LIFE IS RENEWAL

2015 ANNUAL REPORT We remain deeply saddened by the untimely death of Koç Holding Chairman Mustafa V. Koç.

Mustafa V. Koç leaves behind a substantial, highly successful and proud legacy from his 32-year professional career, which included 13 years as Chairman of Koç Holding.

During his tenure as Chairman, groundbreaking investments were undertaken with determination. The Holding’s position in the domestic market was reinforced through successful acquisitions. Koç corporate banner was planted in new countries and our international operations expanded. The Holding’s and nation’s overseas revenues significantly increased through large-scale export projects. Mustafa V. Koç’s global vision turned the Holding into one of the world’s leading corporations and Koç Holding achieved the honor of being the only Turkish firm on the Fortune 500 list.

During his life, Mustafa V. Koç was committed to the motto of Holding founder Vehbi Koç, “I exist as long as my country exists and prospers”. He was not only a leader who took on ambitious business ventures, but also a pioneer in social responsibility projects, which he wholeheartedly embraced to contribute to the nation’s social advancement.

Always a firm believer in Turkey’s bright future, Mustafa V. Koç leaves behind a permanent mark with his vision, philanthropy, leadership and most important of all, humanitarian values. He was truly a man of the people. A leader who energized and supported his employees, he was also a source of inspiration with his global perspective, determination, values and business ethics.

Going forward, we shall transform Koç Holding from a company with international operations into a truly global company in line with his values, broad vision and dynamism…

We will remember him with respect, affection and gratitude.

KOÇ GROUP Mustafa V. Koç (1960-2016) CONTENTS

TOFAŞ AT A GLANCE ACTIVITIES CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES 3 ABOUT TOFAŞ 29 THE TURKISH AUTOMOTIVE SECTOR AND 4 KEY FINANCIAL AND OPERATIONAL TOFAŞ’S POSITION IN THE SECTOR 65 AGENDA OF 48TH ORDINARY GENERAL HIGHLIGHTS 37 BRANDS AND PRODUCTS ASSEMBLY MEETING OF TOFAŞ TÜRK 6 INSTITUTIONAL INVESTOR RELATIONS 41 DEALERSHIP NETWORK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ TO 9 VISION, MISSION & VALUES 42 SUBSIDIARIES BE HELD ON 31 MARCH 2016 10 TOFAŞ IN 2015 45 RESEARCH & DEVELOPMENT 66 INFORMATION ON THE CAPITAL STRUCTURE 14 AWARDS 47 QUALITY MANAGEMENT AND SHAREHOLDING OF THE COMPANY 48 HUMAN RESOURCES 69 DECLARATION OF CORPORATE GOVERNANCE MANAGEMENT PRINCIPLES AND COMPLIANCE REPORT SUSTAINABILITY 87 ACTIVITIES OF THE EARLY DETECTION OF RISK 16 CHAIRMAN’S MESSAGE AND RISK MANAGEMENT COMMITTEE 18 BOARD OF DIRECTORS 53 SUSTAINABILITY AND SOCIAL 89 ASSOCIATE COMPANY REPORT 22 CEO’S MESSAGE RESPONSIBILITY POLICY 90 CONVENIENCE TRANSLATION INTO ENGLISH 24 SENIOR MANAGEMENT 54 CORPORATE SOCIAL RESPONSIBILITY OF AUDITOR’S REPORT ON THE EARLY RISK 57 ENVIRONMENT IDENTIFICATION SYSTEM AND COMMITTEE 59 CLIMATE CHANGE ORIGINALLY ISSUED IN TURKISH 60 OCCUPATIONAL HEALTH & SAFETY 91 REMUNERATION POLICY FOR TOP-LEVEL 61 SUPPLY CHAIN MANAGEMENT MANAGERS AND MEMBERS OF THE BOARD 63 CUSTOMER SATISFACTION POLICY OF DIRECTORS 64 ETHICAL AND ANTI-CORRUPTION PRACTICES 92 DIVIDENDS DISTRIBUTION POLICY 93 2015 PROFIT DISTRIBUTION PROPOSAL 94 2015 DIVIDENDS DISTRIBUTION TABLE 95 CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH

FINANCIAL INFORMATION

96 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2015 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT 97 INDEPENDENT AUDITOR’S REPORT

2 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE

ABOUT TOFAŞ

TURKEY’S ONLY AUTOMOTIVE TURKEY’S NINTH BIGGEST INDUSTRIAL WITH AN ANNUAL MANUFACTURER THAT PRODUCES BOTH ESTABLISHMENT PRODUCTION CAPACITY PASSENGER AND LIGHT COMMERCIAL With an annual production capacity VEHICLES of 400 thousand vehicles and with OF 400 THOUSAND Founded in 1968, Tofaş is the only 8,000 employees, Tofaş is Turkey’s automotive manufacturer in Turkey ninth biggest industrial establishment. VEHICLES AND WITH that produces both passenger cars and Headquartered in Istanbul, Tofaş’s light commercial vehicles. manufacturing facilities are located 8,000 EMPLOYEES, TOFAŞ in Bursa, where the plant, whose size Tofaş today is a joint venture of Koç is close to a million square meters, of IS TURKEY’S NINTH Holding and Automobiles which 350 thousand square meters (FCA). Each of them control an equal are sheltered areas, continues to be BIGGEST INDUSTRIAL stake of 37,85%. A 24.3% portion of the target of investments aimed at Tofaş’s shares are publicly traded at increasing the company’s competitive ESTABLISHMENT. the Istanbul Stock Exchange (BIST), strength. where they are included not only in the BIST 30 and BIST 100 indexes but Besides being one of FCA’s three also in the Corporate Governance strategic global production centers and Sustainability indexes, as well. in EMEA, Tofaş is also FCA’s second Tofaş shares are likewise listed at the biggest European-based R&D center. Luxembourg Stock Exchange. At its Bursa plant, Tofaş manufactures a range of passenger cars, and Egea, as well as Light Commercial Vehicles for Fiat, Citroen, and under its Minicargo project and for Fiat, , Vauxhall, and RAM under its New Doblò project. The company is also the distributor of the Fiat, , , , , and brands in its home market.

3 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE

KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS 24.9% 11.8% 104% THE 278,252 UNITS IN 2015 TOFAŞ BOOKED NET A 104% RATE OF CAPACITY MANUFACTURED BY TOFAŞ IN SALES VALUE OF TL 10 BILLION UTILIZATION (IN TWO-SHIFTS) 2015 CORRESPOND TO A YEAR- AND A NET PROFIT OF TL 831 WAS ACHIEVED IN 2015. OVER-YEAR INCREASE OF 24.9% MILLION, REACHING AN 11.8% IN ITS TOTAL OUTPUT. SHARE OF ITS OWN MARKET.

OPERATIONAL HIGHLIGHTS 2014 2015

Export Sales (TL thousand) 4,297,030 5,729,275 Domestic Sales (TL thousand) 3,023,705 4,121,142 Other Income from Operational Activities (TL thousand) 119,274 70,306 Cumulative Production Volume (units) 222,807 278,252 Capacity Utilization Rate (two-shift, %) 84% 104% Sales (units) 237,384 296,812

FINANCIAL HIGHLIGHTS (TL THOUSAND) 2014 2015

Equity 2,241,171 2,582,291 Total Assets 7,124,284 9,866,566 Sales Revenues 7,440,009 9,920,723 Profit Before Tax 472,253 617,987 Net Profit 574,238 830,801 EBITDA 815,607 1,062,668 Investments (EUR million) 330 377

4 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE +38.5% +15.2% +33.3% TOTAL ASSETS SHAREHOLDERS’ EQUITY SALES REVENUE (TL MILLION) (TL MILLION) (TL MILLION) 9,867 2,582 9,921 2,241 7,124 7,440

2014 2015 2014 2015 2014 2015 +30.3% +30.9% +44.7% EBITDA PROFIT BEFORE TAX NET PROFIT (TL MILLION) (TL MILLION) (TL MILLION) 1,063 618 831

816 472 574

2014 2015 2014 2015 2014 2015

BREAKDOWN OF EXPORTS BY COUNTRIES BREAKDOWN OF SALES BY SEGMENT (%) (%)

4 2 3 2 3 1 1 4 2 5 6 1 7

1- Europe 76% 1- 26% 1- Light Commercial Vehicles, 72% 2- Canada & USA 12% 2- UK 11% 2- Automobile 28% 3- MENA 10% 3- Spain 9% 4- Other 2% 4- France 8% 5- Germany 6% 6- Belgium 4% 7- Other Europe 12% 5 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE

INSTITUTIONAL INVESTOR RELATIONS

MEETINGS WITH INSTITUTIONAL INVESTORS four reverse roadshows. Thirty-six TOFAŞ MANAGEMENT’S The Tofaş Institutional Investor teleconferences were also organized Relations Department conducted four for international investors. 2015 DIVIDEND PAYMENT financial analyst meetings in İstanbul during 2015, in which the quarterly TOFAŞ SHARE PERFORMANCE PROPOSAL CORRESPONDS company’s financial results were In a year in which the average price disclosed. of a share of Tofaş stock was 44% TO A 44% SHARE OF THE higher in 2015 than it was in 2014, the In addition to these meetings, the company’s shares outperformed the 7% COMPANY’S NET PERIOD department also conducted a total average rise in the BIST 100 index by a of 266 institutional investor and 80 huge margin. PROFIT. financial analyst meetings through such means as company visits, national and international investor conferences, international roadshows and reverse roadshows, and +44% teleconferences. YEAR-OVER-YEAR INCREASE IN During 2015 Tofaş took part in five international investor conferences. THE AVERAGE VALUE OF TOFAŞ In its home market it took part SHARES in five investor conferences and two roadshows while also hosting VALUE INCREASE IN 2015 (%) CHANGES IN THE INTERNATIONAL OWNERSHIP OF TOFAŞ’S PUBLICLY-TRADED 44.4 STOCK As of end-2009, 72% of Tofaş’s publicly-traded shares were held by international investors. This percentage has increased steadily in the years since then and reached 89% as of end-2015. (By comparison, total 89% international investor involvement in BIST as a whole fell from 67% to 7.2 TOFAŞ’S PUBLICLY-TRADED 62% during the same six-year period.) STOCK HELD BY INTERNATIONAL Tofaş’s 89% is the highest percentage of international ownership in any Koç INVESTORS Group company. BİST 100 TOFAŞ

RATIO OF INTERNATIONAL OWNERSHIP OF TOFAŞ’S PUBLICLY- TOFAŞ BİST EARNINGS PER SHARE (TL) TRADED STOCK (%) 87% 89% 89% 89% 82% 1.66 72% 79% 67% 66% 66% 62% 62% 64% 62% 1.15 0.95 0.88 0.87 0.77

2009 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015

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TOFAŞ MANAGEMENT DIVIDEND PAYMENT PERFORMANCE PROPOSES PAYING OUT Net Profit (TL million) Dividend (TL million) Dividend/Net Profit (%) DIVIDENDS TOTALING 107% 831 TL 365 MILLION 85% 75% 574 65% 474 480 485 448 434 384 53% 365 325 44% 250 250

2010 2011 2012 2013 2014 2015

(TL million) 2010 2011 2012 2013 2014 2015 Net Profit 384 474 448 434 574 831 346 Dividend 250 250 480 325 485 365 346 MEETINGS FOR Dividend/Net Profit (%) 65% 53% 107% 75% 85% 44%

INSTITUTIONAL INVESTORS AND The company’s management proposes paying out dividends totaling TL 365 FINANCIAL ANALYSTS WERE million for 2015 and this proposal corresponds to a 44% share of the company’s CONDUCTED BY TOFAŞ IN 2015 net period profit. From Tofaş’s “Stock and Stock INSTITUTIONAL INVESTOR RELATIONS Exchange Market Info” page, the Münir Emre ERTÜRK link to which is given below, visitors Financial Risk & Investor Relations, have convenient access to a broad Budget & Trade Control Manager range of information such as Phone: (090) 212 275 3390 Ext: 2751 analyst presentations concerning E-mail: [email protected] the company’s latest quarterly results, monthly-updated investor Pırıl US presentations, financial reports, a list Financial Risk & Investor Relations of analysts who track Tofaş stock, a Specialist calendar of investor relations events, Phone: 090) 212 275 3390 Ext: 2727 and other information that may be of E-mail: [email protected] interest to investors. All Investor Relations Department http://www.tofas.com.tr/en/investor/ personnel hold Capital Market Pages/Stock-and-Stock-Exchange- Activities Advanced-Level and Market-Info.aspx Corporate Governance Rating licenses qualifying them to perform investor relations functions.

7 TOWARDS ONE MILLION VEHICLES PER ANNUM

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VISION, MISSION & VALUES

OUR VISION OUR MISSION

TOWARDS ONE MILLION TO IMPROVE PEOPLE’S QUALITY VEHICLES PER ANNUM… OF LIFE BY PROVIDING THEM TO BE A LEADING AUTOMOTIVE WITH THE PRODUCTS AND COMPANY THAT SHAPES SERVICES THAT BEST SUIT CUSTOMER EXPECTATIONS AND SOCIETY’S NEED FOR MOBILITY IS A SOURCE OF PRIDE

OUR VALUES

WE ARE AN AGILE TEAM WE CARE ABOUT PEOPLE AND WE ARE AMBITIOUS WE WORK WITH PASSION THE ENVIRONMENT WE COMMIT AND WE ACHIEVE

WE ARE A GREAT TEAM CAPABLE AT TOFAŞ IT’S PEOPLE WHO WE EMBRACE OUR GOALS. OF ACTING FAST AND REACHING MAKE A DIFFERENCE AND WE ACHIEVE RESULTS IN RESULTS QUICKLY. WE EMBRACE CUSTOMERS WHO COME THE FACE OF OBSTACLES. WE OUR WORK WITH A PASSION FIRST. THAT’S WHY WE TAKE ARE TRANSPARENT ABOUT A “PEOPLE FIRST” APPROACH OUR WORK AND WE SEE OUR TO EVERYTHING THAT WE MISTAKES AS OPPORTUNITIES WE ARE COMPETITIVE DO WHILE FULFILLING OUR FOR IMPROVEMENT. WE MAKE A DIFFERENCE RESPONSIBILITIES TO THE COMMUNITY AND THE WE CONSTANTLY DEVELOP ENVIRONMENT. OURSELVES, ALWAYS AIM FOR THE BEST, ARE INNOVATIVE AND “THINK LEAN”

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TOFAŞ IN 2015

JANUARY New 4th-generation Doblò goes on TOFAŞ’S BOARD OF sale Lancia-Alfa Romeo-Jeep dealership A revamped, 4th-generation version of DIRECTORS APPROVED AN meeting the Doblò goes on sale simultaneously Lancia, Alfa Romeo, and Jeep dealers in Turkey and Europe. INVESTMENT TO FACELIFT gather in İstanbul for their annual meeting. New investment in Bursa and THE MODEL basketball IN THE FIRST QUARTER OF Fiat dealers in Antalya Tofaş initiates a major new investment Fiat vehicle dealers, licensed service with the construction of a new sports 2016. representatives, and spare parts complex on the Bursa plant’s grounds. dealers convened at a dealership meeting held in Antalya.

MARCH FEBRUARY Tofaş annual general meeting Tofaş Bursa plant celebrates its 44th Tofaş’s 2014 annual general meeting is anniversary held at the company’s headquarters in Service awards were handed out İstanbul. in Bursa and İstanbul to mark the occasion of the Tofaş plant’s 44th year Fiat Group at the in operation. Bursa’s new Doblò makes an international appearance at the 88th Geneva Motor along with the other latest advances in global automotive technology.

Tofaş joins the #HeForShe campaign Tofaş employees join hands with other members of the Koç Group in supporting the international #HeForShe gender equality campaign.

Fiorino Facelift in Turkey Tofaş’s Board of Directors approves an Sales of the 500X, Fiat’s new investment to facelift the Fiat Fiorino model, begin in Turkey. model in the first quarter of 2016.

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FIAT EGEA, TOFAŞ’S NEW COMPACT , WAS

UNVEILED AT THE 2015 MAY JUNE İSTANBUL MOTOR SHOW. Every win = One blackboard / Every Fiat Egea unveiled at the İstanbul score = One ball Motor Show Under the “Every win = One backboard Egea, Fiat’s new compact sedan to be / Every score = One ball” project produced by Tofaş, is unveiled the 2015 undertaken to celebrate the 40th APRIL İstanbul Motor Show, appearing before anniversary of the Tofaş Sports Club, visitors along with Fiat, Alfa Romeo, 2,500 basketballs and 8 basketball 1.5 million Fiat Doblòs in 15 years Jeep, Ferrari, and Maserati models. backboards were donated to the Bursa Made in Bursa and shipped to more municipality. than 80 countries around the world, the 1.5 millionth Fiat Doblò rolls off Vintage ’57 in Turkey the production line. Introduced to celebrate the birthday of the first generation of Fiat 500 cars that hit the road in 1957 and have since become a cult icon of automotive history thanks to worldwide sales of 4.5 million, the Fiat 500 Vintage ’57 goes on sale in Turkey. Fiat at the Venice Biennial Sponsored in part by Fiat, the Turkish JULY pavilion at the 56th International Art Exhibition of the Venice Biennale Bursa’s most successful school: Tofaş -Opar at attracted huge crowds. Science High Automechanika İstanbul Located in Bursa’s Nilüfer township Magneti Marelli-Opar meets with No obstacles where our country is and opening its doors for the first spare parts sector professionals at concerned time in the 2014-2015 academic year, Automechanika İstanbul Thirty physically handicapped Tofaş Tofaş Science High’s first graduates’ employees are issued their military average 84% pass rate on the national discharge papers after doing one day undergraduate placement exam makes of token service. it the most successful educational institution in the city. “Just Us“ get-together in İstanbul Employees of Tofaş’s İstanbul headquarters hold a “Just Us” get- together.

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TOFAŞ IN 2015

AUGUST New Fiat 500 models in Turkey AN IMPORTANT A rethought version of the iconic Fiat Fiat Doblò: From North America to 500 is shown off to consumers in MILESTONE IN TOFAŞ’S South Turkey after bewitching visitors at The unchallenged leader of Turkey’s the Frankfurt Motor Show. A petrol- MANUFACTURING market for engine, front-wheel drive, automatic- HISTORY WAS ACHIEVED four years in a row, Tofaş’s Fiat Doblò transmission version of the Fiat 500X pursues growth in the Americas under goes on sale in the country. WITH THE START OF FIAT the RAMbrand. After making its debut in the USA and Canada, the vehicles OCTOBER EGEA PRODUCTION. start shipping to Latin American markets such as Peru, Costa Rica, and Fiat Egea introduced to dealers in the Caribbean islands. İstanbul The new Fiat Egea is introduced to Fiat New Tofaş Sports Club president dealers at a dealership meeting held in Okan Baş, who’s also the Tofaş 356 İstanbul. Fiat dealers and their spouses Project and Business Development attended a gala evening at the Rahmi Manager, takes over as the new M. Koç Museum in an event hosted president of the Tofaş Sports Club. by Koç Holding’s honorary chairman Rahmi M. Koç. SEPTEMBER

A green light for Egea The final decision to commence production of the new Fiat Egea is taken at the September meeting of the Tofaş Board of Directors.

Regional dealership meetings in five provinces The Fiat Egea is introduced to Tofaş dealers from all over Turkey at regional dealership meetings held in Gaziantep, İzmir, Kayseri, Sakarya and Samsun.

Fiat Egeas start rolling off the production line An important milestone in Tofaş’s manufacturing history is passed with the start of Fiat Egea production.

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AFTER UNDERGOING ITS 18TH WCM AUDIT,

TOFAŞ’S WCM SCORE NOVEMBER WAS RAISED TWO POINTS WCM score gets a boost FROM 72 TO 74. After undergoing its 18th World Class Manufacturing audit, Tofaş’s WCM score is raised two points from 72 to 74.

EUR 200 million for new investments Egea excitement at “Just Us” gathering Zeki Müren exhibition at Tofaş Tofaş signs a new agreement with the A Fiat Egea drawing is held during the Museum European Bank for Reconstruction and November “Just Us” get-together at the “That’s My Zeki Müren”, an exhibition Development for EUR 200 million of Tofaş plant. of documents, costumes, and personal investment financing. belongings spanning the lifetime of the legendary star of Turkish music Tofaş Gymnasium opens a new season Zeki Müren opens its doors at the Tofaş Sports Club racks up a victory Tofaş Museum of Cars and Anatolian when its newly-opened Tofaş Carriages. Gymnasium in Nilüfer hosts its first official game.

Tofaş Academy Development Day A large number of guest speakers attend the fifth edition of Tofaş Academy’s “Development Day” event.

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AWARDS

FIVE GLADIATORS AWARDS FERRARI AT 2015 PEBBLE BEACH CONCOURS AT THE FOURTH ROUND OF At the 2014 Gladiators ceremony held D’ELEGANCE THE PRIVATE SECTOR R&D to hand out the year’s “ODD Sales and For the 2015 Pebble Beach Concours Communication Awards” Tofaş received D’Elegance event, Ferrari was chosen five awards in recognition of its to be the year’s “Featured Brand”. CENTERS SUMMIT branding and communication activities. ORGANIZED BY THE TOFAŞ INFORMATION TECHNOLOGIES SECOND EU-OSHA AWARD AWARDED 20000-1 CERTIFICATION MINISTRY OF SCIENCE, For its involvement in the Having successfully passed its audit by organization’s 2014-2015 “Healthy SGS, an international assessor, Tofaş INDUSTRY AND Workplaces Manage Stress” campaign, was awarded ISO 20000-1: Service Tofaş received its second award from Management System certification. TECHNOLOGY, TOFAŞ R&D the European Agency for Safety and Health at Work. THREE BRANDON HALL GROUP EXCELLENCE CENTER WAS AWARDED AWARDS TEGEP AWARDS FOR TWO TOFAŞ PROJECTS In the 2015 round of the Brandon AS THE BEST R&D CENTER In the 2015 round of Learning & Hall Group’s Excellence Awards, Development Awards conducted by the Tofaş received awards in three IN THE TURKISH Learning and Development Platform categories: “Best Advance in Learning Association of Turkey (TEGEP), Tofaş Management Technology” for its . received the “Best Social Responsibility “Tofaş Academy Dealer Portal”, “Best Project” award for its “Fiat Candidate Experience” for its “Intern Laboratories” submission and a special Candidate Excellence Program” and jury award for its “Tofaş Academy Web “Best Sourcing & Assessment Strategy” Portal”. for its “PROVA Intern Sourcing and Assessment Program”.

BEST AUTOMOTIVE INDUSTRY R&D CENTER At the fourth round of the Private Sector R&D Centers Summit organized by the Ministry of Science, Industry and Technology, Tofaş R&D Center was not only cited as the best R&D center in the Turkish automotive industry but also placed third among the country’s best R&D centers in all categories. RED-HOT JEEP Tofaş additionally ranked first on the Jeep’s “Beep” advert was honored at basis of “R&D Expenditure Density” and the “Best of the Red Press Advertising “Project Capacity”. Awards” conducted by Hürriyet, a daily newspaper, to recognize creativity in advertising.

TOFAŞ INTELLECTUAL PROPERTY TEAM AWARD Continuing to defend its sixth position in the Turkish Patent Championship League with 67 patent applications, the Tofaş Intellectual Property Team was awarded by the Turkish Patents Institute.

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FIAT EGEA WAS VOTED “BEST-BUY OF THE

YEAR IN EUROPE” AT RAM PROMASTER CITY: 2016 COMMERCIAL BRANDON HALL EXCELLENCE AWARD FOR AUTOBEST 2016. GREEN CAR OF THE YEAR TOFAŞ ACADEMY Exported to North America as the Tofaş’s “Tofaş Academy Dealer Portal” “RAM Promaster City”, Fiat Doblò light received the Brandon Hall Group’s commercial vehicles built at the Tofaş Excellence Award in the “Best Advance A DELUGE OF CRYSTAL APPLES FOR FIAT plant have been named “Commercial in Learning Management Technology” At the 2015 Crystal Apple Creativity Green Car of the Year” by Green Car category. Festival, which hands out awards Journal. recognizing excellence and creativity WASTE HEAT RECOVERY PROJECT AWARD in advertising and media use, Fiat TWO UK AWARDS FOR THE FIAT DOBLÒ Under the EHS Leadership Awards received two crystal and three bronze CARGO AND THE FIORINO CARGO program conducted for members of the awards in five different categories. At the 2015 round of the annual FCA Group, the “Waste Heat Recovery Commercial Fleet Awards program Project” submitted by the Tofaş Paint SUSTAINABLE BUSINESS AWARD FOR TOFAŞ held in the UK, the Fiat Doblò Cargo Production Department placed third in At the 2015 Green Business Summit, and the Fiat Fiorino were the winners the EMEA region. Tofaş was the recipient of the in the “Small Van of the Year” and Sustainability Academy’s “Green “City Van of the Year” categories THREE BTSO AWARDS Business” award in its “Sustainable respectively. In the “Economic Value-Creators” Business Award” program in the program conducted by the Bursa “Carbon and Energy Management” FIAT EGEA: BEST-BUY CAR OF THE YEAR IN Chamber of Commerce & Industry, category for its “7-Step Proactive EUROPE Tofaş received three awards in Energy and Carbon Management Built in Bursa and exported all over the “Innovation”, “Exports”, and System”. the world, the Fiat Egea was voted “Corporation Tax” categories. “Best-Buy Car Of The Year in Europe” RENAGADE ONLINE SALES CHOSEN AS at AutoBest 2016. The Koç Holding GOOGLE REFERENCE PROJECT Automotive Group has received the The Jeep Renegade Online Sales Project “COMPANYBEST 2015” award. that Tofaş launched about a year ago was chosen by Google as a “digital marketing reference project”.

TWO GOLDEN GLOVES AWARDS FOR TOFAŞ Having reached “Gold” in its World Class Manufacturing rank, Tofaş was the recipient of two awards in the “Golden Gloves Occupational Health & Safety Best Practices Awards” program conducted by the Metal Industrialists’ Union of Turkey. “MOST SUCCESSFUL KOÇ GROUP MEMBER” AWARD FOR TOFAŞ

In the 2015 round of “Most Successful Koç Group Member” awards, Tofaş was voted “Most Successful Koç Group Member” in the Creating Environmental and Social Value” category for its “Dreams Recognize No Barriers” project.

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CHAIRMAN’S MESSAGE

I HAVE COMPLETE FAITH IN TOFAŞ’S ABILITY TO MAKE NEW ADDITIONS TO ITS ROSTER OF SUCCESSES, AND TO MAKE EVEN BIGGER CONTRIBUTIONS TO OUR COUNTRY.

Esteemed shareholders, valued business partners, beloved members of the Tofaş family: Mustafa V. KOÇ Chairman For Tofaş 2015 was a year overflowing with successful achievements and records. Despite tough conditions problems with refugees, tensions In a year in which the automotive both in our own country and abroad, with Russia late in the year, and industry registered a global growth, Tofaş undertook a number of major heart-rending terrorist attacks all Turkish automotive industry that is investments that henceforth will be adversely affected confidence in the regarded as the engine of our economy recalled with pride in Tofaş’s history. economy. Despite such developments reached its ever highest production however, the Turkish economy once and export levels. From an economic and political again demonstrated its resilience and standpoint, 2015 was a very active strength by continuing to grow. But whereas overall production in year indeed not just for Turkey but the sector was up by 16% year-over- for the world as a whole. A few of The Turkish automotive market, which year, Tofaş’s own 25% rise surpassed the more important highlights that is always a significant indicator of that performance by a wide margin. we might mention were faltering our national economy’s strength, That means that one out of every five economic growth in China and other achieved a 26% rate of year-on growth vehicles produced in Turkey last year developing countries, the collapse in despite all the hardships and sales was made by Tofaş. The Fiat Egea, oil and other commodity prices, the approached the one-million-unit level which is the product of a record- US Federal Reserve Bank’s long- that we have been looking forward to breaking level of investment and which anticipated interest rate hike, and for so many years. Notwithstanding appeared on the market in Turkey late steady–if plodding–growth in Europe. political uncertainties and consumer in the year, contributed significantly The international political landscape wariness in the face of a strongly rising to that rise. Developed and built by on the other hand was dominated by US dollar during the year’s first three Tofaş itself, the Fiat Egea has proven heightened geopolitical risks, influxes quarters, both the automobile and light to be enormously popular not just in of refugees, and horrific terrorist commercial vehicle markets gained Turkey but internationally as well. This attacks. strong upward momentum in the is tremendously pleasing and a source last quarter as consumer confidence of pride, as is also the fact that the Fiat In such a volatile context as this, resurged in the wake of conclusive Egea was voted “Best-Buy Car Of The a double round of parliamentary elections. Year in Europe” at AutoBest 2015, one of elections, heightened violence in Syria, Europe’s most prestigious motor shows.

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Our exports responded favorably Industry R&D Center” by the Ministry I have complete faith in Tofaş’s ability to growth in European markets’ of Science, Industry and Technology to continuously renew and develop demand for both automobiles and but was also ranked third among all itself, to make new additions to its light commercial vehicles. However in research and development centers in roster of successes, and to make even addition to our strong sales in Europe, Turkey. The latter award marks the bigger contributions to our country. the 22% rise in our exports to the first time that an automotive-industry Having said that, I therefore take this United States and Canada surpassed R&D center has made it into the top opportunity to offer my respects and the average rate of year-on growth three by the way. Future enhancements gratitude to all of our employees, among all of Turkey’s export industries in our R&D competencies will not only dealers, business and solution last year. In 2015 Tofaş continued to strengthen the foundations on which partners, labor unions, shareholders, create added value for the national new projects that will shape Tofaş’s and other stakeholders for having economy by shipping 174 thousand future may be undertaken but also played their part in the success we vehicles abroad. help us increase the contributions that have achieved so far. we make to job-creation and economic In its home market, where Tofaş also wellbeing. Respectfully, represents the Alfa Romeo, Jeep, Maserati, and Ferrari badges, our Esteemed stakeholders: company had a successful year as well. In 2015 we controlled an 11.8% share A business model which focuses of the overall market as measured by on sustainability on every issue, number of units sold. which is mindful of people and the environment, and which seeks to Tofaş’s R&D activities continue to be create economic and social benefit for another source of pride. Tofaş R&D the whole country is what maintains Center, which for many years has Tofaş’s standing as one of Turkey’s been the focal point of substantial highest added-value-generating investments corresponding to companies. Our company’s success and something like 4% of our total annual investments in R&D, manufacturing, turnover, placed first in Turkey in the and exports are the surest guarantee European Commission’s ranking of of its sustainable future. R&D expenditures. We can also be proud that Tofaş R&D Center was not only designated “The Best Automotive

BY SHARING HIS LAST STATEMENT, WE ONCE AGAIN REMEMBER OUR CHAIRMAN, WHO PASSED AWAY ON JANUARY 21, 2016, WITH RESPECT, AFFECTION AND GRATITUDE.

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BOARD OF DIRECTORS

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1- MUSTAFA VEHBİ KOÇ 3- CENGİZ EROLDU 6- ALFREDO ALTAVILLA CHAIRMAN BOARD MEMBER BOARD MEMBER

After finishing Lyceum Alpinum Zuoz, Cengiz Eroldu graduated from the Business Alfredo Altavilla holds a degree in Mustafa V. Koç graduated with a B.A. degree Administration Faculty of Istanbul Economics from Università Cattolica, Milan. in Business Administration from George University and completed the MBA program In 1990, he joined Fiat Auto and initially Washington University in 1984. At the at LUISS University (Italy). He began his focused on international enterprises in the same year, he joined Koç Group in Tofaş career as an Audit Specialist at Koç Holding fields of strategic planning and product and later he served as the Sales Manager in 1989. He was appointed to the position development. In 1995, he was appointed and Assistant General Manager of Ram Dış of Assistant Accounting and Industrial as Chairman of Fiat Auto Beijing office Ticaret. In 1992, he moved to Koç Holding Governance Manager for Tofaş in 1995, and then as Chairman of Asian Operations and served as Vice President and President and carried out his duties in the Accounting in 1999. In 2004, he was appointed as of various business groups. He became a and Industrial Governance Directorate and FGP Chairman (Fiat/GM Powertrain JV) Member of the Board of Directors in 2001 the Budget and Governance Directorate and Senior Vice President of Business and Vice Chairman in 2002. He has been between 2001- 2008, and in the Finance Development at Fiat Auto. He was appointed Chairman of Koç Holding Board of Directors Directorate between 2008-2015. In January as CEO for Türk Otomobil Fabrikası A.Ş. in since 2003. Mr. Koç is Honorary Chairman of 2015, he became a Member of the Tofaş 2005, while retaining his role as head of the Turkish Industrialists and Businessmen’s Board of Directors and was appointed as Business Development. In 2006, he was High Advisory Council. He is also a Member CEO. appointed CEO of FPT-Fiat Powertrain of the Rolls Royce International Advisory Technologies. In 2009, he became a Member Board, the JP Morgan International Council, 4- TEMEL KAMİL ATAY of Board of Directors of Chrysler Group LLC the Global Advisory Board of the Council on BOARD MEMBER and in 2009, he was appointed as Executive Foreign Affairs, and the Steering Committee Vice President of Business Development of the Bilderberg Meetings. Mr. Koç was Temel Kamil Atay holds an undergraduate for Fiat Group. From 2010 to 2012, he was awarded the Cavaliere d’Industria medal degree in Mechanical Engineering from CEO of and also a Member of the by the Government of Italy in 2005 and Istanbul Technical University and B.A. in Fiat Industrial Executive Authority from the International Leonardo Prize, known as Business Administration from Detroit Wayne 2011 to 2012. He was appointed Chief the “Oscar of Business” in 2012. Mr. Koç is State University (USA). He started his Operating Officer Europe, Africa and Middle also a Member of the Board of Vehbi Koç career as Product Development Engineer East (EMEA) on 2012. He has also been a Foundation and Board of Trustees of Turkish at Chrysler Industry in 1965, joined the Koç Member of the Group Executive Council Volunteers for Education Foundation, which Group as a Product Development Manager (GEC) and Head of Business Development are his family’s philanthropic foundations. at Otosan A.Ş. in 1966 and served as a since 2011. His family attaches great importance to Product Development Engineer at Ford the economic and social development, Motor Co. USA in 1969. He served as Vice 7- İSMAİL CENK ÇİMEN whose excellence has been recognized Automotive Coordinator in Koç Holding BOARD MEMBER internationally by, among others, the World A.Ş. in 1972, General Manager in Otoyol Monuments Fund, the Carnegie Foundation, Sanayi A.Ş. from 1974 to 1981 and as CEO İsmail Cenk Çimen holds a degree in and BNP Paribas. at Tofaş Türk Otomobil Fabrikası A.Ş. from Industrial Engineering from Istanbul 1981 to 1992. At Koç Holding A.Ş., he served Technical University and completed 2- as Vice President of Technical Projects in Executive Development Programs at VICE CHAIRMAN 1992, Chairman of the Tofaş Group in 1994 Stanford University (USA) and University and as Deputy Chairman of the Community of California Los Angeles (USA). He joined Sergio Marchionne holds a B.A. with a Steering Committee. He served as CEO of Koç Group in 1991 as Management Trainee major in Philosophy from the University Koç Holding from 2000 to 2001. He has at Nasoto. He assumed Sales Coordinator, of Toronto (Canada) and a Bachelor of been the Deputy Chairman of the Board of Regional Manager and Import Manager Laws from Osgoode Hall Law School at Directors since 1998. responsibilities at Otosan Pazarlama York University in Toronto, as well as between 1993-1996. He served as Fleet an MBA and a Bachelor of Commerce 5- LEVENT ÇAKIROĞLU (*) Sales Manager at Ford Otosan between from the University of Windsor (Canada). BOARD MEMBER 1996-1998 and became the General Mr. Marchionne is a barrister, solicitor and Manager of Otokoç Ankara in 1998. In 2001, chartered accountant. Mr. Marchionne Levent Çakıroğlu received his bachelor’s he was appointed as the General Manager became a Member of the Fiat S.p.A. Board degree in Business Administration from of the companies merged under Otokoç. of Directors in 2003, and Chief Executive the Faculty of Political Science at Ankara In 2005 his responsibility was extended Officer in 2004. In addition, in 2009, he University and his master’s degree from to include the General Manager role for was appointed CEO of Chrysler Group LLC the University of Illinois. He began his Birmot A.Ş., also assuming responsibility (renamed FCA US LLC in December 2014) career in 1988 as auditing specialist in for Avis car rental. He has been serving as and, in 2011, also assumed the role of the Ministry of Finance. In 1997-1998, he the President of Automotive Group at Koç Chairman. In 2014, he became CEO of Fiat was a part-time faculty member at Bilkent Holding since June 2009. Chrysler Automobiles N.V. and Chairman of University and served as the Deputy Head Ferrari S.p.A. In 2010, he joined the Board of the Financial Crimes Investigation Board of Directors of S.p.A. As of September under the Ministry of Finance. He joined Koç 2013, he is also Chairman of CNH Industrial Holding as Financial Affairs Coordinator in N.V., the Company resulting from the 1998, where he later functioned as General mergers of Fiat Industrial S.p.A. and CNH Manager of Koçtaş (2002-2007) and Global N.V. Mr. Marchionne was elected General Manager of Migros (2007-2008), as the Chairman of the Board of Directors until he was appointed as General Manager of European Automobile Manufacturer’s of Arçelik in 2008. In tandem with this post, Association (ACEA) in 2013. He is currently he served as the President of Koç Holding a Member of the Board of Philip Morris Consumer Durables Group between 2010 International Inc. and the Peterson Institute and 2015. He was appointed the CEO of Koç for International Economics, as well as Holding in April 2015. Chairman of the Council for the United States and Italy. He is the permanent (*) Based on the Board of Directors decision of 01 Member of Association April 2015, it was decided to elect Levent Çakıroğlu to fill the seat on the Board of Directors vacated by the and also holds the honor of Cavaliere del retirement of Board member Osman Turgay, as per Lavoro. Article 363 of the Turkish Commercial Code and the Company’s Articles of Association, effective from the date of the said decision, and to lay this appointment down for approval at the next General Assembly meeting. 19 TOFAŞ 2015 ANNUAL REPORT - MANAGEMENT

BOARD OF DIRECTORS

8- KUDRET ÖNEN 10- GIORGIO FOSSATI (*) 12- LIBERO MILONE BOARD MEMBER BOARD MEMBER INDEPENDENT BOARD MEMBER

Kudret Önen holds a degree from the Giorgio Fossati holds a degree in law from Mr. Milone completed his education in Machine Engineering Department, Gazi the University of , Italy. He started his Holland and England. From 2008 to the University. He joined the Koç Group at Ford business life in the Legal Department of beginning of 2011, he served as Senior Otosan in 1975. In 1980, he became R&D Iveco S.p.A. in 1988, and joined Fiat S.p.A. Supervisor and Honorary President of Department Manager at Koç Holding and in 1999 as a member of the legal staff. Protiviti, which is a global consultancy was appointed as the Assistant General He became General Counsel of FCA Italy firm experienced in corporate governance Manager of Otokar in 1984. He served as S.p.A. in 2002. He serves as the General and risk management. During the same the General Manager of Otokar between Counsel for FCA EMEA Region and as period, he served as a Member of UN 1994 and 2005 and was appointed Co- Corporate General Counsel for Fiat Chrysler World Food Program Audit Committee; President of Koç Holding Other Automotive Automobiles N.V. since 2011. Fossati is also between April 2010 and December 2011, Companies Group in 2005. He was the a member of the Boards of Directors of he served as Chairman of Jobnet S.p.A, President of Defense Industry and Other FCA US LLC, FCA Italy S.p.A., S.p.A., which develops personnel management Automotive Group at Koç Holding between Fiat Chrysler Finance S.p.A., Fidis S.p.A., and business reception software and during 2006 and 2010. He has been serving as FCA Partecipazioni S.p.A., Fiat Chrysler Risk January 2011 and September 2013, served the President of Defense Industry, Other Management S.p.A., & C. S.p.A.’ and as Independent Board Member in Fiat Automotive and IT Group at Koç Holding as a member of the Executive Committee of Industrial S.p.A and Chairman of Internal since 2010. In addition, he has been FCA S.A. Control and Risk Commission. Since April serving as the President of Automotive 2011, he has been Independent Board Manufacturers Association since 2010 and (*) Based on the Board of Directors decision of 18 Member in Group and has the Chairman of Defense and Aerospace February 2016, it was decided to elect Giorgio Fossati served as Chairman of Internal Control, Risk Industry Manufacturers Association for the to fill the seat on the Board of Directors vacated by and Institutional Manager Committee, also the resignation of Board member Ali Aydın Pandır, as a Member of Remuneration Committee of 2013-2014 period. Since 2014, he has been as per Article 363 of the Turkish Commercial Code a Member of the Executive Board of MESS and the Company’s Articles of Association, effective that Company. In May 2011, he joined Board and TİSK. from the date of the said decision, and to lay this of Directors of Falck Renewables S.p.A, appointment down for approval at the next General here also serves as Chairman of internal 9- SCOTT R. GARBERDING Assembly meeting. Audit and Risk Commission and Member of BOARD MEMBER Price Commission. Since March 2012, he has been independent manager of Tofaş Scott R. Garberding holds a Bachelor’s 11- GÖKÇE BAYINDIR Türk Otomobil Fabrikası A.Ş. and Chairman of Science in Electrical Engineering INDEPENDENT BOARD MEMBER of Institutional Management Committee from Texas University and an MBA in and Member of Auditing Committee and Management from the Massachusetts Gökçe Bayındır received a Bachelor’s degree Risk Committee. Since October 2012, Institute of Technology. He joined Chrysler and MBA from the Business Management he has been serving as Chairman and Corporation in 1993 in the Manufacturing Department of Boğaziçi University. He Manager Partner in Milone Associates, organization and rose to Vice President started his career in 1967 and was a Sales a consultancy firm. Since May 2013, he - Supply and Supplier Quality, Chrysler Manager at Tofaş Oto Ticaret A.Ş. in 1971, has been Independent Manager of Indesit LLC beginning in 2007. In 2008, he was advancing to Assistant General Manager Company and Chairman of Internal Audit appointed Vice President - Global Alliance and then General Manager within Tofaş and Risk Committee and Member of Human Operations and in 2009 Senior Vice Oto Ticaret A.Ş. He served as Deputy Resources Committee. President and Chief Procurement Officer, Chairman of Tofaş Group within Koç Holding Chrysler Group LLC since 2009. He also in 1987 and then held the Tofaş Group held the position of Senior Vice President Chairmanship prior to his retirement in and Chief Procurement Officer, Chrysler 2000. While at Koç Group, he served on LLC from 2008, with responsibility for all the Boards of companies such as Tofaş global sourcing activities worldwide. In Oto Ticaret A.Ş. and Tofaş Türk Otomobil December 2009 he was appointed Senior Fabrikası A.Ş. Since 2012, he has been an Vice President of Manufacturing/ World Independent Member of Tofaş’s Executive Class Manufacturing, Chrysler Group LLC. Board. He is also Chairman of the Audit In this position, he was responsible for Committee, the Committee for the Early all assembly, stamping, and powertrain Identification of Risk and Risk Management, manufacturing operations worldwide as and a Member of the Corporate well as implementation of the World Class Management Committee. Manufacturing system at all Chrysler Group manufacturing facilities. He was appointed Fiat Chrysler Head of Group Purchasing and named a Member of the Group Executive Council (GEC) in 2013.

