Table of Contents Zorlu Holding 2017 Annual Report

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2 Zorlu Group Overview 80 Textiles 6 Zorlu Group’s Milestones 98 Energy 8 Zorlu Holding 126 Real Estate 8 Zorlu Holding’s Shareholding Structure 140 Mining - Metallurgy 9 Zorlu Holding and Sustainability 146 Other Activities

10 Summary Financial Statements and 150 Human Resources Operational Indicators 160 Mehmet Zorlu Foundation 14 Zorlu Group’s Fields of Operation 166 Audit and Internal Control 28 Growth Strategies of Group Companies 170 Additional Statements as per the 30 Message from the Board of Directors Legislation 38 Board of Directors 182 Independent Auditor’s Report on the 40 CEO’s Assessment Annual Report 46 Message from the Chairman of the 186 Consolidated Financial Statements and Sustainability Committee Independent Auditor’s Report 50 Senior Management 269 Contact Information 56 Consumer Electronics and Household Appliances

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Zorlu Group’s foundation was laid in 1953 Zorlu: A Reliable with the establishment of a textile company in Babadağ, Denizli. Having started its and Reputable operations as a family business, today Zorlu Group is a major conglomerate with over 60 companies and approximately 30,000 Brand in Turkey employees. and the World As of the end of 2017, Zorlu Group, one of the key groups of companies in Turkey, operates in the industries of: • Textiles, • Consumer Electronics & Household Appliances, • Energy, • Real Estate, • Mining-Metallurgy and • Other (Tourism, Factoring, Aviation) and continues to generate value-added for the country’s economy, with the Group accounting for a significant portion of the country’s overall exports. Distinguishing themselves with their capabilities, pioneering breakthroughs, institutional structure and performance, Zorlu Group companies are recognized for their strengths in manufacturing and services on a global scale. Combining its deep-rooted experience and know-how with qualified and skilled human resources and strong management structure, Zorlu Group is a highly reputed group of companies in Turkey and across the globe. The Group focuses its activities on increasing the value of its brand, which represents quality, trust and reputation, and creating long-lasting value for all of its stakeholders.

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Zorlu Group’s Fields of Operation & Shareholding Structure

Zorlu Family

Zorlu Holding

Consumer Real Estate Mining - Electronics and Real Estate (Levent 199 and Textiles Energy Other Activities Metallurgy Household (Zorlu Center) other) Appliances

3 A success story

Zorlu Holding 2017 Annual Report

Zorlu Group’s 1953 1960 Milestones Hacı Mehmet Zorlu lays the foundation The Group being textile trade by of the Zorlu Group by establishing opening a store in Trabzon. Zorlu Mensucat in Babadağ, Denizli.

1999 1997 1994

Mehmet Zorlu Education, Health, Culture Vestel Beyaz Eşya is founded. Vestel is acquired by Zorlu Group. and Solidary Foundation is established. Denizbank is founded. Vestel begins production of household appliances. 2000 2001 2003

20% of Zorlu Enerji’s shares are offered Zorluteks becomes Europe’s largest Zorlu Group celebrates its 50th to the public and begin trading on and the world’s third largest cotton anniversary. Borsa Istanbul. household linen producer. Vestel City opens its doors.

2014 2013 2012

The installation of the Metal Nikel Shopping mall and performing arts Zorlu Factoring begins operations. Kobalt AŞ Gördes Facility is completed center at Zorlu Center open their doors. as of the end of 2014. Turkey’s Kızıldere II Geothermal Power Plant first domestic smartphone Venus is begins commercial operations. Jhimpir launched. A+ office project Levent 199 Wind Power Plant in Pakistan goes enters into service. The Dorad Natural into operation. Vestel wins the second Gas Combined Cycle Power Plant in Smart Board tender worth TL 1 billion. Israel, in which Zorlu Enerji has a 25% stake, becomes operational.

2015 2016

Zorlu Holding signs the United Nations Vestel Beyaz Eşya and Zorlu Enerji the title in Turkey, Vestel Beyaz Eşya is Women Empowerment Principles, voluntarily join the Borsa Istanbul’s proclaimed the winner, becoming the institutionalizing its support for (BIST) Sustainability Index for the first Turkish company in its sector to win empowering women in the society, N o v e m b e r 2016 - O c t o b e r 2017 p e r i o d. the award. Zorluteks R&D Center enters business, and the economy. First phase Sarıtepe-Demirciler Wind Power Plants into service. Zorlu Family acquires full of Alaşehir I Geothermal Power Plant commence commercial operations. ownership of META. is commissioned. The Ramat Negev Zorlu Center is named the Europe’s and Ashdod natural gas co-generation Best Shopping Center by ICSC. Having power plants in Israel, in which Zorlu Enerji has a 42.15% stake, become advanced to the finals of the Industrial operational. Vestel Elektronik is included Excellence Awards 2016 after winning in the BIST Sustainability Index for the November 2015 - October 2016 period. The commissioning of the META Gördes Facility is completed and the first commercial Ni-Co Hydroxide intermediate product is exported.

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1966 1976 1984

Building on the know-how and Korteks Velvet Weaving Plant is The company begins its first official experience gained in Trabzon, the established in Bursa. export sales with Korteks products. Group moves to Istanbul and begins contract manufacturing.

1993 1990 1989

Zorlu Enerji is founded to meet the Korteks Polyester Yarn Factory, Europe’s Korteks Yarn Factory is established in energy and steam needs of Zorlu largest integrated polyester yarn Bursa to meet the need for high-quality Group’s industrial enterprises. manufacturer and exporter, begins polyester yarn in the Turkish textile production. industry. 2004 2006

Jules Verne joins the Zorlu Group. Zorlu Real Estate Group is established. Borsa Istanbul. Zorlu Energy Group Zorlu Group sells its stake in Denizbank wins natural gas distribution license to Dexia for USD 2.4 billion. 31.5% of tenders for Gaziantep and Trakya Vestel Beyaz Eşya’ shares are offered regions and begins providing natural to the public and begin trading on gas distribution services in the said regions. 2011 2008 2007

Vestel wins the first Smart Board tender Zorlu Enerji wins the privatization Zorlu Holding signs the UN Global launched as part of the Fatih Project. tender for ADÜAŞ, which includes Compact. Zorlu Group acquires a stake nine power plants with a total installed in Meta Madencilik Ltd. and begins capacity of 141 MW, with a bid of operating in the mining-metallurgy USD 510 million. The construction of industry. Zorlu Center, Turkey’s first five-function “mixed-use” project begins.

2017

The foundation for the new washing Zorlu Enerji takes over the Osmangazi the Life without Disabilities Project, the machine and dryer production Electricity Distribution Region and Guide Dogs Association is provided plant, which is scheduled to become enters electricity distribution and retail with an office at Zorlu Center for operational in 2018, is laid in July. sales businesses. Phase I of Kızıldere free. Installation work begins for the At the TPM Awards organized by the III Geothermal Power Plant (99.5 MW) R&D Center of Meta Nickel-Cobalt JIPM, Vestel Elektronik receives the enters into service in August. Zorlu Facility. Zorluteks becomes the only Special Award for TPM in television Solar becomes the exclusive distributor Turkish home textile company with manufacturing while Vestel Beyaz of the solar PV panels manufactured the “Authorized Economic Operator Eşya wins the Award for Excellence by the U.S.-based First Solar in 26 Certificate”. Zorluteks Design Center in Consistent TPM Commitment for its countries. Zorlu Center receives the is established. For the first time in the six production facilities simultaneously. ICSC VIVA Best-of-the-Best Honor history of the industry, TAÇ Curtain Art Vestel Beyaz Eşya is the first company Award. Among all the shopping malls Academy is established with the aim in Turkey to receive the Water in Turkey, Zorlu Center is the first to of training the curtain makers of the Footprint Verification in the industry. offer electric taxi service. As part of future.

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Incorporating Zorlu Group companies under its umbrella, Zorlu Zorlu Holding AŞ (“Zorlu Holding”) is the main company that Holding represents Zorlu Group.

Zorlu Group companies operating in the consumer electronics, household appliances, textiles and energy sectors as well as Zorlu Yapı Yatırım AŞ, which owns Zorlu Center, operate under the roof of Zorlu Holding, which itself is controlled by the Zorlu Family.

The Group’s real estate investments other than Zorlu Center and its operations in the mining industry are directly controlled by the Zorlu Family.

The shares of Vestel Elektronik Sanayi ve Ticaret AŞ, Vestel Beyaz Eşya Sanayi ve Ticaret AŞ and Zorlu Enerji Elektrik Üretim AŞ, as well as the corporate bonds of Korteks Mensucat Sanayi ve Ticaret AŞ, Zorlu Faktoring AŞ, Zorlu Enerji Elektrik Üretim AŞ and Zorlu Osmangazi Enerji ve Sanayi Ticaret AŞ trade on Borsa Istanbul (BIST).

As of December 31, 2017, Zorlu Holding’s paid-in capital amounts to TL 3,325,000,000. Zorlu Holding’s Shareholding Structure

Zorlu Zorlu Family 100% Holding

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Sustainability is the building block of Zorlu Holding’s Zorlu Holding corporate strategy. and Sustainability Focusing on sustainability, Zorlu Holding adopts and epitomizes the fundamental principles of sustainability in the areas of economy, environment and society across all of its operations to leave a better world for the next generations together with its stakeholders.

Using its far-reaching influence, the company strives for a sustainable future and creating long-lasting value for its stakeholders. To that end, and to reduce the effects of climate change, the company uses its best efforts to reduce the environmental impact and carbon emissions caused by the operations of the Group companies, develop products that support efficient use of natural resources, increase the share of Centering its operations on renewable energy sources and promote the use of advanced eco-friendly manufacturing technologies. As for R&D and sustainability, Zorlu Holding strives innovation, the company undertakes investments to develop high-value-added products by taking into consideration the for a better future with all of its evolving needs and global trends. stakeholders. As Zorlu Holding accelerates its progress in integrating sustainability across all of its operations, it also acts with a vision to create value for its employees, acknowledging that employees are its most valuable assets.

Launching an array of projects through the Mehmet Zorlu Foundation for the benefit of the society, ranging from education to culture and arts, and health to social aid, Zorlu Holding is committed to building a stronger future by improving its sustainability-oriented institutionalization approach to enhance its corporate structure, building on a synergic collaboration among Group companies and utilizing the efforts of its human resources.

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Zorlu Holding recorded a successful operational performance Summary in 2017 supported by the contribution of the new acquisitions Financial made in the energy industry during the year. The Holding increased its consolidated revenues by 43% over 2016 to TL 20.4 Statements and billion, while its earnings before interest, taxes, depreciation, Operational and amortization (EBITDA) reached TL 2.7 billion with a 36% increase. Zorlu Holding recorded TL 2.6 billion of exports on a Indicators* consolidated basis in 2017, showing a 6% growth over 2016. The Holding’s total assets reached TL 43 billion with a 43% increase mainly driven by the consolidation of Zorlu Yapı Yatırım AŞ for the first time in 2017.

Zorlu Holding - Summary Balance Sheet (Thousand TL) 2015 2016 2017

Current Assets 15,304,388 15,369,560 14,172,743 Fixed Assets 10,286,183 14,620,701 28,709,321 Total Assets 25,590,571 29,990,261 42,882,064 Short-Term Liabilities 13,877,275 15,878,317 24,453,805 Long-Term Liabilities 7,712,975 9,529,287 14,629,884 Equity 4,000,321 4,582,657 3,798,375 Total Liabilities & Equity 25,590,571 29,990,261 42,882,064

Zorlu Holding - Summary Income Statement (Thousand TL) 2015 2016 2017

Sales Revenues 13,255,949 14,227,063 20,353,392 Gross Profit 3,056,907 3,422,689 4,565,119 Operating Profit** 1,199,112 1,394,927 1,947,100 EBITDA** 1, 7 3 7, 3 8 7 2 , 0 0 7, 612 2 , 7 2 4 , 5 9 2 Net Financial Expenses -1,519,104 -1,495,656 -2,521,181 Net Loss for the Period*** - 7 8 7, 5 4 9 - 2 0 7, 4 0 8 - 4 2 9, 4 6 9

Gross Profit Margin 23% 24% 22% EBITDA Margin 13% 14% 13% Export Ratio 53% 52% 46%

* Zorlu Holding’s consolidated financial statements include the Group companies operating in the energy, textile, consumer electronics and household appliances businesses and Zorlu Yapı Yatırım AŞ, which operates in the real estate sector and is the owner of Zorlu Center. The Group’s other investments in the real estate business and mining-metallurgy operations are excluded from the above consolidated financial statements. ** Includes profits/losses from investments accounted for by the equity method but excludes other revenues and expenses from operations *** Profit/(loss) attributable to the equity holders of the parent company

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Net Sales Gross Profit Gross Profit Margin (Million TL) (Million TL) (%)

20,353 4,565 24 23 22

3,423 14,227 13,256 3,057

2015 2016 2017 2015 2016 2017 2015 2016 2017

EBITDA* EBITDA Margin Total Assets (Million TL) (%) (Million TL)

2,725 14 42,882 13 13

2,008 29,990 1,737 25,591

2015 2016 2017 2015 2016 2017 2015 2016 2017

* *Includes profits/losses from investments accounted for by the equity method, but excludes other revenues and expenses from operations.

11 Global companies, strong brands and a sustainable future...

Zorlu Holding 2017 Annual Report

Zorlu Group’s Fields of Operation

Textiles

The founding pillar of Zorlu Holding, textile remains one of the key sectors of the Group today.

With Korteks, Turkey’s largest integrated polyester yarn manufacturer and exporter, and Zorluteks, Europe’s leading household linen producer, under its fold, Zorlu Textiles Group is constantly growing and enhancing its position in domestic and international markets.

Led by Zorluteks and Korteks, Zorlu Textiles Group, which is engaged in the production and sales of yarns, curtains and household linens, is a highly preferred business and solutions partner for global enterprises, thanks to its high production capacity, high-quality products, and excellent marketing and distribution capabilities.

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Zorlu Group’s Fields of Operation

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Consumer Electronics & Household Appliances

Operating in the consumer electronics and household appliances producer, also ranks among the top three manufacturers of TVs sectors, Vestel Group is one of the leading ODMs (Original and top five producers of household appliances in Europe. Design Manufacturer) in the world. Vestel City, Vestel’s manufacturing hub, is one of Europe’s largest Market leader in TVs and one of the top three players in the single-site industrial manufacturing complexes. household appliances market in Turkey, Vestel, as a global

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Zorlu Group’s Fields of Operation

Energy

With an integrated operations capability, Zorlu Energy Group is a leading player in the Turkish energy industry. With renewable energy sources accounting for 48% of its total installed capacity of 1,091 MW as of the end of 2017, the Group maintains its growth trajectory in renewable energy by capitalizing on investment opportunities in both Turkey and international markets.

Increasing its investments in renewable energy, mainly in geothermal and solar power, Zorlu Energy Group continues contributing to a sustainable future.

In natural gas distribution, Zorlu Energy Group continues to expand its network to new districts in its licensed regions, thus bringing safe and clean natural gas to more locations. Having expanded into electricity distribution and retail sales in 2017, Zorlu Energy Group continues its investments to become a strong player in these new fields of operation.

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Zorlu Group’s Fields Real Estate of Operation Innovative and perfectionist, Zorlu Real Estate Group develops world-class projects and constructs exemplary buildings that are poised to set the standards in the real estate sector.

Having adopted contemporary project development and operation methods, Zorlu Real Estate Group brings together technology, R&D, human resources, systems, sustainability,

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strategies and processes to create a strong synergy. To this end, Operating within the Group since its foundation to fill an Zorlu Real Estate Group focuses its operations on two main important gap in Turkey’s culture & art scene, Zorlu PSM hosts pillars: over 500,000 people at more than 1,000 events every season and constantly works to offer even a wider range of events. • A sustainable building concept and • Digitalized building management systems shaped by the Industry 4.0.

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Zorlu Group’s Fields of Operation

Mining-Metallurgy

Zorlu Mining Group is the developer of Turkey’s first nickel- cobalt processing plant in Gördes, Manisa, which still serves as the base of its operations.

Utilizing advanced technologies, the Group aims to extend its production from ores into metals, and in time, into higher value added end products and rare earth elements and become a global supplier of nickel-cobalt products.

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Zorlu Group’s Fields of Operation

Other Fields of Operation

Zorlu Holding continues distinguishing itself with its quality and unique approach to service in a wide range of other fields from tourism to factoring and aviation.

While Zorlu Group companies stand out in their respective fields of operation with their reliable, determined and strong characteristics, they distinguish themselves with their employment figures and contributions of value-added to the national economy.

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Zorlu Group’s Fields of Operation

SECTOR SCOPE MAIN COMPANIES

• Manufacturing and sale of televisions, Vestel Elektronik • household appliances, Vestel Beyaz Eşya • digital and mobile products 2017 Turnover: TL 12.1 billion CONSUMER Asset Size: TL 11.9 billion ELECTRONICS & HOUSEHOLD APPLIANCES

• Generation and sale of electricity and Zorlu Enerji steam, Zorlu Osmangazi • Electricity trade, Zorlu Elektrik • Distribution and retail sales of electricity, Trakya Doğal Gaz & Gaziantep Doğal Gaz • Natural gas trade and sales, Zorlu Endüstriyel ENERGY • Natural gas distribution, Zorlu O&M • Power plant construction, Zorlu Doğal Gaz • Maintenance, repair and operation of Zorlu Doğal Gaz Tedarik power plants, 2017 Turnover: TL 5.2 billion • Distribution and sales of solar PV panels Asset Size: TL 11.8 billion

• Production and sale of polyester yarn Korteks and household textiles Zorluteks 2017 Turnover: TL 2.5 billion Asset Size: TL 2.1 billion TEXTILES

• Development, sale, lease and/or Zorlu Gayrimenkul Geliştirme operation of high-quality real estate Zorlu Yapı projects 2017 Turnover: TL 1.5 billion Asset Size: TL 9.6 billion REAL ESTATE

• Development, operation and domestic Meta Nikel-Kobalt Madencilik & international sale of Nickel-Cobalt Asset Size: TL 1.7 billion resources MINING – • Recovery of precious metal from METALLURGY nickel plant waste and development of production technology for rare earth elements

• Factoring Zorlu Faktoring • Tourism Jules Verne • Aviation Zorlu Grand Hotel OTHER Zorlu Air INDUSTRIES

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SECTOR POSITION COMPETITIVE ADVANTAGES

• Ranks among the top three manufacturers in TVs • One of Europe’s largest single-site industrial manufacturing complexes (Vestel City) and top five in household appliances in Europe • Advantages in efficiency, productivity and cost brought about manufacturing under a single roof • Market leader in TVs and one of top three • Ability to differentiate mass production on an order basis through flexible production capability • Seamless ODM (Original Design Manufacturer) services for export markets from original design and production to players in household appliances in Turkey point delivery • Export champion of the Turkish Electrical, • Leading ODM in the region Electronics and Services sector for the past 20 • Long-term licensing deals with global brands and growing branded product sales in the European market years • An export map covering 155 countries • One of Turkey’s most extensive sales and after-sales service network • Investments in new technologies and extensive technological know-how in household appliances, TVs and mobile devices. Listed amongst the top 10 most well-known brands in Turkey

• 1.3% share in total installed capacity of • Balanced and diversified generation portfolio by resource and geography independent power producers • Investments in countries offering high growth potential • One of Turkey’s leading and fastest growing • Focus on renewables (76% of installed capacity in Turkey, 48% of total installed capacity) • Renewable energy power plants that benefit from the USD-based fixed feed-in tariffs under the Renewable Energy players in geothermal energy Resources Support Mechanism in Turkey; overseas investments with long-term power purchase guarantees • Electricity sales to a total of 1.75 million customers • Strong license and project portfolio to support future domestic and overseas growth • Approximately 1.72 million subscribers in • Involved in each link of the electricity value chain electricity distribution • Electricity distribution and retail sales activities in Osmangazi Region which offers high growth potential in terms • Approximately 4% share in Turkey’s electricity of population growth, industrialization and urbanization • Integrated service capability distribution • More than 10 years of experience in natural gas distribution • 4.4% share in Turkey’s total natural gas • Investments and efforts for smart systems for becoming the energy company of the future consumption

• Turkey’s largest integrated polyester yarn • Europe’s largest integrated and innovative polyester yarn production center manufacturer and exporter • Household linen manufacturing facility with cutting edge production technologies • Europe’s leading producer of household textiles • Exports to nearly 60 countries • Widespread domestic and international sales and distribution network • Leading companies in the Turkish household linens sector • Wide product range

Zorlu Center: Located at the intersection of • Smart, eco-friendly and sustainable real estate projects that stand apart in their respective segments with their two continents, Turkey’s first five-function mixed-use architectural qualities and advanced technologies project, and Istanbul’s center of attraction. • Proven track record in Istanbul’s premium locations: The Zorlu Center and Levent 199 • Zorlu Shopping Mall: A shopping mall offering select restaurants and world-famous brands • Zorlu Performing Arts Center (PSM): Qualified to be among the top five performing arts centers in the Levent 199: Eco-friendly A+ office project with world, Zorlu PSM hosts a wide variety of events such as world-renowned shows, Broadway musicals, festivals accolades in office architecture attended by thousands of people, theater plays, live performances, opera and classical music concerts in its fully- equipped halls and areas. • Raffles İstanbul Zorlu Center: One of the world’s most luxurious hotel brands • Portfolio of high-potential plots of land in leading tourism destinations of Turkey

• Turkey’s first and only nickel-cobalt processing • As of the end of 2017, reserves equivalent to approximately 400,000 tons of Ni-metal content in licensed areas plant • 30 operating and exploration licenses • Innovative and environment-friendly production technology • Strong brand value • Growth-oriented investments

• Strong brand values • Growth-oriented investments

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Growth Strategies of Group Companies

CONSUMER ELECTRONICS ENERGY TEXTILES REAL ESTATE MINING- & HOUSEHOLD METALLURGY APPLIANCES

• Increasing sales in • Investing into new • Expanding retail • Prioritizing initiatives • Developing projects existing business technologies such as operations that will maximize the to enhance the smart systems and segments by • Focusing on high- value of the existing production and yield smart networks as well expanding product as into new growth value-added areas assets, particularly of the nickel plant range areas such as electric such as technical the Zorlu Center and • Utilizing advanced • Increase market vehicle charging textiles and Levent 199 technologies to shift stations as part of the share, particularly in seeking acquisition • Improving the land production from ores vision of becoming the household appliances energy company of opportunities stock: Initiating zoning into metals, and in by improving domestic the future changes that will drive time, into higher brand image, • Building upon the up the value of the value-added end distribution network existing renewables stock, and developing products and rare portfolio with a and after-sales particular focus on boutique or branded earth elements services geothermal and solar real estate projects on • In-house production • Seeking new brand energy through new existing plots of sulfuric acid, one licensing deals investments in and of the main inputs in outside of Turkey for international • Providing customers nickel production, markets in consumer with the highest utilization of the electronics segment level of service waste heat generated • Expanding into new by completing the during the operation network investments areas related with the to meet the steam and and improving electronics business the technological electricity need of the such as automotive infrastructure in existing nickel facility, electronics, medical electricity distribution, and minimization of increasing customer devices and energy environmental and outreach by storage systems expanding the existing social risks • Evaluating potential network to new acquisition/ districts in natural gas partnership distribution • Expanding the eligible opportunities abroad customer portfolio to expand into • Acquiring a 5% growing markets in the market share in Turkey household appliances in the short term and 10% in the mid-to segment long-term through a sustainable and balanced portfolio 28 Zorlu Holding 2017 Faaliyet Raporu

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We experienced a global trend of economic growth Message from the i n 2 017. Board of Directors Despite the social and economic challenges in various regions around the world, 2017 was a year in which global growth exceeded expectations.

Growth-oriented economic policies were one of the main factors that made this recovery a reality. With strengthening growth in developed countries along with the recovery in developing countries, including Turkey, the global economic trajectory started facing upwards.

While the growth in the U.S. economy gained pace, the Fed continued with its planned interest rate hikes. Although Europe, our largest export market, had a myriad of issues such as Brexit, a busy election schedule, challenges in Germany with regards to forming a government after the elections, the region continued With approximately 30,000 to see positive developments in the economy. Stronger growth indicated the start of the economic normalization process. employees and more than 60 companies, we are touching Growth gained momentum for the first time in seven years in China, one of the leading players in the global economy thanks the lives of people across to increasing exports. The increase in commodity prices, mainly oil, yielded a binary result benefiting exporting countries while 155 countries and working creating challenges for importers. to contribute to a better life The Turkish economy achieved an outstanding 7.4% growth today and tomorrow. in 2017 and ranked among the top G20 countries with this performance.

Stimulus packages and mainly the recovery in domestic consumption and investments achieved with the credit allocation through the Credit Guarantee Fund were the main drivers of the growth momentum in 2017. The year-end realizations in 2017 indicate that the fiscal discipline is still retained to a large extent despite the expansionary fiscal policies introduced during the year to support the economy.

Key developments for Turkey in 2018 will be focused on decreasing the pressure of geopolitical and political challenges on the economy, accelerating the increase in private sector investments and industrial production, balancing the composition of growth on the investment-export axis, bringing the inflation rate down to single digits, and eventually establishing a sustainable growth model.

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The current account deficit is expected to recover in the coming Turkey’s domestic automobile is on the way. period and it is projected that the global risk appetite will support capital movements towards developing countries, Turkey In 2017, we became part of another effort to generate value for will attract more foreign capital in parallel to the decrease in our country by collaborating with Turkey’s Automobile Initiative geopolitical risks and the improvement in tourism and export Group, a consortium of five companies that will produce Turkey’s revenues will become more evident. first domestically developed car.

We are aiming to generate more value-added. We believe that we will make a strong contribution to domestic car manufacturing by leveraging our Group’s strength in local At Zorlu Group, we have achieved a strong growth performance production and know-how in advanced technologies. despite the volatile conditions both in Turkey and around the globe. We are taking firm steps towards the future in all of our businesses. With approximately 30,000 employees and more than 60 companies, we are touching the lives of people across 155 With two R&D Centers and a Design Center accredited by the countries and working to contribute to a better life today and Republic of Turkey Ministry of Science, Industry and Technology, tomorrow. our Textiles Group continues to extend our international reputation as an innovative partner of global giants and the All of our achievements and success are built on our imagination, supplier of large fashion brands. our confidence in making our dreams a reality, our innovative nature, our trust in research and development, and our Vestel works on various concepts to move its smart products entrepreneurial spirit. We know that the future will be at the from houses to cities and from cities to various areas in life hands of those who can understand the rapid rate of change, and develops products that would generate value-added for can adapt, have big dreams about the future and make those the innovation economy such as advanced screen technologies dreams a reality. and record-breaking energy and water-efficient household appliances. While we always work with this understanding, we also continue to invest steadily. With our companies that operate in the fields The investment in our new washing machine and dryer of textiles, consumer electronics and household appliances, production plant, for which we laid the foundation in July energy, real estate and mining-metallurgy, we are striving to 2017, continues. The new facility, which will be fully-equipped deliver strategic products and services that will generate value- with modern manufacturing and Industry 4.0 applications, is added to ensure that our country achieves a more sustainable projected to start mass production in the second half of 2018. growth trend. We are working incessantly to make Vestel City the first facility to complete the Industry 4.0 transformation in Turkey. We are aware of the responsibility we have as one of the top three employers and the six largest exporter in the Turkish After great efforts, devotion and a three-year intensive work industry. on the trial production phase, our Meta nickel facility became operational. This responsibility drives us to take our steps today with a vision of tomorrow in order to boost our competitiveness and develop We believe that Meta Nikel-Kobalt Madencilik is much more new technologies. than a mining company: it will become the R&D and technology hub of our mining industry with its next-generation R&D and In line with this vision, we are now in the process of revisiting technology-based mining approach and a business model that our business model. Aiming to secure our place among the relies on interdisciplinary effort and innovation. companies of the future by adapting to the current state of technology and innovation-oriented change in the world, we are moving our sustainability approach, devised as part of our 2030 Sustainable Development Goals, to the core of our business model.

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Continuing its investments in and outside of Turkey, Zorlu Message from the Energy Group further strengthens its leadership position in Board of Directors renewable energy. Set to become one of the world’s few and Turkey’s largest geothermal power plant upon its completion in 2018, Kızıldere III GPP’s first phase with 99.5 MW of installed capacity became operational in 2017. In addition to our existing activities in electricity generation, sales, trade and natural gas distribution, we entered into the area of electricity distribution and retail sales with the acquisition of Osmangazi Elektrik Dağıtım AŞ and Osmangazi Elektrik Perakende Satış AŞ in February 2017 and continue our investments in this field. This year, we also commenced our first investments in solar power. While we initiated project development studies for a 100 MW solar power plant project in Pakistan we became the largest business partner and the only distributor of the U.S.-based solar PV (photovoltaic) module manufacturer First Solar, Inc. in 26 countries. We endeavor to engage in all aspects of the solar power business, from electricity generation to sales and roof We believe that we will make installation of solar panels. Preparing to deliver Turkey’s most innovative and groundbreaking projects in the coming period, a strong contribution to our Energy Group will continue to pioneer the industry and domestic car manufacturing always stand out among its peers. by leveraging our Group’s strength in local production and know-how in advanced technologies.

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Our Real Estate Group continues to work on socially and In addition to our economic operations, we will also improve environmentally conscious new projects that will utilize waste on our social support to culture, arts, environment and sports management to minimize their carbon footprints. activities as part of our goal for a sustainable future.

While the success of Zorlu Center, Turkey’s first five-function We are grateful for all of our stakeholders for their invaluable mixed-use project, is crowned with international awards, Zorlu contributions to making Zorlu Group one of the largest PSM, our Group’s highly reputable culture & arts center, hosts conglomerates in Turkey and for sharing our spirit, vision and more than 1,000 unique and vibrant events every year. mission of realizing our dreams of building a more livable world and creating a smart future. Perpetuating a 65-year-long tradition, Zorlu Group will always further its contribution to the Turkish economy through investments Kind regards, and value-added generated, and explore new horizons with confidence.

Ahmet Nazif Zorlu Zeki Zorlu Chairman Co-Chairman

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Message from the Board of Directors

All of our achievements and success are built on our imagination, our confidence in making our dreams a reality, our innovative nature, our trust in research and development and our entrepreneurial spirit. We know that the future will be at the hands of those who can understand the rapid rate of change, can adapt, have big dreams about the future and make those dreams a reality.

Ahmet Nazif Zorlu Chairman

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Message from the Board of Directors

Aiming to secure our place among the companies of the future by adapting to the current state of technology and innovation-oriented change in the world, we are moving our sustainability approach, devised as part of our 2030 Sustainable Development Goals, to the core of our business model.

Zeki Zorlu Co-Chairman

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Board of Directors

Ahmet Nazif Zorlu Zeki Zorlu Olgun Zorlu Chairman Co-Chairman of the Board Board Member

(1944 - Denizli) Ahmet Nazif Zorlu began his (1939 - Denizli) Zeki Zorlu launched his (1965 - Trabzon) Upon completing his higher professional career in a family-owned textile career in the family-owned textile company education in textile and business administration business in his early ages. Trading textiles at in Babadağ, Denizli. Having opened his first in the UK, Mr. Olgun Zorlu began his the store he opened in Trabzon in the initial textile store in Trabzon, Zeki Zorlu laid the professional career in 1986. He started to serve years of his career, Mr. Zorlu moved the foundations of Korteks in Bursa in 1976. Mr. in managerial positions at various Zorlu Group company’s headquarters to Istanbul and laid Zorlu founded Zorlu Holding together with his companies in 1988 and managed their foreign the foundations of Zorlu Holding in 1970. brother Ahmet Nazif Zorlu and incorporated market research and business development Ahmet Zorlu set up his first company, Korteks in Vestel into the holding in 1994. He played a operations. 1976 and gathered all of his companies under critical role in the foundation and acquisition Alongside his membership at Zorlu Holding the roof of Zorlu Holding in 1990. Acquiring of numerous companies in energy, tourism and Board since 1998, Olgun Zorlu also sits on the Vestel in 1994, Ahmet Zorlu opened the door real estate industries. Boards of other companies within Zorlu Group. to new lines of business for Zorlu Holding. Mr. In addition to his co-chairmanship duties on Zorlu’s entrepreneurialism, which began with the Board of Zorlu Holding, Zeki Zorlu also the textile industry, went on to manifest itself chairs the Board of Directors of Zorlu Group in more companies operating in a wide range companies operating in energy, textile and real of industries such as household appliances, estate industries. He is the Vice President of electronics, energy, property development, Textile Industry Assembly of TOBB (The Union metallurgy and defense. In addition to his duty of Chambers and Commodity Exchanges of as Chairman of the Board of Zorlu Holding, Turkey). Having served as member of the Board Ahmet Zorlu serves as the Chairman or Deputy of BUSİAD (Industrialists and Businessmen Chairman of the Board in numerous Zorlu Group Association of Bursa) for two years, Zeki companies operating in different industries. Zorlu currently sits on the International With a keen interest in non-governmental Patent Cooperation Union, BUFAD (Bursa organizations, Ahmet Zorlu sits on the Board of Disaster Association), the Foundation for the Directors of DEİK (Foreign Economic Relations Empowerment of Uludağ University, KALDER Board), TÜSİAD (Turkish Industry and Business (Turkish Society for Quality), SUSEB (Association Association), DENSİR (Education and Culture of Artificial Synthetic Fiber Manufacturers), the Foundation of People of Denizli), BASİAD Bursa Research Foundation, and the Association (Babadag Industry and Business Association) for International Competition and Technology. and TETSİAD (Turkish Home Textile Industrialists’ Association).

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Mehmet Emre Zorlu Selen Zorlu Melik Board Member Board Member

(1984 - Istanbul) Mehmet Emre Zorlu graduated (1975 - Trabzon) Selen Zorlu Melik graduated from the Department of Electrical and Electronics from the Department of Business Administration Engineering at Koç University in 2006. He of the Faculty of Economics and Administrative obtained a master’s degree in Innovation and Sciences at Uludag University. She began Technology Management from the University of her professional career at Denizbank in Essex in the United Kingdom in 2008. Mr. Zorlu 1998. Following her internship at the Bursa began working for the Vestel Group in 2009. Branch of Denizbank, she joined Denizbank’s Management Trainee Program in 1999. In addition to his board membership at Zorlu After working in a number of positions at Holding, Mehmet Emre Zorlu also serves on the the Denizbank head office, Mrs. Zorlu Melik Boards of Zorlu Group companies. Mr. Zorlu is attended a Marketing Certificate Program at a member of Young Businessmen Association of the University of California, Berkeley, USA in Turkey and Endeavour Turkey. 2001.

She began working at the Korteks Yarn Factory in 2002 and became a Board Member of the same company in 2004. In addition to her Board membership at Zorlu Holding, Mrs. Zorlu Melik also sits on the Boards of various companies under Zorlu Group.

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At Zorlu Group, we have achieved our targets for 2017, a year CEO’s Assessment marked by global and regional economic challenges.

In 2017, we continued to offer to the society the technology’s power to change lives as we have worked towards making the dream of a sustainable and smart life a reality. While we expanded our efforts in our current fields of operation, we also consolidated our strategic operations to propel us into the future. We began to reshape our corporate sustainability approach. For Zorlu Holding and our Group companies, we devised a roadmap that is aligned with the United Nations’ Sustainable By investing in fields that will Development Goals. drive synergy among our These steps taken towards corporate sustainability, which we Group companies and shape believe will make significant contributions to Zorlu Holding’s goal of becoming a global conglomerate, will form the backbone of the smart world of the future, the structure that will help us bring about a smart future. we are taking one important In parallel to its goals, Zorlu Holding closed 2017 with strong step after another to become operational results in all of its business lines. The Holding’s consolidated revenues reached TL 20.4 billion with a 43% a global group that delivers increase and consolidated EBITDA TL 2.7 billion with a growth value-added products and of 36%. In addition to the contributions from the new acquisitions conducted in the energy industry, the consolidation of Zorlu Yapı services. Yatırım AŞ for the first time in 2017 also supported for this strong performance.

With a focus on smart energy We leverage our commitment to enhance our Group’s synergy in designing a smart future. technologies for 2018, we By investing in fields that will drive synergy among our Group are preparing to deliver companies and shape the smart world of the future, we are Turkey’s most innovative and taking one important step after another to become a global group that will deliver value-added products and services. We groundbreaking projects in the are working to be part of the innovation economy which emerged energy sector. We are making as a result of the changes the world is going through. We know that in the future, big data, information technologies and digital investments to accelerate communication will combine to create a consumer experience- oriented, smart and connected product-service ecosystem. the transition to a smart life Various technology megatrends such as “Artificial Intelligence”, with a 360-degree vision “Augmented Reality” and “Blockchain” will radically change our lives. encompassing a wide variety of areas from smart products to smart homes and smart cities.

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By taking new steps to develop smart systems, we aim to continue In 2017, we laid the foundation for our new washing machine on our course towards a smart future which we set out to achieve and dryer production plant with a EUR 70 million investment. in 4Q17 by taking part in Turkey’s Automobile Initiative Group This new plant will help us cater to the demand in export markets to develop and manufacture Turkey’s first domestic automobile. and complete our product line in household appliances. We are Investing in new areas such as innovative energy systems and planning to complete this investment in mid-2018. high-performance battery technologies is among our short and medium-term plans. We have accelerated our Industry 4.0 efforts for Vestel City. Set out to be the first manufacturing facility in Turkey to complete At Zorlu Group, we are working day and night to build on our its transition to Industry 4.0, Vestel City will become a smart achievements in our current fields of operation while we take manufacturing complex where all the stages of manufacturing these steps to seize the future. from order to delivery will be automated. Vestel Elektronik has won the Special Award for TPM in television manufacturing As the leading producer of home textiles and the largest while Vestel Beyaz Eşya has received the Award for Excellence integrated polyester yarn manufacturer in Europe, we are one in Consistent TPM Commitment for its six production facilities of Turkey’s top exporting textiles groups. We are maintaining simultaneously, which proves that we have the upper hand in our expansion in Turkey and the surrounding geography with Industry 4.0 transformation. With its excellence approach, our own home textile stores. While we improve operational which is certified and smart products, services and concepts, efficiency with each passing day, we are leading the Turkish Vestel will continue to expand the smart life concept from houses home textiles industry with innovative products. to cities in the coming years.

We are proud to have coined the “Made by Zorlu” brand in the We also had significant achievements in other operations within area of technical textiles, proving our competency in R&D and Vestel Group. While retaining our leadership in the LED lighting technology. We continue to make a difference with our smart market, we have also expanded Karayel UAV product family and innovative products such as the “Self-Cleaning Roller Blind by developing NATO-standard unmanned aerial vehicle models and Fabric Curtain”, “Cool Pique”, “LED Curtains”, “Content that carry a variety of equipment for different uses.. Producing QR Code Bedding”. In the coming period, with the support of our two R&D Centers and the Ministry of Science, We project that Turkey’s first locally produced smartphone Venus Industry and Technology-approved Design Center, we will will continue to contribute to our export volume in the coming continue to be the global hub for the industry in the fields of period. yarn, fabric and home textiles. As ongoing projects become operational, our Energy Group Despite the volatile market conditions, Vestel maintained its is making significant progress in efficiency and profitability. growth momentum with an outstanding performance in 2017. Pioneering in local and renewable energy, our Group has Strengthening its position in the domestic market and exporting increased the share of renewable energy resources in its installed to 155 countries, Vestel has maintained its export leadership capacity in Turkey to 76% and in its total installed capacity to in the electronics industry for the past 20 years . As part of its 48% thanks to new investments commissioned. The fact that brand licensing agreements with the leading global brands such our Energy Group volunteered for the BIST Sustainability Index as Sharp and Toshiba, Vestel has increased its branded sales one more time makes us proud and consolidates our strength and improved in market position in Europe while it also aims to in the industry. Zorlu Energy Group, which has made many grow further in Africa, the Middle East and Asia. sustainability-related breakthroughs in its sector, took part in the Leader class with two of its companies under the CDP Climate Change Program in 2017, which has been launched to transform the business with a view to reducing the effects of climate change and protect natural resources.

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Set to become one of the world’s few and Turkey’s largest CEO’s Assessment geothermal power plant with 165 MW of installed capacity when completed, the first phase of Kızıldere III GPP (99.5 MW) became operational in 2017 with an investment of USD 320 million. The 65.5 MW second phase of the plant is scheduled to become operational in 1Q18. Moreover, we are working on the investment for the Alaşehir II Geothermal Power Plant project.

Following projects in geothermal and wind energy, we started to invest in solar energy in 2017. As an initial step we became the largest business partner and the only distributor of the U.S.- With a focus on smart energy based solar PV (photovoltaic) module manufacturer First Solar, technologies for 2018, we Inc. in 26 countries. The company develops next-generation technologies for solar power applications. Additionally, we are preparing to deliver have launched project development to build a 100 MW solar power plant in Pakistan, obtained pre-licenses for two 100 MW Turkey’s most innovative and solar power plant projects to be developed in the same region groundbreaking projects in the and signed a Memorandum of Understanding (MoU) with the Jerusalem District Electricity Company (JDECO) for establishing energy sector. We are making and operating solar power plants to supply electricity to Palestine. We will also launch a hybrid wind-solar power plant investments to accelerate project in Pakistan. We have obtained a pre-license for a 30 MW hybrid solar power plant project to be developed on the the transition to a smart life existing site of Jhimpir Wind Power Plant. with a 360-degree vision Dorad Energy Ltd., Ashdod Energy Ltd. and Ramat Negev Energy encompassing a wide variety Ltd., our partner companies in Israel, one of our main foreign markets, signed a natural gas purchase contract with Energean of areas from smart products Israel Ltd. to procure natural gas from Karish and Tanin fields to to smart homes and smart be developed by Energean in the Mediterranean Sea. cities. Another highlight of 2017 was our entry to the electricity distribution and retail sales businesses by acquiring Osmangazi Elektrik Dağıtım AŞ and Osmangazi Elektrik Perakende Satış AŞ for a total consideration of USD 360 million. Thus, Zorlu Energy Group now operates across the entire value chain of the electricity industry and has reached 1.7 million new customers. Starting from the first step we took, we have always built our image on our corporate and professional approach. We have given a warm welcome to 1,500 new colleagues who joined us with the acquisition of these two companies and enjoyed closely working with all of our regional stakeholders from day one. In addition to our electricity distribution and sales operations in

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Osmangazi region, we are still investing to enhance the existing Our goal is to become a leading global group of network and technological infrastructure and to improve our companies that will leave its mark on the future customer services. On the other hand, we continue to expand our natural gas distribution networks in Gaziantep and Trakya As has been the case for the past 65 years, we will continue (Thrace) regions with GAZDAŞ in order to provide natural gas to be a source of hope and inspiration for our country and distribution services to more consumers. facilitate the development of society through technology. Our definitive characteristics of an unlimited imagination, courage, With a focus on smart energy technologies for 2018, we are entrepreneurship and innovative approach will drive us towards preparing to deliver Turkey’s most innovative and groundbreaking our goal of becoming a global group of companies that shapes energy projects. We are making investments to accelerate the the smart world of the future. transition to a smart life with a 360-degree vision encompassing a wide variety of areas from smart products to smart homes and I would like to extend my thanks to all of our employees, business smart cities. We are working to launch a series of smart systems partners and other stakeholders who have shared our vision and ranging from car sharing services to electric vehicle charging committed themselves to achieving that vision. stations and smart energy poles to smart energy management systems. Sincerely,

Our Real Estate Group has started reaping the fruits of its investments with the contribution of Zorlu Center investment, Turkey’s first five-function “mixed-use” project. While the visitor traffic of the shopping center increases continuously, our Group’s hub for culture and arts Zorlu PSM hosts approximately 500,000 people at over 1,000 events including the world-renowned shows and artists every year, steadily fulfilling its goal to rank among the top five in its respective field.

Our Real Estate Group distinguishes itself with its projects focusing on the environment and society. To serve that end, we have launched an electric taxi service at the Zorlu Center, which Ömer Yüngül is a first for İstanbul. We hope to set an example for everyone CEO in the future by increasing the number of our zero-emission eco- friendly taxis. And again, at the Zorlu Center, we became the home for the Guide Dogs Association’s Head Office in Turkey to help the visually impaired become more self-confident in the society and move freely.

As for mining, we continue working on making our META Nikel facility the R&D and technology hub for the next-generation mining in Turkey. Our 2023 goal is to double the capacity of this facility with new investments to produce and export different and higher value-added forms of nickel and cobalt elements used as a vital and strategic component in electric car batteries.

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CEO’s Assessment

As has been the case for the past 65 years, we will continue to be a source of hope and inspiration for our country and facilitate the development of society through technology. Our definitive characteristics of an unlimited imagination, courage, entrepreneurship and innovative approach will drive us towards our goal of becoming a global group of companies that shapes the smart world of the future.

Ömer Yüngül CEO

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Message from Esteemed Stakeholders, At Zorlu Group, we continue to lead the sustainable and smart the Chairman life with our companies operating in industries that will propel of the Sustainability Turkey into the future. The world is going through a process where the private sector, Committee in addition to generating economic value, assumes a key role in solving social and environmental problems on a global and local scale.

Leaving the previous notion that they exist despite society, the companies now act with the understanding that they can exist with the society and by generating value. Sustainability strategies and practices are guiding companies through this process of change and transformation where companies remodel their businesses.

At Zorlu Holding, we have initiated the remodeling process of our sustainability practices at the Group level as part of this Upon the approval of the transformation. Throughout this process which started in 2017, we have adopted an equal opportunity and human-oriented 2022 Principal Sustainability management approach to ensure a more effective engagement to our sustainability vision by our Group companies and started Goals by Zorlu Holding focusing on generating shared value for the whole of society Board of Directors and and especially our employees. Upon the approval of the 2022 Principal Sustainability Goals by collaborating with the by Zorlu Holding Board of Directors and by collaborating with working groups within the the working groups within the Sustainability Committee, we have condensed these goals to sectoral and company level Sustainability Committee, we and devised our strategic roadmap of medium and long-term actions. Additionally, we are now in the process of monitoring have condensed these goals and completing the main and sub-goals of the Holding and to sectoral and company level Group on an annual basis in order to attain the primary goals set for the year 2022. and devised our strategic roadmap of medium and long- term actions

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We have accelerated our efforts within the Committee, which into our business as a permanent part of our corporate culture. we have been actively working in for the past two years, and, We know that there is a very long road ahead until we reach our as a result, expanded the working groups and completed our destination. As we aim high, true commitment and determination strategic actions for 2017 as part of our strategic action plan. are required to accomplish our goals. We will devote ourselves For 2018, we are planning to identify the goals for our Group to our work until every Zorlu employee feels like a sustainability companies and take action in line with our strategic action ambassador within this transformation campaign. plan. We have expanded our practices with the Working Therefore, we will integrate our long-term strategic goals into our Groups within the Sustainability Committee, which includes sustainability goals across all of our processes. At Zorlu Holding, representatives from our Group companies, thus facilitated the we know that it takes a great deal of commitment to achieve adoption of our sustainability approach across the Group. sustainability; therefore, we will take planned and systematic We have placed our sustainability approach, devised in steps with our innovative and creative structure, leveraging accordance with the United Nations’ 2030 Sustainable the support from all of our stakeholders and especially our Development Goals, at the center of our growth strategy. employees. I would like to hereby extend my gratitude to all of We are shaping this sustainable, growth-oriented and long- our stakeholders. term strategy with a future plan, which we call as “Smart Life Sincerely, 2030”. With its driving forces of “Environment”, “Cooperation with Stakeholders” and “Human Resource”, Smart Life 2030 is centered on our values of entrepreneurship, innovation and creativity; our investments in research and development and our goal for being the pioneer of change in our country. In line with this approach, we are working to create value for Turkey through our value-added services and locally manufactured high-value- added products which are focused on sustainability with an aim Bekir Cem Köksal to facilitate life and make innovations. Chairman of the Sustainability Committee On the road to achieving our goals, we do not base our progress solely on numbers, rather we see the bigger picture and focus on improving our employees’ competencies as part of our sustainability vision. To that end, we aim to integrate innovation

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Message from the Chairman of the Sustainability Committee We have placed our sustainability approach, devised in accordance with the United Nations’ 2030 Sustainable Development Goals, at the center of our growth strategy. We are shaping this sustainable, growth-oriented and long-term strategy with a future plan called “Smart Life 2030”.

