ANNUAL REPORT İŞ YATIRIM MENKUL DEĞERLER A.Ş. BOARD OF DIRECTORS ACTIVITY REPORT PREPARED IN ACCORDANCE WITH THE CAPITAL MARKETS BOARD COMMUNIQUÉ SERIAL NO II-14.1 ON PRINCIPLES OF FINANCIAL REPORTING IN THE CAPITAL MARKETS 1st of January, 2018 – 31st of December, 2018 4 IS INVESTMENT ANNUAL REPORT 2018 5 IS INVESTMENT ANNUAL REPORT 2018 CONTENTS 1. IS INVESTMENT IN BRIEF 06 2. AWARDS 08 3. KEY FINANCIAL HIGHLIGHTS 09 4. CORPORATE VALUES, MISSION, VISION 10 5. CHAIR’S MESSAGE 12 6. GENERAL MANAGER’S MESSAGE 14 7. GENERAL REVIEW 16 8. INVESTOR RELATIONS 18 9. DOMESTIC CAPITAL MARKETS 23 10. INTERNATIONAL CAPITAL MARKETS 29 11. ASSET MANAGEMENT 32 12. DOMESTIC SALES & MARKETING 33 13. INSTITUTIONAL SALES 34 14. CORPORATE FINANCE 36 15. RESEARCH 40 16. RISK MANAGEMENT 41 17. AGENDA OF THE ANNUAL GENERAL MEETING OF SHAREHOLDERS 42 18. DIVIDEND DISTRIBUTION PROPOSAL OF THE BOARD OF DIRECTORS 42 19. 2018 PROFIT DISTRIBUTION TABLE 43 20. CORPORATE GOVERNANCE COMPLIANCE REPORT 44 21. AFFILIATED COMPANY REPORT AND RELATED PARTY TRANSACTIONS 65 22. TRANSLATION INTO ENGLISH OF THE INDEPENDENT AUDITOR’S REPORT .. RELATED TO THE ANNUAL REPORT, ORIGINALLY ISSUED IN TURKISH 65 6 IS INVESTMENT ANNUAL REPORT 2018 1. IS INVESTMENT IN BRIEF Founded in 1996 by İşbank, IS Investment provides domestic and international, individual and institutional investors with high added-value services in the areas of corporate finance, investment advisory, asset management, market making and liquidity providing services as well as brokerage services. IS Investment is a leader in the capital markets with a strategic affiliate structure in areas such as asset management, investment trusts, venture capital and wealth management. IS Investment also works with its brokerage subsidiary, Maxis Investments Ltd., which is based in London and fully owned by IS Investment. Boasting the largest corporate and individual client base in Turkey, IS Investment has 16 branches located in Adana, Antalya, Bursa, Eskisehir, Gaziantep and Kayseri including six in Istanbul, two in Ankara and two in Izmir, and a liaison office in Diyarbakır. As of the end of 2018, IS Investment had total assets of TL 6.4 billion and total shareholders’ equity of TL 805.3 million, while writing a consolidated net profit TL 221.7 million during the year, marking an annual increase of 41%, and generating a 30% Return on Equity. The long-term national credit rating of IS Investment, whose shares have been traded on the stock market under the ISMEN ticker since May 2007, was announced as “AA +” by SAHA Rating. The short-term national credit rating was announced as A1 +. The outlook is stable for both maturities. IS Investment offers a wide range of services in the field of corporate finance, such as private sector advisory consisting of equity public offerings, private sector debt securities issuances, mergers and acquisitions, restructuring and strategic planning, project financing advisory and venture capital advisory. As part of IS Bank since 1988 and as IS Investment since its establishment in 1996, a total of 70 public offering projects have been carried out. Having successfully completed the TL 3 billion secondary public offering of Aselsan in 2018, IS Investment has served as the leader in its sector with 32 equity public offerings, totaling TL 13.2 billion (USD 7.7 billion) realized since its foundation. IS Investment continued its run of success in the Private Sector Debt Securities market, where it has mediated in approximately TL 120 billion of debt security issues since 2010, and continued its success in 2018 with a total of TL 19.7 billion in transactions as of the year-end, commanding a market share of 11%. With two transactions completed in 2018, the Company continues to be the leader in the sector, having mediated in 150 mergers and acquisitions since 2000 with a total size of over USD 12.8 billion. IS Investment enables investors to trade from anywhere with an Internet connection through electronic trading platforms in capital markets, which began to develop in 2007. TradeMaster is a platform that allows investors to access all kinds of information related to their accounts and quickly execute stock, futures and warrant transactions on the Equity Market, and trade in futures and options contracts in the Futures and Options Market (VIOP) with real time data. TradeMaster International allows investors to trade stocks, futures contracts and contracts for difference on a selection of different stock markets throughout the world without the need for any intermediaries, easily and quickly. TradeMaster FX, on the other hand, is a MetaTrader 4-based electronic trading platform providing 24-hour access to the forex markets with the IS Investment guarantee. 