Tofaş 2017 Annual Report CONTENTS
Tofaş at a Glance CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND 4 About Tofaş OTHER ISSUES 5 Our Vision 90 Agenda of the Ordinary General Assembly Meeting 5 Our Mission 91 Information on the Capital Structure and Shareholding 6 Key Financial and Operational Highlights of the Company 8 Institutional Investor Relations 93 Declaration of Corporate Governance Principles and 10 Tofaş In 2017 Compliance Report 14 Awards and Recognitions 113 Activities of the Early Detection of Risk and Risk Management Committee Management 116 Affiliated Company Report 20 Chairman’s Message 117 Independent Auditor’s Report on the Eary 22 Board of Directors Identification of the Risk Committee and System 26 Ceo’s Assessment 118 Remuneration Policy for Top-Level Managers and 28 Senior Management Members of the Board of Directors 119 Dividends Distribution Policy Activities 120 2017 Profit Distribution Proposal 36 The Turkish Automotive Sector And Tofaş’s Position In 121 2017 Dividend Distribution Table The Sector 122 Independent Auditor’s Report on the Board of 44 Brands & Products Directors’ Annual Report 51 Dealership Network 53 Subsidiaries Financial Information 58 Research & Development 124 Consolidated Financial Statements Together with 61 Quality Management Independent Auditor’s Report 62 Human Resources
Sustainability 68 Corporate Sustainability Policy 76 Environment 79 Climate Change 80 Occupational Health & Safety 82 Supply Chain Management 86 Customer Satisfaction Policy 87 Tofaş Code of Ethics And Anti-Corruption Policy A YEAR FULL OF MANY RECORDS TOFAŞ SET NEW RECORDS IN 2017 WITH THE PRODUCTION OF 384 THOUSAND VEHICLES AND BY REGISTERING ALL TIME HIGH RESULTS IN ALL OF ITS P&L ITEMS.
1 TURKEY’S THIRD LARGEST INDUSTRIAL ENTERPRISE TURKEY’S ONLY AUTOMOTIVE MANUFACTURER THAT PRODUCES BOTH PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES, TOFAŞ IS TURKEY’S THIRD LARGEST ENTERPRISE.
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ABOUT TOFAŞ TOFAŞ IS THE ONLY AUTOMOTIVE MANUFACTURER IN TURKEY THAT PRODUCES BOTH PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES. Founded in 1968, Tofaş is the only company in Turkey that manufactures both passenger cars and light commercial vehicles. WITH AN ANNUAL PRODUCTION Tofaş is a Koç Holding and Fiat Chrysler Automobiles (FCA) partnership in which each controls an equal CAPACITY OF 450 THOUSAND stake. With 24.3% of its capital publicly-traded, VEHICLES AND WITH NEARLY 10 Tofaş’s shares are included in both the Borsa İstanbul BIST 30 and the BIST 100 indexes as well as THOUSAND EMPLOYEES, TOFAŞ in that exchange’s Corporate Governance Index and IS TURKEY’S THIRD LARGEST Sustainability indexes. Tofaş’s shares are also quoted on the Luxembourg Stock Exchange (LuxSE). INDUSTRIAL ENTERPRISE. TURKEY’S THIRD BIGGEST INDUSTRIAL ENTERPRISE With an annual production capacity of 450 thousand vehicles and with nearly 10 thousand employees, Tofaş is Turkey’s third biggest industrial enterprise. Headquartered in İstanbul, the company continues to enhance its competitive strength through investments while carrying out its manufacturing operations at its Bursa plant occupying about 1,000,000 m2 of grounds.
One of the important strategic production facilities of Fiat Chrysler Automobiles around the world, Tofaş is also the second biggest R&D center in Europe.
Tofaş manufactures Fiat Egea Sedan, Hatchback, and Station Wagon models at its Bursa plant. Marketed under different marque and model names in different parts of the world, Tofaş’s Egea line is sold as “Fiat Tipo” in Europe and as “Dodge Neon” in Mexico. Besides manufacturing for Fiat, Opel, Vauxhall, and RAM under its New Doblò Project, Tofaş is also a distributor, handling the domestic sales of seven marques (Fiat, Fiat Professional, Alfa Romeo, Jeep, Lancia, Maserati, Ferrari) in Turkey.
4 Tofaş 2017 Annual Report Tofaş at a Glance Management Activities Sustainability OUR VISION OUR MISSION
TOWARDS ONE MILLION VEHICLES PER ANNUM… To improve people’s quality of life by providing them with the products and To be a leading automotive company that shapes services that best suit society’s need for customer expectations and is a source of pride mobility Corporate Governance Financial Information
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KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS
IN 2017 TOFAŞ FURTHER STRENGTHENED ITS AUTOMOTIVE INDUSTRY POSITION WITH TL 17.5 BILLION IN SALES REVENUES AND A 12.8% DOMESTIC MARKET SHARE.
Operational Highlights 2016 2017
Export Sales (TL thousand) 9,839,301 11,887,628 Domestic Sales (TL thousand) 4,291,021 5,409,421 Other Income from Operational Activities (TL thousand) 105,629 170,757 Cumulative Production Volume (units) 383,491 384,174 Sales (units) 392,027 393,567
Financial Highlights (TL thousand) 2016 2017
Total Assets 11,848,173 13,875,148 Shareholders’ Equity 2,957,451 3,583,037 Sales Revenues 14,235,951 17,467,806 EBITDA 1,366,148 2,002,064 Profit Before Tax 797,936 1,229,472 Net Profit 970,228 1,282,818
384,174 393,567 IN 2017 TOFAŞ ACHIEVED THE HIGHEST SINGLE- TOFAŞ SOLD 393,567 VEHICLES IN 2017. YEAR PRODUCTION VOLUME IN THE TURKISH AUTOMOTIVE INDUSTRY’S HISTORY WITH 384,174 UNITS MANUFACTURED. TL 17.5 billion 68.7% IN 2017 TOFAŞ RECORDED TL 17.5 BILLION IN INTERNATIONAL SALES ACCOUNTED FOR A 68.7% SALES REVENUES AND A NET PROFIT OF TL 1.3 SHARE OF TOTAL SALES IN 2017. BILLION.
6 Tofaş 2017 Annual Report Tofaş at a Glance
TOTAL ASSETS (MILLION TL) SHAREHOLDERS’ EQUITY (MILLION TL)
13,875 3,583
11,848 +17.1% 2,957 +21.2% IN 2017 TOTAL ASSETS SHAREHOLDERS’ EQUITY GREW BY 17.1% AND INCREASED BY 21.2% REACHED TL 13,875 AND REACHED TL 3,583 Management MILLION. MILLION IN 2017.
2016 2017 2016 2017
SALES REVENUES (MILLION TL) EBITDA (MILLION TL) Activities
17,468 2,002
14,236 +22.7% +46.5% IN 2017 SALES REVENUES 1,366 EBITDA INCREASED BY ROSE BY 22.7% AND 46.5% AND REACHED REACHED TL 17,468 TL 2,002 MILLION IN 2017. MILLION. Sustainability
2016 2017 2016 2017
PROFIT BEFORE TAX (MILLION TL) NET PROFIT (MILLION TL)
1,229 1,283
+54.1% 970 +32.2% Corporate Governance 798 IN 2017 PROFIT BEFORE NET PROFIT INCREASED BY TAX INCREASED BY 54.1% 32.2% REACHING TL 1,283 TO TL 1,229 MILLION IN MILLION IN 2017. VALUE.
2016 2017 2016 2017 Financial Information
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INSTITUTIONAL INVESTOR RELATIONS
THE AVERAGE PRICE OF TOFAŞ MEETINGS WITH INSTITUTIONAL INVESTORS In 2017 the Tofaş Institutional Investor Relations SHARES OUTPERFORMED Department conducted four online analysts meetings THE BIST-100 INDEX WHILE that were also attended by members of Tofaş senior management during which the meetings’ participants were REMAINING AT PAR WITH THE given a presentation about the company’s financial results BIST INDUSTRIAL INDEX. for each of the year’s four quarters. In addition to these four analyst meetings, 246 other meetings consisting of company visits, teleconferences, investor conferences held in Turkey and abroad, and international roadshows were attended, with the participation of 164 institutional investors and 82 financial analysts last year.
Tofaş took part in four international investor conferences and one roadshow during the year while 35 teleconferences were conducted with analysts and investors.
+36.6% SHARE PERFORMANCE THE AVERAGE SHARE PRICE OF TOFAŞ WAS 36.6% The average share price of Tofaş increased by 36.6% in HIGHER IN 2017 COMPARED TO 2016. 2017 compared to the previous year, thus outperforming the BIST-100 Index, which rose by only 28.2% during the same period.
TOFAŞ, BIST 100 AND INDUSTRIAL INDEX DAILY MOVEMENT ACCORDING TO CLOSING VALUES 31.12.2016=100
TOFAŞ 137.5 BIST 100 147.6 INDUSTRIAL INDEX 154.8 160
150
140
130
120
110
100
90
30/12/16 30/01/17 28/02/17 31/03/17 30/04/17 31/05/17 30/06/17 31/07/17 31/08/17 30/09/17 31/10/17 30/11/17 29/12/17
TOFAŞ BİST 100 INDUSTRIAL INDEX
8 Tofaş 2017 Annual Report Tofaş at a Glance
DIVIDEND PAYMENT PERFORMANCE Tofaş dividend payments in 2013-2017
(TL million) 2013 2014 2015 2016 2017* 85% 1,283 Net profit 434 574 831 970 1,283 75% Dividend 325 485 365 350 800 Dividend / Net profit (%) 75 85 44 36 62 970 62% 831 800 * Proposed 44% Management 574 485 434 36% 365 325 350 Tofaş’s management has proposed the payment of 2017 dividends totaling TL 800 million, a figure that corresponds to 62% of the company’s 2017 net profit. 2013 2014 2015 2016 2017(P) Net Profit (TL million) Dividend (TL million) Dividend/Net Profit (%)
PERCENTAGE OF PUBLICLY-TRADED TOFAŞ SHARES The earnings per share performance of Tofaş in the last Activities HELD BY INTERNATIONAL INVESTORS (%) five years is as follows:
EARNINGS PER SHARE (TL) 89% 89% 89% 86% 86%
66% 2.57 62% 64% 62% 63% 1.94 1.66 1.15 0.87 Sustainability 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 TOFAŞ BİST
DEVELOPMENTS IN INTERNATIONAL INVESTORS’ Tofaş Investor Relations webpage (Turkish) OWNERSHIP OF PUBLICLY-TRADED TOFAŞ SHARES http://www.tofas.com.tr/tr/yatirimci/Pages/HisseSenedi.aspx As of end-2017, 86% of Tofaş’s shares were held by international investors. This ranks Tofaş in second place among Koç Group Tofaş Investor Relations webpage (English) companies as measured on that basis. Last year of BIST-traded http://www.tofas.com.tr/en/investor/Pages/ shares held by such investors was 66%. StockandStockExchangeMarketInfo.aspx
INSTITUTIONAL INVESTOR RELATIONS DEPARTMENT Institutional Investor Relations Department:
CONTACT INFORMATION Devran AYDIN Corporate Governance Tofaş’s official investor relations webpages in Turkish Accounting Manager & Investor Relations Executive and English are located at the addresses given below. Telephone: +90 212 275 3390 Extension: 2754 These pages provide access to current information about Email: [email protected] analysts’ presentations concerning the interpretation of the company’s quarterly financial results, financial reports, a Erman TÜTÜNCÜOĞLU calendar of investor relations activities, and other matters Investor Relations Manager that may be of importance to investors. Telephone: +90 212 275 3390 Extension: 2751 Email: [email protected]
(*) Tofaş Institutional Investor Relations Department personnel hold the advanced-level capital market licenses and the corporate governance rating
licenses that are needed to engage in investor relations activities in Turkey. Financial Information
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TOFAŞ IN 2017
FEBRUARY MARCH
FIAT DEALERS CONVENE IN İSTANBUL EGEA’S SPORTIEST MODEL SHOWN OFF IN GENEVA
Representatives of Fiat dealerships and service-providers A special series of Egea family made their appearance at took part in their first meeting of the year in İstanbul. the Geneva Motor Show, during which Fiat Egea hatchback body model was shown off to the world. ALFA ROMEO GIULIA IN TURKEY TOFAŞ ORDINARY GENERAL ASSEMBLY MEETING HELD Tofaş’s 49th ordinary general assembly meeting was held at the company’s İstanbul headquarters.
Alfa Romeo Giulia went on sale in Turkey. A SPECIAL SERIES OF EGEA FAMILY ALFA ROMEO-JEEP DEALERS’ MEETING MADE THEIR APPEARANCE AT THE A meeting of Alfa Romeo-Jeep dealers was held in İstanbul. GENEVA MOTOR SHOW.
10 Tofaş 2017 Annual Report Tofaş at a Glance
APRIL JUNE Management
TOFAŞ EXPORTS MANAGEMENT TALENT VOCATIONAL EDUCATION SUPPORT PROGRAM Akın Aydemir, who had been Tofaş’s director of industrial VEHICLES DELIVERED operations since 2010, was transferred to Fiat Chrysler Automobiles’ Sterling Heights plant in Michigan, where he will be serving as its General Manager. Mr Aydemir replaced by the former Tofaş Quality Director Zeki Erdal Şimşek.
MASERATI IN ANKARA Activities
Fifty-six vehicles (43 for universities and 13 for technical lycees), were delivered under Tofaş’s Vocational Education Support Program for their instructors and students to use in the schools’ workshops.
JULY
Birmot Maserati opened the doors to its new Ankara Sustainability FIAT 500’S 60TH ANNIVERSARY dealer, thereby becoming the second venue for the sale of Maserati-badge cars in Turkey after İstanbul.
MAY
TOFAŞ CUSTOMER CARE CENTER OPENS IN BURSA Corporate Governance
A special 60th-anniversary model of the legendary Fiat 500 was put on sale in Turkey.
Missioned with providing Fiat, Jeep, Alfa Romeo, Lancia, Otoeksper, and Opar customers with 24/7 service in the form of solution-focused information and recommendations through a variety of channels, the Tofaş Customer Information Center opened in Bursa. Financial Information
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TOFAŞ IN 2017
AUGUST SEPTEMBER
TOFAŞ WCM RATING RAISED NEW JEEP COMPASS IN TURKEY As a result of a World Class Manufacturing (WCM) audit conducted at Tofaş, the company achieved a level 4 rating in its “quality control” score, thereby boosting its WCM rating to 77, a point higher than its 76 rating in 2016. This successful performance means that Tofaş retains its position among the top three plants in the FCA system.
NEW FIAT 500L IN TURKEY
Sporting three new petrol and diesel engine options, Jeep Compass went on sale in Turkey.
MASERATI MENGERLER DEALERSHIP IN BURSA
The new Fiat 500L with its revamped design, updated technology, and enriched SUV features went on sale in Turkey.
A ceremony was held to mark the opening of Turkey’s third Maserati dealership in Bursa.
12 Tofaş 2017 Annual Report Tofaş at a Glance
OCTOBER DECEMBER Management
COMPANY PERSONNEL GET-TOGETHER ON TOFAŞ HACK-AUTO 4.0 FAMILY DAY Activities
Hack-Auto 4.0 event was held for young people eager to Tofaş employees and their families took part in the discover the dynamics of the automotive industry, focused company’s Family Day Plant Tour. on the concept of digitalization.
NOVEMBER
TOFAŞ OPENS ITS DOORS TO VISITORS TOFAŞ OPENED ITS FACTORY
DOORS TO VISITORS Sustainability WHO ARE INTERESTED IN MANUFACTURING AND AUTOMOTIVES AND IN SEEING HOW CARS ARE MADE.
Tofaş opened its factory doors to visitors who are interested in manufacturing and automotives and in seeing Corporate Governance how cars are made. Financial Information
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AWARDS AND RECOGNITIONS
FIAT EGEA IS TURKEY’S CHOICE ONCE AGAIN TWO TOP-PLACE AUSTRIAN MOTORING AWARDS GO TO EGEA The sedan and station wagon versions of the Fiat Egea, which are sold under the “Tipo” name in Europe, received two first place awards from the Austrian Automobile, Motorcycle and Touring Club (ÖAMTC).
TOFAŞ TAKES FIRST PLACE IN TURKEY’S 2017 PRODUCTIVITY AWARDS
With sales of 42,990 units in 2017, Fiat Egea was once again the best-selling car in Turkey last year.
TOFAŞ A TOP EXPORTER With a 55% year-on rise in exports that brought their total value to USD 3.19 billion in 2016, Tofaş ranked second in the Turkish Exporters Assembly’s annual survey of Turkey’s top 1,000 exporting firms In the Ministry of Science, Industry and Technology’s TOFAŞ RANKS FIRST NATIONWIDE IN R&D 2017 series of Productivity Project Awards, Tofaş’s INVESTMENT “Capacity-Increase Project” earned it first place in the “Big Companies: Process Improvement” category.
IN THE EUROPEAN COMMISSION JOINT RESEARCH CENTER’S R&D INVESTMENTS SCORE LIST, TOFAŞ RANKED IN FIRST PLACE AMONG COMPANIES IN TURKEY In the European Commission Joint Research Center’s R&D investments score list, Tofaş ranked in first place in Turkey WITH THE R&D INVESTMENTS with the R&D investments that it carried out in 2017. This THAT IT CARRIED OUT IN 2017. was the third year in a row that Tofaş successfully defended its position as the company spending more on R&D than any other firm in Turkey.
14 Tofaş 2017 Annual Report Tofaş at a Glance
FIAT DOBLÒ AND FIORINO RECEIVE UK AWARDS FOR YEAR’S BEST WORKPLACE SAFETY PROGRAM Management THE THIRD YEAR IN A ROW The Fiat Doblò Cargo won the WhatVan? “Light Van of the Year Award” for the third year in a row while the company’s Fiat Fiorino Cargo also garnered the “Highly Recommended” accolade in the WhatVan? “Small Van” category.
TWO MAJOR OSD AWARDS GO TO TOFAŞ Tofaş was the recipient of the Automotive Industry Association’s (OSD) “Success in Exports” and “Success in Technology” awards in the association’s “Success in Activities Exports, Technology, and Submanufacturing” series of awards and recognitions. The company received OSD’s platinum plaque, an award only bestowed on those with Having received awards in the Turkish Employers’ exports worth more than a billion dollars, for its USD 3.24 Association of Metal Industries’ “Golden Gloves billion export performance in 2016. Competition” for two years in a row, in 2017 placed first in 2017 in the “Workplace employing more than 500 people” TOFAŞ WINS FINANCING FACILITY AWARD category for its “Risk detection certification in the virtual A loan secured by Tofaş to finance its Egea station wagon environment” program. and hatchback manufacturing investments was cited by Bonds & Loans, an integrated market intelligence platform THE BRAND THAT CREATES VALUE FOR BURSA focused on emerging market credit, as the most successful financial deal carried out in Turkey in its own market Sustainability segment.
ENERGY-EFFICIENCY AWARD
At the Interactive Marketing Summit organized by the
magazine Marketing Türkiye, Tofaş was cited as one of Corporate Governance the leading names in its industry during the “Brands That Create Value For Their City” awards ceremony”.
In the İstanbul Chamber of Industry’s series of “Energy Efficiency Awards”, Tofaş took second place in the “Big Companies” category with its “SolarDRY Direct Use of Solar Energy in Production Processes” project. Financial Information
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AWARDS AND RECOGNITIONS
MOBILE MARKETING ASSOCIATION AWARD GOES TO TOFAŞ ACADEMY PICKS UP THREE BRANDON HALL FIAT AWARDS Fiat received the “Turkey Best In Show” accolade in In the 2016 round of the Brandon Hall Excellence Awards, the Mobile Marketing Association’s 2017 series of “The which are handed out by Brandon Hall, one of the world’s Smarties Turkey” awards. most prestigious learning & development research and analysis firms, Tofaş Academy was the recipient of three EUROPE’S BEST INTRANET APPLICATION: TOFAŞGO separate awards.
FOUR STEVIE AWARDS GO TO TOFAŞ ACADEMY In the Stevie Awards for Great Employers, an international business awards competition, Tofaş received one gold and three bronze Stevies.
FIAT BRINGS HOME EIGHT AWARDS FROM CRYSTAL APPLE In the Crystal Apple Creativity Awards, Fiat received three crystal, one silver, and three bronze awards as well as a special jury prize.
Tofaş’s intranet and mobile application TofaşGO was NINE FELIS AND THREE ACHIEVEMENT ACCOLADES IN selected as the Best Intranet project of the year by the THE MEDIACAT FELIS AWARDS European Excellence Awards.
FIAT’S BARRIER-FREE MOVEMENT PROGRAM “ENGELSIZ HAREKET” WINS HÜRRIYET AWARD Fiat’s barrier-free movement program “Engelsiz Hareket” earned a Hürriyet Red Award as the year’s best social responsibility campaign.
SPECIAL JURY PRIZE FOR FIAT’S BARRIER-FREE MOVEMENT PROGRAM “ENGELSIZ HAREKET”
In the 12th round of the MediaCat Felis awards held this year, Fiat won seven “Felis” and one “Achievement” award for its “From Inside the Plot” 360º degree integration with the Egea Hatchback while also picking up two “Felis” and two “Achievement” awards for its Fiat’s barrier-free movement program “Engelsiz Hareket”.
Fiat’s barrier-free movement program “Engelsiz Hareket” was awarded a special jury prize at the Gillette Milliyet Athletes of the Year awards ceremony.
16 Tofaş 2017 Annual Report Tofaş at a Glance
THREE GLADIATORS AWARDS DATABASE MIGRATION OF THE YEAR AWARD Management At the SAP Forum organized by SAP Türkiye, whose theme this year was “Digital Business”, Tofaş’s Department of Information & Communication Technologies won the “Best database migration of the year” award for its SAPIente Project.
IDC AWARD FOR TOFAŞ’S “SMART STATION” PROJECT Activities
In the ODD Sales & Communication Awards, Tofaş picked up three accolades in the sales and communication categories. While the Fiat Egea was the year’s best-selling car in the Sales category, in the Communication category, Jeep received the newspaper campaign of the year award for its “Otobüs Kamyon JEEP Bip” series of ads and Fiat received the PR/event of the year award for its “Fiat Motor Sporları: Egea Seni Piste Çağırıyor” campaign. In a “Smart Manufacturing” project competition organized by International Data Corporation, Tofaş’s “Smart Station” MORE JOBS FOR THE DISABLED project placed second.
In an “Employ the Disabled” meeting conducted jointly by Sustainability the Bursa Municipal Council, İŞKUR, the Disabled Persons “CONTRIBUTIONS TO LOGISTICS” AWARD Assembly, and the Bursa Federation of Disabled Persons, Tofaş received a letter of appreciation as the company in Bursa creating the most jobs for people with disabilities.
FIVE EMEA AND TURKEY SMARTIES AWARDS FOR FIAT At the MMA Smarties Awards ceremony, Fiat’s “From Inside the Plot” integration earned the company two global, one Turkish, and one independent “Best in Show” citations.
TOFAŞ’S INTRANET AND Corporate Governance MOBILE APPLICATION TOFAŞGO WAS SELECTED AS THE BEST In the eighth round of the Atlas Logistics Awards, Tofaş’s INTRANET PROJECT OF THE YEAR exports performance earned it the “Contributions to logistics” award for the second time. IN THE EUROPEAN EXCELLENCE AWARDS. Financial Information
17 INCREASED MARKET SHARE TOFAŞ’S EGEA SEDAN WAS TURKEY’S BEST-SELLING CAR FOR THE SECOND TIME IN 2017 WHILE THE EGEA FAMILY AS A WHOLE ALSO MADE A SIGNIFICANT CONTRIBUTION TO THE COMPANY’S OVERALL AUTOMOTIVES MARKET SHARE.
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CHAIRMAN’S MESSAGE
Esteemed shareholders:
NOTWITHSTANDING 2017’S CHALLENGING GEOPOLITICAL OUTLOOK, THE GLOBAL ECONOMY REGISTERED GROWTH. For the global economy, 2017 was a challenging year, which turned out to be better than initially expected. The world’s economy is thought to have grown by 3.7% by year-end. Having had to reduce its growth projections in previous years, the International Monetary Fund made upward revisions to its projections for 2017 on four separate occasions. The fact that 2017’s economic recovery manifested itself in both the developed and the developing countries permitted us to view the future with hope.
Furthermore, there were worldwide improvements in investment, trade, and manufacturing output. Businesses WHILE BOLSTERING OUR and consumers alike expressed greater confidence and this in turn strongly supported the world economy’s NUMEROUS CONTRIBUTIONS recovery. A hearty appetite for risk that prevailed in the TO THE NATIONAL ECONOMY, world’s markets from the very beginning of 2017 made a favorable impact especially on the developing countries. WE WILL ALSO REMAIN ONE OF In short, there was widespread recovery in the global THE MOST IMPORTANT PLAYERS economy.
IN THE TURKISH AUTOMOTIVE THE TURKISH ECONOMY REGISTERED STRONG INDUSTRY, THANKS TO OUR GROWTH IN 2017. The 11.1% rate of third-quarter growth that Turkey’s PRODUCTION VOLUMES AND economy registered in 2017, compared with the EXPORT PERFORMANCE. same period of the previous year, was not only above expectations; but also indicated the strongest level of performance in the last six years. The biggest (7-point) contributor to this third-quarter growth was private consumption expenditure though there was also a rise in public-sector consumption as well. Going forward, we believe that our economy will likewise continue to grow in the period ahead.
THE AUTOMOTIVE INDUSTRY FOLLOWED A COURSE SIMILAR TO THAT OF THE LAST THREE YEARS. For the last three years, automotive sales in Turkey have been on the order of one million units a year. Although the overall market was down by 3% in 201, that was largely due to a drop in passenger car and heavy commercial vehicle sales. By contrast, there was growth in the light commercial vehicle market. The market share of imports also contracted.
20 Tofaş 2017 Annual Report Tofaş at a Glance
Thanks to the continued growth in exports, the Turkish industry, thanks to our production volumes and export automotive industry broke new records in 2017, a year performance. in which overall production was up by 13% and reached 1,673,664 vehicles. TOFAŞ IS A GLOBALLY-RECOGNIZED R&D CENTER. In an industry whose operational environment is severely In Europe, which is Turkey’s most important export market, competitive, product and technology development there was increased demand for passenger cars and light is no longer an optional complement to traditional commercial vehicles and this had a favorable impact on manufacturing; but rather a vital competency for Management our country’s automotive exports. Reaching USD 29 billion companies. in 2017, automotive sector exports comprised 18% of Turkey’s total exports while maintaining its position as the With its powerful vision and strong sectoral experience, leading sector. We take pride in this result; which is also an Tofaş recognizes R&D and innovation as fundamental evidence of our industry’s confidence in and contributions components of its production processes and has been to our nation’s economy. building up its competencies and infrastructure accordingly for many years. As one of Fiat Chrysler Automobiles’ three WITH A PRODUCTION VOLUME OF 384 THOUSAND strategic production centers around the world, Tofaş is UNITS IN 2017, TOFAŞ MADE ANOTHER NEW ENTRY IN also Europe’s second-biggest R&D center. Over the last ITS ROSTER OF RECORDS. three years, Tofaş has invested more in R&D than any other
Boasting an annual production capacity of 450 thousand company in Turkey and it ranks in first place in the European Activities vehicles, nearly 10 thousand employees, an extensive Commission Joint Research Center’s R&D Investment Score dealership network, and superior R&D and product List. We take pride in our R&D competencies and we regard development capabilities, Tofaş takes pride in being them as the guarantee of our future. Turkey’s third biggest industrial establishment. WITH OUR COMPETITIVE ADVANTAGES, WE ARE Having already broke production and export records in READY FOR TOMORROW. 2016, Tofaş added a new one to the roster in 2017 by The economies of scale we have built, our strong market producing 384 thousand vehicles. Fiat Egea, which is the position, long-standing international partnerships and product of USD 1 billion worth of investment, has been export agreements, our extensive sales, after-sales, and Turkey’s most popular vehicle for the second consecutive service network, our unfaltering investments in R&D year. Our company’s share of the Turkish market in and technology, and our business approach rooted passenger cars and light commercial vehicles also reached in productivity and continuous improvement are the Sustainability 12.8% last year while our Fiat Tipo and Dodge Neon fundamental elements that make us ready for tomorrow. models performed successfully in export markets. We create a tremendous multiplier effect, together with Through exporting 271 thousand units, Tofaş our employees, consumers, dealers, suppliers, and all other singlehandedly accounted for 20% of Turkey’s total business partners. We firmly believe that, by joining forces automotive exports last year. As a result of all of its with our stakeholders, constantly renewing ourselves and operations, the company generated a foreign trade surplus spearheading change, we can achieve whatever goal we of 1 billion dollars. We feel proud with the value we have may set. created for our country and our stakeholders. In closing therefore and speaking both personally and Having demonstrated its prowess in all segments of on behalf of the Tofaş Board of Directors, I thank our
Turkey’s passenger car and light commercial vehicle employees, dealers, business partners, shareholders, and Corporate Governance markets, Tofaş continues to advance confidently towards a all other stakeholders for their contributions to our 2017 brighter future. During 2017 we undertook EUR 157 million performance. worth of project and structural investments; while the total value of all of our investments during the last decade Very truly yours, reached USD 2.8 billion. Our company intends to further its export market diversity and performance in 2018.
While bolstering our numerous contributions to the national economy, we will also remain one of the Ömer M. Koç most important players in the Turkish automotive Chairman of the Board of Directors Financial Information
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BOARD OF DIRECTORS
ÖMER M. KOÇ SERGIO MARCHIONNE CENGİZ EROLDU TEMEL KAMİL ATAY Chairman Vice Chairman Board Member - CEO Board Member
He received his B.A. degree from Sergio Marchionne holds a B.A. Cengiz Eroldu graduated from A graduate of Mechanical Columbia University in 1985. He with a major in Philosophy from the the Business Administration Engineering from Istanbul worked at Kofisa Trading for one University of Toronto (Canada) and Faculty of Istanbul University and Technical University, he holds an year. He completed his MBA at a Bachelor of Laws from Osgoode completed the MBA program at MBA degree from Wayne State Columbia University in 1989. After Hall Law School at York University LUISS University (Italy). He began University. He joined Koç Group working at Ramerica International in Toronto, as well as an MBA and his career as an Audit Specialist in 1966 and later served as the Inc., he joined Koç Group in 1990. a Bachelor of Commerce from the at Koç Holding in 1989. He was General Manager of Otoyol Sanayi He held various senior positions University of Windsor (Canada). Mr. appointed to the position of A.Ş. and Tofaş Türk Otomobil at Koç Holding including Finance Marchionne is a barrister, solicitor Assistant Accounting and Industrial Fabrikası A.Ş. After working in Coordinator, Vice President and chartered accountant. Mr. Governance Manager for Tofaş in various senior management posts and President of Energy Group. Marchionne became a Member of 1995, working in the Accounting at Koç Holding, he served as the He became member of Board the Fiat S.p.A. Board of Directors in and Industrial Governance CEO between 2000 and 2001. of Directors in 2004 and Vice 2003, and Chief Executive Officer Department and the Budget and Temel Kamil Atay has been a Chairman in May 2008. In February in 2004. In addition, in 2009, he Governance Department from member of Koç Holding Board of 2016, he was appointed as the was appointed CEO of Chrysler 2001 to 2008, and in the Finance Directors since 1996. Chairman of Koç Holding. Ömer Group LLC (renamed FCA US LLC Department between 2008 until M. Koç has been serving as the in December 2014); in 2011, he 2015. Since January 2015, he has Chairman of Tofaş since 6 April also assumed the role of Chairman. been serving as Member of the 2016. In 2014, he became CEO of Fiat Tofaş Board of Directors and CEO. Chrysler Automobiles N.V. and Chairman of Ferrari S.p.A. In 2010, he joined the Board of Directors of Exor S.p.A. As of September 2013, he is also Chairman of CNH Industrial N.V., the company resulting from the mergers of Fiat Industrial S.p.A. and CNH Global N.V. Mr. Marchionne was elected as the Chairman of the Board of Directors of the European Automobile Manufacturers’ Association (ACEA) in 2013. He is currently a Member of the Board of Philip Morris International Inc. and the Peterson Institute for International Economics, as well as Chairman of the Council for the United States and Italy. He is the permanent Member of the Giovanni Agnelli Association and also holds the honor of Cavaliere del Lavoro.
22 Tofaş 2017 Annual Report Tofaş at a Glance Management
LEVENT ÇAKIROĞLU ALFREDO ALTAVILLA İSMAİL CENK ÇİMEN Board Member Board Member Board Member Activities
Levent Çakıroğlu graduated from Alfredo Altavilla holds a degree İsmail Cenk Çimen holds a degree Ankara University, Faculty of in Economics from Università in Industrial Engineering from Political Sciences, Department Cattolica, Milan. In 1990, he joined Istanbul Technical University; in of Business Administration. He Fiat Auto and initially focused on addition, he completed Executive earned a Master’s degree at the international enterprises in the Development Programs at Stanford University of Illinois. Mr. Çakıroğlu areas of strategic planning and University (USA) and University began his professional career as an product development. In 1995, he of California – Los Angeles (USA). Auditor at the Ministry of Finance was appointed Chairman of the He joined Koç Group in 1991 as a in 1988. From 1997 to 1998, he Fiat Auto Beijing office and then Management Trainee at Nasoto. taught as a part-time instructor Chairman of Asian Operations in He assumed Sales Coordinator, at Bilkent University, and served 1999. In 2004, he was appointed Regional Manager and Import as Vice President of the Financial FGP Chairman (Fiat/GM Powertrain Manager responsibilities at Otosan Crimes Investigation Board at the JV) and Senior Vice President of Pazarlama between 1993 and Ministry of Finance. He joined Business Development at Fiat Auto. 1996. He served as Fleet Sales Koç Holding in 1998 as Financial He was appointed CEO of Türk Manager at Ford Otosan from Coordinator. Subsequently, he Otomobil Fabrikası A.Ş. in 2005, 1996 to 1998 and became the Sustainability served as the General Manager while retaining his role as head of General Manager of Otokoç Ankara of Koçtaş (2002-2007), General Business Development. In 2006, in 1998. In 2001, he was appointed Manager of Migros (2007-2008), he was appointed CEO of FPT-Fiat General Manager of the companies General Manager of Arçelik Powertrain Technologies. In 2009, merged under Otokoç. In 2005, (2008-2015), and President of the he became a Member of Board of his responsibility was extended to Consumer Durables Group at Koç Directors of Chrysler Group LLC; in include the General Manager role Holding (2010-2015). In February 2009, he was appointed Executive at Birmot A.Ş., while also assuming 2015, Mr. Çakıroğlu was appointed Vice President of Business responsibility for Avis car rental. Deputy Chief Executive Officer Development for Fiat Group. From He has served as the President of of Koç Holding, and he has been 2010 to 2012, he was CEO of Iveco Automotive Group at Koç Holding the Chief Executive Officer of Koç and a Member of the Fiat Industrial since June 2009. Holding since April 2015. He has Executive Authority between 2011 been a member of Koç Holding and 2012. He was appointed Chief Board of Directors since 2016. Operating Officer Europe, Africa and Middle East (EMEA) in 2012. He has also been a Member of the Group Executive Council (GEC) and
Head of Business Development Corporate Governance since 2011. Financial Information
23 Tofaş 2017 Annual Report
BOARD OF DIRECTORS
GIORGIO FOSSATI GÖKÇE BAYINDIR LIBERO MILONE Board Member Independent Board Member Independent Board Member
Giorgio Fossati holds a degree in Gökçe Bayındır received a Mr. Milone completed his law from the University of Turin Bachelor’s degree and MBA education in the Netherlands (Italy). He started his professional from the Business Management and the UK. From 2008 to the career in the Legal Department Department of Boğaziçi University. beginning of 2011, he served as at Iveco S.p.A. in 1988 and joined Starting his professional career Senior Supervisor and Honorary Fiat S.p.A. in 1999 as a member in 1967, he was a Sales Manager President of Protiviti, a global of the legal staff. He became at Tofaş Oto Ticaret A.Ş. in 1971, consultancy experienced in General Counsel of FCA Italy advancing to Assistant General corporate governance and risk S.p.A. in 2002. He has served Manager and then General management. During the same as the General Counsel for FCA Manager at Tofaş Oto Ticaret A.Ş. period, he served as a Member EMEA Region and as Corporate He served as Deputy Chairman of of the UN World Food Program General Counsel for Fiat Chrysler Tofaş Group within Koç Holding Audit Committee; between April Automobiles N.V. since 2011. in 1987 and then held the Tofaş 2010 and December 2011, he Mr. Fossati is a member of the Group Chairmanship prior to his served as Chairman of Jobnet Boards of Directors of FCA US LLC, retirement in 2000. While at Koç S.p.A, which develops personnel FCA Italy S.p.A., Teksid S.p.A., Fiat Group, he served on the Boards management and business Chrysler Finance S.p.A., Fidis S.p.A., of Directors of companies such as reception software. From January FCA Partecipazioni S.p.A., Fiat Tofaş Oto Ticaret A.Ş. and Tofaş 2011 to September 2013, he Chrysler Risk Management S.p.A. Türk Otomobil Fabrikası A.Ş. Since served as Independent Board and Abarth & C. S.p.A. In addition, 2012, he has been an Independent Member at Fiat Industrial S.p.A and he is a member of the Executive Member of Tofaş’s Executive Chairman of the Internal Control Committee of FCA Poland S.A. Board. He is also Chairman of the and Risk Committee. Since April Audit Committee, the Committee 2011, he has been an Independent for the Early Identification of Board Member at Poltrona Risk and Risk Management, and Frau Group and has served as a Member of the Corporate Chairman of the Internal Control, Governance Committee. Risk and Corporate Governance Committee, also as a Member of Remuneration Committee of that company. In May 2011, he joined the Board of Directors of Falck Renewables S.p.A, where he also serves as Chairman of the Internal Audit and Risk Committee and Member of the Remuneration Committee. Since March 2012, he has been serving as Independent Board Member, Chairman of the Corporate Governance Committee, and Member of the Audit Committee and the Early Detection of Risk Committee at Tofaş. Since October 2012, he has served as Chairman and Managing Partner at Milone Associates, a consultancy firm. Since May 2013, he has been an Independent Board Member of Indesit Company, Chairman of the Internal Audit and Risk Committee and Member of Human Resources Committee. 24 Tofaş 2017 Annual Report Tofaş at a Glance
BOARD OF DIRECTORS MEMBERS WHO HELD OFFICE DURING THE REPORTING PERIOD Management
BOARD OF DIRECTORS Term of Office Name Position From Until Ömer M. KOÇ Chairman 06.04.2016 28.03.2018 Sergio MARCHIONNE Vice Chairman 28.03.2014 28.03.2018 Cengiz EROLDU Member & CEO 13.01.2015 28.03.2018 Temel Kamil ATAY Member 28.03.2014 28.03.2018 Levent ÇAKIROĞLU Member 01.04.2015 28.03.2018 Alfredo ALTAVILLA Member 28.03.2014 28.03.2018 Activities İsmail Cenk ÇİMEN Member 28.03.2014 28.03.2018 Kudret ÖNEN Member 28.03.2014 28.03.2017 Scott Richard GARBERDING Member 28.03.2014 28.03.2017 Giorgio FOSSATI Member 18.02.2016 28.03.2018 Gökçe BAYINDIR Independent Member 28.03.2014 28.03.2018 Libero MILONE Independent Member 28.03.2014 28.03.2018
(*) Following the election date of the Board of Directors, terms of office have been taken into consideration. (28.03.2014 - 28.03.2017 and 28.03.2017 - 28.03.2018)
DUTIES, AUTHORITIES AND LIMIT OF AUTHORITIES OF Sustainability THE BOARD OF DIRECTORS • Both the Chairman and Members of the Board of Directors shall be authorized with specified duties and authorizations defined in Article 11 of the Articles of Association and related articles of the Turkish Commercial Code. • Furthermore, the regulation concerning Executive Board Decisions is available in the 10th article of the Articles of Association. • The regulation concerning Auditing is contained in the 13th article of the Articles of Association. Corporate Governance Financial Information
25 Tofaş 2017 Annual Report
CEO’S ASSESSMENT
Esteemed stakeholders
We have recently completed a year of successful business results that will henceforth be recalled with pride in the history of our company. In the wake of 2016, which was a record-breaking year in Tofaş’s history, we maintained our leadership in manufacturing in 2017 thanks to the successful performance achieved by our Egea Project in both domestic and export sales while once again embarking upon the new year having set yet another record.
The 384 thousand vehicles produced by our company single-handedly accounted for 23% of the Turkish automotive industry’s total output last year. Despite a 3% contraction suffered by the Turkish automotive market in 2017, the brands in the Tofaş portfolio successfully IN THE WAKE OF 2016, WHICH increased our overall sales volume by 12.7%. The Tofaş brands in Turkey’s passenger car and light commercial WAS A RECORD-BREAKING vehicle market commanded a 12.8% market share last YEAR IN TOFAŞ’S HISTORY, WE year. At 120,049 units, sales of Fiat-branded passenger cars and light commercial vehicles ranked in second MAINTAINED OUR LEADERSHIP place with a 12.6% market share. As the automotive firm IN MANUFACTURING IN 2017 with the highest percentage of domestic production as a component of total sales for many years, Tofaş once again THANKS TO THE SUCCESSFUL defended its industry leadership in 2017 by that measure PERFORMANCE ACHIEVED BY with a 91% rate.
OUR EGEA PROJECT IN BOTH Sales of Fiat Egea Sedan, a member of a global passenger DOMESTIC AND EXPORT SALES car family whose manufacturing and R&D operations are carried out in Turkey, reached 43 thousand units in 2017, WHILE ONCE AGAIN EMBARKING thereby clinching its successful 2016 performance as UPON THE NEW YEAR HAVING Turkey’s most sought-after automobile. All by itself, Egea SET YET ANOTHER RECORD. achieved a 6.6% share in the passenger car market. The 270,760 thousand units that our company shipped abroad in 2017 singlehandedly accounted for a 20% share of Turkey’s automotive exports and also generated USD 3.25 billion in sales revenues.
