LIFE IS RENEWAL...in 2016 correspond to an increase of 37.8% compared to 2015. In 2016, shipments amounted 392,027. 383,491 In 2016, Tofaş recorded 14.2 billion TL in sales revenues

LIFE IS RENEWAL

TOFAŞ 2016 ANNUAL REPORT

CONTENTS

TOFAŞ AT A GLANCE04 About Tofaş05 Vision, Mission & Values06 Key Financial And Operational Highlights08 Institutional Investor Relations10 Tofaş in 201614 Awards

MANAGEMENT18 Chairman’s Message20 Board Of Directors26 CEO’s Message28 Senior Management

ACTIVITIES34 Turkey’s Automotive Sector And Tofaş’s Position In The Sector42 Brands and Products 48 Dealership Network49 Subsidiaries54 Research & Development57 Quality Management58 Human Resources

SUSTAINABILITY62 Sustainability Policy 65 Corporate Social Responsibility70 Environment72 Climate Change73 Occupational Health & Safety75 Supply Chain Management78 Customer Satisfaction Policy79 Ethical And Anti-Corruption Practices

CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES82 Agenda of the Ordinary General Assembly Meeting 83 Information on the Capital Structure and Shareholding of the Company86 Declaration of Corporate Governance Principles And Compliance

Report105 Activities of the Early Detection of Risk and Risk Management

Committee107 Associate Company Report108 Activities of the Early Detection of Risk and Risk Management

Committee109 Remuneration Policy110 Dividends Distribution Policy111 2016 Profit Distribution Proposal112 2016 Dividends Distribution Table113 Independent Auditor’s Report on the Board of Directors’ Annual Report

FINANCIAL INFORMATION116 Convenience Translation Into English Of Consolidated Financial

Statements For The Period 1 January- 31 December 2016 Together With Independent Auditor’s Report

117 Independent Auditor’s Report Regarding Consolidated Financial Statements

Occupational Health & Safety73

Human Resources58

Research & Development54

Brands and Products42

Tofaş In 201610

In 2016, we became the leader of Turkish automotive sector setting records in production and exports while completing the launches of all models of the Fiat Egea family. We achieved the highest production among allFCA factories.

While we beamed with pride at manufacturing our 5 millionth vehicle, we were selected as the industry’s most successful company in R&D for two consecutive years.

PRIDE IN 5 MILLIONTH VEHICLETofaş-the only Turkish automotive manufacturer of both passenger cars and light commercial vehicles-is proud to have rolled the 5 millionth vehicle off the production line, a milestone in the sector.


4

ABOUT TOFAŞ

With an annual production capacity of 400 thousand vehicles and over 10,000 employees, Tofaş is Turkey’s fifth biggest industrial establishment.

Turkey’s Only Automotive Manufacturer that Produces Both Passenger Cars and Light Commercial VehiclesFounded in 1968, Tofaş is the only automotive manufacturer in Turkey that produces both passenger cars and light commercial vehicles.

Tofaş is a joint venture of Koç Holding and Fiat Chrysler Automobiles (FCA). Each entity controls an equal stake of 37.85%. A 24.3% of Tofaş’s shares are publicly traded on the Borsa Istanbul Stock Exchange (BIST), where they are included not only in the BIST 30 and BIST 100 indexes but also in the Corporate Governance and Sustainability indexes. In addition, Tofaş shares are likewise listed on the Luxembourg Stock Exchange.

Turkey’s Fifth Biggest Industrial EstablishmentWith an annual production capacity of 400 thousand vehicles and over 10,000 employees, Tofaş is Turkey’s fifth biggest industrial establishment. Headquartered in Istanbul, Tofaş’s manufacturing facilities are located in Bursa. The Bursa plant is close to 1 million square meters, of which 350 thousand square meters are sheltered areas and continues to be the target of capital investments aimed at bolstering the company’s competitive strength.

Besides being one of Fiat-Chrysler Automobile (FCA)’s three strategic global production centers in the world, Tofaş is also FCA’s second biggest European-based R&D center.

At the Bursa plant, Tofaş manufactures a range of passenger cars, Fiat Linea and Egea models, as well as light commercial vehicles for Fiat, Citroen, and Peugeot under the Minicargo project and for Fiat, Opel, Vauxhall, and RAM under the New Doblò project. The company is also the distributor of the Fiat, Alfa Romeo, Jeep®, Lancia, Maserati, and Ferrari brands in Turkey.

TOFAŞ AT A GLANCE

5

OUR VISION

TOWARDS ONE MILLION VEHICLES PER ANNUM… To be a leading automotive company that shapes customer expectations and is a source of pride.

OUR MISSION

To improve people’s quality of life by providing them with the products and services that best suit society’s need for mobility.


6

KEY FINANCIAL AND OPERATIONAL HIGHLIGHTS

Posting sales revenue of TL 14.2 billion and domestic market share of 11.1% in 2016, Tofaş further strengthened its position in the Turkish automotive industry.

OPERATIONAL HIGHLIGHTS 2015 2016

Export Sales (TL thousand) 5,729,275 9,839,301

Domestic Sales (TL thousand) 4,121,142 4,291,021

Other Income from Operational Activities (TL thousand) 70,306 105,629

Cumulative Production Volume (units) 278,252 383,491

Shipments (units) 296,812 392,027

FINANCIAL HIGHLIGHTS (TL THOUSAND) 2015 2016

Total Assets 9,866,566 11,829,708

Shareholders’ Equity 2,582,291 2,957,451

Sales Revenues 9,920,723 14,235,951

EBITDA 1,062,668 1,366,148

Profit Before Tax 617,987 797,936

Net Profit 830,801 970,228

The 383,491 units manufactured by Tofaş in 2016 correspond to an increase of 37.8% compared to 2015.

In 2016, shipments amounted 392,027.

383,491

In 2016, Tofaş recorded 14.2 billion TL in sales revenues and a net profit of TL 970.2 million.

TL 14.2 billion392,027

TOFAŞ AT A GLANCE

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TOTAL ASSETS (TL MILLION)

EBITDA (TL MILLION)

SHAREHOLDERS’ EQUITY (TL MILLION)

PROFIT BEFORE TAX (TL MILLION)

SALES REVENUE (TL MILLION)

NET PROFIT (TL MILLION)

19.9%

28.6%

14.5%

29.1%

43.5%

16.8%

2015

2015

2015

2015

2015

2015

2016

2016

2016

2016

2016

2016

9,867

1,063

2,582

618

9,921

831

11,830

1,366

2,957

798

14,236

970


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INSTITUTIONAL INVESTOR RELATIONS

Tofaş’ Stock 2016 Average Price Outperformed Both BIST-100 and Industrial Indexes.

MEETINGS WITH INSTITUTIONAL INVESTORSIn 2016, Tofaş Institutional Investor Relations Department conducted four financial analyst meetings to present the Company’s quarterly financial results. One of these meetings was physically held at the Head Office and was webcasted, while three were conducted only via webcasting. Senior management of the Company participated in all of these meetings.

Additionally, the Department conducted a total of 340 meetings during the year: 227 meetings with institutional investors, and 113 analyst meetings via company visits, teleconferencing, national and international investor conferences, and international roadshows.

During 2016, Tofaş took part in four international investor conferences, three investor conferences in Turkey, and one international roadshow. Additionally, the Company organized 43 teleconferences with analysts and investors.

SHARE PERFORMANCE Tofaş’s average stock price in 2016 increased 31.1% year-over-year, and outperformed the BIST 100 Index, which fell 4.2% during the same period.

2016-2015 ANNUAL AVERAGE PRICE INCREASE (%)

31.1%

TOFAŞ, BIST 100 AND INDUSTRIAL INDEX DAILY MOVEMENT ACCORDING TO CLOSING VALUES 31.12.2015=100

Tofaş BIST 100 INDUSTRIAL INDEX134.5 108.9 115.2140.0135.0130.0125.0120.0115.0110.0105.0100.095.090.0

31.12.2015 29.02.2016 30.04.2016 30.06.2016 31.08.2016 31.10.2016 31.12.2016

TOFAŞ AT A GLANCE

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SHARE OF FOREIGN INVESTORS IN FREE FLOAT (%)As of year-end 2016, the share of foreign investors in Tofaş’s free float stood at 86%. Tofaş has the second highest foreign investment share among all Koç Group companies. During the same period, foreign investor share in BIST was 63%.

INSTITUTIONAL INVESTOR RELATIONS CONTACT INFORMATION:Tofaş’s official investor relations webpage can be accessed via the following link. The webpage contains broad information including Analyst Presentations concerning the Company’s quarterly results, monthly-updated investor presentations, financial reports, a calendar of investor relations events, and other important information that may be of interest to investors.

Investor Relations Web Page in Turkish:http://www.tofas.com.tr/tr/yatirimci/Pages/HisseSenedi.aspx

Investor Relations Web Page in English:http://www.tofas.com.tr/en/investor/Pages/Stock-and-Stock-Exchange-Market-Info.aspx

Institutional Investor Relations Department:

Münir Emre ERTÜRKBudget Planning, Commercial Control and Investor Relations ManagerPhone: + 90 212 275 3390 Ext: 2751E-mail: [email protected]

Pırıl USFinancial Risk & Investor Relations SpecialistPhone: +90 212 275 3390 Ext: 2727E-mail: [email protected]

* Tofaş Investor Relations Department personnel hold Capital Market Activities Advanced-Level and Corporate Governance Rating licenses qualifying them to perform investor relations functions.

Tofaş’s dividend payments in the past periods are as follows:

TL MILLION 2012 2013 2014 2015 2016/PNet Profit 448 434 574 831 970Dividend 480 325 485 365 350Dividend/Net Profit (%) 107% 75% 85% 44% 36%

Tofaş management’s 2016 dividend payment proposal amounts to TL 350 million, corresponding to 36% of the Company’s net profit for 2016.

448

434

574

831

970

Net Profit (TL million)Dividend (TL million)Dividend/Net Profit (%)2012 2013 2014 2015 2016

75%85%

44%36%

107%

RATIO OF INTERNATIONAL OWNERSHIP OF TOFAŞ’S FREE FLOAT SHARES (%)

2012

66%

87%

2013

62%

89%

2014

64%

89%

2015

62%

89%

2016

63%

86%

EARNINGS PER SHARE (TL)Tofaş

Tofaş’s earnings per share data for the past periods are as follows.

480

325

485

350

365

BİST

DIVIDEND PAYMENT PERFORMANCE

2012

0.88

2013

0.87

2014

1.15

2015

1.66

2016

1.94


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JANUARY

Chairman of the Board of Directors Tofaş Passed Away

The Chairman of the Board of Directors of Koç Holding and Tofaş, Mr. Mustafa V. Koç passed away on January 21 due to a heart attack.

FEBRUARY

Fiat dealers convened in BursaFiat dealers and service representatives met in Bursa.

Egea Family models debut at Geneva Motor ShowEgea family’s Sedan, Hatchback and Station Wagon models were exhibited together for the first time at the 86th Geneva Motor Show.

MARCH

Tofaş Ordinary General Assembly Meeting was heldThe 48th Tofaş Ordinary General Assembly Meeting was held at the Headquarters in Istanbul.

Lancia, Alfa Romeo and Jeep® dealers meet The Premium Brands Dealer Meeting, bringing together Lancia, Alfa Romeo and Jeep® dealers, was held with the theme “Altogether Towards the Peak.”

Alfa Romeo 4C Spider debuts in TurkeyThe Alfa Romeo 4C Spider, the cabriolet version of the super sports model of the 4C, was launched in the Turkish market.

APRIL

Egea Hatchback rolls off the assembly line

The manufacturing of the Hatchback model - the Egea family’s second member - started with a ceremony attended by Fikri Işık, the Minister of Science, Industry and Technology.

TOFAŞ IN 2016

The manufacturing of the Hatchback model, the second member of the Egea family, started with a ceremony.

TOFAŞ AT A GLANCE

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New Generation Tofaş project targets 2,000 youth

Over the years, Tofaş has achieved great success in basketball and fostered many notable players in Turkey. Now, Tofaş has launched a new social responsibility effort that aims to create equal opportunities for children to have access to sports. “New Generation Tofaş” is designed to give youth a culture and perspective that will help them succeed in all areas of life beyond sports education. MAY

Fiat Egea launch for dealers

The Egea Hatchback was introduced to Fiat dealers at the dealers meeting.

Fiat Motability program was launchedThe “Fiat Motability” program was launched to support the freedom of movement of disabled persons and to contribute to the social awareness on the issue.

JUNE

Mustafa V. Koç Sports Hall opens

The sports hall, built in the name of the late Mustafa V. Koç—former Chairman of the Board of Directors of Koç Holding and Tofaş—was opened in the factory area.

Fiat Fullback introduced to the market

Fiat Fullback was on the road in Turkey following the dealer launch.


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1 million vehicles manufactured under the Minicargo Programme

2007 yılının son çeyreğinde üretimine başlanan Minicargo Projesi’nin 1 milyonuncu aracı, törenle üretim bandından indirildi.

Son klasik Doblò töreni

Marked by a ceremony, the 1 millionth vehicle of the Minicargo Programme, which started manufacturing in fourth quarter 2007, rolled off the assembly line.

The latest classic Doblo CeremonyOne of the most important model of Tofaş history, the latest classical Doblò, that created its own segment, was rolled off the assembly line. Between the years 2000-2016, 1,030,773 units were produced.

JULY

Manufacture of Fiat Egea Station Wagon starts

With a ceremony held in Bursa, the manufacture of the Egea project’s third model, the Station Wagon, started.

5 millionth vehicle rolls off the assembly line

Tofaş rolled the 5 millionth vehicle off the assembly line—a milestone in the world automotive industry. The 5 millionth vehicle manufactured by Tofaş was a Fiat Egea Hatchback.

Egea in premieres in Mexico with the Dodge brandEgea’s Sedan model entered the North American continent and set out on the road with the Dodge brand in Mexico.

SEPTEMBER

Egea Station Wagon debuts

Egea’s latest member—Fiat Egea Station Wagon—was presented for the first time in Turkey at the Samsun Autoshow.

1 millionth car loan in KFK’s 10th year Leaving behind the tenth year of operations, Koç Fiat Kredi extended a car loan for the 1 millionth application made by a client.

TOFAŞ IN 2016

With a ceremony held in Bursa, the manufacture of Egea’s third model, the Station Wagon, started.

TOFAŞ AT A GLANCE

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The “Kantarın Topuzu” exhibition opensThe “Kantarın Topuzu” exhibition, which reflects thousands of years of stories about scales, weights and measuring instruments, opened at the Tofaş Bursa Anatolian Vehicle Museum.

OCTOBER

A record in daily manufacturingHaving broken new records after implementing the three-shift system, Tofaş manufactured 1,556 vehicles on October 13, 2016, breaking the all-time daily manufacturing record in Turkey.

Basketball season opening

Having qualified to compete in the Super Toto Basketball Super League, Tofaş Sports Club unveiled its new logo and jersey at a ceremony held in the Nilüfer Tofaş Sports Hall to open the 2016-2017 season.

Jeep® celebrated its 75th anniversary at the peak

The Jeep® world widely celebrated its 75th anniversary year throughout 2016. As part of the various events held in Turkey, Jeep® organized an unforgettable off-road driving experience in Fethiye.

NOVEMBER

Record set in Press Shop Tofaş Press Shop broke the highest press per day record in Tofaş history, by stamping 56,377 parts.

DECEMBER

WCM score increasesAs a result of the World Class Production (WCM) inspection conducted at the plant, Tofaş’s score increased to 76, up one point in the categories of “Early Product and Equipment Management” and “Time and Budget.”

Egea returns after completing World Tour

The Fiat Egea Sedan driven by Okan Altan—an experienced automobile journalist—returned to Bursa after completing a World Tour across 22 countries, including Turkey.


14

The Best R&D Center in the Automotive Industry

Tofaş R&D Center was named “The Best R&D Center” in the Turkish automotive industry, by the Ministry of Science, Industry and Technology for the second consecutive year.