Bekir Cem Köksal Chairman of the Sustainability Committee

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Senior Management

Ömer Yüngül Bekir Cem Köksal CEO CFO

(1955 - İzmir) Ömer Yüngül obtained his (1967 - Ankara) Cem Köksal graduated from bachelor’s degree in mechanical engineering the Mechanical Engineering Department of at Boğaziçi University in 1978. Mr. Yüngül Boğaziçi University in 1988 and obtained a launched his career at the construction master’s degree at Bilkent University in 1990. company Tekfen İnşaat, and went onto holding Having served in the banking industry between various managerial positions at Metaş, Faz 1990 and 2001, Mr. Köksal was named Deputy Elektrik, and Merloni Elettrodomestici. In 1997, General Manager at Denizbank in 1997. Mr. he was named the General Manager of Vestel Köksal joined Vestel as the Chief Financial Beyaz Eşya Sanayi ve Ticaret AŞ and became Officer in 2002. Mr. Köksal currently serves the Chairman of the Executive Board of Vestel as an Executive Committee Member at Vestel Group in 2000. Having served as manager at Group of Companies and as the Chief Financial Vestel for fifteen years, he was named the CEO Officer of Zorlu Holding of Zorlu Holding in 2013.

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Enis Turan Erdoğan Vedat Aydın İbrahim Sinan Ak CEO, Vestel Group CEO, Zorlu Textiles Group CEO, Zorlu Energy Group

(1955 - Mersin) Enis Turan Erdoğan obtained his (1951 - Konya) Vedat Aydın graduated from (1971 - Ankara) İbrahim Sinan Ak obtained his bachelor’s degree in mechanical engineering the Business Administration Department of undergraduate degree in business engineering at Istanbul Technical University in 1976 and Boğaziçi University in 1973 and obtained at Istanbul Technical University. He started his MBA degree from Brunel University, UK. a master’s degree in marketing at Shirley his career at Evgin Yatırım Menkul Değerler Following his return to Turkey, he served in Institute. Mr. Aydın launched his career at Akfil where he served as an investment specialist. managerial positions in various companies Mensucat and was transferred to Mensucat He later received his MBA degree at Old and joined Vestel in 1988. Having held several Santral in 1976. Following his managerial posts Dominion University, USA. Between 2000 and managerial positions at Vestel since 1988, at Spectrum Büro Sistemleri and Kaynar Export 2002, he worked as a Finance Chief at Vestel Mr. Erdoğan served as the Chairman of Vestel companies, he was appointed as the CEO of Komünikasyon and as Finance Manager at Foreign Trade and Executive Board Member Zorlu Holding Textiles Group in 1997. Vedat Vestel Beyaz Eşya between 2002 and 2006. of Vestel Elektronik until 2013. Since January Aydın also sits on the boards of TURKTRADE, Mr. Ak joined Zorlu Energy Group in 2006. 1, 2013, Turan has been serving as the CEO Dosteli Foundation and CEVA Trade. Until 2012, he served as rge Deputy General of Vestel Group. Mr. Erdoğan served as the Manager of Financial Affairs at Zorlu Enerji President of TURKTRADE (Turkish Foreign Trade Elektrik Üretim AŞ. In January 2012, he was Association) for two terms between 2002 and named the General Manager of Zorlu Enerji 2006. He also served as the first Turkish Board Elektrik Üretim AŞ. He has been serving as the Member of DIGITALEUROPE, the largest ICT CEO of Zorlu Energy Group since December 1, Confederation of Europe between 2010 and 2016. 2014.

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Senior Management

Mesut Pektaş Orhan Yılmaz Necmi Kavuşturan CEO, Zorlu Real Estate Group CEO, Zorlu Mining Group CEO, Zorlu Holding Human Resources Group

(1953 - Malatya) Mesut Pektaş obtained his (1960 - Kayseri)Orhan Yılmaz obtained his (1956 - Gaziantep) Necmi Kavuşturan bachelor’s degree in economics and statistics bachelor’s degree in chemical engineering graduated from the Faculty of Political Sciences at Middle East Technical University and his at Gazi University in 1984. Mr. Yılmaz also at Ankara University in 1979. He began his master’s degree in money, banking and finance holds master’s and PhD degrees from the same career as an expert at Türkiye İş Bankası in 1979 at Boston Northeastern University. In 1979, he university. In 1986, he launched his career and became the Deputy General Manager of started his career in the public sector at the as an engineer in boron and acid factories Interbank in 1985. Pioneering various projects Inspection Board of the Ministry of Finance of Etibank. He served as chief engineer, at Interbank such as “Management Trainee” where he served as Deputy Financial Auditor, principal engineer and manager, respectively trainings, open performance systems and Financial Auditor and Chief Financial Auditor. in the same company and was named Deputy overall quality management, Mr. Kavuşturan Mesut Pektaş entered the private sector in 1990 General Manager in 2003. In 2004, he was served as the Deputy General Manager in and served in senior management positions named General Manager and Chairman of the charge of Management Services at Denizbank at Petrol Ofisi, Med Union Containers and Board at Eti Mine Works, positions which he between 1997 and 2003. In these years, he Albaraka Türk, respectively. Mesut Pektaş was held until 2015. Between 2015 and 2017, he managed the Advertisement, Public Relations, named Deputy Secretary General at Istanbul served as an advisor at the Ministry of Energy Construction and Purchasing Departments of Metropolitan Municipality in 1996 and served and Natural Resources. Mr. Yılmaz has been Denizbank. Since 2003, Mr. Kavuşturan has as AKOM (Disaster Coordination Center) serving as the CEO of Zorlu Mining Group been serving as the Head of Human Resources Chairman, Board member of Istanbul World since January 2017. Group at Zorlu Holding. He is also an Trade Center and Chairman of the Board at Executive Committee Member at Vestel Group IDO, IGDAŞ and Halk Ekmek companies. of Companies and a Board Member at Zorlu Between 2005 and 2009, he served as the Gayrimenkul. Secretary General of Istanbul Metropolitan Municipality. Mr. Pektaş has been serving as the CEO of Zorlu Real Estate Group since July 2009.

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Burak İsmail Okay Murat Zeren Billur Demet Atan CLO, Zorlu Holding CIO, Zorlu Holding CAE, Zorlu Holding

(1967 - Ankara) Burak İsmail Okay obtained (1970 - İzmir) Murat Zeren obtained his (1964 - İstanbul)Billur Demet Atan obtained her his bachelor’s degree in the Faculty of Law at bachelor’s and master’s degrees in electrical- bachelor’s degree in Business Administration in Ankara University in 1990. He later attended electronic engineering at Bilkent University and 1986 and her master’s degree in international an International Law Certificate Program in his PhD degree at Ohio State University, USA. administration in 1988, both from Istanbul New York. Mr. Okay served as a lawyer in Upon his return to Turkey, Mr. Zeren managed University. She started serving as an the Legal Consultancy Department of Türkiye the R&D and software teams at Alcatel Teletaş, independent auditor at Ernst & Young. Between İş Bankası. He later served as Deputy Legal Telsim and Oksijen Teknoloji. He started his 1995 and 1996, she worked in the Chicago Advisor at Garanti Bankası, Legal Advisor academic career as an associate professor of office of E&Y and was named audit partner in at MNG Bank, Director of Legal Affairs at computer engineering at Boğaziçi University, 1998. Between 2000 and 2012, she served Nortel Networks Netaş and Partner at Bener where he held tenure from 2002 to 2004. as the Independent Audit Leader of Turkey at Law Office, respectively. In 2006, Mr. Okay During his academic career, he arbitrated and E&Y. Billur Atan joined Zorlu Holding in 2013. joined Zorlu Group and structured the Legal advised projects by TÜBİTAK (Scientific and Carrying out internal audit, tax audit and Department that serves all the companies within Technological Research Council of Turkey). Mr. financial audit activities of the Holding, Billur the Group. Aside from his duties as the Chief Zeren served in several managerial positions Atan is a member of the Expert Accountants’ Legal Officer, he has been sitting on the Board at Ülker Group, Argela Teknoloji and Türk Association of Turkey, Istanbul Chamber of Zorlu Enerji since 2007. Telekom before his appointment as the Chief of Independent Accountants and Financial Information Officer at Doğan Online. He joined Advisors and the Institute of Internal Auditing Zorlu Holding in 2014. of Turkey.

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Zorlu Holding 2017 Annual Report

Consumer Electronics & Household Appliances

Aiming to increase its competitive power in domestic and foreign markets, Vestel Group develops products that will offer an optimum mix of price, quality and innovation.

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Consumer Electronics & Household Appliances

Enis Turan Erdoğan CEO, Vestel Group of Companies

With our vision to integrate digital transformation and full connectivity into all of our processes at Vestel Today, our whole product range, Group of Companies, we are carrying out intensive projects in horizontal/vertical value chain integration, from household appliances to artificial intelligence software, cloud computing, IoT (the Internet of Things), lights-out factory applications television sets, consists of smart and automation (autonomous and robotics solutions). devices. In the next phase, we are We are further strengthening our competencies in planning to provide complementary industrial design, innovative product development and software with our efforts and investments for services along with our products to transition to Industry 4.0. Industry 4.0 transformation make the lives of consumers easier is of significance to increase our competitiveness in the global arena and be ahead of our competitors. and to facilitate the transition to a Therefore, we are using our best efforts to make Vestel City to be the first facility in Turkey to complete this smart life. transformation.

Today, our entire range of our products, from household appliances to television sets, comprises smart devices. In the next phase, we are planning to provide complementary services along with our products to make the lives of consumers easier and to facilitate the transition to a smart life.

In the coming period, we are planning to expand to new businesses related with the electronics industry such as automotive electronics, medical devices and energy storage systems.

In household appliances, we are looking to explore acquisition/partnership opportunities especially in the Asia Pacific Region, and planning to invest in these markets as part of our strategy to expand to new and growing markets.

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Developments in the consumer electronics and sales and marketing of products manufactured by Vestel Group household appliances industries during 2017 companies.

The Turkish household appliances market had a very strong year Vestel in Turkey in 2017 with domestic sales increasing by 14% to a record high 8.5 million units boosted by the temporary special consumption Vestel’s domestic sales network tax (SCT) relief, which was in effect during February 3 - September 30. • 1,136 Vestel stores • 10 Vs Outlet stores Domestic TV market shrank by 6% due to the lack of any major • 1,028 Regal stores (251 of which are Exclusive Regal Dealers) sporting events during the year and as a result of the depreciation • emagaza.vestel.com.tr of the Turkish lira, which had a negative impact on demand. • vsoutlet.com.tr • regal-tr.com With the economic recovery in Western Europe led by France, Spain and Italy and the strong growth in the Eastern European After sales services: market, Turkey’s household appliances exports increased by 6% to 20.6 million units. • 360 authorized service providers • 12 central services Turkey’s TV exports contracted by 19% during the first half of • Call Center 2017 due to the high base effect, while recording a strong • 5 güVENUSsü (Trust Base) centers recovery in the second half of the year with a 28% growth which • 5 mini güVENUSsü centers resulted in a 4% growth for the full year. Within the scope of its multi-channel strategy, Vestel reaches Vestel Group consumers through technology retailers, hypermarkets, household stores and e-commerce web sites, in addition to its Vestel Group of Companies (“Vestel Elektronik” or “Vestel”) exclusive dealer network. This strategy enables the company to comprises Vestel Elektronik Sanayi ve Ticaret AŞ along with its reach a wider customer base and increase its effectiveness and subsidiaries and affiliates. market share in Turkey.

The group operates in the areas of: Vestel’s Global Operation Network

• consumer electronics, Vestel’s international sales and marketing organization • household appliances, comprises the local sales offices of 11 foreign trade companies, • digital and mobile products. of which 10 are located in Europe and the direct sales points in neighboring regions. Vestel has 2,750 stores and sales points Vestel has 26 companies in total, 18 of which are located abroad. abroad. Consumer electronics, digital and mobile products of the group are produced by Vestel Elektronik, while household Operational and financial results of Vestel in 2017 appliances are manufactured by Vestel Beyaz Eşya Sanayi ve Ticaret AŞ (“Vestel Beyaz Eşya”), in which Vestel Elektronik Vestel’s consolidated revenues increased by 27% to TL 12.1 holds a 94.62% share. billion in 2017 driven by the strong growth in domestic household appliances sales thanks to the temporary SCT exemption, Vestel’s manufacturing facilities are located in Manisa. increase in smartphone sales and positive currency effect on Established over a 1.1 million square meters of area in Manisa, export revenues. Exports comprised 66% of the company’s total Vestel City is one of Europe’s largest industrial manufacturing revenues complexes operating in a single location. In 2017, the foundation was laid for the new washing machine and dryer production Against a double-digit contraction in the Western European TV plant which is planned to become operational in Vestel City in market, which is Vestel’s main export market, the company’s TV 2018. exports registered a slight growth in 2017, thanks to contribution from the sales of Toshiba branded TVs, which commenced for Vestel Ticaret AŞ (“Vestel Trade”), a fully-owned subsidiary of the first time this year under the brand licensing agreement Vestel Elektronik, carries out the domestic and international signed in September 2016 and gathered momentum especially

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Despite the contraction in the domestic TV market, of which Consumer Vestel had been the leader since 2014, the company maintained Electronics its sales volumes and sustained its leadership position by further & Household increasing its market share in 2017. Appliances The Turkish household appliances market had a very buoyant year in 2017, during which Vestel outgrew the market and increased its market share further.

The depreciation of TL exerted pressure on the company’s in the second half of the year. Vestel increased its household domestic margins, which coupled with the increase in raw appliances exports by double digits in 2017 thanks to new material costs especially in the household appliances segment, projects and strong growth in non-European markets. had a negative impact on Vestel’s profitability in 2017.

Vestel increased the number of its export destinations to 155 Consolidated EBITDA amounted to TL 867 million, remaining countries in 2017, realizing approximately 90% of Turkey’s total flat with 2016 while EBITDA margin receded to 7.2%. The TV exports and 30% of Turkey’s household appliances exports. consolidated net income for 2017 was TL 71 million.

VESTEL ELECTRONICS - 2017 FINANCIAL RESULTS

NET SALES EBITDA* SALES BREAKDOWN BY REGION

TL 12.1 TL 867 8% 34% 58% BILLION MILLION

EBITDA NET INCOME MARGIN* TL 71 7.2 % MILLION AVRUPA TÜRKİYE DİĞER

VESTEL WHITE GOODS - 2017 FINANCIAL RESULTS

NET SALES EBITDA* SALES BREAKDOWN BY REGION

TL 3,858 TL 466 22% 27% 51% MILLION MILLION

EBITDA NET INCOME MARGIN* TL 295 12.1% MILLION AVRUPA TÜRKİYE DİĞER

* Excluding other operating income and expense

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Vestel’s position in Turkey and international markets Vestel, which is one of the world’s leading ODM (Original Design Manufacturer) providers in consumer electronics and household With its nearly 16,000 employees, production capacity built appliances, is one of the three largest TV producers and among on advanced technology, and contribution to country’s exports, the top five household appliances manufacturers in Europe. Vestel represents an important source of power for the Turkish economy. Vestel appeals to different consumer tastes in 155 countries with its wide range of products, which reflects its competencies in A strong and well-known brand domestically, Vestel is also the technology development, design and product customization. leader of the Turkish TV market and one of the top three players Accounting for approximately 90% of Turkey’s exports in TVs and in the Turkish household appliances market. Furthermore, Vestel 30% in household appliances, Vestel has been an unwavering is among the ten most recognized brand names in Turkey. export leader in the Turkish electronics sector for the past 20 years.

155 EXPORT MARKETS ~30% SHARE IN TURKEY’S HOUSEHOLD APPLIANCES EXPORTS ~%90 SHARE IN TURKEY’S TV EXPORTS

EXPORT LEADER IN TURKEY’S ELECTRONICS SECTOR FOR THE PAST 20 YEARS

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Shareholding Structure

Other Shareholders (Free Float) 22.46%

VESTEL ELECTRONICS

Zorlu Holding AŞ Zorlu Holding AŞ (Free Float) 64.41% 13.13%

Other Shareholders (Free Float) 5.38%

VESTEL HOUSEHOULD APPLIANCES

Vestel Elektronik Sanayi ve Ticaret AŞ 94.62%

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Consumer Investments Electronics In order to meet the increasing customer demand in domestic and foreign markets, Vestel Beyaz Eşya is building a new & Household washing machine and dryer production plant on the 81,200 m2 Appliances plot which it purchased in Manisa Organized Industrial Zone in late 2016.

Vestel Beyaz Eşya broke ground for its new manufacturing plant, which will produce washing machines and dryers, in July 2017. The plant is expected to come online in Vestel City in 2018. Designed and configured in line with the Industry 4.0 principles, the new facility is planned to have an indoor area of 63,000 m2 Vestel will increase its production and will be realized with an investment of approximately EUR capacity in washing machines 70 million. with its new production facility, it This new plant investment with a manufacturing capacity of 750,000 washing machines and 750,000 dryers per year will will also add dryers to its existing increase the company’s manufacturing capacity in washing machines and add dryers to its product line. product line. This new investment, which is planned to be finalized in the second half of 2018 and offer employment opportunity for 1,100 people, will help meet the dryer demand in export markets, especially from the Northern European countries.

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Vestel and R&D Vestel allocates half of its R&D budget to the development of environmentally friendly products. Thanks to the R&D studies the R&D will always remain Vestel’s most distinct competitive company has carried out, its product range now consists entirely advantage. The company’s well-versed R&D team of over of products with energy ratings of A, A+, A++ or above, which 1,600 people and its R&D organization abroad will propel are considered the highest categories in energy efficiency. Vestel further. As a result of its R&D projects in the consumer electronics Vestel has a total of eight R&D centers: three Electronics industry, the company launched the following products in 2017: and one Household Appliances R&D centers at Vestel City, the manufacturing base in Manisa; two R&D centers at ITU • Vestel further improved its domestically manufactured OLED Technopark and Celal Bayar University Technopark and two TV and 8K TV products that were launched in 2016. overseas R&D centers in England and China. Vestel R&D units • At the IFA Fair, Vestel showcased the “Vestel Smart Mirror”, a have a large team of 1,600 people. personalized visual assistant brought to life by Vestel – Vitra collaboration. Vestel collaborates with several national and international • The company launched Venus Z10, the next-generation high- institutions and organizations, particularly with the universities, end model of the Venus smartphone family. within the scope of its R&D activities. Vestel developed and launched the following household Allocating approximately 2% of its sales revenues to R&D appliances in 2017: investments each year, Vestel is one of the three Turkish companies to rank among the world’s top 1,000 companies by • Washing machines of 7 kg and 10 kg loading capacities, R&D spending. which are 60% more energy efficient than A+++ products, • 70 cm double door Top Freezer refrigerators with a next To this end, Vestel’s R&D mission is based on the development generation cooling system, of technologies which will provide Vestel with advantages over • The smart home appliance line-up*, which includes remotely controlled dishwashers, washing machines, fridges, ovens its competitors in a fiercely competitive environment, while also and air conditioners, being a pioneer of technology in the fields which will enable the • A combi fridge having the highest energy efficiency level that sustainability of its competitive position and carry the company consumes 30% less energy than A+++ products, into the future. • The world’s quietest fridge with a 33 dBA (decibels) noise level thanks to the Pro-Drive technology, With it s strong vision, the company aims to b e a le ader in the field • The world’s least energy-consuming French Door refrigerator of “4C convergence” which has emerged through the integrated with A+++ energy performance, use of communication, consumer electronics, computing and • Record breaking dishwashers that only produce 36 dBA of content technologies in Turkey and Europe. noise with its extra silent feature, • Dishwashers with Direct Wash & Triple Wash washing Vestel actively continues its R&D efforts in new screen technologies, technologies, smart solutions, photovoltaic cells, energy • 45 cm dishwasher with a record-breaking energy efficiency (A++), transformation and storage systems, electric vehicle charging • Washing machines with a record-breaking 39 dBA of noise units, 5G, automotive electronics, wearable technologies and level, communication fields in the consumer electronics segment. • A first in the world for built-in ovens, the ‘Hot Air Shield’ function trapping inside the hot air and steam which rush out Vestel’s R&D focus in household appliances is to develop upon opening the door of a heated oven, technologies and products that efficiently use resources by • 75L pyrolytic built-in oven, maximizing energy and water conservation with functional and • Silent (35dBA) built-in oven, aesthetic designs, prolong the life and protect the freshness of • Super inverter air-conditioner, food, provide extra hygiene, are eco-friendly, deliver maximum • Super quiet air-conditioner. performance thanks to smart sensors and can be remotely controlled via Internet access.

* he oven and air conditioner were launched in 2015, and washing machine, dishwasher and fridge in 2017, which were offered as a complete product family in 2017.

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In the same year, the company also developed the world’s first Consumer mechanically controlled A+ built-in and free standing ovens. Electronics In 2017, Vestel Beyaz Eşya also developed the following & Household products, which will be launched in 2018: Appliances • Fridge with the Vacuum Bag Technology which uses vacuum sealing to keep food fresh up to five times longer, • The first fridge to feature voice command technology for automatic opening of the refrigerator doors, • Vestel Sterilizone® washing machine featuring UV-C technology, Vestel allocates half of its R&D • TwinJet® washing machine with a loading capacity of 12 kg, • The smartest washing machine ever - Vestel Intellicare, budget to the development of • Built-in oven with steam-assisted function. environmentally friendly products. As part of the collaboration with the U.S. based e-commerce Thanks to the R&D studies the giant Amazon, the Amazon Dash Replenishment service has been integrated into the smart washing machines produced by company has carried out, its Vestel. This new system enables automatic ordering of laundry detergent and fabric softeners via Amazon when their supply product range now consists entirely is at low levels. As part of another collaboration with Amazon, of products with energy ratings of TVs manufactured by Vestel were integrated into the ecosystem of Alexa. This enables users to control their TVs with voice A, A+, A++ or above, which are command by talking to Alexa through Amazon Echo or Echo Dot. considered the highest categories in energy efficiency.

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Vestel developed smart home and smart city technologies that This transformation, which will require a significant investment , enable all devices from electronics to home appliances to will speed up Vestel’s technological and innovative adaptation. communicate with each other, thus getting smart technologies When factories become smarter, all processes will be connected which rank among the leading future trends ready to enter the to each other from the beginning to the end, losses will be homes of people. reduced considerably and production lines will operate in a more agile and coordinated manner. Vestel’s R&D power and innovative approach are demonstrated through its ambitions regarding intellectual property and patents. The Industry 4.0 transformation will allow Vestel to enhance The total number of registered and patented inventions of the its competencies and competitive advantages from a multi- company reached 108 by the end of 2017. In the household dimensional point of view with gains such as customized appliances segment, the total number of registered and patented products that can respond more extensively and rapidly to inventions exceeded 150. consumer preferences and needs, greater flexibility and lower defects in manufacturing, higher product quality, reduced use of Industry 4.0 transformation resources, and higher efficiency.

As one of the pioneers of the Industry 4.0 transformation in The completion of the Industry 4.0 transformation will ensure Turkey, Vestel has made great efforts on the subject for more an end-to-end digitization and an ecosystem complete with all than three years . stakeholders in the value chain.

In order to implement its vision of digitization in every process, Vestel focuses on various fields such as horizontal/vertical value chain integration, artificial intelligence software, IoT (Internet of Things), light-out factory applications, automation (robot, Cobot (cooperative robot)) and 3D printing (layered/additive manufacturing).

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Consumer Vestel’s sustainability approach Electronics In line with its sustainability strategy that was built around its focus on economy, society, environment, and social & Household benefit, Vestel acts with “respect towards the environment Appliances and natural resources”.

As a global manufacturer, Vestel reflects its vision of sustainability to every one of its processes and closely monitors the environmental impact of its products at every step from design to production, and after the end of their service life.

Expanding its range of products that hold world records in energy Determined to increase its efforts and water conservation, Vestel mitigates the environmental impacts of its operations and Its production costs and risks and contribution towards a better through modern and environmentally friendly and human- future, Vestel applies sustainability focused manufacturing processes. to all of its business models Paying attention to the use of recyclable materials in production and reducing the diversity and quantity of materials used, Vestel from the use of its technology to aims to mitigate the environmental impacts of its operations management strategy. through measures such as energy saving, reduction, re-use and recycling of waste, and limiting or eliminating the use of hazardous chemicals. Vestel considers its own development akin to the development of the society, and is an avid supporter of social responsibility projects in addition to its contributions towards achieving economic and environmental sustainability.

Determined to increase its efforts and contribution towards a better future, Vestel applies sustainability to all of its business models from the use of its technology to management strategy.

On November 2, 2015, Vestel Elektronik was listed in the BIST Sustainability Index, which includes the shares of publicly traded companies traded on Borsa Istanbul with a high corporate sustainability performance. After remaining listed in the BIST Sustainability Index for the November 2016 - October 2017 period and having maintained its compliance with the index criteria, Vestel Elektronik was included in the Sustainability Index on November 1, 2017 for the third time.

Vestel Beyaz Eşya voluntarily applied for inclusion in the BIST Sustainability Index in 2016 and qualified for inclusion in the Index for the period of November 2016 - October 2017 by meeting the index criteria. Maintaining its conformity to the index criteria, Vestel Beyaz Eşya will also be listed in the BIST Sustainability Index on a voluntary basis in the November 2017 - October 2018 period.

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As part of its sustainability efforts, Vestel Elektronik has:

Increased the awareness for the environment Had its greenhouse gas emission estimates by providing environmental training for verified and certified by an independent and 1,578 employees in 2017. authorized firm. Shifted over 90% of its lighting to LED in all of its facilities.

1,578 employees >%90 LED

COMPARED TO 2016, IN 2017 VESTEL ELEKTRONİK REDUCED ITS

CARBON STEAM USAGE BY ELECTRICITY NATURAL GAS EMISSIONS BY 10.5% CONSUMPTION BY CONSUMPTION BY 8.35% 5.98% 6.51%

DIESEL FUEL PLASTIC RAW PAINT CONSUMPTION BY MATERIAL CONSUMPTION BY 5.45% CONSUMPTION BY 11.91% 23.76%

HAZARDOUS WASTE BY NON-HAZARDOUS WASTE BY 22.5% 18.2% BASED ON STAND ALONE TL revenueS. 68 Zorlu Holding 2017 Annual Report

As part of its sustainability efforts, Vestel Beyaz Eşya:

Saved 25,000 m3 of soil from contamination Saved 70 billion liters of clean water from by collecting all of its battery waste pollution by collecting its waste oil.

25,000 m3 70 billion liters

IN THE PAST 5 YEARS, IT HAS REDUCED ITS

WATER ELECTRICITY NATURAL GAS HAZARDOUS WASTE BY CONSUMPTION BY CONSUMPTION BY CONSUMPTION BY 40% 22% 29% 95% PER PRODUCT.

In the past 5 years, thanks to the technological developments in paper, raised its grade in the CDP-Carbon and CDP-Water dyeing units, Vestel Beyaz Eşya has reduced its powder paint programs from D to B, calculated its carbon and water footprints waste from powder paint use by 50%, and reduced the amount for 2016 in accordance with the ISO 14064-3:2006 Standard of powder paint used per product by 37%, prevented 62,851 and the ISO 14046 Water Footprint and had the estimates trees from being cut down in the past year by recycling waste validated by an accredited organization, Intertek - Canada Office.

After reducing annual carbon emissions by 623,750 kg thanks to its “Pressure optimization in dyeing pumps” project, Vestel Beyaz Eşya was granted the Low th Carbon Hero Award at the 4 Istanbul yearly Carbon Summit, becoming the first company to receive this award in the 623,750 kg consumer durables sector. carbon emission was prevented.

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Awards Received in 2017

Red Dot Design TESID Innovation and Customer Friendly Award Creativity Awards Brand/Customer Vestel was granted an award in the Vestel was granted the Product Friendly Organization “Vehicles and Vehicles Accessories” Development Process Award in the In 2017, Vestel’s authorized services category for its Envo Electric Vehicle TESİD-Large Company Category were granted the “Customer Friendly Charger design at the Red Dot at the 15th TESİD Innovation and Organization” Certificate given by Design Award 2017, one of the most Creativity Awards held by TESİD the TSE (Turkish Standards Institution), prestigious awards in the design (Turkish Electronic Industrialists while the company’s Vestel and Regal industry. Association) for its project Manufuture brands were granted the “Customer - New Generation of Vestel Friendly Brand” Certificates. Manufacturing. Accordingly, Vestel became the first company in its industry to receive both the “Customer Friendly Organization” and the “Customer Friendly Brand” Certificates.

Design Turkey 2017 Crystal Apple R&D Awards Vestel Beyaz Eşya was granted the Creativity Awards Vestel was granted the “Best R&D “Good Design Award” for its Vflex Vestel was granted 11 awards in total Center” Award in the electronics Induction Oven, Jasmine Dishwasher, with 2 Crystal and 9 Silver Apples at industry given as part of the 6th and the Flora Split Air Conditioner. the Crystal Apple Creativity Awards Private Industry R&D Centers Summit held as part of the “Crystal Apple for the fifth time in a row. Festival”.

iF Design Award Factory Excellence Awards Vestel Beyaz Eşya was granted the “iF Vestel Elektronik became the first company to receive the “TPM Special Product Design Award” for its Vflex Award” in television manufacturing at the TPM Awards held by JIPM (Japan Induction Oven and Magmaglass Glass Institute of Plant Maintenance) in 2017. Grill. Vestel Beyaz Eşya was granted the “Award for Excellence in Consistent TPM Commitment” and became the first and only household appliances company in the world to win the award with six factories simultaneously.

Good Design Award Plus X Award Venus Vega 5.2” Smartphone In 2017, Vestel returned home from the Plus X Award Ceremony with 25 awards.

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was honored with the “Special Award for TPM Achievement” in Consumer 2017 thanks to the successful integration of TPM practices with Electronics its culture.

& Household Vestel Beyaz Eşya received the TPM Consistency Award. Appliances Having been granted the “Award for TPM Excellence” in 2014 as the result of its successful TPM practices carried out at its refrigerator, washing machine, dishwasher, air conditioner- water heater, and cooking appliances plants since 2011, Vestel Vestel’s 2017 Highlights Beyaz Eşya was granted the “Award for Excellence in Consistent TPM Commitment” in 2017 after maintaining and building Vestel started selling Toshiba branded TVs. upon its existing processes. Vestel Beyaz Eşya has reached worldwide success by becoming the first and only company in As part of the brand licensing agreement signed with the the household appliances industry to receive the award for six Toshiba Visual Solutions Corporation in September 2016, Vestel factories simultaneously. started the production and sales of Toshiba branded TVs for the European market in 2017. Sales gained momentum especially in Vestel was granted the “Customer Friendly Organization” the second half of the year following the completion of the new and the “Customer Friendly Brand” Certificates. product line-up for the brand in June 2017. Vestel’s customer service and authorized service approach, Vestel was granted the TPM Special Award. which emphasizes after-sales services as much as it does product quality, was assessed by the Turkish Standards Institution (TSE) Vestel became the first company to receive the “Special Award and was granted the “Customer Friendly Organization” and the for TPM Achievement” in television manufacturing at the TPM “Customer Friendly Brand” Certificates. Awards held in Kyoto, Japan among the 90 participating companies in various sectors from 17 countries. Vestel became the first company to receive these certificates in its sector which verified once again that the company’s after- Previously crowned with the “Award for TPM Excellence” and sales services comply with the international standards. “Award for Excellence in Consistent TPM Commitment”, Vestel

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Vestel presented its Accessibility Project to country Vestel expanded the family of smart home appliances. representatives at the United Nations Conference of the States Parties. Following the launch of air conditioners and refrigerators in the smart home appliance family in 2015; smart dishwashers, Vestel participated in the Convention on the Rights of Persons French Door fridges and washing machines with TFT screens with Disabilities 10th Conference of the States Parties held in and remote connectivity were introduced to the market in 2017. June 2017 with the theme of “Technology for a Better Life” and Vestel smart household appliances (air conditioner, oven, presented its Accessibility Project to country representatives. dishwasher, washing machine, refrigerator) can be remotely controlled via Android or iOS tablets and At the session of the conference held on June 14 which smartphones.. explored innovative solutions to make the lives of people with Customers can remotely view and manage various product disabilities easier, Vestel talked about the humanitarian and functions such as temperature, active program and timing technological aspects of Its Accessibility Project; and presented by downloading the “Evin Aklı” (Smart Home) app on their its special products for disabled individuals , the employment smartphones or tablets. opportunities it offers to people with disabilities, and its other social responsibility projects for the disabled individuals to the Bavarian Data Protection Authority recognized Vestel as participants. the first television brand that ensures the safety of personal data. Vestel Beyaz Eşya became the first company in its industry to receive the ISO 14046 Water Footprint Certificate. Vestel was recognized by the Bavarian Data Protection Authority as the first television brand that ensures the safety of personal As a result of its “Water Management” efforts, Vestel Beyaz data with the protection system it developed for its Smart TVs. Eşya was granted the ISO 14046 Water Footprint Certificate, Vestel’s “Privacy & Data Protection” system successfully passed becoming a pioneer in its industry. the inspection of the Bavarian Data Protection Authority launched in 2015 for assessing the compliance of 13 Smart TV Having started its “Water Management” efforts, which aim manufacturers operating in the German market with the data to prevent water loss across all of its factories through R&D in protection legislation, outpacing its global peers. 2016, Vestel Beyaz Eşya became the first company to receive the “Water Footprint” Certificate after having its efforts evaluated by the Canada Office of Intertek, an accredited organization.

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Consumer Vestel Teknoloji Çözümleri Electronics In 2017, Vestel Teknoloji Çözümleri (Vestel Technology Solutions) signed an agreement to supply the flight information screens & Household of the Istanbul third airport, which is set become one of the Appliances largest airports in the world. Information screens of the new airport, the first phase of which is planned for completion in 2018, will facilitate the lives of passengers in the counter and gate areas as well as in the entrance of the airport and waiting halls. All information including flight times, and gate and counter information will be delivered to the passengers via the information screens equipped with Vestel’s technology.

In 2017, Vestel Teknoloji Çözümleri Vestel’s product sales to large food and fast food chains have seen an increase in line with the expansion in the businesses of signed an agreement to supply the its customers. Furthermore, Vestel’s digital display products have flight information screens to the been positioned at the platforms in the Marmaray Railway for use in displaying commercials and promotions. third Istanbul airport, which is set to Cooperation with major schools on Interactive LED Smart become one of the largest airports Boards continued in 2017, and new technologically up-to-date in the world. classrooms with Venus smartphones and Vestel smart boards were created in three campuses of a private school.

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Vestel LED Lighting Vestel Ventures

Vestel has carried the high level of energy efficiency in its Vestel Ventures Ar-Ge AŞ (“Vestel Ventures”) is the corporate electronics and household appliances product range to LED investment company founded by Vestel Elektronik in 2015 to lighting with the lighting solutions for street, industrial, office, support new ventures and add new business fields to the Group. store and home illumination. The company provides entrepreneurs with financial, R&D, design, production, marketing, and management support for In 2017, domestic customers of the Vestel LED lighting products mobile technologies and innovative devices. included Konya Organized Industrial Zone, Renault Factories, Kocaeli Stadium, and THY Technical Services, while international An arena of ideas where tech entrepreneurs meet, Vestel Ventures customers included Volvo Factory, Parc Asterix, Booker Stores, aims to contribute to Vestel’s global competitive strength by and Petit Jean. expanding the technological potential in its ecosystem through the companies it invests in. Vestel LED lighting products were also exported to countries like Germany, France, England, the Netherlands, Israel, Spain, To this end, from its foundation till the end of 2017, Vestel Ventures Romania, and Vietnam in 2017. invested in 11 enterprises both domestically and internationally. The fields the company has invested in include energy, health, bioplastics, mobile applications, AR/VR (Augmented & Virtual Reality) technologies, smart cities, and customer services.

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Consumer Vestel Savunma Electronics Having taken its R&D competence to the next level, Vestel also draws attention with its successful defence projects. Vestel & Household Savunma Sanayi AŞ (“Vestel Savunma”), an affiliate of Vestel, Appliances developed Turkey’s first domestic tactical Unmanned Aerial Vehicle (UAV) Karayel, which was designed and produced in accordance with Stanag 4671, NATO’s airworthiness standard.

The Karayel UAV system is produced for the Turkish Armed Forces (TSK) and consists of six aircrafts, three ground control stations, and ancillary subsystems.

The fourth member of the In addition to Karayel, Vestel Savunma AŞ developed Bora KARAYEL UAV family, KARAYEL- training aircraft for use in avionics tests and pilot training. SU was developed and presented to domestic and international customers.

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2017 Activities • The fifth R&D Center of the Vestel Group, Vestel Defence R&D Center was established.

• The fourth member of the KARAYEL UAV family, KARAYEL-SU • R&D efforts to develop fuel cells for UAVs were initiated. was completed and presented to domestic and international • The first R&D project in its field, Solid Oxide Fuel Cell customers. development for armored vehicles project was completed. • The expansion of the KARAYEL UAV’s mission capabilities continued with the integration of new technologies and payload types.

• International sales and marketing activities, which began with the Middle East market, expanded to four continents after intense feasibility studies.

• In November, Vestel Savunma participated in the Dubai Airshow, one of the biggest defence and aviation conventions in the United Arab Emirates, and presented the KARAYEL UAV family to an international audience for the first time.

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Zorlu Holding 2017 Annual Report

Textiles

With innovation and R&D at the heart of its business model, Zorlu Textiles Group reinforces its value driver brand position in global competition by utilizing technology to the fullest.

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Textiles

Vedat Aydın CEO, Zorlu Textiles Group

As one of the oldest and most innovative players in the Turkish textiles industry with 65 years of experience, we As a Group with an already strong maintain our role as the pioneer and the leader not only in our home market, but also in surrounding markets that base in manufacturing, we have represent a total population of 700 million. recently focused on investments Besides increasing our operational efficiency, we have aimed at generating higher value started to carry our strength in manufacturing and our success in wholesale trade to retail sales as well. As rather than expanding our capacity. part of our strategy to grow with our own branded stores, we plan to double the number of our stores and Similarly, we are setting high goals sales points in the next five years. for ourselves to increase the value- With innovation as our focus, we continue our efforts added of our exports. to design new and innovative products, introduce products that meet the needs of the future today, and to make the lives of our customers easier. Our products, which we designed as part of these efforts, such as self- cleaning roller blinds and fabric curtains, recyclable threads, LED illuminated curtains, content creating QR code bedsheets, and cooling coverlets have gained worldwide recognition.

As a Group with an already strong base in manufacturing, we have recently focused on investments which aim at generating higher value rather than expanding our capacity. Similarly, we are setting high goals for ourselves to increase the value-added of our exports.

Our Group continues its efforts to adopt the Industry 4.0 practices, which are as relevant to the textiles industry as they are to other manufacturing industries. Operating with the vision of adding convenience and comfort to the lives of its customers by integrating various technology- based innovations into its manufacturing processes, our Group will reap the fruits of its investments in the coming period.

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Zorlu Textiles Group The innovation approach adopted by the Group makes up the foundation of innovative products such as self-cleaning roller One of the top-ranking textile manufacturers in the world, Zorlu blinds and draperies, cooling coverlets, LED-illuminated curtains Textiles Group is a preferred business and solutions partner and quilt cover sets with QR codes that produce content, all on a global basis thanks to its high manufacturing capacity, proof of the success of Zorlu Textiles Group, which enjoys quality product line, and superior marketing and distribution competitive and leading position in technical textiles. capabilities. R&D augmenting competitive edge Led by Zorluteks Tekstil Ticaret ve Sanayi AŞ (“Zorluteks”) and Korteks Mensucat Sanayi ve Ticaret AŞ (“Korteks”, Zorlu Another megatrend affecting the textile industry is R&D. Until Textiles Group is mainly involved in the manufacturing and recently, R&D was a term identified with technology companies. marketing of yarn, drapery and home textiles. The Group has Today, we can see economic actors with high competitive power 12 manufacturing and marketing companies in total. include R&D at the center of their business model, regardless of industry. R&D is among the priority challenges in the textiles Zorlu Group’s activities in home textiles have grown rapidly industry which sees intensive competition on a global scale. over the years and expanded the borders of Turkey to spread to four continents. In 2017, Zorlu Textiles Group’s exports Powered by its two R&D Centers, Zorlu Textiles Group reached USD 176 million. With around 7,000 employees and consolidates and carries to the future its position as the innovative manufacturing facilities spanning 800,000 m2 in total, Zorlu and competitive business partner of world giants. Textiles Group is among the leading polyester yarn and home textiles manufacturers around the globe. Technology-intensive business model

Megatrends affecting the textile industry Digitization and technology-intensive business models affect the textile industry. Contrary to popular belief, textiles industry is The fourth industrial revolution is ongoing, and it transforms not a technology-intensive line of business. It is not possible for a only the business world but also the entire society, opening the textiles company that does not utilize and invest in advanced gates to a new era. In this process, digitization and rapidly technology to maintain a presence in global markets in the changing technology are fundamentally altering traditional medium and long-term. Fully aware of this simple fact, Zorlu business models. Economic actors focus their efforts on building Textiles Group continuously invests in technology and uses the a sustainable future under these challenging competitive best digital printing machines available in its manufacturing conditions. These developments also profoundly affect the textile processes. industry. Characterized as a traditional industry until recently, textiles stand out in the center of this change and transformation Human-oriented design as the most visible face of megatrends. Design is another megatrend that has an impact on the textiles Innovation to make life easier industry. More functional, more innovative, more human- oriented, more customized and more striking designs set the Innovation is at the center of this colossal transformation and stage for competition. change. Industry players that aim to be a part of the future should not limit themselves to manufacturing traditional products Today, textile companies that neglect the importance of design such as bedsheets, curtains or yarns, but also create innovation or fail to manage the needs and expectations of customers in order to proactively adopt to the changing expectations of cannot expect to survive. consumers, change their lives, and increase their quality of life. Zorlu Textiles Group accurately predicts consumer trends in world Zorlu Textiles Group actively applies innovation both to its markets, particularly in Europe, and can exceed expectations products and to its marketing practices. The first name that with a human-oriented design philosophy. comes to mind when talking about innovation in the textiles industry, Zorlu Textiles Group makes key investments to develop and manufacture innovative products that meet the needs of the consumers.

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Textiles 360-degree sustainability Sustainability is an essential element that is particularly relevant to all economic actors in today’s world. Sustainability is not simply limited to the environment; it is a holistic, 360-degree approach that involves the entire business cycle. Today, world’s leading retailers are highly sensitive about whether the suppliers they collaborate with meet the quality and standards Zorlu Textiles Group, currently of sustainability. in the process of implementing Zorlu Textiles Group is a highly preferred business and solution partner for global companies thanks to its sustainability vision, Industry 4.0 practices, responds quality, standards and applications. rapidly to the demands of its Smart production with Industry 4.0 customers all around the globe and Smart production with Industry 4.0 closely concerns the textiles increasingly reaps the fruits of the industry. In addition to providing communications between devices, Industry 4.0 also necessitates interaction of people investments it has made in smart and devices, and requires the establishment of a harmonious business management processes. ecosystem. One of the keys to a sustained presence in a fast and competitive business world, Industry 4.0 points out to a large and new universe encompassing factories, facilities, suppliers and business partners.

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Zorlu Textiles Group, currently in the process of implementing The Group remains the market leader in the Turkish home textiles Industry 4.0 practices, responds rapidly to the demands of its industry with the drapery and quilt cover products offered under customers all around the globe and increasingly reaps the fruits its TAÇ brand. of the investments it has made in smart business management processes. Linens is another leading brand of the Group. Zorlu Textiles Group has introduced an innovative and pioneering vision to A brand that creates value retail home textiles sector with Linens, which stands apart as Turkey’s only international home textiles chain store. In today’s world, being unique and maximizing the value offered to consumers is one of the main goals of manufacturers. Another brand from the group, Valeron has first been launched Consumers opt for brands that offer distinct products with high- in Europe before making its way to the domestic market. value-added that make them feel special and good, or in other words, brands that can go beyond offering products alone. Zorlu Textiles Group has an extensive retail organization Textiles industry is one of the industries where this trend is most in Turkey and abroad. In addition to this wide-reaching visible. Textile companies that wish to compete in the same organization, the Group also leverages e-commerce, alternative league as global players in today’s competitive markets must and wholesale delivery channels, the latter of which provides develop the capability for flexible production while focusing on access to approximately 3,000 sales points around Turkey. creating value for their customers. The Group has a strong in-house design team, and enjoys This is the approach that enabled Zorlu Textiles Group to put its another important competitive advantage in home textiles thanks “Made by Zorlu” brand across throughout the world. to its ability to offer tailored collections for its customers, which can be produced rapidly in varying quantities. Zorlu Textiles Group reaches customers in domestic and international markets through its leading brands.

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Textiles ZORLUTEKS Zorluteks is a global and leading company in home textile area.

Thanks to its drapery and home textile manufacturing facilities, marketing company and globally known brands, Zorluteks is one of the global and leading companies in the home textile sector.

Zorluteks ranks among the most modern and largest integrated textile producers with its giant manufacturing facilities in Lüleburgaz, Kırklareli, over 4,000 employees, exceptional quality of products, and the importance it places on the Zorluteks has demonstrated the environment, occupational health and working conditions. importance it attaches to technology Zorluteks is Europe’s largest integrated manufacturer of by adding to its machinery park the cotton home textiles. largest digital printing machine in Zorluteks produces its curtains at its modern machinery park within an indoor area of 60.000 m2 that consists of embroidery the world, a rare feat in the global and finishing operations. industry. The Company’s curtain production capacity is 20 million meters and 6 million ready-made curtains per year. Zorluteks also manufactures a variety of home textile products within an indoor area of 108,000 m2, including 96 million meters of quilt covers, coverlets, pillowcases, quilts, bedsheets, tablecloths, bed spreads, cotton drapery fabrics, jersey fitted sheets and towels. The Company has a machinery park which consists of 273 machines in its facilities with an indoor area of 60,000 m2 for weaving, knitting and warping.

In addition to Turkey, Zorluteks has a manufacturing facility in China, a marketing office in New York and a supply office operating in Shanghai.

Zorluteks employs the world’s largest digital print machine.

In order to meet the needs of its international clients as rapidly as possible, Zorluteks has made significant investments in digital printing machinery.

The first digital printing machine (reactive printing) of Zorluteks entered service in August 2011, becoming the first of its kind in Turkey capable of printing on 3.2 m-wide fabric. Zorluteks’s second printing machine (disperse printing) commence production in May 2013 and the third machine (reactive printing) in June 2014. The fourth machine (pigment printing), which entered service in July 2014, can print on 1.8 m-wide fabric. Zorluteks has demonstrated the importance it attaches to technology by purchasing and includeng to its machinery park the largest printing machine in the world, which is owned by only several companies around the world.

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Putting technology at the center of its activities, Zorluteks is the enables trustworthy companies to carry out their customs world leader at photograph printing systems. The system makes transactions at an expedited pace. it possible to print any photograph on fabric in the desired dimensions. Furthermore, 3D patterns, a new trend in the sector, Serving as a proof that the required standards on transparency, were printed for the first time in Turkey on Zorluteks bedding traceability, accountability, and plant safety are met, the products and introduced to the market. “Authorized Economic Operator Certificate” has made Zorluteks stronger in customs transactions. New generation printing machine park offers many opportunities such as low and sustainable energy costs, eco-friendly Zorluteks maintained its export-oriented performance in production, flexibility in manufacture, quick response, and the 2 017. ability to manufacture at the quantities requested by clients. To this end, the machine park gives Zorluteks a competitive edge, Manufacturing for the top brands in Turkey such as TAÇ, Linens, and contributes to the Company’s position as one of the most and Valeron, Zorluteks exports 62% its products to various parts popular textile companies in international markets, especially of the world, mainly the US, Europe, Japan, and Russia. in Europe. Zorluteks maintained its export-oriented performance 2017. Zorluteks has invested USD 4 million in two new digital printing Exporting 65% of its home textile products and 34% of its curtain machines (single pass and multi pass) and will continue to products to international markets, the company managed to integrate new printing techniques into its processes in the sustain its performance despite the challenging market conditions coming years. in 2017, and increased its sales volumes.