26 Tofaş 2017 Annual Report Tofaş at a Glance
In 2017 our company booked a total turnover worth TL Besides reducing our per-vehicle manufactured energy 17.5 billion (up by 23% as compared with 2016) while its consumption and emissions, we also continued our efforts net profit also increased by 32% to TL 1,283 billion during to reclaim waste water, recovering 63 million m3 in the the same twelve-month period. At 11.5% last year, Tofaş’s process. Since 2006, the year in which we introduced EBITDA margin was 1.9 percentage points higher year-on- world-class workplace safety rules and procedures, our year while its EBITDA amounted to TL 2 billion, were 46.5% performance as measured by the number of workdays lost higher. due to accidents has improved by 96%. Management OUR INVESTMENTS BOOST OUR CONTRIBUTIONS TO AS A LEADING MEMBER OF THE TURKISH THE TURKISH ECONOMY. AUTOMOTIVES INDUSTRY, TOFAŞ CREATES VALUE FOR Continuing to generate high levels of added value for the SOCIETY. Turkish economy through its production, exports, and We also continue to create value for society through the employment, Tofaş also undertakes industry-significant long-term projects that we undertake in a variety of areas investments like the Fiat Egea Project. such as sport, education, and culture & art. In addition to our ongoing projects, in 2017 we launched a “Vocational Likewise our R&D investments also continue to advance Education Support” project whose aims are to support our company in the area of technology. Tofaş’s R&D universities and high schools and their students and to successes have resulted in its ranking first in Turkey for contribute to the education of more qualified and better- three years in a row in the European Commission Joint equipped young people, with a particular attention being Activities Research Center’s R&D Investment Score List. Last year we given to practical experience. moved up twelve places in that league table. TOFAŞ IS FOCUSED ON THE FUTURE. AWARDS AND RECOGNITIONS ARE THE CROWNS OF Underlying every Tofaş success are human resources who OUR SUCCESS. are committed to their work and who constantly strive to The added value created by our operations also do better. It is through the strength that they give us that continued to earn us awards and recognitions on a we are able to raise the bar of our success ever higher. variety of platforms in 2017. Many of the projects that I therefore thank all of our employs for their dedicated we have carried out in such areas as sustainability, R&D, efforts. communications, and environment are the recipients of national and international honors. In the years ahead Tofaş will continue to improve its performance even more. Seeking to ensure the Sustainability THANKS TO OUR SUSTAINABLE PRODUCTION sustainability of our success, we will again be undertaking APPROACH WE GAINED IMPORTANT BENEFITS investments in R&D, technology, and human resources As a company whose shares are included in the Borsa in 2018. With that in mind, I also thank our shareholders, İstanbul Sustainability Index, Tofaş also benefits from the customers, dealers, suppliers, and other stakeholders for gains that its sustainable manufacturing approaches lead their support. to by reducing environmental impact and improving energy efficiency and workplace safety. As a result of the World Very truly yours, Class Manufacturing Energy Management Methodology projects that it carries out, Tofaş conserved 72,633 GJ of energy and thereby reduced its CO2 emissions by 5,645 tons as of end-2017. Corporate Governance Cengiz Eroldu Board Member & CEO Financial Information
27 Tofaş 2017 Annual Report
SENIOR MANAGEMENT
CENGİZ EROLDU STEFANO REGANZANI ZEKİ ERDAL ŞİMŞEK ALTAN AYTAÇ Board Member & CEO Financial Director (CFO) Factory Director Fiat Business Unit Director
Cengiz Eroldu graduated from the Stefano Reganzani received a Zeki Erdal Şimşek graduated from Altan Aytaç graduated from the Business Administration Faculty degree in management from Istanbul Technical University, Industrial Engineering Department of Istanbul University in 1988 and Università Commerciale Luigi Aeronautics and Space Sciences of Boğaziçi University in 1992. He completed the MBA program at Bocconi in Italy in 1990 and started Department in 1987 and began his professional career at LUISS University (Italy) in 1995. his professional career at Unilever completed the MBA program at Tofaş Auto Trading where he was He began his career as an Audit Italy in 1991. He has held various Istanbul University in 1989. In involved in setting up the first Specialist at Koç Holding in 1989. positions at Fiat Chrysler since 1990, he began his professional logistics department in the area He was appointed to the position 1995. After serving at various career as a Project Engineer at of commerce. He completed the of Assistant Accounting and levels in the Finance Department Tofaş; after 11 years of service, he EMBA program at Koç University in Industrial Governance Manager until 2013, he worked as the was appointed Plant Manager at 1997. The same year, he became for Tofaş in 1995, working in Head of Business Development, the Fiat automobile plant in Cairo. Manager of the CBU Logistics the Accounting and Industrial Investments and Product Initiatives Returning to Tofaş in 2003, Zeki Department. After completing Governance Department and Financial Controlling from 2013 Erdal Şimşek served as a manager the production integration and the Budget and Governance until April 2015 when he was in different departments before simplification projects in the Department from 2001 to 2008, appointed the Financial Director becoming Quality Director. He has area of outbound logistics, Mr. and in the Finance Department of Tofaş. been the Factory Director since Aytaç was appointed Commercial between 2008 until 2015. Since April 2017. Projects Coordinator in 2003, January 2015, he he has been Fiat Brand Manager in 2004, and serving as Member of the Tofaş Business Unit Director Turkey Board of Directors and CEO. for the Alfa Romeo and Lancia brands in 2006. He rose to the position of Tofaș Supply Chain Director in 2008, and After Sales and Spare Parts Director in January 2015. Altan Aytaç has served as Fiat Business Unit Director since August 2015.
28 Tofaş 2017 Annual Report Tofaş at a Glance Management
VINCENZO CUSOLITO SİNAN SAİP BEL BURHAN ÇAKIR R&D Director Lancia, Alfa Romeo, Jeep® Human Resources Director Director Activities Vincenzo Cusolito graduated from Burhan Çakır graduated from Padua University (Italy) in 1996 Sinan Saip Bel graduated from Middle East Technical University, as a mechanical engineer. He Middle East Technical University, Department of Mechanical started his career at Fiat, where he Department of Mechanical Engineering in 1986. He began worked as a shift manager in the Engineering in 1997. He began his his career in 1989 as an Engineer Metal Stamping Workshop and a career in 1999 as Aegean Region in Pressing Production at Tofaş. market analyst in the Purchasing Bulk LPG Sales Representative From 1993 to 2004, he served as Department. Appointed as model at Aygaz, and became Bulk LPG Press Workshop Manager, Body responsible for the New Palio and Marketing Representative in 2002. Production Unit Manager, Part Grand Siena in 2006, Mr. Cusolito He served as Service Advisor at Export Department Manager worked for FIASA until the launch Borusan Oto between 2003-2004, and Industrial Control Manager. of Palio, which was named car as After-Sales Area Chief at Doğuş Burhan Çakır has served as Human of the year in Brazil at the time. Otomotiv between 2004-2005, and Resources Director at Tofaş since Having returned to Italy in 2011 as After-Sales Manager at Doğuş 2004. to work as Model Responsible for Oto between 2005-2008. In 2009 Aegea Family, he was later assigned he joined Fer Mas A.Ş., a Tofaş Sustainability as Head of Chassis and Vehicle subsidiary, as Service Manager. In Dynamics for EMEA. Cusolito joined 2014 he became Fer Mas Company Tofaş as R&D Director in April Manager in 2014, and in 2017 2017. in addition to this title he was appointed Alfa Romeo and Jeep Director as well. He is also a board member at Fer Mas A.Ş. Corporate Governance Financial Information
29 Tofaş 2017 Annual Report
SENIOR MANAGEMENT
ÖMER ÖZGÜR ÇETİNOĞLU ARZU ÇOLAKOĞLU TÜRKER GÜRTEKİN Information and Communication Corporate Communications Business Development Director Technologies Director Director Türker Gürtekin received his Ömer Özgür Çetinoğlu graduated Arzu Çolakoğlu holds a degree Bachelor’s degree in Mechanical from Boğaziçi University, in Economics (English) from Engineering from İstanbul Department of Computer Istanbul University. She began her Technical University in 1997 and Engineering in 1992. He began professional career as a planning his MBA from Boğaziçi University. his professional career the same specialist at Doğuş Automotive He started his professional career year as a Software Engineer at Service and Trading in 1995. at Tofaş as After Sales Processes Koç Holding. Between 1997 and Between 1998 and 2003, she and Warranty Specialist in 2001, 2002, Mr. Çetinoğlu worked as served as Planning and Logistics where he later served as Foreign Business Development Manager at Manager and VW Commercial Markets Management Executive. Koç Holding Consumer Products Vehicle Marketing Manager. From Subsequently, he worked as Sales Group; in 2002, he was appointed 2003 to 2004, she took on the Manager and then as Marketing Information Systems Manager duty of Regional Director at Doğuş and Sales Manager at Koç Fiat at Beko Elektronik. From 2007 Auto Marketing. Appointed Alfa Kredi. He was Lancia, Alfa Romeo, to 2016, he assumed several Romeo Brand Manager at Tofaş in Jeep® Sales Manager from 2012 roles at Koç Sistem, including 2005, she continued as Business to 2013. Türker Gürtekin served as Consulting Group Manager, Unit Director of Alfa Romeo and the General Manager of Koç Fiat Business Solutions Director, Lancia in 2008. Since 2012, Arzu Kredi between 2013 and 2015, Business Applications and R&D Çolakoğlu has served as Corporate when he became Lancia, Alfa Director, respectively. In July 2016, Communications Director at Tofaş. Romeo, Jeep® Director. He was Mr. Çetinoğlu was appointed appointed Business Development Information and Communication Director in 2017. Technologies Director at Tofaş.
30 Tofaş 2017 Annual Report Tofaş at a Glance Management
MAHMUT KARACAN GÜRAY KARACAR SABRİ ERKAN POLAT Sales Director External Relations Director Product Engineering Director Activities
Mahmut Karacan graduated from Güray Karacar graduated from Erkan Polat graduated from Çukurova University, Department Marmara University, Faculty of Istanbul Technical University, of Business Administration. He Communication in 1998. After Department of Mechanical started his professional career working in the tourism, media and Engineering in 1986. Between as Logistics Expert at Çitasad A.Ş. communications industries, he was 1987 and 1989, he attended the in 1995; from 1996 to 2000, he appointed Secretary General of the Master’s Program at the University was responsible for sales and Corporate Governance Association of Manchester in the U.K. and marketing there. In 1997, he of Turkey in 2003. During the same earned his Master’s Degree. Mr. raced in the “Good Year Off-Road period, he also served as Resident Polat began his professional Cup.” Between 2000 and 2012, Coordinator for the United Nations career as Design Engineer at he was responsible for Sales Development Program and Etibank Aluminum Enterprises Marketing operations at Daimler- Member of the Executive Board of in 1989. In 1992, he began Chrysler. From 2000 to 2012, he the Center for International Private working at Tofaş as Press Method was responsible for Sales and Enterprise. In June 2016, Güray Engineer. From 1999 to 2004, Purchasing at Daimler Chrysler; Karacar was appointed External he served as Press Engineering he founded Chrysler, Jeep Dodge Relations Director at Tofaş. Administrator and then Die and Sustainability Academy in 2003. He served as Press Business Development Sales and After Sales Services Manager, respectively. In 2006, Business Unit Director for Lancia, he was appointed Die Production Alfa Romeo and Jeep brands Manager, and from 2010 to 2013, between 2013 and 2015. Mahmut he served as Die&Press Production Karacan was appointed Sales Manager. Between 2013 and Director in 2015. 2015, he worked as R&D Body Design Manager, and later as Egea Hatchback Model Manager from 2015 to 2016. Mr. Polat was appointed Product Engineering Director in 2016. Corporate Governance Financial Information
31 Tofaş 2017 Annual Report
SENIOR MANAGEMENT
YÜKSEL ÖZTÜRK HÜSEYİN ŞAHİN İBRAHİM ÇAĞLAR ŞAHİN Purchasing Director After Sales and Spare Parts Passenger Car Projects Director Director Yüksel Öztürk graduated from İbrahim Çağlar Şahin graduated Uludağ University, Mechanical Hüseyin Şahin received his from Uludağ University, Mechanical Engineering Department in 1991. Bachelor’s degree in Public Engineering Department in 1983 He began his professional career Administration from Uludağ and went on to obtain a Master’s as Product Development Engineer University in 1990. He started his degree in Mechanical Engineering at Tofaş in 1993. Between 2001 professional career as Project in 1986. From 1983 to 1985, he and 2005, he was appointed Direct Manager at Efthor in 1996. He carried out his thesis studies as Material Electrical Manager and served as Human Resources Expert a Research Employee at Middle Direct Material Electrical Manager. at Fruehauf from 1997, becoming East Technical University. Between Since 2005, Yüksel Öztürk has been the Human Resources Manager in 1989 and 1993, he served as a serving as Purchasing Director. 1999. He joined Otokoç as Human Method Engineer at Tofaş. From Resources Manager in 2001; 1993 to 2013, he was Suspension between 2003 and 2005, he served Production Manager, Transmission as the Antalya Branch Manager and Suspension Unit Manager, and Birmot Zincirlikuyu Branch Powertrain Plant Manager, Manager of Otokoç. From 2005 to Powertrain Production Manager, 2011, he was the Birmot Assistant Minicargo Project Director, Quality Operational General Manager. Director, R&D Product Engineering After serving as Sales Director at Director and Projects Director. Tofaş between 2011 and 2015, İbrahim Çağlar Şahin has served Hüseyin Şahin was appointed After as Passenger Car Projects Director Sales and Spare Parts Director in since 2015. July 2015.
32 Tofaş 2017 Annual Report Tofaş at a Glance Management
RECEP TEMİZESEN ONUR YALÇIN SİNAN YILDIRIM Production Director Supply Chain Director Quality Director Activities
Recep Temizesen obtained his Onur Yalçın received his Sinan Yıldırım graduated from the Bachelor’s degree in Mechanical undergraduate degree in Industrial Middle East Technical University Engineering from Middle East Engineering from Middle East as a mechanical engineer in 1988 Technical University in 1988. He Technical University in 1991 and and started his career at BOTAŞ. started his professional career his Master’s degree in Operational He joined Tofaş in 1990 where he at Çimhol A.Ş. in 1988, where he and Industrial Engineering from first worked as an engine engineer worked as Project Engineer until Iowa State University (USA) in 1993. in Method Mechanical unit and 1991. He joined Tofaş in 1992 Since joining Tofaș as an Industrial then as an engine specialist in as a Press Method Engineer, Engineering Specialist in 1993, he the R&D Department, followed subsequently serving as Press has served as Production Planning by an assignment in Italy for the Shop Process Section Manager, Administrator, Parts Exports new engine project. Appointed Press Shop Engineering and Manager, Order Manager, CBU as head of engineering to the Technology Manager, Press Shop Logistics Manager and Outbound Transmission Parts Manufacturing Manager and Assembly Shop Logistics Manager. Onur Yalçın was Unit, Mr.Yıldırım joined Fiat GM Manager from 1999 to 2015. appointed Supply Chain Director in Powertrain in 2001, where he Recep Temizesen has served as January 2015. worked until 2007. Having rejoined Sustainability Production Director since January Tofaş at the end of 207 as Product 2015. Quality Manager, he completed his MBA at Bilgi University in 2008. Appointed as Manufacturing Technology Manager in 2010, Sinan Yıldırım has been serving as Quality Director since April 2017. Corporate Governance Financial Information
33 THE INDUSTRY’S LEADER AS THE AUTOMOTIVES FIRM WITH THE HIGHEST PERCENTAGE OF DOMESTIC PRODUCTION AS A COMPONENT OF TOTAL SALES FOR MANY YEARS, TOFAŞ ONCE AGAIN MAINTAINED ITS INDUSTRY LEADERSHIP IN 2017 BY THAT MEASURE WITH A 91% RATE.
34 35 Tofaş 2017 Annual Report
THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S POSITION IN THE SECTOR
BY MANAGING TO REMAIN Sales in Turkey’s light vehicle markets in 2017 experienced a 2.8% year-on-year contraction with total sales weighing ESSENTIALLY WITHIN THE 950 in at 956,194 units. All of that decline however was due to THOUSAND-1 MILLION UNITS a 4.5% drop in passenger car sales, which amounted to 722,759 units: light commercial vehicle sales were actually RANGE, TURKEY’S AUTOMOTIVE up by 2.9% as compared with 2016 and reached 233,435 MARKET REGISTERED ITS units. THIRD HIGHEST ONE-YEAR Turkey’s automotive market was adversely affected in the PERFORMANCE IN ITS HISTORY. second half of 2016 by a change in the rules governing the implementation of special consumption tax on passenger vehicles under which SCT is assessed not just on the basis TOTAL DOMESTIC MARKET (UNITS) of engine capacity but also according to before-tax price ranges. Sales also suffered from exchange rate movements too. However by managing to remain essentially within the 968,017 983,720 956,194 950 thousand-1 million units range, Turkey’s automotive 853,378 market registered its third highest one-year performance 226,782 767,681 242,421 233,435 in its history. 188,723 180,350 After completing its investments in passenger vehicles and filling out the Fiat Egea family with the addition of its hatchback and station wagon models, 2017 was Tofaş’s 725,596 756,938 722,759 first full year in which the entire Egea range was available 664,655 587,331 for sale on the market. Tofaş’s Egea sedan was Turkey’s best-selling car for the second consecutive time in 2017 while the Egea family as a whole also helped boost the company’s overall automotives market share. 2013 2014 2015 2016 2017
Passenger Cars Light Commercial Vehicles Looking at automotive markets in Europe as a whole, which is to say those of both European Union (EU) and European Free Trade Area (EFTA) countries, the passenger and light commercial vehicle segments grew by 3.3% and -2.8% 3.9% respectively last year. The Fiat Egea line, which is sold in Europe as the “Fiat Tipo”, continued to perform SALES IN TURKEY’S LIGHT VEHICLE MARKETS IN 2017 successfully. EXPERIENCED A 2.8% YEAR-ON-YEAR CONTRACTION WITH TOTAL SALES WEIGHING IN AT 956,194 UNITS.
Total Domestic Market (units) 2016 2017 Change % Automobiles 756,938 722,759 -4.5% Light Commercial Vehicles 226,782 233,435 2.9% Total 983,720 956,194 -2.8%
36 Tofaş 2017 Annual Report Tofaş at a Glance
IN WHAT WAS THEIR FIRST DOMESTIC MARKET RETAIL SALES Management Retail sales of passenger cars in the Turkish domestic COMPLETE YEAR ON THE RETAIL market fell by 4.5% year-on-year in 2017 and amounted to MARKET, SALES OF THE FIAT 722,759 units. All of the passenger car brands in the Tofaş portfolio, consisting of Fiat, Jeep, Alfa Romeo, Maserati, and EGEA HATCHBACK AND STATION Ferrari commanded an overall market share of 8.9% sales WAGON MODELS ALSO HELPED with 64,133 units sold. By outperforming the sector as a whole in growth, the company’s market share increased by BOOST THE COMPANY’S SHARE 1.6 percentage points in 2017. OF THE OVERALL PASSENGER Having controlled a 6.9% share of domestic market
CAR MARKET. passenger vehicle sales in 2016, the successful Activities performance of the Fiat Egea family increased that to 8.5% TOFAŞ’S DOMESTIC MARKET SHARES (%) in 2017. Sales of close to 43 thousand units made the Fiat Egea Sedan Turkey’s best-selling car for the second consecutive year. In what was their first complete year on the retail market, sales of the Fiat Egea Hatchback and 27.5 Station Wagon models also helped boost the company’s 25.1 25.6 25.1 23.7 share of the overall passenger car market.
The light commercial vehicle market, in which total sales amounted to 233,435 units, grew by 2.9% year-on in 2017. Tofaş’s own sales to this market increased by 9.2% and maintained its second-place position with a 25.1 market Sustainability 8.9 8.0 share. Tofaş’s Doblò and Fiorino models also were the 7.3 7.3 7.1 leaders of their own segments with a 9% year-on rise in their total sales.
2013 2014 2015 2016 2017 The Fiat brand controlled a 12.6% market share in the 2017 Passenger Cars Light Commercial Vehicles Turkish automotive retail market’s total of 956,194 vehicles with 120,049 units sold. This performance corresponds to a 1.8 percentage-point year-on rise.
+12.8% With 122,818 units sold, Tofaş’s Fiat, Jeep, Alfa Romeo, WITH 122,818 UNITS SOLD, TOFAŞ’S FIAT, JEEP, Maserati, and Ferrari brands commanded an overall
ALFA ROMEO, MASERATI, AND FERRARI BRANDS market share of 12.8%. In 2016 these numbers were 11.1% Corporate Governance COMMANDED AN OVERALL MARKET SHARE OF and 109,022 respectively. 12.8%.
Tofaş’s Domestic Market Retail Sales (units) 2016 2017 Change % Automobiles 55,285 64,133 16.0% Light Commercial Vehicles 53,737 58,685 9.2% Total 109,022 122,818 12.7% Financial Information
37 Tofaş 2017 Annual Report
THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S PLACE IN THE SECTOR
TOFAŞ’S EXPORT SALES EXPORTS The combined EU and EFTA market for passenger vehicles AMOUNTED TO 271 THOUSAND experienced a 3.3% rate of year-on growth in 2017. UNITS IN 2017. Looking at a country-by-country breakdown of sales we see that growth took place in every European national market except that of the UK. At 7.9%, sales grew fastest in Italy, which was also the country that contributed significantly to Tofaş’s export performance last year.
Turning now to the European light commercial vehicle market we see that there was a 3.9% rate of growth in 2017. By contrast in Italy, all of whose other market TOFAŞ’S ANNUAL EXPORT REVENUES (TL MILLION) segments performed comparatively well, the LCV segment shrank by 3.4% last year owing to the high base created by 11,888 a surge in fleet renewals that took place in 2016 on the one hand and to the termination of incentives on the other. 9,839 Tofaş for its part experienced a 3.1% year-on decline in its export sales in 2017 with a total of 270,760 units being shipped abroad. This performance nonetheless gave the 5,729 company a 20.3% share of Turkey’s overall exports last 4,069 4,297 year.
Although the company’s exports in the first half of the year were up thanks largely to sales of members of the Fiat Egea/Tipo (Dodge Neon) family, that performance stumbled 2013 2014 2015 2016 2017 in the second half and fell 3.1% short of 2016’s figures owing to FCA’s focus on stock management on the one hand and to the adverse impact that below-expectations fleet sales in Europe had on Tofaş’s exports.
Notwithstanding all of these developments, Tofaş’s export +20.8% revenues in 2017 were up by 20.8% year-on and reached TL 11,888 million in value. TOFAŞ’S EXPORT REVENUES IN 2017 WERE UP BY 20.8% YEAR-ON-YEAR.
Export Sales (units) 2016 2017 Change % Passenger Cars 139,629 152,089 8.9% Light Commercial Vehicles 139,908 118,671 -15.2% Total 279,537 270,760 -3.1%
38 Tofaş 2017 Annual Report Tofaş at a Glance Management Activities
PRODUCTON PASSENGER CARS AND LIGHT The 384,174 vehicles produced by TOFAŞ single-handedly accounted for 23% of the Turkish automotive industry’s COMMERCIAL VEHICLES Sustainability total output last year. This is the highest single-year RESPECTIVELY ACCOUNTED production volume in the Turkish automotive industry’s history. FOR 55% AND 45% SHARES OF TOFAŞ’S TOTAL SALES.
Production (units) 2016 2017 Corporate Governance Linea 7,526 9,801 Egea Sedan 80,707 76,194 Egea Hatchback 49,657 63,077 Egea Station Wagon 20,124 39,348 Doblò 5,233 - New Doblò 137,847 116,891 MCV 82,397 78,863 Total 383,491 384,174 Financial Information
39 Tofaş 2017 Annual Report
THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S PLACE IN THE SECTOR
THANKS TO THE SUCCESSFUL SALES AND TURNOVER PERFORMANCE Thanks to the successful performance of the Egea family, PERFORMANCE OF THE EGEA Tofaş’s sales of passenger vehicles to the Turkish domestic FAMILY, TOFAŞ’S SALES OF market grew by 16%, a rate that was higher than that of the same market as a whole in 2017. In domestic sales of PASSENGER CARS TO THE light commercial vehicles, the 9.2% rate of growth achieved TURKISH DOMESTIC MARKET by Tofaş as compared with 2016 was also above the sectoral average. The launch of the 1.4 petrol version of GREW BY 16%, A RATE THAT the Fiat Fiorino in September made an especially favorable WAS HIGHER THAN THAT OF THE contribution to market share growth.
SAME MARKET AS A WHOLE IN As compared with 2016, Tofaş’s exports were down by 2017. 3.1% year-on in 2017 and weighed in at 270,760 units sold. Exports of cars however were up by nearly 10% during the same period: it was the 16% or so year-on drop in light commercial vehicle sales that brought about the overall decline.
40 Tofaş 2017 Annual Report Tofaş at a Glance
Sales (TL thousand) 2016 2017 Change % Export Sales 9,839,301 11,887,628 20.8% Domestic Sales 4,291,021 5,409,421 26.1% Other Income from Operational Activities 105,629 170,757 61.7% Total 14,235,951 17,467,806 22.7% Management Sales (units) Domestic Sales Change Export Sales Change Total Change 2016 2017 % 2016 2017 % 2015 2016 % Passenger Cars 55,899 63,569 13.7 139,629 152,089 8.9 195,528 215,658 10.3 Light Commercial 56,591 59,238 4.7 139,908 118,671 -15.2 196,499 177,909 -9.5 Vehicles Total 112,490 122,807 9.2 279,537 270,760 -3.1 392,027 393,567 0.4
2016 2017 Change (units) Domestic Sales (units) 112,490 122,807 10,317
Manufactured 100,884 111,295 10,411 Activities Linea 7,298 8,436 1,138 Egea Sedan 34,796 42,873 8,077 Egea HB & SW 4,153 4,361 208 New Doblò 28,604 27,970 -634 Fiorino 22,971 27,655 4,684 Minicargo (PSA) 3,062 - -3,062 Imported 11,606 11,512 -94 Ducato 5,461 5,493 32 Fiat 500 2,224 1,644 -580 Jeep 2,007 2,301 294
Fullback 457 1,129 672 Sustainability Grande Punto 563 371 -192 Alfa Romeo 625 311 -314 Panda Futura 133 103 -30 Maserati 72 85 13 Ferrari 17 16 -1 Fiat 124 Spider 2 59 57 Freemont 4x4 43 0 -43 Bravo 2 0 -2 Export Sales (units) 279,537 270,760 -8,777 Linea 355 - -355 Tipo Sedan 45,998 30,473 -15,525
Tipo HB & SW 65,108 98,191 33,083 Corporate Governance Doblò 5,236 0 -5,236 New Doblò 63,631 58,289 -5,342 GM (Opel, Vauxhaul) 25,556 19,346 -6,210 Ram Promaster City 18,173 12,651 -5,522 Minicargo (Fiat) 40,842 37,351 -3,491 Minicargo (PSA) 14,544 14,395 -149 Diğer 94 64 -30 Total 392,027 393,567 1,540 Financial Information
41 Tofaş 2017 Annual Report
THE TURKISH AUTOMOTIVES INDUSTRY AND TOFAŞ’S POSITION IN IT
IN THE EUROPEAN UNION’S 2017 INVESTMENTS AND R&D EXPENDITURES The Egea Project accounted for the biggest share of SURVEY OF R&D EXPENDITURES, investment outlays in 2017. TOFAŞ RANKED FIRST AMONG In the European Commission Joint Research Center’s ALL TURKISH COMPANIES. annually-compiled R&D investments score list, Tofaş ranked in first place in Turkey with the R&D investments that it carried out in 2017. This was the third year in a row that Tofaş experienced the pride of having spent more on R&D than any other company in Turkey.
2017 investments EUR million New Doblò 24 Egea family 89 Minicargo 13 Structural 31 Total 157
TOFAŞ REACHED HISTORICALLY PROFITABILITY Tofaş reached historically high levels of profitability in HIGH LEVELS OF PROFITABILITY 2017 in all income items such as turnover, EBITDA, pre-tax IN 2017 IN ALL INCOME ITEMS. profit, and net profit. The company’s consolidated pre-tax profit was up by 54% year-on and reached TL 1,229 million while its net profit grew by 32% and weighed in at TL 1,283 million.
Years EBITDA Profit before Tax Net Profit TL thousand Change % TL thousand Change % TL thousand Change % 2013 816,735 -2.10% 477,075 -4.10% 434,223 -1.80% 2014 815,607 -0.10% 472,253 -1.00% 574,238 32.20% 2015 1,062,668 30.30% 617,987 30.90% 830,801 44.70% 2016 1,366,148 28.60% 797,936 29.10% 970,228 16.80% 2017 2,002,064 46.50% 1,229,472 54.10% 1,282,818 32.20%
42 Tofaş 2017 Annual Report Tofaş at a Glance
Net PROFIT (TL THOUSAND)
1,282,818
970,228 +32.2% 830,801 UP BY 32.2% IN 2017, TOFAŞ’S NET PROFIT AMOUNTED TO TL 1,283 Management 574,238 MILLION. 434,223
2013 2014 2015 2016 2017
Profit before Tax (TL THOUSAND) Activities
1,229,472 +54.1% THE TL 1,229 MILLION PRE- 797,936 TAX PROFIT THAT TOFAŞ 617,987 BOOKED IN 2017 WAS UP 477,075 472,253 BY 54.1% YEAR-ON. Sustainability
2013 2014 2015 2016 2017
EBITDA (TL THOUSAND)
2,002,064 +46.5% Corporate Governance 1,366,148 GROWING BY 46.5% IN 2017, TOFAŞ’S EBITDA 1,062,668 REACHED TL 2,002 MILLION. 816,735 815,607
2013 2014 2015 2016 2017 Financial Information
43 Tofaş 2017 Annual Report
BRANDS & PRODUCTS
FIAT Egea Linea
Production of Fiat Egea commenced on 28 September First produced at the Tofaş plant in 2007, Fiat Linea was 2015 and the new cars started appearing on Turkey’s revamped in 2012. By 2015 its bold design, innovative roads two months later in November. The car’s engineering technology, appealing accessory options, and a range of works were carried out mainly by the Tofaş R&D Center in engine choices combining economy and performance had collaboration with FCA. Fiat Egea has already earned itself made it the number-one choice of families and businesses a special place in the history of the Turkish automotive as well as Turkey’s most popular car. Production of the industry as a project that was entirely authored by Tofaş Linea model ceased in 2017. from start to finish. 500 Built in Bursa and exported all over the world, Fiat Egea was voted “Best-Buy Car Of The Year in Europe” at AutoBest 2016. Fiat Egea comes in a broad range of sedan, hatchback, and station wagon body types. Thanks to its stylish design, comfort, affordability, and fuel economy, Fiat Egea succeeded in becoming Turkey’s most popular automobile for two years in a row in 2016 and 2017.
ENTIRELY AUTHORED BY TOFAŞ FROM START TO FINISH, FIAT EGEA HAS ALREADY EARNED ITSELF A SPECIAL PLACE IN THE Deftly combining its 60 years of inherited DNA with new trends in design and offering many opportunities to HISTORY OF THE TURKISH personalize design details and features, Fiat 500 appeals AUTOMOTIVE INDUSTRY AND especially to young drivers and to those who are young at heart in general. With its smart, electrically-operated SUCCEEDED IN BECOMING open roof, the 500C version of Fiat 500 remains the only TURKEY’S MOST POPULAR convertible in its class on sale in Turkey today. Voted “Car AUTOMOBILE FOR TWO YEARS IN A ROW IN 2016 AND 2017.
44 Tofaş 2017 Annual Report Tofaş at a Glance
Of The Year” in 2008, Fiat 500 was given a makeover in Punto 2015 in a process that was careful to preserve the car’s unique character and style while adding new-generation technology, personalization, and comfort features. The revamped Fiat 500’s timeless look and feel ensures its distinctive place in the automotive industry.
500L Management
One of the leaders of Turkey’s fiercely-competitive small hatchback segment, Fiat Punto’s attractive design, unrivalled equipment features, and fuel-economy engine options have made it a preferred choice especially among young people and families. Activities
Panda Going on sale in May 2013 and appealing to families that want to distinguish themselves with style, the 500L quickly became the leader of a segment of which it now controls a nearly 80% market share. While a second-generation model of Fiat 500L appeared made its appearance after undergoing a makeover in 2017, the car still offers the same roominess, functionality, attractive design, and drive features that combine “multipurpose family car” and “crossover” characteristics in a single model. Sustainability 500X
Panda is Fiat’s offering in the A segment. On sale in Turkey ever since its introduction in 2004, the car’s convenience of use on city streets, relatively larger dimensions for its class and superior functionality make it a preferred choice. Corporate Governance
Put on sale in May 2015, Fiat 500X is the newest addition to the 500 family. The family’s sportiest member, Fiat 500X’s standard-transcending quality, technical infrastructure, technology, active and passive safety features, and comfort options position it as one of the boldest offerings in the crossover segment. Financial Information
45 Tofaş 2017 Annual Report
BRANDS & PRODUCTS
FIAT PROFESSIONAL Doblò Fiorino
Its basic model having been in continuous production since A product of Tofaş’s Minicargo project, Fiorino set a new 2000, a redesigned and reequipped new-generation Doblò milestone in Tofaş’s history when the one-millionth vehicle appeared on the Turkish market in January 2015. Besides rolled off the assembly line in 2016. Both a pioneer and a offering advanced durability, performance, and leader as the hallmark of a class of its own, Fiat Fiorino is convenience features, Doblò comes in different body one of the best-selling light commercial vehicles in the options providing up to a one-ton carrying capacity and a Turkish market. Undergoing a makeover in April 2016, the load volume of 5.4 m3 along with a roomy interior and Premio version of Fiorino is admired for the extra economic engine options that continue to make it the convenience and comfort made possible by added new preferred choice of big families as well as of tradesmen features like cruise control and heated seats. Fiat Fiorino and artisans. A steadfast companion of those doing remains the preferred choice of families thanks to its business in the Turkish and European markets, RAM- design and usability features on the one hand and of badged Doblòs went on sale in the North American market business owners thanks to its economy and practicality on as the ProMaster City in March 2015. In 2016 and then the other. again in 2017 the ProMaster City was chosen by Green Car Journal as “Commercial Green Car of the Year”. This is the first time a vehicle has won that award for two years in a row. IN 2016 AND THEN AGAIN IN 2017 THE DOBLÒ WAS CHOSEN AS “COMMERCIAL GREEN CAR OF THE YEAR” IN USA. THIS IS THE FIRST TIME A VEHICLE HAS WON THAT AWARD FOR TWO YEARS IN A ROW.
46 Tofaş 2017 Annual Report Tofaş at a Glance
Pratico has also brought something new to the table. Flexibility, engine capacity, and low operating costs continue to make Ducato one of Europe’s most popular commercial vehicles while a presence in more than 80 countries around the world is evidence of the line’s successful fulfillment of its global mission. Ducato has always been the best-selling imported model in its class in Turkey because of its ability to respond to the diverse needs of different customer groups with its van, pickup, minibus, and coach versions. Management Wide rear and side doors for example make Ducato van very easy to load and unload. Ducato pickup offers four different cab sizes capable of accommodating three to seven people and a wide range of body and conversion options that make it a highly flexible choice for individual As the flatbed-van model of Fiat commercial vehicle family, transport requirements. The minibus and coach versions of the compact design and maneuverability of the Pratico Ducato likewise offer a wide range of multiple solutions for make it easy to drive in city traffic. Practico’s fuel economy, those who regularly need to transport students, personnel, load capacity, safety features, and comfort set the and other passengers from one place to another. standards of its class. A new-generation version of Practico Activities with the same chassis as that of Doblò distinguishes it from Fullback other models in its class while a carrying-capacity of up to one metric ton makes it especially useful for those who need to get around in city traffic.
Ducato Sustainability
The newest addition to Fiat commercial vehicle family, a “double-cab” body version of Fiat Fullback appeared for sale on the Turkish market for the first time in June 2016. 150 HP and 180 HP versions of the Fullback are on offer with 2.4 liter turbo diesel engine options. Fiat Fullback is an In the 35 years since the introduction of its first model, all-round pickup capable not only of satisfying all of the Ducato has constantly evolved and firmly established itself demands of professional use but also of fulfilling all the as the most successful vehicle in its class. Ducato’s requirements of everyday life. innovative solutions continue to ensure that it meets the needs of commercial users. Front-wheel drive, a powerful Corporate Governance engine, and capacious loading-carrying space were revolutionary in the commercial vehicle market when they first appeared in 1981 and every new version since then Financial Information
47 Tofaş 2017 Annual Report
BRANDS & PRODUCTS
ALFA ROMEO Giulietta enjoyment. Offering the best acceleration performance in its class, Stelvio distinguishes itself from its rivals by virtue of its Q4 AWD traction system and its perfect weight balance. What’s more thanks to its first-class technology and innovative platform, Stelvio achieved a 5-star Euro NCAP rating by racking up 97 out of 100 safety points for adult occupants. The vehicle’s 2.0 liter 280 HP AWD system brings new features hitherto never seen in the SUV category.
Giulia
First introduced by Alfa Romeo in 1954 and manufactured for eleven years, the legendary Giuletta has since been reintroduced twice: first in 1977 and again most recently in 2010. As Alfa Romeo’s representative in the compact hatchback class, Giulietta is especially preferred by style-conscious owners who like attractive design, powerful petrol and diesel engines, superior drive quality, and comfortable interiors.
Stelvio
Outstanding in its class by virtue of its unrivalled style and safety and achieving a perfect balance between form and function for an excellent driving experience, Alfa Romeo Giulia made its first appearance on the Turkish market in 2017 and quickly established a position for itself in the sedan segment by introducing a new point of view that focuses on interior and exterior design features that take their cue from racing technology, high-quality materials, superior performance, and 2.0-liter 200 HP and 280 HP engines as well as a 2.9-liter 510 HP engine.
Alfa Romeo set a new milestone in its 107-year history with the 2017 introduction of Stelvio, its first offering in the SUV ALFA ROMEO SET A NEW market. Alfa Romeo Stelvio is a perfect synthesis of a MILESTONE IN ITS 107-YEAR high-performance road vehicle combined with the traditional comfort of an SUV in that it embodies Alfa HISTORY WITH THE 2017 Romeo’s new approach to both design and driving INTRODUCTION OF STELVIO, ITS FIRST OFFERING IN THE SUV MARKET.
48 Tofaş 2017 Annual Report Tofaş at a Glance
JEEP® NEW Compass Grand Cherokee
Management
The new Jeep Compass, introduced to the Turkish market Jeep’s entry in the full-sized SUV market, the legendary 4x4 in 2017, distinguishes itself from the competition with a Grand Cherokee was revamped in 2013. Grand Cherokee completely overhauled design, superior 4x4 performance, is powered by a 3.0-liter diesel engine and is available with and engine options consisting of a 1.6-liter 120 HP manual two different sets of equipment options. The vehicle’s Activities transmission together with a 1.4 or 2.0-liter 170 HP attention-grabbing on-road driving comfort, advanced automatic transmission. Jeep Compass perpetuates Jeep’s technology, and luxurious interior are matched by superior legendary off-road tradition while introducing such off-road performance that is delivered by Jeep-patented innovations as an 8.4-inch Uconnect screen, more than 70 Quadra-Lift and Selec-Terrain four-wheel drive systems. safety features, an interior design equipped with premium With 7.82 m3 of baggage space (15.54 m3 when the rear details, and true 4x4 performance. In what represents a seats are folded down), Grand Cherokee offers much more new and bold step in Jeep marque’s design, Jeep Compass space for both cargo and passengers. has established a unique place for itself in the SUV market with a brand-new interpretation of Jeep’s iconic seven-slot grille.
Wrangler THE NEW JEEP COMPASS, Sustainability INTRODUCED TO THE TURKISH MARKET IN 2017, DISTINGUISHES ITSELF FROM THE COMPETITION WITH A COMPLETELY OVERHAULED DESIGN, SUPERIOR 4X4 PERFORMANCE. Corporate Governance
Wrangler is the iconic heir of seven decades of Jeep experience in civilian off-road vehicle design and manufacture. Features such as superior ground clearance, approach and departure angle, and turning-radius and wheelbase ratings together with the most-reliable and deepest (76 cm) water-fording capabilities in its class are among the reasons why Jeep Wrangler is regarded as the best of its breed. Financial Information
49 Tofaş 2017 Annual Report
BRANDS & PRODUCTS
Renegade Cherokee
Designed in the USA and built in Italy, the Renegade is the Appearing on the Turkish market in 2014, this addition to newest and smallest offering in the Jeep family’s bid to Jeep Cherokee line stands out from its competitors by become a fast-growing global brand-name. Jeep Renegade virtue of its completely new design, a fuel-efficient and was first introduced to consumers in Turkey in 2014. In eco-friendly 2.0-liter 170 HP engine, and the first 9-speed 2015 two versions were added to the product line: a automatic transmission in this class. Other distinguishing 1.4-liter 140 HP petrol-engine model equipped with an attributes are superior road handling, the best 4x4 model automatic transmission and a 1.6-liter 120 HP diesel- in its class, more than 70 advanced safety features, and engine model equipped with a standard transmission. first-class driver-customization technology. With Boasting more than seventy advanced safety features, the dimensions specifically designed to maximize performance Renegade smartly combines innovative design sensibilities efficiency, this new Jeep Cherokee is a successful carrier of with the legacy of the Jeep name. With its boldly assertive Jeep’s legendary DNA in the SUV market. exterior, superior material and build quality, exciting color options, and energetic new interior, this vehicle is a worthy LANCIA descendant of its legendary ancestor the 1941 Willys MB. In line with FCA strategic decisions, all models in Lancia Vibrant and rugged design, innovative technology, and a series have been dropped except for Ypsilon, which state-of-the-art entertainment system make the new Jeep continues to be sold in Italy. Sales of Lancia vehicles were Renegade a head-turner wherever it goes. therefore suspended in Turkey in 2015, though after-sales services will of course continue to be provided.
50 Tofaş 2017 Annual Report Tofaş at a Glance
DEALERSHIP NETWORK Management Activities
The dealership network for the brands that Tofaş COMPREHENSIVE SERVICE SUPPORTED BY STRONG represents provides customers with a full range of services BRANDING AND AN EXTENSIVE DEALERSHIP consisting of new car sales, second-hand car sales, NETWORK Sustainability technological infrastructure-supported after-sales services, With 79 dealerships located all over Turkey, Tofaş’s maintenance & repair services, and spare parts. superior logistical and distribution competencies, advanced after-sales services capabilities, and the long-term and trust-based business relationships that it enters into with its dealers are all factors that constantly enhance the customer satisfaction to which the company gives such THE TOFAŞ DEALERSHIP importance. NETWORK SERVES FIAT, ALFA Today nearly every node in the Tofaş dealership network ROMEO, AND JEEP VEHICLES. complies with the network’s “Integrated 3S” design 74 ARE FIAT MAIN DEALERSHIPS specification, which means that customers can find
sales, services, and spare parts at a single location. Corporate Governance AND 15 ARE ALFA ROMEO-JEEP Besides selling new cars and providing after-sales MAIN DEALERSHIPS. services and spare parts, some Tofaş dealerships also provide customers with such additional services such as compulsory and optional insurance coverage, and vehicle financing.
The Tofaş dealership network serves Fiat, Alfa Romeo, and Jeep vehicles. 74 are Fiat main dealerships and 15 are Alfa Romeo-Jeep main dealerships. Financial Information
51 Tofaş 2017 Annual Report
DEALERSHIP NETWORK
Fiat Alfa Romeo-Jeep Tofaş has 74 Fiat dealerships located all over Turkey. In The Tofaş network consists of fifteen Alfa Romeo-Jeep order to be nearer to their customers and also to provide dealerships. all of which are “3S” dealerships, which means them with better service, many Fiat dealerships also that they provide sales, services, and spare parts at a operate sales and services outlets at locations other than single location. There are also five “2S” (services & spare their main one. There are currently 41 such sales and parts) authorized services outlets, four of which cater to all service satellites in the Fiat dealership network. Besides marques, while the remaining one services only Jeeps and these, there are also 33 authorized service outlets, whose Lancias. operations are covered by agreements with a primary dealer and which only provide after-sales services. Taking Tofaş’s Alfa Romeo-Jeep dealerships are distinguished all of these into account, Fiat serves customers through by years of professional service and levels of investment 112 sales and 130 services locations. in their business operations that are well above sectoral averages. Located in the provinces of Ankara, Antalya, Tofaş has at least one showroom in 64 of Turkey’s 81 Bursa, Gaziantep, İstanbul, Mersin, Tekirdağ, Trabzon, provinces and at least one services outlet in 59 of them. and Muğla, Alfa Romeo-Jeep dealerships and authorized These numbers rank Tofaş among the country’s top three services employ a total of 325 people. automotive brands from the standpoint of sales and services network accessibility. The Fiat dealership network provides employment for a total of 5,531 people.
Besides having one of the most extensive reaches in Turkey, dealers who make up the Tofaş dealership network have been in business for over 20 years on average.