Doğan Ersöz award from BUSİAD Tofaş garnered the Special Success Award from the Doğan Ersöz Awards and Success Awards held by the Industry and Business Association of Bursa (BUSİAD).

Bursa’s largest establishment: TofaşTofaş ranked first in “Bursa’s Top 250 Largest Enterprises” ranking compiled by the Bursa Chamber of Commerce and Industry (BTSO) based on the companies’ 2015 data.

AutoBest Award granted in Milan

In 2016, “The Best Buy Car of the Year-AutoBest 2016” award went to Egea with a special ceremony held in Milan, Italy. At a ceremony held in the factory, the award was presented to the employees by Dan Vardie, the President of the Jury.

Tofaş innovation and export awards from BTSOAt the Value Contributors of the Economy Award ceremony organized by the Bursa Chamber of Commerce and Industry (BTSO), Tofaş was named the “Industry Leader” in the automotive industry while ranking the first in the “Innovation” category and second in “Exports.”

Two awards in Occupational Health and Safety from Mess Golden Glove At the Golden Glove Ceremony held by Turkish Metal Industrialists’ Union, Tofaş’s model practices in Occupational Health and Safety won the first prize in the category of “Facilities with 500 Employees or More.” The Golden Award was also granted to the Occupational Health and Safety project of Tofaş employees.

AWARDS

Tofaş was named the best R&D center in the Turkish automotive industry for the second consecutive year.

TOFAŞ AT A GLANCE

15

Turkey’s R&D Investment Leader; Tofaş

Tofaş was the highest ranking Turkish company on the R&D investments Score List of the European Commission Joint Research Center. First entering the list at 547th place, Tofaş went up 27 places this year with its EUR 182.5 million in R&D investments.

European Union Environment Award

Under the EU Environment Awards Turkey Program, the Direct Use of Solar Energy in Manufacturing Processes project was the runner-up in the “Process” category. With its award winning project, Tofaş became the world’s first factory in the automotive industry to heat the process air directly by solar energy.

Tofaş figures among the 200 cleanest companies in the worldTofaş ranked 88th as the only Turkish company on the Clean 200 list, which ranks the top 200 companies conducting activities in the area of clean energy and technology.

CDP Turkey Climate Leaders Award As the only automotive manufacturer among the 50 companies in the CDP Climate Change Program 2016 Turkey Report, Tofaş was one of the seven companies to receive the CDP Turkey Climate Leaders Award.

Sustainable Business Award goes to Tofaş Waste Management The 5R for Sustainable Waste Management project was presented an award in the “Waste Management” category at the 2016 Sustainable Business Awards organized by the Sustainability Academy.

“Green Car of the Year”

The Ram ProMaster City Fiat Doblò was designated “Green Car of the Year” for the second time by Green Car Journal. The ProMaster City, which received the same award in 2015, became the first vehicle to garner the award two years in a row.

Green Point Industry Award from ÇEVKOThe 5R for Sustainable Waste Management project won an award at the Green Point Industry Awards held by the Environmental Protection and Recycling of Packaging Waste Foundation (ÇEVKO).

Tofaş ranks 4th at Patent League Tofaş ranked fourth in the Turkish Patent League at Patent Awards ceremony.

Three awards at the GladiatorsWhile Fiat Linea was named the “Best-selling Car Model of the Year” at the ODD Sales and Communication Awards organized by the Automotive Distributors Association, Jeep®’s “The Footprints of Jeep® Renegade” was designated the “Best Outdoor Application of the Year.” The launch of Fiat Egea received the Jury Special Award of the Year.

Effie Award At the Effie Advertising Event Competition, Tofaş garnered two gold and one bronze Effie awards. In the “Automotive” and “New Born and Launch” Effie categories, Egea received two gold Effies; meanwhile, the Fiorino FL promotional campaign received a bronze Effie in the “Automotive Industry” category.

Fiat and Jeep® campaigns receive Crystal Apple Fiat won six awards at the Crystal Apple award ceremony, with the Fiat Egea launch video “Game Changer Father’s Day” ad and the digital project made within the Star Wars sponsorship. Jeep® was presented with two Silver Crystal Apples in the “Outdoor” and “Press” categories for its work “Escape from the Shopping Mall.”

THE AUTOMOTIVE INDUSTRY’S RECORD BREAKER Tofaş’s total production increased by 38% and exports went up 61% compared to the previous year, setting new records for the industry.


18

CHAIRMAN’S MESSAGE

Tofaş significantly contributes to the national economy by creating jobs and added value, while generating export income.

Esteemed Shareholders,Valued Partners andDear Members of the Tofaş Family,

2016 was a year of major economic and political events that created further uncertainties in global markets. In particular, the global political landscape was dominated by the US presidential election and the “Brexit” referendum in the UK.

Furthermore, the treacherous coup attempt in July left its dark mark upon Turkey’s political history, while a series of terrorist attacks wounded us all, leaving deep, lasting scars in our collective psyche. For our country, 2016 was also a year marked by volatility in financial markets and heightened geopolitical risk.

In the face of unexpected developments, both internal and external, and despite a challenging period, the Turkish economy once again demonstrated its resilience, thanks to the country’s dynamic private sector and robust public finances. Nevertheless, the economic slowdown, rising unemployment rate and market fluctuations are some of the factors that are likely to affect the business environment in 2017. That being said, the recently introduced economic incentive package, the “Asset Peace” act, the “attraction center” program, and funding programs geared toward SMEs are expected to bolster economic activity in Turkey.

In addition to its significant contributions to employment and exports, the Turkish automotive industry, with its high-tech and value-added production capabilities, plays a strategically important role in the Turkish manufacturing industry. In 2016, overall production in the sector increased 9%, while automobile production grew 20% over the previous year. Meanwhile, Tofaş expanded its production capacity by 38%, to become the industry leader.

The automotive industry, widely regarded as the driver of Turkish exports, created a trade surplus of US$ 1.96 billion in 2016. While Turkey’s export volume remained unchanged from the previous year, automotive exports expanded 13%, totaling US$ 24 billion in 2016. The automotive industry accounts for 16.8% of total exports, and therefore, is of key importance to our country’s exports with its net contribution. Tofaş, boasting a record-high export volume, single-handedly created a trade surplus of US$ 1 billion, accounting for half of the total trade surplus generated by the industry.

Tofaş was positively affected by the expansion of the European automotive market, to which 84% of its export sales were made in 2016. As passenger car and light commercial vehicle markets in Europe grew 6.5% and 11.6%, respectively, Tofaş, the only Turkish company that manufactures vehicles in both segments, increased its exports by 60.8%, notably outperforming European market growth.

As a result, Tofaş became the leading manufacturer and biggest exporter in the Turkish automotive industry in 2016. Boasting a manufacturing capacity of 400 thousand vehicles and more than 10,000 employees, Tofaş is the fifth largest industrial enterprise in Turkey. Tofaş significantly contributes to the national economy by creating jobs and added value, while generating export income.

The Fiat Egea models played a major role in the remarkable growth Tofaş achieved in 2016. Designed and manufactured in Turkey, Fiat Egea generated strong domestic and international demand, exceeding expectations, from the moment of its launch, stretching the limits of our production capacity and becoming a milestone for Tofaş. Fiat Egea’s extraordinary performance is a solid indicator of our prudent investment decision. For Fiat Egea, which was developed with a record-breaking investment of US$ 1 billion, we aim to reach production of 1,500,000 units and US$ 10 billion in exports by 2023.

MANAGEMENT

19

Tofaş, in my opinion, owes its resounding success in the last period to raising its product development and manufacturing capabilities to an enviable international level. We are very pleased to see that this high performance has further bolstered Tofaş’s position as a manufacturing and R&D hub, and its effectiveness in the global arena. With the addition of Fiat Egea, which is exported to America under the Dodge Neon brand, the number of global brands manufactured at the Tofaş Bursa Plant rose to seven.

As a leading manufacturer and distributor, Tofaş captured 11.1% of the domestic market in 2016 with the Fiat, Alfa Romeo, Jeep, Ferrari and Maserati brands it represents in Turkey.

Tofaş’s strong growth and international success is the result of 48 years of strong partnership, mutual trust and cooperation between Koç Group and Fiat Chrysler Automobiles.

Tofaş has become one of the three strategic, global manufacturing hubs of FCA, while also serving as the Group’s second largest R&D center in Europe. Investing 3% of its turnover in R&D, Tofaş’s manufacturing center also serves as a benchmark of other factories of the Group.

I am confident that Tofaş will continue to create value for its shareholders, customers and investors in 2017. To this end, we will continue working to create a stronger Turkey by concentrating our efforts on production, investments and employment to support the economic and social development of our country. Having said that, I would like to take this opportunity to express my deepest gratitude to all our employees, dealers, business partners, shareholders, and all other stakeholders for their valuable contributions to Tofaş’s remarkable success. And I sincerely hope that 2017 brings peace and prosperity to our country and the world.

Respectfully,

ÖMER M. KOÇChairman


20

BOARD OF DIRECTORS

Left to Right

Kudret Önen Board Member, Temel Kamil Atay Board Member, Gökçe Bayındır Independent Member

Levent Çakıroğlu Board Member, Giorgio Fossati Board Member, Ömer Koç Chairman

* Scott Garberding, Member of the Board of Directors, did not attend the Board of Directors Meeting dated 03.06.2016.

MANAGEMENT

21

Left to Right

Sergio Marchionne Vice Chairman, İsmail Cenk Çimen Board Member ,

Libero Milone Independent Member, Alfredo Altavilla Board Member, Cengiz Eroldu Board Member - CEO


22

BOARD OF DIRECTORS

ÖMER M. KOÇChairmanAfter graduating from Robert College, Ömer M. Koç earned his B.A. degree in Ancient Greek from Columbia University in 1985, completing the MBA program at the same university in 1989. He began his professional career as a Sales Officer at Kofisa Trading Company in Switzerland in 1985. Between 1989 and 1990, he worked as a Sales Officer at Ramerica Int. Inc. in New York; in 1991, he became the Manager of Gazal A.Ş. Later, he served as Finance Coordinator at Koç Holding A.Ş. (1992–1996), Vice President of the Energy Group (1996–2000), and President of the Energy Group (2000–2004). Ömer M. Koç served as Board Member at Koç Holding A.Ş. between April 2004 and 2008, and subsequently as Vice Chairman from 2008 to 2016. Ömer M. Koç has been the Chairman of Koç Holding A.Ş. since February 22, 2016, and the Chairman of Tofaş since April 6, 2016.

SERGIO MARCHIONNEVice ChairmanSergio Marchionne holds a B.A. with a major in Philosophy from the University of Toronto (Canada) and a Bachelor of Laws from Osgoode Hall Law School at York University in Toronto, as well as an MBA and a Bachelor of Commerce from the University of Windsor (Canada). Mr. Marchionne is a barrister, solicitor and chartered accountant. Mr. Marchionne became a Member of the Fiat S.p.A. Board of Directors in 2003, and Chief Executive Officer in 2004. In addition, in 2009, he was appointed CEO of Chrysler Group LLC (renamed FCA US LLC in December 2014); in 2011, he also assumed the role of Chairman. In 2014, he became CEO of Fiat Chrysler Automobiles N.V. and Chairman of Ferrari S.p.A. In 2010, he joined the Board of Directors of Exor S.p.A. As of September 2013, he is also Chairman of CNH Industrial N.V., the company resulting from the mergers of Fiat Industrial S.p.A. and CNH Global N.V. Mr. Marchionne was elected as the Chairman of the Board of Directors of the European Automobile Manufacturers’ Association (ACEA) in 2013. He is currently a Member of the Board of Philip Morris International Inc. and the Peterson Institute for International Economics, as well as Chairman of the Council for the United States and Italy. He is the permanent Member of the Giovanni Agnelli Association and also holds the honor of Cavaliere del Lavoro.

CENGİZ EROLDUBoard MemberCengiz Eroldu graduated from the Business Administration Faculty of Istanbul University and completed the MBA program at LUISS University (Italy). He began his career as an Audit Specialist at Koç Holding in 1989. He was appointed to the position of Assistant Accounting and Industrial Governance Manager for Tofaş in 1995, working in the Accounting and Industrial Governance Department and the Budget and Governance Department from 2001 to 2008, and in the Finance Department between 2008 until 2015. Since January 2015, he has served as Member of the Tofaş Board of Directors and CEO.

TEMEL KAMİL ATAYBoard MemberTemel Kamil Atay holds an undergraduate degree in Mechanical Engineering from Istanbul Technical University and B.A. in Business Administration from Detroit’s Wayne State University (USA). He started his career as Product Development Engineer at Chrysler Industry in 1965, joined the Koç Group as a Product Development Manager at Otosan A.Ş. in 1966 and served as a Product Development Engineer at Ford Motor Co. USA in 1969. He served as Vice Automotive Coordinator at Koç Holding A.Ş. in 1972, General Manager at Otoyol Sanayi A.Ş. from 1974 to 1981 and as CEO at Tofaş Türk Otomobil Fabrikası A.Ş. between 1981 and 1992. At Koç Holding A.Ş., he served as Vice President of Technical Projects in 1992, Chairman of the Tofaş Group in 1994 and as Deputy Chairman of the Community Steering Committee. He served as CEO of Koç Holding from 2000 to 2001 and he currently is a member of the Board of Directors of Koç Holding.

MANAGEMENT

23

LEVENT ÇAKIROĞLU Board MemberLevent Çakıroğlu received his Bachelor’s degree in Business Administration from the Faculty of Political Science at Ankara University and his Master’s degree from the University of Illinois. He began his professional career in 1988 as auditing specialist at the Ministry of Finance. In 1997–1998, he was a part-time faculty member at Bilkent University and served as the Deputy Head of the Financial Crimes Investigation Board under the Ministry of Finance. He joined Koç Holding as Financial Affairs Coordinator in 1998, where he later served as General Manager of Koçtaş (2002–2007) and General Manager of Migros (2007–2008), until he was appointed General Manager of Arçelik in 2008. In tandem with this post, he served as the President of Koç Holding’s Consumer Durables Group between 2010 and 2015. He was appointed CEO of Koç Holding in April 2015.

ALFREDO ALTAVILLABoard MemberAlfredo Altavilla holds a degree in Economics from Università Cattolica, Milan. In 1990, he joined Fiat Auto and initially focused on international enterprises in the areas of strategic planning and product development. In 1995, he was appointed Chairman of the Fiat Auto Beijing office and then Chairman of Asian Operations in 1999. In 2004, he was appointed FGP Chairman (Fiat/GM Powertrain JV) and Senior Vice President of Business Development at Fiat Auto. He was appointed CEO of Türk Otomobil Fabrikası A.Ş. in 2005, while retaining his role as head of Business Development. In 2006, he was appointed CEO of FPT-Fiat Powertrain Technologies. In 2009, he became a Member of Board of Directors of Chrysler Group LLC; in 2009, he was appointed Executive Vice President of Business Development for Fiat Group. From 2010 to 2012, he was CEO of Iveco and a Member of the Fiat Industrial Executive Authority between 2011 and 2012. He was appointed Chief Operating Officer Europe, Africa and Middle East (EMEA) in 2012. He has also been a Member of the Group Executive Council (GEC) and Head of Business Development since 2011.

İSMAİL CENK ÇİMENBoard Memberİsmail Cenk Çimen holds a degree in Industrial Engineering from Istanbul Technical University; in addition, he completed Executive Development Programs at Stanford University (USA) and University of California – Los Angeles (USA). He joined Koç Group in 1991 as a Management Trainee at Nasoto. He assumed Sales Coordinator, Regional Manager and Import Manager responsibilities at Otosan Pazarlama between 1993 and 1996. He served as Fleet Sales Manager at Ford Otosan from 1996 to 1998 and became the General Manager of Otokoç Ankara in 1998. In 2001, he was appointed General Manager of the companies merged under Otokoç. In 2005, his responsibility was extended to include the General Manager role at Birmot A.Ş., while also assuming responsibility for Avis car rental. He has served as the President of Automotive Group at Koç Holding since June 2009.

