LIFE IS RENEWAL 2015 ANNUAL REPORT We remain deeply saddened by the untimely death of Koç Holding Chairman Mustafa V. Koç. Mustafa V. Koç leaves behind a substantial, highly successful and proud legacy from his 32-year professional career, which included 13 years as Chairman of Koç Holding. During his tenure as Chairman, groundbreaking investments were undertaken with determination. The Holding’s position in the domestic market was reinforced through successful acquisitions. Koç corporate banner was planted in new countries and our international operations expanded. The Holding’s and nation’s overseas revenues significantly increased through large-scale export projects. Mustafa V. Koç’s global vision turned the Holding into one of the world’s leading corporations and Koç Holding achieved the honor of being the only Turkish firm on the Fortune 500 list. During his life, Mustafa V. Koç was committed to the motto of Holding founder Vehbi Koç, “I exist as long as my country exists and prospers”. He was not only a leader who took on ambitious business ventures, but also a pioneer in social responsibility projects, which he wholeheartedly embraced to contribute to the nation’s social advancement. Always a firm believer in Turkey’s bright future, Mustafa V. Koç leaves behind a permanent mark with his vision, philanthropy, leadership and most important of all, humanitarian values. He was truly a man of the people. A leader who energized and supported his employees, he was also a source of inspiration with his global perspective, determination, values and business ethics. Going forward, we shall transform Koç Holding from a company with international operations into a truly global company in line with his values, broad vision and dynamism… We will remember him with respect, affection and gratitude. KOÇ GROUP Mustafa V. Koç (1960-2016) CONTENTS TOFAŞ AT A GLANCE ACTIVITIES CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES 3 ABOUT TOFAŞ 29 THE TURKISH AUTOMOTIVE SECTOR AND 4 KEY FINANCIAL AND OPERATIONAL TOFAŞ’S POSITION IN THE SECTOR 65 AGENDA OF 48TH ORDINARY GENERAL HIGHLIGHTS 37 BRANDS AND PRODUCTS ASSEMBLY MEETING OF TOFAŞ TÜRK 6 INSTITUTIONAL INVESTOR RELATIONS 41 DEALERSHIP NETWORK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ TO 9 VISION, MISSION & VALUES 42 SUBSIDIARIES BE HELD ON 31 MARCH 2016 10 TOFAŞ IN 2015 45 RESEARCH & DEVELOPMENT 66 INFORMATION ON THE CAPITAL STRUCTURE 14 AWARDS 47 QUALITY MANAGEMENT AND SHAREHOLDING OF THE COMPANY 48 HUMAN RESOURCES 69 DECLARATION OF CORPORATE GOVERNANCE MANAGEMENT PRINCIPLES AND COMPLIANCE REPORT SUSTAINABILITY 87 ACTIVITIES OF THE EARLY DETECTION OF RISK 16 CHAIRMAN’S MESSAGE AND RISK MANAGEMENT COMMITTEE 18 BOARD OF DIRECTORS 53 SUSTAINABILITY AND SOCIAL 89 ASSOCIATE COMPANY REPORT 22 CEO’S MESSAGE RESPONSIBILITY POLICY 90 CONVENIENCE TRANSLATION INTO ENGLISH 24 SENIOR MANAGEMENT 54 CORPORATE SOCIAL RESPONSIBILITY OF AUDITOR’S REPORT ON THE EARLY RISK 57 ENVIRONMENT IDENTIFICATION SYSTEM AND COMMITTEE 59 CLIMATE CHANGE ORIGINALLY ISSUED IN TURKISH 60 OCCUPATIONAL HEALTH & SAFETY 91 REMUNERATION POLICY FOR TOP-LEVEL 61 SUPPLY CHAIN MANAGEMENT MANAGERS AND MEMBERS OF THE BOARD 63 CUSTOMER SATISFACTION POLICY OF DIRECTORS 64 ETHICAL AND ANTI-CORRUPTION PRACTICES 92 DIVIDENDS DISTRIBUTION POLICY 93 2015 PROFIT DISTRIBUTION PROPOSAL 94 2015 DIVIDENDS DISTRIBUTION