ANNUAL REPORT 2019

Annual Report 2019 ALARKO HOLDİNG A.Ş.

CONTENTS

4 ALARKO GROUP OF COMPANIES 63 EARNINGS FROM SUBSIDIARIES AND EQUITY PARTICIPATIONS 6 MESSAGE FROM THE CHAIRMAN 64 BUSINESS VOLUME AND 8 MEMBERS OF THE BOARD OF PERSPECTIVES FOR 2020 DIRECTORS AND AUDITORS OF ALARKO HOLDING A.Ş. 65 TAXES PAID AND PERSONNEL EXPENSES 10 GENERAL ORGANIZATION 66 DEVELOPMENTS IN THE LAST 12 MANAGEMENT STAFF FIVE YEARS

14 FINANCIAL INDICATORS 67 ADDITIONAL INFORMATION REGARDING OUR ACTIVITIES 16 MILESTONES OF 65 YEARS 76 PROPOSAL FOR DIVIDEND 20 AGENDA OF THE ORDINARY DISTRIBUTION GENERAL ASSEMBLY 77 DECLARATION OF COMPLIANCE 21 ANNUAL REPORT OF THE BOARD WITH CORPORATE GOVERNANCE OF DIRECTORS PRINCIPLES

23 SUBSIDIARIES OF THE ALARKO 77 CORPORATE GOVERNANCE GROUP COMPLIANCE REPORT

24 CONTRACTING GROUP 84 CORPORATE GOVERNANCE INFORMATION FORM 34 ENERGY GROUP 90 INDEPENDENT AUDITOR’S REPORT 42 INDUSTRY AND TRADE GROUP ON THE ANNUAL REPORT

50 TOURISM GROUP 92 CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR 56 LAND DEVELOPMENT GROUP ENDED 31 DECEMBER 2019 WITH INDEPENDENT AUDITORS’ REPORT 60 İSHAK ALATON’S VIEW 93 INDEPENDENT AUDITOR’S REPORT 61 DR. ÜZEYİR GARİH’S VIEW 98 CONSOLIDATED FINANCIAL 62 CAPITALS AND PERCENTAGES OF STATEMENTS SHAREHOLDINGS IN SUBSIDIARIES AND PARTICIPATIONS 196 CONCLUSION

14.07.2020 FISCAL YEAR 2019 GENERAL ASSEMBLY MEETING

REGISTERED CAPITAL TL 500,000,000 ISSUED CAPITAL TL 435,000,000

1 ALARKO HOLDİNG A.Ş. Annual Report 2019

2 Annual Report 2019 ALARKO HOLDİNG A.Ş.

The success line of a long-term business is shaped at the outset. Planning is the first driver of success. Poor planning is a guarantee of failure.

İshak Alaton

For grown corporations, institutionalization is the most important action to be taken for expanding the life-span of the corporation.

Dr. Üzeyir Garih

We will always remember you with love and respect...

3 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO GROUP OF COMPANIES

THE CONTRACTING GROUP THE ENERGY GROUP • ALSİM ALARKO SANAYİ • ALTEK ALARKO ELEKTRİK TESİSLERİ VE TİCARET A.Ş. SANTRALLARI TES. İŞL. VE TİC. A.Ş. - ALSİM A.Ş. - MAKYOL A.Ş. JOINT VENTURE, METRO - KARAKUZ HYDROELECTRIC (4. LEVENT - HİSARÜSTÜ) POWER PLANT CONSTRUCTION OF ELECTRO - GÖNEN HYDROELECTRIC POWER - MECHANICAL WORKS AND PLANT SIGNALIZATION SYSTEMS PROJECT - KIRKLARELİ NATURAL GAS COMBINED CYCLE POWER PLANT - ALARKO - CAF JOINT VENTURE - ANTALYA LIGHT RAIL • MERAM ELEKTRİK DAĞITIM A.Ş. TRANSPORT SYSTEM • ALCEN ENERJİ DAĞITIM VE - KABATAŞ - MECİDİYEKÖY - PERAKENDE SATIŞ HİZM. A.Ş. MAHMUTBEY METRO PROJECT • CENAL ELEKTRİK ÜRETİM A.Ş. - ELECTRO • MERAM ELEKTRİK ENERJİSİ - MECHANICAL WORKS AND TOPTAN SATIŞ A.Ş. SIGNALIZATION SYSTEMS CONSTRUCTION PROJECT • MERAM ELEKTRİK PERAKENDE SATIŞ A.Ş. - ANKARA METRO ADDITIONAL ELECTRO - MECHANICAL WORKS • ALGİZ ENERJİ A.Ş. AND SIGNALIZATION SYSTEMS • PANEL ENERJİ A.Ş. CONSTRUCTION PROJECT • ALEN ALARKO ENERJİ TİCARET - ALARKO - CENGİZ METRO JOINT A.Ş. VENTURE, KAYNARCA - PENDİK - TUZLA METRO CONSTRUCTION • ALARKO ENERJİ ÜRETİM A.Ş. AND ELECTRO-MECHAICAL WORKS PROCUREMENT, MONTAGE AND COMMISIONING PROJECT - GREAT ALMATY BELTWAY PROJECT (BAKAD) - BUCHAREST SOUTHERN BELTWAY PROJECT LOT 1 - BUCHAREST SOUTHERN BELTWAY PROJECT LOT 2

4 Annual Report 2019 ALARKO HOLDİNG A.Ş.

THE INDUSTRY AND TRADE THE TOURISM GROUP THE LAND DEVELOPMENT GROUP • ATTAŞ ALARKO TURİSTİK GROUP • ALARKO CARRIER SANAYİ VE TESİSLER A.Ş. • ALARKO GAYRİMENKUL TİCARET A.Ş. - HILLSIDE BEACH CLUB YATIRIM ORTAKLIĞI A.Ş. - THE MAIN MANUFACTURING - HILLSIDE CITY CLUB - ETİLER • ALDEM ALARKO KONUT PLANT İNŞAAT VE TİCARET A.Ş. - CINECITY - ETİLER - HEATING DEVICES PRODUCTION • AL-RİVA PROJESİ ARAZİ DEĞER. PLANT - CINECITY - OLIVIUM KONUT İNŞ. VE TİC. A.Ş. - DEALER SALES - CINECITY - KİPA • AL-RİVA ARAZİ DEĞER. KONUT İNŞ. VE TİC. A.Ş. - SYSTEM SALES - SANDA SPA (HBC, HCC-ETİLER) • AL-RİVA ARAZİ DEĞER. KONUT - AFTER MARKETS SERVICES İNŞ. TURİSTİK TES. GOLF İŞL. - TOTALINE DIVISION VE TİC. A.Ş. • ALARKO FENNİ MALZEME SATIŞ • ALARKO KONUT PROJELERİ VE İMALAT A.Ş. GELİŞTİRME A.Ş. • TÜM TESİSAT VE İNŞAAT A.Ş. • AO MOSALARKO • SARET SANAYİ TAAHHÜTLERİ VE TİC. A.Ş.

5 ALARKO HOLDİNG A.Ş. Annual Report 2019

MESSAGE FROM THE CHAIRMAN

İzzet Garih Chairman of the Board

Distinguished shareholders, Alarko Group of Companies reached its targets for 2019, thanks to its robust Despite all problems caused by our financial structure and its success in region, our country completed 2019 in making strategic plans with the correct an environment of peace and tranquility. assumption. I would like to thank all my 2019 was a year of normalization in coworkers, who helped us to reach our which the fight against inflation was very targets. strong. Indicator interests fell to one-digit numbers, and the company’s loan interest Our energy business segment has ESPECIALLY, THE burden that decreased accordingly assumed a flagship position across our REVENUE AND indicates that a new era is starting where group this year. Serving 6 cities in Konya growth is likely to observed thanks to the and its surrounding area, our energy PROFITABILITY investment in private sector. distribution partnership has completed FIGURES ACROSS its reorganization within the last 10 years Certain political uncertainties in our following the privatization process, and ALARKO GROUP PROVE region continued keeping busy the has now reached an advanced stage THAT WE HAVE NOW agenda of our country, and great efforts of maturity. Our balanced investment were spent to make sure that our country STARTED TO REAP THE approach adopted in the region coupled is not affected by these uncertainties by with our high-quality service target FRUITS OF SIGNIFICANT means of establishing balanced relations. helped us become one of the most INVESTMENTS WE HAVE 2020 is expected to be completed as favorable and successful distribution a more tranquil year for our region in companies of the country. Thanks to MADE IN RECENT YEARS. political terms compared to the previous our strong asset base created in such year, which will definitely have a positive manner, we are now able to produce a impact on our economy. steady revenue in distribution sector. We, as one of the most important players of the country economy, are happy to end the year with a lot more promising results compared to recent years. Especially, the revenue and profitability figures of the third quarter in 2019 across Alarko Group prove that we have now started to reap the fruits of significant investments we have made in recent years.

6 Annual Report 2019 ALARKO HOLDİNG A.Ş.

As for energy generation in 2019, we 2019 was a very successful year for Across the entire Group of Companies, we have reached efficient generation results tourism in our country. Having managed will continue our reorganization activities not only in our hydroelectric power to maintain its high performance even that are in line with the necessities plants, but also in our thermal power during the challenging recent years, our of today, maintain our organizational plant in Karabiga, in which we hold Fethiye Hillside Beach Club facility has memory and the dynamic and young shares, and in our solar power plants. had another successful year in 2019, management structure, as well as our The revenue we derived from these and the high revenue generated by customer-oriented service approach, and plants has made significant contribution the occupancy rates that were much strive towards reaching a more proactive to our financials particularly in the third higher than similar facilities made a management style next year. quarter of 2019. In parallel to the fast very good contribution to the third development and economic stability quarter’s financials. After the term of As can be seen in our business, our of our country, we have no doubt that the surface rights of this facility was Group of Companies has started a very these investments will continue to make increased to 49 years, we have had productive and profitable era. Constantly valuable contribution in future. an independent a reappraisal for this improving our efficiency, we will always facility, and thus Alarko GYO A.Ş., which strive towards increasing our revenue Striving to complete its Kabataş- owns the relevant surface rights, has without causing an increase in our Mecidiyeköy-Mahmutbey metro line reached to a significant new value in its risks, and continue to share the positive project with an increased speed, our NAV. This additional value that has been outcome with all our shareholders and Contracting Group has also accelerated disclosed has surely made a very positive stakeholders. the mobilization of its new projects contribution to our year-end financials. assumed in and Kazakhstan. Distinguished shareholders, We continue to follow our policy aiming Carrying out its activities in the field We will spend our best efforts together to diversify the works we will assume of industry and trade, our Alarko with our country, our companies, clients, in Romania, which is a European Union Carrier partnership has continued its employees, shareholders, and other country. In addition to our existing reorganization process initiated last year business partners to join our forces and highway works, we continue our efforts throughout the year, taken significant create value for everyone. We would for being awarded the job in the railway steps in the field of digitalization and like to greet our valuable shareholders project for which we made the winning attached great importance to its export with respect, being aware of our bid. We pay maximum care and attention activities, which resulted in diversification responsibilities to all of our stakeholders. to our contracting projects abroad, as we of its revenue with proceeds in foreign are aware that we represent in currency. Producing many products in the these projects. Our group completes its country in our plant under the trademark new projects in a manner to maintain the of Alarko Carrier and exporting these well-deserved reputation of its projects products with the cooperation we will both in the country and abroad. engage in with our partner Carrier in 2020 will be a significant step in this area. As for contracting activities, we will We expect high growth rates in 2020 continue to create new fields of operation particularly in terms of HVAC system for ourselves by creating a competitive sales thanks to the decreasing inflation edge with PPP (Public-Private rate and the favorable investment Partnerships) projects whose financing environment. we will organize around the world, which is witnessing a fierce competition. BAKAD highway project which we assumed as a consortium in Kazakhstan is the first example in this regard in the respective country.

7 ALARKO HOLDİNG A.Ş. Annual Report 2019

THE BOARD OF DIRECTORS

İZZET GARİH VEDAT AKSEL ALATON AYHAN YAVRUCU LEYLA ALATON CHAIRMAN VICE CHAIRMAN OF THE BOARD MEMBER OF THE BOARD, MEMBER OF THE BOARD PRESIDENT OF THE EXECUTIVE Born in 1961 in İstanbul, Mr. Garih Vedat Aksel Alaton was born in BOARD Leyla Alaton was born in İstanbul graduated from the Department of 1963, in İstanbul. He graduated from in 1961. She graduated from the Industrial Engineering of Michigan the Industrial Engineering Faculty Ayhan Yavrucu was born in 1948, Business Administration and University, Ann Arbor, USA in of Northeastern University, USA in the Develi of Kayseri, Management Faculty of Fairleigh 1983. He completed his Master’s in 1987. After working in Project Mr. Yavrucu graduated from the Dickinson University, New Jersey, Degree in the field of Construction Planning for one year In Hawker Faculty of Political Sciences of Ankara USA. She completed her Masters Engineering and Management at Siddeley he returned to Turkey University in 1972. He started to Degree in Social Sciences at the the same university in 1984. He and worked in Project Planning in work at the Ministry of Finance, University of New York. Upon worked as an engineer and manager Alamsaş (1988-1989), Alsim Alarko Tax Inspectors Board as Deputy returning to Turkey in 1986 she in various projects at Alarko Land Contracting Group’s various projects Tax Inspector the same year and first worked as assistant to Dr. Development and Construction Group as Project Planning Engineer, Field worked as a Tax Inspector until 1977. Üzeyir Garih. Later, she conducted in 1987-2002. From 2002 to 2007, Control Engineer and Site Engineer Mr. Yavrucu joined Alarko Group of the Publicity and Marketing of the he was the Chairman of the Board (1989-1990) and as General Companies on 1 March 1977 and has Alkent - Etiler Uyduşehir and the Alsit of Directors at Alarko Gayrimenkul Manager for Alnor Seafood Products served in various levels in the Group. Villakent projects. In 1992, she was Yatırım Ortaklığı A.Ş. and Vice- Company (1990-1991). He became Between 1994 and 2018 he was the elected “Businesswoman of the Year” Chairman of the Board of Directors Deputy Executive Vice President of CEO of Alarko Group of Companies. by the National Productivity Center. at Alarko Holding A.Ş. in 2004-2015. Alarko Contracting Group in 1991 and Mr. Yavrucu is currently a Board In 1993, she was among the Leaders He has been the Chairman of the Managing Director of Alarko Holding Member of Alarko Holding A.Ş. and of the Future selected for the first Board of Directors at Alarko Holding A.Ş. in 1995. He became a Member the President of the Executive Board time at the Davos World Economic A.Ş. since 2015. Married with three of the Board of Alarko Holding A.Ş. in of the Alarko Group of Companies. Forum. In 1993, she founded her own children, Mr. Garih speaks English. 2000 and has been Vice Chairman of Ayhan Yavrucu is Chairman of the company, Megatrend Public Relations the Board of Alarko Holding A.Ş. since Board of various companies of the Consultancy Company and gave İzzet Garih does not have eligibility 2004. He speaks English and has Group. He speaks English, is married consultancy to global giants such as for independence as of the Capital one child. and has two children. Aérospatiale and Alcatel. Leyla Alaton Markets Board Communiqué is currently Board Member of Alarko Numbered II-17.1. Vedat Aksel Alaton does not have Ayhan Yavrucu does not have Holding A.Ş. and board member eligibility for independence as of the eligibility for independence as of the of various non-governmental Capital Markets Board Communiqué Capital Markets Board Communiqué organizations and has the French Numbered II-17.1. Numbered II-17.1. Order of Legion d’Honneur. She has two children and speaks English and French.

Leyla Alaton does not have eligibility for independence as of the Capital Markets Board Communiqué Numbered II-17.1.

* The term of office of the Members of the Board of Directors is between 5 June 2018 and 5 June 2021.

AUDITOR INDEPENDENT AUDITOR BDO Denet Bağımsız Denetim ve BDO Denet Bağımsız Denetim ve Danışmanlık A.Ş. Danışmanlık A.Ş. (Member, BDO International (Member, BDO International Network) Network)

* The term of office is between 2 May 2019 and 2 May 2020.

8 Annual Report 2019 ALARKO HOLDİNG A.Ş.

NİV GARİH MEHMET DÖNMEZ NESLİHAN TONBUL MAHMUT TAYFUN ANIK MEMBER OF THE BOARD INDEPENDENT MEMBER OF THE INDEPENDENT MEMBER OF THE INDEPENDENT MEMBER OF THE BOARD BOARD BOARD Born in 1981, Niv Garih graduated from New York University, Stern Dönmez was born in Kayseri in 1944. Born in İstanbul, in 1959, Born in İstanbul, in 1953, Mr. Mahmut School of Business, Department of He studied in Military Academy and Ms. Neslihan Tonbul, received a BA Tayfun Anık received a BA degree Finance and International Business left the Academy when he was in the degree in economics and political in business administration from Administration with honors in 2006. final year in 1963. He worked at the science from Rutgers University Boğaziçi University in 1977. Mr. Anık, Mr. Garih worked in JP Morgan’s Asset accounting department of the İmar (USA), and was awarded an MA started his career at the Treasury Management division in New York Ltd. Co. in Ankara from 1964 to 1966. degree in development economics and Finance Departments in Turkey, from 2006 to 2008. He later returned After holding different posts at the and international relations from and assumed various management to Turkey in 2009 and started Alarko Group of Companies where he the Fletcher School of Law and positions in Logistics and Purchasing working at Alarko Holding A.Ş.’s started working in 1966, he retired in Diplomacy at Tufts University. After departments of Pirelli Turkey, Pirelli Business Development, Feasibility 31 March 2007 while he was holding beginning her international banking , and Pirelli . Since and Valuation departments. the post of Executive Vice President career in 1983 at the Irving Trust 2003, Mr. Anık has been serving as He directed Investor Relations and Deputy General Manager of Company, New York, she moved to the Group Purchasing Director of department of Alarko Holding Ankara Group at the Alarko Carrier İstanbul in 1988, as the Middle East Prysmian S.p.A., and he served as A.Ş. and its subsidiaries between San. ve Tic. A.Ş. Region Manager. She has been a the Chairman of Board of Directors 2013-2018. He has been a member pioneer in the development of the of Türk Prysmian Kablo ve Sistemleri of the Board of Alarko Holding A.Ş. The candidacy of Mehmet Dönmez finance industry, and continued to A.Ş. between 2006 and 2014, and as since 2014. He was also elected as was accepted at the Board meeting work for BNY Mellon until 2008. In the Chairman of Board of Directors of the Chairman of the Board of Alarko dated 07.05.2018 of Alarko 2009, Ms. Tonbul became a board Oman Cables Industry between 2015 Carrier San. ve Tic. A.Ş. in April 2017. Holding A.Ş. and has eligibility for member for Yaşar Holding, and then and 2017. Mr. Anık is fluent in English, Niv Garih is married, has two children independence as of the Capital served on the boards of Prysmian, German and Italian. and speaks English and French. Market Board Communiqué Turcas, Petrol, and Anel, and she is Numbered II-17.1. currently serving as an Independent The candidacy of Mahmut Tayfun Niv Garih does not have eligibility Board Member for Vakıfbank Anık was accepted at the Board for independence as of the Capital International AG, Tofaş, and . meeting dated 07.05.2018 of Alarko Markets Board’s Communiqué II-17.1 She is a senior advisor for the New Holding A.Ş. and has eligibility for Zealand Development Agency and independence as of the Capital Cambridge Family Enterprise Group Market Board Communiqué since 2014, and she also gives Numbered II-17.1. lectures at Koç University, Economics and Administrative Sciences Faculty. In addition to her professional work, Ms. Tonbul is also an active member of the civil society. Ms. Tonbul is a Trustee of the American Research Institute in Turkey (ARIT), Young Presidents Organization (YPO), and Turkish Education Volunteers Foundation (TEGV), and she is among founders of Turkish-American Business Forum. She has been mentoring Women Entrepreneurs at the EBRD since 2014. Ms. Tonbul is fluent in English, French, Azerbaijani, and she is also studying Italian and Persian.

The candidacy of Neslihan Tonbul was accepted at the Board meeting dated 07.05.2018 of Alarko Holding A.Ş. and has eligibility for independence as of the Capital Market Board Communiqué Numbered II-17.1.

9 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO GROUP OF COMPANIES GENERAL ORGANIZATION CHART

HOLDING BOARD OF DIRECTORS

SUPERVISORY BOARD

PRESIDENT OF THE EXECUTIVE BOARD

HOLDING GENERAL MANAGER

GROUP GROUP GROUP PRESIDENT GROUP PRESIDENT PRESIDENT FINANCIAL PRESIDENT FINANCIAL ANALYSIS, AUDITING FINANCE AFFAIRS SYSTEM AND PLANNING

* Organizational level is limited to the “General Manager” level in this chart.

10 Annual Report 2019 ALARKO HOLDİNG A.Ş.

PRESIDENTS OF THE COMPANY EXECUTIVE BOARDS

SUBSIDIARIES ALCEN BAKAD CENAL GENERAL GENERAL GENERAL GENERAL GENERAL MANAGER MEDAŞ MANAGER MANAGER MANAGER MANAGER MEPAŞ ALARKO INDUSTRY AND CONTRACTING TOURISM ENERGY REAL ESTATE MESAŞ TRADE INVESTMENT CO. PANEL

11 ALARKO HOLDİNG A.Ş. Annual Report 2019

MANAGEMENT STAFF

CHAIRMAN OF THE BOARD İZZET GARİH

VICE CHAIRMAN OF THE BOARD VEDAT AKSEL ALATON

PRESIDENT OF THE EXECUTIVE BOARD AYHAN YAVRUCU

HOLDING GENERAL MANAGER ÜMİT NURİ YILDIZ

PRESIDENTS OF THE COMPANY EXECUTIVE BOARDS M. ALPER KAPTANOĞLU CONTRACTING H. ÖNDER ŞAHİN INDUSTRY AND TRADE A. ÖNDER KAZAZOĞLU ALTEK

GROUP PRESIDENTS MUSTAFA FİLİZ FINANCIAL AFFAIRS MEHMET AHKEMOĞLU AUDITING ÖMER ÇELİK FINANCE

GENERAL MANAGERS EDİP İLKBAHAR TOURISM EROL UÇMAZBAŞ MEDAŞ CEM AKAN INDUSTRY AND TRADE HAKAN AYTEKİN ALTEK HARUN H. MORENO ALARKO REAL ESTATE INVESTMENT COMPANY

OPERATION MANAGERS İHSAN ACAR CENAL

DEPUTY GENERAL MANAGERS MUSTAFA V. GAFUROĞLU CONTRACTING - BUSINESS DEVELOPMENT AND CONSTRUCTION - FOREIGN COUNTRIES ÜMİT BORAN CONTRACTING - LOCAL BUSINESS DEVELOPMENT AND CONSTRUCTION BEKİR BORA CONTRACTING - LOCAL BUSINESS DEVELOPMENT & PROJECT FINANCE GÖKMEN ÜLGEN CONTRACTING - HEADQUARTER UNITS NECATİ AKGÜN CONTRACTING - FINANCIAL & ADMINISTRATION

HIRANT KALATAŞ INDUSTRY AND TRADE MURAT ÇOPUR INDUSTRY AND TRADE - FACTORIES

K. HAYATİ ÇATBAŞ ALTEK - TRADE M. ÖMER HÜDAYİOĞLU ALTEK - TECHNICAL

ALİ GÜMÜŞ MEDAŞ - FINANCIAL AND ADMINISTRATION EYÜP ERDURAN MEDAŞ - CORPORATE RELATIONS HALİL COŞKUN TUNCEZ MEDAŞ - ELECTRICITY MARKET AND TARIFFS İLKER ARSLANARGUN MEPAŞ MUHAMMET METLEK MEDAŞ - OPERATIONS MUSTAFA BAŞER MEDAŞ - INVESTMENTS SELİM GÜNERİ MEDAŞ - FIELD SERVICES

ÖZKAN ECEVİT CENAL

AHMET YÜKSEL VAROL LAND DEVELOPMENT - FINANCIAL AND ADMINISTRATION

12 Annual Report 2019 ALARKO HOLDİNG A.Ş.

DIRECTORS ALPASLAN SERPEN HOLDING - INVESTMENT PLANNING ÖZGÜR KALYONCU HOLDING - INVESTOR RELATIONS PINAR YAMANER HOLDING - HUMAN RESOURCES AND ORGANIZATION METHOD SERKAN DEMİR HOLDING - INFORMATION TECHNOLOGY

ABBAS ŞAHİN CONTRACTING - BAKAD PROJECT BÜLENT ÇALIŞKAN CONTRACTING - BUSINESS DEVELOPMENT - FOREIGN COUNTRIES İSMAİL EROĞLU CONTRACTING - CONSTRUCTION, KABATAŞ - MAHMUTBEY METRO PROJECT SERKAN YUNUSOĞLU CONTRACTING - CONTRACT MANAGEMENT T. SÜHA AÇARBİÇER CONTRACTING - BUCHAREST SOUTHERN BELTWAY PROJECT

ALİ FUAT KOLAÇAN INDUSTRY AND TRADE - SYSTEM SALES - İSTANBUL B. TAMER ŞENYUVA INDUSTRY AND TRADE - SYSTEM SALES - ANKARA ERKAN TUNCAY INDUSTRY AND TRADE - AFTER SALES SEVICES KORAY FEDAR INDUSRTY AND TRADE - DEALER SALES VOLKAN ARSLAN INDUSTRY AND TRADE - MARKETING AND SUPPORT

EVREN COŞAN ALTEK - FINANCIAL AND ADMINISTRATION

PROJECT MANAGERS, DEPUTY PROJECT MANAGERS, FACTORY MANAGERS ATİLA YILDIZ CONTRACTING - PROJECT MANAGER - CENTER AYHAN KALAYCI CONTRACTING - PROJECT MANAGER - CENTER M. CENK TAHMİSÇİOĞLU CONTRACTING - PROJECT MANAGER - BOZSHAKOL COPPER PLANT MEHMET EKİCİ CONTRACTING - PROJECT MANAGER - ANKARA METRO PROJECT MURAT ERİŞ CONTRACTING - PROJECT MANAGER - BUCHAREST SOUTHERN BELTWAY MUSTAFA KEMAL SERİN CONTRACTING - PROJECT MANAGER - CENTER ÖZAY GÜLYAR CONTRACTING - PROJECT MANAGER - BUCHAREST SOUTHERN BELTWAY YAVUZ UYSAL CONTRACTING - PROJECT MANAGER - BUCHAREST SOUTHERN BELTWAY

ERTUĞRUL AYDIN CONTRACTING - DEPUTY PROJECT MANAGER - KABATAŞ - MAHMUTBEY METRO PROJECT GÜNAY GÖKALP CONTRACTING - DEPUTY PROJECT MANAGER - BAKAD PROJECT İDRİS ARAÇ CONTRACTING - DEPUTY PROJECT MANAGER - KABATAŞ - MAHMUTBEY METRO PROJECT KADRİYE ÇAKIR CONTRACTING - DEPUTY PROJECT MANAGER - LEVENT - HACIOSMAN METRO PROJECT MURAT ŞAHİN CONTRACTING - DEPUTY PROJECT MANAGER - KABATAŞ - MAHMUTBEY METRO PROJECT ÖZER HASAN BALSEVEN CONTRACTING - DEPUTY PROJECT MANAGER - CENTER

MURAT ŞENTÜRK INDUSTRY AND TRADE - DUDULLU FACTORY MANAGER - HEAT PRODUCTION AND PANEL RADIATOR PRODUCTION Ş. BORA NALBANTOĞLU INDUSTRY AND TRADE - GEBZE FACTORY MANAGER - AIR CONDITION PRODUCTION AND PUMP PRODUCTION

13 ALARKO HOLDİNG A.Ş. Annual Report 2019

FINANCIAL HIGHLIGHTS

Audited Audited Summary Statement of Financial Position - TL million 31.12.2019 31.12.2018 Total Assets 3,197 3,012 Current Assets 1,491 1,567 Non-current Assets 1,706 1,445 Total Liabilities 3,197 3,012 Current Liabilities 667 872 Non-current Liabilities 524 521 Equity 2,005 1,620

Summary Statement of Profit or Loss - TL million 2019 2018 Sales 1,386 1,137 Gross Profit 373 177 Operating profit/(loss) 374 296 Profit/(loss) for the period 456 (88) Profit/(loss) for the period - Parent company shares 385 (194)

Ratios 31.12.2019 31.12.2018 Current Ratio 2.23 1.80 Liquidity Ratio 1.92 1.37 Cash Ratio 0.52 0.50 Liabilities/Assets Ratio 0.37 0.46

TOTAL ASSETS EQUITY SALES (TL million) (TL million) (TL million)

3,197 2,005 1,386 3,012

1,620 1,137

2018 2019 2018 2019 2018 2019

14 Annual Report 2019 ALARKO HOLDİNG A.Ş.

TOTAL ASSETS EQUITY FOR ALARKO HOLDING 2019 HAS BEEN A TL 3,197 MILLION TL 2,005 MILLION SUCCESSFUL YEAR IN GROWING BY 6.1% IN 2019 TOTAL THE COMPANY’S EQUITY ROSE BY WHICH THE POSITIVE ASSETS REACHED TL 3,197 23.8% TO TL 2,005 MILLION. RESULTS OF THE MILLION. INVESTMENTS MADE IN THE PREVIOUS YEARS BEGAN TO BE REFLECTED SALES GROSS PROFIT ON THE TURNOVER AND PROFITABILITY FIGURES. TL 1,386 MILLION TL 373 MILLION IN 2019, SALES INCREASED REACHING TL 373 MILLION, THE BY 21.9% AND AMOUNTED TO GROSS PROFIT GREW BY 110.7%. TL 1,386 MILLION.

OPERATING PROFIT PROFIT FOR THE PERIOD TL 374 MILLION TL 456 MILLION OPERATING PROFIT REACHED AT 2019 YEAR-END, ALARKO TL 374 MILLION, UP 26.4% YEAR- HOLDİNG’S NET PROFIT STOOD ON YEAR. AT TL 456 MILLION.

GROSS PROFIT OPERATING PROFIT/LOSS PROFIT/(LOSS) FOR THE PERIOD (TL million) (TL million) (TL million)

373 374 456

296

177

(88)

2018 2019 2018 2019 2018 2019

15 ALARKO HOLDİNG A.Ş. Annual Report 2019

MILESTONES OF 65 YEARS

THE COMPANY’S NAME 1954 1967 - Alarko started its commercial activities - Alarko began founding complete WAS CREATED FROM in Turkish industry in a small office of industrial facilities. THE FIRST TWO LETTERS Vefai Han in Karaköy as an unlimited OF THE TURKISH WORDS company with a share capital of 1972 TL 20,000, with a staff comprising its - Water Treatment Facility project was FOR PROCUREMENT, founders İshak Alaton and Üzeyir Garih. completed for Seka Dalaman Paper Plant. RESEARCH AND SET UP 1956 1973 OF COMPLETE FACILITIES, - Alarko started industrial production - Alarko turned into a holding company activities with its workshop founded on with a share capital of TL 65,000,000. WHICH REPRESENT Tophane Street and then its small plant in Rami. - Alamsaş Alarko Ağır Makine Sanayi A.Ş. ALARKO’S ACTIVITIES. plant started its operations. 1959 - Bosporus Bridge Illumination System project was completed. - All air - handling units of Banknote Printing Facilities of the Central Bank and the additional textile weaving 1974 facility of Malatya Cloth Plant were - Alarko Holding A.Ş. went public. installed. This was followed by many other air - handling units in time. 1979 - The construction of Emlâk Bank Business 1963 Centers - Maslak buildings was completed. - Alarko was transformed into a joint - Life at Yıldız Building Complex, the first stock company with a capital of project of Alarko Land Development TL 3,500,000, and was renamed “Alarko Group, started. Sanayi ve Ticaret A.Ş.” - With the loan obtained from the Turkish 1980 Bank for the Development of Industry, - Etibank Keçiborlu Sulphur Flotation production activities were started Facility project was completed. for the tools and equipment required for the installation of heaters - air - 1982 conditioners - pumps and burners in the plant established on an area of 14,000 - Alarko Electronic Industry Plant “Altron” square meters in Rami. started its activities. - Water Treatment project was completed for Tüpraş Yarımca Oil Refinery.

16 Annual Report 2019 ALARKO HOLDİNG A.Ş.

1983 1986 - SEKA İzmit Paper Mill’s microbiological treatment facility was commissioned. - SEKA Dalaman Paper Mill’s Coated Paper - The foundation of Alkent Etiler Housing Production Facility was commissioned. Complex Project was laid. 1991 - Alarko Education-Culture Foundation 1984 (ALEV) was founded. - Alarko Fishery Products Company “Alfarm” started its operations. - Atatürk Airport International Terminal - Tüpraş Central Anatolia Refinery Power project was completed. Station project was completed. - Albeach Hotel - Antalya project was completed. - TEK Aliağa Combined Cycle Power Plant project was completed. 1987 - Moscow Elkat Copper Rod Facility project was completed. - Petkim Aliağa Petrochemistry Facility - Maslak Business Center and Friends of project was completed. Children Association Buildings project - Altek - Alarko Energy Group Hasanlar Hydroelectric Plant started its services. - SEKA Kastamonu Paper Mill tank was completed. productions were completed. - Bandırma NATO Project F - 16 Motor Test Building and Avionic Workshop - Mediterranean Paper Mill’s treatment 1988 Project was completed. facility and deep discharge units were - Alarko assumed the construction completed and were delivered to SEKA. of Istanbul Natural Gas Distribution - Princess Atiye Sultan Housing Complex network. project was completed. 1985 - The construction of - Being the leader of sports awareness - Alarko Future’s Club (AİK) was founded. Headquarters Buildings was completed. and customer - oriented recreational - DSİ Karakaya Hydroelectric Power center concept in Turkey, “Hillside City - Iran Bandar Abbas LPG Warehousing Club - Etiler” started its activities as part Facility project was completed. Plant Auxiliary Facilities project was completed. of Alarko Tourism Group. - Naciye Sultan Housing Complex project was completed. - Etibank Elazığ Ferrochrome Facility project was completed. 1993 - Various projects were completed at - Alarko Sanayi ve Ticaret A.Ş. went - Mürted NATO Project F - 16 Motor Test Balıkesir Paper Mill, including energy public. stream turbines and chip and debris Building and Avionic Workshop Project - Project of the Buildings of Turkey’s plant, and were delivered to SEKA. was completed. Embassy in Moscow was completed. - Afyon Paper Mill’s wastewater - Alarko Land Development Group laid the treatment facility and demineralization 1990 foundation of Alkent 2000 project. facility were completed. - Alarko Contracting Group started its - Demirciköy, Alarko Dört Mevsim Houses - Aksu Paper Mill’s various tank operations in and CIS member project foundation was laid. productions were completed and were states. delivered to SEKA. - Alsit Villas project was completed. - The leader of the boutique movie - Hydroelectric Plants Projects were concept, “Cinecity” cinemas started started. their activities at Hillside City Club - Etiler.

17 ALARKO HOLDİNG A.Ş. Annual Report 2019

MILESTONES OF 65 YEARS

1994 1998 2001 - Hillside Beach Club was started to be - Alarko Industry and Trade Group - We commemorate the memory of managed by Alarko Tourism Group. entered into a 50:50 joint venture with Dr. Üzeyir Garih. - İSKİ Baltalimanı and Üsküdar Marine Carrier, a global leader in its respective Dr. Üzeyir Garih, who always rested Discharge Line projects were sector. Being renamed as Alarko Carrier his views on life and business on the completed. Sanayi ve Ticaret A.Ş., the company principles of compassion, fairness and renewed its technology, and increased - Turkmenistan Ashgabat Airport project moderation, passed away. His views, its capacity to access foreign markets was completed. contribution and the values that he and competitiveness. made an integral part of Alarko will 1995 - Altek - Alarko Energy Group Tohma never be forgotten. Our founding Hydroelectric Plant was commissioned. president is greatly missed. - Alarko Industry and Trade Group Radiator Plant started its activities. - Alarko Energy Group entered into a 1999 strategic 50:50 joint venture with SNET - Moscow Tverskaya Business Center - Samsun Çarşamba Airport project was company. project was completed. completed. - Alarko Carrier Main Plant went into 1996 service. 2000 - Alarko Alfarm Fishery Products Group’s - Altek - Alarko Energy Group Berdan - Alarko Contracting Group launched high new plant started production activities. Hydroelectric Plant started its services. - speed train and metro projects. - Being one of the most - preferred and - Demirciköy, Alarko Dört Mevsim Houses - The new plants of Alarko Carrier San. well - known brands of the natural project was completed. ve Tic. A.Ş. started providing services in spa sector, “Sanda Spa” started its Gebze. operations at Hillside Beach Club 1997 - Uzbekistan - Samarkand, Urgench Fethiye. - Alarko Gayrimenkul Yatırım Ortaklığı and Bukhara Airport projects were A.Ş. started its activities as the first completed. 2003 publicly - traded real estate investment - Baku - Tbilisi - Ceyhan Pipeline project company of Turkey. - Kazakhstan Semipalatinsk Irtish Suspended Bridge went into service. was launched. - Frankfurt Astron Hotel project was completed. - Isparta Süleyman Demirel University Hospital project was completed. - St. Petersburg Goznak Paper Plant Production Facilities project was - Sabiha Gökçen Airport International completed. Terminal Building project was completed. - Uzbekistan - Semerkand B.A.T. Cigarette Plant project was completed. - Hyundai - Assan Automotive Plant - İzmit project was completed.

18 Annual Report 2019 ALARKO HOLDİNG A.Ş.

2005 - Kazakhstan Atyrau - Aktau Highway 2016 project was completed. - Astana Airport project was completed. - We commemorate the memory of İshak - Antalya Light Rail Transportation - Alarko Energy Group Kırklareli Alaton. System went into service. Natural Gas Cycle Power Plant was İshak Alaton, our founder and commissioned. Honorary President who has always 2010 - Algeria, Arzew Desalination and Power made a difference with his visionary Plant project was completed. - Metro went into service. approach and honesty in addition to his successful industrialist businessman - Alarko Fishery Products Group - Samsun Light Rail Transportation career, passed away. He is greatly (ALFARM) established a joint venture System project was completed. missed. with Hallvard Leröy company. The company was renamed “Alfarm Alarko 2011 - Kabataş - Mecidiyeköy - Mahmutbey Leröy”. - Ankara Metro Electro - Mechanic Works Metro project was launched. project started. - Alarko Energy Group’s Solar Energy 2007 Plants started production. - Melen Potable Water Pipeline was 2012 completed. - Kiev Boryspil Airport project was 2017 - 4. Levent - Ayazağa Metro project was completed. - Alarko Energy Group, Karabiga Thermal started. Power Plant was commissioned for 2013 commercial operation. 2008 - Alarko - Bahçeşehir University (BAU) - Kazakistan Talydkol Lake Rehabilitation - Life started at Lake Mansions, the 3rd MBA program, the first company - and Treatment Facility project was phase of Alkent 2000 project. specific graduate program of Turkey, completed. started. 2009 2018 - Providing electricity distribution service 2014 - Kazakhstan Great Almaty Beltway in a 76,932 km2 area covering the - Taksim - Yenikapı Metro project was project was started. provinces of Konya, Karaman, Aksaray, completed. Nevşehir, Niğde and Kırşehir, which 2019 roughly corresponds to 10% of Turkey’s 2015 - Romania Bucharest Beltway Project’s area, Meram Elektrik Dağıtım A.Ş. - Alarko Energy Group’s Karakuz signing ceremony was held. (MEDAŞ) was acquired as a result of its Hydroelectric Plant was commissioned. - Gönen Hydroelectric Plant was started privatization tender. - Having been constructed as an to be operated by Alarko Energy Group. - Ankara - Eskişehir High - Speed Train extension under the Levent - project was completed. Hacıosman Metro Line contract, Levent - Hisarüstü Metro Line started its commercial operations.

19 ALARKO HOLDİNG A.Ş. Annual Report 2019

AGENDA OF THE ORDINARY GENERAL ASSEMBLY

1 - Opening and moment of silence. 9 - Presenting information on the 15 - Deliberations and resolution guarantees, pledges and mortgages regarding the approval of a contract 2 - Deliberations and decision on the lodged by the company in favor of draft and the signing of the contract election of the Presiding Committee. third parties. for the auditing of the company’s accounts for the year 2020 by an 3 - Deliberations and decision to 10 - Submission of information on the Independent Auditing Company authorize the Presiding Committee amendment to the Company’s selected by the Board of Directors to sign the minutes of the General dividend distribution policy, and in accordance with the Turkish Assembly. discussion of, and decision on, the Commercial Code and the Capital approval of such amendment. 4 - Reading and deliberations of the Markets Regulations. Annual Report of the Board of 11 - Deliberations and decision on the 16 - The reading and discussion of the Directors, the reports of the Auditors proposal of the Board of Directors permission letter related to the and Independent Auditors for the concerning the distribution of the amendment to Article (8) of the term of 2019. profits. Company’s Articles of Association obtained from the Capital Markets 5 - Reading, discussion and approval of 12 - Discussion of, and decision on, the Board and the General Directorate the Statement of Financial Position appointment and term of office of Domestic Trade of the Ministry and Statement of Comprehensive of the Board of Directors, as well of Trade, as well as the text of Income of 2019. as the remuneration of the Board amendment to the articles of members. 6 - Decision to acquit members of the association attached thereto, and Board of Directors on account of 13 - Deliberations and decision on vesting discussion of, and decision on, the their activities in 2019. the powers set out in articles 395 acceptance of the new version. and 396 of the Turkish Commercial 7 - Presenting information about 17 - Wishes and requests. Code to the members of the Board of donations made by the Company. Directors. Board of Directors 8 - Deliberations and decision regarding 14 - Presenting information regarding the limits of donations to be made in the operations set out in articles (1. 2020. 3. 6) of the “Corporate Governance Principles” in the annex of the Communiqué Numbered II - 17.1

20 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ANNUAL REPORT OF THE BOARD OF DIRECTORS

Distinguished shareholders, events on economies, we believe that we We will continue following - up projects are starting a year that is quite sensitive in foreign currency in particular, whose In 2019, the refugee crisis that has grown and unsteady. financing process has been completed further with the political and geopolitical in the country and abroad. We will developments overshadowed the Having completed 2019 successfully primarily focus on developing the market economic developments. Our economy staying within expectations, our Group and inquiring business opportunities gave signals of revival, albeit limited to has prepared its plans and budgets for in markets we recently entered such as the base effect of the previous year. 2020 in line with the above - mentioned Romania. Significant decreases were recorded in forecasts, and improved strategies interest and inflation rates. While foreign focused on liquidity and flexibility. We will closely follow - up projects and trade deficit decreased with the impact Companies affiliated to our group will pay contracts related to renewable energy of the shrinking economy, the rate of attention to maintaining their liquidity, sources. We will continue our efforts exports meeting imports increased. and borrow funds in foreign exchange this year for diversifying our portfolio However, the global economy’s failure only in return for works to derive revenue with new hydroelectricity, wind and to meet the expected performance in in foreign currency or in return for solar power plants. We will continue the second half of the year and the exports. Our sound financial structure maximizing customer satisfaction in our significant fall in the production of and strong financial statements must be area of distribution, and providing high - durable consumer goods, coupled with definitely sustained. quality and uninterrupted service. trade restrictions and Brexit uncertainty, prevented our economy from pursuing a Our Group believes that the existing We will continue strategy development more positive course. human force must reach the required efforts also in 2020 in order to ensure capacity in order to understand further that our Tourism and Land Development While we expect slight improvement the state - of - the - art innovations, Groups create the required synergy. We in the economies of the developing choose the right technologies and observe an increased potential for these countries in 2020, we believe that the adequately implement the selected two groups to develop various projects economies of developed countries are technology. Therefore, our “Digital jointly. likely to pursue a horizontal course. Transformation” project we initiated However, the regional issues that in 2019 is going on at full speed We hope that 2020 will be a successful persist, epidemics like Corona Virus and through the use of both internal and year for both our country and Group, protectionist trends may all reverse external resources. As a result of this and extend our kind regards to you, our these developments. We believe that project, we mainly aim to renovate our distinguished shareholders. the developed countries are unlikely way of working in line with the latest Board of Directors to increase interest rates. This will technological developments, to ensure allow meeting the refinancing needs of that our human resources can make use developing countries easier and at lower of the state - of - the - art technologies costs. We do not expect any foreign and to attain a more agile and lean exchange shock in developing countries, organizational structure. which results from financing needs, other than in cases of structural issues. We will continue developing flexible However, the countries experiencing sales strategies and sound collection structural issues, where trust in strategies, anticipating future market economy management has weakened conditions and taking necessary actions and people believe that investment before our competitors, as we have done environment is not safe will not have the so far. The supply chain will be closely chance to benefit from this opportunity. monitored, and stock levels will be Considering the material and immaterial determined according to varying market impact of regional conflicts and social strategies.

21 ALARKO HOLDİNG A.Ş. Annual Report 2019

ANNUAL REPORT OF THE BOARD OF DIRECTORS

Distinguished Shareholders, A dividend of 1,189.81%, 1,035.51% 10. There were no related party and 1,273.63% over cash paid capital transactions or transaction of We hereby present the Annual Statement and of 26.36%, 22.95% and 14.50% importance to be presented to the of Financial Position, Statement of over total equity was paid during approval of the independent members Comprehensive Income and other the periods of 2016, 2017 and 2018 of the Board in 2019. financial statements which reflect the respectively. The proposal for the results of our company’s activities in 2019 distribution of the profits for 2019 11. Shareholders who control the to your evaluation and criticisms. submitted by our Board of Directors to management, members of the Board the approval of the General Assembly of Directors, top executives and 1. This Annual Report covers the period is on page 76 of this report. The value their spouses and blood and in - law between 01.01.2019 and 31.12.2019. of our shares being traded at the relatives up to and including their second kin have not executed any 2. The terms in office of the members Istanbul Stock Exchange at the time transaction which may lead to conflict of the Board and the auditing firms this report was prepared was TL 5.95. of interest with the Company or its for the year 2019 are given on page 6. The total amount of donations affiliates. Members of the Board have 8. The financial statements of the made by our partnership to various no transactions of their own or on operational results obtained by foundations and associations in 2019 behalf of others that could be within Alarko Holding A.Ş. in 2019 were was TL 5,602.40. the scope of the noncompetition audited independently by BDO Denet covenant. Bağımsız Denetim ve Danışmanlık A.Ş. 7. Information on the guarantees, (Member, BDO International Network) pledges and mortgages lodged by our 12. The table on page 62 of this company in favor of third parties as of report includes the subsidiaries of 3. Our partnership’s registered capital 31.12.2019 is given in footnote 23 of our company with their areas of ceiling in 2019 was TL 500,000,000. the financial statements. operation, their capitals and the 4. Our issued capital is TL 435,000,000 percentage of shares owned as of 8. The Board has convened 15 times in and our consolidated profit in 2019 31.12.2019. the year. 1 member has not attended was TL 455,710,264. on excuse to each of 3 meetings held 5. Our Annual General Assembly held during the period. Board decisions on 18.04.2019 attended by 48 of have been taken unanimously. our partners both in physical and Therefore, there is no record of electronical medium. Our partners dissenting votes. with more than 10% of our capital, 9. There are no important lawsuits owned 17.68% of the shares İzzet brought against the Company which Garih, 17.68% of the shares Leyla could impinge on its financial situation Alaton, 16.68% of the shares Vedat or activities as of 31.12.2019. Aksel Alaton and 15.24% of the shares Dalia Garih.