KUDRET ÖNENBoard MemberKudret Önen holds a degree from the Machine Engineering Department at Gazi University. He joined the Koç Group at Ford Otosan in 1975. In 1980, he became R&D Department Manager at Koç Holding and was appointed Assistant General Manager of Otokar in 1984. He served as General Manager of Otokar between 1994 and 2005 and was appointed Co-President of Koç Holding Other Automotive Companies Group in 2005. He was the President of the Defense Industry and Other Automotive Group at Koç Holding between 2006 and 2010. He has served as the President of the Defense Industry, Other Automotive and IT Group at Koç Holding since 2010. In addition, he has served as President of the Automotive Manufacturers Association since 2010 and the Chairman of the Defense and Aerospace Industry Manufacturers Association for the 2013–2014 period. In 2016, he was appointed the Chairman of MESS (Turkish Employers’ Association of Metal Industries), TİSK (Turkish Confederation of Employer Associations) and OSD (Automotive Manufacturers Association).


24

SCOTT R. GARBERDINGBoard MemberScott R. Garberding holds a Bachelor’s of Science in Electrical Engineering from University of Texas and an MBA in Management from the Massachusetts Institute of Technology. He joined Chrysler Corporation in 1993 in the Manufacturing organization and rose to Vice President – Supply and Supplier Quality, Chrysler LLC beginning in 2007. In 2008, he was appointed Vice President – Global Alliance Operations and became Senior Vice President and Chief Procurement Officer, Chrysler Group LLC in 2009. He also held the position of Senior Vice President and Chief Procurement Officer, Chrysler LLC from 2008, with responsibility for all global sourcing activities worldwide. In December 2009, he was appointed Senior Vice President of Manufacturing/World Class Manufacturing, Chrysler Group LLC. In this position, he was responsible for all assembly, stamping, and powertrain manufacturing operations worldwide as well as implementation of the World Class Manufacturing system at all Chrysler Group manufacturing facilities. He was appointed Fiat Chrysler Head of Group Purchasing and named a Member of the Group Executive Council (GEC) in 2013. In 2016, Garberding was appointed Head of Quality.

GIORGIO FOSSATI Board MemberGiorgio Fossati holds a degree in law from the University of Turin (Italy). He started his professional career in the Legal Department at Iveco S.p.A. in 1988 and joined Fiat S.p.A. in 1999 as a member of the legal staff. He became General Counsel of FCA Italy S.p.A. in 2002. He has served as the General Counsel for FCA EMEA Region and as Corporate General Counsel for Fiat Chrysler Automobiles N.V. since 2011. Mr. Fossati is a member of the Boards of Directors of FCA US LLC, FCA Italy S.p.A., Teksid S.p.A., Fiat Chrysler Finance S.p.A., Fidis S.p.A., FCA Partecipazioni S.p.A., Fiat Chrysler Risk Management S.p.A. and Abarth & C. S.p.A. In addition, he is a member of the Executive Committee of FCA Poland S.A.

GÖKÇE BAYINDIRIndependent Board MemberGökçe Bayındır received a Bachelor’s degree and MBA from the Business Management Department of Boğaziçi University. Starting his professional career in 1967, he was a Sales Manager at Tofaş Oto Ticaret A.Ş. in 1971, advancing to Assistant General Manager and then General Manager at Tofaş Oto Ticaret A.Ş. He served as Deputy Chairman of Tofaş Group within Koç Holding in 1987 and then held the Tofaş Group Chairmanship prior to his retirement in 2000. While at Koç Group, he served on the Boards of Directors of companies such as Tofaş Oto Ticaret A.Ş. and Tofaş Türk Otomobil Fabrikası A.Ş. Since 2012, he has been an Independent Member of Tofaş’s Executive Board. He is also Chairman of the Audit Committee, the Committee for the Early Identification of Risk and Risk Management, and a Member of the Corporate Governance Committee.

LIBERO MILONEIndependent Board MemberMr. Milone completed his education in the Netherlands and the UK. From 2008 to the beginning of 2011, he served as Senior Supervisor and Honorary President of Protiviti, a global consultancy experienced in corporate governance and risk management. During the same period, he served as a Member of the UN World Food Program Audit Committee; between April 2010 and December 2011, he served as Chairman of Jobnet S.p.A, which develops personnel management and business reception software. From January 2011 to September 2013, he served as Independent Board Member at Fiat Industrial S.p.A and Chairman of the Internal Control and Risk Committee. Since April 2011, he has been an Independent Board Member at Poltrona Frau Group and has served as Chairman of the Internal Control, Risk and Corporate Governance Committee, also as a Member of Remuneration Committee of that company. In May 2011, he joined the Board of Directors of Falck Renewables S.p.A, where he also serves as Chairman of the Internal Audit and Risk Committee and Member of the Remuneration Committee. Since March 2012, he has been serving as Independent Board Member, Chairman of the Corporate Governance Committee, and Member of the Audit Committee and the Early Detection of Risk Committee at Tofaş. Since October 2012, he has served as Chairman and Managing Partner at Milone Associates, a consultancy firm. Since May 2013, he has been an Independent Board Member of Indesit Company, Chairman of the Internal Audit and Risk Committee and Member of Human Resources Committee.

BOARD OF DIRECTORS

MANAGEMENT

25

BOARD OF DIRECTORS MEMBERS WHO HELD OFFICE DURING THE REPORTING PERIOD

TERM

NAME POSITION FROM UNTIL

Mustafa Vehbi KOÇ Chairman 28.03.2014 21.01.2016

Mehmet Ömer KOÇ Chairman 06.04.2016 28.03.2017

Sergio MARCHIONNE Vice Chairman 28.03.2014 28.03.2017

Kamil BAŞARAN Member & CEO 28.03.2014 13.01.2015

Cengiz EROLDU Member & CEO 14.01.2015 28.03.2017

Temel Kamil ATAY Member 28.03.2014 28.03.2017

Osman Turgay DURAK Member 28.03.2014 01.03.2015

Levent ÇAKIROĞLU Member 01.032015 28.03.2017

Alfredo ALTAVILLA Member 28.03.2014 28.03.2017

İsmail Cenk ÇİMEN Member 28.03.2014 28.03.2017

Kudret ÖNEN Member 28.03.2014 28.03.2017

Scott Richard GARBERDING Member 28.03.2014 28.03.2017

Ali Aydın PANDIR Member 28.03.2014 18.02.2016

Giorgio FOSSATI Member 18.02.2016 28.03.2017

Gökçe BAYINDIR Independent Member 28.03.2014 28.03.2017

Libero MILONE Independent Member 28.03.2014 28.03.2017

* Following the election date of the Board of Directors, a three-year term of office has been taken into consideration. (28.03.2014 - 28.03.2017)

DUTIES, AUTHORITIES AND LIMIT OF AUTHORITIES OF THE BOARD OF DIRECTORS Both the Chairman and Members of the Board of Directors shall be authorized with specified duties and authorizations defined in Article 11 of the Articles of Association and related articles of the Turkish Commercial Code. Furthermore, the regulation concerning Executive Board Decisions is available in the 10th article of the Articles of Association.

The regulation concerning auditing is contained in the 13th article of the Articles of Association.


26

CEO’S MESSAGE

2016 was a very successful year for Tofaş, as we launched new models, achieved record-high production and export levels, and won many prestigious awards. Tofaş achieved the highest production among all FCA factories and bolstered its global position through R&D capabilities.

Esteemed Shareholders,

2016 was a very successful year for Tofaş, as we launched new models, achieved record-high production and export levels, and won many prestigious awards. Tofaş achieved the highest production among all FCA factories and bolstered its global position through R&D capabilities.

Creating added value for the national economy through production and exports was a source of pride for Tofaş. Our company increased its production by 38% over the previous year to post an all-time high of 383,491 units, consisting of passenger cars and light commercial vehicles (50–50%), which is also a record level for the Turkish automotive industry. I also want to share with you that in 2016, we rolled our 5 millionth vehicle off the production line, an important milestone for automobile manufacturers.

The Fiat Egea project, which we launched in 2015, made an extraordinary contribution to our record high production level. Fiat Egea Sedan became the best-selling car of 2016 with 35 thousand units sold in Turkey. Additionally, we are happy to introduce the new “Hatchback” and “Station Wagon” models of Fiat Egea.

The Fiat Egea product range generated strong demand, both domestically and internationally. In order to meet increasing demand, we added 3,500 jobs at our plant and started implementing a three-shift schedule. As a result, Tofaş’s capacity utilization reached 95%, and we achieved the highest daily production volume in the Turkish automotive

industry by manufacturing 1,556 vehicles per day in October.In 2016, our exports grew 61% over the prior year to 279,537 vehicles, while Tofaş rose to first place among Turkish automotive exporters. Our company single-handedly accounted for 26% of total production in the Turkish automotive industry and 24% of total exports.

Tofaş sells the highest number of vehicles manufactured domestically, another factor bolstering its competitive power in the Turkish market; 92% of vehicles sold under the Fiat brand in the domestic automotive market are manufactured by Tofaş in Turkey. Tofaş captures 11.1% of the domestic market with combined sales of Fiat and Premium brands totaling 109 thousand units.

Our company’s financial results and share performance reflected the strong growth we achieved in 2016. Tofaş’s sales revenue increased 43.5% over the prior year, climbing to TL 14 billion, while we generated 69% of our total sales revenue through export sales. During the same period, our company’s net profit jumped 16.8% to TL 970 million; operating profit rose 20% to TL 844 million; and EBITDA grew 28.6% to TL 1,366 million.

At year-end 2016, Tofaş’s market capitalization stood at TL 12,320 million, as the company’s stock price continued to rise. In 2016, Tofaş’s stock price increased 31.1%, on average, while the BIST 100 Index fell 4.2% during the same period. TOASO entered its 10th year on the BIST Corporate Governance Index by boosting its Corporate Governance Rating score to 9.14.

MANAGEMENT

27

In addition to its export volume and contribution to employment, Tofaş also creates long-term value for the Turkish economy with capital investments and projects in the automotive industry. Our company’s investment spending over the past 10 years has amounted to US$ 3 billion, about 31% of the total US$ 10 billion investment undertaken by the entire automotive industry. Through its capital investments to date, Tofaş has renewed its product range and further strengthened its competitive power in global markets.

The Fiat Egea project, a global product range developed in Turkey, has become a source of pride for our country. We are glad to see that our company’s R&D capabilities have also been recognized by official authorities. The Turkish Ministry of Science, Industry and Technology selected the Tofaş R&D Center as the “Best R&D Center in the Automotive Industry” for the second consecutive year, while Tofaş earned first place in Turkey in the European Commission’s ranking of R&D expenditures for two years in a row.

We are currently working on new projects, which we plan to launch in the first quarter of 2017. We expect these projects to increase production capacity significantly. With the Egea body assembly line, a EUR 50 million investment, which is being set up at our plant, and the new technologies installed at the dyeing unit, we aim to increase annual production capacity from 400,000 to 450,000 units.

Under the partnership of Koç Holding and Fiat Chrysler Automobiles, Tofaş strives to effectively manage and minimize the environmental impact of its operations to build a sustainable future. In 2016, Tofaş garnered awards with its sustainability and environmental and occupational safety projects at the European Business Awards for the Environment, Carbon Disclosure Project-Climate Leadership Awards and the Golden Glove at the Occupational Health and Safety Awards, organized by MESS (Metal Industrialists’ Union of Turkey).

In addition to our industrial operations, in 2016, our company supported sustainable projects in the areas of sports, education, culture and the arts, which we believe will create lasting public value, in accordance with our approach toward corporate citizenship.

Over the coming period, Tofaş will continue to create added value for its employees, stakeholders, the city of Bursa and the Turkish economy. We will continue deriving strength from our desire to innovate and commitment to achieve the best. I would like to extend my sincere gratitude to all our stakeholders for their trust, support and contributions to the remarkable performance and leadership Tofaş demonstrated in 2016.

Respectfully,

CENGIZ EROLDUBoard Member - CEO


28

SENIOR MANAGEMENT

CENGİZ EROLDUBoard Member & CEOCengiz Eroldu graduated from the Business Administration Faculty of Istanbul University in 1988 and completed the MBA program at LUISS University (Italy) in 1995. He began his career as an Audit Specialist at Koç Holding in 1989. He was appointed to the position of Assistant Accounting and Industrial Governance Manager for Tofaş in 1995, working in the Accounting and Industrial Governance Department and the Budget and Governance Department from 2001 to 2008, and in the Finance Department between 2008 until 2015. Since January 2015, he he has been serving as Member of the Tofaş Board of Directors and CEO.

STEFANO REGANZANIFinancial Director (CFO)Stefano Reganzani received a degree in management from Università Commerciale Luigi Bocconi in Italy in 1990 and started his professional career at Unilever Italy in 1991. He has held various positions at Fiat Chrysler since 1995. After serving at various levels in the Finance Department until 2013, he worked as the Head of Business Development, Investments and Product Initiatives Financial Controlling from 2013 until April 2015 when he was appointed the Financial Director of Tofaş.

AKIN AYDEMİRIndustrial Operations DirectorAkın Aydemir graduated from the Mechanical Engineering Department of Middle East Technical University in 1987 and holds an MBA from the Thunderbird School of Global Management (USA). He began his career as an engineer at Olmuksa in 1988. He served as Assistant Manager for Body Manufacturing at Toyota S.A. from 1990 to 1996. In 1997, he became Production Manager at Honda and was appointed Engineering Manager at Honda Canada in 1999. In 2001, Mr. Aydemir started at the RWD Company in the United States and worked as a consultant in Lean Production for Ford, Chrysler and GM until 2003. At that time, he became the Lean Production Manager at Gates. From 2005, he ran lean production applications in Alcoa’s European plants and joined CNH Canada, within the Fiat Group, in 2009. Since 2010, Akın Aydemir has been the Industrial Operations Director at Tofaş.

ALTAN AYTAÇFiat Business Unit DirectorAltan Aytaç graduated from the Industrial Engineering Department of Boğaziçi University in 1992. He began his professional career at Tofaş Auto Trading where he was involved in setting up the first logistics department in the area of commerce. He completed the EMBA program at Koç University in 1997. The same year, he became Manager of the CBU Logistics Department. After completing the production integration and simplification projects in the area of outbound logistics, Mr. Aytaç was appointed Commercial Projects Coordinator in 2003, Fiat Brand Manager in 2004, and Business Unit Director Turkey for the Alfa Romeo and Lancia brands in 2006. He rose to the position of Tofaş Supply Chain Director in 2008, and After Sales and Spare Parts Director in January 2015. Altan Aytaç has served as Fiat Business Unit Director since August 2015.

MANAGEMENT

29

FILIPPO SESIAR&D DirectorFilippo Sesia graduated from Politecnico di Torino University’s Department of Mechanical Engineering in 1996. He began his professional career at the Fiat Research Center’s Vehicle Architecture Department where he also managed a research project on structural behavior. In 1999, he moved to Body Components at Fiat Auto where he was responsible for all external components of the Fiat/Alfa Romeo/Lancia vehicles. In 2009, he returned to the Fiat Research Center, where he was responsible for vehicle architecture and technical functions. Since 2012, Filippo Sesia has served as R&D Director at Tofaş.

BURHAN ÇAKIRHuman Resources DirectorBurhan Çakır graduated from Middle East Technical University, Department of Mechanical Engineering in 1986. He began his career in 1989 as an Engineer in Pressing Production at Tofaş. From 1993 to 2004, he served as Press Workshop Manager, Body Production Unit Manager, Part Export Department Manager and Industrial Control Manager. Burhan Çakır has served as Human Resources Director at Tofaş since 2004.

