ANNUAL REPORT 2014 As a part of everyday life… INTRODUCTION 2 Report of the Board of Directors and Message from the Chairman 4 Message from the General Manager 6 Aygaz in Figures 8 Financial and Operational Outlook 10 Subsidiaries & Affiliates 12 Vision, Mission and Strategy 14 2014: A Year of Proactive Management 16 Milestones 2014 OVERVIEW 20 Operations in 2014 32 Subsidiaries 34 Affiliates 36 Big Aygaz Family SUSTAINABLE GROWTH 40 Quality, Environment and Safety 41 Research and Development SOCIAL RESPONSIBILITY 44 Social Responsibility Projects CORPORATE GOVERNANCE 48 Risk Management 50 Investor Relations 53 Corporate Governance Principles Compliance Report 60 Legal Disclosures 62 Board of Directors 64 Executive Management 66 Agenda of the Annual General Assembly Meeting 67 Proposal of the Board of Directors for Profit Distribution 68 Statements of Independence of the Independent Members of the Board of Directors 69 Profit Distribution Policy 69 Remuneration Policy for the Board of Directors and Senior Management 70 Independent Auditors’ Report on Annual Report CONSOLIDATED FINANCIAL STATEMENTS 73 Independent Auditors’ Report 74 Consolidated Financial Tables 79 Notes to the Audited Consolidated Financial Statements ANNUAL REPORT 2014 As a part of everyday life… Since our beginning in 1961, our advances have kept up with the pace of modernization efforts in Turkey. In a short span of time, we became the name associated with cylinder gas. Then, we became the sound of the energy revitalizing the country every day. We welcomed each new day with the jingle “Ayy-gaaaz!...” resounding throughout the streets. Each day we have grown and developed together with our country. As a solid, reliable and reputable brand in the energy industry, we established Turkey’s most extensive energy distribution network in our field. Today, From the most remote village to metropolitan centers... From cylinder gas to natural gas and from autogas to electricity... At home, on the road, in urban industrial centers and in nature... Wherever you are, there we are, together with you… INTRODUCTION 2014 OVERVIEW SUSTAINABLE GROWTH SOCIAL RESPONSIBILITY CORPORATE GOVERNANCE CONSOLIDATED FINANCIAL STATEMENTS Report of the Board of Directors and Message from the Chairman Resulting from its journey in the energy sector for more than half a century, with a diversified product range that extends from cylinder gas to autogas and from natural gas to electricity, Aygaz accomplished a turnover of TL 7 billion with an annual increase of 18%. Dear Shareholders, I want to extend a warm welcome to all back on another successful year both Rapid decline in oil prices reshaped global participants at the Company’s 54th General financially and operationally. economic forecasts. Increasing decline Meeting of Shareholders. I extend my of the prices further strengthened the warmest greetings and regards to all The axis of global growth shifts toward concerns about the Russian economy, on behalf of myself and the Aygaz developed countries which was subjected to sanctions over Board of Directors. I am sure that Last year was marked by major events the Ukraine crisis. Despite the economic we will have a cordial and productive throughout the world especially in the slowdown, some recovery is expected meeting. economic and political environments. We in the Euro Zone in 2015 as a result of witnessed very important developments, the Central Bank’s support. The possible The year 2014 saw dramatic political, such as the conflicts in the Middle East, effects of Greek elections will become economic, and industry changes both rapid decline in oil prices and increasing apparent in the forthcoming period. nationally and globally. Despite the concerns about the Russian economy In the US, housing and employment challenges of the past year, Aygaz after the Ukraine crisis. Additional markets are showing signs of recovery. continued to create value for all of its developments included the FED’s The slowdown in the economies of China stakeholders and never compromised expected increase of interest rates, and India strengthens the possibility either its operating efficiency or signals of economic slowdown in China that the global growth will shift toward profitability objectives. Effectively and shrinking market conditions in the developed countries, particularly the US. managing the changing dynamics in its Euro Zone. Overall global risks increased Consequently, in the next year the global business fields and pioneering the market, during this period, while simultaneously economy is expected to grow between Aygaz maintained its growth by increasing the American economy attained its highest 3.5%-4.0%, with a higher performance its market share. As a result, we can look growth rate of the last 11 years. than was observed in 2014. 2 AYGAZ ANNUAL REPORT 2014 Decline in oil prices is an opportunity LPG, considered to be an environmentally Tankercilik A.