Zorluteks is the first company to receive the “Authorized Meanwhile, Zorluteks presented its product range to 60 countries Economic Operator Certificate”. in five continents and continued to market its products under TAÇ brand to approximately 20 countries including the Middle Zorluteks became the first home textile company in Turkey to East, Russia, Ukraine, and Georgia. The aim of the company is receive the “Authorized Economic Operator Certificate”, which to improve its presence in European market, where it already

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enjoys a strong position, and to enter new markets, particularly Textiles in the Middle East region and especially Iran.

Working together with big retailers in Europe, Zorluteks is devoted to establishing long-term and robust relations and ensuring the continuity of business operations. Zorluteks keeps online track of its stores, which enables the company to produce and export rapidly based on demand. Sustainability is an indispensable priority and competitive edge for Zorluteks.

Zorluteks deems sustainability as an essential priority in terms of presence in the future and a competitive edge.

Having finalized the first integrated The company is the first manufacturer in Turkey to manufacture 100% organic home textile products with Global Organic Textile manufacturing facility investment Standard (GOTS) Certificate. in its sector at a global scale, Having finalized the first integrated manufacturing facility Zorluteks contributes to and investment in its sector at a global scale, Zorluteks contributes to and supports a sustainable economy with its manufacturing supports a sustainable economy processes in all aspects. Zorluteks facilities are also among with its manufacturing processes in Turkey’s first ecological manufacturing plants. all aspects. Zorluteks’ facilities are Zorluteks Istanbul Design Center opened its doors in 2017. also among Turkey’s first ecological In today’s highly competitive environment, a systematic approach manufacturing plants. to design, technology, and innovation as well as the capability to develop innovative and high-value-added products have become indispensable for reaching new markets and customers. Acting on this necessity, Zorluteks has launched the Zorluteks Istanbul Design Center to create a holistic and continuous innovation culture.

Zorluteks Istanbul Design Center aims to become an important platform where innovative ideas transform into projects. Approved by the Republic of Turkey Ministry of Science, Industry and Technology, the Istanbul Design Center operates at a single location within an indoor area of 262 m2 at the Levent 199, the headquarter of Zorlu Holding.

Zorluteks Istanbul Design Center aims to create a sustainable, pioneering, and creative working environment where ideas compatible with company goals are transformed into projects through cooperation with universities.

Zorlu Textiles Group continuously invests in technology and utilizes the best digital printing machines available in its manufacturing processes.

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Zorlu Textiles Group’s global network

Zorlu Textiles Group reaches its customers via thousands of points in Turkey and abroad to offer them a wide range of products.

TAÇ LİNENS VALERON

ABROAD ABROAD ABROAD 18 COUNTRIES 8 COUNTRIES 40 COUNTRIES 118 STORES 12 STORES APPROXIMATELY 200 671 OUTLETS OUTLETS TOTAL OF 809 OUTLETS IN THE US

TURKEY TURKEY TURKEY 1,815 OUTLETS 28 CITIES 1 STORES 420 CONCEPT STORES 73 STORES 34 FACTORY OUTLETS IN 20 CITIES

60% of Zorlu Textiles Group’s products reach global customers through export.

KORTEKS ZORLUTEKS

40 COUNTRIES EXPORT TO 60 COUNTRIES EXPORT TO 230 CLIENTS

PRIMARY BRANDS

TAÇ, LINENS, VALERON, BIANCA LUNA, KRISTAL, CASABEL, BRIELLE

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In its production cycle, Zorluteks

PLANTED PROCESSED EACH DRECYCLED 90% RECOVERED 11 TONS KG OF COTTON BY 150,000 TREES OF ITS SOLID WASTE, OF BLACK DYE ON CONSUMING ONLY SINCE 2010, AVERAGE PER YEAR 80 LITERS OF WATER INSTEAD OF 120, FROM WASTE DYES, WHICH IS THE GLOBAL AVERAGE,

WITH THE HELP OF DECREASED THE USE SAVED 3,700 ENGAGED IN ITS EMPLOYEES, OF NYLON BAGS kWh OF ELECTRICITY ECOLOGICAL RECYCLED 1,140 BY PRODUCING THANKS TO MANUFACTURING IN LITERS OF VEGETABLE 63,000 ECO- DIGITAL PRINTING LINE WITH GOTS, OIL WITHIN THE FRIENDLY BAGS TO EQUIPMENT, ISO 14001 SCOPE OF WASTE DATE, AND OEKO- OIL COLLECTION TEX CERTIFICATES PROGRAM, AND ACCOMPLISHED SIGNIFICANT ACHIEVEMENTS. In its consumption cycle, Zorluteks;

MANUFACTURED MANUFACTURED SAVED ELECTRICAL ENERGY CERTIFIED PRODUCTS, BEDSHEETS USING WITH ITS STAIN-RESISTANT VEGETABLE FIBERS, AND EASY-TO-IRON PRODUCTS.

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KORTEKS As a manufacturer using the most advanced technology, the focus of Korteks is to achieve efficiency and profitability in Korteks is the biggest integrated and innovative polyester production. thread manufacturing center in Europe. Creating innovative solutions for domestic and international Founded in Bursa in 1989 to meet the demand for quality partners through major R&D investments and nanotechnology polyester thread in the Turkish textile industry, Korteks now spans application, Korteks is the world’s leading company in across a production area of 335,000 m2. At any given time, microfibers. there are approximately 2,500 types of polyester threads in the warehouses of Korteks, which stands out among its competitors Korteks has always been among the top-ranking polyester with its extensive product range. thread manufacturers not only in Turkey but also in the world, and it has increased its capacity through systematic investments, Polyester is the most important raw material in textile supporting its technology with innovation. industry at global level. Characterized by their durability and quality, Korteks’s products Looking at textile raw materials across the globe, it can be seen are completely chemical-free, ensuring their suitability for both that polyester-based products make up more than two thirds of the environment and human health. the total thread supply. Due to its various uses, versatility and flexibility, polyester continuously consolidates its position in the Aiming to achieve superior customer satisfaction by combining textile industry. technology with innovation, Korteks continues its efforts to continuously expand its product range, manufacture the highest- Although the initial aim of polyester thread production was to quality products, and always be the first choice of its customers. meet the need of Zorlu Textiles Group, it gradually evolved into a separate and significant line of business within the Group.

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After investing USD 1.2 million on efficiency, capacity Textiles increase, and general improvement projects, Korteks has taken a major step towards economic and environmental sustainability.

Korteks recorded a strong performance in 2017 despite volatile market conditions.

Korteks conducts approximately 85% of its product sales in the Turkish market, where it consumes around 700,000 tons of polyester threads annually. Aiming to increase its market The company is also active in the European market where it share and grow through customer complements its market presence with technical textile threads, which have high value-added, require special manufacturing oriented, innovative, and high- processes and involve advanced technology, and are especially value-added products, Korteks sought after in the automotive industry. offers high quality, unique, Being one of the leading exporters in Turkey, Korteks exports its products to more than 40 countries including Germany, Belgium, innovative, and environment friendly England, Italy, Spain, France, Poland, Portugal, Iran, Egypt, the polyester thread products to many United States, Canada, Mexico, and South Africa. According to 2017 data, the top three export markets of Korteks are, in order, textile companies across the global Germany, Italy, and Spain. arena. Korteks enjoys a strong competitive advantage in the world with its product range.

Aiming to increase its market share and grow through customer oriented, innovative, and high-value-added products, Korteks offers high quality, unique, novel, and environment friendly polyester thread products to a variety of textile companies across the global arena.

Korteks adds numerous new and useful products to its portfolio in an effort to enhance product variety with distinct and innovative options. These products have a high competitive strength the textiles industry in particular, and are increasingly being used in other areas like furnishing, carpets, towels, medical products, sweatshirts, top-wear and sportswear, outdoors, and automotive textiles.

Korteks manufactures super-bright, semi-matte polyester grade chips and super-bright/matte/semi-matte/full-matte ecru and dope-dyed polyester POY, FDY, textured, elastane, air-textured, twisted, bobbin-dyed and flat, mono-filament threads and yarns under the TAÇ brand. All of Korteks’s production facilities are designed to manufacture high-quality and special filament threads.

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In addition to POY, FDY and texturized thread, the company As the first Turkish company to implement direct-from-polymer also manufactures specially-pointed, non-torque, fancy twisted POY production in 1993, Korteks continues to invest in R&D- and elastane threads specific for different fields of use with over centered efforts and technology development to improve its 400 dope-dyed color choices. In its line of product, Korteks product quality. The company’s pilot facility consisting of also has product brands such as DRY TOUCH®, TAÇ FLAME manufacturing and texturing machinery and highly-advanced RETARDANT, TAÇ COTTON-LIKE, TAÇ ANTIMICROBIAL, TAÇ testing and analysis devices allow for research and development ANTISTATIC and TAÇ UV RESISTANT and products intended for efforts in a continuous and rapid fashion. technical textile industry. Zorlu Textiles Group aims for a stronger future with Industry Korteks’ R&D investments and technology development 4.0 practices. efforts continue unabated. Zorlu Textiles Group conducts Industry 4.0 activities that aim Korteks features the capacity to develop technology in-house, to increase efficiency in the entirety of the commercial and and attaches great importance to R&D investments in order to economic cycle, from manufacturing to marketing. strengthen its position in international markets.

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As a manufacturer internalizing Industry 4.0, Korteks has a team Textiles specialized on this field. Industry 4.0 is a system very much in line with Korteks’ production technology, and each and every automation process to this end is specially designed within the company. Korteks also cooperates with its business partners in terms of Industry 4.0. A global machinery supplier, with Zorlu Textiles Group conducts which Korteks has worked for many years, chose Korteks as its implementation partner in Industry 4.0. The aim of this project is Industry 4.0 activities in order to to jointly develop a system that can be marketed internationally increase efficiency in the entirety of within a year. the commercial and economic cycle, Korteks uses a large number of robots with various functionalities in different stages of production, and its production processes from manufacturing to marketing. are fully automated.

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Awards Received in 2017

Lovemark TAÇ was recognized as a Lovemark in the Most Loved Turkish Brands Survey co-organized by Media Cat and Ipsos.

The Largest Home Textiles Retailer in Turkey Zorlu Tekstil (with its brands TAÇ and Linens) was recognized as the Largest Home Textiles Retailer in Turkey at the Fast Retail Award Ceremony co- held by the Economist and Capital magazines.

One of the Super Felis Award in ITHIB Textiles Platinum Brands of Turkey the Innovative Award TAÇ was recognized as one of Approach/Textiles- On the award ceremony held in the Super Brands in Turkey in the Fashion category 2016 by ITHIB (Istanbul Textile and Superbrands Turkey Research. Raw Materials Exporters Association) TAÇ Self-Cleaning Roller Blinds for its highest exporting members, were granted the Felis Award Zorluteks was granted the Textiles in the Innovative Approach/ Platinum Award. Textiles-Fashion category

95 Energy

Zorlu Holding 2017 Annual Report

Energy

With an integrated structure that covers not only electricity generation, sales, and distribution but also distribution and trading of natural gas as well as the construction, maintenance, repair, and operation of power plants, a balanced generation portfolio in terms of both resource and geographical diversity , industrial experience and a strong standing in the market, Zorlu Energy Group is one of the leading players in the Turkish energy industry.

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Energy

İbrahim Sinan Ak CEO, Zorlu Energy Group

Thanks to its investments in renewable energy, Zorlu Enerji increasingly contributes to the sustainable future After geothermal and wind power, of Turkey and to global transition into a low-carbon economy. 2017 marked the beginning of our After the first unit of our fourth geothermal energy investments in solar energy as well investment, Kızıldere III Geothermal Power Plant became as our first steps towards our goal operational in August, the shares of renewable energy in Zorlu Enerji’s total installed capacity and total capacity of becoming the regional leader in in Turkey increased to 48% and 76%, respectively. solar power. After geothermal and wind power, 2017 marked the beginning of our investments in solar energy as well as our first steps towards our goal of becoming the regional leader in solar power.

Our growth plan in solar energy is to strengthen our presence in our nearby region through investments in solar, and to offer value-added solar energy solutions to a vast geography with Turkey at the center through various business models such as our partnership with First Solar from the US.

In 2017, we expanded our activities into every link of the electricity value chain by adding into our business portfolio electricity distribution and retail sales through new acquisitions. We were quick to make investments to increase efficiency in our new business areas following the acquisition; we continued our investments to extend the natural gas distribution network, and expanded our subscriber base.

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Zorlu Energy Group operates in the following fields:

With the projects we realize, we continue to pioneer • Generation and sale of electricity and steam, many areas in the energy industry in terms of • Electricity trade, sustainability, which sits at the center of our business • Electricity distribution and retail sales, model. • Turnkey construction of power plants, • Long-term operation, maintenance and repair of power We are designing a sustainable future with our plants, investments in new technologies. In 2018, besides • Natural gas distribution focusing on smart technologies and IT systems, we • Distribution and sales of natural gas plan to create a car-sharing platform involving electric • Solar panel distribution and sales. vehicles and

The consolidated revenue of Zorlu Energy Group increased by 82% to TL 5.2 billion with the inclusion of electricity distribution Turkish Energy Industry in 2017 and retail sales operations into the business portfolio in 2017.

Electricity consumption in Turkey grew by 6% YoY to 294,940 Electricity Generation, Sales, Distribution and Trade GWh in 2017. In the same period, electricity generation increased by 8.1% to 295,511 GWh. Zorlu Enerji

With the contribution of new power plants commissioned in Zorlu Enerji Elektrik Üretim AŞ, the only publicly-listed company 2017, the share of wind, geothermal and solar power plants in of Zorlu Energy Group, and its subsidiaries and affiliates engage total electricity generation increased from 7.8% in 2016 to 9.0%, in electricity and steam generation and sales, electricity trading, and the share of natural gas power plants, which had been on a and electricity distribution as well as retail sales. declining trend in recent years, increased from 32.1% to 36.6%. The first company of Zorlu Energy Group, Zorlu Enerji started Due to a 27% decline in the level of water flows to dams in its activities in 1993, and today, it is one of the leading 2017 as compared to 2016, the share of hydroelectric power players in the Turkish energy industry thanks to its balanced plants in total generation decreased from 24.6% to 19.8% while generation portfolio consisting of domestic and international the share of coal and lignite fired power plants was realized as plants that emphasize resource diversity, its integrated structure 33%, slightly lower than in 2016 (33.7%). that encompasses electricity generation, sales, trading, and As of the end of 2017, total installed capacity of Turkey increased distribution activities and its vast experience in the industry and by 6,703 MW annually (factoring in the power plants retired strong standing in the market. during the year) and reached 85,200 MW. As of the end of 2017, the total installed capacity of Zorlu Enerji’s By year-end 2017, hydroelectric energy accounts for 32% of operational power plants is 1,091 MW. total installed capacity, natural gas for 31%, domestic and imported coal for 22%, wind for 7.6%, solar for 4%, geothermal Generation portfolio of Zorlu Enerji consists of for 1.2% and other energy sources for the remaining 2.1%. 23% of the total installed capacity belongs to EÜAŞ (the state-owned • 7 hydroelectric, 3 wind, 4 geothermal and 3 natural gas electricity generation company), 11% to power plants operated power plants in Turkey and under the build-operate-transfer (BOT), build-operate-own • 1 wind power plant in Pakistan and 3 natural gas power (BOO) and transfer of operating rights (TOR) schemes, and the plants in Israel. remaining 66% to independent power producers and unlicensed power plants.

Zorlu Energy Group

Founded in 1993 with the establishment of Zorlu Enerji Elektrik Üretim AŞ (“Zorlu Enerji”), Zorlu Energy Group is a global group of companies offering services in different fields of the energy industry.

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The 56.4 MW wind power plant developed in Jhimpir, Pakistan Energy by Zorlu Enerji Pakistan Limited, a fully-owned subsidiary of Zorlu Enerji, is the country’s first wind power plant developed with foreign investment.

Zorlu Enerji, one of the few private sector energy companies operating in Israel, has completed and put into service three natural gas power plant investments in the country with a total installed capacity of 1,031 MW in cooperation with its partners Zorlu Enerji continues its research in Israel. The company’s total installed capacity corresponding to its shares in these investments is 290 MW. and investment efforts in solar Zorlu Enerji continues its research and investment efforts in solar power, a high-potential area. power, a high-potential area. Accordingly, in 2017, Zorlu Solar Pakistan (Private) Limited, a Pakistan-based company which is 99.7% owned by Zorlu Enerji, commenced project development for the Bahawalpur I Solar Power Plant, which will be constructed in the Punjab State of Pakistan with an installed capacity of 100 MW.

In 2017, pre-licenses were obtained in Pakistan for two other power plant projects to be developed in Punjab province with 100 MW of installed capacity each, as well as for a hybrid

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solar power plant project with 30 MW of capacity to be built on Tereshkovo Power Plant is around 1.2 billion kWh, which the the existing site of Jhimpir Wind Power Plant in the Sindh region plant sells to REK. The power plant’s heat generation per year of Pakistan. varies between 80,000 and 100,000 Gcal depending on the As part of the partnership agreement Zorlu Holding signed in local heating needs, and the plant sells the heat to MOEK. 2017 with the US-based First Solar, which develops next-gen solar energy technologies, Zorlu Solar Enerji Tedarik ve Ticaret In order to add electricity distribution and retail sales activities AŞ (“Zorlu Solar”), a 100% subsidiary of Zorlu Enerji became to its portfolio and further increase the range of services it offers the largest business partner and the sole authorized distributor to the end user, in February 2017 Zorlu Enerji bought all shares of First Solar in 26 countries in the Eastern Europe, Eurasia, and of Osmangazi Elektrik Dağıtım AŞ (“OEDAŞ”) and Osmangazi Eastern Mediterranean, and started solar panel sales as of the Elektrik Perakende Satış AŞ (“OEPSAŞ”) for a total consideration second quarter of 2017 as per the agreement. of USD 360 million. With this acquisition in 2017, Zorlu Enerji added electricity distribution and retail sales activities to its In addition to the investments made under Zorlu Enerji, the operations, which previously consisted of electricity generation, publicly listed company of Zorlu Energy Group operating in the sales, and trading. OEDAŞ distributes electricity to 1.7 field of electricity generation, the Group also has a combined million subscribers within the provincial borders of Eskişehir, cycle natural gas power plant (Tereshkovo Power Plant) in Afyonkarahisar, Bilecik, Kütahya and Uşak. OEPSAŞ, on the Russia, Moscow, which has an electricity generation capacity other hand, is the assigned supplier for the region while also of 217 MW and a heat generation capacity of 150 Gcal*/ selling electricity to eligible consumers. hour. Tereshkovo Power Plant, which commenced operations in November 2011 as a simple cycle power plant, switched to combined cycle generation in March 2012 as local heating and hot water systems entered service. Annual generation of

* Gigakalori

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Shareholding Structure

Free Float Korteks Mensucat Sanayi ve Ticaret AŞ 32.0% 17. 5 %

ZORLU ENERGY

Other Zorlu Holding AŞ 4.8% 45.7%

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ZORLU ENERGY – 2017 FINANCIAL RESULTS

NET SALES EBITDA* NET PROFIT

TL 3,871 TL 879 TL 52 MILLION MILLION MILLION

With the addition of distribution and retail sales activities in the plants benefiting from the YEKDEM mechanism increasing to five portfolio, the acquisition of OEDAŞ and OEPSAŞ, an increase after the addition of the two previously mentioned power plants, in sales to YEKDEM (Renewable Energy Resources Support 21% depreciation of TL against the US Dollar during the year, Mechanism), and the first phase of Kızıldere III GPP becoming which together boosted the company’s YEKDEM revenues in TL operational in August, consolidated revenues of Zorlu Enerji terms, and Zorlu Solar commencing sales activities in the second grew by 216% to TL 3,871 million in 2017. quarter of the year under the distribution and supply agreement signed with First Solar. Meanwhile, EBITDA* increased by 113% to TL 879 million due to a number of factors, including the strong contribution of OEDAŞ With the strong growth in operating profitability, Zorlu Enerji to operating profit, full-year operation of Sarıtepe and Demirciler closed the year 2017 with a positive bottomline for the first time Wind Power Plants for the first time in 2017, the number of power in four years, recording a net profit of TL 52 million.

* EBITDA calculation includes the depreciation expense which is reported under operating expenses, interest income related to distribution activities, and the share of profit/(loss) of associates.

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Energy Zorlu Enerji’s Activities in 2017 Electricity generation and sales

Zorlu Enerji’s gross electricity generation decreased by 3.5% YoY to 2,467 GWh in 2017.

Although Sarıtepe and Demirciler Wind Power Plants operated for the full-year in 2017 and the first unit of Kızıldere III Geothermal Power Plant, which became operational in August, The first unit of the 99.5 MW partially contributed to total electricity generation, the effects Kızıldere III Geothermal Power of the countrywide drought and the İkizdere Hydroelectric Power Plant not being operational for a year due to being under Plant, Zorlu Enerji’s fourth rehabilitation, and the decreased production at natural gas power plants owing to capacity closures and high generation geothermal power plant project in costs led to a decline in total electricity generation in 2017. Turkey, commenced operations in

August. Similar to the decrease in electricity production, electricity sales from generation also declined by 4% YoY to 2,267 GWh in 2017. With the addition of 1.7 million new customers to the company’s portfolio through the acquisition of Osmangazi Elektrik Dağıtım AŞ and Osmangazi Elektrik Perakende Satış AŞ in February 2017, electricity sales from trading (i.e. procured

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from the market) increased by 199% and reached 8,065 GWh. In addition to the Bahawalpur I SPP investment, Zorlu Enerji Thus, total electricity sales surged by 104% to 10,333 GWh in signed a Letter of Intent with the provincial government of Punjab 2 017. in Pakistan and obtained a pre-license for two more solar power plant projects in the region with 100 MW of installed capacity The acquisition of Osmangazi Electricity Distribution Area each.

Having nearly 25 years of experience and expertise in the Further investments are in the pipeline in the country. Zorlu energy industry, Zorlu Enerji acquired Osmangazi Elektrik Enerji obtained a pre-license from Pakistan Alternative Energy Dağıtım AŞ (“OEDAŞ”) and Osmangazi Elektrik Perakende Development Board for a hybrid 30 MW solar power plant Satış AŞ (“OEPSAŞ”) for a total of USD 360 million through project to be developed on the existing site of Jhimpir WPP in its fully owned subsidiary Zorlu Osmangazi Enerji Sanayi ve the Sindh region of Pakistan. The said project will be the first Ticaret AŞ (“Zorlu Osmangazi”) on February 2, 2017. Adding hybrid project in Pakistan to generate wind and solar power. electricity distribution and retail sales to its portfolio with this acquisition, Zorlu Enerji now operates across the entire value Distribution Agreement with First Solar chain of the electricity industry. With this acquisition, Zorlu Enerji started providing electricity distribution service to over In February 2017, Zorlu Solar, a fully-owned subsidiary of Zorlu 1.7 million subscribers in the Osmangazi electricity distribution Enerji, signed a deal with the US-based First Solar, Inc. (“First region, which comprises the cities of Eskişehir, Bilecik, Uşak, Solar”), , which develops next-gen solar energy technologies, Afyonkarahisar and Kütahya and accounts for nearly 4% of the to become the exclusive distributor of high-performance thin-film total electricity consumption in Turkey. photovoltaic (PV) modules produced by First Solar in a total of 26 countries in Eastern Europe, Eurasia and Eastern Mediterranean Phase I of Kızıldere III Geothermal Power Plant is regions for the next five years. Zorlu Enerji will be making use of commissioned. the solar panels of First Solar in its own projects as well.

The first unit of the Kızıldere III Geothermal Power Plant (”GPP”), As part of the said distribution agreement, Zorlu Solar began Zorlu Enerji’s fourth geothermal energy project in Turkey which domestic and international sales and distribution of First Solar’s has 99.5 MW of installed capacity, was commissioned in August solar PV panels as of the second quarter of 2017. 2017. Located in the Kızıldere - Gökgedik area on the provincial border between Denizli and Aydın, the plant, for which the Letter of Intent with JDECO construction began in 2016, was realized with an investment of USD 320 million. Entering into a brand-new agreement in solar energy, Zorlu Enerji Still under construction, the second unit of Kızıldere III GPP, signed a Letter of Intent with the Jeruselam District Electricity which will have 65.5 MW of installed capacity, is planned to Company (“JDECO”), which is responsible for the distribution be brought online in 1Q18. of electricity in Jerusalem and its environs and supplies 25% of Palestine’s energy, in 2017 for the construction and operation New investments in renewable energy in Pakistan of solar power plants to supply electricity to Palestine. With the said investment in Palestine, the company has made another Commissioned in 2013, Zorlu Enerji’s Jhimpir Wind Power great stride towards leading the development of solar power in Plant (“WPP”) in Pakistan, was the first wind power plant in this the region. country to be realized with foreign investment. The company will be further expanding investments in Pakistan by developing the New natural gas agreement for Zorlu Enerji’s power plants 100-MW Bahawalpur | Solar Power Plant (”SPP”) in the Punjab in Israel province. It is the first renewable energy project accepted by the Pakistani Government in three years. For the project, a Dorad Energy Ltd., Ashdod Energy Ltd. and Ramat Negev Ltd., generation license for 25 years was obtained from the Pakistan in which Zorlu Enerji is a shareholder, signed a “Natural Gas National Electric Power Regulatory Authority in August 2017. Purchase” agreement to procure natural gas from the Karish and The project development of Bahawalpur ISPP began in 2017. Tanin gas fields in the Mediterranean Sea. Under the agreement The power plant is planned to be commissioned in 2019. signed with Energean Israel Ltd., up to 6.75 billion cubic meters of gas would be purchased for the Dorad Natural Gas Power

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Plant, which is the largest gas fired power plant in Israel, and a Energy total of 2.65 billion cubic meters of gas would be procured for the Ramat Negev and Ashdod Natural Gas Power Plants for a period of at least 14 years. Acquired by Energean in 2016, the Karish and Tanin gas fields, which are located offshore Israel, are scheduled to commence natural gas production in late 2020.

Zorlu Enerji was included in the BIST Sustainability Index on a voluntary basis for the second time

Zorlu Enerji voluntarily applied in late 2015 to be included in the BIST Sustainability Index, which comprises the shares of listed companies on Borsa Istanbul with a high corporate sustainability Within the scope of the program, performance. As a result of the evaluations conducted by Borsa İstanbul AŞ in 2016, Zorlu Enerji was qualified to be included Zorlu Enerji Elektrik Üretim AŞ in the index for the November 2016 - October 2017 period. and Zorlu Doğal Elektrik Üretimi Applying on a voluntary basis for the second time, Zorlu Enerji was deemed eligible for inclusion in the index for the November AŞ were rated “A-” on the 2017 2017 - October 2018 period as well, thanks to its continued compliance with the index criteria. report prepared by CDP Turkey. The companies were named the Two Companies of Zorlu Energy Group Received the CDP Turkey Climate Leadership Award “Leaders” and were entitled to CDP With numerous sustainability breakthroughs in its track record, Turkey 2017 Climate Leadership Zorlu Energy Group joined the Leaders club with two companies Awards. in the CDP Climate Change Program, which aims to change the way the business world operates in order to reduce the effects of climate change and to protect natural resources. Zorlu Enerji Elektrik Üretim AŞ and Zorlu Doğal Elektrik Üretimi AŞ (“Zorlu Doğal”), which received an “A” rating on the 2017 report prepared by the CDP Turkey team within the scope of the program implemented by CDP Turkey, were awarded the CDP Turkey 2017 Climate Leadership Award in the Leaders category.

Electricity Distribution and Retail Sales

Osmangazi Elektrik Dağıtım AŞ (OEDAŞ)

OEDAŞ distributes electricity within the provincial borders of Eskişehir, Afyonkarahisar, Bilecik, Kütahya and Uşak. The company is responsible for operating the electricity distribution network in its designated region, making the necessary maintenance and expansion investments, reading and maintaining the electricity meters of the distribution system users in the region, preparing demand forecasts and investment plans, illumination of public areas and purchasing electricity to make up for the shortfall in the region stemming from theft and loss As a region with high potential for rapid growth potential especially in terms of university population, industrialization and urbanization, the number of users in Osmangazi region increase

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by an average 3% on an annual basis. In 2017, the number of tariffs regulated by EMRA. The company can also sell electricity subscribers in the region grew by 3.5%, exceeding 1.7 million. to eligible consumers all around Turkey without any region limitations. While the amount of electricity distributed in the region increased by 2.4% to 6.1 TWh in 2017, the theft and loss ratio was realized Following the acquisition of OEPSAŞ by Zorlu Osmangazi in as 6.97%, remaining below the regulatory target of 7.93% set by February 2017, efforts were initiated to increase efficiency in the Energy Market Regulatory Authority (“EMRA”) for the year. processes and operations and to transform operational processes Per capita electricity consumption in the region grew by 2.8% to in retail sales and in all other activities into technology-boosted 2,406 kWh during the year.. business models which quickly adapt to customer demands.

Accelerating its investments after its acquisition by Zorlu Enerji, Corporate image activities were launched at the existing OEDAŞ undertook TL 435 million of investments in 2017 in order to Customer Centers. Services provided in 47 locations across 5 provide quality and uninterrupted services to customers, improve provinces were turned into a model governed in 18 locations customer satisfaction and enhance technological infrastructure only, developed by technologically assisted business models. and upgrade the existing current electricity distribution network. Additionally, the company carried out many other activities on Customer Services Directorate will continue to work towards the premises in order to render processes and operations more improving customer satisfaction and service quality in 2018. efficient. OEPSAŞ procured 5,966 GWh of total electrical energy in 2017, Osmangazi Electric Retail Sales AŞ (OEPSAŞ) up by 21% YoY. The increase was due to the migration of eligible consumers from other electricity suppliers to the company’s K1 As the assigned supplier (supplier of last resort) for the portfolio, which purchases electricity at regulated tariffs, owing Osmangazi Electricity Distribution Region, OEPSAŞ sells to the increasing procurement costs during the year. electricity to regulated customers in the region at retail sales

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OEPSAŞ sold 5.95 TWh of electricity to a total of 1.7 million Energy customers in 2017, including both eligible and regulated customers. The company’s electricity sales increased by 20% compared to 2016. 64% of the total electricity sales was directed to K1 portfolio, while the remainder 36% to K2 customers. The number of the company’s eligible customers increased by 108% YoY in 2017 and surpassed 74 thousand.

Natural Gas Distribution and Sales

Zorlu Energy Group distributes and sells natural gas via group companies including Trakya Bölgesi Doğal Gaz Dağıtım AŞ, Gazdaş Gaziantep Doğal Gaz Dağıtım AŞ, Zorlu Doğal Gaz In 2017, OEPSAŞ sold 5.95 İthalat ve İhracat ve Toptan Ticaret AŞ, and Zorlu Doğal Gaz TWh electricity to nearly 1.7 Tedarik Ticaret AŞ. million consumers, including both Trakya Bölgesi Doğal Gaz Dağıtım AŞ eligible and regulated customers. Trakya Bölgesi Doğalgaz Dağıtım AŞ (”Trakya Doğal Gaz”), established in 2005, distributes natural gas for residential and The company’s electricity sales industrial use. On June 23, 2005, Trakya Doğal Gaz won the increased by 20% compared to tender for Edirne-Kırklareli-Tekirdağ natural gas distribution area by offering a price of zero USD for subscriber connection 2016. fee for the first 5 years and zero cent/kwh for unit service and amortization changes for the first eight years. The company obtained distribution license on January 25, 2006 and started natural gas distribution activities in the region. As part of the license, the company is responsible for the planning of the distribution network according to legislation, project design, construction, operation, maintenance and expansion of the distribution network and distribution of natural gas via this network to subscribers and eligible consumers for 30 years in the distribution area covering Edirne, Tekirdağ and Kırklareli provinces and Lüleburgaz, Çerkezköy, Muratlı, Kavaklı, Büyükkarıştıran, Evrensekiz, Kızılpınar, Kapaklı, Karaağaç, Veliköy, Ulaş, Misinli, Velimeşe and Babaeski districts in the above-mentioned provinces.

Expansion of License Area

Trakya Doğal Gaz;

• expanded the distribution license area to Keşan, İpsala and Süloğlu districts based on the EMRA resolution no. 5813-6 dated October 8, 2015, • to Süleymanpaşa, Şarköy, Malkara, Hayrabolu, Ergene and Saray districts and to the municipal borders of Tekirdağ based on the EMRA resolution no. 6134-6 dated March 2, 2016, • to Uzunköprü, Lalapaşa, Havsa, Yenimuhacir, Meriç, Subaşı, Küplü, Enez and Yenikarpuzlu districts of Edirne and Pınarhisar, Vize and Ahmetbey districts of Kırklareli based on the EMRA Resolution no. 6853-7 dated January 12, 2017.

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Meanwhile, the company applied to EMRA in February 2018 to Responsibility from A-Z in Natural Gas Supply include in its license area Esetçe and Beyendik districts of Edirne province and Pehlivanköy, Alpullu, Üsküp, Büyükmandıra and Trakya Doğal Gaz is responsible for the planning, project Kaynarca districts of Kırklareli province. design, construction, operations, maintenance, and expansion of a distribution network across cities included in the relevant distribution license as well as the distribution and retail sales of natural gas to subscribers and eligible consumers throughout the distribution network.

Total Investment Amount Total Length of Line (Million USD) (km)

510 6,229 5,585

380

285 3,600

2017 2021G* 2036G 2017 2021G 2036G

Total Number of Subscribers Natural Gas Consumption (Thousand NIUs**) (Million m3)

701 3,000

513 2,000

328 1,340

2017 2021G 2036G 2017 2021G 2036G

* G: Goal ** NIU: Number of Independent Units

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Energy Trakya Doğal Gaz in Numbers - Achievements and Goals

• As of the end of 2017, Trakya Bölgesi Doğal Gaz Dağıtım AŞ has a pipeline length of 3,600 km. • Complying with distribution license obligations fully and on time, Trakya Doğal Gaz reached a USD 285 million investment value as of the end of 2017. • In terms of investments, the company aims to expand the length of its network to 5,585 km by undertaking a USD 380 million investment by the end of 2021, and to 6,229 km with a USD 510 million investment by 2036, the 30th year of its distribution license. As of the end of 2017, the network • As of the end of 2017, the number of subscriber connection agreements totaled 328,000 NIUs. The estimated numbers of length of Trakya Bölgesi Doğal subscriber connections are 513,000 NIUs for year-end 2021, Gaz Dağıtım AŞ reached 3,600 and 701,000 NIUs for 2036. • In 2017, a total of 1.34 billion Sm3 (standard cubic meters) km, while the network length of of natural gas was consumed within its area of operations. 760.47 million Sm3 of the said consumption was directly Gaziantep Doğal Gaz Dağıtım AŞ sold by Trakya Doğal Gaz to consumers, while the company reached 3,100 km. provided transfer services for the remaining 579.96 million Sm3. • Forecasts indicate that investments and new subscriptions will take annual natural gas consumption across the Thrace distribution region to 2 billion and at least to 3 billion cubic meters in 2021 and 2036, respectively.

Gazdaş Gaziantep Bölgesi Doğal Gaz Dağıtım AŞ

Gazdaş Gaziantep Doğalgaz Dağıtım AŞ (”Gaziantep Doğal Gaz”), established in 2005, distributes natural gas for residential and industrial use.

On July 28, 2005, Gaziantep Doğal Gaz won the tender for Gaziantep-Kilis-Nizip natural gas distribution area by offering a price of 30 USD for subscriber connection fee for the first 5 years and zero cent/kwh for unit service and amortization charges for the first 8 years. The company obtained distribution license on February 24, 2006 and started natural gas distribution activities in the region.

As part of the license, the company is responsible for the planning of distribution network according to legislation, project design, construction, operation, maintenance and expansion of the distribution network and distribution of natural gas via this network to subscribers and eligible consumers for 30 years in the distribution area covering Edirne, Tekirdağ and Kırklareli provinces and Lüleburgaz, Çerkezköy, Muratlı, Kavaklı, Büyükkarıştıran, Evrensekiz, Kızılpınar, Kapaklı, Karaağaç, Veliköy, Ulaş, Misinli, Velimeşe and Babaeski districts in the above-mentioned provinces.

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Expansion of license area Responsibility from A-Z in Natural Gas Supply

Gazianetep Doğal Gaz; Gaziantep Doğal Gaz is responsible for the planning, project design, construction, operations, maintenance and expansion of • expanded the distribution license area to Oğuzeli, İslahiye a distribution network across relevant cities and districts as well and Nurdağı districts based on the EMRA resolution no. as the distribution and retail sales of natural gas to subscribers 5717-4 dated August 6, 2015, and eligible consumers throughout the distribution network. • to Araban and Yavuzeli districts based on the EMRA resolution no. 6867-4 dated January 19, 2017.

Total Investment Amount Total Length of Line (Milyon USD) (km)

435 4,954

4,142

280 3,100 220

2017 2021G* 2036G 2017 2021G 2036G

Total Number of Subscribers Natural Gas Consumption (Thousand NIUs**) (Million m3)

1,114 2,000

538 1,000

336 568

2017 2021G 2036G 2017 2021G 2036G

* G: Goal ** NIU: Number of Independent Units

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Energy Gaziantep Doğal Gaz in Numbers - Achievements and Goals

• As of the end of 2017, Gaziantep Doğal Gaz has a pipeline length of 3,100 km. • Complying with distribution license obligations fully and on time, Gaziantep Doğal Gaz reached a USD 220 million investment value as of the end of 2017. • In terms of investments, Gaziantep Doğal Gaz aims to expand the length of its network to 4,142 km by undertaking aUSD 280 million investment by the end of 2021, and to 4,954 km with a USD 435 million investment by 2036, the 30th year of its distribution license. Playing an increasingly bigger role • As of the end of 2017, the number of subscriber connection agreements totaled 336,295 NIUs. The estimated numbers of in natural gas trade every year, subscriber connections are 538,301 NIUs for year-end 2021, Zorlu Energy Group has sold nearly and 1,114,307 NIUs for 2036. • In 2017, the area of operations of Trakya Doğal Gaz 3% of all natural gas consumed in consumed 568.04 billion cubic meters of natural gas, 293.56 million Sm3 of said consumption was directly sold Turkey since it obtained the first by Gaziantep Doğal Gaz to consumers, while the company license in 2010. provided transfer services for the remaining 274.48 million Sm3. • Forecasts indicate that investments and new subscriptions will take annual natural gas consumption across the Gaziantep distribution region to 1 million and 2 billion cubic meters in 2021 and 2036, respectively.

Gazdaş Call Center

Gazdaş Call Center, located in Adıyaman, serves the entire distribution area of Gazdaş. Equipped with up-to-date technology, Gazdaş Call Center answers 24/7 emergency calls on 187 hotline from customers in Trakya and Gaziantep Natural Gas Distribution Areas as well as their other demands on 444 9 429 (444 Z GAZ).

Calls received on the emergency response hotline are immediately transferred as work orders via master control center to hand terminals of field teams, and the problem notified by the customer is solved in less than 15 minutes.

As part of Easy Subscription Project, customers can sign Subscriber Connection Agreement and Subscription Agreement by certified companies authorized to control interior installations, without having to go to a Gazdaş Subscription Center. With the said convenience, customer traffic for Subscriber Connection Agreements and Subscription Agreements was reduced and customer satisfaction was increased.

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In an effort to further increase service quality, year, Zorlu Energy Group has sold nearly 3% of all natural gas consumed in Turkey since it obtained the first license in 2010. • Subscriptions will be received online Since then, the Group sold nearly eight billion cubic meters of • Connection fees and security deposits will be collected with natural gas all across Turkey, 600 million of which was sold in an online POS 2017 alone. Maintaining a stable growth in the energy market, Zorlu Energy Group is increasing its natural gas trade volume on the website as part of a project currently in its final stages of by the day. development. Zorlu Doğal Gaz and Zorlu Doğal Gaz Tedarik aim to lead the Zorlu Doğal Gaz and Zorlu Doğal Gaz Tedarik way in natural gas industry and become prestigious companies in the region in the natural gas market. The companies fulfill Since 2010, Zorlu Energy Group has been selling natural gas natural gas needs of eligible consumers through the transmission through Zorlu Doğal Gaz İthalat, İhracat ve Toptan Ticaret AŞ and distribution networks with high quality, in an uninterrupted (”Zorlu Doğal Gaz”) and Zorlu Doğal Gaz Tedarik Ticaret AŞ way and without damaging the environment. (”Zorlu Doğal Gaz Tedarik”).

Zorlu Doğal Gaz and Zorlu Doğal Gaz Tedarik operate in direct sales to licensed local wholesale, retail and distribution companies and eligible consumers as well as exports and wholesale trade to exporters of the natural gas it procures from local producers, importers and other wholesale companies via delivery lines and/or from abroad in the form of liquefied natural gas (LNG).

Playing an increasingly bigger role in natural gas trade every

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Energy Power Plants Construction, Repair and Operations Zorlu Endüstriyel

Founded in early 2000, Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret AŞ (”Zorlu Endüstriyel”)offers turnkey “EPC” contracting services and solutions, including project development, feasibility, basic design, engineering, supply, construction, installation and commissioning work for industrial plants and power plants in Turkey and abroad. Feasibility and engineering studies as well as turnkey construction and installation works for the Zorlu Energy Group’s power plants in Turkey and abroad are undertaken by Zorlu Industrial. The extensive spare parts pool that feeds a robust logistics 2017 activities network, experienced operation In the first quarter of 2017, Zorlu Endüstriyel began feasibility studies and main equipment purchase for the Alaşehir II GPP and maintenance personnel, project. In August, Zorlu Endüstriyel commissioned the first 99.5 MW unit of Kızıldere II GPP project, set to become the biggest emergency response teams, and an geothermal energy investment in Turkey. In the third quarter of advanced automation infrastructure 2017, the company started installation works for the second unit which will increase the installed capacity of the project to 165 guarantees a high level of MW. Additionally, engineering and purchasing activities began for the first solar power plant project of Zorlu Enerji in Pakistan, availability for Zorlu O&M in the with the construction process already underway in 2017. In face of the customers. 2017, the assembly process of the electro-mechanical and hydro-mechanical equipment for the İkizdere HEPP Capacity Increase Project reached the final stage.

Zorlu O&M

Established in 2000 as the first Turkish maintenance and operations company of the energy sector, Zorlu O&M Enerji Tesisleri İşletme ve Bakım Hizmetleri AŞ (”Zorlu O&M”) provides long-term operational, maintenance and repair services to for thermal (natural gas, simple cycle, combined cycle, co- generation) hydroelectric, wind and geothermal power plants owned by both Zorlu Energy Group and third parties.

Zorlu O&M is present in nine countriesproviding operation and maintenance services to Zorlu Enerji Group’s natural gas plants in Russia and Israel as well as the wind power plant in Pakistan while undertaking maintenance of a number of power plants in Europe, Middle East, South Asia and Central Asia under single contracts. One of the remarkable Zorlu O&M projects abroad is the maintenance of the Greek public LM gas turbines.

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Apart from operation and maintenance services, Zorlu O&M Increase” (boosting turbine efficiency by adjusting rotor also undertakes the commissioning of newly-built power plants. torque) project for the wind turbines of Sarıtepe and Demirciler WPP, which was aimed at a 1% annual increase in An extensive spare parts pool that feeds a robust logistics power generation at the plants. network, experienced operation and maintenance personnel, • Zorlu O&M carries out the operation and maintenance of the emergency response teams, and an advanced automation 135 MW Gökçedağ Wind Power Plant commissioned by Zorlu infrastructure guarantee a high level of availability of Zorlu Enerji in Osmaniye in 2010. Zorlu O&M was also involved in O&M services for its customers. the installation and commissioning of the said power plant. Within the scope of its continuous improvement strategies, 2017 activities the company carried out a “TPO/ Autotune/ Peakshaver” (boosting turbine efficiency by automatic adjusting of seasonal • Zorlu O&M provided operation and maintenance services parameters) for wind turbines of Gökçedağ WPP, which was for Zorlu Enerji’s Lüleburgaz Cogeneration Natural Gas aimed at a 1% annual increase in power generation at the Power Plant covering the installation and commissioning of a plant. fluidized bed steam boiler with a capacity of 2 x 40 tonnes/ • In addition to operation services provided to Kızıldere I and hour in order to improve profitability by reducing steam Kızıldere II GPP under Zorlu Doğal Elektrik Üretim AŞ and generation costs. The commissioning of the steam boiler Alaşehir I GPP under Zorlu Jeotermal Elektrik Üretimi AŞ, reached the final stage by the end of 2017, with operations Zorlu O&M began offering operation services to Kızıldere III expected to start in the first half of 2018. GPP whose first unit was commissioned in 2017. • Zorlu O&M carries out the operation and maintenance of • Zorlu O&M constantly supports drilling activities for the the 80.3 MW Sarıtepe- Demirciler Wind Power Plants development of Alaşehir II GPP run by the reservoir group commissioned by Zorlu Enerji in Osmaniye in 2016. Zorlu while contributing significantly to the reservior tests and to O&M was also involved in the installation and commissioning the uninterrupted and smooth continuation of processes by of the said power plants. Within the scope of its continuous providing material, labor and equipment support. improvement strategies, Zorlu O&M carried out a “Thrust

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• Zorlu O&M signed a five-year contract on the Operation, Energy Periodic Maintenance and Repair, and Inspection Works with Trakya Bölgesi Doğal Gaz Dağıtım AŞ and Gazdaş Gaziantep Doğal Gaz Dağıtım AŞ and within the scope of the agreements provides maintenance and repair services to these companies. • Zorlu O&M, 50% shareholder of Turkbine Teknik Gaz Türbinleri Bakım Onarım AŞ, bought the remaining 50% share from Turkish Airlines to deliver the energy industry Level-IV major maintenance services for GE LM6000 and LM2500 Base/Plus gas turbines. As part of the acquisition, Turkbine Technical Workshop (special maintenance workbenches, equipment, disassembly and assembly tools etc.) was moved Zorlu Energy Group considers the to the Bursa workshop of Zorlu O&M. The installation of workbenches and equipment in the Bursa workshop is still in maximum use of indigenous and progress. renewable energy resources as • In the Bursa workshop, Zorlu O&M overhauled the gearbox (cleaning, control and repair of gearbox) of the GE 2.5 MW key to sustainable development, wind turbine. • Zorlu O&M successfully replaced Hot Section modules as and adopts a policy of energy part of a major maintenance operation for a GE LM2500+ production and distribution based and GE TM2500+ gas turbines of the natural gas plant in Rhodes Island owned by Public Power Corporation (PPC), on efficient and reliable resources. public electricity company of Greece.

Zorlu Energy Group & Sustainability

Zorlu Energy Group considers the maximum use of indigenous and renewable energy resources as key to sustainable development, and adopts a policy of energy production and distribution based on efficient and reliable resources. Underpinning the Group’s priority areas of sustainability are the responsible use of natural resources, social governance, energy efficiency, security of supply, reduction of emissions, and climate change.

The Sustainability Board launched in 2015 at Zorlu Energy Group drafts the Group’s strategy and action plan on sustainability as a guide to activities in this field. Led by the Sustainability Board, the Group defines its approach towards sustainability, which it integrated into its operational processes, as “a guide to managing the economic, environmental and social factors and related risks with a view to creating long-term value”.

Supporting a low-carbon economy constitutes one of the main pillars of the Group’s sustainability strategy. In line with this, the Group plans to continue its investments in indigenous and renewable energy resources while respecting its environmental and social responsibilities. . Zorlu Enerji Group allocates 40% of its social investments to supporting athletic and cultural activities, 20% to corporate responsibility projects, 20% to improving the life standards of local communities and 20% to education, scholarship and research grants. Turkey’s first energy company to calculate its carbon footprint

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and qualify for the ISO 14064-1 Greenhouse Emission Standards Zorlu Enerji, first in the Turkish energy sector to prepare a Certification, takes part in the CDP - Carbon Disclosure Project sustainability report in 2011, published its fourth Sustainability and publicly releases annual carbon footprint reports with Report in 2016. The report covers the 2014 -2015 period and was management perspectives in relation to climate change. The prepared In accordance with the Global Reporting Initiative’s company was granted the CDP Turkey Carbon Transparency (GRI) latest G4 Sustainability Reporting Guidelines. Leader Award in 2011, 2013, 2014, and 2017. A pioneer in the industry on many sustainability-related grounds, In autumn 2017, the company also launched several initiatives Zorlu Enerji qualified for the second time on a voluntary basis within the context of the ISO 14046 Water Footprint Standard, to be one of the 44 companies listed in the BIST Sustainability aiming to extend these initiatives in line with its transparency Index for the period of November 2017 - October 2018. policy. With two of its companies involved in the Climate Change Program of the CDP Platform, Zorlu Energy Group has been a part of the CDP Water Program as of 2017 and began to measure water footprints and to transparently share the results with stakeholders through the CDP Platform.