ÖMER ÖZGÜR ÇETİNOĞLU Information and Communication Technologies Director Ömer Özgür Çetinoğlu graduated from Boğaziçi University, Department of Computer Engineering in 1992. He began his professional career the same year as a Software Engineer at Koç Holding. Between 1997 and 2002, Mr. Çetinoğlu worked as Business Development Manager at Koç Holding Consumer Products Group; in 2002, he was appointed Information Systems Manager at Beko Elektronik. From 2007 to 2016, he assumed several roles at Koç Sistem, including Consulting Group Manager, Business Solutions Director, Business Applications and R&D Director, respectively. In July 2016, Mr. Çetinoğlu was appointed Information and Communication Technologies Director at Tofaş.

ARZU ÇOLAKOĞLUCorporate Communications DirectorArzu Çolakoğlu holds a degree in Economics (English) from Istanbul University. She began her professional career as a planning specialist at Doğuş Automotive Service and Trading in 1995. Between 1998 and 2003, she served as Planning and Logistics Manager and VW Commercial Vehicle Marketing Manager. From 2003 to 2004, she took on the duty of Regional Director at Doğuş Auto Marketing. Appointed Alfa Romeo Brand Manager at Tofaş in 2005, she continued as Business Unit Director of Alfa Romeo and Lancia in 2008. Since 2012, Arzu Çolakoğlu has served as Corporate Communications Director at Tofaş.


30

SENIOR MANAGEMENT

TÜRKER GÜRTEKİNLancia, Alfa Romeo, Jeep® DirectorTürker Gürtekin received his Bachelor’s degree in Mechanical Engineering from İstanbul Technical University in 1997 and his MBA from Boğaziçi University. He started his professional career at Tofaş as After Sales Processes and Warranty Specialist in 2001, where he later served as Foreign Markets Management Executive. Subsequently, he worked as Sales Manager and then as Marketing and Sales Manager at Koç Fiat Kredi. He was Lancia, Alfa Romeo, Jeep® Sales Manager from 2012 to 2013. Türker Gürtekin served as the General Manager of Koç Fiat Kredi between 2013 and 2015, when he was appointed Lancia, Alfa Romeo, Jeep® Director.

MAHMUT KARACANSales DirectorMahmut Karacan graduated from Çukurova University, Department of Business Administration. He started his professional career as Logistics Expert at Çitasad A.Ş. in 1995; from 1996 to 2000, he was responsible for sales and marketing there. In 1997, he raced in the “Good Year Off-Road Cup.” Between 2000 and 2012, he was responsible for Sales Marketing operations at Daimler-Chrysler. From 2000 to 2012, he was responsible for Sales and Purchasing at Daimler Chrysler; he founded Chrysler, Jeep Dodge Academy in 2003. He served as Sales and After Sales Services Business Unit Director for Lancia, Alfa Romeo and Jeep brands between 2013 and 2015. Mahmut Karacan was appointed Sales Director in 2015.

GÜRAY KARACARExternal Relations Director Güray Karacar graduated from Marmara University, Faculty of Communication in 1998. After working in the tourism, media and communications industries, he was appointed Secretary General of the Corporate Governance Association of Turkey in 2003. During the same period, he also served as Resident Coordinator for the United Nations Development Program and Member of the Executive Board of the Center for International Private Enterprise. In June 2015, Güray Karacar was appointed External Relations Director at Tofaş.

SABRİ ERKAN POLATProduct Engineering Director Erkan Polat graduated from Istanbul Technical University, Department of Mechanical Engineering in 1986. Between 1987 and 1989, he attended the Master’s Program at the University of Manchester in the U.K. and earned his Master’s Degree. Mr. Polat began his professional career as Design Engineer at Etibank Aluminum Enterprises in 1989. In 1992, he began working at Tofaş as Press Method Engineer. From 1999 to 2004, he served as Press Engineering Administrator and then Die and Press Business Development Manager, respectively. In 2006, he was appointed Die Production Manager, and from 2010 to 2013, he served as Die&Press Production Manager. Between 2013 and 2015, he worked as R&D Body Design Manager, and later as Egea Hatchback Model Manager from 2015 to 2016. Mr. Polat was appointed Product Engineering Director in 2016.

YÜKSEL ÖZTÜRKPurchasing DirectorYüksel Öztürk graduated from Uludağ University, Mechanical Engineering Department in 1991. He began his professional career as Product Development Engineer at Tofaş in 1993. Between 2001 and 2005, he was appointed Direct Material Electrical Manager and Direct Material Electrical Manager. Since 2005, Yüksel Öztürk has been serving as Purchasing Director.

MANAGEMENT

31

HÜSEYİN ŞAHİNAfter Sales And Spare Parts DirectorHüseyin Şahin received his Bachelor’s degree in Public Administration from Uludağ University in 1990. He started his professional career as Project Manager at Efthor in 1996. He served as Human Resources Expert at Fruehauf from 1997, becoming the Human Resources Manager in 1999. He joined Otokoç as Human Resources Manager in 2001; between 2003 and 2005, he served as the Antalya Branch Manager and Birmot Zincirlikuyu Branch Manager of Otokoç. From 2005 to 2011, he was the Birmot Assistant Operational General Manager. After serving as Sales Director at Tofaş between 2011 and 2015, Hüseyin Şahin was appointed After Sales and Spare Parts Director in July 2015.

İBRAHİM ÇAĞLAR ŞAHİNPassenger Car Projects Directorİbrahim Çağlar Şahin graduated from Uludağ University, Mechanical Engineering Department in 1983 and went on to obtain a Master’s degree in Mechanical Engineering in 1986. From 1983 to 1985, he carried out his thesis studies as a Research Employee at Middle East Technical University. Between 1989 and 1993, he served as a Method Engineer at Tofaş. From 1993 to 2013, he was Suspension Production Manager, Transmission and Suspension Unit Manager, Powertrain Plant Manager, Powertrain Production Manager, Minicargo Project Director, Quality Director, R&D Product Engineering Director and Projects Director. İbrahim Çağlar Şahin has served as Passenger Car Projects Director since 2015.

ZEKİ ERDAL ŞİMŞEKQuality DirectorZeki Erdal Şimşek graduated from Istanbul Technical University, Aeronautics and Space Sciences Department in 1987 and completed the MBA program at Istanbul University in 1989. In 1990, he began his professional career as a Project Engineer at Tofaş; after 11 years of service, he was appointed Plant Manager at the Fiat automobile plant in Cairo. Returning to Tofaş in 2003, Zeki Erdal Şimşek served as a manager in different departments before becoming Quality Director.

RECEP TEMİZESENProduction DirectorRecep Temizesen obtained his Bachelor’s degree in Mechanical Engineering from Middle East Technical University in 1988. He started his professional career at Çimhol A.Ş. in 1988, where he worked as Project Engineer until 1991. He joined Tofaş in 1992 as a Press Method Engineer, subsequently serving as Press Shop Process Section Manager, Press Shop Engineering and Technology Manager, Press Shop Manager and Assembly Shop Manager from 1999 to 2015. Recep Temizesen has served as Production Director since January 2015.

ONUR YALÇINSupply Chain DirectorOnur Yalçın received his undergraduate degree in Industrial Engineering from Middle East Technical University in 1991 and his Master’s degree in Operational and Industrial Engineering from Iowa State University (USA) in 1993. Since joining Tofaş as an Industrial Engineering Specialist in 1993, he has served as Production Planning Administrator, Parts Exports Manager, Order Manager, CBU Logistics Manager and Outbound Logistics Manager. Onur Yalçın was appointed Supply Chain Director in January 2015.

EGEA: THE BEST-BUY CAR IN EUROPEDeveloped with a record US$ 1 billion investment, Fiat Egea model family continued to break new ground with its Hatchback and Station Wagon models, which followed the sedan. Voted the “Best-Buy Car in Europe” by AutoBest, Fiat Egea became the most preferred automobile in Turkey in 2016, as well.


34

TURKEY’S AUTOMOTIVE SECTOR AND TOFAŞ’S POSITION IN THE SECTOR

In 2016, the Turkish automotive market reached an all-time high.In 2016, retail automobile and light commercial vehicle sales in the domestic market increased 1.6% year-on-year, reaching an all-time high of 983,720 units. Automobile sales were up 4.3% with 756,938 units sold in 2016, while light commercial vehicle market contracted 6.5% year-over-year with sales dropping to 226,782 units.

Despite a series of unfavorable developments and the significant increase in exchange rates over the course of the year, the Turkish automotive market reached a record-high level, as described above. A major development affecting the automotive market was the introduction of the new regulation on Special Consumption Tax (“SCT”) imposed on passenger cars in the second half of the year. Under the new regulation, Special Consumption Tax rates are determined according to not only engine displacement, but also pre-tax prices. Meanwhile, SCT rates applied to light commercial vehicles remained the same.

2016 was an important year for Tofaş, as the Company completed its automobile investments and launched the Hatchback and Station Wagon versions of Fiat Egea enriching its product mix. At the same time, the Egea Sedan, which is manufactured by Tofaş and was launched in November 2015, became Turkey’s best-selling car in 2016.

In 2016, passenger car and light commercial vehicle markets across Europe (European Union and European Free Trade Zone) expanded by 6.5% and 11.6%, respectively. As a result of the successful sales performance of Fiat Egea, which is sold in Europe under the name “Fiat Tipo”, Tofaş’s total exports to Europe increased 84% and the Company became the export champion of the Turkish automotive industry by shipments.

TOTAL DOMESTIC MARKET (UNITS) 2015 2016 CHANGE %

Automobile 725,596 756,938 4.3%

Light Commercial Vehicles (LCV) 242,421 226,782 -6.5%

TOTAL 968,017 983,720 1.6%

In 2016, retail automobile and light commercial vehicle sales in Turkey increased 1.6% year-on-year, reaching 983,720 units.

1.6%

TURKEY AUTOMOTIVE MARKET UNITS

Automobile Light Commercial Vehicles (LCV)

556,

280

771,761853,378

767,681

968,017 983,720

221,481

2012

664,

655

2013

587,

331

2014

725,

596

2015

756,

938

2016

188,723 180,350242,421 226,782

ACTIVITIES

35

RETAIL SALES IN THE DOMESTIC MARKET In 2016, the domestic retail automobile market expanded 4.7% over the previous year to 756,938 units. Tofaş captured 7.3% of the domestic passenger car market with Fiat, Jeep, Alfa Romeo, Maserati and Ferrari brands and sold a total of 55,284 units.

Fiat’s domestic market share rose from 6.5% in 2015 to 6.9% in 2016, thanks to the successful sales performance of the Fiat Egea line. Fiat Egea Sedan became Turkey’s best-selling car with sales reaching 35 thousand units in 2016. Fiat Egea Hatchback and Station Wagon models, which were launched in the middle of the year, also contributed to the Company’s automobile market share.

In 2016, light commercial vehicle market contracted 6.5% year-over-year with total sales dropping to 226,782 units. Tofaş’s sales also fell 13.5%, but the Company maintained its 2nd place position by capturing 23.7% of the light commercial

vehicle market with its Fiat brand. Meanwhile, Doblo and Fiorino models collectively captured 39.1% segment share and became the top-selling vehicles in their respective markets. By launching Fiat Fullback, Tofaş made a successful entry into the pickup segment of the light commercial vehicle market for the first time.

Selling a total of 106,106 Fiat models, Tofaş captured 10.8% of the Turkish automotive market, which totaled 983,720 units in 2016.

The combined sales of Fiat, Jeep, Alfa Romeo, Maserati and Ferrari models totaled 109.021 units, and as a result, Tofaş’s market share occurred as 11.1%. Considering the fact that all of the versions of Egea Sedan, Hatchback and Station Wagon models , was completed in the last quarter of 2016, and 2017 will be the first full year of sales, Tofaş’s domestic market share is expected to rise in 2017.

PREVIOUS RATE

ENGINE DISPLACEMENT (CM3) SCT

<1,600 45%

1,600-1,999 90%

>2,000 145%

CHANGES IN SCT PRACTICES

The combined sales of Fiat, Jeep, Alfa Romeo, Maserati and Ferrari models totaled 109.021 units, and as a result, Tofaş’s market share occurred as 11.1%.

11.1%

TOFAŞ’S DOMESTIC RETAIL MARKET SHARE

26.2% 25.1%27.5% 26.5%

23.7%

7.3%7.1%7.3%8.0%8.3%

2012 2013 2014 2015 2016

Automobiles Market Share Light Commercial Vehicles Market Share

TOFAŞ’S DOMESTIC RETAIL MARKET SALES (UNITS) 2015 2016 CHANGE%

Automobile 51,802 55,284 6.7%

Light Commercial Vehicles ( LCV ) 62,127 53,737 -13.5%

TOTAL 113,929 109,021 -4.3%

CURRENT RATE

PRE-TAX PRICE RANGE SCT

< TL 40,000 45%

TL 40,000-70,000 50%

>70,000 60%

<100,000 100%

>100,000 110%

For All Prices 160%


36


In 2016, Tofaş’s total exports increased 60.8% over the previous year.

EXPORTS

In 2016, Tofaş’s total exports increased 60.8% over the previous year, reaching a record-high of 279,537 units. As a result, Tofaş became the leader and the export champion of the Turkish automotive industry by shipments. The Company single-handedly accounted for 24.5% of total Turkish exports, thanks to the successful performance of Fiat Egea/Tipo models in export markets and the expansion of the European car market.

In 2016, the overall European passenger car market (European Union and European Free Trade Zone) expanded by 6.8% in 2016, with significant growth observed in all major European markets. The Italian passenger car market in particular, a major export destination for Tofaş, achieved the highest performance and grew 15.8%.

Meanwhile, the overall European light commercial vehicle market expanded by 11.6% in 2016. While all major markets performed well, the Italian market in particular, expanded by 50%, outperforming all other European markets, as the country introduced new incentives for fleet renewals in September.

As a result of the successful sales performance of Fiat Egea models, Tofaş’s total exports to Europe increased 84% in 2016, exceeding expectations. The Company’s total export sales to Europe only included 37 thousand Egea Sedan cars, as well as 46 thousand Egea Hatchback and 19 thousand Egea Station Wagon models, even though the production of these models began in mid-2016. Egea exports are expected to increase further in 2017, as annual production capacity will also increase by 50 thousand units.

ACTIVITIES

37

In addition to the success of Fiat Egea in Europe, Tofaş began to export the Egea Sedan models to Mexico under the Dodge brand as “Dodge Neon”. In 2016, the Company exported a total of 5,120 Dodge Neon cars to Mexico, and expects to increase this number in 2017.

In 2016, Tofaş’s export revenue increased 54.7% over the previous year, and amounted to EUR 2.9 billion.

EXPORTS (UNITS ) 2015 2016 CHANGE%

Automobile 32,055 139,629 335.6%

Light Commercial Vehicles (LCV) 141,818 139,908 -1.3%

TOTAL 173,873 279,537 60.8%

In 2016, Tofaş’s export

revenue increased

54.7% over the

previous year.

54.7%

TOFAŞ’S EXPORT REVENUES (EURO MILLION)

2012

1,55

1

2013

1,63

2

2014

1,49

3

2015

1,89

6

2016

2,93

3


38

The breakdown of total Tofaş sales by segment is 50% automobiles and 50% passenger cars.

PRODUCTION

In order to meet the strong demand from export markets during the first half of 2016, Tofaş switched to three-shift production schedule from two shifts. With the inclusion of Fiat Egea Hatchback and Station Wagon models, manufacturing output increased 37.8% in 2016 and reached 383,491 units. In line with increased manufacturing output and implementation of the three-shift schedule, the Company’s 2016 average number of personnel reached 9,624 in 2016.

SHIPMENTS AND TURNOVER

Thanks to the successful performance of the Egea models, Tofaş’s automobile shipments in the domestic market increased by 6.8% in 2016, in parallel with the overall automobile market growth in Turkey. Meanwhile, light commercial vehicle shipments in the domestic market declined 19.8% year-over-year, which was mainly due to the 6.5% contraction in the domestic light commercial vehicle market and also difficulties in supplying a sufficient amount of Fiat Ducato vehicles during the first half of the year.