7 IS INVESTMENT ANNUAL REPORT 2018 Standing out with its products and services developed in line with its pioneering and innovative identity, IS Investment launched Turkey’s first hedge fund. In 2010, it became the first Turkish firm to offer investors brokerage house warrants (Is Varant) when trading in these instruments began on the Borsa Istanbul. Some of the achievements reinforcing IS Investment’s leadership position in the sector included being the first brokerage house to issue its own debt instruments in 2012, being the first brokerage firm to issue the Turkey’s first private-sector leasing certificates (sukuk) denominated in Turkish Lira in 2013, the first liquidity provider of the BIST in 2014 and carrying out the first issuance of oil and GBP/USD warrants on the Borsa Istanbul, in 2015 and 2017 respectively. 8 IS INVESTMENT ANNUAL REPORT 2018 2. AWARDS IS Investment has frequently been deemed worthy of various awards by local and foreign organizations in recognition of its different fields of activity: • Mergermarket - “Financial Mergers & Acquisitions Consultant of the Year in Turkey” (2010, 2017) • Euromoney - “Turkey’s Best Investment Bank” (2010, 2011, 2013, 2018) • Euromoney - “Turkey’s Best M&A Institution” (2009, 2014) • Euromoney - “Turkey’s Best Brokerage house” (2007, 2008) • EMEA Finance - “Best Equity Offering in the Central and Eastern Europe Region” (2017) • EMEA Finance - “Best M&A in the Central and Eastern Europe Region” (2017) • EMEA Finance - “Turkey’s Best Investment Bank” (2010, 2011, 2012, 2013, 2014, 2015, 2016) • EMEA Finance - “Turkey’s Best Brokerage house” (2012, 2013, 2014, 2015, 2016) • EMEA Finance - “Best Asset Management Company” (2016) • Consensus Economics - “Most Accurate Macro Estimation” (Is Investment Research Department, 2017) • Global Finance - “Turkey’s Best Investment Bank” (2016) • Turkish Capital Markets Association “Borsa Istanbul Equity Market - Highest Trading Volume” (2015) • Turkish Capital Markets Association “Highest Issuance and Sale of Capital Market Instruments” (2015, 2016) • Turkish Capital Markets Association - “Leader in the Borsa Istanbul Futures and Options Market in terms of Trading Volume” (2017) • Turkish Capital Markets Association - “Biggest increase in market share in the Borsa Istanbul Futures and Options Market” (2017) • Turkish Capital Markets Association - “Corporate Finance Operations Share Issuance and Sales Leader” (2017) • Turkish Capital Markets Association - “Corporate Finance Transactions Borrowing Instrument Issuance and Sales Leader” (2017) • TUYID Investor Relations Society- “Best Research Unit Finance / Banking / Insurance” (Is Investment Research Department, 2017 • TUYID Investor Relations Society - “Best Research Unit Reel Sector / Industry” (Is Investment Research Department, 2017) • Capital Magazine “Turkey’s Most Admired Brokerage House” (2003, 2004, 2005, 2008, 2009, 2010, 2011, 2012, 2013, 2014, 2017) • Ethical Values Association ETİKA “Turkey Ethics Award” (2012, 2013, 2014, 2015, 2016, 2017) • Borsa Istanbul “Equity Market Trading Volume Leader” (2013, 2014) • Borsa Istanbul - “Futures & Options Market Trading Volume Leader” (2013, 2014) • IMKB 25th Year Awards - “Company with the Highest Trading Volume in Equities” (2010) • Corporate Governance Association of Turkey “Company with the Highest Rating in The Board of Directors Category” (2011) 9 IS INVESTMENT ANNUAL REPORT 2018 3. KEY FINANCIAL HIGHLIGHTS SUMMARY BALANCE SHEET AND INCOME STATEMENT Summary Balance Sheet (x1,000 TL) 31 December 2018 31 December 2017 Assets Current Assets 6.194.908 7.510.184 Fixed Assets 175.774 163.310 Total Assets 6.370.682 7.673.494 Liabilities Short Term Liabilities 5.132.643 6.571.650 Long Term Liabilities 152.947 126.052 Non-Controlling Interests 279.807 293.914 Shareholders’ Equity of Parent Company 805.285 681.878 Total Liabilities 6.370.682 7.673.494 Summary Income Statement (x1,000 TL) ) 1 Jan-31 Dec 2018 1 Jan-31 Dec 2017 Sales Revenue, Net 226.429 150.632 Interest and Derivative Income from Operating Activities, Net 164.721 147.202 Income from Services, Net 258.202 223.174 Other Operating Income, Net 77.865 57.099 Gross Profit 727.217 578.107 Operating Expenses 372.458 347.987 Other Income/ (Expenses), Net 4.947 (4.612) Operating Profit 359.706 225.508 Share of Profit/(Loss) of Equity / Accounted Investees (4.698) (2.388) Financial Income/ (Expenses), Nett (56.551) (23.804) Profit before Tax from Continuing Operations 298.457 199.316 Tax Expenses (64.172) (44.464) Period Profit/Loss 234.285 154.852 Non-controlling Interests 12.584 (2.123) Period Profit/Loss (Equity Holders of the Main Company) 221,701 156,975 Earnings per Share from Continuing Operations 0.6245 0.4422 Financial Ratios 31 December 2018 31 December 2017 Current Assets/Short-Term Liabilities 1,21 1,14 Total Liabilities/Equity 4,87 6,86 Return on Equity (%) 29,8 25,2 The financial statements and footnotes to the financial statements of IS Investment are available at www.isinvestment.com 10 IS INVESTMENT ANNUAL REPORT 2018 4. CORPORATE VALUES, MISSION, VISION CORPORATE VALUES CLIENT ORIENTATION To be close to our clients, to be able to correctly carry out risk-reward analysis in compliance with investor expectations, to be able to provide a service of the necessary and desired quality with the aim of building the assets of our clients in line with this analysis.