SHAPING THE FUTURE Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report CONTENTS FROM 1928 TO TODAY Ford Otosan at a Glance 4-5 Sustainability 88-89 Ford Otosan: From Past to Present 6 Sustainability Practices 90 Summary Results 7 Environment 91 Main Indicators 8 Quality 91 Highlights 10 Occupational Health and Safety 91 Values 12 Ethics 92 Vision, Mission and Strategy 13 Human Resources 94 Milestones 14 Corporate Social Responsibility 96 General Assembly 16-17 Corporate Governance 98-99 Ordinary General Assembly Meeting Agenda 18 Corporate Governance Principles Compliance Report 100 Independent Auditor’s Report on the Board of Directors’ 19 Corporate Governance Information Form 104 Annual Report Corporate Governance Compliance Report 112 Board of Directors’ Report 22 Risk Management and Internal Control 120 2020 Guidance 26 Legal Disclosures 122 Dividend Policy 27 Report on Related Party Transactions for 2019 126 Dividend Distribution Proposal 28 Statement of Responsibility 127 Remuneration Policy for the Board of Directors 30 Declaration of Independence 128 and Senior Executives 2020 Board of Directors Member Candidates 31 Financial Statements 130-131 and Other Information Management and Assessments 32-33 Financial Statements and Independent 132 Chairman’s Message 34 Auditor's Report CEO’s Message 36 Ordinary General Assembly Information 208 Board of Directors 38 Document Organization Chart 43 Appendix 4/ Amendments to the Articles of 214 Executive Management 44 Incorporation Developments Following the Report Date 224 “I live and prosper with my country. Ford Otosan in 2019 48-49 Investor Relations 50 As long as democracy exists and thrives, Turkish Automotive Market and Ford Otosan 52 “Coming together is a beginning. Exports 54 so do we. We shall do our utmost to Production and Capacity 56 Keeping together is progress. Highest Commercial Vehicle Production Capacity in Europe 58 strengthen our economy. As our economy Plants and Facilities 60 Working together is success.” Kocaeli Plants 62 prospers, so will democracy and our World Economic Forum Global Lighthouse Network 64 Ford Custom: A Segment-First Plug-in Hybrid 66 standing in the world.” Commercial Vehicle Ford Trucks Growth Strategy 70 Suppliers 74 R&D 77 R&D and Test Centers 81 Vehbi Koç Henry Ford Innovation 84 Digital Transformation 86 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report Ford Otosan General Management Ford Otosan Corporate Financial Ford Otosan General Management Ford Otosan Corporate Financial Sustainability Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports at a Glance Assembly and Assessments in 2019 Governance Reports 6 Ford Otosan: From Past to Present 7 Summary Results 8 Main Indicators 10 Highlights Ford Otosan 12 Values 13 Vision, Mission and Strategy 14 Milestones at a Glance 4 5 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report Ford Otosan General Management Ford Otosan Corporate Financial Ford Otosan General Management Ford Otosan Corporate Financial Sustainability Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports at a Glance Assembly and Assessments in 2019 Governance Reports FORD OTOSAN FROM PAST TO PRESENT SUMMARY RESULTS 1997* 2019 2015 2016 2017 2018 2019 Main Financial Indicators (TL Million) Revenues 16,746 18,289 25,341 33,292 39,209 Production Capacity 10 Export Revenues 10,723 12,287 17,830 27,303 33,375 47,000 455,000 Domestic Revenues 6,023 6,002 7,511 5,989 5,834 (Units) Times Gross Profit 1,860 2,086 2,637 3,459 4,015 Operating Profit 1,036 1,111 1,708 2,285 2,422 EBITDA 1,441 1,567 2,182 2,854 3,198 Production 43,102 9 369,027 Profit Before Tax 866 970 1,481 1,761 1,950 (Units) Times Net Profit 842 955 1,490 1,683 1,959 Earnings Per Share (for Kr 1 nominal value) 2,40 2,72 4,25 4,80 5,58 Exports 501 Cash Position (TL Million) 667 334,455 Cash & Cash Equivalents 980 1,189 1,806 1,393 3,203 (Units) Times Total Financial Debt (2,561) (2,852) (3,604) (4,483) (6,208) Net Financial Debt (1,580) (1,663) (1,798) (3,090) (3,005) Exports 16 370 5.9 Financial Ratios (USD) Million Times Billion Current Ratio 1,05 1,09 1,13 1,02 1,17 Liquidity Ratio 0,73 0,79 0,87 0,64 0,87 Net Financial Debt / Tangible Net Worth 0,63 0,64 0,60 1,01 0,78 Net Financial Debt / EBITDA 1,10 1,06 0,82 1,08 0,94 Revenues 850 6.9 8 Current Assets / Total Assets 0,48 0,50 0,57 0,56 0,62 (USD) Million Times Billion Current Liabilities / Total Liabilities 0,71 0,70 0,73 0,78 0,74 Total Liabilities / Total Assets 0,64 0,66 0,69 0,70 0,72 Return on Equity (%) 27.5 30.2 40.3 43.2 42.0 Headcount 3,406 3 10,899 Times Margins (%) Gross Margin 11.1 11.4 10.4 10.4 10.2 EBITDA Margin 8.6 8.6 8.6 8.6 8.2 Operating Margin 6.2 6.1 6.7 6.9 6.2 Market Cap 1.1 4 4.2 Net Income Margin 5.0 5.2 5.9 5.1 5.0 (USD) Billion Times Billion Other Dividend Payment (TL Million) 400 663 790 1,204 1,284 * The year the shares of Koç Holding and Ford Motor Company in Otosan became equal. 