On the other hand, in 2016, Tofaş’s total exports increased 60.8% over the previous year, reaching a record-high of 279,537 units, thanks to the successful performance of Fiat Egea Sedan in its full year of production, as well as Egea Hatchback and Station Wagon models, of which production began in the middle of 2016.

In 2016, automobile exports increased 336% over the previous year, while export sales of light commercial vehicles maintained the same level of 2015.

PRODUCTION (UNITS) 2015 2016

Linea 35,202 7,526

Egea Sedan 11,237 80,707

Egea Hatchback 286 49,657

Egea Station Wagon 42 20,124

Doblo - PC 240 0

New Doblo - PC 14,162 15,233

Minicargo - PC 14,475 16,715

TOTAL AUTOMOBILES 75,644 189,962

Doblo 7,831 5,233

New Doblo 119,165 122,614

Minicargo 75,612 65,682

TOTAL LIGHT COMMERCIAL VEHICLES

202,608 193,529

TOTAL 278,252 383,491


ACTIVITIES

39

SHIPMENTS (UNITS)DOMESTIC MARKET CHANGE % EXPORTS CHANGE % TOTAL CHANGE %

2015 2016 % 2015 2016 % 2015 2016 %

Automobiles 52,358 55,899 6.8% 32,055 139,629 335.6% 84,413 195,528 131.6%

Light Commercial Vehicles (LCV) 70,581 56,591 -19.8% 141,818 139,908 -1.3% 212,399 196,499 -7.5%

TOTAL 122,939 112,490 -8.5% 173,873 279,537 60.8% 296,812 392,027 32.1%

SALES (TL THOUSAND) 2015 2016 CHANGE %

Export Sales 5,729,275 9,839,301 71.7%

Domestic Sales 4,121,142 4,291,021 4.1%

Other Income from Operational Activities 70,306 105,629 50.2%

TOTAL 9,920,723 14,235,951 43.5%

2015 2016 CHANGE (UNITS)

DOMESTIC SHIPMENTS 122,939 112,490 -10,449

MANUFACTURED 104,259 100,884 -3,375

Egea Sedan 6,570 34,796 28,226

Egea Hatchback 0 3,604 3,604

Egea Station Wagon 0 549 549

New Doblo Cargo 28,908 26,405 -2,503

New Doblo Panorama 761 2,199 1,438

Fiorino Cargo (Minicargo) 24,033 21,663 -2,370

Fiorino Panorama (Minicargo) 647 1,308 661

Minicargo (PSA) 8,615 3,062 -5,553

Linea 34,725 7,298 -27,427

IMPORTED 18,680 11,606 -7,074

Ducato 9,025 5,461

Fiat 500 3,580 2,224 -1,356

Fullback 0 457 457

Grande Punto 1,311 563 -748

Panda Futura 152 133 -19

Freemont 4x4 91 43 -48

Fiat 124 Spider 0 2 2

Bravo 1 2 1

Lancia 2 0 -2

Jeep 3,566 2,007 -1,559

Alfa Romeo 868 625 -243

Maserati 73 72 -1

Ferrari 11 17 6

EXPORTS 173,873 279,537 105,664

Egea Sedan 3,587 45,786 42,411

Egea Hatchback 0 45,786 45,786

Egea Station Wagon 0 19,322 19,322

New Doblò 48,344 53,331 4,987

New Doblò Passenger Car 11,546 10,300 -1,246

GM Combo 24,059 25,556 1,497

RAM ProMaster City 20,344 18,173 -2,171

Fiorino Cargo (Minicargo) 17,996 27,048 9,052

Fiorino Panorama (Minicargo) 10,795 13,794 2,999

Minicargo (PSA) 28,325 14,544 -13,781

Doblò 8,097 5,236 -2,861

Linea 650 355 -295

Other & Transit 130 94 -36

TOTAL 296,812 392,027 95,215


40

Tofaş ranked as the first Turkish company with the highest investment spending in European Commission’s scoreboard 2016.

INVESTMENTS / R&D SPENDING

The majority of the Company’s investment spending in 2016 was allocated to the Fiat Egea project. According to the 2016 Industrial R&D Investment Scoreboard issued by the European Commission, Joint Research Center, Tofaş was the #1 Turkish company with the highest investment spending.

INVESTMENTS EUR (MILLION)

New Doblò 30

Egea Family 252

Minicargo 15

Structural 55

TOTAL 352

PROFITABILITYIn parallel with its superior performance in production and exports, in 2016, Tofaş achieved record-high results in all income statement items, such as Turnover, EBITDA, Profit Before Tax and Net Profit. The Company’s consolidated profit before tax increased 29% to TL 797.9 million, while net profit rose to TL 970.2 million, up 17%.

YEARS EBITDA PROFIT BEFORE TAX NET PROFIT

TL THOUSAND CHANGE% TL THOUSAND CHANGE% TL THOUSAND CHANGE%

2012 834,155 497,440 442,039

2013 816,735 -2.1% 477,075 -4.0% 434,223 -1.8%

2014 815,607 -0.1% 472,253 -1.0% 574,238 32.2%

2015 1,062,668 30.3% 617,987 30.9% 830,801 44.7%

2016 1,366,148 28.6% 797,936 29.1% 970,228 16.8%


ACTIVITIES

41

NET PROFIT (TL THOUSAND)

2012

442,

039

2013

434,

223

2014

574,

238

2015

830,

801

2016

970,

228

PROFIT BEFORE TAX (TL THOUSAND)

EBITDA (TL THOUSAND)

2012

497,

440

2013

477,

075

2014

472,

253

2015

617,

987

2016

797,

936

2012

834,

155

2013

816,

735

2014

815,

607

2015

1.06

2,66

8

2016

1.36

6,14

8

16.8%2015-2016 Increase

29.1%

28.6%

2015-2016 Increase

2015-2016 Increase


42

Thanks to its stylish design, comfort, affordability, and fuel economy, Fiat Egea became the most preferred automobile in Turkey in 2016.

FIAT

Egea

Production of Fiat Egea began on September 28, 2015 with the new cars appearing on Turkey’s roads two months later in November. The car’s engineering works were carried out by Tofaş R&D Center in collaboration with FCA. The Fiat Egea represents the first globally-sold passenger vehicle to be engineered and manufactured in Turkey.

Exported to the world over from Tofaş’s Bursa plant, Fiat Egea was voted “Best-Buy Car of the Year in Europe” at AutoBest 2016. Boasting a wide range that includes sedan, hatchback and station wagon models, Fiat Egea has become the most preferred automobile in Turkey in a very short time, thanks to its stylish design, comfort, affordability and fuel economy.

Linea

Production of Fiat Linea began in 2007 at the Tofaş Plant. Fiat Linea was revamped in 2012 and became the best-selling car of Turkey in 2015. Fiat Linea is preferred by both enterprises and families with its appealing accessory options and a range of engine choices that combine fuel efficiency and fuel economy.

500

Deftly combining its inherited DNA with new trends in design and offering many opportunities to customize design details and features, Fiat 500 holds special appeal to young drivers as well as to those young at heart. The 500C version with its smart, electrically-operated open roof, is the only convertible in its class on sale in Turkey today. Voted “Car of the Year” in 2008, Fiat 500 continues to occupy a unique place in the Turkish automotive sector as a vehicle whose appearance, technology, personalization and comfort features have been enhanced while preserving its original style.

BRANDS AND PRODUCTS

ACTIVITIES

43

500L

Going on sale in May 2013 and appealing to families who want to distinguish themselves with high style, Fiat 500L quickly became the leader of a segment that it now commands a nearly 80% market share. The choice of those who value distinctiveness and independence, Fiat 500L offers roominess, functionality, attractive design and drive features that combine multipurpose family car and crossover characteristics in a single model.

500X

Put on sale in May 2015, Fiat 500X is the newest addition to the 500 family. The 500X is a head-turning model that best reflects Fiat’s superior product-development competencies and production quality standards. Off the scale quality, technical infrastructure, advanced technology, comfort options, active and passive safety features make Fiat 500X one of the boldest offerings in the crossover segment on the market today.

Punto

One of the pioneers of Turkey’s fiercely-competitive small hatchback segment, Fiat Punto boasts an attractive design, ideal equipment features and fuel economy engine options, making it a preferred choice especially among young people and families.

Panda

Fiat’s offering in the A segment, Panda has been on sale in Turkey ever since its introduction in 2004. The car’s relatively larger dimensions for its class, 5-door body, and convenient functionality continue to make it extremely popular with consumers. The only vehicle in its class in Turkey with a 4x4 drive system, Fiat Panda is as much at home on country roads as it is on city streets.


44

Doblo was named the “Green Commercial Vehicle” in the US in both 2016 and 2017, thereby achieving a first by earning this title for two consecutive years.

BRANDS AND PRODUCTS

Doblò

With the basic model in continuous production since 2000, a redesigned and re-equipped new generation Doblò appeared on the Turkish market in January 2015. Besides offering advanced durability, performance, and convenience features, Doblò comes in different body options providing up to a one-ton carrying capacity and a load volume of 5.4 m3. The model’s roomy interior and economical engine options continue to make it the preferred choice of big families as well as of tradesmen and artisans. A steadfast companion of those doing business in the Turkish and European markets, the RAM-badged Doblòs went on sale in the North American market as ProMaster City in March 2015. Sold under this brand, Doblo was named the “Green Commercial Vehicle” in the US in both 2016 and 2017, thereby achieving a first by earning this title for two consecutive years.

Fiorino

Fiorino is a product of Tofaş’s Minicargo project, a historic milestone for Tofaş, which rolled its 1 millionth car off the production line in 2016. Fiorino is both the pioneer and leader

of a new approach to light commercial vehicles that makes it the hallmark of a class of its own. Revamped in April 2016, the Fiorino Premio now offers more convenience and comfort with newly-added features such as cruise control and heated seats. One of the best-selling LCVs in Turkey, Fiorino remains the preferred choice of families thanks to its design and functionality features and of business owners thanks to its economy and practicality.

Pratico

As the flatbed-van model of the Fiat commercial vehicle family, the compact design and maneuverability of the Pratico make it easy to drive in city traffic. Pratico’s fuel economy, load capacity, safety and comfort set the standards of its class. The next generation version of Pratico, which has the same chassis as the Doblò, stands out among other models with its domestically-designed bed, wide space and up to one-ton load carrying capacity, therefore offering an ideal option for city life.

ACTIVITIES

45

Ducato

Continuously revamped over the past 35 years since the production of the first model, Ducato is now the most preferred vehicle in its class, offering innovative solutions that meet the needs of the business world. First launched in 1981, Ducato brought a breath of fresh air to the high-capacity pickup market with groundbreaking features such as front-wheel drive, superior engine performance, and wide loading space. It has ever since pioneered change with each new model. Thanks to its versatility, superior engine performance and fuel economy, Ducato is one of the most popular vehicles in Europe; in addition, it is truly a global brand that is exported to more than 80 countries. Ducato is the best-selling imported vehicle in its class in Turkey as well. With its van, pickup, minibus, and coach versions, Ducato can respond to the different needs of different customer groups. Wide rear and side doors, for example, make the Ducato Van very easy to load and unload. Ducato Pickup, on the other hand, offers four different cab sizes capable of accommodating three to seven persons. A wide range of body and conversion options that make it a highly flexible choice for individual transport requirements. The minibus and coach versions of Ducato likewise offer an extensive range of multiple solutions for transporting students, personnel and other types of passengers.

Fullback

The Fiat Fullback, the new member of the Fiat commercial vehicles family, launched in June 2016 with double cab chassis, and 150 HP and 180 HP engine versions. The Fullback is preferred for its 2.4-liter four cylinder turbo-diesel engine options. As a genuinely “full pickup,” Fullback owns all needs in business and everyday life.

ALFA ROMEO

Giulietta

First introduced by Alfa Romeo in 1954 and manufactured for 11 years, the legendary Giulietta has been reintroduced twice since: first in 1977 and again most recently in 2010. As Alfa Romeo’s representative in the compact hatchback class, Giulietta is especially preferred by style-conscious owners who favor attractive design, powerful petrol and diesel engines, superior drive quality, and comfortable interiors.

Mito

As Alfa Romeo’s representative in the supermini class, Mito continues to attract young drivers with its sporty interior and exterior design, powerful engine options and superior build quality. Given a facelift in the second half of 2013, Mito is equipped with unique features such as a Q2 differential lock and a new “Alfa DNA” system that allows the driver to choose between three different handling settings: Dynamic, Normal and All-Weather.


46

With dimensions specifically designed to maximize performance efficiency, the new Jeep® Cherokee is a successful bearer of Jeep®’s legendary DNA in the SUV market.

BRANDS AND PRODUCTS

JEEP®

New Cherokee

Debuting on the Turkish market in 2014, this new addition to the Jeep Cherokee line-up stands out from its competitors by virtue of its completely new design, a fuel-efficient and eco-friendly 2.0-liter 170 HP engine, and the first 9-speed automatic transmission in this class. Other distinguishing attributes are superior road handling, the best 4x4 model in its class, more than 70 advanced safety features, and first-class driver customization technology. With dimensions specifically designed to maximize performance efficiency, this new Jeep Cherokee is a successful bearer of Jeep’s legendary DNA in the SUV market.

Wrangler

Wrangler is the iconic heir of seven decades of Jeep experience in civilian off-road vehicle design and manufacturing. Features such as superior ground clearance, approach and departure angle, turning-radius and wheelbase ratings together with the most-reliable and deepest (76 cm) water-fording capabilities in its class are among the key reasons why the Jeep Wrangler is regarded as the best of its breed.

Grand Cherokee

Jeep’s entry in the full-sized SUV market, the legendary 4x4 Grand Cherokee was revamped in 2014. The Grand Cherokee is powered by a 3.0-liter diesel engine and is available with different sets of equipment options. The vehicle’s attention grabbing on-road driving comfort, advanced technology, and luxurious interior are matched by superior off-road performance that is delivered by the Jeep-patented Quadra-Lift and Selec-Terrain four-wheel drive systems. With 7.82 m3 of baggage space (15.54 m3 with the rear seats folded down), the Grand Cherokee offers much more space for both cargo and passengers.

ACTIVITIES

47

A vibrant and rugged design, innovative technology and state-of-the-art entertainment system make the new Renegade a head-turner wherever it goes.

Renegade

Designed in the USA and built in Italy, Renegade is the newest and most compact offering in the Jeep family’s bid to become a fast-growing global brand. Jeep Renegade was first introduced to consumers in Turkey in 2014. In 2015, with 1.4-liter 140 HP petrol-engine model equipped with automatic transmission, 1.6-liter 120 HP diesel motor with manual transmission and boasting more than 70 advanced safety features, Renegade smartly combines innovative design sensibilities with the legacy of the Jeep name. With its boldly assertive exterior, superior material and build quality, exciting color options, and energetic new interior, this vehicle is a worthy descendant of its legendary ancestor the 1941 Willys MB. A vibrant and rugged design, innovative technology and state-of-the-art entertainment system make the new Renegade a head-turner wherever it goes.

LANCIA

In line with FCA’s strategic decisions, all models in the Lancia series have been dropped except for the Ypsilon, which will continue to be sold in Italy. Sales of Lancia vehicles were therefore suspended in Turkey in 2015 though after-sales service support will of course continue.


48

The Tofaş Dealership Network serves Fiat, Alfa Romeo, and Jeep® brand vehicles. The network consists of 74 Fiat and 14 Alfa Romeo & Jeep® main dealers.

Tofaş Dealership Network provides customers with a full range of services that include new-car sales, used-car sales, technology supported after-sales services, spare parts, maintenance and repair.

Strong brand positioning and an extensive dealership networkWith 79 dealerships located all across Turkey, Tofaş’s superior logistics and distribution competencies, advanced after-sales services capabilities and the long-term, trust-based business relationships that it forges with its dealers all work to enhance customer satisfaction, a strategic priority of the company.