22 Annual Report 2019 ALARKO HOLDİNG A.Ş.

SUBSIDIARIES OF THE ALARKO GROUP

The Alarko Group of Companies consists The Alarko Group of Companies is The activities of these Groups of the of numerous entities operating within gathered in the following 5 major fields of Alarko Group during the term of 2019, the framework of Alarko Holding A.Ş. activity: their new projects, and investments as Although the companies of the Group well as their future targets are given are autonomous, they are managed • CONTRACTING GROUP in detail in the following pages of this and supervised centrally with regards • ENERGY GROUP report. to financing, financial coordination, • INDUSTRY AND TRADE GROUP auditing, legal affairs, management • TOURISM GROUP information systems, human resources, • LAND DEVELOPMENT GROUP promotion, training, and organization as imposed by the central coordination and control principle.

23 ALARKO HOLDİNG A.Ş. Annual Report 2019

THE MISSION OF OUR CONTRACTING GROUP IS BECOMING THE FIRST- CHOICE INTERNATIONAL CONTRACTING COMPANY FOR CLIENTS, EMPLOYEES, BUSINESS PARTNERS AND THE COMMUNITY IN THE RECONSTRUCTION OF A GLOBALIZING WORLD.

24 Annual Report 2019 ALARKO HOLDİNG A.Ş.

25 ALARKO HOLDİNG A.Ş. Annual Report 2019

CONTRACTING GROUP

OUR CONTRACTING GROUP EMBRACING THE PRINCIPLE OF CUSTOMER SATISFACTION AND “HIGH-QUALITY SERVICE AND PRODUCTION” AND MAINTAINING ITS REPUTATION FOR RELIABILITY, HAS BEEN CARRYING OUT VARIOUS PROJECTS BOTH HOME AND ABROAD.

Both at home and abroad, our Contracting All our activities are performed in the light Group acts as a general contractor to of the following principles: deliver turnkey construction services for projects including airports, rail systems, - Occupational health and safety are major infrastructure, industrial facilities, addressed as a fundamental human business centers, hotels etc., embracing right, and we attach importance to the principle of customer satisfaction and maintaining health and safety in all our “High - Quality Service and Production” activities. and maintain its reputation for reliability. - Protecting, and avoiding any harm to, Acting with the mission of becoming the the nature and the environment are first - choice international contracting considered as one of our fundamental company for clients, employees, business principles. partners and the community in the - We aim to ensure the satisfaction of reconstruction of a globalizing world, our our domestic and foreign customers. Contracting Group maintains its powerful and respected position in the country and - We perform project planning and abroad bringing technology, information project management that focus on the and human force together with a strong efficient use of time, costs and high - organizational capability and with a view quality. to ensuring the safety of its employees and the environment. - We use state - of - the - art technology to achieve our targets. Our Contracting Group attaches importance to experience, expertise, - We give priority to transparency, skills, quality and reliability of its accountability and discipline in our organizational structure. operations.

26 Annual Report 2019 ALARKO HOLDİNG A.Ş.

as well as training others, strategic thought and motivation.

Our Occupational Health and Safety Management System has made possible a significant reduction in the number of occupational accidents, helping us achieve an accident rate similar to that of developed countries. In addition, with the Environmental Management System that we have been implementing, we have managed to bring down to acceptable levels the potential damage caused by our activities to the environment. In 2019, activities were performed for the periodic and permanent inspection of our work sites either through internal audits or in cooperation with the internationally - recognized external auditing firms, and we have increased the efficiency of audits. Our Company holds ISO 9001:2015, ISO 14001:2015 and - Our most important policy is to perform Operating in a broad geographical area OHSAS 18001:2007 certificates, and our teamwork and focus on the success of across the world, our Contracting Group management systems are continuously teamwork in an environment of mutual continued to seek new markets also in developed. trust and respect that we share with 2019, and focused on , Kosovo, our employees. Albania, and Azerbaijan regions The areas in which our Contracting Group other than Qatar, Russia, Romania and is active can be listed as shown below. Alarko Contracting Group will maintain North and Central Africa markets, in its principle of “focusing on customer addition to its existing areas of operation. REFINERIES, CHEMICAL AND satisfaction primarily as its business Our Group will continue to follow up the PETROCHEMICAL PLANTS approach” with its staff making use of business potential in these regions also • Refineries modern techniques and benefiting from in 2020. the latest technological facilities. • Petrochemical Plants • Chemical Processing Plants Our Contracting Group observes • Tank Farms For our Contracting Group, project the principle of “Target - Oriented management relies on the principle of Management”. In addition to target INDUSTRIAL PLANTS “autonomous management and central achievement, the employees’ both supervision”. Each project is considered general and managerial capability • Factory Construction and Equipment a separate profit center and our performance are followed - up in Assembly organization and management systems accordance with our performance • Ore Processing and Dressing Plants are continuously improved for the management system. This enables us to • Metallurgy and Electrometallurgy purpose of strategic thinking, managing help each and every employee get better Plants risks, developing effective decision - at result - oriented working, efficient • Iron and Steel Plants making policies, shortening the times of use of resources, representation, • Cement and Lime Plants job completion, simplifying processes, compliance with company policies and minimizing cost and improving quality on rules, embracing one’s responsibilities, a permanent basis. visionary leadership, transfer of powers

27 ALARKO HOLDİNG A.Ş. Annual Report 2019

CONTRACTING GROUP

POWER PLANTS ISTANBUL METROPOLITAN this line, as well as the finishing works MUNICIPALITY KABATAŞ - of the 15 stations on the Mecidiyeköy - • Hydroelectric Power Plants MAHMUTBEY METRO PROJECT Mahmutbey Metro line. • Thermal Power Plants • Combined - Cycle Power Plants Based on the agreement signed with Moreover, the power supply • Heat Recovery Systems Istanbul Metropolitan Municipality on and distribution, signalization, 13 May 2015, it is estimated that the 22.5 communications and control systems, PIPE LINES - km the M7 metro line, which includes 19 auxiliary facilities, escalators, • Oil Pipelines stations and 150 decares of storage site environment control system, track • Natural Gas Pipelines with a parking capacity for 275 vehicles works, construction of the depot and • Water Pipelines as one of the city’s major routes, will be maintenance areas, finishing work, • Urban Natural Gas Distribution used to transport 70,000 passengers procurement of the electromechanical Networks in one hour at a single direction and systems, assembly and commissioning • Compressor Stations 1.6 million in one day upon its completion. works are also included within the scope • Pump Stations of the contract. TBM/NATM construction technique WATER AND WASTE WATER is employed for the construction The 24 month - long operation and TRANSPORTATION PIPELINES AND of the nearly 5.5 - km Kabataş - maintenance surveillance service, TREATMENT PLANTS Mecidiyeköy . Main line tunnel preparation of operation and excavation works between Kabataş and maintenance handbooks, procurement of • Waste Water Treatment Plants Mecidiyeköy stations were completed spare parts and consumable materials, as • Potable Water and Utility Water on 6 November 2019 when the 2nd TBM well as special tools and equipment for a Treatment Plants was taken out of the Fulya station. period of 2 years, and giving training on • Industrial Water Treatment Plants We continue to perform the rough the job and abroad are among our other • Waste Water Sea Discharge Lines construction works and entry - exit responsibilities. • Water Supply and Irrigation Systems construction works of 4 stations on

TRANSPORTATION PROJECTS

• Airports • Railroads • Underground Systems • Light Rail Systems • Signalization Systems • Highways, Motorways • , Bridges

HOUSING PROJECTS AND PUBLIC SERVICE BUILDINGS

• Satellite Towns • Housing Estates • Luxury Dwellings • Business Centers • Commercial Centers • Hospitals • Hotels

The status of the projects in progress in 2019, those completed within the year, those in the maintenance and operation period and those undertaken recently are summarized below.

28 Annual Report 2019 ALARKO HOLDİNG A.Ş.

STANDING OUT AS THE LARGEST PRIVATE SECTOR INFRASTRUCTURE INVESTMENT PROJECT OUTSIDE OF THE PETROLEUM AND GAS INDUSTRIES, THE GREAT ALMATY BELTWAY PROJECT WILL REDUCE THE TRANSPORT LOAD OF THE CITY ARTERIES AND SERVE APPROXIMATELY 2,000,000 PEOPLE.

The Mecidiyeköy - Tekstilkent line, the As for the Central Pendik - Kaynarca THE GREAT ALMATY BELTWAY first phase of the metro line including 15 Metro line, will start from the Pendik PROJECT stations and storage site, is planned to be Central Station beside the existing commissioned in 2020. Pendik station containing and As part of the West China - West Europe a Fast - Train station, and will reach to international highway project, the ISTANBUL MUNICIPALITY KAYNARCA - the Kaynarca Central Station, from there Great Almaty Beltway project is the PENDIK - TUZLA METRO PROJECT it is planned to connect to the ongoing first major Public - Private Partnership Sabiha Gökçen Airport rail system’s being undertaken in Kazakhstan. Kaynarca - Pendik - Tuzla Metro Project is Hospital Station, thus integrating to Standing out as the largest private made up of two separate routes: another route. The total length of the line sector infrastructure investment project outside of the petroleum and gas • The Kaynarca (Tavşantepe) - is approximately 4 km. In addition to this industries, the Great Almaty Beltway Çamçeşme - Tuzla metro line, route, a single - track connection tunnel of 1.1 km will be constructed. project will reduce the transport load of • The Pendik Merkez - Kaynarca metro the city arteries and serve approximately line. In this project, 6 TBM will be used for 2,000,000 people. Completion of the 17,254 meters and NATM technique will project will help accelerate the social - The first line will start from the end of be used for 7,054 meters, for a total of economic development of Almaty and the Kadıköy - Kartal - Kaynarca Metro 24,308 - meter line tunnel excavation its surroundings, reduce the traffic load line’s tail tunnel, and in order run from the and an operation and maintenance within Almaty and minimize air pollution. Central Kaynarca, Çamçeşme, Kavakpınar, supervision will be provided for 24 Esenyalı, Aydıntepe, and Tuzla Dockyard months for all systems. Comprising 6 lots and having a total stations and stop at the tail tunnel end length of 66 km, the beltway is designed at the Tuzla City Hall. There will be a to have 4 lanes in a section of 14.5 km connection provided from the Tuzla and 6 lanes in the remaining 51.5 km. Dockyard station to Marmaray. The total length of the line is 8 km.

29 ALARKO HOLDİNG A.Ş. Annual Report 2019

CONTRACTING GROUP

There are 8 intersections, 19 viaducts and 21 overpasses along the beltway. Viaducts have a total length of 2,446 meters, bridges 1,370 meters and the 154 culverts 7,445 meters. Bridge construction work will involve 42,000 meters of bored piles and 15,000 meters of driven piles. The project requires handling of 13 million m³ of earthwork, 2.5 million tons of subbase material, 2.3 million tons of base material, 1,200,000 tons of asphalt. 253,000 m³ of concrete will be used for the construction of bridges, engineering structures and the Highway Control Center building. It is estimated that 7 million tons of aggregate will be crushed during the project. The main highway and linking roads will be lightened. An area of 1.8 million m2 will be greened and 60,000 trees will be planted as part of landscaping works. ANKARA METRO PROJECT - Procurement, assembly and The Intelligent Transport and Payment commissioning of the on - vehicle System (ITPS) to be set up as part of the The Project includes; equipment for the signalization of the project will comprise 15 toll gates, 27 324 vehicles to be bought in the future. dynamic information panels, 99 closed - The renovation of the circuit cameras, an automated license electromechanical work of the existing The construction activities of the Project plate identification system and a road Kızılay - Batıkent line, have been completed and the Batıkent - condition notification system. Sincan line and Kızılay - Çayyolu line have - The electromechanical work of the been put in operation and passenger The project has a construction period Batıkent - OSB metro line, transport has begun. The additional work of 50 months and an operation period of Tandoğan - Keçiören M4 line added to of 15 years and 10 months, totaling 20 - The electromechanical work of the the contract was completed in the first years. The construction scope of works Kızılay - Çayyolu 2 line, half of 2016. has been identified as Engineering - The signalization system of the Kızılay - Procurement and Construction (EPC) and Çayyolu 2 line, With the agreement signed on the project is aimed to be completed by 15 March 2016, Additional Electro - the end of 2023. - The signalization system of the Mechanic Works of Ankara Metros have Tandoğan - Keçiören line, been assumed, and the construction activities have been completed other - The renovation or modification of than signalization as of the end of 2019 the depot, workshop and control and the additional electro - mechanical center in Macunköy according to the works are intended to be completed in requirements of the system, 2020. - Renovation of the signalization, announcement, wireless etc. systems of the existing 108 vehicles according to the new system.

30 Annual Report 2019 ALARKO HOLDİNG A.Ş.

WITHIN THE SCOPE OF THE PROJECT FOR THE 3RD PHASE WORKS OF THE TALDYKOL TREATMENT PLANT, WHICH IS AN ECOLOGICAL PROJECT CONTRACTED OUT BY THE ASTANA GOVERNORSHIP, THE CLEANING AND REHABILITATION OF THE TALDYKOL WASTE WATER LAKE OF 65 MILLION CUBIC METERS WAS PERFORMED. KAZAKHSTAN TALDYKOL LAKE KAZAKHSTAN TALDYKOL LAKE REHABILITATION AND SEWAGE REHABILITATION AND SEWAGE TREATMENT FACILITY PHASE 5 TREATMENT FACILITY PHASE 3 PROJECT PROJECT

The existing 136,000 m³/day capacity Within the scope of the project for of the treatment facility was increased the 3rd phase works of the Taldykol to a 254,000 m³/day capacity with the Treatment Plant, which is an ecological construction of this project. project contracted out by the Astana Governorship, the cleaning and The plant includes sedimentation tanks, rehabilitation of the Taldykol waste aeration tanks, gravity tanks, a treatment water lake of 65 million cubic meters was building, an aeration building, sludge performed. dewatering and drying areas, a grid filter building, raw sludge pump buildings and Approximately 4.3 million m3 of sludge pump stations. precipitated on the lake bed has been removed and dried, mixed with earth with The project was completed as of the the appropriate qualities, and an area end of October 2017 and waste water of 17 million square meters around the treatment systems were optimized to lake has been renovated and greened. meet the needs of a modern capital. Project construction activities have been The new plant, for which final approval completed at the beginning of 2018, and was granted in 2018, meets UNESCO our responsibility for the warranty period standards and the water treated in the continues until mid - 2022 pursuant to plant is released into the Esil River, which the agreement. flows through residential areas and reaches Russia. Our responsibility for the warranty period continues until the mid - 2022 pursuant to the agreement.

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CONTRACTING GROUP

The bottom of the lake that was covered project’s scope, a 4.3 million m3 landfill ISTANBUL METROPOLITAN in sludge has been cleaned with 5 work, a 0.8 million m3 deepening work, MUNICIPALITY LEVENT - HISARÜSTÜ dredgers with a total capacity of 8,500 and a 740 - hectare germination work METRO PROJECT m3/hour. Along with other supplementary was carried out. The project done with equipment, the dredging that was done 960 - geotextile tubes used for cleaning In addition to the Levent - Hacıosman by 11 ships and the deepening done by 5.6 million m3 of sludge became the metro line agreement (this line was the fleet’s largest ship with a 2,400 m3/ largest project in the world, compared also built by our Group), an additional hour capacity, was designed by Alarko to other similar projects, in terms of the connection line was commissioned engineers and was constructed in the size of the area covered. Thus, the lake between the Levent - Hisarüstü line and shipyard built on the lake. turned into a recreational area by getting the Seyrantepe Station, a line of nearly completely cleaned and by having the 4.7 km with 4 underground stations. The The sludge cleaned from the bottom swamp areas dried. Cleansing the existing inbound and outbound lines connecting of the lake was dewatered in 960 reeds, mosquitoes, and bad smells has to the Seyrantepe Station were geotextile tubes of 60x28 m and 3,000 ensured the rehabilitation of nature in separated from each other, shortening tons in the drainage area via floating the area and the City of Astana gained a the train trip times as well as expediting pipes and used as backfill material in brand new attribute. the access to and evacuation of Ali Sami the newly formed filling areas. In the Yen Arena Turk Telekom Stadium in a match scenario.

32 Annual Report 2019 ALARKO HOLDİNG A.Ş.

THE BUCHAREST SOUTHERN BELTWAY PROJECT CONNECTS THE EASTERN A2 HIGHWAY TO CONSTANZA WITH THE WESTERN A1 HIGHWAY TO PITESTI ON THE SOUTH OF THE CITY.

The final acceptance procedure of two contracted projects in Romania surveys aiming to determine the ground’s Seyrantepe station, the project’s with a total route length of 33 km to be mechanics parameters, investigations on last phase, and the access roads was constructed. explosive ammunition as the remnants of performed at the end of 2019, and thus the 2nd World War, preliminary works on the project’s general final acceptance Both projects will be designed in the archeological areas and creation of design procedures were completed. status of 2 x 2 lane asphalt - paved road criteria. Upon completion of these works, divided by steel barriers according to the conceptual design works and detailed ROMANIA BUCHAREST SOUTHERN design speed of 140 km/hour as per the as - built design works will be started. BELTWAY PROJECT LOT-1 AND LOT-2 respective technical specifications. Within This 12 - month period shall include the LINES the scope of Lot-1 and Lot-2 projects, performance of additional expropriation works will be carried out for 10 highway works which may be required, preparation The Bucharest Southern Beltway Project viaducts, 19 overbridges, 4 intersection of design and construction work connects the eastern A2 highway to arrangements, 55 culverts, 2 operation schedule, preparation and approval of all Constanza with the western A1 highway and maintenance fields, 4 temporary construction projects, and the completion to Pitesti on the south of the city. parking areas, highway traffic regulation of construction permits. and passenger information systems (ITS) As an addition to the Lot-2 Construction and other closed security systems, as well The term for performance of the works Works project for the Romania - Southern as various road illumination and finishing under the contract for both lots is 12 Bucharest Highway, which is to be a works. months for project preparation and part of the Pan - European corridor No. obtaining construction permits and 30 4, a construction works agreement was Within the scope of the Lot-1 project months for construction works, reaching signed in Bucharest on 26 August 2019 design works, works are currently total 102 months with a guarantee term for Lot-1 of the same highway. As a ongoing for mapping activities, ground of 60 months. result of this agreement, we now have

33 ALARKO HOLDİNG A.Ş. Annual Report 2019

ANTICIPATING THAT THE POWER CONSUMPTION IN OUR COUNTRY WILL INCREASE IN THE MID- AND LONG-TERM IN PARALLEL TO THE GROWTH OF THE COUNTRY ECONOMY, OUR ENERGY GROUP MAKES USE OF ITS EXISTING PORTFOLIO IN THE BEST MANNER ON ONE HAND WHILE CONTINUING TO FOLLOW- UP NEW INVESTMENT PROJECT OPPORTUNITIES ON THE OTHER.

34 Annual Report 2019 ALARKO HOLDİNG A.Ş.

35 ALARKO HOLDİNG A.Ş. Annual Report 2019

ENERGY GROUP

POWER GENERATION ACTIVITIES Anticipating that the power consumption Gönen Hydroelectric Power Plant with will increase in the mid - and long - term an installed capacity of 10.6 MWe was The slow - down in the power demand in parallel to the growth of the country started to be operated by our Company of Turkey accelerated in 2019, and the economy despite the shrinkage in the starting from the beginning of 2019, demand shrank by 0.7%. Despite the recent years, our Energy Group makes and sales are continued at market prices decreasing demand, an increase of use of its existing portfolio in the best without the opportunity to benefit from almost 3% was recorded in the installed manner on one hand while continuing YEKDEM tariff. capacity compared to the previous year. to follow - up new investment project As a result of rainfall higher than seasonal opportunities on the other. Production activities have been averages in 2019, significant reductions suspended at our Kırklareli Combined were recorded in the market clearing price OUR PRODUCTION ACTIVITIES IN 2019 Cycle Hydroelectric Power Plant with an particularly in the spring months because installed capacity of 82 MWe as a result of of the increasing capacity utilization rates HYDROELECTRIC AND SOLAR ENERGY market conditions. of hydroelectric plants. POWER PLANTS Nearly 95 million kWh was generated Our Energy Group evaluated its Electricity sales continue as per the in 2019 in the solar power plants, all production portfolio in the Day - Ahead YEKDEM (Renewable Energy Sources of which are unlicensed and have an Market, Balancing Power Market, and Support Mechanism) tariffs at our installed power of 52 MWe, and these Intra - Day Market, and provided services Karakuz HEPP, which has an installed power plants benefit from YEKDEM tariff. particularly in the Ancillary Services capacity of 76 MWe. Secondary Market and tried to make use of the best Frequency Check Service was provided opportunities coming up in different within the scope Ancillary Services, and markets. operations are continued to create added economic value.

36 Annual Report 2019 ALARKO HOLDİNG A.Ş.

KARABİGA THERMAL POWER PLANT were produced with the latest ALSTOM THE BOILERS, TURBINES, technologies. Most of the other auxiliary The installation and tests of both units systems used are either Europe - based GENERATORS, of the import coal - based Karabiga or have a European design. ASME was ELECTRO-FILTERS AND Thermal Power Plant owned by Cenal used for our critical production activities. Elektrik Üretim A.Ş., which consists of two Both power units and all auxiliary systems DESULPHURIZATION 660 MW units and has a total installed of our power plant hold CE certificate. SYSTEMS AND MILLS capacity of 1320 MW, and all auxiliary facilities were successfully completed. Special importance is attached to USED IN KARABİGA The first and second unit of this power ensuring that the power plant is made THERMAL POWER plant started commercial generation environment - friendly in both design activities on 7 November 2017 and and construction phases, and emission PLANT WERE PRODUCED 28 December 2017, respectively. of flue gases was designed in a manner WITH THE LATEST to be quite lower than EU standards, and ALSTOM TECHNOLOGIES. Karabiga Thermal Power Plant is Turkey’s state - of - the - art equipment was used and our region’s first “ultra - super critical” to that end. In addition, the principles of thermal power plant, and nearly USD 1.2 flexibility and efficiency were focused in billion was invested in its construction in order for the plant to generate maximum coordination with Cenal Elektrik Üretim added value. Karabiga Thermal Power A.Ş. without any EPC contractor being Plant is the most efficient and most used. The boilers, turbines, generators, flexible coal - fired power plant of our electro - filters and desulphurization country and region in current conditions. systems and mills used in our power plant

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ENERGY GROUP

All commissioning works of the power Karabiga Power Plant is planned to have towns, 871 villages and 499 highlands plant had been performed by Turkish an annual power generation of 9 billion controlled by villages. engineers, and the operation and kWh. Generated in line with market maintenance functions of the plant conditions, the electricity is sold using Offering both electricity distribution and are again performed by the plant’s own various sales channels by the Trade Team retail sales services, MEDAŞ separated expert staff. The power plant employs set up under Cenal Elektrik Üretim A.Ş. these activities in 2013 in accordance nearly 450 employees. Almost 3,500 with the Electricity Market Regulation. people were employed for the plant’s ELECTRICITY DISTRIBUTION With this regulation aimed at opening construction, and the plant generated ACTIVITIES up the electricity sales market to significant added value for the regional competition, the subscription, billing Meram Elektrik Dağıtım A.Ş. (MEDAŞ) economy and employment opportunities. and collection operations previously provides electricity distribution service conducted by MEDAŞ were transferred 2 In addition to our power plant’s in a 76,932 km area covering the to the newly set up Meram Elektrik environmental and technological provinces of Konya, Karaman, Aksaray, Perakende Satış A.Ş. (MEPAŞ) and MEDAŞ superiority, both theoretical and practical Nevşehir, Niğde, and Kırşehir, which retained the other services including training activities are conducted to roughly corresponds to 10% of Turkey’s repair - maintenance, investment, index make sure that the plant becomes an area. In parallel to its purpose of reading, activation and deactivation. exemplary one in the field of occupational increasing efficiency and productivity safety, and all our colleagues are informed by means of reducing the enterprises’ MEDAŞ continued to offer intensive about our occupational safety - oriented geographical areas of responsibility, and high - quality training to its young policy. MEDAŞ, which has total 70 enterprises and dynamic staff in 2019. With regular including 38 independent enterprises technical and personal development and 32 sub - enterprises controlled by training sessions, the company aimed these independent enterprises, provides to improve the skills and knowledge services to 6 provinces, 63 , 61 of its employees. Occupational safety

38 Annual Report 2019 ALARKO HOLDİNG A.Ş.

training was another area of focus, Following its privatization, efforts IT IS A TOP PRIORITY with the ultimate aim of maximizing the were initiated to turn MEDAŞ into awareness and knowledge of all staff, a “technology company”, and such FOR OUR COMPANY including specialist team members, efforts continued in 2019 as well. TO ENSURE with regards to occupational safety. In Projects launched in previous years, 2019, 135,000 man - hours of training including the Document Management EMPLOYEES’ HEALTH was provided and more is planned for System, Customer Information System, AND OCCUPATIONAL the coming years. With the “Reveal Geographical Information Systems, SAFETY. THEREFORE, Your Young Idea” project conducted in Call Center, Vehicle Tracking System, cooperation with the universities in SCADA, Intranet, Process Management, IN 2019, A SOFTWARE the areas of responsibility of MEDAŞ, Automated Meter Read System, and WAS DEVELOPED FOR talents interested in the industry were the Unlicensed Producer Management discovered, and were employed by System, are successfully implemented. THE OHS REPORTING MEDAŞ. SCADA/DMS/WFM and the new SYSTEM, WHICH MADE IT Geographical Information System were It is a top priority for our Company commissioned in 2019. All System POSSIBLE TO MEASURE to ensure employees’ health and Operations field operation teams are able AND MONITOR THE OHS occupational safety. Therefore, in 2019, to manage the entire operations carried PERFORMANCE OF FIELD a software was developed for the out in the field in electronic environment OHS reporting system, which made it through the use of tablets. PERSONNEL AND SITE possible to measure and monitor the INSPECTORS. OHS performance of field personnel With its total 4 R&D projects consisting of; and site inspectors. Besides, a team of site inspectors was set up, although not • the Project for the Production and required by law, and inspections were Implementation of Medium Voltage started in all 38 sites. Insulation Materials with Domestic and National Facilities,

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ENERGY GROUP

• the Project for Research and Pilot to the needs and requests of 3.8 million service level were 98.5% and 95%, Implementation of Vertical Installation citizens in the region, improve service respectively. The improvement activities Method for Medium Voltage quality and efficiency and make our performed with the aim of ensuring Underground Cables, Company one of the best distribution customer satisfaction provided benefits companies in Europe. also in 2019 as they did in 2018, and • the Project for Research and Pilot our company has become one of the Implementation of New Methods A goodwill agreement was signed distribution companies with the highest for Connection of Overhead Line between our Country and Turkish Quality customer satisfaction rate in Turkey as Conductors to Insulators and the Association (KalDer) in order to join approved by the Ministry of Energy and Project for Pilot Implementation of the national quality movement. A self - Natural Resources. Ancillary Services in Distribution evaluation was made for MEDAŞ during accepted by the Energy Market this process taking into consideration Just like in previous years, maintenance Regulatory Authority (EMRA), MEDAŞ the concepts and criteria provided in works for distribution centers continued continues to benefit and guide both our the “Excellence Model” developed by in 2019. The year 2019 also witnessed country and the industry in 2019. the European Quality Management an investment of nearly TL 400 million Association in 2019, strengths and in technology and the improvement, To ensure regular and accurate reading, development areas were discovered, renewal and capacity increase efforts we replaced mechanical meters with and development plans were prepared for electricity distribution facilities. electronic ones and continued with our in the light of continuous development Maintenance and investment activities software development efforts in 2019, approach. MEDAŞ call center received aimed at providing uninterrupted and as a result of which 98.8% of our meters nearly 2,000,000 calls in 2019. EMRA call high - quality energy to our customers started to be read through optic ports, center met all quality criteria. In 2019, made possible a significant reduction in in a faster way and without human the accessibility rate of the call center the technical loss rate, which is expected intervention. Our primary aim with such was 97.7% while the answer rate and to reach around 6.45% by the end of efforts is to be able to respond faster 2019.

MAINTENANCE AND INVESTMENT ACTIVITIES AIMED AT PROVIDING UNINTERRUPTED AND HIGH-QUALITY ENERGY TO OUR CUSTOMERS MADE POSSIBLE A SIGNIFICANT REDUCTION IN THE TECHNICAL LOSS RATE.

40 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ELECTRICITY TRADE ACTIVITIES the provinces of Konya, Karaman, volume reaching 230 million kWh and Aksaray, Nevşehir, Niğde, and Kırşehir, volume of sales at regulated price 8 billion Previously offering both electricity which roughly corresponds to 10% of kWh. distribution and retail sales services, Turkey’s area. Having commissioned an MEDAŞ separated these activities in online transaction center to improve Alen Alarko Enerji Ticaret A.Ş. continues 2013 in accordance with the Electricity customer satisfaction, MEPAŞ maintains its activities in all energy trade channels Market Law. With this regulation aimed its efforts to ensure that customers by means of selling the power generated at opening up the electricity sales market be able to make as many transactions by the power plants of Alarko. Our to competition; subscription, billing as possible online, without having to portfolio, developed through wholesale and collection operations previously go to a physical location. Subscription, trade operations under this Company, conducted by MEDAŞ were transferred subscription cancellation, outstanding is actively managed on the basis of to the newly set up Meram Elektrik bill enquiry and payment, objection to predefined risk parameters set in Perakende Satış A.Ş. (MEPAŞ). The legal invoices and data update transactions consideration of periodic risk factors. separation process started in 2013 can now be done online or in the online and was completed by the end of 2015 transaction center which is accessible ensuring physical separation as described through the application. in the Energy Market Regulatory Authority regulation with respect to MEPAŞ continued to work towards equipment, software, service points and cheaper electricity supply for its personnel. customers as part of eligible consumer activities. However, the free market Through 11 enterprises, 8 affiliates and which shrank significantly in 2018 due 43 dealers, MEPAŞ provides electricity to increasing costs began to improve in retail sales services to nearly 2 million 2019 slowly with eligible consumer sales customers in a 76,932 km2 area covering

41 ALARKO HOLDİNG A.Ş. Annual Report 2019

HAVING DETERMINED ITS MAIN FIELDS OF BUSINESS AS HEATING, COOLING, VENTILATION AND WATER PRESSURIZATION, OUR INDUSTRY AND TRADE GROUP MANUFACTURES AND IMPORTS RELATED PRODUCTS, AND PROVIDES SALES AND AFTER- SALES SERVICES FOR THESE PRODUCTS.

42 Annual Report 2019 ALARKO HOLDİNG A.Ş.

43 ALARKO HOLDİNG A.Ş. Annual Report 2019

INDUSTRY AND TRADE GROUP

Having determined its main fields of roof - top units compliant with the ErP For fan - coil devices, we will continue business as heating, cooling, ventilation 2021 directive, we aim to double our the sale of products we procure from and water pressurization, our Industry and domestic market share in several years. Italy on an OEM basis with Carrier brand Trade Group manufactures and imports for the upscale market and Alarko brand related products, and provides sales and In air - handling units, we will continue for the midscale market. In addition, the after - sales services for these products. to market Carrier 39HQ for the upscale feasibility studies are ongoing for starting market, and the Alarko ALS series, which the production of fan - coils with Carrier Our company continued to domestically we procure on an OEM basis, for the brand in Gebze plant. We aim to complete and internationally sell air - handling domestic midscale market. By introducing this project by the third quarter of 2020. units and rooftop units produced with fully - automated version of 39HQ series the technology and brand of its partner in the first quarter of 2020, we aim to In the heat - pump market, we have Carrier, known as the inventor of the attain a leading position in the market added Carrier heating products to modern air - conditioner, also in 2019. Our in terms of both domestic market and our product range in order to improve company has received the award of “The exports in the category of automated air - our position and better seize the Company to Export the Greatest Number handling units with high added value. existing potential in the market. Carrier of Air - Handling Units” for 6 years in a heat pumps, which are sold through row in the air - handling units category We will maintain our sales strategy also our dealers, are differentiated from according to HVAC - R Industry Exporters’ in 2020 with the advantages provided by competitor products by heating water Association (İSİB) data. our state - of - the - art and environment to a very high temperature, and offer a - friendly products in the chiller group wide product range to address various 4 models of new generation rooftop market driven by fierce competition, as customer needs. units in 105 - 160 kW range have been well as life - cycle cost approach. We will introduced to the market in December continue supplying products from , Because of the requirement introduced 2019. The 180 kW and 215 kW models , United States and Japan Carrier by the ErP Directive for boilers below of the third and last phase of NXG series Plants for the upscale market in chiller 400 kW capacity to be of condensing will be introduced to the market in group, as well as from different Carrier type and the boiler market showing March 2021, and the entire series will be plants with a view to increasing product tendency towards this type of boilers, our completed. With our new - generation diversity and competitiveness. condensing boiler development efforts

44 Annual Report 2019 ALARKO HOLDİNG A.Ş.

OUR COMPANY CONTINUED TO DOMESTICALLY AND INTERNATIONALLY SELL AIR-HANDLING UNITS AND ROOFTOP UNITS PRODUCED WITH THE TECHNOLOGY AND BRAND OF ITS PARTNER CARRIER, KNOWN AS THE INVENTOR OF THE MODERN AIR- CONDITIONER, ALSO IN 2019.

have been accelerated for the last few More intense efforts will be spent in 2020 tanks, unit heaters, plate exchangers and years. Aldens wall - type boilers with a in order to increase further the market radiator valves will be continued to be capacity 85 kW have been developed share of Wolf condensed combi boilers produced and marketed under the Alarko in 2019 in our wall - type boiler plant, and boilers, which we continue to sell in brand through domestic contracted and thus our wall - type boiler series our country together with the German producers. in the range of 65 - 150 kW have been Wolf company, our partner in the upscale completed reaching 5 different models. heating market. Heat meters and heat - cost allocators In 2018, R&D efforts were started for will be continued to be marketed under Aldens floor - mounted condensing In 2019, we started selling a new more the Techem brand, while meter reading boilers consisting of total 13 different affordable and practical smart combi services will be continued to be provided capacities in the range of 175 - 1150 kW, thermoregulator under the brand “Alarko by Alarko. New software development and they will be introduced to the market by Cosa”. Customer satisfaction will be efforts will be completed in 2020 in in 2020. enhanced among our combi boiler users order to increase the efficiency of these together with the spreading use of timer services. Development activities are still going - equipped smart thermoregulators that on for developing boiler and non - boiler allow controlling the combi boiler from Activities were continued in 2019 in models of wall - type room heaters with a mobile phones. relation to the project involving new capacity of 28, 35 and 50 kW, and will be gear - coupled and flanged models, completed in 2020. The product lines of heating products which will also increase the number of located in Gebze plant have been moved models of OPTIMA circulation pumps we In 2019, development activities were to Dudullu plant. Sheet metal processing manufacture and sell in line with the ErP started for a more economical condensing workshop installed in the area vacated at Regulations and Communiqués, from 10 combi boiler from the existing Seradens Gebze plant started production activities to 16. The project’s flanged new models series with the aim of having a greater in March 2019. have been produced and marketed in impact in both the export and domestic the second quarter of 2019. We aim to operations of the combi boiler market, Conventional boilers used in central complete and offer for sale gear - coupled and the product will be introduced to the heating, as well as related auxiliary models in the fourth quarter of 2020, and market in the first quarter of 2020. equipment such as boilers, expansion

45 ALARKO HOLDİNG A.Ş. Annual Report 2019

INDUSTRY AND TRADE GROUP

THE SALES AND MARKETING ACTIVITIES ARE STILL GOING ON FOR PRECISION AIR- CONDITIONERS USED IN TELECOMMUNICATION AND DATA CENTERS INDUSTRY.

to ensure synergic contribution by means The “Stainless In - Line Booster Pump” individual wall - type and commercial of using these products in condensing project initiated for commercial and models. Fair split air - conditioners with boilers we produce and sell. industrial boosters has been completed, R32 refrigerant in wall - type, inverter and distribution and after - sales service cassette, duct, floor - type and ceiling - Targeted market share has been reached trainings were completed for this product type models are not only environmental for 2019 in 4” submersible pumps and the product has been introduced to - friendly, but also offer a competitive thanks to product diversification efforts, the market in 2019. Our works related to product range meeting industrial adoption of new sales strategies and the export of our water pressurization expectations. We will continue our efforts diversification of alternative payment system products have been continued in for maintaining the market share of our methods, and necessary measures have 2019 with great speed, and targets have Alarko Flair series also in 2020. been taken for maintaining this share. been achieved. In addition to drainage pumps for dirty Standing out with its compact structure and waste water for individual use added The sales and marketing activities are still and efficiency, our Toshiba 8 - 10 HP to the product range in 2018, drainage going on for precision air - conditioners Mini VRF system will be started to be and centrifuge pump models have been used in telecommunication and data sold in 2020. We will be able to offer full added to our product range in 2019 in centers industry. Marketing efforts solutions for mini VRF projects in this line with the demands received from our will be continued to grow our share in manner. Allowing use in independent distribution channel, and planning has this growing market, to improve brand sections in both residences and been made for continuing the product awareness and actively compete with commercial applications, the new diversification activities in 2020. Our rivals. Mini VRF series will save space for our foreign market searches and current users. The 8 - 10 HP Mini VRFs that activities in our sales markets for 6” - 14” We will continue selling Flair products can be used with hot water module in submersible pumps were continued added to our split air - conditioner residential applications will allow us to in 2019, and fairs were attended and product range with Alarko brand also meet the heating, cooling and hot water symposium presentations were delivered in 2020. Flair split air - conditions have requirements. for increasing our activities particularly the capacity to meet the requirements in Pakistan market where there is a high of various applications thanks to its level of use in Solar Energy Systems. broad product range consisting of both

46 Annual Report 2019 ALARKO HOLDİNG A.Ş.

We will introduce into the market our notifications and requests to authorized THE PRODUCT A+++ energy class air - conditioners service centers, to monitor and manage with Shorai Edge model in 2020. Bringing the services, to measure the performance TRACKING SYSTEM together high energy efficiency with of the entire process, and to introduce PROJECT WILL ENSURE aesthetics, the new Shorai Edge model the necessary improvements, and efforts will increase our competitiveness. have been initiated for the Product THAT PRODUCTS CAN BE Thanks to the features of external unit Tracking System Project, which will take TRACKED UNTIL THE END silent mode, HADA Fan mode and the the notification management project OF THEIR LIFE CYCLE. remote control with illuminated back one step further. The Product Tracking screen available in our new model, we System Project will ensure that products aim to meet the market’s requirements can be tracked until the end of their life and expectations, increasing our market cycle. share. ACE (Achieving Competitive Excellence) Both our own employees and our dealers quality management system activities and service stations will be continued are carried out at each business unit at to be provided with trainings in 2020 both offices and plants. All performance in various provinces in line with the indicators are reported to the Middle requirements determined, with a view to East & Turkey ACE & Quality Director on making sure that they are fully informed a monthly basis. Preparations are going in an environment with increased on at full speed for the audit of ACE Silver competition. Recertification process to be performed in 2020. The “Notification Management” project is still ongoing in order to collect customers’ malfunction notifications and installation requests within a single software environment, to forward these

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INDUSTRY AND TRADE GROUP

OUR PRODUCTION FACILITIES PRODUCE AIR-HANDLING UNITS AND ROOFTOP UNITS UNDER THE BRAND OF CARRIER IN THE FIELD OF AIR-CONDITIONING, AND SUBMERSIBLE PUMPS AND MOTORS, CIRCULATION PUMPS AND BOOSTER PUMPS UNDER THE BRAND OF ALARKO IN THE FIELD OF WATER PRESSURIZATION.

Compliance activities according to the In addition to our traditional points of PRODUCTION ACTIVITIES amended 2015 version of ISO 9001 contact consisting of our sales offices quality management standard have been and authorized sellers, digital marketing MAIN PLANT completed across all our departments and e - commerce will be continued to Located on a total area of 60,000 square with necessary risk analyses and be used as a tool for attracting new meters in Gebze Organized Industrial process flows being defined. In addition, customers, retaining the existing ones Zone, our main plant consists of a recertification was performed by both and acquiring new customers. Digital modern complex incorporating an indoor TSE and BSI. In addition, our company has Marketing Project has been designed production area of 17,000 square meters, a leading position in its sector, holding in a manner to be integrated with the plant offices of 3,000 square meters, quality certificates such as ISO 14001, purchasing process starting online, test and R&D building of 2,000 square ISO 27001, ISO 50001, ISO 45001 and Alvima Accounting System and After - meters, as well as social and training SA 8000. Sales Services Notification Management facilities and management offices, which System and to include all processes up to totally occupy an indoor area of 36,000 In today’s environment where the appointment of authorized service square meters. Our production facilities digitalization is improving fast and its dealers, completion of installation and produce air - handling units and rooftop impact on business processes is deeply measurement of satisfaction with the units under the brand of Carrier in the felt, the Digital Marketing Project related service, and improvement efforts are still field of air - conditioning, and submersible to the revamp of our corporate website continued. With Document Management pumps and motors, circulation pumps and and e - commerce website has been System Application, we aim to digitalize booster pumps under the brand of Alarko launched in 2019, with a view to keeping the internal processes and archive in the field of water pressurization. pace with these changes and becoming a documents in virtual environments as part of the digital transformation process. of 2020. The investments determined We started receiving orders for our in line with ISO 27001 Information products over our existing e - commerce Security Management System Standard, platform and other e - commerce CMA Information Systems Management platforms. Ensuring digital connections Communiqué and Law on the Protection everywhere and every moment is of Personal Data will be continued in now a precondition for increased 2020. competitiveness in various industries.

48 Annual Report 2019 ALARKO HOLDİNG A.Ş.

HEATING DEVICES PRODUCTION PLANT We obtain a significant advantage by Totaline spare - parts markets have offering complete building automation been offering spare parts and technical Installed on an area of 18,000 square solutions that convert complex services equipment for the air - meters in Istanbul Dudullu Organized commercial facilities such as shopping conditioning and water pressurization Industrial Zone, our Heating Devices malls, hotels and hospitals into “smart markets since 2002. Including its Production Plant has an indoor area buildings” in cooperation with the headquarters in Dudullu, Istanbul, of 12,000 square meters. This plant American Automated Logic company, for Totaline operates five stores in Istanbul produces condensing combi - boilers, whom we are a distributor, as well as our (İkitelli), Ankara, İzmir and Antalya. In wall - type condensing boilers and panel teams who are experts in their fields. 2020, Totaline plans to supply products radiators under the Alarko brand in the In addition to the products we obtain to its customers online with its website field of heating. in the air - conditioning sector, we are isk-market.com in addition to its 5 stores. also specialized in special projects such SALES AND MARKETING ACTIVITIES as hygienic, data center and processing Our employees, dealers and service centers are trained at our state - of - the Our Industry and Trade Group has an projects, taking strength from our - art training centers located in Gebze and extensive and strong sales and service experience gathered over long years Ankara and also through the online Alarko network around Turkey with its offices in and the engineering solutions we offer. Carrier Academy. Our own employees and Gebze, Ankara, İzmir, Antalya and Adana, We appeal to all customer profiles with the employees of our dealers and service as well as its 263 dealers and 291 after - our heating products, which include centers are assigned online trainings, sales service units. boilers for central heating systems and combi-boiler, and radiator bundles for and are ensured to receive the trainings In response to market trends and personal heating. In the field of heating required for their position. expectations in the market, we also and cooling, which is becoming more Our Industry and Trade Group has been include products imported from leading important with the regulations enacted preferred for various prestigious projects companies in their respective sectors in for personal air - conditioners, we offer in the field of air - conditioning and various countries in our range in addition our air - conditioners with high seasonal water pressurization in the country and to our own products produced at our efficiency to our customers under the abroad in 2019 as in the previous years, production facilities. We are a customer brands of Toshiba, Carrier and Alarko. and will continue to provide support to - focused company that provides a wide its customers in line with its principle of range of products to its dealers, and “high quality service and production” also offers complete solutions to customers. in future. In addition to our existing distribution channels, our efforts aiming to create a sales channel through our website have been completed in 2019, and we aim to increase our sales through the e‑commerce channel in 2020.

We offer our customers complete system solutions, as well as a very extensive product portfolio in air - conditioning sectors by means of complementing our own product range with products that we procure from partners such as chiller units, fan - coil units, precision air - conditioners, cooling towers, dry coolers, condensing units, automatic control devices, humidifiers, cold rooms, air - conditioners for operating rooms, boilers for central heating systems, auxiliary equipment for installations, and heat - cost allocators.

49 ALARKO HOLDİNG A.Ş. Annual Report 2019

OUR TOURISM GROUP ADOPTS AN APPROACH FOCUSING ON DETAIL AND POSITIVE CONDUCT WHILE PROVIDING SERVICES, AND BRINGS NEW PERSPECTIVES INTO THE “LEISURE” SECTOR. THE GROUP CONTINUES TO MEET THE REQUIREMENTS OF ITS GUESTS IN THE BEST MANNER IN LINE WITH ITS TARGET OF EXCELLENCE IN SERVICE APPROACH AND THE SYSTEMS AND VALUES IT HAS PRODUCED FOR ENSURING THE SUSTAINABILITY OF SERVICE QUALITY.

50 Annual Report 2019 ALARKO HOLDİNG A.Ş.

51 ALARKO HOLDİNG A.Ş. Annual Report 2019

TOURISM GROUP

Being the first and leading actor of the approaches and sustainability, and has a unique experience with its original Turkish “leisure” sector, Alarko Tourism become an exemplary company in the systems and values and offering them the Group makes a difference with its leading industry in these fields. With Hillside vacation of their dreams. Hillside Beach and innovative concepts focusing on Beach Club, Hillside City Club, Cinecity Club has hosted nearly 24,000 guests industrial research and development. Cinemas and Sanda Spa, our Tourism in 2019, and has had an exceptionally Inspired by global trends and taking Group aims at offering high - quality, successful year in the industry with strength from its knowledge, experience complete and personalized services to its respect to occupancy rates, profitability and vision, the group recognizes the guests. and guest satisfaction, maintaining dynamics behind these trends and its above - competition position in the manages its brands making use of unique In line with this service approach, the industry. solutions developed for the relevant Group is developing a hotel and resort location, structure and time. With its project in the Yeni Erenköy area of the Hillside Beach Club whose success story mission of “making people feel good”, İskele region in Turkish Republic of became an academic topic at Harvard our Tourism Group adopts an approach Northern Cyprus. A capacity of 1,272 Business School, one the world’s leading focusing on detail and positive conduct beds is planned for the project, for universities, was also included this while providing services, and brings which architectural drawings have been year in the bests of the Mediterranean new perspectives into the “leisure” completed and construction license by the English newspaper The Times, sector. The group continues to meet obtained. This project is expected which shapes the travel preferences of the requirements of its guests in the to speed up Alarko Tourism Group’s the British. Referred to as “the Heaven best manner in line with its target of growth plans significantly and become on Earth” by its guests and industry excellence in service approach and the a milestone of a potential hotel chain professionals, Hillside Beach Club has systems and values it has produced for together with new projects to be a “Repeat guest” rate of 72%. This ensuring the sustainability of service acquired in the future. exceptional rate proves the resort’s quality. principle of unconditional customer HILLSIDE BEACH CLUB - FETHİYE satisfaction. Another important approach Our Tourism Group has developed of the facility requires that the pricing Considered “the favorite of the choosy”, extraordinary management systems policy be based not on high demand but Hillside Beach Club has adopted the through time which ensure a service on the principle that guests “get a good welcoming, intimate and high - quality understanding focused on exceeding return for the money they pay”. service approach and is an exemplary expectations, unique marketing 5 - start holiday resort offering its guests

52 Annual Report 2019 ALARKO HOLDİNG A.Ş.

FOUND WORTHY OF NUMEROUS NATIONAL AND INTERNATIONAL AWARDS, HILLSIDE BEACH CLUB HAS BEEN GRANTED AWARDS BY 11 DIFFERENT PRESTIGIOUS CORPORATIONS IN 2019.