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BOARD OF DIRECTORS MEMBERS WHO HELD OFFICE DURING THE REPORTING PERIOD

TERM NAME POSITION FROM UNTIL Mustafa Vehbi KOÇ Chairman 28.03.2014 21.01.2016 Sergio MARCHIONNE Vice Chairman 28.03.2014 28.03.2017 Kamil BAŞARAN Member & CEO 28.03.2014 13.01.2015 Cengiz EROLDU Member & CEO 14.01.2015 28.03.2017 Temel Kamil ATAY Member 28.03.2014 28.03.2017 Osman Turgay DURAK Member 28.03.2014 01.04.2015 Levent ÇAKIROĞLU Member 01.04.2015 28.03.2017 Alfredo ALTAVILLA Member 28.03.2014 28.03.2017 İsmail Cenk ÇİMEN Member 28.03.2014 28.03.2017 Kudret ÖNEN Member 28.03.2014 28.03.2017 Scott Richard GARBERDING Member 28.03.2014 28.03.2017 Ali Aydın PANDIR Member 28.03.2014 18.02.2016 Giorgio FOSSATI Member 18.02.2016 28.03.2017 Gökçe BAYINDIR Independent Member 28.03.2014 28.03.2017 Libero MILONE Independent Member 28.03.2014 28.03.2017

DUTIES, AUTHORITIES AND LIMIT OF AUTHORITIES OF THE BOARD OF DIRECTORS AND AUDITING

Both the Chairman of the Board of Directors 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.

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CEO’S MESSAGE

IN 2015 TOFAŞ SUCCESSFULLY INCREASED ITS PERFORMANCE WHILE CONTINUING TO CREATE ENDURING VALUE FOR ALL OF ITS STAKEHOLDERS.

Esteemed stakeholders:

At Tofaş, 2015 was a milestone year Cengiz Eroldu in which work began on investments Board Member and in new models and much successful CEO progress was made both in R&D and in corporate sustainability. two-shift basis. Tofaş single-handedly a year’s time. Growth nourished by The momentum generated by the was responsible for 20.5% of Turkey’s economic recovery in Europe was to be new models we put on sale and total automotive production in 2015, observed in the Italian, Spanish, and by the growth in our home market a year in which 26% and 74% shares Belgian markets as well. continued to buoy up our operational of the company’s output consisted performance while enabling us to go of passenger vehicles and light Total output, which reached 270 on creating durable value for all of our commercial vehicles respectively. thousand units in 2015, is expected stakeholders. to approach full capacity in 2016 with Tofaş shipped goods to eighty countries the introduction of the Egea family’s The total sales revenues that our last year. The 178,837 vehicles hatchback and station wagon models. company booked in 2015 were the that the company exported in 2015 Growth in manufacturing output is highest in its history while our net corresponded to a year-over-year being paralleled by increases in our sales were up by 33% year-over-year increase of 22.2% and generated export workforce, which reached 8,018 people and reached TL 10 billion in value. earnings worth EUR 1.9 million. in 2015. It must be said however that During the same twelve-month period the total economic and social impact our net profit increased by 44.7% to Tofaş is one of only three plants of our new investments goes far TL 831 million, our operating profit that has reached “Gold” level in Fiat beyond our own direct job-creation: was up by 28.8% to TL 618 million, and Chrysler Automobiles’ World Class the nearly 150 firms that make up our our earnings before interest, taxes, Manufacturing program. An effective procurements chain are themselves depreciation, and amortization grew by combination of world-class production poised to experience vigorous growth 30% to TL 1,063 billion. strengths and R&D competencies and job-creation along with Tofaş. contributes significantly to Tofaş’s In 2015 Tofaş posted successful results ability to attract and undertake FCA’s A ceremony was held in October 2015 as measured by unit-based output, newest product projects. Having when the first Fiat Egea rolled off the sales, and exports. Total production entered the US and Canadian markets assembly line. This new family of cars last year reached 278,252 units, a with the Doblò in late 2014, Tofaş’s further boosts the global competitive solid performance that corresponds sales to those two countries accounted strength of our company that increases to a year-over-year rise on the order for something like 12% of the the added value it generates for the of 24.9% and to a capacity utilization company’s total exports in less than national economy with its investments rate of 104% when calculated on a

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in technology and innovation. The Our Jeep sales were up by a hefty of its demonstrated commitment Fiat Egea is a car in which the whole 78.9% last year, a performance that to sustainability issues, its shares country and not just Tofaş can take was driven especially by strong are included in the Borsa İstanbul pride. Projects like the Fiat Egea not demand for the Renegade. Sales Sustainability Index. Tofaş received only burnish Tofaş’s reputation as a from Tofaş’s prestigious portfolio of an award in the “Carbon and Energy vanguard of the Turkish automotive Alfa Romeo, Ferrari, Jeep, Lancia, and Management” category at the 2015 industry but also increase its global Maserati cars reached 113,929 units or Green Business Summit and, owing to production responsibilities within the 11.8% of the market’s total in 2015. its progress in corporate governance FCA community. The product of Turkish principles compliance, its corporate engineering and workmanship, Fiat The importance that Tofaş gives governance rating was increased to Egea cars going to more than forty to corporate governance and to 9.06/10.00. countries are eloquent evidence of this sustainability makes it aware that in newcomer’s global appeal. its efforts to generate added value Dependable business partners, a for the national economy through the well-established brand, advanced A total of 580 thousand Fiat Egea conduct of its operations, the company production capabilities, a solid sedans are planned for production has a responsibility to create value not financial structure, competent human between 2015 and 2023. A third of just for its shareholders but for society resources, superior quality standards, these are earmarked for export and as a whole. Because of this awareness, strict business ethics, and a heightened will be marketed abroad as “Fiat Tofaş continues to engage in a wide commitment to sustainability are Tipo”. Fiat Egea attracted tremendous range of social responsibility activities the essential wellsprings of Tofaş’s attention as soon as it made its debut through a multidimensional approach strength. In closing I therefore take and was voted “Best-Buy Car Of The to supporting social progress by taking this opportunity to thank all of our Year in Europe” at AutoBest 2015. part in projects in the areas of culture valued stakeholders who contributed & art, education, and sport. to our performance for their confidence In 2015 the Turkish automotive market and support. had the best year in its history with As one of Turkey’s biggest industrial a total of 968,017 units sold. Tofaş’s concerns, Tofaş knows that it Respectfully, 109,929 units gave it an 11.3% share has substantial environmental of this total market. In the light responsibilities not only because of commercial vehicle and automobile the serious impact that the waste and segments Fiat registered market effluents generated by its production shares of 25.6% and 6.5% respectively. processes can have but also because With sales of 35,041 units, the Fiat of its consumption of raw materials Linea successfully defended its and energy. The company therefore standing as the best-selling car in strives to minimize and manage its Turkey. environmental impact in the best way possible. Tofaş is a member of the Carbon Disclosure Project and, because

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SENIOR MANAGEMENT

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1- CENGİZ EROLDU* 4- ALTAN AYTAÇ 7- BURHAN ÇAKIR BOARD MEMBER & CEO FIAT BUSINESS UNIT DIRECTOR HUMAN RESOURCES DIRECTOR

Cengiz Eroldu graduated in 1988 from the Altan Aytaç graduated from the Industrial Burhan Çakır graduated from Middle Business Administration Faculty of Istanbul Engineering Department of Boğaziçi East Technical University Mechanical University and completed the MBA program University in 1992 and began his career at Engineering in 1986. He began his career in at LUISS University in Rome in 1995. He Tofaş Auto Trading where he was involved 1989 as an Engineer in Pressing Production began his career as an Audit Specialist at in the setting up of the first logistics at Tofaş. From 1993 to 2004, he served as Koç Holding in 1989. He was appointed to department in the area of commerce. He Press Workshop Manager, Body Production the position of Assistant Accounting and completed the EMBA Master’s program Unit Manager, Part Export Department Industrial Governance Manager for Tofaş at Koç University in 1997. The same Manager and Industrial Control Manager. in 1995, and carried out his duties in the year, he became Manager of the CBU He has served as Human Resources Director Accounting and Industrial Governance Logistics Department. After completing the at Tofaş since 2004. Directorate and the Budget and Governance production integration and simplification Directorate between 2001-2008, and in projects in the area of outbound logistics, 8- ARZU ÇOLAKOĞLU the Finance Directorate between 2008- he was appointed Commercial Projects CORPORATE COMMUNICATIONS DIRECTOR 2015. On January 14, 2015, he became a Coordinator in 2003, Fiat Brand Manager in Member of the Tofaş Board of Directors and 2004, and Business Unit Director Turkey for Arzu Çolakoğlu holds a degree in Economics was appointed as CEO. He continues his the Alfa Romeo and Lancia brands in 2006. (English) from Istanbul University. She involvement in the Finance Directorate on a He was brought to the position of Tofaș began her career as a planning specialist temporary basis. Supply Chain Director in 2008, and After at Doğuş Automotive Service and Trading in Sales and Spare Parts Director in January 1995. Between 1998 and 2003, she served 2- STEFANO REGANZANI 2015. He has been serving as Fiat Business as Planning and Logistics Manager and VW FINANCIAL DIRECTOR (CFO) Unit Director since August 2015. Commercial Vehicle Marketing Manager. From 2003 to 2004, she took on the duty of Stefano Reganzani received a degree in 5- FILIPPO SESIA Regional Director at Doğuş Auto Marketing. management from Università Commerciale R&D Director Appointed as Alfa Romeo Brand Manager ‘Luigi Bocconi’ in Italy in 1990, and started in Tofaş in 2005, she continued as Business his business life in Unilever Italy in 1991. Filippo Sesia graduated from Politecnico di Unit Director of Alfa Romeo and Lancia in He held various positions at Fiat Chrysler Torino University department of Mechanical 2008. Since 2012, she has been serving since 1995. After serving at various Engineering in 1996. He began his career as Corporate Communications Director at levels in the Finance Department until at the Fiat Research Centre’s Vehicle Tofaş. 2013, he worked as the Head of Business Architecture department where he also Development, Investments and Product managed a research project on structural 9- ENRICO GOBETTO Initiatives Financial Controlling from 2013 behavior. In 1999, he moved to Body PRODUCT ENGINEERING DIRECTOR until April 2015 when he was appointed the Components at Fiat Auto where he was Financial Director of Tofaş. responsible for all external components Enrico Gobetto obtained his Master’s of the Fiat/Alfa Romeo/Lancia vehicles. degree at Politecnico di Torino University, 3- AKIN AYDEMİR In 2009, he returned to the Fiat Research Mechanical Engineering in 1993. He has INDUSTRIAL OPERATIONS DIRECTOR Centre, where he was responsible for undertaken various duties within Fiat Group Vehicle Architecture and technical functions. Automobiles since 1994. He spent the first Akın Aydemir graduated from the Since 2012, he has been serving as R&D part of his career directing the innovation Mechanical Engineering Department of Director at Tofaş. project at the Fiat Research Centre, Middle East Technical University in 1987 responsible for the Advanced Level Design and holds an MBA from the Thunderbird 6- OKAN BAŞ of the Alfa Romeo Mito model. He served as School of Global Management (USA). He 356 PROJECT AND BUSINESS DEVELOPMENT DIRECTOR FGA-Chrysler Vehicle Innovation Manager began his career as an engineer at Olmuksa at the Fiat Research Centre. Since 2013, he in 1988. He served as Assistant Manager Okan Baş graduated from Boğaziçi has been serving as Product Engineering for Body Manufacturing at S.A. University’s Mechanical Engineering Director at Tofaş. from 1990 to 1996. In 1997, he became Department in 1984, and completed the Production Manager at Honda and was MSci program at Clemson University (USA). appointed Engineering Manager at Honda He began his career as a Mechanical Canada in 1999. In 2001, he started at the Engineer at Tofaş, rising through the RWD Company in the United States and ranks to Mechanical Workshop Chief, Body worked as a consultant in Lean Production Production Manager, Powertrain Manager, for Ford, Chrysler, and GM until 2003. At After Sales and Spare Part Director. He that time, he became the Lean Production has managed projects such as Doblò and Manager at Gates. From 2005, he ran lean Minicargo. After serving as Fiat Business production applications in Alcoa’s European Unit Director between 2006 and 2015, he plants and joined CNH Canada, within the was appointed 356 Project and Business Fiat Group, in 2009. Since 2010, he has been Development Director in August 2015. the Industrial Operations Director at Tofaş.

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SENIOR MANAGEMENT

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10- TÜRKER GÜRTEKİN 13- YÜKSEL ÖZTÜRK 16- ZEKİ ERDAL ŞİMŞEK LANCIA, ALFA ROMEO, JEEP DIRECTOR PURCHASING DIRECTOR QUALITY DIRECTOR

Türker Gürtekin received his bachelor’s Yüksel Öztürk graduated from Uludağ Zeki Erdal Şimşek graduated as an degree in Mechanical Engineering from University Mechanical Engineering Aeronautics Engineer from the Aeronautics İstanbul Technical University in 1997 Department in 1991. He began his career as and Space Sciences faculty of Istanbul and his MBA from Boğaziçi University. He Product Development Engineer at Tofaş in Technical University in 1987 and completed started his career at Tofaş as After Sales 1993. Between 2001-2005 he was appointed the Business Administration Master’s Processes and Warranty Specialist in as Direct Material Electrical Manager and Program at Istanbul University in 1989. 2001, where he later functioned as Foreign Direct Material Electrical Manager. Since In 1990, he began his career as a Project Markets Management Executive. He worked 2005, he has been serving as Purchasing Engineer at Tofaş, and after 11 years’ as Sales Manager and then as Marketing Director. service, was appointed as Plant Manager and Sales Manager at Koç Fiat Kredi. He at the Fiat automobile plant in Cairo. was Lancia, Alfa Romeo, Jeep Sales Manager 14- HÜSEYİN ŞAHİN Returning to Tofaş in 2003, he served as a in 2012 and 2013. Türker Gürtekin served AFTER SALES AND SPARE PARTS DIRECTOR manager in different departments before as the General Manager of Koç Fiat Kredi becoming Quality Director. from 2013 until August 2015, when he was Hüseyin Şahin received his degree in Public appointed Lancia, Alfa Romeo, Jeep Director. Administration from Uludağ University 17- RECEP TEMİZESEN in 1990. Hüseyin Şahin started his PRODUCTION DIRECTOR 11- MAHMUT KARACAN professional career as Project Manager SALES DIRECTOR in Efthor in 1996. He served as Human Recep Temizesen got his degree in Resources Expert at Fruehauf from 1997, Mechanical Engineering from the Middle Mahmut Karacan graduated from Çukurova becoming the Human Resources Manager in East Technical University in 1988. He University, Business Administration 1999. He joined Otokoç as Human Resources started his professional life at Çimhol A.Ş. Department, and started his professional Manager in 2001, and between 2003 and in 1988, where he worked as a project career as Logistics Expert in Çitasad 2005 served as the Antalya Branch Manager engineer until 1991. He joined Tofaş in A.Ş. in 1995. From 1996 to 2000, he was and Birmot Zincirlikuyu Branch Manager 1992 as a Press Method Engineer, and responsible for sales and marketing of Otokoç. Between 2005 and 2011, he was consequently served as Press Shop Process activities. In 1997, he raced in the “Good the Birmot Assistant Operational General Section Manager, Press Shop Engineering Year Off-Road Cup.” Between 2000 and Manager. After serving as Sales Director and Technology Manager, Press Shop 2012, he was responsible for Sales at Tofaş between 2011 and 2015, he was Manager, and Assembly Shop Manager Marketing operations at Daimler-Chrysler. appointed After Sales and Spare Parts from 1999 to 2015. He has been serving as From 2000 to 2012, he was responsible for Director in July 2015. Production Director since January 2015. Sales and Purchasing in Daimler Chrysler, and he founded Chrysler, Jeep 15- İBRAHİM ÇAĞLAR ŞAHİN 18- ONUR YALÇIN Academy in 2003. He has been serving as PASSENGER CAR PROJECTS DIRECTOR SUPPLY CHAIN DIRECTOR Sales and After Sales Services Business Unit Director for Lancia, Alfa Romeo and İbrahim Çağlar Şahin graduated from the Onur Yalçın received his undergraduate Jeep brands since 2013. After working as Mechanical Engineering Department of degree in Industrial Engineering from Sales and After Sales Services Business Unit Uludağ University in 1983 and obtained a Middle East technical University in 1991 Director for Lancia, Alfa Romeo and Jeep Master’s degree in Mechanical Engineering and his Master’s in Operational and brands between 2013 and 2015, Karacan in 1986. From 1983 to 1985, he carried out Industrial Engineering from Iowa State was appointed Sales Director in August his thesis studies as a Research Employee University (USA) in 1993. Since joining Tofaș 2015. at METU. Between 1989 and 1993, he as an Industrial Engineering Specialist in served as a Method Engineer at Tofaş. 1993, he served as Production Planning From 1993 to 2013, he was Suspension Administrator, Parts Exports Manager, 12- MEHMET HAKAN KORKMAZ Production Manager, Transmission and Order Manager, CBU Logistics Manager, and INFORMATION AND COMMUNICATION TECHNOLOGIES Suspension Unit Manager, Powertrain Plant Outbound Logistics Manager. Onur Yalçın DIRECTOR Manager, Powertrain Production Manager, was appointed Supply Chain Director in Minicargo Project Director, Quality Director, January 2015. Mehmet Hakan Korkmaz graduated from R&D Product Engineering Director, and the Control and Computer Engineering Projects Director. Şahin has been serving as Department of Istanbul Technical Passenger Car Projects Director since 2015. University and completed his Master’s degree in Michigan State University, Electrical Engineering. He began his career as Process Control Engineer in Erdemir in 1992 and subsequently served as Information Technologies Manager in the AKSA Acrylic Chemistry Industry and Commerce following his duties as Project Leader in Karma International and General Director in Connectus Software. Appointed as Information and Communication Technologies Director in Akkök Industry and Development Company in 2005, in 2007, he was appointed General Manager of Industry and Trade at Aktek Information Communication Technology, which belongs to the same group. Since 2012, he has served as Information and Communication Technologies Director at Tofaş.

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On a unit-sales basis, Tofaş’s total sales increased by 25% in HIGH 2015. PERFORMANCE 28 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S POSITION IN THE SECTOR

SALES IN TURKEY’S TOTAL DOMESTIC MARKET (UNITS) AUTOMOBILE AND LIGHT Light Commercial Vehicles Automobiles Total 968,017 COMMERCIAL VEHICLE 864,430 853,378 777,761 767,681 725,596 MARKETS REACHED 664,655 HISTORICAL HIGHS LAST 593,510 556,280 587,331

YEAR. 270,920 221,481 242,421 188,723 180,350 THE TURKISH MARKET FOR PASSENGER CARS AND LIGHT COMMERCIAL VEHICLES GREW BY 26.1%. 2011 2012 2013 2014 2015 The Turkish market for passenger cars and light commercial vehicles grew by 26.1% year-over-year in 2015. A record- breaking 968,017 units sold made it the best year ever in the sector’s history. TOFAŞ’S DOMESTIC RETAIL MARKET SALES (UNITS) Automobiles Light Commercial Vehicles Total The domestic passenger car market grew by 23.5% year-over-year in 2015 129,945 with 725,596 cars being sold. At 242,421 113,929 units, up by 34.4% year-over-year, light 104,598 100,441 commercial vehicle sales were also 92,355 robust. 71,107 58,137 62,127 While some of this substantial growth 58,838 53,104 49,586 46,461 47,337 51,802 in the Turkish automotive market can be 42,769 attributed to vehicle replacements, other factors were also influential. Given that a significant portion of Turkish households’ savings are in USD, the rapid appreciation of that currency against both the lira and the euro increased Turkish consumers’ 2011 2012 2013 2014 2015 purchasing power thereby fueling demand for new automobiles and light commercial vehicles, prices of which also fell short of keeping pace with the TOFAŞ’S DOMESTIC MARKET SHARES dollar’s rise. A late-year resumption of consumer confidence that was nurtured Automobiles Light Commercial Vehicles by the departure of a climate of political uncertainty also played a significant role in the growth of the Turkish automotive 27.5% market last year. 26.2% 26.2% 25.1% 25.6%

Turning now to foreign markets, in Europe as a whole automobile sales were up by 9.2% in 2015 while those of light commercial vehicles appear to have 9.9% 8.3% 8.0% 7.3% grown by 11.6%. 7.1%

The best-performing national market in Europe was Spain’s, where year-over- year sales rise of 20.9% and 36.1% in the 2011 2012 2013 2014 2015 automobile and light commercial vehicle segments were registered respectively. Spain was followed by Italy, were growth rates of 15.8% and 12.4% were registered. 29 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S PLACE IN THE SECTOR

EXPORTS Fiat Egea: Best-Buy Car Of The Year in A VERY IMPORTANT Europe The growth rate in our export sales Another very important development DEVELOPMENT FROM THE was higher than the average achieved from the standpoint of Tofaş’s export by the European automotive industry sales was the introduction of the Fiat STANDPOINT OF TOFAŞ’S as a whole. Egea, production and exportation of EXPORT SALES WAS THE The European market for automobiles which began in October 2015. The Fiat grew by 9.2% in 2015 while that for Egea, which is sold abroad as the “Fiat INTRODUCTION OF THE light commercial vehicles grew by Tipo”, was voted “Best-Buy Car Of The 11.6%. Tofaş’s total export sales to Year in Europe” by the AutoBest juries FIAT EGEA, PRODUCTION Europe by comparison grew by 14.8%, of 24 countries in December 2015. a rate of growth that was higher AND EXPORTATION than that of the European automotive Under the Fiat Egea project, which market as a whole. is to run until the end of 2023, 580 OF WHICH BEGAN IN thousand sedans are planned to be Looking at our export markets built, about a third of which will be for OCTOBER 2015. outside Europe, the Ram ProMaster export. The sedan is not the only car City continued to sell well in North called for in this project: we intend to America: by reaching 20,344 units begin production first of hatchback and sold in just the first year since their then of station-wagon models in 2016 introduction, these vehicles are making and the plan calls for a total of 700 a significant contribution to our overall thousand vehicles being made between export sales. 2016 and 2023, the majority of which will be for export. The upshot is that Tofaş’s total exports increased by 22.2% on a unit-sale basis in 2015 and reached 173,873 vehicles.

EXPORT SALES (UNITS) 2014 2015 CHANGE % Automobiles 25,067 32,055 27.9 Light Commercial Vehicles 117,214 141,818 21.0 Total 142,281 173,873 22.2

TOFAŞ’S EXPORT REVENUES (EUR MILLION) 1,896 +22.2% 1,737 1,632 1,551 1,493 TOFAŞ’S TOTAL EXPORTS INCREASED BY 22.2% ON A UNIT-SALE BASIS IN 2015.

2011 2012 2013 2014 2015

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TOFAŞ REGISTERED ABOVE SECTORAL AVERAGE PRODUCTION (UNITS) 2014 2015 Linea 33,249 35,202 RISES IN BOTH ITS Egea - 11,237 MANUFACTURING OUTPUT Doblò - Passenger Car 980 240 New Doblò - Passenger Car 9,568 12,155 AND EXPORT COUNTS. Minicargo - Passenger Car 15,312 14,475 Ongoing Projects 328 Automobiles Total 59,109 73,637 Doblò 7,179 7,831 New Doblò 90,242 121,172 Minicargo 66,277 75,612 Light Commercial Vehicles Total 163,698 204,615 Total 222,807 278,252

PRODUCTION CAPACITY UTILIZATION RATE (TWO-SHIFT, %)

In order to protect and increase its short and medium-term profitability, Tofaş explores ways to improve 104% 92% manufacturing productivity while 84% also developing new products and 77% technologies. In line with this the 64% company effectively managed its production operations in 2015 so as to respond optimally to market demand.

Tofaş registered above sectoral average rises in both its manufacturing output and export counts. In parallel with 2011 2012 2013 2014 2015 developments taking place in both its domestic and its international markets, Tofaş’s total output increased by 24.9% year-over-year and reached 278,252 units. The Fiat Egea, production of which began in the last quarter of the year contributed to this performance +24.9% with the addition of 11,237 vehicles. TOFAŞ’S TOTAL OUTPUT Our capacity utilization rate as calculated using the two-shift system INCREASED BY 24.9% based on these results works out to YEAR-OVER-YEAR. 104%, which is the highest level we have achieved during the most recent five-year period.

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THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S PLACE IN THE SECTOR

SALES AND TURNOVER Fiat’s domestic retail market sales of ON A UNIT-SALES BASIS, automobiles increased by 19.8% and In 2015 Tofaş once again focused on reached 47,363 units in 2015. This TOFAŞ’S TOTAL SALES making the most productive use of its performance corresponds to a market production capacity, maintained an share of 6.5%. The Linea, which is very INCREASED BY 25% IN ideal domestic vs international market popular in our home market, was the 2015. balance, and completely satisfied best-selling vehicle in Turkey last year the demand of both its domestic and with 35,041 units sold. The newly international markets thanks in no introduced Fiat Egea also managed to small part to the efforts of its sales rack up retail-market sales of 5,674 organization. units despite the fact that production began on 28 September and the car On a unit-sales basis, Tofaş’s total did not go on sale until November. sales increased by 25% in 2015 and reached 296,812 vehicles due both Jeep sales shot up by a hefty 78.9% to growth in domestic sales and to last year, a performance that was favorable developments in export driven especially by strong demand performance. On the same basis, 41% for the Renegade. Our Fiat, Jeep, Alfa of the company’s sales were in its Romeo, Maserati, and Ferrari models home market last year while 59% of contributed a 7.1% share of the market them were made abroad. with a total of 51,802 units being sold.

Automobiles accounted for 28.4% In the light commercial vehicle market, of Tofaş’s total sales, with light Tofaş ranked second with 62,127 Fiat commercial vehicles making up the units sold and an overall market share remaining 71.6%. of 25.6%.

SALES (UNITS) DOMESTIC MARKET INTERNATIONAL MARKET TOTAL Combined domestic-market sales of both passenger and light commercial 2014 2015 2014 2015 2014 2015 vehicle Fiat models amounted to Automobiles 42,289 52,358 25,067 32,055 67,356 84,413 109,490 units and gave Tofaş an 11.3% Light Commercial Vehicles 52,814 70,581 117,214 141,818 170,028 212,399 share of the total domestic market in 2015. With the inclusion of the sales Total 95,103 122,939 142,281 173,873 237,384 296,812 of its Alfa Romeo, Ferrari, Jeep, Lancia, and Maserati models, the company’s market share reaches 11.8% with 113,929 units sold.

Significant growth in net sales revenues Tofaş’s net sales revenues were up 71.6% by 33% year-over-year and reached TL 9,920,723 thousand in 2015. This LIGHT COMMERCIAL VEHICLES performance is attributable partly to ACCOUNTED FOR 71.6% OF the growth in the company’s unit sales and to changes in the product line TOFAŞ’S TOTAL SALES. but also to movements in the EUR/TL parity rate.

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41% OF TOFAŞ’S SALES SALES (TL THOUSAND) 2014 2015 CHANGE % Export Sales 4,297,030 5,729,275 33% WERE IN ITS HOME Domestic Sales 3,023,705 4,121,142 36% Other Income from Operational Activities 119,274 70,306 -41% MARKET LAST YEAR Total 7,440,009 9,920,723 33% WHILE 59% OF THEM 31.12.2015 31.12.2014 WERE MADE ABROAD. Domestic Sales 122,939 95,107 Manufactured 104,259 78,504 Doblò 3 New Doblò 28,908 22,856 New Doblò Passenger Car 761 696 Egea 6,570 Linea 34,725 32,249 MCV 32,648 22,162 MCV Passenger Car 647 538 Imported 18,680 16,603 Ducato 9,025 7,793 Fiat 500, 500L, 500X 3,580 2,449 Jeep 3,566 2,084 Grande Punto 1,311 2,388 Alfa Romeo 868 926 Panda Futura 152 220 Freemont 4x4 91 380 Maserati 73 83 +33% Ferrari 11 11 Lancia 2 167 TOFAŞ’S NET SALES Bravo 1 98 REVENUES WERE UP BY 33% Panda 3 YEAR-OVER-YEAR. Scudo 1

31.12.2015 31.12.2014 Export Sales (units) 173,873 142,281 Egea 3,587 Doblò 7,855 7,145 Doblò Passenger Car 242 978 New Doblò 48,344 42,650 New Doblò Passenger Car 11,546 6,962 RAM ProMaster City 20,344 4,836 GM Combo 24,059 20,169 Linea 650 695 MCV 43,209 44,037 MCV Passenger Car 13,907 14,762 Others 130 47

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THE TURKISH AUTOMOTIVE SECTOR AND TOFAŞ’S PLACE IN THE SECTOR

INVESTMENTS During the most recent five years THE BIGGEST (2015 included), Tofaş has undertaken Tofaş once again continued to investments worth a total of EUR 1,005 CONTRIBUTOR TO undertake investments in line with its million. The biggest contributor to strategic business plans without letup this investment performance was the THIS INVESTMENT in 2015. addition of the new Fiat Egea series to PERFORMANCE WAS THE the company’s product line-up.

ADDITION OF THE NEW 2015 INVESTMENTS (BY MODEL TYPES) INVESTMENTS (EUR MILLION) FIAT EGEA SERIES TO THE (EUR MILLION) 2011 116.4 263 Model (New Doblò) 56 2012 86.8 COMPANY’S PRODUCT 356 Model (Egea) 275 2013 94.9 LINE-UP. Linea 15 2014 330.0 Structural 32 2015 377.4 Total 377 Total 1,005

PROFITABILITY 25% rise registered in the company’s total unit sales. Net profit, whose Both Tofaş’s pre-tax profit and its even more robust 45% year-over-year EBITDA grew by 30% year-over-year in increase was fueled partly by growth in 2015, which was in parallel with the tax revenues, reached TL 830.8 million.

YEARS EBITDA PROFIT BEFORE TAX NET PROFIT TL thousand Change % TL thousand Change % TL thousand Change % 2011 806,196 23.2 508,088 29.7 474,165 23.4 2012 834,155 3.5 497,440 -2.1 442,039 -6.8 2013 816,735 -2.1 477,075 -4.1 434,223 -1.8 2014 815,607 -0.1 472,253 -1.0 574,238 32.2 2015 1,062,668 30.3 617,987 30.9 830,801 44.7 1,005 DURING THE MOST RECENT FIVE YEARS, TOFAŞ HAS UNDERTAKEN INVESTMENTS WORTH A TOTAL OF EUR 1,005 MILLION.

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Net Profit Net Profit (TL thousand) Change (%) +44.7% 830,801 NET PROFIT GROWTH IN 2015 574,238 44.7%

474,165 32.2% 442,039 434,223 384,220 23.4%

6.6% -6.8% -1.8%

2010 2011 2012 2013 2014 2015

PROFIT BEFORE TAX Profit Before Tax (TL thousand) Change (%) +30.9% 45.1% 617,987 508,088 472,253 PROFIT BEFORE TAX GROWTH 497,440 477,075 IN 2015 391,739 29.7% 30.9%

-2.1% -4.1% -1.0%

2010 2011 2012 2013 2014 2015

EBITDA EBITDA (TL thousand) Change (%) +30.3% 1,062,668 43.6% EBITDA GROWTH IN 2015 806,196 834,155 816,735 815,607 30.3% 654,565 23.2%

3.5% -2.1% -0.1%

2010 2011 2012 2013 2014 2015

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STRONG PORTFOLIO

TOFAŞ IS THE DISTRIBUTOR OF FIAT, ALFA ROMEO, LANCIA, JEEP, MASERATI AND FERRARI BRANDS IN THE DOMESTIC MARKET.

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BRANDS AND PRODUCTS

FIAT EGEA IS ONE OF THE MOST IMPORTANT

INVESTMENTS 500L

UNDERTAKEN NOT JUST Going on sale in May 2013 and appealing to families who want to IN TOFAŞ’S HISTORY BUT Linea distinguish themselves with style, First produced at the Tofaş plant in 500L quickly became the leader of a IN THAT OF THE TURKISH 2007, Fiat Linea was revamped in segment of which it now controls a 2012 and has since been attracting nearly 70% market share. The choice AUTOMOTIVE INDUSTRY increasingly greater attention from of those who value distinctiveness consumers by virtue of its appealing and independence, offers AS WELL. accessory options, and a range of roominess, functionality, attractive engine choices that combine economy design, and drive features that and performance. Fiat Linea was the combine “multipurpose family car” and best-selling car in Turkey in 2015. “crossover” characteristics in a single model.

FIAT

Egea Fiat Egea is the first model of a new 500 family of passenger vehicles that Deftly combining its inherited DNA 500 X underpins Fiat’s global venture into with new trends in design and offering the compact segment. Production of many opportunities to personalize Put on sale in May 2015, Fiat 500X Fiat Egea began on 28 September 2015 design details and features, Fiat 500 is the newest addition to the 500 and the new cars began appearing appeals especially to young drivers family. 500X is a head-turning model on Turkey’s roads two months later and to those who are young at heart in that best reflects Fiat’s superior in November. Styled in Italy by Fiat general. 500C version with its smart, product-development competencies Centro Stile, the car’s engineering electrically-operated open roof, is the and production quality standards. works were carried out mainly by only convertible in its class on sale in Standard-transcending quality, Tofaş R&D Center in collaboration with Turkey today. Voted “Car Of The Year” technical infrastructure, technology, FCA. The Fiat Egea represents the first in 2008, Fiat 500 continues to occupy a active and passive safety features, globally-sold passenger vehicle to unique place in the Turkish automotive and comfort options make Fiat 500X have been engineered and produced in sector as a vehicle whose appearance, is one of the boldest offerings in the Turkey. Built in Tofaş’s Bursa plant and technology, personalization, and crossover segment on the market exported all over the world, Fiat Egea comfort features have been enhanced today. was voted “Best-Buy Car Of The Year while the original underlying design in Europe” at AutoBest 2016. Thanks to and style have been left untouched. its stylish design, comfort, affordability, and fuel economy, Fiat Egea looks set to become one of Turkey’s most popular automobiles in a very short time.