TABLE 95 CONVENIENCE TRANSLATION INTO ENGLISH OF INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT ORIGINALLY ISSUED IN TURKISH FINANCIAL INFORMATION 96 CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2015 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT 97 INDEPENDENT AUDITOR’S REPORT 2 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE ABOUT TOFAŞ TURKEY’S ONLY AUTOMOTIVE TURKEY’S NINTH BIGGEST INDUSTRIAL WITH AN ANNUAL MANUFACTURER THAT PRODUCES BOTH ESTABLISHMENT PRODUCTION CAPACITY PASSENGER CARS AND LIGHT COMMERCIAL With an annual production capacity VEHICLES of 400 thousand vehicles and with OF 400 THOUSAND Founded in 1968, Tofaş is the only 8,000 employees, Tofaş is Turkey’s automotive manufacturer in Turkey ninth biggest industrial establishment. VEHICLES AND WITH that produces both passenger cars and Headquartered in Istanbul, Tofaş’s light commercial vehicles. manufacturing facilities are located 8,000 EMPLOYEES, TOFAŞ in Bursa, where the plant, whose size Tofaş today is a joint venture of Koç is close to a million square meters, of IS TURKEY’S NINTH Holding and Fiat Chrysler Automobiles which 350 thousand square meters (FCA). Each of them control an equal are sheltered areas, continues to be BIGGEST INDUSTRIAL stake of 37,85%. A 24.3% portion of the target of investments aimed at Tofaş’s shares are publicly traded at increasing the company’s competitive ESTABLISHMENT. the Istanbul Stock Exchange (BIST), strength. where they are included not only in the BIST 30 and BIST 100 indexes but Besides being one of FCA’s three also in the Corporate Governance strategic global production centers and Sustainability indexes, as well. in EMEA, Tofaş is also FCA’s second Tofaş shares are likewise listed at the biggest European-based R&D center. Luxembourg Stock Exchange. At its Bursa plant, Tofaş manufactures a range of passenger cars, Fiat Linea and Egea, as well as Light Commercial Vehicles for Fiat, Citroen, and Peugeot under its Minicargo project and for Fiat, Opel, Vauxhall, and RAM under its New Doblò project. The company is also the distributor of the Fiat, Alfa Romeo, Lancia, Jeep, Maserati, and Ferrari brands in its home market. 3 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS 24.9% 11.8% 104% THE 278,252 UNITS IN 2015 TOFAŞ BOOKED NET A 104% RATE OF CAPACITY MANUFACTURED BY TOFAŞ IN SALES VALUE OF TL 10 BILLION UTILIZATION (IN TWO-SHIFTS) 2015 CORRESPOND TO A YEAR- AND A NET PROFIT OF TL 831 WAS ACHIEVED IN 2015. OVER-YEAR INCREASE OF 24.9% MILLION, REACHING AN 11.8% IN ITS TOTAL OUTPUT. SHARE OF ITS OWN MARKET. OPERATIONAL HIGHLIGHTS 2014 2015 Export Sales (TL thousand) 4,297,030 5,729,275 Domestic Sales (TL thousand) 3,023,705 4,121,142 Other Income from Operational Activities (TL thousand) 119,274 70,306 Cumulative Production Volume (units) 222,807 278,252 Capacity Utilization Rate (two-shift, %) 84% 104% Sales (units) 237,384 296,812 FINANCIAL HIGHLIGHTS (TL THOUSAND) 2014 2015 Equity 2,241,171 2,582,291 Total Assets 7,124,284 9,866,566 Sales Revenues 7,440,009 9,920,723 Profit Before Tax 472,253 617,987 Net Profit 574,238 830,801 EBITDA 815,607 1,062,668 Investments (EUR million) 330 377 4 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE +38.5% +15.2% +33.3% TOTAL ASSETS SHAREHOLDERS’ EQUITY SALES REVENUE (TL MILLION) (TL MILLION) (TL MILLION) 9,867 2,582 9,921 2,241 