 46.222.570

Expected maturities are same as the contractual maturities. b.3) Market Risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates will affect the Group’s income or the value of its holdings of financial instruments.

The Group evaluates the market risk with sensitivity analysis

The Group’s market risk management policies have no change during the period. b.3.1) Currency Risk

The Group is exposed to currency risk on its operations that are denominated in other currencies.

FINANCIAL STATEMENTS AND FOOTNOTES 147 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued) b.3) Market Risk (Continued)

As of 31 December 2017 and 2016, the currency risk exposures of the Group in TL equivalents are as follows:

31 December 2017 TL Amount US Dollar Euro Other 1. Trade Receivables 56.924.664 12.403.638 2.286.102 17.866 2a. Monetary Finacial Assets 288.897.798 76.287.214 252.637 2.099 2b. Non-monetary Financial Assets - - - - 3. Other 198.852.597 27.765.158 20.844.911 - 4.CURRENT ASSETS (1+2+3) 544.675.059 116.456.010 23.383.650 19.965 5. Trade Receivables - - - - 6a. Monetary Finacial Assets - - - - 6b. Non-monetary Financial Assets - - - - 7. Other - - - - 8. NON-CURRENT ASSETS (5+6+7) - - - - 9. TOTAL ASSETS (4+8) 544.675.059 116.456.010 23.383.650 19.965 10. Trade Payable 195.078.657 4.427.600 39.481.098 23.985 11. Financial Liabilities 392.230.354 40.064.006 53.399.094 - 12a. Monetary Other Liabilities - - - - 12b. Non-Monetary Other Liabilities 211.722 53.896 1.868 - 13. CURRENT LIABILITIES (10+11+12) 587.520.733 44.545.502 92.882.060 23.985 14. Trade Payable - - - - 15. Financial Liabilties - - - - 16a. Monetary Other Liabilities - - - - 16b. Non-Monetary Other Liabilities - - - - 17. NON-CURRENT LIABILITIES (14+15+16) - - - - 18. TOTAL LIABILITIES (13+17) 587.520.733 44.545.502 92.882.060 23.985 19 Off-balance Sheet Derivative Instruments Net Asset/Liability Position (19a-19b) - - - - 19.a Amount of active foreign derivative currency off- balance sheet - - - - 19.b. Amount of passive foreign derivative currency off- balance sheet - - - - 20.Net Foreign Currency Assets / (Liabilities) Position (9-18+19) (42.845.674) 71.910.508 (69.498.410) (4.020) 21.Monetary Items Net Foreign Currency Assets / (Liabilities) (1+2a+3+5+6a-10-11-12a-14-15-16a) (42.633.952) 71.964.404 (69.496.542) (4.020) 22. Fair value of financial instruments used for currency hedge - - - - 23. Hedged foreign currency assets - - - - 24. Export 91.574.251 15.270.720 7.524.000 - 24. Import 97.586.718 25.872.032 - -

148 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued) b.3) Market Risk (Continued)

31 December 2016 TL Amount US Dollar Euro Other 1. Trade Receivables 46.914.380 9.484.057 3.544.145 90.223 2a. Monetary Finacial Assets 8.730.107 2.469.551 8.562 1.953 2b. Non-monetary Financial Assets - - - - 3. Other 637.186.110 151.714.895 27.836.613 - 4.CURRENT ASSETS (1+2+3) 692.830.597 163.668.503 31.389.320 92.176 5. Trade Receivables - - - - 6a. Monetary Finacial Assets - - - - 6b. Non-monetary Financial Assets - - - - 7. Other 174.638 47.332 2.175 - 8. NON-CURRENT ASSETS (5+6+7) 174.638 47.332 2.175 - 9. TOTAL ASSETS (4+8) 693.005.235 163.715.835 31.391.495 92.176 10. Trade Payable 44.227.299 5.248.404 6.919.501 23.294 11. Financial Liabilities 1.014.579.328 206.973.111 77.144.817 - 12a. Monetary Other Liabilities - - - - 12b. Non-Monetary Other Liabilities 172.349 47.005 1.868 - 13. CURRENT LIABILITIES (10+11+12) 1.058.978.976 212.268.520 84.066.186 23.294 14. Trade Payable - - - - 15. Financial Liabilties 366.695 104.198 - - 16a. Monetary Other Liabilities - - - - 16b. Non-Monetary Other Liabilities - - - - 17. NON-CURRENT LIABILITIES (14+15+16) 366.695 104.198 - - 18. TOTAL LIABILITIES (13+17) 1.059.345.671 212.372.718 84.066.186 23.294 19 Off-balance Sheet Derivative Instruments Net Asset/Liability Position (19a-19b) 139.953.166 37.724.242 37.724.242 - 19.a Amount of active foreign derivative currency off- balance sheet 139.953.166 37.724.242 37.724.242 - 19.b. Amount of passive foreign derivative currency off- balance sheet - - - - 20.Net Foreign Currency Assets / (Liabilities) Position (9-18+19) (226.387.270) (10.932.641) (14.950.449) 68.882 21.Monetary Items Net Foreign Currency Assets / (Liabilities) (1+2a+3+5+6a-10-11-12a-14-15-16a) (366.342.725) (48.657.210) (52.674.998) 68.882 22. Fair value of financial instruments used for currency hedge - - - - 23. Hedged foreign currency assets - - - - 24. Export 39.846.622 9.703.140 5.278.503 - 24. Import 50.681.799 14.401.511 - -