Today, nearly every node in the Tofaş dealership network complies with the network’s Integrated 3S design specification, meaning that customers can find sales, services and spare parts at a single location. In addition, some Tofaş dealerships provide customers with other service offerings, such as insurance (both compulsory and optional coverage) and financing (car loans).

The Tofaş Dealership Network serves Fiat, Alfa Romeo, and Jeep® brand vehicles. The network consists of 74 Fiat main dealers and 14 Alfa Romeo- Jeep® main dealers, with some overlap between the two.

FIAT

Tofaş has 74 Fiat dealerships located in Turkey. Aiming to be closer to customers and provide them with better service, many Fiat dealerships also operate sales and services outlets at satellite locations. Currently, the Fiat dealership network has 43 sales and service satellite outlets. Additionally, the network includes 38 authorized service outlets, whose operations are covered by agreements with a primary dealer and which only provide aftersales services. Taking all these into account, Fiat serves customers through 114 sales and 136 services locations.

Tofaş has at least one showroom in 64 of Turkey’s 81 provinces and at least one services outlet in 57 provinces country-wide. These numbers rank Tofaş among the country’s top three automotive brands from the standpoint of sales and services network accessibility. The Fiat dealership network employs some 5,500 staff.

Boasting a reach that is one of the most extensive in Turkey, Tofaş dealers have been in business for over 20 years on average.

ALFA ROMEO–JEEP® The Alfa Romeo–Jeep® network consists of 14 dealerships. All are 3S dealership outlets, which means they provide sales, services, and spare parts at a single location. The network includes five 2S (services & spare parts) authorized services outlets, four of which cater to all brands, while the remaining one service only Jeeps and Lancias.

Tofaş’s Alfa Romeo–Jeep® dealerships are distinguished by years of professional service and levels of investment in their business operations that well exceed sector averages. Located in the provinces of Ankara, Antalya, Bursa, Gaziantep, İstanbul, Mersin, Tekirdağ and Trabzon, Alfa Romeo–Jeep® dealerships and authorized service centers employ a total of 335 staff.

DEALERSHIP NETWORK

ACTIVITIES

49

Koç Fiat Kredi Finansman A.Ş. (KFK) provides integrated financial services via 81 dealership locations to all brands represented by Tofaş.

KOÇ FIAT KREDI FINANSMAN A.Ş.

Koç Fiat Kredi Finansman A.Ş. (KFK) provides integrated financial services via 81 dealership locations to all brands represented by Tofaş. 2016 was a successful year in which KFK set a new record for market penetration, boosted its share of Tofaş sales, and achieved significant progress in meeting the needs of both dealers and customers.

Koç Fiat Kredi Finansman A.Ş. was established on March 6, 2000 as a consumer finance company and joint venture between the Koç and Fiat Groups in which each controlled a 50% stake. The company was set up to provide financing for the purchase of all motor vehicles manufactured by Tofaş under the Fiat Chrysler Automobiles license, and/or imported into Turkey, in addition to all manner of merchandise, goods and services related to these vehicles.

Fiat Group and Koç Group both transferred their shares to Tofaş Türk Otomobil Fabrikası A.Ş. in 2002 and 2003, respectively. On December 8, 2011, Tofaş increased its capital by TL 15 million; thereby, the company’s paid-in capital rose from TL 30 million to TL 45 million. Koç Fiat Kredi—committed to a customer-centric approach, service quality, flexibility, innovation, dynamic business processes and efficient applications—provides financing to consumers purchasing the Fiat brand in particular. The company also serves domestic buyers of the Alfa Romeo, Jeep®, Ferrari, Maserati and Iveco brands and finances the previously owned sale of these vehicles. KFK offers tailored solutions to meet consumers’ vehicle-financing needs. KFK’s credit products and services are offered directly to consumers at the brands’ sales points. As a result, the purchase process is conducted entirely at the dealership and is ensured to be completed easily.

Koç Fiat Kredi aims to serve Tofaş through effective business processes and with a high level of operational efficiency. In 2016, KFK boosted its penetration among the brands it services while continuing to raise the level of service it delivers. Koç Fiat Kredi’s mission is to expand the domestic sales of Fiat group brands, improve operational processes and provide customers with fast financing options at a single point.

In 2015, KFK processed about 186 thousand credit applications; in 2016, this figure jumped to 196 thousand. The company extended TL 2,108.4 million in loans to borrowers for the purchase of 64,372 vehicles. Koç Fiat Kredi’s market share among other finance companies increased to 9.6%. The company financed 48.5% of Tofaş’s total sales and 69.3% of Tofaş’s retail sales.

Mobile apps that enhance customer experienceKFK has carried out numerous mobile and web-based initiatives that aim to boost the dealer and customer experience. The online application is a web-based module that provides end customers with fast and convenient access to car financing through KFK’s own website and those of individual brands serviced. The same modules can also be accessed from the brand websites’ model configuration pages.

In 2016, KFK undertook projects and efforts to upgrade its technology systems infrastructure toward digitalization. As part of improvements made to its Document Management System, the company added new features to the Mobile Dealer (“Dijibayi”) application, enhanced standard documents with QR codes and completed OCR technology integration. Tofaş’s “Dijibayi” app, which competed in the “Digitalization” category at the Most Successful Koç Group Member awards held in July, placed third in the “Digital Channels” category at the FinTech Conference, organized by IDC (International Data Corporation). The first and second place awards in the category went to Akbank and Garanti, two leading banks in financial technology.

SUBSIDIARIES


50

2016 was a successful year in which KFK significantly increased its share in Tofaş sales.

In developing the award-winning Dijibayi app, the company created an end-to-end mobile system by combining all features, including the adaptation of the screens used by dealers to perform operational transactions to mobile devices; taking photos of loan application documents and uploading them into the system; integrating the Dijibayi application; and activating the option of sending loan documents to the electronic archive via mobile devices.

Additionally, the company integrated the ongoing revisions and upgrades made to its core business infrastructure and auxiliary subsystems into its existing system and optimized the use of its applications.

With its rich variety of credit offerings, systems-related investments, strong relationships with dealers, high quality and fast service, KFK will continue focusing on boosting its service-delivery capabilities to bolster the loyalty and satisfaction of both business partners and consumers alike.

Embracing a highly professional and quality-focused approach while providing flexible financial services, the company aims to become one of the leading players in the automotive finance sector by raising brand awareness, capturing more market share, and fostering customer and dealer loyalty.

2016 HIGHLIGHTS 2016

Outstanding portfolio (TL million) 2,196.7

Outstanding financed (units) 122,517

Penetration (excluding big fleet sales) 69.3%

Penetration (total Tofaş sales) 48.5%

Loan Applications (units) 196.210

Financed units (total) 64,372

Financed units (Tofaş only) 57,542

Financed units (used, Iveco) 6,830

Total financed amount (TL million) 2,108.4

Profit before tax (TL million) 70.0

Koç Fiat Kredi’s portfolio is mainly funded by bank loans and issuance of marketable securities.

At the Extraordinary General Meeting held on 1 December 2016, a decision was made to pay a dividend on 2 December 2016. As a result of deliberations, it was unanimously decided that TL 40,000,000 (forty million Turkish lira) of the extraordinary reserves set aside pursuant to the Turkish Commercial Code will be paid out to shareholders as a cash dividend on 2 December 2016 at the rate of TL 0.89 (net) for each share of stock; that, pursuant to Article 519 of the Turkish Commercial Code TL 4,000,000 (four million Turkish lira) will be set aside as a second-order statutory reserve. The dividends were paid on 2 December 2016.

The company annual General Meeting for 2016 will be held on 24 February 2017. The Board of Directors proposed the profit distribution as that amount remaining after mandatory statutory reserves have been set aside to be retained in the company as an extraordinary reserve. In 2016, with the effect of the dividend payment, respectively, shareholders’ equity amounted to TL 132.6 million.

SUBSIDIARIES

ACTIVITIES

51

FER MAS OTO TİCARET A.Ş.

Fer Mas Oto Ticaret A.Ş. commenced operations at its Kuruçeşme showroom and headquarters building in Istanbul in 2005. At the time, the company also serviced Ferrari and Maserati automobiles at the same location. In 2009, the company expanded the scope of its after-sales services and improved customer satisfaction with the opening of a new service outlet.

Fer Mas engages in intensive communications activities in support of its efforts to effectively position both the Ferrari and the Maserati brands in the Turkish market. These activities focus on boosting brand awareness, brand consciousness and brand visibility while also bolstering the reputation of both brands in the luxury vehicle segment.

Fer Mas positions Ferrari as an automobile that consumers who identify with the brand’s philosophy can be passionate about; meanwhile, the company’s messaging about Maserati focuses on its being a prestigious car that is a pleasure to drive.

Ferrari

In the period between 1998 and Fer Mas’s founding in 2005, an average of eight Ferraris a year were sold in Turkey. In 2016, Ferrari’s open-top sports model 488 Spider and GTC4 Lusso were launched in Turkey. As of year-end 2016, Fer Mas sold 17 Ferraris.

Maserati

Between 1998 and 2005, sales of Maseratis averaged five per year in Turkey. Fer Mas sold 10 Maseratis in its first year in operation alone with sales of these high-performance sports cars rising steadily thereafter. Maserati’s new SUV model Levante was launched in Turkey in 2016. Levante completes the brand’s product range in the luxury SUV segment and provides a competitive edge. Having increased its sales by 107.5% in 2014, Maserati was named the Fastest-Growing Automobile Brand by ODD (Automotive Distributors’ Association). In 2016, Maserati sales totaled 72.

THE BEST R&D IN AUTOMOTIVE INDUSTRYFor the second year in a row, Tofaş R&D Center was named the “Best R&D Center in the Automotive Industry” by the Ministry of Science, Industry and Technology.


54

In line with its R&D Vision, Tofaş works with the aim of developing exciting vehicles and technologies that fully meet customer needs in every part of the world.

RESEARCH & DEVELOPMENT

In line with its R&D Vision, Tofaş works with the aim of developing exciting vehicles and technologies that fully meet customer needs in every part of the world.

CONTRUBITON TO THE COUNTRY’S ECONOMY

Founded in 1994, the Tofaş R&D Center seeks to contribute to the national economy by developing passenger and commercial vehicles that are outstanding in terms of both their technical superiority and innovative engineering design details. Exceptionally well-quipped with everything needed to compete with Europe’s best in the arena of vehicle research and development, the Tofaş R&D Center was designated a formally licensed R&D facility by Turkey’s Ministry of Industry and Trade in 2008.

With a total of 18,092 m2 of laboratory and office space, a staff of nearly 700, fully-equipped high-tech facilities and a diversified range of capabilities, the Tofaş R&D Center is the only FCA approved research and development center serving the European market that is not based in Italy.

BEST R&D CENTER IN THE TURKISH AUTOMOTIVE INDUSTRY

At the fifth Private Sector R&D Centers Summit, conducted by the Ministry of Science, Industry and Technology in 2016, the Tofaş R&D Center was designated the “Best Automotive Industry R&D Center” for the second year in a row. Tofaş’s R&D Center also ranked fourth among all research and development centers in Turkey.

In the European Union’s league table ranking of organizations based on R&D expenditures, Tofaş ranked at first in Turkey. According to the 2016 Industrial R&D Investment Scoreboard issued by the European Commission, Joint Research Center, Tofaş listed with investment spending of EUR 182.5 million. This level of R&D spend places the company 547th in the world, up 27 spots in 2016.

During the year, the company spent more than EUR 45 million in design and testing infrastructure investments to research such issues as vehicle concept, style, body, interior, suspension, engine, emissions, vibration, and acoustics.

R&D AND PRODUCT DEVELOPMENT COMPETENCIES

Tofaş R&D Center integrates design processes into all of its research and development work. As a result, the Center closely monitors the latest developments in technology while also directly furthering to technological advancement itself.

Tofaş R&D Center gained significant momentum in expanding its R&D competencies when it assumed responsibility for the MCV project developed for Fiat and PSA vehicles between 2005 and 2007. Subsequently, the development of the new Doblò for Opel, Vauxhall, and Dodge Ram likewise played a significant role in boosting Tofaş’s export performance, as the company was now building vehicles for six different brands.

In 2014 and 2015, Tofaş R&D Center executed sedan, hatchback, and station wagon product development projects for the Egea family. The company’s US$ 1 billion worth investments for these new models—whose intellectual property rights belong to Tofaş and for whose R&D work Tofaş was entirely responsible—are noteworthy as one of the biggest product investments ever undertaken in the history of the Turkish automotive industry. The first model of the new Egea sedan was introduced to the market in fourth quarter 2015. Production of the Egea hatchback and station wagon models started in 2016.

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PRODUCT DEVELOPMENT COLLABORATIONS THAT CREATE ADDED VALUE

Turkey’s ability to raise its international profile and viability as a product development center depends directly on the country’s ability to simultaneously address all the components of the R&D value creation chain. As a result, Tofaş places special importance on executing joint design and development projects, marshalling the resources of local engineering firms and working together with universities.

Understanding that university–industry collaboration projects need to be undertaken in parallel with technology development initiatives, Tofaş R&D worked on 117 joint projects with 15 universities between 2006 and 2016.

Tofaş R&D Center holds seminars about product and technology development at various universities. Launched in 2011, the “My Project” program aims to transform the innovative ideas of Tofaş personnel into reality and develop collaborations with universities. To this end, undergraduate research projects of about 20 students from six different universities were selected and shared with other universities.

In many projects that are undertaken in conjunction with the Scientific and Technological Research Council of Turkey and with European Union support, Tofaş R&D works together with university faculty members, the Fiat Chrysler Automobiles Research Center and various international design centers.

Having boosted the number of EU Research Projects (both FP7 and Eureka) that it participates in to 12, Tofaş R&D Center also collaborates with nearly 100 international project partners. Tofaş is the first and still the only Turkish company to serve as a product technologies project leader thanks to its involvement in the ROBO-PARTNER initiative, which explores the topic “Seamless Human-Robot Cooperation for Intelligent, Flexible and Safe Operations in the Assembly Factories of the Future.”

33% INCREASE IN PATENT APPLICATION

Tofaş R&D Center’s aims to increase the number of patents that it applies for every year via new projects and innovative ideas that create added value. R&D staff continued to be given TIPS (theory of inventive problem solving) methodology training in 2016 to spark their creativity and inventiveness. Of the 308 proposals put forth, 76 were identified as being patentable and feasible; of those, patent applications were submitted for 65. Work is currently underway on 11 proposals.

As a result of the innovative work conducted at Tofaş R&D Center in 2016, the company recorded a 33% year-on rise in patent application numbers, with a total of 141 new applications submitted during the year.


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At the heart of the Tofaş R&D Center’s environmental-focused research are vehicle electrification, mitigation and making the vehicles lighter and quieter.

R&D VISION

Tofaş aims to develop exciting vehicles and technologies that fully meet customer needs everywhere in the world.

Tofaş’s strategic priorities in line with this vision include:• Involving the company in the design processes of any

products that FCA R&D plans to develop for the European and Middle Eastern markets;

• Improving its own manufacturing and advanced product technologies to create customer value;

• Supporting the development of partnered design and engineering firms in Turkey.

Continuously investing in IT and other technologies to develop innovative products and undertake added-value projects, Tofaş embraces an ongoing effort to deliver world-class products that best meet customer demands.

TOFAŞ R&D AND THE ENVIRONMENT

At the heart of the Tofaş R&D Center’s environmental-focused research are vehicle electrification, mitigation and making the vehicles lighter and quieter. As the company that developed Turkey’s first electric LCV, Tofaş also closely monitors

progress in electric vehicle technology around the world. Tofaş seeks to integrate such technologies into the domestic production of electric vehicle systems and components through innovative solutions and applications.