52 Tofaş 2017 Annual Report Tofaş at a Glance
SUBSIDIARIES
KOÇ FIAT KREDİ IS A CAPTIVE Koç Fiat Kredi, in consequence of the customer-centric Management approach, service quality, flexibility, innovation, dynamic FINANCE COMPANY THAT business processes and efficient applications, provides PROVIDES INTEGRATED financing to the consumers purchasing Fiat brand in particular, as well as the customers of Alfa Romeo, Jeep®, FINANCIAL SERVICES, THROUGH Ferrari, Maserati, and Iveco brands domestically sold and 81 DEALERSHIPS, TO ALL OF also finances the second hand sale of such vehicles. Credit products are offered to the consumers directly at the THE BRANDS REPRESENTED BY brands’ sales points, therefore providing financial solutions TOFAŞ. that enable consumers to complete the purchasing process from start to finish at the dealership. Activities In 2017, KFK maintained its penetration among the brands that it renders services and continued to improve its service level. Last year, the Company processed 223 KOÇ FIAT KREDİ FİNANSMAN A.Ş. thousand credit applications (2016: 196 thousand) and lent Koç Fiat Kredi Finansman A.Ş. (KFK) is a captive finance out total amount of 2,390.2 million TL to finance purchases company that provides integrated financial services, of 59,344 vehicles. KFK’s market share among other finance through 81 dealerships, to all of the brands represented by companies increased to 9.7%, while the Company financed Tofaş. 2017 has been once again a successful year in which 43.3% of Tofaş total sales and 68% of Tofaş’s retail sales. KFK continued to support Tofaş’s sales and to progress in line by satisfying both the dealers’ and the customers’ Customer experience-focused practices and needs. processes KFK continues to maintain its competitiveness with Sustainability KFK was originally established on 6 March 2000, as a innovative products, services, and business processes consumer-finance company and as a joint venture of through mobile applications and online projects and the Koç and Fiat Groups in which each controlled a 50% to develop projects that create a digital lean working stake, with an objective of providing financing to all motor environment focused on increasing dealer and end vehicles manufactured by Tofaş under the FCA license and customer experience. mobile and web-based projects and/or imported FCA vehicles into Turkey and of all kinds which aim to enhance the dealer and customer experience. of merchandises, goods and services related to these vehicles. In the context of technological developments, the digitalization journey was initiated at the end of 2014 with Respectively, Fiat Group in 2002 and Koç Group in 2003 the “DigiBayi” mobile application, which was launched transferred their shares to Tofaş Türk Otomobil Fabrikası on the application screens of the dealers. At the FinTech
A.Ş. On 8 December 2011, a capital increase in the amount conference organized by International Data Corporation Corporate Governance of 15 million TL has been made by Tofaş. Thus, the (IDC) in 2016, the application was awarded third place in Company’s paid-in capital increased from 30 million TL to the category of “Digital Channels” following two leading 45 million TL. banks in finance technologies such as Akbank and Garanti Bank. Financial Information
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SUBSIDIARIES
The company’s document management system has been Highlights 2017 moved to a fully mobile environment combining the Outstanding Portfolio (TL mn) 2.509,9 features of designing the dealers’ operational screens to Outstanding Financed (units) 105.831 be compatible with “smart” devices, providing “take picture Penetration (excluding big fleet sales) 68,0% and send” option for the credit application supporting Penetration (total Tofaş sales) 43,3% documentation to be recorded directly into the system and Loan applications (units) 223.124 sending the credit applications to be electronically archived Financed units (total) 59.344 through integration with DigiBayi infrastructure. Financed units (Tofaş) 53.016 Financed units (2nd-hand + Iveco) 6.328 The Company’s first end-customer contact on online Financed amount (total) (TL mn) 2.390,2 platform realized in 2015 with the introduction of a Profit before tax (TL mn) 75,4 web-based application “Online Credit Application” which provides the ‘’individual’’ customers to make a pre- application for automotive loan, from wherever they may The company’s growing loan portfolio is mainly funded by be, through KFK’s website and Brand websites. bank loans and issuance of marketable securities. By year- end 2017, the total value of such resources reached to 2,5 In 2017, KFK continued to carry out its projects and works billion TL. The outstanding nominal value of the marketable on technological areas and especially in the direction of securities was 443,2 million TL. exploiting digitalization. With the launch of the 2nd phase of the online application module, all stages of the vehicle In a report published by SAHA Corporate Governance and loan application processes ‘’end to end’’ moved into the Credit Rating Services Inc, a rating agency licensed by the digital environment from the pre-application status. In Turkish Capital Markets Board, in 2017 KFK’s short-term addition, the first application of the sector, which enables national credit rating was confirmed as (TR) A1+ while its the corporate customers to fulfill all phases of their long-term national credit rating was raised to (TR) AA. loan application completely on this platform, has been implemented. At the Extraordinary General Meeting of Koç Fiat Kredi Finansman A.Ş. that was held on 7 December 2017, a KFK will continue to provide versatile financial solutions decision was taken to pay a dividend on 29 December to its customers with quality, fast service approach and 2017. As a result of deliberations it was unanimously strong collaboration with Tofaş and Dealer network. The decided: Company’s goal is to increase brand awareness, market share, customer and dealer loyalty and become one of the That TL 50,000,000 (fifty million Turkish liras) of the leading players in the automotive finance sector with new extraordinary reserves set aside pursuant to the Turkish products and services developed using the opportunities Commercial Code will be paid out to shareholders as a offered by digital technologies. cash dividend on 29 December 2017 at the rate of TL 1.1111 (net) for each share of stock;
That, pursuant to article 519 of the Turkish Commercial Code, TL 5,000,000 (five mn Turkish liras) will be set aside as a second-order statutory reserve. The dividends were TL 75.4 million paid on 29 December 2017. KOÇ FIAT KREDİ POSTED A PROFIT BEFORE TAX OF TL 75.4 MILLION IN 2017.
54 Tofaş 2017 Annual Report Tofaş at a Glance
The company Annual General Meeting for 2017 will be held Maserati on 23 February 2018. The Board of Directors proposed the profit distribution as that the amount remaining after mandatory statutory reserves have been set aside to be retained in the company as an extraordinary reserve. In 2017, with the effect of the dividend payment, respectively the shareholders’ equity amounted to TL 143 million. Management FER MAS OTO TİCARET A.Ş. Fer Mas Oto Ticaret A.Ş. commenced operations at its headquarters building and showroom in İstanbul in 2005. At the time, the company also serviced Ferrari and Maserati vehicles at the latter location. In 2009 the company further expanded the scope of its after-sales services and improved customer satisfaction with the opening of a new Between 1998 and 2005, sales of Maseratis averaged five a services outlet. year in Turkey. Fer Mas sold 10 Maseratis in its first year in operation alone and sales of these cars increased fairly Fer Mas engages in intensive communication activities in steadily thereafter. In 2016 Maserati joined the fray in the line with its efforts to effectively position both the Ferrari SUV market with the launch of the Levante, a new SUV Activities and the Maserati names in the Turkish market. These model that also completed its product line in the luxury activities focus on increasing brand awareness, brand segment. In 2017 Fer Mas sold a total of 84 Maseratis, 76 consciousness, and brand visibility. of which were retail sales.
Ferrari In 2017 Birmot, an Otokoç Otomotiv-owned operation, opened the doors to its new Ankara showroom, thereby becoming the second venue for the sale of Maserati- badge cars represented by Tofaş-owned Fer Mas in Turkey after İstanbul. Officially opened in April of last year, this second Maserati showroom in Ankara was followed by the country’s third, the Mengerler Bursa Maserati Showroom, which commenced operation in September. A fourth Sustainability Maserati showroom, this one owned by Birmot, opened in Antalya in late November last year.
In the years between 1998 and Fer Mas’s establishment in 2005, an average of eight Ferraris a year were sold in Turkey. Since the latter year that number has been edging up. The 812 Superfast, which was shown off at the Geneva Motor Show in March 2017 and which is the fastest Ferrari ever built, was introduced to mark Ferrari’s 70th year in Corporate Governance business. The Portofino, which was introduced in the second half of the year as Ferrari’s new entry-level GT model, sold sixteen units in Turkey in 2017. Financial Information
55 R&D STRENGTHS INTEGRATING DESIGN PROCESSES INTO ALL OF ITS R&D EFFORTS, THE TOFAŞ R&D CENTER KEEPS A CLOSE WATCH ON TECHNOLOGICAL DEVELOPMENTS WHILE ALSO CONTRIBUTING DIRECTLY TO TECHNOLOGICAL ADVANCES ITSELF.
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RESEARCH & DEVELOPMENT
EVER-GREATER CONTRIBUTIONS TO THE NATIONAL THE TOFAŞ R&D CENTER IS ECONOMY EQUIPPED WITH EVERYTHING Founded in 1994, the Tofaş R&D Center seeks to contribute to the national economy by developing passenger and IT NEEDS TO COMPETE WITH commercial vehicles that are outstanding not only by EUROPE’S BEST IN THE AREA OF virtue of their technical superiority but also because of their innovative engineering design details. Equipped with VEHICLE R&D. AS IT INTEGRATES everything it needs to compete with Europe’s best in the DESIGN PROCESSES INTO area of vehicle research and development, the Tofaş R&D Center was designated a formally-licensed R&D center by ALL OF ITS R&D WORK, THE the Turkish industry and trade ministry in 2008. CENTER NECESSARILY KEEPS With a total of 18,092 m2 of laboratory and office space, a A CLOSE WATCH ON THE staff of nearly 700, fully-equipped high-tech facilities, and LATEST DEVELOPMENTS IN a diversified range of capabilities, the Tofaş R&D Center is FCA’s only research and development center serving the TECHNOLOGY WHILE ALSO European market that is not located in Italy. CONTRIBUTING DIRECTLY TO In the European Union’s ranking of companies based on TECHNOLOGICAL PROGRESS their R&D investments, Tofaş has ranked first in Turkey ITSELF. for three years in a row. In the European Commission Joint Research Center’s R&D investments score list, Tofaş shot up twelve places to 535th as a result of the R&D investments that it carried out in 2017.
58 Tofaş 2017 Annual Report Tofaş at a Glance
Tofaş’s research and development operations are PRODUCT DEVELOPMENT COLLABORATIONS THAT informed by three fundamental and interlocking concerns: CREATE ADDED VALUE environmental sustainability, social sustainability, Turkey’s ability to increase its international visibility and and competency. The Tofaş R&D center’s focus on viability as a product development center is contingent environmental sustainability addresses such issues as in no small part on its ability to simultaneously address vehicle electrification and reducing vehicles’ weights and all of the elements of the R&D value-creation chain. This energy consumption. The company regards it as one of is why Tofaş gives special importance to joint design and
its priorities to develop its competencies in these areas development projects, to marshalling the resources of Management as the owner of a global R&D center in which Fiat Chrysler local engineering firms, and to working together with Automobiles’ advanced engineering work takes place. universities. In line with the Tofaş R&D Center’s strategic objectives, the company also supports research projects that will Believing that university-industry collaborations also lead to gains in product development and manufacturing need to be undertaken in parallel with efforts to develop technology knowhow. The Tofaş R&D Center possesses technology, Tofaş R&D worked on about 120 joint projects all of the product engineering design and analysis with sixteen universities between 2006 and 2017. competencies needed to completely design a vehicle from start to finish. In the many projects that are undertaken with the support of the Scientific and Technological Research Council of
As of 2017, the total value of all of the design and test Turkey and of the European Union, the Tofaş R&D Center Activities infrastructure investments completed at the Tofaş R&D also works together with university faculty members as well Center in the areas of vehicles’ concept, styling, bodywork, as with the Fiat Chrysler Automobiles Research Center and interior design, suspension, engines, emissions, vibration, various international design centers. and acoustics aspects topped EUR 45 million. THE FIRST AND ONLY TURKISH FIRM TO SERVE R&D AND PRODUCT DEVELOPMENTS COMPETENCIES AS A PROJECT LEADER IN THE DEVELOPMENT OF STRENGTHENED THROUGH DIFFERENT PROJECTS MANUFACTURING TECHNOLOGIES Because it integrates design processes into all of its Having increased the number of EU Research Projects research and development work, the Tofaş R&D Center (H2020, FP7, and Eureka) in which it is active to 16, Tofaş necessarily keeps a close watch on the latest developments R&D also collaborates with nearly 200 international project in technology while also contributing directly to partners. Tofaş was the first–and is still the only–Turkish technological progress itself. company to serve as a product technologies project leader Sustainability by virtue of its involvement in the ROBO-PARTNER project The Tofaş R&D Center gained significant momentum that is exploring “Seamless Human-Robot Cooperation for in expanding its R&D competencies when it assumed Intelligent, Flexible and Safe Operations in the Assembly responsibility for the MCV project developed for Fiat and Factories of the Future”. In 2017 Tofaş successfully PSA vehicles between 2005 and 2007. Subsequent to this, submitted 4 new H2020 projects that were accepted. the development of the new Doblò for Opel, Vauxhall, and Dodge Ram likewise played a significant role in increasing The Tofaş R&D Center’s goal is to increase the number of Tofaş’s export performance inasmuch as the company was patents that it applies for every year by coming up with now building vehicles for five different badges. new projects and innovative ideas that create added value.
In 2014 and 2015, the Tofaş R&D Center was busy with As a result of the innovative work carried out by the sedan, hatchback, and station wagon product development Tofaş R&D Center, applications for 55 new patents were Corporate Governance projects for the Egea brand. The investments that Tofaş submitted during 2017. undertook for these new models, whose intellectual property rights belong to Tofaş and for whose R&D work Tofaş was entirely responsible, are one of the biggest investments ever undertaken in the history of the Turkish automotive industry. The first model of the new Egea sedan was introduced to the market in the last quarter of 2015 while production of Egea hatchbacks and station wagons began in 2016. Financial Information
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RESEARCH & DEVELOPMENT
R&D VISION TOFAŞ R&D AND THE ENVIRONMENT The Tofaş R&D Center’s greatest source of pride is the One of the research and development missions of the big role that it plays in making Tofaş a leading automotive Tofaş R&D Center is to explore ways in which to reduce the company that is capable of satisfying all of its customers’ environmental impact of vehicles through electrification expectations. and by making the vehicles lighter and quieter.
Tofaş R&D seeks to help create exciting vehicles and As the company that developed Turkey’s first electric technologies that fully meet the needs of customers light commercial vehicle, Tofaş also keeps a close watch wherever they may be in the world. on progress in electric vehicle technology around the world. Tofaş seeks to integrate such technologies into The strategic goals that Tofaş has identified in line with this the domestic production of electric vehicle systems and vision include: components through innovative solutions and applications. • Involving itself in the design processes of any products that FCA R&D plans to develop for the European and/or Tofaş is aware that reducing the overall weight of vehicles Middle Eastern markets; will have a positive impact on the environment by reducing • Improving its own manufacturing and advanced product both fuel consumption and engine emissions. Taking this as technologies in order to create customer value; its point of departure, the company is focusing its attentions • Supporting the growth and development of partnered on high-strength/light-weight material technologies and design and engineering firms in Turkey. hybrid solutions as well as on light-design solutions that are based on cross-section- and topology-optimization. Continuously investing in information and other technologies in order to develop innovative products and In addition to smart-vehicle concepts that provide service to undertake added-value projects, Tofaş engages in a and support to the driver in terms of comfort and safety, never-ending effort to offer world-class products that best Tofaş’s customer-focused technology research is grounded suit customers’ demands. in a human-centered design philosophy that gives consideration to anthropometric, ergonomic, demographic, and similar issues.
60 Tofaş 2017 Annual Report Tofaş at a Glance
QUALITY MANAGEMENT
Tofaş’s quality culture is rooted in the notion of customer Management satisfaction. Encouraging its employees to take part in and to improve quality management as a matter of principle gives the company a significant competitive edge as a world-class manufacturer.
Tofaş engages in an ongoing effort to improve the quality of all of its products and services and to maximize their competitiveness in every respect. The company therefore regularly reviews, revises, and improves its quality management system in line with changing and proliferating customer expectations. Activities
WORLD CLASS MANUFACTURING World Class Manufacturing (WCM) is a constellation of methodologies and techniques that can be used to systematically improve and develop one’s manufacturing competitive strengths. WCM’s focus on such issues as workplace safety, quality, cost, logistics, and environmental wellbeing, is rooted in the “Concept of WCM projects also got under way at Tofaş in 2006 and Zero”: zero workplace and environmental accidents, zero the company’s efforts soon earned the “Fastest-Improving manufacturing defects, zero production losses, and so on. Plant” accolade for it. This was followed in 2009 when it became the first Fiat plant to reach WCM “Silver” status. The WCM program was originally initiated in-house at FCA In 2013, Tofaş became one of only three plants in the FCA Sustainability in 2006 with the aim of raising its manufacturing standards community to be awarded “Gold” status. In 2017 the plant’s to world-class levels. Today WCM methodologies and score was further increased to 77 points. techniques are employed around the world in 216 FCA plants as well as in the operations of 370 of its suppliers. Focusing on constantly raising its manufacturing standards as it advances in its WCM journey, Tofaş reached Gold status by making significant improvements in its workplace accident, external quality indicator, productivity, and mechanical breakdown performance. Each and every one of these improvements was achieved through the company’s systematic approach and with the involvement FOCUSING ON CONSTANTLY of its employees. In 2017, the average number of
RAISING ITS MANUFACTURING suggestions for improvements submitted by the company’s Corporate Governance assembly-line personnel was 26/person. STANDARDS AS IT ADVANCES IN ITS WCM JOURNEY, TOFAŞ Since 2009 Tofaş has been expanding the scope of its own WCM involvement under the “World Class Supplier” (WCS) CONTINUED ITS DEVELOPMENT program that it encourages its suppliers to take part in. As IN THIS ASPECT. of end-2017, 27 of the company’s suppliers had committed themselves to WCS. Financial Information
61 Tofaş 2017 Annual Report
HUMAN RESOURCES
Tofaş recognizes that the experience and creativity of Average Age of Employees its human resources are the driving forces of its market Salaried 36.2 leadership and that they underpin the company’s ability to Hourly 31.1 adapt quickly to changes in the competitive environment. Overall 33.4
Human resources policy at Tofaş is focused on employing RECRUITMENT & HIRING PROCEDURES qualified people who are the most appropriate to its In its personnel recruitment and hiring practices Tofaş business activities on the one hand and to create and makes use of techniques such as personality inventorying, maintain working conditions that will keep its employees competency-based interviews, foreign language proficiency highly motivated on the other. exams, technical interviews, role-requirement analyses, presentations, and reference checks that will help it make As of end-2017, Tofaş had 9,202 people on its payroll, the best and most appropriate choices among candidates. 7,503 of whom were hourly and 1,699 of whom were This method enables the company to learn as much as salaried personnel. possible not only about potential recruits’ technical skills but also about their behavioral attitudes, their work ethic, Number of Employees and their compatibility with Tofaş’s corporate culture. Salaried 1,699 Hourly 7,503 In the conduct of its recruitment processes, Tofaş ensures Total 9,202 that announcements concerning vacant positions are visible among all Koç Group companies through the group’s Breakdown of Workforce by Gender internal bulletin board system. Other elements of this Male (Salaried) 1,338 process that are intended to give the company access to Female (Salaried) 361 and to hire candidates whose qualifications are appropriate Male (Hourly) 6,994 to specific functional requirements include participation in Female (Hourly) 509 university career days, project-based traineeship programs, and Tofaş Hack-Auto Engineering events.
62 Tofaş 2017 Annual Report Tofaş at a Glance
A social responsibility project was carried out to train TOFAŞ RECOGNIZES THAT THE the qualified sales personnel needed by the sector in EXPERIENCE AND CREATIVITY OF the second round of the Tofaş Sales Academy. In 2017, Tofaş Academy also hosted the second round of the R&D ITS HR ARE THE DRIVING FORCES Engineer Training Summer Program organized jointly with OF ITS MARKET LEADERSHIP the Bursa Industrialists’ and Businessmen’s Association and AND THAT THEY UNDERPIN THE the Uludağ Automotive Industry Exporters’ Union. Through
other activities such as the Service Center Olympics and Management COMPANY’S ABILITY TO ADAPT “Proud to be Fiat”, Tofaş Academy seeks to enhance the QUICKLY TO CHANGES IN THE sales and technical skills of the Tofaş dealership network. COMPETITIVE ENVIRONMENT. In November 2017 a new website, www.tofasakademi. com, was launched in line with Tofaş Academy’s dream Owing to the digital-transformation focus in the “to inspire the entire automotive industry globally and formulation of each new year’s strategies, digital-based all academies of other industries through its unique innovations in human resources processes are also being techniques, pioneering activities, and sustained planned. The company has identified “end-to-end digital achievements.” hiring” as one of its digital-transformation objectives.
Training provided to salaried employees Activities TOFAŞ ACADEMY Classroom training 6,870 people Distance learning in support of their 3,024 people individual development Average classroom training time 60 hours/ person Training provided to hourly employees Classroom training 10,726 people Distance learning in support of their 874 people individual development Average classroom training time 12 hours/ person Training provided to business partner personnel Sustainability Technical classroom training provided to 1,135 employees of 68 suppliers: 13,702 hours Tofaş Academy defines its mission as providing Tofaş and Technical and behavioral training provided to dealership the constituents of its value-creation chain with the most employees: 3,774 people appropriate learning experience so as to ensure that both perform today’s tasks better and are ready for the future. Tofaş Academy is a development base that offers technical PERFORMANCE MANAGEMENT SYSTEM training, behavioral training, and coaching programs to All Tofaş personnel are subject to the Tofaş Performance Tofaş and its entire value-creation chain. Management System, whose aim is to support a company culture that focuses on individual and group During 2017, such leading-edge elements of Tofaş’s performance and progression. “Targets” and “Behavioral digitalization process as the Training Management System, Competencies”, which are the two essential pillars of the Corporate Governance the Online Pre- & Post-Testing System, mobile apps, and Tofaş Performance Management System, together are the online video platform Tideo were commissioned. referred to as “Leadership Principles”. Targets are set at Through Tideo, employees are given access to more than the beginning of each year and are reviewed at least once 10 thousand training and development videos. during the year along with target progression plans. In keeping with the “360º Competency Assessment” approach, Tofaş Academy also designs special training programs such employees are provided with opportunities to give their as “Maintenance School” and “Molding School” in order supervisors and colleagues feedback about leadership to support lineworkers and to help them achieve the skill issues. levels desired of them. A total of 808 people have received classroom training in this way. Financial Information
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HUMAN RESOURCES
EMPLOYEE COMPENSATION AND FRINGE BENEFITS family members. In 2018, all office personnel not already As part of the hiring process, the first time a white-collar being covered by the Koç Holding Pension&Assistance employee begins working for a Koç Group company, they Fund’s health insurance will be included in the TSS system are enrolled as a member of the Koç Holding Pension & instead. Assistance Fund. During the hiring process, blue-collar employees are given the opportunity to sign up for the To date, 1,463 students have benefitted from the “Tofaş fund as well. Supports Education Once Again” scholarship program that Tofaş originally introduced in 2011 for its employees’ Employee and employer contributions to this fund children. are invested in marketable securities and real estate assets. Upon an employee’s retirement or termination of In 2016 the company introduced daycare assistance for membership, these contributions plus their capital gains the children of female employees in order to encourage are paid out either as a lump-sum amount or as a pension women’s participation in the workplace and to help them entitlement. Both active fund members and pensioners as better balance their working and home lives. As of end-2017, well as their spouses and minor-age children are covered 265 Tofaş employees had benefitted from this program. by health insurance and may also be entitled to various rights such as housing acquisition assistance, financial As an employer, Tofaş is a member of the Turkish support to cover specified needs, and insurance against Employers’ Association of Metal Industries (MESS). The such risks as death, incapacitation due to sickness, and collective bargaining agreement that MESS entered into partial disablement. with the Turkish Metalworkers’ Union covering the three years from 1 September 2014 to 31 August 2017 expired As of 1 June 2016, all of Tofaş’s hourly employees were on the latter date. provided with Complementary Health Insurance (TSS) coverage paid for entirely by the employer. Employees New contract negotiations between the union and MESS, may elect to have this coverage extended to include their which commenced on 31 December 2017, are still in spouses and children as well. As of end-2017, TSS coverage progress and have reached the arbitration stage as of this was being provided to 7,373 employees and 3,456 of their writing.
64 Tofaş 2017 Annual Report Tofaş at a Glance Management Activities
As of 31 December 2017, Tofaş had a total severance organize an average of 300 cultural, artistic, and sporting pay liability of TL 173,360,043.73, all of which amount is events such as concerts, exhibitions, shows, conferences, covered by provisions that have been set aside. Employees and athletic meets. are regularly and systematically provided with such rights and entitlements as may be mandated by laws and More than 50 thousand employees and their family Sustainability regulations. members and friends attend these events every year. All Tofaş employees and their families also come together in DOCTORAL AND MASTER’S-DEGREE PROGRAMS the company’s annual “Tofaş Day” and share in the joy of To satisfy the staffing requirements of the Tofaş R&D being a part of the great Tofaş Family. The Tofaş plant is Center, priority is given to candidates who possess also equipped with social facilities that are enjoyed by all appropriate master’s or doctoral-degree qualifications. As employees as well as by their spouses and children. of end-2017, the number of the center’s personnel who held such qualifications was up to 134. Tofaş employee football, volleyball, basketball, tennis, bowling, chess, swimming, athletics, and sailing teams Tofaş works together with Uludağ University in support regularly take part in the annual Koç Sports Festival and of that school’s automotive industry undergraduate contend in inter-company events. and graduate studies programs. Six experienced Tofaş Corporate Governance personnel take part in these programs as instructors The Mustafa V. Koç Sports Complex contains a fitness teaching classes in vehicle dynamics, automotive center, basketball courts, and a table tennis area for the design, manufacturing and project management (PhD), use of those who enjoy sports. The Tofaş Sports Club introduction to automotive engineering (BSc), and vehicle provides Tofaş employees’ children with opportunities to design. In 2017, 59 Tofaş employees were taking part in take part in basketball, football, and swimming. General MSc programs and 15 were taking part in PhD programs. healthcare services are provided both at the Tofaş plant in Bursa and at the company’s headquarters in İstanbul. The SOCIAL ACTIVITIES latter also contains a gymnasium that may be used by all Eleven clubs and nine sports teams voluntarily formed by employees. Dietician services for employees may also be Tofaş employees engage in a wide range of activities. They booked by appointment in both Bursa and İstanbul. Financial Information
65 A SUSTAINABLE FUTURE TOFAŞ’S APPROACH TO SUSTAINABILITY REQUIRES IT TO TAKE BOTH SOCIAL RESPONSIBILITY AND SOCIAL IMPACT INTO CONSIDERATION WHILE ALSO INFORMING THE SOCIAL ASPECTS OF ITS ACTIVITIES BOTH IN-HOUSE AND THROUGHOUT THE COMMUNITY AS A WHOLE.
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CORPORATE SUSTAINABILITY POLICY
TOFAŞ’S CORPORATE The environmental, social, and corporate governance aspects of the Tofaş Corporate Sustainability Policy are SUSTAINABILITY POLICY TAKES rooted in the tenets of: AN INTEGRATED APPROACH • Effectively managing risks and constantly improving all processes; THAT IS GROUNDED IN • Abiding by “Zero-Accident” principles in matters BUSINESS MODELS THAT ARE pertaining to occupational health and safety; • Improving the company’s performance and production COMPATIBLE WITH STRATEGIES efficiency; FOR A SUSTAINABLE FUTURE. • Encouraging active employee participation and fostering open communication; • Making efficient use of energy while protecting environmental balances and natural resources; • Increasing stakeholder knowledge and community awareness of climate change issues; • Adhering to a sustainable environmental management BUSINESS MODELS GROUNDED IN STRATEGIES FOR A policy that is grounded in national environmental laws SUSTAINABLE FUTURE and regulations, applicable environmental standards, Tofaş’s sustainability- and social responsibility-related and the best available technologies for dealing with such activities are dealt with in the context of their social, matters; environmental, and economic dimensions. In main • Ensuring information security and business continuity in outline, Tofaş’s attitude towards corporate sustainability the conduct of all operations; concentrates on making continuous improvements and • Complying with the requirements of national and moving the goalposts further ahead. international laws and regulations; • Managing stakeholder relations transparently and with Tofaş’s corporate sustainability policy takes an integrated common sense; approach that is grounded in the philosophy that “Life is • Ensuring continuity in customer satisfaction; Renewal” and within a framework of business models that • Improving suppliers’ own sustainability practices, are compatible with strategies for a sustainable future. • Behaving transparently when dealing with the public at large on matters involving sustainable environment The Tofaş Corporate Sustainability Policy is informed by the policies and practices; need to elucidate the company’s responsibilities towards • Making stakeholders aware of the company’s corporate all Tofaş stakeholders everywhere and not just those living social responsibility activities, strategies, objectives, and in the vicinity of the Tofaş plant. Thus is the company priorities; equally mindful of both sustainability and corporate social • Making adherence to ethical values, combatting responsibility issues when dealing with suppliers and corruption, and all other corporate governance principles dealers as well as with other stakeholders. part of the company’s corporate culture.
68 Tofaş 2017 Annual Report Tofaş at a Glance
The company’s corporate governance structure, risk the reported results of the company’s administrative, management, business ethics and anti-corruption rules, social, and environmental performance are publicly sustainability management, and stakeholder engagement disclosed and disseminated among the company’s approaches are all matters of concern when dealing with employees, shareholders, business partners, and all other governance and sustainability issues. stakeholders. Essential information and links to it are also provided on Tofaş’s intranet and on its internet websites Besides efforts aimed at the deployment and ongoing so as to keep stakeholders informed about ongoing and
conduct of corporate governance activities within the intended activities related to company policies. Management company, all due attention is also given to ensuring that the company’s external stakeholders are likewise involved Believing that corporate entities should conduct their in achieving the same aims. social responsibility activities accountably and with an awareness of their duties and responsibilities towards their In keeping with this, ensuring the sustainability of all stakeholders, Tofaş regards it as a matter of its corporate of the company’s corporate activities when treating all sustainability policy to engage in social responsibility stakeholders equally, disclosing information responsibly, practices that are both sustainable and extensible. and abiding by corporate governance practices is one of the company’s fundamental objectives. As is also noted in Tofaş’s sustainability and its corporate governance compliance reports, the company’s social
CORPORATE SOCIAL RESPONSIBILITY ATTITUDES responsibility embraces all of the company’s stakeholders. Activities Tofaş’s attitude towards sustainability is mindful of both Tofaş has all of its efforts in this direction independently corporate social responsibility and social impact and rated and reported on. These reports provide specific therefore informs the conduct of social activities both details about the company’s corporate governance within the company and when dealing with the public at practices under the individual headings of “Shareholders”, large. “Public disclosure and transparency”, “Stakeholders”, and “Board of Directors” as appropriate. Such reports Thus dealing with climate change and emissions, product also include the company’s corporate governance rating, portfolio and product strategies, markets and customer which is likewise announced annually through the Public satisfaction, R&D management, WCM and management Disclosure Platform at the İstanbul Stock Exchange (BIST) standards, energy efficiency, environmental management and on the company’s corporate website. systems, occupational health and safety, workplace environment and talent management, supplier chain Tofaş’s shares are included in the BIST Corporate Sustainability management, and dealership and services networks are Governance Index. In addition and because it regards this all vital to sustainability management. The publication of matter as an ongoing and dynamic process in line with the sustainability reports that reveal the company’s behavior importance it gives to corporate governance principles, the in matters involving climate change, the environment, company conducts an annual review to determine its own occupational health and safety, corporate governance, compliance with BIST CGI criteria. ethical values, supply chains, and social responsibility is a basic element of Tofaş’s sustainability policy. The principles and corporate social responsibility attitudes embodied in the United Nations Global Compact, to Comprehensive and detailed information about which Koç Holding subscribes, and the sustainability and Tofaş’s regular and occasional social responsibility and corporate social responsibility perspective of its other sustainability activities is provided in the company’s principal shareholder Fiat Chrysler Automobiles both annual reports as well as through printed, periodical, provide the overall framework for Tofaş’s sustainability Corporate Governance and informational publications. Information about policy. Tofaş’s social and environmental efforts and activities, about the management of these processes, and about Financial Information
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CORPORATE SUSTAINABILITY POLICY
TOFAŞ REGARDS IT AS A A SUSTAINABILITY POLICY THAT TAKES STAKEHOLDER SATISFACTION AND EXPECTATIONS INTO ACCOUNT MATTER OF ITS CORPORATE When dealing with issues involving social impact, ethical SUSTAINABILITY POLICY behavior, and environmental management in the context of Tofaş’s sustainability policy, the company takes an TO ENGAGE IN SOCIAL integrated approach which engages with stakeholders RESPONSIBILITY PRACTICES THAT and which takes their expectations and satisfaction into account. In line with this, another important issue is the ARE BOTH SUSTAINABLE AND ongoing development and continuity of corporate social EXTENSIBLE. responsibility attitudes that are compatible both with the company’s vision and with the preferences of its stakeholders.
CORPORATE AND SOCIAL PROGRESS PRIORITIES For this reason, the Tofaş Board of Directors is In line with the corporate social responsibility attitudes responsible for overseeing the environmental, social, that it espouses and the practices that they involve, and administrative aspects of the company’s corporate Tofaş regards compliance with the requirements of law sustainability policy with an eye on further developing that as a fundamental necessity. The company therefore has policy. Such issues are overseen by established board identified priorities that will foster dynamics capable of committees and reported to the board as a whole. stimulating both corporate and social progress. Company- stipulated criteria and principles inform Tofaş’s actions In line with Tofaş’s social and environmental efforts and in all matters which fall within the domain of corporate activities, information about the management of these social responsibility such as projects that invest in processes and also about the reported results of the human resources and in people, stakeholder culture and company’s administrative, social, and environmental corporate vision, supporting education, promoting culture performance is made available to all of the company’s and art, environmental awareness, and protecting the stakeholders and is also publicly disclosed. Particular environment. Through both its environment policy and the attention is given to these matters in the company’s activities associated with it, Tofaş seeks to adhere to and sustainability reporting. to improve upon a proactive environment management system that is compatible with the principle of sustainable Efforts are currently being made to incorporate, into economic development. company policy, approaches that will permit Tofaş’s sustainability and social responsibility activities to be In all matters falling within the domain of social assessed in light of national and international standards. responsibility, Tofaş is mindful of and abides by all essential The progress of these efforts is monitored. national and international standards while also engaging in efforts of its own to improve those standards.
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CORPORATE SOCIAL RESPONSIBILITY Management Activities
SPORT TOFAŞ FOCUSES ON ENDURING SOCIAL RESPONSIBILITY Tofaş Sports Club Sustainability Founded in 1974 at the Bursa Tofaş plant originally as PROJECTS WHICH WILL CREATE “Tofaş SAS”, a club devoted to watersports, athletics, and VALUE FOR SOCIETY IN MANY team sports, the Tofaş Sports Club adopted its existing name in 1995. Today the club’s offerings encompass a DIFFERENT WAYS. wide range of activities that include basketball, football, volleyball, table tennis, water polo, and even bridge. The Tofaş Sports Club’s basketball teams were the first to play in the European Cup finals, brought home the Turkish While contributing to the national economy in many national championships, and have won the Turkish different ways, Tofaş also focuses on enduring social Presidential Cup, the Turkish Cup (several times), and the responsibility projects which will create value for society Schools Basketball World Championship. Last year the and which will support social progress in the areas of Tofaş Sports Club brought home the championship from Corporate Governance education, culture & art, and sport in many different ways. the 17th Cevat Soydaş Basketball Tournament. During the 2017-2018 season, the Tofaş Basketball is contending in the ULEB European Cup and Super League.
Many years of investment in youth academies have enabled the Tofaş Sports Club to nurture many talented players for sports in Turkey. Financial Information
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Tofaş Gymnasium are currently undergoing training at the Mustafa V. Koç Tofaş plays its home games at the Nilüfer Tofaş Sports Complex. In order to ensure the sustainability Gymnasium in Bursa. These well-attended encounters also of these activities, 34 trainee coaches taking part in the contribute to the social life of Bursa’s inhabitants. project every week are provided with theoretical and applied coach training. An e-learning system has also Next Generation Tofaş Project been set up in order to teach local trainers and children’s The goal of the Next Generation Tofaş Project is to provide families about the project. Other project activities aimed all children with an equal opportunity to take part in sports. at fostering basketball culture among the public include Launched in 2016, one of the aims of the project is to street tournaments as well as science and creative drama foster attitudes and points of view among children that will workshops that are conducted with the aim of supporting help them be successful not just in sports but also in all children’s social intelligence development. aspects of life. The Next Generation Tofaş Project is based on a training and implementation model that focuses Mustafa V. Koç Sports Complex on the trainer-family-child triangle in order to foster a The premises and facilities of the Tofaş Sports Club generation that truly believes that every child should have Mustafa V. Koç Sports Complex, which opened its doors on an equal chance to play basketball wherever they may live. 9 June 2016, are available not only to Tofaş personnel but also to Bursa’s amateur sports teams and athletes. With Under the Next Generation Tofaş Project, 10 basketball 5,800 m2 of space, this complex contains three basketball schools were opened in different Bursa townships and courts, a fitness center, and a fully-equipped sports these were attended by nearly a thousand children as rehabilitation center capable of providing whatever forms of the end of the year. Sixteen little league basketball of physical therapy athletes may require. teams whose members were chosen from these schools
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EDUCATION Under the “Vocational Education: A Crucial Matter For The Nation” project, students who attend classes at Fiat Fiat Laboratories laboratories and who satisfy requirements are provided Seeking to train those who are employed by the Turkish with scholarships every year by the Vehbi Koç Foundation. automotive industry and to equip and make them Such scholarships were awarded to 311 students in 2017. conversant with the industry’s newest technologies so that they can make use of them in the performance of their Tofaş Science High School
jobs, Fiat laboratories began life as part of Koç Holding’s Located in the Demirtaş Organized Industrial Zone in the Management “Vocational Education: A Crucial Matter For The Nation” Özlüce district of Bursa’s Nilüfer township, instruction at project. Collaborating with the Ministry of Education’s Tofaş Science High School began in 2014-2015 academic General Directorate of Vocational and Technical Education year. Occupying 12,252 m2 of grounds, the school and working through Fiat laboratories, Tofaş helps has 16 classrooms, 70 dormitory rooms capable of industrial technical training schools and institutions to accommodating 280 residents, and a gymnasium. There improve their capacity to provide motor vehicle technology are 412 students currently enrolled at the school. instruction. The first Fiat Laboratory, which was opened at the Şişli Industrial Vocational High School in İstanbul in Turning out its first graduates in 2015, the Tofaş Science 2006, celebrated its 11th year in operation in 2017. High School ranked first among the schools that students in Bursa most wanted to enroll at in the run-up to the
Fiat laboratories have been set up at 11 vocational 2016-2017 academic year. Activities lycees in İstanbul, Bursa, Kocaeli, Ankara, Antalya, İzmir, Adana, Samsun, and Diyarbakır. They are provided with In 2017 an Innovation Workshop was opened at Tofaş training resources by Tofaş after-sales services managers, Science High School with the support of various Tofaş representatives of Tofaş’s regional service council, and local departments. This workshop provides students with a services managers. setting in which they are given opportunities to gain hands- on experience with project-development issues ranging As part of the Tofaş Vocational Education Support Program, from developing ideas through innovative methods to a Fiat Egea car was turned over to each of the schools prototyping while also discovering their own aptitudes hosting a Fiat laboratory in 2017 so as to allow students to and potentials. The aim of the Innovation Workshop is work on more up-to-date cars and to make the students to support the education of young people who are well- better aware of the new technologies that such vehicles equipped to shape the futures of the automotive industry incorporate. and of engineering. Sustainability
As of 2017, the number of students and instructors taking part in Fiat laboratories around the country had reached 2,000. Last year the laboratories graduated 213 students. Under a 2016-2017 European Union project, students and instructors taking part in Fiat laboratories also took part in training activities in European countries like Germany, Spain, France, Slovakia, Portugal, and Italy. In the course of such activities, they gained hands-on experience in vehicle servicing operations while also proudly representing the Fiat name by their presence. Corporate Governance The instructors who are employed in Fiat laboratories are themselves given current-technology technical training as well as training on behavioral and social responsibility issues as part of the on-the-job training (OJT) provided every year by Tofaş Academy. Five hundred vocational lycee teachers from different parts of Turkey also took part in such OJT along with Fiat laboratory instructors in the 11th round of the program. Financial Information
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Vocational Education Support Program other transport-related objects that make it the first and Under Tofaş’s Vocational Education Support Program in only museum of its kind in Turkey. The museum occupies a 2017, 57 Fiat Egea cars (15 of them cross-sections) were disused silk-weaving mill, the historic Umurbey hammam, donated to 44 universities and 13 vocational lycees for and an old Turkish house adjacent to the latter, all of which use in workshop training activities. These donations were were renovated and repurposed by Tofaş. Occupying 17 also supported by Fiat dealers in all 7 of Turkey’s regions. thousand m2 of grounds, the museum opened its doors in Launched with the aim of providing the Turkish automotive 2002 and has received about 600 thousand visitors since industry with a technical workforce that is conversant with then. the industry’s latest technologies, the Tofaş Vocational Education Support Program’s objectives are to give On display in the former mill, which houses the main part students experience with the principles and procedures of of the museum, is a historical panorama of the history of automobile R&D and to train young people whose practical human transport in Anatolia beginning with a wheel that knowhow equips and qualifies them to take part in such is 2,600 years old and extending to the present day with activities. examples of Tofaş-built motor vehicles.
CULTURE & ART Located within the same grounds as the museum is the Tofaş Art Gallery housed in the Umurbey Hammam, the Tofaş Museum of Cars and Anatolian Carriages and original construction of which dates to 1430. To date Tofaş Art Gallery the gallery has hosted six exhibitions. “The Poise Of The Located in Bursa’s venerable Umurbey district, the Tofaş Steelyard: Scales, Weights & Measuring Instruments”, Museum of Cars and Anatolian Carriages is private a show with past and present-day examples of such museum focusing on the Anatolian transport heritage. Its equipment, attracted more than 70 thousand visitors. collection includes not only Tofaş-manufactured cars but also examples of antique carts, carriages, wagons, and
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Pamukkale Hierapolis archeological excavations Among the other significant Hierapolitan structures that Since 2005 Tofaş has been sponsoring archaeological have been unearthed are two necropolises, baths, a excavations at Hierapolis, the extensive ruins of one of the basilica, a martyrium, the Frontinus Gate, a gymnasium, an five biggest ancient cities in Turkey. Coterminous with the Apollo temple, and the so-called Pluto’s Gate (Plutonium), a
Pamukkale thermal zone, both Hierapolis and Pamukkale shrine sacred to the ancient god of the underworld, Pluto. Sustainability were declared UNESCO World Heritage sites in 1988. Excavation work, which is being overseen by the Ministry Tofaş continues to support the Hierapolis excavations, of Culture and Tourism and the Denizli governor’s office, where work is now in progress to excavate and restore continued during the 2017 season with Tofaş’s support. the ancient city’s Plutonium shrine. In ancient times this The excavations are being carried out by an international was believed to be a gateway to the underworld– the team of about seventy archaeologists, architects, restorers/ world of the dead ruled over by Pluto and his abducted conservators, and other experts mainly from Italy and wife Persephone–and because of this association the Turkey. shrine is also sometimes referred to as “The Gate to Hell”. Within the ancient shrine is a cave-like grotto that emits a One of the site’s star attractions is the Hierapolis theater. dangerous cloud of carbon-dioxide gas that will suffocate Built about 1,800 years ago, this is one of the finest any living thing that is unable to avoid it. Known in ancient examples of Roman theater architecture still in existence. times as the home of an oracle and still a magnet for Corporate Governance Restoration work on the theater’s scaenae frons facade, visitors because of its natural wonders and ancient ruins, the elaborate multi-story background of the proscenium, excavations at Hierapolis have turned up finds that push has been completed making this the only ancient theater in the site’s known history back another three centuries. Turkey to have a fully-reconstructed and functioning stage. As a result of this work, this 12 thousand-seat theater is now being used again as a venue for cultural and artistic activities as it was originally intended. Financial Information
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ENVIRONMENT
Regarding environmental protection as an important IN 2017 TOFAŞ UNDERTOOK element of its social responsibility, Tofaş focuses on 34 NEW ENERGY EFFICIENCY effectively managing and, as much as possible, on minimizing both the direct and the indirect adverse PROJECTS. WITH THE INCLUSION environmental impact of all aspects of its value-creation OF OTHER PROJECTS THAT chain.
WERE LAUNCHED IN THE LAST In 2017 Tofaş undertook 34 new energy efficiency projects QUARTER OF 2016, THE TOTAL implementing WCM energy management methodologies and techniques. With the inclusion of other projects that NUMBER OF SUCH PROJECTS were launched in the last quarter of 2016, the total number HAVING AN IMPACT ON THE of such projects having an impact on the company’s operations reached 72 last year. COMPANY’S OPERATIONS REACHED 72 LAST YEAR.
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ENVIRONMENT & ENERGY POLICY One consequence of Tofaş’s Environment & Energy Policy Management In keeping with its principle of sustainable development in is that it seeks both to reduce waste at source and to its product, manufacturing, and service processes, Tofaş recover and recycle as much as possible of any waste employs and develops lean and proactive environmental is generated. Thus for example 100% of the industrial and energy management systems. waste resulting from its manufacturing processes is either recovered or else used as raw material and energy inputs In line with this, Tofaş: in the cement industry, thereby helping the company to • Regards having to dispose waste of any kind as a achieve its “Zero Waste Disposal” goal. resource loss and therefore develops methods that prevents waste from occurring in the first place; Tofaş was one of the first companies in Turkey to bring its • Constantly improves its energy performance both energy management practices into compliance with ISO
through energy-efficiency process design and in the 50001 Energy Management System standards and to have Activities conduct of its product and service procurements; them independently audited as being so. Tofaş’s ISO 50001 • Ensures that it has access to all the information, certification was recently validated when an audit in 2017 expertise, and economic resources that it needs to ascertained there to be no instances of non-compliance. regularly review and achieve its environmental and energy-related goals and objectives; Supporting the transition to a low-carbon economy • Assesses risks and opportunities in order to plan and through its energy-efficiency efforts, Tofaş is also a then implement sustainability-related strategic actions; corporate member of the Climate Platform. The hundreds • Develops innovative product and process solutions of energy efficiency projects which the company has aimed at combatting climate change; undertaken are steadily reducing the energy density of its • Believes that it is fundamentally essential to comply with operations. the requirements of all laws and regulations to which it is
subject as well as with internationally-accepted standards When new investments are to be undertaken or Sustainability in its processes; changes are to be made in machinery and equipment, • Seeks to minimize energy and water consumption, environmental-impact and energy-efficiency procedures waste generation, and water and air effluents both are standardized both by initiating a Kanban (lean/just-in- by educating its employees, contractors, dealers, and time manufacturing) process and by adhering to best- suppliers and by constantly improving the vehicles that it available-technology (BAT) practices. makes; • Develops solutions for the manufacturing of vehicles In 2011 Tofaş issued the Turkish automotive industry’s and spare parts in order to make use of materials whose first greenhouse gas emissions reports. In 2017, the environmental impact is lower and whose recyclability/ company’s greenhouse gas emissions reporting was recoverability is greater. independently certified as being ISO 14064 standard- compliant. According to verification results, Tofaş’s
Tofaş’s environment vision is to possess a World Class greenhouse gas emissions declined as a result of energy Corporate Governance Environment Management System that makes use of efficiency projects undertaken throughout the plant. proactive and efficient management tools. In order to Environmental audits conducted both by authorities and achieve its “Zero Waste/Zero Loss” goal, the company’s by stakeholders ascertained Tofaş to be in full compliance maxim is “If you don’t cause pollution in the first place, then with all requirements. there’s nothing that you have to clean up.”