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Zorlu Energy Group’s Activities in Turkey and Abroad

TURKEY

Kırklareli

Edirne Tekirdağ

Yalova Tokat Bilecik 26 Bursa Eskişehir AĞRI Kütahya

23 Afyonkarahisar Manisa Uşak

Denizli 5 Gaziantep 9 Osmaniye 5

Kilis

ELECTRICITY ELECTRICITY ELECTRICITY GENERATION DISTRIBUTION TRADING AND SALES • A total of 1,308 MW installed • Electricity distribution to • 7.6 TWh of total electricity sales power capacity, with 744 MW in Eskişehir, Bilecik, Uşak, • 1.75 million customers Turkey, 290 MW* in Israel, 56 Afyonkarahisar and Kütahya • More than 120,000 eligible MW in Pakistan, and 217 MW in provinces with a total population customers Russia of 2.7 million. • Customer portfolio: • 76% of the installed power in • Approximately 1.72 million • Commercial (41%), Turkey and 48% of the total distribution customers • Residential (21%), installed power are based on • 6.1 TWh of net distributed • Industrial clients (39%) renewable energy resources electricity • One of the first market makers in the • Natural Gas: 684 MW (52%) • 6.97% theft and loss ratio Derivatives Market • Wind: 272 MW (21%) • Geothermal: 240 MW (18%) • Hydroelectric: 113 MW (9%)

* Based on ownership stakes

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PAKISTAN

Bahawalpur

Jhimpir

Rize ISRAEL Ashdod Tokat Kars 26 Erzurum AĞRI Ashkelon

Erzincan Ramat Negev 23 Tunceli

5 RUSSIA 9 5

NATURAL GAS Moskova DISTRIBUTION AND TRADE

NATURAL GAS POWER PLANT NATURAL GAS DISTRIBUTION • Distribution of natural gas in Edirne, Kırklareli, Tekirdağ, Gaziantep and Kilis provinces GEOTHERMAL POWER PLANT ELECTRICITY DISTRIBUTION which have a total population of 3.9 million • 6,700 km-long natural gas HYDROELECTRIC POWER PLANT POWER PLANTS DER CONSTRUCTION distribution network • Around 664,300 subscribers • 1.9 billion cubic meters of natural WIND POWER PLANT gas sales

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Awards Received in 2017

Low Carbon Hero Award (SPCA) Project: “Our Energy is for Children” Zorlu Enerji Best Business Awards Project: “Our Energy is for Children” Zorlu Enerji

Golden Valve Award Sustainability and Social Responsibility Initiatives Zorlu Doğal Gaz

ICCI Energy Awards Renewable Energy Power Plants Category Kızıldere II Geothermal Power Plant

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CDP Turkey Climate Leadership Award Carbon Footprint Reporting and Transparency in Fight Against Climate Change Zorlu Enerji Zorlu Doğal

Golden Voltage Sustainability and Social Responsibility Initiatives Zorlu Enerji

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Real Estate

The one invariable goal of Zorlu Real Estate Group is to correctly analyze market expectations and customer needs in an effort to carry out unique, quality and world- class projects in prime locations and thereby further boost customer satisfaction.

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Real Estate

Mesut Pektaş CEO, Zorlu Real Estate Group

With an eye to creating living environments which adapt to the ever-smarter cities of our day, we carry out We actively use technology our activities with a focus on sustainability and the life- improving power of technology. in innovative projects and the We actively use technology in innovative projects and distinctive practices that we launch, distinctive practices that we launch, thereby offering thereby creating value-added value-added solutions. solutions. We run multidimensional activities and launch innumerable novelties at Zorlu Center, the first five- function mixed-use project of Turkey with a multi-function management concept that inspires new projects globally. We have made great momentum in energy and water savings thanks to the smart and eco-friendly features of Zorlu Center, offering our guests a chance to socialize in an eco-friendly atmosphere with increasingly more popular open spaces. Electric taxi, our latest novelty, was a resounding success. Meanwhile, we launched another initiative to make sure Zorlu Center is accessible to persons with disabilities and to turn it into a place where they can socialize.

The need for quality living environments is growing bigger every day due to high rates of urbanization, distances shortened with investments in transportation, rising young population and increasing consumption expenditures with fast, innovative and custom-made service demands of people.

Focusing on these indicators, Zorlu Gayrimenkul will continue its visionary and systematic activities and will carry on into the future, making a difference with quality buildings and branded projects.

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Long-term projects promising lasting value, distinctive Turkey’s first Five-Function Mixed-Use Project of living environments Turkey, embracing life from different angles Zorlu Center Zorlu Real Estate Group joins its broad industry knowledge with the prestige and experience of Zorlu brand in national and Zorlu Yapı won the privatization tender for the land plot owned international platforms. by the Directorate of Highways in Zincirlikuyu, a very central district in Istanbul, for USD 800 million in March 2007. The Focusing on accurately analyzing market expectations, customer development plan and regulatory procedures of the Zorlu Center needs and demands, the Group aims to create unique, quality project were completed in January 2008 and Zorlu Center, and world-class projects located in prime locations and to the first five-function mixed-use project of Turkey gradually further boost customer satisfaction. commenced operations from October 2013. The last phase of The essential goal of the Zorlu Real Estate Group is to develop the project, the hotel, opened its doors in 2014. eco-friendly projects which will blend into the historical and Zorlu Center comprises the following five functions: urban fabric of the location to become social, cultural and economic centers of attraction. • Zorlu Shopping Mall • Zorlu Performing Arts Center Projects developed with a focus on sustainability and • Raffles İstanbul Zorlu Center the life-improving power of technology • Residences Putting technology at the center of its business,, Zorlu Real • Offices Estate Group builds exclusive living environments through “smart The gross construction area of Zorlu Center is 693,784 m2. city” and “smart home” applications as part of its focus on Welcoming around 13 million visitors every year, Zorlu Center sustainability in its projects. has become Istanbul’s center of attraction with what it has to With the aim of delivering right projects at the right time, Zorlu offer from shopping to lifestyle, and culture & arts. Real Estate Group has conducted leading and exemplary A total of USD 2.5 billion was invested in Zorlu Center, creating projects in Istanbul over the past few years. Zorlu Center a total of 44,000 jobs in the construction phase alone. and Levent 199, the projects by Zorlu Yapı Yatırım AŞ (”Zorlu Yapı”) and Zorlu Gayrimenkul Geliştirme ve Yatırım AŞ (”Zorlu Zorlu Center stands out with its central location and Gayrimenkul Geliştirme”), the two flagships of the group, boast transportation alternatives. novel features and stand apart from their counterparts with their Situated in one of the most central districts of Istanbul, Zorlu architecture, technology and sustainable character. Center carries quality and value due to this key location and At Zorlu Center, various projects are carried out with an active wide range of transportation options. use of technology. Value-added technological practices and Traffic in Zorlu Center is regulated with access roads and ring special solutions include: roads. Zorlu Center is easily accessible via private cars as well • Smart Home and Smart Energy Management systems, as the metro and metrobus. To make this possible, Zorlu Real • Electric vehicle charging stations, Estate Group invested in underground connection tunnels and • Beacon tracking system for orders and customer trends, an underpass of 770 m and 230 m in length, respectively. The • Electric open-air benches, project also includes a parking lot of around 3,500 vehicle • Solar panel charging units capacity. • And robot-assisted orientation and information services, Equipped with smart-building properties, Zorlu Center first of its kind in Turkey. also draws attention with eco-friendly features and applications. Zorlu Real Estate Group will continue to blend Zorlu Group’s innovation culture with sustainability to introduce novelties Zorlu Center has contributed significantly to the Group’s to future buildings. Solar power-harnessing bricks, oxygen- sustainability philosophy, both from its technical features and its releasing façades, and robotics in building management will be wide, green areas. among many other technologies which will be featured in the Zorlu Center has invested USD 20 million in landscaping, Group’s future real estate development projects. showcased on 72,000 m2 of total green space, or in other words, equal to 10 soccer fields.

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Zorlu Center’s landscape features 200 species of plants, Real Estate including 68 tree species. There are 3,000 trees within the complex, with 2,000 evergreens and 1,000 deciduous trees, as well as 45,000 shrubs and 600,000 perennial plants in the garden, and 10,000 indoor plants.

In addition, the project includes a 10,000 m2 plaza and a 12,000 m2 open air park, as well as a children’s playground which complies with European safety standards.

Thanks to smart building features, Waste management in Zorlu Center is run by Zorlu Center has contributed innovative projects, while notable amounts of energy and water are saved. significantly to the Group’s Zorlu Center recycles its waste through innovative technologies. sustainability philosophy, both with The complex features a 120 m2 recycling room, and glass waste collection points. All waste, including waste oil from restaurants, its technical features and its wide, are regularly collected by relevant organizations, and recycled, if applicable. green areas. Meanwhile, as part of energy and water saving initiatives:

• Trigeneration saves energy in electric heaters and coolers, • Recovery of waste water saves water, • LED transformation in communal area lighting saves energy, • Smart Energy Management effectively tracks systems.

Zorlu Center’s annual power and water consumption are 75 million kWh electricity and around 420,000 tons of water respectively, considerably less than other projects of comparable scale.

No handicaps in Zorlu Center!

Developed with a vision to render Zorlu Center fully accessible for persons with disabilities and turn it into a space where they can socialize, “No Handicaps in Zorlu!” project involved sign language training for all staff in food courts of Zorlu Shopping Mall, while menus on all restaurants began printing copies in Braille alphabet. Activities carried out as part of the recently launched “My Partner in Dreams” project follows the same vision. For instance, the “My Shopping Center Travel Mate” application helps visually disabled persons participate in social life more actively and independently. Thanks to this app, visually disabled persons obtain information on places they walk by and are navigated through stores, elevators and information desk.

An eco-friendly development with electric taxis

Zorlu Center broke new ground yet again with the newly launched electric taxi services at the taxi rank. Customers are now able to use eco-friendly taxis with no carbon dioxide

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emission. The turquoise, all-electric ‘Tesla Model S’ taxi is highly Furnished with the latest technology, different-sized halls, and popular among Zorlu Center customers, the people of Istanbul multiple-purpose areas, Zorlu PSM hosted 350 thousand guests and the media. The pilot project includes a regular increase of at around 900 events in its third season. Zorlu PSM, the address electric taxis to serve at Zorlu Center. of big productions, attracted 25 thousand spectators to Shrek Musical. Slava’s Snow Show, on the other hand, was staged An art and culture oasis: Zorlu Performing Arts Center on two different occasions due to the huge public attention, (PSM)* presenting their works to a total of 15 thousand people in three Since its inception in October 2013, Zorlu Performing Arts weeks. Center (”PSM”) has been hosting world-famous productions, The “Vestel Proudly Local” program sponsored by Vestel music festivals, Broadway musicals as well as numerous artists entertained over 30 thousand spectators at 25 concerts and groups in opera, theater, classical music, jazz and dance throughout a season. At its third season, Zorlu PSM introduced music which captivate the audience. an “on-stage standing audience” concept. This concept was taken to the 1,570 m2 Zorlu Main Stage by Bedük, Teoman, and Duman for the first time. Zorlu PSM also gave the stage to world-renowned artists and bands such as God Speed You! Black Emperor, Patti Smith, PJ Harvey, and Sigur Ros.

* Zorlu PSM has a Main Stage with 2,190 seating and 3,200 standing capacity, an amphitheater for 1,000 people, a Sky Lounge for 1,000 people, a 678-seat Drama Stage, a Studio for 600 people and a Foyer and Other Areas with a capacity of 1,300 guests.

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As part of the fourth season goals, more than 400 thousand Real Estate spectators were attracted to Zorlu PSM in more than 1,000 events.

The most appealing meeting point in Istanbul: Zorlu Shopping Mall

Zorlu Shopping Mall, a part of the Zorlu Center complex, extends to a 73,000 m2 leasable area and 105,000 m2 construction area. Zorlu Center, which includes brands that entered the Turkish market for the first time, makes a difference with 198 stores, 21 kiosks, gourmet restaurants and a public square concept.

B e y m e n c h o s e t o o p e n a 9, 6 0 0 m 2 concept store in Zorlu Shopping Since the beginning of operations in Mall, also featuring the iconic cubic Apple store of New York, October 2013, Zorlu Shopping Mall the first in Turkey. Brooks Brothers, Cos, Lanvin, Pomellato, Stella McCartney, Superdry and Tory Burch opened their first stores at won nearly more than 70 national Zorlu Shopping Mall in Turkey. Zorlu Shopping Mall is home to many top fashion brands including Dolce&Gabbana, Valentino, and international awards, was Saint Laurent, Tiffany&Co., Fendi, Dior, Louis Vuitton, Prada, named the Best Shopping Center of Burberry, Roberto Cavalli, Michael Kors, Moncler, MontBlanc, Vakko, Sevan Bıçakçı, Sponza, and Urart as well as trending Europe in the “Large” category and fashion brand such as H&M with Turkey’s largest H&M store of 3,000 m2 as well as Beymen Club, GAP, Pinko, Tommy Hilfiger, was an Honoree at the Best-of-the- Gant, Network, İpekyol, Abdullah Kiğılı, Mango, Yargıcı, and Best Awards of ICSC VIVA in 2017. Lacoste. The place also hosts Raffles Arcade, delivering the special luxury shopping experience through the most exquisite top brands in Turkey and in the world.

Since the beginning of operations in October 2013, Zorlu Shopping Mall won more than 70 national and international awards, was named the Best Shopping Center of Europe in the “Large” category in ICSC (International Council of Shopping Centers) in 2016 and was an Honoree at the Best-of-the-Best Awards of ICSC VIVA in 2017.

Zorlu Shopping Mall also builds on a “Destination Marketing” strategy, crafting events that offer visitors a distinct experience each and every time and entice them into coming back. It has also come to stand among top tourist attractions in Istanbul with a range of novelties and innovative projects. The mall is home to unlimited entertainment that endears a wide audience from every segment and every age. The effective marketing activities include “Istanbul Light Festival” which attracted 700,000 visitors in its first year in Turkey as well as many attractions presented for the past four years including “Zorlu New Year’s Village”, “Spring Festival”, “Autumn Festival”, “Zorlu New Year’s Music Hall”, ”Emoji Event” teemed with cabins, new-year trees adorned with lights, entertaining decorations reflecting the theme of the year, acts carried out for the first time in Turkey such as flying piano, event groups, living statues, shopping parties, and

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concerts; free-of-charge open-air movie screenings, concerts works that furnish the guests with momentous experiences. and live music performances held on the park area during the Additionally, Raffles takes guest experience to a whole new summer, among many others. level with the “Raffles Butler” service offered to every room. Raffles also boasts a house brand 66-unit residential complex A world class exclusive high-end hotel: Raffles of one-bedroom and two-bedroom apartments for those who do İstanbul Zorlu Center not want to miss out on the Raffles exclusivity. Raffles İstanbul Zorlu Center, one of the most exquisite luxury Zorlu World ushers in a world of privileges for the hotels in the world, opened in October 2014. The investment visitors of Zorlu Center. is valued at USD 250 million. Interior design of the 185-room Raffles İstanbul Zorlu Center bears the signature of HBA (Hirsch A one-stop app providing easy access to Zorlu Center’s special Bedner Associates), designer of the world-renowned hotels. offers and surprises, the Zorlu World mobile app presents many attractive advantages to the customers. Hotel amenities include a modern Turkish cuisine restaurant, two modern Mediterranean and Pan-Asian cuisine restaurants, a bar Zorlu Center’s customer loyalty program, Zorlu World has a with a vibrant atmosphere, a ballroom with a capacity of 1,200, wide array of exclusive offers and discounts from the offices at and a 3,000 m2 SPA bathing in natural daylight. Zorlu Center, restaurants, valet parking, Raffles İstanbul Zorlu Center and Zorlu PSM discounts as well as early bird rates. On top of these, Raffles İstanbul Zorlu Center is adorned Thanks to alternative offerings involving continuity, day/hour throughout, in the rooms and various spots, with a sumptuous targets, cross use, limited offers to be used on the next purchase, art collection of more than 200 domestic and international

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Zorlu World grew to 100 thousand members. This app has led Real Estate to an increase in the number of visitors, basket sizes, visiting and purchasing frequencies, and evidently, in customer satisfaction.

Zorlu World won 4 Stevie Awards in 2016, namely a Gold Stevie in marketing, and Bronze Stevies in the categories of lifestyle, shopping, and utilities and services.

A green building rising with a modern architecture and cutting-edge technology in Levent, one of Istanbul’s busiest locations: Levent 199

A complex constructed by Zorlu Gayrimenkul Geliştirme on a land acquired in 2007 for USD 83 million, Levent 199 is located in Levent, one of the busiest districts in Istanbul. The project is an Holding a LEED Gold Certificate by A+ office complex covering a leasable area of 67,000 m2. The U.S. Green Building Council, Levent total construction area of the 40-floor project is 122,899 m2. One of its distinctive characteristics is the highly energy-efficient 199 is the first A+ office project glass coatings, which were not manufactured in Turkey then and of this size to hold a LEED Gold became widespread only after Zorlu Real Estate Group launched the project, as well as the use of LED fixtures throughout the Certificate in Turkey. lighting system. Vestel Elektronik, a Zorlu Holding company, played a considerable role in making it happen.

The modern architecture and innovative structure earned Levent 199, also home to Zorlu Holding, the “Best Office Architecture” award at the “Europe and Africa Property Awards 2010” organized as part of the International Property Awards.

Levent 199 qualified for USGBC’s LEED Gold Certification that recognizes eco-friendly design.

Having a special parking lot for electric vehicles, a bicycle park and a wide, 10,000 m2 landscape area, Levent 199 was granted a LEED Gold Certificate by the U.S. Green Building Council. Levent 199 is the first A+ office project of this size in Turkey to hold a LEED Gold Certificate.

For the heating and cooling systems optimization, all the systems at Levent 199 are equipped with heat recovery fresh air systems which maximize fresh air output regardless of the season. This feature not only slims down operational costs but also creates a good working environment for employees.

Furthermore, choosing LED in lighting systems reduced electricity consumption by 5% in the parking lot.

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Levent 199 supports end-to-end recycling. Furthermore, the Levent 199 project used a new construction method, unparalleled in Turkey, where columns were downsized At Levent 199, there are rigorous efforts towards waste disposal. from 160 cm to 1 m with the use of steel, resulting in a significantly Wastes are sorted at their source and sent to the relevant parties wider indoor space. This method served as a model for other for recycling or disposal. Office paper waste is handed to companies, and was adopted by many. municipal authorities for recycling. Zorlu Real Estate Group will continue to make an The treatment system of Levent 199, an additional investment, impact with the upcoming bold projects. treats grey water and stores treated water to be reused as irrigation water for gardens and green areas, among other uses. Zorlu Real Estate Group aims to invest in and develop quality projects on valuable lands, and take part in their operations, The project enjoys the limelight with its technology, and strives for this goal with new projects in the pipeline. The as well. Group’s main projects of focus in the coming period will be Levent 199 stands out from others with its high level of technology Zorlu Konak, Zorlu Alaçatı and Zorlu Marmaris projects. which also makes it an exemplary project.

Double deck elevators, a first in Istanbul, have reduced the average elevator waiting time to 27 seconds, saving space and providing an energy efficiency of over 50%.

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Awards Received in 2017

Hermes Design Award Creativity Raffles Arcade Tree of Life Awards Crazy Emojis / Marketing Campaign Crazy Emojis / Special Event Raffles Arcade / Marketing Campaign

Stevie Awards Marcom Awards Crazy Emojis / The Best Brand Experience Crazy Emojis / Special Event of the Year Istanbul Light Festival / Marketing Crazy Emojis / The Best Brand Campaign Communications and Integrated of the Year Marketing

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ICSC Viva Awards Viva Best of the Best

ICSC Solal Marketing Awards Crazy Emojis / Entrance Boost

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Mining - Metallurgy

META, the company which introduced nickel mining to Turkey, operates within the Zorlu Mining Group since 2007.

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Mining - Metallurgy

Orhan Yılmaz, MSc. CEO, Zorlu Mining Group

At Zorlu Mining Group, we apply a brand-new and sustainable mining approach by processing the ore we With new investments, we aim to obtain from aboveground in our modern, eco-friendly plants equipped with a closed circuit system. produce end products with higher In the upcoming term, we will make even greater added value and create an R&D contribution to our country and our industry with our and technology base in Gördes to industrial facility which produces to a large extent its own technology and equipment. serve the mining industry of Turkey. With new investments, we aim to produce end products with higher added value and to create an R&D and technology base in Gördes to serve the mining industry of Turkey.

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Meta Madencilik Limited Şirketi was founded in 2000 to usher efficiency of the plant was carried over to 2017. In a nutshell, the in nickel mining in Turkey. Operating under the umbrella of Zorlu improvement efforts underway are the following: Group since 2007, all the shares of the company were acquired by Zorlu Family in 2016. The company has been carrying out • Investment for a water recovery from the waste storage dam activities as Nikel Kobalt Madencilik Sanayi ve Ticaret AŞ and treatment facility, (”META”) since. • Second phase investment to increase the capacity of waste storage dam, META’s activities include surveying, mining, export, R&D and • Preparatory work to establish an R&D Center, nickel-cobalt mining investments to exploit our country’s nickel • Replacement of Feeding Pump for HP Heater, potential and contribute to domestic economy. Currently, the • Commissioning of the second filter to increase MHP (Nickel company operates the Gördes-Manisa nickel-cobalt mine and and Cobalt Hydroxide) Filter Press Capacity, engages in nickel-cobalt mine surveying in various areas. • Cost reduction efforts, • R&D activities to produce end products. Designed to produce 10,000 tons of nickel metal per year with around 1.7 million tons of nickel ore feed, the investment for The Meta Nickel-Cobalt plant displays an upward trend in Gördes Meta-Nikel project started in 2011 and the plant was terms of work days and production capacity each passing installed in 2014, which was followed by commissioning. First year. Following the completion of the planned improvements in product exports were carried out in May 2015. ore preparation, water treatment and waste storage dam, the company aims to reach full-capacity production in the upcoming Compared to 1,790 tons of nickel metal equivalent produced in years. 136 workdays in 2016, the plant produced nearly 4,000 tons of nickel metal equivalent in 230 workdays in 2017. Following are the planned investments and R&D projects to achieve full-capacity production: Thanks to the devoted efforts of the management and the technical personnel, improvement and research for boosting the • Ore enrichment project, • Waste reduction and waste recycling efforts, • Preliminary works on the establishment of a sulfuric acid production plant, • Following the first investment in the plant, the second-phase plans involving the pilot production and basic engineering efforts towards the treatment of Ni-Co hydroxide to produce nickel sulfate and cobalt sulfate.

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Other Zorlu Air Havacılık AŞ (Zorlu Air) Launched initially under the roof of Korteks in 1992, Zorlu Air Activities continued its operations as an independent air charter company starting from 1996.

Zorlu Air currently serves with a 2016 AW-139 VIP helicopter with a passenger capacity of six to eight, a 2002 Bell-430 VIP helicopter with a passenger capacity of six, and a 2012 Gulfstream G-450 Large Cabin aircraft with a passenger capacity of 14. All these aircrafts have joined the Zorlu Air fleet on their year of manufacture.

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Zorlu Faktoring Zorlu Grand Hotel

Zorlu Faktoring AŞ (”Zorlu Faktoring”) was established in 2012 The first tourism initiative of Zorlu Group, Zorlu Grand Hotel to deliver factoring services in Turkey and abroad. The company opened its doors in 1996 in the center of Trabzon, rising as takes it as a priority to serve all the sectors and companies the first and only five-star hotel of the region. The hotel offers which shape Turkish economy, in a reliable, consistent and exclusive services to business and holiday guests with 160 honest manner. uniquely furnished and comfortable rooms, six conference halls, a health club, and multiple restaurants. Zorlu Factoring, whose main area of activity is domestic revocable factoring transactions, targets medium and large- One of Turkey’s top 25 business hotels, Zorlu Grand Hotel is scale enterprises as well as prominent companies which have a located 4 kilometers from Trabzon Airport, 10 minutes from the widespread network of suppliers and dealers. World Trade Center, and 50 meters from public transport.

Committed to be one of the top 10 factoring companies and Jules Verne Travel & Event expand the products and services across Turkey, the company ABH Turizm Temsilcilik ve Ticaret AŞ (”ABH Turizm”) was founded makes headway with the additional advantage due to its as a tourism agency in 1998. Jules Verne Travel & Event, a partnership structure and experienced team. company of ABH Turizm which operates in all the segments of the tourism industry, joined Zorlu Group in 2004. The company offers a wide range of corporate and individual travel/ organization services, event organization in Turkey and abroad, flight ticket sales, hotel bookings, organization of national and international congresses and seminars, product launches and cruise tours as well as transfers, tour guiding and visa services. ABH Turizm has proved its merit in numerous important projects, both in Turkey and abroad, with a team of experts on corporate and individual services alike.

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Human Resources

Zorlu Holding Human Resources Department keeps abreast of domestic and international developments as well as trends that affect human resources as it strives to offer a pleasant work environment and all-around personal development opportunities to the personnel.

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Human Resources

Necmi Kavuşturan CEO, Zorlu Holding Human Resources Group

Zorlu Group recognizes human resources to be the cornerstone for sustainable success and profitability. We follow and adopt new, trend- Thus, Zorlu Holding Human Resources Group works with the mission of ensuring seamless operation across setting human resources practices all functions related to human resources. across the globe, paving the way Human resources activities go far beyond simply for thriving creative and productive establishing communication between employees in the Group, and endeavor to promote maximum synergy talents. across the organization.

Performance management, career management, and training activities are some of the prominent human resources topics at Zorlu Group, and possess great significance in creating an organization which consists of qualified employees who are highly-competent in their respective fields.

We follow and adopt new, trend-setting human resources practices across the globe, paving the way for thriving creative and productive talents. Through an array of training programs, not only do we offer our employees a path to personal development but also, we add value to our Group by building a proper infrastructure.

The goal of Zorlu Holding Human Resources Group is and has always been to reinforce our persistence and to employ and train professionals who will carry our Group into the future.

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As one of the leading participants of the Turkish economy, Zorlu Holding Human Resources Policy Zorlu Group employs approximately 30,000 people in over 60 With respect to human resources management, Zorlu Holding companies. is aware that determined, professional and qualified employees Human resources are the most important asset of Zorlu Holding. who work with passion are essential to achieving goals. Zorlu Holding believes that innovative ideas and projects by Holding companies hire candidates who have not only qualified and motivated employees will reinforce its competitive expectations but also aspirations; who seek excellence rather power and create sustainable growth. than being content with the “good” and share common values, Drawing from the best domestic and international examples in all based on the principles of equal opportunity and non- developing its human resources practices, the focus of Zorlu discrimination. Holding Human Resources is to create a working environment Zorlu Holding Human Resources Policy and practices are which satisfies employees and to maintain the best working centered around conditions. At the same time, the Group provides systematic trainings and all-around personal development opportunities to • a remuneration system which rewards success and transparent its personnel. performance management, • career planning that allows for entrepreneurship, In its recruitment process, Zorlu Holding primarily prefers candidates who are and trainings.

• well-versed and experienced in the sector, Employee selection and placement processes are based on • open to improvement and innovation putting the right people on the right jobs, and are performed • and able to smoothly adapt into the corporate culture of Zorlu rigorously in line with Zorlu Holding’s corporate goals and Group. principles.

Zorlu Holding and its affiliated companies do not discriminate At Zorlu Holding, the decisive criterion for recruitment is on the basis of language, religion, race, or gender in their competence. recruitment processes. Zorlu Holding relates competence to;

As a signatory of the UN Global Compact, Zorlu Holding aims • result-orientation, for complete accordance with the 10 Global Principles in terms • self-confidence, of working environment and human resources, and continues its • initiative-taking, efforts to fulfill its commitments. • analytical thinking, As of the end of 2017, Zorlu Group employs 29,408 people of • customer-centricity, which 70 percent are blue-collar and 30 percent are white-collar • teamwork and cooperation, personnel. The table below shows the personnel distribution by • flexibility and change management, sector. • relationship/network building, • and creativity. Number of Employees* Sector (Dec 31, 2017)

Consumer Electronics & Household 16,971 Appliances**

Textiles 7, 0 4 8

Energy 3,179

Real Estate 891

Mining-Metallurgy 571

Other 695

Total 29,355

* Includes employees abroad and subcontractors’ personnel. ** The employees of Vestel Savunma Sanayi AŞ and AYESAŞ are included among Vestel Group personnel.

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Candidates who have the competency required for the job are Human able to send in their application through Zorlu Career web Resources portal and other external job websites where the Holding’s job openings are listed. Applications received at the portals are reviewed, and candidates who possess the necessary qualities are identified and invited to an interview.

The hiring process uses personality inventories, foreign language proficiency tests, general aptitude tests and interviews to assess how a candidate matches the job. At the final phase, candidates who are deemed successful are offered a job related to their skill set by the Human Resources Department.

Zorlu Holding Wage Management System is designed on the Zorlu Holding believes in the basis of certain parameters and a rational approach. importance of creating a healthy, Zorlu Holding’s Wage Management System is identified in light of market conditions and in-group balance, and considers, safe and decent work environment more specifically, position levels, Group wage policy, and performance parameters. which is compatible with human Zorlu Holding Wage Policy may vary with each company on dignity, suitable for employees the grounds of the existing wage structure, market position, and competitiveness. The wage policy also offers the personnel across the group and meets several employee benefits according to the position title. international standards that Zorlu Holding Career Planning System offers employees transcend the regulations. growth and career improvement opportunities. Zorlu Holding adopts the modern human resources management system, therefore supports employees with their career planning.

Promotions and horizontal advancement systems are utilized in accordance with the needs of Zorlu Holding group companies and the career development of its employees. The goals of the companies and the personal goals of employees are coordinated using these systems. The objective is to improve employees’ existing skills, foster their professional competence and earn new competences required for future jobs.

Zorlu Holding Career Planning System not only offers vertical advancement opportunities to the employees, but also creates horizontal ones.

Occupational Health and Job Safety norms in accordance with international standards

Zorlu Holding focuses on the importance of creating a healthy, safe and decent work environment which is compatible with human dignity, suitable for employees across the group and meets international standards that transcend the regulations.

A core mission of the Holding is to offer the personnel an environment in which they can work efficiently and productively and perform well.

Zorlu Holding Occupational Health and Safety (OHS) Policy mainly seeks to provide decent working conditions, assess risks

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and takes measures against these risks in the field of activity, Fundamental values of Zorlu Holding include strengthening and regulate working conditions of the individuals with special bonds between human resources and boosting their spirits and needs. motivation. Opening of social clubs are supported to serve that end. The goal of Zorlu Holding is to maintain its zero accident severity rate. Social, cultural, artistic and sports clubs in the group improve self-growth of employees, help them develop their hobbies, The planned and systematic OHS trainings at Zorlu Holding aim ensure a work-private life balance and give an opportunity for to raise employee awareness to establish a safe and healthy further communication and cooperation between each other. work environment. Zone: A communications platform that gathers all Zorlu As a measure against occupational health and safety risks Holding employees in one place employees across the Group might face in the workplace, practical and interactive training courses are organized, OHS- Zone, the intranet platform accessible to all employees of Zorlu themed drills are carried out, and informative leaflets are Holding, is a communication platform which brings together distributed. employees working in different locations. Besides providing information and announcing activities on Zorlu Holding In an effort to maintain a “zero accident severity rate” goal, Zorlu and Group companies, Zone also includes events and news Holding focuses on occupational safety as part of sustainability announcements as well as social information. initiatives. Dialog Conferences Employee commitment and satisfaction are crucial for the sustainable success and performance of Zorlu Holding. Dialog Conferences, a series of events seeking to expand the Regarding human resources as its most valuable capital, Zorlu vision of Zorlu employees, are organized every month. Holding carries out planned activities which aim to reinforce Dialog Conferences aim to enrich Zorlu employees’ perspective employee motivation, corporate loyalty and belonging, all of on Turkish and global agendas as well as to expand their vision. which are required for a successful and sustainable performance of group companies. The conferences are held once every month and hosts experts who give speeches in their respective fields. Each month, Employee commitment and satisfaction are measured through employees from different levels in the Group participate in the various instruments in employee commitment studies carried out conferences. across the Group. In addition to these, factors that ensure loyalty are identified and used in the development of practices which Training and development activities based on the principles support employee commitment. of equal opportunity

Social clubs play an important role in enhancing the In an effort to improve competences of human resources within communication and coordination among employees. the Group, training and development practices are planned and carried out. Social clubs within Zorlu Holding enable employees to come together and spend time on their individual hobbies and interests. Training and development practices are carried out in These organizations play an important role in enhancing the accordance with the principles of equal opportunity. Training communication and coordination among employees. and development activities carried out using valid analytical methods are important for improving the personal and Within the Group, professional competencies of the employees and ensuring • Healthy Living and Sports Club, that they keep up with the latest development in not only their profession, but the industry as well. • Book Club, Training programs within the Group are planned according to • Outdoor Sports Club, areas of improvement identified by the performance assessment • Theater Club process. carry out regular activities.

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Vestel Technology Academy was developed via collaboration Human between Vestel Group and Özyeğin University. Providing a Resources lifelong training opportunity to Vestel employees, the Academy offers master’s and PhD level education to its participants in mechanical, electrical-electronic, and computer engineering.

The Academy program aims to improve the knowledge and experiences of engineers, while employees with different engineering backgrounds work improve their skills in areas that cater to Vestel’s needs. To ser ve these purposes, efforts are made to encourage bachelor’s degree holders to join master’s degree programs, and master’s degree holders to start PhD programs.

Vestel MT Program raises the managers of the future while Following are some of the many areas in which Zorlu Holding helping Vestel create added value. organizes annual training programs based on the fields of th activity of Group companies: The 8 Vestel MT Program, which is carried out with the academic support of Turkey’s leading universities, was completed at Vestel • Personal Growth, Education Center in 2017. • Technical Know-how, Vestel MT program aims to raise new university graduates as • Development of Managerial Skills, future managers. Over a period of six months, candidates • Finance, receive both theoretical training and follow a practice-based • Legal, internship program. • Sales and Marketing, • Production Zorlu Tekstil Talent Management Programs aim to achieve competencies of the 21st century. There are also customized competence development training programs offered for managerial positions. Zorlu Tekstil Talent Management Programs aim to train employees armed with competencies of the 21st century in manufacturing The Manager Trainee program and other programs for new and retail. graduates aim to help graduates adapt to Zorlu Group and boost their competencies required in their respective positions. Zorlu Tekstil New Graduates Program welcomes young, new graduates who will bring further success to Zorlu Group in the These programs are carried out in cooperation with the leading future. Zorlu Tekstil New Graduates Program aims to attract universities in Turkey and fulfills an important mission in terms to the Group talented, young people who are new university of industry-university collaboration by developing exemplary graduates. In partnership with Textile Engineering and Business projects. Administration Departments of Istanbul Technical University, the All-purpose activities which boost the competencies of the program offers theoretical and practical training to talented new personnel in Vestel Group graduates over a course of four months. New graduates who Vestel Technology and Business Administration Academies complete the trainings are employed at Zorlu Textiles Group. boost and enrich the technical capabilities of engineers and the Taç and Linens, the first and only organized retail brands of administrative staff at Vestel Group. Turkey, offer growth opportunities to those that pursue a career Training programs and academies improve professional, in retail. technical and intellectual competences of employees. In addition Taç has turned its accumulation of knowledge in curtains which to participants with the academic and scientific backgrounds, used to be passed along generations into an academy in the training programs are also participated by experts and help 2017. Those who successfully complete the training program, realize new technology and innovations. developed by using the experience of Zorlu Tekstil, which Training and Development Programs as well as the Vestel shapes the Turkish home textiles industry, and the assistance Technology Academy offer employees the chance to raise their of seasoned academics, are offered an opportunity to work as level of education and improve themselves. a curtain sales representative at the best home textile brand of Turkey, Taç.

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Zorlu Energy Group prepares its employees for the future aims to welcome mentally-challenged individuals or those with with training and development programs. down syndrome to work in Vestel and join the workforce.

Zorlu Energy Group prepares its employees for the future with Other Human Resources Activities within Zorlu Group the training and development programs it organizes. Executive Companies Training Academy Program within Zorlu Energy Group aims In 2017, further activities were carried out to boost employer to find employees with leadership qualities, help employees brand perception within group companies. improve themselves and their professional skills and prepare them for future tasks with higher responsibilities. Efforts to further enhance the “Desirable Employer” perception of Vestel were carried out at universities. Said activities include As of the end of 2017, women make up 32% of all Zorlu projects which foster university-industry cooperation and require Group employees. close relations with university career centers and student clubs Attributing great importance to participation of women into the such as career events, engineering contests, graduation projects, economic and social life as well as decision-making processes, sponsorships, workshops, and case studies. Zorlu Holding is an avid supporter of all activities in this area. Approximately 10,000 students were reached and supported In an effort to ensure gender equality in the workplace, Zorlu at university events in over 70 universities throughout the school Holding encourages gender equality within group companies year. These efforts boosted the desirable employer perception as part of “United Nations Women’s Empowerment Principles” of Vestel, and the company moved up seven places at the “Most (UNWEP), of which the Holding is a signatory since 2015, as Attractive Employers” ranking undertaken by Universum in 2017 well as the 5th Sustainable Development Goal. compared to its rank in 2016. Vestel Human Resources organized events in certain universities with the motto “Campuses Furnished As of the end of 2017, 32% of all employees in Zorlu Group with Vestel” to attract young talents in 2017. are women. Raising the number of women employees in Zorlu Holding and Zorlu Group companies is recognized as a Zorlu Real Estate Group reaches new students through five strategic goal, and women’s active roles within the Group are functions it offers at Zorlu Center, and provides an eye-opening also supported. education on Mixed Project Management. After requests from the Engineering, Architecture, and Landscape Architecture To make the lives of working mothers easier, the kindergarten departments of universities across Turkey, a stimulating “Zorlu and pre-school at Zorluteks Lüleburgaz Factory continues its Center Field Trip” has been organized to show students the work education activities with 50 students. the Group has done with the architecture and the green space, Vestel Group offers employment opportunities for disabled as well as offering them practical tips that might come in handy people with projects such as “Equal Chances”, “I’m a Part of post-graduation. Life”, and “ZEKI”. Zorlu Real Estate Group has initiated a suggestion - reward With the “Equal Chances” project carried out at the electronics system based on employee ideas. The system aims to utilize factory, hearing-and speech-impaired individuals were employee ideas for reaching maximum customer satisfaction employe d af t er a t raining pro gram. Pro duction lines in the f actor y across Zorlu Center. are especially designed for easy use by disabled people. 172 A prize competition was launched in Korteks for a hearing-impaired and speech-handicapped employees hired Recommendation System where employees share OHS risk as part of the project continue their employment under suitable findings and recommendations to ensure a safer operation of conditions. the system. Within the scope of the Mental Health-friendly Workplace META, a Group company that operates in the mining-metallurgy (ZEKİ) Project initiated by the Manisa OIZ, Vestel Beyaz Eşya industry, has increased its cooperation with universities and has become one of the three leading companies to employ now offers internship programs for students from Celal Bayar individuals with mental disabilities. As per the Protected University, Dokuz Eylül University, and METU. META offers Workplace standards, areas safe from potential occupational scholarships to 101 high-achieving students living in Gördes or health and safety risks were created for mentally-challenged the neighboring villages through Mehmet Zorlu Foundation. 72% employees in the household appliances factories. Ten disabled of employees at the Gördes establishment are locals. Creating employees handle the preliminary preparation of materials to jobs for local people is an important environmental and social be used in production under the supervision of a trainer at the responsibility goal, as is the progress and development of the Protected Workplace. Meanwhile, “I’m a Part of Life” project region. launched by the Human Resources Department of Zorlu Holding

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Mehmet Zorlu Foundation

Focusing on topics like education, culture & arts, health and social solidarity, Mehmet Zorlu Foundation is a corporate social responsibility initiative that has investing in the future of Turkey as its core principle.

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Mehmet Zorlu Foundation

Necmi Kavuşturan Chairman, Mehmet Zorlu Foundation

As Zorlu Holding, creating value for not just our organization and personnel, but for all of society Mehmet Zorlu Foundation decisively has always been one of our priorities. Having been built upon this sense of responsibility, Mehmet Zorlu continued its efforts to add value to Foundation focuses on creating value for our society in areas like education, culture, solidarity, and health. On the society in 2017 as well. our journey, we will continue to create lasting and useful values for our country, and especially for our children and the youth.

We would like to thank all of our stakeholders who directly or indirectly supported us in our corporate social responsibility endeavors.

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Zorlu Holding conducts its social responsibility MZF realizes its cultural and artistic activities through the Zorlu activities through MZF. Children’s Theater.

As a world citizen, Zorlu Holding undertakes a variety of social A troupe that has reached over 700,000 audience responsibility activities under Mehmet Zorlu Education, Health, members in 14 years: Zorlu Children’s Theater Culture and Solidarity Foundation (“MZF”) founded in April 25, Zorlu Children’s Theater was founded by MZF in 2003. In the 14 1999 to create lasting added value. years since, the theater has reached over 700,000 children with MZF focuses on education, culture & arts, and health and social approximately 1,000 plays. solidarity. Having adopted the motto “investing in the future of Having performed a number of well-known plays, such as Turkey”, MZF especially aims to increase its current contributions the Heart of Music, the Town Musicians of Bremen, the Frog to education, culture & arts, and sports activities of the youth. Prince, and Frozen, the Zorlu Children’s Theater also presented In addition to donations from Zorlu Group companies, MZF also an unprecedented show on occasion of March 27 World finances its social responsibility activities using rent and interest Theater Day with the play “Carnival Planet”, drawing from the income. imagination of a nine-year-old.

Including the 2016-2017 school year, MZF has Enriching the inner world and dreams of children through provided scholarships for 18,541 students to this day. entertaining, and at the same time, educational plays, the Zorlu Children’s Theater was granted a number of international MZF provides a range of scholarship opportunities in education, awards during the year. and also offers in-cash and in-kind support to schools, associations and foundations. MZF provides scholarship 21st Century Competencies Training Program - A opportunities to approximately 2,000 students every year. The comprehensive training that provides young people total number of students MZF has provided scholarships until the opportunity to increase their experience and now has reached 18,541 including the 2016-2017 school year. develop their competencies.

Scholarships continue until graduation depending on student Having the youth as the focus of its social projects, MZF 21st achievement and needs. As of the end of 2017, the scholarship Century Competencies Training Program aims to help the young program’s scope includes 33 universities in Turkey. build upon their life skills and adaptation capabilities for the 21st century as well as their academic, technical and professional 36% of MZF scholarship recipients are primary and high school knowledge. students while the remaining 64% are university students. A first in Turkey, the program features in-class education, In addition to scholarship opportunities, MZF also contributes online support, dissertations, summer internships and post- to a higher quality education of children and young people by internship working experiences. It comprises six courses: Career building schools and tech-centers in various regions of Turkey Planning, Competences, Excel Modeling, Project Presentation, and helping them achieve their aspirations. In the past 16 Entrepreneurship and Job Seeking Techniques, and one summit. years, MZF has opened six schools, while taking part in the development and renovation of six others. The 21st Century Competencies Training Program is open to MZF scholarship recipients at the second, third and fourth year of their The systematic contribution of MZF to health and university education, the children of Zorlu Group employees, culture & arts and scholarship recipients from a range of other foundations. MZF provides medicine and medical equipment aid to persons MZF contributes to the development of youth through in need of assistance. It also provides support and donations the “Clearer Future Youth Platform”. to a number of institutions including the Turkish Red Crescent, the Foundation for Children with Leukemia (LÖSEV), the Hope As part of MZF’s collaboration with “Clearer Future” (Gelecek Foundation for Children with Cancer (KAÇUV), and Turkish Daha Net), Zorlu Group provide e-mentorship to scholarship Kidney Foundation (TBV). students through the “Clearer Future Youth Platform” and share their experience and know-how them.

Supporting youth development, “Clearer Future” is an online and offline career guidance platform which assists young people between 15 and 29 years of age to find their ideal career and offers professional development support.

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Audit and Internal Control

Billur Demet Atan CAE, Zorlu Holding

“As the Zorlu Holding Audit and Internal Control Department, we employ an effective, transparent and One of our priority goals is to high-efficiency approach as we work to ensure that the establish a control environment company’s activities are carried out in full compliance with the applicable legislation, and as a result, support that befits the corporate culture of the Group in reaching its targets.

Zorlu, and further the development One of our priority goals is to sustain a control of functions that will serve this environment that befits the corporate culture of Zorlu, and further the development of functions that will serve purpose. this purpose.”

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Organization and Activities of the Audit and Internal During the year, the Internal Audit Department organizes Control Department periodic meetings with the Audit Committees of companies that feature such an organization. In these meetings, participants Since 2000, internal audit of Zorlu Group companies is carried evaluate planned and actual audit, consultancy and special out by the centralized Internal Control Department operating audits, etc. for the year, share findings, review action plans and within Zorlu Holding. The Internal Audit Department conducts follow-up results based on these findings, and review plans for board-approved audit programs in line with International Internal the upcoming period. Audit Standards, and shares the results of its audits prepared after each audit and the annual reports detailing all audit and Zorlu Group supports and promotes Zorlu Group Internal Audit control activities conducted throughout the year with the Board Team, which consists of 13 people, in receiving additional of Directors, with the Audit Committees where applicable, and training to improve and enhance their existing knowledge, with the Group CEOs. skills and other qualities, becoming a member of the relevant organizations (e.g. The Institute of Internal Auditors, Turkey Complementing the Internal Audit Department are the Financial – TIA) and obtaining international certificates. The Internal Audit and Tax Audit units, which were established in 2011 and Audit team includes 2 CIAs (Certified Internal Auditor), 1 CFE commenced their activities in 2012 to provide financial oversight (Certified Fraud Examiner), 1 CPA (Certified Public Accountant), of Group companies. In the last quarter of 2013, the Internal Audit 1 CISA (Certified Information Systems Auditor), 3 CRMAs and Financial and Tax Audit Departments were gathered under (Certification in Risk Management Assurance), 1 CMAALL (CMB the umberalla of Zorlu Holding General Directorate of Audit and Level 3 License), 1 CGRL (CMB Corporate Governance Rating Internal Control. In accordance with the changing needs of the License), 1 DIL (CMB Derivatives License) and 1 CMB Real Estate Zorlu Group, the Tax Audit Department was transformed into the Appraisal License. Tax Audit Directorate as of December 1, 2015, while the Internal Audit Department was restructured into two distinct Directorates, Financial Audit and Tax Audit Activities namely, the Internal Audit Process Oversight and Internal Audit Inspection Oversight as of January 1, 2016. The Financial Audit and Tax Audit Departments have been carrying out their activities at Zorlu Group Companies since The purpose, authorizations and responsibilities as well as 2012. Currently, these departments have 9 and 8 employees, operating structure for the internal audit activities have been respectively. defined by a series of board-approved documents circulated across the Group, such as the “Audit Regulation” and the These departments ensure that the Group companies’ balance “Internal Audit Working Principles”. sheets and income statements used for financial and tax reporting purposes are in conformity with the uniform chart Internal Audit Activities of accounts, tax legislation and audit standards and provide reasonable assurance to the Board of Directors in such areas. Process audit activities are carried out in line with a board- approved, risk-based annual audit program to evaluate resource Audit findings are reported to the company executives and usage efficiency, adherence to written rules (laws, regulations, senior management. When deemed necessary, the Tax Audit internal policies and directives), and information accuracy, Department also provides advisory services with reasonable security and reliability. Prior to each audit, internal auditors assurance to Group companies against potential tax risks. meet with senior management for risk assessment where the risks which could jeopardize the company’s targets are positioned In addition, The Financial Audit Team, reviews the CMB-compliant on a risk matrix based on their potential impact and probability financial reports of the publicly listed Group companies and of occurrence. During audit field work, tests are carried out to shares its comments with the relevant departments. evaluate the effectiveness of internal controls which monitor risks with high impact and high probability of occurrence. The results The Financial Audit Team includes 1 Certified Public Oversight of the observations are shared with the company management Authority Licensed Auditor, 5 CPAs (Certified Public Accountant), in the form of a draft report, and then a final report, including and 1 CMAALL (CMB Level 2 License) while the Tax Audit Team the feedback of the management, is sent to the top management. includes 1 Certified Public Oversight Authority Licensed Auditor, As a result, the department provides consultancy services with 1 CMA (Certified Management Accountant) and 7 CPAs. reasonable assurance, while offering best practices drawing from synergy within the Group. One month after the final report, actions taken in line with the 4T approach (Treat, Terminate, Transfer, Tolerate) are reported to the Board of Directors.