Tofaş began testing its driverless vehicle under the “Let Me Drive” project. Developed by Tofaş, the Doblò prototype can autonomously navigate through a series of waypoints (GPS coordinates), taking full control of the accelerator, brakes and the steering wheel and avoiding any obstacles it encounters along the way.

Tofaş is aware that reducing the overall weight of vehicles will have a positive impact on the environment by reducing both fuel consumption and engine emissions. As a result, the company focuses on high-strength/light-weight material technologies and hybrid solutions in addition to light-design solutions that are based on cross-section- and topology-optimization.

Besides smart-vehicle concepts that provide service and support to the driver in terms of comfort and safety, Tofaş’s customer-focused technology research is based on a human-centered design philosophy that considers anthropometric, ergonomic, social demographic, and similar issues.

RESEARCH & DEVELOPMENT

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Being one of the first three FCA manufactures that have been awarded “Gold” status in WCM (World Class Manufacturing) methodology, Tofaş prioritizes customer satisfaction.

Tofaş’s quality culture is based on delivering customer satisfaction. Encouraging its employees to actively participate in and improve quality management as a matter of principle gives the company a significant competitive advantage as a world-class manufacturer.

Tofaş is committed to improving the quality of all its products and services and maximizing their competitiveness in every respect. The company therefore regularly reviews, revises, and improves its quality management system in line with evolving and proliferating customer expectations.

WORLD CLASS MANUFACTURING

World Class Manufacturing (WCM) is a methodology to systematically improve competitiveness in the production area. WCM’s focus on such issues as workplace safety, quality, cost, logistics, and environmental wellbeing, is based in the “Concept of Zero”: zero workplace and environmental accidents, zero manufacturing defects, zero production losses, and so on.

The WCM program was originally initiated in-house at FCA in 2006 to raise its manufacturing standards to world-class levels. Today, WCM methodologies and techniques are used

around the world in 210 FCA plants and in the operations of 370 FCA suppliers.

WCM projects first commenced at Tofaş the same year with the company’s efforts soon earning it the “Fastest-Improving Plant” accolade. In 2009, Tofaş became the first Fiat plant to reach WCM “Silver” status. In 2013, Tofaş’s success was further recognized when it became one of only three plants in the FCA system to be awarded “Gold” status. In 2016, the Tofaş plant’s score was further increased to 76 points.

Focusing on constantly raising its manufacturing standards as it moves forward on its WCM roadmap, Tofaş reached Gold status by significantly improving its workplace accident, external quality indicator, productivity, and mechanical breakdown performance. Each of these improvements was achieved through the company’s systematic approach and with the active involvement of its employees. During 2016, the average number of suggestions for improvements put forth by the company’s assembly-line personnel was 24.

Since 2009, Tofaş has expanded the scope of its own WCM program under the World Class Supplier (WCS) program that it encourages its suppliers to participate in. As of end-2016, 24 of the company’s suppliers had committed to WCS.

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Tofaş’s human resources policy focuses on employing well-qualified people who are the most appropriate to conduct its business activities.

HUMAN RESOURCES

Tofaş recognizes that the experience and creativity of its human capital are the driving forces of its leadership, underpinning the company’s ability to adapt quickly to changes in competitive conditions.

Tofaş’s human resources policy focuses on employing well-qualified people who are the most appropriate to conduct its business activities on the one hand, while creating and maintaining working conditions that will keep its staff highly motivated on the other.

As of end-2016, Tofaş had 10,197 people on its payroll, 8,524 blue-collar and 1,673 white-collar personnel.

NUMBER OF EMPLOYEES

Wage monthly 1,673

Wage hourly 8,524

Total 10,197

BREAKDOWN OF WORKFORCE BY GENDER

Male (Wage monthly) 1,342

Female (Wage monthly) 331

Male (Wage hourly) 7,984

Female (Wage hourly) 540

AVERAGE AGE OF EMPLOYEES

Wage monthly 35.9

Wage hourly 30.3

Total 31.2

HIRING PROCEDURES

In personnel recruitment and hiring, Tofaş uses a wide range of techniques such as personality inventorying, competency-based interviews, foreign language proficiency exams, technical interviews, role-requirement analyses, presentations, and reference checks. This approach helps ensures that the company will make the best and most appropriate choices among candidates. This method also enables the company to learn as much as possible about potential recruits’ technical skills in addition to their behavioral attitudes, work ethic, and their compatibility with the Tofaş corporate culture.

As part of its white-collar recruitment processes, Tofaş ensures that announcements for vacant positions are visible among all Koç Group companies through the Group’s internal bulletin board system. The company adopts an approach that allows it to access and hire candidates whose qualifications are appropriate to specific functional requirements. Other elements of this process include participation in university career days, project-based traineeship programs, and Tofaş Hack-Auto Engineering and Management events.

TOFAŞ ACADEMY

Serving to boost employees’ knowledge and skills, Tofaş Academy brings the management of all aspects of training and development of its value-creation chain under a single roof. Some 61% of the Academy’s technical and behavioral classroom training is provided by the company’s internal resources.

Tofaş started the Sales Academy program, a first-of-its-kind initiative in the industry, to train automobile dealers in 2016 as well. Thirty-five candidates were selected from among 8,400 applicants through an interview process. The trainees were provided with a specialized two-week training program, after which they attended a dealer internship program and graduated.

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TRAINING PROVIDED TO FULL-TIME EMPLOYEES

Classroom Training 5,076 employees

Distance Learning Courses for Personal Development

4,904 employees

Total Training Hours 48 hours/employee

TRAINING PROVIDED TO HOURLY EMPLOYEES

Classroom Training 7,686 employees

Distance Learning Courses for Personal Development

70 courses

Total Training Hours 66 hours/employee

TRAINING PROVIDED TO BUSINESS PARTNERS

693 Employees of 75 Suppliers 620 Hours of Classroom Technical Training

5,240 Dealers Classroom Technical and Behavioral Training

PERFORMANCE MANAGEMENT SYSTEM

All Tofaş employees are subject to the Performance Management System, which is designed to foster a corporate culture that is driven by performance and development. The two main pillars of the system are Targets and Behavioral Competencies, which are embodied in the Leadership

Principles. Targets are set at the beginning of each year; they are reviewed at least once during the year along with target progression plans. Personnel have the opportunity to provide feedback to their managers and colleagues on Leadership Principles through the 360-degree Competency Assessment method.

EMPLOYEE COMPENSATION AND FRINGE BENEFITS

As part of the hiring process, the first time a white-collar employee starts work for a Koç Group company, they are enrolled as a member of the Koç Holding Pension & Assistance Fund.

Employee and employer contributions to this fund are invested in marketable securities and real estate assets. Upon an employee’s retirement or termination of membership, these contributions plus their capital gains are paid out either as a lump-sum amount or as a pension entitlement. Both active fund members and pensioners as well as their spouses and minor-age children are covered by health insurance. They may also be entitled to various rights such as housing acquisition assistance, financial support to cover specified needs, and insurance against such risks as death, incapacitation due to sickness, and partial disablement.

On June 1, 2016, all hourly personnel of Tofaş were included in the employer-sponsored Supplemental Health Insurance plan. Employees may optionally choose to include their spouses or children in the insurance plan.


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In 2016, Tofaş began offering Child Care Support to help boost female employment and assist women in balancing work and family life.

HUMAN RESOURCES

In 2011, Tofaş started a scholarship program, “Tofaş Supports Education,” for the children of company staff. To date, 1,147 students have benefited from this program.

In 2016, Tofaş began offering Child Care Support to help boost female employment and assist women in balancing work and family life. Some 242 female employees benefited from this program in 2016.

For disabled employees, one day of military service organized in 2016 as well.

Tofaş has entered into a collective bargaining agreement with the Turkish Metalworkers’ Union and the Turkish Employers’ Association of Metal Industries. This three-year agreement, which was executed on 15 December 2014, went into effect as of 1 September 2014 and will expire on 31 August 2017.

As of 31 December 2016, Tofaş had a total severance pay liability of TL 170,302 thousand, all of which was covered by provisions. Employees are regularly and systematically

provided with such rights and entitlements as mandated by laws, rules and regulations.

DOCTORAL AND MASTER’S DEGREE PROGRAMS

To satisfy the staffing requirements of Tofaş R&D Center, priority is given to candidates who possess appropriate Master’s or PhD qualifications. The number of the Center’s personnel who held such qualifications rose to 146 during the year.

Tofaş works jointly with Uludağ University in support of that institution’s automotive industry undergraduate and graduate studies programs. Six experienced Tofaş personnel participate in these programs as instructors teaching classes in vehicles mechanics, automotive design, manufacturing and project management (PhD); and introduction to automotive engineering (BSc), vehicle designing. In 2016, 14 Tofaş employees were enrolled in MSc programs while three personnel were enrolled in PhD programs.

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SOCIAL ACTIVITIES

The social facilities located at the Tofaş Plant are open to all employees along with their spouses and children. These facilities also serve as venues for staff gatherings on special days or for special events. Tofaş employees are also welcome to use the recently opened fitness center, which is located inside the Mustafa V. Koç Sports Complex. Tofaş Sports Club holds swimming, basketball and football summer camps for employees’ children.

A gymnasium at the headquarters building in Istanbul may also be used by all employees. General healthcare services are provided both at the Tofaş Plant and the company’s headquarters. Additionally, dietitian services may be booked by appointment.

15 clubs and 10 sports teams voluntarily formed by Tofaş employees engage in a wide range of activities. They organize an average of 200 cultural, artistic, and sporting events each year; these include concerts, exhibitions, shows, conferences, and athletic meets that are attended by more than 50 thousand people annually.

Tofaş teams do consistently well in the five different sports they compete in during the Fiat Games that are held every other year in Italy among FCA companies. The Tofaş Athletics team is also a highly successful contender in the annual CorriFiat events, which are conducted for employees of Fiat Group plants.

Tofaş employee football, volleyball, basketball, tennis, bowling, chess, swimming, athletics, and sailing teams regularly participate in the Koç Sports Festival; they also compete in other intercompany events throughout the year. Intramural meets and tournaments also attract great interest among Tofaş personnel.

15 clubs and 10 sports teams voluntarily formed by Tofaş employees engage in a wide range of activities.


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Embracing the philosophy of “Life is Renewal,” Tofaş’s Corporate Sustainability Policy is based on business models that are based on strategies for a sustainable future.

CORPORATE SUSTAINABILITY POLICY

BUSINESS MODELS AND STRATEGIES FOR A SUSTAINABLE FUTURE

Tofaş plans its sustainability and social responsibility activities by carefully considering the economic, social, and environmental aspects. Implementing continuous improvement and achieving higher goals are the main pillars of the company’s approach to corporate sustainability.

Embracing the philosophy of “Life is Renewal,” Tofaş’s Corporate Sustainability Policy is based on business models that are based on strategies for a sustainable future.

Under the Corporate Sustainability Policy, Tofaş aims to fulfill its responsibilities toward its stakeholders—not only the local communities where the Tofaş Plant is located, but rather the entire country. To this end, the company undertakes its sustainability and social responsibility activities in an integrated manner, creating an entire value chain that includes suppliers, dealers and all other stakeholders.

Tofaş’s Corporate Sustainability Policy—designed to enhance the company’s environmental, social and corporate governance performance—consists of the following principles:• Implementing continuous process improvement via

effective risk management;• Achieving the ultimate goal of zero accidents to ensure

occupational health and safety;• Improving the overall performance of the company and

production efficiency;• Building a culture of open communication by encouraging

active employee participation;• Embracing efficient energy use, environmental protection

and conservation of natural resources;

• Enhancing knowledge and awareness of climate change among stakeholders and society;

• Implementing an environmental management policy that is based on national environmental laws, rules and regulations, applicable environmental standards, and the most advanced technologies available in this field;

• Ensuring information security and business continuity in all operations;

• Complying with all national and international laws, rules and regulations;

• Managing stakeholder relationships in a transparent and sensible manner;

• Ensuring continued customer satisfaction;• Training suppliers on sustainability practices;• Sharing environmental sustainability policy and procedures

with the public in a transparent manner;• Undertaking social responsibility activities in accordance

with company strategies, goals and priorities;• Embracing Corporate Governance Principles, ethical values

and fraud prevention in particular, as an fundamental part of corporate culture.

In terms of Corporate Governance and Sustainability practices, Tofaş places great importance on Risk Management, Business Ethics and Fraud Prevention, Sustainability Management and Stakeholder Engagement.

In addition to implementing corporate governance practices across the entire organization, Tofaş also undertakes various social responsibility initiatives geared toward its stakeholders.

The company’s primary objectives include treating of stakeholders equally, sharing information in an appropriate manner, implementing good corporate governance, and ensuring sustainability in all business activities.

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CORPORATE SOCIAL RESPONSIBILITY POLICY Tofaş’s sustainability policy is rooted in corporate social responsibility and driven by social impact; therefore, it is implemented both internally and through activities and efforts to benefit society.

Sustainability Management practices include fighting climate change and reducing emissions; product portfolio and product strategies; markets and customer satisfaction; R&D management; world class manufacturing and management standards; energy efficiency; environmental management systems; occupational health and safety; work environment and talent management; supply chain management; dealers and the service network. The company reviews its Sustainability Policy in light of sustainability reports on climate change, the environment, employee health and safety, corporate governance, ethical values, supply chain, and social responsibility.

Tofaş provides detailed, comprehensive information about ongoing and periodic social responsibility and sustainability activities in its annual reports, sustainability reports as well as in other print, periodic, and informational publications. The company provides information and the links related to these efforts and initiatives, which are developed and executed in line with company policies, to its employees, shareholders, business partners, and all other stakeholders via the corporate intranet and the website

In accordance with its Sustainability Policy, Tofaş considers social responsibility efforts an opportunity for corporations to demonstrate accountability and fulfill their duties and responsibilities toward their stakeholders. Tofaş engages in social responsibility practices that are both sustainable and extendable, as a core component of its corporate policy.

As noted in Tofaş’s Corporate Governance Compliance Reports, the company’s social responsibility embraces all its stakeholders. Tofaş undergoes a Corporate Governance Assessment and is assigned separate Corporate Governance Rating (CGR) scores for the categories of “shareholders,” “public disclosure and transparency,” “stakeholders” and “Board of Directors.” These scores are included in Tofaş’s Corporate Governance Compliance Reports, which are publicly disclosed each year to Borsa Istanbul (BIST) via the Public Disclosure Platform and are also published on Tofaş’s corporate website.

Tofaş is included in the BIST Corporate Governance Index; the company is committed to compliance with Corporate Governance Principles as an ongoing and dynamic process. Every year, Tofaş undertakes all necessary efforts to fulfill the index criteria.

Tofaş’s Sustainability Policy is based on the sustainability and CSR policies of its two main shareholders—Fiat Chrysler Automobiles and Koç Holding—and the principles of the Global Compact, to which Koç Holding is a signatory.


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PRIORITIZING SUPPORT TO CORPORATE AND SOCIAL DEVELOPMENTIn keeping with its approach to corporate social responsibility, Tofaş strictly complies with all applicable laws, rules and regulations, and prioritizes activities that support corporate and social development. To this end, the company undertakes CSR initiatives in areas such as human resources and human capital investment, stakeholder culture and corporate vision, education, culture and arts, environmental sensitivity and protection, in keeping with stipulated criteria and relevant principles. Through its environmental policy and activities, Tofaş aims to develop and implement a proactive environmental management system that is compatible with the principle of sustainable development.

Tofaş adheres to national and international standards in all areas of social responsibility, and aims to further improve them.

SUSTAINABILITY POLICY AIMED AT STAKEHOLDER SATISFACTION AND EXPECTATIONSWhen dealing with issues involving social development, ethical behavior, and environmental management, Tofaş takes an integrated approach that engages stakeholders and considers their expectations and satisfaction. Tofaş works to continuously improve its sustainability and CSR performance and practices in line with the corporate vision and stakeholder expectations.