7,124 7,440 2014 2015 2014 2015 2014 2015 +30.3% +30.9% +44.7% EBITDA PROFIT BEFORE TAX NET PROFIT (TL MILLION) (TL MILLION) (TL MILLION) 1,063 618 831 816 472 574 2014 2015 2014 2015 2014 2015 BREAKDOWN OF EXPORTS BY COUNTRIES BREAKDOWN OF SALES BY SEGMENT (%) (%) 4 2 3 2 3 1 1 4 2 5 6 1 7 1- Europe 76% 1- Italy 26% 1- Light Commercial Vehicles, 72% 2- Canada & USA 12% 2- UK 11% 2- Automobile 28% 3- MENA 10% 3- Spain 9% 4- Other 2% 4- France 8% 5- Germany 6% 6- Belgium 4% 7- Other Europe 12% 5 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE INSTITUTIONAL INVESTOR RELATIONS MEETINGS WITH INSTITUTIONAL INVESTORS four reverse roadshows. Thirty-six TOFAŞ MANAGEMENT’S The Tofaş Institutional Investor teleconferences were also organized Relations Department conducted four for international investors. 2015 DIVIDEND PAYMENT financial analyst meetings in İstanbul during 2015, in which the quarterly TOFAŞ SHARE PERFORMANCE PROPOSAL CORRESPONDS company’s financial results were In a year in which the average price disclosed. of a share of Tofaş stock was 44% TO A 44% SHARE OF THE higher in 2015 than it was in 2014, the In addition to these meetings, the company’s shares outperformed the 7% COMPANY’S NET PERIOD department also conducted a total average rise in the BIST 100 index by a of 266 institutional investor and 80 huge margin. PROFIT. financial analyst meetings through such means as company visits, national and international investor conferences, international roadshows and reverse roadshows, and +44% teleconferences. YEAR-OVER-YEAR INCREASE IN During 2015 Tofaş took part in five international investor conferences. THE AVERAGE VALUE OF TOFAŞ In its home market it took part SHARES in five investor conferences and two roadshows while also hosting VALUE INCREASE IN 2015 (%) CHANGES IN THE INTERNATIONAL OWNERSHIP OF TOFAŞ’S PUBLICLY-TRADED 44.4 STOCK As of end-2009, 72% of Tofaş’s publicly-traded shares were held by international investors. This percentage has increased steadily in the years since then and reached 89% as of end-2015. (By comparison, total 89% international investor involvement in BIST as a whole fell from 67% to 7.2 TOFAŞ’S PUBLICLY-TRADED 62% during the same six-year period.) STOCK HELD BY INTERNATIONAL Tofaş’s 89% is the highest percentage of international ownership in any Koç INVESTORS Group company. BİST 100 TOFAŞ RATIO OF INTERNATIONAL OWNERSHIP OF TOFAŞ’S PUBLICLY- TOFAŞ BİST EARNINGS PER SHARE (TL) TRADED STOCK (%) 87% 89% 89% 89% 82% 1.66 72% 79% 67% 66% 66% 62% 62% 64% 62% 1.15 0.95 0.88 0.87 0.77 2009 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 6 TOFAŞ 2015 ANNUAL REPORT - TOFAŞ AT A GLANCE TOFAŞ MANAGEMENT DIVIDEND PAYMENT PERFORMANCE PROPOSES PAYING OUT Net Profit (TL million) Dividend (TL million) Dividend/Net Profit (%) DIVIDENDS TOTALING 107% 831 TL 365 MILLION 85% 75% 574 65% 474 480 485 448 434 384 53% 365 325 44% 250 250 2010 2011 2012 2013 2014 2015 (TL million) 2010 2011 2012 2013 2014 2015 Net Profit 384 474 448 434 574 831 346 Dividend 250 250 480 325 485 365 346 MEETINGS FOR Dividend/Net Profit (%) 65% 53% 107% 75% 85% 44% INSTITUTIONAL INVESTORS AND The company’s management proposes paying out dividends totaling TL 365 FINANCIAL ANALYSTS WERE million for 2015 and this proposal corresponds to a 44% share of the company’s CONDUCTED BY TOFAŞ IN 2015 net period profit.