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BRANDS AND PRODUCTS

A RE-DESIGNED AND RE-EQUIPPED NEW- GENERATION DOBLÒ Fiorino A product of Tofaş’s Minicargo project, WAS LAUNCHED ON THE Fiorino is both the pioneer and the leader of a new approach to light TURKISH MARKET IN commercial vehicles that makes it the Freemont hallmark of a class of its own. The JANUARY 2015. One of the most successful products of preferred choice of families thanks to the Fiat-Chrysler partnership, this SUV its design and functionality features first went on sale in Turkey in 2012. and of business owners thanks to its Freemont’s strengths are revealed in economy and practicality, Fiorino is its superior design, drive dynamics, one of the best-selling LCVs in Turkey. and safety features as well as in an AWD 4x4 drive system. With seven A new version of Fiorino was leather-upholstered seats, a touch introduced in 2015. Dubbed the screen built into the central console, Premio, the customer-appealing and superior practicality, the Freemont technological enhancements and more than meets the expectations of stylishness of this LCV have made it customers in the high-end segment of a successful addition to the Fiorino Punto the Turkish automobile market. family. One of the pioneers of Turkey’s fiercely-competitive small hatchback segment, Fiat Punto’s attractive design, ideal equipment features, and fuel- economy engine options continue to make it a preferred choice especially among young people and families.

Doblò Practico Its basic model having been in As the flatbed-van model of the continuous production since 2000, Fiat commercial vehicle family, the a redesigned and reequipped new- compact design and maneuverability generation Doblò appeared on the of the Pratico make it easy to drive in Turkish market in January 2015. city traffic. Practico’s fuel economy, Besides offering advanced durability, load capacity, safety, and comfort set Panda performance, and convenience the standards of its class. A new- Fiat’s offering in the A segment, Panda features, Doblò comes in different generation version of the Practico has been on sale in Turkey ever since body options providing up to a one-ton with the same chassis as Doblò’s was its introduction in 2004. The car’s carrying capacity and a load volume of introduced to consumers in January 3 relatively larger dimensions for its 5.4 m along with a roomy interior and 2015. class, 5-door body, and functionality economic engine options that continue continue to make it extremely popular to make it the preferred choice of big with consumers. The only vehicle in families as well as of tradesmen and its class in Turkey with a 4x4 drive artisans. A steadfast companion of system, is at much at home those doing business in the Turkish on country roads as it is on city streets. and European markets, RAM-badged Doblòs went on sale in the North American market as ProMaster City in March 2015. 38 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

WITH ITS INCREASING Mito As Alfa Romeo’s representative in the SALES PERFORMANCE supermini class, Mito continues to DUCATO IS NOW THE attract young drivers with its sporty LANCIA interior and exterior design, powerful MOST PREFERRED engines, and superior build quality. In line with FCA strategic decisions, Given a facelift in the second half of IMPORTED VEHICLE IN all models in the Lancia series have 2013, Mito is equipped with unique been dropped except for the Ypsilon, features such as a Q2 differential lock ITS CLASS. which will continue to be sold in Italy. and a new “Alfa DNA” system that Sales of Lancia vehicles were therefore allows the driver to choose between suspended in Turkey last year, though three different handling settings: after-sales service support will of Dynamic, Normal, and All-Weather. course continue.

Ducato With its van, pickup, minibus, and coach versions, Ducato can respond to the different needs of different JEEP customer groups. Wide rear and side ALFA ROMEO doors for example make the Ducato Compass van very easy to load and unload. Giulietta Jeep’s successful entry in the compact Ducato pickup offers four different cab First introduced by Alfa Romeo in SUV segment, Jeep Compass was sizes capable of accommodating three 1954 and manufactured for eleven introduced to Turkish drivers in the to seven people and a wide range years, the legendary Giuletta has second half of 2013 after having of body and conversion options that been reintroduced twice since: first recently been given a facelift. This make it a highly flexible choice for in 1977 and again most recently in new Jeep Compass model is equipped individual transport requirements. The 2010. As Alfa Romeo’s representative in with a 2.0-liter 156 HP petrol engine, minibus and coach versions of Ducato compact hatchback class, Giulietta is automatic transmission, and front- likewise offer a wide range of multiple especially preferred by style-conscious wheel drive. solutions for those who regularly need owners who like attractive design, to move students, personnel, and other powerful petrol and diesel engines, passengers from one place to another. superior drive quality, and comfortable interiors. Features such as a wide range of body types and the lowest fuel consumption and the highest load capacity in its class have clinched Ducato’s reputation among those in need of a LCV solution. A revamping in 2014 so boosted Ducato’s sales performance that it is now the most preferred imported vehicle in its class.

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BRANDS AND PRODUCTS

JEEP SALES SHOT UP BY A HEFTY 78.9% LAST YEAR, A PERFORMANCE THAT WAS DRIVEN

ESPECIALLY BY STRONG Renegade Wrangler Designed in the USA and built in Italy, Wrangler is the iconic heir of seven DEMAND FOR THE Renegade is the newest and smallest decades of Jeep experience in offering in the Jeep family’s bid to civilian off-road vehicle design and RENEGADE. become a fast-growing global brand. manufacture. Features such as superior Jeep Renegade was first introduced ground clearance, approach and to consumers in Turkey in 2014. In departure angle, and turning-radius 2015 1.4-liter 140 HP petrol-engine and wheelbase ratings together with model equipped with automatic the most-reliable and deepest (76 cm) transmission. Boasting more than water-fording capabilities in its class seventy advanced safety features, are among the reasons why the Jeep Renegade smartly combines innovative Wrangler is regarded as the best of its design sensibilities with the legacy of breed. the Jeep name: with its boldly assertive exterior, superior material and build quality, exciting color options, and New Cherokee energetically new interior, this vehicle Appearing on the Turkish market in is a worthy descendant of its legendary 2014, this new addition to the Jeep ancestor the 1941 Willys MB. Cherokee line stands out from its competitors by virtue of its completely Vibrant and rugged design, innovative new design, a fuel-efficient and technology, and a state-of-the-art eco-friendly 2.0-liter 170 HP engine, entertainment system make the new and the first 9-speed automatic Jeep Renegade a head-turner wherever transmission in this class. Other it goes. Grand Cherokee distinguishing attributes are superior Jeep’s entry in the full-sized SUV road handling, the best 4x4 model market, the legendary 4x4 Grand in its class, more than 70 advanced Cherokee was revamped in 2014. safety features, and first-class driver- The Grand Cherokee is powered by a customization technology. With 3.0-liter diesel engine and is available dimensions specifically designed to with different sets of equipment maximize performance efficiency, this options. The vehicle’s attention- new Jeep Cherokee is a successful grabbing on-road driving comfort, carrier of Jeep’s legendary DNA in the advanced technology, and luxurious SUV market. interior are matched by superior off- road performance that is delivered by Jeep-patented Quadra-Lift and Selec- Terrain four-wheel drive systems. With 7.82 m3 of baggage space (15.54 m3 when the rear seats are folded down), the Grand Cherokee offers much more space for both cargo and passengers.

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DEALERSHIP NETWORK

Besides having one of the most NEARLY EVERY NODE IN extensive reaches in Turkey, the Tofaş dealership network is also THE TOFAŞ DEALERSHIP distinguished by its superior level of professional experience and NETWORK PROVIDES competency: Tofaş dealers on average have been in business for over twenty FULLY-INTEGRATED “3S” years. (SALES, SERVICE & SPARE- customers with such additional ALFA ROMEO-JEEP PARTS) FUNCTIONS AT A services as insurance (both compulsory The network consists of fourteen Alfa and optional coverage) and financing Romeo-Jeep dealerships and one SINGLE LOCATION. (car loans). exclusively Jeep dealership. All of these are “3S” dealerships, which means The Tofaş dealership network they provide sales, services, and spare TOFAŞ REINFORCES ITS ALREADY STRONG serves Fiat, Alfa Romeo, and Jeep parts at a single location. There are BRAND IMAGE WITH AN EXTENSIVE vehicles. Seventy-five are Fiat main also five “2S” (services & spare parts) and fourteen are Alfa Romeo-Jeep DEALERSHIP NETWORK AND FULLY- authorized services outlets, three of main dealerships with some overlap which cater to all brands, while the CAPABLE AFTER-SALES SERVICES. THE between the two. TOFAŞ DEALERSHIP NETWORK PROVIDES remaining two service only and . A FULL RANGE OF SERVICES THAT INCLUDE FIAT NEW-CAR SALES, USED-CAR SALES, Tofaş has 75 dealerships located Tofaş’s Alfa Romeo-Jeep dealerships MAINTENANCE & REPAIRS, AND SPARE in Turkey. In order to be nearer to are distinguished by years of PARTS PROVISION. their customers and also to provide professional service and levels of them with better service, many Fiat investment in their business operations A STRONGLY-POSITIONED BRAND dealerships also operate sales and that are well above sectoral averages. SUPPORTED BY AN EXTENSIVE DEALERSHIP services outlets at locations other than Located in the provinces of Ankara, NETWORK the main one. There are currently 40 Antalya, Bursa, Gaziantep, İstanbul, With 81 dealerships located all over such sales and service “satellites” in Mersin, and Tekirdağ, Alfa Romeo-Jeep Turkey, Tofaş’s superior logistical and the Fiat dealership network. Besides dealerships and authorized services distribution competencies, advanced these, there are also 39 authorized employ a total of 425 people. after-sales services capabilities, service outlets, whose operations are and the long-term and trust-based covered by agreements with a primary business relationships that it enters dealer and which only provide after- into with its dealers are all factors sales services. Taking all of these into that constantly enhance the customer account, Fiat serves customers through 113 sales and 135 services locations. 81 satisfaction to which the company gives such importance. TOFAŞ HAS 81 DEALERSHIPS Tofaş has at least one showroom in LOCATED ALL OVER TURKEY. Today nearly every node in the Tofaş 64 of Turkey’s 81 provinces and at dealership network complies with least one services outlet in 57 of them. the network’s “Integrated 3S” design These numbers rank Tofaş among specification, which means that the country’s top three automotive customers can find sales, services, brands from the standpoint of sales and spare parts at a single location. and services network accessibility. Besides selling new cars and providing As of end-2015, the Fiat dealership after-sales services and spare parts, network had a total of 5,531 people in some Tofaş dealerships also offer its employ.

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SUBSIDIARIES

KOÇ FIAT KREDİ FİNANSMAN AŞ Record penetration ALONG WITH ITS In 2015 KFK increased its penetration Koç Fiat Kredi Finansman AŞ (KFK), among the brands it renders services OPERATIONAL provides integrated financial services while continued to raise its level of through 81 dealerships to all the service. Koç Fiat Kredi continues its ENHANCEMENTS, THE brands represented by Tofaş. 2015 mission to increase the domestic sales COMPANY, BY PROVIDING was a successful year in which KFK of Fiat group brands, along with its achieved a new record penetration, operational procedural improvements CUSTOMERS WITH FAST increased its share in the Tofaş sales, and by providing customers with fast and made significant progress in financing options at a single point. FINANCING OPTIONS accordance with both dealers’ and customers’ needs. In 2014 KFK processed about 126 AT A SINGLE POINT, thousand credit applications. In 2015 Koç Fiat Kredi Finansman A.Ş. was this number reached 186 thousand of CONTINUES ITS MISSION established on March 06, 2000, as a which 62,818 automotive loan units consumer finance company and as were extended. Koç Fiat Kredi’s market TO BOOST THE DOMESTIC a joint venture between the Koç and share among other finance companies Fiat Groups in which each controlled realized at 9%. Last year the company SALES OF FIAT GROUP a 50% stake, with an objective of financed 46% of Tofaş’s total sales and providing financing to all motor 70% of Tofaş sales excluding big fleet BRANDS. vehicles manufactured by Tofaş under sales. the Fiat Chrysler Automobiles license and and/or imported into Turkey and of Mobile apps that enhance the all kinds of merchandises, goods and customer experience services related to these vehicles. KFK has carried out a number of mobile and web-based projects Koç Fiat Credit, in consequence of the which aim to enhance the dealer customer-centric approach, service and customer experience. Online quality, flexibility, innovation, dynamic application is a web-based app module business processes and efficient enables the end customers with applications, provides financing to the fast and convenient access to car- consumers purchasing Fiat brand in financing through KFK’s own website particular, as well as the customers and those of individual brands. The of Alfa Romeo, Jeep, Ferrari, Maserati, same modules can also be accessed and Iveco brands domestically sold from the brand websites’ model and also finances the second hand configuration pages. Fully integrated sale of such vehicles. The company into Tofaş’s lead management, this offers tailored solutions to satisfy credit application process is initiated 70% consumers’ vehicle-financing needs. as soon as a customer selects a vehicle In this respect, KFK’s credit products and ends when the credit application KOÇ FIAT KREDI INCREASED and services are offered directly to decision is finalized. ITS SHARE IN TOTAL SALES consumers at the brands’ sales points, so the purchasing process is conducted With its rich variety of credit offerings, EXCLUDING BIG FLEET, A RECORD throughly at the dealership and is system investments, quality and fast HIGH PENETRATION OF 70% WAS ensured to be completed easily. service, and strong relationships with dealers, KFK will continue to focus on REALIZED. making further improvements in its service-delivery capabilities that will increase the loyalty and satisfaction of business partners and consumers alike in the future as well.

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With a professional approach, without compromising quality while providing versatile financial services, The • That, pursuant to article 519 of Company’s objective is to become the Turkish Commercial Code, one of the leading players in the TL 2,800,000 (two million eight automotive finance sector by means of hundred thousand Turkish liras) increasing brand awareness, market will be set aside as a second-order share, customer and dealer loyalty. statutory reserve. The dividends brand consciousness, and brand were paid on 28 December 2015. visibility while also strengthening 2015 highlights the reputations of both badges in the Outstanding portfolio (TL mn) 1,922 The company annual general meeting luxury vehicle segment. Outstanding financed (Units) 101,591 for 2015 will be held on 29 February Penetration 2016. The Board of Directors proposed Fer Mas positions the Ferrari as an (Excluding big fleet sales) 70% the profit distribution as that the automobile that consumers who Penetration (total Tofaş sales) 46% amount remaining after mandatory identify with the brand’s philosophy Loan Applications (Units) 186,426 statutory reserves have been set aside can be passionate about while its Financed units (Total) 62,818 to be retained in the company as an messages about Maserati focus on its Financed units (Tofaş only) 56,493 extraordinary reserve. In 2015, with being a prestigious saloon car that is a Financed units (Used, Iveco) 6,325 the effect of the dividend payment, pleasure to drive. Total financed amount (TL mn) 1,895 respectively the shareholders’ equity Profit before tax (TL mn) 42.4 amounted to TL 111.8 million. Ferrari In the years between 1998 and Fer Koç Fiat Kredi portfolio is mainly FER MAS OTO TİCARET AŞ Mas’s founding in 2005, an average funded by bank loans and issuance of of eight a year were sold in marketable securities. Fer Mas Oto Ticaret AŞ commenced Turkey. Since then that number has operations at its Kuruçeşme showroom been edging up. In 2015, Fer Mas sold At the extraordinary general meeting and headquarters building in İstanbul eleven Ferraris. held on 14 December 2015, a decision on 18 August 2005. At the time, the was taken to pay a dividend on company also serviced Ferrari and Maserati 28 December 2015. As a result of Maserati cars at the same location. In Between 1998 and 2005, sales of deliberations it was unanimously 2009 the company further expanded averaged five a year. Fer decided: the scope of its after-sales services Mas sold ten Maseratis in its first year and improved customer satisfaction in operation alone and sales of these • That TL 28,000,000 (twenty with the opening of a new services cars increased steadily thereafter. In eight million Turkish liras) of outlet in the Armutlu district of Etiler, 2014 Fer Mas sold 83 Maseratis, a the extraordinary reserves set also in İstanbul. year-on rise of 107.5%. In 2015, 73 aside pursuant to the Turkish Maseratis were sold by the company. Commercial Code will be paid out Fer Mas engages in intensive to shareholders as a cash dividend communication activities in line with on 28 December 2015 at the rate its efforts to effectively position both of TL 0.6667 (net) for each share of the Ferrari and the Maserati names stock; in the Turkish market. These activities focus on increasing brand awareness,

43 THE BEST R&D CENTER

TOFAŞ R&D CENTER WAS DESIGNATED “THE BEST AUTOMOTIVE INDUSTRY R&D CENTER” IN TURKEY.

44 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

RESEARCH & DEVELOPMENT

TOFAŞ R&D CENTER IS THE ONLY FIAT-APPROVED RESEARCH AND DEVELOPMENT CENTER was not only designated “The Best SERVING THE EUROPEAN Automotive Industry R&D Center” but was also ranked third among all MARKET THAT IS NOT research and development centers in Turkey. Tofaş also placed first on the In 2014 and 2015 Tofaş R&D Center BASED IN ITALY. basis of its “R&D Expenditure Density” was dealing with sedan, hatchback, and “Project Capacity”. and station wagon product development projects for the Egea THROUGH ITS “2020 R&D VISION” Standing at position 1290 in the family. The investments that Tofaş APPROACH, TOFAŞ SEEKS TO PRODUCE European Union’s league table ranking undertook for these new models, EXCITING VEHICLES AND TECHNOLOGIES organizations on the basis of the whose intellectual property rights THAT FULLY SATISFY CUSTOMERS’ NEEDS amounts that they invest in R&D, Tofaş belong to Tofaş and for whose R&D EVERYWHERE IN THE WORLD. also is one of the top three of the 1,500 work Tofaş was entirely responsible, Turkish firms included in that list. are noteworthy as one of the biggest NONSTOP CONTRIBUTIONS TO THE investments ever undertaken in the NATIONAL ECONOMY As of 2015, more than EUR 45 million history of the Turkish automotive industry. The first model of the new Founded in 1994, Tofaş R&D Center had been spent on design and testing Egea sedan was introduced to the seeks to contribute to the national investments looking into such issues market in the last quarter of 2015. economy by developing passenger as vehicle concept, style, body, Production of Egea hatchback and and commercial vehicles that are interior, suspension, engine, emissions, station wagon models is slated to outstanding by not only virtue of their vibration, and acoustics. begin in 2015. technical superiority but also because of their innovative design details. R&D AND PRODUCT DEVELOPMENT Equipped with everything it needs to COMPETENCIES PRODUCT DEVELOPMENT COLLABORATIONS compete with Europe’s best in the area Because it integrates design THAT CREATE ADDED VALUE of vehicle research and development, processes into all of its research and Turkey’s ability to increase its Tofaş R&D Center was designated a development work, Tofaş R&D Center international visibility and viability as a formally licensed R&D center by the necessarily keeps a close watch on product development center is contingent Turkish industry and trade ministry in the latest developments in technology in its ability to simultaneously address 2008. while also directly contributing to all of the elements of the R&D value- technological progress itself. creation chain. This is why Tofaş gives With a total of 18,092 m2 of laboratory special importance to joint design and and office space, a staff of nearly 700, Tofaş R&D Center gained significant development projects, to marshalling fully-equipped high-tech facilities, and momentum in expanding its R&D the resources of local engineering firms, a diversified range of capabilities, Tofaş competencies when it assumed and to working together with R&D Center is the only Fiat-approved responsibility for the MCV project universities. research and development center developed for Fiat and PSA vehicles serving the European market that is between 2005 and 2007. Subsequent to Believing that university-industry not based in Italy. this, the development of the new Doblò collaboration projects also need to be for Opel, Vauxhall, and Dodge Ram undertaken in parallel with technology THE BEST R&D CENTER IN THE TURKISH likewise played a significant role in development products, Tofaş R&D AUTOMOTIVE INDUSTRY increasing Tofaş’s export performance worked on sixteen joint projects with fifteen universities in between 1994 At the fourth Private Sector R&D inasmuch as the company was now and 2006 and on nearly a hundred of Centers Summit conducted by the building vehicles for five different them between 2006 and 2015. Ministry of Science, Industry and badges. Technology in 2015, Tofaş R&D Center

45 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

RESEARCH & DEVELOPMENT

IN 2015, THERE WERE 110% AND 32% YEAR-OVER-YEAR Continuously investing in information and other technologies in order to RISES RESPECTIVELY develop innovative products and to undertake added-value projects, Tofaş IN DECLARATION OF engages in a never-ending effort to offer world-class products that best suit customers’ demands. INVENTION AND PATENT of those, patent applications were submitted for 55. Work is currently APPLICATION NUMBERS. being carried out on 16 proposals. TOFAŞ R&D AND THE ENVIRONMENT One of the research and development As a result of innovative work carried missions of Tofaş R&D Center is to In many projects that are undertaken out at Tofaş R&D Center in 2015, explore ways in which to reduce the with Scientific and Technological there were 110% and 32% year-on environmental impact of vehicles Research Council of Turkey and rises respectively in declaration of through electrification and by making European Union support, Tofaş R&D invention and patent application the vehicles lighter and quieter. As the also works together with university numbers, with a total of 106 new company that developed Turkey’s first faculty members as well as with the applications being submitted. Under electric LCV, Tofaş also keeps a close Fiat Chrysler Automobiles Research the heading of intellectual property watch on progress in electric vehicle Center and various international rights management, a review of the technology around the world. Tofaş design centers. entire patent portfolio was conducted seeks to integrate such technologies in order to identify patents that were into the domestic production of electric Having increased the number of EU deemed to be of strategic importance vehicle systems and components Research Projects (both FP7 and and/or licensable. through innovative solutions and Eureka) in which it is active to twelve applications. in 2015, Tofaş R&D also collaborates 2020 R&D Vision Tofaş is aware that reducing the with nearly a hundred international Through its “2020 R&D vision” overall weight of vehicles will have a project partners. Tofaş is the first and approach, Tofaş seeks to produce positive impact on the environment still the only Turkish company to serve exciting vehicles and technologies by reducing both fuel consumption as a product technologies project that fully satisfy customers’ needs and engine emissions. Taking this as leader by virtue of its involvement in everywhere in the world. the ROBO-PARTNER project exploring its point of departure, the company is focusing its attentions on high- “Seamless Human-Robot Cooperation The strategic goals that Tofaş has strength/light-weight material for Intelligent, Flexible and Safe identified in line with this vision technologies and hybrid solutions Operations in the Assembly Factories include: of the Future”. as well as on light-design solutions that are based on cross-section- and • Involving itself in the design topology-optimization. INCREASE IN PATENT APPLICATIONS processes of any products that Tofaş R&D’s goal is to increase the FCA R&D plans to develop for the In addition to smart-vehicle concepts number of patents that it applies for European and Middle Eastern that provide service and support to the every year by coming up with new markets; projects and innovative ideas that driver in terms of comfort and safety, create added value. R&D personnel • Improving its own manufacturing Tofaş’s customer-focused technology continued to be given TIPS (theory and advanced product technologies research is grounded in a human- of inventive problem solving) in order to create customer value; centered design philosophy that gives methodology training in 2015 in consideration to anthropometric, order to improve their creativity and • Supporting the development of ergonomic, social demographic, and inventiveness. Of the 232 proposals partnered design and engineering similar issues. that were put forth, 71 were identified firms in Turkey. as being patentable and feasible and

46 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

QUALITY MANAGEMENT

TOFAŞ’S QUALITY CULTURE IS ROOTED IN THE NOTION OF CUSTOMER SATISFACTION. Focusing on constantly raising its manufacturing standards as it advances in its WCM journey, Tofaş COMMITTED TO WCM METHODOLOGIES AND reached Gold status by making TECHNIQUES SINCE 2006, TOFAŞ BECAME significant improvements in its ONE OF ONLY THREE PLANTS IN THE FCA workplace accident, external quality indicator, productivity, and mechanical SYSTEM TO BE AWARDED “GOLD LEVEL” WORLD CLASS MANUFACTURING breakdown performance. Each and STATUS AS A RESULT OF AN AUDIT THAT World Class Manufacturing (WCM) every one of these improvements WAS CARRIED OUT IN NOVEMBER 2013. IN is a methodology to improve the was achieved through the company’s 2015 THE PLANT’S SCORE WAS FURTHER competitiveness in the production systematic approach and with INCREASED TO 74 POINTS. area in a systematic way. WCM’s the involvement of its employees. focus on such issues as workplace During 2015, the average number of A high-quality approach that is safety, quality, cost, logistics, and suggestions for improvements put informed by knowledge, experience, environmental wellbeing, is rooted in forth by the company’s assembly-line and a commitment to excellence is the “Concept of Zero”: zero workplace personnel was 21. also the fundamental driving force and environmental accidents, zero behind Tofaş’s identity as a pioneer. manufacturing defects, zero production Since 2009 Tofaş has been expanding Tofaş’s quality policies and practices losses, and so on. the scope of its own WCM program are aligned with all of the other under the “World Class Supplier” corporate principles and values to The WCM program was originally (WCS) program that it encourages its which it adheres. initiated in-house at FCA in 2006 with suppliers to take part in. As of end- the aim of raising its manufacturing 2015, 31 of the company’s suppliers Tofaş’s quality culture is rooted in standards to world-class levels. Today had committed themselves to WCS. the notion of customer satisfaction. WCM methodologies and techniques Encouraging its employees to take part are employed around the world in 196 in and to improve quality management FCA plants as well as in the operations as a matter of principle gives the of 370 of its suppliers. company a significant competitive advantage as a world-class WCM projects got under way at Tofaş manufacturer. the same year and the company’s efforts soon earned for it the “Fastest- Tofaş engages in an ongoing and Improving Plant” accolade. This was intensive effort to improve the quality followed in 2009 when it became the of all of its products and services and first Fiat plant to reach WCM “Silver” to maximize their competitiveness status. In November 2013, Tofaş’s in every respect. The company success was further recognized when therefore regularly reviews, revises, it became one of only three plants in and improves its quality management the FCA system to be awarded “Gold” system in line with changing and status. In 2015 the plant’s score was proliferating customer expectations. further increased to 74 points.

47 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

HUMAN RESOURCES

TOFAŞ RECOGNIZES THAT THE EXPERIENCE AND CREATIVITY OF ITS HUMAN RESOURCES ARE THE DRIVING FORCES OF ITS LEADERSHIP AND PERSONNEL TRAINING AT TOFAŞ NUMBER OF EMPLOYEES THAT THEY UNDERPIN IS CONDUCTED SO AS TO ENHANCE White collar 1,619 EMPLOYEES’ KNOWLEDGE AND SKILLS IN Blue collar 6,399 THE COMPANY’S MANY DIFFERENT AREAS. DURING 2015, 5,812 OF THE COMPANY’S WHITE-COLLAR Total 8,018 ABILITY TO ADAPT EMPLOYEES TOOK PART IN CLASSROOM BREAKDOWN OF WORKFORCE BY GENDER QUICKLY TO CHANGES TRAINING WHILE 4,197 WERE PROVIDED WITH DISTANCE LEARNING AND/ Male (White collar) 1,276 IN COMPETITIVE OR PRINTED AND VISUAL MATERIALS Female (White collar) 343 IN SUPPORT OF THEIR INDIVIDUAL Male (Blue collar) 6,320 DEVELOPMENT. CONDITIONS. Female (Blue collar) 79 Tofaş believes that its employees are AVERAGE AGE OF EMPLOYEES essentially and strategically crucial contributors to its ability to keep White collar 35.9 ahead of its competitors. Tofaş also Blue collar 32.8 recognizes that the experience and creativity of its human resources are Total 33.4 the driving forces of its leadership and that they underpin the company’s HIRING PROCEDURES ability to adapt quickly to changes in In its personnel recruitment and competitive conditions. hiring practices Tofaş makes use of techniques such as personality Human resources policy at Tofaş inventorying, competency-based focuses on employing qualified people interviews, foreign language who are the most appropriate to its proficiency exams, technical business activities on the one hand interviews, role-requirement analyses, and to create and maintain working presentations, and reference checks conditions that will keep its employees that will help it make the best and highly motivated on the other. most appropriate choices among candidates. This method enables the As of end-2015, Tofaş had 8,018 people company to learn as much as possible on its payroll, 6,399 of whom were not only about potential recruits’ blue-collar and 1,619 of whom were technical skills but also about their white-collar personnel. behavioral attitudes, their work ethic, and their compatibility with Tofaş’s corporate culture.

In the conduct of its white-collar recruitment processes, Tofaş ensures that announcements concerning vacant positions are visible among all Koç Group companies through the 48 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

THE AIM OF THE TOFAŞ PERFORMANCE MANAGEMENT SYSTEM, IS TO SUPPORT A COMPANY CULTURE THAT FOCUSES ON INDIVIDUAL group’s internal bulletin board system. PERFORMANCE AND Other elements of this process that are intended to give the company PROGRESSION. access to and hire candidates whose qualifications are appropriate to collar personal took part in classroom specific functional requirements training activities while 431 were include participation in university provided with materials in support of career days, project-based traineeship their individual development. Among programs, and Tofaş Hack-Auto blue-collar personnel, average training Engineering and Management events. time per employee was 28.8 hours.

When recruiting people to fill blue- In 2015, 768 people employed by 68 collar vacancies in the company’s suppliers working as a Tofaş business operations, Tofaş uses the Koç Group partner were provided with a total of Blue-Collar Internal Bulletin Board 885 hours of classroom training on System to help it find and select technical subjects while technical and the most competent and successful behavioral classroom training was 41 candidates, thereby also providing provided to the owners and employees them with both vertical and lateral of 5,172 dealerships. PERSON/HOUR TRAINING FOR career-path transfer opportunities. WHITE-COLLAR PERSONNEL PERFORMANCE MANAGEMENT SYSTEM TOFAŞ ACADEMY All Tofaş personnel are subject to By conducting a variety of training the Tofaş Performance Management programs whose aim is to increase System, whose aim is to support employees’ knowledge and skills, the a company culture that focuses Tofaş Academy brings the management on individual performance and of all aspects of the training and progression. The two essential pillars development of its value-creation of the Tofaş Performance Management chain together under a single roof. System are referred to as “Targets” 28.8 61% of the academy’s technical and “Behavioral Competencies”. PERSON/HOUR TRAINING FOR and behavioral classroom training is provided by the company’s own Targets are set at the beginning of BLUE-COLLAR PERSONNEL resources. each year and are reviewed at least once during the year along with target During 2015, 5,812 of the company’s progression plans. white-collar employees took part in classroom training while 4,197 were The Tofaş Performance Management provided with distance learning and/or System’s Behavioral Competencies printed and visual material in support are to be updated in line with the of their individual development. Among company’s newly-defined “Leadership white-collar personnel, average Principles” and transferred to the training time per employee was 41 system in 2016. hours. Similarly last year, 16,299 blue-

49 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

HUMAN RESOURCES

TO DATE, 623 STUDENTS HAVE BENEFITED FROM TOFAŞ’S SCHOLARSHIP

PROGRAM FOR ITS EMPLOYEE COMPENSATION AND FRINGE services may also be booked by BENEFITS appointment. There is a gymnasium at EMPLOYEE’S CHILDREN. As part of the hiring process the first the headquarters building that may be time a white-collar employee begins used by all employees. working for a Koç Group company, they are enrolled as a member of the Koç Tofaş has entered into a collective Holding Pension & Assistance Fund. bargaining agreement with the Turkish Metalworkers’ Union and Employee and employer contributions the Turkish Employers’ Association to this fund are invested in marketable of Metal Industries. This three-year securities and real estate assets. Upon agreement, which was signed on a employee’s retirement or termination 15 December 2014, went into effect as of membership these contributions of 1 September 2014 and will expire on plus their capital gains are paid out 31 August 2017. either as a lump-sum amount or as a pension entitlement. Both active fund As of 31 December 2015, Tofaş had members and pensioners as well as a total severance pay liability of their spouses and minor-age children TL 164,561 thousand, all of which was 132 are covered by health insurance and covered by provisions. Employees are NUMBER OF R&D PERSONNEL may also be entitled to various rights regularly and systematically provided such as housing acquisition assistance, with such rights and entitlements WITH MASTER’S OR DOCTORAL- financial support to cover specified as may be mandated by laws and DEGREE needs, and insurance against such regulations. risks as death, incapacitation due to sickness, and partial disablement. DOCTORAL AND MASTER’S-DEGREE PROGRAMS Tofaş originally introduced a To satisfy the staffing requirements of scholarship program for its employees’ Tofaş R&D Center, priority is given to children in the 2011-2012 school year. candidates who possess appropriate To date, 623 students have benefited master’s or doctoral-degree from this program. qualifications. Sixty-four of the center’s personnel held such qualifications in Social facilities located at the Tofaş 2008; in 2015, 132 of them did. plant are open to all employees, who may use them along with their spouses Tofaş works together with Uludağ and children. These facilities also serve University in support of that school’s as venues for employee gatherings on automotive industry undergraduate occasions such as special days and and graduate studies programs. Ten events. experienced Tofaş personnel take part in these programs as instructors General healthcare services are teaching classes in automotive provided both at the Tofaş plant design, manufacturing, and project in Bursa and at the company’s management (PhD); vehicle testing headquarters in İstanbul. Dietician and simulation (MSc); and introduction

50 TOFAŞ 2015 ANNUAL REPORT - ACTIVITIES

ELEVEN CLUBS AND NINE SPORTS TEAMS VOLUNTARILY FORMED BY TOFAŞ EMPLOYEES ENGAGE IN A WIDE RANGE OF ACTIVITIES. to automotive engineering (BSc). In 2015, fourteen Tofaş employees were taking part in MSc programs and three were taking part in PhD programs while seventeen Tofaş R&D Center personnel were studying for Tofaş employee football, volleyball, PhD degrees and another fifty were basketball, tennis, bowling, chess, attending MSc classes. swimming, athletics, and sailing teams regularly take part in the Koç Sports SOCIAL ACTIVITIES Festival and contend in other inter- Eleven clubs and nine sports teams company events. Intramural meets and voluntarily formed by Tofaş employees tournaments also attract great interest engage in a wide range of activities. among Tofaş personnel. They organize an average of 200 cultural, artistic, and sporting events The Tofaş Sports Club provides Tofaş such as concerts, exhibitions, shows, employees’ children with opportunities conferences, and athletic meets to take part in sports by conducting that are attended by more than 50 basketball, football, and swimming thousand people every year. schools every summer.

Tofaş teams do consistently well in the five different branches in which they contend during the Fiat Games that are held every other year in Italy among FCA companies. The Tofaş Athletics team is also a highly successful contender in the annual CorriFiat events that are conducted for employees of Fiat Group plants.

51 HOLISTIC APPROACH

IN KEEPING WITH ITS APPROACH TO CORPORATE SOCIAL RESPONSIBILITY, TOFAŞ TAKES PART IN ACTIVITIES THAT WILL STIMULATE BOTH CORPORATE AND SOCIAL PROGRESS.

52 TOFAŞ 2015 ANNUAL REPORT - SUSTAINABILITY

TOFAŞ SUSTAINABILITY AND SOCIAL RESPONSIBILITY POLICY

stakeholders, Tofaş regards engaging an ongoing and dynamic process, and THE TOFAŞ in social responsibility practices that the progress which had been achieved are both “sustainable and extendable” since the most recent assessment in SUSTAINABILITY & as a fundamental corporate policy. November 2014.