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Zorlu Holding 2017 Annual Report

Annotations

1. GENERAL INFORMATION

Reporting Period

The Annual Report covers the fiscal period between 01.01.2017-31.12.2017.

Corporate Title and Other Information

Corporate Title: Zorlu Holding AŞ Headquarters Address: Levent 199 Büyükdere St. Number: 199 34394 Şişli/ISTANBUL Trade Register No: 267687 Tax ID Number: 999 003 0324 Telephone: (0212) 456 20 00 Fax: (0212) 422 03 40 Website: www.zorlu.com.tr Central Registration System Number: 0999003032400010

Changes in the Articles of Association Made During the Reporting Period

No changes were made in the Articles of Association during the reporting period.

Members of the Board of Directors and the Audit Committee

Board of Directors:

Name and Surname Position Tenure Start End Ahmet Nazif ZORLU Chairman 05.06.2017 05.06.2020

Zeki ZORLU Vice Chairman 05.06.2017 05.06.2020

Olgun ZORLU Member 05.06.2017 05.06.2020

Mehmet Emre ZORLU Member 05.06.2017 05.06.2020

Selen ZORLU MELİK Member 05.06.2017 05.06.2020

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As Zorlu Holding AŞ is a company subject to independent audit as required by the Turkish Commercial Code Article 6102, Eren Bağımsız Denetim ve YMM AŞ (Grant Thornton), information about which is listed below, was selected as the independent auditor for auditing the company’s accounts and transactions for the fiscal year 2017.

Company Name: Eren Bağımsız Denetim ve YMM AŞ

Fiscal Period: 01.01.2017 – 31.12.2017

Independent Auditor Public Registry Number 658491

Address: Abide-i Hürriyet Cad. Bolkan Center 211 C Kat 3 Şişli/ISTANBUL

Information Regarding the Business Carried Out by the Members of Board of Directorswithin the Scope of the Permissions Granted by the General Assembly on Their Own Behalf or on Behalf of Others and Non-Competition Clauses

Within the scope of permissions granted by the General Assembly, no member the Board of Directors carried out business with the company on his/her own behalf or on behalf of others; neither any member competed with the company.

Shareholding Structure and Capital Distribution

Nominal Value of Shareholders Number of Shares Shares (TL) Share in Capital (%) Zeki ZORLU 498,750,000 498,750,000 15%

Ahmet Nazif ZORLU 1,529,500,000 1,529,500,000 46%

Olgun ZORLU 1,064,000,000 1,064,000,000 32%

Türkan ZORLU 33,250,000 33,250,000 1%

Zülal ZORLU 33,250,000 33,250,000 1%

Selen ZORLU MELİK 33,250,000 33,250,000 1%

Fatma Şehenaz ÇAPKINOĞLU 33,250,000 33,250,000 1%

Şehminur AYDIN 33,250,000 33,250,000 1%

Mehmet Emre ZORLU 33,250,000 33,250,000 1%

Şule CÜMBÜŞ 33,250,000 33,250,000 1%

TOTAL 3,325,000,000 3,325,000,000 100%

The company’s capital is divided into 3,325,000,000 shares each with a nominal value of TL 1 and all shares are registered.

The company does not have preferential shares.

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Zorlu Holding Organization Chart

CEO

Chief Human Resources Chief Legal Office Chief Financial Officer Officer

Legal Affairs Department / Human Resources Strategy and Business Energy & Foreign Department Development Department

Corporate Security and Legal Affairs / Domestic Intelligence Department

Legal Affairs / Real Estate Purchasing Department Finance Department

Financial Report Department Technical and Administrative Affairs Department Accounting Department

Treasury Department

Corporate Risk Management Department

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Corporate Audit and Internal Control Chief Information Officer Communications General General Manager Manager

Corporate Information Technologies Tax Department Communications Department Department

Information Technologies and Business Tax Audit Department Development Department

Tax Advisory Department

IT Infrastructure and Internal Contol Department Operations Department

Network Management Department

Server Systems Department

Financial Audit Project Management Office Department

Internal Audit Review and Investigation Department

Internal Audit Department

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Annotations

2. FINANCIAL BENEFITS PROVIDED TO BOARD MEMBERS AND SENIOR EXECUTIVES

No member of the Board of Directors or senior management received any payment under the rubrics of “travel allowance”, “accommodation allowance”, or “representation expense”. A total of TL 136,682.99 was paid on behalf of such persons as insurance expenses.

3. THE COMPANY’S RESEARCH AND DEVELOPMENT ACTIVITIES

N/A.

4. 2017 ACTIVITIES

Participation in the Capital Increases in 2017 Number of Shares Amount of Capital Participation in Capital Acquired via Capital Company Name Increase Increase Increase Share in Capital (%) Zorlu Enerji Elektrik Üretim AŞ TL 1,250,000,000 TL 777,419,887.43 777,419,887 62.19% Zorlu Yapı Yatırım AŞ TL 1,270,000,000 TL 670,000,000.00 670,000,000 52.34% Rosmiks International B.V USD 16,470,000 TL 59,253,030.00 18,000 99.99%

Shares Sold and Acquired in 2017 and Other Changes

Number of Shares Company Name Share Amount (TL) Share in Capital (TL) Share in Capital (%) Transferred Zorlu Ev Tekstil Ürünleri Ticaret AŞ 245,000 245,000 100.00% 245,000

Administrative or Judicial Sanctions Imposed on the company and the Board of Directors Members Due to Practices on Account of Breach of Legislation

There are no administrative or legal sanctions imposed on the company or the Members of the Board due to regulatory violations in 2 017.

Disclosure on Special and Public Audits During Fiscal Year

No special or public audit was conducted with respect to the company during the 2017 fiscal year.

Compliance/Non-Compliance with General Assembly Resolutions

All decisions taken at the 2016 Ordinary General Assembly were complied with during the 01.01.2017-31.12.2017 fiscal period.

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5. FINANCIAL CONDITION

Board of Directors’ Statement Concerning and Assessment of the company’s Capital Adequacy and/or Insolvency

As of the end of 2017, the company’s total equity/paid in capital ratio was 1.02 and under the Article 376 of the Turkish Commercial Code, this means that the company has neither suffered a capital impairment nor is insolvent.

Financial Ratios

A. FINANCIAL STATEMENT 31.12.2017 Current Assets/Total Assets 33.1% Non-Current Assets/Total Assets 66.9% Short-Term Liabilities/Total Liabilities 57.0% Long-Term Liabilities/Total Liabilities 34.1% Total Equity /Total Liabilities 8.9%

B: LIQUIDITY RATIOS 31.12.2017 Current Ratio 58.0% Liquidity Ratio 39.1%

C. PROFITABILITY RATIOS 01.01.2017-31.12.2017 Net Profit (Loss) For the Period*/Paid-inCapital (12.9%) Net Profit (Loss) For the Period*/Sales Revenues (2.1%) Cost of Sales/Sales Revenues 77.6% Operating Profit (Loss) Before Financing Expenses/Sales Revenues 10.3%

Profit Distribution Proposal

No contingency reserves will be set aside as the year 2017 resulted in a loss.

6. MANDATORY PARENT COMPANY DISCLOSURES IN CORPORATE GROUPS

Situations in which Zorlu Holding controls, directly or indirectly, 5%, 10%, 20%, 25%, 33%, 50%, 67%, or 100% of shares of another company; changes in such shareholding interests and their reasons.

Companies in which Zorlu Holding directly or indirectly controls 0-5% of share capital.

Company Share in Capital Zorlu Gayrimenkul Geliştirme ve Yatırım AŞ 2%

* Attributable to equity holders of the company

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Annotations

Companies where Zorlu Holding directly or indirectly controls 6-10% of share capital.

Company Share in Capital Osteoid Sağlık Teknolojileri AŞ 8% Medicraft Medikal Sistemler AŞ 8% Buseb AŞ 10% Sichuan Zorluteks Yinhua Co. Ltd. 10%

Companies where Zorlu Holding directly or indirectly controls 11-20% of share capital.

Company Share in Capital Nanortopedi Teknoloji Sanayi ve Ticaret AŞ 12% Intermar Ticaret Pazarlama Turizm Sanayi AŞ 16% CY Vision INC 16% Aydın Yazılım Elektronik ve Sanayi AŞ 16% Dorad Energy Ltd. 20% Mavilab Yazılım Medikal Lazer Makina İmalatı Sanayi ve Ticaret AŞ 20% Hayriya Bilişim ve Sağlık Teknolojileri AŞ 20% Biolive Biyolojik ve Kimyasal Teknolojiler Sanayi ve Ticaret AŞ 20% Ringpara Mobil İletişim Bilgi Teknolojileri Reklamcılık Ticaret AŞ 20% Verisun Teknoloji AŞ 20%

Companies where Zorlu Holding directly or indirectly holds21-33% of share capital.

Company Share in Capital EZOM Ltd. 25% Vestel Savunma Sanayi AŞ 27%

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Companies where Zorlu Holding directly or indirectly holds 34-50% of share capital.

Company Share in Capital Ezotech Ltd. 34% Ashdod Energy Ltd. 34% Ramat Negev Energy Ltd. 34% Solad Energy Ltd. 34% Enwair Enerji Teknolojileri AŞ 39%

Companies where Zorlu Holding directly or indirectly holds 51-67% of share capital.

Company Share in Capital Nemrut Jeotermal Enerji Elektrik Üretim AŞ 61%

Companies where Zorlu Holding directly or indirectly holds 68-100% of share capital.

Company Share in Capital Cabot Communications Ltd. 70% Vestel Beyaz Eşya Sanayi ve Ticaret AŞ 73% Gazdaş Gaziantep Doğalgaz Dağıtım AŞ 74% ABH Turizm Temsilcilik ve Ticaret AŞ 75% Intertechnika LLC 77% Vestel Electronics Gulf Dmcc 78% Uts-United Technical Services, S.R.O 78% Vestel Polska Technology Center sp. z o.o. 78% Vestel Komünikasyon Sanayi ve Ticaret AŞ 78% Vestel France SA 78% Vestek Elektronik Araştırma Geliştirme AŞ 78% Vestel Elektronik Sanayi ve Ticaret AŞ 78% Vestel Ticaret AŞ 78% Vestel CIS Ltd. 78% Vestel Iberia SL 78% Vestel Holland BV 78% Vestel Germany GmbH 78% Vestel Benelux BV 78%

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Annotations

Vestel UK Ltd. 78% Vestel Trade Ltd. 78% OY Vestel Scandinavia AB 78% Vestel Elektronica SRL 78% Vestel Ventures Ar-Ge AŞ 78% Vestel Poland sp. z.o.o. 78% Vestel Central Asia 78% Vestel Central Asia LLP 78% Vestel Electronics Shanghai Trading Co. LTD 78% Zorlu Renewable Pakistan (Private) Ltd. 79% Zorlu Wind Pakistan (Private) Ltd. 81% Zorlu Enerji Elektrik Üretimi AŞ 81% Zorlu Doğal Elektrik Enerji Üretim AŞ 81% Rotor Elektrik Üretim AŞ 81% Zorlu Hidroelektrik Enerji Üretim AŞ 81% Zorlu Rüzgar Enerjisi Elektrik Üretim AŞ 81% Zorlu Enerji Pakistan Limited 81% Zorlu Jeotermal Enerji Elektrik Üretim AŞ 81% Zorlu Enerji Israil Ltd. 81% Zorlu Sun Power (Private) Ltd. 81% Zorlu Solar Pakistan (Private) Ltd. 81% Zorlu Solar Enerji Tedarik ve Ticaret AŞ 81% Zorlu Osmangazi Enerji Sanayi ve Ticaret AŞ 81% Osmangazi Elektrik Perakende Satış AŞ 81% Osmangazi Elektrik Dağıtım AŞ 81% Zorluteks D.O.O. 83%

178 Zorlu Holding 2017 Annual Report

Trakya Bölgesi Doğalgaz Dağıtım AŞ 94% Zorlu Doğal Gaz Tedarik Ticaret AŞ 95% Zorlu Faktoring AŞ 98% Zorlu Doğalgaz İthalat İhracat AŞ 99% Zorlu Yapı Yatırım AŞ 99% Zorlu East Co. Trading Company 99% Zorlu Center Sanat Merkezi AŞ 99% Zorlu Industrial Pakistan (Private) Limited 100% Zorlu O/M Pakistan Limited 100% Rosmiks International B.V 100% Zorlu Enerji ve İnşaat Sanayi ve Ticaret AŞ 100% Zorlu Elektrik Enerji İthalat İhracat AŞ 100% Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Tic. AŞ 100% Zorlu O/M Enerji Tesisleri İşletme AŞ 100% Rosmiks LLC 100% Zorlu Doğal Gaz, Petrokimya Ürünleri Petrol İnşaat Sanayi Ticaret AŞ 100% Korteks Mensucat Sanayi ve Ticaret AŞ 100% Zorluteks Tekstil Sanayi ve Ticaret AŞ 100% Zorlu Dış Ticaret Sanayi ve Ticaret AŞ 100% Zorlu Ev Tekstil Ürünleri AŞ 100% Zorlu Tekstil Ürünleri Pazarlama AŞ 100% Zorluteks SNG 100% Zorlu UK Ltd. 100% Zorlu Air Havacılık AŞ 100% Linens Tekstil Ürünleri Pazarlama AŞ 100% Zorlu International Investments Ltd. 100% Zorlu USA Inc. 100% Zorlu Financial Services 100% Zorlu Hometeks AŞ 100% Zorlu OMR Elektrik Santralleri İşletme ve Bakım Hizmetleri Ltd. 100% Zorlu O&M Pakistan Ltd. 100% Zorlu Ventures USD Inc. 100%

179 Independent Auditor’s Report on the Annual Report

Zorlu Holding 2017 Annual Report

INDEPENDENT AUDITOR’S REPORT

To the Shareholders of Zorlu Holding A.Ş. Istanbul – Turkey

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

1)Opinion

We have audited the consolidated financial statements of Zorlu Holding 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 profit and loss and 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 Zorlu Holding A.Ş. as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

2)Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Turkey, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3) 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 IFRSs, 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.

4) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

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

182 Zorlu Holding 2017 Annual Report

is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs 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 ISAs, we exercise professional judgment and maintain professional scepticism 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.

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.

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

EREN Bağımsız Denetim ve Yeminli Mali Müşavirlik A.Ş. Member Firm of GRANT THORNTON International

Aykut Halit Partner

Istanbul, 24.05.2018

183 Consolidated Financial Statements and Independent Auditor’s Report

Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Independent Auditor’s Report

To the Shareholders of Zorlu Holding A.Ş. Istanbul - Turkey

REPORT ON THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTS

1) Opinion

We have audited the consolidated financial statements of Zorlu Holding 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 profit and loss and 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 Zorlu Holding A.Ş. as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).

2) Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Turkey, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

3) 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 IFRSs, 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.

4) Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

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 ISAs 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.

186 Zorlu Holding 2017 Annual Report

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism 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.

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.

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

EREN Bağımsız Denetim ve Yeminli Mali Müşavirlik A.Ş. Member Firm of GRANT THORNTON International

Aykut Halit Partner

Istanbul, 24.05.2018

187 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Consolidated Statements of Financial Position at 31.12.2017 and 31.12.2016 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Assets Note 31.12.2017 31.12.2016

Current assets Cash and cash equivalents 6 2.994.307 3.813.216 Investment securities 8 28.255 223.148 Trade receivables -Related parties 32 302.904 306.939 -Third parties 9 4.451.298 3.169.040 Receivables from finance sector operations -Other trade receivables from finance sector operations 10 283.376 177.670 Other receivables -Related parties 32 538.670 4.486.809 -Third parties 13 416.185 302.951 Receivables from service concession arrangements 14 130.999 -- Inventories 16 4.117.676 2.273.658 Prepaid expenses 11 335.535 156.147 Current income tax assets 72.603 35.631 Derivative financial instruments 12 15.195 173.506 Other current assets 15 485.740 183.706

Subtotal 14.172.743 15.302.421

Assets held-for sale -- 67.139

Total current assets 14.172.743 15.369.560

Non-current assets Trade receivables -Related parties 32 -- 4.332 -Third parties 9 82.968 136.409 Other receivables -Related parties 32 1.976.680 219.965 -Third parties 2.671 1.531 Investment in associate 7 258.379 194.276 Investment securities 8 5.899.113 4.974.055 Receivables from service concession arrangements 14 508.335 -- Property, plant and equipment 17 16.164.459 6.703.235 Intangible assets 18 2.658.916 1.623.578 Prepaid expenses 11 277.889 306.397 Other non-current assets 15 79.488 36.809 Derivative financial instruments 12 31.603 -- Deferred tax asset 24 768.820 420.114

Total non-current assets 28.709.321 14.620.701

Total assets 42.882.064 29.990.261

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

188 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Consolidated Statements of Financial Position at 31.12.2017 and 31.12.2016 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Liabilities and equity Note 31.12.2017 31.12.2016

Current liabilities Financial liabilities 19 14.646.379 9.337.603 Trade payables -Related parties 32 100.870 33.836 -Third parties 21 7.272.751 5.042.393 Payables from finance sector operations -Other trade payables from finance sector operations 20 330.355 246.195 Employee benefit obligations 123.746 117.627 Other payables -Related parties 32 74.043 77.722 -Third parties 285.452 49.139 Deferred income -Related parties 32 52 31 -Third parties 11 240.362 101.845 Derivative financial instruments 12 304.806 358.209 Taxation on income 24 56.980 5.332 Short term provisions -Provision for employee benefits 23 43.591 7.624 -Other provisions 23 454.487 280.593 Other liabilities 22 519.931 220.168

Total current liabilities 24.453.805 15.878.317

Non-current liabilities Financial liabilities 19 12.762.591 8.870.519 Trade payables -Third parties 21 1.959 6.229 Other payables -Related parties 32 176.912 175.152 -Third parties 27.614 503 Derivative financial instruments 12 34.342 11.949 Long term provisions -Provision for employee benefits 25 187.857 150.135 -Other provisions 23 84.902 76.797 Other non-current liabilities 22 380.761 195.295 Deferred tax liability 24 972.946 42.708

Total non-current liabilities 14.629.884 9.529.287

Equity Share capital 26.a 3.325.000 3.325.000 Adjustments to share capital 26.b 446.109 446.109 Share premium 21.932 21.289 Other comprehensive income/(expense) not to be reclassified to profit or loss -Revaluation reserves 26.c -- 282.450 -Actuarial gain/loss arising from defined benefit plans (6.930) (3.234) Other comprehensive income/(expense) to be reclassified to profit or loss -Cash flow hedge fund 26.d (730.979) (237.650) -Translation reserve 2.851.090 2.074.736 Restricted reserves 26.e 181.068 200.331 General reserves (2.274.776) (1.531.098) Net loss for the year (429.469) (207.408)

Equity attributable to owners of the parent 3.383.045 4.370.525 Non-controlling interests 415.330 212.132

Total equity 3.798.375 4.582.657

Commitments and contingencies 28 -- --

Total liabilities and equity 42.882.064 29.990.261

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

189 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Consolidated Statements of Profit or Loss for the Years Ended 31.12.2017 and 2016 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

01.01.- 01.01.- Note 31.12.2017 31.12.2016

Revenue 5 20.353.392 14.227.063 Cost of sales (-) 5 (15.788.273) (10.804.374)

Gross profit 4.565.119 3.422.689

Selling expenses (-) (1.803.264) (1.442.383) General and administrative expenses (-) (834.851) (587.388) Other income 30 568.772 120.605 Other expense (-) 30 (351.847) (89.771) Share of gain/(loss) of associates 7 20.096 2.009

Operating profit 2.164.025 1.425.761

Financing income 31 4.189.435 4.813.479 Financing expense (-) 31 (6.769.504) (6.517.172)

Loss before taxation (416.044) (277.932)

Current tax charge 24.a (67.559) (37.925) Deferred tax income 24.b 115.225 138.418

Taxation on income 47.666 100.493

Net loss for the year (368.378) (177.439)

Profit (loss) attributable to: Equity holders of the Parent (429.469) (207.408) Non-controlling interests 61.091 29.969

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

190 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Consolidated Statements of Comprehensive Income for the Years Ended 31.12.2017 and 2016 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

01.01.- 01.01.- 31.12.2017 31.12.2016

Net loss for the year (368.378) (177.439)

Other comprehensive income/expense not to be reclassified to profit/loss - Actuarial gain losses (11.404) (4.186) - Tax effect 2.509 837

(8.895) (3.349) Other comprehensive income/expense to be reclassified to profit/loss - Cumulative gains losses on cash flow hedging (486.489) (316.435) - Translation differences 802.016 1.009.671 - Tax effect 106.750 63.287

422.277 756.523

Total comprehensive income for the year 45.004 575.735

Net profit/(loss) attributable to: Equity holders of the Parent 7.699 603.326 Non-controlling interests 37.305 (27.591)

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

191 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Consolidated Statements of Changes In Shareholders’ Equity for the Year Ended 31.12.2017 and 31.12.2016 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.) ------643 Total Total 2.896 3.705 equity 45.004 11.368 (9.472) 238.220 575.735 (945.025) (125.020) 3.798.375 4.000.321 4.582.657 ------Non- 1.160 (9.472) 37.305 12.850 (27.591) 174.205 interests 415.330 212.132 226.873 controlling controlling ------643 7.699 2.896 Equity Equity 64.015 11.368 (1.160) (9.145) 603.326 (945.025) (125.020) holders of holders of the parent 3.383.045 3.773.448 4.370.525 ------year for the for the 207.408 787.549 Net loss Net loss (429.469) (207.408) (429.469) (207.408) (787.549) ------7.155 64.015 11.368 26.001 99.963 (67.190) General General reserves (945.025) (170.000) (787.549) Retained earnings (513.514) (2.274.776) (1.531.098) ------7.898 67.190 reserve (27.161) 181.068 200.331 133.141 Restricted Restricted ------(7.010) (12.965) 783.364 Currency Currency 1.023.410 difference 2.851.090 2.074.736 1.064.291 translation translation ------or loss fund hedge hedge (3.335) (31.375) (339.416) (202.940) (153.913) income/(expense) to income/(expense) to Other comprehensive Other comprehensive (730.979) (237.650) Cash flow Cash flow be reclassified to profit be reclassified to profit ------(101) 3.084 plans (6.780) (3.133) benefit benefit (6.930) (3.234) defined defined Actuarial Actuarial gain/loss gain/loss arising from arising from ------or loss 2.896 (6.603) reserve 282.450 286.157 (282.450) Other comprehensive Other comprehensive be reclassified to profit be reclassified to profit income/(expense) not to income/(expense) not to Revaluation Revaluation ------643 Share Share 21.932 21.289 21.289 premium ------capital to share to share 446.109 446.109 446.109 Adjustments Adjustments ------capital Paid in Paid in 170.000 3.325.000 3.325.000 3.155.000 Balances at Balances at 31.12.2017 Transactions with non- controlling interests Consolidation of Zorlu Consolidation of Zorlu Yapı Yatırım A.Ş. as from 13.04.2017 Total comprehensive Total comprehensive income Increase in subsidiaries Increase in subsidiaries share premium Dividend paid to minority Dividend paid to minority interest Tax effect of foreign Tax effect of foreign subsidiary net income Balance at Balance at 01.01.2017 Transactions with non- controlling interests Total comprehensive Total comprehensive income Transfer to accumulated Transfer to accumulated deficit Transfer to restricted reserves Transfer to restricted Transfer to restricted reserves Cash increase in Cash increase in subsidiaries share capital Unconsolidated Unconsolidated subsidiary Balance at Balance at 01.01.2016 Transfer to accumulated Transfer to accumulated deficit The accompanying notes are an integral part of these consolidated financial statements.

192 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Consolidated Statements of Cash Flows for the Year Ended 31.12.2017 and 31.12.2016 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

01.01.- 01.01.- Note 31.12.2017 31.12.2016

Net loss for the year (368.378) (177.439) Depreciation of property, plant and equipment 17 615.859 503.424 Amortization of intangible assets 18 161.633 109.261 Profit on sale of property, plant and equipment 30 (225.515) (14.928) Loss on sale of property, plant and equipment 30 27.229 6.756 Provision for employee termination benefits 25 28.819 29.944 Provision for doubtful receivables, net 26.564 18.653 Provision for (release from) diminution of inventories, net 16 6.523 (1.647) Other provisions, net 143.421 121.299 Losses (gains) on derivative financial instruments, net 178.311 (20.466) Interest expense 31 1.986.681 1.388.695 Interest income 31 (557.400) (758.237) Unearned interest on receivables 31 31.323 23.684 Unearned interest on payables 31 (22.832) (29.128) Goodwill 18 (402.237) -- Pooling of interest effect of acquired subsidiary (945.025) -- Adjustments to the tax expense/income (47.666) (100.493)

Net cash generated from operating activities before changes in operating assets and liabilities 637.310 1.099.378

Changes in trade receivables (1.003.258) 47.486 Changes in inventories (1.196.026) 378.129 Changes in other receivables (106.402) 102.170 Changes in other assets (419.063) (9.590) Changes in trade payables 2.175.525 (950.938) Changes in other payables (2.526.943) (54.003) Changes in other liabilities 104.637 120.204 Changes in deferred income 34.052 (119.420) Changes in prepaid expenses (150.879) (113.770) Employee termination paid 25 (31.486) (31.106) Taxes paid (15.911) (80.385)

Net cash generated from operating activities (2.498.444) 388.155

Cash flows from investing activities Purchases of property, plant and equipment 17 (2.454.684) (1.259.475) Purchases of intangible assets 18 (224.452) (164.065) Proceeds from sale of property, plant and equipments 324.761 203.623 Proceeds from sale of intangible assets 2.315 2.550 Transactions with non-controlling interests 212.670 3.705 Acquisition of subsidiary (1.124.984) --

Net cash used in investing activities (3.264.374) (1.213.662)

Cash flows from financing activities Proceeds from borrowings 13.794.158 8.819.689 Repayments of borrowings (8.806.075) (4.468.076) Changes in investment securities (769.769) 506.731 Payment of settlement of derivatives (669.600) (273.424) Changes in other receivables from related parties 2.191.424 (1.073.114) Changes in other payables to related parties (1.919) 83.502 Interest received 557.400 758.237 Interest paid (1.780.758) (1.267.145) Dividend paid to non-controlling interests (9.472) --

Net cash generated from financing activities 4.505.389 3.086.400 Translation differences 345.182 381.987 Net change in cash and cash equivalents (912.247) 2.642.880 Cash and cash equivalents at beginning of year 3.774.189 1.131.309

Cash and cash equivalents at end of year 6 2.861.942 3.774.189

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

193 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

1. ORGANISATION AND NATURE OF ACTIVITIES

Zorlu Holding A.Ş. (the “Company” or “Zorlu Holding”) was founded in 1990 to support and organize the activities of its subsidiaries mainly within the sectors of textile, white goods and electronic, energy and real estate by providing centralised services for finance, accounting, budget, internal audit, human resources and corporate communications.

Zorlu Holding A.Ş. and its subsidiaries (the “Group”) is made up of Zorlu Holding A.Ş., its 57 (2016: 51) subsidiaries listed below in which Zorlu Holding A.Ş. owns a majority shareholding and/or effectively controls their management.

The Group is the under control of the Zorlu family.

The registered office address of the Company is located at Levent 199, Büyükdere Caddesi No: 199, Şişli/Istanbul- Turkey.

Nature of activities of the Group

The Group is organized into four major production divisions given below;

1.1 Energy division

This division is established to meet the energy requirements of Zorlu Group and other industrial companies.

Affiliates Nature of business Country

Zorlu Enerji Elektrik Üretim A.Ş. Electricity production and steam and sales Turkey Rotor Elektrik Üretim A.Ş. Electricity production Turkey Zorlu Hidroelektrik Enerji Üretim A.Ş. Electricity production Turkey Zorlu Jeotermal Enerji Elektrik Üretimi A.Ş. Electricity production Turkey Zorlu Enerji Pakistan Ltd. Electricity production Pakistan Zorlu Wind Pakistan (Private) Ltd. Electricity production Pakistan Zorlu Solar Pakistan (Private) Ltd. Electricity production Pakistan Zorlu Rüzgar Enerjisi Elektrik Üretimi A.Ş. Electricity production Turkey Zorlu Doğal Elektrik Üretimi A.Ş. Electricity production Turkey Nemrut Jeotermal Elektrik Üretimi A.Ş. Electricity production Turkey Zorlu Solar Enerji Tedarik ve Ticaret A.Ş. Electricity production and panel trading Turkey Zorlu Elektrik Enerjisi İthalat İhracat ve Toptan Ticaret A.Ş. Electricity trading Turkey Zorlu Osmangazi Enerji Sanayi ve Ticaret A.Ş. (*) Electricity distribution and trading Turkey Zorlu Enerji Israil Ltd. Electricity production Israel Zorlu Renewable Pakistan (Private) Ltd. Electricity production Pakistan Zorlu Sun Power (Private) Ltd. Electricity production Pakistan Zorlu O/M Enerji Tesisleri İşletme ve Bakım Hizmetleri A.Ş. Energy facility operation and Turkey maintenance services Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş. Energy facility construction services Turkey Rosmiks International B.V. Financial services Holland Rosmiks LLC Production of electricity Russia Trakya Bölgesi Doğalgaz Dağıtım A.Ş. Natural gas distribution Turkey Gazdaş Gaziantep Doğalgaz Dağıtım A.Ş. Natural gas distribution Turkey Zorlu Doğalgaz İthalat İhracat ve Toptan Ticaret A.Ş. Purchase and sales of natural gas Turkey Zorlu Doğal Gaz Tedarik Ticaret A.Ş. Purchase and wholesale of natural gas Turkey Zorlu Doğal Gaz Petrokimya Ürünleri Petrol İnşaat Sanayi Ticaret A.Ş. Purchase and sale of petrol and petrochemical Turkey goods

(*) Zorlu Osmangazi Enerji Sanayi ve Ticaret A.Ş. has 100% shares of Osmangazi Elektrik Dağıtım A.Ş. (“OEDAŞ”) and Osmangazi Elektrik Satış Perakende A.Ş. (“OEPSAŞ”).

194 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Zorlu Enerji Elektrik Üretim A.Ş. (“Zorlu Enerji”):

Zorlu Enerji, its affiliates and associates are engaged in establishing, renting and operating facilities of electrical energy production plant, producing, distribution, trading electricity and producing steam. The Company was established by Zorlu Holding AŞ (“Zorlu Holding”) and Korteks Mensucat Sanayi ve Ticaret AŞ (“Korteks”) in 1993.

As of 31 December 2017 the total electricity and steam capacity of the Company’s three natural gas plant, which are operating and located in Bursa, Kırklareli (Lüleburgaz) and Yalova, are 176,2 MW and 159,5 ton/hour in total. The production license granted for Ankara Natural Gas Fueled Electric Production Plant of 50,3 MW installed capacity was terminated on 30 September 2014. The production license of combined cycle Natural Gas power plant, having a capacity of 163,2 MW in Kayseri, Melikgazi has been terminated on 1 October 2015. Pursuant to the material event disclosure dated 25 January 2017, the production license of the combined cycle natural gas power plant of Zorlu Enerji in Bursa Organised Industrial Zone was amended and the installed capacity included in the license was decreased from 90 MW to 34,3 MW. In order to increase the steam production capacity of the Lüleburgaz plant which is 129,5 tons/hour, a fluidized bed steam boiler plant with a steam production capacity of 2x40 tons/hour is being installed in the plant. Construction and engineering work on the project started in April 2016 and the facility is targeted to be commissioned in the first quarter of 2018.

On February 2015, Yozgat Provincial Special Administration gave three Geothermal Sources and Natural Mineral Waters Exploration License to the Company until 10 February 2018 in order to make exploration in three different region in Yozgat province, Şefaatli district.

Zorlu Enerji prelicense application to Energy Market Regulatory Authortiy (“EMRA”) for combined cycle natural gas power plant having a capacity of 1.200 MW to be incorporated in Kırklareli, Vize, Kıyıköy has been approved in February 2016. As a preliminary licensing condition, Environmental Impacts Assessment (” EIA”) process should be completed.

Zorlu Enerji participated in the tender dated on 30 January 2015 regarding Turkish Electricity Transmission Company’s Application for the Establishment of Pre-licensed Solar Power Electricity Production Plant Competition Package 3 for the Konya Zone 1 with 46 MW capacity and won the tender by taking 18 MW full capacity. In respect of the won tender, as per the material disclosure dated April 2016, EMRA granted pre-license which will be valid for 30 months for the planned construction of Alibeyhöyüğü Solar Power Plant Project in Çumra, Konya.

Zorlu Enerji participated in Denizli Metropolitan Municipality’s tender to rent geothermal fields on 21 September 2016, and won the tender by agreeing and undertaking to pay annual field rent made up of 19% of the annual field operation turnover defined in article 26/G of the tender specifications as well as TL 3.000 fixed rent, excluding VAT. Within the scope of the tender, the 3470 hectare Sarayköy geothermal field on Lot 32 in the Tekke Neighborhood of the Sarayköy District of Denizli Province, with operation license no: (J-559/c), will be rented out until 2 June 2041 for the purpose of generating electrical energy via geothermal resources. Field operation turnover is made up of the net fee of the electrical power sold, excluding VAT, and the net income acquired by the sale or rent of the geothermal fluid to third parties, excluding VAT.

Zorlu Enerji signed a letter of intent with the Punjab State Government in February 2017 for a 200 MW solar power plant project at Pakistan which consists of two solar power plants with 100 MW installed, which will be developed in the Punjab Province. Pre-license was obtained for projects within the scope of the agreement in July 2017. Pre-license were given to Zorlu Sun Power (Private) Limited and Zorlu Renewable Pakistan (Private) Limited in which Zorlu Enerji owns 99,7% shares and the projects will be carried out by these companies.

Rotor Elektrik Üretim A.Ş. (“Rotor”):

Rotor was established for the purpose of building wind power plants in 2003 and was acquired by “Zorlu Enerji” in 2007. On 19 December 2003, Rotor obtained the production license for 30 years from EMRA to establish a wind power plant with a capacity of 135 MW in the province of Osmaniye. Gökçedağ Wind Power Plant (Rotor WPP) whose construction started in July 2008, started production with full capacity on 15 October 2010 and continues its operations.

195 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Gökçedağ Wind Power Plant joined the Renewable Energy Resources Support Mechanism (“YEKDEM”) in 2016 and the application to EMRA for Gökçedağ Wind Power Plant to make use of YEKDEM in the 2017 calendar year was accepted in November 2016. Accordingly, also in 2017, the power plant sells all the electricity it generates in return for 7,3 USD cent/kWh, which is the support fee provided on the basis of resources to the production facilities running on wind power within the scope of YEKDEM. Application of Power Plant to make use of YEKDEM in the 2018 calendar year has been approved in 2017. The power plant will sell all the electricity it generates in return for 7,3 USD cent/kWh within the scope of YEKDEM in 2018.

Zorlu Doğal Elektrik Üretimi A.Ş. (“Zorlu Doğal”):

Zorlu Doğal was established for purpose to sell the electricity, to develop a project to correspond the requirement of energy, heat and steam, to establish hydroelectric, geothermal power plants being in the first place and also to perform feasibility studies to assembly associations which is based on all forms of renewable energy in 2008.

On 5 March 2008, Zorlu Doğal has won the tender for the operating license of 7 hydroelectric power plants, 1 geotermal power plant and 1 fuel oil power plant from Ankara Doğal Elektrik Üretim ve Ticaret AŞ (“ADÜAŞ”) and started to operate to be valid effective from 1 September 2008. The application to EMRA in order to be ended of the production license of Van fuel oil power plant with 15 MW was approved as of March 2014. As a result sales negotiations conducted with bargaining method on 10 November 2015, Van plant and its field was sold.

Zorlu Doğal has hydroelectric power plants in Tokat, Eskişehir, Kars, Rize, Erzurum, Erzincan, Tunceli and the first geothermal power plant of Turkey in Denizli and also operating rights of the highest geothermal energy potential field in Turkey for 30 years.

In addition to the existing 15 MW Kızıldere I Geothermal Power Plant (“JES”), Performance and security tests of the first phase of fully constructed Kızıldere II project of Zorlu Doğal with the installed capacity of 60 MW has been successfully completed and after the official acceptance of the Ministry, the power plant has been started to sell commercial electricity as of 31 August 2013, official acceptance of the second and last phase with the capacity of 20 MW has been made on 31 October 2013 and the power plant started being operated with full capacity.

Kızıldere II Plant of 80 MW has the right to benefit from YEKDEM. The power plant was integrated to YEKDEM and sold all electricity generated in 2014, 2015 and 2016 within the scope of YEKDEM. The application to EMRA, in order to sell electricity in scope of YEKDEM in 2017, has been approved as of November 2016. In this respect, Kızıldere II plant sells the electricity to be generated in 2017 against a price of USD 11,2/kWh resulting from addition of additional contribution share of USD 0,7/kWh granted due to use of domestic equipment to the price of USD 10,5/kWh as the support price given on source basis to the generation plants based on geothermal energy. The application to EMRA, in order to sell electricity in scope of YEKDEM in the calendar year of 2018, has been approved. In this respect, Kızıldere II plant will sell the whole electricity to be generated in 2018 with a price of USD 11,2/kWh.

The hydroelectric power plants in Zorlu Doğal and Kızıldere I JES sell most of their production through bilateral agreements.

For the Kızıldere III Geothermal Power Plant project developed in the Karataş neighbourhood within the provincial borders of Denizli and Aydın, Zorlu Doğal obtained the production license from EMRA which will be valid through 2037. The Kızıldere III Geothermal Power Plant project are composed of two units with a total installed capacity of 165 MW. The first unit of the Kızıldere III Geothermal Power Plant’s 99,5 MW installed power started commercial electricity sales as of 19 August 2017. The second unit of 65,5 MW is planned to be put into use in the first half of 2018. Zorlu Doğal’s total installed capacity in 7 hydroelectric and 2 geothermal power plants has reached to 307 MW with the start of operation of first unit of Kızıldere III Geothermal Power Plant.

In addition, Zorlu Doğal obtained a pre-license from EMRA for the Kızıldere IV Geothermal Power Plant project planned to be established in the Karataş neighbourhood, Buharkent district, Aydın province with an installed capacity of 24,9 MW on 22 June 2015. An application was filed to EMRA for an amendment on the installed capacity in the pre-license of the project from 24,9 MW to 60 MW had been approved on July 2017 and EMRA decided to give a pre-license for the project which will be valid for 36 months.

196 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The application to EMRA for the amendment of the 15 MW installed capacity in the current production license of Tercan Dam and Hydroelectric Power Plant (“HPP”), owned by Zorlu Doğal, as 17,04 MWm/16,9 MWe with the additional 4th unit was approved on April 2015. Construction work for increasing the installed capacity has not started yet; however, the engineering work is continuing.

Rehabilitation of Zorlu Doğal’s İkizdere Regulator and Hydroelectric Power Plant in İkizdere District, Rize, 18,6 MW installed power to 24,94 MW through rehabilitation started in July 2016 was completed at 2 March 2018 and power plant begun commercial production as of 3 March 2018.

Zorlu Hidroelektrik Enerji Üretim A.Ş. (“Zorlu Hidroelektrik”):

Zorlu Hidroelektrik was established in 2007 for the purpose of building hydroelectric power plants and other power plants based on renewable energy sources.

In accordance with the decision of EMRA dated 7 June 2012 and numbered 3870/3, EMRA has cancelled the license of Zorlu Enerji for Sami Soydam Sandalcık Barajı hydroelectric power plant in Denizli which would have 127,8 MWm/124 Mwe capacity; in accordance with the Electricity Market Law numbered 4628 and related regulations, aforesaid the license has been transferred to Zorlu Hidroelektrik as of 7 June 2012. As a result of latest evaluation, Zorlu Hidroelekrik decided not to carry on with the Sami Soydam-Sandalcık Dam and Hydroelectric Power Plant project and the production license of the project has been terminated in August 2017.

Zorlu Jeotermal Enerji Elektrik Üretimi A.Ş. (“Zorlu Jeotermal”):

Zorlu Jeotermal was established in 30 June 2008 to develop projects for energy power plants based on all forms of renewable energy sources to produce energy, steam and heat.

Zorlu Jeotermal has taken over the Alaşehir Geothermal license of Zorlu Petrogas Petrol, Gaz ve Petrokimya Ürünleri İnşaat Sanayi ve Ticaret AŞ on 30 July 2009.

The production plant is located in Manisa, Alaşehir with a capacity of 45 MW operates with full capacity. The application to EMRA, in order to sell electricity in 2017 in scope of YEKDEM, has been approved as of November 2016. In this respect, Alaşehir I plant sells the electricity to be generated in 2017 against a price of USD 11,2/kWh resulting from additional contribution share of USD 0,7/kWh granted due to use of domestic equipments to the price of USD 10,5/kWh as the support price given on source basis to the generation plants based on geothermal energy within the scope of YEKDEM. The application to EMRA, in order to sell electricity in scope of YEKDEM in the calendar year of 2018, has been approved. In this respect, Alaşehir I plant will sell the whole electricity to be generated in 2018 with a price of USD 11,2/kWh.

For the Alaşehir II Geothermal Power Plant (“Alaşehir II JES”) project, which is planned to be developed on the same site, a production license was obtained for 22 years from EPDK for 24,9 MW capacity in November 2017.The Company has received the certificate which shows Environmental Impact Assessment, Permit and Inspection (”EIA”) is not required as of 19 June 2015 and began searching and well drilling. As a result of the exploration work on the installed power of 24,9 MW in the production license of the project, an application was made to the EMRA in January 2018 in order to be amended to 45 MW as a total of two units of 22,5 MW each.

Zorlu Jeotermal has received pre-license of 10 December 2014 for the Alaşehir III geothermal power plant with planned 30 MW capacity. As per the material disclosure dated 4 December 2015, upon exploration works, Zorlu Jeotermal applied to EMRA in order to amend the capacity from 30 MW to 50 MW. As per the material disclosure dated 4 April 2016, Zorlu Jeotermal has received acceptance to its application to the EMRA and the Authority has decided to grant Zorlu Jeotermal the pre-license to be valid for 30 months entered into force on the decision date.

Zorlu Jeotermal joined the tender held by Kütahya Special Provincial Administration on 27 October 2016 for licensing and granting the right to explore the geothermal resource search field and won the tender by accepting and undertaking to pay a fee of TL 450 plus VAT. Within the scope of the tender, Zorlu Jeotermal gained the right to conduct a search for geothermal resources in Yeniköy geothermal field, a field of 4.950 hectares in the Yeniköy neighbourhood, Simav district, Kütahya province.

197 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Zorlu Rüzgar Enerjisi Elektrik Üretimi A.Ş. (“Zorlu Rüzgar”):

Zorlu Rüzgar was established in 2009 to develop projects for energy power plants, based especially on wind power and other forms of renewable energy sources to produce electricity.

In accordance with the Board of Directors decision dated 16 November 2009 and numbered 2009/9 Rotor has transferred its license to Zorlu Rüzgar which was obtained for 25 years as of 5 August 2008 for the construction of two wind energy power plants in Sarıtepe and Demirciler regions of Osmaniye with a capacity of respectively 50 MW and 60 MW.

Sarıtepe (57 MW) and Demirciler (23,3 MW) Wind Power Plants, which were built in Osmaniye by Zorlu Rüzgar and have a total installed capacity of 80,3 MW, have been partially commissioned since June 2016 and is fully operational as of 27 August 2016 and production has begun.

Sarıtepe RES and Demirciler RES joined to YEKDEM in 2017 and the power plants has sold all produced electricity within the scope of YEKDEM for 8,58USD/kWh which is the sum of the 1.28USD/kWh contribution fee for using locally produced components and the support fee of 7,3USD/kWh. The application to EMRA for Sarıtepe and Demirciler’s benefit from YEKDEM in 2018 has been approved. In this respect, Sarıtepe ve Demirciler RES will sell the whole electricity to be generated in 2018 against a price of USD 7,3/kWh resulting from additional contribution share of USD 1,4/kWh granted due to use of domestic equipments to the price of USD 8,7/kWh as the support price given on source basis to the generation plants based on wind energy within the scope of YEKDEM.

Nemrut Jeotermal Elektrik Üretimi A.Ş. (“Nemrut”):

Nemrut which the Group has 75% shareholding and Rarik-Turkison Enerji İnşaat Maden Proje Ltd. Şti. has 25% shareholding, has been incorporated on 2 August 2013 with 878732 number Trade Registering Newspaper.

Bitlis Special Provincial Administration has given to Nemrut, in which the Company has 75% shareholding, the “Geothermal Resources and Natural Mineral Waters Operating License” for a period of 30 year and the “Geothermal and Natural Resources Exploration License” until the date of 3 June 2014 to be valid in the boundaries of Tatvan district of Bitlis. Relevant licenses have entered into force on 23 September 2013. The application for the time extension of exploration license process has not been approved yet.

Zorlu Solar Enerji Tedarik ve Ticaret A.Ş. (“Zorlu Solar”):

Zorlu Solar was established to generate electricity both domestically and internationally from solar energy; to rent, sell, purchase, export Solar Photovoltaic (PV) panels and provide services for placing the panels onto the roofs and any other services regarding the installation and consultancy of Solar Photovoltaic panels. Zorlu Solar was also established to engage in electricity energy and/ or wholesale purchases and sales activities domestically. The registration procedures for the establishment of the company have been completed as of 28 March 2016. In the scope of its Distributorship and Supply Contract with First Solar, Inc. of the USA (“First Solar), in February 2017, Zorlu Solar took on the authorized distributorship of First Solar’s photovoltaic panels in 26 countries and started its operations as of the second quarter of 2017.

Zorlu Elektrik Enerjisi İthalat İhracat ve Toptan Ticaret A.Ş. (“Zorlu Elektrik”):

Zorlu Elektrik was established in 2000 to purchase electricity from domestic markets and free zones, its wholesale or direct sale in Turkey, or its export to foreign countries. To ensure operation integrity by consolidating wholesale electricity trade operations within Zorlu Enerji and to increase transparency, all of Zorlu Elektrik’s shares were acquired by Zorlu Enerji and the relevant registration transactions were completed on 7 March 2016. The company operates under “Procurement License” issued by the Energy Market Regulatory Authority.

198 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Zorlu Elektrik’s main operations are as follows:

• retail electricity sales to the persons and organisations within the scope of eligible consumer • electricity purchase and sales in Organised Wholesale Electricity Markets run by EPİAŞ • over the counter (OTC) and Derivative Market wholesale electricity trade • electricity export and import, and • group management in charge of balance.

Zorlu Elektrik provides a significant portion of the electricity it sells from renewable sources. Zorlu Elektrik has a share of over 1% in the eligible consumer market with a 1,6 billion kWh of electricity sales to eligible consumers.

Zorlu Elektrik performs demand and price forecasting, production planning, pricing, sales, risk and portfolio management, reconciliation and invoicing within the scope of its core activities. The company provides alternative pricing adapted to market price options to consumers based on hourly and periodically in bilateral agreements. Zorlu Elektrik creates high saving tariff packages suitable for consumers’ consumption volume and habits and offers solutions to minimize costs for consumers.

Besides selling electricity to eligible consumers, Zorlu Elektrik has also commercial activities with other leading companies in the sector. Zorlu Elektrik buys and sell energy through bilateral agreements with other leading companies in the sector. It has also import and export activities with neighboring countries.

Zorlu Elektrik supports the work carried out in order to effectuate the transformation of markets into a targeted liberal and competitive structure and as one of the important players in the sector Zorlu Elektrik supports all the activities that adds value to sector and customers. Zorlu Elektrik actively participated in the Electricity Futures Market (“VIOP”), which is a market started operations within the scope of Borsa İstanbul, as a result of the activities on the way of liberalization of the electricity markets.