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ENVIRONMENT
AS A RESULT OF A In 2017 Tofaş once again submitted its responses to the Carbon Disclosure Project’s (CDP) questions. As a result of COMPREHENSIVE SURVEY the ensuing CDP review, the company was included in the OF COMPANIES QUOTED ON Climate Change Program’s “B” performance band. Tofaş also received a “B Management” rating in the CDP Water BORSA İSTANBUL BY EIRIS, A Program. LEADING GLOBAL PROVIDER Constantly improving energy performance through OF ENVIRONMENTAL, SOCIAL changes in the design of energy-efficiency processes and AND GOVERNANCE RESEARCH, in product and service procurements is a fundamental tenet of Tofaş’s Environment & Energy Policy and therefore TOFAŞ WAS ONE OF 43 TURKISH the company undertakes projects aimed at accomplishing COMPANIES IDENTIFIED AS this. In the İstanbul Chamber of Industry’s series of “Energy Efficiency Awards”, Tofaş took second place with BEING WORTHY OF INCLUSION its “SolarDRY Direct Use of Solar Energy in Production IN THE BIST SUSTAINABILITY Processes” project.
INDEX. The “Proactive Carbon and Energy Management in 7 Steps” methodology, which is itself a component of World Class Manufacturing, has been in active use at Tofaş since 2011. With the introduction of this methodology, Tofaş began focusing its attentions on identifying aspects of energy SUSTAINABLE MANUFACTURING efficiency and carbon emissions mitigation to which priority Having adopted sustainable-manufacturing principles in its needed to be given as well as to energy-loss classification operations, Tofaş achieves natural resource use efficiency and prioritization principles. A standardized and effective by implementing the “5R” (Refuse, Reduce, Reuse, Recycle, method for making improvements was achieved by Recover) hierarchy in all of its production processes. integrating this systematic approach into all processes ranging from new investments to modifications of existing In 2017 Tofaş undertook 34 new energy efficiency projects plant. implementing WCM energy management methodologies and techniques. With the inclusion of other projects that GREEN PRODUCTS were launched in the last quarter of 2016, the total number Environment-focused projects such as vehicle of such projects having an impact on the company’s electrification, alternative fuels, eco-friendly materials, operations was 72 last year. Thanks to these projects, vehicle weight reduction, and recycling take the front stage 72,633 GJ of energy were conserved and CO2 emissions among Tofaş’s technology research activities. Some of were reduced by 5,645 tons. these projects were concerned with issues whose results are expected to be incorporated into existing products or As a result of a comprehensive survey of companies new models in the years ahead while others are longer- quoted on Borsa İstanbul by EIRIS, a leading global term in their focus. provider of environmental, social and governance research, Tofaş was one of 43 Turkish companies identified as being worthy of inclusion in the BIST Sustainability Index.
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CLIMATE CHANGE
TOFAŞ STRIVES DILIGENTLY TO At the same time Tofaş also sees climate change as an Management issue that has statutory and regulatory dimensions (such as SATISFY ITS STAKEHOLDERS’ emission limits), physical and operational dimensions (such EXPECTATIONS WITH RESPECT as radical changes in weather conditions), and financial dimensions (such as emissions-trading). Recognizing TO COMBATTING CLIMATE this, the company looks for ways to create opportunities CHANGE AND TO FULFILL ALL OF for itself by coming up with proactive corporate risk management responses to the sorts of risks that all these ITS RESPONSIBILITIES TO DO SO. dimensions might pose.
COMBATTING CLIMATE CHANGE
Tofaş strives diligently to satisfy its stakeholders’ Activities expectations with respect to combatting climate change Climate change is seen as one of the most serious and to fulfill all of its responsibilities to do so. problems confronting the world today. Dealing with the environmental, social, and economic risks that climate To this end: change poses requires a comprehensive and concerted • As one of FCA’s most important R&D and manufacturing response on the part of every actor that may be involved. hubs and in line with FCA’s product strategies, Tofaş supports efforts to improve the efficiency of the Scientists are generally in agreement that the problem of conventional motor vehicles that it is already making, climate change today is largely the result of greenhouse to increase the use of alternative-fuel systems such as gas emissions generated by human beings. Efforts are natural gas and biofuels, and to develop electrical and now being made throughout the world to create control hybrid vehicles; mechanisms and legal frameworks that will allow measures • Tofaş improves the energy efficiency of its manufacturing Sustainability to be taken so that this situation can be dealt with. The operations and reduces their greenhouse gas emissions; automotive industry for its own part has been actively • Tofaş engages in efforts to make its logistical processes involving itself in such efforts by identifying what needs more efficient; to be done to resolve the problem not only at the level • Tofaş strives to increase environment- and climate of industry-wide organizations but also, out of their own change-responsibility awareness throughout its value- sense of responsibility, by individual producers. creation chain by informing and educating suppliers, dealers, and customers. ENDURING SOLUTIONS THROUGH SUSTAINABLE METHODS Tofaş is aware that the most important thing that its stakeholders expect of it on the issue of climate change is that, while managing the contributory effects of its Corporate Governance existing manufacturing and other operations, it should also develop vehicles whose emissions are lower and/or which use alternative fuels and it should make vehicles that will enable people to exercise their travel and transportation rights in ways that are more sustainable. Financial Information
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OCCUPATIONAL HEALTH & SAFETY
Occupational health and safety ranks high among the most THANKS TO ITS OUTSTANDING important elements of the WCM methodology. It is also PERFORMANCE IN THE FIELD an area in many aspects of which the Tofaş plant serves as a reference within the FCA community. The plant is OF OCCUPATIONAL HEALTH frequently visited by representatives of firms wishing to AND SAFETY THE TOFAŞ PLANT observe Tofaş’s OHS operations and practices in action.
SERVES AS A REFERENCE Adhering to a proactive and lean WCM-based approach WITHIN THE FIAT CHRYSLER to occupational health and safety issues, Tofaş seeks to protect everyone coming into contact with its operations COMMUNITY. from risks that could be detrimental to their health or safety by fostering a sustainable OHS culture and creating environments that are intrinsically safe.
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66,306 hours IN 2017, 8,934 TOFAŞ EMPLOYEES WERE GIVEN A TOTAL OF 66,306 HOURS OF TRAINING ON OHS ISSUES.
OHS CULTURE Contractor Management Procedures: A total of 29 Management Tofaş strives to maximize OHS awareness not just among sets of instructions and associated forms have been its own employees but also among its trainees, visitors, created and are used to proactively manage contractors’ suppliers, and contractors. To this end, Tofaş commits itself operations by ensuring, through audits and inspections, to: that all rules are communicated and understood before • Fulfilling all of its regulatory and other obligations with work begins and that such rules are abided by during the respect to OHS issues; conduct of work. • Abiding by the principle that making improvements in OHS performance is a responsibility shared by all Safety Dramatization Training: Interactive play-acting personnel; is used as a training methodology both to strengthen • Setting targets for participation in risk-assessment and OHS culture in general and to draw attention to the
risk-mitigation activities at every level; consequences of unsafe behavior in non-routine tasks. Activities • Achieving a sustainable “Zero Accident” target by constantly improving the company’s occupational health Attention & Perception Testing: Referred also to as the and safety culture. “Vienna Test”, Attention & Perception Testing is a method especially useful for determining attention, perception, TARGET: ZERO WORK-RELATED ACCIDENTS AND concentration, and motor-skill levels among machinery ILLNESSES and equipment operators, maintenance personnel, quality Tofaş seeks to achieve zero-levels of work-related accidents control personnel, and vehicle drivers. and illnesses by means of its Occupational Health & Safety System. Since the introduction of the World Class Work Safety Captain: This is a safety program in which one line Safety program, the company’s Lost Time Accident rate has worker is designated the safety captain of a team of eight been reduced by 90%. to fifteen people and given responsibility for safety for a
week. Although the captain is identified by a special cap Sustainability In 2017, 8,934 Tofaş employees were given a total of and armband, he continues to perform his regular job 66,306 hours of training on OHS issues. while also keeping on the lookout for instances of acts and other infractions of safety rules. Some aspects of Tofaş’s OHS activities during the year are highlighted below. Safety pennants: Safety pennants are used to indicate the status of production teams. Blue pennants are hung Safety Simulation Area Training: Safety Simulation Area to indicate that no accidents have occurred there; orange (DOJO) training is conducted so as to train personnel on ones signal that one has. safety-related issues and risks by allowing employees to work with real and simulated equipment and tools Tofaş’s workplace safety performance has earned it first in carefully controlled environments. DOJO training is place in the “Golden Gloves” of the “Occupational Health & highly effective in manufacturing operations such as Safety Best Practices Awards” program conducted by the Corporate Governance body-in-white, assembly, painting, stamping, and chassis Metal Industrialists’ Union of Turkey for the last two years suspension. A total of 6,400 hours of DOJO training was in a row. provided to employees in 2017. Financial Information
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SUPPLY CHAIN MANAGEMENT
In the conduct of its supply chain management operations, IN ORDER TO ENHANCE ITS it is Tofaş’s principle to regularly develop its suppliers’ and OWN COMPETITIVE ABILITIES their employees’ capabilities, to achieve organizational excellence, and to constantly improve its business BY SAFEGUARDING ITS processes in order to protect the company’s competitive MANUFACTURING QUALITY AND strength, to reduce its production and procurement costs, to achieve the best possible quality and delivery CONTINUITY, TOFAŞ MONITORS performance in goods and services procurements, and to AND RATES ITS SUPPLIERS’ ensure the sustainability of all of these processes.
PERFORMANCE IN SUCH AREAS The company’s procurements fall under three main AS BUSINESS VIABILITY, QUALITY, headings: Direct Materials, Spare Parts & Investment Services, and Indirect Materials. In 2017 Tofaş’s total AND DELIVERY ON THE BASIS OF procurements budget amounted to EUR 4.48 billion in ITS STIPULATED STANDARDS. value. The company purchases its direct materials from 151 suppliers located in 14 different cities.
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71% 151 TOFAŞ TODAY PROCURES AN AVERAGE OF 71% TOFAŞ PURCHASES ITS DIRECT MATERIALS FROM OF ITS COMPONENTS OTHER THAN ENGINES AND 151 SUPPLIERS LOCATED IN 14 DIFFERENT CITIES. TRANSMISSIONS FROM DOMESTIC SUPPLIERS.
CONTRIBUTING TO THE GROWTH AND DEVELOPMENT the company will be continuing its efforts to improve Management OF DOMESTIC SUBMANUFACTURING manufacturing costs through projects that focus on part Since the day it was founded, Tofaş has been contributing collectivization and localization projects. In addition, substantially to the growth and development of a plans also call for the commencement of activities that home-grown automotive sub-industry by giving the are related to a long-term “Supplier Park Rationalization” utmost importance to localizing its procurement and project that involves a comprehensive review and manufacturing processes as much as possible. Tofaş today assessment of the company’s supplier base. procures an average of 71% of its components other than engines and transmissions from domestic suppliers. In the conduct of all of its procurement processes, Tofaş ensures that its relationships with suppliers are Reducing its dependency on non-domestic sources and transparent, mutually trust-based, and competitively increasing localized content have always been two of sustainable within the overall framework of a long-term Activities Tofaş’s medium- and long-term strategies. In line with business relationship. this, the company is working with suppliers especially to localize the production and procurement of electrical, SUPPLIER SELECTION electronic, and mechatronic components. New projects While Tofaş selects those who will be supplying inputs undertaken for this purpose not only contribute to Tofaş’s for its assembly-line operations based on their access to own development but also support suppliers, which Tofaş submanufacturing capacity, there are certain basic criteria recognizes as its business partners, in their efforts to that every potential supplier is expected to satisfy. compete and succeed at the global level. Specifically all suppliers must: Among the many components that Tofaş procures • Possess both the technical (quality/cost competitiveness, locally, the most important are preformed sheet metal delivery performance, project management, production components, machined wrought and cast components, capacity, co-design) and the organizational competencies Sustainability mechanical and electromechanical components, electrical capable of satisfying the automotive industry’s system elements, molded and extruded plastic and rubber expectations; components, seats, door panels, windshields and windows, • Be financially robust; dashboards, bumpers, exhaust system components, • Hold ISO/TS 16949 (quality) and ISO 14001 (environment) chemicals, interior and exterior trim components, and certifications; fasteners. • Possess advanced design, manufacturing, and testing competencies; IMPROVEMENTS IN PROCUREMENT PROCESSES • Have successfully passed Tofaş-conducted Supplier Whenever Tofaş considers the procurements aspects of Eligibility Assessment and Process Audit inspections; new projects that it plans to undertake, it gives particular • Be able to contribute favorably to Tofaş’s own attention to acquiring new technological abilities for the competitiveness by supporting improvements in its
Turkish automotive industry on the one hand and to quality and cost-effectiveness; Corporate Governance boosting its own competitive strength on the other. In line • Have demonstrated an ability to consistently improve with this, Tofaş encourages international firms that are themselves and increase their competitive strength global manufacturers of automotive components to invest by keeping a close watch on what its domestic and in Turkey or to enter into joint ventures with local suppliers. international competitors do; • Demonstrate a willingness and an ability to engage in a While taking measures to reduce its procurement costs, transparent and mutual-trust-based business-partner Tofaş also engages in an ongoing effort to streamline relationship in their dealings with Tofaş. its business processes through the use of advanced procurement methods and digitalization. In 2018 Financial Information
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SUPPLY CHAIN MANAGEMENT
In order to enhance its own competitive abilities by Promotion of WCM methodologies and techniques safeguarding its manufacturing quality and continuity, among suppliers: Tofaş began encouraging its suppliers Tofaş monitors and rates its suppliers’ performance in such to adopt World Class Manufacturing practices in 2009. areas as business viability, quality, and delivery on the basis As of end-2017, 27 of them had done so. In order to of its stipulated standards. encourage the spread of WCM practices among its suppliers, suppliers are also provided with examples of SUPPLIER DEVELOPMENT innovative WCS automation techniques that help Tofaş In the conduct of all of its procurements operations, Tofaş improve its manufacturing quality and costs. A Low Cost focuses on establishing and maintaining business-partner Automation (LCA) project that was introduced among thirty relationships while striving to help its suppliers to enhance suppliers in 2017 will continue in 2018 with the goal of their performance in many different areas such as product encouraging another 20 of them to adopt LCA themselves. design, organizational and technical improvements, quality, A Set-Up Time Improvement Project, whose aim is to cost-reduction, physical and financial risk mitigation, increase suppliers’ manufacturing process efficiency, will manufacturing process improvement, and collective also be initiated among ten Tofaş suppliers in 2018. procurement. Financial risk monitoring: As of end-2017, financial risk Some of the most important of the activities carried out assessments had been performed among 48 of the firms during 2017 within the framework of the concept of in Tofaş’s supplier base and action was taken as needed to ensuring uninterrupted development and sustainability address issues. among Tofaş’s suppliers are highlighted below.
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1,135 LAST YEAR, 1,135 EMPLOYEES OF 68 SUPPLIERS MADE USE OF 58 TRAINING MODULES THAT ARE INTENDED FOR TOFAŞ SUPPLIERS. Management Activities Sustainability
Tofaş Academy training for suppliers: Tofaş Academy Management projects for suppliers: A series of projects is a training platform through which the company shares aimed at increasing Tofaş suppliers’ problem-solving, its technical knowledge and expertise with its suppliers. planning, diagnostic, and organizational competencies as Last year, 1,135 employees of 68 suppliers made use of 58 a way both of developing their management skills and of training modules that are intended for Tofaş suppliers. In improving the efficiency of their human resources and 2017 a “Use Your Competencies & Plan Your Development” business processes continued in 2017. (UP) program was introduced with the aim of helping specific suppliers to improve their competencies in Supplier orientation: Orientation training is conducted such critical areas as quality, project management, and to ensure that suppliers are provided with accurate logistics. As of year-end, 56 employees of 14 suppliers information about Tofaş’s business processes. Such Corporate Governance had completed their basic training under this program. training was provided to 113 employees of 37 suppliers The UP program for suppliers will continue in 2018 with under the company’s “Synergy” program. the introduction of training modules tailored according to each supplier’s area of expertise. Attention is also being Suppliers HR Summit: Organized to provide suppliers given to expanding the scope of UP through the addition with examples of successful human resources practices of new training modules that deal with such things as that they can use to improve their own, the 2017 “Focus on strategic management and employee loyalty management. Improvement” Tofaş Suppliers HR Summit was attended by Consideration is also being given to staging events such as 74 suppliers. “Supplier Technology Day”. Financial Information
85 Tofaş 2017 Annual Report
CUSTOMER SATISFACTION POLICY
TRANSPARENCY FEES Detailed information about Tofaş is available to all No fees are charge of anyone who submits questions, stakeholders 24 hours a day seven days a week via its requests, or complaints. websites and the Tofaş Customer Care Center. Any questions, requests, or complaints that stakeholders may CONFIDENTIALITY have may be forwarded to the company through the same All personal information that is submitted to Tofaş is channels. treated with the strictest confidence and is never revealed to any outside party. ACCESSIBILITY Please direct all queries as appropriate to: CUSTOMER FOCUS Tofaş takes pains to resolve customers’ problems, to satisfy • Fiat Care Center: 444 22 55 customers’ needs, and to protect customers’ rights under www.fiat.com.tr all conditions within the framework of company policies • Alfa Romeo and Lancia Care Center: 444 19 10 and the requirements of law. www.alfaromeo.com.tr www.lancia.com.tr ACCOUNTABILITY • Jeep Care Center: 444 53 37 All questions, requests, and complaints that are received www.jeep.com.tr are recorded upon arrival. When they are responded to, a full account is given of all decisions and actions that were RESPONSIVENESS taken along with the justifications for them. All requests for information submitted via company websites and attention centers are responded to within CONTINUOUS IMPROVEMENT specified periods of time. All communications received from Tofaş stakeholders are used proactively as feedback for making improvements in OBJECTIVITY the company’s business processes, products, and services. All questions, requests, and complaints are addressed and responded to fairly and without prejudice.
86 Tofaş 2017 Annual Report Tofaş at a Glance
TOFAŞ CODE OF ETHICS AND ANTI-CORRUPTION POLICY
th
Tofaş’s commitment to the advanced business ethics that The 10 principle titled “Anti-Corruption” of the United Management are part of the bedrock of its corporate culture inform all Nations Global Compact to which Koç Holding, one of of the company’s activities and operations. This means that Tofaş’s major stockholders, is signatory, is an indispensable ethical behavior of the highest sort is an essential priority part of Tofaş’s approach to business ethics and anti- and responsibility of every Tofaş employee. However not corruption. only Tofaş employees but also Tofaş dealers, suppliers and business partners, and all other stakeholders with whom Special care is given to protecting human rights and to the company actively engages are likewise expected to supporting the company’s performance on such issues in abide by the company’s ethical guidelines. The Tofaş Board the conduct of its business processes through policies and of Ethics is responsible for the implementation of the Tofaş practices. One instance of the importance Tofaş gives to Code of Ethics and for overseeing compliance with its rules. human rights and practices related to them is to be seen in
the first article of the Tofaş Code of Ethics which states that Activities Tofaş adheres to a no-tolerance approach when dealing the company “respects human rights and the constitutional with matters involving bribery and corruption. The rights of freedom of association and collective bargaining”. company is committed to undertaking its activities fairly and honestly in line with legal and ethical guidelines. In all All forms of discrimination be they based on language, of the policies and procedures that it formulates, Tofaş race, gender, political affiliation, religious belief, or strives to be in full compliance with the requirements similar considerations are prohibited in the conduct of of laws and regulations, with ethical and professional business and workplace relationships at Tofaş. Work standards, and with universally-recognized principles. agreements between the company and its employees may Within this scope, risks of bribery and corruption not incorporate any terms or conditions which, directly are identified and actions are taken to reduce them. or indirectly, would subject an employee to prejudicial Compliance with company ethical guidelines is supported treatment on the grounds of gender or pregnancy at the by means of in-house group training sessions, regular time the agreement is entered into, while it is in effect, or Sustainability ethical guideline announcements, and online training when it is terminated except in cases where job-related resources. risks, employee safety, or the requirements of law dictate otherwise. The principle of “Equal Pay For Equal Work” The Tofaş Code of Ethics provides a comprehensive applies to everyone and no employee may be paid more approach for addressing issues involving potentially or less based on their gender. All hiring, assignment, questionable conduct that company employees and other and promotion decisions must be based on objective stakeholders might be encountered. The Tofaş Code of performance criteria and never on such considerations as Ethics and the Tofaş Anti-Bribery and Anti-Corruption Policy language, religion, gender, race, or the like. Tofaş condones set out guidelines governing such matters as interacting neither the employment of children nor any form of forced with internal and external stakeholders, avoiding conflicts or compulsory labor. of interest, protecting occupational health and safety, and preventing corruption, malfeasance, and bribery. What is to Corporate Governance be done in the event that these guidelines are breached is clearly stated in the Tofaş Personnel Regulations. Financial Information
87 TRANSPARENCY AND ACCOUNTABILITY ALONG WITH EQUALITY OF TREATMENT AMONG ALL STAKEHOLDERS, INFORMATIONAL RESPONSIBILITY, AND TRANSPARENCY IN CORPORATE GOVERNANCE PRACTICES, ACHIEVING SUSTAINABILITY IN ALL OF THE COMPANY’S CORPORATE ACTIVITIES IS ONE OF TOFAŞ’S FUNDAMENTAL OBJECTIVES.
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AGENDA OF THE ORDINARY GENERAL ASSEMBLY MEETING
AGENDA OF 50TH ORDINARY GENERAL ASSEMBLY MEETING OF TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ TO BE HELD ON 15 MARCH 2018
1. Opening and election of Meeting Chairmanship, 2. Reading, discussion and approval of 2017 Activity Report prepared by the Company’s Board of Directors, 3. Reading of Independent Audit Report Summary for 2017 accounting period, 4. Reading, discussion and approval of 2017 Financial Statements, 5. Acquittal of each Board Member for 2017 activities of the Company, 6. Approval, approval with amendment or rejection of the Board’s proposal on appropriation of 2017 profits and the date of appropriation created as per the Company’s profit distribution policy, 7. Determining the number and term of office of Board Members, holding the election based on the number of members determined, electing Independent Board Members. 8. Informing the Shareholders on “Remuneration Policy” for Board Members and Top-Level Managers and the payments made within the frame of such policy as required by Corporate Governance Principles, 9. Determination of annual remunerations of Board Members, 10. Approval of selection of Independent Auditing Organization by the Board of Directors as per the Turkish Commercial Code and Capital Markets Board regulations, 11. Informing the Shareholders on donations made by the Company in 2017 and setting an upper limit for donations in 2018, 12. Informing the Shareholders, on assurances, pledges, securities and indemnities supplied by the Company and its affiliates in favor of third parties and the profits and benefits gained in 2017 as per the Capital Markets Board regulations, 13. Authorization of the majority shareholders, members of the Board of Directors, top level managers and their spouses and up to second-degree relatives within the frame of Turkish Commercial Code Articles 395 and 396 and informing the shareholders on such business and transactions of this nature in 2016 as per the Capital Markets Board Corporate Governance Communiqué, 14. Wishes and opinions.
90 Tofaş 2017 Annual Report Tofaş at a Glance
INFORMATION ON THE CAPITAL STRUCTURE AND SHAREHOLDING OF THE COMPANY
THE COMPANY’S CAPITAL, SHAREHOLDERS WHO OWN MORE THAN 10% OF THE CAPITAL: Management As of 31 December 2017, the company’s recorded equity ceiling was TL 1 billion, and its issued (paid) capital was TL 500 million.
Shareholder Share Group Share Amount (TL) Voting Right Share Ratio (%) Fiat Auto S.p.A. D 189,279,856.87 18,927,985,687 37.8560 Koç Holding A.Ş. A 187,938,121.26 18,793,812,126 37.5876 Temel Tic. ve Yat. A.Ş. A 175,693.44 17,569,344 0.0351 Koç Family A 1,166,042.17 116,604,217 0.2333 Others E 121,440,286.26 12,144,028,626 24.2880
500,000,000.00 50,000,000,000 100 Activities
There was no change in the Company’s capital and meet the requirements for independence as set forth shareholding structure in the period 01 January 2017 – by the regulations by Capital Markets Board. There is no 31 December 2017. The last time the Company made privilege regarding allocation of dividends (as per Article a bonus issue increase at the rate of 11.111111% from 18 of Articles of Association). Detailed information and internal sources to a total of TL 50,000,000 was in 2005, explanations relating to these matters are contained and in the following years, including 2017, there was no in more detail in the Corporate Governance Principles capital increase. Information on Capital increases since the Compliance Report within the annual report. foundation of our company can be found on the website www.tofas.com.tr. In addition, there was no law suit which may affect the Sustainability finances and activities of the Company and there was Tofaş is listed in BIST 30 and BIST 100 Indexes as well no administrative or financial sanction imposed on the as the Corporate Governance Index and Sustainability Company or the members of its managing bodies due to Index. Company shares are quoted in Luxembourg Stock breach of legislative provisions. There was no capital risk Exchange Market and traded in the international markets. and it is concluded that the activities can continue.
Each shareholder has one voting right at the General There was no capital risk, and it was concluded that the Assembly Meetings and there is no privileged vote. capital is adequate for continuation of operations, as However, Board Members and Auditors are elected specified also in the related Committee report. among the nominees who will be nominated by Group A and D Privileged Shareholders. (Article 10 of the The shareholders can access corporate, financial and stock
Company Articles of Association) As per the Company’s exchange data regarding the Company under the “Investor Corporate Governance shareholding structure and as specified in Company’s Relations” section at www.tofas.com.tr website and Access Articles of Association, only A and D Group shareholders information on other issues regarding the Company by have the privilege of nominating the Members of the sending an e-mail to [email protected]. Board of Directors and Members of Auditing Board and one of the nominees for each of these committees should Financial Information
91 Tofaş 2017 Annual Report
INFORMATION ON THE CAPITAL STRUCTURE AND SHAREHOLDING OF THE COMPANY
AMENDMENTS TO THE ARTICLES OF ASSOCIATION SUBSIDIARIES AND AFFILIATED COMPANIES DURING THE REPORTING PERIOD As of 31 December 2017, our company holds a share of In 2017, there were no amendments to the Articles of Association. • 99.99% (TL 44,999,996) in in the nominal capital (TL 45,000,000) of its İstanbul-based affiliated company, KOÇ The Company’s Articles of Association are also available for FIAT KREDİ Finansman A.Ş. review on our Company’s website at www.tofas.com.tr. • 100% (TL 5,500,000) in in the nominal capital (TL 5,500,000) of its İstanbul-based affiliated company, FER DIVIDENDS DISTRIBUTED IN THE LAST THREE YEARS MAS Oto Ticaret A.Ş. AND RATIOS: In accordance with the Turkish Commercial Code, the Capital Market Legislation, provisions of the Articles of Association, and the Profit Distribution Policy,
• cash dividends in the total amount of TL 350,000,000.- corresponding to 70% (70% gross, 59.50% net) of the 2016 profit were paid out during 2017, starting from 3 April 2017. • cash dividends in the total amount of TL 365,000,000.- corresponding to a rate of 73% (73% gross, 62.05% net) of the 2015 profit were paid out during 2016, starting from 7 April 2016. • cash dividends in the total amount of TL 485,000,000.- corresponding to a rate of 97% (97% gross, 82.45% net) of the 2014 profit were paid out during 2015, starting from 03 April 2015.
A detailed table of allocation of dividends in the mentioned and previous years is accessible at www.tofas.com.tr for review.
92 Tofaş 2017 Annual Report Tofaş at a Glance
DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT
SECTION I: DECLARATION OF COMPLIANCE WITH and executive managers’ remuneration policy, (iv) Management CORPORATE GOVERNANCE PRINCIPLES necessary reports that must be prepared and necessary In 2017, full compliance was achieved with the applicable information that must be announced regarding the related compulsory principles of the Corporate Governance party transactions, were presented for the information Communiqué II-17.1 while compliance was achieved with of our shareholders and investors 3 weeks in prior the most of the noncompulsory principles. General Assembly. Furthermore, our Company’s corporate website and Annual Report were reviewed, necessary Although the aim is to achieve full compliance also with revisions were made in order to achieve full compliance the noncompulsory Corporate Governance Principles, full with the principles. compliance has not yet achieved due to reasons such as; difficulties in practicing some of the principles, continuing In the upcoming period, developments in the legislation evaluations in our country and on international platform and practices will be taken into account and necessary Activities about complying with some of the principles, some of the activities will be carried out in order to achieve compliance principles not fully matching with the existing structure with the Principles. of the market and our Company. The process regarding the principles which have not yet been adopted is in Within the scope of the Compulsory Corporate Governance progress and they are scheduled for adoption following the Principles, in the context of exceptions in practicing completion of managerial, legal, operational and technical the Corporate Governance principles – as per the first infrastructure works in a manner to assist the Company paragraph of the 6th Article of the Corporate Governance in effective management. Comprehensive activities Communiqué; our Company’s status is a “joint venture” (JV) carried out within our company within the scope of the composed of “two juridical persons” who “equally control Corporate Governance Principles, and principles that was the management with an agreement” while the number not complied with in relevant departments and conflicts of of the independent members of the Board of Directors interest (if any) arising for this reason, are explained below. is “two” in line with this regulation. With the CMB decision Sustainability n.5/129 (date: 16.02.2012) approval was received for that it In 2017, Corporate Governance activities were carried out was sufficient to determine the number of the independent particularly to achieve compliance with the Capital Markets members of the Board of Directors as 2 (two). Law that includes the new regulations of Capital Markets Board of Turkey (CMB) about Corporate Governance Furthermore; as per Article 5 paragraph 6 of the said Principles, and with the Communiqués based on this Communiqué, nominees for independent membership Law. Within this context, our Board of Directors and our on the Board of Directors were determined in conformity Committees were formed in line with the requirements in with the requirement that reads “It is sufficient that [... the Corporate Governance Communiqué and the Board the principle.....] is met by at least half of the independent of Directors’ Committees so set up pursue their activities members “ with respect to the criterion of “being efficiently. considered a resident in Turkey in accordance with the
Income Tax Law” as specified in paragraph (d) of the first Corporate Governance Board of Directors’ and executive managers’ remuneration clause of the compulsory principle numbered 4.3.6, and policy was determined and presented for the shareholders’ necessary permission has been obtained from the CMB. information at the General Assembly. With the informative Along this line, the necessary consent has been received document prepared for the General Assembly; (i) General for the Board of Directors’ independent member nominees Assembly information (that must be announced according with the CMB decision no. 5/198 and dated 10.02.2017, to the principles) such as privileged shares, rights to vote, and the independent members were elected at the organizational changes, (ii) résumés of the candidate General Assembly as at 28 March 2017 for a one-year term Members of the Board of Directors, (iii) Board of Directors’ of office. Financial Information
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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT
The implementation of Corporate Governance Principles provided within the framework of the general regulations in has a decisive and ever-increasing importance for the the legislation. Company as a result of the developments in Capital Markets and as a dynamic process. The Company Regarding the principle no. 4.3.9; there is no target ratio continues its efforts to adopt corporate governance as a and time set for the ratio of female members on the Board corporate culture by adopting the Corporate Governance of Directors, and evaluation of the matter continues. Principles issued by the CMB, making the necessary Detailed information regarding the issue is given in section improvements and regulations based on current 5.1. below. conditions on areas which require adoption and making the necessary changes. We integrate sustainability into As per the principle no. 4.5.5., board members are our corporate governance practices in accordance with assigned to committees based on their knowledge and the principles of transparency, accountability, fairness and experience levels and in accordance with applicable responsibility, as described in the Corporate Governance regulations. Some board members serve on multiple Communiqué. committees. Board members, who serve on multiple committees, are responsible for ensuring communication Following suit of previous years, our activities were and cooperation between committees that oversee areas meticulously carried on in 2017 by keeping a close eye related to each other. on the changes made in the legislation or capital market regulations, and in line with our Company’s corporate Regarding the principle no. 4.4.7, there are no restrictions governance activities. for the members of the Board of Directors to assume duties outside the company as stated in section 5.1. below. Within the framework of our corporate governance practices, our corporate governance rating was revised Our Company has espoused a sustainable approach to once periodically by the corporate governance rating governance by ensuring a broad-based establishment of firm SAHA Kurumsal Yönetim ve Kredi Derecelendirme the corporate governance concept as a dynamic process Hizmetleri A.Ş. Within the scope of the Corporate and corporate culture, in line with the implementation of Governance Rating Report issued on 02 November 2017 Corporate Governance Principles. Additionally, in case of a upon review of 2017 operations, our rating score was significant change during the period, such change will be upgraded once again and declared as 9.15 (91.48). The included in the interim activity report. rating report can be reviewed on our Company website. SECTION II- SHAREHOLDERS Due to reasons also mentioned above, full compliance has not yet been achieved with the non-compulsory 2.1 Investor Relations Department Corporate Governance Principles specified below. Detailed Our Company’s Financial Director, and the Financial Risk information regarding the issue is presented in the relevant Management and Investor Relations Unit, Accounting Unit sections below. Our Company is not exposed to any and Legal Counseling Unit, organized under the Financial conflicts of interest by reason of failure to fully comply with Directorate, are assigned with the performance of the the non-compulsory principles. duties stipulated under Article 11 of the CMB’s Corporate Governance Communiqué no. II-17.1. Regarding the principle no. 1.4.2, privileges listed below in section 2.4 were specified in our Articles of Association. The functions of the Investor Relations Unit are performed by Mr. Erman Tütüncüoğlu, Financial Risk and Investor Regarding the principle no. 1.5.2; our Articles of Association Relations Manager, and Mr. Devran Aydın, Accounting do not stipulate minority rights for those who hold less Manager, who report to Mr. Stefano Reganzani, Financial than one twentieth of the capital, and thus rights were Director. Mr. Devran Aydın, Accounting Manager, holds the
94 Tofaş 2017 Annual Report Tofaş at a Glance
licenses that are required by the related Communiqué; the and material event disclosures are made through the disclosure that he has taken over the position from Mr. Company’s corporate website, such portals as e-Company Münir Emre Ertürk, who resigned on 26 September 2017, and e-Governance, and PDP within the scope of the Capital has been posted on Public Disclosure Platform (PDP) on 26 Market legislation. September 2017. In addition to the above, as stated in the Declaration of Along this line, as of 2017, the duties set forth under Article Compliance section above, the Company’s corporate
11 of the Corporate Governance Communiqué are being governance rating was revised upwards to 9.15 (91.48%) Management fulfilled by Mr. Erman Tütüncüoğlu and Devran Aydın upon the annual periodic review performed. under the supervision of the Company’s Financial Director, Mr. Stefano Reganzani. In the Corporate Governance During the reporting period, 23 material event disclosures Committee, which functions within the frame of the were released; disclosures of an important nature for the operating principles set out by our Board of Directors, investors, along with their translations into the English Mr. Stefano Reganzani serves in addition to the existing language, were posted on the corporate website as well members. Working under the title Accounting Manager and as on PDP. In 2017, 250 queries were received from Investor Relations Executive in the Department, Mr. Devran shareholders in writing or via telephone, and information Aydın holds Capital Markets Advanced Level License continued to be provided as necessary. While queries (Capital Market Activities Level 3 Certificate) and Corporate were mostly concerned with financial statements, sales
Governance Rating License. Mr. Erman Tütüncüoğlu, performance, projections, there were requests for annual Activities Financial Risk and Investor Relations Manager, holds Capital reports and sustainability reports. Moreover, necessary Market Activities Level 3 License. responses were given to information requests regarding capital market regulations. Within the scope of the considerations stipulated in Article 11 of the CMB Corporate Governance Communiqué, 2.2. Using Shareholders’ Right To Information Investor Relations Department Report was prepared No discrimination is made among the shareholders in regarding the activities carried out in 2017, and was using right to information and review while all information presented to the Board of Directors as of 01.02.2018 after that does not interfere with trade secrets is shared with it was discussed in the Corporate Governance Committee. the shareholders. Under the scope of Financial Directorate, questions sent to Budget, Planning and Commercial Within this framework; the Risk Management and Investor Control Unit, Financial Risk Management and Institutional Relations Unit held 246 meetings with investors and Investor Relations Unit and Accounting Unit, that do not Sustainability analysts, 4 web broadcastings, 35 teleconferences about interfere with confidential information and trade secrets our Company. 4 investor conferences and 1 roadshow are answered either in writing or on the phone by the were attended and existing and potential investors, were highest level person relevant with the issue according to contacted and informed about the latest developments. As the Company’s information policy. As explained in section of the end of 2017, 86% of the Company’s publicly-floated 3.1 in this report, all information and announcements that shares were being held by foreign investors. may have impact on using shareholders rights are available on the corporate website. The General Assembly meeting, which was organized during the reporting period within the frame of During the reporting period, maximum efforts were spent shareholder relations, was convened as per the legislation to ensure information flow within the frame of necessary in force via Electronic General Meeting System (e-GEM). activities and relevant implementations under the
The meeting, announcements and records regarding the Company’s Disclosure Policy, as well as for the purpose of Corporate Governance meeting were organized in conformity with the capital fulfilling shareholders’ information requests. However, any market regulations, the Company’s Articles of Association shareholder may request -even in the absence of such a and other internal regulations. request in the general meeting agenda- from the general assembly of shareholders that certain events be clarified Relevant procedures concerning the activities of the through a special audit pursuant to Article 438 of the Committees under the Board of Directors are monitored Turkish Commercial Code, to the extent that the same is and records are kept. The issues including public necessary for exercising shareholding rights and provided disclosures, responds to shareholders’ and investors’ that the right to information and review has been exercised information requests are handled and monitored, in advance. Financial Information
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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT
There is no information or practice about this topic with of securing attendance of stakeholders, media members, respect to the existing regulations or general customs. As and all stakeholders in general. In this framework, media specified regarding the audit of other issues stipulated members, experts from various intermediary institutions in the legislation, our Company implements the relevant and banks, along with officials from related associations, provisions of the Turkish Commercial Code and Capital nongovernmental organizations and rating firms attended Market legislation. In addition to internal audit and internal the said General Assembly Meeting. control practices, our Company is audited by its two main partners, Koç Holding and Fiat Auto. Furthermore; The General Assembly Meeting was also broadcast live Company activities are periodically audited by the through MKK and e-GEM, and a list of those attending via Independent Auditor elected at the General Assembly. electronic means was prepared, as well as a list of physical participants. As stated in Section 2.1 above, as of the end of the reporting period, Financial Risk and Investor Relations The lists of physical and electronic attendants to the Manager Mr. Erman Tütüncüoğlu from the Financial Risk Ordinary General Assembly Meeting of 28 March 2017 and Investor Relations Unit can be contacted via email reveal that 450 shareholders in total were included in the at [email protected] or via phone at ext. lists. 2751 on (0212) 275 33 90 (pbx), or Accounting Manager and Investor Relations Executive Mr. Devran Aydın from In this frame, procedure of general meeting is made to the Accounting Unit can be contacted via email at devran. ensure the utmost presence of the shareholders and the [email protected] or via phone at ext. 2754 on (0212) minutes of such meetings shall be accessible in writing or 275 33 90 (pbx) within the scope of “Investor Relations electronically at all times. Any measure aimed at increasing Department” activities for requesting information. the efficiency of the meeting is taken in accordance with the legislation. All measures necessary to provide the Our Company’s shareholders can also reach the Unit required functionality of the General Assembly are taken. executives through the Headquarters phone numbers to convey their information requests, and they may also do so The most natural rights of our shareholders in the General by sending an email to the corporate account borsa@tofas. Assembly Meetings are asking questions and raising their com.tr. opinions, which are shown the utmost respect. Therefore, the right of the Shareholders to ask questions in the 2.3. General Assembly Meetings General Assembly or make suggestions about the Agenda During the reporting period, Ordinary General Assembly items, or to deliver speeches regarding their suggestions Meeting of Shareholders was held on 28 March 2017 and current matters is provided by the Board and the at the Company’s Headquarters at Büyükdere Caddesi required records are kept as per the requirements. Tofaş Han No: 145 Zincirlikuyu 34394 Şişli – İstanbul. The announcements for the invitation to the General Assembly In this context, written and oral suggestions made by the Meeting, including all necessary details were published on shareholders to the Meeting Chairmanship about various the company’s website at www.tofas.com.tr, e-GEM and topics at the General Assembly are added to the Minutes e-Company portals of the Central Registry Agency (MKK), and of the General Assembly Meeting, which are also posted on PDP as well as being promulgated in the Turkish Trade on the Company’s Internet address (website). In 2017, no Registry Gazette within the legally due time. In addition, questions were raised for which written responses were written notices were sent to privileged shareholders who are demanded. Furthermore, shareholders did not give any registered in the Shareholders Ledger. proposals for the agenda. In addition to this, records in the Meeting Minutes for the shareholders’ negative votes Moreover, anyone wishing to attend the General Assembly (if any) against any of the agenda items are available in the Meeting as a viewer was welcomed, in line with the goal General Assembly documents on www.tofas.com.tr.