Ş., in October, and the for Turkey friendly and economical product, will purchase of a new vessel, the Beykoz, in the Domestically, a weakened Turkish lira, become increasingly important through beginning of 2015, the company’s fleet is rising interest rates, and inflation created long term supports in Turkey. now younger with a substantial increase in a decrease in domestic demand during its total transportation capacity. the first three quarters of 2014. At the Aygaz further increased its market share same time, problems in Iraq, Syria, Russia Resulting from its journey in the energy As a result of its outstanding performance, and Ukraine in addition to a decrease sector for more than half a century, Aygaz received various national and in the European market lessened the with a diversified product range that international awards. Moreover, considering contribution of exports to overall growth. extends from cylinder gas to autogas corporate governance as an ongoing and In the last quarter, a partial recovery was and from natural gas to electricity, Aygaz dynamic process, the company accomplished observed in domestic demand as a result accomplished a turnover of TL 7 billion to increase its corporate governance rating of reinforced consumer confidence after with an annual increase of 18%. from 9.27 to 9.29. the elections and lower loan interests. Maintaining its clear-cut leadership in all Besides the contribution it makes to the This year, when the general elections will segments of the LPG sector during 2014, national economy, our company continues be held, domestic demand will probably Aygaz achieved a 28.64% market share with a investing in Turkey’s future through social contribute more substantially to growth. On sales volume of 1.1 million tons. responsibility projects that encompassed the other hand, the prices of raw materials areas from environment to health, from and semi products, especially oil, create an Our company also performed successfully in education to culture and the arts. important opportunity for Turkey, an oil- the fields other than LPG. Aygaz Doğal Gaz, importing country. Therefore, we expect that our which increasingly contributes to consolidated We consider new investment opportunities country will grow at a level of 3.5% in 2015. turnover and profitability each year, reached To support its objective of progressing a total business volume of 1 billion m3, an as a profitable, value-creating company, In 2014, the Turkish and world energy annual increase of more than 100%. Striving Aygaz closely follows market changes and sectors have also been very active. The to become one of the leading players in the considers new investment opportunities Ukraine crisis intensified debates on the sector, Aygaz Doğal Gaz is currently evaluating both in Turkey and abroad. Apart from LPG, diversity of energy resources and security various growth opportunities in this field. the company maintains its efforts to grow in of supply in the European Union. Meanwhile, the natural gas sector. international energy markets witnessed sharp Our subsidiary, Opet-Aygaz, continued to declines in oil and LPG prices. LPG price per invest in real estate to establish stations in Our company will continue to create ton decreased from USD 1.000 to USD 535 strategic locations to further enhance our economic, social and environmental value within a year. Increasing shale gas production brands’ competitive edge and increased for both its stakeholders and Turkey. We in the US positively affected global supply and the number of its stations to 18. completely believe that Aygaz will add to demand of LPG. World LPG consumption its financial and operational successes in increased 2.8% in 2013 compared to the By the-end of 2014, Aygaz had purchased 2015 thanks to its competitive strength that previous year and reached 265 million tons. 24.81% of the shares owned by AES Mont increases each day. Thus, LPG consumption increased more Blanc Holdings B.V. in the capital of its than global natural gas and general energy subsidiary, AES Entek Elektrik Üretimi I would like to express my gratitude to all of consumption, leaving behind all other A.Ş. Thus, Aygaz increased its stake from our stakeholders, particularly our employees, alternatives except for renewable energy. 24.81% to 49.62%. Through the concurrent dealers, suppliers, customers, trade unions, side- share purchase of Koç Holding A.Ş., 100% industries and shareholders, all of whom have In Turkey, promotion of LPG through long of the company’s shares were transferred to contributed their share to our success with their term supports is important the Koç Group. continuous trust and dedication to Aygaz. Possessing the second largest LPG industry in Europe and the 14th largest Our company Akpa, one of the biggest sales Yours sincerely, in the world, the market size in Turkey and marketing companies in its field, increased reached 3.7 million tons by the end its sales tonnage in 2014, and also significantly of the year. It is predicted that the expanded the geographical area of its performance of Turkey’s LPG industry in distribution activity.