Zorlu Osmangazi Enerji Sanayi ve Ticaret A.Ş. (“Zorlu Osmangazi”):

Pursuant to the material event disclosure dated 18 November 2016, a company with the title “Zorlu Osmangazi Enerji Sanayi ve Ticaret AŞ”, whose main field of activity is electricity distribution and retail, has a capital of TL 50, and is 100% owned by Zorlu Enerji, pursuant to the material event disclosure dated 6 March 2017, the capital increase process to increase the current share capital of TL50, of Zorlu Osmangazi, to TL1.150.050 with an entirely cash increase of TL1.150.000 have been completed. Zorlu Osmangazi acquired all shares of Osmangazi Elektrik Dağıtım AŞ (“OEDAŞ”) and Osmangazi Elektrik Perakende Satış AŞ (“OEPSAŞ”) in return for USD 360.000 on 2 February 2017 (Note 3).

OEDAŞ distributes electricity within the provincial borders of Eskişehir, Afyon, Bilecik, Kütahya, and Uşak. OEPSAŞ is the responsible retail company in the relevant distribution region.

Within the scope of the acquisition of all shares of OEDAŞ and OEPSAŞ by Zorlu Osmangazi, OEDAŞ’s distribution license valid until 1 September 2036 and OEPSAŞ’s retail license valid until 1 September 2036 were amended by EMRA on 31 May 2017 by changing the partnership structure mentioned in the licenses.

Zorlu Enerji Pakistan Ltd. (“Zorlu Enerji Pakistan”):

Zorlu Enerji Pakistan was incorporated on 13 September 2007 to set up a project for electric power generation through wind to generate and sell electric power. The wind power plant with the installed capacity of 56,4 MW being constructed in Jhimpir area of Pakistan by the Group’s 100% affiliate Zorlu Enerji Pakistan started commercial electric energy sales to Pakistan National Transmission and Distribution Company (“NTDC”) on 26 July 2013.

Zorlu Enerji Pakistan, Zorlu Enerji’s wholly owned affiliate, obtained a pre-license from Pakistan Alternative Energy Development Board for a 30 MW hybrid power plant The hybrid power plant will generate solar and wind power simultaneously, which will contribute towards the more efficient utilization of the national grid. The new project will be the first wind&solar hybrid project in Pakistan.

199 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Zorlu Wind Pakistan (Private) Ltd. (“Zorlu Wind Pakistan”):

With regard to the material event disclosure on 5 January 2015, Zorlu Wind Pakistan is incorporated with a partnership of Zorlu Enerji having a partnership in the ratio of 99,7% which has a capital of PKR 10 thousand and has a wind energy production activity, and the said company’s registration procedures have been completed.

Zorlu Solar Pakistan (Private) Ltd. (“Zorlu Solar Pakistan”):

Pursuant to the material event disclosure dated 25 November 2016, a company with the title “Zorlu Solar Pakistan (Private) Limited”, whose main fields of activity are to carry out electricity energy projects through any renewable energy power plant that the company selects, including but not limited to thermal energy plants, wind power plants, hydroelectric plants and solar power plants; to set up and operate the distribution systems; to produce, purchase, supply and install complementary elements concerning these plants; to carry out all activities that the company needs to in the scope of these transactions, and which has capital of PKR 10 thousand, and is 99,7% owned by Zorlu Enerji was founded and registered on 18 November 2016 in Pakistan.

Pursuant to the material event disclosure dated August 2017, the Punjab Power Development Board accepted the pre-license application of Zorlu Solar Pakistan for the 100 MW solar power plant project planned to be developed in Punjab, Pakistan. This is the first renewable energy pre-license application accepted by the Pakistani Government after three years. It is planned that the power plant, the construction of which started in March 2017, will operate in the first half of 2018. Zorlu Solar Pakistan’s meetings with various banks to finance the project are ongoing.

The Board of Directors have decided to increase the capital of Zorlu Solar Pakistan Ltd, from PKR 100 thousand to PKR 2.500.000 thousand as of 12 December 2017.

Zorlu Renewable Pakistan (Private) Ltd. (“Zorlu Renewable”):

Pursuant to the material event disclosure dated 25 May 2017, a company with the title “Zorlu Renewable Pakistan (Private) Limited”, whose main fields of activity are to carry out electricity energy projects through any renewable energy power plant that the company selects, including but not limited to thermal energy plants, wind power plants, hydroelectric plants and solar power plants, to set up and operate the distribution systems, to produce, purchase, supply and install complementary elements concerning these plants; to carry out all activities that the company needs to in the scope of these transactions, and which has capital of PKR 10 thousand and is 99,7% owned by Zorlu Enerji was founded and registered on 1 June 2017.

Within the scope of a letter of intent signed by Zorlu Enerji and the Punjab State Government, the Punjab Government granted a pre- license to Zorlu Renewable to establish a 100 MW solar power plant in July 2017.

Zorlu Sun Power (Private) Ltd. (“Zorlu Sun Power”):

Pursuant to the material event disclosure dated 25 May 2017, a company with the title “Zorlu Sun Power (Private) Limited”, whose main fields of activity are to carry out electricity energy projects through any renewable energy power plant that the company selects, including but not limited to thermal energy plants, wind power plants, hydroelectric plants and solar power plants, to set up and operate the distribution systems, to produce, purchase, supply and install complementary elements concerning these plants; to carry out all activities that the company needs to in the scope of these transactions, and which has capital of PKR 10 thousand and is 99,7% owned by Zorlu Enerji was founded and registered on 1 June 2017.

Within the scope of a letter of intent signed by Zorlu Enerji and the Punjab State Government, the Punjab Government granted a pre- license to Zorlu Sun Power to establish a 100 MW solar power plant in July 2017.

200 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Zorlu Enerji İsrail Ltd. (“Zorlu Enerji İsrail”):

Pursuant to the material event disclosure dated 14 March 2017, a company with the title “Zorlu Enerji Israil Ltd”, whose main field of activity is carrying out energy projects, and which has capital of NIS 10 thousand, and 100% of which is owned by Zorlu Enerji, was founded and registered on 12 March 2017.

Dorad Energy Ltd. (“Dorad”):

Zorlu Enerji became a 25% shareholder in Dorad for the investment of natural gas combined cycle plant with 840 MW capacity in the Ashkelon city of Israel in 2003. Such natural gas combined cycle plant with 840 MW capacity which Dorad Ashkelon constructed in Israel went into operation on 19 May 2014.

Ezotech Electric Ltd. (“Ezotech”):

Ezotech which is owned by the Company in 42,15% is established in order to hold the whole shares of the companies Ashdod Energy Ltd. (“Ashdod”) and Ramat Negev Energy Ltd. (“Ramat”) in Israel and to pursue electricity trade in accordance with the affiliates’ operational plan. The remaining shareholder in Ezotech with 57.85% ownership is Edeltech Ltd. (“Edeltech”) which develops and invests in energy power plants in Israel. In the project developed by Ezotech for the construction of two natural gas cogeneration plants, Ashdod plant was commissioned on 20 December 2015 and Ramat Regev plant was commissioned on 31 December 2015. Upon commissioning of the plants, higher values were achieved in the performance tests conducted by the market regulator “Israel Electric Corporation” and so generation licenses were amended in 2016 and installed power of Ashdod plant was increased from 55 MW to 64,54 MW and installed power of Ramat Negev plant was increased from 120 MW to 126,4 MW.

Solad Energy Ltd.(“Solad”):

Solad which is owned by the Company in 42,15% is established in 2006 for a cogeneration power plant investment with 77 MW electricity and 70 tonnes/steam capacity, in order to supply energy to soybean oil production facilities in Ashdod and Ashkelon and the nearby operating industrial facilities.

Zorlu O&M Enerji Tesisleri İşletme ve Bakım Hizmetleri A.Ş. (“Zorlu O&M”):

Zorlu O&M was established in 2000 to provide operational and maintenance services to power plants. Zorlu O&M has cooperation agreements with Zorlu Enerji and provides operation and maintenance services in Turkey to Zorlu Enerji’s power stations. Internationally it provides services for the power stations in Greece, India and Kuwait. Zorlu O&M provides operation and maintenance services to Zorlu Enerji’s Pakistan and Israel power plant projects.

Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş. (“Zorlu Endüstriyel”):

Zorlu Endüstriyel became operational in 2000 for the purpose of developing, and implementing to industrial and energy plant projects.

Rosmiks International B.V. (“Rosmiks BV”):

This company was established in 2006 for the purpose of providing financial support to two energy plant projects in Russia with a capacity of 340 MW of electricity and 2.500 thousand Gcal/year of steam and owns 100% of Rosmiks LLC.

Rosmiks LLC (“Rosmiks LLC”):

Rosmiks LLC was established for the purpose of building and operating two energy plants respectively in “Kojuhovo” and “Tereshkovo” regions in Russia with a capacity of 340 MW of electricity and 2.500 thousand Gcal/year of steam each.

Tereshkovo Power Plant was constructed with an investment of USD 500 million approximately; its construction which incorporates a planned capacity 340 MW of electricity and 150 gcal/hour of steam has been undertaken by Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş.. First phase of Tereshkovo power plant, involving capacities of 170 MW of electricity and 150 gcal/hour of steam has been completed. Tereshkovo power plant has commenced production as from 14 November 2011. As of 14.03.2012, district heating,

201 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.) hot water and combined-cycle power generation system has also been commissioned by Tereshkovo natural gas combined cycle plant’s first phase in addition to 170 MW of electricity and 150 gcal/hour of steam production units.

ICFS International LLC, indirect owner of Rosmiks LLC in the percentage of 100% which was established to operate the Tereshkovo and Kojuhovo Projects that are conducted in Russian Federation; sold all its shares in Rosmiks International BV, direct shareholder of Rosmiks LLC in the percentage of 100%, to Zorlu Holding A.Ş. on 28.12.2012 over a price of USD 25.061. As a result of this share transfer, Zorlu Holding A.Ş., has become direct and indirect shareholder in the percentage of 100% in Rosmiks International BV and Rosmiks LLC respectively.

Trakya Bölgesi Doğalgaz Dağıtım A.Ş. (“Trakya Doğal Gaz ”):

Trakya Doğal Gaz was established in 2005 for the purpose of city gas distribution. On August 2006, Trakya Doğal Gaz won the tender of city gas distribution in Tekirdağ, Muratlı, Edirne, Kırklareli, Kavaklı, Babaeski, Lüleburgaz, Evrensekiz, Büyükkarıştıran, Misinli, Ulaş, Çerkezköy, Kapaklı, Kızılpınar, Karaağaç, Velimeşe, and Veliköy, all in the Thrace region for 30 years starting on 25.01.2006..

Gazdaş Gaziantep Doğalgaz Dağıtım A.Ş. (“Gaziantep Doğal Gaz”):

Gaziantep Doğal Gaz was established in 2005 for the purpose of city gas distribution. On August 2005, Gaziantep Doğal Gaz won the tender of city gas distribution in Gaziantep, Kilis and Nizip all in Southeast Anatolia region for 30 years starting on 24.02.2006.

Zorlu Doğalgaz İthalat İhracat ve Toptan Ticaret A.Ş. (“Zorlu Doğal Gaz”):

Zorlu Doğal Gaz was established in 2003 for the purpose of wholesale procurement and distribution of compressed natural gas (“CNG”) and/or liquefied natural gas (“LNG”) to other wholesale companies, free trade zones and countries abroad; owns license for wholesale and retail sales and direct sales to consumers.

Zorlu Doğal Gaz Tedarik Ticaret A.Ş. (“Zorlu Doğal Gaz Tedarik”):

Zorlu Doğal Gaz Tedarik was established in 2010 for the purpose of wholesale procurement and distribution of compressed natural gas (“CNG”) and/or liquefied natural gas (“LNG”) to other wholesale companies, free trade zones and countries abroad; owns license for wholesale and retail sales and direct sales to consumers.

Zorlu Doğal Gaz Petrokimya Ürünleri Petrol İnşaat Sanayi Ticaret A.Ş. (“Petrokimya”):

Zorlu Doğal Gaz Petrokimya Ürünleri Petrol İnşaat Sanayi ve Ticaret A.Ş. was established in 2013 for the purpose of trading petrol and petrochemical products.

1.2 Textile division

The activities of this division consist of production and marketing of yarn and home textiles, including curtains, bed linens, quilt cover sets and varieties. Curtains and quilt covers are produced under the Taç brand and sold in Linens chain stores.

202 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The subsidiaries in textile division; their field of activities and countries of operation are listed below:

Affiliates Nature of business Country

Korteks Mensucat Sanayi ve Ticaret A.Ş. Production of textile goods Turkey Zorluteks Tekstil Ticaret ve Sanayi A.Ş. Production of textile goods Turkey Zorlu Dış Ticaret A.Ş. Textile marketing Turkey Zorlu Tekstil Ürünleri Pazarlama A.Ş. Textile marketing Turkey Zorluteks SNG Textile marketing Russia Zorluteks D.O.O. Textile marketing Macedonia Zorlu UK Limited Textile marketing U.K. Linens Tekstil Ürünleri Pazarlama A.Ş. Textile marketing Turkey

Korteks Mensucat Sanayi ve Ticaret A.Ş. (“Korteks”):

Korteks was made up of two divisions: Firstly, Korteks Weaving and Knitting plant was established in 1982 and has been engaged in the production of jacquard lace and woven product (voile and its varieties). This division was transferred to Zorluteks in the last quarter of 2007. Secondly, Korteks Polyester Yarn Plant was established in 1989 to meet polyester needs of the Korteks Weaving and Knitting plant. The plant is built on 335.000 m2 of enclosed area.

Zorluteks Tekstil Ticaret ve Sanayi A.Ş. (“Zorluteks”):

Zorluteks was established in 1982. Zorluteks’s production facilities include home textile and curtain weaving and knitting, finishing, and sewing plants. In home textile production facilities with a total of 160.000 m2 of enclosed space, Zorluteks manufactures 96 million meters a year of a wide range of home textile products such as comforters, piques, pillowcases, bed sheets, fitted sheets, tablecloths, bedspreads, cotton curtain fabrics, and towels. 46% of the company’s output is exported to different parts of the world including the USA, EU, Japan, and Russia. The remainder of the output is assigned to leading Turkish labels as TAÇ and Linens.

In accordance with the Board decisions dated 22 June 2014 and numbered 2014/27, Linens Pazarlama merged with Zorluteks Tekstil as a branch of Company.

Zorlu Dış Ticaret A.Ş. (“Zorlu Dış Ticaret”):

Zorlu Dış Ticaret was established in 1998 carries out all foreign trade activities of the Textile Group.

Zorlu Tekstil Ürünleri Pazarlama A.Ş. (“Zorlu Tekstil Ürünleri”):

Zorlu Tekstil Ürünleri was established in 1990. It serves wholesalers in the Aegean region.

Zorluteks SNG:

Zorluteks SNG was established in 2005. It serves wholesalers in Russia.

Zorluteks D.O.O.:

Zorluteks D.O.O. was established in 2004. It serves wholesalers in Macedonia.

Zorlu UK Limited:

Zorlu UK was established in 2002. It serves wholesalers in England.

Linens Tekstil Ürünleri Pazarlama A. Ş. (“Linens Tekstil”):

Linens Tekstil was established in 1997 as of Deniz Destek Oto Kiralama Temizlik Hizmetleri ve İnşaat A.Ş. and changed its name in 2014. The company is inactive.

203 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

1.3 White goods and electronics division

The subsidiaries in white goods and electronics division; their field of activities and countries of operation are listed below:

Affiliates Nature of business Country

Vestel Elektronik Sanayi ve Ticaret A.Ş. Production Turkey Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. Production Turkey Vestel Komünikasyon Sanayi ve Ticaret A.Ş. Sales Turkey Vestel Ticaret A.Ş. Sales Turkey Vestel CIS Limited Sales Russia Vestel Iberia SL Sales Spain Vestel France SA Sales France Vestel Holland BV Sales Holland Vestel Germany GmbH Sales Germany Cabot Communications Limited Software UK Vestel Benelux BV Sales Holland Vestel UK Limited Sales UK Vestek Elektronik Araştırma Geliştirme A.Ş. Software Turkey Vestel Trade Limited Sales Russia OY Vestel Scandinavia AB Sales Finland Intertechnika LLC Service Russia Vestel Central Asia LLP Sales Kazakhstan Vestel Poland sp. z.o.o. Sales Poland Vestel Polska Technology Center sp. z o.o. Production/Sales Poland

Vestel Elektronik Sanayi ve Ticaret A.Ş. (“Vestel Elektronik”):

Vestel Elektronik was established in 1983 and mainly produce and sell a range of brown goods and white goods. Vestel Elektronik is registered to CMB and its share have been quoted to Borsa İstanbul (“BİST”) since 1990.

Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. (“Vestel Beyaz Eşya”):

Vestel Beyaz Eşya was established in 1997 in Manisa Organized Industrial Zone and is a manufacturer of f refrigerators, room air conditioning units, washing machines, cookers, dishwashers and water heaters.

Vestel Komünikasyon Sanayi ve Ticaret A.Ş. (“Vestel Komünikasyon”):

Vestel Komünikasyon was established in 1975 and is located in Aegean Free Zone.

Vestel Ticaret A.Ş. (“Vestel Ticaret”):

Vestel Dış Ticaret was established in 1987 in İstanbul and it currently operates in Manisa Organized Industrial Zone. It carries out all foreign trade activities of industrial products of Group manufacturing companies. After the merger with Vestel Dayanıklı Tüketim Malları Pazarlama A.Ş. as of 30 January 2013, Vestel Dış Ticaret A.Ş. was changed its trade name as Vestel Ticaret A.Ş. As of 30.11.2012, Vestel Dayanıklı Tüketim Malları Pazarlama A.Ş. was merged with Vestel Dış Ticaret A.Ş. and operates as a brunch of Vestel Ticaret A.Ş.

Vestel CIS Limited (“Vestel CIS”):

Vestel CIS was established in 2002 in Vladimir Region, Russia and is a manufacturer of televisions, refrigerators and washing machines.

Vestel Iberia SL(“Vestel Iberia”):

Vestel Iberia SL was established in 1998 in Spain for the purpose of selling Vestel products throughout Spain and Portugal.

204 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Vestel France SA (“Vestel France”):

Vestel France SA was established in 1996 in France for the purpose of selling Vestel products throughout France, Switzerland and Belgium.

Vestel Holland BV (“Vestel Holland”):

Vestel Holland BV was established in 1995 in Holland for the purpose of providing raw materials to the Group manufacturing companies and is a wholesaler of their products.

Vestel Germany GmbH (“Vestel Germany”):

Vestel Germany Gmbh was established in 1995 in Germany for the purpose of selling, distributing and providing service for Vestel products throughout Germany, Switzerland and Austria.

Cabot Communications Limited (“Cabot UK”):

Cabot UK was established in 1995 in England and involved in Vestel Group Companies in 2001. Cabot’s’ field of activity is developing software about digital televisions technologies and establishing marketing channels for these products.

Vestel Benelux BV (“Vestel Benelux”):

Vestel Benelux BV was established in 2003 in Holland for the purpose of marketing Vestel products throughout Holland, Belgium and Luxemburg.

Vestel UK Limited (“Vestel UK”):

Vestel UK Limited was established in England in 2004 for the purpose of marketing Vestel products in England.

Vestek Elektronik Araştırma Geliştirme A.Ş. (“Vestel Elektronik Araştırma Geliştirme”):

The company was established in 2005 in Istanbul for the purpose of providing consulting, marketing research and planning services in electronic sector.

Vestel Trade Limited (“Vestel Trade”):

Vestel Trade Limited was established in 2003 for the purpose of marketing Vestel products in Russia.

OY Vestel Scandinavia AB (“OY Vestel”):

OY Vestel was established in 2006 in Finland for the purpose of marketing Vestel products in Finland.

Intertechnika LLC (“Intertechnika”):

Intertechnika was founded in Russia in 2005 and its 99,9% shares was acquired by Vestel CIS Limited on 26 December 2007. Intertechnika provides operational lease services to Vestel CIS Limited

Vestel Central Asia LLP (“Vestel Central Asia”):

Vestel Central Asia LLP was established in 2011 for the purpose of marketing and selling Vestel products in Kazakhistan.

Vestel Poland sp. z.o.o. (“Vestel Poland”):

Vestel Poland sp. z.o.o. was established in 2014 in Poland for the purpose of marketing Vestel products throughout Poland.

205 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Vestel Polska Technology Center sp. z o.o. (“Vestel Polska.”):

Vestel Polska Technology Center sp. z o.o. was established in 2016 in Wroclaw/Poland for the purpose of manufacturing and selling Vestel products.

1.4 Real estate division

Real estate group operation mainly focuses on construction and management of domestic and foreign establishments

Company Field of activities Country

Zorlu Yapı Yatırım A.Ş. Real estate Turkey

Zorlu Yapı Yatırım A.Ş. (“Zorlu Yapı):

Zorlu Yapı Yatırım A.Ş. was founded in May 2007, in Turkey. The companies purpose of foundation can be describe as construction and management of domestic and foreign establishments like tourist facilities and corporate housing.

1.5 Other activities

Other group operations mainly comprise the sale of services.

Company Field of activities Country

Zorlu Air Havacılık A.Ş. Aviation Turkey Zorlu International Investments Limited Investment Malta ABH Turizm Temsilcilik ve Ticaret A.Ş. Tourism Turkey Zorlu Faktoring A.Ş. Factoring Turkey

Zorlu Air Havacılık A.Ş. (“Zorlu Air”):

Zorlu Air was established in 1995 to provide air-taxi services. As of report date, Zorlu Air owns two Bell 430 VIP helicopters and one Gulfstream G-450 large cabin jet built in 2012. Zorlu Air’s Gulfstream G-450 has a range of 4.350 nautical miles (8.056 km) and a carrying capacity of 14 passengers. The plane went into service in August 2012 with the issuance of the company’s air taxi operations license.

Zorlu International Investments Limited (“Zorlu International”):

Zorlu International was established in December 2006 in Malta.

ABH Turizm Temsilcilik ve Ticaret A.Ş. (“ABH Turizm”):

ABH Turizm was established in January 1998 to operate in tourism sector as travel agency and tour operator. ABH was merged with its subsidiaries which are Jules Verne Fuarcılık Hizmetleri A.Ş. and JBR Turizm Bilişim Ticaret A.Ş. as of 01 September 2015.

Zorlu Faktoring A.Ş. (“Zorlu Faktoring):

Zorlu Faktoring was established in August 2012 to factoring operations in the financial sectors.

2. BASIS OF PRESENTATION OF THE FINANCIAL STATEMENTS

2.1. Basis of preparations

The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”), which comprise standards and interpretations approved by the International Accounting Standards Board and International Accounting Standards and Standing Interpretations Committee interpretations approved by the IASC that remain in effect.

206 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The Company and its subsidiaries established in Turkey maintain their accounting records and prepares their statutory financial statements in accordance with the Turkish Commercial Code (the “TCC”), tax legislation and the uniform chart of accounts issued by the Ministry of Finance. The financial statements, except for the financial asset and liabilities presented with their fair values, are maintained under historical cost convention in TL. These financial statements are based on the statutory records, which are maintained under historical cost conversion, with required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the IAS/IFRS.

Financial statements of subsidiaries operating in foreign countries are prepared according to the legislation of the country in which they operate and adjusted to the IAS/IFRS to reflect the proper presentation and content. Foreign subsidiaries’ assets and liabilities are translated into TL from the foreign exchange rate at the balance sheet date and income and expenses are translated into TL at the average foreign exchange rate. Exchange differences arising from the translation of the operating net assets of the foreign undertakings and differences between average and balance sheet date rates are included in “currency translation differences” under the shareholders’ equity.

2.2 Measurement currency and reporting currency

These consolidated financial statements are presented in TL. Turkish Lira (“TL”) is the Group’s functional currency.

2.3 Amendments in International Financial Reporting Standards

New and amended standards and interpretations

The accounting policies adopted in preparation of the financial statements as at December 31, 2017 are consistent with those of the previous financial year, except for the adoption of new and amended IFRS and IFRIC interpretations effective as of January 1, 2017. The effects of these standards and interpretations on the Group’s financial position and performance have been disclosed in the related paragraphs.

The new standards, amendments and interpretations which are effective as at January 1, 2017 are as follows:

Amendments to IAS 7 Statement of cash flows

The amendment on disclosure initiative, effective from annual periods beginning on or after 1 January 2017. These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the IASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. These amendments applied but did not have a significant impact over financial statements and disclosures of the Group.

Amendments IAS 12 Income Taxes

The amendment is effective from annual periods beginning on or after 1 January 2017. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. It also clarifies certain other aspects of accounting for deferred tax assets. The amendment did not have a significant impact over financial position or performance of the Group.

Annual Improvements 2014-2016 Cycle

IFRS 12, ‘Disclosure of interests in other entities’; regarding clarification of the scope of the standard. These amendments should be applied retrospectively for annual periods beginning on or after 1 January 2017. This amendment clarifies that the disclosures requirement of IFRS 12 are applicable to interest in entities classified as held for sale except for summarized financial information. The amendment did not have a significant impact over financial position or performance of the Group.

Standards issued but not yet effective and not early adopted

Standards, interpretations and amendments to existing standards that are issued but not yet effective up to the date of issuance of the

207 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.) financial statements are as follows. The Group will make the necessary changes if not indicated otherwise, which will be affecting the financial statements and disclosures, when the new standards and interpretations become effective.

IFRS 15 Revenue from Contracts with Customers

The new standard issued includes the clarifying amendments to IFRS 15 made by IASB in April 2016. The new five-step model in the standard provides the recognition and measurement requirements of revenue. The standard applies to revenue from contracts with customers and provides a model for the sale of some non-financial assets that are not an output of the entity’s ordinary activities (e.g., the sale of property, plant and equipment or intangibles). Effective date for IFRS 15 is January 1, 2018, with early adoption permitted. Entities will transition to the new standard following either a full retrospective approach or a modified retrospective approach. The modified retrospective approach would allow the standard to be applied beginning with the current period, with no restatement of the comparative periods, but additional disclosures are required. The Group is in the process of assessing the impact of the standard on financial position or performance of the Group.

IFRS 9 Financial Instruments

The final version of IFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. IFRS 9 is built on a logical, single classification and measurement approach for financial assets that reflects the business model in which they are managed and their cash flow characteristics. Built upon this is a forward- looking expected credit loss model that will result in more timely recognition of loan losses and is a single model that is applicable to all financial instruments subject to impairment accounting. In addition, IFRS 9 addresses the so-called ‘own credit’ issue, whereby banks and others book gains through profit or loss as a result of the value of their own debt falling due to a decrease in credit worthiness when they have elected to measure that debt at fair value. The Standard also includes an improved hedge accounting model to better link the economics of risk management with its accounting treatment. IFRS 9 is effective for annual periods beginning on or after 1 January 2018, with early application permitted by applying all requirements of the standard. Alternatively, entities may elect to early apply only the requirements for the presentation of gains and losses on financial liabilities designated as FVTPL without applying the other requirements in the standard. The Group is in the process of assessing the impact of the standard on financial position or performance of the Group.

Annual Improvements to IFRS - 2014-2016 Cycle

Annual Improvements to IFRS Standards 2014-2016 Cycle, amending the following standards:

• IFRS 1 First-time Adoption of International Financial Reporting Standards: This amendment deletes the short-term exemptions about some IFRS 7 disclosures, IAS 19 transition provisions and IFRS 10 Investment Entities. These amendments are to be applied for annual periods beginning on or after 1 January 2018. • IAS 28 Investments in Associates and Joint Ventures: This amendment clarifies that the election to measure an investment in an associate or a joint venture held by, or indirectly through, a venture capital organization or other qualifying entity at fair value through profit or loss applying IFRS 9 Financial Instruments is available for each associate or joint venture, at the initial recognition of the associate or joint venture. These amendments are to be applied for annual periods beginning on or after 1 January 2018. Earlier application is permitted.

The Group is in the process of assessing the impact of the interpretation on financial position or performance of the Group.

IFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendments)

The IASB issued amendments to IFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments, provide requirements on the accounting for:

• the effects of vesting and non-vesting conditions on the measurement of cash-settled sharebased payments; • share-based payment transactions with a net settlement feature for withholding tax obligations; and • a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled.

208 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

These amendments are to be applied for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The Group is in the process of assessing the impact of the amendments on financial position or performance of the Group.

IAS 40 Investment Property: Transfers of Investment Property (Amendments)

The IASB issued amendments to IAS 40 ‘Investment Property ‘. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. These amendments are to be applied for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The amendments will not have an impact on the financial position or performance of the Group.

IFRIC 22 Foreign Currency Transactions and Advance Consideration

The interpretation clarifies the accounting for transactions that include the receipt or payment of advance consideration in a foreign currency. The Interpretation states that the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income is the date on which an entity initially recognizes the non-monetary asset or non- monetary liability arising from the payment or receipt of advance consideration. An entity is not required to apply this Interpretation to income taxes; or insurance contracts (including reinsurance contracts) it issues or reinsurance contracts that it holds. The interpretation is effective for annual reporting periods beginning on or after 1 January 2018. Earlier application is permitted. The Group is in the process of assessing the impact of the interpretation on financial position or performance of the Group.

The new standards, amendments and interpretations that are issued by the International Accounting Standards Board (IASB)

The following standards, interpretations and amendments to existing IFRS standards are issued by the IASB but not yet effective up to the date of issuance of the financial statements. However, these standards, interpretations and amendments to existing IFRS standards are not yet adapted, thus they do not constitute part of IFRS. The Group will make the necessary changes to its financial statements after the new standards and interpretations are issued and become effective under IFRS.

IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments)

In December 2015, the IASB postponed the effective date of this amendment indefinitely pending the outcome of its research project on the equity method of accounting. Early application of the amendments is still permitted.

Annual Improvements - 2010-2012 Cycle

IFRS 13 Fair Value Measurement

As clarified in the Basis for Conclusions short-term receivables and payables with no stated interest rates can be held at invoice amounts when the effect of discounting is immaterial. The amendment is effective immediately.

IFRS 16 Leases

In January 2016, the IASB has published a new standard, IFRS 16 ‘Leases’. The new standard brings most leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and finance leases. Lessor accounting however remains largely unchanged and the distinction between operating and finance leases is retained. IFRS 16 supersedes IAS 17 ‘Leases’ and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted if IFRS 15 ‘Revenue from Contracts with Customers’ has also been applied. The Group is in the process of assessing the impact of the standard on financial position or performance of the Group.

209 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

IFRIC 23 Uncertainty over income tax treatments

The amendment effective from annual periods beginning on or after 1 January 2019. This IFRIC clarifies how the recognition and measurement requirements of IAS 12 ‘Income taxes’, are applied where there is uncertainty over income tax treatments. The IFRS Interpretation Committee had clarified previously that IAS 12, not IAS 37 ‘Provisions, contingent liabilities and contingent assets’, applies to accounting for uncertain income tax treatments. IFRIC 23 explains how to recognise and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment. The Group is in the process of assessing the impact of the amendment on financial position or performance of the Group.

2.4 Comparable financial information and reclassification of prior period financial statements

The financial position with the accompanying notes as of 31.12.2017 and 31.12.2016 and statement of comprehensive income, cash flow and changes in equity with the accompanying notes as of 31.12.2017 and 31.12.2016 are presented as comparatively. For the compatibility of the current consolidated financial statements, these consolidated financial statements are reclassified if necessary, and material differences are disclosed.

As of 31.12.2016, fixed assets amounting to TL 67.139 which was accounted under “Property, plant and equipment” was reclassified to “Assets held-for sale”.

As of 31.12.2016, property, plant and equipment amounting to TL 726.241 which was accounted under “Property, plant and equipment” was transferred to “Intangible assets”.

2.5 Critical accounting estimates, assumptions and judgments

The preparation of financial statements in conformity with IFRS requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. These estimates are reviewed periodically and as adjustments become necessary they are reported in earnings in the periods in which they become known.

The key assumption concerning the future and other key sources of estimation uncertainty at the balance sheet date and the significant judgments with the most significant effect on amounts recognized in the financial statements are set out below:

• Deferred tax asset is recognized to the extent that taxable profit will be available against which the deductible temporary differences can be utilized. When taxable profit is probable deferred tax asset is recognized for all temporary differences. For the year ended 31.12.2017, since the assumptions related to the Group’s future taxable profit generation are considered reliable, adequate, deferred tax asset is recognized. • When setting aside the provision for legal claims the probability of losing the related case and the results expected to be suffered in the event that the legal counsel of the Group and management of the Group make their best estimates to calculate the provision required. • Property, plant and equipment and intangible assets held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost, less any subsequent accumulated depreciation and subsequent accumulated impairment losses. The Group estimates that the useful lives of tangible and intangible assets.

Depreciation is charged using the straight line basis over the useful lives which depend on the best estimation of the management. Useful lives of property, plant and equipment and intangible assets are reviewed at each balance sheet dates and make changes if necessary.

• The fair value of forward contracts calculated by calculating forward exchange rate, for remainder of agreement related foreign currency’s prevailed market interest rate, and comparing it to reporting date forward exchange rate. All derivatives are carried as assets when the fair value of the forward foreign exchange contracts are recognized in income statement. The effective portion of changes in the fair value of derivative financial instruments such as interest rate swaps, is recognized in other comprehensive income.

210 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

2.6 Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.

2.7 Basis of consolidation

The consolidated financial statements incorporate the financial statements of Zorlu Holding and entities controlled by Zorlu Holding. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

The financial statements of the companies included in the scope of consolidation have been prepared at the date of the consolidated financial statements and have been prepared in accordance with IFRS by applying uniform accounting policies and presentation. The results of operations of subsidiaries are included or excluded from their effective dates of acquisition or disposal respectively.

For the purpose of consolidated financial statements Zorlu Holding and its subsidiaries will be referred to collectively as the “Group”.

31.12.2017 31.12.2016 Ownership Economic Ownership Economic Consolidated company interest interest interest interest

Zorlu Enerji Elektrik Üretimi A.Ş. 81,1% 81,1% 81,1% 81,1% Zorlu Doğal Elektrik Enerji Üretim A.Ş. 100,0% 81,1% 100,0% 81,1% Zorlu O/M Enerji Tesisleri İşletme ve Bakım Hizmetleri A.Ş. 100,0% 99,9% 100,0% 99,9% Zorlu Endüstriyel ve Enerji Tesisleri İnşaat Ticaret A.Ş. 100,0% 99,8% 100,0% 99,8% Zorlu Elektrik Enerjisi İthalat İhracat ve Toptan Ticaret A.Ş. 100,0% 81,1% 100,0% 81,1% Rosmiks International B.V. 100,0% 100,0% 100,0% 100,0% Rosmiks LLC 100,0% 100,0% 100,0% 100,0% Rotor Elektrik Üretim A.Ş. 100,0% 81,1% 100,0% 81,1% Zorlu Hidroelektrik Enerji Üretim A.Ş. 100,0% 81,1% 100,0% 81,1% Zorlu Rüzgar Enerjisi Elektrik Üretim A.Ş. 100,0% 81,1% 100,0% 81,1% Zorlu Enerji Pakistan Limited 100,0% 81,1% 100,0% 81,1% Zorlu Wind Pakistan (Private) Limited 99,7% 80,8% 99,7% 80,8% Nemrut Jeotermal Elektrik Üretim A.Ş. 75,0% 60,8% 75,0% 60,8% Zorlu Solar Pakistan (Private) Ltd. 99,7% 99,7% 99,7% 99,7% Zorlu Solar Enerji Tedarik ve Ticaret A.Ş. 100,0% 81,1% 100,0% 81,1% Zorlu Doğal Gaz, Petrokimya Ürünleri Petrol İnşaat Sanayi Ticaret A.Ş. 100,0% 100,0% 100,0% 100,0% Zorlu Osmangazi Enerji Sanayi ve Ticaret A.Ş. 100,0% 100,0% -- -- Trakya Bölgesi Doğalgaz Dağıtım A.Ş. 94,2% 94,2% 94,2% 94,2% Zorlu Enerji Israil Ltd. 100,0% 100,0% -- -- Gazdaş Gaziantep Doğalgaz Dağıtım A.Ş. 74,4% 74,4% 74,4% 74,4% Zorlu Doğalgaz İthalat İhracat Toptan Ticaret A.Ş. 99,0% 99,0% 99,0% 99,0% Zorlu Doğal Gaz Tedarik Ticaret A.Ş. 95,0% 95,0% 95,0% 95,0% Zorlu Jeotermal Elektrik Üretim A.Ş. 100,0% 81,1% 100,0% 81,1% Zorlu Renewable Pakistan (Private) Ltd. 99,7% 99,7% -- -- Zorlu Sun Power (Private) Ltd. 99,7% 99,7% -- -- Korteks Mensucat Sanayi ve Ticaret A.Ş. 100,0% 100,0% 100,0% 100,0% Zorluteks Tekstil Ticaret ve Sanayi A.Ş. 100,0% 100,0% 100,0% 100,0% Zorlu Dış Ticaret A.Ş. 100,0% 100,0% 100,0% 100,0% Zorlu Tekstil Ürünleri Pazarlama A.Ş. 100,0% 100,0% 100,0% 100,0% Zorluteks SNG 100,0% 100,0% 100,0% 100,0% Zorluteks D.O.O. 83,0% 83,0% 83,0% 83,0% Zorlu UK Limited 100,0% 100,0% 100,0% 100,0%

211 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

31.12.2017 31.12.2016 Ownership Economic Ownership Economic Consolidated company - continued interest interest interest interest

Vestel Elektronik Sanayi ve Ticaret A.Ş. 77,5% 77,5% 77,5% 77,5% Vestel Beyaz Eşya Sanayi ve Ticaret A.Ş. 94,6% 73,3% 94,6% 73,3% Vestel Komünikasyon Sanayi ve Ticaret A.Ş. 100,0% 77,5% 100,0% 77,5% Vestel Ticaret A.Ş. 100,0% 77,5% 100,0% 77,5% Vestel CIS Limited 100,0% 77,5% 100,0% 77,5% Vestel Iberia SL 100,0% 77,5% 100,0% 77,5% Vestel France SA 100,0% 77,5% 100,0% 77,5% Vestel Holland BV 100,0% 77,5% 100,0% 77,5% Vestel Germany GmbH 100,0% 77,5% 100,0% 77,5% Cabot Communications Limited 90,8% 70,4% 90,8% 70,4% Vestel Benelux BV 100,0% 77,5% 100,0% 77,5% Vestel UK Limited 100,0% 77,5% 100,0% 77,5% Vestek Elektronik Araştırma Geliştirme A.Ş. 100,0% 77,5% 100,0% 77,5% Vestel Trade Limited 100,0% 77,5% 100,0% 77,5% OY Vestel Scandinavia AB 100,0% 77,5% 100,0% 77,5% Intertechnika LLC 99,9% 77,4% 99,9% 77,4% Vestel Poland sp. z.o.o. 100,0% 77,5% 100,0% 77,5% Vestel Central Asia LLP 100,0% 77,5% 100,0% 77,5% Vestel Polska Technology Center sp. z o.o. 100,0% 77,5% -- -- Zorlu Air Havacılık A.Ş. 100,0% 100,0% 100,0% 100,0% Linens Tekstil Ürünleri Pazarlama A.Ş. 100,0% 100,0% 100,0% 100,0% Zorlu International Investments Limited 100,0% 100,0% 100,0% 100,0% ABH Turizm Temsilcilik ve Ticaret A.Ş. 75,0% 75,0% 75,0% 75,0% Zorlu Faktoring A.Ş. 98,4% 98,4% 98,4% 98,4% Zorlu Yapı Yatırım A.Ş. 99,2% 99,2% -- --

Subsidiaries are companies in which Zorlu Holding has the power to control the financial and operating policies for the benefit of itself, either through the power to exercise more than 50% of voting rights related to shares in the companies as a result of shares owned directly and/or indirectly by itself or although not having the power to exercise more than 50% of the voting rights, through the exercise of actual dominant influence over the financial and operating policies.

The balance sheet and statement of income of the subsidiaries are consolidated on a line-by-line basis and all material intercompany payable/receivable balances and sales/purchase transactions are eliminated. The carrying value of the investment held by Zorlu Holding and its subsidiaries is eliminated against the related shareholder’s equity.

Non-controlling interest in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein. Non- controlling interest consist of the amount of those interests at the date of the original business combination and the non-controlling interest’s share of changes in equity since the date of the combination.

The Company has always exercised effective control over the management of each of the companies included in the group consolidation.

Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting.

212 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The table below sets out all associates and demonstrates the proportion of ownership interest as of 31 December 2017 and 31 December 2016:

Direct and indirect ownership interest by the Company and its Associates (%) Associates 31.12.2017 31.12.2016

Dorad Energy Limited 25,00 25,00 Ezotech Electric Limited (**) 42,15 42,15 Solad Energy Limited 42,15 42,15 Vestel Savunma Sanayi A.Ş. (*) 35,00 35,00 Aydın Yazılım Elektronik ve Sanayi A.Ş. (*) 21,00 21,00

(*) Since Vestel Savunma and Aydın Yazılım has net liability position as of 31 December 2017, carrying value of those investment in associate accounted for by equity method is resulted as nil in the consolidated balance sheets. (**) Ezotech Electric Ltd has 100% shares of Ashdod Energy Ltd. (“Ashdod”) and Ramat Negev Energy Ltd. (“Ramat Negev”).

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is shown net of value added and sales taxes, discounts, returns and other similar allowances. Revenue from the rendering of services is recognized by reference to the stage of completion of the transaction when the following conditions are met:

• the amount of revenue can be measured reliably, • the flow of economic benefits to the entity is probable, • the stage of completion at the period end can be measured reliably and • the costs incurred to date can be measured reliably.

Revenue for services provided initially is measured at the fair value of the consideration receivable. Expenses is included in operating expenses at cost unless the expense was permitted or required to be included in the financial statements on another basis. Cost is the fair value of the consideration given for the materials or services used in the production of goods or provision of services. Cost of sales is presented as a separate line item on the face of the income statement for the functional analysis of expenditures is chosen for the format of the income statement.

Factoring service income is composed of collected and accrued interest income and commission income earned from advance payments made to customers.

A proportion of factoring invoice total obtained constitutes commission income.

Revenue is recognised on an accrual basis when the electricity is delivered. Transmission revenue is netted-off with its related costs in the consolidated financial statements.

Dividend revenue from investments is recognized when the shareholder’s rights to receive payment have been established.

Other revenues earned by the Group are recognized on the following bases:

• Rental income - on an accrual basis. • Interest income - on an effective yield basis.

213 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Foreign currency translations

Foreign currency translations and translation - Transactions in foreign currencies during the period have been translated into TL at the exchange rates prevailing at dates of these transactions. Balance sheet items denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates. Exchange gains or losses arising from settlement and translation of foreign currency items have been included in the income or expense accounts as appropriate.

The foreign exchange rates used by the Group are as follows:

2017 2016

USD 3,7719 3,5192 EUR 4,5155 3,7099 GBP 5,0803 4,3189 CHF 3,8548 3,4454

Foreign entities- Foreign consolidated subsidiaries are regarded as foreign entities since they are financially, economically and organizationally autonomous. Their reporting currencies are the respective local currencies. Financial statements of foreign consolidated subsidiaries are translated at year-end exchange rates with respect to the balance sheet and at exchange rates at the dates of the transactions with respect to the income statement. All resulting translation differences between the closing balances and opening balances due to the difference in inflation and devaluation are included in currency translation adjustment in equity.

Property, plant and equipment

Property, plant and equipment held for use in the production or supply of goods or services, or for administrative purposes, are stated in the balance sheet at cost, restated in equivalent purchasing power at 31 December 2005 less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property, plant and equipment is the greater of net selling price 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 an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash- generating unit to which the asset belongs.

Property, plant and equipment in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any identified impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group’s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

214 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight line basis over the following years stated below:

Useful life in years

Land improvements 10-48 Buildings 25-50 Leasehold improvements 3-10 Plant and machinery 2-27 Furniture and fixtures 5-27 Motor vehicles 5-20

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in income.

Leases

Finance lease - Assets held under finance leases are recognized as assets of the Group at their fair value at the date of acquisition. The corresponding liability to the Group is included in the balance sheet as a finance lease obligation. Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the income statement over the term of the relevant lease so as to produce a constant periodic rate of interest on the remaining balance of the liability for each accounting period.

Operating lease - Leases of assets under which all the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments on operating lease are recognized as an expense on a straight-line basis over the lease term.

Intangible assets

Business combinations and goodwill

A business combination is the bringing together of separate legal entities or businesses into one reporting entity. Business combinations are recognised using the acquisition method in accordance with IFRS 3.

Cost of the acquisition incurred as a result of the acquisition of an enterprise is allocated to identifiable assets, obligations and contingent obligations of the enterprise on the date of acquisition. The difference between the cost of the acquisition and the fair value of identifiable assets, obligations and contingent obligations of the entity on the date of acquisition is recognised in the consolidated financial statements as goodwill. In business combinations the assets, intangible assets and contingent obligations that are not covered by the financial statements of the acquired entity but that could be separated from the goodwill are recognised in the consolidated financial statements at their fair values. The goodwill previously recognised in the financial statements of the acquiree is not considered to be an identifiable asset.

If the Group’s share of the net fair value of the identifiable assets, obligations and contingent obligations is more than the cost of the business combination the excess is accounted for in the consolidated statement of income in the related period.

A business combination is the bringing together of separate legal entities or businesses into one reporting entity. Business combinations are recognized using the acquisition method in accordance with IFRS 3.

215 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Goodwill should be tested for impairment annually and more frequently if impairment indicators are present. Carrying amount of goodwill and higher of fair value less costs of disposal and value in use compared. Impairment losses are recognized as an expense immediately in profit or loss and not reversable for subsequently periods.

Goodwill should be tested for impairment annually and more frequently if impairment indicators are present. Carrying amount of goodwill and higher of fair value less costs of disposal and value in use compared. Impairment losses are recognized as an expense immediately in profit or loss and not reversable for subsequently periods.

Purchased intangible assets - Intangible assets acquired separately are reported at cost less accumulated amortisation and accumulated impairment loss. Amortisation is charged on as straight line basis over their useful live. The estimated useful life and amortisation method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.

Years

Wind energy production rights 25 Hydroelectric energy production rights 30 Thermal energy production rights 29

Research and development costs

Research costs are recognized as expense in the period in which they are incurred. An intangible asset arising from development (or from the development phase of an internal Project) are recognized as intangible assets when the following criteria are met;

• It is technically feasible to complete the intangible asset so that it will be available for use; • Management intends to complete the intangible asset and use or sell it; • There is an ability to use or sell the intangible asset; • It can be demonstrated how the intangible asset will generate probable future economic benefits; • Adequate technical, financial and other resources to complete the development and to use or sell the intangible asset are available ; and • The expenditure attributable to the intangible asset during its development can be reliably measured.

In other cases, development costs are expensed as incurred. Development costs previously recognized as an expense are not recognized as an asset in a subsequent period. In cases where it is difficult to separate the research phase from the development phase in a project, the entire project is treated as research and expensed immediately.

Other intangible assets- Other intangible assets including information systems, development expense of information systems and other determinable rights, are capitalized and amortized on a straight line basis over their estimated useful lives, not exceeding a period of 5 years.

Impairment of intangible assets - Where an indication of impairment exists, the carrying amount of any intangible asset is assessed and written down immediately to its recoverable amount.

Service Concession Arrangements

IFRIC 12, Service concession arrangements regulate recognition of the service concession arrangements given by public entities to private industry. The service concession agreement concerning electricity distribution is recognized within the framework of IFRIC 12 by the investment expenditures within the framework of IFRIC 12 are recognized as revenue in the period in which they are incurred. (Note 14). A business combination is the bringing together of separate legal entities or businesses into one reporting entity. Business combinations are recognized using the acquisition method in accordance with IFRS 3.

216 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

In accordance with IFRIC 12 Service concession arrangements the Group has the operating right of the electricity distribution system, the distribution facilities either existing or to be constructed within the distribution region and other movable and immovable assets crucial for the operation of the distribution facilities, the rehabilitation and strengthening of these facilities and the construction of new distribution lines and facilities that are required.