96 Tofaş 2017 Annual Report Tofaş at a Glance
All the Minutes of Ordinary and Extraordinary General 2.4. Rights to Vote and Minority Rights Assembly Meetings and Lists of Attendants for previous At the General Assembly, there is one right to vote for years can be found and reviewed at the Company each share, but there are no privileges in right to vote. Headquarters, as well as in the archives of the Turkish Shareholders attending the General Assembly meeting Trade Registry Gazette retained at the Istanbul Trade use their rights to vote in proportion to the nominal value Registry Office. Furthermore, the Minutes of General of the total shares. However, Members of the Board of Assembly Meetings and other relevant documents for Directors must be elected from among the candidates
the last 5 years can be accessed and reviewed from the who will be nominated by the Privileged Shareholders of Management Company’s corporate web site (www.tofas.com.tr) in “pdf” Group A and D. (10th Article of the Articles of Association). format. This issue is legally confirmed due to the fact that our Company’s status is a “business partnership” (joint venture) There were no instances where the affirmative votes of the composed of “two juridical persons” who “equally control majority of independent Board members were required the management with an agreement”. for passing a Board of Directors decision, which had to be referred to the General Assembly because of the negative Voting rights are exercised as per the provisions contained votes cast by independent Board members. under the Articles of Association. The regulations of the CMB on voting by proxy are observed. The Company’s At the Ordinary General Assembly meeting held in 2017, Articles of Association do not grant minority rights to information about the donations and charitable grants those holding less than one twentieth of the capital, and Activities made in 2016 was presented under a separate agenda rights are provided within the framework of the general item and a TL 12,000,000 limit was set for donations that regulations in the legislation. can be made in 2017 while no changes were made in the donations policy. In case of mutual participation, sovereign shareholder is not possible. The Articles of Association do not contain In case the shareholders (who control the management any provision for the representation of minority shares of the Company), Board of Directors’ members, managers in the management or cumulative voting method. Due who have administrative responsibilities, and their spouses to voluntary application matter and non-planning for and blood relatives and relatives by marriage up to second- sovereign shareholding by the major shareholders as per degree make any important transaction with the Bank the Capital Markets Legislation, provision on quorum was or its associate companies which may lead to conflicts of not applied for the existing General Assembly (Article 14 of interest, or in case, the aforementioned persons make any the Articles of Association). Sustainability transaction, related to a commercial business that is within the scope of the corporation or its associate companies’ Transactions related to shareholders are based strictly field of activity, for their own account or for the account on the principles of equality in transactions in accordance of others or if they become unlimited partners in other with the regulations, and our Company pays the utmost companies carrying out similar commercial businesses; attention to this by providing the necessary arrangements. permission was given by the General Assembly – within the framework of the 395th and 396th Articles of the 2.5. Dividend Rights Turkish Code of Commerce – for such transactions and There is no privilege regarding participation in Company transactions performed within the Company’s field of profit or allocation of dividends. Dividends are distributed activity by persons (on behalf of themselves) who have equally regardless of the whole current shares or their access to company information apart from the ones dates of issuance and acquisition.
mentioned above. Some of our Company’s controlling Corporate Governance shareholders, Board Members, managers who have Our Company’s Dividend Policy is available in the administrative responsibilities, and their spouses and blood Company’s Annual Report and on the corporate website; relatives and relatives by marriage up to second-degree also, the Dividend Policy covering matters related to serve as board members at some of the Koç Group and dividend distribution has been laid down for the approval the Fiat Group companies, including those that engage in of the General Assembly, and the General Assembly business areas similar to our Company’s business areas. In Meeting Minutes incorporate the fact that it has been 2017, no major transactions leading to conflict of interest ratified. Accordingly, profit distribution is made as per took place between related parties and the public company the provisions of the Turkish Commercial Code, Capital and its subsidiaries. Market regulations, Tax Regulations, other applicable Financial Information
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legislation and the article concerning profit distribution SECTION III - PUBLIC DISCLOSURE AND of the Articles of Association. A balanced and consistent TRANSPARENCY: policy between the shareholders’ and Company’s interests is pursued in profit distribution in line with the Corporate 3.1. Company Website and Its Content Governance Principles; in principle, the net distributable The Company has an active and up-to-date website. profit for the period is calculated as per the Capital Market The website is at www.tofas.com.tr, and the information regulations by taking into account the market projections, and relevant sections of the corporate website are the Company’s long-term strategies, investment and also available in English language. The website includes financing policies, profitability and cash status, and the detailed information on topics included in the Corporate maximum amount of cash dividends and/or bonus shares Governance Principles and the Investor Relations section are distributed to our shareholders, so long as it can be features sub-sections titled Corporate Governance and covered from our financial records, and to the extent Corporate Governance Policies. Additionally, a section permitted by the applicable regulations and financial dedicated to environmental, social and administrative means. Furthermore, within the scope of this Profit matters also went live in 2014 on the corporate website Distribution Policy, the aim is to make profit distribution within the frame of “Sustainability” activities that were within maximum one month after the General Assembly introduced along with corporate governance. There is meeting while the profit distribution date is decided by the another Corporate Governance tab under this section that General Assembly. The General Assembly or the Board deals with topics falling under the scope of sustainability. of Directors, in case authorized by the General Assembly, may decide to distribute dividends with installments in The website presents various detailed information about conformity with the Capital Market Regulations. the Company. The website offers a broad range of information gathered under different headings, including According to the Articles of Association of the Company; About Tofaş, News, HR and R&D activities, Career and the Board of Directors, provided that it is authorized by the Training at Tofaş, and social responsibility initiatives. General Assembly and it complies with the Capital Markets Updated to keep abreast of new developments, the Regulations, may make advanced dividend payment. website has a dedicated “Investor Relations” section covering the minimum matters set forth by the CMB, 2.6. Transfer of Shares which is accessible at the address www.tofas.com.tr as Article 8 of the Articles of Association “Transfer of Shares mentioned above. The subsections on the website feature and Establishment of Usufruct on Shares” stipulates the necessary details, records and information. provisions to be applied regarding the sale and transfer of registered shares of Issues A and D and there are These sub-sections include the following: “Stock and restrictions on transfer of shares subject to the said rules Stock Exchange Market Info”, “Shareholding Structure and and arrangements. This features the protection of the Board of Directors”, “Corporate Governance”, “Corporate existing rights of the dominant shareholders and the Governance Policies”, “Annual Reports”, “Financial limitation of the transfer of shares to any automobile Statements”, “Material Disclosures”, “General Assembly manufacturer or to companies that are controlled Meetings”, “Subsidiaries”, “Links and Information for indirectly. Investors”, “Information on Main Partners and Shareholding Structures”, “Notices”, “Organization Chart”, “Calendar” and CMB regulations are applicable for transferring Company’s “Archive”, as well as “Analysts”, “Presentations”, “Survey and publicly traded Group E registered shares. Information Form”, “Webcast”, “Investor Feedback” and “Contact Us/FAQ”. Informational surveys and electronic mailing systems were introduced for our shareholders,
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investors and analysts through the “Survey and Information 3.2. Annual Report Form” section, and there is also a tab for the “Investor Board of Directors prepares the annual and interim Annual Feedback” system. Reports with the details to fully and accurately inform the public on company activities. Information listed by The “Stock Exchange Market Info” subsection that was Corporate Governance Principles are included with due introduced previously was also enabled and was kept up- care. to-date during 2017 as it was in previous years, and served
as an information tool giving our shareholders, investors Our Annual Report for the past period, prepared in Management and analysts access to BIST data. conformity with the Corporate Governance Principles stipulated in the CMB’s “Corporate Governance In addition to those, the Company’s Annual Reports Communiqué” n.II-17.1 that entered into force after being can be obtained in print and are also available on the 03.01.2014) is an accurate and reliable source just like in website in current and archived information for review. the previous years, available both in print and online via As stated, periodic financial statements and reports are our website. accessible any time on the website, which presents up- to-date information including, but not limited to, minutes In addition, necessary additions have been made to our of the General Assembly meetings, investor and analyst Annual Report which has been produced in view of the presentations. provisions of the Regulation on Determining the Minimum
Contents of Annual Reports of Companies published by the Activities Responds to surveys coming from these links on the T.R. Ministry of Customs and Trade in the Official Gazette Investor Relations section of the website are followed, dated 28 August 2012, and our Annual Report is being recorded and the information requests are responded as updated within the frame of the legislation and regulations. necessary. The headings in the present 2016 Annual Report have Besides our main Shareholders Koç Holding A.Ş. and Fiat been addressed under 6 main sections: These main Auto S.p.A., information is also available on our website sections are titled as “Tofaş At a Glance”, “Management”, about our shareholders who exceed 5% (within our “Activities”, “Sustainability”, “Capital Structure, Corporate Company’s shareholders structure) within the framework Governance and Other Issues”, and “Financial Information”. of the legislation. Thus, from the link (to Koç Holding’s and Fiat Auto’s relevant websites) available to have The following subsections are listed under the main information about our main Shareholders’ capital and sections: Key Financial and Operational Indicators, Sustainability shareholders’ structures, publicly announced information Institutional Investor Relations, Board of Directors, and shareholders’ structures of both Companies (that are Senior Management, Automotive Industry, Tofaş’s Place quoted on their stock exchange) can be viewed. in the Industry, Subsidiaries, Sustainability and Social Responsibility Policy, Customer Satisfaction Policy, Agenda Furthermore, as required by the Regulation on the of General Assembly Meeting, Declaration of Corporate Websites of Stock Corporations enforced upon its Governance Principles and Compliance Report, Associate publication in the Official Gazette 28663 dated 31.05.2013 Company Report, 2016 Dividend Distribution Proposal, by T.R. Ministry of Customs and Trade within the scope of Consolidated Financial Statements, and Independent the TCC, a link was provided to the “Information Society Auditor’s Report. Services” (e-Company) Portal, launched on our websites (www.tofas.com.tr and www.fcagroup.com) in due time, The Annual Report for the past period was prepared
and are being kept up-to-date. The Central Registry Agency in strict conformity with the Corporate Governance Corporate Governance (MKK) provides the infrastructure required for the delivery Principles stipulated in the CMB’s “Corporate Governance of “Information Society Services” (e-Company). Communiqué” No. II-17.1, Article 2.2. titled “Annual Report”, and contains accurate and complete information. The Company pays utmost attention to necessary considerations and information flow as per the Capital The 2017 Annual Report has also been prepared Market regulations and applicable legislation. and reviewed in accordance with applicable laws and regulations.
Financial Information
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SECTION IV- STAKEHOLDERS We adhere to, and are guided in our actions by, the principles spelled out in the “United Nations Global 4.1. Keeping Stakeholders Informed Compact”, to which our partner Koç Holding is a signatory, Based on the concept of “stakeholders” referring to and which are implemented at Koç Group companies in employees, suppliers, customers and basically third the audit and reporting of related processes, and by the parties in direct relationship with the company, our principle of being a responsible corporate citizen together Company develops policies for various stakeholders and/or with all our employees, dealers, suppliers and authorized stakeholder groups. service outlets.
All rightful parties and stakeholders are entitled to Tofaş Code of Ethics, Anti-Bribery and Corruption Policy, the same practices, implementations and effective procedures concerning the Ethics Board’s activities can be communications. Our corporate governance practices accessed on our Company’s Internet and Intranet sites. ensure the protection our stakeholders’ rights, which are Any deviation from these guidelines and policies can be both defined by relevant regulations and also those which notified via electronic mail ([email protected]) or in are not defined yet. writing by our employees, business partners and all other stakeholders. Any notifications made to the Board shall be Necessary and systematic communication channels have kept in confidence. been established to keep the Company’s stakeholders informed on matters that are of concern to them. Through the communication and whistleblower line, Additionally, the Company has also made available the stakeholders can notify illegitimate practices and unethical necessary mechanisms for reporting the illegitimate and acts and actions to Tofaş Ethics Board for handling by the unethical transactions to the Audit Committee via Internal relevant Committee. The Ethics Board will adhere to the Audit. Both the Audit Committee and the Early Detection procedures in its preliminary assessment. of Risk and Risk Management Committee pay maximum attention to these matters during the meetings. Besides Tofaş Ethics Board is formed of the Company’s CEO, Tofaş Rules of Ethical Conduct and Operating Guidelines related Directors, HR Director and the Company’s Chief for the Ethics Board, Anti-bribery and Anti-Corruption Legal Counsel. The Board holds periodic meetings; in Policy was issued in 2015, and posted on the corporate addition, the Ethics Board is required to meet within no website. Within the scope of anti-bribery and anti- later than two business days upon invitation by any one of corruption program, necessary guidelines, procedures and its members. policies have been produced and put into force. The Board is ex officio or upon any application, entitled Specifically, headings such as Human Resources, Business to make necessary investigation and research about Management Policies, Rules of Ethical Conduct and actions and practices contrary to principles. Notifications topics related to Tofaş Dealer Network and Supply Chain can be named or anonymous. For the investigation and Management practices are addressed in the Company’s research it will make about actions and practices contrary Annual Report. to principles, the Board may request information and documents from entities by using channels of public authorities.
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In terms of Corporate Governance Principles, the system Stakeholder expectations are managed and addressed by implemented and the Board decisions taken within the relevant Departments. To this end, systematic meetings scope of the Company’s internal control are submitted and training programs are organized so that employees, for the information of the Audit Committee. The Audit suppliers and customers can voice their demands. Also, Committee determines the methods and criteria to be surveys such as “working life assessment questionnaires” implemented for reviewing and resolving the complaints are conducted in line with Human Resources Policies. In received regarding the Company’s accounting and internal addition to the corporate website, the Company also has
control system and independent audit, and for handling an intranet and an internal publication (“Tofaş Gazete”) Management the Company employees’ notifications regarding the aimed at improving internal communication and facilitating Company’s accounting and independent audit within the information flow. frame of confidentiality principle. Furthermore, relevant issues can also be separately addressed by the Early In addition to dealership council and dealership Detection of Risk and Risk Management Committee, if organization meetings, there is a system through which deemed necessary. customer demands and satisfaction level are analyzed. The company management evaluates this information, takes Anti-Bribery and Anti-Corruption Policy sets out the basics necessary actions and provides feedback accordingly. about the topic. Information on the Tofaş Ethics Board and Moreover, activities regarding “Customer Relations its operation setting out the duties, responsibilities and Principles” and similar practices ensure effectiveness and operating principles of the Ethics Board are available to the maximization of customer relations and implementation Activities public on Tofaş website. of policies towards improvement of the service quality. In connection with these practices, we have planned 4.2. Participation of Stakeholders in Management and implemented studies covering current events within Procedures allowing the participation of the stakeholders the reporting period. Additionally, practices aimed at in the improvement of administrative matters and customers and suppliers are monitored and updated expressing their ideas actively in this respect are in place continuously in line with modern practices. in our company. The process and mechanisms to ensure that beneficiaries as stakeholders participate in Company Within the frame of relations with customers and clients, Management regarding the issues related with them are any and all actions to ensure customer satisfaction during supported and implemented by the Company. marketing, sale and post-sale of the goods and services of the company have been taken and put into practice. With the objective of becoming WCM (World Class A prompt response is made to customer queries and Sustainability Manufacturing) and WCC (World Class Company), similar demands regarding our products and the customers implementations are being developed and maintained. For are provided with the required feedback. Maximum its outstanding manufacturing capacity, our Company has efforts and resources are used for proactive solutions to earned gold level status in WCM in 2013, and repeated this company complaints. Improvement studies are organized achievement in 2014, 2015, 2016 and 2017. Additionally, systematically and high quality is assured by means of our Company undertakes strategic efforts based on total quality certifications and quality standards. quality philosophy, such as quality planning and quality control systems, quality improvement methods, Kaizen The principles and policies for suppliers as well as studies, and open door meetings, all of which aim to satisfaction criteria in customer centered product and increase productivity. Detailed information relating to services are regularly measured and followed up by the these efforts are provided in the Annual Report and the related units of the company. Furthermore, we attach
Sustainability Report. importance to arrangements related to customers Corporate Governance and suppliers based on the market developments. Comprehensive application procedures are available in this regard. Financial Information
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In addition to those, the Customer Relations Management 4.3. Human Resources Policy department continued to work effectively and in “Human Resources Policy” of the Company has been coordination in 2017 as it did in previous years to enhance prepared in accordance with the company strategies and customer satisfaction concerning marketing and sales of policies and they are accurately implemented as per the the Company’s products and services. new implementations.
Our company accords utmost importance to practices that In this context, recruitment, career planning and are built upon quality, efficiency and institutionalization. rotation, individual development, wage and performance Also due care “governance” methods that will increase management issues are handled. Work-related issues and participation of beneficiaries in management in line with main duties and responsibilities of employees are also the stakeholders’ feedback. Therefore, beneficiaries’ outlined in the Personnel Guidelines which are prepared in comments and feedback are regarded as important line with the relevant law and collective bargaining. Various inputs with respect to significant decisions that bear an committees have been established to coordinate employee implication in respect of beneficiaries or that directly relations and employees also have representatives in concern them. each of these committees. However, no representative has been selected and/or assigned to coordinate relations Furthermore, “Sustainability Management” and directly with the employees except for the employee union “Stakeholder Relations” bear significance in terms of relationships. “Governance and Sustainability”, as underlined in the Sustainability Report which has been prepared under the The rights and work conditions of both the office and field Company’s Sustainability Policy and which can be accessed personnel are ensured both in our plant and headquarters and reviewed from our website. Necessary efforts are without any discrimination or abuse. No employee being spent to implement these two topics effectively. complaints were made during the reporting period. Due Working environment, improving the value chain and care is taken for participation of Company employees corporate citizenship gain visibility as our key parameters. in management at all levels through feedbacks, periodic Additionally, “we deem it as a primary responsibility to meetings and other efforts. establish an environment of communication” with a special focus on “transparency with stakeholder groups”, Tofaş pays special attention to protecting human rights as mentioned in the Sustainability Reports. We seek and to supporting the performance in this field with stakeholders’ opinions about our operations and we policies and practices within business processes. In constantly inform them. “When planning our activities, we addition, cultural exchange clubs started activities within take into account the characteristics of stakeholder groups the frame of various events that are open to participation in order to develop the most appropriate channels.” by all employees and are intended to promote employee development as part of the corporate culture efforts. Activities are being planned according to evolving priorities and carried on as they were in previous years.
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Special emphasis is placed on performance evaluations, “Seven Step Work Safety” methodology based on simple, behavioral competencies, career planning and career proactive and World Class Production approach, Tofaş management. In 2017, the Human Resources Department aims to protect all Human Resources within the company continued to contribute to organizational improvement against work accidents and injuries caused by occupational efforts and sustainable business processes. diseases. Furthermore, Tofaş aims to zero work accidents and occupational diseases by using Occupational Health An employee compensation policy was created and issued and Safety (OHS) Policy management system.
on the company website. Human Resources and Business Management Management Policies were improved and made available Tofaş takes an integrated approach to HR management for access by all employees. It is posted on the company and performance management based on leadership and intranet, as well as on the corporate website. continuous improvement in order to quickly adapt to fast- changing competitive conditions. Additionally, employees A structuring initiative under the name Tofaş Academy are encouraged to participate in clubs and sports activities was initiated previously, which tackled development on a voluntary basis. Information on these topics is processes. With the platform renewed in 20017, it presented in the Sustainability Report, as well as in the continued with scheduled end-to-end formal and informal Annual Report. The Company’s Sustainability Reports are training programs and activities during 2017. Effective and available at www.tofas.com.tr. efficient use of Tofaş Akademi and Koç Akademi portals is promoted especially in terms of training. In this frame, 4.4. Ethics and Social Responsibility Activities our Company attaches the utmost importance to social Social activities for the district where the plant is located rights and professional training of its employees. It closely and the society in general are organized, carried out and monitors and adopts developments in HR practices. followed up according to corporate social responsibility and societal impact area criteria. Related activities during Tofaş Personnel Directive, in which recruitment, working the reporting period are detailed in the Annual Report. process and dismissal procedures based on effective, Furthermore, the internal publication (Tofaş Gazete), efficient and concrete criteria are determined in detail, is which is periodically published on the intranet (TofaşGO) available both on our website and on intranet. Company and in print, covers our social initiatives ranging from employees’ job descriptions, job distributions, subrogation corporate to individual activities, as well as various news procedures for top management and orientation and information. In addition to sponsorship of a range of conditions for all employees were determined while printed works, sponsorship support is extended to Koç performance management regarding the targets, and Group’s social responsibility initiatives and/or associations, Sustainability criteria regarding behavioristic competencies and technical foundations and organizations working for social causes. competencies were defined through a systematic SAP HR program. Our HR Policy can be accessed for review In this context, support is given to projects in a wide range on our corporate website. Also available on our website of disciplines from education to sports, from cultural is information on Tofaş Personnel Bylaws (Recruitment, activities to the arts. These initiatives include, among Terms of Employment, Termination of Employment others, Fiat Laboratory, Master’s Program, Tofaş Science Contract etc.). The job descriptions of Company employees, High School, Tofaş Sports Club, Tofaş Basketball Schools, their distribution by job families, performance criteria and Bursa Museum of Cars and Anatolian Carriages, Pamukkale the rewarding system have been determined and released. Hierapolis Archaeological Excavations, and New Generation Tofaş Project sponsorships. The Company’s social In addition, we have a comprehensive Human Resources responsibility policy focuses on dynamics that will drive
system composed of occupational health and safety corporate and social development. Corporate Governance management, and Business Management policies. Creating safe working areas and work safety culture with its Financial Information
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Activities that will raise awareness and recognition, and company comply with the generally accepted ethical rules “sustainability perspective” are important elements of these forming a part of the regulations and arrangements. social responsibility initiatives and sponsorships. Furthermore, ethical rules were put into writing under the Corporate Governance Principles, and made public The Sustainability Policy is of particular importance in on our website under the title “Tofaş Ethics Rules and this respect. Information on these topics is available in Implementation Principles”. The said document is referred the Company’s Annual Report and Sustainability Report to within our Company’s “Personnel Regulations”. These and also on the environmental, social and corporate ethical rules covers issues regarding our shareholders, sustainability application at our corporate website. disclosure of information, employee activities, stakeholders and the Board of Directors. There were no complaints regarding environmental issues during the reporting period and we have records An Ethics Board was established within the scope of including environmental assessment reports. We have Company’s Corporate Policies. Moreover, “Ethics Rules and been implementing effective practices and inform our Implementation Principles” has been distributed to Tofaş stakeholders within the scope of environmental sensitivity employees working at any level, and necessary information policies with the existing ISO certificates related to is provided also periodically. meeting quality and effectiveness standards. Furthermore, our Company continues its extensive activities related Tofaş Code of Ethics applies to all Tofaş employees, Board to Social Responsibility projects and environmental of Directors members, Shareholders, Subsidiaries, Dealers protection and presents them to the knowledge of the and Suppliers - in brief all Tofaş people. public. Furthermore; with comprehensive Corporate Social Responsibility projects, issues of protecting the All Tofaş people are expected to comply with Tofaş Code of environment, energy management and awareness Ethics. Tofaş People are obliged to abide by Tofaş Code of and activities for climate change are given maximum Ethics. importance. Tofaş does not exercise discrimination in whatsoever Additionally, Tofaş was the first automotive company to manner in its business dealings on the basis of language, be included in Borsa Istanbul (BIST) Sustainability Index race, gender, political affiliation, philosophical belief, in 2014. According to an assessment conducted by EIRIS, religion, sect or similar reasons. Unless dictated by Tofaş fulfilled all criteria, and qualified for inclusion in the reasons pertaining to the nature of the job such as the risk BIST Sustainability Index in 2017 as well. associated with the specific position, employee safety, legal obligations, etc., different practices are not implemented Tofaş’s Environment & Energy Policy reflects the Company’s directly or indirectly by reason of gender or pregnancy environmental sensitivity and efforts related to about when concluding an employment contract, formulating sustainable manufacturing and green products. its terms and conditions, and/or terminating it. Lower remuneration cannot be determined due to gender for The Company takes necessary steps to ensure compliance the same or equivalent job. Recruitment, appointment and with, and implementation of ethical rules in general. promotion are based on objective performance criteria Related information has been presented in detail in the without discriminating on the basis of language, religion, relevant subsections hereinabove. The members of the gender, race, etc.
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In accordance with Tofaş Code of Ethics, all employees of SECTION V – BOARD OF DIRECTORS the Company fill out a Conflict of Interest Statement form, pledging that they will not be involved in any situations 5.1. Board of Directors’ Structure and Formation that may generate a conflict of interest and therefore task and duties of the Chairman of the Board of Directors negatively impact their decisions, impartiality or loyalty to and the CEO are assumed by different persons. Company the Company. CEO is an executive Member of the Board of Directors. Members of the Board of Directors pay attention to spare
For our employees, in particular, and for all our the necessary time for the Company affairs. There are no Management shareholders in the value chain we have created, Tofaş restrictions for them to assume other tasks outside the tries to expand the practices that have respect and company. Particularly for the reason that independent awareness for human rights. As a consequence of our members’ Professional and sectoral experience has approach in this issue, absolutely no “child workers” are significant contribution to the Board of Directors, there is employed in Tofaş; and there are no “involuntary servitude” no need for such restriction. Before the General Assembly, practices. members’ résumés and tasks they assume outside the company are presented for the shareholders’ information. One instance of the importance Tofaş gives to human rights and practices related to them is to be seen in the Corporate Governance Committee carries out the tasks of first article of the Tofaş Code of Ethics which states that the the Nomination Committee within our Company. company “respects human rights and the constitutional Activities rights of freedom of association and collective bargaining”. The number of independent member candidates presented to the Corporate Governance Committee for Acting in compliance with the principles determined by 2017 was two. ID information, statement of candidacy and the “United Nations Global Compact”, to which our partner résumés of these persons were evaluated at the Corporate Koç Holding is a signatory and which is implemented at Governance Committee meeting held on 23.01.2017 Koç Group companies in the audit and reporting of related and at the Board of Directors meeting n.2017/1 held on processes, has been espoused within the frame of the 23.01.2017, and a decision was taken to nominate all of principle of being a role model of corporate citizenship them as independent member candidates. All Independent together with all our employees, dealers, suppliers and Members of the Board of Directors presented their authorized service outlets. independence statements to the Corporate Governance Committee. As per the sixth paragraph of the 5th Article The Company confirms that its anti-corruption policy, of the mentioned Communiqué, Mr. Gökçe Bayındır and Sustainability procedures and systems are adequate and in place. To Mr. Libero Milone were determined as Board of Directors’ this end, the Early Detection of Risk and Risk Management independent member candidates in conformity with the Committee oversees internal audit, internal control, anti- regulation “minimum half of the independent members corruption and anti-bribery mechanisms implemented by (would be sufficient)” for the criteria “to be considered the Company. resident in Turkey according to the Income Tax Law” stipulated in the paragraph (d) of the first clause of the Related activities have been carried out exercising due care compulsory principle n.4.3.6. After the necessary consent in 2017, as in previous years. received with the CMB decision n.5/198 (date: 10.02.2017) for the independent member candidates of the Board The Company’s Information Disclosure Policy was of Directors within the scope of the Article n.4.3.7 of the revised and posted on PDP on November 30, 2016. All Communiqué, the independent members were elected
stakeholders, shareholders in particular, and the public are for a one-year term at the General Assembly held on Corporate Governance informed of any amendments or updates to the Policy. 28.03.2017.
As of 2017 operating period, there were no situations that would end the independency.
Financial Information
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Independent Member of the Board of Directors Mr. Gökçe and duties I will assume as a result of my independent Bayındır’s Independence Statement is given below; membership in the Board of Directors,
I do declare that I am a candidate for assuming the role ç) In accordance with the legislations, I will not be working of an “Independent Member” in the Board of Directors fulltime in public institutions and organizations (except of Tofaş Türk Otomobil Fabrikası A.Ş. (Company); within working as an academician at the university) after being the scope of the criteria stipulated in the legislations, the elected as a member, Articles of Association of the Company and the CMB’s Corporate Governance Communiqué II-17.1, and within d) I am considered a resident in Turkey according to the this scope; Income Tax Law (n.193) dated 31/12/1960, a) Within the last five years, no executive employment e) I do have the strong ethical standards, professional relation that would give important duties and standing and experience that will help me positively responsibilities has been established between myself, contribute to the activities of Company and remain neutral my spouse, my second degree relatives by blood or by in conflicts of interests between Company shareholders, marriage and (i) the Company and (ii) the subsidiaries and that will help me take decisions freely by taking the of Company, and (iii) shareholders who control the rights of the stakeholders into consideration, management of Company or who have significant influence in Company and juridical persons controlled by these f) I will be able to devote the sufficient time for the activities shareholders; and that I neither possess more than 5% of of the Company to an extent that will help me pursue the any and all capital or voting rights or privileged shares nor activities of the Company and fulfill the requirements of my have significant commercial relations, tasks and duties, b) Within the last five years, I have not worked as an g) I have not been a member of the Board of Directors of executive manager who would have important duties the Company for more than 6 years in total within the last and responsibilities or have not been a member of the decade, Board of Directors or been a shareholder (more than 5%) particularly in the companies that provide auditing, rating ğ) I have not been an independent member of the Board of and consulting services for the Company (including tax Directors in more than three of the companies audit, legal audit, internal audit), and in the companies that the Company purchase products and services from controlled by the Company or by the shareholders who or sells products and services to within the framework of control the management of the Company and in more than the agreements signed (during the timeframe of selling/ five of the publicly traded companies in total, purchasing of the products and services, h) I have not been registered and announced on behalf c) I do have the professional training, knowledge, and of the juridical person elected as member of the Board of experience that will help me properly carry out the tasks Directors,
GÖKÇE BAYINDIR
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Independent Member of the Board of Directors Mr. Libero ç) In accordance with the legislations, I will not be working Milone’s Independence Statement is given below; fulltime in public institutions and organizations (except working as an academician at the university) after being I hereby declare that I stand for serving as an ‘independent elected as a member, member’ on the Board of Directors of TOFAŞ Türk Otomobil Fabrikası A.Ş. (the Company) under the criteria d) I do have the strong ethical standards, professional set out in the Company’s Articles of Association and standing and experience that will help me positively
Corporate Governance Principles Communiqué no. II-17.1 contribute to the activities of Company and remain neutral Management released by the CMB, provided that the CMB gives its in conflicts of interests between Company shareholders, consent taking into consideration that I satisfy the required and that will help me take decisions freely by taking the criteria save for “being considered a resident of Turkey rights of the stakeholders into consideration, for the purposes of the Income Tax Law.” In this context, I hereby declare as follows: e) I will be able to devote the sufficient time for the activities of the Company to an extent that will help a) Within the last five years, no executive employment me pursue the activities of the Company and fulfill the relation that would give important duties and requirements of my tasks and duties, responsibilities has been established between myself, my spouse, my second degree relatives by blood or by f) I have not been a member of the Board of Directors of marriage and (i) the Company and (ii) the subsidiaries the Company for more than 6 years in total within the last Activities of Company, and (iii) shareholders who control the decade, management of Company or who have significant influence in Company and juridical persons controlled by these g) I have not been an independent member of the Board of shareholders; and that I neither possess more than 5% of Directors in more than three of the companies controlled any and all capital or voting rights or privileged shares nor by the Company or by the shareholders who control the have significant commercial relations, management of the Company and in more than five of the publicly traded companies in total, b) Within the last five years, I have not worked as an executive manager who would have important duties ğ) I have not been registered and announced on behalf and responsibilities or have not been a member of the of the juridical person elected as member of the Board of Board of Directors or been a shareholder (more than 5%) Directors, particularly in the companies that provide auditing, rating Sustainability and consulting services for the Company (including tax audit, legal audit, internal audit), and in the companies that the Company purchase products and services from or sells products and services to within the framework of the agreements signed (during the timeframe of selling/ purchasing of the products and services, LIBERO MILONE c) I do have the professional training, knowledge, and experience that will help me properly carry out the tasks and duties I will assume as a result of my independent membership in the Board of Directors, Corporate Governance Financial Information
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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT
Summary information about the members of our Company’s Board of Directors and their positions as of the end of the reporting period is as follows:
POSITIONS IN CURRENT INDEPENDENT/ PARTNERSHIP POSITIONS HELD SHARE OF SHARE COMMITTEES AND NAME SURNAME GENDER POSITION JOB NON- FOR THE LAST OUTSIDE THE CAPITAL (%) GROUP POSITION INDEPENDENT 5 YEARS PARTNERSHIP ÖMER M. KOÇ Male Chairman Director - Chairman of the 0,0389 A Group Non- - Board of Directors in independent Koç Holding A.Ş. SERGIO MARCHIONNE Male Vice Director Vice Chairman Chairman of the - D Group Non- - Chairman of the Board of Board of Directors in independent Directors Fiat Industrial S.p.A & Chairman of the Board of Directors and CEO in Chysler Group and Chairman of the Board of Directors in FCA Group CENGİZ EROLDU Male Member & Director Finance None - D Group Non- - CEO Director (CFO) independent TEMEL KAMİL ATAY Male Member Director Member of Member of the - A Group Non- - the Board of Board of Directors in independent Directors Koç Holding A.Ş. LEVENT ÇAKIROĞLU Male Member Director Member of CEO of Koç Holding - A Group Non- - the Board of A.Ş. independent Directors ALFREDO ALTAVILLA Male Member Director Member of EO of Fiat Group - D Group Non- Corporate Governance the Board of S.p.A. EMEA & independent Committee - Member Directors Chairman of the Business Development in Fiat İSMAİL CENK ÇİMEN Male Member Director Member of Chairman of - A Group Non- Corporate Governance the Board of Koç Holding A.Ş. independent Committee – Member Directors Automotive Group Risk Early Detection and Management Committee Member GIORGIO FOSSATI Male Member Director - General Counsel - D Group Non- Risk Early Detection and for Fiat Chrysler independent Management Committee Automobiles N.V. - Member ;General Counsel for FCA EMEA GÖKÇE BAYINDIR Male Independent Director Independent Independent - A Group Independent Audit Committee Member Member of Member of the - Chairman & Risk the Board of Board of Directors in Early Detection and Directors Tüpraş A.Ş. Management Committee - Chairman – & Corporate Governance Committee - - Member LIBERO MILONE Male Independent Director Independent Independent - D Group Independent Corporate Governance Member Member of Member of the Falck Committee - Chairman the Board of Renewables S.p.A & Audit Committee Directors and Paltrona Frau - Member & Risk Group Early Detection and Management Committee - Member
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Curriculum vitae of current Board Members and Company Article 11 of the Company Articles of Association regulates CEO are included in the relevant section of the Annual “Division of Tasks, Representation and Transfer of Report. Management for the Board of Directors”. In addition, other items the Articles of Association also cover the required We believe that diversity of knowhow, experience and point issues. The Company management is specified pursuant of view in our Board of Directors will have positive impacts to Turkish Trade Code and the relevant regulations mainly on the Company activities and will enable the Board of based on representation and binding of the company,
Directors to work effectively. Furthermore; Corporate and the authorities are exercised pursuant to legal Management Governance Principle n.4.3.9 is evaluated within this scope. requirements. Duties and responsibilities of members of Our evaluations continue to set a target ratio and policy for the Board of Directors and the executives of the Company female Members of the Board of Directors who also serve are included in the legal regulations, capital market as an instrument for representing different ideas. regulations and the Articles of Association.
5.2. Functioning of the Board of Directors The Corporate Governance Committee carries out the Titles or agenda items regarding Resolutions of the Board procedures related to nominating candidates to the seats of directors are prepared and issued periodically and as on the Board of Directors, and to election and appointment necessary. The number of the meetings of the Board may of the nominees. There is an “Officers’ Liability Insurance” vary depending on emerging needs. policy for our Company’s Board of Directors members and
senior executives separately for Koç Holding and Fiat Auto Activities The Board of Directors has made 22 decisions in 2017 representing Group A and Group B. and the minutes of meetings regarding the decisions are duly registered. Board of Director meetings are called and While overseeing the Company’s operations, the Board of convened whenever Company business requires it. Directors assesses whether a conflict of interest is likely to arise, and the outcomes of such conflict, if applicable, The relevant unit coordinates the meeting agenda, and passes the necessary decisions to the best interests of minutes, and board resolution records. When there is a the Company. Moreover, The Board of Directors ensures dispute regarding a board resolution, the relevant case, regulatory compliance in related party transactions, along with its justifications, is recorded. Board resolutions considers possible misconduct risks, and meticulously also should contain relevant inquiries and responses in addresses related party transactions. this regard. Board decisions are made by attendance and positive vote of absolute majority of members (within 5.3. Number, Structure and Independency of Sustainability the scope of Article 10 of the Articles of Association). Committees Formed under the Board of Directors Requirements set forth by Corporate Governance Pursuant to the Article 11 of the Articles of Association, Principles by CMB are reserved. an Executive Committee consisting of 4 persons -2 Group A and Group D shareholders – can be established if No weighted votes or vetoing rights are granted as per and when deemed necessary. The Committee can be the TCC. Articles 10 and 11 of the Articles of Association established among the members of the Board of Directors govern the election, formation, decision quorum and term in order to carry out the necessary actions between two of office of the Board of Directors, the distribution of tasks Board meetings. in the Board of Directors, representation and delegation of management. As mentioned above, all Board of Directors Pursuant to the relevant CMB Communiqué, an Audit decisions are passed by the attendance and affirmative Committee has been set up and pursuing activities since
votes of the absolute majority of all members. However, 2003; the Committee is responsible for presenting its Corporate Governance opinion and proposal regarding the financial results to attendance and affirmative votes of at least two non- the Board of Directors based on available information independent Board members representing Group A shares derived by following up financial matters, reviewing and of at least two non-independent Board members periodical financial statements and notes thereto, carrying representing Group D shares are required for achieving out the necessary activities as defined by the Corporate this quorum as per Article 10 of the Articles of Association. Governance Principles and reviewing the Independent The provision of Article 15 of the Articles of Association Auditor’s Report. The Audit Committee is also charged with is reserved with respect to decisions requiring the monitoring the internal audit process and it is constituted attendance and affirmative vote of independent members. by independent Board members pursuant to the CMB Financial Information
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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT
Communiqué No: II-17.1. In 2012, the operating principles Early Detection of Risk and Risk Management Committee of the Audit Committee were revised and publicly was restructured by the Board of Directors decision disclosed. no. 2017/10 dated 29 March 2017. As at the end of the reporting period, the Committee was formed of Mr. Gökçe The Audit Committee has been reconstituted by the Board Bayındır (Chairman – Independent Board Member), Mr. of Directors decision no. 2017/10 dated 29 March 2017. Libero Milone (Member – Independent Board Member), As at the end of the reporting period, Mr. Gökçe Bayındır Mr. İsmail Cenk Çimen (Member – Board Member) and Mr. (Chairman – independent Board member) and Mr. Libero Giorgio Fossati (Member - Board Member). Milone (Member independent Board member) was serving on the Committee. Board members are assigned to committees based on their knowledge and experience levels and in accordance Furthermore, Corporate Governance Committee under with applicable regulations. Some board members serve Corporate Governance Principles been established in on multiple committees. Board members, who serve 2008. Corporate Governance Committee has started its on multiple committees, are responsible for ensuring activities in accordance with the Corporate Governance communication and cooperation between committees Principles, regulations issued by CMB as per the related that oversee areas related to each other. The Chairmen of legislation and the activities of the Company regarding these Committees should be selected among Independent Corporate Governance Principles. Compliance of the Board Members as per the mentioned Communiqué on Company with Corporate Governance Principles is followed Corporate Governance Principles. Both Independent Board up by the Board of Directors, rules of procedures of Members are members of each committee. Mr. İsmail Cenk Corporate Governance Committee have been revised in Çimen, member of Corporate Governance Committee 2012 and disclosed. is also a member of Early Detection of Risk and Risk Management Committee. Board Member is a member of The Corporate Governance Committee was restructured both Committees for their coordination. by the Board of Directors Decision no. 2017/10 dated 29 March 2017. As at the end of the reporting period, the Audit Committee, Corporate Governance Committee and Committee was formed of Mr. Libero Milone (Chairman – Early Detection of Risk and Risk Management Committee Independent Board Member), Mr. Gökçe Bayındır (Member hold periodic and other meetings as required by the – Independent Board Member), Mr. İsmail Cenk Çimen legislation. In accordance with the rules of procedures, (Member – Board Member), Mr. Alfredo Altavilla (Member – meetings with a certain agenda can be held other than Board Member) and Mr. Stefano Reganzani (CFO). periodic meetings. In this context, Audit Committee has held 5 meetings, Early Detection of Risk and Risk As per the related provisions of new Turkish Commercial Management Committee has held 6 meetings, Corporate Code effective as of 01.07.2012, Early Detection of Risk Governance Committee has held 5 meetings in 2016. and Risk Management Committee has been established with the purposes of efficiency of Committees established Board of Directors is informed about the committee roles, under the Board of Directors, early detection of risks which its activities and the reports. When required, experts and may jeopardize the Company’s existence, improvement other managers who are not Committee members but and progression, implementation of measures related with related with the agenda can be invited to the Committee. such risks and risk management and implementation and Furthermore, task groups consisting of people with follow-up of Company’s internal control, internal audit and required experience and information can be formed. The risk management activities and its rules of procedures have committees act in line with their responsibilities and submit been set as of 2012. their comments and recommendations to the Board. Final decisions are made by the Board. The Board of Directors expressed its positive opinion regarding the efficiency of the Committees.
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5.4. Risk Management and Internal Control secure and uninterrupted provision of Company’s activities Mechanism and services; integrity, consistency, timely availability and A risk management is envisaged and internal control reliability of data provided by the Company’s accounting organization is established depending on financial and financial reporting system; effectiveness, efficiency and administrative activities of the company and the and adequateness of internal controls aimed at providing functioning and effectiveness of the internal auditing shall security and the running of internal control, internal audit be followed up according to capital market regulations and and risk management system regarding the preparation
rules. of consolidated financial tables in accordance with the Management applicable legislation and corporate risk management and Board of Directors is responsible for proper functioning the internal control system function well and the related of internal control system and internal audit and CEO will records are kept. make the coordination on behalf of the Board of Directors. Early Detection of Risk and Risk Management Committee The Internal Audit Department directly reports to the as well as the Audit Committee will follow-up proper Company’s CEO who at the same time is a Member of the functioning of internal control system, internal audit and Board of Directors. This department examines processes risk management and submit the results to the Board of and prepares reports regarding current and potential risks Directors. and proposes solutions. Predictable risks attached to the activities will be evaluated, information flow will be followed
Thus, corporate risk management and internal control up by the Board Member and CEO and the results will be Activities systems were established by the Board of Directors. The evaluated by the Audit Committee and Early Detection of activities of these processes and systems are coordinated Risk and Risk Management Committee and submitted to within the Committees. Internal Control Systems and the Board of Directors. Internal Audit Process are primarily monitored and pursued in the Within this framework, the Board of Directors carries out risk management activities via the Early Detection of Risk Audit Committee. Furthermore; the effectiveness of these and Risk Management Committee, as stated in related systems are evaluated by the Early Risk Detection and Risk sections hereinabove. The Early Detection of Risk and Risk Management Committee together with the corporate risk Management Committee reviews the effectiveness of the management process. risk management systems, and reports its activities and assessments to the Board of Directors. The Committee’s In line with the Risk Management Policy, Company’s risk activities are covered in the section titled “Activities of the Sustainability management is organized in conformity with the legal Early Detection of Risk and Risk Management Committee” regulations and legislation to make reporting to the Board of this Annual Report. The Annual Report also includes of Directors. Within this framework the policy is based on the Auditor’s Report containing the independent auditor’s the following principles; “protecting company assets and assessment and clearance about the topic. values”, “ensuring commercial, financial and operational confidence” and “ensuring sustainability in corporate risk 5.5. Strategic Targets of the Company management”. In addition to this, Company Management is Company’s strategic targets are set, approved, and financially, commercially, operationally and organizationally implemented by the Board of Directors. Board of Directors responsible for taking and implementing all measures makes assessments by periodically reviewing the level of necessary for corporate risk management and internal achieving Company’s targets, and activities and previous audit activities. performance of the Company. In this context, the Board
of Directors ensures that necessary measures are taken Corporate Governance As of the end of,2017 it has been assessed that proactive in a manner most appropriate to Company’s risk, growth measures are taken against financial and operational risks and revenue balance in terms of strategic decisions while and predictable potential risks through the Company’s it administers the Company by overseeing the Company internal control system, internal audit activities and interests. corporate risk management and that the Company meets the legislative requirements regarding internal control, As per the strategic priorities and objectives, the mission, internal audit and risk management. After reviews, it has vision and values of the Company have been formulated been stated that no important problems were observed on and published and renewed upon revisions in line with the the effectiveness of internal controls for providing effective, improvements. Board of Directors audits the management Financial Information
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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT
and performance of the Company within the scope of Our Company’s “Remuneration Policy for the Members providing necessary resources and risk management by of the Board of Directors and Executive Managers” – that identifying Company’s strategic targets. includes all their rights, benefits and remuneration of the Members of the Board of Directors and executive Vision, mission and values along with designation and managers as well as the criteria and remuneration implementation of Company’s strategic objectives will principles used in determining these rights, benefits be completed by the Company top-level management, and remuneration – was presented to our shareholders’ submitted to the Board of Directors and followed-up. review on our corporate website and in the Annual Report Strategic decisions of our Company were implemented in and also with the “Informative Document” issued three 2017 according to their priorities. Based on the strategic weeks prior to our Ordinary General Assembly held on targets, the Board of Directors reviews and evaluates 28.03.2017. Subsequently, the policy was put into practice previous year’s performance, compares the results with after the General Assembly. No revisions were made to the targets and determines the upcoming year objectives said policy during 2017. proposed by the senior management. The policy, which has been publicly disclosed on the Board of Directors will coordinate the Company Top- corporate website and in the Annual Report, has been Level Management in designation of Company’s included in the agenda of the Ordinary General Assembly strategic objectives, actively participate in approval and meeting that will be held to address 2017activities, the implementation processes, periodically review the level of date of which will be released by the Board of Directors achievement of objectives, activities and performance of once it is definitively set. The policy will be laid down for the the Company and evaluate the functioning, efficiency and opinions of shareholders in the General Assembly Meeting. outcomes of the related system. The total amount of payments made and benefits provided In accordance with the vision and methods offered by the to Members of the Board of Directors and Executive Board of Directors and the legislation, Company Top- Managers within the framework of the Remuneration Level Management will use its maximum efforts to ensure Policy, are evaluated every year by the Corporate effective management of the Company and periodically Governance Committee and Board of Directors. In our inform the Board of Directors and the related Board financial statements’ footnotes, the payments made Committees as per the regulations and the legislation and benefits provided to the Members of the Board of based on Directorates on behalf of the CEO and all Directors and executive managers are classified together stakeholders. and publicly announced in parallel to general practices.
The Board of Directors exercises the necessary degree of Furthermore, the Company does not perform any responsibility with respect to the sustainability of these transactions that may create conflicts of interest and does strategic efforts, as well as to enhancing their efficiency. not lend money, extend credit, or does not give surety to any of the members of the Board of Directors or executive 5.6. Financial Rights managers who have administrative responsibilities. Board of Directors is responsible for Company’s determined and publicly announced operational and In the reporting period and as of 2017, no loans were financial performance targets. Furthermore; remuneration granted to the members of the Board or to the senior principles for the Members of the Board of Directors and managers and no credit was utilized by them; none of them executives who have administrative responsibilities were received benefits through third–persons and moreover, no printed and presented to the shareholders’ information indemnities or similar were provided in their favor. with a separate agenda item at the General Assembly.