Found worthy of numerous national and Beach Club meticulously considered international awards, Hillside Beach every small detail to offer its guests an Club has been granted awards by 11 unforgettable holiday experience with its different prestigious corporations in rich activity and event portfolio. 2019. In Condé Nast Traveller Readers’ Choice Awards, one of the world’s most Having started its “Creative Minds” prestigious travel magazines, Hillside project, which will integrate young Beach Club was selected as one of the people’s vision into its management Best European Resorts with the readers’ processes, Hillside Beach Club allowed votes. Hillside was the only brand from this team selected from among creative the tourism sector to be awarded with young people between the ages of its “Feel Good App” chosen as one of 13 and 19 years to communicate their the Top 4 Mobile Apps of the Year in experience and views in a manner to The MMA Smarties Turkey Awards, an directly contribute to decision - making awards program designed to recognize process. Coming together with Hillside innovation, creativity and success in Beach Club management team 4 times the marketing world. Being included in a year and sharing their opinion and the List of “Top 500 Service Exporters”, innovative ideas with them, the youth which was prepared by TİM for the third contributed to the commissioning of new time this year and which lists the most services at Hillside. successful exporters of Turkey, Alarko HILLSIDE CITY CLUB Tourism Group maintains its leading position with its flawless service quality Leading the fitness world with its and unmatched customer satisfaction, as leading practices in Turkey, Hillside City well as high occupancy rates. Club carries out its activities at Istanbul Etiler as part of Alarko Tourism Group. Organizing various colorful activities and Playing a leading role in ensuring that events for the expectant guests including the fitness concept is developed into a Feel Good Week, Tennis Cup, British Film comprehensive framework with its health Institute Summer Screenings, Summer - and customer satisfaction - oriented Challenge, Father & Son Camp and Water approach, Hillside City Club has become Sports Week in 2019 season, Hillside

53 ALARKO HOLDİNG A.Ş. Annual Report 2019

TOURISM GROUP

HILLSIDE CITY CLUB DESIGNED THE “FEEL GOOD AT WORK” TRAINING SESSIONS IN 2019 WITH THE AIM OF IMPROVING THE QUALITY OF LIFE OF BUSINESS PROFESSIONALS AND MAKING THEM FEEL GOOD.

a trend - setter in the industry. Believing Hillside City Club designed the “Feel Good SANDA SPA in being “much more than a sports club” at Work” training sessions in 2019 with Hillside City Club has been serving as a the aim of improving the quality of life Turkey’s first Spa chain Sanda Spa multifunctional lifestyle center with a of business professionals and making started its activities at Hillside Beach boutique sports club approach for more them feel good. Offering trainings in Club - Fethiye 16 years ago. Being one than 20 years. the categories of “Office Exercises”, of the most - preferred and well - known “New - Generation Alimentation Trends” brands of the spa sector, Sanda Spa plays Being a real lifestyle center making and “Mental Awareness and Breathing”, a critical role in elevating the sector to its everyone feel the spirit of club, Hillside Hillside City Club trainers introduced current position. Fulfilling its mission of City Club organized more than 100 events the business community to the Hillside’s “making everyone feel good” at Hillside for its members in 2019. Organizing world making everyone feel good. Beach Club and Hillside City Club in Etiler, countless activities and events bringing Istanbul, Sanda Spa offers more than 60 together arts, music, sports and The facility was expanded by a brand relaxing therapy options with 3 different entertainment in order to enrich the mix including ING Cinecity Cinemas, Daily concepts, in which Elemis and Body social lives of its members, Hillside News Restaurant, Palms Cafe, Starbucks Coffee products are used. has held popular activities to draw the Coffee, D&R, Sanda Spa, and women’s attention of the community it has created hairdresser Vassago, reflecting Hillside Sanda Spa is also a first choice when it through years with the “Hillside Outside” City Club’s comprehensive customer comes to the gift options it provides to its events organized outside the club. service approach and improving customer guests for special days. The Sanda Card Offering more than just workout with its satisfaction through powerful synergy. offers many benefits to users at Hillside “Feeling Well” mission, Hillside City Club A preferred brand for sponsorship, City Club, Hillside Beach Club and Hillside Etiler prepared the “21 Days of Feeling Hillside City Club has made long - term City Club with special, pleasant surprises. Good” program to make possible for its sponsorship agreements with ING, Türk clients new experiences and inspiring Telekom Prime, Under Armour, Volvo, discoveries. Philips, Unilever and Coca - Cola, all strong brands in their respective industries.

54 Annual Report 2019 ALARKO HOLDİNG A.Ş.

CINECITY CINEMAS HILLSIDER MAGAZINE AND In addition to Hillsider Magazine, HILLSIDENOW a trailblazing step was taken in the With 3 theaters at Hillside City Club, 6 at magazine publishing industry, and, Zeytinburnu Olivium Outlet Center and Maintaining its popularity for 24 years following the dynamics of the digital 11 at İzmir Kipa Shopping Center, Cinecity as the publication of Alarko Tourism world, the HillsideNOW channel was Cinemas have long become a trend - Group, Hillsider Magazine is issued launched and gained more than 85,000 setter and earned a well - deserved every 4 months and reaches more than followers, becoming Turkey’s first channel reputation for the innovative approach 10,000 readers. Being the product of a to publish via Instagram’s story function that it brought to the cinema concept. high - quality and authentic publication and accessing nearly 3 million people per Today, the Cineclub Card loyalty program approach, Hillsider Magazine is preferred month in 2019. HillsideNOW continues to has more than 130,000 registered users, by readers with high life standards create an impact with new, inspirational, proving and enhancing the position of and developed tastes. The magazine curious content and interviews with Cinecity Cinemas in the industry. New features inspirational content about pioneers. concepts, constant innovation and a arts, music, travel and food, as well as boutique cinema approach has earned special interviews and shoots. Hillsider Cinecity Cinemas a strong prestige. With Magazine, whose design has been found innovative and original services, Cinecity worthy of several awards, is one of the Cinemas serve nearly 500,000 viewers first examples of corporate publications annually. The experience offered to and has already earned a well - respected guests is completed by the well - known, position. co - located restaurants and cafés.

55 ALARKO HOLDİNG A.Ş. Annual Report 2019

OUR LAND DEVELOPMENT GROUP DESIGNS AND CONSTRUCTS PROJECTS WHOSE INFRASTRUCTURE IS BUILT ON THE BASIS OF THE GROUP’S KNOWLEDGE AND EXPERIENCE OF MORE THAN 50 YEARS, WHICH ARE EQUIPPED WITH RECREATIONAL AREAS AND WHICH ARE MANAGED WITH A MODERN MANAGEMENT ORGANIZATION.

56 Annual Report 2019 ALARKO HOLDİNG A.Ş.

57 ALARKO HOLDİNG A.Ş. Annual Report 2019

LAND DEVELOPMENT GROUP

OUR LAND Our Land Development Group designs and delivered with the experience of and constructs projects whose long years continue to be the preferred DEVELOPMENT GROUP infrastructure is built on the basis of the options for customers for their high HAS DEVELOPED MANY Group’s knowledge and experience of quality. more than 50 years, which are equipped HOUSING PROJECTS with recreational areas and which are Despite the tax advantages and the ESPECIALLY WITH THE managed with a modern management decrease in housing loan interests in 2019, real estate stocks could not be “ALKENT” BRAND FOR organization. Having earned a well - deserved reputation with the quality depleted. Thus, taking into consideration MEDIUM AND UPPER and reliability of its projects, our Group the excess demand and uncertainties in INCOME GROUPS, AS WELL has developed many housing projects the real estate market, our Group aims for medium - and upper income groups, to implement new projects when the AS BUSINESS CENTERS, as well as business centers, hotels circumstances become favorable. Project HOTELS AND RESORT and resort projects, especially with development work is ongoing for the land that we already have, and they will PROJECTS. the “Alkent” brand. Alkent brand has been well - established in the minds of be put into use when the real estate people as the symbol of high - quality market conditions allow. We have project in construction sector and privileged development work ongoing for large lands lifestyle. All housing projects completed owned by our Group Companies in Riva.

58 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO REAL ESTATE INVESTMENT Together with the extension of the term • The 4 - story Alarko Business Center COMPANY of our company’s construction right over with a usable area of 1,730 m² located “Hillside Beach Club” holiday resort to on Necatibey Street, Karaköy, Istanbul; Established for investing in real estate 49 years again, our rental income to be and real estate projects, real estate derived from this facility is expected to • Alarko - Dim Business Center, which related rights and money and capital increase further steadily in the long - consists of a 3 - story shop and 3 office market instruments, our Company term. floors with a usable area of 750 m², continues to develop projects managed located in Tepebaşı, Istanbul; by modern organizational structures in Our Company has added various high line with a contemporary urbanization - quality real properties to its portfolio • 10 shops with a usable area of 784 m² approach. Alkent Istanbul 2000 project in in the previous years in order to derive in Istanbul Büyükçekmece Alkent 2000 Büyükçekmece has become a prestigious rental income. The prestigious real Housing Complex; and living center with its social facilities, properties we included in our portfolio in • The 6 - story Alarko Business Center landscaping and private security as it is previous years to this end, which mainly with a usable area of 1,943 m² located situated a single lot of land, and within include in Çankaya, Ankara. the scope of the Lake Mansions project, • Hillside Beach Club holiday resort, which comprises the third phase of Alkent Thanks to its strong equity and liquidity are as follows: The five - star Hillside Istanbul 2000 project, the construction structure, our Company continues to Beach Club Holiday Resort located in works and sales of 63 mansions have achieve a high level of financial return by the Kalemya village of Fethiye on a land been completed. means of using the resources allocated of 100,037 m², with an indoor area of for new projects in money and capital Project development works are ongoing 23,922 m² and capacity of 781 beds; markets in addition to investing in new for our Maslak land. We also do research projects. and feasibility surveys for suitable lands • A factory building and plants located in major cities, particularly Istanbul, for on a land of 13,503 m² in Eyüp, Istanbul new projects. with a usable area of 13,794 m²; • 39 shops within the Alkent Etiler Mall with a land area of 4,233 m² in Etiler, Istanbul;

59 ALARKO HOLDİNG A.Ş. Annual Report 2019

İSHAK ALATON’S VIEW LET’S THINK ABOUT THE FUTURE

We are about to finish the third and last phase of our Alkent 2000 project near Avcılar that is situated on the east side of Büyükçekmece Lake. We are planning to start our Riva project next year following Alkent 2000. There are still nearly 500 families living in the two - story villas and six - story apartment buildings in our Alkent 2000 project. In addition, two hundred villas will be delivered to their owners within several months. All buildings in this great project withstood the earthquake in a sound manner as is the case with the other projects. We always acted with respect towards the nature. Considering static calculations, we implemented construction projects that can withstand earthquakes with a magnitude of 9.5 on the Richter scale, a magnitude that has never been seen before. We immersed concrete piles into the ground up to thirteen meters deep at places deemed necessary, ensuring that the ground becomes more Almost 7 months passed since the 17 August many articles were written and so many stable. This project cost USD 15 million more earthquake, which is the biggest natural debates were held on the mistakes made than the anticipated cost. We understood once disaster in the history of Turkey so far. The in the buildings that were built by ignoring more the importance of investments that may pessimistic outlook at the outset was left technology. These mistakes are more or less be more expensive, but provide a great return behind. We have had nearly 15,000 - 30,000 known to everyone any more. We need to think as it comes to the safety of human life. victims, and failed to determine the official of what we should do from now on. number of victims. If we had a system that Steel instead of concrete respected human life more, we could have Responsibility for human life On some TV programs, debates were held on overcome this disaster with much lesser The foundation of Alarko Company was construction technology, and it was stated that victims. Even if the earthquake in Taiwan had laid in Istanbul in 1954. We have completed steel carcass buildings were more resistant to a bigger magnitude than ours, the number thousands of buildings in various parts of earthquakes than concrete buildings. This rule of their victims was only a little bit more than our country and the neighboring countries does not apply in all circumstances. It is known 2,000. We also suffered huge and extensive during this period that lasted for almost half a that especially in quite high skyscrapers, steel material damages in addition to our losses of century. life. carcass buildings tend to bend more easily, Having adopted the “Quality in Service and and absorb earthquake shocks. However, we We should all admit that we are directly or Production” approach since the Company’s very see that twenty - or thirty - story concrete indirectly and more or less responsible for first day of foundation, employees of Alarko buildings in Istanbul and the earthquake region these losses, and reflect on what measures Company passed the test of earthquake with also withstood the earthquake in a sound we should take to prevent such losses from a clear conscience. There was not even a slight manner. The key to success is the successful now on. Since one cannot suffice with learning crack in the hundreds of plants, buildings and implementation of static calculations that are from their own mistakes as human life is facilities we constructed during the forty - five in accordance with the underground surveys limited in time, it is one of the fundamental year period in the areas hit by the earthquake. and state - of - the - art technology. rules of civilization to learn from other people’s Our success has been proven 100%. The investments at İzmit are ongoing mistakes and take measures accordingly. We Competitor construction companies who did should at least learn from our own mistakes. their job seriously like us, other than a few We had started constructing a new plant We should remember that those who make the exceptions, also passed this test successfully. for Alarko Carrier Sanayi ve Ticaret A.Ş. in same mistakes again and again are nothing but The difference of the philosophies of Gebze Industrial Zone a few weeks before the unwise people. serious and respected companies and robber earthquake. We also had started constructing Nature does not forgive mistakes construction companies resulted in a disaster Alarko Alfarm Fishery Products Plant on an for the latter. area of sixty decares with a closed area of The fact that there were sound buildings still thirty six thousand square meters a few We realized that the expression “It is not standing after the earthquake in addition to days before the earthquake. This facility is earthquake that kills, but poorly built buildings” those that have been damaged and collapsed also being constructed without delay, and is is completely true. down revealed one truth. The buildings that planned to be opened for production within were constructed in accordance with the Alkent 2000 this year. We have suffered the earthquake, rules and technological calculations were but it is over. Life is going on. We should always not damaged. The residences constructed by Hundreds of buildings were demolished respect nature and human life, and move irresponsible people who ignored technology in Avcılar region between Çekmece lakes. into the future with trust. Pessimism is not killed thousands of people. The difference However, there were some sound buildings still something we can afford. between the buildings became evident. standing and surviving among the wrecks of Science did not forgive mistakes. Nature buildings destroyed. The difference between October 1999 punished those who deceived people. So good and bad became quite clear.

* Ishak Alaton’s article was taken from his book entitled “Görüş ve Öneriler”.

60 Annual Report 2019 ALARKO HOLDİNG A.Ş.

DR. ÜZEYİR GARİH’S VIEW CREATING A CORPORATE IDENTITY

Evolution is achieved in a more efficient manner through a youth organization to be formed under the supervision of the organization’s experienced employees. If this organization is not formed in a balanced and sensitive manner, evolution is transformed into an intention to perform an intra - organization revolution and becomes quite dangerous. In this connection, it is mandatory to achieve balance by ensuring that people who are like “elder brothers” having embraced the organization’s character and gained the respect of everyone are assigned at the youth organization to help generate new ideas. One of the best methods to ensure that the organization’s identity is embraced by the organization’s members is to address organization - related matters at lunches or Organizations may be likened to living It is very difficult to replace managers, dinners to be organized with the participation organisms that have a particular character. supervisors and officers who constitute the of 1 or 2 top managers and maximum 5 capillary vessels of the organization, as is the members of this youth organization to be They also have their own way of behaving and case with human chromosomes. Jobs that are selected alternately. responding to various events, which seem like performed through top down instructions end to have been programmed in advance. The most efficient method to ensure the up in failure and cause reaction, albeit silent. restructuring of the organization’s identity Each organization is similar to a living The corporate identity and character need is to organize lunches or dinners with organism, and has its own unique identity. to be restructured in a modern way with the participation of several people to be selected alternately. Just like a human, an organization may be each passing day. either generous or stingy, harsh or gentle, It is not very easy, or even practically possible, With these lunches or dinners to be organized bold or wary, peaceful or aggressive, extrovert to replace all positions within an organization. weekly at different units of the organization, or introvert, emotional or rational at a certain new ideas may be generated helping the rate, or brave or coward. This character of the If it is done, this will cause the organization, organization to undergo an evolution. organization affects the people working at which will have lost all its customs and such organization irrespective of their own traditions and which will be rebuilt from On the other hand, the ideas to be generated natural character. The organization’s members scratch, to have a non - corporate structure. at these lunches or dinners to be organized are identified with the organization’s character It is obvious that this restructuring will cause at various units of the organization with the meanwhile. loss of money and time. participation of employees whom we consider to be “elder brothers” will help the organization It is definitely inappropriate to ignore the The organization’s character may change to undergo an evolution process through impact of organization’s employees at this at a particular speed with the contribution time and gain a more modern and developed point. The different points of view and ways of members who have newly joined the structure. of conduct of the organization’s members may organization or who are likely to be promoted cause a change in the organization’s character within the organization, in a manner to result throughout time. in “evolution” rather than “revolution”. Indeed, it has to change in order to meet today’s Organization’s members work peacefully requirements at their organization as long as they are fit for the organization’s character. Revolution instead of evolution causes problems to the functioning of the We have learned by experience that those who organization. cannot embrace the organization’s character may not stay at the organization for too long. This is why there are orientation methods to be applied at organizations. Even when a president who is not in alignment with the organization’s character is appointed, One of these methods is to achieve an the organization’s character does not differ organizational structure that will help upon the replacement of several senior the young employees with a high level of managers and officers. education to be heard by others.

* Dr. Üzeyir Garih’s article was taken from his book entitled “Deneyimlerim IV”.

61 ALARKO HOLDİNG A.Ş. Annual Report 2019

SUBSIDIARIES AND PARTICIPATIONS

The titles, fields of activity of our company’s subsidiaries, affiliates and joint ventures, and our company’s direct and indirect shareholding ratios are as follows.

Company title Field of Activity Authorized Direct Share Direct and Capital (TL) (%) indirect share (%) Production of Heating and Cooling Alarko Carrier Sanayi ve Ticaret A.Ş. Equipment, Manufacturing, Contracting, 10,800,000 42.03 43.19 Tourism Turnkey Contracting, Construction and Alsim Alarko Sanayi Tesisleri ve Ticaret A.Ş. 172,687,080 99.91 99.91 Tourism Marketing of Industrial Products and Alarko Fenni Malzeme Satış ve İmalat A.Ş. 230,000 88.68 99.98 After - Sales Services Attaş Alarko Turistik Tesisler A.Ş. Tourism Facility Management 21,500,000 0.46 99.91 Trading of Real Estate and Real Estate Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. 10,650,794 16.41 51.20 Based Market Instruments Alen Alarko Enerji Ticaret A.Ş. Electric Energy Trade, Export and Import 2,000,000 16.95 99.93 Altek Alarko Elektrik Sant. Tes. İşl. ve Tic. A.Ş. Electric Energy Production 92,500,000 40.13 99.96 Alarko Enerji Üretim A.Ş. Energy Production - 100.00 Aldem Alarko Konut İnşaat ve Ticaret A.Ş. Housing, Construction 50,000 0.13 99.91 Al - Riva Projesi Arazi Değerlendirme Konut Housing, Construction 6,839,064 11.55 12.13 İnşaat ve Tic. A.Ş. Al - Riva Arazi Değerlendirme Konut İnşaat ve Housing, Construction 3,308,556 2.49 2.63 Tic. A.Ş. Al - Riva Arazi Değerlendirme Konut İnşaat Housing, Construction and Tourism 10,489,765 2.16 2.28 Turistik Tesis. Golf İşl. ve Tic. A.Ş. Facility Management Real Estate Project Construction and 30,000,000 AO Mosalarko 50.00 55.12 Use Ruble Tüm Tesisat ve İnşaat A.Ş. Construction 141,000 49.15 50.15 Saret Sanayi Taahhütleri ve Ticaret A.Ş. Construction 75,000 100.00 100.00 Real Estate Development, Construction Alarko Konut Projeleri Geliştirme A.Ş. 22,193,713 0.0005 99.91 and Marketing Alcen Enerji Dağıtım ve Perakende Satış Building, Operating and Transferring 214,560,000 0.0006 49.96 Hizmetleri A.Ş. Energy Distribution Plants Meram Elektrik Dağıtım A.Ş. Electric Energy Distribution 496,032,905 0.0000 49.96 Meram Elektrik Enerjisi Toptan Satış A.Ş. Electric Energy Trade 4,050,000 0.1 49.96 Meram Elektrik Perakende Satış A.Ş. Electric Energy Trade 13,545,520 0.0001 49.96 Building and Operating Electric Power Cenal Elektrik Üretim A.Ş. 1,186,647,350 - 49.96 Plant Building and Operating Electric Power Algiz Enerji A.Ş. 845,000 - 49.96 Plant Building and Operating Electric Power Panel Enerji A.Ş. 6,500,000 - 49.96 Plant Building and Operating Electric Power Melisa Elektrik A.Ş. 9,010,000 - 49.96 Plant Ring Road Construction, Operation and 1,597,863,063 Bakad Investment & Operation LLP - 33.27 Maintenance Kazakh Tenges

62 Annual Report 2019 ALARKO HOLDİNG A.Ş.

EARNINGS FROM SUBSIDIARIES

a) Our corporation’s shares in dividends paid out over the last three years by the companies in which it has either minority or majority shareholdings:

(TL) Company title 2017 2018 2019

Alarko Carrier Sanayi ve Ticaret A.Ş. 27,289,251 11,801,738 - Alsim Alarko Sanayi Tesisleri ve Ticaret A.Ş. 19,982,365 14,986,774 9,991,183 Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. 1,748,259 2,517,493 4,440,577 Saret Sanayi Taahhütleri ve Ticaret A.Ş. 2,607,201 2,544,781 1,593,910 Attaş Alarko Turistik Tesisler A.Ş. - - 32,361 Alarko Konut Projeleri Geliştirme A.Ş. 2 1 5 Meram Elektrik Perakende Satış A.Ş. 26 - - Meram Elektrik Enerjisi Toptan Satış A.Ş. - 5,923 13,337 AO Mosalarko 1,789,584 1,527,013 1,950,249

TOTAL 53,416,688 33,383,723 18,021,622

EARNINGS FROM SUBSIDIARIES (TL thousand)

53,417

33,384

18,022

2017 2018 2019 b) The 2018 profits of the companies within the Alarko Group from which we receive dividends, the distributable profits remaining after tax and legal reserves are set aside and the dividends distributed from the past year’s reserves are given in the table below.

Alarko Group Managed Companies 2018 Profit for the Distributable Profit Distributed Dividends (B/A) % period (A) (B)

Alsim Alarko Sanayi Tesisleri ve Ticaret A.Ş. (*) 48,489,251 - 10,000,000 (*) Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. 269,599,472 269,599,472 27,053,017 10 Saret Sanayi Taahhütleri ve Ticaret A.Ş. 1,851,414 1,752,927 1,593,911 91 Attaş Alarko Turistik Tesisler A.Ş. 18,828,556 13,881,963 7,000,000 50 Alarko Konut Projeleri Geliştirme A.Ş. 1,424,674 1,055,684 1,055,684 100

(*) Dividends were distributed from amount set aside as Extraordinary Reserves out of the 2013 and 2014 profits.

63 ALARKO HOLDİNG A.Ş. Annual Report 2019

BUSINESS VOLUME

We present to the view of our shareholders the following table which shows the consolidated results of the last five years in figures and the volume we have reached as a result of the activities which we described in earlier section of the report.

Companies and Businesses According to Activities Consolidated Consolidated Total (TL thousand) (TL thousand) 2015 2016 2017 2018 2019 Contracting and Land 209,696 325,520 339,221 779,440 915,836 970,567 Development Energy 180,953* 152,579* 208,189* 202,929* 286,019* 407,884* Industry and Trade 3,393* 3,731* 3,752* 4,782* 6,665* 17,746* Tourism 111,405 109,075 129,462 150,099 177,242 177,285 TOTAL 505,447 590,905 680,624 1,137,250 1,385,762 1,573,482

* The revenues of our jointly controlled entities have not been included to this figure; the sum of these revenues is TL 8,570,876,056 (2018 - TL 7,422,337,750, 2017 - TL 3,714,439,441, 2016 - TL 3,035,481,506, 2015 - TL 2,519,465,771)

PERSPECTIVES FOR 2020

Our company has adopted the principle of working according to a plan and it has made it a tradition to reflect this in its annual reports. Our aim is to contribute to the comparison of the results of 2019 with the volumes which we foresee for 2020 and to their evaluation.

Starting from this point, the turnovers planned for 2020 are as follows according to groups of activities:

Companies and Businesses According 2020 Revenue Target to Activities Consolidated Total (TL thousand) (TL thousand) Contracting and Land Development 1,231,715 1,269,726 Energy 150,309* 435,204* Industry and Trade 105* 21,391* Tourism 224,811 224,811 TOTAL 1,606,940 1,951,132

* The year 2020 revenues targets of our jointly controlled entities have not been included to this figure; the sum of these revenue targets is TL 10,267,993,928.

64 Annual Report 2019 ALARKO HOLDİNG A.Ş.

TAXES PAID AND PERSONNEL EXPENSES

TAXES PAID (TL thousand)

800,000 761,531 IN 2019 TAXES PAYED INCREASED BY 51.8% 700,000 YEAR-ON-YEAR AND 600,000 501,516 REACHED TL 761,531 500,000 THOUSAND. 409,992 374,328 400,000 291,036 300,000

200,000 Contracting Group and Land Development Group Energy Group 100,000 Industry and Trade Group Tourism Group 0 2015 2016 2017 2018 2019

PERSONNEL EXPENSES (TL thousand)

500,000 464,886 IN 2019 PERSONNEL 450,000 EXPENSES ROSE BY 400,000 373,120 24.6% AND AMOUNTED

350,000 314,267 TO TL 464,886 300,000 272,659 THOUSAND. 250,000 231,915

200,000

150,000 Contracting Group and Land Development Group 100,000 Energy Group Industry and Trade Group 50,000 Tourism Group 0 2015 2016 2017 2018 2019

65 ALARKO HOLDİNG A.Ş. Annual Report 2019

DEVELOPMENTS IN THE LAST FIVE YEARS

The development trend of our holding company’s balance sheet items, profits, equity participations and dividends in the last five years are shown below.

2015 2016 2017 2018 2019

Profit / Loss Before Tax (TL) (88,444,802)* 192,587,215* 310,817,578* (40,729,991)* 507,722,526*

Equity Participation (TL) 496,045,354 399,787,935 614,137,985 386,568,167 560,646,795

Capital (TL)

Issued

- As free shares 218,514,284 218,514,284 218,514,284 430,047,284 430,047,284

- Against cash 4,952,716 4,952,716 4,952,716 4,952,716 4,952,716

Total 223,467,000 223,467,000 223,467,000 435,000,000 435,000,000

Registered 500,000,000 500,000,000 500,000,000 500,000,000 500,000,000

Dividends

Net dividends (Per share with a par value of TL 1)

- According to paid - in capital 9.972 11.898 10.355 12.736 5.897

- According to the capitalization (including 0.2210 0.2636 0.2295 0.14501 0.06715 distributed bonus shares)

Net dividend rates

- According to paid - in capital 997.15% 1,189.81% 1,035.51% 1,273.63% 589.78%

- According to total capitalization (including 22.10% 26.36% 22.95% 14.501% 6.715% distributed bonus shares)

* Consolidated figures.

66 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ADDITIONAL INFORMATION REGARDING OUR ACTIVITIES

1 - Neither the Company nor any of its Board members has engaged in any act or practice which is contrary to or in violation of the provisions of the applicable legislation and no administrative and/or judicial sanction was imposed or enforced against the Company or any of its Board members. 2 - No extraordinary general assembly of shareholders was held during the year. 3 - No significant changes have been introduced to the legislation during the fiscal period that would have a material impact on the Company’s operations. 4 - There were no events of significance that occurred during the period elapsed between the end of the fiscal year and the date of preparation of this annual report which are of a nature that would alter or affect the rights of its shareholders, creditors and other relevant persons and entities. 5 - The Company has not acquired its own shares during the year. 6 - The targets and goals set in previous periods have already been achieved and all resolutions passed in previous general assemblies have been complied with. 7 - 2 internal audits and 2 independent audits were conducted during the fiscal year and no adverse situation was discovered or identified during these reviews. No public audit or special audit was conducted during the fiscal year. 8 - The total amount of investments in 2019 amounted to TL 533,869,775. 9 - Our Company has the status of a parent company within the meaning of article 195/1 of the Turkish Commercial Code. There is no legal transaction made between our Company and any of its subsidiaries or affiliates under the direction of our Company in favor of our Company or any other subsidiary or affiliate. Accordingly, in the previous business year, measures at the request of or in the interest of our Company or the affiliated companies were neither taken nor refrained from.

All business transactions and relations between our Company and its subsidiaries are at arm’s length principle and made in accordance with market conditions and applicable legislation, and accordingly there is no transaction that requires offsetting pursuant to the provisions of article 199 of the Turkish Commercial Code.

THE NATURE, SCOPE AND LIMITS OF THE POWERS OF THE MEMBERS OF THE BOARD

The Chairman and Members of the Board of Directors represent the Company within the framework of and in accordance with the provisions of the relevant articles of the Turkish Commercial Code and the Company’s Articles of Association.

PECUNIARY RIGHTS GIVEN TO BOARD MEMBERS AND TOP EXECUTIVES

No pecuniary benefits such as honorariums, fees, premiums, bonuses are given to members of the Board of Directors except the independent members of the Board of Directors. The gross total of pecuniary benefits given to Independent Board members and top executives was TL 27,449,457 (Gross) in 2019. There are no allowances, travel, accommodation and representation expenses and real and financial means, insurances and any similar collaterals given to the Members of the Board of Directors.

THE PROPORTION OF SHARES OF THE PARENT COMPANY HELD BY SUBSIDIARIES SUBJECT TO CONSOLIDATION

The nominal value of shares held by Alarko Gayrimenkul Yatırım Ortaklığı A.Ş., Alsim Alarko Sanayi Tesisleri Ticaret A.Ş. and Tüm Tesisat ve İnşaat A.Ş. which are subject to consolidation, in the capital stock of the Parent Company is respectively TL 1,183,962, TL 348,778 and TL 3,143. The proportion of these shares in the Parent Company’s share capital is 0.35%.

AMENDMENTS TO THE ARTICLES OF ASSOCIATION DURING THE FISCAL YEAR

On 31 December 2019, the Board of Directors unanimously decided that

- Authorized capital of our company, which has an authorized capital of TL 500,000,000 and an issued capital of TL 435,000,000, be maintained as TL 500,000,000, and that therefore permission be obtained again from the Capital Markets Board pursuant to the “Communiqué No II - 18.1 on Authorized Capital System”; and

67 ALARKO HOLDİNG A.Ş. Annual Report 2019

ADDITIONAL INFORMATION REGARDING OUR ACTIVITIES

- Article 8 of the Company’s Articles of Association be amended as follows in accordance with the regulations governing the authorized capital system of the Capital Markets Board.

The amendment to be made to Article 8 “Share Capital” of our Articles of Association for extension of the term of authorized capital for another 5 years without changing the amount of authorized capital has been approved by the Capital Markets Board on 15 January 2020.

SHARE CAPITAL AND SHAREHOLDING STRUCTURE OF THE COMPANY

Shareholders Total Value of Shares Held Number of Shares and Voting Shareholding (TL) Rights Ratio (%) İzzet Garih 76,921,245.42 7,692,124,542 17.68 Leyla Alaton 76,921,245.42 7,692,124,542 17.68 Vedat Aksel Alaton 72,571,245.51 7,257,124,551 16.68 Dalia Garih 66,298,008.65 6,629,800,865 15.24 Alhan Holding A.Ş. 8,699,999.81 869,999,981 2.00 Destek Vakfı 3,195,807.87 319,580,787 0.74 Other - Public offering 130,392,447.32 13,039,244,732 29.98 Total 435,000,000.00 43,500,000,000 100.00

There were no changes in the capital and partnership structure within in the financial term of 2019.

PROFIT DISTRIBUTION POLICY

Our Company distributes dividends in accordance with the Turkish Commercial Code, Capital Market Legislation, Tax Legislation and other applicable legislation, as well as the provisions of the articles of association governing dividend distribution.

The annual dividend distribution proposal of the Board of Directors, which addresses the issues set forth in the dividend distribution policy and the CMB Corporate Governance Principles, is specified in the annual report.

The Board of Directors annually makes a decision regarding the payment of dividends in accordance with the dividend distribution policy of the company, and submits said decision for approval by the General Assembly.

If the Board of Directors’ proposal for distribution of dividends is approved by the General Assembly, dividend payments shall start, as a rule, within 1 month at the latest.

Our Company has adopted its dividend distribution policy in line with the provisions of the Capital Market Legislation and our Articles of Association, taking into consideration its business performance, investment policy, cash requirements, financial status and market developments. In case of any negative development in the national and global economic conditions, this policy shall be revised by the Board of Directors each year depending on the status of the projects on the agenda and the company’s financial resources.

Our Company observes the principle of distributing at least 5% of its distributable profit for the period each year to its shareholders as dividend in cash or in the form of bonus shares by adding these shares to the share capital.

In line with the dividend distribution policy, dividends shall be equally distributed to all the existing shareholders as of the relevant accounting period, and no privileges shall be applied. As a principle, our Company does not pay advance dividends during the year.

Our Company has distributed (gross) dividends of TL 74,211,000 in 2019.

68 Annual Report 2019 ALARKO HOLDİNG A.Ş.

INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS IN RELATION TO THE PREPARATION OF THE CONSOLIDATED FINANCIAL STATEMENTS

Internal control activities are in place and carried out in compliance with the internal procedures and applicable laws and in a timely fashion aimed at the effective management and prevention of risks that may be encountered both during the preparation of solo financial statements which form a basis for the consolidated financial statements and consolidation process. These activities include controls designed to identify and prevent risks and those that are performed using manual or computer assisted programs. The entire process is under the continuous supervision and control of both the management team and internal control department. In addition to the foregoing, the consolidation process and consolidated financial statements are subject to review and audit by an independent audit company.

RISK MANAGEMENT AND INTERNAL CONTROL MECHANISM

The Board of Directors has established and put in place an effective risk management and internal control mechanism. Managerial risks are periodically reviewed and assessed by the Audit Advisory and Approval Board (AAAB) and the Committee for Early Detection of Risks consisting of the members of the Board of Directors. The Committee for Early Detection has adopted a resolution aimed at the development, establishment, and implementation and updating of an effective internal control mechanism across the entire Group. In line with this resolution, the Group’s Auditing Department has been entrusted with the task of guidance and supervision of the internal control mechanism and of regular review and auditing of its effective implementation, functionality and operability. The Group’s Auditing Department conducts reviews and audits internal control mechanism at regular intervals in a periodic manner in accordance with the approved audit programs and submits its opinion and reports the findings of such audits to the top management.

The Audit Committee, after reviewing and assessing the opinion of the Group’s Auditing Department and the findings reported, submits its recommendations on the matter to the Audit Advisory and Approval Board. The Audit Advisory and Approval Board, the Committee for Early Detection of Risks and the Committee in charge of Auditing determine the measures to be taken and then give the required instructions to the company’s managers through the President of the Executive Board.

The Committee for Early Detection of Risks consisting of 3 members has been formed to advise the Board of Directors on issues related to early detection of risks and establishment and implementation of an effective risk management system. The Committee for Early Detection of Risks held 1 meeting in 2019 and the 7 reports of the Committee were submitted to the Board of Directors.

BOARD OF DIRECTORS

The Structure and Composition of the Board of Directors

Board of Directors

İzzet Garih Chairman Vedat Aksel Alaton Vice Chairman Ayhan Yavrucu Member, President of the Executive Board Leyla Alaton Member Niv Garih Member Mehmet Dönmez Member (Independent) Neslihan Tonbul Member (Independent) Mahmut Tayfun Anık Member (Independent)

There are three independent members in the Board of Directors. Board members are not restricted in assuming positions in other organizations or entities which are not related to the Company. Other than the President of the Executive Board Ayhan Yavrucu, no member of the Board of Directors holds office of executive administration.

69 ALARKO HOLDİNG A.Ş. Annual Report 2019

ADDITIONAL INFORMATION REGARDING OUR ACTIVITIES

Three candidates were nominated for independent members of the Corporate Governance Committee and assessment was made as to whether or not the candidates qualify criteria for independent status and the results of the assessment was submitted for the approval of the Board of Directors with a report on 30.04.2018. Each independent board member provided a statement of independence and no situation that might compromise the independence of a board candidate has occurred as of the relevant operating period.

Declarations of independence are provided below.

Declaration of Independence

I hereby notify the Board of Directors, shareholders and all concerned parties that I meet the independence criteria specified in Articles 4.3.6 and 4.3.7 of “Corporate Governance Principles” annexed to the “Corporate Governance Directive” No. II - 17.1 issued by the Capital Market Board, that I have independent nature in accordance with the applicable legislation and articles of association, and that I will immediately notify the Board of Directors of Alarko Holding A.Ş. in case of any change in the circumstances that affect my independence.

Name and Last Name: Mehmet Dönmez

Date: 27.04.2018

Declaration of Independence

I hereby notify the Board of Directors, shareholders and all concerned parties that I meet the independence criteria specified in Articles 4.3.6 and 4.3.7 of “Corporate Governance Principles” annexed to the “Corporate Governance Directive” No. II - 17.1 issued by the Capital Market Board, that I have independent nature in accordance with the applicable legislation and articles of association, and that I will immediately notify the Board of Directors of Alarko Holding A.Ş. in case of any change in the circumstances that affect my independence.

Name and Last Name: Neslihan Tonbul

Date: 27.04.2018

Declaration of Independence

I hereby notify the Board of Directors, shareholders and all concerned parties that I meet the independence criteria specified in Articles 4.3.6 and 4.3.7 of “Corporate Governance Principles” annexed to the “Corporate Governance Directive” No. II - 17.1 issued by the Capital Market Board, that I have independent nature in accordance with the applicable legislation and articles of association, and that I will immediately notify the Board of Directors of Alarko Holding A.Ş. in case of any change in the circumstances that affect my independence.

Name and Last Name: Mahmut Tayfun Anık

Date: 27.04.2018

Curriculum vitae, terms of office and assignments outside the company of board members are presented in the previous sections of the Annual Report and also published on the corporate web - site of the Company. To avoid repetition, such information is not covered here.

Principles of Conduct of the Board of Directors

The Board of Directors is convened at least quarterly within thirty (30) days following the closure of each quarter and/or whenever the Company’s business requires. The Chairman sets the agenda of board meetings after consultation with other board members and the President of the Executive Board and ensures that the agenda is sent to all members three (3) calendar days before the meeting. The board members will endeavor to attend all scheduled board meetings and express opinions. Board members may participate in board meetings remotely using electronic means. The opinions of a member who is not present at a meeting but sent his/her opinions in writing to the Board of Directors will be presented for the consideration of other board members. Each board member has one voting right. The board member associated with a related party is not allowed to vote in the Board meeting concerning transactions with related parties. The quorum required for a board meeting is determined by the articles of association.

70 Annual Report 2019 ALARKO HOLDİNG A.Ş.

15 Board meetings were held in the relevant period. One of the members could not attend to 3 meetings due to their excuses and all the other members have attended to the meetings held during the period.

All resolutions were made unanimously and without dissent or reservation.

Board members do not reserve the right to cast weighted votes and/or powers of veto.

In 2019, we had no related party transactions and any transaction that had a material effect on our business, financial position which by reason of its nature requires to be submitted for the approval of the independent board members.

Insurance has been taken for the losses that may be caused to the company due to the mistakes of the Members of Board of Directors during their office terms.

ASSESSMENT ON THE OPERATING PRINCIPLES OF THE BOARD OF DIRECTORS’ COMMITTEES AND THEIR EFFECTIVENESS

Our Company’s Board of Directors has set up new committees and determined their operating principles in accordance with the provisions of the Communiqué No. II - 17.1 on Corporate Governance of the Capital Markets Board and the Turkish Commercial Code.

All committees consist of non - executive members.

Accordingly,

• A 4 - member Corporate Governance Committee was set up to improve corporate government practices, and Independent Member Mahmut Tayfun ANIK was elected as Committee Chair, while members İzzet Garih, Vedat Aksel ALATON and Investor Relations Department Director Özgür KALYONCU were elected as Committee Members. Corporate Governance Committee convened two times in 2019 with the attendance of all its members, and a report was submitted to the Board of Directors for their activities.

The Corporate Governance Committee

- Supervised the activities performed by the Investor Relations department.

- Revised the Company’s performance assessment system.

- Assessed the corporate governance principles. In the assessment made, information was obtained on the Corporate Governance Principles Compliance Report prepared in line with the Capital Markets Board’s Communiqué No. II - 17.1 on Corporate Governance.

• A 3 - member Early Risk Detection Committee was set up to ensure the early detection of the risks our Company may face and to establish an effective risk management system, and Independent Member Neslihan TONBUL was elected to serve as Committee Chair, while member İzzet Garih and member Vedat Aksel ALATON were elected to serve as Committee Members. Early Risk Detection Committee convened once in 2019 with the attendance of all its members, and 7 reports were prepared and were submitted to the Board of Directors.

- Early Risk Detection Committee carried out activities with the aim of early detecting the risks that may endanger the existence, development and sustainability of the company in relation to the regulations and legal legislation, implementing the necessary measures related to the risks determined and managing risks.

• Independent Member Neslihan TONBUL was elected to serve as the Chair and Independent Member Mehmet DÖNMEZ was elected as the Member of the Committee in Charge of Audit reporting to the Board of Directors, respectively. Committee in Charge of Audit convened five times in 2019 with the attendance of all its members, and meeting results were submitted to the Board of Directors with a report.

Committee in charge of Audit;

- Supervised the functioning and efficiency of the internal control system by assessing the reports issued by the Company management, independent audit company and internal auditors;

- Submitted its independent audit company proposal to the board of directors once the independent audit company from which the Company will procure services was selected and the committee gave preliminary approval for the services to be procured from this company;

71 ALARKO HOLDİNG A.Ş. Annual Report 2019

ADDITIONAL INFORMATION REGARDING OUR ACTIVITIES

- Submitted the annual and interim financial statements to be disclosed to the public for the approval of the board of directors together with its assessments, upon obtaining the opinion of the company’s managers in charge and independent auditors in relation to their compliance with the accounting principles followed by the company and their accuracy and correctness; and

- Has revised the activities of the independent audit company.

No Nomination Committee and Remuneration Committee was set up from among the Members of the Board of Directors, and the Corporate Governance Committee performed the tasks of the Nomination Committee and Remuneration Committee as per the relevant provisions of the Capital Markets Board’s Communiqué on Corporate Governance.

Information on the purview, operating principles and members of the committees were disclosed on the Public Disclosure Platform (KAP), and were also submitted for the information of the investors on our Company’s website. The decisions made as a result of activities performed by the Committees independently are submitted to the Board of Directors as proposals, and the final decision is made by the Board of Directors.

The number of Independent Members of the Board of Directors is 3 as required by the organizational structure of the Board of Directors. As the chairs of the Committees and all members of the Audit Committee must be independent members, some independent members serve in several committees.

HUMAN RESOURCES POLICY

The human resources policy developed and adopted by the Company is clearly described in “Our Policy Manual” which is published regularly on an annual basis and communicated to employees through annual meetings.

The criteria for personnel recruitment are specified in writing and strictly adhered to these criteria. Qualifications, background and personal characteristics, including but not limited to physiological, psychological and intellectual, are taken into account in the recruitment process. These qualifications and characteristics are measured, analyzed and evaluated through a written test. Following an initial interview and assessment by the human resources department the applicant is interviewed by the manager of the department where the applicant would be working, if hired.

All employees are treated equally in respect of recruitment, training and promotion and training plans and strategies are developed and implemented in order to develop and increase their knowledge, skills and experience. All employees are provided training on a regular basis each year.

Written job descriptions are prepared for all employees. The criteria for appraising performance and rewarding performance are determined each year and put into place after reaching an agreement with employees on the matter. Performance measurements and evaluations are conducted for all employees using the performance appraisal system, which is in place, and the outcomes of performance appraisals and reviews are taken into consideration in determining salary increases and career progression plans.

On the other hand, a certain number of employees are awarded with a “Golden Badge” on a regular basis each year for their outstanding performance. In addition to the foregoing, winners of the “Innovation Award” competition, which is held on a regular basis each year, are awarded with a prize. This rewarding mechanism is used as a tool to increase motivation of creative employees.

The Company strives and will continue to strive to provide a safe and secure work environment for its employees and to continuously maintain and improve this environment.

RULES OF ETHIC AND SOCIAL ACCOUNTABILITY

The rules of ethic which are also set forth in the Philosophy of Alarko Group of Companies approved by the Board of Directors and Audit Advisory and Approval Board (AAAB) and adopted by all Employees and Management of Alarko Holding A.Ş. are outlined below in summary form. These rules of ethic comply with the Alarko’s policies, objectives, targets and core principles and form an integral part of these policies, objectives, targets, and core principles.

- Acting honestly in all business activities towards the Government, Clients, Shareholders, Personnel, Partners, and Sub - and By - Industries.

72 Annual Report 2019 ALARKO HOLDİNG A.Ş.

- Protecting the environment and maintaining the inter - company social balance in all its activities.

- Orienting the customers without forcing and giving priority to their needs.

- Maintaining high quality at all times, trying to supply the best at the lowest price even when the customers are satisfied and contented with what is already given.

- Achieving the profits deserved by the shareholders under the current conditions.

- Give priority to teamwork as a corporation performing systematically on the basis of pre - defined procedures, share profit, loss, success and failure.

We design, develop and formulate our policies based on this philosophy. This philosophy statement is framed and posted prominently in all premises and offices owned or occupied by the Alarko Group of Companies. Furthermore, all employees are informed about these rules through the Policy Meeting, which is held regularly on an annual basis, and Our Policy Manual which is published regularly on an annual basis. In addition to all the foregoing, both our existing and newly recruited employees are provided with detailed information about this philosophy through regular training.

This philosophy statement containing the rules of ethic is also posted both on the intercompany intranet and on the Company’s website at www.alarko.com.tr. All employees of Alarko Holding are obliged to strictly adhere to and comply with these rules. Compliance with rules of ethics by employees is followed - up and monitored by immediate superiors in the hierarchical structure. All employees of Alarko Holding are responsible for immediately notifying the management of any act or behavior contrary to the rules of ethics.

Any contrary act or behavior noticed, notified or suspected by the Board of Auditors, the President of the Executive Board or other managers are reviewed by the Board of Directors or instructed to be reviewed by the Auditing Committee to ensure compliance therewith. Appropriate disciplinary actions are imposed against employees found to violate any of these rules.

Alarko Holding A.Ş. has always been highly sensitive and proactive towards its social responsibilities and always acts in compliance with regulations and ethical rules regarding public health and safety, and protection of consumers and environment.

Both Alarko Holding A.Ş and its affiliates, subsidiaries and other group of companies and their respective employees, expert teams and related industries have adopted and committed to implement the following rules in all of their activities and business operations for the purpose of protecting the environment and nature.

- To become thoroughly familiar with all applicable laws, regulations, policies, procedures, requirements and standards regarding the protection of the environment and to fulfill and comply with all criteria, requirements and provisions introduced by these laws, regulations, policies, procedures, requirements and standards,

- To take all measures necessary to protect pollution of air, water, soil and noise in all activities and business operations,

- To protect animal and plant life and to ensure recycling of waste,

- To make cooperation with governmental organizations, institutions, public agencies, private sector companies, and organizations and all other non - governmental organizations for the purpose of developing policies and systems aimed at protection of the environment,

- To continue to carry out research and development activities aimed at developing environment friendly production systems and products,

- To optimize the consumption of natural resources and energy,

- To carry out continuous training activities in order to make a valuable contribution to raise awareness for the protection of the environment and nature, to increase awareness of our employees on environmental issues, and to employ state - of - the - art technology to achieve these goals.

There is no litigation or warning filed against our Company neither in the current year nor in the past for damages on the environment.