SOCIAL RESPONSIBILITY Comprehensive and detailed Corporate governance principles information about Tofaş’s regular and compliance reports and ratings are POLICY IS SO occasional social responsibility and publicly disclosed each year on Borsa CONSTRUCTED AS TO sustainability activities is provided in İstanbul (BIST) through the Public the company’s annual reports as well Disclosure Platform and are also INFORM NOT ONLY THE as through printed, periodical, and published on Tofaş’s corporate website. informational publications. Information The company’s shares are included in COMPANY’S CORPORATE about Tofaş’s social and environmental the BIST Corporate Governance Index. efforts and activities, about the CULTURE AND BUSINESS management of these processes, THE DYNAMICS OF CORPORATE AND SOCIAL and about the reported results of the PROGRESS PROCESSES BUT ALSO company’s administrative, social, In keeping with its approach to and environmental performance are corporate social responsibility, Tofaş ALL OF THE COMPANY’S publicly disclosed and disseminated takes part in activities that will among the company’s employees, stimulate both corporate and social OTHER POLICIES. shareholders, business partners, and progress. Company-stipulated criteria all other stakeholders. and principles inform Tofaş’s actions in all aspects of corporate social Tofaş’s Sustainability & Social Tofaş’s report of its 2014 sustainability responsibility such as projects that Responsibility Policy is rooted both activities that was published in invest in people, stakeholder culture in the corporate social responsibility 2015 was the second such report and corporate vision, supporting attitudes of its two principal by the company that complied with education, promoting culture and art, shareholders (FCA and Koç Holding) the Global Reporting Initiative G4 and environmental awareness. and in those of the Global Compact, to standard. which Koç Holding subscribes. Through both its environment TOFAŞ’S CORPORATE GOVERNANCE RATING policy and its activities associated Taking into account the effectiveness As is also noted in Tofaş’s sustainability with it, Tofaş seeks to adhere to of the social impact that its and its corporate governance and improve upon a proactive involvement will have, Tofaş addresses compliance reports, the company’s environment management system that sustainability-related issues both social responsibility embraces all of is compatible with the principle of internally and by engaging with public the company’s stakeholders. Tofaş sustainable economic development. agencies and organizations. Under has all of its efforts in this direction the Tofaş Sustainability & Social independently rated and reported When dealing with issues involving Responsibility Policy, Tofaş seeks to on. These reports provide specific social, ethical behavior, and fulfill its responsibilities towards its details about the company’s corporate environmental management, Tofaş stakeholders through activities that it governance practices under the takes an integrated approach which undertakes at the local community as individual headings of “Shareholders”, engages with stakeholders and well as in its plant’s national level. “Public disclosure and transparency”, which takes their expectations and “Stakeholders”, and “Board of satisfaction into account. At the same The Tofaş Sustainability & Social Directors” as appropriate. time, priority is also given to the Responsibility Policy is so constructed ongoing development and continuity as to inform not only the company’s In the 2015 assessment of Tofaş’s of corporate social responsibility corporate culture and business corporate governance practices, attitudes and that are compatible both processes but also all of the the company received a corporate with the company’s vision and with the company’s other policies. Believing governance rating of 9.06/10.00 based preferences of its stakeholders. that corporate entities should be on the importance that it gives to accountable and aware of their duties corporate governance principles, its and responsibilities towards their willingness to comply with them as

53 TOFAŞ 2015 ANNUAL REPORT - SUSTAINABILITY

CORPORATE SOCIAL RESPONSIBILITY

FIAT LABORATORIES

RECEIVED AN AWARD services managers, representatives of IN THE “SOCIAL Tofaş’s regional service council, and local services managers. RESPONSIBILITY” As of 2015, the number of students CATEGORY FROM TEGEP. and instructors taking part in Fiat laboratories around the country had WHILE CONTRIBUTING TO THE NATIONAL reached 1,300. Last year the labs ECONOMY IN MANY DIFFERENT WAYS, graduated 268 students, of whom forty (five of them girls) were given jobs in TOFAŞ ALSO FOCUSES ON ENDURING SOCIAL Fiat authorized services and another RESPONSIBILITY PROJECTS WHICH WILL ten were hired by the Tofaş plant. CREATE VALUE FOR SOCIETY AND WHICH WILL SUPPORT SOCIAL PROGRESS IN THE The instructors who are employed in AREAS OF EDUCATION, CULTURE & ART, AND Fiat laboratories are themselves given SPORT IN MANY DIFFERENT WAYS. current-technology technical training and training on behavioral and social EDUCATION responsibility issues as part of the on- the-job training (OJT) provided every Fiat laboratories receive a TEGEP year by Tofaş Academy. To date, some award. 800 vocational lycee teachers have Seeking to train those who are taken part in such OJT training, the 9th employed by the Turkish automotive round of which took part in 2015. 1,300 industry and to equip and make them conversant with the industry’s newest Under the “Vocational Education: A NUMBER OF STUDENTS AND technologies so that they can make Crucial Matter For The Nation” project, INSTRUCTORS TAKING PART IN use of them in the performance of 330 of the students who attend classes their jobs, Fiat laboratories engage in at Fiat laboratories and who satisfy FIAT LABORATORIES such activities in conjunction with the the requirements are provided with “Vocational Education: A Crucial Matter scholarships every year by the Vehbi For The Nation” project. Collaborating Koç Foundation. with the Ministry of Education’s General Directorate of Vocational In 2015 the Fiat Laboratories & Fiat and Technical Education and working Technical Training Program received through Fiat laboratories, Tofaş helps an award in the “Social Responsibility” industrial technical training schools category from the Learning and and institutions to improve their Development Platform Association of capacity to provide motor vehicle Turkey (TEGEP). technology instruction. The first Fiat Laboratory was opened at the Şişli Tofaş Science High School Industrial Vocational High School in Demirtaş Organized Industrial Zone İstanbul in 2006 and turned out its Located in the Demirtaş Organized first graduates in 2009. Industrial Zone in the Özlüce district of Bursa’s Nilüfer township, construction Since 2006, Fiat laboratories have work on Tofaş Science High School been set up at eleven vocational lycees began in 2012 and was completed in İstanbul, Bursa, Kocaeli, Ankara, in time for the 2014-2015 academic Antalya, İzmir, Adana, Samsun, and year. Occupying 12,252 m2 of grounds, Diyarbakır. They are provided with the school has 16 classrooms, training resources by Tofaş after-sales 70 dormitory rooms capable of

54 TOFAŞ 2015 ANNUAL REPORT - SUSTAINABILITY

SINCE 2005 TOFAŞ HAS BEEN SPONSORING THE

PAMUKKALE HIERAPOLIS On display in the former mill, which Emperor Hadrian after a devastating houses the main part of the museum, earthquake in 60 AD. ARCHAEOLOGICAL is a historical panorama of the history of human transport in Anatolia Restoration work on the theater’s EXCAVATIONS. beginning with a wheel 2,600 years old scaenae frons facade, the elaborate and extending to the present day with multi-story background of the examples of Tofaş-built motor vehicles. proscenium, has been completed making this the only ancient theater accommodating 280 residents, and a Located within the same grounds as in Turkey to have a fully-reconstructed gymnasium. There are 384 students the museum is the Tofaş Art Gallery and functional stage. As a result of this currently enrolled at the school. housed in the Umurbey Hammam, the work, this 12 thousand-seat theater original construction of which dates to is now being used again as a venue Tofaş Science High School turned 1430. The “Time Machines” exhibition for cultural and artistic activities as out its first graduates last year. One mounted at the gallery in 2013-2015 it was originally intended. Among indication of the quality of instruction was visited by a hundred thousand the other significant Hierapolitan being provided by the school is the 84% people. “That’s My Zeki Müren”, an structures that have been unearthed average score achieved by its students exhibition of documents, costumes, are two necropolises, baths, a basilica, taking part in the national university and personal belongings spanning the a martyrium, the Frontinus Gate, a undergraduate placement exam. This lifetime of the legendary star of Turkish gymnasium, an Apollo temple, and the pass rate made Tofaş Science High music Zeki Müren and conducted so-called Pluto’s Gate, a shrine sacred School the most successful educational jointly with Yapı Kredi Kültür Sanat, to the ancient god of the underworld. institution in its category in the attracted 20,000 people between province of Bursa. November 2015 and February 2016. Küçükyalı Arkeopark excavations Excavations at the Küçükyalı CULTURE & ART Pamukkale Hierapolis archaeological Archaeological Park on the Asian excavations side of İstanbul began in 2001. Tofaş Tofaş Museum of Cars and Anatolian Since 2005 Tofaş has been sponsoring has been supporting the work here, Carriages and Tofaş Art Gallery archaeological excavations at which is being carried out by Italian Located in Bursa’s venerable Umurbey Hierapolis, the ruins of one of the and Turkish archaeologists under the district, the Tofaş Museum of Cars and five biggest ancient cities in Turkey. supervision of the culture ministry’s Anatolian Carriages is private museum Coterminous with the Pamukkale Directorate of Cultural Properties and focusing on the Anatolian transport thermal zone, both Hierapolis and Museums, for twelve years. Under the heritage. Its collection includes not Pamukkale were declared UNESCO project, which is also being supported only Tofaş-manufactured cars but also World Heritage sites in 1988. by the local municipality, publicity and examples of historic carts, carriages, Excavation work, which is being guide services were again provided in wagons, and other transport-related overseen by the Ministry of Culture throughout the 2015 digging season objects that make it the first and only and Tourism and the Denizli governor’s as in previous years. Other activities museum of its kind in Turkey. The office, continued during the 2015 included research and conservation museum occupies a disused silk- season with Tofaş’s support. The work and programs for primary school weaving mill, the historic Umurbey excavations are being carried out by a pupils. hammam, and an old Turkish house team of about seventy archaeologists, adjacent to the latter, all of which were architects, restorers/ conservators, An archaeological laboratory set renovated and repurposed by Tofaş. and other experts from Turkey, Norway, up by Koç University continued to Occupying 17 thousand m2 of grounds, Germany, France, UK, and Iran. One of be used throughout the season for the museum opened its doors in 2002 the finest examples of Roman theater such activities as conservation, and has received about 550 thousand architecture, the Hierapolis theater restoration, photography, and database visitors since then. was probably built during the reign of management.

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CORPORATE SOCIAL RESPONSIBILITY

THE TOFAŞ SPORTS CLUB’S VISION IS TO HELP CREATE NEW STARS FOR TURKISH BASKETBALL BY SUPPORTING YOUNG PLAYERS. New sports complex accredited by the Turkish Basketball In 2015 the Tofaş Sports Club Federation. The program’s “Tofaş At embarked upon the construction of a School” project has so far reached 15 new sports complex on the grounds thousand kids in 80 schools since it SPORT of the Tofaş plant. With 5,800 m2 of was inaugurated in 2011. space, this complex contains three Tofaş Sports Club basketball courts, a fitness center, and It’s been a decade and a half since the Founded in 1974 at the Bursa Tofaş a fully-equipped sports rehabilitation Tofaş Sports Club and the Educational plant originally as “Tofaş SAS”, a club center capable of providing whatever Volunteers Foundation of Turkey devoted to watersports, athletics, and forms of physical therapy athletes (TEGV) joined forces and initiated team sports, the Tofaş Sports Club may require. The new sports complex, the “Basketball Volunteers” project adopted its existing name in 1995. whose premises and facilities will be in 2000 to come to the aid of kids in Today the club’s offerings encompass open not only to Tofaş personnel but the 7-14 age group who were unable a wide range of activities that include also to Bursa’s amateur sports teams to participate in sports due to lack basketball, football, volleyball, table and athletes, is slated to go into of facilities or other resources. The tennis, water polo, and even bridge. service in the first half of 2016. project’s 2014-2015 season culminated The Tofaş Sports Club’s basketball with the FiatBall Basketball Festival teams were the first to play in the Located in the Nilüfer district of that took place at Koç University on 19 European Cup finals, brought home Bursa, the Tofaş Gymnasium with its June. the Turkish national championships, 6,800-spectator capacity has been and have won the Turkish Presidential hosting Tofaş Sports Club teams’ Thanks to the Basketball Volunteers Cup, the Turkish Cup (several times), games for ten years and is the best- project, some 13 thousand youngsters and the Schools Basketball World equipped international-standard have been introduced to basketball Championship. Having completed gymnasium in the region. while 317 TEGV volunteers have the 2008-2009 season as the received training as basketball second-league champion in the Beko Tofaş Basketball Schools, Tofaş coaches at 13 TEGV training facilities Basketball League, the Tofaş Basketball Basketball Volunteers Project, FiatBall in İstanbul, Ankara, İzmir, Antalya, Team is now contending in the premier Basketball Festival Eskişehir, Samsun, Mardin, Gaziantep, league and made a strong entry into Originally launched in 1999, Tofaş Şanlıurfa, and Van. After a successful the 2015-2016 season with a newly- Basketball Schools is a Tofaş Sports run of fifteen years, the project was reinvigorated lineup. Club program that is nurturing athletes wound up in 2015. at 23 locations in nine provinces Years of investment in youth around the country. Some of Turkish academies, enabled the Tofaş Sports basketball’s current stars got their Club to nurture many talented players start at Tofaş Basketball Schools, for sports in Turkey. which are attended by about 3,500 youngsters every year. The Tofaş Basketball Schools program is fully

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ENVIRONMENT

ENVIRONMENT & ENERGY POLICY Tofaş’s environment vision is to TOFAŞ EMPLOYS In keeping with its principle of possess a World-Class Environment sustainable development in its Management System that makes use AND DEVELOPS LEAN product, manufacturing, and service of proactive and efficient management processes, Tofaş employs and develops tools. In order to achieve its “Zero AND PROACTIVE lean and proactive environmental and Waste/Zero Loss” goal, the company’s energy management systems. maxim is “If you don’t cause pollution ENVIRONMENTAL AND in the first place, then there’s nothing ENERGY MANAGEMENT In line with this, Tofaş: you have to clean up.” • Regards having to dispose waste SYSTEMS. of any kind as a resource loss and One consequence of Tofaş’s therefore develops methods that Environment & Energy Policy is that it prevents waste from occurring in seeks both to reduce waste at source the first place; and to recover and recycle as much as possible of what is generated. Thus • Constantly improves its energy for example 100% of the industrial performance both through energy- waste resulting from its manufacturing efficiency process design and in its processes is either recovered or else 100% product and service procurements; used as raw material and energy inputs in the cement industry, thereby INDUSTRIAL WASTE RECOVERY • Ensures that it has access to all helping the company to achieve its the information, expertise, and RATE “Zero Waste Disposal” goal. economic resources that it needs to regularly review and achieve its In 2013 Tofaş was one of the first environmental and energy-related companies in Turkey to bring its energy goals and objectives; IN 2015 TOFAŞ IMPLEMENTED 90 management practices into compliance NEW ENERGY EFFICIENCY PROJECTS • Develops innovative product with ISO 50001 Energy Management CONDUCTING WCM ENERGY MANAGEMENT and process solutions aimed at System standards and to have them METHODOLOGIES AND TECHNIQUES. WITH combating climate change; independently certified as being so. THE INCLUSION OF OTHER PROJECTS THAT Tofaş’s ISO 50001 certification was WERE LAUNCHED IN THE LAST QUARTER • Believes that it is fundamentally recently validated when an audit OF 2014, THE TOTAL NUMBER OF SUCH necessary to comply with the in 2015 ascertained there to be no PROJECTS HAVING AN IMPACT ON THE requirements of all laws and instances of non-compliance. COMPANY’S OPERATIONS LAST YEAR regulations to which it is subject Supporting the transition to a low- REACHED 168. as well as with internationally- accepted standards in its carbon economy through its energy- efficiency efforts, Tofaş is also a Regarding environmental protection processes; corporate member of the Climate as an important element of its • Seeks to minimize energy and Platform. The hundreds of energy social responsibility, Tofaş focuses water consumption, waste efficiency projects which the company on effectively managing and, as generation, and water and air has undertaken are steadily reducing much as possible, minimizing both effluents both by educating its the energy density of its operations. the direct and the indirect adverse employees, contractors, dealers, environmental impact of all aspects of and suppliers and by constantly When new investments are to be its value-creation chain. improving the vehicles it makes; undertaken or changes are to be made in machinery and equipment, • Manufactures automobiles, environmental-impact and energy- commercial vehicles, and spare efficiency procedures are standardized parts whose environmental impact both by initiating a Kanban (lean/just- is less and whose material inputs in-time manufacturing) process and by are more recyclable. adhering to best-available-technology (BAT) practices.

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ENVIRONMENT

In 2015 Tofaş undertook 90 new energy The “Proactive Carbon and Energy TOFAŞ GREENHOUSE GAS efficiency projects implementing WCM Management in 7 Steps” methodology, energy management methodologies which is itself a component of World EMISSIONS DECLINED and techniques. With the inclusion Class Manufacturing, has been in of other projects that were launched active use at Tofaş since 2011. With BY 6,225 TONS OF in the last quarter of 2014, the total the introduction of this methodology, number of such projects having an the company began focusing its CO2 AS A RESULT OF impact on the company’s operations attentions on identifying aspects of ENERGY EFFICIENCY last year reached 168. Thanks to these energy efficiency and carbon emissions projects, 71,010 GJ of energy were mitigation to which priority needed PROJECTS IMPLEMENTED conserved and CO2 emissions were to be given as well as to energy- reduced by 6,225 tons. loss classification and prioritization THROUGHOUT THE PLANT. principles. A standardized and effective As part of its ongoing efforts to expand method for making improvements was its environmental management achieved by integrating this systematic system, Tofaş has initiated MSDS approach into all processes ranging (material safety data sheet) from new investments to modifications management system and ADR of existing plant. In 2011 Tofaş issued the Turkish (carriage of dangerous goods by road) automotive industry’s first greenhouse procedures for the movement of GREEN PRODUCTS gas emissions reports. In 2015, the hazardous materials. In the second Environment-focused projects such as company’s greenhouse gas emissions phase of a project to reduce the vehicle electrification, alternative fuels, reporting was independently certified amounts of sewage sludge, a 20% eco-friendly materials, vehicle weight as being ISO 14064 standard- reduction was achieved through the reduction, and recycling took the compliant. By having its Scope 3 use of a new treatment chemical. front stage among Tofaş’s technology consumption included in this year’s research activities in 2015. Some of verification process, Tofaş authored yet As a result of a comprehensive survey these projects were concerned with another first in its sector. According to of companies quoted on the İstanbul issues whose results are expected to verification results, Tofaş greenhouse stock exchange by EIRIS, a leading be incorporated into existing products gas emissions declined by 6,225 tons global provider of environmental, or new models in the year ahead while of CO2 as a result of energy efficiency social and governance research, Tofaş others are intended to provide the projects undertaken throughout the was one of 29 Turkish companies knowledge and experience needed so plant. Environmental audits conducted identified as being worthy of inclusion that the company will be able to keep both by authorities and independently in the BIST Sustainability Index. ahead of long-term market trends. ascertained Tofaş to be in full compliance with all requirements. In 2014 Tofaş became the first Turkish company to be included in the “A” list SUSTAINABLE MANUFACTURING of the Carbon Disclosure Project’s Having adopted sustainable- (CDP) Climate Change Program. As a manufacturing principles in result of a review conducted in 2015, its operations, Tofaş achieves the company’s transparency rating was natural resource use efficiency by increased from 86 to 93. Last year the implementing the “5R” (Refuse, Reduce, company also responded to the CDP Reuse, Recycle, Recover) hierarchy in Water Program, as a result of which it all of its production processes. was rated at the “Management” level, which is the overall EU average.

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CLIMATE CHANGE

Climate change is seen as one of the emissions-trading). Recognizing this, TOFAŞ STRIVES most serious problems confronting the company looks for ways to create the world today. Climate change opportunities for itself by coming DILIGENTLY TO SATISFY has the potential to pose not just up with proactive corporate risk environmental but also social and management responses to the sorts of ITS STAKEHOLDERS’ economic risks whose implications risks that all these dimensions might for the world can be dealt with pose. EXPECTATIONS WITH only through a comprehensive and RESPECT TO COMBATING concerted response by every actor that Tofaş strives diligently to satisfy may be involved. its stakeholders’ expectations with CLIMATE CHANGE AND respect to combating climate change Scientists are generally in agreement and to fulfill all of its responsibilities TO FULFILL ALL OF ITS that the problem of climate change to do so. today is largely the result of RESPONSIBILITIES greenhouse gas emissions generated To this end: by human beings. Efforts are now • As one of FCA’s most important R&D TO DO SO. being made throughout the world to and manufacturing hubs and in line create control mechanisms and legal with FCA’s product strategies, Tofaş frameworks that will allow measures supports efforts to improve the to be taken so that this situation can efficiency of the conventional motor be dealt with. The automotive industry vehicles that it is already making, to for its own part has been actively increase the use of alternative-fuel involving itself in such efforts by systems such as natural gas and identifying what needs to be done to biofuels, and to develop electrical resolve the problem not only at the and hybrid vehicles; level of industry-wide organizations but also, out of their own sense of • Tofaş improves the energy efficiency responsibility, by individual producers. of its manufacturing operations and reduces their greenhouse gas Tofaş is aware that the most important emissions; thing that its stakeholders expect of it on the issue of climate change is • Tofaş engages in efforts to make its that while managing the contributory logistical processes more efficient; effects of its existing manufacturing and other operations it should also • Tofaş strives to increase develop vehicles whose emissions are environment- and climate change- lower and/or which use alternative responsibility awareness throughout fuels and it should make vehicles that its value-creation chain by informing will enable people to exercise their and educating suppliers, dealers, rights to travel and transport in ways and customers. that are more sustainable.

At the same time Tofaş also sees climate change as an issue that has statutory and regulatory dimensions (such as emission limits), physical and operational dimensions (such as radical changes in weather conditions), and financial dimensions (such as

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OCCUPATIONAL HEALTH & SAFETY

Safety Dramatization Training: TOFAŞ SEEKS TO ACHIEVE Interactive play-acting is used as a training methodology both to ZERO-LEVELS OF WORK- strengthen OHS culture in general and to draw attention to the consequences RELATED ACCIDENTS AND of unsafe behavior in non-routine ILLNESSES BY MEANS OF works. Tofaş seeks to achieve zero-levels of Attention & Perception Testing: ITS OCCUPATIONAL HEALTH work-related accidents and illnesses Referred also to as the “Vienna Test”, by means of its Occupational Health this is a method especially useful for & SAFETY SYSTEM. & Safety System. As a result of the determining attention, perception, Safety Culture Internalization Project concentration, and motor-skill levels that it has been conducting for the among machinery and equipment OCCUPATIONAL HEALTH AND SAFETY RANKS last three years, the company’s Lost operators, maintenance personnel, HIGH AMONG THE MOST IMPORTANT Time Accident rate has been reduced quality control personnel, and vehicle ELEMENTS OF THE WCM METHODOLOGY. IT IS by 60%. drivers. ALSO AN AREA IN MANY ASPECTS OF WHICH THE TOFAŞ PLANT SERVES AS A REFERENCE In 2015, 4,656 Tofaş employees Safety Captain: This is a safety WITHIN THE FIAT CHRYSLER AUTOMOBILES were given a total of 34,784 hours implementation method in which a of training on OHS issues. OHS- blue-collar worker is designated the COMMUNITY. THE PLANT IS FREQUENTLY related information and/or training safety captain of a so-called “lean” VISITED BY REPRESENTATIVES OF FIRMS IN was also provided last year to 177 team of ten to fifteen people and given TURKEY WISHING TO OBSERVE TOFAŞ’S OHS Tofaş trainees (708 hours), to 20,600 responsibility for safety for a week. OPERATIONS AND PRACTICES IN ACTION. visitors to Tofaş premises, and to Although the captain is identified by a Tofaş contractor and subcontractor special cap and armband, he continues Adhering to a proactive and lean personnel (8,759 hours). to perform his regular job while also WCM-based approach to occupational keeping on the lookout for instances health and safety issues, Tofaş seeks to Some aspects of OHS activities during of acts and other infractions of safety protect everyone coming into contact the year are highlighted below. rules. with its operations from risks that could be detrimental to their health or Safety Simulation Area Training: Safety Safety pennants are used to indicate safety by fostering a sustainable OHS Simulation Area (DOJO) training is the situation of production teams. Blue culture and creating environments that conducted so as to train personnel pennants are hung to indicate that no are intrinsically safe. on safety-related issues and risks by accidents have occurred there; orange allowing employees to work with real ones signal that one has. Tofaş strives to maximize OHS and simulated equipment and tools awareness not just among its own in carefully controlled environments. Tofaş’s successful performance on employees but also among its trainees, DOJO training is highly effective in OHS issues has earned national and visitors, suppliers, and contractors. To manufacturing operations such as body international recognition. The company this end Tofaş commits itself to: in white, assembly, painting, stamping, was the recipient of good-practice and chassis suspension. A total of awards in two consecutive rounds • Fulfilling all of its regulatory and 9,180 hours of DOJO training was (2012-2013 and 2014-2015) of the other obligations with respect to provided to employees in 2015. European Agency for Safety and occupational health & safety issues; Health at Work’s biennial campaigns. • Abiding by the principle that Contractor Management Procedures: At the national level it has won improvements in OHS performance A total of twenty-nine sets of two awards–“Golden Gloves” in the are a responsibility shared by all instructions and associated forms Companies category and “Golden personnel; have been created and are used to Suggestion” in the Individuals • Setting targets at every level for proactively manage contractors’ category–in the “Occupational Health & participation in risk-assessment and operations by ensuring that all rules Safety Best Practices Awards” program risk-mitigation activities; are communicated and understood conducted by the Metal Industrialists’ • Achieving a sustainable “Zero before work begins and that the rules Union of Turkey. Accident” target by constantly are abided by during the conduct of improving the company’s work through audits and inspections. occupational health and safety culture.

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SUPPLY CHAIN MANAGEMENT

bumpers, exhaust system components, SINCE THE VERY chemicals, interior and exterior trim BEGINNING, TOFAŞ components, and fasteners. IMPROVEMENTS IN PROCUREMENT HAS CONTRIBUTED TO PROCESSES Whenever Tofaş considers the THE DEVELOPMENT procurements aspects of new projects that it plans to undertake, it gives OF A HOME-GROWN particular attention to acquiring new technological abilities for the Turkish AUTOMOTIVE automotive industry on the one hand SUB‑INDUSTRY BY CONTRIBUTING TO THE GROWTH AND and to boosting its own competitive DEVELOPMENT OF DOMESTIC SUB-INDUSTRY strength on the other. In line with SUPPORTING ITS Since the day it was founded, Tofaş has this it encourages international firms contributed substantially to the growth that are global manufacturers of LOCALIZATION. and development of a home-grown automotive components to invest in automotive sub-industry by giving Turkey or to enter into joint ventures the utmost importance to localizing with local suppliers. In 2015 three new TOFAŞ’S SUPPLY CHAIN MANAGEMENT its procurement and manufacturing international suppliers joined the ranks PRACTICES FOCUS ON MAINTAINING THE processes as much as possible. Tofaş of Tofaş’s Direct Inputs suppliers. COMPANY’S COMPETITIVE STRENGTH, today procures 73% of its components ON REDUCING ITS PRODUCTION AND other than engines and transmissions While taking measures to reduce its procurement costs, Tofaş also engages PROCUREMENT COSTS, ON ACHIEVING THE from domestic suppliers. in an ongoing effort to streamline its BEST POSSIBLE QUALITY AND DELIVERY procurement processes as well. PERFORMANCE IN GOODS AND SERVICES Reducing its dependency on non- domestic sources and increasing PROCUREMENTS, AND ON ENSURING localized content have always been The company is likewise working THE SUSTAINABILITY OF ALL OF THESE two of Tofaş’s medium- and long- on plans to increase its suppliers’ PROCESSES. term strategies. In line with this, the manufacturing capacities so as to company is working with suppliers ensure the continuity of its own The Tofaş Purchasing Department especially to localize the production production processes in cases where is responsible for the conduct of and procurement of transmissions unit output numbers are to be all of the company’s outsourcing and of electrical, electronic, and increased. and procurement functions. In the mechatronic components. New projects fulfillment of these responsibilities, it undertaken for this purpose not only SUPPLIER SELECTION is the department’s principle to involve contribute to Tofaş’s own development In the conduct of all of its procurement company personnel in developing but also support the suppliers that processes, Tofaş ensures that its suppliers’ performance abilities, in Tofaş identifies as business partners in relationships with suppliers are achieving organizational excellence, their efforts to compete and succeed at transparent, mutual-trust based, and and in constantly improving business the global level. competitively sustainable within the processes. overall framework of a long-term Among the many components that business partnership. The department’s procurements fall Tofaş procures locally, the most under three main headings: Direct important are preformed sheet metal While Tofaş selects those who will be Materials, Spare Parts, Investment- components, machined wrought supplying inputs for its assembly-line Services, and Indirect Materials. and cast components, mechanical operations based on their access to In 2015 this department’s total and electromechanical components, sub-manufacturing capacity, there procurements budget amounted to EUR electrical system elements, molded are certain basic criteria that every 2.6 billion in value. Tofaş purchases and extruded plastic and rubber potential supplier is expected to its direct materials from 152 suppliers components, seats, door panels, satisfy. Specifically suppliers must: located in fifteen different cities. windshields and windows, dashboards,

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SUPPLY CHAIN MANAGEMENT

In order to enhance its own • Management projects for TOFAŞ GIVES competitive abilities by protecting its suppliers: In 2014 Tofaş introduced manufacturing quality and continuity, a series of projects aimed at IMPORTANCE TO Tofaş monitors and rates its suppliers’ increasing its suppliers’ problem- performance in such areas as business solving, planning, diagnostic, THE CONCEPTS viability, quality, and delivery on the and organizational competencies basis of its stipulated standards. as a way both of developing OF CONTINUOUS their management skills and of IMPROVEMENT AND SUPPLIER DEVELOPMENT ACTIVITIES improving the efficiency of their Because it gives importance to the human resources and business SUSTAINABILITY AMONG concepts of continuous improvement processes. These projects and sustainability among its suppliers continued in 2015. ITS SUPPLIERS. as well, Tofaş seeks to contribute to its suppliers’ progression on a wide • Supplier orientation: Orientation range of such issues. Some of the most training is conducted to ensure important of these activities in 2015 that suppliers are provided with • Possess both the technical (quality/ are highlighted below. accurate information about Tofaş’s cost competitiveness, delivery business processes. Such training performance, project management, • Promotion of WCM methodologies was provided to 150 employees of production capacity, co-design) and and techniques: Tofaş began 50 suppliers under the company’s the organizational competencies encouraging its suppliers to “Synergy” program. capable of satisfying the automotive adopt World Class Manufacturing industry’s expectations; • Suppliers HR Summit: Organized practices in 2009. As of end-2015, • Be financially robust; to provide suppliers with examples 31 of them were taking part in • Hold ISO/TS 16949 (quality) and ISO of successful human resources such projects. 14001 (environment) certifications; practices that they can use to • Have advanced design, • Physical and financial risk improve their own, the first manufacturing, and testing monitoring: Last year physical risk Tofaş Suppliers HR Summit was competencies; assessments were conducted for held in 2014. Forty-four of them • Have successfully passed Tofaş- 46 of Tofaş’s suppliers. Financial attended the 2015 gathering, the conducted Supplier Eligibility risk assessments were also carried theme of which was “Focus On Assessment and Process Audit out in the case of 37 firms, with Improvement”. inspections; action being taken as deemed to be • Have the ability to contribute necessary. favorably to Tofaş’s own competitiveness by supporting • Tofaş Academy training for improvements in its quality and suppliers: Tofaş Academy is a cost-effectiveness; training platform through which • Have demonstrated an ability to the company shares its technical consistently improve itself and knowledge and expertise with its increase its competitive strength suppliers. Last year 574 employees by keeping a close watch on what of 43 suppliers made use of the 41 its domestic and international training modules that are intended competitors do; for suppliers. • Show a willingness and an ability to engage in a transparent and mutual-trust-based business-partner relationship in its dealings with Tofaş.

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CUSTOMER SATISFACTION POLICY

TRANSPARENCY FEES Detailed information about Tofaş Those who submit questions, requests, is available to all stakeholders 24 or complaints are not charged any hours a day seven days a week via its fees. websites and the Tofaş Call Center. Any questions, requests, or complaints that stakeholders may have may be CONFIDENTIALITY forwarded to the company through the All personal information that is same channels. submitted to Tofaş is treated with the strictest confidence and is never ACCESSIBILITY revealed to any outside party. • Fiat Call Center: 444 22 55 • Fiat website: www.fiat.com.tr CUSTOMER FOCUS • Alfa Romeo & Lancia Call Center: Tofaş takes pains to resolve customers’ 444 19 10 problems, to satisfy customers’ needs, • Jeep Call Center: 444 53 37 and to protect customers’ rights under • Alfa Romeo website: www. all conditions within the framework of alfaromeo.com.tr company policies and the requirements • Lancia website: www.lancia.com.tr of law. • Jeep website: www.jeep.com.tr RESPONSIVENESS ACCOUNTABILITY All questions, requests, and complaints All requests for information submitted that are received are recorded upon via company websites and call centers arrival. When they are responded to, are responded to within specified a full account is given of all decisions periods of time. and actions that were taken along with the justifications for them. OBJECTIVITY All questions, requests, and complaints CONTINUOUS are addressed and responded to fairly and unprejudicially. IMPROVEMENT All communications received from Tofaş stakeholders are used proactively as feedback for making improvements in the company’s business processes, products, and services.

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ETHICAL VALUES AND ANTI-CORRUPTION POLICY

Tofaş commits itself to the highest interacting with internal and external All forms of discrimination based standards of ethical conduct in all of stakeholders, avoiding conflicts of on language, race, gender, political its activities. Ethical behavior of the interest, protecting occupational health affiliation, religious belief, or similar highest sort is an essential priority and and safety, and preventing corruption, considerations are prohibited in the responsibility of every Tofaş employee. malfeasance, and bribery. It also conduct of business and workplace Not only Tofaş employees but also incorporates elements of the United relationships at Tofaş. Work Tofaş dealers, suppliers and business Nations Universal Declaration of agreements between the company partners, and all other stakeholders Human Rights such as the elimination and its employees may incorporate no with whom the company engages of all forms of discrimination. The terms or conditions which, directly or are also expected to abide by the Tofaş Code of Ethics likewise specifies indirectly, would subject an employee company’s rules of ethical conduct. what is to be done in the event that its to different treatment on the grounds guidelines are breached. of gender or pregnancy at the time Tofaş takes “zero tolerance” approach the agreement is entered into, while to bribery and corruption and is Since Koç Holding, one of Tofaş’s it is in effect, or when it is terminated committed to undertaking its activities major shareholders has endorsed the except in cases where job-related risks, fairly and honestly in line with legal United Nations Global Compact, all employee safety, or the requirements and ethical rules. Situations in which of the principles contained in that of law dictate otherwise. The principle the company may be exposed to document pertaining to human rights, of “Equal Pay For Equal Work” applies risks of bribery or corruption are labor standards, environment, and to everyone and no employee may identified and measures to mitigate anti-corruption are essential elements be paid more or less based on their the risks are taken accordingly. In all of Tofaş’s own commitment to ethical gender. All hiring, assignment, and of the policies and procedures that it behavior. promotion decisions must be based formulates, Tofaş strives to be in full on objective performance criteria compliance with the requirements of Due care is given to protecting human and never on considerations such as laws and regulations, with ethical and rights and to supporting the company’s language, religion, gender, race, or professional standards, and with the performance on such issues in the the like. Tofaş condones neither the principles of the Universal Declaration conduct of its business processes employment of children nor any form of Human Rights. through policies and practices. The of forced or compulsory labor. importance Tofaş gives to human rights The Tofaş Code of Ethics provides a and practices is supported with the comprehensive approach to dealing principle declared in the first article of with issues involving potentially the Tofaş Code of Ethics which states questionable conduct that might that the company “respects human be encountered when dealing with rights and the constitutional rights of company employees and other freedom of association and collective stakeholders. The Tofaş Code of bargaining”. Ethics is a document that sets out guidelines governing such matters as

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AGENDA OF 48TH ORDINARY GENERAL ASSEMBLY MEETING OF TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ TO BE HELD ON 31 MARCH 2016

1. Opening and election of Meeting Chairmanship,

2. Reading, discussion and approval of 2015 Activity Report prepared by the Company’s Board of Directors,

3. Reading of Independent Audit Report Summary for 2015 accounting period,

4. Reading, discussion and approval of 2015 Financial Statements,

5. Approval of replacements of the members of Board of Directors within the year under Article 363 of Turkish Commercial Code,

6. Acquittal of each Board Member for 2015 activities of the Company,

7. Approval, approval with amendment or rejection of the Board’s proposal on appropriation of 2015 profits and the date of appropriation created as per the Company’s profit distribution policy,

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 2015 and setting an upper limit for donations in 2016,

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 2015 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 2015 as per the Capital Markets Board Corporate Governance Communiqué,

14. Wishes and opinions.

65 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

INFORMATION ON THE CAPITAL STRUCTURE AND SHAREHOLDING OF THE COMPANY

The Company’s Capital, Shareholders Who Own More Than 10% of the Capital and Other Privileged Shares:

As of 31 December 2015, 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

Suna Kıraç A 291,510.55 29,151,055 0.0583

S. Semahat Arsel A 291,510.55 29,151,055 0.0583

Mustafa V. Koç A 194,340.36 19,434,036 0.0389

M. Ömer Koç A 194,340.36 19,434,036 0.0389

Y. Ali Koç A 194,340.35 19,434,035 0.0389

Others E 121,440,286.26 12,144,028,626 24.2880

500,000,000.00 50,000,000,000 100

There was no change in the share bonds together with the capital (MKK), within the scope of processes Company’s capital and shareholding increase in 2001 within the framework begun with the aim of being able to structure in the period 01 January of the Capital Market Regulations were follow up the records of share bonds 2015 – 31 December 2015. The held subject to change. Furthermore, unregistered due to a change in kind, Company is controlled by its main with the capital increase carried out in line with related regulations of the partners, namely Fiat Auto SPA (FCA- in 2003 being issued with the 22nd Capital Markets Board (SPK), published Fiat Chrysler Automobiles N.V., Koç distribution of share bonds, and again in 2007, and applications of the MKK Holding A.Ş., the Koç Family and the capital increase in 2005 being relating to the subject, in accordance companies owned thereby. The last issued with the 24th distribution of with the concerned regulations in time the Company made a bonus issue share bonds, and these were quoted operation, legislation related to the increase at the rate of 11.111111% in the İMKB (BIST). The intermediate recorded followup of capital market from internal sources to a total of 23rd distribution had no connection tools was applied from 31.12.2007. TL 50,000,000 was in 2005, and in the to the capital increase, and because of following years, including 2015, there registration procedures, a distribution In accordance with legal regulations was no capital increase. Information on was not issued. To this end, primarily and legislation concerning the Capital increases since the within the scope of capital market aforesaid work between the MKK, the foundation of our company can be tools being registered and recorded, brokerage house (Yapı Kredi Yatırım) found on the website www.tofas.com.tr. with the Resolution no. 42/1318 dated and our company, was carried out 28.10.2005 of the Capital Markets properly by the Executive Board The 20th distribution of share bonds, Board being related to the follow-up of and our Corporate Governance and which were issued because our the share bonds’ registration, all the Shareholder Relations Unit. company merged with the dissolved share bonds in circulation at the Stock Tofaş Oto Ticaret A.Ş. with the 11-19th Exchange and before Takasbank have To this end, according to temporary distribution of share bonds, which been registered. 6th article of the Capital Markets was quoted for the Stock Exchange Law, which replaced the 157th article and issued based on the capital Furthermore, as of 31.12.2006, in of Law no. 6111, which came into increase, and the 21st distribution of line with the Central Registry Agency operation by being published in the

66 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

repeated Official Gazette of 25.02.2011 Shareholders can obtain the necessary Detailed information and explanations and within the framework of the information on this subject or relating to these matters are contained General Letter of the MKK, no.551, similar shareholder’s rights from in more detail in the Corporate of 28.04.2011, in order to register the Corporate Governance and Governance Principles Compliance the physical bonds of bondholders Shareholder Relations unit at Company Report within the annual report. up until 31.12.2012 by applying to Headquarters. Furthermore, our our company, the transactions of corporate investors can also obtain In addition, there was no law suit the aforementioned bonds and the information on other matters by which may affect the finances and registering of the physical bonds application to the Financial Risk and activities of the Company and there before the MKK are provided by Investor Relations Unit. was no administrative or financial law. To this end, the necessary sanction imposed on the Company or announcements are contained in According to the Capital Markets the members of its managing bodies both the company’s website and the Legislation and regulations, the due to breach of legislative provisions. e-Manage portal. Furthermore, by responsibilities regarding the rights There was no capital risk and it is being announced twice in three daily and benefits of the Company’s concluded that the activities can newspapers published throughout shareholders are tracked before the continue. Turkey, the information was presented Capital Markets Board, BIST and to shareholders. MKK and the necessary activities are There was no capital risk, and it was performed. Shareholders registry is concluded that the capital is adequate In accordance with the applications of updated based the data received from for continuation of operations, as shareholders who hold the physical MKK. Tofaş is listed in BIST 30 and BIST specified also in the related Committee shares belonging to our company in 100 Indexes as well as the Corporate report. their hands, first of all, they had to Governance Index and Sustainability complete the transactions pertaining Index. Company shares are quoted in The shareholders can access to previous years, if necessary, at our Luxembourg Stock Exchange Market corporate, financial and stock Company Headquarters, and then they and traded in the international exchange data regarding the Company could make an application at Yapı Kredi markets. under the “Investor Relations” section Yatırım or all Yapı Kredi Bank branches, at www.tofas.com.tr website and which represent them, by 31.12.2012. Each shareholder has one voting right Access information on other issues In this context, so that shareholders at the General Assembly Meetings and regarding the Company by sending who held physical bonds did not lose there is no privileged vote. However, an e-mail to [email protected] or their rights, the shareholders who Board Members and Auditors are through Institutional Investor Relations applied to our company up to the elected among the nominees who Unit or Corporate Governance and aforementioned date by completing will be nominated by Group A and D Shareholder Relations Unit. the necessary transactions on time Privileged Shareholders. (Article 10 of brought the legal process to a close. the Company Articles of Association) Amendments to the Articles of As per the Company’s shareholding Association during the Reporting Shareholders who did not register their structure and as specified in Period physical shares lost all their rights, Company’s Articles of Association, only within the framework of the mandatory A and D Group shareholders have the In 2015, there were no amendments to provisions of the law, as of privilege of nominating the Members the Articles of Association. 31 December 2012. The necessary of the Board of Directors and Members information can be found and reviewed of Auditing Board and one of the In 2013 with the purposes of on the Centralised Records Institute’s nominees for each of these committees adopting to Turkish Commercial website at www.mkk.com.tr. In should meet the requirements for Code 6102, Capital Markets Board addition, our announcements on the independence as set forth by the and the related regulations, all topic are also available on our regulations by Capital Markets articles of the Company’s Articles of Company’s corporate website. Board. There is no privilege regarding Association except for Article 1 titled allocation of dividends (as per Article “Establishment” were amended and 18 of Articles of Association). some articles were annulled with

67 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

INFORMATION ON THE CAPITAL STRUCTURE AND SHAREHOLDING OF THE COMPANY

the required permits taken from Issued Securities As of 31 December 2015, our company, the Capital Markets Board and T.R. The Company issued stocks of TL 520 which has a partnership in FER MAS Ministry of Customs and Trade. as of its establishment. The entire of Oto Ticaret A.Ş., which operates in these issued stocks was redeemed Istanbul with the nominal capital of The Company’s Articles of Association by payment on due term. As of the TL5,500,000, has the share total in were registered on 03.07.2013 as per establishment, issued shares of the the aforesaid company of TL5,500,000, the resolution by the Extraordinary series 1-10 were replaced by the a share of 100%. The FER MAS Oto General Assembly Meeting dated series 11 and series 11-20 shares were Ticaret A.Ş. Executive Board, in line 01.07.2013 and issued on the Turkish replaced by series 21 shares, then with the Resolution pertaining to Trade Registry Gazette 8359 dated series 22 shares, and finally series their continuing activities with the 09.07.2013. 24 shares were issued. As mentioned status of a “single partner company”, above the procedures related with in accordance with the provisions The Company’s Articles of Association the dematerialization of the shares of Turkish Commercial Law no.6012, are also available for review on our are conducted through the issuing the matter relating to the company Company’s website at www.tofas.com. company, intermediary institution/ of Tofaş Türk Otomobil Fabrikası A.Ş. tr. bank and MKK. As per the relevant being the sole shareholder, thereby resolution of SPK, dematerialization being registered on 24.06.2013, Dividends Distributed in the Last of all shares was commenced on and being publicized in the Turkish Three Years and Ratios: 31.12.2007 and as per the Provisional Register of Trade Gazette, no. 8354, on Article 6 of the Capital Markets Law 28.06.2013. In accordance with the Turkish as amended by Article 157 of Law Commercial Code, the Capital Market No. 6111 made effective upon its The Ordinary General Meeting Legislation, provisions of the Articles of publication in 25.02.2011 second issue concerned with 2015 operations of FER Association, and the Profit Distribution of the Official Gazette and within the MAS Oto Ticaret A.Ş. will have been Policy, frame of General Letter 551 of MKK completed by 16 March 2016. dated 28.04.2011, dematerialization The General Board meeting Minutes Cash dividends in the total amount of process of physical shares was and Prepared Statements of our TL 485,000,000.- corresponding to a finalized as of 31.12.2012 as required partners and affiliated partners can be rate of 97% (97% gross, 82.45% net) of by the legislation. viewed on our company’s website at the 2014 profit were paid out during www.tofas.com.tr 2015, starting from 03 April 2015. Company Partners and Affiliated Partners Cash dividends in the total amount of As of 31 December 2015, our TL 325,000,000.- corresponding to a company’s partner share total in rate of 65% (65% gross, 55.25% net) of our TL45,000,000 nominal capital the 2013 profit were paid out during affiliated partnershipKOÇ FIAT KREDİ 2014, starting from 04 April 2014. Finansman A.Ş., which operates in Istanbul, was TL44,999,996, a share Furthermore, cash dividends in the rate of 99.99%. total amount of TL 480,000,000.- corresponding to a rate of 96% (96% The Ordinary General Meeting gross, 81.6% net) of the 2012 profit concerned with 2015 operations of were paid out during 2013, starting KOÇ FIAT KREDİ Finansman A.Ş. was from 05 April 2013. completed as of 29 February 2016.