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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEE
A. RISK MANAGEMENT B. ACTIVITIES OF THE EARLY DETECTION OF RISK AND Management A significant portion of commercial risks are managed RISK MANAGEMENT COMMITTEE under the guarantee of the previously signed ‘take-or-pay’ Early Detection of Risk and Risk Management Committee export contracts conducted with FCA and PSA groups for was established as per the Tofaş Board of Directors the allocation of a certain portion of annual factory capacity resolution dated October 1, 2012 in order to ensure to export sales. These export contracts provide substantial compliance with Article 378 of the Turkish Commercial protection to the Company against cost, profitability, FX Code No. 6102, which went into force on July 1, 2012, and and foreign market risks and help keep commercial risks to also to ensure efficient operation of the Board Committees. a minimum. The Committee is responsible for early detection of risks 2017 has been a successful year with respect to that may threaten the Company’s existence, development commercial risk management at our Company. Domestic and continuity, and takes necessary actions relating to retail sales reached nearly 123 thousand in 2017, up 12.7% identified risks, and manages these risks. Activities year-over-year, a result contributed by the full Egea range being on sale for the full year and by additions to the The Committee held 6 periodic meetings in 2017 with product portfolio. The Company began manufacturing Egea the attendance of Gökçe Bayındır (Chairman of the Sedan in the last quarter of 2015, and Egea Hatchback and Committee), Libero Milone (Independent Member of Station Wagon models in 2016, which improved diversity the Board of Directors), and İsmail Cenk Çimen and of product portfolio. The Company thereby captured a Giorgio Fossati (Members of the Board of Directors). 50-50 balance in its manufacturing capacity between light Following the re-constitution of the Board of Directors commercial vehicles and passenger cars. by the General Assembly in 2014, the Board of Directors The financial debt of the Company is composed of long- decided, with the resolution no. 2014/12 dated April 11, term bank loans that do not bear foreign exchange risk, 2014, that the Committee would continue its activities and are related to New Doblò, Fiat Egea line and the Fiat with the same members and would preserve its existing Florino revamp facelift project. Revenues and cash flows structure in line with the previously determined operating Sustainability of these models and projects are covered under the principles. Pursuant to the Board of Directors resolution guarantee of export agreements. Other financial debts no. 2016/4 dated February 18, 2016, Mr. Giorgio Fossati apart from project loans are those of Koç Fiat Kredi Tüketici was appointed to the Committee to fill the member seat Finansmanı A.Ş. FX and interest rate risks were minimized vacated by Mr. Ali Aydın Pandır. through swap and derivative transactions. Following its establishment, the Committee initially evaluated the Risk Management System in place at Tofaş Financial Indicators 2017 2016 (TL million, unless indicated otherwise) Türk Otomobil Fabrikası A.Ş., and spelled out the principles of risk reporting. Reports produced in accordance with the set principles and the Committee’s assessments are being Total Net Sales 17,468 14,236 presented for the information of the Board of Directors Net Profit 1,283 970
periodically. Corporate Governance Ratios Current Ratio 1.13 1.10 Profit Before Tax/Net Sales 7.3% 6.8% Profit Before Tax/Equity 9.8% 8.8% Total Debt/Equity 44.4% 45.3%
Financial Information
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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEE
The Company management carefully considers the extent Additionally, the Company management is financially, of the impact the Company’s operations, risks and financial, commercially, operationally, and organizationally commercial and operational results stemming from the responsible for, and charged with, taking and implementing risks will have upon the Company, and manages the same all necessary measures necessitated by risk management, proactively. For the purpose of systematically managing internal audit and internal control activities. risks, the Company management takes necessary measures to define, measure, assess the risks and to C. INTERNAL CONTROL SYSTEM AND INTERNAL AUDIT mitigate/transfer them when necessary, and ultimately to An internal control system was built to cover (i) the monitor and report them. Company activities and services carried out effectively, reliably and uninterruptedly in conformity with the existing Through the Direct Debit System (DDS), our Company laws and regulations, and (ii) controls made to maintain the effectively manages the debt payment risks of dealers, and integrity, consistency, timeliness and reliability and safety of minimizes the risks stemming from the remaining debts by the accounting and financial reporting system. way of credit insurance. Tofaş Türk Otomobil Fabrikası A.Ş. coordinates and carries Financial and administrative conditions of suppliers, which out an internal audit activity that will provide constant are critical to production continuity, are analyzed, upon monitoring and assessment of the internal control system. which evaluation reports are generated. These activities are crucial for early diagnosis of a given supplier’s possible The Audit Committee has the primary responsibility technical bankruptcy or inability to supply products; in such for monitoring the internal control system and internal a case, the Board of Directors is informed and suggested audit process. In addition, the Early Detection of Risk and countermeasures can be developed. Risk Management Committee takes care to address the related system in conjunction with risk management. NPL ratios and credit allocation policies are regularly The Audit Committee makes assessments to verify that monitored also at KFK, an affiliate of our Company, and risk necessary proactive measures are adopted in relation management is carried out successfully. to the Company’s internal control system and internal audit activities, enterprise risk management, financial, Risk management at Tofaş has been organized in line commercial and operational risks, and foreseeable with the Risk Management Policy and with the applicable potential risks, and that the Company fulfills the legislation and so as to be reported to the Board of responsibilities imposed by the legal regulations in relation Directors. It is based on the principles of “protecting to internal control, internal audit and risk management. the Company assets and values”, “ensuring commercial, financial and operational confidence” and “sustainability of enterprise risk management”.
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Committees’ statements and reports are directly presented Furthermore; in this context, the Auditor Report about Management to the Board of Directors. An internal audit activity is the Early Risk Detection System Committee prepared by carried out that enables continuous monitoring and the Independent Audit firm Güney Bağımsız Denetim ve evaluation of the Company’s internal control system. Serbest Muhasebeci Mali Müşavirlik A.Ş. (A member firm of Ernst& Young Global Limited) states that: “As a result of our Accordingly it has been established as per the Turkish activities we have reached the conclusion that; Tofaş Türk Commercial Code, Capital Market Law and Capital Market Otomobil Fabrikası A.Ş.’s Early Risk Detection Committee is legislation, that internal audit activities and the internal sufficient in all significant aspects within the framework of control system did function solidly as at year-end 2017 the 378th Article of the Turkish Code of Commerce.” and that there were no important problems about the processes so far. Activities Furthermore, records indicating the healthy functioning of the enterprise risk and internal control systems were kept and it was declared that no important issues were found.
The administrative body maintains a positive opinion about the Company’s internal control system and internal audit activities. In the report presented to the Board of Directors, the Committee expresses its positive opinion about the efficiency, adequacy and appropriateness of the internal controls carried out to ensure efficient, reliable and uninterrupted performance of Company activities and services, and to guarantee the integrity, consistency, timely Sustainability availability, reliability and safety of the data derived from the accounting and financial reporting system, as well as for the activities of internal audit and risk management systems in relation to the preparation of consolidated financial statements. Corporate Governance Financial Information
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AFFILIATED COMPANY REPORT
THE AFFILIATED COMPANY REPORT PREPARED AND The Report issued by Tofaş Türk Otomobil Fabrikası A.Ş. ISSUED WITHIN THE SCOPE OF THE 199TH ARTICLE OF Board of Directors on 16.02.2018, states: “In all Tofaş Türk THE TURKISH CODE OF COMMERCE Otomobil Fabrikası A.Ş. transactions carried out with the As per the 199th Article of the Turkish Code of Commerce parent company and the affiliated companies of the parent n.6102 (that entered into force on the 1st of July 2012), company in 2017; we have concluded that; (i) reasonable Tofaş Türk Otomobil Fabrikası A.Ş. Board of Directors return was provided on each transaction according to the is obligated; (i) to prepare and issue a report within the circumstances at the time of making the transaction or at first quarter of the operating year about the Company’s the time of taking/not taking measure, and (ii) there were relations with its parent company and affiliated companies no measures taken/not taken against any transactions that of the parent company in the previous operating year, could cause loss for the Company, and (iii) there were no and (ii) to include the conclusion part of this report in the transactions or measures that would require settlement Annual Report. Necessary explanations about Tofaş Türk within this framework.” Otomobil Fabrikası A.Ş.’s transactions with the related parties are available in the 26th footnote of the financial report.
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(Convenience translation of a report originally issued in Turkish) INDEPENDENT AUDITOR’S REPORT ON THE EARY IDENTIFICATION OF THE RISK COMMITTEE AND SYSTEM
To the Board of Directors of TOFAŞ Türk Otomobil Fabrikası Anonim Şirketi, Management We have audited the Early Identification of the Risk System and Committee established by TOFAŞ Türk Otomobil Fabrikası Anonim Şirketi.
Responsibility of the Board of Directors Pursuant to paragraph 1 of Article 378 of the Turkish Commercial Code 6102 (“TCC”), the board of directors is obliged to establish a committee of experts and operate and improve the system for the purposes of: early identification of factors posing a threat on the company’s existence, development and continuation; implementation of necessary measures and solutions in this regard; and management of the risk.
Responsibility of the independent auditor
Our responsibility is to express a conclusion on the Early Identification of the Risk System and Committee based on Activities our audit. Our audit was conducted in accordance with TCC and the “Principles on the Independent Auditor’s Report on Early Identification of the Risk System and Committee” and ethical requirements as announced by Public Oversight Accounting and Auditing Standards Authority (“POA”) of Turkey. These Principles require us to determine whether the early identification of the risk system and committee has been established, and if established, to evaluate whether the system and committee operate in accordance with Article 378 of TCC. Our audit does not involve auditing the appropriateness of the solutions on the risks identified by the Early Identification of the Risk System and Committee and the practices performed by the management against the risks.
Information Regarding the Early Identification of the Risk System and Committee The Company established the Early Identification of the Risk System and Committee which consists of 4 members. For the period between January 1 – December 31, 2017, the committee has met for the purposes of early identification of factors posing a threat on the company’s existence and development, implementation of necessary measures and solutions in this Sustainability regard and the management of the risk; and has submitted the reports it has prepared to the Board of Directors.
Conclusion Based on our audit, we have reached the conclusion that except for the matter(s) stated in the paragraph below, the early identification of the risk system and committee of TOFAŞ Türk Otomobil Fabrikası Anonim Şirketi is, in all material respects, in compliance with article 378 of the TCC.
The Early Identification of the Risk Committees have to submit their report to the Board of Directors at least bimonthly in accordance with Article 378 of TCC. The Early Identification of the Risk Committee of the Company has submitted their report 6 times during the year to the Board of Directors Corporate Governance
Ethem Kutucular, SMMM Partner
Istanbul, February 1, 2018 Financial Information
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REMUNERATION POLICY FOR TOP-LEVEL MANAGERS AND MEMBERS OF THE BOARD OF DIRECTORS
This policy document defines the remuneration system and Bonus Base: Bonus Base is updated every year and varies practices for the members of the board of directors and according to the positions of managers and volume top-level managers with administrative responsibilities as of business. Bonus base is updated based on the top- defined by CMB regulations. management bonus policies applicable in the market.
Fixed wages payable to members of the board of directors Company Performance: Company performance is are designated by the ordinary general assembly every calculated every year by measuring the financial and year. Executive board members are paid in accordance operational (market share, exports, international with the policy applicable for top-level managers and operations, efficiency etc.) objectives of the company detailed below. in terms of achievement at the end of the year. The basic principles while defining the company objectives Performance-based payments are not used for are ensuring that achievements are sustainable and remuneration of independent members of the board of improvements are made as compared to the previous year. directors. Individual Performance: Definition of individual Members of the board of directors are paid based on performance is based on company objectives as well as the period from assignment to resignation. Expenses of objectives related with employees, customers, processes, the members of the board of directors related with the technology and long-term strategies. In measurement benefits they provide for the company (transportation, of individual performance, company performance and telephone, insurance, etc.) are covered by the company. longterm sustainable improvement in non-financial area are significant principles. Remuneration for Top-Level Managers consists of fixed and performance based components. In case of resignation of a top-level manager, a certain amount of bonus can be paid based on the term of Fixed wages of Top-Level Managers are determined in assignment, term of assignment as a top-level manager, accordance with international standards and legal liabilities benefits provided, last target bonus before resignation, based on macroeconomic market data, wage policies wages paid in the last year and bonus data. applicable in the market, size of the company, long-term objectives and individual positions. Total amounts paid to Top-Level Managers and Members of the Board of Directors based on the principles listed Bonuses payable to Top-Level Managers are based above are submitted to the information and/or approval of on bonus base, company performance and individual the shareholders at the next general assembly meeting. performance. The criteria are as follows: This is to inform our esteemed Shareholders.
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DIVIDENDS DISTRIBUTION POLICY
Our Company distributes dividends in accordance with The intention is to complete dividends distribution in Management the related provisions of Turkish Commercial Code, maximum one month after the General Assembly meeting capital markets regulations, tax regulations, other related and the date of dividends distribution is determined by regulations and dividends distribution article of Articles the General Assembly. General Assembly or the Board of Association. Dividends are distributed with a policy of Directors, if authorized, can decide on distribution of which is balanced and consistent in terms of the interests dividends in installments in accordance with the Capital of shareholders and the Company in accordance with Markets Regulations. Corporate Governance Principles. As per the Articles of Association, Board of Directors As a basic principle and to the extent possible based on can distribute dividends in advance provided that it the applicable regulations and financial resources, net is authorized by the General Assembly and acts in distributable profit within a certain period calculated accordance with Capital Markets Regulations. Activities based on the market expectations, long-term company strategy, investment and financing policies, profitability There is no privilege regarding distribution of dividends. and cash position and in accordance with Capital Markets Dividends are distributed equally regardless of the whole Regulations is distributed to the shareholders in the form current shares or their dates of issuance and acquisition. of cash and/or bonus share provided that it can be covered from the legal reserves. This is to inform our esteemed Shareholders. Sustainability Corporate Governance Financial Information
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2017 PROFIT DISTRIBUTION PROPOSAL
In accordance with the consolidated Balance Sheet and Our other shareholders be paid out a cash dividend at the Income/Loss Statement that has been drawn up pursuant rate of 160.00% and in the amount of Kr 1.6 gross and Kr to the CMB Communiqué Serial: II-14.1 on Principles of 1.36 net per share with a nominal value of Kr. 1., and; Financial Reporting in the Capital Market and Communiqué Serial: II-19.1 on Dividends, our Company booked a The beginning date of dividend distribution be set as 21 consolidated net profit of TL 1,282,818,000 in 2017. The March 2018. donations and charitable grants made to foundations and associations during the reporting period amounted to TL We hereby lay it down for the approval of the General 7,018,427. Assembly of Shareholders and propose that the dividend distribution and timing be resolved as proposed above It is hereby proposed that; and that the consolidated balance sheet and income/ loss statement for 2017 fiscal year be approved. We offer Cash dividends in the total amount of TL 800,000,000.- our best regards to our esteemed Shareholders and your corresponding to a rate of 160.00% (gross) be paid out Assembly. of the net profit for the period to our Shareholders after deducting the legal liabilities in accordance with the provisions of the Turkish Commercial Code, Capital Market legislation, and the Company’s Articles of Association and the Dividend Policy. Ömer M. Koç Resident corporate entities and non-resident corporate Chairman of the Board of Directors entities deriving dividends via a workplace or permanent representation in Turkey be paid out a cash dividend at a rate of 160.00% (gross) and in the amount of Kr 1.6 Gross=Net for each share with a nominal value of Kr 1,
120 Tofaş 2017 Annual Report Tofaş at a Glance
2017 DIVIDEND DISTRIBUTION TABLE
TOFAŞ TÜRK OTOMOBİL FABRİKASI A.Ş. 2017 Dividends Distribution Table (TL) Management 1. Paid Up/Issued Capital 500,000,000 2. Legal Reserves (According to Legal Records) 309,765,506 Information on privileges related to the distribution of profit pursuant to the Articles of Association, if any According to CMB According to Legal Records 3. Period Profit 1,229,472,000 895,466,675 4. Taxes (-) -53,346,000 10,325,155 5. NET PERIOD PROFIT (=) 1,282,818,000 885,141,521 6. Previous Years’ Losses (-) 7. Legal Reserves (-)
8. NET DISTRIBUTABLE PERIOD PROFIT (=) 1,282,818,000 885,141,521 Activities 9. Donations Made within the Year (+) 7,018,427 10. Net Distributable Period Profit with Donations 1,289,836,427 11. Primary Dividends for Shareholders - Cash 800,000,000 25,000,000 - Bonus - Total 800,000,000 25,000,000 12. Dividends Distributed to Preferred Shareholders 13. Other Dividends Distributed - To Members of the Board of Directors - To Employees - To Persons Other Than Shareholders Sustainability 14. Dividends Distributed to Redeemed Shareholders 15. Secondary Dividends for Shareholders 775,000,000 16. Legal Reserves 77,500,000 77,500,000 17. Statutory Reserves 18. Special Reserves 19. EXTRAORDINARY RESERVES 405,318,000 7,641,521 20. Other Resources to be Distributed
TOFAŞ TÜRK OTOMOTİV FABRİKASI A.Ş. Dividend Ratio Chart TOTAL DIVIDENDS DISTRIBUTED TOTAL DIVIDENDS / NET DISTRIBUTABLE PROFIT DIVIDENDS PER SHARE WITH A GROUP DISTRIBUTED FOR THE PERIOD NOMINAL VALUE OF TL 1 CASH (TL) BONUS (TL) RATIO (%) AMOUNT (TL) RATIO (%) Corporate Governance A (real person) 1,585,817 0.12 1.3600 136.00 A (legal person) 300,982,104 23.46 1.6000 160.00 NET * D 257,420,605 20.07 1.3600 136.00 E 165,158,789 12.87 1.3600 136.00 TOTAL 725,147,316 0 56.53
(1) There is no privileged share group in profits. (2) The dividend figures for A, D and E Groups are shown as sums. (3) No withholding tax will be applied as Group A shares which correspond to 37.62% of the capital belong to full-fledged legal persons. As Group A shares which correspond to 0.23% of the capital belong to full-fledged real persons, 15% withholding tax will be applied (4) 15% withholding tax is applied by taking into account that all Group D shares belong to limited liability real persons. (5) 15% withholding tax is applied accepting that all Group E public shares belong to real persons. Financial Information
121 Tofaş 2017 Annual Report
(Convenience translation of a report originally issued in Turkish) INDEPENDENT AUDITOR’S REPORT ON THE ANNUAL REPORT OFTHE BOARD OF DIRECTORS
Güney Bağımsız Denetim ve Tel: +90 212 315 3000 SMMM A.Ş. Fax: +90 212 230 8291 Eski Büyükdere Cad. Orjin Maslak ey.com No: 27 Maslak, Sarıyer 34398 Ticaret Sicil No: 479920 İstanbul - Turkey Mersis No: 0-4350-3032-6000017
To the Board of Directors of Tofaş Türk Otomobil Fabrikası Anonim Şirketi
1) Opinion We have audited the annual report of Tofaş Türk Otomobil Fabrikası Anonim Şirketi (“the Company) and its subsidiaries (“the Group”) for the period of 1/1/2017-31/12/2017.
In our opinion, the consolidated financial information provided in the annual report of the Board of Directors and the discussions made by the Board of Directors on the situation of the Group are presented fairly and consistent, in all material respects, with the audited full set consolidated financial statements and the information we obtained during the audit.
2) Basis for Opinion We conducted our audit in accordance with standards on auditing as issued by the Capital Markets Board of Turkey and Independent Auditing Standards (InAS) which are part of the Turkish Auditing Standards as issued by the Public Oversight Accounting and Auditing Standards Authority of Turkey (POA). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Annual Report section of our report. We are independent of the Group in accordance with the Code of Ethics for Independent Auditors (Code of Ethics) as issued by the POA, and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
3) Our Auditor’s Opinion on the Full Set Consolidated Financial Statements We have expressed an unqualified opinion in our auditor’s report dated February 1, 2018 on the full set consolidated financial statements of the Group for the period of 1/1/2017-31/12/2017.
4) The Responsibility of the Board of Directors on the Annual Report In accordance with Articles 514 and 516 of the Turkish Commercial Code 6102 (“TCC”) and the provisions of the Communiqué II-14.1 on the Principles of Financial Reporting in Capital Markets” (“the Communiqué”) of the Capital Market Board (“CMB”), the management of the Group is responsible for the following items:
122 Tofaş 2017 Annual Report Tofaş at a Glance
a) Preparation of the annual report within the first three months following the balance sheet date and submission of the Management annual report to the general assembly. b) Preparation and fair presentation of the annual report; reflecting the operations of the Group for the year, along with its financial position in a correct, complete, straightforward, true and honest manner. In this report, the financial position is assessed according to the consolidated financial statements. The development of the Group and the potential risks to be encountered are also noted in the report. The evaluation of the board of directors is also included in this report. c) The annual report also includes the matters below:
- Subsequent events occurred after the end of the fiscal year which have significance,
- The research and development activities of the Group, Activities - Financial benefits such as salaries and bonuses paid to the board members and to those charged governance, allowances, travel, accommodation and representation expenses, financial aids and aids in kind, insurances and similar deposits.
When preparing the annual report, the board of directors takes into account the secondary legislative arrangements published by the Ministry of Customs and Trade and related institutions.
5) Auditor’s Responsibilities for the Audit of the Annual Report Our aim is to express an opinion, based on the independent audit we have performed on the annual report in accordance with provisions of the Turkish Commercial Code and the Communiqué, on whether the consolidated financial information provided in this annual report and the discussions of the Board of Directors are presented fairly and consistent with the Group’s audited consolidated financial statements and to prepare a report including our opinion. Sustainability
The independent audit we have performed is conducted in accordance with InAS and the standards on auditing as issued by the Capital Markets Board of Turkey. These standards require compliance with ethical provisions and the independent audit to be planned and performed to obtain reasonable assurance on whether the consolidated financial information provided in the annual report and the discussions of the Board of Directors are free from material misstatement and consistent with the consolidated financial statements.
The name of the engagement partner who supervised and concluded this audit is Ethem Kutucular. Corporate Governance
Ethem Kutucular, SMMM Partner
February 21, 2018 İstanbul, Türkiye Financial Information
123 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2017 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT (Convenience translation of consolidated financial statements originally issued in Turkish) (Originally issued in Turkish)
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INDEPENDENT AUDITOR’S REPORT Tofaş at a Glance
Güney Bağımsız Denetim ve Tel: +90 212 315 3000 SMMM A.Ş. Fax: +90 212 230 8291 Eski Büyükdere Cad. Orjin Maslak ey.com No: 27 Maslak, Sarıyer 34398 Ticaret Sicil No: 479920 İstanbul - Turkey Mersis No: 0-4350-3032-6000017 Management
To the Board of Directors of TOFAŞ Türk Otomobil Fabrikası Anonim Şirketi
A) Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of TOFAŞ Türk Otomobil Fabrikası Anonim Şirketi (the Company) and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2017, and the consolidated statement of comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. Activities In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the Turkish Accounting Standards (TAS).
Basis for Opinion
We conducted our audit in accordance with standards on auditing as issued by the Capital Markets Board of Turkey and Independent Auditing Standards (IAS) (of Turkey) which are part of the Turkish Auditing Standards as issued by the Public Oversight Accounting and Auditing Standards Authority of Turkey (POA). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Ethics for Independent Auditors (Code of Ethics) as issued by the POA, and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Other Matter Sustainability
The consolidated financial statements of the Group as of December 31, 2016 and for the year then ended were audited by another audit firm whose audit report dated February 1, 2017 expressed an unqualified opinion. Corporate Governance Financial Information
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INDEPENDENT AUDITOR’S REPORT
Key Audit Matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.
Key Audit Matters Auditor’s response Capitalized Development costs The Group capitalizes R&D costs for increasing efficiency and Our audit procedures include, in addition to others, examination capacity of the automobile production or decreasing production of the Group’s policies and processes related to impairment, costs. Detailed in Note 13 to the accompanying financial evaluation of expectation on projects and examination of nature of statements, capitalized development costs on consolidated capitalized development costs related to each project. financial statements as of December 31, 2017 is significant for our audit due to variety of nature of costs and management judgments One of the most significant management judgment for the project involved in the capitalization process. at development phase is estimation of market performance of products related to the project. Our audit procedures on projects at development phase consist of assessment of reasonability of management judgments, examination of the result of development works and considering the Group’s internal management and authorization processes.
Additionally, inquiries have been performed with managers of the Group’s R&D and sales departments, sales performance of products which start active sales in the market has been examined and recoverability of capitalized development costs for related projects have been assessed.
Furthermore, we assessed the appropriateness of the disclosures in the financial statements in Note 13, intangible assets, in terms of TAS. Warranty provision As of December 31, 2017, warranty provision on consolidated As part of our audit procedures, calculation of warranty provision financial statements is amounting to TL 135.401 thousand. has been provided from the Group management. Information Assessment of appropriate provision includes sensitive regarding to the realization of warranty provisions within the assumptions because calculation of warranty provisions recognized last three years in the calculation have been controlled with the at consolidated financial statements is based on estimation for amounts in the accounting records. The sales prices and unit prices future part costs after the sale of product, estimates of labor of spare parts used in the calculation have been also checked. expenses and warranty usage rates in prior periods. In addition, the assumptions used by the Group management on labor costs, which are part of the cost of sales, have been evaluated.
Compliance of warranty provision calculated by Entity Resource Planning (ERP) with the Group’s policy has been examined. Profit estimation adjustment on ERP calculation and the rationale of the adjustments to the profit estimation have been discussed with the management.
Furthermore, we assessed the appropriateness of the disclosures in the financial statements in Note 15, provision, contingent assets and contingent liabilities, in terms of TAS 37.
126 Tofaş 2017 Annual Report Tofaş at a Glance
Receivable from financial sector operations As of December 31, 2017, provisions for the receivables related As a part of our audit procedures, internal controls in process of to the financial sector operations amounting to TL 2,536,171 issuance, recognizing, monitoring and payment of the loans have thousand is significant for our audit, since the assessments of been tested and evaluated in order to assess operational efficiency the Group management during the calculation of the amount of key controls designed to determine impairment in receivables of of provision are detailed and also depend on management’s financial sector receivables and required provision. estimations and assumptions. In addition, based on our professional judgment, sample selection We have an audit risk due to the risk that receivables from financial has been made over receivables from financial sector operations
sector operations may impair and therefore the carrying amount and the existence of objective evidence of impairment within the Management of financial sector operations might be higher than the estimated receivables of financial sector operations has been assessed. recoverable amount. Furthermore, we assessed the appropriateness of the disclosures in the financial statements in Note 9, receivables from financial sector operations, in terms of TAS. Employee termination benefits As of December 31, 2017, the Group‘s employee termination As part of audit procedures, employee list used in the calculation benefit is amounting to TL 194,235 thousand. The Group has has been checked in addition to assessing and questioning various assumptions such as discount rate, inflation rate, real salary management assumptions such as discount rates, expected increase rate and possibility of resignation when calculating the inflation rates, future salary increases, and resignation rates. allowance for employee termination benefits. The calculation of employee termination benefit is performed by the management. Based on the procedures performed, it has been tested whether the management’s assumptions remain within a reasonable range. Activities
Furthermore, we assessed the appropriateness of the disclosures in the financial statements in Note 16, in terms of TAS.
Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with TAS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Sustainability Those charged with governance are responsible for overseeing the Group’s financial reporting process.
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 IAS (of Turkey) 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 IAS (of Turkey), we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis Corporate Governance 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. Financial Information
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INDEPENDENT AUDITOR’S REPORT
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless laws or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
B) Report on Other Legal and Regulatory Requirements
1) Auditors’ report on Risk Management System and Committee prepared in accordance with paragraph 4 of Article 398 of Turkish Commercial Code (“TCC”) 6102 is submitted to the Board of Directors of the Company on 1 February 2018. 2) In accordance with paragraph 4 of Article 402 of the TCC, no significant matter has come to our attention that causes us to believe that the Company’s bookkeeping activities for the period 1 January - 31 December 2017 and financial statements are not in compliance with laws and provisions of the Company’s articles of association in relation to financial reporting. 3) In accordance with paragraph 4 of Article 402 of the TCC, the Board of Directors submitted to us the necessary explanations and provided required documents within the context of audit.
The name of the engagement partner who supervised and concluded this audit is Ethem Kutucular.
Ethem Kutucular, SMMM Partner February 1, 2018 Istanbul, Turkey
128 Tofaş 2017 Annual Report
CONTENTS Tofaş at a Glance
PAGE CONSOLIDATED BALANCE SHEETS 130 CONSOLIDATED STATEMENTS OF PROFIT OR LOSS 132 CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME 133 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 134 CONSOLIDATED STATEMENTS OF CASH FLOWS 136 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 137-176 Management NOTE 1 - GROUP’S ORGANISATION AND NATURE OF OPERATIONS 137 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 137 NOTE 3 - SEGMENT REPORTING 149 NOTE 4 - CASH AND CASH EQUIVALENTS 150 NOTE 5 - FINANCIAL ASSETS 150 NOTE 6 - FINANCIAL LIABILITIES 151 NOTE 7 - TRADE RECEIVABLES AND PAYABLES 153 NOTE 8 - OTHER RECEIVABLES 153 NOTE 9 - RECEIVABLES FROM FINANCE SECTOR OPERATIONS 154 Activities NOTE 10 - INVENTORIES 155 NOTE 11 - INVESTMENT PROPERTIES 155 NOTE 12 - PROPERTY, PLANT AND EQUIPMENT 156 NOTE 13 - INTANGIBLE ASSETS 157 NOTE 14 - GOVERNMENT INCENTIVES 157 NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES 158 NOTE 16 - EMPLOYEE BENEFITS 159 NOTE 17 - PREPAID EXPENSES, OTHER ASSETS AND LIABILITIES 160 NOTE 18 - SHAREHOLDER’S EQUITY 161 NOTE 19 - REVENUE AND COST OF SALES 162 Sustainability NOTE 20 - RESEARCH AND DEVELOPMENT EXPENSES, MARKETING EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES 164 NOTE 21 - EXPENSES BY NATURE 164 NOTE 22 - OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES 165 NOTE 23 - FINANCIAL INCOME AND EXPENSES 165 NOTE 24 - TAX ASSETS AND LIABILITIES 165 NOTE 25 - EARNINGS PER SHARE 167 NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES 168 NOTE 27 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 169 NOTE 28 - FINANCIAL INSTRUMENTS (FAIR VALUE EXPLANATIONS AND DISCLOSURES WITHIN THE FRAMEWORK OF HEDGE ACCOUNTING) 175
NOTE 29 - SUBSEQUENT EVENTS 176 Corporate Governance Financial Information
129 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Audited (Reclassified Audited Note 2.1.2) Notes 2017 2016
ASSETS
Current assets: Cash and cash equivalents 4 2,625,681 2,215,727 Financial assets 5 613,811 167,444 Trade receivables - Related parties 26 959,280 709,249 - Third parties 7 805,479 653,614 Receivables from finance sector operations 9 1,339,483 1,381,867 Other receivables 8 186 587 Inventories 10 1,055,582 920,144 Prepaid expenses 17 89,738 22,259 Current tax assets 24 986 10,657 Other current assets 17 235,755 174,625
Total current assets 7,725,981 6,256,173
Non-current assets: Receivables from finance sector operations 9 1,196,634 847,484 Other receivables 8 147 - Derivative instruments 28 5,650 5,486 Investment properties 11 31,175 30,370 Property, plant and equipment 12 2,350,019 2,320,618 Intangible assets 13 1,703,865 1,770,199 Prepaid expenses 17 92,229 11,669 Deferred tax assets 24 769,448 598,096 Other non-current assets - 8,078
Total non-current assets 6,149,167 5,592,000
Total assets 13,875,148 11,848.173
These consolidated financial statements as of and for the year ended 31 December 2017 have been approved for issue by the Board of Directors on 1 February 2018. The aforementioned consolidated financial statements will be finalized after the approval in General Assembly.
The accompanying notes form an integral part of these consolidated financial statements.
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
Audited (Reclassified Audited Note 2.1.2) Notes 2017 2016
LIABILITIES
Current liabilities:
Short-term financial liabilities 6 679,920 407,727 Management Short-term portion of long-term financial liabilities 6 1,900,391 1,629,240 Trade payables - Related parties 26 2,035,499 1,730,328 - Third parties 7 1,830,107 1,635,902 Employee benefit liabilities 16 97,451 93,043 Other payables 8 25,561 16,846 Government incentives and grants 14 8,374 8,374 Deferred income 17 47,382 38,909 Short-term provisions 15 211,029 133,804 Other current liabilities 17 9,638 16,476 Activities Total current liabilities 6,845,352 5,710,649
Non-current liabilities: Long-term financial liabilities 6 3,230,600 2,978,620 Government incentives and grants 14 21,924 30,298 Long-term provisions - Provisions for employment termination benefits 16 194,235 171,155
Total non-current liabilities 3,446,759 3,180,073
Total liabilities 10,292,111 8,890,722 Sustainability Equity: Paid-in share capital 18 500,000 500,000 Adjustment to share capital 348,382 348,382 Other comprehensive losses not to be reclassified under profit or losses - Actuarial loss on employment termination benefit obligation (36,419) (23,222) Other comprehensive losses to be reclassified under profit or losses - Cumulative losses on hedging (672,364) (378,329) Restricted reserves 18 309,863 277,363 Retained earnings 1,850,757 1,263,029 Net profit for the year 1,282,818 970,228
Total equity 3,583,037 2,957,451 Corporate Governance
Total liabilities and equity 13,875,148 11,848.173
The accompanying notes form an integral part of these consolidated financial statements. Financial Information
131 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF PROFIT OR LOSS FOR THE YEARS ENDED 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Audited Audited 1 January - 1 January - Notes 31 December 2017 31 December 2016
Revenue 19 17,467,806 14,235,951 Cost of sales (-) 19 (15,551,677) (12,888,429)
Gross profit from operations 1,916,129 1,347,522
Revenue from finance sector operations 400,841 369,330 Expenses from finance sector operations (-) (290,765) (269,111)
Gross profit from finance sector operations 110,076 100,219
Gross profit 2,026,205 1,447,741
General administrative expenses (-) 20 (273,006) (251,938) Marketing, selling and distribution expenses (-) 20 (392,816) (329,132) Research and development expenses (-) 20 (55,607) (22,775) Other income from main operations 22 1,041,882 801,516 Other expense from main operations (-) 22 (1,282,694) (844,520)
Operating profit before financial income 1,063,964 800,892
Financial income 23 1,487,043 867,224 Financial expenses (-) 23 (1,321,535) (870,180)
Profit before tax from continuing operations 1,229,472 797,936
Tax income for the period 53,346 172,292
- Taxes on income 24 (26,503) (15,154) - Deferred tax income 24 79,849 187,446
Net profit for the year 1,282,818 970,228
Net profit attributable to:
Non-controlling interests - - Equity holders of the parent 1,282,818 970,228
Earnings per share (Kr) 25 2.57 1.94
The accompanying notes form an integral part of these consolidated financial statements.
132 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
Audited Audited Notes 2017 2016
Net profit for the year 1,282,818 970,228
Other comprehensive income:
Other comprehensive income not to be reclassified under profit
and loss Management - Actuarial (loss) / gain on employment termination benefit obligation 16 (16,693) (5,846) Taxes relating to other comprehensive income not to be reclassified under profit and loss - Actuarial loss on post employment termination benefit obligation, tax effect 24 3,496 1,169 Other comprehensive income to be reclassified under profit and loss - Losses on hedging 2 (382,042) (281,739) Taxes relating to other comprehensive income to be reclassified under profit and loss - Losses on hedging, tax effect 24 88,007 56,348 Activities
Other comprehensive (loss) (307,232) (230,068)
Total comprehensive income 975,586 740,160
Total comprehensive income attributable to:
Non-controlling interests - - Parent company interests 975,586 740,160 Sustainability Corporate Governance
The accompanying notes form an integral part of these consolidated financial statements. Financial Information
133 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Other comprehensive Other comprehensive income not to be income to be reclassified under reclassified under profit and loss profit and loss Retained earnings
Actuarial loss on employment Equity Non- Paid in Adjustments termination benefit Loss on Restricted Retained Net profit holders of the controlling Total share capital to share capital obligation cash flow hedge reserves earnings for the year parent interests equity
Balances at 1 January 2016 500,000 348,382 (18,545) (152,938) 243,363 831,228 830,801 2,582,291 - 2,582,291
Transfers - - - - 34,000 796,801 (830,801) - - - Total comprehensive income - - (4,677) (225,391) - - 970,228 740,160 - 740,160 Dividends paid - - - - - (365,000) - (365,000) - (365,000)
Balances at 31 December 2016 500,000 348,382 (23,222) (378,329) 277,363 1,263,029 970,228 2,957,451 - 2,957,451
Balances at 1 January 2017 500,000 348,382 (23,222) (378,329) 277,363 1,263,029 970,228 2,957,451 - 2,957,451
Transfers - - - - 32,500 937,728 (970,228) - - - Total comprehensive income - - (13,197) (294,035) - - 1,282,818 975,586 - 975,586 Dividends paid - - - - - (350,000) - (350,000) (350,000)
Balances at 31 December 2017 500,000 348,382 (36,419) (672,364) 309,863 1,850,757 1,282,818 3,583,037 - 3,583,037
The accompanying notes form an integral part of these consolidated financial statements.
134 Tofaş 2017 Annual Report Tofaş at a Glance
Other comprehensive Other comprehensive income not to be income to be reclassified under reclassified under profit and loss profit and loss Retained earnings
Actuarial loss on employment Equity Non- Paid in Adjustments termination benefit Loss on Restricted Retained Net profit holders of the controlling Total share capital to share capital obligation cash flow hedge reserves earnings for the year parent interests equity Management
Balances at 1 January 2016 500,000 348,382 (18,545) (152,938) 243,363 831,228 830,801 2,582,291 - 2,582,291
Transfers - - - - 34,000 796,801 (830,801) - - - Total comprehensive income - - (4,677) (225,391) - - 970,228 740,160 - 740,160 Dividends paid - - - - - (365,000) - (365,000) - (365,000)
Balances at 31 December 2016 500,000 348,382 (23,222) (378,329) 277,363 1,263,029 970,228 2,957,451 - 2,957,451
Balances at 1 January 2017 500,000 348,382 (23,222) (378,329) 277,363 1,263,029 970,228 2,957,451 - 2,957,451 Activities Transfers - - - - 32,500 937,728 (970,228) - - - Total comprehensive income - - (13,197) (294,035) - - 1,282,818 975,586 - 975,586 Dividends paid - - - - - (350,000) - (350,000) (350,000)
Balances at 31 December 2017 500,000 348,382 (36,419) (672,364) 309,863 1,850,757 1,282,818 3,583,037 - 3,583,037 Sustainability Corporate Governance Financial Information
135 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2017 AND 2016 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Audited Audited Notes 2017 2016
A. Cash flows from operating activities: 1,049,925 1,129,878
Net profit for the year 1,282,818 970,228
Adjustments to reconcile profit for the period 863,131 536,581 - Depreciation and amortization 21 696,679 522,631 - Income from revaluation of investment properties 22 (805) (855) - Adjustments related to derivative instruments 23 (171) (5,486) - Adjustments related to doubtful receivables 11,263 15,339 - Adjustments related to interest income 23 (116,187) (94,878) - Adjustments related to provision for inventories 10 4,391 736 - Gain on sale of property, plant and equipment 3,831 (4,495) - Provision for employment termination benefits 40,282 45,445 - Adjustments related to warranty provisions 15 107,895 80,440 - Adjustments related to interest expense 23 78,925 74,938 - Adjustments for tax losses/ income 24 (53,346) (172,292) - Due date charges on term purchases 22 11,236 4,051 - Adjustments related to unrealized gain on foreign currency differences 79,138 71,007
Changes in net working capital (979,051) (328,115) - Change in inventories (139,829) (355,687) - Change in receivables from third parties (6,270) 46,749 - Change in receivables from related parties (250,031) (370,488) - Change in other receivables from operating activities 8,332 (387) - Change in trade payables due to third parties 37,347 668,890 - Change in trade payables due to related parties 305,171 238,907 - Change in receivables from finance sector operations (318,002) (300,523) - Change in prepaid expenses (148,039) 10,662 - Change in deferred revenue 8,473 11,325 - Change in government incentives and grants (8,374) (8,374) - Change in other assets from operating activities (61,123) (127,584) - Change in other liabilities from operating activities 39,661 (53,903) - Change in financial investments (446,367) (87,702)
Net cash generated from operating activities 1,166,898 1,178,694 - Income taxes paid 24 (16,832) (16,154) - Payments related to employment termination benefits 16 (33,895) (29,982) - Other cash outflows (66,246) (2,680) - Change in financial assets
B. Cash flows from investing activities (675,966) (1,230,402) - Purchases of tangible assets 12 (405,678) (808,381) - Purchases of intangible assets 13 (272,851) (434,015) - Proceeds from sale of tangible and intangible assets 2,563 11,994
C. Cash flows from financing activities (86,523) (185,358) - Proceeds from financial liabilities 1,303,560 1,423,529 - Bank loans paid (1,064,626) (1,261,119) - Dividend paid (350,000) (365,000) - Interest paid (80,596) (79,427) - Interest received 105,139 96,659
Net (decrease)/ increase in cash and cash equivalents before currency translation differences 287,436 (285,882)
D. Effects of currency translation differences on cash and cash equivalents 109,270 114,194
Net change in cash and cash equivalents 396,706 (171,688)
E. Cash and cash equivalents at the beginning of the year 2,185,361 2,357,049
Cash and cash equivalents at the end of the year 4 2,582,067 2,185,361
The accompanying notes form an integral part of these consolidated financial statements.
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
NOTE 1 - GROUP’S ORGANISATION AND NATURE OF OPERATIONS
Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company” or “Tofaş”) was established in 1968 as a Turkish-Italian cooperation venture. The core business of the Company is manufacturing, exporting and selling passenger cars and light commercial vehicles under licenses of Fiat Chrysler Automobiles S.p.A. (“Fiat”). Tofaş, which is a joint venture of Koç Holding A.Ş. (“Koç Holding”) and Fiat, also produces various automotive spare parts used in its automobiles. The Company’s head office is located at Büyükdere Cad. No: 145 Zincirlikuyu Şişli, İstanbul. The manufacturing facilities are located at Bursa. The Company manufactures its cars, except for Mini Cargo and New Doblo, pursuant to license agreements between the Company and Fiat. The Company has been registered with the Turkish Capital Market Board (“CMB”) and quoted on the İstanbul Stock Exchange (“ISE”) since 1991. Management The Company conducts a significant portion of its business with affiliates of Koç Holding and Fiat Group (Note 26).
The Company’s subsidiaries as of 31 December 2017 and 2016 which are subject to consolidation are as follows:
Rate of ownership of the Company (%) Name of the company Operating area 2017 2016
Koç Fiat Kredi Finansman A.Ş. (“KFK”) Consumer financing 99.9 99.9 Fer Mas Oto Ticaret A.Ş. Trading of automobile and spare parts 100 100
For the purpose of the consolidated financial statements, Tofaş and its consolidated subsidiaries are referred to as the “Group”.
The average number of personnel in accordance with the Group’s categories is as follows: Activities
2017 2016
Blue-collar 7,974 7,943 White-collar 1,738 1,681
9,712 9,624
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
2.1 Basis of presentation
2.1.1 Financial reporting standards Sustainability The accompanying consolidated financial statements are prepared in accordance with the Communiqué Serial II, No:14.1, “Principles of Financial Reporting in Capital Markets” (“the Communiqué”) published in the Official Gazette numbered 28676 on 13 June 2013. According to the article 5 of the Communiqué, consolidated financial statements are prepared in accordance with Turkish Accounting Standards/ Turkish Financial Reporting Standards (“TAS/TFRS”) and its addendum and interpretations (“IFRIC”) issued by Public Oversight Accounting and Auditing Standards Authority (“POA”) Turkish Accounting Standards Boards.
The consolidated financial statements of the Group are prepared as per the CMB announcement of 7 June 2013 relating to financial statements presentations.
With the decision taken on 17 March 2005, the CMB announced that, effective from 1 January 2005, the application of inflation accounting is no longer required for companies operating in Turkey and preparing their financial statements in accordance with the financial reporting standards accepted by the CMB (“CMB Financial Reporting Standards”). Accordingly, TAS 29, “Financial Reporting in Hyperinflationary Economies”, issued by the POA, has not been applied in the financial statements for the accounting year commencing 1 January 2005.
The Company and its subsidiaries operating in Turkey, maintains its accounting records and prepares its statutory financial statements Corporate Governance in accordance with the Turkish Commercial Code (the “TCC”), tax legislation and the uniform chart of accounts issued by the Ministry of Finance. These consolidated financial statements are based on the statutory records, which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the TAS.