FINANCIAL STATEMENTS AND FOOTNOTES 149 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued) Sensitivity Analysis The Group is mainly exposed to foreign currency risks in US Dollars and Euro. The following table shows the Group’s sensitivity to a 10% increase and decrease in USD and Euro 10% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the possible change in foreign exchange rates. The sensitivity analysis only includes outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. This analysis comprises the borrowings used for foreign operations within the Group outside the functional currency. A positive number indicates an increase in profit / loss and other equity.

Profit/Loss Appreciation foreign Depreciation foreign 31 December 2017 currency currency In case of US Dolar changes in 10% against TL 1 - US Dolar net asset/liability 27.144.253 (27.144.253) 2- US Dolar hedges (-) - - 3- Net effect of US Dollar (1 +2) 27.144.253 (27.144.253) In case of Euro changes in 10% against TL 4 - Euro net asset/liability (31.381.164) 31.381.164 5 - Euro hedges (-) - - 6- Net effect of Euro (4+5) (31.381.164) 31.381.164 TOTAL (3+6) (4.236.911) 4.236.911

Profit/Loss Appreciation foreign Depreciation foreign 31 December 2016 currency currency In case of US Dolar changes in 10% against TL 1 - US Dolar net asset/liability (17.123.445) 17.123.445 2- US Dolar hedges (-) - - 3- Net effect of US Dollar (1 +2) (17.123.445) 17.123.445 In case of Euro changes in 10% against TL 4 - Euro net asset/liability (19.541.898) 19.541.898 5 - Euro hedges (-) - - 6- Net effect of Euro (4+5) (19.541.898) 19.541.898 TOTAL (3+6) (36.665.343) 36.665.343 b.3.1) Interest Rate Risk The Group’s borrowings with fixed and variable interest rate expose the Group to interest rate risk. The Group’s financial liabilities with the Financial Restructuring Agreement have variable interest rate. As at 31 December, the interest rate profile of the Group’s interest-bearing financial instruments are as follows:

Interest Position 31 December 2017 31 December 2016 Fixed interest rate instruments Financial liabilities 1.394.536.437 1.565.284.462 Variable interest rate instruments Financial liabilities - 19.662.471

The sensitivity analyses below have been determined based on the exposure to interest rates for both derivatives and non-derivative instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 100 basis point increase or decrease is used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates. If interest rates had been 50 basis points higher/lower and all other variables were held constant, the Group’s profit for the year ended 31 December 2017 would increase/decrease by TL0 (2016: decrease/increase by TL196.625). This is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings.

150 KEREVİTAŞ ANNUAL REPORT 2017 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 26 – FINANCIAL INSTRUMENTS – FAIR VALUES AND RISK MANAGEMENT (Continued) b.4) Categories of financial instruments and fair values

Loans and receivables (including Financial cash and cash liabilities at 31 December 2017 equivalents) amortized cost Carrying value Fair value Note Financial assets Cash and cash equivalents 439.356.378 - 439.356.378 439.356.378 27 Trade receivables 219.200.521 - 219.200.521 219.200.521 5 Trade receivables from related parties 354.496.792 - 354.496.792 354.496.792 4 Other receivables 5.180.312 - 5.180.312 5.180.312 6 Other receivables from related parties 847.270.758 - 847.270.758 847.270.758 4 Other financial assets 4.448.844 - 4.448.844 4.448.844 25

Financial liabilities Borrowings - 1.394.536.437 1.394.536.437 1.394.536.437 25 Trade payables - 383.857.091 383.857.091 383.857.091 5 Trade payables to related parties - 64.106.593 64.106.593 64.106.593 4 Other payables - - - - 6 Other payables to related parties - 666.640.439 666.640.439 666.640.439 4

The management of the Group considers that the carry value of the financial assets reflect their fair value.