The Group recognizes a financial asset as it has an unconditional right to charge its subscribers at the direction of the grantor for the construction services made under the distribution business. The right to collect for distribution, transmission, uncontrollable operational expenses of the Company and meter reading fee is conducted via invoices issued to subscribers. Service components in question are determined through tariffs regulated by EMRA. The difference between the realized collections relevant with distribution and retail service and the income ceiling pre-determined by EMRA is corrected by EMRA through by the tariff revision of next implementation periods.

Inventories

Inventories are stated at the lower of cost and net realizable value. Costs comprise direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition but excludes borrowing cost. Cost is calculated by using moving weighted average method. Net realizable value represents the estimated selling price less all estimated costs to completion and costs to be incurred in marketing, selling and distribution.

Impairment

The carrying amounts of the Group’s assets are reviewed at each balance sheet date to determine whether any indication of impairment exists. If any such indication exists, the asset’s recoverable amount is estimated and an impairment loss is recognised in the income statement whenever the carrying amount of the asset exceeds its recoverable amount.

Related parties

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making the financial and operating decisions. For the purpose of these financial statements shareholders are referred to as related parties. Related parties also include individuals that are principle owners, management and members of the Group’s Board of Directors and their families.

Borrowing cost

Borrowing cost 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. Borrowing costs of qualifying assets are not added to the cost of those assets for the period during which construction to get them ready for their intended use or sale is suspended. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the cost of those assets. Other borrowing costs are expensed in the period in which they are incurred and reported in “financing expense”.

Bank borrowings

Interest-bearing bank loans and overdrafts are recognized at fair value at initial recognition which equate to the proceeds received, net of direct issue costs. Finance charges, including premiums payable on settlement or redemption, are accounted for on an accruals basis and are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.

Deposits received

The Company receives deposits from the customers on behalf of the Turkey Electricity Distribution Company (“TEDAŞ”), during subscription and these deposits are determined by the tariffs and methods announced by EMRA and they are recognized over their fair value at the moment when they are received from the customers. In accordance with the decision of EMRA about “The Rules and Regulation related to the Update of Guarantee Payments in Electricity Payment”, the Group updates the subscription fees in accordance with the methods

217 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.) identified by EMRA and deposits are refunded to subscribers over their indexed values, where index is periodically updated by EMRA, upon termination of subscription of customers. Besides, in accordance with the “Transfer of Operating Right” (“TOR”) agreement signed with TEDAŞ, the Group has to follow currently the deposits received from the subscribers and the refunded deposits and to pay the net balance to TEDAŞ at the end of the license period.

Current and deferred income taxes

Tax expense (income) is the aggregate amount included in the determination of net profit or loss for the period in respect of current and deferred tax.

Deferred income tax is provided, using the liability method, on all temporary differences at the financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax liabilities are recognized for all taxable temporary differences.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.

Employee termination benefits

Under Turkish labour law, the Group and its Turkish subsidiaries are required to pay termination benefits to each employee who has completed one year of service and whose employment is terminated without due cause, or who retires in accordance with social insurance regulations or is called up for military service or dies.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects a provision to be reimbursed, for example under an insurance contract, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.

Warranty and assembly expenses provision

Warranty expenses include repair and maintenance expenses of products sold and labor and material costs of authorized services for products under the scope of warranty terms without any charge to customers. Based on estimations using past statistical information, warranty expense provision is recognised for the products sold with warranty terms in the period, for possible repair and maintenance expenses to be incurred during the warranty period.

Financial assets

Financial assets other than hedging instruments are divided into the following categories:

• financial assets as at fair value through profit or loss • available-for-sale financial assets • held-to-maturity investments • loans and receivable

Financial assets are assigned to the different categories on initial recognition, depending on the characteristics of the instrument and its purpose. A financial instrument’s category is relevant for the way it is measured and whether any resulting income and expenses is recognized in profit or loss or directly in equity.

218 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Financial assets as 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 categorised as held for trading unless they are designated as hedges.

Available-for-sale financial assets

Generally, the Group recognizes all financial assets using settlement day accounting. An assessment of whether a financial asset is impaired is made at least at each reporting date. All income and expense relating to financial assets are recognized in the income statement line item “finance costs” or “finance income”, respectively.

Available-for-sale financial assets are non-derivative financial assets that do not qualify for inclusion in any of the other categories of financial assets. The Group’s available-for-sale financial assets include unconsolidated investments. Unconsolidated investments which are not quoted at any stock exchange are reported at cost less any impairment charges, as its fair value can currently not be reliably estimated.

Held-to-maturity investments

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturity. Investments are classified as held-to-maturity if it is the intention of the Group’s management to hold them until maturity. The Group currently holds time deposits that fall into this category.

Held-to-maturity investments are subsequently measured at amortized cost using the effective interest method. In addition, if there is objective evidence that the investment has been impaired, the financial asset is measured at the present value of estimated cash flows. Any changes to the carrying amount of the investment are recognized in profit or loss.

Loans and receivable

Trade receivables, loans and other receivables that have fixed or determinable payments that are not quoted in an active market are classified in this category. Loans and receivables (trade and other receivables bank deposits, cash and others) are measured at amortized using the effective interest method less any impairment. Interest income is recognized by applying the effective interest rate, except for cases when the recognition of interest would be immaterial.

Factoring receivables and other receivables

Factoring receivables and other receivables are stated at fair value at initial recognition. Subsequent to initial recognition, all receivables except for factoring receivables are carried at amortized cost using the effective interest method. Factoring transactions are accounted for at carrying amounts in subsequent reporting periods. The Group management believes that carrying amounts of factoring receivables approximate to their fair values since amortization is taken into account at initial recognition.

Derivative financial instruments

The Group holds derivative financial instruments which mainly consist of interest rate swap instruments and forward foreign exchange contracts.

Derivative financial instruments held for trading are recognized initially at fair value; attributable transaction costs are recognised in statement of consolidated income when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes in the fair value of such derivatives are recognised in the statement of consolidated income as part of finance income and costs.

Hedges of exposures to variability in cash flows that are attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction and could affect profit and loss are designated as cash flow hedges by the Group.

219 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Changes in the fair value of derivatives, designated as cash flow hedges and qualified as effective, are recognised in equity as “hedging reserves”. Where the forecasted transaction or firm commitment results in the recognition of an asset or of a liability, the gains and losses previously recognised under equity are transferred from equity and included in the initial measurement of the cost of the asset or liability. Otherwise, amounts recognised under equity are transferred to the consolidated income statement in the period in which the hedged firm commitment or forecasted transaction affects the consolidated income statement.

If the forecast transaction or firm commitment is no longer expected to occur, the cumulative gain or losses previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, any cumulative gain or loss previously recognised in other comprehensive income remains in other comprehensive income until the forecast transaction or firm commitment affects profit or loss.

Government grants

Government grants, including non-monetary grants at fair value, are recognized in consolidated financial statements when there is reasonable assurance that the entity will comply with the conditions attaching to them, and the grants will be received.

Incentives for research and development activities are recognized in consolidated financial statements when they are authorized by the related institutions.

Trade receivables

Trade receivables are measured at initial recognition at fair value and are subsequently measured at amortized cost using the effective interest rate method to set an allowance for unearned interest. Appropriate allowances for estimated irrecoverable amounts are recognized in profit or loss when there is objective evidence that the asset is impaired. The allowance recognized is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.

Trade payables

Trade payables are initially measured at fair value and are subsequently measured at amortized cost using the effective interest rate method to set an allowance for unearned interest.

Recognition and derecognition of financial instruments

The Group recognizes a financial asset or financial liability in its balance sheet when and only when it becomes a party to the contractual provisions of the instrument. The Group derecognizes a financial asset or a portion of a financial asset when and only when it loses control of the contractual rights that comprise the financial asset or a portion of a financial asset or when a financial asset or a portion of a financial asset expires. The Group derecognizes a financial liability when and only when a liability is extinguished and that is when the obligation specified in the contract is discharged, cancelled and expires.

220 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Commitments and contingencies

Transactions that may give rise to contingencies and commitments are those where the outcome and the performance of which will be ultimately confirmed only on the occurrence or non-occurrence of certain future events, unless the expected performance is not very likely. Accordingly, contingent losses are recognised in the financial statements if a reasonable estimate of the amount of the resulting loss can be made. Contingent gains are reflected only if it is probable that the gain will be realized.

Segment reporting

Operating segments are identified on the same basis as financial information is reported internally to the Group’s chief operating decision maker. The Group Board of Directors has been identified as the Group’s chief operating decision maker who responsible for allocating resources between segments and assessing their performances. The Group management determines operating segments by reference to the reports reviewed by the Board of Directors to make strategical decisions.

The Group management evaluates the operational results at industrial and geographical level. An operating segment is a component of an entity that engages in business activities from which it may earn revenues and incur expenses.

Cash and cash equivalents

For the purpose of cash flow statement, cash and cash equivalents comprise cash in hand; deposits with banks and other financial institutions with the original maturity of three months or less.

4. BUSINESS COMBINATIONS

With the final protocol related to the share purchase contract signed on 2 February 2017, Zorlu Osmangazi, a 100% owned affiliate of the Company, took over all of the shares of Osmangazi Elektrik Dağıtım AŞ (“OEDAŞ”) and Osmangazi Elektrik Perakende Satış AŞ (“OEPSAŞ”) with cash and advance payment for a total acquisition fee of USD 360.000.000. With the final protocol signed by the parties, all the transactions related to transfer of the said shares to Zorlu Osmangazi were completed on 2 February 2017. The Group used acquisition accounting in accordance with IFRS 3 “Business Combinations”.

The fair values of the identifiable assets, liabilities and contingent liabilities acquired through the purchase of OEDAŞ and OEPSAŞ shares were determined as a result of the best estimation of management and shown in the consolidated financial information. Discounted cash flow and multi period excess earnings methods have been used for the acquisition accounting.

TL2.196.758 thousand of the revenue and TL175.916 thousand of the net profit of the Group as of 31 December 2017 is related to performance of OEDAŞ and OEPSAŞ.

To create synergy with the energy production and wholesale operations, which the Group’s related parties already carry out, Zorlu Osmangazi acquired the shares of OEDAŞ and OEPSAŞ and included distribution and retail operations in its portfolio. This synergy has been recorded as goodwill.

221 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Information on the goodwill calculation and the acquired net assets is as follows:

Total consideration paid 1.358.856 Net assets acquired, net (956.619)

Goodwill 402.237

Fair values of the gained assets and liabilities resulting from the acquisition are as follows.

Cash and cash equivalent 141.257 Trade receivables 236.939 Other receivables 6.850 Receivables from service concession arrangements 150.203 Prepaid expenses 4.279 Current period income tax assets 2.516 Other current and non-current assets 185.685 Intangible assets 1.266.938 Deferred tax assets 106.328 Trade payables (173.187) Other payables (249.478) Payables related to employee benefits (13.369) Short-term provisions (73.372) Current period income tax liabilities (6.489) Deferred tax liabilities (253.388) Other short-term provisions (48.949) Deferred income (326.144)

Net, assets acquisition 956.619

Total purchase consideration (1.358.856) Cash and cash equivalent - acquired 141.257

Net cash outflow due to acquisition (1.217.599)

The movement of the goodwill in the current period is as follows:

Opening balance 83.131 New acquisition related 402.237

Closing balance 485.368

222 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

As of 12.07.2017, Zorlu Yapı was acquired by Zorlu Holding A.Ş. amounting to TL 1.270.000. The general features of booking of that transaction are as follows;

• The acquired assets and liabilities are recorded at their fair value • No goodwill is recorded • Comparative periods are not restated unless the combination had taken place at the beginning of the earliest comparative period presented.

The difference between the consideration paid and the net identifiable assets of Zorlu Yapı amounting to TL 945.025 is accounted under the heading of “General reserve” in the equity.

5. SEGMENT INFORMATION

The basis on which the Group reports its primary and secondary segment information is as follows:

• Energy: Electricity production, natural gas extraction and distribution, and power plant construction (note 1.1). • Textile: Manufacture and sale of textile goods (note 1.2). • Holding: This segment mainly the finance agent for Zorlu Group. • White goods and electronic: Production and sale of white goods and electronic devices (note 1.3). • Real estate: Real estate group operation mainly focuses on construction and management of domestic and foreign establishments (note 1.4).

The segment results for the periods ended 31.12.2017 and 31.12.2016 are as follows:

White goods and Intersegment Energy Textile Holding electronics Real estate Other elimination Total

01.01.- 31.12.2017 External revenue 5.219.096 2.465.943 184.826 12.025.756 322.231 135.540 -- 20.353.392 Intersegment revenue 107.516 4.581 56.671 75.182 7.770 97.655 (349.375) --

5.326.612 2.470.524 241.497 12.100.938 330.001 233.195 (349.375) 20.353.392 Cost of sales (3.917.167) (1.730.429) (43.572) (9.652.708) (250.212) (194.185) -- (15.788.273)

Gross profit 1.409.445 740.095 197.925 2.448.230 79.789 39.010 (349.375) 4.565.119

Other segment items included in the income statement:

Depreciation expense 234.038 55.464 7.582 250.393 64.162 4.220 -- 615.859 Amortization charge 60.241 2.951 2.180 94.811 1.284 166 -- 161.633

294.279 58.415 9.762 345.204 65.446 4.386 -- 777.492

223 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

White goods and Intersegment Energy Textile Holding electronics Other elimination Total

01.01.- 31.12.2016 External revenue 2.866.834 1.705.897 28.018 9.540.494 85.820 -- 14.227.063 Intersegment revenue 131.125 280 22.346 -- 17.250 (171.001) --

2.997.959 1.706.177 50.364 9.540.494 103.070 (171.001) 14.227.063 Cost of sales (2.181.659) (1.045.877) (42.964) (7.382.660) (151.214) -- (10.804.374)

Gross profit 816.300 660.300 7.400 2.157.834 (48.144) (171.001) 3.422.689

Other segment items included in the income statement:

Depreciation expense 207.469 42.651 8.315 239.707 5.282 -- 503.424 Amortization charge 22.540 4.587 444 81.643 47 -- 109.261

230.009 47.238 8.759 321.350 5.329 -- 612.685

224 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The segment assets and liabilities as of the financial position dates and capital expenditure for the periods ended are as follows:

White goods and 31.12.2017 Energy Textile Holding electronics Real estate Other Total

Current assets Cash and cash equivalents 405.444 54.932 369.452 2.000.337 152.837 11.305 2.994.307 Investment securities 10.320 -- 17.935 ------28.255 Trade receivables 618.023 412.213 30.791 3.652.849 28.477 11.849 4.754.202 Receivables from finance sector operations ------283.376 283.376 Other receivables 152.401 178.692 362.069 261.521 103 69 954.855 Receivables from service concession arrangements 130.999 ------130.999 Inventories 56.692 487.870 17 2.944.179 626.936 1.982 4.117.676 Prepaid expenses 78.445 140.064 6.918 60.769 42.428 6.911 335.535 Current income tax assets 23.219 41 40.266 8.739 12 326 72.603 Derivative financial instruments 1.706 -- -- 13.489 -- -- 15.195 Other current assets 327.453 39.268 15.071 28.394 74.561 993 485.740

Subtotal 1.804.702 1.313.080 842.519 8.970.277 925.354 316.811 14.172.743

Assets held-for sale ------

1.804.702 1.313.080 842.519 8.970.277 925.354 316.811 14.172.743

Trade receivables -- 14.428 -- 68.540 -- -- 82.968 Other receivables 189.649 157 1.581.809 207.361 375 -- 1.979.351 Investment in associate 258.379 ------258.379 Investment securities 9.231 6.245 5.807.375 46.831 24.500 4.931 5.899.113 Receivables from service concession arrangements 508.335 ------508.335 Property, plant and equipment 6.644.056 628.999 147.996 1.610.027 7.041.823 91.558 16.164.459 Intangible assets 1.693.560 76.651 214.319 666.433 7.487 466 2.658.916 Derivative financial instruments 31.603 ------31.603 Prepaid expenses 189.654 269 6.299 81.436 2 229 277.889 Other non-current assets 72.427 1 -- 7.060 -- -- 79.488 Deferred tax assets 440.856 39.400 -- 278.983 -- 9.581 768.820

Total non-current assets 10.037.750 766.150 7.757.798 2.966.671 7.074.187 106.765 28.709.321

Total assets 11.842.452 2.079.230 8.600.317 11.936.948 7.999.541 423.576 42.882.064

225 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

White goods and 31.12.2017 Energy Textile Holding electronics Real estate Other Total

Current liabilities Short term financial liabilities 3.713.213 3.378.563 3.363.715 3.484.289 676.801 29.798 14.646.379 Trade payables 1.272.620 282.062 20.500 5.744.389 42.834 11.216 7.373.621 Payables from finance sector operations ------330.355 330.355 Employee benefit obligations 10.333 19.901 4.394 81.441 6.490 1.187 123.746 Other payables 284.343 26.584 443 10.095 34.689 3.341 359.495 Deferred income 42.817 85.678 -- 48.891 62.251 777 240.414 Derivative financial instruments 13.915 8.760 -- 163.545 118.586 -- 304.806 Taxation on income 7.270 -- 39.495 9.023 -- 1.192 56.980 Provision for expenses 50.444 10.200 2.329 429.602 3.367 2.136 498.078 Other liabilities 192.580 52.910 3.875 246.585 20.430 3.551 519.931

5.587.535 3.864.658 3.434.751 10.217.860 965.448 383.553 24.453.805 Non current liabilities Long term financial liabilities 5.710.202 464.983 1.946.381 1.024.003 3.513.427 103.595 12.762.591 Trade payables ------1.959 -- -- 1.959 Payables from finance sector operations ------Other payables 27.614 -- 176.912 ------204.526 Derivative financial instruments 34.342 ------34.342 Long term provisions 21.743 63.257 4.278 180.980 2.214 287 272.759 Other non-current liabilities 281.036 93.444 -- 6.281 -- -- 380.761 Deferred tax liability 217.092 16.414 5.603 91.510 642.249 78 972.946

6.292.029 638.098 2.133.174 1.304.733 4.157.890 103.960 14.629.884

Total liabilities 11.879.564 4.502.756 5.567.925 11.522.593 5.123.338 487.513 39.083.689

01.01.- 31.12.2017 Capital expenditure 1.863.674 293.868 3.025 654.571 265.172 1.063 3.081.373

226 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

White goods and 31.12.2016 Energy Textile Holding electronics Other Total

Current assets Cash and cash equivalents 176.921 17.985 2.352.701 1.264.003 1.606 3.813.216 Investment securities 48.421 -- 174.727 -- -- 223.148 Trade receivables 658.449 363.238 11.347 2.434.816 8.129 3.475.979 Receivables from factoring sector operations ------177.670 177.670 Other receivables 77.116 2.130.196 2.301.433 280.962 53 4.789.760 Inventories 48.341 404.974 62 1.817.869 2.412 2.273.658 Prepaid expenses 40.060 71.956 6.428 31.098 6.605 156.147 Current income tax assets 18.696 10.676 7 6.252 -- 35.631 Derivative financial instruments 22.282 242 -- 150.982 -- 173.506 Other current assets 87.982 41.727 16.127 37.870 -- 183.706

Subtotal 1.178.268 3.040.994 4.862.832 6.023.852 196.475 15.302.421

Assets held-for sale 67.139 ------67.139

1.245.407 3.040.994 4.862.832 6.023.852 196.475 15.369.560

Trade receivables -- 17.840 -- 122.901 -- 140.741 Other receivables 179.916 164 82 41.334 -- 221.496 Investments accounted for using the equity method 194.276 ------194.276 Investment securities 5.989 3.465 4.950.163 7.069 7.369 4.974.055 Property, plant and equipment 4.555.483 502.228 201.851 1.335.399 108.274 6.703.235 Intangible assets 835.452 180.395 8.312 593.018 6.401 1.623.578 Prepaid expenses 229.703 94 12.767 63.501 332 306.397 Other non-current assets 29.363 2 -- 7.444 -- 36.809 Deferred tax 306.995 24.472 -- 85.223 3.424 420.114

Total non-current assets 6.337.177 728.660 5.173.175 2.255.889 125.800 14.620.701

Total assets 7.582.584 3.769.654 10.036.007 8.279.741 322.275 29.990.261

227 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

White goods and 31.12.2016 Energy Textile Holding electronics Other Total

Current liabilities Financial liabilities 3.140.232 2.911.314 2.363.780 860.496 61.781 9.337.603 Trade payables 1.096.108 211.406 79.853 3.679.279 9.583 5.076.229 Payables from factoring sector operations 22 ------246.173 246.195 Employee benefit obligations 3.022 19.124 3.354 91.229 898 117.627 Other payables 1.518 26.857 52.007 46.379 100 126.861 Deferred income 5.221 61.721 -- 34.393 541 101.876 Derivative financial instruments 31.070 91.741 -- 235.398 -- 358.209 Taxation on income 411 -- -- 3.931 990 5.332 Short term provisions 2.263 6.784 1.712 275.367 2.091 288.217 Other liabilities 54.254 12.105 4.761 146.884 2.164 220.168

Total current liabilities 4.334.121 3.341.052 2.505.467 5.373.356 324.321 15.878.317

Noncurrent liabilities Financial liabilities 3.969.697 272.002 2.318.408 2.233.073 77.339 8.870.519 Trade payables 6.229 ------6.229 Other payables 503 -- 175.152 -- -- 175.655 Derivative financial instruments 11.949 ------11.949 Long term provisions 11.168 58.495 3.793 153.260 216 226.932 Other non-current liabilities 195.196 99 ------195.295 Deferred tax liability 27.954 26 14.728 -- -- 42.708

Total non-current 4.222.696 330.622 2.512.081 2.386.333 77.555 9.529.287 liabilities

Total liabilities 8.556.817 3.671.674 5.017.548 7.759.689 401.876 25.407.604

01.01.- 31.12.2016 Capital expenditure 864.039 134.814 5.885 373.529 45.273 1.423.540

228 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

01.01.- 01.01.- 31.12.2017 31.12.2016

Revenue Turkey 10.926.855 6.846.582 Europe 8.241.321 6.031.059 Other countries 1.185.216 1.349.422

20.353.392 14.227.063

Capital expenditure Turkey 3.049.600 1.387.749 Asia 31.773 35.791

3.081.373 1.423.540

01.01.- 01.01.- 31.12.2017 31.12.2016

Depreciation and amortization expenses Turkey 717.279 533.338 Europe -- 18 Asia 60.213 79.329

777.492 612.685

6. CASH AND CASH EQUIVALENTS

31.12.2017 31.12.2016

Cash in hand 2.020 269.332 Demand deposit at banks 573.409 468.790 Time deposit at banks 2.100.976 2.909.819 Blocked deposit 174.591 68.129 Other 143.311 97.146

Cash and cash equivalents 2.994.307 3.813.216

Bank overdrafts (-) (132.365) (39.027)

Cash and cash equivalents presented in cash flow statement 2.861.942 3.774.189

7. INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

The Group holds a 25% voting and equity interest in Dorad Energy Ltd. (“Dorad”), 42,15% voting and equity interest Ezotech Ltd. (“Ezotech) and 42,15% voting and equity interest Solad Energy Ltd. (Solad). These investments are accounted for under the equity method.

229 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

01.01- 01.01.- 31.12.2017 31.12.2016

Cost 258.379 194.222

Opening balance, 01.01 194.222 183.409 Share of gain/(loss) of associates 20.096 2.009 Change in associates (*) 44.061 8.804

Ending balance, 31.12 258.379 194.222

(*) As of 31 December 2017 change on associates amounting to TL 44.061 relates to the currency translation difference (2016: TL 8.804).

8. INVESTMENT SECURITIES

31.12.2017 31.12.2016

Current Investment securities held to maturity 28.255 222.948 Other -- 200

28.255 223.148

Investment securities held to maturity

Investment securities held to maturity are investments in fixed rate debt securities. Group monitors its interest rate and other market price risks to which it is exposed primarily through sensitivity analysis. Group accepts a degree of interest and other market price risk as long as the effects of various changes in rates and prices, as calculated using its sensitivity analysis model, remain within prescribed ranges.

The cost of other marketable securities, government bonds and private sector bonds, together with accrued interests were approximately equal to their market value.

Non-current financial assets available-for-sale Financial assets held to maturity 5.814.799 4.940.978 Unconsolidated investments 72.107 21.370 Other investments 12.207 11.707

5.899.113 4.974.055

Unquoted investments whose fair value cannot be measured reliably are carried at cost and classified as available-for-sale investment securities.

230 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Share % Amount Entity Country 31.12.2017 31.12.2016 31.12.2017 31.12.2016

Unconsolidated investments Zorlu Enerji ve İnşaat Sanayi ve Ticaret A.Ş. Turkey 95% 95% 1.000 1.000 Zorlu Hometeks A.Ş. Turkey 100% 100% 7.000 7.000 Zorlu OMR Elektrik Santralleri İşletme ve Bakım Hizmetleri Limited Şirketi Russia -- 100% -- 5.000 Vestel Electronica S.R.L Romania 100% 100% 1.778 1.778 Vestel Ventures Arge A.Ş. Turkey 100% 100% 36.660 6.290 Zorlu Center Sanat Merkezi A.Ş. Turkey 100% -- 24.000 -- Other 3.447 2.080

73.885 23.148

Vestel Electronica SRL Romania (1.778) (1.778)

72.107 21.370 Other investments Sichuan Zorluteks Yinhua Co. Limited China 10% 10% 3.123 3.123 Intermar Ticaret Pazarlama Turizm Sanayi A.Ş. Turkey 16% 16% 7.402 7.402 Other 1.682 1.182

12.207 11.707

Financial assets held to maturity 5.814.799 4.940.978

5.899.113 4.974.055

As of the financial position dates, the companies listed under “equity investments” and “unconsolidated investments” in which the Group has controlling interest or significant influence are not consolidated or equity accounted as they are immaterial individually and in aggregate to the results and financial position of the Group.

231 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

9. TRADE RECEIVABLES

31.12.2017 31.12.2016

Current Trade receivables - Third parties 4.411.362 3.057.404 - Related parties, note 32 304.895 305.654 Notes receivable - Third parties 423.480 375.258 - Related parties, note 32 -- 2.496

5.139.737 3.740.812 Unearned interest on receivables (-) - Third parties (66.659) (32.638) - Related parties, note 32 (1.991) (1.211) Allowance for doubtful receivables (-) (316.885) (230.984)

4.754.202 3.475.979

Non-current Trade receivables - Third parties 69.736 119.698 - Related parties, note 32 -- 4.501 Notes receivable - Third parties 17.280 19.170

87.016 143.369 Unearned interest on receivables (-) - Third parties (4.048) (2.459) - Related parties, note 32 -- (169)

82.968 140.741

Movement in the allowance for doubtful receivables is as follows:

01.01.- 01.01.- 31.12.2017 31.12.2016

Opening balance, 01.01 230.984 259.251 Charge for the year 43.090 33.785 Doubtful receivables written-off (45.379) (48.784) Amounts utilized during the year (-) (16.526) (15.132) Translation differences 5.635 1.864 Consolidated of subsidiary 99.081 --

Ending balance, 31.12 316.885 230.984

232 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

10. RECEIVABLES FROM FINANCE SECTOR OPERATIONS

31.12.2017 31.12.2016

Current Domestic factoring receivable 105.316 53.971 Other factoring receivable 182.822 125.373 Unearned interest (-) (4.762) (1.674)

283.376 177.670

The Group had received cheques and notes receivable amounting to TL 166.164 (2016: TL 121.524) in exchange of factoring receivables.

The Group had received guarantees amounting to TL 2.456.195 (2016: TL 1.892.641) as collateral for receivables from sector operations.

11. PREPAID EXPENSES AND DEFERRED INCOME

Current Prepaid expenses 94.916 62.815 Advances given to third parties 210.425 47.116 Advances given to related parties, note 32 30.194 46.216

335.535 156.147

Non-current Prepaid expenses 195.039 194.447 Advances given 82.850 111.950

277.889 306.397

Deferred income Advances received from third parties 240.362 101.845 Advances received from related parties, note 32 52 31

240.414 101.876

233 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

12. DERIVATIVE FINANCIAL INSTRUMENTS

31.12.2017 31.12.2016 Fair values Fair values Contract Contract amount Asset Liability amount Asset Liability

Held for hedging Interest rate swaps 3.258.318 -- 82.319 1.191.396 -- 31.609 Currency forwards 2.347.535 2.252 72.614 1.503.127 106.528 -- Foreign currency swaps 322.314 33.309 ------Cross foreign currency swaps 187.000 -- 68.717 ------Held for trading Currency forwards 5.422.472 11.237 96.165 6.973.941 66.656 235.398 Cross foreign currency swaps 290.515 -- 5.735 380.827 -- 91.741 Interest rate swaps 838.343 -- 10.983 2.901.963 322 11.410 Foreign currency swaps 18.500 -- 2.615 ------

12.684.997 46.798 339.148 12.951.254 173.506 370.158

Derivative financial instruments are initially recognised in the consolidated financial position at cost and subsequently are re-measured at their fair value. The derivative instruments of the Group consist of interest rate swap and foreign currency forward contracts.

On the date a derivative contract is entered into, the Group designates certain derivatives as either a hedge of the fair value of a recognised asset or liability (“fair value hedge”), or a hedge of a forecasted transaction or a firm commitment (“cash flow hedge”).

Interest rate swap transactions provide effective economic hedges under the Group risk management position and qualify for hedge accounting under the specific rules and are therefore treated as derivatives held for hedging. Changes in the fair value of derivatives that are designated as being and qualify as cash flow hedges and are highly effective, are recognised in equity as “hedge reserves”.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, or when a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statement of income.

13. OTHER RECEIVABLES

31.12.2017 31.12.2016

Due from related parties, note 32 538.670 4.486.809 VAT receivables 238.843 208.895 Deposits and guarantees given 60.812 34.112 Due from personnel 5.914 3.237 Other receivables 110.616 56.707

954.855 4.789.760

234 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

14. RECEIVABLES FROM SERVICE CONCESSION ARRANGEMENT

31.12.2017 31.12.2016

Short-term 130.999 -- Long-term 508.335 --

639.334 --

The receivables of service concession arrangements are made up of the investment’s value that is not repurchased through the tariff.

The maturity analysis of the receivables from service concession arrangement is as follows:

Up to 1 year 130.999 -- Up to 1-2 year 130.999 -- Up to 2-3 year 130.999 -- Up to 3-4 year 130.999 -- More than 4 years 115.338 --

639.334 --

The breakdown of the receivables from service concession arrangement in the current period is as follows:

01.01.- 01.01.- 31.12.2017 31.12.2016

Opening balance, 01.01 -- -- Additions due to acquisition (2 February 2017) 150.203 -- Investments 434.752 -- Redemptions (-) (53.038) -- Index differences 107.417 --

Closing balance, 31.12 639.334 --

235 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

15. OTHER ASSETS

31.12.2017 31.12.2016

Current VAT receivable 317.170 173.413 Income accruals (*) 133.293 -- Other 35.277 10.293

485.740 183.706

Non-current VAT receivable 19.570 29.365 Tangible fixed assets and stocks on resale 17.856 7.444 Other income accruals 42.062 --

79.488 36.809

(*) As a result of the guarantees acquired as per the protocol signed on 2 February 2017 between Dedeli Yatırım İnşaat Taahhüt Elektrik Dağıtım Sanayi Ticaret AŞ (“Dedeli”) and the Company, an income accrual accounted under ”Other Current Assets” amounting to TL 42.346 has been recognized for the open lawsuits against OEDAŞ and OEPSAŞ which can be reclaimed back from Dedeli, Remaining balance composes of the followings: TL 22.572 loss and theft income accrual of OEDAŞ, TL 5.947 income accrual regarding uninvoiced electricity of OEDAŞ, TL 5.824 of uncontrollable expense related with OEPSAŞ, TL 45.843 insurance income accrual and TL 10.761 other income accruals.

16. INVENTORIES

31.12.2017 31.12.2016

Raw and auxiliary materials 1.542.831 912.246 Work in process 147.345 112.983 Finished goods and merchandise 2.442.984 1.250.817 Other 21.625 26.113

4.154.785 2.302.159

Provision for diminution in value of inventories (-) (37.109) (28.501)

4.117.676 2.273.658

Movement in the diminution in value of inventories is as follows:

01.01.- 01.01.- 31.12.2017 31.12.2016

Opening balance, 01.01 28.501 27.004 Charge for the year 23.908 5.458 Amounts utilized during the year (-) (17.385) (7.105) Translation difference 2.085 3.144

Ending balance, 31.12 37.109 28.501

236 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

17. PROPERTY, PLANT AND EQUIPMENT

Addition of Translation 2016 Reclass Revised Additions Disposals subsidiary differences Transfer 2017

Cost Land and buildings 2.207.487 1.286 2.208.773 716.477 (121.490) 6.568.750 177.381 6.739 9.556.630 Machinery and equipment 6.219.5971.191.351 7.410.948 294.065 (104.187) 256 120.064 1.108.785 8.829.931 Motor vehicles 28.408 -- 28.408 5.411 (4.390) 60 390 5 29.884 Leasehold improvements 459.705 (272.771) 186.934 26.009 (18.309) -- 419 1.328 196.381 Furniture and fixtures 504.351 (162) 504.189 63.699 (17.835) 251.076 4.061 13.505 818.695 Construction in progress 1.768.735 57.668 1.826.403 1.349.023 -- 478 140.839 (1.151.192) 2.165.551

11.188.283 977.37212.165.655 2.454.684 (266.211) 6.820.620 443.154 (20.830) 21.597.072 Accumulated depreciation (-) Land and buildings 397.683 (71.230) 326.453 89.437 (34.971) 141.872 (35.513) -- 487.278 Machinery and equipment 3.545.120 347.129 3.892.249 425.855 (77.210) 242 43.896 -- 4.285.032 Motor vehicles 20.618 (4.859) 15.759 2.874 (1.499) 10 407 -- 17.551 Leasehold improvements 164.630 (20.058) 144.572 21.222 (16.085) -- 231 41 149.981 Furniture and fixtures 356.997 149 357.146 76.471 (9.971) 65.944 3.424 (243) 492.771

4.485.048 251.131 4.736.179 615.859 (139.736) 208.068 12.445 (202) 5.432.613

Net book value 6.703.235 16.164.459

237 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Addition of Translation 2015 Additions Disposals subsidiary differences Transfer 2016

Cost Land and buildings 1.896.844 116.429 (7.781) 66.613 98.043 37.339 2.207.487 Machinery and equipment 5.600.164 630.240 (294.448) 8.434 330.646 (55.439) 6.219.597 Motor vehicles 23.925 5.006 (849) 88 238 -- 28.408 Leasehold improvements 328.603 14.379 (1.256) -- 249 117.730 459.705 Furniture and fixtures 451.149 40.759 (2.154) 99 2.943 11.555 504.351 Construction in progress 1.237.654 452.662 -- -- 348.829 (270.410) 1.768.735

9.538.339 1.259.475 (306.488) 75.234 780.948 (159.225) 11.188.283 Accumulated depreciation (-) Land and buildings 280.474 105.394 (5.176) -- 16.991 -- 397.683 Machinery and equipment 3.284.776 329.762 (102.892) 3.760 119.880 (90.166) 3.545.120 Motor vehicles 17.982 3.197 (764) -- 203 -- 20.618 Leasehold improvements 144.626 19.979 (100) -- 125 -- 164.630 Furniture and fixtures 311.723 45.092 (2.105) 43 2.244 -- 356.997

4.039.581 503.424 (111.037) 3.803 139.443 (90.166) 4.485.048

Net book value 5.498.758 6.703.235

The Group’s policy is to trace all material and significant fixed asset additions under construction in progress and transfer to the related fixed asset accounts when the construction process is completed. As of 31.12.2017 “Construction in Progress” account for new investments in tangible fixed assets amounted to TL 2.165.551 (2016: TL 1.768.735) which was broken down as follows:

31.12.2017 31.12.2016

Energy segment 1.968.789 1.664.972 Textile segment 14.872 1.163 Holding segment 94.213 94.660 White goods segment 87.497 7.832 Other segment 180 108

2.165.551 1.768.735

238 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Energy segment

• Construction of one 340 MW energy power plants by Rosmiks LLC in Russia amounting to TL1.265.570 (2016: TL 1.091.054). • Investments in progress amounted to TL 1.023.113 by Zorlu Doğal (2016: TL 406.567) and TL 36.016 by Zorlu Endüstriyel (2016: TL 103.279) in Kızıldere for increasing capacity of power stations. Investments in hydroelectric power stations amounting to TL 42 (2016: TL 13.234) and investments in thermal and wind power stations amounting to TL 1.253 (2016: TL 38.676) and other investments amounting to TL 495 (2016: TL 11.282). • As of 31.12.2016 investments for installation of natural gas pipelines in Lüleburgaz, Edirne, Çerkezköy, Kırklareli and Tekirdağ by Trakya Gaz and in Gaziantep by Gaziantep Gaz totalled TL 1.176 (2016: TL 880).

Textile segment

• Investments by Korteks and Zorluteks for modernization of textile factories in Lüleburgaz and Bursa totalling TL 14.872 (2016: TL 1.163).

Holding segment

• Investments by Zorlu Holding in Zincirlikuyu/Istanbul relates to construction of building amounting to TL 94.213 (2016: TL 94.660).

White goods segment

• Investments by Vestel Group of companies relate to modernization of white goods production facilities in Manisa amounting to TL 87.497 (2016: 7.832 TL).

The financing expenses capitalized under construction-in-progress during 2017 totalled TL 33.866 (2016: TL 34.839)

The guarantees given to secure bank loans are set out in note 28.

Leased assets comprise plant and machinery and furniture and fixtures are amounting to TL 164.846 (2016: TL 96.569) net of accumulated depreciation.

239 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

18. INTANGIBLE ASSET

Addition of Translation 2016 Reclass Revised Additions Disposals subsidiary difference Transfers 2017

Cost Goodwill 423.288 (9) 423.279 402.237 ------825.516 Wind energy production rights 20.483 (20.483) ------Hydroelectric energy production rights 748.519 (748.519) ------Thermal energy production rights 211.896 (211.896) ------Development cost 685.792 (1) 685.791 147.159 (2.241) -- -- 119 830.828 Other rights 119.753 29.898 149.651 50.472 (4.073) 1.272.208 513 14.514 1.483.285 Other intangible assets 158.375 (33.088) 125.287 26.821 (71) 5.825 5.720 6.115 169.697

2.368.106 (984.098) 1.384.008 626.689 (6.385) 1.278.033 6.233 20.748 3.309.326 Accumulated depreciation (-) Wind energy production rights 7.108 (7.108) ------Hydroelectric energy production rights 176.969 (176.969) ------Thermal energy production rights 49.985 (49.985) ------Development cost 351.916 (2.628) 349.288 85.899 ------435.187 Other rights 70.289 (10.965) 59.324 64.903 (4.062) 1.254 425 50 121.894 Other intangible assets 88.261 (10.202) 78.059 10.831 (8) 2.048 2.329 70 93.329

744.528 (257.857) 486.671 161.633 (4.070) 3.302 2.754 120 650.410

Net book value 1.623.578 2.658.916

240 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Addition of Translation 2015 Additions Disposals subsidiary difference Transfers 2016

Cost Goodwill 423.288 ------423.288 Wind energy production rights 20.483 ------20.483 Hydroelectric energy production rights 748.519 ------748.519 Thermal energy production rights 211.896 ------211.896 Development cost 571.104 117.065 (2.377) ------685.792 Other rights 96.736 21.516 (374) 171 414 1.290 119.753 Other intangible assets 131.972 25.484 -- -- 289 630 158.375

2.203.998 164.065 (2.751) 171 703 1.920 2.368.106 Accumulated depreciation (-) Wind energy production rights 6.289 819 ------7.108 Hydroelectric energy production rights 157.849 19.120 ------176.969 Thermal energy production rights 44.034 5.951 ------49.985 Development cost 274.424 77.493 (1) ------351.916 Other rights 68.795 1.212 (200) 79 403 -- 70.289 Other intangible assets 83.434 4.666 -- -- 161 -- 88.261

634.825 109.261 (201) 79 564 -- 744.528

Net book value 1.569.173 1.623.578

241 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

19. BORROWINGS

Foreign currency TL equivalent 31.12.2017 31.12.2016 31.12.2017 31.12.2016

Current -USD (‘000) 1.545.171 1.542.945 5.828.230 5.429.932 -EUR (‘000) 550.243 234.234 2.484.622 868.985 -TL 5.636.702 2.464.244 5.636.702 2.464.244 -PKR (‘000) 140.462 147.236 4.763 4.928

Bond issued - TL 589.593 542.054 589.593 542.054

Finance leases -TL 3.098 -- 3.098 -- -USD (‘000) 21.570 6.657 81.359 23.427 -EUR (‘000) 3.989 1.087 18.012 4.033

14.646.379 9.337.603

Non-current -USD (‘000) 2.426.457 1.689.078 9.152.354 5.944.203 -EUR (‘000) 504.150 279.472 2.276.492 1.036.813 -TL 653.276 1.502.236 653.276 1.502.236 -PKR (‘000) 719.674 860.173 24.411 28.790

Bond issued - TL 362.184 265.527 362.184 265.527

Finance leases - TL 25.942 -- 25.942 -- -USD (‘000) 57.459 24.034 216.731 84.580 -EUR (‘000) 11.339 2.256 51.201 8.370

12.762.591 8.870.519

The sum of the Zorlu Enerji Elektrik Üretim A.Ş’s principal and instalments of the short and long-term issued bonds as of 31 December 2017 is TL 550.790, and the details related to the bonds issued to qualified investors without public offering by the Group are indicated below.

As per the material event disclosures dated 28 May 2015 and 6 February 2017, it was announced that the Zorlu Enerji Elektrik Üretim A.Ş’s application was approved. The application is related to issuing debt instruments that cannot exceed, respectively, TL 356.224 and TL 280.000, once or more than once and without public offering, and which will be sold to allocated and/or qualified investors on various dates within one year after the communication of the issuance certificate and which will have a payment period of one to three years, be in TL, and in the country. In this scope, bond issuances with floating rates with a nominal value of TL 50.600 and a maturity term of 1.092 days on 20 August 2015, a nominal value of TL 16.550 and a maturity term of 1.024 days on 27 October 2015, a nominal value of TL 54.000 and a maturity term of 727 days on 3 February 2016, a nominal value of TL 11.000 and a maturity term of 730 days, a nominal value of TL 74.000 and a maturity term of 455 days on 22 February 2017, a nominal value of TL 12.520 and a maturity term of 645 days, a nominal value of TL 13.250 and a maturity term of 370 days on 18 May 2017 were carried out.

242 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Furthermore, On 2 November 2017, the sale of bond with a nominal value amounting of TL 91.950 with variable interest rate and 364 days maturity and the sale of bond amounting of TL 62.680 with variable interest rate and 728 day maturity was completed to be sold to qualified investors without being offered to the public by the Zorlu Enerji Elektrik Üretim A.Ş.

On 5 December 2017, the sale transactions of the floating interest rate bond with a nominal value amounting of TL 140.000 with variable interest rate and having 1.091 days term and also in the amount of TL 35.000 and having 542 days term were completed by way of sale to qualified investors without public offering by Zorlu Osmangazi.

Issuance of lease certificate with the nominal value of TL 100.000 having due date of 17 March 2020 and payment term on every three months has been completed as of 24 March 2015 by the Zorlu Enerji Elektrik Üretim A.Ş.

Zorlu Enerji has announced on 26 September 2017 that the Capital Markets Board had approved Zorlu Enerji Elektrik Üretim A.Ş’s application to issue a sukuk, which is backed by a management contract, with a nominal value of up to TL 200 million and a maturity of 2 years for sale in single or multiple tranches to qualified investors in the domestic market. Within this scope, Zorlu Enerji Elektrik Üretim A.Ş completed the sale of TL 100 million fixed rate sukuk with a maturity of 364 days to domestic qualified investors on 3 October 2017 by the Zorlu Enerji Elektrik Üretim A.Ş.

Rotor, one of the affiliate of the Zorlu Enerji Elektrik Üretim A.Ş, has signed a long term loan agreement with the consortium of a group of financial institutions amounting EUR 130 million as of 8 May 2009 related to the 135 MW electricity production powerplant located in Osmaniye. The amount remaining after the loan payments is EUR 60.6 million and does not contain the commission net off amounts and other adjustments, if any.

As of 26 October 2011, Zorlu Enerji Pakistan Ltd. affiliate of Zorlu Enerji, signed a long term loan agreement with International Finance Corporation (“IFC”), the Asian Development Bank (“ADB”), Eco Trade and Development Bank (“ECO”) and Habib Bank Limited (“HBL”) amounting USD 111 million with a maturity of up to 12 years for financing of its wind energy power plant with a capacity of 56,4 MW in Pakistan/Jhimpir established in Jhimpir, the Sindh region of Pakistan. The amount remaining after the loan payments is USD 51 million and PKR 860 million and does not contain the commission net off amounts and other adjustments, if any.

A loan agreement amounting to USD 815 million (USD 785 million in cash and USD 30 million in non-cash) and having a 14 years term has been signed on 27 October 2015 between Zorlu Doğal, Akbank TAŞ, Türkiye Garanti Bankası AŞ, Türkiye İş Bankası AŞ and Türkiye Sınai Kalkınma Bankası AŞ for refinancing of the existing debts and in order to use the investment in the Kızıldere III geothermal power plant, which is planned to be incorporated in Denizli, for financing.

In addition, Zorlu Doğal signed a loan agreement amounting to USD 190 million with the Avrupa İmar ve Kalkınma Bankası (European Bank for Reconstruction and Development “EBRD”), Akbank TAŞ, Türkiye İş Bankası AŞ and Türkiye Sınai Kalkınma Bankası AŞ on 6 April 2017 for the purpose of financing the second unit (65,5 MW) of the Kızıldere III Geothermal Energy Plant. Maturity of the loan that has been obtained is 13 years, with non-repayable period of 2 years. The total amount of loans obtained by Zorlu Doğal is USD 967 million and TL 76,8 million as of 31 December 2017. The amount remaining after the loan payments is USD 905 million and TL 76,8 million and does not contain the commission net off amounts and other adjustments, if any.

Zorlu Jeotermal Enerji Elektrik Üretimi AŞ, 100% owned affiliate of Zorlu Enerji, has been signed a long term loan agreement (14 years) on 25 November 2013 with Yapı Kredi A.Ş which will provide a und up to USD 113 million in order to finance the geothermal powerplant project with the capacity of 45 MW that will be established in Alaşehir, Manisa. After the capacity increase from 30 MW to 45 MW, pursuant to the material disclosure dated 24 June 2015, the loan amount was increased from USD 113 million to USD 148 million. In this respect, Zorlu Jeotermal has obtained USD 148 million as of 31 December 2017. The amount remaining after the loan payments is USD 124 million and does not contain the commission net off amounts and other adjustments, if any.

Pursuant to the material event disclosure dated 24 November 2014, Zorlu Rüzgar, which is 100% affiliate of the Zorlu Enerji Elektrik Üretim A.Ş, signed two loan agreements amounting to EUR 40 million with Türkiye Sınai Kalkınma Bankası and EUR 41,3 million with Bayerische Landesbank as a part of ECA financing with German Trade Finance Agency (Euler Hermes) contribution, in order to finance Sarıtepe and Demirciler wind power plant projects which are planned to established in Bahçe/Osmaniye and to have 80,3 MW

243 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.) installed capacity. Maturity of the loan that has been obtained from Türkiye Sınai Kalkınma Bankası is 12 years, with non-repayable period of 2 years and maturity of the loan that has been obtained from Bayerische Landesbank is 15,5 years, with non-repayable period of 1,5 years. Zorlu Rüzgar has obtained EUR 80,6 million as of 31 December 2017. The amount remaining after the loan payments is EUR 70,6 million and does not contain the commission net off amounts and other adjustments, if any.

In line with Zorlu Enerji’s strategy of long-term borrowing and creating new financial resources, a loan agreement with Canada’s Export Credit Institution Export Development Canada amounting to USD 100 million with a five-year term was signed on 22 December 2017. The loan will be used to meet the corporate and business capital needs of the Zorlu Enerji

Elektrik Üretim A.Ş. The whole loan amount has been obtained as of 31 December 2017. The amount does not contain the commission net off amounts and other adjustments, if any.