A detailed table of allocation of dividends in the mentioned and previous years is accessible at www. tofas.com.tr for review.

68 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT

SECTION I: DECLARATION OF requirements concerning Corporate Within the scope of the Compulsory COMPLIANCE WITH CORPORATE Governance Principles and with Corporate Governance Principles, in GOVERNANCE PRINCIPLES the communiqués based on this the context of exceptions in practicing Law. To achieve alignment with the the Corporate Governance principles In 2015, full compliance was achieved New Turkish Commercial Code and – as per the first paragraph of the 6th with the applicable compulsory the Capital Market Law, necessary Article of the Corporate Governance principles of the Corporate Governance amendments to the Articles of Communiqué; our Company’s status Communiqué II-17.1 while compliance Association were completed in is a “business partnership” (.IV) was achieved with most of the non- 2013, and our Board of Directors composed of “two juridical persons” compulsory principles. and Board of Directors’ Committees who “equally control the management were reconstituted according to the with an agreement” while the number Although the aim is to achieve full requirements set out in the Corporate of the independent members of the compliance also with the non- Governance Communiqué that Board of Directors is “two” in line compulsory Corporate Governance entered into force in 2014. Within with this regulation. With the Capital Principles, full compliance has not this context, our Board of Directors Markets Board decision n.5/129 (date: yet achieved due to reasons such as; and our Committees were formed 16.02.2012) approval was received for difficulties in practicing some of the in line with the requirements in the that it was sufficient to determine the principles, continuing evaluations Corporate Governance Communiqué number of the independent members in our country and on international and the Board of Directors’ Committees of the Board of Directors as 2 (two). platform about complying with some of so set up pursue their activities the principles, some of the principles efficiently. Board of Directors’ and Furthermore; as per Article 5 not fully matching with the existing executive managers’ remuneration paragraph 6 of the said Communiqué, structure of the market and our policy was determined and presented nominees for independent membership Company. for the shareholders’ information on the Board of Directors were at the General Assembly. With the determined in conformity with the The process regarding the principles informative document prepared for requirement that reads “It is sufficient which have not yet been adopted is the General Assembly; (i) General that [...the principle.....] is met by at in progress and they are scheduled Assembly information (that must be least half of the independent members for adoption following the completion announced according to the principles) “ with respect to the criterion of of managerial, legal, operational and such as privileged shares, rights to “being considered a resident in Turkey technical infrastructure works in a vote, organizational changes, (ii) in accordance with the Income Tax manner to assist the Company in résumés of the candidate Members Law” as specified in paragraph (d) effective management. Comprehensive of the Board of Directors, (iii) Board of the first clause of the compulsory activities carried out within our of Directors’ and executive managers’ principle numbered 4.3.6, and company within the scope of the remuneration policy, (iv) necessary necessary permission has been Corporate Governance Principles, and reports that must be prepared and obtained from the SPK. Along this principles that was not complied with necessary information that must be line, the necessary consent has been in relevant departments and conflicts announced regarding the related party received for the Board of Directors’ of interest (if any) arising for this transactions, were presented for the independent member nominees with reason, are explained below. information of our shareholders and the SPK decision no. 5/136 and dated investors 3 weeks in prior the General 17.02.2014, and the independent In 2015, Corporate Governance Assembly. Furthermore, our Company’s members were elected at the General activities were carried out particularly corporate website and Annual Report Assembly as at 28 March 2014 for a to achieve compliance with the Capital were reviewed, necessary revisions three-year term of office. Markets Law that includes the new were made in order to achieve full regulations about SPK’s Corporate compliance with the principles. The implementation of Corporate Governance Principles, and with the Governance Principles has a decisive Communiqués based on this Law. In the upcoming period, developments and ever-increasing importance in the legislation and practices will for the Company as a result of the As was the case in 2014, corporate be taken into account and necessary developments in Capital Markets and governance activities in 2015 focused activities will be carried out in order as a dynamic process. The Company mainly on achieving compliance to achieve compliance with the continues its efforts to adopt corporate with the Capital Market Law that Principles. governance as a corporate culture by also incorporates the SPK’s new adopting the Corporate Governance

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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT

Principles issued by the Capital Regarding the principle no. 4.3.9; there appointed as Financial Director to Markets Board, making the necessary is no target ratio and time set for the succeed Mr. Cengiz Eroldu who was improvements and regulations based ratio of female members on the Board appointed as the Company CEO. on current conditions on areas which of Directors, and evaluation of the Accordingly, the duties of the Investor require adoption and making the matter continues. Detailed information Relations Unit are being led by necessary changes. regarding the issue is given in section Mr. Stefano Reganzani, the Financial 5.1. below. Director, and fulfilled by Mr. M. Emre Following suit of previous years, our Ertürk, Financial Risk and Investor activities were meticulously carried Regarding the principle no. 4.4.7, there Relations and Budget and Commercial on in 2015 by keeping a close eye on are no restrictions for the members Control Manager, and Mr. M. Adil the changes made in the legislation of the Board of Directors to assume Salepçioğlu, Corporate Governance or capital market regulations, and in duties outside the company as stated and Shareholder Relations Executive. line with our Company’s corporate in section 5.1. below. It was also decided to appoint governance activities. Mr. Stefano Reganzani -besides the Our Company has espoused a existing members- to the Corporate Within the framework of our corporate sustainable approach to governance Governance Committee, which pursues governance practices, our corporate by ensuring a broad-based activities within the frame of the governance rating was revised establishment of the corporate operating principles set by our Board once periodically by the corporate governance concept as a dynamic of Directors. The Board of Directors governance rating firm SAHA Kurumsal process and corporate culture, in line decision on this change has been Yönetim ve Kredi Derecelendirme with the implementation of Corporate publicly disclosed on 15 April 2015 Hizmetleri A.Ş. Within the scope of the Governance Principles. Additionally, in through the Public Disclosure Platform Corporate Governance Rating Report case of a significant change during the (KAP). Financial Risk and Investor issued on 05 November 2015 upon period, such change will be included in Relations Executive Mr. M. Emre review of 2015 operations, our rating the interim activity report. Ertürk holds the compulsory licenses score was upgraded once again and specified in the relevant Communiqué, declared as 9.06 (90.61). SECTION II - SHAREHOLDERS: and the necessary disclosure was made on KAP on 30 June 2015. Due to reasons also mentioned above, 2.1. Investor Relations Department full compliance has not yet been Regarding the issue of performing Along this line, the duties set forth in achieved with the non-compulsory the tasks stipulated within the Article 11 of the Corporate Governance Corporate Governance Principles scope of the 11th Article of the SPK’s Communiqué are being fulfilled by specified below. Detailed information Corporate Governance Communiqué Mr. M Emre Ertürk and Mr. M. Adil regarding the issue is presented in the n.II-17.1; with the Board of Directors Salepçioğlu under the Company’s relevant sections below. Our Company decision n.2014/15 (date: 27.06.2014) Financial Director Mr. Stefano is not exposed to any conflicts of necessary organization was made Reganzani as of 2015. interest by reason of failure to fully for our Company’s Financial Director comply with the non-compulsory and Financial Risk Management and Besides the existing members, principles. Investor Relations Unit under the Mr. Stefano Reganzani also serves on Financial Director, and the Corporate the Corporate Governance Committee Regarding the principle no. 1.4.2, Governance and Shareholder Relations that pursues activities within the privileges listed below in section Unit to carry out the relevant tasks, frame of the operating principles set 2.4 were specified in our Articles of and was publicly announced via by our Board of Directors. Financial Association. Public Disclosure Platform on a Risk and Investor Relations Executive consecutive date as of 30.06.2014. In Mr. M. Emre Ertürk, who works in Regarding the principle no. 1.5.2; our 2015, necessary arrangements were the Unit, holds a Capital Markets Articles of Association do not stipulate made in line with the change that took Advanced Level License and Corporate minority rights for those who hold less place based on the Board of Directors Governance Rating License. Corporate than one twentieth of the capital, and decision no. 2015/13 dated 15 April Governance and Shareholder Relations thus rights were provided within the 2015. Unit Executive Mr. M. Adil Salepçioğlu framework of the general regulations has a Corporate Governance Rating in the legislation. In this framework, by the Company’s Specialist License and a Customer Board of Directors decision no. Representative License. 2015/13, Mr. Stefano Reganzani was

70 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

Within the scope of the considerations scope of the Capital Market legislation. of necessary activities and relevant stipulated in Article 11 of the SPK In addition to the above, as stated in implementations under the Company’s Corporate Governance Communiqué, the Declaration of Compliance section Disclosure Policy, as well as for the Investor Relations Department above, the Company’s corporate purpose of fulfilling shareholders’ Report was prepared regarding the governance rating was revised information requests. activities carried out in 2015, and was upwards to 9.06 (90.61) upon the presented to the Board of Directors as annual periodic review performed. The appointment of a special auditor is of 02.02.2016 after it was discussed in not stipulated as an individual right in the Corporate Governance Committee. During the reporting period, 31 the Company’s Articles of Association. material event disclosures were However, any shareholder may request Within this framework; the Risk released; disclosures of an important -even in the absence of such a request Management and Investor Relations nature for the investors, along with in the general meeting agenda- from Unit held meetings with 346 investors their translations into the English the general assembly of shareholders and analysts, 4 Analyst Meetings, 36 language, were posted on the that certain events be clarified through teleconferences about our Company, corporate website as well as on the a special audit pursuant to Article 438 took part in 12 investor conferences Public Disclosure Platform (KAP). of the Turkish Commercial Code, to and roadshows, and hosted 4 “reverse In 2015, 230 queries were received the extent that the same is necessary roadshows” investor group meetings from shareholders in writing or via for exercising shareholding rights and within the scope of shareholder telephone, and information continued provided that the right to information relations. These gatherings served to be provided as necessary. While and review has been exercised in to contact existing and potential queries were mostly concerned advance. No such requests have been investors, and to better inform with financial statements, sales received from the shareholders to the shareholders about the latest performance, projections, there date. developments. As at the end of 2015, were requests for annual reports 89% of the Company’s publicly-floated and sustainability reports. Moreover, There is no information or practice shares were being held by foreign necessary responses were given to about this topic with respect to investors. information requests regarding capital the existing regulations or general market regulations and e-Company. customs. As specified regarding the The General Assembly meeting, which audit of other issues stipulated in the was organized during the reporting 2.2. Using Shareholders’ Right To legislation, our Company implements period within the frame of shareholder Information the relevant provisions of the Turkish relations and in line with the activities No discrimination is made among Commercial Code and Capital Market of the Shareholder Relations Unit, the shareholders in using right to legislation. In addition to internal audit was convened as per the legislation information and review while all and internal control practices, our in force. The meeting, announcements information that does not interfere Company is audited by its two main and records regarding the meeting with trade secrets is shared with partners, Koç Holding and Fiat Auto. were organized in conformity with the shareholders. Questions sent the capital market regulations, the to Financial Risk Management and Furthermore; Company activities Company’s Articles of Association and Institutional Investor Relations Unit are periodically audited by the other internal regulations. and Corporate Governance and Independent Auditor elected at the Shareholder Relations Unit, that do not General Assembly. This unit is also responsible for interfere with confidential information monitoring the relevant procedures and trade secrets are answered either As mentioned in section 2.1 above, and keeping records concerning in writing or on the phone by the for information requests and queries the activities of the Committees highest level person relevant with falling under the scope of the under the Board of Directors. The the issue. As explained in section 3.1 Investor Relations Unit activities, unit handles and monitors relevant in this report, all information and Mr. M. Emre Ertürk, the Financial aspects including public disclosures, announcements that may have impact Risk and Institutional Investor responds to shareholders’ and on using shareholders rights are Relations Manager can be contacted investors’ information requests, and available on the corporate website. via email ([email protected]. makes material event disclosures tr) or via telephone (0212 - 275 33 through the Company’s corporate During the reporting period, maximum 90 (pbx) extension 2751) or Dr. M. website, such portals as e-Company efforts were spent to ensure Adil Salepçioğlu from the Corporate and e-Governance, and KAP within the information flow within the frame Governance and Shareholder Relations

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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT

Unit can be contacted via email (adil. well as a list of physical participants. negative votes (if any) against any of [email protected]) or via The lists of physical and electronic the agenda items are available in the telephone (0212 - 275 33 90 (pbx) attendants to the Ordinary General General Assembly documents on www. extension 2749). Assembly Meeting of 27 March 2015 tofas.com.tr. reveal that 439 shareholders in total Our Company’s shareholders can also were included in the lists. All the Minutes of Ordinary and reach the Unit executives through Extraordinary General Assembly the Headquarters phone numbers to In this frame, procedure of general Meetings and Lists of Attendants convey their information requests, and meeting is made to ensure the utmost for previous years can be found they may also do so by sending an presence of the shareholders and the and reviewed at the Company email to the corporate account borsa@ minutes of such meetings shall be Headquarters, as well as in the tofas.com.tr. accessible in writing or electronically archives of the Turkish Trade Registry at all times. Any measure aimed at Gazette retained at the Istanbul 2.3. General Assembly Meetings increasing the efficiency of the meeting Trade Registry Office. Furthermore, the a. During the reporting period, is taken in accordance with the Minutes of General Assembly Meetings Ordinary General Assembly Meeting of legislation. All measures necessary to and other relevant documents for Shareholders was held on 27 March provide the required functionality of the last 5 years can be accessed 2015 at the Company’s Headquarters the General Assembly are taken. and reviewed from the Company’s at Büyükdere Caddesi Tofaş Han No: corporate web site (www.tofas.com.tr) 145 Zincirlikuyu 34394 Şişli – İstanbul. The most natural rights of our in “pdf” format. The announcements for the invitation shareholders in the General Assembly to the General Assembly Meeting, Meetings are asking questions and b. There were no instances where including all necessary details raising their opinions, which are the affirmative votes of the majority were published on the company’s shown the utmost respect. Therefore, of independent Board members website at www.tofas.com.tr, e-GKS the right of the Shareholders to ask were required for passing a Board (Electronic General Meeting System) questions in the General Assembly or of Directors decision, which had to and e-Company portals of the Central make suggestions about the Agenda be referred to the General Assembly Registry Agency (MKK), and on the items, or to deliver speeches regarding because of the negative votes cast by Public Disclosure Platform (KAP), as their suggestions and current matters independent Board members. well as being promulgated in the is provided by the Board and the Turkish Trade Registry Gazette within required records are kept as per the c. At the Ordinary General Assembly the legally due time. In addition, requirements. meeting held in 2015, information written notices were sent to privileged about the donations and charitable shareholders who are registered in the In this context, written and oral grants made in 2014 was presented Shareholders Ledger. suggestions made by the shareholders under a separate agenda item and to the Meeting Chairmanship about a TL 10,000,000 limit was set for Moreover, anyone wishing to attend various topics at the General Assembly donations that can be made in 2015 the General Assembly Meeting as a are added to the Minutes of the while no changes were made in the viewer was welcomed, in line with General Assembly Meeting, which donations policy. the goal of securing attendance of are also posted on the Company’s stakeholders, media members, and Internet address (website). In 2015, d. In case the shareholders (who all stakeholders in general. In this no questions were raised for which control the management of the framework, media members, experts written responses were demanded. Company), Board of Directors’ from various intermediary institutions However, a question directed by a members, managers who have and banks, along with officials from shareholder during the meeting was administrative responsibilities, and related associations, nongovernmental responded to by the Meeting Chairman their spouses and blood relatives organizations and rating firms and the shareholder’s dissenting and relatives by marriage up to attended the said General Assembly opinion was recorded in the Meeting second-degree make any important Meeting. Minutes. transaction with the Bank or its associate companies which may lead The General Assembly Meeting was Furthermore, shareholders did not to conflicts of interest, or in case, the also broadcast live through MKK and give any proposals for the agenda. aforementioned persons make any e-GKS, and a list of those attending In addition to this, records in the transaction, related to a commercial via electronic means was prepared, as Meeting Minutes for the shareholders’ business that is within the scope of the

72 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

corporation or its associate companies’ In case of mutual participation, into account the market projections, field of activity, for their own account sovereign shareholder is not the Company’s long-term strategies, or for the account of others or if possible. The Articles of Association investment and financing policies, they become unlimited partners in do not contain any provision for the profitability and cash status, and the other companies carrying out similar representation of minority shares maximum amount of cash dividends commercial businesses; permission in the management or cumulative and/or bonus shares are distributed was given by the General Assembly voting method. Due to voluntary to our shareholders, so long as it can – within the framework of the 395th application matter and non-planning be covered from our financial records, and 396th Articles of the Turkish Code for sovereign shareholding by the and to the extent permitted by the of Commerce – for such transactions major shareholders as per the Capital applicable regulations and financial and transactions performed within Markets Legislation, provision on means. Furthermore, within the scope the Company’s field of activity by quorum was not applied for the of this Profit Distribution Policy, the persons (on behalf of themselves) who existing General Assembly (Article 14 aim is to make profit distribution have access to company information of the Articles of Association). within maximum one month after the apart from the ones mentioned above. General Assembly meeting while the Furthermore; in line with the Capital Transactions related to shareholders profit distribution date is decided by Markets Board Corporate Governance are based strictly on the principles of the General Assembly. The General Communiqué, information was equality in transactions in accordance Assembly or the Board of Directors, presented to the General Assembly with the regulations, and our Company in case authorized by the General about the fact that no transactions pays the utmost attention to this by Assembly, may decide to distribute were made within this scope in 2014. providing the necessary arrangements. dividends with installments in conformity with the Capital Market 2.4. Rights to Vote and Minority Rights 2.5. Dividend Rights Regulations. At the General Assembly, there is There is no privilege regarding one right to vote for each share, but participation in Company profit or According to the Articles of Association there are no privileges in right to vote. allocation of dividends. Dividends are of the Company; the Board of Directors, Shareholders attending the General distributed equally regardless of the provided that it is authorized by the Assembly meeting use their rights whole current shares or their dates of General Assembly and it complies with to vote in proportion to the nominal issuance and acquisition. the Capital Markets Regulations, may value of the total shares. However, make advanced dividend payment. Members of the Board of Directors Our Company’s Dividend Policy is must be elected from among the available in the Company’s Annual 2.6. Transfer of Shares candidates who will be nominated Report and on the corporate Article 8 of the Articles of Association by the Privileged Shareholders of website; also, the Dividend Policy “Transfer of Shares and Establishment Group A and D. (10th Article of the covering matters related to dividend of Usufruct on Shares” stipulates the Articles of Association). This issue is distribution has been laid down for provisions to be applied regarding legally confirmed due to the fact that the approval of the General Assembly, the sale and transfer of registered our Company’s status is a “business and the General Assembly Meeting shares of Issues A and D and there partnership” (joint venture) composed Minutes incorporate the fact that are restrictions on transfer of of “two juridical persons” who “equally it has been ratified. Accordingly, shares subject to the said rules and control the management with an profit distribution is made as per the arrangements. This features the agreement”. provisions of the Turkish Commercial protection of the existing rights of Code, Capital Market regulations, the dominant shareholders and the Voting rights are exercised as per the Tax Regulations, other applicable limitation of the transfer of shares provisions contained under the Articles legislation and the article concerning to any automobile manufacturer or of Association. The regulations of the profit distribution of the Articles of to companies that are controlled Capital Markets Board on voting by Association. A balanced and consistent indirectly. proxy are observed. The Company’s policy between the shareholders’ Articles of Association do not grant and Company’s interests is pursued Capital Markets Board regulations are minority rights to those holding less in profit distribution in line with the applicable for transferring Company’s than one twentieth of the capital, Corporate Governance Principles; in publicly traded Group E registered and rights are provided within the principle, the net distributable profit shares. framework of the general regulations for the period is calculated as per the in the legislation. Capital Market regulations by taking

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SECTION III - PUBLIC DISCLOSURE AND Policies”, “Annual Reports”, “Financial and Fiat Auto’s relevant websites) TRANSPARENCY: Statements”, “Material Disclosures”, available to have information about “General Assembly Meetings”, our main Shareholders’ capital 3.1. Company Website and Its Content “Subsidiaries”, “Links and Information and shareholders’ structures, The Company has an active and up-to- for Investors”, “Information on Main publicly announced information and date website. The website is at www. Partners and Shareholding Structures”, shareholders’ structures of both tofas.com.tr, and the information and “Notices”, “Organization Chart”, Companies (that are quoted on their relevant sections of the corporate “Calendar” and “Archive”, as well as stock exchange) can be viewed. website are also available in English “Analysts”, “Presentations”, “Survey language. Our website was revised and Information Form”, “Webcast”, Board members, senior managers in 2014 and was updated once “Investor Feedback” and “Contact and shareholders who hold directly again in 2015 in order to improve its Us/FAQ”. Informational surveys and or indirectly more than 5% of the visual effectiveness and information electronic mailing systems were shares, the Company’s capital markets flow. The website includes detailed introduced for our shareholders, instruments and transactions made information on topics included in investors and analysts through the regarding stocks and the results are the Corporate Governance Principles “Survey and Information Form” section, publicly announced there. In this and the Investor Relations section and there is also a tab for the “Investor context, the required notices regarding features sub-sections titled Corporate Feedback” system. share trade are published on the Governance and Corporate Governance Public Disclosure Platform (KAP). Policies. Additionally, a section The “Stock Exchange Market Info” sub- dedicated to environmental, social section that was introduced previously Furthermore, as required by the and administrative matters also went was also enabled and was kept up-to- Regulation on the Websites of Stock live in 2014 on the corporate website date during 2015 as it was in previous Corporations enforced upon its within the frame of “Sustainability” years, and served as an information publication in the Official Gazette activities that were introduced along tool giving our shareholders, investors 28663 dated 31.05.2013 by T.R. with corporate governance. There is and analysts access to BIST data. Ministry of Customs and Trade another Corporate Governance tab within the scope of the TCC, a link under this section that deals with In addition to those, the Company’s was provided to the “Information topics falling under the scope of Annual Reports can be obtained in Society Services” (e-Company) Portal, sustainability. print and are also available on the launched on our websites (www.tofas. website in current and archived com.tr and www.fiat.com.tr) in due The website presents various detailed information for review. As stated, time, and are being kept up-to-date. information about the Company. periodic financial statements and The website offers a broad range of reports are accessible any time on the The Company pays utmost attention information gathered under different website, which presents up-to-date to necessary considerations and headings, including About Tofaş, information including, but not limited information flow as per the Capital News, HR and R&D activities, Career to, minutes of the General Assembly Market regulations and applicable and Training at Tofaş, and social meetings, investor and analyst legislation. responsibility initiatives. Updated to presentations. keep abreast of new developments, 3.2. Annual Report the website has a dedicated “Investor Responds to surveys coming from Board of Directors prepares the annual Relations” section covering the these links on the Investor Relations and interim Annual Reports with the minimum matters set forth by the section of the website are followed, details to fully and accurately inform SPK, which is accessible at the address recorded and the information requests the public on company activities. www.tofas.com.tr as mentioned are responded as necessary. Information listed by Corporate above. The subsections on the website Governance Principles are included feature necessary details, records and Besides our main Shareholders Koç with due care. information. Holding A.Ş. and Fiat Auto S.p.A., information is also available on our Our Annual Report for the past These sub-sections include the website about our shareholders who period, prepared in conformity with following: “Stock and Stock Exchange exceed 5% (within our Company’s the Corporate Governance Principles Market Info”, “Shareholding Structure shareholders structure) within the stipulated in the SPK’s “Corporate and Board of Directors”, “Corporate framework of the legislation. Thus, Governance Communiqué” n.II-17.1 Governance”, “Corporate Governance from the link (to Koç Holding’s that entered into force after being

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published in the Official Gazette (date: Report, Activities of Early Detection of via Internal Audit. Both the Audit 03.01.2014) is an accurate and reliable Risk and Risk Management Committee, Committee and the Early Detection source just like in the previous years, Associate Company Report, Auditor’s of Risk and Risk Management available both in print and online via Report on the Early Detection of Risk Committee pay maximum attention our website. System and Committee, Remuneration to these matters during the meetings. Policy, Dividends Distribution Policy, Besides Tofaş Rules of Ethical Conduct In addition, necessary additions have 2015 Dividend Distribution Proposal, and Operating Guidelines for the been made to our Annual Report and 2015 Dividend Distribution Table. Ethics Board, Anti-bribery and Anti- which has been produced in view of The sixth and last section titled Corruption Policy was issued in 2015, the provisions of the Regulation on “Financial Information” contains and posted on the corporate website. Determining the Minimum Contents of Consolidated Financial Statements Within the scope of anti-bribery and Annual Reports of Companies published and Independent Auditor’s Report, and anti-corruption program, necessary by the T.R. Ministry of Customs and Consolidated Financial Statements guidelines, procedures and policies Trade in the Official Gazette dated 28 Independent Auditor’s Report. have been produced and put into force. August 2012, and our Annual Report is being updated within the frame of the Issues set forth by the mentioned Specifically, headings such as Human legislation and regulations. Communiqué Vol. IV, No: 56 on Resources, Business Management Designation and Implementation of Policies, Rules of Ethical Conduct and The headings in the present 2014 Corporate Governance Principles topics related to Tofaş Dealer Network Annual Report have been addressed issued by Capital Markets Board and Supply Chain Management under 6 main sections: Article 2.2 Activity Report Section were practices are addressed in the provided with the details for informing Company’s Annual Report. The first section titled “Tofaş at a the public fully and accurately. Glance” covers the parts Independent We adhere to, and are guided in our Auditor’s Report on the Annual SECTION IV- STAKEHOLDERS actions by, the principles spelled out in Report, About Tofaş, Key Financial and the “United Nations Global Compact”, Operational Highlights, Institutional 4.1. Keeping Stakeholders Informed to which our partner Koç Holding is a Investor Relations, Vision, Mission Based on the concept of “stakeholders” signatory, and which are implemented and Values, Tofaş in 2014 and Awards referring to employees, suppliers, at Koç Group companies in the audit & Recognitions. The second section customers and basically third and reporting of related processes, and titled “Management” includes parties in direct relationship with by the principle of being a responsible Chairman’s Message, Board of the company, our Company develops corporate citizen together with all Directors, Evaluation by the CEO and policies for various stakeholders and/or our employees, dealers, suppliers and Senior Management. Section three stakeholder groups. authorized service outlets. titled “Activities” includes The Turkish Automotive Sector And Tofaş’s Place All rightful parties and stakeholders Tofaş Code of Ethics and Ethic Board in the Sector, Brands and Products, are entitled to the same practices, procedures are available on our Dealership Network, Subsidiaries, implementations and effective Company’s website and intranet. Thus, Research & Development, Human communications. Our corporate a communication channel is available Resources and Quality Management. governance practices ensure the to make applications about any actions Section four entitled “Sustainability” protection our stakeholders’ rights, nonconforming with the code of ethics, includes Sustainability and Social which are both defined by relevant and issues of misconduct within the Responsibility Policy, Corporate regulations and also those which are scope of practicing legal legislation Social Responsibility, Environment, not defined yet. and unethical actions. Applications Occupational Health & Safety, Business can be made sending e-mail to Management Values, Ethical Values, Necessary and systematic etikkurul@ tofas.com.tr or with a Climate Change and Supply Chain communication channels have been written application. Application that Management. Section five entitled established to keep the Company’s will be made to the Board will be kept “Corporate Governance and Other stakeholders informed on matters that confidential. Issues” contains Agenda of General are of concern to them. Additionally, Assembly Meeting, Information on the the Company has also made available Through the communication and Capital Structure and Shareholding of the necessary mechanisms for whistleblower line, stakeholders the Company, Declaration of Corporate reporting the illegitimate and unethical can notify illegitimate practices and Governance Principles and Compliance transactions to the Audit Committee unethical acts and actions to Tofaş

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Ethics Board for handling by the duties, responsibilities and operating and provides feedback accordingly. relevant Committee. The Ethics Board principles of the Ethics Board are Moreover, activities regarding will adhere to the procedures in its available to the public on Tofaş “Customer Relations Principles” and preliminary assessment. website. similar practices ensure effectiveness and maximization of customer Tofaş Ethics Board is formed of the 4.2. Participation of Stakeholders in relations and implementation of Company’s CEO, related Directors, HR Management policies towards improvement of the Director and the Company’s Chief Legal Procedures allowing the participation service quality. In connection with Counsel and Internal Audit Manager. of the stakeholders in the improvement these practices, we have planned and The Board holds periodic meetings; in of administrative matters and implemented studies covering current addition, the Ethics Board is required expressing their ideas actively in this events within the reporting period. to meet within no later than two respect are in place in our company. business days upon invitation by any The process and mechanisms to ensure Within the frame of relations with one of its members. that beneficiaries as stakeholders customers and clients, any and all participate in Company Management actions to ensure customer satisfaction The Board is ex officio or upon any regarding the issues related with them during marketing, sale and post- application, entitled to make necessary are supported and implemented by the sale of the goods and services of investigation and research about Company. the company have been taken and actions and practices contrary to put into practice. A prompt response principles. ID and contact information With the objective of becoming WCM is made to customer queries and must be included in these applications. (World Class Manufacturing) and demands regarding our products For the investigation and research it WCC (World Class Company), similar and the customers are provided with will make about actions and practices implementations are being developed the required feedback. Maximum contrary to principles, the Board may and maintained. For its outstanding efforts and resources are used for request information and documents manufacturing capacity, our Company proactive solutions to company from entities by using channels of has achieved gold level in WCM in complaints. Improvement studies are public authorities. 2013, and repeated this achievement organized systematically and high also in 2014 and 2015. Systematic quality is assured by means of quality In terms of Corporate Governance meetings and training programs certifications and quality standards. Principles, the system implemented aiming to increase productivity are and the Board decisions taken within organized based on the total quality The principles and policies for the scope of the Company’s internal philosophy, such as quality systems, suppliers as well as satisfaction control and internal audit are quality improvement methods, Kaizen criteria in customer centered product submitted for the information of the studies, and open door meetings, and services are regularly measured Audit Committee. The Audit Committee whereby employees, suppliers and and followed up by the related units of determines the methods and criteria customers can convey their demands the company. Furthermore, we attach to be implemented for reviewing and about these aspects. Also surveys importance to arrangements related to resolving the complaints received such as “working life assessment customers and suppliers based on the regarding the Company’s accounting questionnaires” are being administered market developments. Comprehensive and internal control system and in line with our Human Resources application procedures are available in independent audit, and for handling Policies. In addition to our company this regard. the Company employees’ notifications website, there is also an intranet regarding the Company’s accounting and printed company magazine In addition to those, the Customer and independent audit within the (Tofaş Gazete) in order to improve Relations Management department frame of confidentiality principle. managerial communication within the continued to work effectively and in Furthermore, relevant issues can also organization. coordination in 2015 as it did in 2014 be separately addressed by the Early to enhance customer satisfaction Detection of Risk and Risk Management In addition to dealership council and concerning marketing and sales of the Committee, if deemed necessary. dealership organization meetings, Company’s products and services. there is a system through which Anti-Bribery and Anti-Corruption customer demands and satisfaction Our company accords utmost Policy sets out the basics about the level are analyzed. The company importance to practices that are topic. Information on the Tofaş Ethics management evaluates this built upon quality, efficiency and Board and its operation setting out the information, takes necessary actions institutionalization. Also due care

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is taken to develop and introduce also have representatives in each on the company intranet, as well as on “governance” methods that will of these committees. However, no the corporate website. increase participation of beneficiaries representative has been selected and/ in management in line with the or assigned to coordinate relations A structuring initiative under the name stakeholders’ feedback. Therefore, directly with the employees except for Tofaş Academy was initiated previously, beneficiaries’ comments and feedback the employee union relationships. which also tackled development are regarded as important inputs processes; it was used effectively with respect to significant decisions The rights and work conditions of along with Koç Academy in 2014 and that bear an implication in respect of both the white collar and blue collar continued with scheduled training beneficiaries or that directly concern personnel are ensured both in our programs and activities during 2015. them. plant and headquarters without any Effective and efficient use of Tofaş discrimination or abuse. No employee Akademi and Koç Akademi portals Furthermore, “Sustainability complaints were made during the is promoted especially in terms of Management” and “Stakeholder reporting period. Due care is taken for training. In this frame, our Company Relations” bear significance in terms participation of Company employees attaches the utmost importance to of “Governance and Sustainability”, in management at all levels through social rights and professional training as underlined in the 2013 and 2014 feedbacks, periodic meetings and other of its employees. It closely monitors Sustainability Reports which have efforts. and adopts developments in HR been prepared under the Company’s practices. Sustainability Policy and which can Tofaş pays special attention to be accessed and reviewed from our protecting human rights and to Tofaş Personnel Directive, in which website. Necessary efforts are being supporting the performance in this recruitment, working process and spent to implement these two topics field with policies and practices dismissal procedures based on effectively. Working environment, within business processes. In addition, effective, efficient and concrete criteria improving the value chain and cultural exchange clubs started are determined in detail, is available corporate citizenship gain visibility as activities within the frame of various both on our website and on intranet. our key parameters. Additionally, “we events that are open to participation Company employees’ job descriptions, deem it as a primary responsibility by all employees and are intended to job distributions, subrogation to establish an environment of promote employee development as procedures for top management communication” with a special focus part of the corporate culture efforts. and orientation conditions for all on “transparency with stakeholder Activities are being planned according employees were determined while groups”, as mentioned in the 2014 to evolving priorities and carried on as performance management regarding Sustainability Report. they were in previous years. the targets, and criteria regarding behavioristic competencies and 4.3. Human Resources Policy Special emphasis is placed on technical competencies were defined “Human Resources Policy” of the performance evaluations, behavioral through a systematic SAP HR program. Company has been prepared in competencies, career planning and Our HR Policy can be accessed for accordance with the company career management. In 2014, our review on our corporate website. strategies and policies and they are Company was awarded by Peryön Also available on our website is accurately implemented as per the (Turkish Personnel Management information on Tofaş Personnel Bylaws new implementations. Association) for its “Performance (Recruitment, Terms of Employment, Management System”. Our Company Termination of Employment Contract In this context, recruitment, career received awards in two categories from etc.). The job descriptions of Company planning and rotation, individual TEGEP (Learning and Development employees, their distribution by job development, wage and performance Association) in 2015, while collecting families, performance criteria and management issues are handled. the Brandon-Hall Excellence Award in the rewarding system have been Work-related issues and main duties four categories. determined and released. and responsibilities of employees are also outlined in the Personnel An employee compensation policy was Our Company is in the status of Guidelines which are prepared in line created and issued on the company a workplace subject to collective with the relevant law and collective website. Human Resources and bargaining agreement (the bargaining. Various committees Business Management Policies were Bursa factory), and workplace have been established to coordinate improved and made available for union representatives (Employee employee relations and employees access by all employees. It is posted Representatives) comprise 12

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individuals namely, Mr. Şakir Çan, or associations, foundations and it carries out. In 2015, our Company Mr. Aydın Pakça, Mr. Ferdi Pak, organizations working for social causes. was recognized with an award in the Mr. Mesut Kaya, Mr. Serdar Belli, “Social Responsibility” category with Mr. Ersel Alper, Mr. Murat Hürsever, In this context, support is given to its “Fiat Laboratories – Fiat Technical Mr. Yılmaz Dalkıran, Mr. Hakan Ekin, projects in a wide range of disciplines Education Program” at the “Learning Mr. İlhan Köse, Mr. Bayram Ömürlü from education to sports, from cultural and Development Awards” organized and Mr. Hasan Özel. Their duties are activities to the arts. These initiatives by TEGEP. Tofaş was also awarded the specified in the collective bargaining include, among others, Fiat Laboratory, “Sustainable Green Business Award” in agreement in force. Master’s Program, Tofaş Science the “Carbon and Energy Management” High School, Tofaş Sports Club, Tofaş category by the Sustainability Academy In addition, we have a comprehensive Basketball Schools, Bursa Museum for its project “Proactive Carbon and Human Resources system composed of Cars and Anatolian Carriages, Energy Management in 7 Steps” in the of occupational health and safety Pamukkale Hierapolis Archeological reporting period. management, and Business Excavations, and Küçükyalı Arkeopark Management policies. Creating Excavation sponsorships. Within this scope, Tofaş became the safe working areas and work safety first Turkish company to rank among culture with its “Seven Step Work Activities that will raise awareness the 187 companies that entered the Safety” methodology based on simple, and recognition, and “sustainability CDP’s Global A List based on its 2014 proactive and World Class Production perspective” are important elements Climate Change Report prepared approach, Tofaş aims to protect all of these social responsibility initiatives under the CDP (Carbon Disclosure Human Resources within the company and sponsorships. The Sustainability Project). The Company was also against work accidents and injuries Policy is of particular importance in the first automotive company to caused by occupational diseases. this respect. Information on these qualify to be included in the Borsa Furthermore, Tofaş aims to zero work topics is available in the Company’s İstanbul (BIST) Sustainability Index. accidents and occupational diseases Annual Report and Sustainability In 2015, the Company continued by using Occupational Health and Report and also on the corporate with its reporting under the CDP and Safety (OHS) Policy management website. remained in the Sustainability Index by system. Information on these topics is achieving continued conformity with presented in the Sustainability Report, There were no complaints regarding the criteria of the index. Sustainable as well as in the Annual Report. The environmental issues during the manufacturing and green product Company’s Sustainability Reports are reporting period and we have records concepts reflect this sensitivity in the available at www.tofas.com.tr. including environmental assessment environment and energy policy. reports. We have been implementing 4.4. Ethics and Social Responsibility effective practices and inform our The Company takes necessary steps Social activities for the district where stakeholders within the scope of to ensure compliance with, and the plant is located and the society environmental sensitivity policies with implementation of ethical rules in in general are organized, carried the existing ISO certificates related general. Related information has out and followed up according to to meeting quality and effectiveness been presented in detail in the corporate social responsibility and standards. Furthermore, our Company relevant subsections hereinabove. societal impact area criteria. Related continues its extensive activities The members of the company comply activities during the reporting period related to Social Responsibility projects with the generally accepted ethical are detailed in the Annual Report. and environmental protection and rules forming a part of the regulations Furthermore, the internal publication presents them to the knowledge and arrangements. In addition, in (Tofaş Gazete), which is periodically of the public. Furthermore; with the context of Principles of Corporate published on the intranet (tofasweb) comprehensive Corporate Social Governance, our ethical rules are and in print, covers our social initiatives Responsibility projects, issues of formalized in a written document ranging from corporate to individual protecting the environment, energy and announced as “Tofaş Business activities, as well as various news and management and awareness and Ethics Principles” in our “Personnel information. In addition to sponsorship activities for climate change are given Regulation”. These ethical rules covers of a range of printed works, sponsorship maximum importance. Our Company issues regarding our shareholders, support is extended to Koç Group’s continues and publicly announces disclosure of information, employee social responsibility initiatives and/ the issues regarding these activities activities, stakeholders and the

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Board of Directors. If and when and awareness for human rights. As a there is no need for such restriction. there are revisions in these rules, consequence of our approach in this Before the General Assembly, members’ the updates will be disclosed to all issue, absolutely no “child workers” résumés and tasks they assume outside our stakeholders in line with our are employed in Tofaş; and there are the company are presented for the Disclosure Policy. no “involuntary servitude” practices. shareholders’ information.