2.1.2 Comparatives and adjustment of prior periods’ consolidated financial statements
In order to allow for the determination of the financial situation and performance trends the Group’s consolidated financial statements have been presented comparatively with the previous year. Where necessary, comparative figures have been reclassified to conform to the changes in presentation in the current period. Financial Information
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
The Group has amended the calculation method of unused and deferred investment incentive used in corporate tax income calculation for 2016 and correspondingly in the final Corporate Tax Income Declaration, subject to tax calculation in the consolidated financial statements at 31 December 2016. As a result of the mentioned method change and in order to be consistent with the financial statements of the current period, deferred tax assets have decreased by TRY 3,484 and current tax assets have increased by the same amount
Witholding tax payable amounting to TL 20,665 is reclassified from other current liabilities to employee benefit liabilities.
Reverse charge VAT amounting to TL 16,846 is reclassified from other current assets to other payables.
Advance received amounting to TL 11,992 is reclassified from other current liabilities to deferred revenue.
Accrued expense amounting to TL 14,764 is reclassified from other current liabilities to trade payables.
Unearned credit finance income based on credit sales amounting to TL 1,619 is reclassified from other current liabilities to trade receivables from third parties.
Not accrued credit finance expense (-) based on credit purchases amounting to TL 3,739 is reclassified from other current liabilities to trade payables to third parties.
2.1.3 Functional and reporting currency
The Group’s functional and reporting currency is Turkish Lira (“TRY”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation are recognized in the consolidated statement of income.
2.1.4 Basis of consolidation
Subsidiaries are all entities over which the Group has control. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group and deconsolidated from the date that control ceases. Inter-group transactions, balances and unrealized gains on transactions between Group companies are eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies. Minority shares of Tofaş in subsidiaries were not recognized under non-controlling interest (“Minority interest” or “Non-controlling Interests”) since they do not have a material effect in consolidated financial statements. Financial statements of the Company and its subsidiaries subject to consolidation were prepared as of the same date.
2.1.5 Significant accounting judgments, estimates and assumptions
The preparation of financial statements requires the Group management to make estimates and assumptions that affect certain 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 year. Actual results could differ from those estimates. Those estimates are reviewed periodically, and as adjustments become necessary they are reported in earnings in the periods in which they become known.
Significant estimates used in the preparation of these financial statements and the significant judgments with the most significant effect on amounts recognized in the financial statements are as follows: a) The Company determines warranty provision by considering the past warranty expenses and remaining warranty period per vehicle. In calculation of the warranty provision; vehicle quantity, warranty period and the historical warranty claims incurred are considered. As of 31 December 2017, the amount of guarantee expense is TRY80,440 (31 December 2016: TRY56,947) (Note 15). If the claim assumptions used in the calculation of warranty provisions increase/decrease 5%, the amount of warranty provision would be TRY4,295 (31 December 2016: TRY3,750) higher/lower. b) KFK, the subsidiary of the Group, has established a specific credit risk provision for loan impairment to provide for management’s estimate of credit losses as soon as the recovery of an exposure is identified as doubtful. Impairment and uncollectability are measured and recognized individually for loans and receivables that are individually significant, and measured and recognized on a portfolio basis for a group of similar loans and receivables that are not individually identified as impaired. As of 31 December 2017, general provisions for finance loans amounted to TRY24,234 (31 December 2016: TRY20,626) has been booked in the consolidated financial statements (Note 9). c) The cost of defined benefit plans is determined using actuarial valuations which involve making assumptions about discount rates, future salary increases and employee turnover. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. d) While recording provisions for litigations, the Group makes evaluations in accordance with the Group’s legal counsels about the possibility of losing the lawsuits and results that will be incurred if the lawsuit is lost. f) The data in the discounted price list are used to calculate inventory impairment. If expected net realizable value is less than cost, the Group allocates provisions for inventory impairment.
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish) g) The Group assesses whether there is any impairment indicator in investment properties and compares carrying values of the investment property with the fair determined in the valuation report obtained by a property appraiser company licensed by CMB/ h) Group management has made assumptions based on the experience of the technical staff in determining the useful life of tangible and intangible assets. ı) Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases which is used in the computation of taxable profit. In determination of deferred tax asset to be recognized, there are certain assumptions and judgments made about future taxable income to be recognized in the future. Deferred tax asset is recorded for the periods ending as of December 31, 2017 and 2016 since the assumptions used regarding that the Company has taxable profit in following periods Management i) The Group capitalized its ongoing development expenditures and assesses whether there is an impairment loss on these capitalized assets. As of December 31, 2017 and 2016, no impairment was recognized for capitalized development costs (Note 13).
2.2 The new standards, amendments and interpretations
The accounting policies adopted in preparation of the consolidated financial statements as at December 31, 2017 are consistent with those of the previous financial year, except for the adoption of new and amended TFRS and TFRIC 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. a) The new standards, amendments and interpretations which are effective as at January 1, 2017 are as follows:
TAS 7 Statement of Cash Flows (Amendments) Activities In December 2017, POA issued amendments to TAS 7 ‘Statement of Cash Flows’. The amendments are intended to clarify TAS 7 to improve information provided to users of financial statements about an entity’s financing activities. The improvements to disclosures require companies to provide information about changes in their financing liabilities. These amendments are to be applied for annual periods beginning on or after January 1, 2017 with earlier application permitted. When the Group first applies those amendments, it is not required to provide comparative information for preceding periods.
TAS 12 Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses (Amendments)
In December 2017, POA issued amendments to TAS 12 Income Taxes. The amendments clarify how to account for deferred tax assets related to debt instruments measured at fair value. The amendments clarify the requirements on recognition of deferred tax assets for unrealised losses, to address diversity in practice. These amendments are to be retrospectively applied for annual periods beginning on or after January 1, 2017 with earlier application permitted. However, on initial application of the amendment, the change in the opening equity of the earliest comparative period may be recognised in opening retained earnings (or in another component of equity, as
appropriate), without allocating the change between opening retained earnings and other components of equity. If the Group applies this Sustainability relief, it shall disclose that fact. The amendment are not applicable for the Group and will not have an impact on the financial position or performance of the Group.
Annual Improvements to TFRSs - 2014-2016 Cycle
In December 2017, POA issued Annual Improvements to TFRS Standards 2014-2016 Cycle, amending the following standards:
• TFRS 12 Disclosure of Interests in Other Entities: This amendment clarifies that an entity is not required to disclose summarised financial information for interests in subsidiaries, associates or joint ventures that is classified, or included in a disposal group that is classified, as held for sale in accordance with TFRS 5 Non-current Assets Held for Sale and Discontinued Operations. These amendments are to be applied for annual periods beginning on or after 1 January 2017.
The amendment is not applicable for the Group and will not have an impact on the financial position or performance of the Group. b) Standards issued but not yet effective and not early adopted Corporate Governance Standards, interpretations and amendments to existing standards that are issued but not yet effective up to the date of issuance of the consolidated financial statements are as follows. The Group will make the necessary changes if not indicated otherwise, which will be affecting the consolidated financial statements and disclosures, when the new standards and interpretations become effective. Financial Information
139 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
TFRS 15 Revenue from Contracts with Customers
In September 2016, POA issued TFRS 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). TFRS 15 effective date 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.
Contracts with customers in which the sale of vehicles and spare parts are generally the only performance obligation, thus sale as only sale of goods is recognized when goods are delivered in line with applications in prior periods. Accordingly, the amendment will not have an impact on the financial position or performance of the Group.
TFRS 9 Financial Instruments
In January 2017, POA issued the final version of TFRS 9 Financial Instruments. The final version of TFRS 9 brings together all three aspects of the accounting for financial instruments project: classification and measurement, impairment and hedge accounting. TFRS 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, TFRS 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. TFRS 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 has performed an impact assessment of TFRS 9. This assessment is based on currently available information and may be subject to changes arising from further detailed analyses or additional supportable information being made available to the Group in the future. The impact of standard on two aspects of TFRS 9 is as follows:
Classification and Measurement of Financial Assets:
The Group does not expect a significant impact on its balance sheet or equity on applying the classification and measurement requirements of TFRS 9. It expects to continue measuring at fair value all financial assets currently held at fair value.
Loans as well as trade receivables are held to collect contractual cash flows and are expected to give rise to cash flows representing solely payments of principal and interest. The Group analysed the contractual cash flow characteristics of those instruments and concluded that they meet the criteria for amortised cost measurement under IFRS 9. Therefore, reclassification for these instruments is not required.
Hedge accounting:
The Group determined that all existing hedge relationships that are currently designated in effective hedging relationships will continue to qualify for hedge accounting under TFRS 9. As TFRS 9 does not change the general principles of how an entity accounts for effective hedges, applying the hedging requirements of TFRS 9 will not have a significant impact on Group’s financial statements.
TFRS 4 Insurance Contracts (Amendments)
In December 2017, POA issued amendments to TFRS 4 Insurance Contracts. The amendments introduce two approaches: an overlay approach and a deferral approach. These amendments are to be applied for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The standard is not applicable for the Group and will not have an impact on the financial position or performance of the Group.
TFRIC 22 Foreign Currency Transactions and Advance Consideration
The interpretation issued by POA on December 2017 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 recognises 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.
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
TFRS 2 Classification and Measurement of Share-based Payment Transactions (Amendments)
In December 2017, POA issued amendments to TFRS 2 Share-based Payment, clarifying how to account for certain types of share-based payment transactions. The amendments, provide requirements on the accounting for: a. the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; b. share-based payment transactions with a net settlement feature for withholding tax obligations; and c. 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.
These amendments are to be applied for annual periods beginning on or after 1 January 2018. Earlier application is permitted. The Management amendment are not applicable for the Group and will not have an impact on the financial position or performance of the Group.
Amendments to TAS 28 Investments in Associates and Joint Ventures (Amendments)
In December 2017, POA issued amendments to TAS 28 Investments in Associates and Joint Ventures. The amendments clarify that a company applies TFRS 9 Financial Instruments to long-term interests in an associate or joint venture that form part of the net investment in the associate or joint venture.
TFRS 9 Financial Instruments excludes interests in associates and joint ventures accounted for in accordance with TAS 28 Investments in Associates and Joint Ventures. In this amendment, POA clarified that the exclusion in TFRS 9 applies only to interests a company accounts for using the equity method. A company applies TFRS 9 to other interests in associates and joint ventures, including long-term interests to which the equity method is not applied and that, in substance, form part of the net investment in those associates and joint ventures. Activities The amendments are effective for annual periods beginning on or after 1 January 2019, with early application permitted.
The amendments are not applicable for the Group and will not have an impact on the financial position or performance of the Group.
TAS 40 Investment Property: Transfers of Investment Property (Amendments)
In December 2017, POA issued amendments to TAS 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 amendment is not applicable for the Group and will not have an impact on the consolidated financial position or performance of the Group.
TFRS 10 and TAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments)
In December 2017, POA 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. Sustainability c) The new standards, amendments and interpretations that are issued by the International Accounting Standards Board (IASB) but not issued by Public Oversight Authority (POA)
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/issued by the POA, thus they do not constitute part of TFRS. The Group will make the necessary changes to its consolidated financial statements after the new standards and interpretations are issued and become effective under TFRS.
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. Corporate Governance
Annual Improvements - 2011-2013 Cycle
IFRS 16 Leases
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. Financial Information
141 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
IFRIC 23 Uncertainty over Income Tax Treatments
The interpretation clarifies how to apply the recognition and measurement requirements in “IAS 12 Income Taxes” when there is uncertainty over income tax treatments.
When there is uncertainty over income tax treatments, the interpretation addresses: (a) whether an entity considers uncertain tax treatments separately; (b) the assumptions an entity makes about the examination of tax treatments by taxation authorities; (c) how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and (d) how an entity considers changes in facts and circumstances.
An entity shall apply this Interpretation for annual reporting periods beginning on or after 1 January 2019. Earlier application is permitted. If an entity applies this Interpretation for an earlier period, it shall disclose that fact. On initial application, an entity shall apply the interpretation either retrospectively applying IAS 8, or retrospectively with the cumulative effect of initially applying the Interpretation recognised at the date of initial application.
The Group is in the process of assessing the impact of the interpretation on financial position or performance of the Group.
IFRS 17 - The new Standard for insurance contracts
[The IASB issued IFRS 17, a comprehensive new accounting standard for insurance contracts covering recognition and measurement, presentation and disclosure. IFRS 17 model combines a current balance sheet measurement of insurance contract liabilities with the recognition of profit over the period that services are provided. IFRS 17 will become effective for annual reporting periods beginning on or after 1 January 2021; early application is permitted. The standard is not applicable for the Group and will not have an impact on the financial position or performance of the Group.
Prepayment Features with Negative Compensation (Amendments to IFRS 9)
In October 2017, the IASB issued minor amendments to IFRS 9 Financial Instruments to enable companies to measure some prepayable financial assets at amortised cost.
Applying IFRS 9, a company would measure a financial asset with so-called negative compensation at fair value through profit or loss. Applying the amendments, if a specific condition is met, entities will be able to measure at amortised cost some prepayable financial assets with so-called negative compensation.
The amendments are effective from annual periods beginning on or after 1 January 2019, with early application permitted.
The amendment is not applicable for the Group and will not have an impact on the financial position or performance of the Group.
Annual Improvements - 2015-2017 Cycle
In December 2017, the IASB announced Annual Improvements to IFRS Standards 2015-2017 Cycle, containing the following amendments to IFRSs: • IFRS 3 Business Combinations and IFRS 11 Joint Arrangements — The amendments to IFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to IFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. • IAS 12 Income Taxes — The amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognised in profit or loss, regardless of how the tax arises. • IAS 23 Borrowing Costs — The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.
The Group is in the process of assessing the impact of the amendments on financial position or performance of the Group.
2.3 Summary of significant accounting policies
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and at banks and short-term highly liquid investments whose risk of value change is not material including time deposits generally having original maturities of three months or less (Note 4).
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
Financial assets i) Classification
The Group classifies its financial assets in the following categories: loans and receivables and held-to maturity investments. The classification depends on the purpose for which the financial assets were acquired. The Group determines the classification of its financial assets at initial recognition.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Management They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise trade receivables and receivables from finance sector operations in the consolidated balance sheet.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method. Gains and losses are recognized in profit or loss when the investments are derecognized or impaired, as well as through the amortization process. ii) Recognition and measurement Activities Regular purchases and sales of financial assets are recognized on the trade-date - the date on which the group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method.
Receivables from finance sector operations
Receivables from finance sector operations are carried at amortized cost in the consolidated balance sheet of the Group (Note 9).
Provision for impairment of receivables from finance sector operations
The Group, recognize provisions for the receivables from finance sector operations for the impairment of consumer finance loans based Sustainability on a credit review of the receivables portfolio. Provision amount is determined based on the Group’s credit risk policies, composition and financial performance of the credit portfolio and economical environment and reflected as “Doubtful Loans” after deducting the related fair value of the guarantee amounts. Changes in the provision amount are accounted for under period income/loss. When a loan is deemed uncollectible, it is written off against the related provision for impairment. The loan is written off after all necessary legal proceedings have been completed and the amount of the loan loss is finally determined. Subsequent recoveries are credited to the profit or loss if previously written off.
The allowances for impairment of receivables from finance sector operations are established based on a credit review of the Group’s receivables from finance sector operations portfolio.
The Group can also recognize specific provision even if the overdue days are less than the days stated above or receivables are not over due at all, by taking into account all the existing data regarding the creditor and based on the principals of reliability and prudence.
Group also recognizes a general provision for the receivables which is not related to a specific transaction that can be recognized for the
losses arising from the principal or interest of consumer finance loans that are not over due or overdue less than 90 days but the amount Corporate Governance of loss is not certain. Group sets a general provision for consumer finance loans that have not been considered as doubtful yet.
Trade receivables
Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business and have a maturity range of 30-90 days. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.
An estimate for doubtful provision is made when collection of the full amount is no longer probable. A credit risk provision for trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due. The allowance is an estimated amount which is difference between existing receivable and collectible amount. Collectible amount is the discounted value of trade receivables, all cash flows including collections from guarantees by using original effective interest rate. Bad debts are written off when identified (Note 7). Financial Information
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Trade payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities (Note 7).
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.
Inventories
Inventories are valued at the lower of cost or net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials - purchase cost on a monthly average basis; finished goods and work-in-process - cost includes the applicable allocation of fixed and variable overhead costs on the basis of monthly average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. The scrap inventory is written off when identified (Note 10).
Derivative financial instruments
Derivative financial instruments, including foreign exchange contracts with maturities, are initially measured at fair value and are remeasured at their fair values subsequently. The classification of gains or losses arising from derivative financial instruments changes depending on the classification of the derivative financial instruments. Even though derivative financial instruments are used as part of the Group’s risk management, they do not meet the criteria for hedge accounting therefore they are measured at fair value including expenses at the time of inception and are remeasured at fair value in subsequent periods. Gains or losses arising from the change in the fair value of such instruments are accounted for in the consolidated statement of income.
Investment properties
Investment properties are properties held to earn rentals and/or for capital appreciation, including property under construction for such purposes. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value (Note 11). An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from disposal.
Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statement of income.
The initial cost of property, plant and equipment comprises its purchase price, including import duties and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into the operation, such as repairs and maintenance and overhaul costs are normally charged to income in the period the costs are incurred. Expenditures are added to cost of assets if the expenditures provide economic added value for the future use of the related property, plant and equipment.
Depreciation is computed on a straight-line basis over the estimated useful lives (Note 12). The useful lives and depreciation methods are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment.
The depreciation terms are as follows;
Years
Land improvements 33 Buildings 33 Machinery and equipment 12-33 Motor vehicles 4-10 Furniture and fixtures 8-14 Leasehold improvements 5-30
In case of any indication of the impairment in the carrying value of property, plant and equipment, the recoverable amount is reassessed and provision for impairment is reflected in the consolidated financial statements.
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Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of net selling price or value in use. Net selling price is determined by deducting any expenses to be incurred for the sale of an asset from the fair value of the asset. Value in use is calculated as the discounted value of the estimated future cash flows the entity expects to receive from the asset.
Gains and losses on sale of property, plant and equipment are included in other income and expense from investment activities.
Intangible assets
Intangible assets acquired separately from a business are capitalized at cost. Intangible assets, created within the business are not capitalized and expenditure is charged against profits in the year in which it is incurred. Intangible assets are amortized on a straight-line Management basis over their useful lives. The depreciation period for the intangibles capitalized in relation with the new models will be started after the production of these models is started. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable (Note 13).
Impairment of assets
The carrying amounts of the Group’s tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. When an indication of impairment exists, the Group compares the carrying amount of the asset with its net realizable value which is the higher of value in use or fair value less costs to sell. Impairment exists if the carrying value of an asset or a cash generating unit is greater than its recoverable amount which is the higher of value in use or fair value less costs to sell. An impairment loss is recognized immediately in the consolidated statement of profit or loss.
The increase in carrying value of the assets (or a cash generated unit) due to the reversal of recognized impairment loss shall not exceed Activities the carrying amount of the asset (net of amortisation amount) in case where the impairment loss was reflected in the consolidated financial statements in prior periods. Such a reversal is accounted for in the statement of profit or loss.
Research and development expenditures
Expenditures for research and development are charged against income in the period incurred except for project development costs which comply with the following criteria: • The product or process is clearly defined and costs are separately identified and measured reliably, • The technical feasibility of the product is demonstrated, • The product or process will be sold or used in-house, • A potential market exists for the product or its usefulness in case of internal use is demonstrated, and • Adequate technical, financial and other resources required for completion of the project are available. Sustainability The costs related to the development projects are capitalized when the criteria above are met and amortized by straight-line basis over the useful lives of related projects (2-13 years).
Revenue recognition
Automotive sector operations:
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. Revenues are stated net of discounts, value added and sales taxes. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. Net sales are invoiced amounts of delivered goods excluding sales returns.
Service income is recognized when the service is rendered and the amount is reliably measured (Note 19).
Finance sector operations: Corporate Governance The interest income incurred from loans is recognized by using effective interest rate method and on accrual basis. Interest income is not recognized when consumer financing loans given by the Group become doubtful or when the borrower defaults.
Loan investigation fees of the Group which are collected on the execution and disbursement of loans and advances to customers and are recognized as income by netting off from the loan balance using a systematic deduction method over the contractual life of loans in the consolidated financial statements. Financial Information
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Also, the Group has a revenue sharing agreement with the insurance company over the insurance premiums collected form loan customers. The Group recognizes insurance premium income as deferred revenue under other liabilities initially and subsequently recognizes it as income over the payment plan of loans using a systematic method.
When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the fair value and the nominal amount of the consideration is recognized on an accrual basis as financial income.
Borrowings
Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognized in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a prepayment for liquidity services and amortized over the period of the facility to which it relates (Note 6).
Borrowing costs
General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalized during the period of time that is required to complete and prepare the asset for its intended use or sale. Such borrowing costs are capitalized as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. Other borrowing costs are expensed in the period in which they are incurred.
For the year ended 31 December 2017, the Group has no capitalized borrowing costs (31 December 2016 : TRY 10,105).
Current and deferred tax
The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity, respectively (Note 24).
The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.
Deferred tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realized or the deferred tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized.
Deferred tax liability is recognized on all temporary differences regarding subsidiaries unless neither utilization date of taxable temporary differences are reviewed nor utilization of temporary difference in an estimated period is probable.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.
Employment termination benefits
In accordance with existing social legislation, the Group is required to make lump sum termination indemnities to each 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.
In the consolidated financial statement, the Group has reflected a liability calculated using “Projected Unit Credit Method” and based upon factors derived using the Group’s experience of personnel terminating their services and being eligible to receive benefits, discounted by using the current market yield at the balance sheet date on government bonds.
The current service cost of the defined benefit plan, recognized in the income statement in employee benefit expense, except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes curtailments and settlements. Past-service costs are recognized immediately in income.
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The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the income statement.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise (Note 16).
Earnings per share
Earnings per share disclosed in the consolidated statement of income are determined by dividing net income by the weighted average number of shares that have been outstanding during the related period concerned. Management In Turkey, companies can increase their share capital by making a pro rata distribution of shares “bonus shares” to existing shareholders without consideration for amounts resolved to be transferred to share capital from retained earnings and revaluation surplus. For the purpose of the earnings per share calculation such bonus share issues are regarded as stock dividends. Dividend payments, which are immediately reinvested in the shares of the Group, are regarded similarly (Note 25).
Provisions
Provisions for environmental restoration, restructuring costs and legal claims are recognized when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated (Note 15). Provisions are not recognized for future operating losses.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due Activities to passage of time is recognized as interest expense.
Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
Warranty expense provision
The Group provides free of charge maintenance service for the vehicles, in accordance with the period determined in the agreement following the date of domestic sale. Export sales of the Group are not under a warranty commitment. Warranty provision is periodically reviewed and reassessed in accordance with the realized expenses in the previous periods. The Group does not have a significant liability due to extended warranty (Note 15).
Contingent assets and liabilities
Contingent liabilities are not recognized in the financial statements, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements, but disclosed when Sustainability an inflow of economic benefits is probable.
Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.
Foreign currency transactions
Income and expenses arising in foreign currencies during the year have been translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates, which are announced by Central Bank of the Republic of Turkey. Exchange gains or losses arising from the
settlement and translation of foreign currency items have been included in the related income and expense accounts, as appropriate. Corporate Governance
Segment reporting
An entity shall report separately information about an operating segment if its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments, The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of the combined reported profit of all operating segments that did not report a loss and the combined reported loss of all operating segments that reported a loss, its assets are 10 per cent or more of the combined assets of all operating segments.
Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the financial statements. Financial Information
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Group has identified its operating segments based on the reports reviewed by the Board of Directors and used in taking strategic decisions. The operating segments of the Group has been determined as automobile and trading of spare parts. The Group management evaluates the performance of its operating segments based on operating profit before financial income in accordance with TFRS.
Cash flow hedge
Changes in the fair value of a hedging instrument that qualifies as a highly effective cash-flow hedge are recognized directly in shareholders’ equity. The ineffective portion is immediately recognized in net profit or loss. If the cash flow hedge results in the recognition of an asset or a liability, all gains and losses previously recognized directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash flow hedges, gains and losses initially recognized in equity are transferred from hedging reserve to net profit or loss in the same period or periods during which the hedged firm commitment or forecasted transaction affects the statement of income.
When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the committed or forecasted transaction occurs. When the committed or forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is transferred to the statement of income. As of 31 December 2017, gains on cash flow hedging accounted for under the statement of other comprehensive income are TRY 382,042 (31 December 2016: losses amounting to TRY 281,739).
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the current year income statement.
There is an effective cash flow hedge relationship between foreign currency originated long term loans and the realized and forecasted sales (items subject to be hedged) of light commercial vehicles (New Doblo, Doblo FL and Doblo US) and commercial vehicles (Egea, Stationwagon, Hatchback). According to the agreements made between the Company and Fiat, the long term loan liabilities will be covered by the planned sales of New Doblo, Doblo FL and Doblo US to Fiat starting from 2009 until December, 2021. Furthermore, according to the agreement made between Fiat and the Company, long term loan liabilities will be covered through a portion of sales of Egea and Stationwagon / Hatchback to Fiat starting from 2016 until December 2023.
The hedge effectiveness is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated, and effectiveness of the hedge consistent with the documented risk management strategy.
Related parties
Parties are considered related to the Group if (Note 25); (a) directly, or indirectly through one or more intermediaries, the party: (i) controls, is controlled by, or is under common control with, the Company (this includes parents, subsidiaries and fellow subsidiaries); (ii) has an interest in the Group that gives it significant influence over the Group; or (iii) has joint control over the Group; (b) the party is an associate of the Group; (c) the party is a joint venture in which the Group is a venture; (d) the party is member of the key management personnel of the Group or its parent; (e) the party is a close member of the family of any individual referred to in (a) or (d); (f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or (g) the party has a post-employment benefit plan for the benefit of employees of the Group, or of an entity that is a related party of the Group.
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Investment, research and development incentives
Government grants are recognized at fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systemic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recorded as deferred income.
Government grants relating to costs are deferred and recognized in the income statement over the period necessary to match them with the costs that they are intended to compensate.
Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and Management are credited to the income statement on a straight- line basis over the expected lives of the related assets.
Investment and research and development incentives are recognized when incentive applications of the Group are approved by fiscal authorities (Note 14).
NOTE 3 - SEGMENT REPORTING
The reportable operational segments for segment reporting as of 31 December 2017 and 2016 are as follows:
Trading of spare parts and Consumer automobile financing Total Activities Revenue 17,467,806 400,841 17,868,647
Gross profit 1,916,129 110,076 2,026,205
Operating expenses (-) (695,996) (25,433) (721,429) Other income from main operations 1,038,358 3,524 1,041,882 Other expenses from main operations (-) (1,269,729) (12,965) (1,282,694)
Operating profit 988,762 75,202 1,063,964
Trading of spare parts and Consumer
automobile financing Total Sustainability
Revenue 14,235,951 369,330 14,605,281
Gross profit 1,347,522 100,219 1,447,741
Operating expenses (-) (581,663) (22,182) (603,845) Other income from main operations 801,408 108 801,516 Other expenses from main operations (-) (830,924) (13,596) (844,520)
Operating profit 736,343 64,549 800,892
The distribution of assets and liabilities of consumer financing segment is followed by TRY 1,508,148 in current asset, TRY1,207,125 in non- current asset as receivables from finance sector operations and TRY1,305,347 in current liabilities, TRY1,266,884 in non-current liabilities Corporate Governance as financial liabilities. Financial Information
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NOTE 4 - CASH AND CASH EQUIVALENTS
2017 2016
Cash on hand 24 24 Due from banks - time deposits 2,557,799 2,114,000 - demand deposits 67,858 101,703
2,625,681 2,215,727
As of 31 December 2017 and 2016, the details of time deposits are as follows:
2017 2016 Effective Effective interest rate interest rate Amount per annum (%) Amount per annum (%)
EUR 1,228,391 1.55 - 2.50 1,482,469 1.00 - 2.20 TRY 1,329,318 14.20 - 15.65 631,531 10.30 - 11.75
2,557,799 2,114,000
As of 31 December 2017, the maturities of time deposits vary between 4 and 49 days (31 December 2016: between 3 and 35 days).
As of 31 December 2017, the cash at banks comprise time and demand deposits amounting to TRY 1,679,752 (31 December 2016: TRY1,421,146) which are deposited at a bank which is a related party of the Group (Note 26).
As of 31 December 2017 and 2016, the reserves of cash and cash equivalent in cash flow statement;
2017 2016
Cash and cash equivalents 2,625,681 2,215,727 Less: interest accruals (12,541) (1,493) Less: restricted cash (31,073) (28,873)
2,582,067 2,185,361
As of 31 December 2017, the Company’s TRY31,073 worth of restricted cash consists of required reserve balance of the Central Bank of Turkish Republic (31 December 2016: TRY28,873)
NOTE 5 - FINANCIAL ASSETS a) Short-term financial assets
As of 31 December 2017 short-term financial assets of the Group consists of time deposits amounting to TRY613,139 with a maturity of 118-119 days bearing an interest rate of 2.25 - 2.50% (31 December 2016: TRY167,049 with a maturity of 114-119 days bearing an interest rate of 1.70% - 2.20%). b) Available for sale financial investments
As of 31 December 2017, the Group has available for sale financial investments amounting to TRY672 (31 December 2016: TRY395).
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NOTE 6 - FINANCIAL LIABILITIES a) Short-term financial liabilities
2017 2016 Original Interest rate Original Interest rate amount TRY per annum amount TRY per annum (thousand) equivalent (%) (thousand) equivalent (%)
Borrowings in EUR 135,000 589,120 0.40 102,625 380,727 Euribor + 0.15 -
Euribor + 1.15 Management Borrowings in TRY (*) - 90,800 14.39 - 15.75 - 27,000 11.09 - 16.10
679,920 407.727 b) Short-term portion of long-term financial liabilities
2017 2016 Original Interest Original Interest amount TRY rate per amount TRY rate per (thousand) equivalent annum (%) (thousand) equivalent annum (%)
Borrowings in TRY (*) - 861,599 11.00 - 18.25 - 956,499 11.09 - 16.10
Borrowings in EUR 164,227 741,568 Euribor + 0.55 - 138,853 515,130 Euribor + 0.80 - Activities Euribor + 2.90 Euribor + 2.90 Borrowings in USD (*) 10,000 39,962 3.89 - - - Bonds (1,2,3,…7) 257,262 257,262 11.13 - 15.22 - 157,611 11.44 - 13.06
1,900,391 1,629,240 c) Long-term financial liabilities
2017 2016 Original Interest Original Interest amount TRY rate per amount TRY rate per (thousand) equivalent annum (%) (thousand) equivalent annum (%)
Borrowings in EUR 435,039 1,964,420 Euribor+0.55- 513,956 1,906,727 Euribor + 0.80-
Euribor+2.90 Euribor + 2.90 Sustainability Borrowings in TRY (*) - 1,064,244 11.00 - 18.25- - 839,605 11.09 - 16.10 Bonds (1,2,3,…7) 201,936 201,936 11.13 - 15.22 - 197,096 11.44 - 13.06 Borrowings in USD (*) - - - 10,000 35,192 3.86
3,230,600 2,978,620
(*) A portion of short-term bank borrowings which are denominated in EUR, the whole short-term and long-term bank borrowings which are denominated in TRY and long term bank borrowings which are denominated in USD comprise bank borrowings obtained by KFK, consolidated subsidiary, to finance consumer financing loans as of 31 December 2017 and 2016. (1) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law no 2499, the Group issued 20-month maturity bonds on 3 June 2016, nominal amount of TRY30,000 and at an interest rate by 11.26%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş. (2) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 10 August 2016, with a nominal amount of TRY30,000 and at an interest rate by 11.13%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş. (3) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law, the Group issued 18-month maturity bonds on 4 November 2016, with a nominal amount of TRY75,000 and at an interest rate by 11.82%. The bonds have been sold to qualified investors by the closed issuance Corporate Governance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş.. (4) In accordance with the minutes of Board of Directors meeting held on 26 February 2017, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 23 November 2016, with a nominal amount of TRY70,000 and at an interest rate by 12.29%. The bonds have been sold to qualified investors by the closed issuance method through the agency of İş Yatırım Menkul Değerler A.Ş. (5) In accordance with the minutes of Board of Directors meeting held on 30 March 2016, based on the required authorization of the Capital Markets Law, the Group issued 18-month maturity bonds on 4 July 2017, with a nominal amount of TRY60,000 and at an interest rate by 14.46%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş. (6) In accordance with the minutes of Board of Directors meeting held on 30 March 2016, based on the required authorization of the Capital Markets Law, the Group issued 18-month maturity bonds on 6 November 2017, with a nominal amount of TRY50,000 and at an interest rate by 14.34%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş. (7) In accordance with the minutes of Board of Directors meeting held on 20 September 2017, based on the required authorization of the Capital Markets Law, the Group issued 18-month maturity bonds on 5 December 2017, with a nominal amount of TRY50,000 and at an interest rate by 15.04%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş. (8) In accordance with the minutes of Board of Directors meeting held on 20 September 2017, based on the required authorization of the Capital Markets Law, the Group issued
18-month maturity bonds on 22 December 2017, with a nominal amount of TRY100,000 and at an interest rate by 15.22%. The bonds have been sold to qualified investors by the closed Financial Information issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş. 151 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Financial liabilities denominated in TRY and USD have bear fixed interest rates while financial liabilities denominated Euro bear floating interest rates.
As of 31 December 2017, TRY863,778 (31 December 2016: TRY377,194) of short-term and long-term financial liabilities are obtained through banks which are related parties of the Group (Note 26).
The redemption schedule of the long-term bank borrowings as of 31 December 2017 and 2016 is as follows:
2017 2016
1-2 years 1,478,034 1,405,452 2-3 years 920,603 609,478 3-4 years 496,615 418,466 4-5 years 335,348 343,605 5 years and more - 201,619
3,230,600 2,978,620
In 2011, the Group has obtained a credit line by EUR36 million in order to use in capacity increase of New Doblo constructions. The repayment of principle amounts will be on equal installments between 2012 and 2018. As of 31 December 2017, the remaining balance of the loan amount to TRY23,233 (equivalent of EUR5,143 thousand) (31 December 2016: TRY38,160 (equivalent of EUR10,286 thousand)).
On the consolidated financial statements, the total carrying value of the Group’s loans obtained from Eximbank on 20 September 2017, 21 September 2017, 22 September 217, 27 September 2017 and 28 September 2017, 13 November 2017 and 16 November 2017 is TRY589,120 (equivalent of EUR135,000 thousand) (31 December 2016: the total carrying value of the loans obtained on 15 November 2016, 16 December 2016 and 27 December 2016 is TRY166,945 (equivalent of EUR45,000 thousand)).
The Group has obtained a credit by TRY124,176 (equivalent of EUR27,500 thousand) (31 December 2016: TRY136,030 (equivalent of EUR36,667 thousand)) at 9 December 2014 from European Investment Bank (EIB) with a maturity until 2020 in order to use in “New Sedan R&D” projects as of 31 December 2017.
The Company has obtained a working capital loan from HSBC PLC on 31 March 2014 amounting to TRY94,071 (equivalent of EUR20,833 thousand) (31 December 2016: TRY108,205 (equivalent of EUR29,167 thousand)) which has a maturity until 2020.
The Group signed the long-term external financing amounting by EUR250 million with HSBC Bank plc, J.P. Morgan Limited, Societe General and BNP Paribas as authorized regulators and HSBC Bank plc, J.P Morgan Limited/ JPMorganChase Bank N.A London Branch, Societe General and BNP Paribas Fortis SA/NV as creditor, HSBC Bank Plc as coordinator corporation and BNP Paribas Fortis SA/NV as per procuration on 17 February 2015, the carrying amount of aforementioned loan which is used on Doblo FL and US projects investments in the consolidated balance sheet is TRY645,071 (equivalent of EUR142,857) (31 December 2016: TRY654,005 (equivalent of EUR176,286)).
At 26 May 2017 a loan agreement has been signed between the Company and HSBC Bank Plc and ING Bank, a branch of ING-Diba AG as creditor, HSBC Bank Plc as coordinator SACE as credit agent role amounting to EUR70,000 thousand with a maturity until 2022. Maturity schedule of interest payments every six months, which expires in December 2022 and the average maturity is taken into account, the total annual costs, including insurance premiums will be about 6 months Euribor + 1.91%. As of 31 December 2017 the remaining amount is TRY287,348 (the equivalent of EUR63,636 thousand).
The Group signed the loan agreement amounting to EUR200 million with European Bank for Reconstruction and Development, HSBC Bank Plc and Bank of America, N.A., London Branch as authorized regulators and as per procuration of creditors on 22 October 2015. Considering the expected loan usage schedule and average term of the aforementioned six-monthly paid loan with the due date of December 2022, Yearly total cost will be 6 months Euribor + 2.3%. EUR100 million of the total loan has been used as of 5 November 2015 and the remaining EUR100 million is used on March 2016. The remaining balance of the loan which is used Egea Hatchback and Station Wagon projects investments as of 31 December 2017 is TRY694,692 (EUR153,846 thousand in equivalent in TRY) (31 December 2016: TRY682,199 (equivalent of EUR183,886 thousand).
The Group signed the loan agreement amounting to EUR44,300 thousand with Citibank NA Jersey for, MCV FL project as of 24 May 2016. Yearly total cost will be 5 years Euribor + 1.80%. The carrying amount of aforementioned loan in the consolidated balance sheet is TRY140,026 (equivalent of EUR31,010 thousand) as of 31 December 2017 (31 December 2016: TRY147,911 (equivalent of EUR39,869 thousand).
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NOTE 7 - TRADE RECEIVABLES AND PAYABLES a) Trade receivables
2017 2016
Trade receivables 820,239 654,650 Doubtful trade receivables 7,364 7,337
Less: provision for doubtful receivables (7,146) (7,119) Management Less: unearned credit finance income (14,978) (1,254)
805,479 653,614
Movement of the provision for doubtful receivables is as follows:
2017 2016
1 January 7,119 7,093 Collections 27 26
31 December 7,146 7,119 Activities
Collateral received related with trade receivables
As of 31 December 2017, the letter of guarantees amounting to TRY105,452 guarantee cheques and notes amounting to TRY2,774 mortgages amounting to TRY49,748 and direct debit system limit (payment guarantee limit secured by the banks) obtained as collateral for Group’s trade receivables amount to TRY659,932, respectively (31 December 2016: letter of guarantees amounting to TRY71,004, guarantee notes amounting to TRY2,777, mortgages amounting to TRY40,998 and direct debit system limit amounting to TRY578,826). b) Trade payables
2017 2016
Trade payables 1,849,418 1,644,286
Less: not accrued credit finance expense (19,311) (8,384) Sustainability
1,830,107 1,635,902
NOTE 8 - OTHER RECEIVABLES a) Other receivables
As of 31 December 2017 other receivables consist of deposits and guarantees given, amounting to TRY333 (31 December 2016: TRY587). b) Other payables
2017 2016
Other taxes and payables 16,477 16,846 Corporate Governance Other 9,084 -
25,561 16,846 Financial Information
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
NOTE 9 - RECEIVABLES FROM FINANCE SECTOR OPERATIONS
2017 2016
Short-term consumer financing loans 1,327,381 1,364,659 Non-performing loans 66,209 63,667
1,393,590 1,428,326
Provisions for impairment on loans
Provision for specific loan impairment (39,980) (31,042) Provision for general loan impairment (14,127) (15,417)
1,339,483 1,381,867
Long-term consumer financing loans 1,209,039 856,301
Provision for general loan impairment
Provision for general loan impairment (12,405) (8,817)
1,196,634 847,484
As of 31 December 2017, TRY denominated loans originated by the Group, bear interest rates ranging between 0.01% and 1.59% per month (2016: between 0.01% and 1.49% per month).
The maturities of long-term consumer financing loans are as follows:
Years 2017 2016
1 to 2 years 703,788 557,988 2 to 3 years 363,796 232,061 3 to 4 years 128,966 57,338 4 years and more 84 97
1,196,634 847,484
Movements in the allowance for loan impairment are as follows:
2017 2016
1 January 55,276 42,166 Current year provision 15,022 15,313 Collections during the year (-) (3,786) (2,203)
31 December 66,512 55.276
The Group has obtained pledge rights as a guarantee for its consumer financing loans, up to total amount of receivables, depending on the agreement between the Group and the consumers. As of 31 December 2017, the fair value of guarantees obtained for the consumer loans amount to TRY3,068,049 (31 December 2016: TRY2,581,858). Furthermore, the Group obtains mortgage guarantees where necessary. The Group has mortgage guarantee on vehicles for all consumer financing loans that Group booked special provision amounting to TRT21,973 (31 December 2016: TRY31,042) as of 31 December 2017.
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NOTE 10 - INVENTORIES
2017 2016
Raw materials 223,297 183,566 Work-in-progress 205,305 154,718 Finished goods 247,466 164,550 Imported vehicles 162,791 174,695 Spare parts 73,694 54,141 Management Goods in transit 171,547 212,601 Less: provision for impairment on inventories (28,518) (24,127)
Total 1,055,582 920,144
Movements in the provision for impairment on inventory are as follows:
2017 2016
1 January (24,127) (23,391) Current year provision (4,391) (736) Activities 31 December (28,518) (24,127)
NOTE 11 - INVESTMENT PROPERTIES
For the years ended 31 December 2017 and 2016, the movement of investment properties is as follows:
2017 2016
1 January, net book value 30,370 29,515 Fair value increase (*) 805 855
31 December, net fair value 31,175 30,370
(*) As of 31 December 2017, the fair value of the property has been determined as TRY31,175 (31 December 2016: TRY30,730), by using benchmarking method. As a result of the Sustainability revaluation of the investment property, revaluation gains amounting to TRY805 (31 December 2016: TRY855) has been accounted under other income (Note 22). Relevant valuation report is prepared by an independent firm which has CMB license and necessary professional experience. Corporate Governance Financial Information
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NOTE 12 - PROPERTY, PLANT AND EQUIPMENT
The movement of property, plant and equipment and the accumulated depreciation as of 31 December 2017 is as follows:
Land, land Machinery improvements and Furniture Leasehold Construction and buildings equipments and fixtures Vehicles improvements in progress Total
1 January, net book value Cost 456,988 4,717,797 554,310 72,753 11,233 76,785 5,889,866 Accumulated depreciation (226,686) (2,945,388) (343,768) (46,604) (6,802) - (3,569,248)
Net book value 230,302 1,772,409 210,542 26,149 4,431 76,785 2,320,618
1 January 2017, net book value 230,302 1,772,409 210,542 26,149 4,431 76,785 2,320,618 Additions - 6 132 1,273 163 404,104 405,678 Disposals (249) (903) (510) (4,732) - - (6,394) Transfers 6,215 376,148 68,834 13,140 1,227 (465,564) - Depreciation charge for the year (8,552) (305,674) (45,664) (9,368) (625) - (369,883)
31 December 2017, net book value 227,716 1,841,986 233,334 26,462 5,196 15,325 2,350,019
As of 31 December 2017 Cost 462,954 5,093,048 622,766 82,434 12,623 15,325 6,289,150 Accumulated depreciation (235,238) (3,251,062) (389,432) (55,972) (7,427) - (3,939,131)
31 December 2017, net book value 227,716 1,841,986 233,334 26,462 5,196 15,325 2,350,019
As of 31 December 2017, there are no pledges or collaterals on property, plant and equipment.
The movement of property, plant and equipment and the accumulated depreciation as of 31 December 2016 is as follows:
Land, land Machinery improvements and Furniture Leasehold Construction and buildings equipments and fixtures Vehicles improvements in progress Total
1 January, net book value Cost 383,832 3,993,615 454,662 58,038 11,233 502,956 5,404,336 Accumulated depreciation (218,542) (2,721,493) (307,839) (38,745) (6,197) - (3,292,816)
Net book value 165,290 1,272,122 146,823 19,293 5,036 502,956 2,111,520
1 January 2016, net book value 165,290 1,272,122 146,823 19,293 5,036 502,956 2,111,520 Additions 62,776 929 590 1,877 - 742,209 808,381 Disposals (514) (2,697) (501) (3,787) - - (7,499) Transfers (*) 10,894 725,950 99,559 16,625 - (1,168,380) (315,352) Depreciation charge for the year (8,144) (223,895) (35,929) (7,859) (605) - (276,432)
31 December 2016, net book value 230,302 1,772,409 210,542 26,149 4,431 76,785 2,320,618
As of 31 December 2016 Cost 456,988 4,717,797 554,310 72,753 11,233 76,785 5,889,866 Accumulated depreciation (226,686) (2,945,388) (343,768) (46,604) (6,802) - (3,569,248)
31 December 2016, net book value 230,302 1,772,409 210,542 26,149 4,431 76,785 2,320,618
As of 31 December 2016, there are no pledges or collaterals on property, plant and equipment.