73 ALARKO HOLDİNG A.Ş. Annual Report 2019

ADDITIONAL INFORMATION REGARDING OUR ACTIVITIES

FINANCIAL INDICATORS

The Company’s Key Financial Indicators according to the consolidated financial statements audited by the independent auditor are as follows:

Financial Indicators 2019 2018 Current Ratio 2.23 1.80 Liquidity Ratio 1.92 1.37 Cash Ratio 0.52 0.50 Total Debt/Asset Ratio 0.37 0.46 Total Assets TL 3,196,615,293 TL 3,012,248,675

The analysis of key financial indicators for the business year of 2019 shows that the Company’s net working capital is sufficient to meet its current requirements for operating and investing activities, and the Company’s ability to pay off all of its short term liabilities through its liquid assets including cash and assets that can easily be converted to cash. The Company’s total equity is TL 2,005,015,558 and is sufficient to meet all of its financial obligations. The Company has a healthy and sound financial structure which is sufficient to continue to conduct its operations, accordingly no measure is considered necessary to be proposed or taken on the matter.

RESEARCH AND DEVELOPMENT ACTIVITIES

In the Gebze production complex of our Industry and Trade Group, ACE (Achieving Competitive Excellence) project of UTC (United Technologies Corporation), parent company of Carrier, which is launched and implemented in all regions to ensure world - class quality in Carrier’s products and processes, has been put into place. A wide range of joint studies aimed at enhancing and improving the quality of the products manufactured at our production facilities are being conducted in our R&D and Test Center in collaboration with Universities and TÜBİTAK (The Scientific and Technological Research Council of Turkey). In addition to the foregoing, continuous enhancements and improvements are made to our products and are incorporated into our processes thanks to technology transfers from Carrier.

The application filed by our Industry and Trade Group for R&D Center Certificate for the purpose of taking advantage of incentives, exemptions and tax credits granted within the framework of the Law no 5746 on Supporting Research and Development Activities published in the Official Gazette dated 12 March 2008 was reviewed by the Evaluation and Supervision Committee which was established within the framework of the provisions of article 14 of the “Regulation on Implementation and Supervision of Research and Development Activities” published in the Official Gazette no 26953 of 31 July 2008 and our Industry Trade Group was awarded with a R&D Center Certificate as a result of the resolution taken at the Evaluation and Supervision Committee’s meeting of 27 April 2012.

SOCIAL AND INDUSTRIAL ACTIVITIES

Employment

A total of 4,722 people consisting of 1,462 white collar employees, mostly engineers and architects, and 3,260 technicians and workers were employed in 2019 by the Companies and Enterprises within the Alarko Holding A.Ş.

In addition to the foregoing, additional employment opportunities were created for an average of 2,029 people through our subcontractors and external workshops. The severance pay obligation of Alarko Holding A.Ş. as of 31 December 2019 was TL 19,738,257.

Written job descriptions are prepared for all employees. The criteria for appraising performance and rewarding performance are determined each year and put into place after reaching an agreement with employees on the matter. Performance measurements and evaluations are conducted for all employees using the performance appraisal system, which is in place, and the outcomes of performance appraisals and reviews are taken into consideration in determining salary increases and career progression plans.

74 Annual Report 2019 ALARKO HOLDİNG A.Ş.

Training

In 2019, a total of 170,825 man/hours of in - house training within the Group were provided to staff whereas a grand total of 262,763 man/hours training were delivered including training programs delivered by external training providers. In - house training seminars, sessions and workshops on technical, financial, administrative subjects and on computer operations, computer technology and software applications were organized within the Group to meet the training needs of employees and employees were given the opportunity to attend seminars in their fields of specialization that are delivered by well - recognized, reputable and leading training institutions.

In addition to the foregoing, on the job training programs in a wide range of business activities, including welding operations, assembly and installation and other production techniques, construction, ISO 9000 and Occupational Safety were provided to our employees and workers at our manufacturing plants and factories. Training activities for dealers and authorized maintenance and repair services of Alarko Carrier Sanayi ve Ticaret A.Ş. continued in 2019.

All employees are treated equally in respect of recruitment, training and promotion and training plans and strategies are developed and implemented in order to develop and increase their knowledge, skills and experience. All employees are provided training on a regular basis each year.

Employee - Employer Relations And Rights Granted

Considerable efforts have been put forth to strike a proper balance between employee and employer interests and rights in a realistic way and to provide solutions in order to relieve employees from economic hardships and pressures as far as practically possible within the framework of the current conditions and possibilities taking into account the economic balances of our country.

The Collective Bargaining agreement covering the 1 September 2019 - 31 August 2021 period was signed between the Turkish Metal Industrialists Union (MESS), to which our Group Company Alarko Carrier Sanayi ve Ticaret A.Ş. is a member, and Türk - Metal Union on 30 January 2020.

Alarko Education - Culture Foundation

The Alarko Education - Culture Foundation, which was established in 1986, granted scholarships for (2019 - 2020) education year respectively to a total of 43 students who are in their senior year of undergraduate study or in grade programs in engineering, civil engineering, economics, finance and business administration departments of various universities, to 25 high school students who study in vocational or technical high schools and to 40 successful children of our employees who are in need of financial assistance. Consequently, from the very beginning up to the present approximately a total of 3,150 students consisting 1,800 higher education students and 1,350 secondary education students have been awarded gratuitous scholarships by the Alarko Education - Culture Foundation.

On the other hand, the Foundation continued to sponsor various cultural and art events also in 2019. The Alarko Education - Culture Foundation has continued its close cooperation and collaboration with outstanding scientific and culture foundations.

Alarko Future’s Club

The future of the Alarko Group of Companies will be in the hands of young generations who have completed their higher education and of those who are dynamic, hardworking, highly motivated, creative, and knowledgeable with high potential and ambition for promotion and willing to align their future with the corporate mission of the Group.

Also in 2019, Alarko Future’s Club has continued to carry out its activities aimed at professional and personal development of qualified young people, who will lead Alarko to future success, for the purpose of providing them the opportunity to better understand the importance and benefits of team spirit and cohesion and enabling them to become well trained experts or managers in future years.

75 ALARKO HOLDİNG A.Ş. Annual Report 2019

PROPOSAL FOR DIVIDEND DISTRIBUTION

• We hereby propose that (gross) TL 34,365,000 corresponding to 8.97% of TL 382,992,152 calculated by adding donations worth TL 5,602 to the net distributable profit for the period of TL 382,986,550, which was submitted for the approval of our general assembly, after the deduction of the tax provisions of TL 52,012,262, non-controlling shares worth TL 70,913,319 and first- order general legal reserves of TL 1,810,395 from the profit for the period of TL 507,722,526 set forth in the 2019 consolidated financial statements pursuant to the Capital Markets Legislation, the Company’s Articles of Association and the other provisions of the legislation be distributed to the shareholders in cash as dividends,

• The remaining amount be added to the extraordinary reserves,

• Necessary tax withholding be performed from the dividend portion subject to tax withholding, and

• Dividend distribution be started on 23 October 2020.

Board of Directors

76 Annual Report 2019 ALARKO HOLDİNG A.Ş.

DECLARATION OF COMPLIANCE WITH THE CORPORATE GOVERNANCE PRINCIPLES

Our company has taken due care in the observation of Corporate Governance Principles published by the Capital Markets Board. All of the obligatory principles defined in the Communiqué on Corporate Governance have been observed by our Company. Most of the non-obligatory Corporate Governance Principles have also been complied with, while those that could not be complied with have been explained in the annual report in Corporate Governance Compliance Report (CRF), Corporate Governance Information Form (“CGIF”) and other relevant sections. Please find the details on the issue in the following sections. The Corporate Governance Committee continues to perform its activities.

CORPORATE GOVERNANCE COMPLIANCE REPORT

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

1.1. FACILITATING THE EXERCISE OF

SHAREHOLDER RIGHTS 1.1.2 - Up-to-date information and disclosures which may affect the exercise of X shareholder rights are available to investors at the corporate website. 1.2. RIGHT TO OBTAIN AND REVIEW INFORMATION 1.2.1 - Management did not enter into any transaction that would complicate the X conduct of special audit. 1.3. GENERAL ASSEMBLY 1.3.2 - The company ensures the clarity of the General Assembly agenda, and that an X item on the agenda does not cover multiple topics. 1.3.7 - Insiders with privileged information have informed the board of directors about transactions conducted on their There is no action within the scope behalf within the scope of the company’s X of this article. activities in order for these transactions to be presented at the General Shareholders’ Meeting. 1.3.8 - Members of the board of directors who are concerned with specific agenda items, auditors, and other related persons, as well as the officers who are responsible for X the preparation of the financial statements were present at the General Shareholders’ Meeting. 1.3.10 - The agenda of the General Shareholders’ Meeting included a separate X item detailing the amounts and beneficiaries of all donations and contributions.

77 ALARKO HOLDİNG A.Ş. Annual Report 2019

CORPORATE GOVERNANCE COMPLIANCE REPORT

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

1.3.11 - The General Shareholders’ Meeting was held open to the public, including the X stakeholders, without having the right to speak. 1.4. VOTING RIGHTS 1.4.1 - There is no restriction preventing shareholders from exercising their X shareholder rights. 1.4.2 - The company does not have shares X that carry privileged voting rights. 1.4.3 - The company withholds from exercising its voting rights at the General Shareholders' Meeting of any company with X which it has cross-ownership, in case such cross-ownership provides management control. 1.5. MINORITY RIGHTS 1.5.1 - The company pays maximum diligence X to the exercise of minority rights. 1.5.2 - The Articles of Association extend the use of minority rights to those who own The articles of association stipulate less than one twentieth of the outstanding X that minority rights are not less shares, and expand the scope of the minority than one-twentieth of the capital. rights. 1.6. DIVIDEND RIGHT 1.6.1 - The dividend policy approved by the General Shareholders' Meeting is posted X on the company website. 1.6.2 - The dividend distribution policy comprises the minimum information to ensure that the shareholders can have an X opinion on the procedure and principles of dividend distributions in the future. 1.6.3 - The reasons for retaining earnings, and their allocations, are stated in the X Dividend distribution made. relevant agenda item. 1.6.4 - The board reviewed whether the dividend policy balances the benefits X of the shareholders and those of the company. 1.7. TRANSFER OF SHARES 1.7.1 - There are no restrictions preventing . X shares from being transferred.

78 Annual Report 2019 ALARKO HOLDİNG A.Ş.

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

2.1. CORPORATE WEBSITE 2.1.1 - The company website includes all elements listed in Corporate Governance X Principle 2.1.1. 2.1.2 - The shareholding structure (names, privileges, number and ratio of shares, and beneficial owners of more than 5% of the X issued share capital) is updated on the website at least every 6 months. 2.1.4 - The company website is prepared in other selected foreign languages, in a way Not all of the information is X to present exactly the same information provided in English. with the Turkish content. 2.2. ANNUAL REPORT 2.2.1 - The board of directors ensures that the annual report represents a true and X complete view of the company's activities. 2.2.2 - The annual report includes all The information on the purviews elements listed in Corporate Governance of the Committees established Principle 2.2.2. as part of the Board of Directors and their operating principles are disclosed to the public on Public X Disclosure Platform (KAP), and are not included in the Annual Report as they are published on the Company’s website for investors for information purposes. 3.1. CORPORATION’S POLICY ON STAKEHOLDERS 3.1.1 - The rights of the stakeholders are protected pursuant to the relevant The rights of stakeholders are X regulations, contracts and within the protected under the legislation. framework of bona fides principles. 3.1.3 - Policies or procedures addressing The rights of stakeholders are stakeholders' rights are published on the X protected under the legislation. company's website. 3.1.4 - A whistleblowing programme is in X place for reporting legal and ethical issues. 3.1.5 - The company addresses conflicts of The rights of stakeholders are interest among stakeholders in a balanced X protected under the legislation. manner.

79 ALARKO HOLDİNG A.Ş. Annual Report 2019

CORPORATE GOVERNANCE COMPLIANCE REPORT

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

3.2. SUPPORTING THE PARTICIPATION OF THE STAKEHOLDERS IN THE CORPORATION’S MANAGEMENT 3.2.1 - The Articles of Association, or the No special model is designed internal regulations (terms of reference/ X for employee participation in manuals), regulate the participation of management. employees in management. 3.2.2 - Surveys/other research techniques, consultation, interviews, observation method etc. were conducted to obtain X opinions from stakeholders on decisions that significantly affect them. 3.3. HUMAN RESOURCES POLICY 3.3.1 - The company has adopted an employment policy ensuring equal X opportunities, and a succession plan for all key managerial positions. 3.3.2 - Recruitment criteria are X documented. 3.3.3 - The company has a policy on human resources development, and organises X trainings for employees. 3.3.4 - Meetings have been organised to inform employees on the financial status X of the company, remuneration, career planning, education and health. 3.3.5 - Employees, or their representatives, were notified of decisions impacting them. X The opinion of the related trade unions was also taken. 3.3.6 - Job descriptions and performance criteria have been prepared for all employees, announced to them and taken X into account to determine employee remuneration. 3.3.7 - Measures (procedures, trainings, raising awareness, goals, monitoring, complaint mechanisms) have been taken X to prevent discrimination, and to protect employees against any physical, mental, and emotional mistreatment. 3.3.8 - The company ensures freedom of association and supports the right for X collective bargaining. 3.3.9 - A safe working environment for X employees is maintained.

80 Annual Report 2019 ALARKO HOLDİNG A.Ş.

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

3.4. RELATIONS WITH CUSTOMERS AND SUPPLIERS 3.4.1 - The company measured its customer satisfaction, and operated to X ensure full customer satisfaction. 3.4.2 - Customers are notified of any X delays in handling their requests. 3.4.3 - The company complied with the quality standards with respect to its X products and services. 3.4.4 - The company has in place adequate controls to protect the confidentiality of X sensitive information and business secrets of its customers and suppliers. 3.5. ETHICAL RULES AND SOCIAL RESPONSIBILITY 3.5.1 - The board of the corporation has adopted a code of ethics, disclosed on the X corporate website. 3.5.2 - The company has been mindful of its social responsibility and has adopted X measures to prevent corruption and bribery. 4.1. ROLE OF THE BOARD OF DIRECTORS 4.1.1 - The board of directors has ensured strategy and risks do not threaten the X long-term interests of the company, and that effective risk management is in place. 4.1.2 - The agenda and minutes of board meetings indicate that the board of directors discussed and approved X strategy, ensured resources were adequately allocated, and monitored company and management performance. 4.2. ACTIVITIES OF THE BOARD OF

DIRECTORS 4.2.1 - The board of directors documented its meetings and reported its activities to X the shareholders. 4.2.2 - Duties and authorities of the members of the board of directors are X disclosed in the annual report. 4.2.3 - The board has ensured the company has an internal control framework X adequate for its activities, size and complexity. 4.2.4 - Information on the functioning and effectiveness of the internal control system X is provided in the annual report.

81 ALARKO HOLDİNG A.Ş. Annual Report 2019

CORPORATE GOVERNANCE COMPLIANCE REPORT

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

4.2.5 - The roles of the Chairman and Chief Executive Officer are separated and X defined. 4.2.7 - The board of directors ensures that the Investor Relations Department and the Corporate Governance Committee work X effectively. The board works closely with them when communicating and settling disputes with shareholders. 4.2.8 - The company has subscribed to a The Company has taken out a Directors and Officers liability insurance management liability insurance in covering more than 25% of the capital. an amount exceeding 25% of the X capital against faults of the Board members and the harm they will give to the company during their service. 4.3. STRUCTURE OF THE BOARD OF

DIRECTORS 4.3.9 - The board of directors has approved the policy on its own composition, setting a minimal target of 25% for female X directors. The board annually evaluates its composition and nominates directors so as to be compliant with the policy. 4.3.10 - At least one member of the audit committee has 5 years of experience in X audit/accounting and finance. 4.4. BOARD MEETING PROCEDURES 4.4.1 - Each board member attended the As one of the independent majority of the board meetings in person. member of the board of our Company is based abroad, meetings are often held by way of X correspondence. Members failed to attend some of the meetings with a valid excuse. Mostly physical attendance was ensured. 4.4.2 - The board has formally approved a minimum time by which information and X documents relevant to the agenda items should be supplied to all board members. 4.4.3 - The opinions of board members that could not attend the meeting, but X did submit their opinion in written format, were presented to other members. 4.4.4 - Each member of the board has one X vote. 4.4.5 - The board has a charter/written internal rules defining the meeting X procedures of the board.

82 Annual Report 2019 ALARKO HOLDİNG A.Ş.

Company Compliance Status Explanation Corporate Governance Compliance Yes Partial No Exempted Not Report Applicable

4.4.6 - Board minutes document that all items on the agenda are discussed, X and board resolutions include director's dissenting opinions if any. 4.4.7 - There are limits to external No rules or restrictions have commitments of board members. been laid down for preventing Shareholders are informed of board members of the board of members' external commitments at the directors from serving outside General Shareholders' Meeting. X the company, and their services in this scope were not presented to the shareholders in the general assembly meeting for information. 4.5. BOARD COMMITTEES 4.5.5 - Board members serve in only one of The chairmen of the Committees the Board’s committees. and all members of the Audit Committee must be independent X members. Some independent members serve in several committees. 4.5.6 - Committees have invited persons to the meetings as deemed necessary to X obtain their views. 4.5.7 - If external consultancy services are The committees have not used, the independence of the provider is X procured consulting services. stated in the annual report. 4.5.8 - Minutes of all committee meetings X are kept and reported to board members. 4.6. FINANCIAL RIGHTS 4.6.1 - The board of directors has conducted a board performance evaluation X to review whether it has discharged all its responsibilities effectively. 4.6.4 - The company did not extend any loans to its board directors or executives, nor extended their lending period or enhanced the amount of those loans, or X improve conditions thereon, and did not extend loans under a personal credit title by third parties or provided guarantees such as surety in favour of them. 4.6.5 - The individual remuneration of The remuneration paid to board members and executives is disclosed members of the board of in the annual report. directors and managers with administrative responsibilities X are explained in the annual report; however, no explanation has been provided on an individual basis.

83 ALARKO HOLDİNG A.Ş. Annual Report 2019

CORPORATE GOVERNANCE INFORMATION FORM

1. SHAREHOLDERS 1.1. Facilitating the Exercise of Shareholders Rights The number of investor meetings (conference, seminar/etc.) 105 organised by the company during the year 1.2. Right to Obtain and Examine Information The number of special audit request(s) 0 The number of special audit requests that were accepted at the 0 General Shareholders’ Meeting 1.3. General Assembly Link to the PDP announcement that demonstrates the information https://www.alarko.com.tr/en/investor-relations/ requested by Principle 1.3.1. (a-d) corporate-governance/General%20Assembly%20Agenda Whether the company provides materials for the General No Shareholders’ Meeting in English and Turkish at the same time The links to the PDP announcements associated with the - transactions that are not approved by the majority of independent directors or by unanimous votes of present board members in the context of Principle 1.3.9 The links to the PDP announcements associated with related party - transactions in the context of Article 9 of the Communique on Corporate Governance (II-17.1) The links to the PDP announcements associated with common - and continuous transactions in the context of Article 10 of the Communique on Corporate Governance (II-17.1) The name of the section on the corporate website that demonstrates https://www.alarko.com.tr/download/6691, page 10 the donation policy of the company The relevant link to the PDP with minute of the General Shareholders’ Meeting where the donation policy has been approved The number of the provisions of the articles of association that Articles No: 48 - 49 - 50 - 51 - 52 - 53 and 54 discuss the participation of stakeholders to the General Shareholders’ Meeting Identified stakeholder groups that participated in the General - Shareholders’ Meeting, if any 1.4. Voting Rights Whether the shares of the company have differential voting rights No In case that there are voting privileges, indicate the owner and - percentage of the voting majority of shares. The percentage of ownership of the largest shareholder 17.68% 1.5. Minority Rights Whether the scope of minority rights enlarged (in terms of content or No the ratio) in the articles of the association If yes, specify the relevant provision of the articles of association. - 1.6. Dividend Right The name of the section on the corporate website that describes the https://www.alarko.com.tr/en/investor-relations/ dividend distribution policy corporate-governance/dividend-distribution-policy Minutes of the relevant agenda item in case the board of directors Dividend distribution made proposed to the general assembly not to distribute dividends, the reason for such proposal and information as to use of the dividend. PDP link to the related general shareholder meeting minutes in Dividend distribution made case the board of directors proposed to the general assembly not to distribute dividends

84 Annual Report 2019 ALARKO HOLDİNG A.Ş.

General Assembly Meetings

General Meeting The number Shareholder Percentage Percentage Specify the name Specify the name The number of The The link to the Date of information participation rate of shares of shares of the page of the of the page of the the relevant number of related PDP general requests to the General directly represented corporate website corporate website item or declarations shareholder meeting received by Shareholders’ present at by proxy that contains that contains all paragraph by insiders notification the company Meeting the GSM the General questions asked of General received by regarding the Shareholders’ in the general Shareholders’ the board of clarification Meeting minutes, assembly meeting Meeting directors of the agenda and also indicates for and all responses minutes in of the General each resolution the to them relation to Shareholders’ voting levels for or related party Meeting against transactions 18.04.2019 0 75.42% 68.35% 7.07% https://www. https://www.alarko. - 0 https://www. alarko.com.tr/en/ com.tr/en/corporate- kap.org.tr/tr/ corporate-governance/ governance/ Bildirim/750618756919 general-assembly- general-assembly- participation-and- participation-and- minutes minutes

2. DISCLOSURE AND TRANSPARENCY 2.1. Corporate Website Specify the name of the sections of the website providing the information https://www.alarko.com.tr/en/investor-relations/overview requested by the Principle 2.1.1. If applicable, specify the name of the sections of the website providing the https://www.alarko.com.tr//en/investor-relations/ list of shareholders (ultimate beneficiaries) who directly or indirectly own corporate-governance/shareholder-structure more than 5% of the shares. List of languages for which the website is available Turkish, English 2.2. Annual Report The page numbers and/or name of the sections in the Annual Report that demonstrate the information requested by principle 2.2.2. a) The page numbers and/or name of the sections in the Annual Report Board of Directors/Additional Information Regarding Our that demonstrate the information on the duties of the members of the Activities/ The Structure and Composition of the Board of board of directors and executives conducted out of the company and Directors declarations on independence of board members b) The page numbers and/or name of the sections in the Annual Report Additional Information Regarding Our Activities/ that demonstrate the information on committees formed within the board Assessment on the Operating Principles of the Board of structure Directors’ Committees and their Effectiveness c) The page numbers and/or name of the sections in the Annual Report Additional Information Regarding Our Activities/Board of that demonstrate the information on the number of board meetings in a Directors/Principles of Conduct of the Board of Directors year and the attendance of the members to these meetings ç) The page numbers and/or name of the sections in the Annual Report Additional Information Regarding Our Activities that demonstrate the information on amendments in the legislation which may significantly affect the activities of the corporation d) The page numbers and/or name of the sections in the Annual Report Annual Report of the Board of Directors Article no: 9 that demonstrate the information on significant lawsuits filed against the corporation and the possible results thereof e) The page numbers and/or name of the sections in the Annual Report - that demonstrate the information on the conflicts of interest of the corporation among the institutions that it purchases services on matters such as investment consulting and rating and the measures taken by the corporation in order to avoid from these conflicts of interest f) The page numbers and/or name of the sections in the Annual Report that Additional Information Regarding Our Activities/ demonstrate the information on the cross ownership subsidiaries that the Remuneration of Board Members and Top Executives direct contribution to the capital exceeds 5% g) The page numbers and/or name of the sections in the Annual Report Additional Information Regarding Our Activities/ Social and that demonstrate the information on social rights and professional training Industrial Activities of the employees and activities of corporate social responsibility in respect of the corporate activities that arises social and environmental results

85 ALARKO HOLDİNG A.Ş. Annual Report 2019

CORPORATE GOVERNANCE INFORMATION FORM

3. STAKEHOLDERS 3.1. Corporation’s Policy on Stakeholders The name of the section on the corporate website that - demonstrates the employee remedy or severance policy The number of definitive convictions the company was subject - to in relation to breach of employee rights The position of the person responsible for the alert mechanism Investor Relations Department Director (i.e. whistleblowing mechanism) The contact detail of the company alert mechanism Özgür Kalyoncu – 0212 310 34 29 - [email protected] 3.2. Supporting the Participation of the Stakeholders in the - Corporation’s Management Name of the section on the corporate website that - demonstrates the internal regulation addressing the participation of employees on management bodies Corporate bodies where employees are actually represented - 3.3. Human Resources Policy The role of the board on developing and ensuring that the Succession plan is being conducted by the Board of Directors company has a succession plan for the key management positions The name of the section on the corporate website that Annual Report/Additional Information Regarding Our Activities/ demonstrates the human resource policy covering equal Human Resources Policy opportunities and hiring principles. Also provide a summary of relevant parts of the human resource policy. Whether the company provides an employee stock ownership There is no plan for stock ownership programme The name of the section on the corporate website that Annual Report/Additional Information Regarding Our Activities/ demonstrates the human resource policy covering discrimination Human Resource Policy and mistreatments and the measures to prevent them. Also provide a summary of relevant parts of the human resource policy. The number of definitive convictions the company is subject to - in relation to health and safety measures 3.5. Ethical Rules and Social Responsibility The name of the section on the corporate website that Annual Report/Additional Information Regarding Our Activities / demonstrates the code of ethics Rules of Ethic and Social Accountability The name of the section on the company website that Annual Report/Additional Information Regarding Our Activities / demonstrates the corporate social responsibility report. If Rules of Ethic and Social Accountability such a report does not exist, provide the information about any measures taken on environmental, social and corporate governance issues. Any measures combating any kind of corruption including Annual Report/Additional Information Regarding Our Activities/ embezzlement and bribery Risk Management and Internal Control Mechanism

86 Annual Report 2019 ALARKO HOLDİNG A.Ş.

4. BOARD OF DIRECTORS-I 4.2. Activity of the Board of Directors Date of the last board evaluation conducted 18.04.2019 Whether the board evaluation was externally facilitated No Whether all board members released from their duties at the GSM Yes Name(s) of the board member(s) with specific delegated duties and - authorities, and descriptions of such duties Number of reports presented by internal auditors to the audit 2 committee or any relevant committee to the board Specify the name of the section or page number of the annual report Additional Information Regarding Our Activities / Risk that provides the summary of the review of the effectiveness of Management and Internal Control Mechanism internal controls Name of the Chairman İzzet GARİH Name of the CEO/General Manager President of the Executive Board – Ayhan YAVRUCU / General Manager – Ümit Nuri YILDIZ If the CEO and Chair functions are combined: provide the link to the - relevant PDP announcement providing the rationale for such combined roles Link to the PDP notification stating that any damage that may be - caused by the members of the board of directors during the discharge of their duties is insured for an amount exceeding 25% of the company’s capital The name of the section on the corporate website that demonstrates - current diversity policy targeting women directors The number and ratio of female directors within the Board of Directors 2, 25%

Board Members

Name-Surname Whether Independent The First Link To PDP Whether the Whether She/ Whether the Executive Board Election Notification Independent He is the Director has at Director or Member or Date To That Director Considered Director Who Least 5 Years’ not not Board Includes The By The Nomination Ceased to Experience Independency Committee Satisfy The on Audit, Declaration Independence Accounting or Not and/or Finance or not Non- Not 07.04.2000 - - - - İzzet GARİH executive independent Non- Not 07.04.2000 - - - - Vedat Aksel ALATON executive independent Executive Not 31.03.1986 - - - - Ayhan YAVRUCU independent Non- Not 29.03.2002 - - - - Leyla ALATON executive independent Non- Not 30.04.2014 - - - - Niv GARİH executive independent Non- Independent 05.06.2018 - Considered Yes Neslihan TONBUL No executive Non- Independent 05.06.2018 - Considered No Yes Mehmet Tayfun ANIK executive Non- Independent 30.04.2014 Considered No Yes Mehmet DÖNMEZ executive

87 ALARKO HOLDİNG A.Ş. Annual Report 2019

CORPORATE GOVERNANCE INFORMATION FORM

4. BOARD OF DIRECTORS – II 4.4. Meeting Procedures of the Board of Directors Number of physical board meetings in the reporting period 15 (meetings in person) Director average attendance rate at board meetings 97.5% Whether the board uses an electronic portal to support its work No or not Number of minimum days ahead of the board meeting to provide 3 information to directors, as per the board charter The name of the section on the corporate website that Annual Report/Additional Information Regarding Our Activities/ demonstrates information about the board charter Board of Directors/Principals of Conduct of the Board of Directors Number of maximum external commitments for board members - as per the policy covering the number of external duties held by directors 4.5. Board Committees Page numbers or section names of the annual report where Additional Information Regarding Our Activities/Assessment on information about the board committees are presented the Operating Principles and Effectiveness of the Committees of the Board of Directors Link(s) to the PDP announcement(s) with the board committee https://www.kap.org.tr/tr/Bildirim/198410 charters https://www.kap.gov.tr/tr/Bildirim/229346

Composition of Board Committees - I

Names Of The Board Name Of Committees Name-Surname of Whether Committee Whether Board Committees Defined As “Other” In Committee Members Chair Or Not Member Or Not The First Column Corporate Governance - Mahmut Tayfun Anık Yes Board Member Committee Corporate Governance - İzzet Garih No Board Member Committee Corporate Governance - Vedat Aksel Alaton No Board Member Committee Corporate Governance - Özgür Kalyoncu No Not Board Member Committee Audit Committee - Neslihan Tonbul Yes Board Member Audit Committee - Mehmet Dönmez No Board Member Early Detection of Risk - Neslihan Tonbul Yes Board Member Committee Early Detection of Risk - İzzet Garih No Board Member Committee Early Detection of Risk - Vedat Aksel Alaton No Board Member Committee

88 Annual Report 2019 ALARKO HOLDİNG A.Ş.

4. BOARD OF DIRECTORS - III 4.5. Board Committees-II Specify where the activities of the audit committee are Additional Information Regarding Our Activities/Assessment on presented in your annual report or website (Page number or the Operating Principles and Effectiveness of the Committees of section name in the annual report/website) the Board of Directors Specify where the activities of the corporate governance Additional Information Regarding Our Activities/ Assessment on committee are presented in your annual report or website (Page the Operating Principles and Effectiveness of the Committees of number or section name in the annual report/website) the Board of Directors Specify where the activities of the nomination committee are Corporate Governance Committee carries out the duties of the presented in your annual report or website (Page number or Nomination Committee. section name in the annual report/website) Specify where the activities of the early detection of risk Additional Information Regarding Our Activities/Assessment on committee are presented in your annual report or website (Page the Operating Principles and Effectiveness of the Committees of number or section name in the annual report/website) the Board of Directors Specify where the activities of the remuneration committee Corporate Governance Committee carries out the duties of the are presented in your annual report or website (Page number or Remuneration Committee. section name in the annual report/website) 4.6. Financial Rights Specify where the operational and financial targets and their Annual Report / Board of Directors’ Annual Report achievement are presented in your annual report (Page number or section name in the annual report) Specify the section of website where remuneration policy for https://www.alarko.com.tr/en/investor-relations/corporate- executive and non-executive directors are presented. governance/remunaration-policy Specify where the individual remuneration for board members Additional Information Regarding Our Activities / Remuneration and senior executives are presented in your annual report (Page of Board Members and Top Executives number or section name in the annual report)

Composition of Board Committees - II

Names Of The Board Name of The Percentage The The Number Of The Number Committees committees Of Non- Percentage Of Meetings Held In Of Reports On defined as executive Independent Person Its Activities “Other” in the Directors Directors Submitted To The first column In The Board Committee Audit Committee - 100% 100% 5 5 Corporate Governance - 100% 25% 2 2 Committee Early Detection of Risk - 100% 33% 1 7 Committee

89 ALARKO HOLDİNG A.Ş. Annual Report 2019

90 Annual Report 2019 ALARKO HOLDİNG A.Ş.

91 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2019 WITH INDEPENDENT AUDITOR’S REPORT (Convenience Translation of Consolidated Financial Statements and Auditor’s Report Originally Issued in Turkish)

92 Annual Report 2019 ALARKO HOLDİNG A.Ş.

INDEPENDENT AUDITOR’S REPORT

To the General Assembly of

Alarko Holding A.Ş.

A. Report To The Consolidated Financial Statements

1. Opinion

We have audited the accompanying consolidated financial statements of Alarko Holding Anonim Şirketi (“the Company”) and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at 31 December 2019, and the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended and a summary of significant accounting policies and consolidated financial statement notes.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the Turkish Financial Reporting Standards (“TFRS”).

2. Basis For Opinion

Our audit was conducted in accordance with the Standards on Auditing issued by the Capital Markets Board of Turkey and Independent Auditing Standards (the “IAS”) that are part of Turkish Standards on Auditing issued by the Public Oversight Accounting and Auditing Standards Authority (the “POA”). Our responsibilities under these standards are further described in the “Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements” section of our report. We hereby declare that we are independent of the Group in accordance with the Ethical Rules for Independent Auditors (the “Ethical Rules”) and the ethical requirements regarding independent audit in regulations issued by POA that are relevant to our audit of the financial statements. We have also fulfilled our other ethical responsibilities in accordance with the Ethical Rules and regulations. We believe that the audit evidence we have obtained during the independent audit provides a sufficient and appropriate basis for our opinion.

93 ALARKO HOLDİNG A.Ş. Annual Report 2019

INDEPENDENT AUDITOR’S REPORT

3. Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. Key audit matters were addressed in the context of our independent audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Key Audit Matters How The Matter was Handled During the Audit

Revenue Recognition

Accounting policies and important accounting evaluations, Our audit procedures performed with regard to recognition of estimates and assumptions used in accounting of the Group’s revenue are as follows: revenue from construction and contracting, industry, trade, · In order to test whether the management recognize the energy and tourism sectors are presented in Notes 2 and 27. revenue in the consolidated financial statements in complete and in the correct period, the internal controls regarding the Revenue is recognized in accordance with TFRS 15 “Revenue revenue recognition process have been evaluated. from Customer Contracts” as a result of the realization of the Group’s performance obligations and accordingly the transfer of · In the substantive testing, it has been evaluated whether control over products and services to the buyer. the control of the invoiced products was transferred to the customer and whether it was recognized in the financial The Group applies the percentage of completion method statements completely and accurately. in determining revenue and cost in relation to ongoing · In construction projects, estimated completion cost and construction and contracting contracts. Significant reasonableness of the Group Management’s assumptions, assumptions are used to determine the percentage of expectations and judgements affecting the revenue completion and total project cost. recognized by percentage of completion method have been evaluated. Recognition of revenue has been determined as a key audit matter due to the importance of revenue in the consolidated · Site visits were made for the selected construction projects. financial statements; its increase compared to the prior year · Post-balance sheet period collections were inspected to and due to the fact that completion of percentage method measure reliably that receivables are collectible. contains important estimates and assumptions. · The disclosures in the consolidated financial statement notes regarding the recognition of revenue have been examined and the adequacy of the information contained in these notes has been evaluated in terms of TAS/TFRS.

94 Annual Report 2019 ALARKO HOLDİNG A.Ş.

Determination of Fair Value of Investment Properties

As explained in Notes 2 and 16, the Group presents its During our audit, the following audit procedures regarding the investment properties by the fair value method after the initial fair value of these investment properties were applied: recognition. · The licenses, competencies and independence of the As of 31 December 2019, the fair value of investment appraisers appointed by the Group Management have been properties in amount of TL 423.399.640 has been determined evaluated. by independent appraisal firms and its details are explained in · The appropriateness of the valuation methods used by Notes 2 and 16. appraisers in the valuation reports has been evaluated. Since these investment properties constitute a significant part · Discussions were held with the Group Management. of the Group’s total assets and the valuation methods used · Independent external experts were included in our work contain important estimates and assumptions, the valuation to evaluate the estimates and assumptions used by the of investment properties has been considered as a key audit appraisers. matter. The disclosures in the consolidated financial statements with regard to the investment properties have been examined and the adequacy of the information contained in these notes has been evaluated in terms of TAS/TFRS.

Impairment in Natural Gas Cycle Power Plants

Impairment indicators were determined on the assets of During our audit, the following audit procedures have been Kırklareli natural gas combined cycle power plant operated by performed regarding the risk of impairment against the value of the Group as a result of ongoing operational and economic these natural gas cycle power plants: difficulties such as increase in natural gas costs, variable · The appropriateness of the valuation model prepared by the market conditions and falling profitability. In this context, as Group Management has been evaluated. The model and its of 31 December 2019, the Group Management conducted mathematical accuracy have been checked. an impairment analysis of these assets. As a result, a total of · Future plans and explanations were evaluated considering TL 8.595.362 impairment loss before tax was recognized in the the macro economic data during the meetings held with the consolidated financial statements. Group Management. During the impairment tests carried out by the Group · Including our valuation experts to our work, the Management, important estimations and assumptions have appropriateness of important assumptions such as long-term been used. growth rates used in calculations, discount rates of cash flows have been evaluated by comparing them with those These assumptions are; growth prospects, future production used in the energy sector. levels and commodity prices, discount rates of cash flows, · The disclosures given in the consolidated financial statement inflation rates and foreign exchange rates. notes regarding the impairment tests and test results of the These estimates and assumptions used are very sensitive natural gas cycle power plants presented in property, plant to the market conditions expected in the future. Thus, the and equipment were examined and the adequacy of the impairment test performed for the natural gas cycle power information contained in these notes was evaluated in terms plants has been identified as a key audit matter. of TAS/TFRS.

Explanations on the Group’s accounting policies and amounts with regard to property, plant and equipment are included in Note 2 and 18.

95 ALARKO HOLDİNG A.Ş. Annual Report 2019

INDEPENDENT AUDITOR’S REPORT

4. Emphasis of Matter

The Group’s consolidated financial statements for the accounting year ended December 31, 2018 were audited by another independent auditor who expressed an unqualified opinion dated March 11, 2019.

5. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

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

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

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

6. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements

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

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

As part of an independent audit conducted in accordance with independent auditing standards issued by Capital Markets Board and IAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: · Identify and assess the risks of material misstatement in the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. · Assess the internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. · Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. · Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our independent auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. · Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. · Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group audit. We remain solely responsible for our audit opinion.

96 Annual Report 2019 ALARKO HOLDİNG A.Ş.

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

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

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

B. Other Responsibilities Arising From Regulatory Requirements

1) No matter has come to our attention that is significant according to subparagraph 4 of Article 402 of Turkish Commercial Code (“TCC”) No. 6102 and that causes us to believe that the Company’s bookkeeping activities concerning the period from 1 January to 31 December 2019 period are not in compliance with the TCC and provisions of the Company’s articles of association related to financial reporting. 2) In accordance with subparagraph 4 of Article 402 of the TCC, the Board of Directors submitted the necessary explanations to us and provided the documents required within the context of our audit. 3) In accordance with subparagraph 4 of Article 398 of the TCC, the auditor’s report on the early risk identification system and committee was submitted to the Company’s Board of Directors on 2 March 2020.

The name of the engagement partner who supervised and concluded this audit is Selçuk Şahin.

Istanbul, 2 March 2020

97 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES AUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

ASSETS

Current Period Prior Period Audited Audited Notes 31 December 2019 31 December 2018

Current assets 1.490.725.023 1.567.248.971

Cash and cash equivalents 5 346.458.320 438.116.759 Financial investments 6 563.931.037 566.789.397 Trade receivables 317.315.041 162.357.826 - Trade receivables from related parties 8, 35 30.874.009 27.412.944 - Trade receivables from third parties 8 286.441.032 134.944.882 Other receivables 9.710.215 4.497.181 - Other receivables from related parties 9, 35 8.978.388 3.402.566 - Other receivables from third parties 9 731.827 1.094.615 Assets arising from customer contracts 42.892.433 23.686.380 - Contract assets from ongoing construction and contracting works and commitments 12 36.303.100 11.604.502 - Contract assets from sales of goods and services 12 6.589.333 12.081.878 Inventories 10 106.625.254 228.396.925 Prepaid expenses 11 33.225.260 40.735.434 Current income tax assets 6.531.463 17.172.623 Other current assets 25 15.820.338 41.371.232

Subtotal 1.442.509.361 1.523.123.757

Non-current assets held for sale 17 48.215.662 44.125.214

Non-current assets 1.705.890.270 1.444.999.704

Financial investments 6 560.803 370.779 Trade receivables 29.928 27.126 - Trade receivables from third parties 8 29.928 27.126 Other receivables 52.553.161 46.357.707 - Other receivables from related parties 9, 35 38.741.910 34.062.055 - Other receivables from third parties 9 13.811.251 12.295.652 Investments accounted by equity method 15 603.831.954 422.638.610 Investment properties 16 423.399.640 378.745.760 Property, plant and equipment 18 351.631.868 409.869.990 Right of use assets 20 85.794.353 - Intangible assets 83.067.765 84.548.580 - Goodwill 21 3.130.507 3.130.507 - Other intangible assets 19 79.937.258 81.418.073 Prepaid expenses 11 228.712 1.299.755 Deferred tax asset 33 35.188.222 50.404.750 Other non-current assets 25 69.603.864 50.736.647

Total assets 3.196.615.293 3.012.248.675

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

98 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES AUDITED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

LIABILITIES

Current Period Prior Period Audited Audited Notes 31 December 2019 31 December 2018

Current Liabilities 667.382.848 871.604.315

Short term financial liabilities 7 45.429.755 76.508.640 Short term portion of long term financial liabilities 7 102.895.613 90.560.679 Other financial liabilities 7 12.881.439 14.018.037 Trade payables 300.731.649 380.453.337 - Trade payables to related parties 8, 35 33.256.191 27.599.324 - Trade payables to third parties 8 267.475.458 352.854.013 Payables related to employee benefits 24 8.826.354 10.413.939 Other payables 19.996.864 10.902.193 - Other payables to related parties 9, 35 8.402.764 4.094.619 - Other payables to third parties 9 11.594.100 6.807.574 Liabilities arising from customer contracts 121.312.886 244.720.967 - Contract liabilities arising from ongoing construction and commitments 12 115.693.927 237.018.335 - Contract liabilities arising from sales of goods and services 12 5.618.959 7.702.632 Derivative financial instruments 13 1.159.163 583.838 Deferred income (Except for obligations arising from customer contracts) 14 45.687.291 34.274.961 Current income tax liabilities 33 2.166.856 1.454.349 Short-term provisions 6.294.028 7.711.764 - Other short term provisions 22 6.294.028 7.711.764 Other current liabilities 25 950 1.611

Non-current liabilities 524.216.887 521.022.236

Long-term financial liabilities 7 195.500.769 207.341.435 Other financial liabilities 7 18.943.293 28.414.940 Other payables 83.865.606 59.756.616 - Other payables to third parties 9 83.865.606 59.756.616 Liabilities arising from customer contracts 11.006.132 15.751.999 - Contract liabilities arising from sales of goods and services 12 11.006.132 15.751.999 Investments accounted by equity method liabilities 15 43.185.159 36.070.443 Deferred income (Except for obligations arising from customer contracts) 14 - 25.750.537 Long-term provisions 22.535.228 18.120.338 - Long-term provisions related to employee benefit obligations 24 22.535.228 18.120.338 Deferred tax liabilities 33 149.180.700 129.815.928

Equity 2.005.015.558 1.619.622.124

Attributable to equity holders of the parents 1.506.222.816 1.172.323.239 Paid-in share capital 26 435.000.000 435.000.000 Repurchased shares (-) 26 (12.184.363) (24.999.945) Cross shareholding adjustment (-) 26 (1.535.883) (1.535.883) Other comprehensive income/(expense) not to be reclassified to profit or loss (9.253.948) (2.344.079) - Revaluation and measurement gain/(loss) (9.253.948) (2.344.079) Actuarial gain/(loss) arising from defined benefit plans (9.253.948) (2.344.079) Other comprehensive income/(expenses) to be reclassified to profit or loss 83.927.922 66.771.448 - Foreign currency translation differences 83.937.633 66.971.349 - Revaluation and reclassification gain/(loss) (9.711) (199.901) - Revaluation and/or classification gain/(loss) of financial assets held for sale (9.711) (199.901) Restricted reserves 18.473.868 16.090.283 Retained earnings or accumulated losses 26 606.998.275 877.318.440 Net profit or loss for the period 384.796.945 (193.977.025) Non-controlling interest 26 498.792.742 447.298.885

Total liabilities and equity 3.196.615.293 3.012.248.675

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

99 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES AUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE PERIOD 1 JANUARY – 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

Current Period Prior Period Audited Audited 1 January 1 January Notes 31 December 2019 31 December 2018 PROFIT OR LOSS

Sales 27 1.385.761.969 1.137.249.772 Cost of sales (-) 27 (1.012.492.531) (959.763.573)

Gross profit 373.269.438 177.486.199

General administrative expenses (-) 28 (113.173.768) (97.239.342) Marketing expenses (-) 28 (13.325.840) (13.486.590) Other income from operating activities 30 259.773.596 412.200.922 Other expenses from operating activities (-) 30 (132.796.840) (183.324.672)

Operating profit/(loss) 373.746.586 295.636.517

Income from investing activities 31 94.176.135 54.896.464 Expenses from investing activities (-) 31 (21.300.587) (57.376.427) Share of profits/(losses) of investments accounted by equity method 15 124.027.017 (227.077.303)

Operating profit/(loss) before financial income/(expense) 570.649.151 66.079.251

Financial expenses (-) 32 (62.926.625) (106.809.242)

Profit/(loss) before tax from continued operations 507.722.526 (40.729.991)

Tax (expense)/income of continued operations 33 (52.012.262) (46.878.684) - Tax (expense)/income for the period 33 (19.448.957) (27.793.511) - Deferred tax (expense)/income 33 (32.563.305) (19.085.173)

Net profit/(loss) from continued operations 455.710.264 (87.608.675)

Profit/(loss) for the period 455.710.264 (87.608.675)

Distribution of profit/(loss) for the period - Non-controlling interest 26 70.913.319 106.368.350 - Parent company shares 34 384.796.945 (193.977.025)

Earnings per share/(loss) 0,885 (0,446)

- Earnings/(loss) per share 34 0,885 (0,446)

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

100 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES AUDITED CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE PERIOD 1 JANUARY – 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

Current Period Prior Period Audited Audited 1 January 1 January Notes 31 December 2019 31 December 2018

OTHER COMPREHENSIVE INCOME

Items not to be reclassified to profit or loss (6.914.767) 1.132.595 - Actuarial gain/(loss) arising from defined benefit plans 24 (3.889.915) 1.108.592 - Share of other comprehensive income of investments accounted by equity method not to be reclassified to profit/loss (4.702.086) 334.030 - Tax of other comprehensive income not to be reclassified to profit or loss 1.677.234 (310.027) - Deferred tax income/(expense) 1.677.234 (310.027)

Items to be reclassified to profit or loss in subsequent periods 24.316.354 21.790.420 - Currency translation differences 23.265.271 10.670.878 - Other comprehensive income/(expense) related to financial assets whose fair value difference is reflected in other comprehensive income 190.023 (267.490) - Share of other comprehensive income of investments accounted by equity method to be reclassified to profit or loss 861.060 11.387.032

Other comprehensive income 17.401.587 22.923.015

Total comprehensive income/(expense) 473.111.851 (64.685.660)

Distribution of total comprehensive income/(expense) - Non-controlling interest 78.068.285 101.357.016 - Parent company shares 395.043.566 (166.042.676)

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

101 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES AUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE PERIOD 1 JANUARY – 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

Other comprehensive Other comprehensive income/expenses income/expenses not to be reclassified to be reclassified Prior years’ to profit or loss to profit or loss income Gain/(loss) on Gain/(loss) from financial Retained Cross remeasurement Currency asses at fair value through earnings/ Attributable to Non- Paid-in Repurchased shareholding of defined benefit translation the statement of other Restricted (accumulated Net profit/(loss) equity holders controlling Total Notes share capital shares adjustment plans differences comprehensive income reserves losses) for the period of the parent interest equity