Korteks Mensucat Sanayi ve Ticaret A.Ş. has completed sale transaction of the floating rate bonds, with coupon paid every 3 months and the principal-paid at maturity, which have a due date of 450 days and a nominal value of TL 115.000 on 27 March 2017, with a due date of 268 days and a nominal value of TL 50.500 on 2 August 2017, with a due date of 546 days and a nominal value of TL 67.900 on 2 August 2017 and with a due date of 728 days and a nominal value of TL 42.000 on 28 March 2016 and with a due date of 730 days and a nominal value of TL 25.000 on 17 August 2016 and with a due date of 310 days and a nominal value of TL 22.800 on 20 November 2017, with a due date of 288 days and a nominal value of TL 6.630 on 12 December 2017, with a due date of 524 days and a nominal value of TL 32.430 on 12 December 2017, with a due date of 546 days and a nominal value of TL 40.000 on 20 November 2017.

Summary maturity schedule of total borrowings is given below:

USD EUR PKR TL (‘000) (‘000) (‘000) TL equivalent

31.12.2017 Due in one year 1.545.171 550.243 140.462 6.226.295 14.543.910 One to two years 1.097.497 130.794 719.674 690.007 5.444.670 Two to three years 564.373 79.585 -- 262.093 2.750.218 Three to four years 175.652 61.385 -- 32.455 972.181 Four to five years 145.804 64.293 -- 30.905 871.178 Over five years 443.131 168.093 -- -- 2.430.470

3.971.628 1.054.393 860.136 7.241.755 27.012.627

USD EUR PKR TL (‘000) (‘000) (‘000) TL equivalent

31.12.2016 Due in one year 1.542.945 234.234 147.236 3.006.298 9.310.143 One to two years 631.886 160.427 204.963 1.434.952 4.260.713 Two to three years 392.628 30.503 110.481 159.728 1.658.325 Three to four years 194.378 21.946 110.716 71.330 840.508 Four to five years 95.317 14.333 87.125 32.775 424.305 Over five years 374.869 52.263 346.888 68.978 1.593.718

3.232.023 513.706 1.007.409 4.774.061 18.087.712

244 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

20. PAYABLES FROM FINANCE SECTOR OPERATIONS

31.12.2017 31.12.2016

Current Borrowings received 179.434 103.402 Finance bonds 150.921 142.793

330.355 246.195

The interest rates of the spot TL loans vary between 15,30% and 17,30% (2016: 6,10% and 12,20%).

Zorlu Faktoring has completed sale transaction of eight finance bonds, which have a due date of 560 days and nominal value of TL 35.000, TL 6.300, due date of 532 days and nominal value of TL 32.500, TL 5.500, due date of 392 days and nominal value of TL 12.500 and due date of 364 days and nominal value of TL 35.000, TL 27.500, TL 23.700 respectively on 30 October 2017, 17 July 2017, 13 September 2017 and 31 March 2017.

21. TRADE PAYABLES

Current Trade payables - Third parties 7.276.944 5.036.752 - Related parties, note 32 101.386 33.946 Notes payables - Third parties 384 1.566 Other 10.742 11.085

7.389.456 5.083.349 Unearned interest on payables (-) - Third parties (15.319) (7.010) - Related parties, note 32 (516) (110)

7.373.621 5.076.229

Non-current

Third parties 1.959 6.229

245 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

22. OTHER LIABILITIES

31.12.2017 31.12.2016 Current Taxes payable 172.755 94.962 Other 347.176 125.206

519.931 220.168

Non-current Deposits received from natural gas customers 281.019 195.101 Deposits and guarantees received 17 95 Deferred income 99.725 99

380.761 195.295

23. PROVISION FOR EXPENSES

Current Provision for share of TRT -- 450 Legal claims 79.081 32.415 Warranty provisions 193.900 147.020 Provision for employee benefits 43.591 7.624 Other provisions 181.506 100.708

498.078 288.217

Non-current Warranty provisions 52.556 39.872 Other provisions 32.346 36.925

84.902 76.797

Movement of provisions is as follows:

01.01.- 01.01.- 31.12.2017 31.12.2016

Opening balance, 01.01 365.014 243.715 Additions 480.236 187.771 Disposals (-) (336.815) (66.472) Acquisition of subsidiary 74.545 --

Ending balance, 31.12 582.980 365.014

246 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

24. TAXATION ON INCOME a. Current taxation

In Turkey, the corporation tax rate on the profits for the calendar year 2017 is 22% (2016: 20%). Taxable profits are calculated by modifying accounting income for certain exclusions and allowances for tax purposes from the profit disclosed in the statutory income. No other taxes are paid unless profits are distributed.

In Turkey no taxes are withheld from undistributed profits, profits added to share capital (bonus shares) and dividends paid to other resident companies. Other than those, profits distributed in dividend to individuals and non-resident companies are subject to withholding at the rate of 15%.

In Turkey, the tax legislation does not permit a parent company and its affiliates to file a consolidated tax return. Therefore, provision for taxation charge, as reflected in the accompanying consolidated financial information, has been calculated on a separate-entity basis.

The exemption period granted on profits from the sale of investment shares and immovable property by Corporation Tax Law transitory articles No. 28 and 29 expired on 31 December 2004. However this exemption was re-enacted by Law No. 5281 on permanent basis in effect from 1 January 2005. Accordingly, 75% of profits from the sale of investments and immovables held for a minimum of two years will be tax exempt provided the sale proceeds are collected within two years and 75% of the profit is added to share capital or is kept in a special reserve account for a minimum of five years.

In Turkey companies were allowed to deduct 40% of the value of fixed assets (exceeding TL 6.000) purchased after 24 April 2003 (investment allowances) from their taxable profits as investment incentive. Such investment deduction is also not subject to income tax withholding. The investment deductions not used in any year because of insufficient profits may be carried to future periods. Investment allowances related to fixed assets purchased or to be purchased under Investment Incentive Certificates granted or applied for before 24 April 2003, may be based on up to 100% of the investment value in fixed assets, but these are subject to tax at 19,8%. Investment allowances have been cancelled as from 1 January 2006 but investment allowances earned prior to this date may be used up to 31 December 2008; any balance unused after this date may not be carried forward; if this option is exercised the balance of taxable profit after deduction of investment allowances is to be taxed at 30%.

Tax losses that are reported in the Corporation Tax in Turkey return may be carried forward and deducted from the corporation tax base for a maximum of five consecutive years.

The Turkish Tax Procedural Law does not include a procedure for formally agreeing tax assessments. Tax returns must be filed within three and half months of the year-end and may be subject to investigation, together with their underlying accounting records, by the tax authorities at any stage during the following five years.

A reconciliation of the Group’s tax provision on the financial position is as follows:

31.12.2017 31.12.2016

Corporation tax payable 67.559 37.925 Prepaid tax (10.579) (32.593)

56.980 5.332

Deferred tax assets (768.820) (420.114) Deferred tax liabilities 972.946 42.708

204.126 (377.406)

247 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.) b. Deferred taxation

The Group recognizes deferred tax assets and liabilities based upon temporary differences 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.

The composition of cumulative temporary differences and the related deferred tax assets/liabilities in respect of items for which deferred tax has been provided at the balance sheet dates using the expected future tax rates were as follows:

Deferred tax assets Deferred tax liabilities Net 31.12.2017 31.12.2016 31.12.2017 31.12.2016 31.12.2017 31.12.2016

Temporary differences arising from restating non- monetary assets 151.188 160.151 1.085.809 201.532 (934.621) (41.381) Employee termination benefits 39.508 26.668 -- -- 39.508 26.668 Provision for diminution in value of Inventories 3.627 3.071 -- -- 3.627 3.071 Provision for doubtful receivables 36.170 28.155 -- 303 36.170 27.852 Taxable losses carried forward 413.667 130.159 -- -- 413.667 130.159 Unearned interests, net 16.879 56.982 1.502 11.396 15.377 45.586 Interest swaps 1.768 2.978 -- -- 1.768 2.978 Forward expense accruals 62.444 46.397 101 341 62.343 46.056 Warranty expense 29.124 22.290 -- -- 29.124 22.290 Other 240.348 126.840 111.437 12.713 128.911 114.127

994.723 603.691 1.198.849 226.285 (204.126) 377.406

Net-off (-) (225.903) (183.577) (225.903) (183.577) -- --

Net deferred tax 768.820 420.114 972.946 42.708 (204.126) 377.406 assets/(liabilities)

248 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Movement of deferred tax liability is given below:

01.01.- 01.01.- 31.12.2017 31.12.2016

Opening balance, 01.01 377.406 177.962 Charge for the year 115.225 138.418 Actuarial gain/loss 2.509 837 Financial derivative instruments deferred tax effect due to cash flow hedging 106.750 63.287 Translation differences 7.982 (3.098) Acquisition of subsidiary (813.998) --

Ending balance, 31.12 (204.126) 377.406

25. EMPLOYEE TERMINATION BENEFITS

In accordance with existing social legislation in Turkey, the Group is required to make lump-sum termination indemnities to each eligible employee who has completed one year of service with the Group, and whose employment is terminated due to retirement or for reasons other than resignation or misconduct.

The amount of indemnity is the equivalent of one month’s salary for each year of service subject to a ceiling which is TL 4.732,48 as of 31.12.2017 (2016: TL 4.297,21) on historical cost basis.

In the accompanying consolidated financial statements, the Group reflected a liability for termination benefits based upon factors derived using their experience of personnel terminating their services and being eligible to receive retirement pay and discounted to present value at the balance sheet date by using average market yield, expected inflation rates and an appropriate discount rate (2017:4,67% - 2016:4,72 %).

The Group has no other obligation for employee termination other than the retirement pay above.

Movement of reserve for retirement pay is given below:

31.12.2017 31.12.2016

Opening balance, 01.01 150.135 133.971 Service cost 28.819 29.944 Actuarial gain/loss 11.404 4.186 Interest expense 18.477 13.140 Repayments (-) (31.486) (31.106) Consolidated of subsidiary 10.508 --

Ending balance, 31.12 187.857 150.135

Number of personnel employed at years end:

White goods and electronics 15.856 15.371 Textile 5.177 4.793 Energy 2.496 992 Holding 338 287 Other 638 96

24.505 21.539

249 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

26. EQUITY a) Share capital

As of financial position dates the paid-in capital of the Company is TL 3.325.000 consisting of 3.325.000.000 ordinary shares of par value TL 1 each.

The shareholders of the Company and their percentage shareholdings are as follows:

Shareholding percentage Shareholding amount 31.12.2017 31.12.2016 31.12.2017 31.12.2016

Zorlu Family 100% 100% 3.325.000 3.325.000 b) Adjustment to share capital (“inflation adjustment of share capital)

Adjustment to share capital (restated to 31.12.2004 purchasing power of money) is the difference between restated share capital and historical share capital.

31.12.2017 31.12.2016

Adjustment to share capital 446.109 446.109 c) Revaluation fund

Increases of carrying amounts as a result of revaluations recognised directly in the equity are followed in the headings below.

Revaluation of electric production rights -- 282.450 d) Hedging reserve

The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedges related to hedged transactions that have not yet affected profit or loss.

31.12.2017 31.12.2016

Hedging reserve (730.979) (237.650) e) Restricted reserves (“Legal reserves”)

The legal reserves consist of first and second legal reserves set aside out of profits in accordance with the Turkish

Commercial Code. The first legal reserve is appropriated out of the statutory profits at the rate of 5%, until the total reserve reaches a maximum of 20% of the Company’s share capital. The second legal reserve is appropriated at the rate of 10% of all distributions in excess of 5% of the Company’s share capital. The first and second legal reserves are not available for distribution unless they exceed 50% of the share capital, but may be used to absorb losses in the event that the general reserve is exhausted.

Legal reserves 181.068 200.331

250 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

27. GENERAL RESERVES

General reserves comprise legal reserves and retained earnings.

Under the Turkish Commercial Code, the Group is required to create the following legal reserves from appropriations of earnings, which are available for distribution only in the event of liquidation or losses:

• First legal reserve, appropriated at the rate of 5%, until the total reserve is equal to 20% of issued and fully paid up share capital. • Second legal reserve, apportioned at the rate of at least 10% of distributions in excess of 5% of issued share capital, without limit. It may be used to absorb losses.

28. COMMITMENTS AND CONTINGENCIES

Contingent assets

a. Obtained from customers and suppliers Letters of guarantee 2.864.638 745.932 Checks and notes 904.548 890.412 Mortgaged and guarantees received 2.244.067 2.073.786

Contingent liabilities a. Letters of guarantee, checks and notes given

On behalf of incorporated body 5.066.851 2.136.518 On behalf of consolidated subsidiaries 22.502.582 14.768.991 On behalf of other Zorlu Group of companies 133.360 73.125 On behalf of third parties 85.219 177.940

27.788.012 17.156.574

Details concerning the guarantees, pledges and mortgages that the Company and its affiliates gave within the scope of project financing loans and on behalf of their legal entities are given below:

As of 31 December 2017, Zorlu Holding A.Ş. guaranteed the bank loan amounting to USD 38.275 million and EUR 308,55 million and TL 141,95 million between Zorlu Yapı Yatırım A.Ş. and Akbank A.Ş.

As of 31 December 2017, Zorlu Holding A.Ş. guaranteed the bank loan amounting to USD 242 million between Zorlu Gayrimenkul Geliştirme ve Yatırım A.Ş. and Finansbank A.Ş.

Zorlu Holding is also guarantor for Zorlu Doğal’s loan obtained amounting to USD967 million and TL76.8 million, for Zorlu Jeotermal’s loan obtained from Yapı ve Kredi AŞ amounting USD148 million, for Rotor’s loan obtained from the consortium of several financial institutions amounting EUR130 million and for Zorlu Rüzgar’s loan obtained from Türkiye Sınai Kalkınma Bankası and Bayerische Landesbank amounting EUR80.6 million and for Zorlu Enerji’s loan obtained from Export Development Canada amounting to USD100 million.

As per the sale of the Lüleburgaz steam generator of Zorlu Enerji, a sell and lease-back financial leasing agreement was signed between Şeker Finansal Kiralama AŞ and Zorlu Enerji on 24 August 2017. Zorlu Holding is guarantor for the financial leasing liabilities of Zorlu Enerji resulted from sell and lease back agreement signed for the sale of steam generator. The receivables of Zorlu Enerji arising from the steam agreement with Zorluteks Tekstil Tic. ve San. AŞ (“Zorluteks”) were transferred to Şeker Finansal Kiralama A.Ş. in the scope of financial leasing transactions.

251 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Rotor has signed a long term loan agreement with the consortium of a group of financial institutions amounting to EUR 130 million as of 8 May 2009 related to the 135 MW electricity production powerplant located in Osmaniye. In addition to the loan agreement, mortgage, commercial enterprise pledge, share pledge, account pledge, assignment of receivables and assignment of insurance receivables agreements are signed. As per mortgage agreement signed between the Company and the Bank, a pledge amounts to EUR 130.000 thousand has placed on the property of the Company. As per commercial pledge agreement, a commercial pledge amounts to TL 119.654 has placed on Company’s fixed assets. Commercial enterprise pledge upper limit is EUR 235.000 thousand.

As of 26 October 2011, Zorlu Enerji Pakistan Ltd. affiliate of Zorlu Enerji, signed a long term loan agreement with International Finance Corporation (“IFC”), the Asian Development Bank (“ADB”), Eco Trade and Development Bank (“ECO”) and local consortium leader Habib Bank Limited (“HBL”) amounting USD 111 million with a maturity of up to 12 years for financing of its wind energy power plant with a capacity of 56,4 MW in Pakistan/Jhimpir established in Jhimpir, the Sindh region of Pakistan. In addition to the loan agreement, account pledge, share pledge, assignment of insurance receivables, pledge on deed, assignment of project rights and mortgage agreements are signed. As per mortgage agreement signed between Zorlu Enerji Pakistan and the Bank, a pledge amounts to USD 118.625 thousand and PKR 1.875.000 thousand has placed on the property of the Company.

On 27 October 2015, a loan agreement amounting to USD 815 million (USD 785 million in cash and USD 30 million in non-cash) and having a 14 years term has been signed on 27 October 2015 between Zorlu Doğal, Akbank TAŞ, Türkiye Garanti Bankası AŞ, Türkiye İş Bankası AŞ and Türkiye Sınai Kalkınma Bankası AŞ for the refinancing of its existing debts and for financing the investment in the Kızıldere III geothermal power plant, which is planned to be constructed in Denizli. In addition to the said loan agreement, account pledge, share pledge, assignment of receivables and assignment of shareholder receivables agreement are signed. In addition to the loan contract, they also signed contracts for an account pledge, a share pledge, the transfer of receivables and stakeholder receivables transfers. EPİAŞ’s receivable transfer amount cap in the scope of the transfer of receivables agreement is TL 9.500.000. Since EPİAŞ’s receivable transfer amount is the cap, it is not included in the collateral, pledges and mortgages given by the Company note.

The 14 year term loan agreement has been signed on 25 November 2013 between Zorlu Jeotermal and Yapı Kredi AŞ with a credit line up to USD 113.000 thousand in order to finance the project. Pursuant to the material disclosure dated 24 June 2015, the project capacity was increased to 45 MW. Hence, an amended loan agreement was signed between aforementioned parties and the credit line were increased to USD 148.000 thousand. In addition to the said loan agreement, account pledge, share pledge, assignment of receivables and assignment of shareholder receivables agreement are signed. In addition to the aforementioned credit agreement, account pledge, share pledge, consecutive lending and takeover contracts were signed. As per the Commercial Enterprise Pledge Contract, a commercial enterprise lien equal to TL 1.060.800 was granted. As per the transfer of receivables agreement, the cap for the receivable transfer amount of EPİAŞ was determined to be TL 2.155.000. Since the EPİAŞ receivable transfer amount is the cap, it is not included in the collateral, pledges and mortgages given by the Company note.

Pursuant to the material disclosure dated 24 November 2014, Zorlu Rüzgar, which is 100% affiliate of the Company, signed two loan agreements amounting to EUR 40 million with Türkiye Sınai Kalkınma Bankası and EUR 41.3 million with Bayerische Landesbank as a part of ECA financing with German Trade Finance Agency (Euler Hermes) contribution, in order to finance Sarıtepe and Demirciler wind power plant projects which are planned to established in Bahçe/Osmaniye and to have 80,3 MW installed capacity. In addition to the loan agreement, account pledge, share pledge, assignment of receivables, assignment of electricity production license, and commercial enterprise pledge agreements are signed. As per commercial pledge agreement, a commercial pledge amounts to TL 194 has placed on Company’s fixed assets. As per the transfer of receivables agreement, the cap for the EPİAŞ receivable transfer amount is TL 870.000. Since the EPİAŞ receivable transfer amount is the cap, it is not included in the collateral, pledges and mortgages given by the Company note.

The rest of the guarantee given amounting to TL 578.414 thousand consists of letters given to government agencies for the electricity transmission and distribution (mainly to EMRA and government agencies providing electricity transmission and distribution), to natural gas suppliers for the procurement of natural gas and to banks for the bank loans obtained.

Since Katılım Varlık Kiralama AŞ is the issuer and Zorlu Enerji is the beneficiary of the funds in the lease certificate transaction, which amounts to TL 200 million and was issued on 3 October 2017, Zorlu Enerji became the guarantor of Katılım Varlık Kiralama AŞ.

252 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

As per the final protocol between the Company and Dedeli, from which the Company took over the OEDAŞ and OEPSAŞ shares, the Company received an account pledge worth USD 7.300 thousand and a guarantee note amounting to TL 9.000. Dedeli has a compensation obligation up to TL 100.000 to the Group, which includes but is not limited to the related liens and guarantees.

As of the balance sheet date the Group has committed to realize exports amounting to USD 568.309 thousand (31 December 2016: USD 1.384.676 thousand) due to the export and investment incentive certificates obtained. b. Derivatives

As of 31 December 2017, the Group has entered in forward exchange contracts amounting to EUR 278.243 thousand, USD 1.732.108 thousand, GBP 17.803 thousand, CHF 104 thousand, PLN 17.514 thousand, RUB 82.891 thousand, RON 2.224 and TL 994.649, on a fixed amount EUR 871.551 thousand, USD 366.055 thousand, GBP 97.710 thousand, CHF 1.000 thousand, RUB 1.218.572 thousand, RON 12.825, PLN 187.881, SEK 16.143 and TL 3.115.150.

29. NATURE OF EXPENSES

Nature of expenses consists of cost of sales, selling, general and administrative expenses.

01.01.- 01.01.- 31.12.2017 31.12.2016

Direct materials and merchandise expenses 12.928.351 8.835.893 Changes in inventories 304.289 (19.892) Personnel expenses 1.471.187 1.149.777 Depreciation and amortisation expense 730.195 601.094 Warranty expenses 301.420 290.362 Freight and freight insurance 327.720 193.984 Outsourcing expenses 212.141 169.999 Energy expenses 173.479 117.152 Advertising expenses 199.803 102.029 Repair and maintenance expenses 123.732 62.564 Export commissions 102.904 89.091 Office expenses 69.055 77.913 Exhibition expenses 38.304 27.051 Other 1.443.808 1.137.128

18.426.388 12.834.145

253 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

30. OTHER INCOME AND OTHER EXPENSE

01.01.- 01.01.- 31.12.2017 31.12.2016

Profit on sale of property, plant and equipment 225.515 14.928 Income on insurance claims 50.294 3.432 Interest income from distribution activities (*) 60.326 -- Provisions released 37.009 17.224 Tax income 33.222 -- Scrap sales income 2.162 678 Other 160.244 84.343

Other income 568.772 120.605

Provision expense 71.909 33.785 Loss on sale of property, plant and equipment 27.229 6.756 Loss on sale of investment 51.840 54 Idle capacity depreciation expenses 4.671 11.591 Depreciation of service concession arrangements 42.626 -- Expenses for project license cancelation (**) 45.894 -- Accretion of interest on deposits received 18.106 -- Other 89.572 37.585

Other expense 351.847 89.771

(*) Interest income arising from distribution activities is related to the revenue cap regulation. (**) The amount relates to termination of Zorlu Hidroelektrik’s Sami Soydam project license.

31. FINANCING INCOME AND FINANCING EXPENSE

Foreign exchange gain 3.608.056 3.985.489 Profit on derivative financial instruments -- 20.466 Interest income 557.400 758.236 Unearned interest on payables 22.832 29.128 Dividend income 1.147 20.160

Financing income 4.189.435 4.813.479

Foreign exchange loss 4.284.391 5.005.707 Interest expense 1.986.681 1.388.695 Loss on derivative financial instruments 179.458 -- Bank commission expenses 86.526 56.587 Unearned interest on receivables 31.323 23.684 Other financial expenses 201.125 42.499

Financing expense 6.769.504 6.517.172

254 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

32. RELATED PARTY DISCLOSURE

These comprised the following:

The significant balances with related parties at period end are shown below:

Trade Other Prepaid Trade Deferred Other 31.12.2017 receivables receivables expenses payables income payables

Current Zorlu USA Inc. 87.563 ------Zorlu Hometeks A.Ş. 244 -- -- 3.002 -- 58 Zorlu Gayrimenkul Geliştirme ve Yatırım A.Ş. 553 360.116 26 2.591 -- -- Arzum Tekstil Pazarlama ve Ticaret A.Ş. 21.953 ------Sichuan Zorluteks Yınhua Co. Ltd. ------33.364 -- -- Meta Nikel Kobalt A.Ş 3.628 109.703 30.146 26 -- -- Dorad Energy Ltd -- 38.185 ------Edeltech Ltd. -- 18.043 -- 42.692 -- -- Edelcom Ltd. -- 594 ------Ashdod Energy Ltd. 34.097 ------Zorlu OM Pakistan 4.499 10.023 ------10.700 UTS- United Technical Services, Spol S.R.O. 16.551 ------Zorlu Grand Hotel İşletmeleri A.Ş. 251 -- -- 29 -- 370 Vestel Elektronica S.R.L. 9.764 -- -- 7 -- -- Ramat Negev Energy Ltd. 27.396 ------Ezom Ltd. 81.163 ------Zorlu Tesis Yönetim A.Ş. 3.182 -- -- 7.944 -- -- Vestel Ventures Ar-ge A.Ş. 40 ------9.295 Meta Madencilik Enerji Turizm Danışmanlık Sanayi ve Ticaret A.Ş. ------28.622 Zehra Ev Tekstil Ürünleri Konfeksiyon Sanayi ve Ticaret A.Ş. ------9.738 -- -- Other related parties 14.011 2.006 22 1.993 52 24.998

304.895 538.670 30.194 101.386 52 74.043

Unearned interest (-) (1.991) -- -- (516) -- --

302.904 538.670 30.194 100.870 52 74.043

255 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Trade Other Prepaid Trade Deferred Other 31.12.2017 receivables receivables expenses payables income payables

Non-current Edeltech Ltd. -- 62.830 ------Dorad Energy Ltd. -- 12.027 ------Zorlu Grand Hotel İşletmeleri A.Ş. -- 57.285 ------Ezotech Ltd. -- 105.139 ------Meta Nikel Kobalt A.Ş -- 1.258.009 ------Vestel Savunma Sanayi A.Ş. -- 206.258 ------Passtel Gıda Ve İht. Mad. Paz. İnş. Muh. Tur. San ve Ticaret A.Ş. -- 53.865 ------Zorlu Gayrimenkul Otelcilik İnşaat Taahhüt ve Turizm A.Ş. -- 205.022 ------Meta Madencilik Enerji Turizm Danışmanlık Sanayi ve Ticaret A.Ş. -- 6.586 ------Zehra Ev Tekstil Ürünleri Kon. San. Ve Tıc. A.Ş. ------7.280 Other related parties -- 9.659 ------169.632

-- 1.976.680 ------176.912

Unearned interest (-) ------

-- 1.976.680 ------176.912

256 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Trade Other Prepaid Trade Deferred Other 31.12.2016 receivables receivables expenses payables income payables

Current Zorlu USA Inc. 88.744 ------Zorlu Hometeks A.Ş. 53 -- 9.205 -- -- 13.067 Zorlu Yapı Yatırım A.Ş. 821 2.881.557 -- 349 -- -- Zorlu Gayrimenkul Geliştirme ve Yatırım A.Ş. -- 266.209 -- 136 -- -- Zorlu Gayrimenkul Otelcilik İnşaat Taahhüt ve Turizm A.Ş. 5 163.043 ------Sichuan Zorluteks Yınhua Co. Ltd. ------22.297 -- -- Meta Nikel Kobalt Madencilik Sanayi ve Ticaret A.Ş. 1.951 958.063 13.457 ------Edeltech Ltd. 44.603 ------Zorlu O/M Pakistan 5.176 12.137 ------UTS- United Technical Services, Spol S.R.O. 13.915 ------Vestel Elektronica S.R.L. 8.341 ------Other related parties 144.541 205.800 23.554 11.164 31 64.655

308.150 4.486.809 46.216 33.946 31 77.722

Unearned interest (-) (1.211) -- -- (110) -- --

306.939 4.486.809 46.216 33.836 31 77.722

Trade Other Prepaid Trade Deferred Other 31.12.2016 receivables receivables expenses payables income payables

Non-current Dorad Energy Ltd. -- 36.088 ------Solad Energy Ltd. -- 8.116 ------Ezotech Ltd. -- 97.452 ------Edeltech Ltd. -- 68.935 ------Other related parties 4.501 9.374 ------175.152

4.501 219.965 ------175.152

Unearned interest (-) (169) ------

4.332 219.965 ------175.152

257 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

33. FINANCIAL INSTRUMENTS

Credit risk

The Group’s exposure to credit risk is limited to the carrying amount of financial assets recognized at the balance sheet date.

Credit risk concerns the risk that a loss will be suffered by a party due to the reason that the other party to the transaction is unable to meet its obligations.

The Group continuously monitors defaults of customers and other counterparties, identified either individually or by group, and incorporates this information into its credit risk controls. Where available at reasonable cost, external credit ratings and/or reports on customers and other counterparties are obtained and used. The Group’s policy is to deal only with creditworthy counterparties.

The Group management considers that all the financial assets shown above under paragraph liquidity risk that are not impaired for each of the reporting dates under review are of good credit quality.

In respect of trade and other receivables, the Group is not exposed to any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk for liquid funds and other short-term financial assets is considered negligible, since the counterparties are reputable banks with high quality external credit ratings.

258 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

As of financial position dates, the Group’s exposure to credit risk is as summarised below:

Receivables Trade receivables Other receivables Related Third Related Third Factoring Bank Derivative 31.12.2017 Parties parties parties parties receivables amounts instruments Other

A. Carrying amount of financial assets that are not overdue and not impaired 285.013 3.823.679 2.515.350 418.856 283.376 2.848.976 46.798 145.331 B. Financial assets with renegotiated conditions -- 72.217 ------C. Carrying amount of assets that are overdue but not impaired 17.891 634.520 ------Carrying amount secured with collateral -- (380.342) ------D. Carrying amount of assets that are impaired -- 3.850 ------Overdue (gross carrying amount) -- 331.644 -- 97.654 13.362 ------Impairment -- (327.794) -- (97.654) (13.362) ------Carrying amount secured with collateral -- (3.850) ------

Total risk as of 31.12.2017 302.904 4.534.266 2.515.350 418.856 283.376 2.848.976 46.798 145.331

259 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Receivables Trade receivables Other receivables Related Third Related Third Factoring Bank Derivative 31.12.2016 Parties parties parties parties receivables Amounts instruments Other

A. Carrying amount of financial assets that are not overdue and not impaired 311.271 2.681.931 4.706.774 304.482 177.670 3.446.738 173.506 366.478 B. Financial assets with renegotiated conditions -- 128.776 ------C. Carrying amount of assets that are overdue but not impaired -- 482.164 ------Carrying amount secured with collateral -- (155.873) ------D. Carrying amount of assets that are impaired -- 12.578 ------Overdue (gross carrying amount) -- 243.562 -- 89.376 11.600 ------Impairment -- (230.984) -- (89.376) (11.600) ------Carrying amount secured with collateral -- (12.578) ------

Total risk as of 31.12.2016 311.271 3.305.449 4.706.774 304.482 177.670 3.446.738 173.506 366.478

While measuring the maximum credit risk exposed, guarantees which increase the credibility of the Group are not taken into consideration.

Foreign currency risk

The majority of the Group’s transactions are carried out in Euros and US Dollars. Exposure to currency exchange rates arise from the Group’s bank loans and due to related parties which are primarily denominated in US Dollars and Euros.

Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

The Group manages its currency exposure risk by organizing a balanced distribution between its foreign currency assets and commitments and by matching off the liabilities and receivables and its net currency position.

260 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The net currency position of the Group as of 31.12.2017 and 31.12.2016 are shown below:

Other currencies Total TL TL 31.12.2017 USD EUR GBP CHF equivalent equivalent

Cash and cash equivalents 189.580 30.955 8 8 73.465 928.391 Investment securities 197.389 ------744.532 Trade receivables and other assets 937.589 317.020 1.303 947 295.584 5.273.850

Total foreign currency assets 1.324.558 347.975 1.311 955 369.049 6.946.773

Trade payables and other liabilities 1.418.543 105.782 9 22 48.230 5.876.621 Current borrowings 1.566.741 554.232 -- -- 4.763 8.416.986 Non-current borrowings 2.483.916 515.489 -- -- 24.411 11.721.189

Total foreign currency liabilities 5.469.200 1.175.503 9 22 77.404 26.014.796

Derivatives Assets 1.732.108 278.243 17.803 104 26.519 7.907.108 Liabilities (366.055) (871.551) (97.710) (1.000) (302.653) (6.119.113)

1.366.053 (593.308) (79.907) (896) (276.134) 1.787.995

Net foreign currency position (2.778.589) (1.420.836) (78.605) 37 15.511 (17.280.028)

Import 2.075.310 221.713 20 2.995 1.475 8.494.458

Export 781.800 1.265.460 7.408 835 648.405 9.384.599

261 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Other currencies Total TL TL 31.12.2016 USD EUR GBP CHF equivalent equivalent

Cash and cash equivalents 945.928 10.462 8 77.642 54.618 3.689.883 Investment securities 174.314 ------613.446 Trade receivables and other assets 1.360.510 303.150 1.088 3.023 313.047 6.240.724

Total foreign currency assets 2.480.752 313.612 1.096 80.665 367.665 10.544.053

Trade payables and other liabilities 1.043.810 84.186 17 12.342 16.117 4.044.411 Current borrowings 1.549.602 235.321 -- -- 4.928 6.331.305 Non-current borrowings 1.713.112 281.728 -- -- 28.790 7.102.756

Total foreign currency liabilities 4.306.524 601.235 17 12.342 49.835 17.478.472

Derivatives Assets 1.296.145 398.335 49.227 178.366 87.935 6.954.259 Liabilities (1.016.871) (536.456) (83.445) (178.600) (141.067) (6.685.576)

279.274 (138.121) (34.218) (234) (53.132) 268.683

Net foreign currency position (1.546.498) (425.744) (33.139) 68.089 264.698 (6.665.736)

Import 1.481.160 191.287 1 278 1.078 5.135.394

Export 775.204 1.099.274 7.182 1.138 250.356 7.009.262

On basis of the above an increase of 10% in the foreign exchange rates against the Turkish Lira as of 31 December 2017 will amount to a loss of TL 1.764.496 (31 December 2016: TL 211.798) and a decrease will amount to profit of the same amount.

Interest rate risk

Interest rate risk arises because changes in interest rates may affect profitability as disclosed in financial statements.

The Group is subject to interest rate risk as a result of differences in balancing off the dates or timing differences related to assets and liabilities maturing or to be subjected to price revision. The Group manages its interest rate risk by applying risk management strategies whereby its strives to balance off the dates of changes in interest rates related to assets and liabilities.

262 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The Group’s interest rate position is as follows:

31.12.2017 31.12.2016

Fixed interest rate financial instruments Financial assets-time deposits - Time deposits 2.889.282 2.909.819 Financial liabilities - Borrowings 20.277.872 9.311.294 -Payables of factoring sector operations 330.355 246.195

Variable interest rate financial instruments Financial liabilities - Borrowings 7.131.098 8.896.828

As of balance sheet dates, the Group’s annual effective interest rates are as follows:

2017 (%) USD EUR GBP TL

Assets Cash and cash equivalents 3,7% 0,1% -- 14,5% Trade receivables 1,6% 0,0% 0,5% 13,9%

Liabilities Borrowings 6,1% 5,1% -- 17,1% Trade payables 0,8% 0,0% 0,4% 14,0%

2016 (%) USD EUR GBP TL

Assets Cash and cash equivalents 2,9% 0,3% 3,9% 10,3% Trade receivables 0,2% 0,2% -- 10,5%

Liabilities Borrowings 6,1% 6,4% -- 12,9% Trade payables 0,2% -- -- 10,5%

As of 31.12.2017, if the variable interest rates of bank borrowing increased or decreased of +1% and -1% and if all other variables are held constant the result before tax would have been influenced favourably or unfavourably by TL 44.404 (31.12.2016: TL 41.764) for an increase and for a decrease in value of TL.

Liquidity risk

Liquidity risk comprises the risk that the Group becomes unable to find its payment requirements.

The Group manages its liquidity needs by carefully monitoring scheduled debt servicing payments for long-term financial liabilities as well as cash-outflows due in day-to-day business. Liquidity needs are monitored in various time bands, on a day-to-day and week-to-week basis, as well as on the basis of a rolling 30 day projection. Long-term liquidity needs for a 180 day and 360 day lookout period are identified monthly.

263 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The breakdown of liabilities according to their contractual maturity is based on the maturity dates from the date of the balance sheet is given below:

Total cash Within 3 3 to 12 1 to 5 Over 5 31.12.2017 Book value out flow months months years years

Contractual maturities Bank loans 26.060.851 29.884.616 5.657.388 8.974.557 11.490.140 3.762.531 Bond issued 951.776 1.004.597 114.928 488.115 401.554 -- Payables from finance sector operations 330.233 330.233 111.710 218.523 -- -- Financial lease liabilities 396.343 413.283 26.383 77.593 283.489 25.818

27.739.203 31.632.729 5.910.409 9.758.788 12.175.183 3.788.349

Expected maturities Trade payables 7.375.580 7.396.268 4.187.671 3.171.351 37.246 -- Other payables 564.021 564.021 359.495 -- 204.526 -- Other liabilities 900.691 900.691 519.136 794 380.761 --

8.840.292 8.860.980 5.066.302 3.172.145 622.533 --

Derivative cash inflow -- 12.676.108 6.211.620 1.943.950 2.193.408 2.327.130 Derivative cash outflow -- (12.968.475) (6.359.301) (1.972.749) (2.309.295) (2.327.130)

Derivative financial liabilities (292.350) (292.367) (147.681) (28.799) (115.887) --

264 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Total cash Within 3 3 to 12 1 to 5 Over 5 31.12.2016 Book value out flow months months years years

Contractual maturities Bank loans 17.280.131 18.633.780 2.371.570 4.824.410 8.347.642 3.090.158 Bond issued 807.581 880.543 264.090 315.164 301.289 -- Finance sector operations 246.195 251.860 128.289 123.571 -- -- Financial lease liabilities 120.410 127.035 5.442 14.382 79.777 27.434

18.454.317 19.893.218 2.769.391 5.277.527 8.728.708 3.117.592

Expected maturities Trade payables 5.082.458 5.089.578 3.183.915 1.905.663 -- -- Other payables 302.516 302.516 28.540 98.321 175.655 -- Other liabilities 415.463 415.463 220.168 -- 195.295 --

5.800.437 5.807.557 3.432.623 2.003.984 370.950 --

Derivative cash inflow -- 10.066.259 6.312.018 2.889.528 336.833 527.880 Derivative cash outflow -- (10.147.887) (6.376.027) (2.891.349) (352.631) (527.880)

Derivative financial liabilities 196.652 (81.628) (64.009) (1.821) (15.798) --

However expected maturities may differ from contractual liabilities in response to changes in term that may occur in the ordinary course of business.

Capital risk management

The Group’s capital management objectives are:

• ensure the Group’s ability to continue as a going concern; and • to provide an adequate return to shareholders, by pricing products and services commensurately with the level of risk.

The Group monitors capital on the basis of the carrying amount of equity plus its total of current and non current borrowings (net debt) less cash and cash equivalents as presented on the face of the consolidated balance sheet.

The Group sets the amounts of capital in proportion to its overall financing structure i.e. equity and financial liabilities. The Group manages the capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of the underlying assets. In order to maintain or adjust the capital structure the Group may adjust the amount of dividends paid the shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

265 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

The Group’s net debt to overall or financing ratio developed as follows:

31.12.2017 31.12.2016

Total borrowings, note 19 27.408.970 18.208.122 Less: Cash and cash equivalents, note 6 (2.994.307) (3.813.216) Less: Investment securities (741.701) (616.170)

Net debt 23.672.962 13.778.736 Total equity 3.798.375 4.582.657

Overall financing 27.471.337 18.361.393

Net debt to overall financing ratio 86% 75%

Fair value of financial instruments

Fair value is the amount at which a financial instrument could be exchanged in a current transaction between willing parties, other than in a forced sale or liquidation, and is best evidenced by a quoted market price, if one exists.

The estimated fair values of financial instruments have been determined by the Group using available market information, management’s judgment and appropriate valuation methodologies. The following disclosure of the estimated fair value of financial instruments is made with the requirements of IAS 32. To the extent relevant and reliable information is available from the financial markets in Turkey; the fair value of the financial instruments of the Group is based on such market data. The fair values of the remaining financial instruments of the Group can only be estimated. The estimates presented herein are not necessarily indicative of the amounts the Group could realize in a current market exchange.

The following methods and assumptions were used to estimate the fair value of the Group’s financial instruments:

Financial assets

Monetary assets for which fair value approximates carrying value:

• Balances denominated in foreign currencies are translated at year-end exchange rates. The fair value of certain financial assets carried at cost, including cash and due from banks, marketable securities plus the respective accrued interest are considered to approximate their respective carrying values. • The carrying value of the trade receivables net of provisions for uncollectible are considered to approximate their fair values.

Financial liabilities

Monetary liabilities for which fair value approximates carrying value:

• The fair values of short-term bank loans and other monetary liabilities are considered to approximate their respective carrying values due to their short-term nature. • The fair values of long-term bank borrowings which are denominated in foreign currencies and translated at year-end exchange rates are considered to approximate their carrying values.

266 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

34. POST BALANCE SHEET EVENTS

Pursuant to material event disclosure dated 2 January 2018, the first coupon payment of ISIN Code of TRDKTLME1815 TL 100.000 nominally valued, sold to qualified investors without being offered to the public Company lease certificate, amounting to TL 3.989 and the first coupon payment of TRDKTLME1914 coded nominally valued TL 100.000 nominally valued sold to qualified investors without being offered to the public lease certificate amounting to TL 4.142 was paid as of 2 January 2018.

Pursuant to material event disclosure dated 9 January 2018, the Company may disclose to the Capital Markets Board any qualified investors of up to 5 years, in Turkish liras, domestically, one or more times within one year following the issuance of the issuance document the Capital Markets Board (CMB) was informed that the issuance of the debt instruments would be in the form of a total export limit of TL 300.000 and it was accepted by the CMB in a positive manner and the said decision was dated 8 January 2018 and numbered 2018/1 Announced in CMB bulletin.

Pursuant to material event disclosure dated 15 January 2018, at its meeting on 15 January 2018, Zorlu Enerji’s Board of Directors resolved to merge Zorlu Enerji Elektrik Üretim AŞ with its fully owned affiliate Zorlu Hidroelektrik Enerji Üretim AŞ (“Zorlu Hidroelektrik”). The merger will be realized in accordance with the related articles of the Capital Market Law, Turkish Commercial Code and Corporate Tax Law and will be through a facilitated procedure as Zorlu Enerji owns all of the voting rights in Zorlu Hidroelektrik. The merger will be based on the companies’ interim financial statements dated 30 September 2017.

Pursuant to material event disclosure dated 16 January 2018, Zorlu Enerji applied to EMRA for the approval of the facilitated merger with its fully owned affiliate, Zorlu Hidroelektrik Enerji Üretim AŞ.

Pursuant to material event disclosure dated 16 January 2018, Zorlu Jeotermal Enerji Elektrik Üretimi AŞ, Zorlu Enerji’s fully owned affiliate, applied to EMRA to amend the generation license of its Alaşehir II GPP Project, for increasing the project’s installed capacity from 24,9 MW to 45 MW. To be developed in Manisa, Alaşehir, Alaşehir II GEP is planned to be realized as two units each with an installed capacity of 22,5 MW, based on the findings of the recent resource exploration activities.

Corporate bond with the ISIN Code of TRSZORN11811 was redeemed as of 30 January 2018 with the completion of the eighth coupon payment amounting TL 2.247 and principal payment of TL 54.000.

Pursuant to material event disclosure dated 30 January 2018, the Capital Markets Board had approved the Company’s application to issue debt instruments up a nominal value of up to TL300 million and with a maturity of 5 years for sale in single or multiple tranches to qualified investors in the domestic market. Within this scope, the Company completed the sale of a TL 139.000 floating rate corporate bond with a maturity of 540 days to domestic qualified investors on 30 January 2018. Ak Yatırım Menkul Değerler AŞ has acted as the financial intermediary for the issue.

Pursuant to material event disclosure 8 February 2018, partnership talks, which have been initiated on the basis of the Letter of Intent signed between Zorlu Enerji and Jerusalem District Electricity Company (“JDECO”) for the development, construction and operation of solar and/or wind power plants in Palestine, have been finalized. Accordingly, a Joint Venture Agreement is signed between the Company and Sharekat Kahrabaa Mohavazat AL-Quds AL-Urdineyyah (“Sharekat”), which is owned by JDECO’s shareholders under the same shareholding structure as JDECO. As per the afore-mentioned agreement, a new joint venture company, in which Zorlu Enerji and Sharekat will have 75% and 25% stakes respectively, will be established. Under the agreement, solar power plants will be built in different regions of Palestine to meet the electricity demand from solar power, which will initially start with an installed capacity of 30 MW, and will reach up to 100 MW.

It was decided that the Company will participate in a company entitled “Zorlu Enerji Asia Limited”, to be founded in the Dubai International Financial Centre free trade zone, as the sole founding partner with capital amounting to USD 50 thousand.

Rehabilitation work performed on İkizdere Regulator and Hydroelectric Power Plant, located in the İkizdere district of Rize and owned by the Company’s 100% affiliate Zorlu Doğal, to increase installed power from 18,6 MW to 24,94 MW was completed, and the power plant was approved by the ministry on 2 March 2018. The power plant started commercial production on 3 March 2018.

267 Zorlu Holding A.Ş. Zorlu Holding 2017 Annual Report Notes to Consolidated Financial Statements for the Year Ended 31 December 2017 (All amounts in thousands of Turkish Lira (“TL”) unless indicated otherwise.)

Application was made to the Capital Markets Board and EMRA on 7 March 2018 for the issuance of a lease certificate with maximum maturity of 5 years and for up to TL 300.000, to be sold through private placement and/or to qualified investors without a public offering.

Pursuant to material event disclosure dated 15 March 2018, the second unit with a power of 65,5 MW of Kızıldere III Geothermal Power Plant with the total installed power of 165 MW built by Zorlu Doğal in Kızıldere-Gökgedik within the provincial borders of Denizli and Aydın has been temporarily approved by the Ministry of Energy and the power plant has started to operate with its full capacity as of 16 March 2018.

Pursuant to material event disclosure dated 16 March 2018, it was announced that Zorlu Jeotermal applied to EMRA to modify the installed power of 24,9MW as 45 MW stated in the production licence of Alaşehir II Geothermal Power Plant project planned to be built by Zorlu Jeotermal in Alaşehir district of Manisa province. Referring to the positive results of the well tests and meetings with the main equipment suppliers, a second application was filed to the EMRA on 26 March 2018 in order to modify the installed power as a total of 50 MW consisting of two units of 25 MW each, in the production licence.

Pursuant to material event disclosure dated 26 March 2018, an application was filed to the EMRA on 26 March 2018 in order to modify the installed power of 50 MW as 30 MW in the pre-licence of the Alaşehir III Geothermal Power Plant project planned to be built by Zorlu Jeotermal in Alaşehir district of Manisa province. The reasons for this application are as follows: As a result of the resource exploration activities, the resource temperature of the project is found out to be lower than estimated and there is a downward trend in the pressure and flow rate of the geothermal resource considering the geothermal power plants installed and planned to be installed in the neighbouring licence areas.

Pursuant to material event disclosure dated 27 March 2018, the Company was extended a consecutive loan with five year maturity in the total amount of USD 250.000 thousand within the scope of the terms of the loan facility agreement our company signed with Kuwait Investment Agency (“KIA”) with the intermediation of Wren House Infrastructure Management Limited that is directly affiliated with KIA and invests in infrastructure projects. The loan, which is the subject of the agreement signed between the parties on 15 March 2018, will be used in line with our company’s strategy of long term borrowing and new financial resource creation. Referring to the loan agreement, public announcement within the scope of Article 6 of the Material Events Communique of the Capital Markets Board, is postponed until loan usage date with the decision of the Board of Directors. The decision to postpone the announcement was made as the loan usage depends on the fulfilment of the terms in the loan agreement and as it is not certain at the date of signing the agreement, whether the loan will be used or not. This statement is made as the reason for postponement no longer exists and the loan has been used.

Pursuant to material event disclosure dated 7 March 2018, the application made to the Capital Markets Board for the issuance of lease certificate based on management contract with maximum maturity of five years and for up to TL 300.000, to be sold via private placement and/or to qualified investors without a public offering was approved on 2 April 2018 by the Board.

As of 3 April 2018, the Company has made a premium payment of TL 3.989 for the second coupon payment period of the lease certificate with the code TRDKTLME1815 ISIN, with a maturity of 364 days and with a nominal value of TL 100.000 as well as a premium payment of TL 4.482.000 for the second coupon payment period of the lease certificate with the code TRDKTLME1914 ISIN, with a maturity of 728 days and with a nominal value of TL 100.000 whose sales to qualified investors were completed on 3 October 2017.

At its meeting on February 27, 2018, the Company’s Board of Directors decided to apply the Capital Markets Board for the issuance of up to 350.000 TL of debt instruments in single or multiple tranches with varying maturities of up to 5 years. The instruments will be sold to qualified investors in the domestic market.

268 Contact Information

Levent 199, Büyükdere Cad. No. 199 34394 Şişli-İstanbul

Tel: +90 (212) 456 20 00 Faks: +90 (212) 422 00 49

www.zorlu.com For Information: [email protected]

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