The said “Tofaş Business Ethical One instance of the importance Tofaş Corporate Governance Committee Principles” are published in our website gives to human rights and practices carries out the tasks of the Nomination under the ethical rules section. In 2009, related to them is to be seen in Committee within our Company. an Ethics Board was also established the first article of the Tofaş Code of within the scope of Company’s Ethics which states that the company The number of independent member Corporate Policies. Previously revised “respects human rights and the candidates presented to the Corporate “Ethics Rules and Implementation constitutional rights of freedom of Governance Committee for 2014 Principles” were issued and information association and collective bargaining”. was two. ID information, statement was provided by distribution to Tofaş of candidacy and résumés of these employees at all levels periodically. Acting in compliance with the persons were evaluated at the principles determined by the “United Corporate Governance Committee Tofaş Code of Ethics applies to all Tofaş Nations Global Compact”, to which meeting held on 27.01.2014 and employees, Board of Directors members, our partner Koç Holding is a signatory at the Board of Directors meeting Shareholders, Subsidiaries, Dealers and and which is implemented at Koç n.2014/1 held on 27.01.2014, and a Suppliers - in brief all Tofaş people. Group companies in the audit and decision was taken to nominate all reporting of related processes, has of them as independent member All Tofaş people are expected to been espoused within the frame of candidates. Independent All Members comply with Tofaş Code of Ethics. Tofaş the principle of being a role model of of the Board of Directors presented People are obliged to abide by Tofaş corporate citizenship together with all their independence statements to the Code of Ethics. our employees, dealers, suppliers and Corporate Governance Committee. authorized service outlets. As per the sixth paragraph of Tofaş does not exercise discrimination the 5th Article of the mentioned in whatsoever manner in its business Related activities have been carried Communiqué, Mr. Gökçe Bayındır and dealings on the basis of language, out exercising due care in 2015, as in Mr. Libero Milone were determined race, gender, political affiliation, previous years. as Board of Directors’ independent philosophical belief, religion, sect or member candidates in conformity similar reasons. Unless dictated by SECTION V – BOARD OF DIRECTORS with the regulation “minimum half reasons pertaining to the nature of the of the independent members (would job such as the risk associated with the 5.1. Board of Directors’ Structure and be sufficient)” for the criteria “to specific position, employee safety, legal Formation be considered resident in Turkey obligations, etc., different practices are The task and duties of the Chairman of according to the Income Tax Law” not implemented directly or indirectly the Board of Directors and the CEO are stipulated in the paragraph (d) of the by reason of gender or pregnancy assumed by different persons. Company first clause of the compulsory principle when concluding an employment CEO is an executive Member of the n.4.3.6., and an application was made contract, formulating its terms Board of Directors. Since, other Members on 27.01.2014 to the Capital Markets and conditions, and/or terminating of our Board of Directors do not have Board within the scope of the Article it. Lower remuneration cannot be administrative jobs at our Company, they n.4.3.7 of the Communiqué. After the determined due to gender for the are not executive members according to necessary consent received with the same or equivalent job. Recruitment, the definition made in the SPK Corporate Capital Markets Board decision n.5/136 appointment and promotion are based Governance Principles. Members of the (date: 17.02.2014) for the independent on objective performance criteria Board of Directors pay attention to spare member candidates of the Board of without discriminating on the basis of the necessary time for the Company Directors, the independent members language, religion, gender, race, etc. affairs. There are no restrictions for were elected for a 3 year term at the them to assume other tasks outside the General Assembly held on 28.03.2014. For our employees, in particular, and company. Particularly for the reason As of 2014 operating period, there for all our shareholders in the value that independent members’ professional were no situations that would end the chain we have created, Tofaş tries to and sectoral experience has significant independency. expand the practices that have respect contribution to the Board of Directors,

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Independent Member of the Board (more than 5%) particularly in the f) I will be able to spare the sufficient of Directors Mr. Gökçe Bayındır’s companies that provide auditing, time for the activities of the Independence Statement is given rating and consulting services for Company to an extent that will below; the Company (including tax audit, help me pursue the activities legal audit, internal audit), and in of the Company and fulfill the I do declare that I am a candidate for the companies that the Company requirements of my tasks and assuming the role of an “Independent purchase products and services duties, Member” in the Board of Directors from or sells products and services of Tofaş Türk Otomobil Fabrikası A.Ş. to within the framework of the g) I have not been a member of the (Company); within the scope of the agreements signed (during the Board of Directors of the Company criteria stipulated in the legislations, timeframe of selling/purchasing of for more than 6 years in total within the Articles of Association of the the products and services, the last decade, Company and the Capital Markets Board’s Corporate Governance c) I do have the professional training, ğ) I have not been an independent Communiqué II-17.1, and within this knowledge, and experience that will member of the Board of Directors in scope; help me properly carry out the tasks more than three of the companies and duties I will assume as a result controlled by the Company or by a) Within the last five years, no of my independent membership in the shareholders who control the executive employment relation the Board of Directors, management of the Company and that would give important duties in more than five of the publicly and responsibilities has been ç) In accordance with the legislations, traded companies in total, established between myself, my I will not be working fulltime in spouse, my second degree relatives public institutions and organizations h) I have not been registered and by blood or by marriage and (i) the (except working as an academician announced on behalf of the juridical Company and (ii) the subsidiaries at the university) after being elected person elected as member of the of Company, and (iii) shareholders as a member, Board of Directors, who control the management of Company or who have significant d) I am considered a resident in Turkey influence in Company and juridical according to the Income Tax Law persons controlled by these (n.193) dated 31/12/1960, shareholders; and that I neither possess more than 5% of any and all e) I do have the strong ethical capital or voting rights or privileged standards, professional standing shares nor have significant and experience that will help me commercial relations, positively contribute to the activities of Company and remain neutral b) Within the last five years, I have not in conflicts of interests between worked as an executive manager Company shareholders, and that who would have important duties will help me take decisions freely by and responsibilities or have not taking the rights of the stakeholders been a member of the Board of into consideration, Directors or been a shareholder

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Independent Member of the Board c) I do have the professional training, Brief information about the members of Directors Mr. Libero Milone’s knowledge, and experience that will of our Board of Directors and the Independence Statement is given help me properly carry out the tasks positions they hold in the Company below; and duties I will assume as a result as at the end of the reporting period of my independent membership in is presented below. By the Board of I do declare that I am a candidate for the Board of Directors, Directors decision no. 2015/1 dated 13 assuming the role of an “Independent January 2015, Mr. Cengiz Eroldu was Member” in the Board of Directors ç) In accordance with the legislations, appointed as the Company’s CEO and of Tofaş Türk Otomobil Fabrikası A.Ş. I will not be working fulltime in Board member to succeed Mr. Kamil (Company); within the scope of the public institutions and organizations Başaran who held these positions criteria stipulated in the legislations, (except working as an academician previously. Later in the year, Mr. Osman the Articles of Association of the at the university) after being elected Turgay Durak was appointed to succeed Company and the Capital Markets as a member, Mr. Levent Çakıroğlu by the Board of Board’s Corporate Governance Directors decision no. 2015/11 dated d) I do have the strong ethical Communiqué II-17.1, and within this 01 March 2015, and Mr. Giorgio Fossati standards, professional standing scope; to succeed Mr. Ali Aydın Pandır by the and experience that will help me Board of Directors decision no. 2016/4 positively contribute to the activities a) Within the last five years, no dated 18 February 2016 as Board of Company and remain neutral executive employment relation members. Mr. Mustafa Vehbi Koç, the in conflicts of interests between that would give important duties Chairman of our Board of Directors, Company shareholders, and that and responsibilities has been sadly passed away on 21 January 2016. established between myself, my will help me take decisions freely by taking the rights of the stakeholders spouse, my second degree relatives The résumés of the Members of the into consideration, by blood or by marriage and (i) the Board of Directors and Company CEO Company and (ii) the subsidiaries e) I will be able to spare the sufficient are available in the relevant section of of Company, and (iii) shareholders time for the activities of the our Annual Report. who control the management of Company to an extent that will Company or who have significant help me pursue the activities influence in Company and juridical of the Company and fulfill the persons controlled by these requirements of my tasks and shareholders; and that I neither duties, possess more than 5% of any and all capital or voting rights or privileged f) I have not been a member of the shares nor have significant Board of Directors of the Company commercial relations, for more than 6 years in total within the last decade, b) Within the last five years, I have not worked as an executive manager g) I have not been an independent who would have important duties member of the Board of Directors in and responsibilities or have not more than three of the companies been a member of the Board of controlled by the Company or by Directors or been a shareholder the shareholders who control the (more than 5%) particularly in the management of the Company and companies that provide auditing, in more than five of the publicly rating and consulting services for traded companies in total, the Company (including tax audit, legal audit, internal audit), and in ğ) I have not been registered and the companies that the Company announced on behalf of the juridical purchase products and services person elected as member of the from or sells products and services Board of Directors, to within the framework of the agreements signed (during the timeframe of selling/purchasing of the products and services,

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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT

Positions in Current Positions Independent/ Partnership for Held Outside the Share of Capital Share Non- Committees and Name/Surname Gender Position Job the last 5 years Partnership (%) Group independent Position Chairman of Chairman of the Board of Non- Mustafa Vehbi KOÇ Male Chairman Director the Board of 0.0389 A - Directors in Koç independent Directors Holding A.Ş. Chairman of the Board of Directors in Fiat Vice Chairman Industrial S.p.A. Non- Sergio MARCHIONNE Male Vice Chairman Director of the Board of & Chairman of - D - independent Directors the Board of Directors and CEO in Chrysler Group Finance Director Non- Cengiz EROLDU Male Member & CEO Director - - D - (CFO) independent Vice Chairman Member of of the Board of Non- Temel Kamil ATAY Male Member Director the Board of - A - Directors in Koç independent Directors Holding A.Ş. CEO of Koç Non- Levent ÇAKIROĞLU Male Member Director - - A - Holding A.Ş. independent CEO of Fiat Group S.p.A. EMA & Corporate Member of Chairman of Non- Governance Alfredo ALTAVILLA Male Member Director the Board of - D the Business independent Committee - Directors Development Member in Fiat Governance Committee Chairman of – Member Member of Koç Holding Non- Risk Early İsmail Cenk ÇİMEN Male Member Director the Board of - A A.Ş: Automotive independent Detection and Directors Group Management Committee - Member Chairman of Koç Holding A.Ş. Member of Defense Industry, Non- Kudret ÖNEN Male Member Director the Board of - A - Other Automotive independent Directors and Information Group General Counsel Risk Early for Fiat Chrysler Detection and Non- Giorgio FOSSATI Male Member Director - Automobiles N.V.; - D Management independent General Counsel Committee - for FCA EMEA Member Purchase Chairman of Fiat Chrysler Group Scott Richard Non- Male Member Director - And Member - D - GARBERDING independent of Executive Committee of Group Audit Committee – Chairman Corporate Independent Governance Independent Member of Committee Independent Member of Gökçe BAYINDIR Male Director the Board of - A Independent – Member Member the Board of Directors in Risk Early Directors Tüpraş Detection and Management Committee – Chairman Audit Committee – Member Independent Corporate Member of Governance Independent the Board of Committee Independent Member of Libero MILONE Male Director Directors in Falck - D Independent – Chairman Member the Board of Renewables S.p.A Risk Early Directors and Paltrona Detection and Frau Group Management Committee – Member

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We believe that diversity of knowhow, the Board of Directors, the distribution executives separately for Koç Holding experience and point of view in our of tasks in the Board of Directors, and Fiat Auto representing Group A and Board of Directors will have positive representation and delegation of Group B. impacts on the Company activities management. As mentioned above, and will enable the Board of Directors all Board of Directors decisions While overseeing the Company’s to work effectively. Furthermore; are passed by the attendance and operations, the Board of Directors Corporate Governance Principle n.4.3.9 affirmative votes of the absolute assesses whether a conflict of interest is evaluated within this scope. Our majority of all members. However, is likely to arise, and the outcomes of evaluations continue to set a target attendance and affirmative votes of such conflict, if applicable, and passes ratio and policy for female Members of at least two non-independent Board the necessary decisions to the best the Board of Directors who also serve members representing Group A shares interests of the Company. Moreover, as an instrument for representing and of at least two non-independent The Board of Directors ensures different ideas. Board members representing Group regulatory compliance in related D shares are required for achieving party transactions, considers possible 5.2. Functioning of the Board of this quorum as per Article 10 of the misconduct risks, and meticulously Directors Articles of Association. The provision addresses related party transactions. Titles or agenda items regarding of Article 15 of the Articles of Resolutions of the Board of directors Association is reserved with respect 5.3. Number, Structure and are prepared and issued periodically to decisions requiring the attendance Independency of Committees Formed and as necessary. The number of and affirmative vote of independent under the Board of Directors the meetings of the Board may vary members. Pursuant to the Article 11 of the depending on emerging needs. The Articles of Association, an Executive Board of Directors has made 23 Article 11 of the Company Articles Committee consisting of 4 persons -2 decisions in 2015 and the minutes of Association regulates “Division of Group A and Group D shareholders of meetings regarding the decisions Tasks, Representation and Transfer – can be established if and when are duly registered. Board of Director of Management for the Board of deemed necessary. The Committee can meetings are called and convened Directors”. In addition, other items be established among the members of whenever Company business requires the Articles of Association also the Board of Directors in order to carry it. cover the required issues. The out the necessary actions between two Company management is specified Board meetings. The relevant unit coordinates the pursuant to Turkish Trade Code and meeting agenda, minutes, and board the relevant regulations mainly Pursuant to the relevant SPK resolution records. When there is a based on representation and Communiqué, an Audit Committee dispute regarding a board resolution, binding of the company, and the has been set up and pursuing the relevant case, along with its authorities are exercised pursuant activities since 2003; the Committee justifications, is recorded. Board to legal requirements. Duties and is responsible for presenting its resolutions also should contain responsibilities of members of the opinion and proposal regarding relevant inquiries and responses in Board of Directors and the executives the financial results to the Board this regard. Board decisions are made of the Company are included in the of Directors based on available by attendance and positive vote of legal regulations, capital market information derived by following up absolute majority of members (within regulations and the Articles of financial matters, reviewing periodical the scope of Article 10 of the Articles Association. financial statements and notes of Association). Requirements set forth thereto, carrying out the necessary by Corporate Governance Principles by The Corporate Governance Committee activities as defined by the Corporate Capital Markets Board are reserved. carries out the procedures related to Governance Principles and reviewing nominating candidates to the seats on the Independent Auditor’s Report. The No weighted votes or vetoing rights the Board of Directors, and to election Audit Committee is also charged with are granted as per the TCC. Articles 10 and appointment of the nominees. monitoring the internal audit process and 11 of the Articles of Association There is an “Officers’ Liability and it is constituted by independent govern the election, formation, Insurance” policy for our Company’s Board members pursuant to the SPK decision quorum and term of office of Board of Directors members and senior Communiqué No: II-17.1. In 2012,

83 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT

the operating principles of the Audit as CEO, Mr. Stefano Reganzani was Committee. As at the end of the Committee were revised and publicly appointed to the Financial Director reporting period, the Committee disclosed. (CFO) position vacated by Mr. Eroldu was formed of Mr. Gökçe Bayındır based on the Board of Directors (Chairman – Independent Board The Audit Committee has been decision no. 2015/13 dated 15 April Member), Mr. Libero Milone (Member reconstituted by the Board of Directors 2015, whereby Mr. Reganzani was – Independent Board Member), decision no. 2014/12 dated 11 April also appointed as a member of the Mr. İsmail Cenk Çimen (Member – 2014. As at the end of the reporting Corporate Governance Committee. As Board Member) and Mr. Giorgio Fossati period, Mr. Gökçe Bayındır (Chairman at the end of the reporting period, the (Member - Board Member). – independent Board member) Committee was formed of Mr. Libero and Mr. Libero Milone (Member- Milone (Chairman – Independent The Chairmen of these Committees independent Board member) was Board Member), Mr. Gökçe Bayındır should be selected among Independent serving on the Committee. (Member – Independent Board Board Members as per the mentioned Member), Mr. İsmail Cenk Çimen Communiqué on Corporate Governance Furthermore, Corporate Governance (Member – Board Member), Mr. Alfredo Principles. Both Independent Board Committee under Corporate Altavilla (Member – Board Member) Members are members of each Governance Principles been and Mr. Stefano Reganzani (CFO). committee. Mr. İsmail Cenk Çimen, established in 2008. Corporate member of Corporate Governance Governance Committee has started As per the related provisions of new Committee is also a member of Early its activities in accordance with the Turkish Commercial Code effective as Detection of Risk and Risk Management Corporate Governance Principles, of 01.07.2012, Early Detection of Risk Committee. Board Member is a regulations issued by SPK as per the and Risk Management Committee has member of both Committees for their related legislation and the activities been established with the purposes of coordination. of the Company regarding Corporate efficiency of Committees established Governance Principles. The said under the Board of Directors, early Audit Committee, Corporate Committee carried out its activities detection of risks which may jeopardize Governance Committee and Early effectively in 2013, as it has since the Company’s existence, improvement Detection of Risk and Risk Management its establishment. Compliance of the and progression, implementation of Committee hold periodic and Company with Corporate Governance measures related with such risks and other meetings as required by the Principles is followed up by the Board risk management and implementation legislation. In accordance with the of Directors, rules of procedures of and follow-up of Company’s internal rules of procedures, meetings with a Corporate Governance Committee have control, internal audit and risk certain agenda can be held other than been revised in 2012 and disclosed. management activities and its rules of periodic meetings. In this context, procedures have been set as of 2012. Audit Committee has held 5 meetings The Corporate Governance Committee and Corporate Governance Committee was restructured by the Board of Early Detection of Risk and Risk has held 5 meetings in 2015. Early Directors Decision no. 2014/12 dated Management Committee was Detection of Risk and Risk Management 11 April 2014. Based on a subsequent restructured by the Board of Directors Committee has held 6 meetings. Decision no. 2014/15 of the Board of decision no. 2014/12 dated 11 April Directors taken on 27 June 2014 in line 2014. Subsequently, Mr. Giorgio Board of Directors is informed about with the SPK Corporate Governance Fossati was appointed to succeed the committee roles, its activities Communiqué no. II-17.1, it was Board member Mr. Ali Aydın Pandır and the reports. When required, decided to appoint the Company’s based on the Board of Directors experts and other managers who are Financial Director (CFO) Mr. Cengiz decision no. 2016/4 dated 18 February not Committee members but related Eroldu to the committee, besides the 2016, whereby Mr. Fossati was also with the agenda can be invited to the existing members, under Article 11 appointed to the member seat vacated Committee. Furthermore, task groups of the Communiqué. However, upon by Mr. Pandır on the Early Detection consisting of people with required appointment of Mr. Cengiz Eroldu of Risk and Risk Management experience and information can be

84 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

formed. The committees act in line In line with the Risk Management legislation and corporate risk with their responsibilities and submit Policy, Company’s risk management management and the internal control their comments and recommendations is organized in conformity with the system function well and the related to the Board. Final decisions are made legal regulations and legislation records are kept. by the Board. to make reporting to the Board of Directors. Within this framework The unit responsible for Internal Audit The Board of Directors expressed the policy is based on the following directly reports to the Company’s its positive opinion regarding the principles; “protecting company assets CEO who at the same time is a efficiency of the Committees. and values”, “ensuring commercial, Member of the Board of Directors. financial and operational confidence” This unit examines processes and 5.4. Risk Management and Internal and “ensuring sustainability in prepares reports regarding current Control Mechanism corporate risk management”. In and potential risks and proposes A risk management is envisaged addition to this, Company Management solutions. Predictable risks attached and internal control organization is is financially, commercially, to the activities will be evaluated, established depending on financial operationally and organizationally information flow will be followed up and administrative activities of the responsible for taking and by the Board Member and CEO and the company and the functioning and implementing all measures necessary results will be evaluated by the Audit effectiveness of the internal auditing for corporate risk management and Committee and Early Detection of Risk shall be followed up according to internal audit activities. and Risk Management Committee and capital market regulations and rules. submitted to the Board of Directors. As of the end of 2015, it has been Board of Directors is responsible for assessed that proactive measures Within this framework, the Board of proper functioning of internal control are taken against financial and Directors carries out risk management system and internal audit and CEO will operational risks and predictable activities via the Early Detection of Risk make the coordination on behalf of the potential risks through the Company’s and Risk Management Committee, as Board of Directors. Early Detection of internal control system, internal stated in related sections hereinabove. Risk and Risk Management Committee audit activities and corporate risk The Early Detection of Risk and Risk as well as the Audit Committee will management and that the Company Management Committee reviews the follow-up proper functioning of meets the legislative requirements effectiveness of the risk management internal control system, internal audit regarding internal control, internal systems, and reports its activities and and risk management and submit the audit and risk management. After assessments to the Board of Directors. results to the Board of Directors. reviews, it has been stated that no The Committee’s activities are covered important problems were observed on in the section titled “Activities of Thus, corporate risk management the effectiveness of internal controls the Early Detection of Risk and Risk and internal control systems were for providing effective, secure and Management Committee” of this established by the Board of Directors. uninterrupted provision of Company’s Annual Report. The Annual Report The activities of these processes activities and services; integrity, also includes the Auditor’s Report and systems are coordinated within consistency, timely availability and containing the independent auditor’s the Committees. Internal Control reliability of data provided by the assessment and clearance about the Systems and Internal Audit Process Company’s accounting and financial topic. are primarily monitored and pursued reporting system; effectiveness, in the Audit Committee. Furthermore; efficiency and adequateness of internal 5.5. Strategic Targets of the Company the effectiveness of these systems are controls aimed at providing security Company’s strategic targets are set, evaluated by the Early Risk Detection and the running of internal control, approved, and implemented by the and Risk Management Committee internal audit and risk management Board of Directors. Board of Directors together with the corporate risk system regarding the preparation makes assessments by periodically management process. of consolidated financial tables reviewing the level of achieving in accordance with the applicable Company’s targets, and activities and

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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT

previous performance of the Company. Top-Level Management will use its and in the Annual Report, has been In this context, the Board of Directors maximum efforts to ensure effective included in the agenda of the Ordinary ensures that necessary measures are management of the Company and General Assembly meeting that will taken in a manner most appropriate to periodically inform the Board of be held to address 2015 activities, the Company’s risk, growth and revenue Directors and the related Board date of which will be released by the balance in terms of strategic decisions Committees as per the regulations and Board of Directors once it is definitively while it administers the Company by the legislation based on Directorates set. The policy will be laid down for overseeing the Company interests. on behalf of the CEO and all the opinions of shareholders in the As per the strategic priorities and stakeholders. General Assembly Meeting. objectives, the mission, vision and values of the Company have been The Board of Directors exercises the The total amount of payments made formulated and published and necessary degree of responsibility and benefits provided to Members of renewed upon revisions in line with respect to the sustainability of the Board of Directors and Executive with the improvements. Board of these strategic efforts, as well as to Managers within the framework Directors audits the management and enhancing their efficiency. of the Remuneration Policy, are performance of the Company within evaluated every year by the Corporate the scope of providing necessary 5.6. Financial Rights Governance Committee and Board of resources and risk management Board of Directors is responsible for Directors. In our financial statements’ by identifying Company’s strategic Company’s determined and publicly footnotes, the payments made and targets. announced operational and financial benefits provided to the Members of performance targets. Furthermore; the Board of Directors and executive Vision, mission and values along with remuneration principles for the managers are classified together and designation and implementation of Members of the Board of Directors and publicly announced in parallel to Company’s strategic objectives will be executives who have administrative general practices. completed by the Company top-level responsibilities were printed and management, submitted to the Board presented to the shareholders’ Furthermore, the Company does not of Directors and followed-up. Strategic information with a separate agenda perform any transactions that may decisions of our Company were item at the General Assembly. create conflicts of interest and does implemented in 2015 according to not lend money, extend credit, or does their priorities. Based on the strategic Our Company’s “Remuneration Policy not give surety to any of the members targets, the Board of Directors for the Members of the Board of of the Board of Directors or executive reviews and evaluates previous year’s Directors and Executive Managers” – managers who have administrative performance, compares the results that includes all their rights, benefits responsibilities. with targets and determines the and remuneration of the Members of upcoming year objectives proposed by the Board of Directors and executive In the reporting period and as of 2015, the senior management. managers as well as the criteria no loans were granted to the members and remuneration principles used in of the Board or to the senior managers Board of Directors will coordinate the determining these rights, benefits and no credit was utilized by them; Company Top-Level Management in and remuneration – was presented none of them received benefits through designation of Company’s strategic to our shareholders’ review on our third–persons and moreover, no objectives, actively participate corporate website and in the Annual indemnities or similar were provided in in approval and implementation Report and also with the “Informative their favor. processes, periodically review the level Document” issued three weeks prior to of achievement of objectives, activities our Ordinary General Assembly held on and performance of the Company and 27.03.2015. Subsequently, the policy evaluate the functioning, efficiency and was put into practice after the General outcomes of the related system. Assembly. No revisions were made to the said policy during 2015. In accordance with the vision and methods offered by the Board of The policy, which has been publicly Directors and the legislation, Company disclosed on the corporate website

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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEE a) Risk Management range, which will cover passenger cars b) Activities of the Early Detection of The Company’s commercial risks were in four different segments and light Risk and Risk Management Committee minimized and covered under the commercial vehicles in two different Early Detection of Risk and Risk guarantee of export agreements, many segments, upon completion of these Management Committee was set up of which are structured in take-or-pay projects, a move that will significantly based on the Tofaş Board of Directors format, concluded with FCA and PSA contribute to the management of the decision dated 01 October 2012 in groups and Opel and Vauxhall brands commercial risk. order to achieve alignment with Article for the portion of the annual factory 378 of the Turkish Commercial Code capacity allocated to export sales. The financial debts of the Company no. 6102 that went into force on 01 These export agreements provide are composed of long term bank loans July 2012, and to ensure efficient substantial protection to the Company that do not have an FX risk, and are operation of the committees under the against cost, profitability, FX and related to 263 (New Doblò) and 356 Board of Directors. foreign market risks. (Egea line) projects, whose revenues and cash flows are covered under The Committee spends efforts focused The fact that the exports reach all guarantee with export agreements. on early detection of the risks that global markets and the addition of Other financial debts apart from may threaten the Company’s existence, two North American markets to the the loans taken out for the projects development and survival, and takes Company’s existing export destinations are those of Koç Fiat Kredi Tüketici necessary actions in relation to at the end of 2014 for the first time Finansmanı A.Ş. FX and interest rate identified risks, and manages risks. in the history of the Company vested risks were minimized through swap the Company’s export markets in and derivative transactions. Independent Board Member Mr. Gökçe maximum degree of diversification Bayındır was assigned as the Chairman and helped render the market risk The financial indicators of Tofaş as of the Committee, and independent optimally manageable. shown below in the independently Board member, Mr. Libero Milone, audited financial statement as of Board member Mr. İsmail Cenk Fiat Egea, which Tofaş began 31 December 2015 are presented in Çimen and Mr. Ali Aydın Pandır as its manufacturing in the fourth quarter the table below: members. of 2015 in keeping with its plans to increase the diversity of its markets The Committee held 20 periodic and products, drew a high level of Financial Indicators meetings in total; 2 (two) following its interest and appreciation from the (TL million, unless indicated otherwise) establishment, 6 (six) in 2013, 6 (six) European markets. Egea was voted the in 2014, and 6 (six) in 2015. Following 2015 2014 “AutoBest 2016” by the Autobest jury. the re-constitution of the Board of Sold in the European markets under Total Net Sales 9,921 7,440 Directors by the General Assembly in the model name at the end of Net Profit 831 574 2014, it was decided by the Board of 2015, Fiat Egea further diversified the Directors decision no. 2014/12 dated Ratios Company’s product range, and reduced 11 April 2014 that the Committee the product range risk, while serving to Current Ratio 1.15 1.14 would continue its activities with the distribute geographical risks. Profit Before Tax/Net 6.2% 6.3% same members and would preserve Sales its existing structure in line with the On the other hand, Tofaş is targeting Profit Before Tax/ 23.9% 21.1% previously determined operating to introduce two new passenger Equity principles of the Committee. Based car models under the Fiat Egea line Total Debt/Equity 176.1% 132.8% on the Board of Directors decision in 2016: a hatchback and a station no. 2016/4 dated 18 March 2016, wagon. Currently the only maker of Mr. Giorgio Fossati was appointed to passenger cars and light commercial the Committee to fill the member seat vehicles in the domestic market, Tofaş vacated by Mr. Ali Aydın Pandır. will have further diversified its product

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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEE

Following its establishment, the and uninterruptedly in conformity healthy functioning of the enterprise Committee initially evaluated the with the existing laws and regulations, risk and internal control systems Risk Management System in place at and (ii) controls made to maintain the were kept and it was declared that no Tofaş Türk Otomobil Fabrikası A.Ş., integrity, consistency, timeliness and important issues were found. and spelled out the principles of reliability and safety of the accounting risk reporting. Reports produced in and financial reporting system. The administrative body maintains accordance with the set principles a positive opinion about the and the Committee’s assessments are Tofaş coordinates and carries out an Company’s internal control system being presented for the information of internal audit activity that will provide and internal audit activities. In the the Board of Directors periodically. constant monitoring and assessment report presented to the Board of of the internal control system. Directors, the Committee expresses its The Company management carefully positive opinion about the efficiency, considers the extent of the impact The Audit Committee has the primary adequacy and appropriateness of the the Company’s operations, risks and responsibility for monitoring the internal controls carried out to ensure financial, commercial and operational internal control system and internal efficient, reliable and uninterrupted results stemming from the risks will audit process. In addition, the Early performance of Company activities have upon the Company, and manages Detection of Risk and Risk Management and services, and to guarantee the same proactively. For the purpose Committee takes care to address the the integrity, consistency, timely of systematically managing risks, the related system in conjunction with risk availability, reliability and safety of the Company management takes necessary management. The Audit Committee data derived from the accounting and measures to define, measure, assess makes assessments to verify that financial reporting system, as well as the risks and to mitigate/transfer them necessary proactive measures are for the activities of internal audit and when necessary, and ultimately to adopted in relation to the Company’s risk management systems in relation monitor and report them. internal control system and internal to the preparation of consolidated audit activities, enterprise risk financial statements. Risk management at Tofaş has management, financial, commercial been organized in line with the and operational risks, and foreseeable Furthermore; in this context, the Risk Management Policy and with potential risks, and that the Company Independent Audit firm Başaran the applicable legislation and so fulfills the responsibilities imposed Nas Bağımsız Denetim ve Serbest as to be reported to the Board of by the legal regulations in relation to Muhasebeci Mali Müşavirlik A.Ş.’s (A Directors. It is based on the principles internal control, internal audit and risk Member of PricewaterhouseCoopers) of “protecting the Company assets management. Auditor Report about the Early Risk and values”, “ensuring commercial, Detection System and Early Risk financial and operational confidence” Committees’ statements and reports Detection and Risk Management and “sustainability of enterprise are directly presented to the Board of Committee states that: “As a result risk management”. The Company Directors. An internal audit activity is of our activities we have reached the management is financially, carried out that enables continuous conclusion that; Tofaş Türk Otomobil commercially, operationally, and monitoring and evaluation of the Fabrikası A.Ş.’s Early Risk Detection organizationally responsible for, and Company’s internal control system. Committee is sufficient in all significant charged with, taking and implementing aspects within the framework of the all necessary measures necessitated Accordingly it has been established 378th Article of the Turkish Code of by risk management, internal audit as per the Turkish Commercial Code, Commerce.” and internal control activities. Capital Market Law and Capital Market legislation, that internal audit activities c. Internal Control System and and the internal control system did Internal Audit function solidly as at year-end 2015 An internal control system was built and that there were no important to cover (i) the Company activities and problems about the processes so far. services carried out effectively, reliably Furthermore, records indicating the

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ASSOCIATE COMPANY REPORT

The Associate Company Report The Report issued by Tofaş Türk Prepared and Issued within the Scope Otomobil Fabrikası A.Ş. Board of of the 199th Article of the Turkish Directors on 29.02.2016, states: “In Code of Commerce all Tofaş Türk Otomobil Fabrikası A.Ş. transactions carried out with the As per the 199th Article of the Turkish parent company and the associate Code of Commerce n.6102 (that companies of the parent company entered into force on the 1st of July in 2015; we have concluded that; (i) 2012), Tofaş Türk Otomobil Fabrikası reasonable return was provided on A.Ş. Board of Directors is obligated; (i) each transaction according to the to prepare and issue a report within circumstances at the time of making the first quarter of the operating year the transaction or at the time of about the Company’s relations with taking/not taking measure, and (ii) its parent company and associate there were no measures taken/not companies of the parent company in taken against any transactions that the previous operating year, and (ii) could cause loss for the Company, to include the conclusion part of this and (iii) there were no transactions report in the Annual Report. Necessary or measures that would require explanations about Tofaş Türk settlement within this framework.” Otomobil Fabrikası A.Ş.’s transactions with the related parties are available in the 25th footnote of the financial report.

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CONVENIENCE TRANSLATION INTO ENGLISH OF AUDITOR’S REPORT ON THE EARLY RISK IDENTIFICATION SYSTEM AND COMMITTEE ORIGINALLY ISSUED IN TURKISH

To the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş.,

1. We have audited the early risk identification system and committee established by Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company”).

Board of Director’s responsibility

2. Pursuant to the subparagraph 2 of Article 378 of Turkish Commercial Code No. 6102 (“TCC”), Board of Directors is required to form an expert committee, and to run and to develop the necessary system for the purposes of early identification of causes that jeopardize the existence, development and continuity of the company; applying the necessary measures and remedies in this regard; and, managing the related risks.

Auditor’s responsibility

3. Our responsibility is to reach to a conclusion on the early risk identification system and committee based on our audit. Our audit was conducted in accordance with TCC and “Principles on the Auditor’s Report on the Early Risk Identification System and Committee” issued by the Public Oversight Accounting and Auditing Standards Authority. Those principles require us to identify whether the Company established the early risk identification system and committee or not and, if established requires to assess whether the system and committee is operating or not within the framework of Article 378 of TCC. Our audit does not include evaluating the adequacy of the operations carried out by the management of the Company in order to manage these risks.

Information on the early risk identification system and committee

4. The Company established the early risk identification system and committee and it is comprised of 4 members. The committee has submitted the relevant reports for the period 1 January - 31 December 2015 to the Board of Directors that had been prepared for the purpose of early identification of risks that jeopardize the existence of the Company and its development, applying necessary measures and remedies in this regard, and managing the risks.

Conclusion

5. Based on our audit, it has been concluded that Tofaş Türk Otomobil Fabrikası A.Ş.’s early risk identification system and committee is sufficient, in all material respects, in accordance with Article 378 of TCC.

Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers

Beste Gücümen, SMMM Partner

Istanbul, 2 February 2016

90 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

REMUNERATION POLICY FOR TOP-LEVEL MANAGERS AND MEMBERS OF THE BOARD OF DIRECTORS

This policy document defines the Bonuses payable to Top-Level In case of resignation of a top-level remuneration system and practices Managers are based on bonus base, manager, a certain amount of bonus for the members of the board of company performance and individual can be paid based on the term of directors and top-level managers performance. The criteria are as assignment, term of assignment as a with administrative responsibilities as follows: top-level manager, benefits provided, defined by SPK regulations. last target bonus before resignation, • Bonus Base: Bonus Base is updated wages paid in the last year and bonus Fixed wages payable to members of every year and varies according data. the board of directors are designated to the positions of managers by the ordinary general assembly and volume of business. Bonus Total amounts paid to Top-Level every year. base is updated based on the Managers and Members of the Board top-management bonus policies of Directors based on the principles Executive board members are paid in applicable in the market. listed above are submitted to the accordance with the policy applicable information and/or approval of the for top-level managers and detailed • Company Performance: Company shareholders at the next general below. performance is calculated every assembly meeting. year by measuring the financial Performance-based payments are not and operational (market share, This is to inform our esteemed used for remuneration of independent exports, international operations, Shareholders. members of the board of directors. efficiency etc.) objectives of the company in terms of achievement Members of the board of directors at the end of the year. The basic are paid based on the period from principles while defining the assignment to resignation. Expenses of company objectives are ensuring the members of the board of directors that achievements are sustainable related with the benefits they provide and improvements are made as for the company (transportation, compared to the previous year. telephone, insurance, etc.) are covered • Individual Performance: Definition by the company. of individual performance is based on company objectives Remuneration for Top-Level Managers as well as objectives related consists of fixed and performance- with employees, customers, based components. processes, technology and long- term strategies. In measurement Fixed wages of Top-Level Managers of individual performance, are determined in accordance with company performance and long- international standards and legal term sustainable improvement in liabilities based on macroeconomic non-financial area are significant market data, wage policies applicable principles. in the market, size of the company, long-term objectives and individual positions.

91 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

DIVIDENDS DISTRIBUTION POLICY

Our Company distributes dividends The intention is to complete dividends in accordance with the related distribution in maximum one month provisions of Turkish Commercial after the General Assembly meeting Code, capital markets regulations, tax and the date of dividends distribution regulations, other related regulations is determined by the General and dividends distribution article of Assembly. General Assembly or the Articles of Association. Dividends are Board of Directors, if authorized, can distributed with a policy which is decide on distribution of dividends in balanced and consistent in terms of installments in accordance with the the interests of shareholders and the Capital Markets Regulations. Company in accordance with Corporate Governance Principles. As per the Articles of Association, Board of Directors can distribute dividends in As a basic principle and to the extent advance provided that it is authorized possible based on the applicable by the General Assembly and acts regulations and financial resources, in accordance with Capital Markets net distributable profit within a certain Regulations. period calculated based on the market expectations, long-term company There is no privilege regarding strategy, investment and financing distribution of dividends. Dividends are policies, profitability and cash position distributed equally regardless of the and in accordance with Capital whole current shares or their dates of Markets Regulations is distributed to issuance and acquisition. the shareholders in the form of cash and/or bonus share provided that it This is to inform our esteemed can be covered from the legal reserves. Shareholders.

92 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

2015 PROFIT DISTRIBUTION PROPOSAL

As will be seen from a review of the • Our other shareholders be paid out a consolidated Balance Sheet and cash dividend at the rate of 73.00% Income/Loss Statement that has and in the amount of Kr 0.730 gross been drawn up in accordance with and Kr 0.6205 net per share with a the International Financial Reporting nominal value of Kr. 1., and; Standards (IFRS) pursuant to the • The beginning date of dividend SPK Communiqué Serial: II-15.1 on distribution be set as 07 April 2016. Principles of Financial Reporting in the Capital Market and Communiqué We hereby lay it down for the Serial: II-19.1 on Dividends, the approval of the General Assembly of Company booked a net profit for the Shareholders and propose that the period of TL 830,801,000 in 2015 after dividend distribution and timing be deducting the tax provisions. The resolved as proposed above and that donations and charitable grants made the consolidated balance sheet and to foundations and associations during income/loss statement for 2015 fiscal the reporting period amounted to year be approved. We offer our best TL 6,238,451. regards to our esteemed Shareholders and your Assembly. It is hereby proposed that; • Cash dividends in the total amount Cengiz Eroldu of TL 365,000,000.- corresponding Member of the Board of Directors and to a rate of 73.00% be paid out CEO 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. • Resident corporate entities and non-resident corporate entities deriving dividends via a workplace or permanent representation in Turkey be paid out a cash dividend at a rate of 73.00% and in the amount of Kr 0.730 Gross=Net for each share with a nominal value of KR1,

93 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

2015 DIVIDENDS DISTRIBUTION TABLE

TOFAŞ TÜRK OTOMOBİL FABRİKASI A.Ş. 2015 Dividends Distribution Table (TL) 1. Paid in Share Capital 500,000,000.00 2. Legal Reserves (According to Legal Books) 243,265,506.03 Information on privileges related to the distribution of profit pursuant to the Articles of Association, if any According to CMB According to Legal Records (LR) 3. Term Profit 617,987,000.00 402,351,157.00 4. Taxes ( - ) -212,814,000.00 4,673,026.00 5. Net Income For the Year ( = ) 830,801,000.00 397,678,132.00 6. Losses Pertaining to Previous Years ( - ) 7. Legal Reserves ( - ) 8. NET DISTRIBUTABLE TERM PROFIT (=) 830,801,000.00 397,678,132.00 9. Donations Within the Year ( + ) 6,238,451.00 10. Net Distributable Term Profit with Donations 837,039,451.00 11. Primary Dividends for Shareholders - Cash 365,000,000.00 25,000,000.00 - Non-Paid - Total 365,000,000.00 25,000,000.00 Dividends Distributed to Preferred 12. 0.00 Shareholders Other Dividends Distributed - To Members of the Board of Directors, 13. 0.00 - To Employees - To Persons Other Than Shareholders Dividends Distributed to Redeemed 14. Shareholders 15. Secondary Dividends for Shareholders 0.00 338,798,302.00 16. Legal Reserves 34,000,000.00 33,879,830.00 17. Status Reserves 18. Special Reserves 19. EXTRAORDINARY RESERVES 431,801,000.00 0.00 20. Other Resources Planned for Distribution 0.00 1,201,698.00 Reserves from Other Resources Planned for 21. 0.00 120,170.00 Distribution

DIVIDENDS CORRESPONDING TO TOTAL DIVIDENDS DISTRIBUTED / SHARES WITH A NOMINAL VALUE TOTAL DIVIDENDS DISTRIBUTED NET DISTRIBUTABLE TERM PROFIT OF TL 1 GROUP CASH (TL) NON-PAID (TL) RATIO (%) AMOUNT (TL) RATIO (%) A (Real person) 723,529.00 0.09 0.6205 62.05 A(Legal Entity) 137,323,085.00 16.53 0.7300 73.00 NET D 117,448,151.00 14.14 0.6205 62.05 E 75,353,698.00 9.07 0.6205 62.05 TOTAL 330,848,463.00 00.00 39.82

94 TOFAŞ 2015 ANNUAL REPORT - CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH

To the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş. Auditor’s Report on the Board of Directors’ Annual Report 1. We have audited the annual report of Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company”) and its Subsidiaries (collectively referred to as the “Group”) for the period ended 31 December 2015. Board of Directors’ responsibility for the Annual Report 2. The Group’s management is responsible for the fair preparation of the annual report and its consistency with the consolidated financial statements in accordance with Article 514 of Turkish Commercial Code (“TCC”) No. 6102 and Capital Markets Board’s (“CMB”) Communiqué Serial II, No:14.1, “Principles of Financial Reporting in Capital Markets” (the “Communiqué”) and for such internal control as management determines is necessary to enable the preparation of the annual report. Independent Auditor’s Responsibility 3. Our responsibility is to express an opinion on the Group’s annual report based on the independent audit conducted pursuant to Article 397 of TCC (and the Communiqué), whether or not the financial information included in this annual report is consistent with the Group’s consolidated financial statements that are subject to independent auditor’s report dated 2 February 2016 and presented fairly. Our independent audit was conducted in accordance with Independent Auditing Standards that are part of the Turkish Standards on Auditing issued by the Public Oversight Accounting and Auditing Standards Authority. Those standards require that ethical requirements are complied with and that the independent audit is planned and performed to obtain reasonable assurance whether the financial information in the annual report is fairly presented and consistent with the consolidated financial statements. An independent audit requires applying audit procedures to obtain audit evidence on the historical financial information. The procedures selected depend on the professional judgement of the independent auditor. We believe that the independent audit evidences we have obtained during our independent audit, are sufficient and appropriate to provide a basis for our opinion. Opinion 4. Based on our opinion, the financial information in the annual eportr of Board of Directors is consistent with the audited consolidated financial statements and presented fairly, in all material respects. Other Responsibilities Arising From Regulatory Requirements 5. Pursuant to subparagraph 3 of Article 402 of the TCC No. 6102, within the context of ISA 570 “Going Concern”, we have not encountered any significant issue which we are required to be reported with regard to the inability of Group to continue its operations for the foreseeable future.

Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers

Beste Gücümen, SMMM Partner Istanbul, 4 March 2016

95 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2015 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT (Originally Issued in Turkish)

96 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ INDEPENDENT AUDITOR’S REPORT

To the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş.

Report on the Consolidated Financial Statements

1. We have audited the accompanying consolidated financial statements of Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheet as at 31 December 2015 and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the period then ended and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial Statements

2. The Group’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Turkish Accounting Standards 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.

Independent Auditor’s Responsibility

3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our audit was conducted in accordance with standards on auditing issued by the Capital Markets Board of Turkey and Independent Auditing Standards that part of Turkish Standards on Auditing issued by the Public Oversight Accounting and Auditing Standards Authority. Those standards require that ethical requirements are complied with and that the audit is planned and performed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An independent audit involves performing procedures to obtain evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on independent auditor’s professional judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to error or fraud. In making those risk assessments, the independent auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An independent audit includes also evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the independent audit evidence we have obtained during our audit is sufficient and appropriate to provide a basis for our audit opinion.

97 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ INDEPENDENT AUDITOR’S REPORT

Opinion

4. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Tofaş Türk Otomobil Fabrikası A.Ş. and its subsidiaries as at 31 December 2015 and their financial performance and cash flows for the period then ended in accordance with Turkish Accounting Standards.

Other Matter

Without qualifying our opinion, we draw attention to the following matter

5. As explained in Note 25 to the consolidated financial statements, major portion of the Group’s sales and purchases is conducted through its related parties.

Other Responsibilities Arising From Regulatory Requirements

6. In accordance with subparagraph 4 of Article 398 of the Turkish Commercial Code (“TCC”) No: 6102; auditor’s report on the early risk identification system and committee has been submitted to the Company’s Board of Directors on 2 February 2016. 7. In accordance with subparagraph 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 2015 is not in compliance with the code and provisions of the Company’s articles of association in relation to financial reporting. 8. In accordance with subparagraph 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.

Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. a member of PricewaterhouseCoopers

Beste Gücümen, SMMM Partner

Istanbul, 2 February 2016

98 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONTENTS

PAGE CONSOLIDATED BALANCE SHEETS 100 CONSOLIDATED STATEMENTS OF PROFIT OR LOSS 102 CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME 103 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 104 CONSOLIDATED STATEMENTS OF CASH FLOWS 106 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 107-155 NOTE 1 COMPANY’S ORGANISATION AND NATURE OF OPERATIONS 107 NOTE 2 BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 107 NOTE 3 CASH AND CASH EQUIVALENTS 121 NOTE 4 FINANCIAL ASSETS 121 NOTE 5 FINANCIAL LIABILITIES 122 NOTE 6 TRADE RECEIVABLES AND PAYABLES 124 NOTE 7 OTHER RECEIVABLES 125 NOTE 8 RECEIVABLES FROM FINANCE SECTOR OPERATIONS 125 NOTE 9 INVENTORIES 127 NOTE 10 INVESTMENT PROPERTIES 127 NOTE 11 PROPERTY, PLANT AND EQUIPMENT 128 NOTE 12 INTANGIBLE ASSETS 130 NOTE 13 GOVERNMENT INCENTIVES 131 NOTE 14 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES 132 NOTE 15 EMPLOYEE BENEFITS 134 NOTE 16 PREPAID EXPENSES, OTHER ASSETS AND LIABILITIES 135 NOTE 17 SHAREHOLDER’S EQUITY 136 NOTE 18 REVENUE 137 NOTE 19 RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SELLING AND DISTRIBUTION EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES 139 NOTE 20 EXPENSES BY NATURE 140 NOTE 21 OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES 140 NOTE 22 FINANCIAL INCOME AND EXPENSES 141 NOTE 23 TAX ASSETS AND LIABILITIES 141 NOTE 24 EARNINGS PER SHARE 144 NOTE 25 TRANSACTIONS AND BALANCES WITH RELATED PARTIES 144 NOTE 26 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 146 NOTE 27 FINANCIAL INSTRUMENTS (FAIR VALUE EXPLANATIONS AND DISCLOSURES WITHIN THE FRAMEWORK OF HEDGE ACCOUNTING) 155

99 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2015 AND 2014 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited Notes 2015 2014

ASSETS

Current assets: Cash and cash equivalents 3 2,386,516 1,686,053 Financial assets 4 79,742 28,567 Trade receivables - Due from related parties 25 338,761 288,926 - Other trade receivables 6 698,294 555,686 Receivables from finance sector operations 8 1,091,366 727,349 Other receivables 7 200 101 Inventories 9 548,251 453,239 Prepaid expenses 16 22,947 21,443 Current tax assets 23 8,198 8,839 Other current assets 16 32,997 45,954

Total current assets 5,207,272 3,816,157

Non-current assets: Receivables from finance sector operations 8 852,775 603,946 Investment properties 10 29,515 28,860 Property, plant and equipment 11 2,111,520 1,621,362 Intangible assets 12 1,283,973 894,705 Deferred tax assets 23 354,592 125,394 Prepaid expenses 16 21,643 28,745 Other non-current assets 5,276 5,115

Total non-current assets 4,659,294 3,308,127

Total assets 9,866,566 7,124,284

These consolidated financial statements as of and for the year ended 31 December 2015 have been approved for issue by the Board of Directors on 2 February 2016. 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.

100 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2015 AND 2014 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited Notes 2015 2014

LIABILITIES

Current liabilities: Short-term financial liabilities 5 311,281 327,622 Short-term portion of long-term financial liabilities 5 1,521,200 958,061 Trade payables - Due to related parties 25 1,491,421 1,110,575 - Other trade payables 6 956,123 719,560 Employee benefit liabilities 15 57,663 55,457 Deferred income 16 15,592 15,872 Government incentives and grants 13 8,374 8,374 Provisions 14 99,313 94,440 Other current liabilities 16 66,493 71,813

Total current liabilities 4,527,460 3,361,774

Non-current liabilities: Long-term financial liabilities 5 2,553,582 1,311,787 Government incentives and grants 13 38,672 47,046 Long-term provisions - Provisions for employment termination benefits 15 164,561 162,506

Total non-current liabilities 2,756,815 1,521,339

Total liabilities 7,284,275 4,883,113

Equity: 17 Paid-in share capital 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 (18,545) (21,879) Other comprehensive losses to be reclassified under profit or losses - Cumulative losses on hedging (152,938) (144,469) Restricted reserves 243,363 213,111 Retained earnings 831,228 771,788 Net profit for the year 830,801 574,238

Total equity 2,582,291 2,241,171

Total liabilities and equity 9,866,566 7,124,284

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

101 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF PROFIT OR LOSS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited Notes 2015 2014

Revenue 18 9,920,723 7,440,009 Cost of sales (-) 18 (8,780,540) (6,516,211)

Gross profit from operations 1,140,183 923,798

Revenue from finance sector operations 247,819 181,265 Expenses from finance sector operations (-) (171,479) (121,761)

Gross profit from finance sector operations 76,340 59,504

Gross profit 1,216,523 983,302

Marketing, selling and distribution expenses (-) 19 (279,543) (240,405) General administrative expenses (-) 19 (218,086) (194,046) Research and development expenses (-) 19 (9,885) (15,182) Other income from main operations 21 798,300 358,272 Other expense from main operations (-) 21 (820,755) (358,902)

Operating profit 686,554 533,039

Financial expenses, net 22 (68,567) (60,786)

Profit before tax from continuing operations 617,987 472,253

Tax income for the period 212,814 101,985

- Taxes on income 23 (15,101) (17,554) - Deferred tax income 23 227,915 119,539

Net profit for the year 830,801 574,238

Net profit attributable to:

Non-controlling interests - - Equity holders of the parent 830,801 574,238

Earnings per share (Kr) 24 1.66 1.15

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

102 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited Notes 2015 2014

Net profit for the year 830,801 574,238

Other comprehensive income:

Other comprehensive income not to be reclassified under profit and loss - Actuarial gain / (loss) on employment termination benefit obligation 15 4,168 (12,529) - Tax (loss) / income of other comprehensive income 23 (834) 2,506

Other comprehensive income to be reclassified under profit and loss - (Losses) / gains on cash flow hedge 2 (10,586) 128,927 - Tax (loss) / income of other comprehensive income 23 2,117 (25,785)

Other comprehensive (expense) / income (after tax) (5,135) 93,119

Total comprehensive income 825,666 667,357

Attributable to:

Non-controlling interests - - Equity holders of the parent 825,666 667,357

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

103 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

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 Paid in share Adjustments to termination benefit Loss on cash flow Restricted Retained Net profit for the Equity holders of Non- controlling Total capital share capital obligation hedge reserves earnings year the parent interests equity

Balances at 1 January 2014 500,000 348,382 (11,856) (247,611) 187,983 687,693 434,223 1,898,814 - 1,898,814

Transfers - - - - 25,128 409,095 (434,223) - - - Total comprehensive income - - (10,023) 103,142 - - 574,238 667,357 - 667,357 Dividends paid - - - - - (325,000) - (325,000) - (325,000)

Balances at 31 December 2014 500,000 348,382 (21,879) (144,469) 213,111 771,788 574,238 2,241,171 - 2,241,171

Balances at 1 January 2015 500,000 348,382 (21,879) (144,469) 213,111 771,788 574,238 2,241,171 - 2,241,171

Transfers - - - - 30,252 543,986 (574,238) - - - Total comprehensive income - - 3,334 (8,469) - - 830,801 825,666 - 825,666 Dividends paid - - - - - (484,546) - (484,546) - (484,546)

Balances at 31 December 2015 500,000 348,382 (18,545) (152,938) 243,363 831,228 830,801 2,582,291 - 2,582,291

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

104 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

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 Paid in share Adjustments to termination benefit Loss on cash flow Restricted Retained Net profit for the Equity holders of Non- controlling Total capital share capital obligation hedge reserves earnings year the parent interests equity

Balances at 1 January 2014 500,000 348,382 (11,856) (247,611) 187,983 687,693 434,223 1,898,814 - 1,898,814

Transfers - - - - 25,128 409,095 (434,223) - - - Total comprehensive income - - (10,023) 103,142 - - 574,238 667,357 - 667,357 Dividends paid - - - - - (325,000) - (325,000) - (325,000)

Balances at 31 December 2014 500,000 348,382 (21,879) (144,469) 213,111 771,788 574,238 2,241,171 - 2,241,171

Balances at 1 January 2015 500,000 348,382 (21,879) (144,469) 213,111 771,788 574,238 2,241,171 - 2,241,171

Transfers - - - - 30,252 543,986 (574,238) - - - Total comprehensive income - - 3,334 (8,469) - - 830,801 825,666 - 825,666 Dividends paid - - - - - (484,546) - (484,546) - (484,546)

Balances at 31 December 2015 500,000 348,382 (18,545) (152,938) 243,363 831,228 830,801 2,582,291 - 2,582,291

105 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited Notes 2015 2014

A. Cash flows from operating activities: 734,506 893,311

Net profit for the year 830,801 574,238

Adjustments to reconcile profit for the period 322,079 371,585 - Depreciation and amortization 20 359,521 298,609 - Income from revaluation of investment properties 21 (655) (1,055) - Adjustments related to interest income 22 (75,833) (65,338) - Adjustments related to provision for inventories 9 1,268 2,535 - Gain on sale of property, plant and equipment (2,209) (799) - Provision for employment termination benefits 28,903 43,861 - Adjustments related to warranty provisions 14 56,947 54,479 - Adjustments related to legal cases 14 6,805 170 - Adjustments related to doubtful receivables from finance sector activities 8 13,600 7,848 - Adjustments related to interest expense 22 44,315 28,967 - Adjustments for tax losses 23 (212,814) (101,985) - Due date charges on term purchases 21 2,146 7,136 - Adjustments related to unrealized gain on foreign currency differences 100,085 97,157

Changes in net working capital (332,042) 12,282 - Change in inventories (76,227) (76,341) - Change in trade receivables (142,608) 49,658 - Change in receivables from related parties (49,835) (383,186) - Change in other receivables from operating activities (99) 114 - Change in trade payables 236,563 55,280 - Change in trade payables due to related parties 380,846 404,743 - Change in receivables from finance sector operations (626,446) (137,260) - Change in prepaid expenses 5,598 24,945 - Change in deferred revenue (280) (6,948) - Change in government incentives and grants (8,374) (10,518) - Change in other assets from operating activities 12,796 6,077 - Change in other liabilities from operating activities (12,801) 40,740 - Change in financial assets (51,175) 44,978

Net cash generated from operating activities 820,838 958,105 - Income taxes paid 23 (14,460) (10,854) - Payments related to employment termination benefits 15 (20,474) (15,733) - Warranty payments 14 (51,175) (38,207) - Payment of legal cases 14 (223) -

B. Cash flows from investing activities (1,180,112) (865,841) - Purchases of tangible assets 11 (684,169) (521,896) - Purchases of intangible assets 12 (577,350) (412,428) - Proceeds from sale of tangible and intangible assets 4,728 4,482 - Interest received 76,679 64,001

C. Cash flows from financing activities 1,115,162 83,460 - Proceeds from financial liabilities 2,467,025 820,669 - Bank loans paid (822,461) (378,744) - Dividend paid (484,546) (325,000) - Interest paid (44,856) (33,465)

Net decrease in cash and cash equivalents before currency translation differences 669,556 110,930

D. Effects of currency translation differences on cash and cash equivalents 31,753 (99,464)

Net change in cash and cash equivalents 701,309 11,466

E. Cash and cash equivalents at the beginning of the year 1,681,933 1,670,467

Cash and cash equivalents at the end of the year 3 2,383,242 1,681,933

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

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NOTE 1 - COMPANY’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.

The Company conducts a significant portion of its business with affiliates of Koç Holding and Fiat Group (Note 25).

The Company’s subsidiaries as of 31 December 2015 and 2014 which are subject to consolidation are as follows:

Rate of ownership of the Company Name of the company Operating area 2015 2014

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:

2015 2014

Blue-collar 5,490 5,015 White-collar 1,582 1,528

7,072 6,543

NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

2.1 Basis of presentation

2.1.1 Financial reporting standards

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. Comparative figures are reclassified, where necessary, to conform to changes in the presentation of the current year’s consolidated financial statements.

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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 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.

The Group has amended the calculation method of unused and deferred investment incentive used in corporate tax income calculation for 2014 and correspondingly in the final Corporate Tax Income Declaration, subject to tax calculation in the consolidated financial statements at 31 December 2014. 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 increased by TRY3,106 and current tax assets have decreased by TRY3,106. Deferred tax income classified under the consolidated profit or loss have decreased by the same amount and taxes on income classified under the consolidated profit or loss have decreased by TRY3,106 the same amount in the consolidated financial statements for the period ended 31 December 2014 accordingly.

As of 31 December 2014, factoring receivables which is presented under due from related parties amounting to TRY333,847 have been reclassified to other trade receivables.

Social security premiums which is presented in other current liabilities amounting to TRY13,989 have been classified to employee benefit liabilities.

TRY13,901 of short - term government grants which is presented in other current liabilities have been reclassified to long - term government grants which is presented in the other non-current liabilities.

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.

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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 2015, the amount of guarantee expense is TRY56,947 (2014: TRY54,479) (Note 14). If the claim assumptions used in the calculation of warranty provisions increase/decrease 5%, the amount of warranty provision would be TRY3,750 (2014: TRY3,810) 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 2015, general provisions for finance loans amounted to TRY20,626 (2014: TRY14,039) has been booked in the consolidated financial statements (Note 8).

2.2 Amendments in International Financial Reporting Standards

Group has implemented the new and revised standards and interpretations effective from 1 January 2015 which are related to its main operations. a) New standards, amendments and interpretations effective as of 31 December 2015:

• Amendment to TAS 19 regarding defined benefit plans, effective from annual periods beginning on or after 1 July 2014. These narrow scope amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. • Annual improvements 2012; effective from annual periods beginning on or after 1 July 2014. These amendments include changes from the 2010-12 cycle of the annual improvements project, that affect 7 standards: • TFRS 2, ‘Share-based payment’ • TFRS 3, ‘Business Combinations’ • TFRS 8, ‘Operating segments’ • TFRS 13, ‘Fair value measurement’ • TAS 16, ‘Property, plant and equipment’ and TAS 38, ‘Intangible assets’ • Consequential amendments to TFRS 9, ‘Financial instruments’, TAS 37, ‘Provisions, contingent liabilities and contingent assets’, and • TAS 39, Financial instruments – Recognition and measurement’

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• Annual improvements 2013; effective from annual periods beginning on or after 1 July 2014. These amendments include changes from the 2011-12-13 cycles of the annual improvements project, that affect 4 standards: • TFRS 1, ‘First time adoption’ • TFRS 3, ‘Business combinations’ • TFRS 13, ‘Fair value measurement’ and • TAS 40, ‘Investment property’. b) Standards and amendments issued as of 31 December 2015 but not yet effective after 1 January 2016:

• Amendment to TFRS 11, ‘Joint arrangements’ on acquisition of an interest in a joint operation, effective from annual periods beginning on or after 1 January 2016. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions. • Amendments to TAS 16 ‘Property, plant and equipment’, and TAS 41, ‘Agriculture’, regarding bearer plants, effective from annual periods beginning on or after 1 January 2016. These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. It has been decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of TAS 16, instead of TAS 41. The produce growing on bearer plants will remain within the scope of TAS 41. • Amendment to TAS 16, ‘Property, plant and equipment’ and TAS 38, ‘Intangible assets’, on depreciation and amortisation, effective from annual periods beginning on or after 1 January 2016. In this amendment it has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. It is also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. • TFRS 14 ‘Regulatory deferral accounts’, effective from annual periods beginning on or after 1 January 2016. TFRS 14, ‘Regulatory deferral accounts’ permits first–time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt TFRS. However, to enhance comparability with entities that already apply TFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. • Amendments to TAS 27, ‘Separate financial statements’ on the equity method, effective from annual periods beginning on or after 1 January 2016. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. • Amendments to TFRS 10, ‘Consolidated financial statements’ and TAS 28, ‘Investments in associates and joint ventures’, effective from annual periods beginning on or after 1 January 2016. These amendments address an inconsistency between the requirements in TFRS 10 and those in TAS 28 in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognised when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognised when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary. • Annual improvements 2014, effective from annual periods beginning on or after 1 January 2016. These set of amendments impacts 4 standards: • TFRS 5, ‘Non-current assets held for sale and discontinued operations’ regarding methods of disposal. • TFRS 7, ‘Financial instruments: Disclosures’, (with consequential amendments to TFRS 1) regarding servicing contracts. • TAS 19, ‘Employee benefits’ regarding discount rates. • TAS 34, ‘Interim financial reporting’ regarding disclosure of information.

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• Amendment to TAS 1, ‘Presentation of financial statements’ on the disclosure initiative, effective from annual periods beginning on or after 1 January 2016, these amendments are as part of the TASB initiative to improve presentation and disclosure in financial reports. • Amendment to TFRS 10 ‘Consolidated financial statements’ and TAS 28, ‘Investments in associates and joint ventures’, effective from annual periods beginning on or after 1 January 2016. These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. • TFRS 15 ‘Revenue from contracts with customers’, effective from annual periods beginning on or after 1 January 2018. TFRS 15, ‘Revenue from contracts with customers’ is a converged standard from the TASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. • TFRS 9 ‘Financial instruments’, effective from annual periods beginning on or after 1 January 2018. This standard replaces the guidance in TAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model.

The Group will evaluate the effect of the aforementioned changes within its operations and apply changes starting from effective date.

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 3).

Financial assets i) Classification

The Group classifies its financial assets in the following categories: loans and receivables, held-to maturity investments and available for sale financial assets. 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. 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 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 recognised in profit or loss when the investments are derecognized or impaired, as well as through the amortization process.

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Available for sale financial investments

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period (Note 4). ii) Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date - the date on which the group commits to purchase or sell the asset. Investments are initially recognised 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 recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised 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 amortised cost using the effective interest method.

When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the consolidated income statement as ‘Gains and losses from investment securities’.

Receivables from finance sector operations

Receivables from finance sector operations are carried at amortized cost in the balance sheet of the Group (Note 8).

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 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 recognises a general provision for the receivables which is not related to a specific transaction that can be recognised for the losses arising from the principal or interest of consumer finance loans that are not overdue or overdue less than 90 days but the amount of loss is not certain. Group sets a general provision for consumer finance loans that have not been considered as doubtful yet.

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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 6).

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 6).

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 9).

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 10). 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.

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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 11). 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 12-32 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 financial statements.

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 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 12).

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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 comprehensive statement of income.

The increase in carrying value of the assets (or a cash generated unit) due to the reversal of recognized impairment loss shall not exceed 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 comprehensive statement of income.

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.

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 (8 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 18).

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Finance sector operations:

The interest income incurred from loans is recognized by using effective interest rate method and on accrual basis. Interest income is not recognised 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.

Also, the Group has a revenue sharing agreement with the insurance company over the insurance premiums collected form loan customers. The Group recognises insurance premium income as deferred revenue under other liabilities initially and subsequently recognises 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.

Bank borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised 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 capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates (Note 5).

Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised 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 capitalisation. Other borrowing costs are expensed in the period in which they are incurred.

For the year ended 31 December 2015, the Group has capitalized borrowing costs amounting to TRY4,129 (2014 : None). The capitalisation rate used to determine the amount of borrowing costs to be capitalised is 3.19%.

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively (Note 23).

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.

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Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income 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 income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

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, recognised 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 recognised immediately in income.

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 15).

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.

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 24).

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Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised 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 14). Provisions are not recognised 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 to passage of time is recognised 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 14).

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 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 recognised amounts and there is an intention to settle on a net basis or realise 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.

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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.

Not every part of an entity is necessarily an operating segment or part of an operating segment. The revenue of KFK, the subsidiary of Tofaş, is mainly generated by financing the customers in purchase of cars produced or imported by Tofaş. Since KFK exists to support the activities of Tofaş in the same segment, it is not considered as a separate operating segment in accordance with TFRS 8.

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 2015, gains on cash flow hedging accounted for under the statement of other comprehensive income are TRY10,586 (2014: losses amounting to TRY128,927).

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 recognised when the forecast transaction is ultimately recognised 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 (Aegea, 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 Aegea and Stationwagon / Hatchback to Fiat starting from 2015 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.

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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.

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 recognised 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 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 13).

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NOTE 3 - CASH AND CASH EQUIVALENTS

2015 2014

Cash on hand 8 7 Due from banks - demand deposits 117,760 133,612 - time deposits 2,268,748 1,552,434

2,386,516 1,686,053

As of 31 December 2015 and 2014, the details of time deposits are as follows:

2015 2014 Effective interest Effective interest Amount rate per annum (%) Amount rate per annum (%)

TRY 1,178,635 11.30 - 14.20 662,755 6.00 - 12.25 EUR 1,090,113 1.25 - 2.80 889,679 1.80 - 2.90

2,268,748 1,552,434

As of 31 December 2015, the maturities of time deposits vary between 4 and 49 days (2014: between 2 and 64 days).

As of 31 December 2015, the cash at banks comprise time and demand deposits amounting to TRY1,395,025 (2014: TRY981,732) which are deposited at a bank which is a related party of the Group (Note 25).

As of 31 December 2015 and 2014, the reserves of cash and cash equivalent in cash flow statement;

2015 2014

Cash and cash equivalents 2,386,516 1,686,053 Less: interest accruals (3,274) (4,120)

2,383,242 1,681,933

NOTE 4 - FINANCIAL ASSETS a) Short-term financial assets

As of 31 December 2015 short - term financial assets of the Group consists of time deposits amounting to TRY79,440 with a maturity of 96 days bearing an interest rate of 1.60% (2014: TRY28,207 with a maturity of 119 days bearing an interest rate of 1.9%). b) Available for sale financial investments

As of 31 December 2015, the Group has available for sale financial investments amounting to TRY302 (2014: TRY360).

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NOTE 5 - FINANCIAL LIABILITIES a) Short-term financial liabilities

2015 2014 Original amount TRY Interest rate per Original amount TRY Interest rate per (thousand) equivalent annum (%) (thousand) equivalent annum (%)

Borrowings in TRY (*) - 70,800 9.70 - 12.65 - 40,212 7.44 - 14.74 Borrowings in EUR 75,680 240,481 Euribor +0.50 101,893 287,410 Euribor +0.52 Euribor + 0.75

311,281 327,622 b) Short-term portion of long-term financial liabilities

2015 2014 Original amount TRY Interest rate per Original amount TRY Interest rate per (thousand) equivalent annum (%) (thousand) equivalent annum (%)

Borrowings in TRY (*) - 804,406 9.70 - 12.65 - 372,260 7.44 - 14.74 Borrowings in EUR 157,663 500,989 Euribor + 0.15 139,858 394,498 Euribor + 0.15 Euribor + 2.90 Euribor + 2.60 Bonds (1,2,3,…6) - 215,805 9.37 - 12.27 - 191,303 6.86 - 10.53

1,521,200 958,061 c) Long-term financial liabilities

2015 2014 Original amount TRY Interest rate per Original amount TRY Interest rate per (thousand) equivalent annum (%) (thousand) equivalent annum (%)

Borrowings in TRY (*) - 677,243 10.21 - 15.81 - 490,950 7.44 - 14.74 Borrowings in EUR 554,793 1,762,911 Euribor + 0.15 214,131 603,999 Euribor + 0.15 Euribor + 2.90 Euribor + 2.60 Bonds (1,2,3,…6) - 113,428 9.37 - 10,27 - 216,838 6.86-10.53

2,553,582 1,311,787 (*) 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 comprise bank borrowings obtained by KFK, consolidated subsidiary, to finance consumer financing loans as of 31 December 2015 and 2014. (1) In accordance with the minutes of Board of Directors meeting held on 14 April 2015, based on the required authorization of the Capital Markets Law no 2499, the Group issued 20-month maturity bonds on 12 November 2015, nominal amount of TRY50,000 and at an interest rate by 11.68%. 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 14 April 2015, based on the required authorization of the Capital Markets Law, the Group issued 16-month maturity bonds on 18 December 2015, with a nominal amount of TRY62,830 and at an interest rate by 12.51%. 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 18 April 2014, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 6 June 2014, with a nominal amount of TRY75,000 and at an interest rate by 10.23%. The bonds have been sold to qualified investors by the closed issuance 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 18 April 2014, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 7 November 2014, with a nominal amount of TRY50,000 and at an interest rate by 10.07%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş.. (5) In accordance with the minutes of Board of Directors meeting held on 18 April 2014, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 26 November 2014, with a nominal amount of TRY30,000 and at an interest rate by 9.54%. The bonds have been sold to qualified investors by the closed issuance method through the agency of TSKB A.Ş.. (6) In accordance with the minutes of Board of Directors meeting held on 18 April 2014, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 11 December 2014, with a nominal amount of TRY60,000 and at an interest rate by 9.37%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş..

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The fair value of borrowings is TRY4,329,342 (2014: TRY2,596,877).

Financial liabilities denominated in TRY have bear fixed interest rates while financial liabilities denominated Euro bear floating interest rates.

As of 31 December 2015, TRY234,607 (2014: TRY232,413) of short-term and long-term financial liabilities are obtained through banks which are related parties of the Group (Note 25).

The redemption schedule of the long-term bank borrowings as of 31 December 2015 and 2014 is as follows:

2015 2014

1-2 years 1,299,647 885,006 2-3 years 351,398 226,580 3-4 years 301,035 63,868 4-5 years 275,123 49,362 5 years and more 326,379 86,971

2,553,582 1,311,787

On 4 March 2008, a loan agreement has been signed between the Company and i) Societe Generale, Credit Agricole, Fortis Bank S.A., ING Bank NV and Intesa Sanpaolo banks as regulator, grantor and guarantor ii) EIB as guarantor and credit grantor and iii) Servizi Assicurativi per il Commercio Estreo S.p.A. (SACE) as guarantor role in the consortium amounting to EUR450 million. The loans, amounting to TRY366,597 (equivalent of EUR115,369 thousand) is outstanding as of 31 December 2015 (2014: TRY488,133 equivalent of EUR173,054 thousand) and have a maturity of ten years with two years grace period and it has been used for financing investment expenditures regarding the development and production of New Doblo. The Group’s exposure to foreign exchange rate and interest fluctuations for the loan obtained in relation with the investment for New Doblo model is undertaken by Fiat.

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 starting in 2012 until 2018. As of 31 December 2015, the unpaid portion of the loan amount to TRY49,026 (equivalent of EUR15,429 thousand) (2014: TRY58,025 (equivalent of EUR20,571 thousand)).

On the consolidated financial statements, the total carrying value of the Group’s loans obtained from Eximbank on 19 October 2015, 22 October 2015 and 10 December 2015 is TRY238,320 (equivalent of EUR75,000 thousand) (2014: the total carrying value of the loans obtained on 18 September 2014, 22 September 2014, 25 September 2014, 30 September 2014, 24 October 2014 and 30 December 2014 is TRY287,410 (equivalent of EUR101,838 thousand)).

The Group has obtained a loan of TRY145,640 (equivalent of EUR45,833 thousand) (2014: TRY155,139 (equivalent of EUR55,000 thousand) on 9 December 2014 from European Investment Bank (EIB) with a maturity until 2020 in order to be used in “New Sedan R&D” projects as of 31 December 2015.

The Group has a working capital loan obtained with a maturity until 2020 from HSBC PLC on 31 March 2014, the carrying value of which is TRY119,160 (equivalent of EUR37,500 thousand) on the consolidated financial statements (2014: TRY129,281 (equivalent of EUR45,833)).

The Group signed the long-term external financing amounting by EUR 250 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 in the consolidated balance sheet is TRY674,259 (EUR212,191 in equivalent in TRY).

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The Group signed the loan agreement within the scope of guarantee of SACE amounting to EUR200 million with HSBC Bank Plc and ING Bank, a branch of ING-Diba AG as authorized regulators and creditors, HSBC Bank Plc as coordinator corporation and per procuration on 11 August 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 + 2.4%. The carrying amount of aforementioned loan in the consolidated balance sheet is TRY593,060 (EUR186,638 in equivalent in TRY).

The Group signed the loan agreement amounting to EUR 200 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%. EUR 100 million of the total loan has been used as of 5 November 2015 and the remaining 100 million Euro is planned to be used on March 2016. The remaining balance as of 31 December 2015: TRY314,080 (EUR98,842) in equivalent in TRY).