Balance as of 1 January 2018 26 223.467.000 - (787.396) (3.479.764) 50.217.274 67.824 12.587.289 899.194.901 234.945.793 1.416.212.921 321.015.139 1.737.228.060

Adjustments related to the voluntary amendments in the accounting policies ------11.527.744 - 11.527.744 (182.955) 11.344.789 Other adjustments ------7.254.679 7.254.679 - 7.254.679 As of 1 January 2018 (restated) 223.467.000 - (787.396) (3.479.764) 50.217.274 67.824 12.587.289 910.722.645 242.200.472 1.434.995.344 320.832.184 1.755.827.528

Transfers ------3.502.994 238.697.478 (242.200.472) - - - Total comprehensive income/(expense) - - - 1.135.685 27.066.389 (267.725) - - (193.977.025) (166.042.676) 101.357.016 (64.685.660) Net profit/(loss) for the period ------(193.977.025) (193.977.025) 106.368.350 (87.608.675) Other comprehensive income/(expense) - - - 1.135.685 27.066.389 (267.725) - - - 27.934.349 (5.011.334) 22.923.015 Capital increase 211.533.000 ------(211.533.000) - - - - Dividends 34 ------(60.123.057) - (60.123.057) (7.497.934) (67.620.991) Increase/decrease due to repurchase transactions of shares - (24.999.945) ------(24.999.945) - (24.999.945) Acqusition or disposal of subsidiaries - - (748.487) - (10.312.314) - - (445.626) - (11.506.427) 32.607.619 21.101.192

Balance as of 31 December 2018 26 435.000.000 (24.999.945) (1.535.883) (2.344.079) 66.971.349 (199.901) 16.090.283 877.318.440 (193.977.025) 1.172.323.239 447.298.885 1.619.622.124

As of 1 January 2019 26 435.000.000 (24.999.945) (1.535.883) (2.344.079) 66.971.349 (199.901) 16.090.283 877.318.440 (193.977.025) 1.172.323.239 447.298.885 1.619.622.124

Other adjustments 2 (iii) - 12.200.241 ------12.200.241 (12.200.241) -

As of 1 January 2019 (restated) 435.000.000 (12.799.704) (1.535.883) (2.344.079) 66.971.349 (199.901) 16.090.283 877.318.440 (193.977.025) 1.184.523.480 435.098.644 1.619.622.124

Transfers ------2.383.585 (196.360.610) 193.977.025 - - - Total comprehensive income/(expense) - - - (6.909.853) 16.966.284 190.190 - - 384.796.945 395.043.566 78.068.285 473.111.851 Net profit/(loss) for the period ------384.796.945 384.796.945 70.913.319 455.710.264 Other comprehensive income/(expense) - - - (6.909.853) 16.966.284 190.190 - - - 10.246.621 7.154.966 17.401.587 Dividends 34 - 615.341 - - - - - (73.948.978) - (73.333.637) (14.384.780) (87.718.417) Increase/decrease in shareholding rate changes in subsidiaries that did not result in loss of control - - - (16) - - - (10.577) - (10.593) 10.593 -

Balance as of 31 December 2019 26 435.000.000 (12.184.363) (1.535.883) (9.253.948) 83.937.633 (9.711) 18.473.868 606.998.275 384.796.945 1.506.222.816 498.792.742 2.005.015.558

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

102 Annual Report 2019 ALARKO HOLDİNG A.Ş.

Other comprehensive Other comprehensive income/expenses income/expenses not to be reclassified to be reclassified Prior years’ to profit or loss to profit or loss income Gain/(loss) on Gain/(loss) from financial Retained Cross remeasurement Currency asses at fair value through earnings/ Attributable to Non- Paid-in Repurchased shareholding of defined benefit translation the statement of other Restricted (accumulated Net profit/(loss) equity holders controlling Total Notes share capital shares adjustment plans differences comprehensive income reserves losses) for the period of the parent interest equity

Balance as of 1 January 2018 26 223.467.000 - (787.396) (3.479.764) 50.217.274 67.824 12.587.289 899.194.901 234.945.793 1.416.212.921 321.015.139 1.737.228.060

Adjustments related to the voluntary amendments in the accounting policies ------11.527.744 - 11.527.744 (182.955) 11.344.789 Other adjustments ------7.254.679 7.254.679 - 7.254.679 As of 1 January 2018 (restated) 223.467.000 - (787.396) (3.479.764) 50.217.274 67.824 12.587.289 910.722.645 242.200.472 1.434.995.344 320.832.184 1.755.827.528

Transfers ------3.502.994 238.697.478 (242.200.472) - - - Total comprehensive income/(expense) - - - 1.135.685 27.066.389 (267.725) - - (193.977.025) (166.042.676) 101.357.016 (64.685.660) Net profit/(loss) for the period ------(193.977.025) (193.977.025) 106.368.350 (87.608.675) Other comprehensive income/(expense) - - - 1.135.685 27.066.389 (267.725) - - - 27.934.349 (5.011.334) 22.923.015 Capital increase 211.533.000 ------(211.533.000) - - - - Dividends 34 ------(60.123.057) - (60.123.057) (7.497.934) (67.620.991) Increase/decrease due to repurchase transactions of shares - (24.999.945) ------(24.999.945) - (24.999.945) Acqusition or disposal of subsidiaries - - (748.487) - (10.312.314) - - (445.626) - (11.506.427) 32.607.619 21.101.192

Balance as of 31 December 2018 26 435.000.000 (24.999.945) (1.535.883) (2.344.079) 66.971.349 (199.901) 16.090.283 877.318.440 (193.977.025) 1.172.323.239 447.298.885 1.619.622.124

As of 1 January 2019 26 435.000.000 (24.999.945) (1.535.883) (2.344.079) 66.971.349 (199.901) 16.090.283 877.318.440 (193.977.025) 1.172.323.239 447.298.885 1.619.622.124

Other adjustments 2 (iii) - 12.200.241 ------12.200.241 (12.200.241) -

As of 1 January 2019 (restated) 435.000.000 (12.799.704) (1.535.883) (2.344.079) 66.971.349 (199.901) 16.090.283 877.318.440 (193.977.025) 1.184.523.480 435.098.644 1.619.622.124

Transfers ------2.383.585 (196.360.610) 193.977.025 - - - Total comprehensive income/(expense) - - - (6.909.853) 16.966.284 190.190 - - 384.796.945 395.043.566 78.068.285 473.111.851 Net profit/(loss) for the period ------384.796.945 384.796.945 70.913.319 455.710.264 Other comprehensive income/(expense) - - - (6.909.853) 16.966.284 190.190 - - - 10.246.621 7.154.966 17.401.587 Dividends 34 - 615.341 - - - - - (73.948.978) - (73.333.637) (14.384.780) (87.718.417) Increase/decrease in shareholding rate changes in subsidiaries that did not result in loss of control - - - (16) - - - (10.577) - (10.593) 10.593 -

Balance as of 31 December 2019 26 435.000.000 (12.184.363) (1.535.883) (9.253.948) 83.937.633 (9.711) 18.473.868 606.998.275 384.796.945 1.506.222.816 498.792.742 2.005.015.558

103 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES AUDITED CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

Audited Audited Current Period Prior Period Notes 31 December 2019 31 December 2018

A. Cash flows arising from principal activities 79.816.873 459.079.746

Profit/(loss) for the period 455.710.264 (87.608.675) Adjustments related to reconciliation of profit/(loss) for the period (81.119.652) 344.478.958

- Adjustments related to depreciation and amortization 18,19,20 41.466.708 42.664.492 - Adjustments related to impairment (reversal) 31 11.314.917 45.142.606 - Adjustments related to provisions 8.610.326 10.401.731 - Adjustments related to interest (income)/expense 18.722.261 (8.655.502) - Adjustment related to unrealized exchange losses (1.453.589) 20.113.772 - Adjustments on losses/(gains) of fair value 13,16 (25.685.153) (31.847.662) - Cash flows from investments accounted by equity method 15 (124.027.017) 227.077.303 - Adjustments related to tax expense/(income) 33 52.012.262 46.878.684 - Adjustments related to (Gain)/loss on sale of fixed assets (27.824.546) 3.374.111 - Adjustments related to losses/(gains) on disposal of non-current assets held for sale or to be distributed to shareholders (3.838.612) 547.112 - Other adjustments related to cash flows arising from investment and financing activities (26.266.830) (14.870.853) - Other adjustments for reconciliation of profit/(loss) (4.150.379) 3.653.164

Net working capital changes (298.615.442) 204.664.592

- Adjustments in decrease/(increase) in trade receivables 8 (151.815.603) (39.851.446) - Adjustments in decrease/(increase) in other receivables related to operations 9 (11.408.488) (7.690.628) - Adjustments in decrease/(increase) in assets arising from customer contract 12 (19.206.053) (18.442.436) - Adjustments in decrease/(increase) in inventories 10 121.771.671 (72.072.806) - Adjustments in decrease/(increase) in prepaid expense 11 8.581.217 (953.641) - Adjustments in increase/(decrease) in trade payables 8 (79.880.902) 255.985.620 - Adjustments in increase/(decrease) in employee benefit payables 24 (1.587.585) 4.092.962 - Adjustments in increase/(decrease) in liabilities arising from customer contracts 12 (128.153.948) 101.894.314 - Adjustments in increase/(decrease) in other payables related to operations 9 33.203.661 32.886.449 - Adjustments in increase/(decrease) in deferred income (except for obligations arising from customer contracts) 14 (14.338.207) (61.696.209) - Adjustments in other increase/(decrease) in working capital (55.781.205) 10.512.413

Cash flows arising from principal activities 75.975.170 461.534.875

Interest received 30 30.916.061 29.782.665 Long term provisions related to employee benefit obligations payments 24 (4.951.329) (3.697.998) Payments for other provisions 22 (3.386.579) (284.696) Tax returns/(payments) (18.736.450) (28.255.100)

B. Cash flows from investing activities 50.623.266 (199.854.788)

Payments for acquisition of control of subsidiaries - (80.278.790) Cash inflows from the sale of shares or debt instruments of other business or funds 6 43.100.688 - Cash disbursements for acquisition of other enterprises’ or funds’ shares or debt instruments 6 - (29.353.855) Cash proceeds from sale of property, plant and equipments 43.281.236 4.774.188 Cash disbursements from purchase of property, plant and equipments and intangible assets 18, 19 (44.198.601) (95.683.654) Cash proceeds from sale of non-current assets held for sale 13.081.143 (7.830.794) Dividends received (4.641.200) 8.518.117

C. Cash flows arising from financing activities (245.363.849) (179.811.867)

Cash outflows related to the entity’s acquisition of its own shares and other equity instruments - (24.999.945) Cash inflows arising from borrowing 7 49.311.991 134.629.401 Cash outflows related to debt payments 7 (145.610.194) (197.318.169) Cash outflows from debt payments arising from rental contracts 7 (28.064.642) - Dividend paid (87.718.417) (67.620.991) Interest paid 7 (33.282.587) (24.502.163)

Net increase/(decrease) on cash and cash equivalents before the currency translation differences effect (114.923.710) 79.413.091

D. Effect of currency translation differences on cash and cash equivalents 23.265.271 10.670.878

Increase/(decrease) in cash and cash equivalents (91.658.439) 90.083.969

Cash and cash equivalents at the beginning of the period 5 438.116.759 348.032.790

Cash and cash equivalents at the end of the period 5 346.458.320 438.116.759

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

104 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

1. ORGANIZATION AND PRINCIPLE ACTIVITIES

Alarko Holding A.Ş. (Alarko Holding or the Parent Company) was established in 1972, It’s subsidiaries, affiliates, joint operations and jointly controlled entities comprise of companies which operate in various fields, namely, contracting, construction, land development, industry, trade, tourism and energy. In the following sections, Alarko Holding A.Ş. and its subsidiaries, affiliates and jointly controlled entities whose financial statements are subject to consolidation will be referred to as “Alarko Group/the Group”,

Business activities, and in which country they operate, direct and indirect shareholdings of the subsidiaries, affiliates and jointly controlled entities included in the consolidation consist of the following:

Shareholding of the Group (%) Company Name Principle Activities 31 December 2019 31 December 2018

Subsidiaries (*):

Alsim Alarko San. Tes. ve Tic. A.Ş. (Turkey) Contracting and Construction 99,91 99,91 Aldem Alarko Konut İnşaat ve Tic. A.Ş. (Turkey) Residence, Construction 99,91 99,91 Attaş Alarko Turistik Tesisler A.Ş. (Turkey) Tourism Facility Management 99,91 99,91 Alarko Fenni Malzeme Satış ve İmalat A.Ş. (Turkey) Marketing of Industrial Products and After Sales Services 99,98 99,98 Alen Alarko Enerji Tic. A.Ş. (Turkey) Electrical Power Purchase and Sale 99,93 99,93 Alarko Gayrimenkul Yatırım Ort. A.Ş. (Turkey) (**) Purchase and Sales of Real Estates and Market Tools Related to Real Estates 51,20 51,20 Alsim - TCDD (Turkey) TCDD Ankara- Eskişehir High Speed Railway Project 99,91 99,91 Alsim-Rosneftegastroy JSC İş Ort. (Turkey) DSİ Melen Water Supply Project Construction 99,41 99,41 Astana Su- Taldykol Göl Arıtma Projesi (Kazakhstan) Supply of Water and Cleaning of Lake Projects 99,91 99,91 Saret Sanayi Taahhütleri ve Ticaret A.Ş. (Turkey) Construction 100,00 100,00 Alarko Enerji Üretim A.Ş. (Turkey) Power Generation 100,00 100,00 Antalya Hafif Raylı Sistem 1. Aşama Yapım İşleri Light Rail System Project (Turkey) 99,91 99,91 Garanti Koza - Alsim Joint Venture (Turkey) Subway Construction Project 99,91 99,91 Altek Alarko Elektrik Sant. Tes. İşl. Ve Tic. A.Ş. Production of Electrical Energy (Turkey) 99,96 99,96 Bozshakol Bakır Tesisi Projesi (Kazakhstan) Copper Facility Project 99,91 99,91 Fas Tanger Kenitra Hızlı Tren Projesi (Morocco) High Speed Railway Infrastructure and Art Works Project 99,91 99,91 AO Mosalarko (Russia) Russia-Real Estate Project, Construction and Utilization 55,12 55,12 Aktau Manasha Yol Projesi (Kazakhstan) Road Construction Project 99,91 99,91 Aktogay Bakır Konsantre Tesisi Projesi (Kazakhstan) Copper Processing Plant Project 99,91 99,91 Alarko Konut Projeleri Geliştirme A.Ş. (Turkey) Purchase and Sales of Real Estates and Market Tools Related to Real Estates 99,91 99,91 Alsim Alarko Sanayi Tes. ve Tic. A.Ş. Astana No: 2 Construction and Montage Work Şubesi (Kazakhstan) 99,91 99,91 Tüm Tesisat ve İnşaat A.Ş. (Turkey) Construction and Installation Works 50,15 50,15 Alsim Alarko S.R.L. (Romania) Construction 99,91 99,91 Saret KZ (Kazakhstan) Construction Works 100,00 100,00 Alsim Almaty Şubesi (Kazakhistan) Constuction Works 99,91 99,91 Alsim Alarko San. Tes. ve Ticaret Bükreş Şubesi Highway Construction Project (Romania) (***) 99,91 -

(*) Included in the consolidation by full consolidation method. (**) It is a public company which is listed on A.Ş. (BIST). (***) As of 31 March 2019, it has been included in the scope of consolidation as subsidiary.

105 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

1. ORGANIZATION AND PRINCIPLE ACTIVITIES (CONTINUED)

Business activities, and in which country they operate, direct and indirect shareholdings of the subsidiaries, affiliates and jointly controlled entities included in the consolidation consist of the following (continued):

Shareholding of the Group (%) Company Name Principle Activities 31 December 2019 31 December 2018

Jointly Controlled Entities (*):

Alarko Carrier Sanayi ve Ticaret A.Ş. Heating, Cooling, Air Conditioning (Turkey) (***) Equipment Manufacturing 43,19 43,19 Obrascon Huarte Lain SA - Alsim Alarko TCDD Ankara - Eskişehir High Speed San. Tes. ve Ticaret A.Ş. (Spain) Railway Project 44,96 44,96 Alarko - Makyol Adi Ortaklığı (Turkey) Subway Construction Project 49,96 49,96 Doğuş-Alarko-YDA İnş. Adi Ortaklığı Kiev Airport Construction (Ukraine) 37,47 37,47 Alcen Enerji Dağıtım ve Perakende Satış Establishing, Transferring or Operating Hiz. A.Ş. (Turkey) Electical Power Distribution Facility 49,96 49,96 Meram Elektrik Dağıtım A.Ş. (Turkey) Electrical Power Distribution 49,96 49,96 Meram Elektrik Enerjisi Toptan Satış A.Ş. Electrical Power Sale (Turkey) 49,96 49,96 Cenal Elektrik Üretim A.Ş. (Turkey) Constructing and Administrating Electricity Power Generation 49,96 49,96 Meram Elektrik Perakende Satış A.Ş. Electrical Power Sale (Turkey) 49,96 49,96 Algiz Enerji A.Ş. (Turkey) Constructing and Administrating Electricity Power Generation 49,96 49,96 Panel Enerji A.Ş. (Turkey) Constructing and Administrating Electricity Power Generation 49,96 49,96 Cemel Enerji A.Ş. (Turkey)(****) Constructing and Administrating Electricity Power Generation - 49,96 Günözgü Enerji A.Ş. (Turkey) (*****) Constructing and Administrating Electricity Power Generation - 49,96 Melisa Elektrik A.Ş. (Turkey) Constructing and Administrating Electricity Power Generation 49,96 49,96 Obrascon Huarte Lain SA - Alsim Alarko TCDD Ankara-Eskişehir High Speed Train San. Tes. ve Ticaret A.Ş. (Turkey) Project 45,00 45,00 Bakad Investment & Operation LLP Construction Works (Kazakhstan) 33,27 33,27

Joint Operations (**):

Alarko Cengiz Metro Ortak Girişimi (Turkey) Subway Construction Project 49,96 49,96

(*) Included in the consolidation by equity method. (**) It has been included in consolidation by proportional consolidation method. (***) Public company listed in the Borsa İstanbul A.Ş. (BIST). (****) As of 30 September 2019, Cemel Enerji A.Ş. merged with Melisa Elektrik A.Ş. (*****) As of 2 July 2019, Günözgü Enerji A.Ş. merged with Panel Enerji A.Ş.

106 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

1. ORGANIZATION AND PRINCIPLE ACTIVITIES (CONTINUED)

Business activities, and in which country they operate, direct and indirect shareholdings of the subsidiaries, affiliates and jointly controlled entities included in the consolidation consist of the following (continued):

Shareholding of the Group (%) Company name: Principle Activities 31 December 2019 31 December 2018

Affiliates (*):

Al-Riva Projesi Arazi Değ. Konut İnş. ve Residence, Construction Tic. A.Ş. (Turkey) (**) 12,13 12,13 Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş. Residence, Construction (Turkey) (**) 2,63 2,63 Al-Riva Arazi Değ. Konut İnş. Tur. Tes. Residence, Construction and Tourism Golf İşl. ve Tic. A.Ş. (Turkey) (**) Facility Management 2,28 2,28

(*) Included in the consolidation by equity method. (**) The Parent Company has a ratio of 40% control and profit owning from affiliates.

The address of the Parent Company’s head office is as follows:

Muallim Naci Cad. No: 69 Ortaköy/ISTANBUL

As of 31 December 2019 and 2018, the shareholding structure is as follows:

31 December 2019 31 December 2018 Name Shareholding Shareholding

Alaton Family 34,36% 34,36% Garih Family 32,92% 32,92% Other (*) 32,72% 32,72%

Total 100,00% 100,00%

(*) It shows the total of shareholdings which is share is less than 10%.

The shares of Alarko Holding A.Ş. are traded in the Borsa Istanbul A.Ş. (BIST) since May 24, 1989, and as of 31 December 2019, 29,62% of the Company shares are offered to public.

Alarko Carrier Sanayi ve Ticaret A.Ş., a jointly controlled entity, is registered at the Capital Markets Board (CMB) and 14,76% of its shares are offered to public. The shares are traded at the BIST since January 27, 1992.

Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. (subsidiary) is registered at the Capital Markets Board (CMB) and 48,77% of its shares are offered to public. The shares are traded at the BIST since 1996.

The average number of employees during the period with respect to categories is as follows:

31 December 2019 31 December 2018

Wage earners 1.462 1.540 Salary earners 3.260 3.305

Total 4.722 4.845

107 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS i. Basis of presentation:

Statement of compliance to TFRS

The accompanying consolidated financial statements have been prepared based on Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) and attachments and interpretations of the aforementioned standards in line with international standards published by POA in accordance with “Communique on Principles regarding Financial Reporting in Capital Markets” (“the Communiqué”) numbered Seri II, 14,1 of CMB published in Official Gazette dated June 13, 2013 and numbered 28676, TAS consists of Turkish Accounting Standards and attachments and interpretations of aforementioned standards.

The accompanying consolidated financial statements and footnotes have been prepared in accordance with the TAS taxonomy published on April 15, 2019 by the formats determined in the Financial Statement Examples and Guideline published by the CMB.

CMB, a decision that was taken on March 17, 2005, for publicly traded companies operating in Turkey, has declared that the application of inflation accounting is not required to be effective as from January 1, 2005. The consolidated financial statements of the Group have been prepared within the framework of this decision.

The consolidated financial statements are based on the statutory records, with adjustments and reclassifications for the purpose of fair presentation in accordance with the Turkish Accounting Standards published by the POA.

Alarko Holding A.Ş. and its subsidiaries, joint operations, jointly controlled entities and affiliates registered in Turkey maintain their books of account and prepare their statutory financial statements (“Statutory Financial Statements”) in accordance with the Turkish Commercial Code (“TCC”), tax legislation and the Uniform Chart of Accounts (“UCA”), issued by the Ministry of Finance. Foreign subsidiaries, joint ventures and associates maintain their books of account in accordance with the laws and regulations in force in the countries in which they are registered, These consolidated financial statements have been prepared under the historical cost conversion.

Currency used

The functional currency of the Parent Company is Turkish Lira (TL) and the accompanying consolidated financial statements and related notes are presented in Turkish Lira (TL). The functional currencies of the subsidiaries, joint operations and jointly controlled entities of the Parent Company located in Spain, Russia, Ukraine, Kazakhstan, Romania and Morocco are Euro, Ruble, Hryvnia, Tenge, Ron and Dirham respectively. The items of statements of financial position are translated into TL at the foreign exchange rate at the reporting date, and income and expenses are translated at the yearly average rate. Profits or losses arising from translation are stated in the “foreign currency translation differences” in the statement of profit or loss and other comprehensive income.

Approval of consolidated financial statements

Consolidated financial statements as of 31 December 2019 are approved at 2 March 2020 by the Company’s Board of Directors. General Assembly and other regulatory organs reserve their right to modify and change these consolidated financial statements.

Comparative information and restatement of prior period financial statements

Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give information about financial position and performance trends. In order to maintain consistency with current year consolidated financial statements, comparative information is reclassed and significant changes are disclosed if necessary. The Group restated its prior period financial statements in relation to its accounting policy changes and errors. The effect of these changes are stated in Note 2 (iii).

Going concern

The consolidated financial statements including the accounts of the Parent Company, its associates, joint ventures and subsidiaries have been prepared assuming that the Group will continue as a going concern on the basis that the entity will be able to realize its assets and dischange of liabilities in the normal course of business.

108 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) ii. Consolidation principles:

(a) The consolidated financial statements include the accounts of the parent company, Alarko Holding A.Ş. its Subsidiaries and its Associates on the basis set out in sections (b) to (f) below. The financial statements of the companies included in the scope of consolidation have been prepared as of the date of the consolidated financial statements with adjustments and reclassifications for the purpose of fair presentation in accordance with Turkish Accounting Standards published by the Public Oversight Accounting and Auditing Standards Authority of Turkey and the application of uniform accounting policies and presentation.

(b) Subsidiaries are companies over which Alarko Holding A.Ş. has the power to control directly and indirectly by themselves. Control is normally evidenced when the Company controls an investee if and only if the company has all the following; a) power over the investee b) exposure, or rights, to variable returns from its involvement with the investee and c) the ability to use its power over the investee to affect the amount of company’s returns.

The statements of financial position and statements of profit or loss and other comprehensive income of the Subsidiaries are consolidated on a line-by-line basis and the carrying value of the investment held by Alarko Holding A.Ş. and its Subsidiaries is eliminated against the related equity. Intercompany transactions and balances between Alarko Holding A.Ş. and its Subsidiaries are eliminated during the consolidation. The nominal amount of the shares held by Alarko Holding A.Ş. in its Subsidiaries and the associated dividends are eliminated from equity and income for the period, respectively.

Subsidiaries are consolidated from the date on which the control is transferred to the Group and are no longer consolidated from the date that the control ceases.

(c) Jointly controlled entities are companies in respect of which there are contractual arrangements through which an economic activity is undertaken subject to joint control by Alarko Holding A.Ş. and one or more other parties. Alarko Holding A.Ş. exercises such joint control through the power to exercise the voting rights relating to shares in the companies as a result of ownership interest directly and indirectly by itself. The Group’s interest in jointly controlled entities is investments accounted by equity method, the Group’s interest in joint operations is accounted by proportional consolidation method.

(d) Associates are accounted for using the equity method, The Group has power to participate in the financial and operating policy decisions but not control them. Unrealised gains or losses arising from transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates.

(e) Available-for-sale financial assets in which the Group does not exercise a significant influence or which are immaterial and do not have quoted market prices in active markets and whose fair values can not be reliably measured, are carried at cost, less any accumulated impairment loss.

(f) Shares of uncontrollable companies on all balances and transactions of/with the Subsidiaries in the notes to the consolidated financial statements are presented with the Total ownership interest of the Group in the non-controlling interest.

109 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) iii. Changes in accounting estimates and errors

Consolidated statements of financial position as of 31 December 2019 and 2018 and notes selected in relation to these consolidated statements of financial position as well as the consolidated statements of profit or loss and other comprehensive income, consolidated cash flows and consolidated changes in equity for the years ended have been presented comparatively. Comparative information is restated, when required, in order to comply with the presentation of current period consolidated financial statements and the corrections are as follows: a- On 31 December 2018, TL 12.081.878 that presented at short-term trade receivables was reclassified under assets arising from short-term customer contracts. b- On 31 December 2018, TL 232.629.695 that presented at short-term deferred income was reclassified under obligations arising from short-term customer contracts. c- On 31 December 2018, TL 15.751.999 that presented at long-term deferred income was reclassified under obligations arising from long-term customer contracts. d- On 31 December 2018, TL 12.200.241 that presented at repurchased shares account was reclassified under non-controlling interests on 1 January 2019. iv. New and revised Turkish Accounting Standards

The accounting policies adopted in preparation of the interim consolidated financial statements as of December 31, 2019 are consistent with those of the previous financial year, except for the adoption of new and amended TFRS and TFRIC interpretations effective as of January 1, 2019. The effects of these standards and interpretations on the Group’s financial position and performance have been disclosed in the related paragraphs. i) New standard, changes and comments effective from January 1, 2019

TFRS 16 Leases

In April 2018, POA has published a new standard, TFRS 16 ‘Leases’. The new standard brings many leases on-balance sheet for lessees under a single model, eliminating the distinction between operating and financial leases. Lessor accounting however remains largely unchanged and the distinction between operating and financial leases continue. TFRS 16 supersedes TAS 17 ‘Leases’ and related interpretations and is effective for periods beginning on or after January 1, 2019, with earlier adoption permitted.

Lessees have recognition exemptions to applying this standard in case of short-term leases (i.e., leases with a lease term of 12 months or less) and leases of ’low-value’ assets (e.g., personal computers, office equipment, etc.). At the commencement date of a lease, a lessee measures the lease liability at the present value of the lease payments that are not paid at that date (i.e., the lease liability), at the same date recognises an asset representing the right to use (the underlying asset) and depreciates it during the lease term. The lease payments shall be discounted using the interest rate implicit in the lease, if that rate can be readily determined. If that rate cannot be readily determined, the lessee shall use the lessee’s alternate borrowing interest rate. Lessees are required to recognise the interest expense on the lease liability and the depreciation expense on the right-of-use asset separately.

Lessees are required to remeasure the lease liability upon the occurrence of certain events (e.g. a change in the lease term, a change in future lease payments resulting from a change in an index or rate used to determine those payments). Under these circumstances, the lessee recognises the effect of the remeasurement of the lease liability as an adjustment to the right-of-use asset.

First Time Adoption of TFRS 16:

Group adopted TFRS 16 using the modified retrospective approach. The Group elected to apply the standard to contracts that were previously identified as leases applying TAS 17 and TFRIC 4. The Group therefore applied the standard to contracts that were not previously identified as containing a lease applying TAS 17 and TFRIC 4.

The Group elected benefit from facilitating applications recognized on lease contracts for which the lease terms ends within 12 months as of the date of initial application and lease contracts for which the underlying asset is of low value.

110 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) iv. New and revised Turkish Accounting Standards (continued) i) New standards, changes and comments effective from 1 January 2019 (continued)

TFRS 16 Leases (continued)

The effects of the amendments to IFRS 16 on the consolidated financial statements as of 1 January 2019 are as follows:

1 January 2019 TFRS 16 31 December 2018 restated effect (*) reported Consolidated statements of financial position Right of use assets 77.640.805 77.640.805 - Short term borrowings 81.075.633 4.566.993 76.508.640 Long term borrowings 252.088.965 44.747.530 207.341.435

(*) As of January 1, 2019, the difference of TL 26.054.160 between right of use assets and borrowings, arises from the usage rights which are followed up with cost and whose obligation is over, in the financial statement before the application of the leases in TFRS 16.

The standard is effective for annual periods begining on and after January 1, 2019.

TAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” (Amendments)

In December 2017, the POA issued amendments to TAS 28 Investments in Associates and Joint Ventures. These amendments clarify to entities applying TFRS 9 Financial Instruments for long-term investments in an associate or joint venture that are part of the net investment in an associate or joint venture.

TFRS 9 Financial Instruments excludes interests in associates and joint ventures accounted for in accordance with TAS 28 Investments in Associates and Joint Ventures. In this amendment, POA clarified that the exclusion in TFRS 9 applies only to interests a company accounts for using the equity method. A company applies TFRS 9 to other interests in associates and joint ventures, including long-term interests to which the equity method is not applied and that, in substance, form part of the net investment in those associates and joint ventures.

The amendment is effective for annual periods beginning on or after January 1, 2019.

TFRIC 23 Uncertainty over Income Tax Treatments

The interpretation clarifies how to apply the recognition and measurement requirements in “TAS 12 Income Taxes” when there is uncertainty over income tax treatments.

When there is uncertainty over income tax treatments, the interpretation addresses: (a) whether an entity considers uncertain tax treatments separately; (b) the assumptions an entity makes about the examination of tax treatments by taxation authorities; (c) how an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and (d) how an entity considers changes in facts and circumstances.

The annotation is effective for annual periods beginning on or after January 1, 2019.

111 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) iv. New and revised Turkish Accounting Standards (continued) i) New standars, changes and comments effective from 1 January 2019 (continued)

Annual Improvements - 2015-2017 Cycle

In January 2019, POA issued Annual Improvements to TFRS Standards 2015-2017 Cycle, amending the following standards: · TFRS 3 Business Combinations and TFRS 11 Joint Arrangements - The amendments to TFRS 3 clarify that when an entity obtains control of a business that is a joint operation, it remeasures previously held interests in that business. The amendments to TFRS 11 clarify that when an entity obtains joint control of a business that is a joint operation, the entity does not remeasure previously held interests in that business. · TAS 12 Income Taxes -The amendments clarify that all income tax consequences of dividends (i.e. distribution of profits) should be recognised in profit or loss, regardless of how the tax arises. · TAS 23 Borrowing Costs - The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings.

The amendments are effective from annual periods beginning on or after 1 January 2019.

Plan Amendment, Curtailment or Settlement” (Amendments to TAS 19)

In January 2019, the POA published Amendments to TAS 19 “Plan Amendment, Curtailment or Settlement” The amendments require entities to use updated actuarial assumptions to determine current service cost and net interest for the remainder of the annual reporting period after a plan amendment, curtailment or settlement occurs.

The amendments are effective from annual periods beginning on or after 1 January 2019.

Prepayment Features with Negative Compensation (Amendments to TFRS 9)

The POA issued minor amendments to TFRS 9 Financial Instruments to enable companies to measure some prepayable financial assets at amortised cost.

Applying TFRS 9, a company would measure a financial asset with so-called negative compensation at fair value through profit or loss. Applying the amendments, if a specific condition is met, entities will be able to measure at amortised cost some prepayable financial assets with so-called negative compensation.

The amendments are effective from annual periods beginning on or after 1 January 2019

112 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) iv. New and revised Turkish Accounting Standards (continued) ii) Standards and amendments issued but not yet effective

A number of new standards, interpretations of and amendments to existing standards are not effective at reporting date and earlier application is permitted; however the Group has not early adopted are as follows:

The revised Conceptual Framework (2018 version)

The revised Conceptual Framework issued on 27 October 2018 by the POA. The Conceptual Framework sets out the fundamental concepts for financial reporting that guide the Board in developing TFRS Standards. It helps to ensure that the Standards are conceptually consistent and that similar transactions are treated the same way, so as to provide useful information for investors, lenders and other creditors. The Conceptual Framework also assists companies in developing accounting policies when no TFRS Standard applies to a particular transaction, and more broadly, helps stakeholders to understand and interpret the Standards. The revised Framework is more comprehensive than the old one - its aim is to provide the Board with the full set of tools for standard setting. It covers all aspects of standard setting from the objective of financial reporting, to presentation and disclosures. For companies that use the Conceptual Framework to develop accounting policies when no TFRS Standard applies to a particular transaction, the revised Conceptual Framework is effective for annual reporting periods beginning on or after 1 January 2020, with earlier application permitted.

It is not expected to have a significant impact on the Group’s consolidated financial statements.

Amendments to TFRS 4: Applying TFRS 9 Financial Instruments with TFRS 4 Insurance Contracts

TFRS 4 has been amended by POA to reduce the impact of the differing effective dates of the new insurance contracts standard and TFRS 9. These amendments to TFRS 4 provide two optional solutions for insurers to reduce concerns about implementations: i) when applying TFRS 9 by insurers to its financial assets, an insurer will be permitted to reclassify the difference between profit or loss and other comprehensive income and the amounts recognised in profit or loss under TFRS 9 and those that would have been reported under TAS 39; or ii) an optional temporary exemption from applying TFRS 9 for companies whose activities are predominantly connected with insurance before January 1, 2021. These companies will be permitted to continue to apply existing requirements for financial instruments in TAS 39.

The Group does not expect that application of these amendments to TFRS 4 will have significant impact on its consolidated financial statements.

TFRS 17 Insurance Contracts

On 16 February 2019, IASB issued TFRS 17 Insurance Contracts. This first truly globally accepted standard for insurance contracts will help investors and others better understand insurers’ risk exposure, profitability and financial position.

TFRS 17 replaces TFRS 4, which was brought in as an interim Standard in 2004. TFRS 4 has given companies dispensation to carry on accounting for insurance contracts using national accounting standards, resulting in a multitude of different approaches. As a consequence, it is difficult for investors to compare and contrast the financial performance of otherwise similar companies. TFRS 17 solves the comparison problems created by TFRS 4 by requiring all insurance contracts to be accounted for in a consistent manner, benefiting both investors and insurance companies. Insurance obligations will be accounted for using current values - instead of historical cost. The information will be updated regularly, providing more useful information to users of financial statements. TFRS 17 has an effective date of 1 January 2021 but companies can apply it earlier.

The Group does not expect that application of TFRS 17 will have significant impact on its consolidated financial statements.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) iv. New and revised Turkish Accounting Standards (continued) ii) Standards and amendments issued but not yet effective (continued)

Amendments to TAS 1 and TAS 8 - Definition of Material

In June 7, 2019 the POA issued Definition of Material (Amendments to TAS 1 and TAS 8). The amendments clarify and align the definition of ‘material’ and provide guidance to help improve consistency in the application of that concept whenever it is used in TFRS Standards. The amended “definition of material “was added to the important definition and it was stated that this expression could lead to similar results by not giving and giving misstating information. In addition, with this amendment, the terminology used in its definition of material has been aligned with the terminology used in the Conceptual Framework for Financial Reporting (Version 2018). Those amendments are prospectively effective for annual periods beginning on or after 1 January 2020 with earlier application permitted.

The Group is assessing the potential impact on its consolidated financial statements resulting from the application of the amendments to TAS 1 and TAS 8.

Amendments to TFRS 3 - Definition of a Business

Determining whether a transaction results in an asset or a business acquisition has long been a challenging but important area of judgement. The IASB has issued amendments to IFRS 3 Business Combinations to make it easier for companies to decide whether activities and assets they acquire are a business or merely a group of assets. On May 21, 2019 the POA issued Deifinition of a Business (Amendments to TFRS 3).

It narrowed the definitions of a business by focusing the definition of outputs on goods and services provided to customers and other income from ordinary activities, rather than on providing dividends or other economic benefits directly to investors or lowering costs and added a concentration test that makes it easier to conclude that a company has acquired a group of assets, rather than a business, if the value of the assets acquired is substantially all concentrated in a single asset or group of similar assets. This is a simplified assessment that results in an asset acquisition if substantially all of the fair value of the gross assets is concentrated in a single identifiable asset or a group of similar identifiable assets. If a preparer chooses not to apply the concentration test, or the test is failed, then the assessment focuses on the existence of a substantive process. The amendment applies to businesses acquired in annual reporting periods beginning on or after 1 January 2020. Earlier application is permitted.

The Group is assessing the potential impact on its consolidated financial statements resulting from the application of the amendments to TFRS 3.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) iv. New and revised Turkish Accounting Standards (continued) ii) Standards and amendments issued but not yet effective (continued)

Indicator Interest Rate Reform (Amendments to TFRS 9, TAS 39 and TFRS 7)

The Indicator Interest Rate Reform, which changed TFRS 9, TAS 39 and TFRS 7 published by IASB in September 2019, was also published by the Public Oversight Authority on 14 December 2019, and section 6.8 was added to TFRS 9 and paragraph 7.2.26 was changed. The IASB has separately identified the issues to be addressed before and after the amendment of international benchmark interest rates and classified them into two groups as follows: · pre-change issues - issues affecting financial reporting in the period before reform and · change matters - matters that may affect financial reporting when an existing interest rate indicator is revised or changed

The IASB has decided to address the following hedge accounting requirements earlier in the first phase of the project, considering the issues prior to the amendment as a priority: a) Provision regarding the high probability of transactions, b) Forward-looking evaluations, c) Retroactive assesments and d) Separately identifiable risk components.

There has been no change in other provisions on hedge accounting. The Company will apply the above-mentioned exceptions to all hedging relationships that are directly affected by the Indicator Interest Rate Reform.

Although these changes will be implemented by the Group during the reporting periods beginning on or after January 1, 2020, early implementation is permitted.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods

Financial instruments

Financial assets

All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis.

The Group classifies its financial assets as (a) Business model used for managing financial assets, (b) Financial assets subsequently measured at amortised cost, at fair value through other comprehensive income or at fair value through profit or loss based on the characteristics of contractual cash flows. The Company reclassifies all financial assets effected from the change in the business model it uses for the management of financial assets. The reclassification of financial assets is applied prospectively from the reclassification date. In such cases, no adjustment is made to gains, losses (including any gains or losses of impairment) or interest previously recognized in the financial statements.

Classification of financial assets

Debt instruments that meet the following conditions are measured subsequently at amortised cost: · the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and · the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive income: · the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and · the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

If a financial asset is not measured at amortized cost or at fair value thorugh other comprehensive income, it is measured at fair value through profit or loss.

In the initial recognition of a financial asset, the Group may irrevocably elect to present subsequent changes in fair value of an equity instrument that is not held for trade in other comprehensive income.

(i) Amortised cost and effective interest method

Interest income on financial assets carried at amortized cost is calculated using the effective interest method. The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. This income is calculated by applying the effective interest rate to the gross carrying amount of the financial asset: (a) Credit-impaired financial assets when purchased or generated. For such financial assets, the Company applies the effective interest rate on the amortized cost of a financial asset based on the loan from the date of the recognition in the financial statements. (b) Non-financial assets that are impaired at the time of acquisition or generation but subsequently become a financial asset that has been impaired. For such financial assets, the Company applies the effective interest rate to the amortized cost of the asset in the subsequent reporting periods.

Interest income is recognised using the effective interest method for debt instruments measured subsequently at amortised cost. Interest income is recognized in profit or loss and shown under “finance income - interest income”.

116 Annual Report 2019 ALARKO HOLDİNG A.Ş.

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2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods (continued)

Financial instruments (continued)

Financial assets (continued)

(ii) Financial assets classified as at FVTOCI

The fair value change of the bonds held by the Group is reflected in other comprehensive income. The fair value is determined as described in Note 2 (v). Bonds are first measured by adding transaction costs to their fair value. Then, in these private sector bonds, changes arising from exchange rate gains and losses, impairment gains or losses and interest income calculated using the effective interest method are recognized in profit or loss. The amounts recognized in profit or loss are the same as those that would be recognized in profit or loss if these bonds are measured at amortized cost.

All other changes in the carrying amount of these corporate bonds are recognised in other comprehensive income and accumulated under the heading of investments revaluation reserve. When these corporate bonds are derecognised, the cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss.

(iii) Equity instruments designated as at FVTOCI

On initial recognition, the Group may make an irrevocable election to designate each investment in equity instruments that is not held for trading as at FVTOCI.

A financial asset is held for trading if: · it has been acquired principally for the purpose of selling it in the near term; or · on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has evidence of a recent actual pattern of short-term profit-taking; or · it is a derivative (except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument)

Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve. The cumulative gain or loss is not to be reclassified to profit or loss on disposal of the equity investments, instead, it is transferred to retained earnings.

Dividends on these investments in equity instruments are recognised in profit or loss in accordance with TFRS 9, unless the dividends clearly represent a recovery of part of the cost of the investment. Dividends are included in the ‘income from investing activities’ line item (Note 31) in profit or loss.

(iv) Financial assets at FVTPL

Financial assets that do not meet the criteria for measurement over amortized costs or by reflecting fair value change to other comprehensive income are measured by reflecting fair value change to profit or loss.

Financial assets whose fair value change is reflected in profit or loss are measured at their fair values at​​ the end of each period and all fair value changes are accounted in profit or loss unless the relevant financial assets are part of hedging transactions.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods (continued)

Financial instruments (continued)

Financial assets (continued)

Foreign exchange gains and losses

The carrying amount of financial assets that are denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of each reporting period. Specifically, · for financial assets measured at amortised cost that are not part of a designated hedging relationship, exchange differences are recognised in profit or loss; · for debt instruments measured that are not part of a designated hedging relationship, exchange differences on the amortised cost of the debt instrument are recognised in profit or loss;. Other exchange differences are recognised in other comprehensive income; · for financial assets measured that are not part of a designated hedging relationship, exchange differences are recognised in profit or loss; and · for equity instruments measured, exchange differences are recognised in other comprehensive income.

Impairment of financial assets

The Group recognises a loss allowance for expected credit losses on investments in debt instruments that are measured at amortised cost or at FVTOCI lease receivables, trade receivables and contract assets, as well as financial guarantee contracts. No impairment loss is recognised for investments in equity instruments. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument.

The Group utilizes a simplified approach for trade receivables, contract assets and lease receivables that does not have significant financing component and calculates the allowance for impairment against the lifetime ECL of the related financial assets.

For all other financial instruments, the Group recognises lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if on the other hand, the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL.

Measurement and recognition of expected credit losses

The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date.

For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate (or credit based adjusted effective interest rate for financial assets with credit-value impairment when purchased or incurred).

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2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods (continued)

Financial instruments (continued)

Financial assets (continued)

Derecognition of financial assets

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity.

On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as at FVTOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Group has elected on initial recognition to measure, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings.

Financial liabilities

Financial liabilities are classified as at FVTPL on initial recognition. On initial recognition of liabilities other than those that are recognised at FVPTL, transaction costs directly attributable to the acquisition or issuance thereof are also recognised in the fair value.

A financial liability is subsequently classified at amortized cost except:

The entity classifies all of its financial liabilities, except for the liabilities below, at amentized cost in subsequent recognition. (a) Financial liabilities at FVTPL: These liabilities including derivative instruments are subsequently measured at fair value. (b) Financial liabilities arising if the transfer of the financial asset does not meet the conditions of derecognition from the financial statements or if the ongoing relationship approach is applied: When the Group continues to present an asset based on the ongoing relationship approach, a liability in relation to this is also recognised in the financial statements. The transferred asset and the related liability are measured to reflect the rights and liabilities that the Company continues to hold. The transferred liability is measured in the same manner as the net book value of the transferred asset. (c) A contingent consideration recognized in the financial statements by the entity acquired in a business combination where TFRS 3 is applied: After initial recognition, the related contingent consideration is measured as at FVTPL.

The entity does not reclassify any financial liability.

Derecognition of financial liabilities

The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable, including any noncash assets transferred or liabilities assumed, is recognised in profit or loss.

119 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods (continued)

Financial instruments (continued)

Financial liabilities (continued)

Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, including foreign exchange forward contracts, options and interest rate swaps. Detailed information on derivative financial instruments is given in Note 13.

Derivatives are recognised initially at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at each reporting date. The resulting gain or loss is recognised in profit or loss immediately unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a financial liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset. A derivative is presented as a non‑current asset or a non‑current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

Borrowing costs

Borrowing costs are recognized as expense. Borrowing costs related to qualifying assets are directly added to the cost of the asset directly associated.

The borrowing costs are no longer capitalized when all activities required to make the qualifying asset ready to use or sale in accordance with the purposes.

Inventories

Inventories are stated at the lower of cost and net realizable value. The cost of inventories comprises all costs incurred in bringing the inventories to their present location and condition. The components of the cost included in inventories are material, labor and overhead cost. Cost is determined by using the weighted moving average cost method for the raw material, supplies, semi finished products, finished products, merchandise and other inventories.

Real estates in inventories are held for getting sale revenue instead of getting rent or shareholding revenue. In addition to the aforementioned costs that are related to inventory, borrowing costs are included in inventory costs.

Real estates stated within the inventories are recognized at the lower of cost and net realizable value. However, the expertise value which constitutes the basis of fair value of real estates in inventories is compared with the adjusted acquisition costs, and in the case that the expertise value is lower than the adjusted value, provision is made for value decrease as per the conditions stated in the “Impairment of non- financial assets” section. Such impairment is determined and applied separately for each real estates.

120 Annual Report 2019 ALARKO HOLDİNG A.Ş.

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2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods (continued)

Property, plant and equipment

Property, plant and equipment are carried at cost less accumulated depreciation. Depreciation is provided for property, plant and equipment on a straight-line basis over their estimated useful lives, Land is not depreciated as it is deemed to have an indefinite useful life.

The depreciation periods for property, plant and equipment, which approximate the economic useful lives of such assets, are as follows:

Buildings 10-50 years Land improvements 4-50 years Machinery, plant and equipment 2-40 years Motor vehicles 3-25 years Furniture and fixtures 2-25 years Leasehold improvements 2-19 years Other property, plant and equipment 5 years

Useful life and the depreciation method are constantly reviewed, and accordingly, parallels are sought between the depreciation method and the period and the useful life to be derived from the related asset.

Repairs and maintenance are charged to the income statements during the period in which they are incurred. The cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excess of the originally assessed standard of performance of the existing asset will flow to the Group. Major renovations are depreciated over the remaining useful life of the related asset.

Machinery and equipment are capitalised and amortised when their capacity is fully available for use and their physical situations meet the determined production capacities.