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
NOTE 13 - INTANGIBLE ASSETS
The movement of intangible assets is as follows:
Licenses and development costs Other Total
1 January 2017 Cost 3,169,735 98,510 3,268,245
Accumulated amortization (1,423,126) (74,920) (1,498,046) Management
Net book value 1,746,609 23,590 1,770,199
1 January 2017, net book value Additions 257,396 18,521 275,917 Amortization charge for the year (332,753) (9,498) (342,251)
31 December 2017, net book value 1,671,252 32,613 1,703,865
As of 31 December 2017 Cost 3,427,131 117,031 3,544,162 Activities Accumulated amortization (1,755,879) (84,418) (1,840,297)
31 December 2017, net book value 1,671,252 32,613 1,703,865
Licenses and development costs Other Total
1 January 2016 Cost 2,434,195 84,683 2,518,878 Accumulated amortization (1,171,122) (63,783) (1,234,905)
Net book value 1,263,073 20,900 1,283,973 Sustainability 1 January 2016, net book value 1,263,073 20,900 1,283,973 Additions 735,540 13,827 749,367 Amortization charge for the year (252,004) (11,137) (263,141)
31 December 2016, net book value 1,746,609 23,590 1,770,199
As of 31 December 2016 Cost 3,169,735 98,510 3,268,245 Accumulated amortization (1,423,126) (74,920) (1,498,046)
31 December 2016, net book value 1,746,609 23,590 1,770,199
NOTE 14 - GOVERNMENT INCENTIVES Corporate Governance
Investment incentive certificates
The Group has obtained investment encouragement certificates from government authorities in connection with certain major capital expenditures, which entitle the Group to: i) 100% exemption from customs duty and VAT on machinery and equipment to be imported ii) 100% VAT exemption on local capital expenditures iii) Corporate tax exemption
The Group has considered its investment expenditures amounting to TRY2,259,120 (31 December 2016: TRY1,808,526) in the context of the investment certificate obtained on 2009 and on 2013 in the deferred tax calculation in accordance with the aforementioned law (Note 24). Financial Information
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Research and development incentive rate which will be calculated over the research and development expenditures, is raised to 100% from 40% with the amendment made to the 10th article of the Tax Law numbered 5520 as a result of the amendment in the 35th article of the Law 5746 related to the Support of Research and Development Operations. The aforementioned law has been enacted as of 1 April 2008. Accordingly, in 2008, income tax-payers can deduct 100% of the expenditures which are related to research and development related to new technology and information developments.
As of 31 December 2017, total amount of research and development expenses is TRY243,912. The amount subject to corporate income tax R&D allowance is TRY51,776 after deduction of TEYDEB, European and Mess support collected during the year amounting to TRY5,026 and TRY187,110 which is not subject to corporate income tax research and development allowance. (As of 31 December 2016, total amount of research and development expenses is TRY440,280 The amount subject to corporate income tax R&D allowance is TRY184,039 after deduction of TEYDEB support collected during the year amounting to TRY2,641 and TRY253,600 which is not subject to corporate income tax research and development allowance).
As of 31 December 2017 government incentives of the Group amounting to TRY8,374 (31 December 2016: TRY30,298) long-term and TRY30,298 (31 December 2016: TRY38,672) long term, total of TRY38,672 (31 December 2016: TRY47,046) have been originated from deferral of research and development incentive premiums provided to support research and development expenditures of Mini Cargo and New Doblo projects by the Scientific & Technological Research Council of Turkey (Tübitak). The related balance will be offset on amortization expense in cost of goods sold in line with the amortization terms of the research and development investments.
NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES
Short-term provisions
2017 2016
Provision for warranty claims 135,401 91,551 Provision for legal cases 7,754 5,857 Administrative expense accruals 6,312 4,343 Other 61,562 32,053
211,029 133,804
Movement of the provision for warranty is as follows:
2017 2016
1 January 91,551 72,695 Paid during the year (64,045) (61,584) Increase in provision during the year (Note 20) 107,895 80,440
31 December 135,401 91,551
The movement of the provision for litigation is as follows:
Litigations against the Group
As of 31 December 2017 the total amount of outstanding legal claims brought against the Group is TRY11,128 (31 December 2016: TRY8,895). The Group has reflected a reserve amounting to TRY7,754 (31 December 2016: TRY5,857) in the consolidated financial statements.
Tax penalties
In the tax inspection reports, prepared based on the tax audits carried out by the tax authority, various payments made to foreign based tax payer institutions are criticized in the scope of withholding and VAT.
In this context, no consensus has been reached during the negotiations with the Central Reconciliation Commission in accordance with the Tax Procedure Law for disputes related to tax penalties amounting to TL 131 million, excluding the default interest notified for the periods between 2007 and 2012 and it is foreseen to be solved through the legal process.
According to the Group, tax practices subject to criticism, is in compliance and consistent with the related regulations and international agreements regarding to the prevention of double taxation. It is foreseen that, the final decision through the legal process possibily will be in favor of the company.
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
Guarantees provided by the Group:
The breakdown of letters of guarantee, guarantee notes given, mortgage and pledges (together referred to as guarantees) by the Group as of 31 December 2017 and 2016 is as follows:
2017 2016 TRY TRY equivalent EUR TRY equivalent EUR TRY
A. Total amount of guarantees provided by the Management Company on behalf of itself 358,733 77,000 11,039 16,536 2,000 9,116 B. Total amount of guarantees provided on behalf of the associates accounted under full consolidation method C. Provided on behalf of third parties in order to maintain operating activities (to secure third party payables) D. Other guarantees given ------i) Total amount of guarantees given on behalf of the parent Company ------ii) Total amount of guarantees provided on
behalf of the associates which are not in the Activities scope of B and C ------iii) Total amount of guarantees provided on behalf of third parties which are not in the scope of C ------
Total 358,733 77,000 11,039 16,536 2,000 9,116
Other
As of 31 December 2017 the Group has realized USD3,484,607,140 thousand of export commitments numbered 2016/D1-2494 to be realized until 5 October 2017 in connection with the export incentive certificates amounting to USD 3,538,334,664 thousand. The Group has realized USD2,176,924,124 thousand of export commitments in connection with the export incentive certificates amounting to USD1,423,223,585 thousand. Sustainability Furthermore, the Group has realized USD2,387,437 thousand of export commitments numbered 2017/D1-02494 to be realized until 23 May 2017 in connection with the export incentive certificates amounting to USD1,576,974 thousand. The Group has realized USD1,535,650 thousand of export commitments in connection with the export incentive certificates amounting to USD770,390 thousand.
NOTE 16 - EMPLOYEE BENEFITS a) Short-term employee benefits:
2017 2016
Payables to employees 35,381 36,402 Social security premiums 30,106 22,431 Personnel income tax 20,215 20,665 Unused vacation provision 8,315 9,114 Corporate Governance Other 3,434 4,431
Total 97,451 93,043 Financial Information
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TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish) b) Long-term employee benefits:
In accordance with existing social legislation, the Group is required to make lump-sum payments to employees whose employment is terminated due to retirement or for reasons other than resignation or misconduct. The amount payable consists of one month’s salary limited to a maximum of TRY4,732.48 (exact TRY) for each period of service as of 31 December 2017 (31 December 2016: TRY4,297.21).
In the consolidated financial statements, the Group reflected a liability calculated using the projected unit credit method and based upon factors derived using their experience of personnel terminating their services and being eligible to receive retirement pay and discounted by using the current market yield at the balance sheet date on government bonds in accordance with TAS 19. Assumptions used in the calculations are as follows:
2017 2016
Discount rate, net (%) 4.95 4.50 Estimated turnover rate for retirement (%) 98.02 98.35
Movement in reserve for employment termination benefits for the years ended 31 December 2017 and 2016 is as follows:
2017 2016
1 January 171,155 164,561 Service expenses 20,344 11,489 Interest expenses 19,938 19,241 Payments during the year (33,895) (29,982) Actuarial loss 16,693 5,846
31 December 194,235 171,155
NOTE 17 - PREPAID EXPENSES, OTHER ASSETS AND LIABILITIES
a) Other current assets 2017 2016
Value Added Tax (“VAT”) 228,216 167,606 Other 7,539 7,019
235,755 174,625
b) Short - term prepaid expenses 2017 2016
Credit commission expenses (*) 47,447 13,318 Advances given 18,053 3,547 Other 24,238 5,394
89,738 22,259
(*) Credit commission expenses are composed of the credit commission given to dealers in advance by KFK as of 31 December 2017 and 2016.
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As of 31 December 2017, TRY92,229 (31 December 2016: TRY11,669) of non-current prepaid expenses are composed of advances given for fixed asset purchases.
d) Other current liabilities 2017 2016
Taxes and funds payable 808 1,928 Other 8,830 14,548 Management Total 9,638 16,476 e) Deferred income
As of December 31, 2017, TL 32,933 of the deferred income amounting to TL 47,382 (December 31, 2016: TL 38,909) consists of the received intelligence income in advance of the KFK, consumer receivables amounting to TL 8,861 and advances received amounting to TL 5,588.
NOTE 18 - SHAREHOLDER’S EQUITY a) Share capital/adjustments to share capital and equity investments
Registered capital ceiling of the Company is TRY1,000,000. The Company’s historical authorized and issued share capital as of Activities 31 December 2017 and 2016 is TRY500 million (exact TRY) and consists of 50 billion shares with TRY0.01 (exact TRY) par value each. As of 31 December 2017 and 2016, the breakdown of issued share capital of the Company is as follows:
2017 2016 Share Amount Amount Amount Amount group (historical) % (historical) %
Fiat Auto S.p.A. D 189,280 37.86 189,280 37.86 Koç Holding A.Ş. A 187,938 37.59 187,938 37.59 Koç Holding companies and Koç family A 1,342 0.27 1,342 0.27 Other, including publicly traded shares E 121,440 24.28 121,440 24.28
Total paid in share capital 500,000 100 500,000 100 Sustainability
Half of the Board of Directors’ (“BoD”) members are required to be elected from the nominees of A group shareholders, while the remaining half is to be nominated by D group shareholders. The General Assembly is authorised for determining the number and election of BoD members. At least one nominee from both A and D type of shareholders have to fulfill the requirements of an independent member as prescribed by the CMB legislation. b) Legal reserves - retained earnings
Retained earnings in statutory records is available for distribution, except the fact mentioned below.
The legal reserves consist of first and second legal reserves, per the Turkish Commercial Code (TCC). The Turkish Commercial Code stipulates that the first legal reserve is appropriated out of net statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the Group’s historical paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the historical paid-in share capital. Under the Turkish Commercial Code, the legal reserves are not available for distribution unless they exceed 50% of the historical paid-in share capital but may be used to offset losses in the event that Corporate Governance historical general reserve is exhausted.
Listed companies are subject to dividend requirements regulated by the Turkish Capital Market Board as follows:
In accordance with the Capital Market Board decision number 1/6 dated 9 January 2009, during the calculation of distributable profits by the companies obliged to prepare financial statements; the companies can determine the amount of distributable profits by taking into account the net profit on the financial statements that are prepared and announced to the public according to No:XI-29 “Communiqué on Financial Reporting Standards in Capital Markets” which includes profits from associates, joint ventures and subsidiaries that are transferred to the profit of the Company, regardless of whether these companies’ general assembly approved any dividend distributions, as soon as these distributable profits can be funded by the reserves in the statutory accounts of the companies. Financial Information
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In accordance with the Capital Market Board decision on 27 January 2010, it is decided that there is no dividend distribution requirements for the listed companies whose shares are traded on the stock exchange.
Inflation adjustment to shareholders’ equity can only be netted-off against prior years’ losses and used as an internal source in capital increase where extraordinary reserves can be netted-off against prior years’ loss and used in the distribution of bonus shares and dividends to shareholders. Inflation adjustment to shareholders’ equity, in the case of cash used for profit distribution will be subject to corporate income tax.
In accordance with the decision taken at the General Assembly Meeting held on 31 March 2017, dividend amounting to TRY350,000 related to the profit of 2016 after deduction of legal liabilities, is distributed from retained earnings to the shareholders (31 December 2016: amounting to TRY365,000 related to the profit of 2014). As of 31 December 2017 and 2016, dividend distributed per share is Kuruş 0.70 and Kuruş 0.73, respectively.
Historical values of legal and extraordinary reserves of the Company in the statutory financial statements are as follows:
2017 2016
Legal reserves 309,863 277,363 Extraordinary reserves 33,840 30,309
343,703 307,672
NOTE 19 - REVENUE AND COST OF SALES
a) Revenue 2017 2016
Export sales 11,887,628 9,839,301 Domestic sales 5,409,421 4,291,021 Other 170,757 105,629
17,467,806 14,235,951
The amount of sales discounts is TR465,768 (31 December 2016: TRY453,864).
The distribution of the Group’s sales in 2017 and 2016 based on product type is as follows.
2017 2016
Passenger cars 9,027,492 6,706,721 Commercial vehicles 7,482,434 6,752,462 Spare parts 787,123 671,139 Other 170,757 105,629
17,467,806 14,235,951
b) Other 2017 2016
Income from scrap sales 81,141 60,666 Package sales income 20,449 17,646 Income from mould sales 2,635 1,951 Other 66,531 25,366
170,757 105,629
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c) Cost of sales 2017 2016
Direct material expense 13,093,206 10,896,173 Depreciation and amortization expense 654,312 496,266 Direct labor expense 253,780 230,025 Other production expenses 501,345 469,458 Change in work-in-process (50,587) (53,844) Change in finished goods (82,916) (101,171) Cost of merchandise sold 1,181,987 951,464 Management Cost of other sales 550 58
15,551,677 12,888,429
d) Production and sales quantities Production Sales 2017 2016 2017 2016
Manufactured vehicles
New Doblo 116,891 137,847 118,256 135,964
MCV 78,863 82,397 79,401 81,419 Activities Egea 76,194 80,707 73,346 80,794 Egea Hatchback 63,077 49,657 63,123 49,390 Egea Stationwagon 39,348 20,124 39,429 19,871 Linea 9,801 7,526 8,436 7,653 Doblo - 5,233 - 5,236
384,174 383,491 381,991 380,327
Import Sales 2017 2016 2017 2016
Imported vehicles Sustainability
Ducato 5,457 6,471 5,498 5,465 Fiat 500 1,564 1,933 1,644 2,224 Jeep 2,563 1,771 2,301 2,007 Fullback 380 1,215 1,129 457 Grande Punto 415 573 371 563 Alfa Romeo 288 492 311 625 Panda Futura 62 134 103 133 Maserati 79 78 85 72 Ferrari 17 15 16 17 Fiat 124 Spider 69 2 59 2 Freemont 4x4 - - - 43
Transit sales - - 59 90 Corporate Governance Bravo - - - 2
10,894 12,684 11,576 11,700 Financial Information
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NOTE 20 - RESEARCH AND DEVELOPMENT EXPENSES, MARKETING EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES
2017 2016
Marketing expenses 392,816 329,132 General and administrative expenses 273,006 251,938 Research and development expenses 55,607 22,775
721,429 603,845
a) Marketing expenses 2017 2016
Warranty expenses (Note 15) 107,895 80,440 Transportation and insurance expenses 80,319 65,909 Advertisement expenses 76,968 71,507 Personnel expenses 58,088 52,509 Depreciation and amortization expenses 7,734 1,942 Travel expenses 7,062 - Exhibition and fair expenses - 4,608 Other 54,750 52,217
392,816 329,132
b) General administrative expenses 2017 2016
Personnel expenses 111,974 97,522 Services obtained from third parties 30,032 23,448 Information technology expenses 28,487 20,970 Depreciation and amortization expenses 25,052 19,252 Lawsuit provision expenses 11,485 6,928 Travel expenses 7,729 5,164 Insurance expenses 7,256 7,081 Donations 7,023 8,821 Duties, taxes and levies 6,699 12,910 Rent expenses 2,753 1,644 Other 34,516 48,198
273,006 251,938
c) Research and development expenses 2017 2016
Personnel expenses 26,784 7,692 Depreciation and amortization expenses 9,360 5,171 Travel expenses 5,767 3,977 Information technology expenses 2,178 1,204 Other 11,518 4,731
55,607 22,775
NOTE 21 - EXPENSES BY NATURE
Between 1 January - 31 December 2017 Group’s personnel and depreciation/ amortization expenses are TRY774,509 and TRY696,679 respectively (between 1 January - 31 December 2016: TRY702,176 and TRY522,631 respectively).
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NOTE 22 - OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES
2017 2016
Foreign exchange gains on operating activities 851,733 726,255 Interest income on operating activities 145,622 31,169 Fair value increase in investment property (Note 11) 805 855 Other 43,722 43,237 Management 1,041,882 801,516
2017 2016
Foreign exchange loss on operating activities (1,093,154) (768,880) Interest expense on operating activities (156,858) (35,220) Other (32,682) (40,420)
(1,282,694) (844,520)
NOTE 23 - FINANCIAL INCOME AND EXPENSES Activities 2017 2016
Foreign exchange gain 1,370,685 766,860 Interest income 116,187 94,878 Gain on derivative financial instruments 171 5,486
Total financial income 1,487,043 867,224
Foreign exchange loss (1,240,292) (795,242) Interest expenses (78,925) (74,938) Other (2,318) -
Total financial expenses (1,321,535) (870,180) Sustainability
Financial expenses, net 165,508 2,956
NOTE 24 - TAX ASSETS AND LIABILITIES
General
Tax expense includes current tax expense and deferred tax expense. Tax is recognized in the statement of profit or loss, provided that it is not related to a transaction accounted directly under equity. Otherwise, the tax effect is recognized under equity as well as the related transaction.
In the Turkish taxation system, tax losses can be offset against future taxable income for the next five years and are not deductible (retrospectively) from previous years’ earnings.
In addition, temporary taxes are levied at a rate of 20% (22% for taxation periods of 2018, 2019 and 2020) over the bases declared in Corporate Governance interim periods during the year to be deducted from the corporation tax.
As of December 31, 2017 and 2016, the tax provision has been set aside under the current tax legislation.
The Group recognizes deferred tax assets and liabilities based upon temporary differences arising between their statement of financial position accounts prepared in accordance with TAS/TFRS promulgated by POA Financial Reporting Standards and their statutory financial statements. Deferred tax is calculated using tax rates that are currently in effect as of the date of the statement of financial position. Financial Information
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As of 31 December 2017, the tax rate of 22% is used for the temporary differences expected to be realized / settled within 3 years (2018, 2019 and 2020) for the deferred tax calculation since the tax rate applicable for 3 years has been changed to 22%. However, 20% tax rate is used for the current differences expected / expected to be incurred after 2020 since the tax rate applicable for post-2020 corporations is 20%.
Deferred tax liabilities are recognized for all taxable temporary differences, whereas deferred tax assets resulting from deductible temporary differences are calculated to the extent that it is probable that future taxable profit will be available against which the deductible temporary difference can be utilized.
Deferred tax assets and liabilities are offset against each other if the same country is subject to tax legislation and there is a legally enforceable right to offset current tax assets against current tax liabilities.
Tax assets and liabilities
Corporation tax
The Company and its subsidiaries established in Turkey and other countries in the scope of consolidation, associates and joint ventures are subject to the tax legislation and practices in force in the countries they are operating.
The corporate tax rate in Turkey is 20% (However, the Corporate Tax Law added to the provisional 10th in the 20% corporate tax rate in accordance with Article institutions in 2018, 2019 and the taxation period in 2020 (related to corporate defined special accounting period (for the fiscal periods starting within the year) will be applied as 22% for the corporate earnings of 2016 - 20%). Institutional tax rate is applied to the income of corporations in the net income which will be deducted from the commercial income according to the tax legislation and deduction of the exemptions and discounts in the tax laws. The corporate tax is declared until the evening of the twenty- fifth day of the fourth month following the end of the year in which it relates, and is paid in one installment until the end of the relevant month.
Corporations declare their advance tax returns at the rate of 20% (22% for taxation periods of 2018, 2019 and 2020) on their quarterly financial profits, until the 14th day of the second month following that period and pay till the evening of the seventeenth day. The temporary tax paid during the year belongs to that year and is deducted from the corporation tax that will be calculated on the tax declaration of the institutions to be given in the following year. If the prepaid tax amount remains in spite of the indictment, this amount can be refunded or any other financial debt to the state can be deducted.
According to the Corporate Tax Law, financial losses shown on the declaration can be deducted from the corporate tax base of the period not exceeding 5 years. Declarations and related accounting records can be examined within five years of tax.
15% withholding applies to dividends distributed by resident corporations to resident real persons, those who are not liable to income and corporation tax, non-resident real persons, non-resident corporations (excluding those that acquire dividend through a permanent establishment or permanent representative in Turkey) and non-resident corporations exempted from income and corporation tax. Dividend distributions by resident corporations to resident corporations are not subject to a withholding tax. Furthermore, in the event the profit is not distributed or included in capital, no withholding tax shall be applicable.
Dividend payments made to resident corporations in Turkey again from resident companies in Turkey are not subject to income tax. In addition, if the profit is not distributed or added to the capital, the income tax is not calculated.
Turkish tax legislation does not permit a parent company with its subsidiaries to file a tax declaration on its consolidated financial statements. Thus, tax liabilities recognized in the Consolidated Financial Statements of the Group are separately calculated for all subsidiaries included in the scope of consolidation. On the statement of financial position as of December 31, 2017 and December 31, 2016, taxes payable are netted off for each subsidiary and are separately classified in the Consolidated Financial Statements.
For the years ended 31 December 2017 and 2016, the analysis of the tax expense in the profit or loss is as follows
2017 2016
Current tax expense (26,503) (15,154) Deferred tax income 79,849 187,446
53,346 172,292
2017 2016
Current corporate tax 26,503 15,154 Less: prepaid corporate tax (27,489) (25,811)
Prepaid income tax (986) (10,657)
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The analysis of tax expense accounted for under the statement of profit or loss for the years ended 31 December 2017 and 2016 is as follows:
2017 2016
Profit before tax 1,229,472 797,936
Income tax charge at effective tax rate (20%) (245,894) (159,587) Disallowable expenses (571) (414) Deduction of research and development incentive expenditures during the period 37,422 50,720 Management Effect of investment incentive, net 132,153 19,218 Adjustments not subject to deferred taxation 118,351 297,837 Used and earned investment incentive 11,885 (35,482)
53,346 172,292 b) Deferred tax assets and liabilities
The breakdown of temporary differences and the resulting deferred tax assets as of 31 December 2017 and 2016, using the effective tax rates were as follows
Cumulative temporary differences Deferred tax assets / (liabilities) Activities 2017 2016 2017 2016
Unused investment incentive allowances (*) 2,259,120 1,808,526 917,388 799,037 Provision for employment termination benefits and unused vacation 206,709 184,700 43,365 36,940 Deferred income 23,105 38,733 5,083 7,747 Warranty provisions 135,401 91,551 27,691 18,310 Property, plant and equipment and intangibles 1,151,015 1,390,709 (238,580) (278,142) Inventories 39,422 (29,117) 8,673 5,823 Other 27,670 41,903 5,828 8,381 Sustainability
Deferred tax asset, net 769,448 598,096
(*) The Group uses various discounted tax rates in relation to its fixed asset investments.
The movement of the deferred tax asset balance during the year is as follows:
2017 2016
Deferred tax asset at 1 January 598,096 353,133 Deferred tax income 79,849 187,446 Actuarial gain/(loss) on employment termination benefit obligation attributable to equity 3,496 1,169 Net gain on cash flow hedging attributable to equity (*) 88,007 56,348
Deferred tax assets at 31 December 769,448 598,096 Corporate Governance
NOTE 25 - EARNINGS PER SHARE
Earnings per share are determined by dividing net income by the weighted average number of shares that have been outstanding during the related period concerned. In 2017 and 2016, the weighted average number of shares outstanding is 50,000,000,000 and as of 31 December 2017 and 2016 earnings per share is Kuruş 2.57 and Kuruş 1.94, respectively. Financial Information
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NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES
Related party balances:
Deposit and financial loan balances from related parties 2017 2016
Yapı ve Kredi Bank A.Ş. (deposit) (1) 1,679,752 1,421,146 Yapı ve Kredi Bank A.Ş. (financial loan) (1) (863,778) (377,194)
Trade receivables due from related parties 2017 2016
Otokoç Otomotiv Tic. ve San. A.Ş. (1) 514,753 375,913 Fiat (2) 440,382 304,343 Other (1) 4,145 28,993
959,280 709,249
Trade payables due to related parties 2017 2016
Fiat (2) 1,930,954 1,596,758 Other (1) 104,545 133,570
2,035,499 1,730,328
Related party transactions
Sales 2017 2016
Fiat (2) 11,447,603 9,455,444 Otokoç Otomotiv Tic. ve San. A.Ş.(1) 1,880,907 1,272,300 Other (1) 36,143 46,254
13,364,653 10,773,998
Domestic goods and services purchases 2017 2016
Ram Dış Ticaret (1) 259,042 208,418 Mako Elektrik Sanayi ve Ticaret A.Ş. (1) 183,643 172,487 Zer Merkezi Hiz. ve Tic. A.Ş. (1) 169,895 149,643 Otokoç Otomotiv Tic. ve San. A.Ş. (1) 153,285 110,080 Matay Otomotiv Yan Sanayi ve Tic. A.Ş.(1) 107,753 87,668 Plastiform Plastik San. Tic. A.Ş. (1) 48,586 51,845 Setur Servis Turistik A.Ş. (1) 19,254 13,345 Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş.(1) 17,660 14,734 Akpa Dayanıklı Tüketim Lpg ve Akaryakıt Ürünleri Paz. A.Ş.(1) 12,117 11,083 Opet Fuchs Madeni Yağlar San. ve Tic. A.Ş. (1) 11,902 4,965 Koç Holding A.Ş.(2) (*) 11,355 18,032 Entek Elektrik Üretimi A.Ş. - 55,000 Other (1) 123,246 106,270
1,117,738 1,003,570
Foreign trade good, material and service purchase 2017 2016
Fiat (2) 7,649,951 6,373,239 Other (1) 77,114 45,858
7,727,065 6,419,097
(1) Represents the related parties of joint ventures; comprise of subsidiaries, joint managing company or associates. (2) Represents the joint ventures. (*) These service expenses are related with the invoices arising from the allocation of finance, law, planning, tax consultancy services provided by our shareholder, Koç Holding A.Ş. to its subsidiaries and associates. Expenses related to these services provided by Koç Holding A.Ş. are allocated in accordance with the General Communiqué on Disguised Profit Distribution by Means of Transfer Pricing - 11 Intra-group Services regulations.
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Interest income from related parties, for the year ended 31 December 2017 is TRY40,334 (31 December 2016: TRY50,117).
Salaries and similar benefits paid to the top management of the Group for the year ended 31 December 2017 (33 person) (31 December 2016: 35 person) is TRY28,421 (2016: TRY28,807).
Furthermore, as of 31 December 2017, wholly owned subsidiary KFK has sold the exclusive issuance of bonds and treasury bills over subsidiaries. It is accounted under other financial liabilities with a carrying amount of TRY443,287 (31 December 2016: TRY283,833).
NOTE 27 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Financial risk management objectives and policies Management
The Group’s principal financial instruments are cash and cash equivalents and bank borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Group management reviews and agrees policies for managing each of the risks as summarized below:
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of the counterparties. It is the Group policy that all customers who wish to trade on credit terms are subject to credit screening procedures and the Group also obtains collaterals from customers when appropriate. In addition, Activities receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Trade receivables are evaluated by management based on their past experiences and current economic condition, and are presented in financial statements net of provision for doubtful receivables (Note 7).
Amounts carried in the balance sheet reflect maximum credit risk of the Group.
The amounts stated in the balance sheets reflects the maximum risk exposure of the Group.
Types of credit exposure of financial instruments;
Trade receivables Receivables Related Other Other Bank Derivative from finance 2017 parties parties receivables deposits instruments operations Sustainability
Maximum credit risk exposure as of reporting date (A+B+C+D+E) (1) 959,280 805,479 186 2,625,657 613,811 2,536,117 - Maximum risk secured by guarantee (2) 34,250 817,406 - - - - A. Net book value of financial assets neither overdue nor impaired 953,597 720,728 186 2,625,657 613,811 2,493,932 - Maximum risk secured by guarantee 34,250 817,406 - - - - B. Net book value of financial assets of which conditions are negotiated, otherwise considered as impaired or overdue ------C. Net book value of assets overdue but not impaired 5,683 84,533 - - - 15,956 - Maximum risk secured by guarantee
D. Net book value of impaired assets - 218 - - - 26,229 Corporate Governance - Overdue (gross book value) - 7,364 - - - 66,209 - Impairment (-) - (7,146) - - - (39,980) - Net value under guarantee ------Not overdue (gross book value) ------Impairment (-) ------Net value under guarantee - - - - - 21.973 E. Off-balance sheet items having credit risk ------Financial Information
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Trade receivables Receivables Related Other Other Bank Derivative from finance 2016 parties parties receivables deposits instruments operations
Maximum credit risk exposure as of reporting date (A+B+C+D+E) (1) 709,249 651,995 587 2,215,703 167,444 2,229,351 - Maximum risk secured by guarantee (2) 34,250 659,355 - - - 2,255,876 A. Net book value of financial assets neither overdue nor impaired 700,480 556,437 587 2,215,703 167,444 2,179,086 - Maximum risk secured by guarantee 34,250 659,355 - - - 2,179,086 B. Net book value of financial assets of which conditions are negotiated, otherwise considered as impaired or overdue ------C. Net book value of assets overdue but not impaired 8,769 95,558 - - - 17,640 - Maximum risk secured by guarantee ------D. Net book value of impaired assets - - - - - 32,625 - Overdue (gross book value) - 7,119 - - - 63,667 - Impairment (-) - (7,119) - - - (31,042) - Net value under guarantee - - - - - 26,525 - Not overdue (gross book value) - - - - - 2,203,142 - Impairment (-) - - - - - (24,234) - Net value under guarantee - - - - - 2,284,628 E. Off-balance sheet items having credit risk ------
(1) Guarantees received and factors increasing the loan reliability are not considered when determining this amount. (2) Guarantees consist of guarantee notes, guarantee checks, mortgages and car pledges received from customers.
Aging analysis of trade receivables and receivables from finance sector operations
Aging of the Group’s receivables which are overdue but not impaired is as follows:
2017
1- 30 days past due 59,494 1- 3 months past due 18,989 3- 12 months past due 4,332 1- 5 years past due 23,357 Over 5 years past due -
106,172
2016
1- 30 days past due 66,844 1- 3 months past due 11,875 3- 12 months past due 36,904 1- 5 years past due 6,344 Over 5 years past due - - 121,967
Amount secured with guarantee
As of 31 December 2017, TRY2,886 of total past due receivables of the Group is due from the Group’s related party, Fiat (31 December 2016: TRY3,103). As of 31 December 2017, the Group’s payables to Fiat amounting to TRY1,865,131 (31 December 2016: TRY1,539,911).
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Foreign currency risk
The Group is exposed to foreign exchange risk arising from the ownership of foreign currency denominated assets and liabilities with sales or purchase commitments. The policy of the Group is to compare every foreign currency type for the probable sales or purchases in the future.
As explained in detail in Note 6, according to the manufacturing agreements signed by the Group, the repayment obligations related to loans obtained for Doblo are guaranteed by Fiat and for Mini Cargo by Fiat and PSA through future purchases, As of 31 December 2017, loans obtained related with Doblo and Mini Cargo vehicle project have entirely been repaid. The Group’s exposure to foreign exchange rate and interest rate fluctuations in relation with the loan obtained to manufacture 356 Stationwagon / Hatchback vehicles is undertaken Management by Fiat.
TRY equivalent 2017 (functional currency) USD EUR Other
1. Trade receivables 448,269 170 99,131 - 2a. Monetary financial assets (including cash, bank accounts) 1,848,749 148 409,299 - 2b. Non-monetary financial assets 171,547 - 37,991 - 3. Other 18,251 - 4,042 - 4. Current assets (1+2+3) 2,486,816 318 550,463 - 5. Trade receivables - - - - Activities 6a. Monetary financial assets - - - - 6b. Non-monetary financial assets - - - - 7. Other 95,832 106 21,134 - 8. Non-current assets (5+6+7) 95,832 106 21,134 - 9. Total assets (4+8) 2,582,648 424 571,597 - 10. Trade payables (2,111,041) (1,505) (466,224) (26) 11. Financial liabilities (1,318,959) - (292,096) - 12a. Monetary other liabilities - - - - 12b. Non-monetary other liabilities (3,145) - (698) - 13. Current liabilities (10+11+12) (3,433,145) (1,505) (759,018) (26) 14. Trade payables - - - -
15. Financial liabilities (1,967,316) (10,000) (427,327) - Sustainability 16a. Monetary other liabilities - - - - 16b. Non-monetary other liabilities - - - - 17. No n-current liabilities (14+15+16) (1,967,316) (10,000) (427,327) - 18. Total liabilities (13+17) (5,400,461) (11,505) (1,186,345) (26) 19. Net asset / (liability) position of off-balance sheet derivative instruments (19a-19b) 37,719 10,000 - - 19a. Total hedged asset amount 37,719 10,000 - - 19b. Total hedged liability amount - - - - 20. Net foreign currency asset/(liability) position (9+18+19) (2,780,094) (1,081) (614,748) (26) 21. Net foreign currency asset/(liability) position of monetary items (1+2a+5+6a-10-11-12a-14- 15-16a) (3,082,047) (11,187) (673,175) (26) Corporate Governance 22. Total fair value of financial instruments used for foreign currency hedging - - - - 23. Export 11,947,746 - (2,909,059) - 24. Import 8,230,175 2,093 2,000,773 -
(*) The Groups exposure to foreign exchange rate fluctuations on the long-term bank borrowings denominated in EUR are undertaken by Fiat and PSA. Accordingly, net foreign currency exposure of the Group excluding such borrowings as of 31 December 2017 is TRY65,992 of foreign currency liability position. Financial Information
171 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
TRY equivalent 2016 (functional currency) USD EUR Other
1. Trade receivables 330,396 2 89,056 2a. Monetary financial assets (including cash, bank accounts) 1,684,099 13 453,935 - 2b. Non-monetary financial assets - - - - 3. Other 340,709 - 91,838 - 4. Current assets (1+2+3) 2,355,204 15 634,829 - 5. Trade receivables - - - - 6a. Monetary financial assets - - - - 6b. Non-monetary financial assets - - - - 7. Other 156,316 42 42,095 - 8. Non-current assets (5+6+7) 156,316 42 42,095 - 9. Total assets (4+8) 2,511,520 57 676,924 - 10. Trade payables (1,784,282) (554) (480,426) - 11. Financial liabilities (895,857) - (241,477) - 12a. Monetary other liabilities (4,415) - (1,190) - 12b. Non-monetary other liabilities - - - - 13. Current liabilities (10+11+12) (2,684,554) (554) (723,093) - 14. Trade payables - - - - 15. Financial liabilities (1,941,919) (10,000) (513,956) - 16a. Monetary other liabilities - - - - 16b. Non-monetary other liabilities - - - - 17. No n-current liabilities (14+15+16) (1,941,919) (10,000) (513,956) - 18. Total liabilities (13+17) (4,626,473) (10,554) (1,237,049) - 19. Net asset / (liability) position of off-balance sheet derivative instruments (19a-19b) 35,192 10,000 - - 19a. Total hedged asset amount 35,192 10,000 - - 19b. Total hedged liability amount - - - - 20. Net foreign currency asset/(liability) position (9+18+19) (2,079,761) (497) (560,125) - 21. Net foreign currency asset/(liability) position of monetary items (1+2a+5+6a-10-11-12a-14- 15-16a) (2,271,269) (10,539) (602,220) - 22. Total fair value of financial instruments used for foreign currency hedging - - - - 23. Export (10,009,857) - (2,935,755) - 24. Import 7,488,125 488 2,033,439 2
(*) The Groups exposure to foreign exchange rate fluctuations on the long-term bank borrowings denominated in EUR are undertaken by Fiat and PSA. Accordingly, net foreign currency exposure of the Group excluding such borrowings as of 31 December 2016 is TRY374,972 of foreign currency liability position.
172 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
The following table demonstrates the sensitivity to a possible change of 10% in the USD, EUR and other exchange rates in the Group’s foreign currency denominated liabilities (excluding foreign currency denominated inventory and fixed asset purchase advances), with all other variables held constant, on the Group’s income before tax as of 31 December 2017 and 2016:
Exchange rate sensitivity analysis table
2017 Profit/loss Equity Appreciation Depreciation Appreciation Depreciation
of foreign of foreign of foreign of foreign Management currency currency currency currency
In case 10% appreciation of USD against TRY:
1- USD net asset/liability (5,015) 5,015 - - 2- Amount hedged for USD risk (-) - - - - 3- USD net effect (1+2) (5,015) 5,015 - -
In case 10% appreciation of EUR against TRY:
4- EUR net asset/liability (408,852) 408,852 - - 5- Amount hedged for EUR risk (-) 325,692 (325,692) 325,692 (325,692) Activities 6- EUR net effect (4+5) (83,160) 83,160 325,692 (325,692)
In case 10% appreciation of other exchange rates against TRY
7- Other exchange rates net asset/liability - - - - 8- Amount hedged for other exchange rates risk (-) - - - - 9 Other exchange rates net effect (7+8) - - - -
Total (3+6+9) (88,175) 88,175 325,692 (325,692)
2016 Sustainability Profit/loss Equity Appreciation Depreciation Appreciation Depreciation of foreign of foreign of foreign of foreign currency currency currency currency
In case 10% appreciation of USD against TRY:
1- USD net asset/liability (4,433) 4,433 - - 2- Amount hedged for USD risk (-) 4,433 (4,433) - - 3- USD net effect (1+2) - - - -
In case 10% appreciation of EUR against TRY:
4- EUR net asset/liability (249.361) 249.361 - - Corporate Governance 5- Amount hedged for EUR risk (-) 294.568 (294.568) 294.568 (294.568) 6- EUR net effect (4+5) 45.207 (45.207) 294.568 (294.568)
In case 10% appreciation of other exchange rates against TRY
7- Other exchange rates net asset/liability - - - - 8- Amount hedged for other exchange rates risk (-) - - - - 9 Other exchange rates net effect (7+8) - - - -
Total (3+6+9) 45.207 (45.207) 294.568 (294.568) Financial Information
173 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Interest rate risk
Interest rate risk stems from the probability of an impact of rate changes on financial accounts, The Group is exposed to interest rate risk due to maturity mismatch or differences of the assets and liabilities that are re-priced or matured in a specific period, These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities,
As of 31 December 2017 and 2016, the effect of +/- 0.5% change in interest rates until the next reporting period on the interest sensitive financial instruments in the balance sheet has been calculated as follows:
2017 2016
Change in interest rates (%) 0.50 0.50 Effect on net income before for taxes (207) (34)
Liquidity risk
Liquidity risk is the risk that an entity will be unable to meet its net funding requirements. The risk is mitigated by matching the cash in and out flow volume supported by committed lending limits from qualified credit institutions.
The breakdown of financial assets and liabilities according to their maturities is disclosed considering from balance sheet date to due date period. Financial assets and liabilities that have no certain due dates are classified in over one year column.
2017
Total cash outflow Less than Between Between Book per agreement 3 3-12 1 - 5 Over Expected maturities value (=I+II+III+IV) months (I) months (II) years (III) 5 years (IV)
Non-derivative financial liabilities Bank loans 5,351,713 5,394,792 691,352 1,383,247 3,320,193 - Trade payables 3,865,606 3,925,259 3,066,687 858,572 - - Bonds 459,198 523,639 31,860 276,782 214,997 -
Total cash outflow Less than Between Between Expected maturities (or maturities per Book per agreement 3 3-12 1 - 5 years Over agreement) value (=I+II+III+IV) months (I) months (II) (III) 5 years (IV)
Derivative financial assets (net) 5,650 39,960 - 39,960 - - Derivative cash inflows 5,650 39,960 - 39,960 - - Derivative cash outflows ------
2016
Total cash outflow Less than Between Between Book per agreement 3 3-12 1 - 5 Over Expected maturities value (=I+II+III+IV) months (I) months (II) years (III) 5 years (IV)
Non-derivative financial liabilities
Bank loans 4,660,880 4,706,181 128,795 1,717,662 2,631,423 228,301 Trade payables 3,366,230 3,639,644 2,864,981 774,663 - - Bonds 354,707 356,483 - 159,386 197,097 -
8.381.817 8.702.308 2.993.776 2.651.711 2.828.520 228.301
Total cash outflow Less than Between Between Expected maturities (or maturities per Book per agreement 3 3-12 1 - 5 Over agreement) value (=I+II+III+IV) months (I) months (II) years (III) 5 years (IV)
Derivative financial assets (net) 5,486 30,953 - - 30,953 - Derivative cash inflows 5,486 30,953 - - 30,953 - Derivative cash outflows ------
174 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) Tofaş at a Glance (Convenience translation of consolidated financial statements originally issued in Turkish)
Capital management policy
The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes amendments to it, in light of changes in economic conditions.
The Group has the power to organize the dividend payments in order to regulate and keep the capital structure. There is no change in policy, target or processes of the Group as of 31 December 2017.
Consolidated net financial debt/total equity ratio as of 31 December 2017 and 2016 is as follows; Management 31 December 2017 31 December 2016
Total borrowing 5,810,911 5,015,587 Cash and cash equivalent (2,625,681) 2,215,727
Net financial debt 3,185,230 2,799,860 Equity 3,583,037 2,957,451
Net financial debt/total equity multiplier 89% 95%
NOTE 28 - FINANCIAL INSTRUMENTS (FAIR VALUE EXPLANATIONS AND DISCLOSURES WITHIN THE FRAMEWORK OF HEDGE Activities ACCOUNTING)
The estimated fair values of financial instruments have been determined by the Group using available market information and appropriate valuation methodologies. However, judgment is necessarily required to interpret market data to estimate the fair value. Accordingly, 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 financial instruments for which it is practicable to estimate fair value:
Financial assets monetary assets for which the fair value approximates carrying value, balances denominated in foreign currencies are translated at year-end exchange rates. The fair values of financial assets (except short-term consumer financing loans) carried at cost are considered to approximate their respective carrying values due to their short-term nature and negligible credit losses. The fair values are calculated by discounting the future cash flows of consumer financing loans with the current interest rate which is monthly 12.77% (31 December 2016: 10.08%).
2017 2016 Sustainability Carrying value Fair value Carrying value Fair value
Consumer financing loans 2,536,117 2,304,567 2,229,351 2,123,867
Financial liabilities are monetary liabilities for which fair value approximates carrying value; balances denominated in foreign currencies are translated at the year-end exchange rates. Trade payables and other monetary liabilities are considered to approximate their respective carrying values due to their short-term nature.
Management considers an effective cash flow hedge relationship between foreign currency originated long term loans and the realized and forecasted sales (items subject to be hedged) of light commercial vehicles (Egea, Doblo, New Doblo and Mini Cargo (MCV)). Effectiveness of hedge relationship has been determined by the agreements made between the Company and Fiat and Peugeot Citroen Automobiles S.A. (PSA). It is vastly probable to cover long term loan liabilities by the planned sales of MCV to Fiat and PSA starting from 2008 until December 2016. Furthermore, according to the agreement made between Fiat and the Company, long term loan liabilities will be covered through a portion of sales of New Doblo to Fiat starting from 2009 until December 2017 and sales of Egea starting from 2016 Corporate Governance until December 2023. Additionally, the carrying amount of long - term loan liabilities for Doblo had been covered by sales to Fiat until the beginning of 2009. Financial Information
175 Tofaş 2017 Annual Report
TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.) (Convenience translation of consolidated financial statements originally issued in Turkish)
Fair value estimation
The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
2017
Level 1 Level 2 Level 3
Investment property - 31,175 - Derivatives held for trading - 5,650 -
Total - 36,825 -
2016
Level 1 Level 2 Level 3
Investment property - 30,370 - Derivatives held for trading - 5,486 -
Total - 35,856 -
As of 31 December 2017, the Group has not made any transfers between second level and first level, and also between third level and other levels.
NOTE 29 - SUBSEQUENT EVENTS
Metal Industrialists’ Union of Turkey, MESS, of which we are a member, has informed The Group that Minutes of the Group Collective Labour Agreement, covering the 1 September 2017- 31 August 2019 period has been signed between MESS and the Turkish Metal Workers’ Union.
Some aspects of the agreement are as follows:
Hourly wages for the first six months have been set as 9 TL/hour; wages increased 1.60 TL/hour on equal basis; 1.50 TL/hour has been added to the hour rates, for once only, with a cap of 0.10 TL/hour for each full year of the seniority at the work place. A wage increase has been agreed reflecting the increase in the consumer price index for the 2nd, 3rd and 4th six months periods of the agreement.
All social benefits have been increased 23% for the first year, and for the 2nd year the increase is indexed to the increase in consumer price index.
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