Loans and receivables (including Financial Financial assets cash and cash liabilities at 31 December 2016 at amortized cost equivalents) amortized cost Carrying value Fair value Note Financial assets Cash and cash equivalents - 15.761.144 - 15.761.144 15.761.144 27 Trade receivables - 193.118.090 - 193.118.090 193.118.090 5 Trade receivables from related parties - 319.610.808 - 319.610.808 319.610.808 4 Other receivables - 10.936.387 - 10.936.387 10.936.387 6 Other receivables from related parties - 894.199.680 - 894.199.680 894.199.680 4 Derivative financial instruments 5.672.955 - - 5.672.955 5.672.955 Other financial assets - 4.448.844 - 4.448.844 4.448.844 25

Financial liabilities Borrowings - - 1.584.946.933 1.584.946.933 1.584.946.933 25 Trade payables - - 211.680.188 211.680.188 211.680.188 5 Trade payables to related parties - - 56.127.653 56.127.653 56.127.653 4 Other payables - - 1.096.336 1.096.336 1.096.336 6 Other payables to related parties - - 165.444.825 165.444.825 165.444.825 4

The management of the Group considers that the carry value of the financial assets reflect their fair value.

FINANCIAL STATEMENTS AND FOOTNOTES 151 CONVENIENCE TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITORS’ REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH (Note 2.6) KEREVİTAŞ GIDA SANAYİ VE TİCARET A.Ş. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in Turkish Lira (“TL”) unless otherwise stated.)

NOTE 27 – CASH AND CASH EQUIVALENT

31 December 2017 31 December 2016 Cash on hand 165.250 109.837 Checks received without maturity 181.785 176.965 Cash at banks 438.566.428 15.245.709 - Demand deposits 6.027.377 15.245.709 - Time deposits (*) 432.539.051 - Other cash equivalents 442.915 228.633 439.356.378 15.761.144

The maturity of time deposit balances at banks is January 2, 2018 and average interest rates are 13,15 % - 14,10 for TL, 0,1 % for EUR and 3,00% - 3,30 for USD.

NOTE 28 – INTERESTS IN OTHER ENTITIES

Condensed financial information for the subsidiaries that the Company has material interest as of 31December 2017 and 2016 are as follows:

Marsa Yağ Sanayi ve Tic. A.Ş. 31 December 2017 31 December 2016 Total assets 877.116.817 539.354.902 Total liabilities 322.148.664 166.062.849 Net assets 554.968.153 373.292.053

1 January - 1 January - 31 December 2017 31 December 2016 Revenue 895.151.012 638.732.467 Profit for the year 42.414.316 54.849.946 Cash flows from operating activities 56.064.024 20.936.182 Cash flows from investing activities (39.803.271) (11.019.865) Cash flows from financing activities (28.470.103) (26.022.636) Effects of foreign currency translation 3.016.619 20.470.971

NOTE 29 – SUBSEQUENT EVENTS

The Law numbered 7061 on Amendment of Certain Taxes and Laws and Other Acts was published on the Official Gazette dated 5 December 2017 and numbered 30261.

The 20% corporate tax rate, will be applied as 22% for entities’ corporate income belonging to the taxation periods of 2018, 2019 and 2020 as amended in the provisional clause of article 10 of the Law (To financial years, which start within the related year for entities appointed a special accounting period.). The rate will be applied in the first temporary tax period in 2018.

152 KEREVİTAŞ ANNUAL REPORT 2017

Kerevitaş Gıda Sanayi ve Ticaret A.Ş. Üniversite Mah. Bağlariçi Cad. No: 29 Avcılar/Istanbul-Turkey Tel: 0850 209 16 16 Fax: 0 212 421 2674 Mail: [email protected]