Gains or losses on disposals of property, plant and equipment are determined by comparing proceeds with their restated carrying amounts and are included in the related income and expenses from investing activities accounts, as appropriate.

Intangible assets

Intangible assets acquired separately

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

121 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assesment methods (continued)

Intangible assets (continued)

Computer software

Acquired computer software licenses are capitalized on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortized over their estimated useful lives.

The amortisation periods for intangible assets, which approximate the economic useful lives of such assets, are as follows:

Rights 2-32 years Leasehold improvements 5-19 years

Intangible assets are initially recognised at acquisition cost and amortised on a straight-line basis over their estimated useful lives. Intangible assets with indefinite useful lives are not amortised, however are tested for impairment annually. Whenever there is an indication that the intangible is impaired, the carrying amount of the intangible asset is reduced to its recoverable amount and the impairment loss is recognised as an expense.

Other intangible assets 5 years

Derecognition of intangible assets

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

Impairment of property, plant and equipment and intangible assets other than goodwill

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

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

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

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

122 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

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 reflecting the market conditions. Gains or losses arising from changes in the fair values of investment properties are included in the profit or loss in the year in which they arise.

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

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

Real estates leased under operating lease are not classified as investment property.

Leased assets and leasing liabilities

Right of use assets

The Group recognises right-of-use assets at the commencement date of the lease. Right-of-use assets are measured through deduction of accumulated depreciations and impairment losses from their cost values. In case of the financial lease payables are revalued, this figure is corrected as well.

The cost of the right-of-use asset includes: (a) initial direct costs incurred, (b) lease payments made at or before the commencement date less any lease incentives received, and (c) all initial direct costs incurred by the Group.

At the end of the lease term of the underlying asset’s service, the transfer of the Group is reasonably finalized, and the Group depreciates the asset until the end of the life of the underlying asset on which the lease actually began.

Right-of-use assets are subject to impairment.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Leased assets and leasing liabilities (continued)

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of unpaid lease payments to be made over the lease term.

Lease payments included in the measurement of the lease obligation on the date that the lease actually commences, consists of the following payments to be made for the right of use of the underlying asset during the lease period and not paid on the date the lease actually starts: (a) Fixed payments, (b) Variable lease payments that depend on an index or a rate, (c) Amounts expected to be paid under residual value guarantees (d) The exercise price of a purchase option reasonably certain to be exercised by the Group and (e) Payments of penalties for terminating a lease, if the lease term reflects the Group exercising the option to terminate.

The variable lease payments that do not depend on an index or a rate are recognised as expense in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate implicit in the lease is not readily determinable, the Group determines the alternative borrowing interest rate at the date of the revaluation.

After the effective date of the lease, the Group measures the lease obligation as follows: (a) Increase the carrying amount to reflect the interest on the lease obligation, and (b) Decreases book value to reflect rental payments.

In addition, in the situation of a change in the lease term, in essence a change in fixed lease payments or a change in the assessment of the option to buy the underlying asset, the value of the lease obligations is remeasured.

Short-term leases and leases of low-value assets

The the Group applies the short-term lease recognition exemption to its short-term leases of low value assets. The lease contracts within this scope are accounted for in the profit or loss statement as expense according to the linear method during the lease period.

124 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Effects of changes in exchange rates

Foreign exchange transactions and balances

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

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

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

Financial statements of subsidiaries, joint ventures and associates operated in foreign countries

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are translated into TL using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

Business combinations and goodwill

A business combination is evaluated as the bringing together of separate entities or businesses into one reporting entity.

Business combinations realised before 1 January 2011 have been accounted for by using the purchase method in the scope of TFRS 3 “Business combinations” prior to the amendment. Under this method, the cost of a business combination is the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the acquirer, in exchange for control of the acquiree and in addition, any costs directly attributable to the business combination. If a business combination contract includes clauses that enable adjustments in the cost of business combination depending on events after the acquisition date; in case the adjustment is measurable and more probable than not, than cost of business combination at acquisition date is adjusted.

Any excess of the cost of acquisition over the acquirer’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities is accounted for as goodwill in the consolidated financial statements.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Business combinations and goodwill (continued)

Goodwill recognised in business combinations is tested for impairment annually (as of December 31) or more frequently if events or changes in circumstances indicate impairment, instead of amortisation. Impairment losses on goodwill are not reversed. Goodwill is allocated to cash-generating units for the purpose of impairment testing.

Any excess of the Group’s share in the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of the business combination is accounted for as income in the related period.

Related parties

Parties are considered related to the company (will be used as reporting entity in this standard) if;

(a) A person or a close member of that person’s family is related to a reporting entity if that person: (i) has control or joint control over the reporting entity; (ii) has significant influence over the reporting entity; or (iii) is a member of the key management personnel of the reporting entity or of a parent of the reporting entity.

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

126 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Related parties (continued)

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

Board Members, General Manager and Assistant General Managers are stated as executive managers by the Group.

Income taxes

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

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

Current tax

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

Deferred tax

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

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

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

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

Current and deferred tax for the period

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

127 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Employee benefits

Defined contribution plan

The Group has to compensate the Social Security Contribution of the employees. As long as this is compensated, there is no any other obligation for the Group. Social Security Contributions are classified as personnel expenses as of the accrual date.

Defined benefit plan

Under Turkish Labour Law Article 25/II, the Group is required to pay termination indemnities to each employee who completes one year of service and whose employment is terminated upon causes that qualify the employee to receive retirement pay liability is called up for military service, leaves within one year after marriage (women only), and to those employees who retire or die. The amount payable consists of one month’s salary limited to a maximum of TL 6.379,86 for each period of service at 31 December 2019 (31 December 2018: TL 5.434,42).

Ceiling amount of TL 6.730,15 which is in effect since 1 January 2020 is used in the calculation of retirement pay liability.

The Group has determined the retirement pay liability stated in the accompanying financial statements as per the recognition and valuation principles stated in TAS 19 “Employee Benefits”. As the characteristics of the retirement pay liabilities are similar to the “Post Employment Benefit Plans” stated in this standard, these liabilities are calculated and stated in the financial statements on the basis of below mentioned “Proposed Unit Loan Method” and other various assumptions. · The dates that the employees will gain their pension rights are determined with respect to the prevailing social security laws with consideration to their past employment durations. · In calculating the current value of future liabilities that may arise due to the retirement or contract termination of an employee, it is assumed that the current salaries and wages or, if higher than the value of the retirement pay liability upper limit determined by the Labour Law for 31 December 2019, the retirement pay liability upper limit, to remain constant for restatement purposes and this value is reduced by the actual discount rate of 3,51% (31 December 2018- 4,00%) calculated based upon the assumption that the expected annual inflation rate will be 12,31% (31 December 2018- 20,64%) and the expected inflation rate will be 8,50% (31 December 2018 - 16,00%) which represents the proposed average interest rate per annum of the government bonds, in order to determine the current net value of the retirement pay liability at the balance sheet date.

Revenue

Revenue is recognized at transaction price. The transaction price is the price expected to be entitled in return for the transfer of the committed goods and services to the customers, except for the amounts collected on behalf of third parties. The Group recognises revenue when it transfers control of a product or service to a customer.

The sales of service are recognized as income if the costs for the services rendered are incurred or reliably estimated, the provision for the service is reliably measured and it is probable that the economic benefit will be obtained by the entity. If a service activity affects accounting periods more than one, the service income is recognized based on the percentage of completion method in case costs other than the criteria above and the total cost incurring can be measured reliably and the percentage of completion can be measured reliably.

Maturity difference income and expense related to forward sales and acquisitions are calculated by effective interest rate method throughout their maturities and recognized as other income and expense on accrual basis.

If a reliable forecast cannot be made on the outcome of the construction contracts, the total contract costs for the period of undertaking is recognized in the financial statements, whereas in regard to the construction proceeds, only the portion corresponding to the recoverable volume of the undertaken contract costs are recognized.

128 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Revenue (continued)

The construction contracts related to the deferred construction works undertaken as a contractor are accounted by the percentage of completion method. The contract income and expenses are recognized as income and expense items if a reliable assumption can be made for the value of returns on the construction contract. The comparison of the Total contract expenses incurred at the end of the related accounting period with respect to the Total forecast contract costs represents the percentage of completion. This ratio is utilized in the recognition of contract income for the current period in the financial statements.

The revenue from sales and delivery of electricity is measured at fair value of the receivable amount delivered or to be delivered. The estimated value of electricity supplied to all substractor groups but not invoiced is taken into consideration in the income measurement. Income is recognized at the amounts invoiced based on accrual principle when electricity delivery is realized. Net sales refers to the invoiced amount of electricity less TRT energy contribution, sales commissions and sales taxes.

If the total contract costs are likely to exceed the total contract proceeds, the expected loss is recognized as expense in the consolidated financial statements.

Earnings/(loss) per share

Earnings/(loss) per share is calculated by dividing the net profit or loss for the period attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the period.

Companies in Turkey can increase their share capital through distributing shares (bonus shares) from Prior years’ income and differences arising from inflation adjustment in changes in equity to their current shareholders on a pro rata basis. When calculating profit/(loss) per share, these bonus shares are recognized as issued shares. Therefore, the weighted average of shares used in the calculation of profit/(loss) per share is derived through retroactive application with respect to bonus shares.

Events after the reporting period

The Group updates disclosures that relate to conditions that existed at the end of the reporting period to reflect any new information that is received after the reporting period about those conditions. Non-adjusting events should be disclosed if they are of material importance.

Non-current assets held for sale

The Group classifies a non-current asset as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use and does not depreciate a non-current asset while it is classified as held for sale. The Group measures assets held for sale at the lower of its carrying amount and fair value less costs to sell.

129 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Provisions, contingent assets and liabilities

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

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

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

Segment reportings

For the years ended 31 December 2019 and 2018, the principle activities of Alarko Group is classified in five sectors, namely, holding, tourism, industry and merchandising, energy, contracting/land development.

Service concession agreements

TFRS Comment 12 addresses how the infrastructural investments made and services provided by the entities (operators) who have gained operating right for a defined period of time by signing public service concession agreements should be accounted for. TFRS Comment 12 expresses that the investments realized by operators related to projects deemed within the scope of the Comment are required to be accounted for as financial assets and/or intangible assets as per the terms of agreement and not as buildings, fixed assets, or properties.

Cash flow statement

Cash flows during the period are classified and reported by operating, investing and financing activities in the cash flow statements.

Capital and dividends

Ordinary shares are classified as equity. Dividends on ordinary shares are recognized in equity in the period in which they are declared.

Significant accounting estimates, assumptions and decisions

Preparation of consolidated financial statements requires the usage of estimations and assumptions which may affect the reported amounts of assets and liabilities as of the balance sheet date, disclosure of contingent assets and liabilities and reported amounts of income and expenses during the financial period. The estimations and assumptions may differ from the actual results. Estimations and assumptions are reviewed periodically, adjusted if deemed necessary and reflected to the consolidated statement of profit or loss and other comprehensive income in the period they occurred.

Assumptions which might have a material effect on the amounts reflected in statement of financial position or might have a material effect in the future are summarized below: a) The Group’s contracts related to contracting works are subject to assessment under Revenue from Contracts with Customers (TFRS 15). The revenue from the construction contracts is recognized in the consolidated financial statements as extended over time if the control of the asset is held by the customer over the construction process after the assessment performed. The Management considers that the method currently used in order to measure prospective development in terms of the complete fullfillment of its performance obligations is in accordance with TFRS 15.

130 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) v. Summary of significant accounting policies and assessment methods (continued)

Significant accounting estimates, assumptions and decisions (continued) b) Group management have made significant assumptions on determining useful lives of tangible and intangible assets based on the experiences of the technical employees. c) Debtors credibilities, historical payment performances and restructuring conditions if there is debt restructuring is considered to determine the impairment of trade receivables factors. d) In order to measure expected loss provisions, the Group uses reasonable and confirmable prospective information based on assumptions on different economic conditions in the future and the possible effects of these conditions to each other. Probability of default is a significant input in the measurement of expected credit losses. Probability of default is an estimate of default in a fixed time; and its calculation includes prior data, assumptions and expectations of future conditions. e) The possibilities of losing the case and the liabilities that will arise if the case is lost is evaluated by the Group’s legal counselor and by the management team taking into account expert opinions. The management determines the amount of the provisions based on the best estimate to calculate the legal case provisions. f) Discounted inventory price list is used to calculate inventory impairment. Where the sales price cannot be predicted, technical personnel’s opinion and inventory waiting time is considered. If expected net realizable value is less than cost, the Company should allocate provisions for inventory impairment. g) Group performs impairment test for goodwill annually or if there is an indication of impairment often. Goodwill has been tested for impairment as of 31 December 2019 by comparing book value of the goodwill with recoverable amount. Recoverable amount has been determined by value in use method. Before tax free cash flows which is based on financial budgets approved by the board of directors has been used in the calculation of recoverable amount. Estimated cash flow growth after the five-year period is not provided. Projected USD cash flow before tax has been discounted by using the ratio of 7.42% to determine the present value. Data such as growth rate of the market, gross domestic income per capita and price index has been obtained from external sources. Assumptions regarding sales prices, operating capital necessities and property, plant and equipment investments has been determined using the Group’s expectations and actual figures of prior periods. h) The Group’s derivative financial instruments comprise interest rate swaps. Derivative financial instruments are initially recognized at fair value and subsequently fair value is calculated separately for each derivative financial instrument. i) The Group uses fair value method as an accounting policy in the recognition of investment properties. The fair values of investment properties are determined by independent valuation firms authorized by CMB. These firms and/or appraisers uses assumptions (such as real discount rates, market rents, market values, etc.) in the works they perform. j) The Group’s property, plant and equipment and intangible assets are subject to impairrment test when there are signs of impairment, in accordance with the accounting policies applied. There is an impairment risk on the assets of the Group’s operating natural gas conversion plant due to the increase in natural gas costs, variable market conditions and falling profitability. Accordingly, an impairment analysis has been performed in relation with these assets in the consolidated financial statements as of 31 December 2019. In the scope of this analysis, the difference between estimated recoverable amount and the value of assets in the records is considered as impairment. The estimated recoverable amount calculation includes basic assumptions such as future production levels and commodity prices, and economic assumptions such as discount rate, inflation rate and exchange rate in the estimation and discounting of future cash flows. k) The Group takes into consideration its accumulated losses that can be reduced in the determination of tax base, in the deferred tax calculation only during 5-year legal period. In accordance, whether losses will be used is evaluated in the scope of budgets and projections prepared. The preparation of budgets and projections is based on many future assumptions such as market conditions, weather conditions, inflation rates and foreign currency translations.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

3. BUSINESS COMBINATIONS

There is no realized business combination in January 1 - December 31, 2019 accounting period.

Business combinations in the accounting period January 1 - December 31, 2018 is as follows:

The subsidiary, Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. purchased 10% shares of AO Mosalarko for US Dollar 1.700.000 as of 13 August 2018.

Fair value (TL)

Cash and cash equivalents 5.714.268 Receivables 696.520 Prepaid expenses 149.318 Other current assets 2.298.826 Investment properties 83.082.248 Property, plant and equipments 7.188 Trade payables (26.066) Other payables (4.648.636) Tax liability for the period (989.367) Deferred tax liability (12.365.370)

Net fair value of assets 73.918.929

Purchase price 10.096.130 Value of prior shares on merger date 36.959.465 Minority interests 29.567.573 Less: Net fair value of assets (73.918.929)

Goodwill 2.704.239

Less: Impairment (2.704.239)

Goodwill, 31 December 2018 -

The fair value of 50% share that the Group owned before the purchase and that is accounted under equity as TL 36.969.282 based on equity method is determined as TL 36.959.465, and the valuation difference amounting to TL 9.817 was recognized under other expenses from operating activities.

As of 31 December 2018, goodwill subjected to impairment test amounting to TL 2.704.239 has been written off.

132 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING

Alarko Groups’ sectors are classified; holding, tourism, industry and merchandising, energy and contracting/land development. Segment reporting is prepared based on these business sectors.

As of 31 December 2019, segment reporting is as follows (TL):

Contracting Industry and and Land Elimination and Assets Holding Tourism Trade Energy Development Classification Total

Current assets Cash and cash equivalents 6.740.749 55.001.950 255.332 2.102.982 282.357.307 - 346.458.320 Financial investments 92.169.042 - - - 471.761.995 - 563.931.037 Trade receivables 11.528.535 229.329 35.856 33.277.183 1.143.511.465 (871.267.327) 317.315.041 Other receivables 25.128 2.001 - 380.617 9.305.126 (2.657) 9.710.215 Assets arising from customer contracts - 6.589.333 - - 36.303.100 - 42.892.433 Inventories 1.762 4.302.136 1.542.408 3.687.917 97.101.581 (10.550) 106.625.254 Prepaid expenses 115.950 968.817 2.699 456.899 31.680.895 - 33.225.260 Current income tax assets - 1.225.493 263 351.825 4.953.882 - 6.531.463 Other current assets - 3.129.202 256.299 656.964 11.777.873 - 15.820.338 Non-current assets held for sale - - - 10.393.784 39.501.734 (1.679.856) 48.215.662

Non-current assets Financial investments 404.895.847 26.627 789.765 18.575.720 545.543.834 (969.270.990) 560.803 Trade receivables - - - - 29.928 - 29.928 Other receivables 39.518 228.568 - 13.615 52.271.460 - 52.553.161 Investments accounted for by equity method 276.097.796 - 148.313.645 424.405.694 161.907.675 (406.892.856) 603.831.954 Investment properties 56.180.800 - 994.000 16.465.100 1.147.564.039 (797.804.299) 423.399.640 Property, plant and equipment 167.255 62.447.636 - 217.487.350 83.728.201 (12.198.574) 351.631.868 Right of use assets - 421.299.477 - 2.555.404 43.195.786 (381.256.314) 85.794.353 Intangible assets 93.280 1.799.455 - 76.391.924 13.593 4.769.513 83.067.765 Prepaid expenses 28.421 77.541 - 12.114 110.636 - 228.712 Deferred tax asset - 6.918.879 - 31.441.563 2.449.916 (5.622.136) 35.188.222 Other non-current assets 19 536.127 - - 69.067.718 - 69.603.864

Total assets 848.084.102 564.782.571 152.190.267 838.656.655 4.234.137.744 (3.441.236.046) 3.196.615.293

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING (CONTINUED)

As of 31 December 2019, segment reporting is as follows (TL):

Contracting Industry and and Land Elimination and Liabilities Holding Tourism Trade Energy Development Classification Total

Current liabilities Short-term financial liabilities - 7.282.601 - 16.179.197 26.161.067 (4.193.110) 45.429.755 Short-term portion of long-term financial liabilities - - - 102.895.613 - - 102.895.613 Other financial liabilities - - - 12.881.439 - - 12.881.439 Trade payables 919.537 41.213.197 1.766.282 29.898.353 1.095.058.308 (868.124.028) 300.731.649 Payables related to employee benefits 541.749 1.308.739 61 276.094 6.699.711 - 8.826.354 Other payables 199.964 120.745 - 819.126 22.002.985 (3.145.956) 19.996.864 Liabilities arising from customer contracts - 5.618.959 - - 115.693.927 - 121.312.886 Derivative financial instruments - - - 1.159.163 - - 1.159.163 Deferred income (Except for obligations arising from customer contracts) - 8.429.031 - - 37.258.260 - 45.687.291 Current income tax liabilities 836.184 - 22.420 - 1.308.252 - 2.166.856 Short-term provisions - - - 217.000 6.077.028 - 6.294.028 Other current liabilities 4.955 21 4.879 1.018 76 (9.999) 950

Non-current liabilities Long-term financial liabilities - 446.170.958 - 146.899.152 6.924.338 (404.493.679) 195.500.769 Other financial liabilities - - - 18.943.293 - - 18.943.293 Other payables - - - - 83.865.606 - 83.865.606 Liabilities arising from customer contracts - 11.006.132 - - - - 11.006.132 Investments accounted for by equity method liabilities - - - - 43.185.159 - 43.185.159 Long-term provisions 2.277.105 7.440.068 - 781.532 12.036.523 - 22.535.228 Deferred tax liabilities 10.536.508 - 166.578 1.983.994 137.044.098 (550.478) 149.180.700

Equity Paid-in share capital 435.000.000 9.657.067 3.994.119 107.276.943 351.559.532 (472.487.661) 435.000.000 Repurchased shares (-) - - - - (23.798.080) 11.613.717 (12.184.363) Cross shareholding adjustment - - - - - (1.535.883) (1.535.883) Actuarial gain/(loss) arising from defined benefit plans 91.496 (246.842) (1.339.451) (6.216.306) (1.561.026) 18.181 (9.253.948) Foreign currency translation differences - - - - 95.551.351 (11.613.718) 83.937.633 Revaluation and/or classification gain/ (loss) of financial assets held for sale 403.220.379 - 295.423 5.409.338 327.463.345 (736.398.196) (9.711) Restricted reserves 18.473.868 2.494.449 - 3.960.174 38.835.610 (45.290.233) 18.473.868 Retained earnings or accumulated losses (60.539.028) 32.181.439 139.904.159 152.050.596 1.418.110.044 (1.074.708.935) 606.998.275 Net profit or loss for the period 36.521.385 (7.893.993) 7.375.797 243.240.936 434.661.630 (329.108.810) 384.796.945

Non-controlling interest - - - - - 498.792.742 498.792.742

Total liabilities 848.084.102 564.782.571 152.190.267 838.656.655 4.234.137.744 (3.441.236.046) 3.196.615.293

134 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING (CONTINUED)

As of 31 December 2019, segment reporting is as follows (TL):

Contracting Elimination Industry and and Land and Holding Tourism Trade Energy Development Classification Total

Revenue (Outside the Group) (net) 6.193.381 177.241.835 471.231 286.019.342 915.836.180 - 1.385.761.969 Revenue (Within the Group) 11.043.695 43.143 37.997 121.864.438 54.722.044 (187.711.317) - Cost of sales (Outside the Group) (-) (2.956.939) (104.627.218) (379.017) (97.940.939) (804.834.430) (1.753.988) (1.012.492.531) Cost of sales (Within the Group) (-) (13.489.451) (19.012.898) (10.011) (164.917.865) (27.496.657) 224.926.882 -

Gross profit/(loss) 790.686 53.644.862 120.200 145.024.976 138.227.137 35.461.577 373.269.438

General administrative expenses (-) (7.025.147) (24.159.473) (33.279) (11.030.367) (76.201.578) 5.276.076 (113.173.768) Marketing expenses (-) - (13.325.840) - - - - (13.325.840) Other income from operating activities 5.032.802 15.790.742 51.751 25.470.960 220.768.282 (7.340.941) 259.773.596 Other expenses from operating activities (-) (313.569) (3.822.062) (1) (1.628.708) (130.906.966) 3.874.466 (132.796.840)

Operating profit/(loss) (1.515.228) 28.128.229 138.671 157.836.861 151.886.875 37.271.178 373.746.586

Income from investing activities 44.997.528 97.206 180.032 1.410.908 331.212.115 (283.721.654) 94.176.135 Expenses from investing activities (-) - (81.363) - (11.314.917) (10.015.112) 110.805 (21.300.587) Share of profits/(losses) of investments accounted by equity method - - 7.081.664 169.450.653 (11.468.885) (41.036.415) 124.027.017

Operating profit/(loss) before financial income/(expense) 43.482.300 28.144.072 7.400.367 317.383.505 461.614.993 (287.376.086) 570.649.151

Financial expenses (-) - (37.672.949) (669) (58.416.263) (1.597.142) 34.760.398 (62.926.625)

Profit/(loss) before tax from continued operations 43.482.300 (9.528.877) 7.399.698 258.967.242 460.017.851 (252.615.688) 507.722.526

- Tax (expense)/income for the period (6.451.907) (3.170.114) (22.420) (149.061) (9.655.455) - (19.448.957) - Deferred tax (expense)/income (509.008) 4.804.998 (1.481) (15.577.245) (15.700.766) (5.579.803) (32.563.305)

Tax (expense)/income from continued operations (6.960.915) 1.634.884 (23.901) (15.726.306) (25.356.221) (5.579.803) (52.012.262)

Net profit/(loss) from continued operations 36.521.385 (7.893.993) 7.375.797 243.240.936 434.661.630 (258.195.491) 455.710.264

Net income/(loss) for the period 36.521.385 (7.893.993) 7.375.797 243.240.936 434.661.630 (258.195.491) 455.710.264

Other comprehensive income not to be reclassified to profit or loss - Actuarial gain/(loss) arising from defined benefit plans 66.386 (1.347.961) 45 (181.851) (2.426.534) - (3.889.915) - Share of other comprehensive income of investments accounted by equity method not to be reclassified to profit or loss - - (1.261.834) (3.328.215) (112.037) - (4.702.086) - Deferred tax income for other comprehensive income not to be reclassified to profit or loss (13.277) 228.542 252.358 702.028 507.583 - 1.677.234 Other comprehensive income to be reclassified to profit or loss - Foreign currency translation differences - - - - 23.265.271 - 23.265.271 - Other comprehensive income/(expense) related to financial assets whose fair value difference is reflected in other comprehensive income - - - - 190.023 - 190.023 - Share of other comprehensive income of investments accounted by equity method to be reclassified to profit or loss - - - - 861.060 - 861.060

Total comprehensive income/(expense) 36.574.494 (9.013.412) 6.366.366 240.432.898 456.946.996 (258.195.491) 473.111.851

Distribution of profit/(loss) for the period Non-controlling interest - - - - - 70.913.319 70.913.319 Parent company shares 36.521.385 (7.893.993) 7.375.797 243.240.936 434.661.630 (329.108.810) 384.796.945

Distribution of total comprehensive income/(expense) Non-controlling interest - - - - - 78.068.285 78.068.285 Parent company shares 36.574.494 (9.013.412) 6.366.366 240.432.898 456.946.996 (336.263.776) 395.043.566

135 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING (CONTINUED)

As of 31 December 2018, segment reporting is as follows (TL)

Contracting Industry and and Land Elimination and Assets Holding Tourism Trade Energy Development Classification Total

Current assets Cash and cash equivalents 8.857.292 47.460.819 40.761 3.486.903 378.270.984 - 438.116.759 Financial investments 132.661.678 - - - 434.127.719 - 566.789.397 Trade receivables 6.362.261 943.545 - 53.437.973 916.420.853 (814.806.806) 162.357.826 Other receivables 450 2.801 - 733.084 3.761.161 (315) 4.497.181 Assets arising from customer contracts - 12.081.878 - - 11.604.502 - 23.686.380 Inventories 2.453 4.105.500 - 3.668.836 220.722.169 (102.033) 228.396.925 Prepaid expenses 102.253 1.076.712 1.563 507.935 39.046.971 - 40.735.434 Current income tax assets 564.073 2.665.828 263 639.283 13.303.176 - 17.172.623 Other current assets - 1.957.973 1.189 1.096.306 40.732.749 (2.416.985) 41.371.232 Non-current assets held for sale - - - - 50.154.178 (6.028.964) 44.125.214

Non-current assets Financial investments 321.149.883 26.627 628.169 75.720 364.507.642 (686.017.262) 370.779 Trade receivables - - - - 27.126 - 27.126 Other receivables 43.368 223.468 - 14.707 46.076.164 - 46.357.707 Investments accounted for by equity method 182.410.149 - 142.241.453 255.122.580 171.590.177 (328.725.749) 422.638.610 Investment properties 55.471.900 - 957.000 15.054.200 858.156.977 (550.894.317) 378.745.760 Property, plant and equipment 164.648 50.242.529 - 254.449.346 84.848.176 20.165.291 409.869.990 Intangible assets 94.471 1.363.935 - 77.771.964 34.315.959 (28.997.749) 84.548.580 Prepaid expenses 258 845.205 - 261 454.031 - 1.299.755 Deferred tax asset - 1.885.338 - 46.715.270 1.874.038 (69.896) 50.404.750 Other non-current assets 19 531.594 - - 50.205.034 - 50.736.647

Total assets 707.885.156 125.413.752 143.870.398 712.774.368 3.720.199.786 (2.397.894.785) 3.012.248.675

136 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING (CONTINUED)

As of 31 December 2018, segment reporting is as follows (TL):

Contracting Industry and and Land Elimination and Liabilities Holding Tourism Trade Energy Development Classification Total

Current liabilities Short-term financial liabilities - - - 59.955.000 16.553.640 - 76.508.640 Short-term portion of long-term financial liabilities - - - 90.560.679 - - 90.560.679 Other financial liabilities - - - 14.018.037 - - 14.018.037 Trade payables 266.649 36.432.907 - 65.173.177 1.095.804.380 (817.223.776) 380.453.337 Payables related to employee benefits 557.629 1.353.628 40 855.815 7.646.827 - 10.413.939 Other payables 232.615 89.532 - 868.463 9.711.898 (315) 10.902.193 Liabilities arising from customer contracts - 7.702.632 - - 237.018.335 - 244.720.967 Derivative instruments - - - 583.838 - - 583.838 Deferred income (Excluding obligations arising from customer contracts) - 6.175.416 - - 28.099.545 - 34.274.961 Current income tax liabilities - - - - 1.454.349 - 1.454.349 Short-term provisions - - - 217.000 7.494.764 - 7.711.764 Other current liabilities - - - 1.611 - - 1.611

Non-current liabilities Long-term financial liabilities - - - 207.341.435 - - 207.341.435 Other financial liabilities - - - 28.414.940 - - 28.414.940 Other payables - - - - 59.756.616 - 59.756.616 Liabilities arising from customer contracts - 15.751.999 - - - - 15.751.999 Investments accounted for by equity method liabilities - - - - 36.070.443 - 36.070.443 Deferred income (Excluding obligations arising from customer contracts) - - - - 25.750.537 - 25.750.537 Long-term provisions 1.968.042 5.702.107 3.181 648.784 9.798.224 - 18.120.338 Deferred tax liabilities 10.014.223 - 165.089 1.716.825 118.497.837 (578.046) 129.815.928

Equity Paid-in share capital 435.000.000 9.657.067 3.994.119 86.901.943 351.559.532 (452.112.661) 435.000.000 Repurchased shares (-) - - - - (24.999.945) - (24.999.945) Cross shareholding adjustment - - - - - (1.535.883) (1.535.883) Actuarial gain/(loss) arising from defined benefit plans 38.387 872.577 (330.020) (3.408.253) 469.963 13.267 (2.344.079) Foreign currency translation differences - - - - 72.082.223 (5.110.874) 66.971.349 Revaluation and/or classification gain/(loss) of financial assets held for sale 227.661.770 - 133.828 2.897.543 146.341.331 (377.234.373) (199.901) Restricted reserves 16.090.283 1.115.069 - 3.701.571 12.170.904 (16.987.544) 16.090.283 Retained earnings or accumulated losses (36.114.421) 27.794.993 118.505.378 452.967.275 1.284.682.960 (970.517.745) 877.318.440 Net profit or loss for the period 52.169.979 12.765.825 21.398.783 (300.641.315) 224.235.423 (203.905.720) (193.977.025) Non-controlling interest - - - - - 447.298.885 447.298.885

Total liabilities 707.885.156 125.413.752 143.870.398 712.774.368 3.720.199.786 (2.397.894.785) 3.012.248.675

137 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING (CONTINUED)

As of 31 December 2018, segment reporting is as follows (TL):

Contracting Elimination Industry and and Land and Holding Tourism Trade Energy Development Classification Total

Revenue (Outside the Group) (net) 4.781.587 150.098.866 - 202.929.068 779.440.251 - 1.137.249.772 Revenue (Within the Group) 9.929.235 28.025 - 102.411.684 30.549.402 (142.918.346) - Cost of sales (Outside the Group) (-) (1.914.849) (86.152.207) - (127.965.642) (742.108.985) (1.621.890) (959.763.573) Cost of sales (Within the Group) (-) (12.096.669) (23.858.909) - (118.209.963) (5.000.549) 159.166.090 -

Gross profit/(loss) 699.304 40.115.775 - 59.165.147 62.880.119 14.625.854 177.486.199

General administrative expenses (-) (6.416.148) (23.918.797) (39.307) (10.615.725) (60.572.140) 4.322.775 (97.239.342) Marketing expenses (-) - (13.486.590) - - - - (13.486.590) Other income from operating activities 12.690.192 39.444.336 39.638 12.194.550 357.006.565 (9.174.359) 412.200.922 Other expenses from operating activities (-) (2.733.172) (22.290.714) - (3.261.730) (158.353.581) 3.314.525 (183.324.672)

Operating profit/(loss) 4.240.176 19.864.010 331 57.482.242 200.960.963 13.088.795 295.636.517

Income from investing activities 53.406.376 328.759 112.892 2.377.011 91.079.030 (92.407.604) 54.896.464 Expenses from investing activities (-) (157.695) (3.111.479) - (43.375.415) (8.065.655) (2.666.183) (57.376.427) Share of profits/(losses) of investments accounted by equity method - - 21.307.923 (224.868.783) (7.431.747) (16.084.696) (227.077.303)

Operating profit/(loss) before financial income/(expense) 57.488.857 17.081.290 21.421.146 (208.384.945) 276.542.591 (98.069.688) 66.079.251

Financial expenses (-) - (850.707) (549) (105.957.986) - - (106.809.242)

Profit/(loss) before tax from continued operations 57.488.857 16.230.583 21.420.597 (314.342.931) 276.542.591 (98.069.688) (40.729.991)

Tax (expense)/income for the period (4.784.530) (4.216.223) - (1.372.761) (18.216.769) 796.772 (27.793.511) Deferred tax (expense)/income (534.348) 751.465 (21.814) 15.074.377 (34.090.399) (264.454) (19.085.173)

Tax (expense)/income from continued operations (5.318.878) (3.464.758) (21.814) 13.701.616 (52.307.168) 532.318 (46.878.684)

Net profit/(loss) from continued operations 52.169.979 12.765.825 21.398.783 (300.641.315) 224.235.423 (97.537.370) (87.608.675)

Net income/(loss) for the period 52.169.979 12.765.825 21.398.783 (300.641.315) 224.235.423 (97.537.370) (87.608.675)

Other comprehensive income not to be reclassified to profit or loss - Actuarial gain/(loss) arising from defined benefit plans 29.449 8.566 16.107 (16.116) 1.070.586 - 1.108.592 - Share of other comprehensive income of investments accounted by equity method not to be reclassified to profit or loss - - 378.841 (41.600) (3.211) - 334.030 - Deferred tax income for other comprehensive income not to be reclassified to profit or loss (5.890) (1.713) (78.990) 11.543 (234.977) - (310.027) Other comprehensive income to be reclassified to profit or loss - Foreign currency translation differences - - - - 10.670.878 - 10.670.878 - Other comprehensive income/(expense) related to financial assets whose fair value difference is reflected in other comprehensive income - - - - (267.490) - (267.490) - Share of other comprehensive income of investments accounted by equity method to be reclassified to profit or loss - - - - 11.387.032 - 11.387.032

Total comprehensive income/(expense) 52.193.538 12.772.678 21.714.741 (300.687.488) 246.858.241 (97.537.370) (64.685.660)

Distribution of profit/(loss) for the period Non-controlling interest - - - - - 106.368.350 106.368.350 Parent company shares 52.169.979 12.765.825 21.398.783 (300.641.315) 224.235.423 (203.905.720) (193.977.025)

Distribution of total comprehensive income/(expense) Non-controlling interest - - - - - 101.357.016 101.357.016 Parent company shares 52.193.538 12.772.678 21.714.741 (300.687.488) 246.858.241 (198.894.386) (166.042.676)

138 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

4. SEGMENT REPORTING (CONTINUED)

Distribution of depreciation and retirement pay liability expenses stated by segment in the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2019 is as follows (TL):

Contracting Industry and and Land Holding Tourism Trade Energy Development Elimination Total

Right of use assets (Note 20,29) - 9.601.829 - 74.539 4.902.433 (7.820.474) 6.758.327 Property, plant and equipment (Note 18, 29) 63.730 6.766.878 - 15.190.048 10.145.401 - 32.166.057 Intangible assets (Note 19, 29) 16.018 497.581 - 1.715.845 312.880 - 2.542.324

Current period depreciation expenses 79.748 16.866.288 - 16.980.432 15.360.714 (7.820.474) 41.466.708

Provision no longer required for termination indemnity (Note 30) (226.651) (1.347.322) (3.528) (257.470) (996.361) - (2.831.332) Current period termination indemnity expense 484.044 1.647.073 391 205.930 311.870 - 2.649.308

Total termination indemnity expense for the period 257.393 299.751 (3.137) (51.540) (684.491) - (182.024)

Distribution of depreciation and retirement pay liability expenses stated by segment in the consolidated statement of profit or loss and other comprehensive income for the year ended 31 December 2018 is as follows (TL):

Contracting Industry and and land Holding Tourism Trade Energy development Total

Property, plant and equipment (Note 18,29) 75.048 6.747.550 - 19.722.705 14.655.040 41.200.343 Intangible assets (Note 19,29) 35.844 319.004 - 619.100 490.201 1.464.149

Current period depreciation expenses 110.892 7.066.554 - 20.341.805 15.145.241 42.664.492

Provision no longer required for termination indemnity (Note 30) (93.939) (2.278.581) (13.443) (113.280) (1.131.130) (3.630.373) Current period termination indemnity expense 455.296 2.125.287 16.743 174.754 2.630.946 5.403.026

Total termination indemnity expense for the period 361.357 (153.294) 3.300 61.474 1.499.816 1.772.653

139 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

5. CASH AND CASH EQUIVALENTS

Cash and cash equivalents consist of the following (TL):

31 December 2019 31 December 2018

Cash 179.568 68.263 Banks 343.827.159 436.617.946

- TL demand deposits 392.942 2.751.814 - foreign currency demand deposits 8.029.276 2.611.395 - TL time deposit 12.341.324 20.996.286 - foreign currency time deposit 323.063.617 410.258.451

Other liquid assets 950 1.430 Investment funds (*) 2.450.643 1.429.120

Total 346.458.320 438.116.759

As of 31 December 2019, the interest rates applied to time deposits are 9% - 11% for TL deposits (31 December 2018 - 16,75% - 23,25%); 0,10% for Euro deposits (31 December 2018 - 0,75% - 2,70%); 1,65% - 2,50% for deposits denominated in US dollars (31 December 2018 - 2,91% - 4,65%); and 0,25% for GBP deposits (there is no deposits at 31 December 2018). TL 117.649 consists of blocked deposit loans and has been classified to demand account since it is shorter than 3 months (31 December 2018: TL 15.037). (*) Consists of Type B liquid investment funds as of 31 December 2019 and 2018.

6. FINANCIAL INVESTMENTS

Short term financial investments consist of the following (TL):

31 December 2019 31 December 2018

Financial assets at fair value through profit/(loss) - Investment funds (*) 70.797.846 117.872.925 Financial assets at amortized cost - Public sector notes, promissory notes and bonds (**) 471.761.995 434.127.719 Value increase in marketable securities (Note 31) 21.371.196 14.788.753

Total 563.931.037 566.789.397

(*) As of 31 December 2019 and 2018, financial assets at fair value through profit/(loss) consist of Type A investments funds. (**) As of the 31 December 2019 public sector notes and bonds interest rate is 3,50% (31 December 2018 -3,50%-3,75%).

140 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

6. FINANCIAL INVESTMENTS (CONTINUED)

Long term financial assets consist of the following (TL):

Financial assets at fair value through other comprehensive income;

31 December 2019 31 December 2018 Participation Participation Participation Participation rate % amount rate % amount

TSKB A.Ş. < 1% 560.803 <1% 370.779

Total 560.803 370.779

7. FINANCIAL LIABILITIES

Financial liabilities consist of the following (TL):

31 December 2019 31 December 2018

Short term financial liabilities 36.659.094 59.955.001 Shot term lease obligations 8.770.661 16.553.639 Short term parts of long term borrowings 102.895.613 90.560.679 Other short term financial liabilities (*) 12.881.439 14.018.037

Total 161.206.807 181.087.356

Long term financial liabilities are as follows (TL):

31 December 2019 31 December 2018

Long-term borrowings 144.072.937 207.341.435 Long-term lease obligations 51.427.832 - Other long term financial liabilities (*) 18.943.293 28.414.940

Total 214.444.062 235.756.375

(*) Within the scope of the Transfer of Operating Rights Agreement signed with the Privatization Administration and Electricity Generation Inc. regarding the granting of the operating rights of Gönen Hydroelectric Power Plant for 49 years, 65% of the tender price will be paid to the Privatization Administration on term.

141 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

7. FINANCIAL LIABILITIES (CONTINUED)

As of 31 December 2019 and 2018, the maturities and interest rates of short term bank loans are as follows:

31 December 2019 Original amount Foreign Effective of foreign exchange Maturity date interest rate Currency currency rate TL Amount

Bank loans 01.01.2020-31.12.2020 11,00%-12,00% TL 41.145.757 - 41.145.757 Bank loans 01.01.2020-31.12.2020 5,30%-7,10% USD 13.202.419 5,9402 78.425.005 Bank loans 12.09.2020 2,90% EUR 3.004.833 6,6506 19.983.945 Leases 01.01.2020-31.12.2020 9,00%-24,00% TL 8.120.993 - 8.120.993 Leases 01.01.2020-31.12.2020 0,45%-2,71% USD 29.114 5,9402 172.942 Leases 01.01.2020-31.12.2020 0,24%-2,71% EUR 63.303 6,6506 421.002 Leases 01.12.2020-31.12.2020 0,21% Ron 40.286 1,3832 55.724 Other financial liabilities 01.01.2020-25.12.2020 12,00% TL 12.881.439 - 12.881.439

Total 161.206.807

31 December 2018 Original amount Foreign Effective of foreign exchange Maturity date interest rate Currency currency rate TL Amount

Bank loans 01.01.2019-31.12.2019 11,00%-26,00% TL 101.696.341 - 101.696.341 Bank loans 01.01.2019-31.12.2019 4,70%-7,10% USD 9.279.655 5,2609 48.819.339 Leases 01.01.2019-26.11.2019 2,46% EUR 1.934.493 6,028 11.661.123 Leases 01.01.2019-10.12.2019 2,52% USD 929.977 5,2609 4.892.516 Other financial liabilities 01.01.2019-25.12.2019 12,00% TL 14.018.037 - 14.018.037

Total 181.087.356

142 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

7. FINANCIAL LIABILITIES (CONTINUED)

As of 31 December 2019 and 2018, the maturities and interest rates of long term bank loans are as follows:

31 December 2019 Original amount Foreign Effective of foreign exchange Maturity date interest rate Currency currency rate TL Amount

Bank loans 11.02.2021-24.12.2022 11,00%-12,00% TL 14.914.868 - 14.914.868 Bank loans 01.01.2021-27.03.2023 5,30%-7,10% USD 21.743.051 5,9402 129.158.069 Leases 01.01.2021-27.02.2068 9,00%-24,00% TL 14.828.001 - 14.828.001 Leases 01.01.2021-28.02.2062 0,45%-2,71% USD 5.809.846 5,9402 34.511.647 Leases 01.01.2021-31.12.2027 0,24%-2,71% EUR 313.984 6,6506 2.088.184 Other financial liabilities 01.01.2021-25.12.2022 12,00% TL 18.943.293 - 18.943.293

Total 214.444.062

31 December 2018 Original amount Foreign Effective of foreign exchange Maturity date interest rate Currency currency rate TL Amount

Bank loans 01.01.2020-11.08.2021 11,00%-11,60% TL 35.160.722 - 35.160.722 Bank loans 01.01.2020-11.08.2021 4,70%-7,10% USD 32.728.376 5,2609 172.180.713 Other financial liabilities 01.01.2020-25.12.2022 12,00% TL 28.414.940 - 28.414.940

Total 235.756.375

143 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

7. FINANCIAL LIABILITIES (CONTINUED)

As of 31 December 2019 and 2018, the distribution of short and long term financial liabilities according to their maturities are as follows (TL):

Bank loans and Bank loans and other financial other financial liabilities Leases liabilities Leases 31 December 2019 31 December 2019 31 December 2018 31 December 2018 (TL) (TL) (TL) (TL)

Within 1 year 152.436.146 8.770.661 164.533.717 16.553.639 Within 1 - 2 years 86.907.045 4.772.174 98.627.658 - Within 2 - 3 years 55.072.926 4.014.714 73.690.686 - Within 3 - 4 years 21.036.259 4.460.919 46.060.069 - 4 years and longer - 38.180.025 17.377.962 -

Total (Note 36 (ii)) 315.452.376 60.198.493 400.290.092 16.553.639

As of 31 December 2019, the movement schedule of financial liabilities is as follows (TL):

Bank Other financial loans Leases liabilities

Opening balance, 1 January 2019 357.857.115 16.553.639 42.432.977 TFRS 16 effect on 1 January - 49.314.523 - Uses 35.736.459 13.575.532 - Interest accrual 30.630.160 4.213.150 62.661 Principle payments (135.021.694) (28.064.642) (10.588.500) Interest payments (32.911.039) (292.970) (78.578) Effective interest rate effect 136.362 - (3.828) Adjustments related to unrealized exchange rate differences 27.200.281 4.899.261 -

Closing balance, 31 December 2019 283.627.644 60.198.493 31.824.732

As of 31 December 2018, the movement schedule of financial liabilities is as follows (TL):

Bank Other financial loans Leases liabilities

Opening balance 1 January 2018 331.185.501 29.174.465 - Uses 137.901.111 - 42.354.000 Interest accurals 24.745.953 - 84.709 Principal payments (168.185.915) (20.333.189) - Interest payments (23.369.883) (1.132.279) - Effective interest rate effect 489.707 - (5.732) Adjustments related to unrealized exchange rate differences 55.090.641 8.844.642 -

Closing balance, 31 December 2018 357.857.115 16.553.639 42.432.977

144 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

8. TRADE RECEIVABLES AND PAYABLES

Short term trade receivables consist of the following (TL):

31 December 2019 31 December 2018

Customers 272.272.928 132.114.748 Rediscount on receivables (-) (291.352) (4.600.945) Other short term receivables 14.459.456 7.431.079 Doubtful trade receivables 11.392.618 12.627.302 Provision for doubtful trade receivables (-) (11.392.618) (12.627.302)

Total 286.441.032 134.944.882

Trade receivables from related parties 30.874.009 27.412.944

Total trade receivables from related parties (Note 35) 30.874.009 27.412.944

Grand Total (Note 36 (i)) 317.315.041 162.357.826

Long term trade receivables consist of the following (TL):

31 December 2019 31 December 2018

Customers 29.928 27.126

Total (Note 36 (i)) 29.928 27.126

Changes in provision for doubtful trade receivables are set out in the table below (TL):

31 December 2019 31 December 2018

Opening balance 12.627.302 10.067.698 TFRS 9 opening effect - 412.942 Expense for the current period (Note 28) 1.165.179 2.158.536 Collections/provisions no longer required (Note 30) (2.399.863) - Receivables no longer to be collected - (11.874)

Closing balance 11.392.618 12.627.302

145 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

8. TRADE RECEIVABLES AND PAYABLES (CONTINUED)

Short term trade payables consist of the following (TL):

31 December 2019 31 December 2018

Suppliers 267.465.549 354.084.796 Rediscount for payables (-) (1.071.569) (1.230.783) Other trade payables 1.081.478 -

Total 267.475.458 352.854.013

Trade payables to related parties 33.256.191 27.599.324

Total trade payables to related parties (Note 35) 33.256.191 27.599.324

Grand Total (Note 36(ii)) 300.731.649 380.453.337

9. OTHER RECEIVABLES AND PAYABLES

Short term other receivables consist of the following (TL):

31 December 2019 31 December 2018

Deposits and guarantees given 706.700 840.953 Other miscellaneous receivables 25.127 253.662

Total 731.827 1.094.615

Other receivables from related parties 8.978.388 3.402.566

Total other receivables from related parties (Note 35) 8.978.388 3.402.566

Grand Total 9.710.215 4.497.181

Long term other receivables consist of the following (TL):

31 December 2019 31 December 2018

Deposits and guarantees given 177.459 170.950 Other miscellaneous receivables (*) 13.633.792 12.124.702

Total 13.811.251 12.295.652

Other receivables from related parties 38.741.910 34.062.055

Total of other receivables from related parties (Note 35) 38.741.910 34.062.055

Grand total 52.553.161 46.357.707

(*) TL 13.499.117 of other miscellaneous receivables comprise the receivable from Morocco Tanger Kenitra high-speed train project (31 December 2018 - TL 11.990.027).