6 7 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report Ford Otosan General Management Ford Otosan Corporate Financial Ford Otosan General Management Ford Otosan Corporate Financial Sustainability Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports at a Glance Assembly and Assessments in 2019 Governance Reports EBITDA MAIN INDICATORS Record (TL million) 2019 8.2% 3,198 Despite rising costs due to the increase in €/TL rate (12% YoY) 2018 8.6% 2,854 and high inflation rates, as well as decline in domestic sales, we maintained strong profitability in 2019 as EBITDA rose 12% to TL WHOLESALE VOLUME 3,198 million. This was supported by: (1000 Units) 2017 8.6% 2,182 » Higher export demand 2016 8.6% 1,567 2019 334 383 » Positive sales mix and pricing discipline In 2019, sales in the Turkish automotive industry decreased by » Cost reduction actions and strong OpEx control 2015 8.6% 1,441 2018 329 395 23% year-on-year, dropping to 487,471 units with tightening » Recovery observed in Q4 in domestic market observed in all segments: -20% in passenger cars, -27% in light commercial vehicles, -37% in medium commercial vehicles and Margin 2017 297 413 -37% in trucks. Ford Otosan’s domestic wholesale volume was down 26% to 48,464 units. Export volumes rose 2% year-on- 2016 257 373 year, reaching a record level of 334,455 units. Total sales volume NET PROFIT Record decreased by 3%, down to 382,919 units with the impact of (TL million) 2015 254 381 continued contraction in the domestic market. Export Total 2019 5.0% 1,959 Net financial expenses declined 10% YoY driven by lower net 2018 5.1% 1,683 fx loss, mainly explained by lower devaluation than 2018. Profit before tax rose 11% to TL 1,950 million. Meanwhile, net profit increased by 16% to TL 1,959 million and higher than PBT due 2017 5.9% 1,490 to tax income resulting from deferred tax asset. REVENUES 2016 5.2% 955 (TL million) Record 2015 5.0% 842 Margin 2019 33.375 39,209 We recorded TL 5,834 million in domestic revenues. Despite 26% decrease in domestic units, contraction in our domestic 2018 27.303 33,292 revenues was limited to 3% thanks to our sales strategy focused DIVIDEND on high-margin products and pricing discipline. Meanwhile, (TL million, gross) 2017 17.830 25,341 our export revenues were up 22% year-on-year, amounting to TL 33,375 million with market growth, continued demand for 2016 12.287 18,289 our products and currency impact. Export volumes increased 2019 1,284 by 2% to a record level of 334,455 units. Total revenues were In 2019, a total gross dividend of TL 1,284 million was paid out in 2015 10.723 16,746 up 18% year-on-year reaching TL 39,209 million due to strong 2018 1,204 two shapes. Distributed dividend increased by 7% YoY while the performance in exports, which constituted 85% of total total dividend paid out by Ford Otosan reached TL 8.6 billion in revenues, up from 82% in 2018. the period from 2004 to 2019. 2017 790 Export Total 2016 663 2015 400 8 9 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report Ford Otosan General Management Ford Otosan Corporate Financial Ford Otosan General Management Ford Otosan Corporate Financial Sustainability Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports at a Glance Assembly and Assessments in 2019 Governance Reports Share in Turkey’s Total HIGHLIGHTS Automotive Production Turkey’s Export Champion USD 25% 5.9 Largest Commercial Billion Vehicle Manufacturing Hub of Ford in Europe 455,000 Unit Production Capacity Share in Turkey’s Commercial Vehicle Production Turkey’s Commercial Vehicle Leader Highest Employment in 77% Turkish Automotive Industry 34% 10,899 Market Share Employees Share in Turkey’s Commercial Vehicle Exports Third in Most Competent R&D Center Total Automotive in Turkish Automotive Industry Market Share 79% 1,389 10.1% R&D Employees 10 11 Ford Otosan 2019 Annual Report Ford Otosan 2019 Annual Report Ford Otosan General Management Ford Otosan Corporate Financial Ford Otosan General Management Ford Otosan Corporate Financial Sustainability Sustainability at a Glance Assembly and Assessments in 2019 Governance Reports at a Glance Assembly and Assessments in 2019 Governance Reports VALUES VISION, MISSION AND STRATEGY STRATEGY VISION Growth VALUES Organic and inorganic growth in new markets and existing business areas Our products and services are the upshots of our efforts.