NOTE 6 - TRADE RECEIVABLES AND PAYABLES a) Trade receivables

2015 2014

Trade receivables 701,425 559,543 Doubtful trade receivables 7,311 7,311

Less: provision for doubtful receivables (7,093) (7,093) Less: unearned credit finance income (3,349) (4,075)

698,294 555,686

Movement of the provision for doubtful receivables is as follows:

2015 2014

1 January 7,093 7,210 Collections - (117)

31 December 7,093 7,093

Collateral received related with trade receivables

As of 31 December 2015, the letter of guarantees amounting to TRY131,792, guarantee cheques and notes amounting to TRY3,648, mortgages amounting to TRY38,800 and direct debit system limit (payment guarantee limit secured by the banks) obtained as collateral for Group’s trade receivables amount to TRY518,995, respectively (2014: letter of guarantees amounting to TRY71,700, guarantee notes amounting to TRY3,511, mortgages amounting to TRY39,635 and direct debit system limit amounting to TRY417,109).

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b) Trade payables

2015 2014

Trade payables 960,632 724,585 Less: not accrued credit finance expense (4,509) (5,025)

956,123 719,560

NOTE 7 - OTHER RECEIVABLES

As of 31 December 2015 other receivables consist of deposits and guarantees given, amounting to TRY200 (2014: TRY101).

NOTE 8 - RECEIVABLES FROM FINANCE SECTOR OPERATIONS

2015 2014

Short-term consumer financing loans 1,064,911 711,402 Non-performing loans 59,711 41,458

1,124,622 752,860

Provisions for impairment on loans

Provision for specific loan impairment (21,540) (17,824) Provision for general loan impairment (11,716) (7,687)

1,091,366 727,349

Long-term consumer financing loans 861,685 610,298

Provision for general loan impairment

Provision for general loan impairment (8,910) (6,352)

852,775 603,946

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As of 31 December 2015, TRY denominated loans originated by the Group, bear interest rates ranging between 0.01% and 1.49% per month (2014: between 0.01% and 1.44%).

The maturities of long-term consumer financing loans are as follows:

Years 2015 2014

1 to 2 years 612,838 389,912 2 to 3 years 187,268 179,848 3 to 4 years 52,629 34,146 4 years and more 8,950 6,392

861,685 610,298

Movements in the allowance for loan impairment are as follows:

2015 2014

1 January 31,863 25,250 Current year provision 13,600 7,848 Collections (3,297) (1,235)

31 December 42,166 31,863

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 2015, the fair value of guarantees obtained for the consumer loans amount to TRY2,261,081 (2014: TRY1,533,100). 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 TRY21,540 (2014: TRY17,824) as of 31 December 2015.

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NOTE 9 - INVENTORIES

2015 2014

Raw materials 124,960 96,097 Work-in-progress 94,542 111,794 Finished goods 63,450 73,400 Imported vehicles 89,532 71,887 Spare parts 46,184 37,190 Goods in transit 136,311 68,331 Less: provision for impairment on inventories (6,728) (5,460)

548,251 453,239

Movements in the provision for impairment on inventory are as follows:

2015 2014

1 January (5,460) (2,925) Current year provision (1,268) (2,535)

31 December (6,728) (5,460)

NOTE 10 - INVESTMENT PROPERTIES

For the years ended 31 December 2015 and 2014, the movement of investment properties is as follows:

2015 2014

1 January, net book value 28,860 27,805 Fair value increase (*) 655 1,055

31 December, net book value 29,515 28,860

(*) As of 31 December 2015, the fair value of the property has been determined as TRY29,515 (2014: TRY28,860), by using benchmarking method. As a result of the revaluation of the investment property, revaluation gains amounting to TRY655 (2014: TRY1,055) has been accounted under other income (Note 21). Relevant valuation report is prepared by an independent firm which has CMB license and necessary professional experience.

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NOTE 11 - PROPERTY, PLANT AND EQUIPMENT

The movement of property, plant and equipment and the accumulated depreciation as of 31 December 2015 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 373,480 3,500,320 390,654 42,736 11,093 404,403 4,722,686 Accumulated depreciation (210,953) (2,570,671) (279,849) (34,083) (5,768) - (3,101,324)

Net book value 162,527 929,649 110,805 8,653 5,325 404,403 1,621,362

1 January 2015, net book value 162,527 929,649 110,805 8,653 5,325 404,403 1,621,362 Additions - 3,137 108 1,809 7 679,108 684,169 Disposals, net (30) (703) (409) (1,374) (3) - (2,519) Transfers 10,382 490,861 64,309 14,867 136 (580,555) - Depreciation charge for the year (7,589) (150,822) (27,990) (4,662) (429) - (191,492)

31 December 2015, net book value 165,290 1,272,122 146,823 19,293 5,036 502,956 2,111,520

As of 31 December 2015 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)

31 December 2015, net book value 165,290 1,272,122 146,823 19,293 5,036 502,956 2,111,520

As of 31 December 2015, there are no pledges or collaterals on property, plant and equipment.

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The movement of property, plant and equipment and the accumulated depreciation as of 31 December 2014 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 362,559 3,234,464 352,266 39,832 10,233 205,119 4,204,473 Accumulated depreciation (203,641) (2,448,240) (255,444) (30,569) (5,411) - (2,943,305)

Net book value 158,918 786,224 96,822 9,263 4,822 205,119 1,261,168

1 January 2014, net book value 158,918 786,224 96,822 9,263 4,822 205,119 1,261,168 Additions - 133 6 - 36 521,721 521,896 Disposals, net - (1,069) (383) (2,231) - - (3,683) Transfers 10,921 266,792 38,765 5,135 824 (322,437) - Depreciation charge for the year (7,312) (122,431) (24,405) (3,514) (357) - (158,019)

31 December 2014, net book value 162,527 929,649 110,805 8,653 5,325 404,403 1,621,362

As of 31 December 2014 Cost 373,480 3,500,320 390,654 42,736 11,093 404,403 4,722,686 Accumulated depreciation (210,953) (2,570,671) (279,849) (34,083) (5,768) - (3,101,324)

31 December 2014, net book value 162,527 929,649 110,805 8,653 5,325 404,403 1,621,362

As of 31 December 2014, there are no pledges or collaterals on property, plant and equipment.

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NOTE 12 - INTANGIBLE ASSETS

The movement of intangible assets as of 31 December 2015 and 2014 is as follows:

Licenses and development costs Other Total

1 January 2015 Cost 1,865,855 75,673 1,941,528 Accumulated amortization (994,608) (52,215) (1,046,823)

Net book value 871,247 23,458 894,705

1 January 2015, net book value 871,247 23,458 894,705 Additions 568,340 9,010 577,350 Amortization charge for the year (176,514) (11,568) (188,082)

31 December 2015, net book value 1,263,073 20,900 1,283,973

As of 31 December 2015 Cost 2,434,195 84,683 2,518,878 Accumulated amortization (1,171,122) (63,783) (1,234,905)

31 December 2015, net book value 1,263,073 20,900 1,283,973

Licenses and development costs Other Total

1 January 2014 Cost 1,464,387 64,713 1,529,100 Accumulated amortization (863,782) (42,451) (906,233)

Net book value 600,605 22,262 622,867

1 January 2014, net book value 600,605 22,262 622,867 Additions 401,468 10,960 412,428 Amortization charge for the year (130,826) (9,764) (140,590)

31 December 2014, net book value 871,247 23,458 894,705

As of 31 December 2014 Cost 1,865,855 75,673 1,941,528 Accumulated amortization (994,608) (52,215) (1,046,823)

31 December 2014, net book value 871,247 23,458 894,705

Intangible assets are started to be amortized when the related assets are ready to be used. In relation to this, the Group has intangible assets amounting to TRY313,040 (2014: TRY286,772), which are not determined as ready for use and therefore, not amortized.

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NOTE 13 - GOVERNMENT INCENTIVES

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

As of 31 December 2015 the amount of unused investment allowance is TRY2,120,072 (2014: TRY2,161,209). As of 31 December 2011, the Group had written off deferred tax assets arising from such unused investment incentives through profit or loss. Upon the meeting held by the Constitutional Court dated 15 October 2009 and upon the Constitutional Court conclusion on 8 January 2010, unused investment incentives of the Group have become available for use again and the Group has recognized deferred tax assets over such investment incentives accordingly. However, since it is not probable that future taxable profit will be available against which the deductible temporary difference can be utilized, the Group has not recognized deferred tax assets on investment incentive as of 31 December 2015.

The law numbered 5838, proposed to reduce the negative impacts of the global financial crisis was enacted as of 28 February 2009 through publishing at the official gazette. According to the related law article about encouraging investment incentive it is decided to lower income tax rates. The profits gained by the investment activities associated to the incentive certificate by the Turkish Treasury will be subject to the reduced tax rates. Accordingly, the reduced tax rate will be effective as of the accounting period, when the investments are partially or fully activated, till the attainment of the “contribution amount’. Contribution amount refers to the amount given up for collection with the application of reduced tax rate. The cabinet, with the decision dated 16 July 2009 and numbered 2009/15199, has identified the conditions and aspects of the law numbered 5838 and enacted the arrangement.

The Group has considered its investment expenditures amounting to TRY1,219,224 (2014: TRY689,984) 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 23).

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.

During the year 2015, total amount of research and development expenses of the Group is TRY584,432. The amount subject to corporate income tax R&D allowance is TRY263,903 after deduction of Technology and Innovation Funding Programs Directorate (“TEYDEB”) supports collected during the year amounting to TRY3,320 and TRY326,959 which is not subject to corporate income tax research and development allowance. The total amount subject to research and development allowance allied with additional 2014 January - December / 2015 January - December period R&D and innovation disbursement amounting to TRY6,505 is TRY260,658 (As of 31 December 2014, total amount of research and development expenses is TRY541,057). The amount subject to corporate income tax R&D allowance is TRY249,514 after deduction of TEYDEB support collected during the year amounting to TRY2,772 and TRY288,771 which is not subject to corporate income tax research and development allowance).

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As of 31 December 2015 government incentives of the Group amounting to TRY8,374 (2014: TRY8,374) short term and TRY38,672 (2014: TRY47,046) long term, total of TRY47,046 (2014: TRY55,420) 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 14 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES

Short-term provisions

2015 2014

Provision for warranty claims 72,695 66,923 Provision for legal cases 11,159 4,577 Administrative expense accruals 3,078 5,112 Other 12,381 17,828

99,313 94,440

Movement of the provision for warranty is as follows:

2015 2014

1 January 66,923 50,651 Paid during the year (51,175) (38,207) Increase in provision during the year (Note 19) 56,947 54,479

31 December 72,695 66,923

The movement of the provision for litigation is as follows:

2015 2014

1 January 4,577 4,407 Paid during the year (223) - Increase in provision during the year 6,805 170

31 December 11,159 4,577

Litigations against the Group

As of 31 December 2015 the total amount of outstanding legal claims brought against the Group is TRY14,767 (2014: TRY8,882). The Group has reflected a reserve amounting to TRY11,159 (2014: TRY4,577) in the consolidated financial statements.

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Tax penalties:

The tax audit reports related with 2008-2012 financial years that have been prepared following a tax inspection, are delivered to the Company in December 2013 by the Presidency of Tax Audit Committee of İstanbul Large Scaled Tax Payers. In these tax audit reports, various payments made to foreign based tax payer institutions are criticised because of witholding and VAT as a responsible issues. In accordance with the tax audit reports, Tofaş is imposed to pay TRY13.4 million as tax base and TRY23.8 million tax penalty in 2008, TRY8.4 million tax base and TRY14.9 million tax penalty in 2009, TRY9.1 million tax base and TRY16.2 million tax penalty in 2010 and TRY5.1 million tax base and TRY5.1 thousand tax penalty in 2011 and TRY4.8 million tax base and TRY4.8 thousand tax penalty in 2012. The announcement of these reports and their details had been made by the Company on 16 December 2013 and 30 December 2013 and 11 April 2014 via Public Disclosure Platform “PDP”.

According to the Group, practices subject to criticism, is in compliance and consistent with the related regulations and international agreements regarding to the prevention of double taxation. The Company is planning to perform all its legal rights including settlement and all other legal process with regard to these reports. In case of a possible legal process, it is more likely to result in favor of the Company than against the Company, no additional provision is reflected to the financial statements of the Company.

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 2015 and 2014 is as follows:

2015 2014 TRY TRY Equivalent EUR TRY Equivalent EUR TRY

A. Total amount of Guarantees provided by the Company on behalf of itself 314,562 97,000 6,335 213,269 72,000 10,179 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 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 314,562 97,000 6,335 213,269 72,000 10,179

Other

As of 31 December 2015, the Group has USD1,648,144 and USD866,249 of export commitments dated 30 March 2015 numbered 2015/D1-01743 to be realized until 29 March 2016. In connection with export incentives certificates amounting to USD905,884 million and USD416,818 export sales have been realized.

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The long-term bank borrowing agreement related to the financing of MCV, New Doblo, Aegea and Stationwagon / Hatchback projects requires the Group to comply with certain financial ratios. Such financial ratios are met by the Group as of 31 December 2015 and 2014.

NOTE 15 - EMPLOYEE BENEFITS a) Short-term employee benefits:

2015 2014

Payables to employees 32,013 33,335 Social security premiums 14,664 13,989 Unused vacation provision 10,986 8,133

57,663 55,457 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 TRY4,092.53 for each period of service as of 31 December 2015 (2014: TRY3,541.37).

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:

2015 2014

Discount rate, net 4.60% 3.50% Estimated turnover rate for retirement 99.41% 98.74%

Movement in reserve for employment termination benefits for the years ended 31 December 2015 and 2014 is as follows:

2015 2014

1 January 162,506 139,127 Service expenses 9,984 10,786 Interest expenses 16,713 15,797 Payments during the year (20,474) (15,733) Actuarial loss (4,168) 12,529

31 December 164,561 162,506

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NOTE 16 - PREPAID EXPENSES, OTHER ASSETS AND LIABILITIES a) Other current assets 2015 2014

VAT receivables 26,903 42,777 Other 6,094 3,177

32,997 45,954 b) Short - term prepaid expenses 2015 2014

Credit commission expenses (*) 13,762 10,323 Advances given 2,487 5,195 Other 6,698 5,925

22,947 21,443

(*) Credit commission expenses are composed of the credit commission given to dealers in advance by KFK as of 31 December 2015 and 2014. c) Long - term prepaid expenses:

As of 31 December 2015, TRY21,643 (2014: TRY28,745) of non-current prepaid expenses are composed of advances given for fixed asset purchases. d) Other current liabilities 2015 2014

Expense accrual 21,055 21,333 Taxes and funds payable 19,625 27,325 Advances received 8,101 9,203 Other 17,712 13,952

66,493 71,813 e) Deferred income

As of 31 December 2015, deferred income amounting to TRY15,592 (2014: TRY15,872) is composed of intelligence income of consolidated subsidiary KFK.

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NOTE 17 - SHAREHOLDER’S EQUITY a) Non - controlling interests/Profit attributable to non - controlling interests

None. b) 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 31 December 2015 and 2014 is TRY500 million (exact TRY) and consists of 50 billion shares with TRY0.01 (exact TRY) par value each. As of 31 December 2015 and 2014, the breakdown of issued share capital of the Company is as follows:

2015 2014 Share Amount Amount group (historical) Amount % (historical) Amount %

Fiat D 189,280 37.86 189,280 37.86 Koç Holding 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 500,000 100.00 500,000 100.00

The shareholders holding A and D group shares have the privilege to choose the members for Board of Directors and Board of Auditors and also have the privilege of using preemption rights in buying each other’s shares. The Group’s Articles of Association requires votes of 75% of shareholders during General Assembly resolutions. c) Legal reserves - retained earnings and loses

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 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.

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.

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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 27 March 2015, dividend amounting to TRY484,546 related to the profit of 2014 after deduction of legal liabilities, is distributed from retained earnings to the shareholders (2014: amounting to TRY325,000 related to the profit of 2013). As of 31 December 2015 and 2014, dividend distributed per share is Kuruş 0.97 and Kuruş 0.65, respectively.

Historical values of legal and extraordinary reserves of the Company in the statutory financial statements are as follows:

2015 2014

Legal reserves 243,266 197,266 Extraordinary reserves 31,631 28,887

274,897 226,153

NOTE 18 - REVENUE a) Revenue

2015 2014

Export sales 5,729,275 4,297,030 Domestic sales 4,121,142 3,023,705 Other 70,306 119,274

9,920,723 7,440,009

The amount of sales discounts is TRY457,216 (2014: TRY295,422).

The distribution of the Group’s sales in 2015 and 2014 based on product type is as follows.

2015 2014

Commercial vehicles 6,637,099 4,911,517 Passenger cars 2,592,246 1,829,851 Spare parts 621,072 577,392 Other 70,306 121,249

9,920,723 7,440,009 b) Other

2015 2014

Income from scrap sales 44,964 44,173 Package sales income 17,156 18,445 Income from mould sales - 46,986 Other 8,186 9,670

70,306 119,274

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c) Cost of sales

2015 2014

Direct material expense 6,762,594 5,001,950 Depreciation and amortization expense 336,181 268,564 Direct labor expense 168,541 132,587 Other production expenses 326,657 269,947

Total cost of production 7,593,973 5,673,048

Change in work-in-process 17,252 (29,539) Change in finished goods 9,950 (46,130) Cost of merchandise sold 1,159,330 918,612 Cost of other sales 35 220

8,780,540 6,516,211 d) Production and sales quantities

Production Sales 2015 2014 2015 2014

Manufactured vehicles

New Doblo 133,327 99,810 133,962 98,169 MCV 90,087 81,589 90,411 81,499 Linea 35,202 33,249 35,375 32,944 Aegea 11,237 - 10,157 - Doblo 8,071 8,159 8,097 8,126 Ongoing projects 328 - - -

278,252 222,807 278,002 220,738

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Import Sales 2015 2014 2015 2014

Imported vehicles

Ducato 9,121 7,805 9,028 7,793 Fiat 500 3,752 2,629 3,582 2,453 Jeep 3,629 2,423 3,567 2,084 Grande Punto 1,184 2,362 1,311 2,388 Alfa Romeo 910 995 868 926 Panda Futura 184 202 152 220 Maserati 70 86 73 83 Freemont 4x4 20 141 91 380 Ferrari 6 11 11 11 Lancia - 30 2 167 Bravo - 5 1 98 Panda - - - 3 Scudo - - - 1 Transit sales - - 124 39

18,876 16,689 18,810 16,646

NOTE 19 - RESEARCH AND DEVELOPMENT EXPENSES, MARKETING, SELLING AND DISTRIBUTION EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES

2015 2014

Selling and marketing expenses 279,543 240,405 General and administrative expenses 218,086 194,046 Research and development expenses 9,885 15,182

507,514 449,633 a) Selling and marketing expenses

2015 2014

Advertisement expenses 75,690 51,816 Transportation and insurance expenses 61,643 53,848 Warranty expenses 56,947 54,479 Personnel expenses 42,031 42,096 Exhibition and fair expenses 7,947 3,074 Depreciation and amortization expenses 1,998 2,032 Other 33,287 33,060

279,543 240,405

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b) General administrative expenses

2015 2014

Personnel expenses 77,245 81,786 Depreciation and amortization expenses 20,594 17,630 Information technology expenses 17,449 15,015 Services obtained from third parties 14,665 10,628 Duties, taxes and levies 8,333 7,867 Lawsuit provision expenses 6,805 170 Donations 6,279 4,609 Insurance expense 6,173 5,425 Travel expenses 5,362 5,565 Consultancy obtained from third parties 3,452 3,901 Rent expenses 2,154 1,492 Other 49,575 39,958

218,086 194,046

NOTE 20 - EXPENSES BY NATURE

2015 2014

Personnel expenses 290,187 256,469 Depreciation and amortisation expenses 359,521 298,609

649,708 555,078

NOTE 21 - OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES

2015 2014

Foreign exchange gains on operating activities 744,970 316,918 Interest income on operating activities 29,256 32,611 Fair value increase in investment property (Note 10) 655 1,055 Other 23,419 7,688

798,300 358,272

2015 2014

Foreign exchange loss on operating activities (761,563) (300,877) Interest expense on operating activities (31,402) (39,747) Other (27,790) (18,278)

(820,755) (358,902)

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NOTE 22 - FINANCIAL INCOME AND EXPENSES

2015 2014

Foreign exchange gain 677,506 298,825 Interest income 75,833 65,338

Total financial income 753,339 364,163

Foreign exchange loss (777,591) (395,982) Interest expenses (44,315) (28,967)

Total financial expenses (821,906) (424,949)

Financial expenses, net (68,567) (60,786)

NOTE 23 - TAX ASSETS AND LIABILITIES a) General

The Group is subject to taxation in accordance with the tax regulation and the legislation effective in Turkey.

In Turkey, the corporation tax rate from 1 January 2006 onwards is 20%. Corporate tax returns are required to be filed by the twenty-fifth day of the fourth month following the balance sheet date and taxes must be paid in one installment by the end of the fourth month. The tax legislation provides for a temporary tax of 20% to be calculated and paid based on earnings generated for each quarter. The amounts thus calculated and paid are offset against the final corporate tax liability for the year.

As of 31 December 2011, the Group had written off deferred tax assets arising from unused investment incentives due to the expiration as of 31 December 2008, amounting to TRY2,141,858, through statement of income. Upon the meeting held by the Constitutional Court dated 15 October 2009 and upon the Constitutional Court conclusion on 8 January 2010, unused investment incentives of the Group have become available for use again and the Group has recognized deferred tax assets over the investment by increasing in proportion of PPI and revaluation rate amounted to TRY2,120,072 (2014: TRY2,161,209) as of 31 December 2015. However, since it is not probable that future taxable profit will be available against which the deductible temporary difference can be utilized, the Group has not recognized deferred tax assets on investment incentive.

As a result of the assessment of, a deferred income tax asset amounting to TRY506,143 (2014: TRY242,731) results from temporary differences as of 31 December 2015 that are arising from the tax allowances and can be used as long as the tax allowances continue. The Group is entitled with corporate tax allowances in accordance with Corporate Tax Law No. 5520, article 32/A.

In Turkey, the tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provision for taxes, as reflected in the consolidated financial statements, has been calculated on a separate- entity basis.

Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years.

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For the years ended 31 December 2015 and 2014, the analysis of the tax expense in the profit or loss is as follows:

2015 2014

Current tax expense (15,101) (17,554) Deferred tax income 227,915 119,539

212,814 101,985

2015 2014

Current corporate tax 15,101 17,554 Less: Prepaid corporate tax (-) (23,299) (26,393)

Prepaid income tax (8,198) (8,839)

The analysis of tax expense accounted for under the statement of profit or loss for the years ended 31 December 2015 and 2014 is as follows:

2015 2014

Profit before tax 617,987 472,253

Income tax charge at effective tax rate (20%) (123,597) (94,451) Disallowable expenses (450) (265) Deduction of research and development incentive expenditures during the period 52,132 49,903 Effect of investment incentive, net 21,317 45,271 Used and earned investment incentive 263,412 101,527

212,814 101,985

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b) Deferred tax assets and liabilities

The breakdown of temporary differences and the resulting deferred tax assets as of 31 December 2015 and 2014, using the effective tax rates were as follows:

Cumulative temporary Deferred tax assets / differences (liabilities) 2015 2014 2015 2014

Unused investment incentive allowances (*) 1,219,224 689,984 506,143 242,731 Provision for employment termination benefits and unused vacation 175,547 170,639 35,109 34,128 Deferred income 44,175 45,873 8,835 9,175 Warranty provisions 72,695 66,923 14,539 13,385 Property, plant and equipment and intangibles 1,121,327 953,469 (221,974) (188,319) Inventories (34,197) (27,767) 6,839 5,553 Other 25,505 43,705 5,101 8,741

Deferred tax asset, net 354,592 125,394

(*) 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:

2015 2014

Deferred tax asset at 1 January 125,394 29,134 Deferred tax income 227,915 119,539 Actuarial (loss)/gain on employment termination benefit obligation attributable to equity (834) 2,506 Net gain/(loss) on cash flow hedging attributable to equity (*) 2,117 (25,785)

Deferred tax assets at 31 December 354,592 125,394

(*) Having accounted for under the equity, the aforementioned amount represents the tax impact of foreign currency loss deductible from statutory tax base and is not included in the tax calculation.

The analysis of deferred tax assets is as follows:

2015 2014 Deferred tax assets

- Deferred tax assets to be recovered after more than 12 months 325,911 86,913 - Deferred tax assets to be recovered within 12 months 28,681 38,481

354,592 125,394

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NOTE 24 - 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 2015 and 2014, the weighted average number of shares outstanding is 50,000,000,000 and as of 31 December 2015 and 2014 earnings per share is Kuruş 1.66 and Kuruş 1.15, respectively.

NOTE 25 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES

Related party balances

Deposit and financial loan balances from related parties: 2015 2014

Yapı ve Kredi Bank A.Ş. (deposit) (1) 1,395,025 981,732 Yapı ve Kredi Bank A.Ş. (financial loan) (1) (234,607) (232,413)

Trade receivables due from related parties: 2015 2014

Otokoç Otomotiv Tic. ve San. A.Ş. (1) 225,030 181,610 Fiat (2) 92,346 102,667 Other (1) 21,385 4,649

338,761 288,926

Trade payables due to related parties: 2015 2014

Fiat (2) 1,369,831 1,068,331 Mako Elektrik Sanayi ve Ticaret A.Ş.(1) 32,170 6,259 Other (1) 89,420 35,985

1,491,421 1,110,575

Related party transactions:

Sales 2015 2014

Fiat (2) 4,898,856 3,443,317 Otokoç Otomotiv Tic. ve San. A.Ş.(1) 1,282,167 984,127 Other (1) 63,143 54,997

6,244,166 4,482,441

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Domestic goods and services purchases: 2015 2014

Ram Dış Ticaret (1) 167,078 121,342 Zer Merkezi Hiz. ve Tic. A.Ş. (1) 138,392 101,247 Mako Elektrik Sanayi ve Ticaret A.Ş. (1) 129,232 81,506 Otokoç Otomotiv Tic. ve San. A.Ş. (1) 121,799 94,998 Matay Otomotiv Yan San. ve Tic. A.Ş. (1) 51,971 37,137 Plastiform Plastik San. Tic. A.Ş. (1) 40,660 30,492 Koç Holding (2) (*) 15,037 11,235 Koç Sistem (1) 14,205 14,336 Setur Servis Turistik A.Ş. (1) 12,661 9,984 Akpa Dayanıklı Tüketim LPG ve Akaryakıt Ürünleri Paz. A.Ş. (1) 8,292 6,641 Opet Fuchs Madeni Yağlar Tic. A.Ş. (1) 5,559 7,476 Other (1) 79,105 37,252

783,991 553,646

Foreign trade good, material and service purchase 2015 2014

Fiat (2) 4,415,283 3,443,674 Other (1) 53,366 62,531

4,468,649 3,506,205

(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.

Interest income from related parties, for the year ended 31 December 2015 is TRY39,318 (2014: TRY42,773).

Interest expense paid or accrued to related parties, for the year ended 31 December 2015 is TRY51,703 (2014: TRY25,028).

Salaries and similar benefits paid to the top management of the Group for the year ended 31 December 2015 (35 person) (2014: 33 person) is TRY23,025 (2014: TRY33,194).

Furthermore, as of 31 December 2015, 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 TRY298,957 (2014: TRY357,660).

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NOTE 26 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Financial risk management objectives and policies

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, 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 6).

Amounts carried in the balance sheet reflect maximum credit risk of the Group.

Types of credit exposure of financial instruments;

Trade receivables Receivables Related Other Other Bank Derivative from finance 2015 party party receivables deposit instruments operations

Maximum credit risk exposure as of reporting date (A+B+C+D+E) (1) 338,761 698,294 200 2,386,508 79,742 1,944,141 - Maximum risk secured by guarantee (2) - 693,235 - - 1,924,547 A. Net book value of financial assets neither overdue nor impaired 256,817 621,485 200 2,386,508 79,742 1,905,992 - Maximum risk secured by guarantee - 693,235 - - - 1,905,992 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 81,944 76,809 - - - 15,733 - Maximum risk secured by guarantee ------D. Net book value of impaired assets - - - - - 22,416 - Overdue (gross book value) - 7,093 - - - 43,956 - Impairment (-) - (7,093) - - - (21,540) - Net value under guarantee - - - - - 18,555 - Not overdue (gross book value) - - - - - 1,926,596 - Impairment (-) - - - - - (20,626) - Net value under guarantee - - - - - 2,261,081 E. Off- balance sheet items having credit risk ------

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Trade receivables Receivables Related Other Other Bank Derivative from finance 2014 party party receivables deposit instruments operations

Maximum credit risk exposure as of reporting date (A+B+C+D+E) (1) 288,926 555,686 101 1,686,046 28,567 1,331,295 - Maximum risk secured by guarantee (2) - 531,955 - - - 1,324,294 A. Net book value of financial assets neither overdue nor impaired 211,037 446,310 101 1,686,046 28,567 1,307,662 - Maximum risk secured by guarantee - 531,955 - - - 1,307,662 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 77,889 109,376 - - - 8,718 - Maximum risk secured by guarantee ------D. Net book value of impaired assets - - - - - 14,915 - Overdue (gross book value) - 7,093 - - - 32,739 - Impairment (-) - (7,093) - - - (17,824) - Net value under guarantee - - - - - 16,632 - Not overdue (gross book value) - - - - - 1,321,701 - Impairment (-) - - - - - (14,039) - Net value under guarantee - - - - - 1,533,100 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.

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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:

2015

1- 30 days past due 132,716 1- 3 months past due 13,435 3- 12 months past due 24,017 1- 5 years past due 4,318 Over 5 years past due -

174,486

2014

1- 30 days past due 131,650 1- 3 months past due 19,360 3- 12 months past due 44,973 1- 5 years past due - Over 5 years past due -

195,983

Amount secured with guarantee -

As of 31 December 2015, TRY80,266 of total past due receivables of the Group is due from the Group’s related party, Fiat (2014: TRY74,552). As of 31 December 2015, the Group’s payables to Fiat amounting to TRY1,369,831 (2014: TRY1,068,331).

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.

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As explained in detail in Note 5, 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 2015, 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 Stationwagon / Hatchback vehicles is undertaken by Fiat.

TRY equivalent (functional 2015 currency) USD EUR Other

1. Trade receivables 190,946 14 60,079 - 2. Monetary financial assets (including cash, bank accounts) 1,244,238 42 391,527 - 2b. Non-monetary financial assets - - - - 3. Other 221,317 - 69,649 - 4. Current assets (1+2+3) 1,656,501 56 521,255 - 5. Trade receivables - - - - 6a. Monetary financial assets - - - - 6b. Non-monetary financial assets - - - - 7. Other 254,723 - 80,162 - 8. Non-current assets (5+6+7) 254,723 - 80,162 - 9. Total assets (4+8) 1,911,224 56 601,417 - 10. Trade payables (1,674,150) (885) (526,050) - 11. Financial liabilities (739,030) - (232,575) - 12a. Monetary other liabilities (19) - (6) - 12b. Non-monetary other liabilities - - - - 13. Current liabilities (10+11+12) (2,413,199) (885) (758,631) - 14. Trade payables - - - - 15. Financial liabilities (1,761,112) - (554,227) - 16a. Monetary other liabilities - - - - 16b. Non-monetary other liabilities - - - - 17. Non-current liabilities (14+15+16) (1,761,112) - (554,227) - 18. Total liabilities (13+17) (4,174,311) (885) (1,312,858) - 19. Net asset / (liability) position of off-balance sheet derivative instruments (19a-19b) - - - - 19a. Total hedged asset amount - - - - 19b. Total hedged liability amount - - - - 20. Net foreign currency asset/(liability) position (9+18+19) (2,263,087) (829) (711,441) - 21. Net foreign currency asset/(liability) position of monetary items (1+2a+5+6a-10-11-12a-14-15-16a) (2,517,810) (829) (791,603) - 22. Total fair value of financial instruments used for foreign currency hedging - - - - 23. Export (5,777,792) - (1,895,951) - 24. Import 4,912,108 196 1,549,496 22 (*) 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 2015 is TRY244,970 of foreign currency liability position.

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TRY equivalent (functional 2014 currency) USD EUR Other

1. Trade receivables 144,330 - 51,168 - 2a. Monetary financial assets (including cash, bank accounts) 901,084 16 319,441 - 2b. Non-monetary financial assets - - - - 3. Other - - - - 4. Current assets (1+2+3) 1,045,414 16 370,609 - 5. Trade receivables - - - - 6a. Monetary financial assets - - - - 6b. Non-monetary financial assets - - - - 7. Other 166,733 - 59,111 - 8. Non-current assets (5+6+7) 166,733 - 59,111 - 9. Total assets (4+8) 1,212,147 16 429,720 - 10. Trade payables (1,287,978) (301) (456,369) - 11. Financial liabilities (632,545) - (224,251) - 12a. Monetary other liabilities (8) - (3) - 12b. Non-monetary other liabilities - - - - 13. Current liabilities (10+11+12) (1,920,531) (301) (680,623) - 14. Trade payables - - - - 15. Financial liabilities (653,362) - (231,631) - 16a. Monetary other liabilities - - - - 16b. Non-monetary other liabilities - - - - 17. Non-current liabilities (14+15+16) (653,362) - (231,631) - 18. Total liabilities (13+17) (2,573,893) (301) (912,254) - 19. Net asset / (liability) position of off-balance sheet derivative instruments (19a-19b) - - - - 19a. Total hedged asset amount - - - - 19b. Total hedged liability amount - - - - 20. Net foreign currency asset/(liability) position (9+18+19) (1,361,746) (285) (482,534) - 21. Net foreign currency asset/(liability) position of monetary items (1+2a+5+6a-10-11-12a-14-15-16a) (1,528,479) (285) (541,645) - 22. Total fair value of financial instruments used for foreign currency hedging - - - - 23. Export (4,305,065) - (1,495,450) - 24. Import 3,592,641 374 1,235,897 343 (*) 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 2014 is TRY482,353 of foreign currency asset position.

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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 2015 and 2014:

Exchange rate sensitivity analysis table 2015 Profit/loss Equity Appreciation of Depreciation of Appreciation of Depreciation of foreign currency foreign currency foreign currency foreign currency

In case 10% appreciation of USD against TRY:

1- USD net asset/liability (241) 241 - - 2- Amount hedged for USD risk (-) - - - - 3- USD net effect (1+2) (241) 241 - -

In case 10% appreciation of EUR against TRY:

4- EUR net asset/liability (251,540) 251,540 - - 5- Amount hedged for EUR risk (-) 201,812 (201,812) 201,812 (201,812) 6- EUR net effect (4+5) (49,728) 49,728 201,812 (201,812)

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) (49,969) 49,969 201,812 (201,812)

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Exchange rate sensitivity analysis table 2014 Profit/loss Equity

Appreciation of Depreciation of Appreciation of Depreciation of foreign currency foreign currency foreign currency foreign currency

In case 10% appreciation of USD against TRY:

1- USD net asset/liability (66) 66 - - 2- Amount hedged for USD risk (-) - - - - 3- USD net effect (1+2) (66) 66 - -

In case 10% appreciation of EUR against TRY:

4- EUR net asset/liability (152,782) 152,782 - - 5- Amount hedged for EUR risk (-) 105,527 (105,527) 105,527 (105,527) 6- EUR net effect (4+5) (47,255) 47,255 105,527 (105,527)

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) (47,321) 47,321 105,527 (105,527)

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 2015 and 2014, 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:

2015 2014

Change in interest rates 0.50% 0.50% Effect on net income before for taxes (17) (9)

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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.

2015:

Total cash outflow per Less than Between Between Book agreement 3 months 3-12 1 - 5 years Over Expected maturities value (=I+II+III+IV) (I) months (II) (III) 5 years (IV)

Non-derivative financial liabilities

Bank loans 4,056,830 4,109,536 227,459 1,332,275 2,256,426 293,376 Trade payables 2,447,544 2,452,053 2,293,146 158,907 - - Bonds 329,233 364,549 66,728 165,575 132,246 - Other current liabilities 66,493 66,493 66,493 - - -

6,900,100 6,992,631 2,653,826 1,656,757 2,388,672 293,376

Total cash outflow per Less than Between Between Expected maturities Book agreement 3 months 3-12 1 - 5 years Over (or maturities per agreement) value (=I+II+III+IV) (I) months (II) (III) 5 years (IV)

Derivative financial assets (net) ------Derivative cash inflows ------Derivative cash outflows ------

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2014:

Total cash outflow per less than Between Between Book agreement 3 months 3-12 1 - 5 years Over Expected maturities value (=I+II+III+IV) (I) months (II) (III) 5 years (IV)

Non-derivative financial liabilities

Bank loans 2,189,329 2,380,632 447,825 809,425 1,036,411 86,971 Trade payables 1,830,135 1,833,111 1,532,585 300,526 - - Bonds 408,141 841,542 149,515 475,189 216,838 - Other current liabilities 71,813 71,813 71,813 - - -

4,499,418 5,127,098 2,201,738 1,585,140 1,253,249 86,971

Total cash outflow per Less than Between Between Expected maturities Book agreement 3 months 3-12 1 - 5 years Over (or maturities per agreement) value (=I+II+III+IV) (I) months (II) (III) 5 years (IV)

Derivative financial assets (net) ------Derivative cash inflows ------Derivative cash outflows ------

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 2015.

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NOTE 27 - FINANCIAL INSTRUMENTS (FAIR VALUE EXPLANATIONS AND DISCLOSURES WITHIN THE FRAMEWORK OF HEDGE 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 8.34% (2014: 7.96%).

2015 2014 Carrying value Fair value Carrying value Fair value

Consumer financing loans 1,944,141 1,903,413 1,331,295 1,238,699

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 (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 2015. 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. Additionally, the carrying amount of long - term loan liabilities for Doblo had been covered by sales to Fiat until the beginning of 2009.

155 TOFAŞ 2015 ANNUAL REPORT - FINANCIAL INFORMATION

Convenience Translation Of Consolidated Financial Statements Originally Issued In Turkish TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

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).

2015

Level 1 Level 2 Level 3

Investment property - 29,515 -

Total - 29,515 -

2014

Level 1 Level 2 Level 3

Investment property - 28,860 -

Total - 28,860 -

As of 31 December 2015, the Group has not made any transfers between second level and first level, and also between third level and other levels.

156 Headquarters Büyükdere Caddesi No: 145 Tofaş Han 34349 Zincirlikuyu-İstanbul-Turkey Phone: +90 212 275 33 90 - 275 29 60 Fax: +90 212 275 39 88 - 275 03 57

Factory Yeni Yalova Yolu Caddesi, No: 574 16369 Bursa-Turkey Phone: +90 224 261 03 50 Fax: +90 224 255 09 47 - 261 13 50 www.tofas.com.tr Istanbul Trade Register Number: 100324 Central Registration System Number: 0846000042200017 Produced by Tayburn Tel: (90 212) 227 04 36 This report has been published using 100% recycled paper. www.tayburnkurumsal.com www.tofas.com.tr