146 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

9. OTHER RECEIVABLES AND PAYABLES (CONTINUED)

Short term other payables consist of the following (TL):

31 December 2019 31 December 2018

Taxes, duties, and other withholdings payable 11.309.824 5.852.169 Deposits and guarantees received 146.397 109.374 Other miscellaneous payables 137.879 846.031

Total 11.594.100 6.807.574

Other payables to related parties 8.402.764 4.094.619

Total other payables to related parties (Note 35) 8.402.764 4.094.619

Grand Total 19.996.864 10.902.193

Long term other payables consist of the following (TL):

31 December 2019 31 December 2018

Deposits and guarantees received 83.865.606 59.756.616

Total 83.865.606 59.756.616

10. INVENTORIES

Inventories consist of the following (TL):

31 December 2019 31 December 2018

Raw materials and supplies 18.944.783 142.250.711 Merchandise (*) 87.685.630 86.151.373 Inventory impairment provision (-) (5.159) (5.159)

Total 106.625.254 228.396.925

(*) TL 85.359.735 (31 December 2018 - TL 85.359.735) part of merchandise balance, having a total amount of TL 87.685.630 (31 December 2018 - TL 86.151.373) as of 31 December 2019, consists of real estates.

147 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

10. INVENTORIES (CONTINUED)

As of 31 December 2019 and 2018, details of real estates consist of the following (TL):

31 December 2019 31 December 2018 Adjusted Sales Adjusted Sales book value value Expertise Expertise book value value Expertise Expertise (TL) (TL) value (TL) date (TL) (TL) value (TL) date

Land in Büyükçekmece

Land cost (3 parcels) 3.271.735 - 83.670.000 30.12.2019 3.271.735 - 74.812.000 28.12.2018

Land in Orhanlı and Kocataş

Land Cost 82.088.000 - 229.656.816 21.01.2020 82.088.000 - 222.121.328 20.12.2018

Total 85.359.735 - 313.326.816 85.359.735 - 296.933.328

Land in Büyükçekmece: There are 3 parcels of land with a total area of 622.651 m². According to the appraisal report dated 30 December 2019, equal comparison and development methods have been used and equal comparison has been taken into consideration.

Lands in Orhanlı and Kocataş: There is a land of 103.820,54 m² located in Orhanlı Village of Tuzla District in Istanbul, and a land of 369.411 m² located in Kocataş Village of Maden District in Sarıyer. In accordance with the appraisal report dated 21 January 2020, equal comparison method is used in the determination of appraiser value.

As of 31 December 2019 and 2018 the real estates in the inventories are revaluated by Rehber Gayrimenkul Değerleme Danışmanlık A.Ş.

11. PREPAID EXPENSES

Short-term prepaid expenses consist of the following (TL):

31 December 2019 31 December 2018

Advances given 13.249.565 13.170.132 Advances given to sub-contractors 15.886.204 21.124.885 Prepaid expenses 4.089.491 6.440.417

Total 33.225.260 40.735.434

Long-term prepaid expenses consist of the following (TL):

31 December 2019 31 December 2018

Advances given 40.182 57.848 Prepaid expenses 188.530 1.241.907

Total 228.712 1.299.755

148 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

12. ASSETS AND LIABILITIES ARISING FROM CUSTOMER CONTRACTS

Costs and estimated earnings related to on-going constructions and commitments are as follows (TL):

31 December 2019 31 December 2018

Costs related to on-going constructions 1.865.759.800 1.162.328.284 Estimated earnings 256.484.535 216.790.525

Less: Total invoiced progress payment for the end of period (2.193.896.624) (1.592.441.370)

Total (71.652.289) (213.322.561)

Net balance reclassified enclosed in the accompanying consolidated statements statements of financial position is as follows (TL):

31 December 2019 31 December 2018

Receivables from on-going constructions 36.303.100 11.604.502 Progress payments from on-going constructions contracts (107.955.389) (224.927.063)

Total (71.652.289) (213.322.561)

Total amount of short and long term advances received by the subsidiaries of the Group related to on-going constructions contracts is TL 37.200.250 as of 31 December 2019 (31 December 2018 - TL 35.255.861) and aforementioned amounts is recognized under deferred income account.

Assets arising from short-term customer contracts are as follows (TL):

31 December 2019 31 December 2018

Contractual assets arising from ongoing construction and contracting works 36.303.100 11.604.502 Contract assets arising from sales of goods and services 6.589.333 12.081.878

Total 42.892.433 23.686.380

Liabilities arising from short-term customer contracts are as follows (TL):

31 December 2019 31 December 2018 Progress payments for ongoing construction contracts 107.955.389 224.927.063 Payables arising from ongoing construction and contracting works 7.738.538 12.091.272 Contract liabilities arising from sales of goods and services 5.618.959 7.702.632

Total 121.312.886 244.720.967

149 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

12. ASSETS AND LIABILITIES ARISING FROM CUSTOMER CONTRACTS (CONTINUED)

Liabilities arising from long-term customer contracts are as follows (TL):

31 December 2019 31 December 2018

Contract liabilities arising from sales of goods and services 11.006.132 15.751.999

Total 11.006.132 15.751.999

13. DERIVATIVE INSTRUMENTS

The details of short-term derivative instruments as of 31 December 2019 and 2018 are as follows;

31 December 2019 31 December 2018 Contract Asset/liability Asset/liability amount (US Maturity Interest amount at fair Contract amount amount at Dollar) date rate value (TL) (US Dollar) fair value (TL)

Interest rate swaps 7.000.000 26.03.2023 7,10% 1.159.163 7.000.000 583.838

Total 1.159.163 - 583.838

14. DEFERRED INCOME (EXCLUDING LIABILITIES FROM CUSTOMER CONTRACTS)

Short-term deferred income consist of the following (TL):

31 December 2019 31 December 2018

Advances received 8.429.031 24.722.942 Deferred income related to following months 58.010 46.695 Advances received from commitment works 37.200.250 9.505.324

Total 45.687.291 34.274.961

Long-term deferred income consist of the following (TL):

31 December 2019 31 December 2018

Advances received from commitment works - 25.750.537

Total - 25.750.537

150 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

15. INVESTMENTS ACCOUNTED BY USING EQUITY METHOD

Investments accounted by equity method assets consist of the following (TL):

31 December 2019 31 December 2018 Partnership Partnership Partnership Partnership rate% amount rate % amount

Alarko Carrier Sanayi ve Ticaret A.Ş. 43,19 148.308.226 43,19 142.236.027 Bakad Investment & Operation LLP 33,27 8.251.967 33,27 994.412 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş. (Spain) 44,96 28.953.360 44,96 28.210.217 Doğuş-Alarko-YDA İnş. Adi Ortaklığı 37,47 470.666 37,47 72.952 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (*) 49,96 417.096.618 49,96 250.335.211 Al-Riva Arazi Değ. Konut İnş. Turistik Tes. Golf İşl. ve Tic. A.Ş. (**) 2,28 751.117 2,28 789.791

Total 603.831.954 422.638.610

Investments accounted by equity method liabilities consist of the following (TL):

31 December 2019 31 December 2018 Partnership Partnership Partnership Partnership rate% amount rate % amount

Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş. (Turkey) 45,00 25.399.962 45,00 25.300.490 Alarko - Makyol Adi Ortaklığı 49,96 9.725.622 49,96 4.257.120 Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş. (**) 2,63 1.533.761 2,63 1.396.290 Al-Riva Projesi Ar. Değ. Konut İnş. ve Tic. A.Ş. (**) 12,13 6.525.814 12,13 5.116.543 Total 43.185.159 36.070.443

Net 560.646.795 386.568.167

(*) Since Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş., owns the 100% shares of Meram Elektrik Dağıtım A.Ş., Cenal Elektrik Üretim A.Ş., Algiz Enerji A.Ş., Panel Enerji A.Ş., Melisa Elektrik A.Ş., and 99,99% shares of Meram Elektrik Perakende Satış A.Ş., and 99,60% of Meram Elektrik Enerjisi Toptan Satış A.Ş., these entities are included in the carried investment amount in consolidated financial statements. (**) The shareholding and controlling rate of the Parent Company in these affiliates is 40%.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

15. INVESTMENTS ACCOUNTED BY USING EQUITY METHOD (CONTINUED)

Changes in investments accounted by using the equity method are as follows (TL):

31 December 2019 31 December 2018

Opening balance 386.568.167 614.137.985 Net profit/(loss) for the period 165.063.432 (210.992.607) Dividends received 4.641.200 (8.436.017) Other comprehensive income (2.898.290) 11.654.742 TFRS 9 opening effect - 11.977.214 Capital increase 7.272.286 - Investment accounted by using equity method excluded from consolidation (*) - (32.775.030) Investment accounted by using equity method included in consolidation - 1.001.880

Closing Balance 560.646.795 386.568.167

Shares of profit/loss of investments accounted by using equity method are as follows (TL):

31 December 2019 31 December 2018 before 31 December before 31 December elimination Elimination 2019 elimination Elimination 2018

Alarko Carrier Sanayi ve Ticaret A.Ş. 7.081.664 249.885 7.331.549 21.307.923 55.969 21.363.892 AO Mosalarko - - - 665.535 - 665.535 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş. (Spain) (57) - (57) (120) - (120) Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş. (Turkey) (99.472) - (99.472) (13.477) - (13.477) Bakad Investment & Operation LLP (22.523) - (22.523) (8.037) - (8.037) Alarko - Makyol Adi Ortaklığı (9.685.480) - (9.685.480) (4.291.844) - (4.291.844) Doğuş-Alarko-YDA İnş. Adi Ortaklığı (76.515) - (76.515) 701.834 - 701.834 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (**) 169.450.653 (42.988.007) 126.462.646 (224.868.783) (17.948.779) (242.817.562) Al-Riva Projesi Ar. Değ. Konut İnş. ve Tic. A.Ş.(***) (1.408.694) 1.438.003 29.309 (4.168.530) 1.502.021 (2.666.509) Al-Riva Arazi Değ. Konut İnş. Turistik Tes. Golf İşl. ve Tic. A.Ş. (***) (38.673) 49.400 10.727 (61.864) 55.269 (6.595) Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş. (***) (137.471) 214.304 76.833 (255.244) 250.824 (4.420)

Total 165.063.432 (41.036.415) 124.027.017 (210.992.607) (16.084.696) (227.077.303)

(*) 10% shares of AO Mosalarko were purchased by Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. and included in full consolidated as of 30 September 2018. (**) Since Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş., owns the 100% shares of Meram Elektrik Dağıtım A.Ş., Cenal Elektrik Üretim A.Ş., Algiz Enerji A.Ş., Panel Enerji A.Ş., Melisa Elektrik A.Ş., and 99,99% shares of Meram Elektrik Perakende Satış A.Ş. and 99,60% shares of Meram Elektrik Enerjisi Toptan Satış A.Ş., these entities are included in the carried investment amount in consolidated financial statements. (***) The shareholding and controlling rate of the Parent Company in these affiliates is 40%.

152 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

15. INVESTMENTS ACCOUNTED BY USING EQUITY METHOD (CONTINUED)

Investments accounted by using equity method financial statement summary consist of the following (TL):

31 December 2019 Cash Short-term Long-term and cash Other Other non financial Other short- financial Other long- Total equivalents current assets current assets Total assets liabilities term liabilities liabilities term liabilities liabilities

Alarko Carrier Sanayi ve Ticaret A.Ş. 122.107.009 396.072.815 59.993.844 578.173.668 54.692.358 100.056.856 1.713.211 25.770.743 182.233.168 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş.(Spain) 1.492.616 301.272.180 - 302.764.796 - 107.382.864 - - 107.382.864 Alarko - Makyol Adi Ortaklığı 164.362 19.128.942 110.884 19.404.188 - 38.205.177 - 495.375 38.700.552 Doğuş-Alarko-YDA İnş. Adi Ortaklığı 989.373 1.646.706 132 2.636.211 - 1.273.226 - 61.132 1.334.358 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (*) 143.977.003 1.196.616.678 6.348.005.856 7.688.599.537 923.824.042 959.766.551 4.317.724.505 647.987.427 6.849.302.525 Al-Riva Projesi Ar. Değ. Konut İnş. ve Tic. A.Ş. (**) 568 4.117.698 41.879.343 45.997.609 - 32.005.702 - 112.189 32.117.891 Al-Riva Arazi Değ. Konut İnş. Turistik Tes. Golf İşl. ve Tic. A.Ş.(**) - 150.539 71.225.606 71.376.145 - 1.251.312 - - 1.251.312 Al-Riva Arazi Ar. Değ. Konut İnş. ve Tic. A.Ş.(**) - 609.588 22.328.104 22.937.692 - 5.502.912 - - 5.502.912 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş.(Turkey) 5.207 8.965 - 14.172 - 56.458.532 - - 56.458.532 Bakad Investment & Operation LLP 3.465.351 3.394.622 18.583.139 25.443.112 - 638.443 - 2.177 640.620

31 December 2018 Cash Short-term Long-term and cash Other Other non financial Other short- financial Other long- Total equivalents current assets current assets Total assets liabilities term liabilities liabilities term liabilities liabilities

Alarko Carrier Sanayi ve Ticaret A.Ş. 101.862.210 405.169.079 50.821.062 557.852.351 54.038.213 97.279.634 2.615.622 22.036.270 175.969.739 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş.(Spain) 1.353.005 270.054.400 - 271.407.405 - 94.316.151 - - 94.316.151 Alarko - Makyol Adi Ortaklığı 70.383 12.267.344 99.697 12.437.424 - 20.347.020 - 440.138 20.787.158 Doğuş-Alarko-YDA İnş. Adi Ortaklığı 1.389.616 1.195.744 389 2.585.749 - 2.289.123 - 55.428 2.344.551 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (*) 57.828.496 1.200.078.660 6.635.745.754 7.893.652.910 1.121.672.235 841.525.611 4.367.797.742 1.057.233.355 7.388.228.943 Al-Riva Projesi Ar. Değ. Konut İnş. ve Tic. A.Ş. (**) 30.619 3.466.567 43.291.859 46.789.045 - 27.877.112 - 83.178 27.960.290 Al-Riva Arazi Değ. Konut İnş. Turistik Tes. Golf İşl. ve Tic. A.Ş.(**) 4.051 125.645 71.225.606 71.355.302 - 1.133.786 - - 1.133.786 Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş.(**) 6.286 511.829 22.328.104 22.846.219 - 5.067.761 - - 5.067.761 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş.(Turkey) 15.771 8.633 - 24.404 - 56.508.884 - - 56.508.884 Bakad Investment & Operation LLP 1.654.944 107.134 1.870.288 3.632.366 - 643.514 - - 643.514

(*) Since Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş., owns the 100% shares of Meram Elektrik Dağıtım A.Ş., Cenal Elektrik Üretim A.Ş., Algiz Enerji A.Ş., Panel Enerji A.Ş., Melisa Elektrik A.Ş., 99,99% shares of Meram Elektrik Perakende Satış A.Ş. and 99,60% shares of Meram Elektrik Enerjisi Toptan Satış A.Ş., these entities are included in the carried investment amount in consolidated financial statements. (**) The shareholding and controlling rate of the Parent Company in these affiliates is 40%.

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

15. INVESTMENTS ACCOUNTED BY USING EQUITY METHOD (CONTINUED)

Investments accounted by using equity method financial statement summary consist of the following (TL):

1 January 2019- 1 January 2018- 31 December 2019 31 December 2018 Revenue Net profit/loss Revenue Net profit/loss

Alarko Carrier Sanayi ve Ticaret A.Ş. 584.526.542 16.394.930 636.317.643 49.330.486 AO Mosalarko - - 6.452.456 1.331.070 Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş.(Spain) - (127) - (266) Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş.(Turkey) - (221.050) - (29.949) Alarko - Makyol Adi Ortaklığı 30.677.729 (19.388.005) 98.829 (8.591.240) Doğuş-Alarko-YDA İnş. Adi Ortaklığı - (204.219) - 1.873.205 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. 7.955.670.135 339.199.462 6.785.920.278 (450.133.234) Al-Riva Projesi Ar. Değ. Konut İnş. ve Tic. A.Ş. 1.650 (3.521.733) 999 (10.421.325) Al-Riva Arazi Değ. Konut İnş. Turistik Tes. Golf İşl. ve Tic. A.Ş. - (96.683) - (154.661) Al-Riva Arazi Ar. Değ. Konut İnş. ve Tic. A.Ş. - (343.678) - (638.111) Bakad Investment & Operation LLP - (67.698) - (24.156)

1 January 2019- 1 January 2018- 31 December 2019 31 December 2018 Other Deferred tax Other Deferred tax comprehensive expense/ comprehensive expense/ income income income income

Alarko Carrier Sanayi ve Ticaret A.Ş. (2.921.302) 584.260 877.064 (175.413) AO Mosalarko - - 19.457.898 - Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş. (Spain) 1.653.010 - 4.016.468 - Obrascon Huarte Lain SA - Alsim Alarko San. Tes. ve Ticaret A.Ş. (Turkey) - - - - Alarko - Makyol Adi Ortaklığı (223.667) 49.207 (10.277) 2.261 Doğuş-Alarko-YDA İnş. Adi Ortaklığı 294.887 - (399.892) - Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (6.662.286) 1.332.457 (83.273) 16.655 Al-Riva Projesi Ar. Değ. Konut İnş. ve Tic. A.Ş. (1.806) 361 15 (3) Al-Riva Arazi Değ., Konut İnş. Turistik Tes. Golf İşl. ve Tic. A.Ş. - - - - Al-Riva Arazi Ar. Değ. Konut İnş. ve Tic. A.Ş. - - - - Bakad Investment & Operation LLP 23.426 - - -

154 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

16. INVESTMENT PROPERTIES

As of 31 December 2019 and 2018, investment properties are as follows (TL):

Investment Fair value properties

As of 1 January 2018 276.131.600

Increase arising from change in fair value (Note 31) 31.713.037 Effect of consolidated subsidiary 70.893.205 Additions 7.918

As of 31 December 2018 378.745.760

Increase arising from change in fair value (Note 31) 26.260.478 Foreign currency translation difference 18.393.402

As of 31 December 2019 423.399.640

As of 31 December 2019, fair values of investment properties are as follows:

31 December 2019 Expertise Name of Property report date Fair Value (TL)

Maslak Land 30.12.2019 101.000.000 Eyüp Topçular - Factory 30.12.2019 79.650.000 Ankara Çankaya Business Center 30.12.2019 8.800.000 İstanbul Karaköy Business Center 30.12.2019 13.200.000 İstanbul Şişhane Business Center 30.12.2019 10.900.000 Büyükçekmece Alkent 2000-Stores 30.12.2019 12.600.000 Antalya Land 21.01.2020 14.910.000 İstanbul Sarıyer Land 21.01.2020 56.180.800 Etiler Alkent Site Stores 30.12.2019 37.690.000 İstanbul Büyükçekmece Land 21.01.2020 1.060.000 Sanayi Mah. Store 21.01.2020 1.555.100 Adana Office Building 21.01.2020 994.000 Mosalarko Office Building 21.01.2020 84.859.740

Total 423.399.640

155 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

16. INVESTMENT PROPERTIES (CONTINUED)

Name of Property Valuation Methods Applied Basis of Valuation Method Maslak Land Equal Comparison, Development Average Eyüp Topçular - Factory Equal Comparison, Cost Analysis Average Ankara Çankaya Business Center Equal Comparison, Income Reduction Average İstanbul Karaköy Business Center Equal Comparison, Income Reduction Average İstanbul Şişhane Business Center Equal Comparison, Income Reduction Average Büyükçekmece Alkent 2000-Stores Equal Comparison, Income Reduction Average Antalya Land Equal Comparison Equal Comparison İstanbul Sarıyer Land Equal Comparison Equal Comparison Etiler Alkent Site Stores Equal Comparison, Income Reduction Average İstanbul Büyükçekmece Land Equal Comparison Equal Comparison Sanayi Mah Store Equal Comparison Equal Comparison Adana Office Building Equal Comparison Equal Comparison Mosalarko Office Building Equal Comparison, Income Reduction Average

As of 31 December 2018, fair values of investment properties are as follows:

31 December 2018 Name of Property Expertise report date Fair value (TL)

Maslak Land 28.12.2018 91.000.000 Eyüp Topçular - Factory 28.12.2018 71.200.000 Ankara Çankaya Business Center 28.12.2018 7.950.000 İstanbul Karaköy Business Center 28.12.2018 11.800.000 İstanbul Şişhane Business Center 28.12.2018 9.650.000 Büyükçekmece Alkent 2000-Stores 28.12.2018 11.170.000 Antalya Land 20.12.2018 13.573.000 İstanbul Sarıyer Land 20.12.2018 55.471.900 Etiler Alkent Sitesi Stores 28.12.2018 33.300.000 İstanbul Büyükçekmece Land 20.12.2018 1.010.000 Sanayi Mah Store 20.12.2018 1.481.200 Adana Office Building 20.12.2018 957.000 Mosalarko Office Building 11.02.2019 70.182.660

Total 378.745.760

156 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

16. INVESTMENT PROPERTIES (CONTINUED)

Name of Property Valuation Methods Applied Basis of Valuation Method Maslak Land Equal Comparison, Development Average Eyüp Topçular - Factory Equal Comparison, Cost Analysis Average Ankara Çankaya Business Center Equal Comparison, Income Reduction Average İstanbul Karaköy Business Center Equal Comparison, Income Reduction Average İstanbul Şişhane Business Center Equal Comparison, Income Reduction Average Büyükçekmece Alkent 2000-Stores Equal Comparison, Income Reduction Average Antalya Land Equal Comparison Equal Comparison İstanbul Sarıyer Land Equal Comparison Equal Comparison Etiler Alkent Sitesi Stores Equal Comparison, Income Reduction Average İstanbul Büyükçekmece Land Equal Comparison Equal Comparison Sanayi Mah. Store Equal Comparison Equal Comparison Adana Office Building Equal Comparison Equal Comparison Mosalarko Office Building Equal Comparison, Income Reduction Average

In 2019 and 2018 Mosalarko Office Building that is an investment property has been valuated by Nexia Pacioli Consulting LLC. Other investment properties have been valuated by Rehber Gayrimenkul Değerleme Danışmanlık A.Ş.

As of 31 December 2019, the Group’s investment properties and fair value hierarchy of the related assets are as follows (TL):

Level 1 Level 2 Level 3 Maslak Land 101.000.000 - 101.000.000 - Eyüp Topçular - Factory 79.650.000 - 79.650.000 - Ankara Çankaya Business Center 8.800.000 - - 8.800.000 İstanbul Karaköy Business Center 13.200.000 - - 13.200.000 İstanbul Şişhane Business Center 10.900.000 - - 10.900.000 Büyükçekmece Alkent 2000-Stores 12.600.000 - - 12.600.000 Antalya Land 14.910.000 - 14.910.000 - İstanbul Sarıyer Land 56.180.800 - 56.180.800 - Etiler Alkent Site Stores 37.690.000 - - 37.690.000 İstanbul Büyükçekmece Land 1.060.000 - 1.060.000 - Sanayi Mah. Store 1.555.100 - 1.555.100 - Adana Office Building 994.000 - 994.000 - Mosalarko Office Building 84.859.740 - - 84.859.740

Total 423.399.640 - 255.349.900 168.049.740

157 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

16. INVESTMENT PROPERTIES (CONTINUED)

As of 31 December 2018, the Group’s investment properties and fair value hierarchy of the related assets are as follows (TL):

Level 1 Level 2 Level 3 Maslak Land 91.000.000 - 91.000.000 - Eyüp Topçular - Factory 71.200.000 - 71.200.000 - Ankara Çankaya Business Center 7.950.000 - - 7.950.000 İstanbul Karaköy Business Center 11.800.000 - - 11.800.000 İstanbul Şişhane Business Center 9.650.000 - - 9.650.000 Büyükçekmece Alkent 2000-Stores 11.170.000 - - 11.170.000 Antalya Land 13.573.000 - 13.573.000 - İstanbul Sarıyer Land 55.471.900 - 55.471.900 - Etiler Alkent Site Stores 33.300.000 - - 33.300.000 İstanbul Büyükçekmece Land 1.010.000 - 1.010.000 - Sanayi Mah. Store 1.481.200 - 1.481.200 - Adana Office Building 957.000 - 957.000 - Mosalarko Office Building 70.182.660 - - 70.182.660

Total 378.745.760 - 234.693.100 144.052.660

17. NON-CURRENT ASSETS HELD FOR SALE

Non-current assets held for sale are as follows (TL):

31 December 2019 31 December 2018

Property, plant and equipment 48.215.662 44.125.214

Total 48.215.662 44.125.214

Property, plant and equipment with net carrying value of TL 48.215.662 is classified as non-current assets held for sale as of 31 December 2019 (31 December 2018 - TL 44.125.214).

158 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

18. PROPERTY, PLANT AND EQUIPMENT

Movements of cost and accumulated depreciation of property, plant and equipment for the years ended 31 December 2019 and 2018 are as follows (TL):

As of 31 December 2019;

Currency Opening translation Disposals and Total Cost 1 January 2019 Additions difference transfers Impairment 31 December 2019

Land 2.673.577 494.523 279.352 - - 3.447.452 Land improvements 5.785.669 - - - - 5.785.669 Buildings 146.050.160 984.924 1.021.061 (48.209.033) - 99.847.112 Plant, machinery and equipment 467.839.913 225.262 6.195.737 (73.562.845) (3.251.781) 397.446.286 Motor vehicles 6.204.166 194.828 889.967 (466.878) - 6.822.083 Furniture and fixtures 73.038.133 7.262.283 565.541 (8.117.516) - 72.748.441 Leasehold improvements 35.020.131 31.310 - (4.036.791) - 31.014.650 Other tangible assets 5.247.392 140.146 - - - 5.387.538 Construction in progress 22.477.691 15.298.836 - (5.226.756) - 32.549.771

Total 764.336.832 24.632.112 8.951.658 (139.619.819) (3.251.781) 655.049.002

Depreciation expense Currency Depreciation Accumulated Opening for the translation of sales and Total Depreciation 1 January 2019 period difference transfers Impairment 31 December 2019

Land improvements 2.429.810 675.060 - - - 3.104.870 Buildings 49.108.108 3.230.392 520.798 (7.686.604) - 45.172.694 Plant, machinery, and equipment 216.552.595 19.954.953 5.489.564 (59.140.827) - 182.856.285 Motor vehicles 5.956.032 179.981 706.588 (431.627) - 6.410.974 Furniture and fixtures 53.009.184 6.304.242 428.359 (7.871.588) - 51.870.197 Leasehold improvements 25.892.822 1.404.771 - (15.230.428) - 12.067.165 Other tangible assets 1.518.291 416.658 - - - 1.934.949

Total accumulated depreciation (Note 29) 354.466.842 32.166.057 7.145.309 (90.361.074) - 303.417.134

Property, plant, and equipment, (net) 409.869.990 351.631.868

As of 31 December 2019, there is no capitalized borrowing costs.

As of 31 December 2019, total insurance amount of asset values is TL 876.593.695.

159 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

18. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)

As of 31 December 2018,

Currency Company Disposals Opening translation impact in and Total Cost 1 January 2018 Additions difference consolidation transfers Impairment 31 December 2018

Land 2.839.855 - 346.241 - (512.519) - 2.673.577 Land improvements 5.802.740 - - - (17.071) - 5.785.669 Buildings 140.223.855 6.956.022 728.792 - (1.858.509) - 146.050.160 Plant, machinery, and equipment 507.667.342 21.189 8.480.060 - (5.890.310) (42.438.368) 467.839.913 Motor vehicles 5.590.321 118.930 984.191 - (489.276) - 6.204.166 Furniture and fixtures 69.002.934 8.015.790 800.058 848.466 (5.629.115) - 73.038.133 Leasehold improvements 38.966.695 3.360.869 - - (7.307.433) - 35.020.131 Other tangible assets 4.145.310 2.301.353 247.598 - (1.446.869) - 5.247.392 Construction in progress 18.338.546 8.849.916 - - (4.710.771) - 22.477.691

Total 792.577.598 29.624.069 11.586.940 848.466 (27.861.873) (42.438.368) 764.336.832

Depreciation Currency Company Disposals of Accumulated Opening expense translation impact in purchase and Total Depreciation 1 January 2018 for the period difference consolidation transfers Impairment 31 December 2018

Land improvements 1.762.563 675.060 - - (7.813) - 2.429.810 Buildings 46.433.833 3.393.363 244.419 - (963.507) - 49.108.108 Plant, machinery, and equipment 187.249.221 28.160.739 6.119.141 - (4.976.506) - 216.552.595 Motor vehicles 5.253.012 246.892 940.219 - (484.091) - 5.956.032 Furniture and fixtures 50.160.516 6.093.523 686.068 846.533 (4.777.456) - 53.009.184 Leasehold improvements 28.893.316 2.332.759 - - (5.333.253) - 25.892.822 Other tangible assets 2.147.644 298.007 519.509 - (1.446.869) - 1.518.291

Total accumulated depreciation (Note 29) 321.900.105 41.200.343 8.509.356 846.533 (17.989.495) - 354.466.842

Property, plant, and equipment, net 470.677.493 409.869.990

There is no capitalized borrowing costs as of 31 December 2018.

As of 31 December 2018, total assurance amount of asset value is TL 996.019.807.

As of 31 December 2018, the cost of plant, machinery and equipment that are fixed assets acquired with lease is TL 39.367.516, and the accumulated depreciation is TL 9.028.855.

160 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

19. INTANGIBLE ASSETS

Movements of the cost and accumulated amortization of Group’s intangible assets for the year ended 31 December 2019 (TL):

Other intangible Cost Rights assets Total

As of 1 January 2019 88.110.288 148.676 88.258.964

Additions 2.007.126 - 2.007.126 Transfers (1.069.202) - (1.069.202) Disposals - - - Currency translation difference 152.308 - 152.308

As of 31 December 2019 89.200.520 148.676 89.349.196

Other intangible Accumulated amortization Rights assets Total

As of 1 January 2019 6.692.215 148.676 6.840.891

Charge for the current period (Note 29) 2.542.324 - 2.542.324 Transfers - - - Disposals - - - Currency translation difference 28.723 - 28.723

As of 31 December 2019 9.263.262 148.676 9.411.938

Intangible assets (net) 79.937.258

161 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

19. INTANGIBLE ASSETS (CONTINUED)

Movements of the cost and accumulated amortization of Group’s intangible assets for the year ended 31 December 2018 (TL):

Leasehold Other intangible Cost Rights improvements assets Total

As of 1 January 2018 20.077.977 18.467.778 148.676 38.694.431

Additions 66.057.653 - - 66.057.653 Transfers 1.868.737 - - 1.868.737 Disposal (74.135) (18.467.778) - (18.541.913) Currency translation difference 180.056 - - 180.056

As of 31 December 2018 88.110.288 - 148.676 88.258.964

Leasehold Other intangible Accumulated amortization Rights improvements assets Total

As of 1 January 2018 5.190.155 17.568.991 148.676 22.907.822

Charge for the current period (Note 29) 1.464.149 - - 1.464.149 Transfers 68.397 - - 68.397 Disposals (71.265) (17.568.991) - (17.640.256) Currency translation difference 40.779 - - 40.779

As of 31 December 2018 6.692.215 - 148.676 6.840.891

Intangible assets (net) 81.418.073

20. RIGHT OF USE ASSETS

Right of use assets are as follows (TL):

Currency 1 January 2019 1 January 2019 translation 31 December 2019 Cost value Opening balance TFRS 16 effect Additions Disposals difference Closing balance Right of use assets 46.127.378 51.586.645 17.559.363 (2.013.564) 81.330 113.341.152 Accumulated depreciation (-) (20.073.218) - (7.515.188) 52.642 (11.035) (27.546.799) Net book value 26.054.160 51.586.645 10.044.175 (1.960.922) 70.295 85.794.353

162 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

21. GOODWILL

As of 31 December 2019 and 2018, goodwill consists of the following (TL):

Goodwill amount, gross Transaction date 31 December 2019 31 December 2018

31 December 2013 (*) 2.750.656 2.750.656 21 June 1994 161.302 161.302 7 October 1998 218.549 218.549

Total 3.130.507 3.130.507

(*) Goodwill formed upon acquisition of 50% of shares of Alarko Konut Projeleri Geliştirme A.Ş, having a fair net asset value of TL 84.805.345 as of 31 December 2013, with a price of TL 45.153.329 by Alsim Alarko Sanayi Tesisleri ve Ticaret A.Ş. which is a subsidiary.

22. PROVISIONS, CONDITIONAL ASSETS AND LIABILITIES

Short term debt provisions consist of the following (TL):

31 December 2019 31 December 2018

Provisions for litigation 6.294.028 7.711.764

Total 6.294.028 7.711.764

Changes in provisions for litigation as of 31 December 2019 and 2018 are set out below (TL):

31 December 2019 31 December 2018

Opening balance 7.711.764 5.869.098 Charge for the current period (Note 28) 1.968.843 2.127.362 Payments during the year (3.386.579) (284.696)

Provision for litigation at the end of the period 6.294.028 7.711.764

Contingent assets and liabilities are as follows (TL): a) Mortgage on the assets: As of 31 December 2019, there is a right of easement in relation to the stores in Etiler Alkent Sitesi in Beşiktaş District dated 14 October 1987 nr. 6430 to be utilized on behalf of the real estate of the Company on section 1411, parcel 1 and against that on section 1408, parcel 1 for benefiting from the central heating; and there is a right of easement for a period of 49 years at a fee of TL 7,72 to construct 1,5 m wide channels in some parts of the heating installations. Furthermore, there is a personal right of easement for the owners of the property on section 1410 parcel 1 to benefit from the unused parking lot as stated in the project against the same parcel by voucher dated 26 February 1992 nr 784.

163 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

22. PROVISIONS, CONDITIONAL ASSETS AND LIABILITIES (CONTINUED)

Contingent assets and liabilities are as follows (TL) (continued): b) As of 31 December 2019, guarantees received for short term trade receivables amount to TL 72.220 (31 December 2018 - TL 1.177.466). The guarantees received other than those received for short term trade receivables amount to TL 196.487.564 (31 December 2018 - TL 224.392.677). c) As of 31 December 2019, the overdue receivables and the related provisions stated in the Group’s accounting records amount to TL 11.392.618 (31 December 2018 - TL 12.627.302). d) As of 31 December 2019, there is no mortgages on assets amount (31 December 2018 - None). e) Altek Alarko Elektrik Sant. Tes. İşl. ve Tic. A.Ş. has received an unfairly charged (including VAT) TL 1.086.960 invoice due to TEİAŞ’s 50% discount from the system usage fees, and has received a TL 252.017 overdue increase, and on May 28, 2014, it will receive a TL 1.086.960 invoice and a TL 213.430 overdue. In the case that resulted in favor of Altek with, the judicial process was completed. On 13 March 2019, TEİAŞ made the payment for an invoice of TL 1.086.960, a delay hike of TL 213.430 and a commercial interest operated from the date of the lawsuit. f) For Antalya Project, the local court has partially ruled in favor of the Group in the lawsuit filed by the Group against Antalya Metropolitan Municipality with respect to the production works whose progress reports have not been issued yet, and the decision is open to appeal at the Supreme Court. In its decision numbered 2014/265, 1st Commercial Court of First Instance of Antalya has ruled on Antalya Metropolitan Municipality’s payment of EUR 8.911.530 to the Group by adding the interest to be calculated until the date of actual payment. The decision has been finalized and the amount has been considered as income in the Group’s financial statements. g) The Tanger-Kenitra railway project undertaken by subsidiary Alsim Alarko Sanayi Tesisleri ve Ticaret A.Ş. (Alsim Alarko) in Morocco was abolished unilaterally by the employer claiming that there was a delay in the construction of the project. Alsim Alarko has filed a lawsuit over the employer attempting to liquidate the letter of guarantee and the definite letter of guarantee and by during the trial dated June 28, 2013, the court suspended the liquidation of the guarantee. The case has been transferred to Morocco Rabat Administrative Court for the review of the abolishment of the engagement.

In its decision dated December 11, 2014 and numbered 6167, Administrative Court of Rabat ruled that the National Railways shall pay 16.124.136 dirhams (TL 9.984.217) (*) for completed works, 703.277 dirhams (TL 435.476) (*) as delay interest and 7.632.456 dirhams (TL 4.726.089) (*) as damages and shall refund the amount determined as 39.241.020 dirhams (TL 24.298.410) (*) to the plaintiff by relinquishing the performance guarantee. Given the developments related to the appeal process, the amount of the performance bond has continued to be treated as contingent asset; consequently, it has not been treated as receivable in consolidated financial statements as of 31 December 2019.

(*) It is translated with exchange rates dated 31 December 2019.

164 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

23. COMMITMENTS

As of 31 December 2019 and 2018, the Group’s guarantees-sureties-mortgage (“GSM”) position is as follows (TL):

31 December 2019 31 December 2018

Guarantee letters given 967.204.098 853.270.905 Securities given 2.630.350.504 4.073.966.660 Pledges given 79.200.000 79.200.000

Total 3.676.754.602 5.006.437.565

Sureties received 2.320 2.320 Guarantee letters received 188.748.298 217.382.964 Mortgages received 13.150 13.150 Notes received 7.796.016 8.106.709 Cheques received - 65.000

Total 196.559.784 225.570.143

31 December 2019 31 December 2018

Guarantees, sureties, mortgages given by the Company

A. Total guarantees, sureties, mortgages given in the name of its own Foreign TL Foreign TL corporate body Currency Equivalent Currency Equivalent

- - - -

B. Total guarantees, sureties, mortgages given in the name of entities Foreign TL Foreign TL included in the consolidation by full consolidation method Currency Equivalent Currency Equivalent

TL 79.516.618 79.516.618 79.436.938 79.436.938 EURO 1.958.077 13.022.388 1.958.077 11.803.289

92.539.006 91.240.227

165 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

23. COMMITMENTS (CONTINUED)

31 December 2019 31 December 2018

C. Total guarantees, sureties, mortgages given as collateral for other third parties’ liabilities to ensure Foreign TL Foreign TL continuity of ordinary trade operations Currency Equivalent Currency Equivalent

TL 242.851.649 242.851.649 297.096.393 297.096.393 USD 317.431.130 1.885.604.397 646.748.340 3.402.478.344 EURO 197.298.058 1.312.150.468 201.662.674 1.215.622.601 RON 103.823.802 143.609.082 - -

3.584.215.596 4.915.197.338

Foreign TL Foreign TL D. Total other guarantees, sureties, mortgages given Currency Equivalent Currency Equivalent i. in the name of the Parent Company - - - - ii. in the name of other group companies that are not included in the scope of items B and C - - - - iii. in the name of third parties that are not included in the scope of item C - - - -

Grand Total 3.676.754.602 5.006.437.565

The rate of other guarantees, sureties and mortgages given by the Group to the equity of the Group is 0% as of 31 December 2019 (0% as of 31 December 2018).

24. EMPLOYEE BENEFITS

Long term debt provisions consist of the following (TL):

31 December 2019 31 December 2018

Provision for unused vacation 2.796.971 2.129.697 Provision for termination indemnity 19.738.257 15.990.641

Total 22.535.228 18.120.338 i) Provision for termination indemnity

Movements of provision for termination indemnity during the year are as follows (TL):

31 December 2019 31 December 2018

Opening balance 15.990.641 15.306.195 Interest cost 1.968.448 3.159.199 Current service cost 2.840.582 2.243.827 Payments during the year (4.951.329) (3.609.988) Gain/(loss) on remeasurement of defined benefit plans 3.889.915 (1.108.592)

Provision for termination indemnity at the end of the period 19.738.257 15.990.641

166 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

24. EMPLOYEE BENEFITS (CONTINUED) ii) Profivision for unused vacation

Movements of provision for unused vacation during the year are as follows (TL):

31 December 2019 31 December 2018

Unused vacation allowance at the beginning of the period 2.129.697 1.510.204 Increase/(decrease) during the period 667.274 619.493

Provision for unused vacation at the end of the period 2.796.971 2.129.697

Payables related to employee benefits are as follows (TL):

31 December 2019 31 December 2018

Social security witholding payable 2.222.327 2.629.241 Reverse charge taxes and funds witheld 5.308.607 6.377.029 Other 1.295.420 1.407.669

Total 8.826.354 10.413.939

25. OTHER ASSETS AND LIABILITIES

Other current assets consist of the following (TL): 31 December 2019 31 December 2018

Deferred VAT 15.662.818 34.012.949 Tax to be recovered from tax offices 126.709 7.357.294 Other current assets 30.811 989

Total 15.820.338 41.371.232

Other non-current assets consist of the following (TL):

31 December 2019 31 December 2018

Prepaid taxes and funds 69.603.864 50.736.647

Total 69.603.864 50.736.647

Other short term liabilities consist of the following (TL):

31 December 2019 31 December 2018

Provisions for other liabilities and expenses 950 1.611

Total 950 1.611

167 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

26. EQUITY

(a) Share capital:

As of 31 December 2019 and 2018, the Parent Company’s shareholding structure is as follows (TL):

31 December 2019 31 December 2018 Name Shareholding Nominal value Shareholding Nominal value

Alaton Family 34,36% 149.492.491 34,36% 149.492.491 Garih Family 32,92% 143.219.254 32,92% 143.219.254 Other 32,72% 142.288.255 32,72% 142.288.255

Total 100,00% 435.000.000 100,00% 435.000.000

The registered capital limit of the Parent Company is TL 500.000.000. As of 31 December 2019, the paid-in capital of the Parent Company is TL 435.000.000 (31 December 2018 - TL 435.000.000) consisting of 43.500.000.000 shares of Kr 1 nominal value each (31 December 2018 - 43.500.000.000).

The share capital of Alarko Holding A.Ş. with registered capital amounting to TL 500.000.000,- on 14 September 2018, and issued capital amounting to TL 223.467.000,- is increased to TL 435.000.000,- by distributing interest to current shareholders from internal resources.

(b) Cross shareholding adjustment (-):

Capital adjustment made upon participation of subsidiaries having interest in the Parent Company capital is as follows (TL):

31 December 2019 31 December 2018

Parent Company capital 435.000.000 435.000.000 Parent Company shares acquired by the Subsidiary at nominal value (-) (1.535.883) (1.535.883)

Total share capital 433.464.117 433.464.117

There are Parent Company shares acquired by Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. in 2003 amounting to TL 1.183.962 as of 31 December 2019 (Value adjusted to the purchasing power of the Turkish Lira at 31 December 2004 - TL 1.208.359), and Parent Company shares acquired by Alsim Alarko San. Tes. ve Tic. A.Ş. as of 31 December 2019 amounting to a total value of TL 348.778, and shares acquired by Tüm Tesisat ve İnşaat A.Ş. as of 31 December 2019 amounting to TL 3.143.

(c) Restricted reserves

As of 31 December 2019 and 2018, restricted reserves consist of legal reserves.

Legal reserves, which are divided as First Legal Reserve and Second Legal Reserve as per the Turkish Commercial Code, are appropriated as below: a) First Legal Reserve: Appropriated out of net profit at the rate of 5% until such reserve is equal to 20% of issued and fully paid capital. b) Second Legal Reserve: Appropriated out of net profit at the rate of 10% of distributions after providing for First Legal Reserve and an amount equal to 5% of capital as dividends.

Legal reserves which do not exceed one half of share capital may only be used to absorb losses or for purposes of continuity of the business in times of business difficulties and to prevent unemployment or lessen its effects.

168 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

26. EQUITY (CONTINUED)

(d) Repurchased shares (-)

As of 31 December 2019, there is repurchased shares amounting to TL 12.184.363 (31 December 2018: TL 24.999.945).

The subsidiary, Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. (AGYO) decided on 4 October 2018 that the maximum fund amount is determined as TL 10.000.000 from internal resources and the maximum share amount that may be subject to share repurchase is at nominal value of TL 200.000 in accordance with the announcements dated 21 July 2016 and 25 July 2016 of Capital Market Board considering that share prices do not reflect the real performance of the Company activities and for the purposes of security of benefits of all shareholders, particularly small shareholders, and contribution to reliable price formation. On 15 October 2018, share receiving transaction was completed. In the repurchase program, TL 9.999.981 corresponding to 199.609 shares was received, and the percentage of the treasury shares within the company capital is 1,874%. The Company Management has taken another decision to repurchase shares on 18 October 2018. It was decided that the maximum fund amount is determined as TL 15.000.000 from internal resources and the maximum share amount that may be subject to share repurchase is at nominal value of TL 275.000. In the repurchase program, TL 14.999.964 corresponding to 273.566 shares was received, and the percentage of the treasury shares within the company capital is 2,569%. Total repurchase of AGYO from internal resources is TL 24.999.945 corresponding to 473.175 shares, and the percentage within the AGYO capital is 4,443%.

Dividends on repurchased shares are included in the repurchased shares account.

As of December 31, 2018 TL 12.200.241 which was shown in repurchased shares, is presented in non-controlling interests as of January 1, 2019.

(e) Retained earnings or accumulated losses:

Distribution of retained earnings or accumulated losses is as follows (TL):

As per the Communiqué Nr. II-14.1 “Paid-in Capital and Restricted Reserves” are recognized over the totals stated in the legal books, and the differences arising upon valuations made in accordance with TAS/TFRS are associated with the retained earnings or accumulated losses. As per the same Communiqué, Retained earnings or accumulated losses other than the net profit for the period, are stated in the “Retained Earnings or Accumulated Losses” account together with the extraordinary reserves regarded in essence as accumulated losses.

31 December 2019 31 December 2018

Retained earnings or accumulated losses (626.227.249) (67.547.032) Legal reserves 149.031.569 122.097.646 Extraordinary reserves 1.084.193.955 822.767.826

Total 606.998.275 877.318.440

169 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

26. EQUITY (CONTINUED)

(f) Non-controlling interest:

Non-controlling interest consists of the following (TL):

31 December 2019 31 December 2018

Share capital 32.781.058 32.781.058 Repurchased shares (-) (11.613.717) - Legal reserves 16.314.737 3.405.776 Other comprehensive income 12.286.474 5.131.508 Retained earnings or (accumulated losses) 378.110.871 299.612.193 Profit/(loss) for the period 70.913.319 106.368.350

Total 498.792.742 447.298.885

As of 31 December 2019 a portion of TL 70.639.664 (31 December 2018 - TL 105.465.996) of non-controlling share that is related to the profit for the period amounting to TL 70.913.319 (31 December 2018 - TL 106.368.350) represents 48,80% rate of share of Alarko Gayrimenkul Yatırım Ortaklığı A.Ş., (a subsidiary) that the Group has no control.

As of 31 December 2019, TL 464.237.820 (31 December 2018 - TL 418.416.211) portion of the non-controlling interests amounting to TL 498.792.742 (31 December 2018 - TL 447.298.885) in the consolidated statement of financial position represents 48,80% rate of share of Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. (a subsidiary) that the Group has no control.

The total assets, liabilities and equity of Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. as of 31 December 2019 and 2018 and summary statement of profit and loss for the years ended is as follows:

31 December 2019 31 December 2018

Current assets 633.254.010 545.419.019 Non-current assets 303.792.824 245.871.264

Total assets 937.046.834 791.290.283

Current liabilities 10.879.637 7.356.291 Non-current liabilities 7.395.154 1.525.735 Equity 918.772.043 782.408.257

Total liabilities 937.046.834 791.290.283

31 December 2019 31 December 2018

Gross profit/(loss) 34.316.496 24.763.666 Operating income/(expenses) 110.433.741 191.539.036

Operating income/(loss) 144.750.237 216.302.702

170 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

27. REVENUE AND COST OF SALES

Revenues consist of the following (TL):

31 December 2019 31 December 2018

Domestic sales 1.272.925.192 1.063.373.083 Exports sales 126.381.751 67.162.559 Other sales 12.529.423 26.758.252 Sales returns (-) (1.483.256) (1.397.609) Sales discounts (-) (24.591.141) (18.646.513)

Total 1.385.761.969 1.137.249.772

Cost of sales consists of the following (TL):

31 December 2019 31 December 2018

Cost of trade goods sold 1.342.955 1.769.568 Cost of services sold 1.011.149.576 957.994.005

Total 1.012.492.531 959.763.573

28. MARKETING EXPENSES, GENERAL ADMINISTRATION EXPENSES

Marketing expenses and general administrative expenses are as follows (TL):

Marketing expenses consist of the following (TL):

31 December 2019 31 December 2018

Personnel expenses (Note 29) 3.412.797 3.414.130 Outsourced benefits and services 3.535.390 3.540.636 Exhibition, advertisement, presentation expenses 2.292.014 3.343.629 Transportation and travelling expenses 605.491 579.721 Material expenses 1.307.577 1.072.113 Miscellaneous expenses 2.172.571 1.536.361

Total 13.325.840 13.486.590

171 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

28. MARKETING EXPENSES, GENERAL ADMINISTRATION EXPENSES (CONTINUED)

General administration expenses consist of the following (TL):

31 December 2019 31 December 2018

Personnel expenses 64.773.476 57.429.622 Outsourced benefits and services 13.174.235 12.648.241 Depreciation and amortisation (Note 29) 4.062.085 1.812.013 Rental expenses 5.971.903 3.908.878 Provision for termination indemnity (Note 29) 2.649.308 5.403.026 Taxes, duties, and fees 3.443.057 3.448.197 Provision for litigation (Note 22) 1.968.843 2.127.362 Doubtful receivables expense (Note 8) 1.165.179 2.158.536 Communication expenses 290.913 237.691 Bank expenses 849.807 261.855 Provision for unused vacation 664.058 656.575 Miscellaneous expenses 14.160.904 7.147.346

Total 113.173.768 97.239.342

29. EXPENSES BY NATURE

Depreciation and amortisation expenses consist of the following (TL):

31 December 2019 31 December 2018

Cost expenses 37.404.623 40.852.479 General administrative expenses (Note 28) 4.062.085 1.812.013

Total 41.466.708 42.664.492

31 December 2019 31 December 2018

Right of use assets (Note 20) 6.758.327 - Depreciation of plant, property and equipment (Note 18) 32.166.057 41.200.343 Amortisation of intangible assets (Note 19) 2.542.324 1.464.149

Total 41.466.708 42.664.492

172 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

29. EXPENSES BY NATURE (CONTINUED)

Employee benefits consist of the following (TL):

31 December 2019 31 December 2018

Service rendering costs 79.889.004 74.594.815 General administration expenses (Note 28) 68.086.842 63.489.223 Marketing, sales, and distribution expenses (Note 28) 3.412.797 3.414.130

Total 151.388.643 141.498.168

Wages and salaries 110.487.919 98.111.001 Social security premiums 16.267.487 17.350.757 Other personnel expenses 21.983.929 20.633.384 Provision for termination indemnity (Note 28) 2.649.308 5.403.026

Total 151.388.643 141.498.168

30. OTHER INCOME/EXPENSES FROM OPERATING ACTIVITIES

Other income from operating activities is as follows (TL):

31 December 2019 31 December 2018

Foreign exchange income 145.838.312 338.109.363 Interest income 31.732.062 33.157.665 Rental income 2.368.991 3.147.210 Provisions for termination indemnity no longer required 2.831.332 3.630.373 Rediscounted interest income 4.992.214 1.459.085 Provisions for doubtful trade receivables no longer required (Note 8) 2.399.863 - Maturity differences received 5.098.347 2.712.171 Compensation received 32.322.079 7.768.224 Other income and profit 32.190.396 22.216.831

Total 259.773.596 412.200.922

173 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

30. OTHER INCOME/EXPENSES FROM OPERATING ACTIVITIES (CONTINUED)

Other expense from operating activities is as follows (TL):

31 December 2019 31 December 2018

Foreign exchange losses 74.138.505 122.473.398 Expenses before the commitment 14.864.363 17.401.780 Commercial cost 1.032.246 1.238.046 Rediscounted interest expense 1.529.550 4.229.685 Commitment costs for completed projects 34.001.490 29.291.653 Other expenses and losses 7.230.686 8.690.110

Total 132.796.840 183.324.672

31. INCOME/EXPENSE FROM INVESTING ACTIVITIES

Income from investing activities are as follows (TL):

31 December 2019 31 December 2018

Value increase in marketable securities (Note 6) 21.371.196 14.788.753 Gain on sale of marketable securities 4.895.632 - Gain on sale of fixed assets 37.932.508 7.602.029 Dividend income - 82.100 Fair value increase (Note 16) 29.976.799 32.423.582

Total 94.176.135 54.896.464

Expenses from investing activities are as follows (TL):

31 December 2019 31 December 2018

Impairment loss 11.314.917 45.142.606 Loss on sale of fixed assets 6.269.349 11.523.276 Fair value decrease (Note 16) 3.716.321 710.545

Total 21.300.587 57.376.427

32. FINANCIAL EXPENSES

Financial expenses consist of the following (TL):

31 December 2019 31 December 2018

Borrowing expenses 33.275.652 42.727.350 Foreign exchange losses related to loans 26.331.781 64.081.892 Interest expenses related to leases 3.319.192 -

Total 62.926.625 106.809.242

174 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

33. TAX ASSETS AND LIABILITIES a) Corporation tax;

The effective tax rate in 2019 is 22% (2018: 22%).

The corporate tax rate to be accrued over the taxable corporate income is based on the remaining tax after deducting the expenses that cannot be deducted from the tax base and the tax exemptions, non-taxable income and other discounts (if any, previous year losses and investment discounts used if preferred). it is calculated.

Advance tax in Turkey is calculated as three-month period and are accrued. The advance tax rate that needs to be calculated on corporate earnings at the taxation stage of 2019 corporate earnings as of temporary tax periods is 22% (2018 - 22%). However, with the article 91 of the “Law Amending Some Tax Laws and Other Laws” numbered 7061, published in the Official Gazette dated 5 December 2017 and numbered 30261, the provisional article 10 added to the Corporate Tax Law and the corporate tax rate of 20% will be applied as 22% for the corporate earnings for the taxation periods of 2018, 2019 and 2020 (for the period in which the special accounting period has been determined for the institutions that have a special accounting period), and will be applied as 20% after 2021. This rate will be applied for the first time in the first temporary tax period of 2018. Losses can be carried for a maximum of 5 years to be deducted from the taxable profit that will occur in the coming years. However, the losses cannot be deducted retrospectively from the profits in the previous years. The Law numbered 7061 on Amendment of Certain Taxes and Laws and Other Acts was published on the Official Gazette dated 5 December 2017 and numbered 30261. Article 5 entitled “Exceptions” of the Corporate Tax Law has been amended in Article 89 of the Law. In accordance with (a) clause in the first paragraph of the Article, the exemption of 75% applied to gains from the sales of lands and buildings held by the entities for two full years has been reduced to rate of 50%. This regulation has been effective from 5 December 2017.

Furthermore, there is no procedure for a final and definitive agreement on tax assessments. Companies file their tax returns between 1-30 April following the close of the accounting year to which they relate. Tax authorities may, however, examine such returns and the underlying accounting records and may revise assessments within five years.

Income Withholding Tax

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

Based on the investment incentive certificates received before April 24, 2003, 19,8% tax withholding is required over the investment allowance amount. No tax withholding is made from investment expenditures without incentive certificate made after this date.

175 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

33. TAX ASSETS AND LIABILITIES (CONTINUED) a) Corporation tax (continued)

Taxation of The Operations of Foreign Subsidiaries

The subsdiaries, affiliates and joint venture included in full consolidation and equity pick-up methods in the accompanying consolidated financial statements are subject to corporate tax and witholding tax effective in the relevant country. Effective tax rates in Russia, Romania, Ukraine and Spain in which the Group operates are 20%, 16%, 18% and 25% respectively, and Kazakhstan countries in tax rate 28%.

Tax liability of the profit for the period is as follows (TL):

31 December 2019 31 December 2018

Current period corporation tax 19.561.956 28.568.671 Prepaid taxes and funds (17.395.100) (27.114.322)

Total 2.166.856 1.454.349

(*) The difference between Mosalarko’s current tax provision and current period corporate tax is the effect of purchase records.

Tax income and expenses recognized in the consolidated statement of profit or loss and other comprehensive income are summarized in the following (TL):

31 December 2019 31 December 2018

Current period corporation tax (19.448.957) (27.793.511) Deferred tax income/(expense) (Note 33(b)) (32.563.305) (19.085.173)

Total tax expense (52.012.262) (46.878.684)

As of 31 December 2019 and 2018, the reconciliation between the tax expense calculated by applying the legal tax rate on the profit before tax and the total tax provision stated in the consolidated statement of profit or loss and other comprehensive income is as follows (TL):

31 December 2019 31 December 2018

Profit/(loss) before tax 507.722.526 (40.729.991) Share of profits/(losses) of investments accounted by equity method 124.027.017 (227.077.303) Profit/(loss) before tax (share of profits/(losses) of investments accounted by equity method excluded) 383.695.509 186.347.312 Local tax rate 22% 22% Tax expense calculated by using the tax rate 84.413.012 40.996.409 Disallowable expenses and other additions 486.273 30.477.964 Tax-exempt earnings and other deductions (32.422.056) (21.844.432) The effect of changes in tax rates (464.967) (2.312.815) Other - (438.442)

Total tax expense 52.012.262 46.878.684

176 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

33. TAX ASSETS AND LIABILITIES (CONTINUED) b) Deferred tax assets and liabilities;

The Group accounts for deferred tax assets and liabilities for temporary timing differences arising from differences between tax- based financial statements and financial statements prepared in accordance with TFRS. These differences are generally caused by the fact that some income and expense items are included in different periods in tax-based financial statements and financial statements prepared in accordance with TFRS. These differences are stated below.

As the tax rate used in the calculation of deferred tax assets and liabilities, 22% was used over the temporary timing differences expected to be reversed in 2018, 2019 and 2020, and 20% over the temporary timing differences expected to reverse.

Temporary differences creating a basis for deferred tax calculations and deferred tax assets/liabilities and deferred tax income/ expenses are as follows (TL):

Temporary income/(expense) differences

Accumulated temporary differences Deferred tax assets/liabilities 31 December 2019 31 December 2018 31 December 2019 31 December 2018

Tax assets

Tax losses of carry forward (*) 96.781.017 154.511.810 19.528.826 31.579.464 Cost of long term construction contracts 2.150.205.775 1.383.783.738 472.998.358 304.385.510 Provision for doubtful receivables 8.315.399 9.579.572 1.829.388 2.107.506 Provision for litigation expenses 6.294.028 7.711.764 1.384.686 1.696.588 Derivative instruments 1.159.163 583.838 231.833 116.768 Unused vacation provision 2.715.736 2.059.735 591.451 453.093 Termination indemnity 15.895.048 12.988.359 3.302.616 2.738.584 Difference between carrying value and tax bases of property, plant and equipment and intangible assets 60.969.803 65.352.751 12.188.888 13.009.528 Leases 51.552.823 - 10.388.403 - Other - 9.889.750 - 2.313.523

Total 522.444.449 358.400.564

177 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

33. TAX ASSETS AND LIABILITIES (CONTINUED) b) Deferred tax assets and liabilities (continued);

Accumulated temporary differences Deferred tax assets/liabilities 31 December 2019 31 December 2018 31 December 2019 31 December 2018 Tax liabilities

Temporary differences on inventory (53.426.311) (53.305.858) (10.573.806) (10.548.166) Right of use assets (41.513.780) - (8.302.756) - Contract progress income (2.658.261.416) (1.812.310.143) (584.817.512) (398.708.233) Investment properties (159.522.614) (142.675.713) (31.904.523) (28.555.343) Other (4.178.992) - (838.330) -

Total (636.436.927) (437.811.742)

Net deferred tax liability (113.992.478) (79.411.178)

Deferred tax asset on financial position 35.188.222 50.404.750 Deferred tax liability on financial position (149.180.700) (129.815.928)

Net effect of deferred tax (113.992.478) (79.411.178)

(*) TL 78.984.518 and TL 17.796.499 of current and previous year’s losses, which are mentioned in deferred tax calculation, belongs to energy group companies and contracting group companies, respectively, as of 31 December 2019. (TL 137.041.975 and TL 17.469.835 of current and previous year’s losses, which are mentioned in deferred tax calculation, belongs to energy group companies and contracting group companies, respectively, as of 31 December 2018)

Deferred tax income/(expense) (TL):

31 December 2019 31 December 2018

Current period deferred tax liability (-) (113.992.478) (79.411.178) Reversal of prior period deferred tax liability 79.411.178 49.570.522 TFRS 9 opening effect - (72.543) Effect of consolidated company - 9.112.877 Effect of the other comprehensive income/(expense) 2.017.995 1.715.149

Deferred tax income/(expense) (Note 33(a)) (32.563.305) (19.085.173)

178 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

34. EARNINGS/(LOSS) PER SHARE

Earnings/(loss) per share is calculated as follows:

31 December 2019 31 December 2018

Parent company profit/(loss) for the period (TL) 384.796.945 (193.977.025)

Weighted average number of ordinary shares at the beginning of the period (*) 435.000.000 435.000.000

Earnings/(loss) per share Earnings/(loss) per parent company share (TL) 0,885 (0,446) Diluted earnings/(losses) per share (TL) 0,885 (0,446)

(*) Per share of TL 1 nominal.

As of 31 December 2019, the Parent company profit for the period of Alarko Group as per the accompanying consolidated financial statements is TL 384.796.945 and other sources that may be subject to profit distribution amount to a total of TL 457.966.706 (Note 26).

As of 31 December 2019, the profit for the period is TL 36.207.901 as stated in the legal books. Total of other reserves may be subject to profit distribution is TL 4.701.706.

Gross dividend amount paid per share from retained earning is TL 0,1706 and total gross dividend amount paid is TL 74.211.000 according to Ordinary General Assembly of Alarko Holding held on 18 April 2019. Gross dividend amount paid per share from consolidated net earning belonging is TL 0,27 and total gross dividend paid is TL 60.336.090 according to Ordinary General Assembly of Alarko Holding held on 5 June 2018.

35. RELATED PARTY DISCLOSURES

Trade receivables from related parties consist of the following (TL):

31 December 2019 31 December 2018

Doğuş-Alarko-YDA İnş. Adi Ortaklığı (1) 475.149 838.706 Alarko-Makyol Adi Ortaklığı (1) 256.607 157.299 Meram Elektrik Perakende Satış A.Ş.(1) 29.278.442 25.962.841 Meram Elektrik Enerjisi Toptan Satış A.Ş.(1) 125.373 97.966 Alarko Carrier San. ve Tic. A.Ş.(1) 714.110 321.225 Cenal Elektrik Üretim A.Ş. (1) 21.526 15.806 Alcen Enerji Dağ. ve Perak. Sat. Hizm. A.Ş. (1) 1.908 19.093 Panel Enerji A.Ş. (1) 894 8

Total (Note 8) 30.874.009 27.412.944

179 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

35. RELATED PARTY DISCLOSURES (CONTINUED)

Trade payables to related parties consist of the following (TL):

31 December 2019 31 December 2018

Alarko Carrier San. ve Tic. A.Ş. (1) 5.440.920 3.292.173 Meram Elektrik Dağıtım A.Ş.(1) 5.212 - Cenal Elektrik Üretim A.Ş. (1) 27.810.059 24.307.151

Total (Note 8) 33.256.191 27.599.324

Other short-term receivables from related parties consist of the following (TL):

31 December 2019 31 December 2018

Alarko-Makyol Adi Ortaklığı (1) 8.975.728 3.402.566 Alarko Cengiz Metro Ortak Girişimi (2) 2.660 -

Total (Note 9) 8.978.388 3.402.566

(1) Jointly controlled entity (2) Joint operation (3) Affiliate

Other payables to related parties consist of the following (TL):

31 December 2019 31 December 2018

Alarko-Makyol Adi Ortaklığı (1) 8.402.764 4.094.619

Total (Note 9) 8.402.764 4.094.619

Non-trade long term receivables from related parties is as follows (TL):

31 December 2019 31 December 2018

Al-Riva Projesi Ar. Değ. Konut İnş. Tic. A.Ş. (3) 31.987.686 27.860.508 Al-Riva Arazi Değer. Konut İnş. ve Tic. A.Ş. (3) 5.502.912 5.067.761 Al-Riva Ar. Değ. Kon. İnş. Tur. Tes. Golf A.Ş. (3) 1.251.312 1.133.786

Total (Note 9) 38.741.910 34.062.055

(1) Jointly controlled entity (2) Joint operation (3) Affiliate

180 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

35. RELATED PARTY DISCLOSURES (CONTINUED)

Sales to related parties consist of the following (TL):

Maturity As of 31 December 2019 Rent Service Trade good difference Other Total

Al-Riva Projesi Ar. Değ. Konut İnş. Tic. A.Ş.(3) 684 4.409 - 2.157.004 - 2.162.097 Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş. (3) 684 2.085 - 321.457 - 324.226 Al-Riva Ar. Değ. Kon. İnş. Tur. Tes. Golf A.Ş. (3) 684 6.509 - 74.101 - 81.294 Alarko Carrier San. ve Tic. A.Ş. (1) 778.701 1.716.375 57.174 - 7.458 2.559.708 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (1) 571 3.202 - - - 3.773 Alarko Makyol Adi Ortaklığı (1) - 108.899 - - - 108.899 Meram Elektrik Enerjisi Toptan Satış A.Ş. (1) 571 664.442 - - - 665.013 Panel Enerji A.Ş. (1) - 563 - - - 563 Cenal Elektrik Üretim A.Ş. (1) 571 32.548 395.105 - 773 428.997 Meram Elektrik Perakende Satış A.Ş. (1) - 3.566.804 121.683.760 - 15.460 125.266.024 Alhan Holding A.Ş. (4) 1.140 - - - - 1.140 Algiz Enerji A.Ş. (1) 571 - - - - 571 Doğuş-Alarko-YDA İnş. Adi Ortaklığı (1) - 11.587 - - - 11.587 Alarko Cengiz Metro Ortak Girişimi (2) 420 6.422 - - - 6.842

Total 784.597 6.123.845 122.136.039 2.552.562 23.691 131.620.734

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ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

35. RELATED PARTY DISCLOSURES (CONTINUED)

Maturity As of 31 December 2018 Rent Service Trade good difference Other Total

Al-Riva Projesi Ar. Değ. Konut İnş. Tic. A.Ş. (3) 900 5.785 - 2.253.032 - 2.259.717 Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş. (3) 900 2.620 - 376.236 - 379.756 Al-Riva Ar. Değ. Kon. İnş. Tur. Tes. Golf A.Ş. (3) 900 8.212 - 82.903 - 92.015 Alarko Carrier San. ve Tic A.Ş. (1) 657.914 1.831.816 2.586 - - 2.492.316 Alcen Enerji Dağıtım ve Perakende Satış Hiz. A.Ş. (1) 450 12.144 - - - 12.594 Alarko Makyol Adi Ortaklığı (1) - 136.762 - - - 136.762 Meram Elektrik Enerjisi Toptan Satış A.Ş. (1) 450 415.573 36.326.866 - - 36.742.889 Panel Enerji A.Ş. (1) 450 1.216 - - - 1.666 Cenal Elektrik Üretim A.Ş. (1) 450 49.064 393.651 - - 443.165 Meram Elektrik Perakende Satış A.Ş. (1) - 2.447.850 66.169.209 - - 68.617.059 Algiz Enerji A.Ş. (1) 450 - - - - 450 Cemel Enerji A.Ş. (1) 651 - - - - 651 Günözgü Enerji A.Ş. (1) 651 - - - - 651 Minagün Elektrik A.Ş. (1) 651 - - - - 651 Alarko Cengiz Metro Ortak Girişimi (2) 340 83 - - - 423

Total 665.157 4.911.125 102.892.312 2.712.171 - 111.180.765

182 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

35. RELATED PARTY DISCLOSURES (CONTINUED)

Purchases from related parties consist of the following (TL):

Maturity As of 31 December 2019 Rent Service Trade good difference Other Total

Alarko Carrier San. ve Tic. A.Ş. (1) 70.657 273.811 3.130.438 79.863 31.354 3.586.123 Alarko Makyol Adi Ortaklığı (1) - 208 - - 125 333 Meram Elektrik Dağıtım A.Ş. (1) - 23.740 - - - 23.740 Meram Elektrik Perakende Satış A.Ş. (1) - 192 - - - 192 Cenal Elektrik Üretim A.Ş. (1) - 2.597 118.256.117 - 823 118.259.537 Alarko Cengiz Metro Ortak Girişimi (2) - 8.488 - - - 8.488

Total 70.657 309.036 121.386.555 79.863 32.302 121.878.413

Maturity As of 31 December 2018 Rent Service Trade good difference Other Total

Alarko Carrier San. ve Tic. A.Ş. (1) 63.606 118.398 1.600.507 - 140.468 1.922.979 Alarko Makyol Adi Ortaklığı (1) - 5.820 - - 8.070 13.890 Meram Elektrik Dağıtım A.Ş. (1) - 636 - - - 636 Meram Elektrik Perakende Satış A.Ş. (1) - 125 - - - 125 Meram Elektrik Enerjisi Toptan Satış A.Ş. (1) - 2.223.874 - - - 2.223.874 Cenal Elektrik Üretim A.Ş. (1) - 41.682 98.522.488 - 2.397 98.566.567 Panel Enerji A.Ş. (1) - 917 - - - 917 Alarko Cengiz Metro Ortak Girişimi (2) - 134.787 - - - 134.787

Total 63.606 2.526.239 100.122.995 - 150.935 102.863.775

(1) Jointly controlled entity (2) Joint operation (3) Affiliate (4) Parent company’s shareholder

As of 31 December 2019, remuneration provided to top executives such as the General Manager, Assistant General Manager and members of the Board of Directors amount to TL 27.449.457 (31 December 2018 - TL 23.861.519). The entire amount consists of short term benefits.

As of 31 December 2019, the guarantees, mortgages, and sureties received from Group companies amount to TL 2.320 (31 December 2018 - TL 2.320). As of 31 December 2019 the guarantees, mortgages, and sureties given to Group companies amount to TL 2.846.806.288 (31 December 2018 - TL 4.305.442.977).

183 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS i. Credit risk

Credit risks incurred by type of financial instruments are as follows (TL):

Trade Receivables Other Receivables Related Third Related Third Bank 31 December 2019 party party party party deposits Other (*)

Maximum credit risk incurred as of the reporting date (A+B+C+D+E)(**) (Note 5, 8 and 9) 30.874.009 286.470.960 47.720.298 14.543.078 343.827.159 566.382.630 - Part of the maximum risk covered by collaterals ------

A. Net book value of financial assets that are neither overdue nor impaired (Note 5, 8 and 9) 30.398.860 144.569.057 8.978.388 1.036.807 343.827.159 566.382.630

B. Book value of financial assets with conditions revised which otherwise would be considered as overdue or impaired ------

C. Net book value of overdue assets that are not impaired (Note 8) 475.149 141.901.903 38.741.910 13.506.271 - - - Portion covered by collaterals - 139.333 - - - -

D. Net book value of impaired assets ------Overdue (gross book value) - 11.392.618 - - - - - Impairment (-) (Note 8) - (11.392.618) - - - - - Part of net value covered by collaterals ------Not overdue (gross book value) ------Impairment (-) (Note 8) ------Part of net value covered by collaterals ------

E. Derecognized elements involving credit risk (***) ------

(*) Consists of the sum of cheques received, other liquid assets, financial assets held for trading in cash and cash equivalents and short term financial assets. (**) In determining the amount of credit risk to be incurred, factors that increase credit reliability, i.e. the guarantees received, are not taken into consideration. (***) The related amounts consist of guarantees and sureties given.

184 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) i. Credit Risk (continued)

Credit risks incurred by type of financial instruments are as follows (TL):

Trade Receivables Other Receivables Related Third Related Third Bank 31 December 2018 party party party party deposits Other (*)

Maximum credit risk incurred as of the reporting date (A+B+C+D+E) (**) (Note 5, 8 and 9) 27.412.944 134.972.008 37.464.621 13.390.267 436.617.946 568.219.947 - Part of the maximum risk covered by collaterals ------

A. Net book value of financial assets that are neither overdue nor impaired (Note 5, 8 and 9) 26.574.238 126.017.019 3.402.566 1.317.706 436.617.946 568.219.947

B. Book value of financial assets with conditions revised which otherwise would be considered as overdue or impaired ------

C. Net book value of overdue assets that are not impaired (Note 8) 838.706 8.954.989 34.062.055 12.072.561 - - - Portion covered by collaterals - 843.891 - - - -

D. Net book value of impaired assets ------Overdue (gross book value) - 12.627.302 - - - - - Impairment (-) (Note 8) - (12.627.302) - - - - - Part of net value covered by collaterals ------Not overdue (gross book value) ------Impairment (-) (Note 8) ------Part of net value covered by collaterals ------

E. Derecognized elements involving credit risk (***) ------

(*) Consists of the sum of cheques received, other liquid assets, financial assets held for trading in cash and cash equivalents and short term financial assets. (**) In determining the amount of credit risk to be incurred, factors that increase credit reliability, i.e. the guarantees received, are not taken into consideration. (***) The related amounts consist of guarantees and sureties given.

185 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) i. Credit Risk (continued)

Distribution of net book values by maturity of the overdue assets that are not impaired is as follows (TL):

Trade receivables Other receivables 31 December 2019 Related party Third party Related party Third party

1-30 days past due - - - - 1-3 months past due (*) - 13.693.313 - - 3-12 months past due (*) - 121.141.322 - - 1-5 years past due (**) 475.149 7.067.268 - 13.506.271 More than 5 years past due (***) - - 38.741.910 - Total 475.149 141.901.903 38.741.910 13.506.271 Portion covered by collaterals - 139.333 - -

Trade receivables Other receivables 31 December 2018 Related party Third party Related party Third party

1-30 days past due - 43.641 - - 1-3 months past due - 2.631.589 - - 3-12 months past due - 2.552 - - 1-5 years past due (**) 838.706 6.277.207 - 11.996.381 More than 5 years past due (***) - - 34.062.055 76.180 Total 838.706 8.954.989 34.062.055 12.072.561 Portion covered by collaterals - 843.891 - -

The credit risk of Alarko Group may arise basically from its trade receivables. The Group management evaluates trade receivables taking into consideration the collaterals received, past experience, and current economic outlook; and states them as net in the statement of financial position after making provisions for doubtful receivables when deemed necessary. The Group has made provisions for doubtful receivables formed until the reporting date.

(*) Receivables that are overdue for 1-3 months and 3-12 months consist of the receivables regarding the VAT amounts of progress payments of Kabataş Mahmutbey Metro Project of Alsim Alarko San. Tes. Ve Tic. A.Ş. (**) Receivables that are overdue for 1-5 years consist of the receivables from Doğuş-Alarko-YDA İnş. Adi Ortaklığı and Morocco Tanger Kenitra Express Train Project. (***) Receivables that are overdue for over 5 years consist of the receivables from Al-Riva Projesi, Arazi Değ. Konut İnş. Ve Tic. A.Ş., Al-Riva Arazi Değ. Konut İnş. ve Tic. A.Ş., Al-Riva Arazi Değ. Konut İnş., Tur. Tes. Golf İşl. ve Tic. A.Ş. ii. Liquidity risk

Holding financial instruments may lead to failure of the counterparty to fulfill the terms and conditions of the agreement. The Group management takes measures to prevent such risks through limiting the average risk for the counterparty (except for the related parties) at each agreement, and receiving collaterals if necessary.

The Group creates funds through converting short term financial instruments, i.e. trade receivables, into cash as of 31 December 2019 and 2018, the Group’s liquid assets (current assets - inventories) exceed its short term liabilities by TL 716.716.921 and TL 467.247.731, respectively.

186 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) ii. Liquidity risk (continued)

31 December 2019 Total cash outflows per Eliminations Book contract Less than 3 3-12 1-5 More than and Maturities per contract value (I+II+III+IV+V) months (I) months (II) years (III) 5 years (IV) adjustments (V)

Non-derivative financial liabilities Lease liabilities (Note 7) 60.198.493 60.198.493 3.033.986 5.736.675 17.154.268 34.273.564 - Bank loans (Note 7) 283.627.644 312.487.893 72.321.853 80.105.412 160.060.628 - - Other financial liabilities (Note 7) 31.824.732 39.385.792 - 16.630.639 22.755.153 - - Trade payables (Note 8) 78.598.465 78.878.527 49.140.884 257.450.567 - - (227.712.924) Other payables (Note 9) 89.145.991 89.145.991 5.168.342 112.043 83.865.606 - -

Expected cash Eliminations Book outflows Less than 3 3-12 1-5 More than and Expected maturities value (I+II+III+IV+V) months (I) months (II) years (III) 5 years (IV) adjustments (V)

Non-derivative financial liabilities Trade payables (Note 8) 222.133.184 222.924.691 54.065.337 812.416.412 - - (643.557.058) Other payables (Note 9) 14.716.479 14.716.479 14.673.428 43.051 - - -

187 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) ii. Liquidity risk (continued)

31 December 2018 Total cash outflows per Eliminations Book contract Less than 3 3-12 1-5 More than and Maturities per contract value (I+II+III+IV+V) months (I) months (II) years (III) 5 years (IV) adjustments (V)

Non-derivative financial liabilities Lease liabilities (Note 7) 16.553.639 16.832.802 6.061.716 10.771.086 - - - Bank loans (Note 7) 357.857.115 403.533.584 43.162.579 122.633.026 237.737.979 - - Other financial liabilities (Note 7) 42.432.977 55.054.469 - 19.015.809 36.038.660 - - Trade payables (Note 8) 122.035.500 122.430.290 319.768.791 57.318.517 - - (254.657.018) Other payables (Note 9) 60.572.983 60.572.983 759.669 2.969.335 59.738.610 - (2.894.631)

Expected cash Eliminations Book outflows Less than 3 3-12 1-5 More than and Expected maturities value (I+II+III+IV+V) months (I) months (II) years (III) 5 years (IV) adjustments (V)

Non-derivative financial liabilities Trade payables (Note 8) 258.417.837 259.253.829 59.948.782 738.557.275 - - (539.252.228) Other payables (Note 9) 10.085.826 10.085.826 5.935.176 24.552.874 18.006 - (20.420.230)

188 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) iii. Interest risk

Interest risk arises from the probability of interest rate changes to affect financial statements. The loan agreements made by the Group are denominated in USD with fixed and variable interest rates, and their average maturities vary between 1 months and 4 years. As the payments are denominated in foreign currency, it is assumed that the interest rate will not be subject to material changes during the maturity period; hence, the interest rate risk is regarded immaterial.

31 December 2019 31 December 2018

Financial instruments with fixed interest Financial assets Time deposits (Note 5) 335.404.941 431.254.737 Assets of which the fair value differences are reflected to profit/loss (Note 6) 471.761.995 434.127.719 Financial liabilities (Note 7) (*) 349.554.466 377.919.283

31 December 2019 31 December 2018

Financial instruments with variable interest Financial liabilities (Note 7) (*) 26.096.403 38.924.448 Investment funds (Note 5) 2.450.643 1.429.120

(*) Financial liabilities stated under financial instruments with fixed and variable interests consist of short and long term bank loans, other financial liabilities and lease obligations.

As of 31 December 2019, if the variable interest rates on foreign currency loans were to increase/decrease by 0,5% and those on TL loans were to increase/decrease by 1% with all other variables remaining constant, the profit/(loss) before tax would be lower/ higher by TL 7.104 due to change in interest expenses (31 December 2018 - TL 10.867). iv. Foreign currency risk

Balances of foreign currency transactions of Alarko Group originating from operating, investing, and financing activities as of the reporting date are stated below. In relation to the foreign currency receivables and payables, the Group may be exposed to foreign currency risk in parallel with the exchange rate fluctuations. The foreign currency risk is controlled through continuous analysis and monitoring of the foreign exchange position.

189 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) iv. Foreign currency risk (continued)

As of 31 December 2019, the foreign currency assets and liabilities of the Group consist of the following (TL):

Foreign currency position table 31 December 2019 TL Equivalent (Functional currency) USD EURO GBP Other

1. Trade receivables 132.163.422 904.371 18.957.363 91.743 - 2a. Monetary financial assets (Incl. Cash and Banks) 786.853.205 123.732.702 6.564.400 1.053.983 1.960 2b. Non-monetary financial assets 81.975 13.800 - - - 3. Other 37.930 1.861 4.041 - - 4. Current assets (1+2+3) 919.136.532 124.652.734 25.525.804 1.145.726 1.960 5. Trade receivables 29.928 - 4.500 - - 6a. Monetary financial assets - - - - - 6b. Non-monetary financial assets 297 50 - - - 7. Other - - - - - 8. Non-current assets (5+6+7) 30.225 50 4.500 - - 9. Total assets (4+8) 919.166.757 124.652.784 25.530.304 1.145.726 1.960 10. Trade payables 130.353.350 4.058.997 15.968.648 5.273 - 11. Financial liabilities 99.002.898 13.231.533 3.068.136 - - 12.a. Other monetary liabilities 38.339.182 6.452.042 1.919 - - 12.b. Other non-monetary liabilities 33.202.138 493.673 4.412.672 118.653 - 13. Short term liabilities (10+11+12) 300.897.568 24.236.245 23.451.375 123.926 - 14. Trade payables - - - - - 15. Financial liabilities 165.757.901 27.552.897 313.984 - - 16a. Other monetary liabilities - - - - - 16b. Other non-monetary liabilities - - - - - 17. Long term liabilities (14+15+16) 165.757.901 27.552.897 313.984 - - 18. Total liabilities (13+17) 466.655.469 51.789.142 23.765.359 123.926 - 19. Net foreign currency asset/(liability) position (9-18) 452.511.288 72.863.642 1.764.945 1.021.800 1.960 20. Monetary items net foreign currency asset/(liability) position (1+2a+5+6a-10-11-12a-14-15-16a) 485.593.224 73.341.604 6.173.576 1.140.453 1.960 21. Exports (*) 1.632.365 251.403 32.079 - - 22. Imports (*) 10.323.413 35.505 1.328.481 187.222 -

(*) Average exchange rate is used and represents pre-elimination balances.

190 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) iv. Foreign currency risk (continued)

As of 31 December 2018, the foreign currency assets and liabilities of the Group consist of the following (TL):

Foreign currency position table 31 December 2018 TL Equivalent (Functional currency) USD EURO GBP Other

1. Trade receivables 58.568.871 863.978 8.890.859 64.555 - 2a. Monetary financial assets (Incl. Cash and Banks) 839.592.870 125.490.833 29.747.068 12.449 - 2b. Non-monetary financial assets 10.237 800 1.000 - - 3. Other 26.368 5.012 - - - 4. Current assets (1+2+3) 898.198.346 126.360.623 38.638.927 77.004 - 5. Trade receivables 27.126 - 4.500 - - 6a. Monetary financial assets - - - - - 6b. Non-monetary financial assets 263 50 - - - 7. Other - - - - - 8. Non-current assets (5+6+7) 27.389 50 4.500 - - 9. Total assets (4+8) 898.225.735 126.360.673 38.643.427 77.004 - 10. Trade payables 166.313.146 8.232.979 20.367.832 33.516 - 11. Financial liabilities 65.372.978 10.209.632 1.934.493 - - 12.a. Other monetary liabilities 4.975 587 313 - - 12.b. Other non-monetary liabilities 23.230.547 1.021.329 2.922.934 35.773 - 13. Short term liabilities (10+11+12) 254.921.646 19.464.527 25.225.572 69.289 - 14. Trade payables - - - - - 15. Financial liabilities 172.180.734 32.728.380 - - - 16a. Other monetary liabilities - - - - - 16b. Other non-monetary liabilities - - - - - 17. Long term liabilities (14+15+16) 172.180.734 32.728.380 - - - 18. Total liabilities (13+17) 427.102.380 52.192.907 25.225.572 69.289 - 19. Net foreign currency asset/(liability) position (9-18) 471.123.355 74.167.766 13.417.855 7.715 - 20. Monetary items net foreign currency asset/(liability) position (1+2a+5+6a-10-11-12a-14-15-16a) 494.317.034 75.183.233 16.339.789 43.488 - 21. Exports (*) 4.337.579 864.140 3.304 - - 22. Imports (*) 70.318.683 157.060 12.041.706 194.311 112.825

(*) Average exchange rate is used and represents pre-elimination balances.

191 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) iv. Foreign currency risk (continued)

The following table details the Group’s sensitivity to a 10% appreciation in the excahange rate of foreign currency aganist TL. 10% is the sensitivity rate used when reporting foreign currency risk interrialy to key management personnal and represent management’s assesment of the possible change in the foreign exchange rates.

As of 31 December 2019 and 2018, the currency risk analysis of Alarko Group is as follows (TL):

Foreign currency sensitivity analysis chart 31 December 2019 Profit/Loss Equity Value Value Value Value increase decrease increase decrease in foreign in foreign in foreign in foreign currency currency currency currency

When USD changes by 10% against TL 1- Net Assets/Liabilities in USD 43.282.461 (43.282.461) - - 2- Hedged from USD risk (-) - - - - 3- USD Net Effect (1+2) 43.282.461 (43.282.461) - - When Euro changes by 10% against TL 4- Net Assets/Liabilities in Euro 1.173.794 (1.173.794) - - 5- Hedged from Euro risk (-) - - - - 6- Euro Net Effect (4+5) 1.173.794 (1.173.794) - - When GBP changes by 10% against TL 7- Net Assets/Liabilities in GBP 794.604 (794.604) - - 8- Hedged from GBP risk (-) - - - - 9- GBP Net Effect (7+8) 794.604 (794.604) - - When other foreign currencies changes by 10% against TL 10- Net Assets/Liabilities in other currencies 270 (270) - - 11- Hedged from other currency risks (-) - - - - 12- Net Effect of Other Currencies (10+11) 270 (270) - -

Total (3+6+9+12) 45.251.129 (45.251.129)

192 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) iv. Foreign currency risk (continued)

Foreign currency sensitivity analysis chart 31 December 2018 Profit/Loss Equity Value Value Value Value increase decrease increase decrease in foreign in foreign in foreign in foreign currency currency currency currency

When USD changes by 10% against TL 1- Net Assets/Liabilities in USD 39.018.920 (39.018.920) - - 2- Hedged from USD risk (-) - - - - 3- USD Net Effect (1+2) 39.018.920 (39.018.920) - - When Euro changes by 10% against TL 4- Net Assets/Liabilities in Euro 8.088.283 (8.088.283) - - 5- Hedged from Euro risk (-) - - - - 6- Euro Net Effect (4+5) 8.088.283 (8.088.283) - - When GBP changes by 10% against TL 7- Net Assets/Liabilities in GBP 5.133 (5.133) - - 8- Hedged from GBP risk (-) - - - - 9- GBP Net Effect (7+8) 5.133 (5.133) - - When other foreign currencies changes by 10% against TL 10- Net Assets/Liabilities in other currencies - - - - 11- Hedged from other currency risks (-) - - - - 12- Net Effect of Other Currencies (10+11) - - - -

Total (3+6+9+12) 47.112.336 (47.112.336)

193 ALARKO HOLDİNG A.Ş. Annual Report 2019

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

36. NATURE AND EXTENT OF RISK ARISING FROM FINANCIAL INSTRUMENTS (CONTINUED) v. Capital risk management

For proper management of capital risk, the Group aims; · To maintain continuity of operations so as to provide earnings to partners and benefits to other shareholders. · To increase profitability through determining a service pricing policy that is commensurate with the level of risks inherent in the market.

The Group determines the amount of share capital in proportion to the risk level. The equity structure of the Group is arranged in accordance with the economic outlook and the risk attributes of assets.

The Group monitors capital management by using the debt/equity ratio. This ratio is calculated by dividing the debt, net, by the total share capital. The net debt is calculated by deducting the value of cash and cash equivalents from the total debt (the sum of short and long term liabilities stated in the statement of financial position). The total share capital is the sum of all equity items stated in the statement of financial position.

The Group’s general strategy has not changed with respect to last year. As of 31 December 2019 and 2018, the ratios of the total share capital to total net liabilities are as follows (TL):

31 December 2019 31 December 2018

Total debt 1.191.599.735 1.392.626.551

Less: cash and cash equivalents (346.458.320) (438.116.759)

Net debt 845.141.415 954.509.792

Total capital 2.005.015.558 1.619.622.124

Debt/equity ratio 42% 59%

37. SUBSEQUENT EVENTS a) It was previously announced to the public that the consortium led by Alsim Alarko Sanayi Tesisleri ve Ticaret A.Ş., a subsidiary, signed the contract for the public-private partnership (PPP) tender for the Ministry of Investment and Development of the Republic of Kazakhstan on the Almaty Ring Road Construction and Operation on February 7, 2018. announced. Contracts regarding the financing of the project were signed on 12 February 2020 in Nur-Sultan city of the Republic of Kazakhstan. b) At the meeting of the Board of Directors of the subsidiary Alarko Gayrimenkul Yatırım Ortaklığı A.Ş. dated January 3, 2020, the registered capital of the Company with a registered capital of TL 20.000.000 and issued capital of TL 10.650.794 is written to the holders of 5.374.920.600 holders, each with a nominal value of 1 Kr. it has been decided to increase the amount of TL 53.749.206 to TL 64.400.000 by increasing the share provision, and to increase the TL 53.749.206 capital from the capital adjustment differences. An application was made to the CMB on January 14, 2020. The necessary permissions have been obtained with the letter of the CMB dated 14 February 2020 and numbered 12233903-340.05.05-E.1875 regarding the issue of capital increase and the amendment articles of Articles 6 and 7 of the Company’s Articles of Association. It was registered on 21 February 2020. Bonus share transactions were completed on February 27, 2020.

194 Annual Report 2019 ALARKO HOLDİNG A.Ş.

ALARKO HOLDING A.Ş. AND ITS SUBSIDIARIES NOTES TO THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF 31 DECEMBER 2019 (Amounts expressed in Turkish Lira (TL) unless otherwise stated)

37. SUBSEQUENT EVENTS (CONTINUED) c) At the Board of Directors Meeting of, one of the subsidiaries, Alarko Gayrımenkul Yatırım Ortaklığı A.Ş., dated January 22, 2020, it has been decided unanimously that a permission will be obtained for time extension for the allowance for the upper limit of registered capital since the period of 5 years issued by CMB will expire in 2020; the upper limit of registered capital of the company, that has a registered capital of TL 20.000.000, will be enhanced to TL 150.000.000; therefore, a permission will be got anew from CMB in accordance with the “Communique on Principles Regarding Registered Capital System” No II-18.1; the Article No. 6 of the Articles of Association will be amended pursuant to the regulations of CMB regarding the registered capital system; the upper limit of the registered capital will be submitted to the approval of Board of Shareholders, in the very first meeting which will be held, subsequent to obtaining approvals regarding the alterations in the Articles of Association; all the required conditions within the scope of provisions of Turkish Commercial Code and Capital Markets Law will be fulfilled in care of related and competent authorities such as CMB, Ministry of Commerce, Board of Shareholders of the Company and the Registry of Commerce, for the issue to be realized. An application has been made to CMB on January 28, 2020. The required approvals have been obtained on the text of amendment of Article No. 6 of the Articles of Association, regarding the enchancement of the upper limit of registered capital, with the Article No. 12233903-340.08-E.2457 of CMB dated 28 February 2020 and it will be submitted to the approval of shareholders at the Ordinary General Meeting regarding the year of 2019. d) At the Board of Directors Meeting of, one of the subsidiaries, Alarko Gayrımenkul Yatırım Ortaklığı A.Ş., which took place at the head office of the Company and dated February 28, 2020, it has been decided unanimously that TL 5.899.652 of primary legal reserve will be allocated pursuant to the Capital Market Legislation, the Articles of Association of the Company and other legislation provisions; the dividend amounted TL 40.572.000, out of the distributable net profit of TL 384.150.289 with collection of donations amounted TL 475.000 made during the year, will be paid in cash to the shareholders; TL 3.735.200 of second legal reserve will be allocated on the basis of the dividends to be distributed; and the remaining amount will be added to extraordinary reserves, with respect to TL 389.574.941 of profit for the financial year of 2019, that is indicated in the financial statements of the Company; the dividend distribution will start on May 22, 2020 and this suggestion will be submitted to the approval of Board of Shareholders. e) For Alarko Carrier Sanayi ve Ticaret A.Ş., which is one of the jointly controlled entity, it has been decided unanimously that no primary legal reserve will be allocated pursuant to the Capital Market Legislation, the Articles of Association of the Company and other legislation provisions since the remaining net profit for the period is TL 16.394.930 after TL 1.683.870 of tax provision has been made and the amount of primary legal reserve allocated in the previous years has reached the legal upper limit; the dividend amounted TL 12.009.600 (Gross), which is the 73,25% of the distributable net profit of TL 16.394.930 will be paid in cash to the shareholders since no collection of donations has been made in 2019; TL 1.146.960 of second legal reserve will be allocated on the basis of the dividends to be distributed; necessary withholding is applied out of the part of dividend that is subject to withholding; and the remaining amount will be added to extraordinary reserves, with respect to TL 18.078.800 of profit for the financial year of 2019, that is indicated in the financial statements of the Company; the dividend distribution will start on May 27, 2020 and this suggestion will be submitted to the approval of Board of Shareholders.

195 ALARKO HOLDİNG A.Ş. Annual Report 2019

CONCLUSION

Distinguished Shareholders,

We have prepared our Annual Report to provide you with a detailed overview of 2019. All our employees made valuable contribution to our sound financial structure and strong financial statements. We would like to extend our gratitude to all our employees for their dedicated and devoted efforts. Our Group has successfully implemented its flexible and competitive strategy that has been in place for long years also in 2019, thanks to the support you, our valuable shareholders, provided. We have no doubt that we will be able to count on your continued support in 2020. We hope 2020 brings health, peace and happiness to all of you and our valuable employees.

Board of Directors

196 ALARKO CENTER Muallim Naci Cad. No: 69 34347 Ortaköy, İstanbul / TURKEY Phone: (+90 212) 310 33 00 – 227 52 00 Pbx Fax: (+90 212) 260 71 78 – 227 04 27 Web: www.alarko.com.tr E-mail: [email protected] Trade Registry Number: İstanbul, 118376 Mersis No: 0048 0036 1010 0025

ANKARA OFFICE Sedat Simavi Sokak No: 48 06550 Çankaya, Ankara / TURKEY Phone: (+90 312) 409 52 00 Pbx Fax: (+90 312) 440 79 30

İZMİR OFFICE Şehit Fethi Bey Cad. No: 55 Kat: 13 35210 Pasaport, İzmir / TURKEY Phone: (+90 232) 483 25 60 Pbx Fax: (+90 232) 441 55 13

ADANA OFFICE Ziyapaşa Bulvarı Çelik Apt. No: 19/5-6 Kat: 1 01130 Adana / TURKEY Phone: (+90 322) 457 62 23 Pbx Fax: (+90 322) 453 05 84

ANTALYA OFFICE Mehmetçik Mah. Aspendos Bulvarı No: 79/5 07160 Antalya / TURKEY Phone: (+90 242) 322 00 29 – 322 66 64 Pbx Fax: (+90 242) 322 87 66

Produced by Tayburn Tel: (90 212) 227 04 36 www.tayburnkurumsal.com www.alarko.com.tr