The company’s Board of Directors oversees the implementation of the Corporate Sustainability Policy and evaluates it in terms of environmental, social and governance factors. Related issues are monitored and reported by the Board Committees.

While executing corporate, social and environmental activities, Tofaş places great importance on managing, improving and monitoring these efforts. The company reports its environmental, social and governance performance, and shares the findings with its stakeholders and the public via sustainability reports.

Tofaş constantly improves its sustainability and social responsibility efforts in keeping with company policies in order to ensure full compliance with national and international standards.

CORPORATE SUSTAINABILITY POLICY

Tofaş’s sustainability approach is based on corporate social responsibility and impact criteria on society.

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Tofaş focuses on long-term social responsibility projects that create value for society in the areas of sports, education, culture & the arts.

CORPORATE SOCIAL RESPONSIBILITY

Years of investment in the youth basketball infrastructure enables Tofaş Sports Club to cultivate many talented players for sports in Turkey.

Tofaş GymLocated in the Nilüfer district of Bursa, Tofaş Gym hosts Tofaş Sports Club’s basketball games while enriching the social lives of the residents of Bursa.

While contributing to the national economy on many levels, Tofaş focuses on long-term social responsibility projects that create value for society and support social advancement in the areas of sports, education, culture & the arts.

SPORTS

Tofaş Sports Club Founded in 1974 at the Bursa Tofaş Plant and originally known as Tofaş SAS, a club devoted to watersports, athletics, and team sports, the Tofaş Sports Club adopted its current name in 1995. Today, the club’s offerings encompass a wide range of activities that include basketball, football, volleyball, table tennis, water polo, and even bridge. Tofaş Sports Club’s basketball teams were the first to play in the European Cup finals; brought home Turkish national championships; and won the Turkish Presidential Cup, the Turkish Cup (several times) and the World Schools Basketball Championship. Tofaş Basketball Team competes in the Super League in the 2016-2017 season.


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The Next Generation Tofaş ProjectLaunched in 2016, the Next Generation Tofaş Project aims to provide children with equal access to sports while helping them develop a mindset and perspective to achieve success not only in sports but all areas of life. Next Generation Tofaş is a basketball training model that engages trainers, families and children. The goal is to cultivate the next generation of athletes by giving youth the opportunity to play basketball in their own communities and under equal conditions.

By year’s end, the Next Generation Tofaş Project had reached a total of 650 children at eight basketball schools established in various districts of Bursa. Nine junior basketball teams, consisting of children selected for the program, continue their training at the Mustafa V. Koç Sports Complex. In order to ensure continuity of sports activities, the company provides theoretical and practical sports training to 14 basketball training interns each week. The project’s other activities include an e-learning system to train families and trainers in the region; street tournaments to promote basketball across all levels of society; scientific and creative drama workshops to help children develop social intelligence.

Tofaş has also established Turkey’s first sports library at the club and plans to further expand it in 2017. The primary mission of Next Generation Tofaş is to transform Bursa into a city of sports and then extend the project across Turkey.

Mustafa V. Koç Sports ComplexThe Mustafa V. Koç Sports Complex, which Tofaş Sports Club commenced construction on in February 2015, opened its doors in June 2016. The Mustafa V. Koç Sports Complex serves not only Tofaş employees, but also amateur sports clubs and athletes in Bursa. With 5,800 square meters of space, the gymnasium consists of three basketball courts, a fitness facility, and a fully-equipped sports rehabilitation center that can provide all types of physical therapy.


The primary mission of Next Generation Tofaş is to transform Bursa into a city of sports and then extend the project across Turkey.

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EDUCATION

Fiat Laboratories aims to train those employed by the Turkish automotive industry, equipping them with skills needed today and making them conversant in the industry’s newest technologies to boost their job performance. Fiat Laboratories engages in such efforts in conjunction with Koç Holding’s “Vocational Education: A Crucial Matter for the Nation” project. Collaborating with the Ministry of Education’s General Directorate of Vocational and Technical Education and working through Fiat Laboratories, Tofaş helps industrial technical training schools and institutions to improve their capacity to provide motor vehicle technology instruction. The first Fiat Laboratory opened at Şişli Industrial Vocational High School in Istanbul in 2006, celebrating its 10th anniversary year in 2016.

Since 2006, Fiat Laboratories have been set up at 11 vocational schools in Istanbul, Bursa, Kocaeli, Ankara, Antalya, İzmir, Adana, Samsun, and Diyarbakır. They are provided with training resources by Tofaş after-sales services managers, representatives of Tofaş’s regional service council, and local services managers. In 2016, Tofaş doubled the number of Services Managers who provide training and coaching at Fiat Laboratories.

As of end-2016, a total of 1,500 students and instructors had taken part in Fiat Laboratories country-wide to date. Last year, the labs graduated 221 students. Of these, 65 (10 of them female) graduates were given jobs at Fiat authorized services while another 11 were hired by the Tofaş plant.

Under the 2015–2016 European Union Project, students and instructors selected from Fiat Laboratories at participating schools had the opportunity to receive training and work at authorized services in various European countries.

The instructors employed by Fiat Laboratories receive current technology technical training and instruction on behavioral and social responsibility issues as part of the on-the-job training (OJT) provided every year by Tofaş Academy. To date, some 400 vocational school teachers from different cities across Turkey have attended such OJT trainings, the 10th round of which took place in 2016.

Under the “Vocational Education: A Crucial Matter for the Nation” project, 274 of the students who attended classes at Fiat Laboratories and who met the specified requirements in 2016 were provided scholarships by the Vehbi Koç Foundation every year.

Tofaş Science High SchoolConstruction on Tofaş Science High School, located in the Demirtaş Organized Industrial Zone in the Özlüce district of Bursa’s Nilüfer township, began in 2012 and was completed in time for the 2014–2015 academic year. Situated on a 12,252 m2 tract, the school has 16 classrooms, 70 dormitory rooms capable of accommodating 280 residents and a gymnasium. Some 397 students are currently enrolled at the school.

Tofaş Science High School graduated its first class in 2015. A strong indicator of the high quality of instruction provided at the school is the 87% average score achieved by its students on the national university undergraduate placement exam in 2016. This pass rate made Tofaş Science High School the most successful educational institution in its category in Bursa province.


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CULTURE & THE ARTS

Tofaş Museum of Cars and Anatolian Carriages and Tofaş Art GalleryLocated in Bursa’s venerable Umurbey district, the Tofaş Museum of Cars and Anatolian Carriages is private museum focused on the Anatolian transportation heritage. Its collection includes not only Tofaş-manufactured cars but also examples of historic carts, carriages, wagons, and other transport-related objects, making it the first and only museum of its kind in Turkey. The museum occupies a former silk-weaving mill, the historic Umurbey Hammam, and an old Turkish residence adjacent to the latter—all renovated and repurposed by Tofaş. Tofaş Museum of Cars and Anatolian Carriages opened its doors in 2002 and has received about 600 thousand visitors since then.

On display in the former mill, which houses the main part of the museum, is a historical panorama of the history of human transport in Anatolia, beginning with a wheel 2,600 years old and extending to the present day with examples of Tofaş-built motor vehicles.

The Umurbey Hammam, located on the same grounds as the Tofaş Museum of Cars and Anatolian Carriages, serves as an art gallery. The gallery recently hosted the “Here I am, Zeki Müren” exhibition, which was organized in collaboration with Yapı Kredi Culture and Arts. The exhibit attracted 30,000 visitors between November 2015 and February 2016. Meanwhile, “The Poise of the Steelyard: Balances, Weights, Measuring Devices” exhibition, showcasing social and commercial life throughout history, opened in September 2016 and had attracted more than 20,000 visitors by year’s end.

Pamukkale Hierapolis archaeological excavationsSince 2005, Tofaş has sponsored the archaeological excavations at Hierapolis—the ruins of one of the five biggest ancient cities in Turkey. Adjacent to the Pamukkale thermal zone, both Hierapolis and Pamukkale were declared UNESCO World Heritage sites in 1988. Excavation work, overseen by the Ministry of Culture and Tourism and the Denizli governor’s office, continued during the 2016 season with Tofaş support. The excavations are being conducted by an international team of about 70 archaeologists, architects, restorers/conservators and other experts from Turkey and Italy primarily. One of the finest examples of Roman theater architecture, the Hierapolis

Tofaş Museum of Cars and Anatolian Carriages opened its doors in 2002 and has received about 600 thousand visitors since then.


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theater was probably built during the reign of the Emperor Hadrian after a devastating earthquake in 60 AD.

Restoration work on the theater’s scaenae frons facade, the elaborate multi-story background of the proscenium, is now complete, making this the only ancient theater in Turkey to have a fully-reconstructed and functional stage. As a result of this work, the 12 thousand-seat theater is now in active use again as a venue for cultural and artistic activities, as it was originally intended.

Among the other significant Hierapolitan structures that have been unearthed are two necropolises, baths, a basilica, martyrium, the Frontinus Gate, gymnasium, an Apollo temple and the so-called Pluto’s Gate, a shrine sacred to the ancient god of the underworld.

Tofaş continues to sponsor the archaeological excavations at Hierapolis, with a special focus on the restoration of the remains of Plutonium, which was uncovered in this ancient city. In the Greco-Roman period, Plutonium, or Pluto’s Gate, was a cave entrance into the underworld ruled by Pluto and

his wife Persephone. Plutonium was considered a “gateway to hell” because the poisonous vapors—carbon dioxide emissions killed all living creatures entering the cave. The artifacts unearthed during the excavations at the Plutonium site, which is extremely attractive with the mystique and natural beauty surrounding it, take the known history of Hierapolis back by 300 years.

Küçükyalı Archaeological Park SponsorshipExcavations at the Küçükyalı Archaeological Park on the Asian side of Istanbul began in 2001. For 13 years, Tofaş has supported the work here, which is being carried out by Italian and Turkish archaeologists under the supervision of the culture ministry’s Directorate of Cultural Properties and Museums. Under the project, which is also supported by the local municipality, publicity and guide services were again provided throughout the 2016 digging season, as in previous years. Other activities at the site included research and conservation work and programs for primary school students.

An archaeological laboratory set up by Koç University continued to be used throughout the season for such activities as conservation, restoration, photography and database management.

Tofaş continues to sponsor the archaeological excavations at Hierapolis, with a special focus on the restoration of the remains of Plutonium, which was uncovered in this ancient city.


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In 2016, Tofaş implemented 51 energy efficiency projects via WCM Energy Management Methodologies.

ENVIRONMENT

Embracing environmental protection as an important component of its social responsibility, Tofaş focuses on effectively managing and, as much as possible, minimizing both the direct and indirect adverse environmental impact of all aspects of its value chain.

In 2016, Tofaş implemented 51 energy efficiency projects via WCM Energy Management Methodologies; including other projects launched in fourth quarter 2015, a total of 124 energy efficiency projects had a direct impact on the company’s operations in 2016.

ENVIRONMENT & ENERGY POLICY

In keeping with its core principle of integrating sustainable development into its product, manufacturing, and service processes, Tofaş employs and develops lean and proactive environmental and energy management systems.

To this end, Tofaş:• Regards having to dispose waste of any kind as a resource

loss and therefore develops methods that prevent waste from occurring in the first place;

• Works to constantly improve its energy performance both through energy efficiency process design and in its product and service procurements;

• Ensures that it has access to all the information, expertise, and economic resources needed to regularly review and achieve its environmental and energy-related goals and objectives;

• Devises and implements strategic action plans to achieve sustainability through assessment of risks and opportunities;

• Develops innovative product and process solutions to combat climate change;

• Believes that it must comply with all legal and regulatory requirements the company is subject to as well as with internationally accepted standards in its business processes;

• Seeks to minimize energy and water consumption, waste generation, water and air effluents both by educating its employees, contractors, dealers, and suppliers and by constantly improving the vehicles it makes;

• Tofaş develops solutions to manufacture vehicles and spare parts that have a minimal impact on the environment and seeks to use more recyclable materials in production.

Tofaş’s environmental vision is to possess a world-class environment management system that uses proactive, efficient management tools. In order to achieve its “Zero Waste/Zero Loss” goal, the company’s philosophy is: to “never purify, not pollute”.

Tofaş’s Environment & Energy Policy aims both to reduce waste at source and to recover and recycle as much as possible of what is generated. For example, 100% of the industrial waste resulting from its manufacturing processes is either recovered or else used as raw material and energy inputs in the cement industry, thereby helping the company achieve its “Zero Waste Disposal” goal.

Tofaş was one of the first companies in Turkey to bring its energy management practices into compliance with ISO 50001 Energy Management System standards and to have them independently certified. Tofaş’s ISO 50001 certification was recently validated when an audit in 2016 determined there were no instances of non-compliance.

Supporting the transition to a low carbon economy through its energy efficiency efforts, Tofaş is also a corporate member of the Climate Platform. The hundreds of energy efficiency projects that the company has undertaken are steadily reducing the energy density of its operations.

When new investments are undertaken or changes made in machinery and equipment, environmental-impact and energy efficiency procedures are standardized both by initiating a Kanban (lean/just-in-time manufacturing) process and by adhering to best-available-technology (BAT) practices.

In 2011, Tofaş issued the Turkish automotive industry’s first greenhouse gas emissions reports. In 2016, the company’s greenhouse gas emissions reporting was independently certified as being ISO 14064 standard compliant.

According to verification results, Tofaş greenhouse gas emissions declined by 4,213 tons of CO2 thanks to energy efficiency projects executed throughout the plant. Environmental audits conducted both by authorities and independently determined that Tofaş was in full compliance with all requirements.

SUSTAINABILITY

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SUSTAINABLE MANUFACTURINGHaving adopted sustainable manufacturing principles in its operations, Tofaş achieves natural resource use efficiency by implementing the 5R (Refuse, Reduce, Reuse, Recycle, Recover) hierarchy in all the company’s production processes.

In 2016, Tofaş undertook 51 new energy efficiency projects that implemented WCM energy management methodologies and techniques. Including other projects launched in fourth quarter 2015, a total of 124 projects had a direct impact on the company’s operations in 2016. These various projects conserved 60,169 GJ of energy and reduced CO2 emissions by 4,213 tons.

As a result of ongoing efforts, Tofaş cut the amount of sewage sludge by 10% compared with the previous year.

Based on a comprehensive survey conducted by EIRIS, a leading global provider of environmental, social and governance research, among companies listed on BIST (Borsa Istanbul), Tofaş was deemed eligible for inclusion in the BIST Sustainability Index, along with 43 Turkish companies.

In 2014, Tofaş became the first Turkish company to be included in the “A” list of the Carbon Disclosure Project (CDP)’s Climate Change Program. Tofaş prepared and submitted its response to CDP in 2016. As a result of the CDP evaluation, the company was once again selected to the A-list and received the “CDP Turkey Climate Leadership Award.”

Tofaş responded to the CDP Water program for the first time in 2015 and again in 2016, with the company’s score raised to “B Management” level.

Tofaş’s Environment & Energy Policy aims primarily to achieve the “Zero Waste/Zero Loss” goal. To this end, the company developed the Sustainable Waste Management and 5R project, which won an award in the “Waste Management” category at the Sustainable Business Awards, organized by the Sustainability Academy. The project also received an award at the “Green Dot Industry Awards,” organized by ÇEVKO (Environmental Protection and Packaging Waste Recovery and Recycling Foundation).

Tofaş has actively used the Proactive Carbon and Energy Management in Seven Steps methodology, a component of World Class Manufacturing, since 2011. With the introduction of this methodology, the company began to focus on identifying aspects of energy efficiency and carbon emissions mitigation as well as adhering to energy loss classification and prioritization principles. A standardized and effective method for making improvements was achieved by integrating this systematic approach into all processes, ranging from new investments to modifications of existing the plant.

GREEN PRODUCTSEnvironment-focused projects—such as vehicle electrification, alternative fuels, eco-friendly materials, vehicle weight reduction, and recycling—took center stage among Tofaş’s technology research activities in 2016. Some of these projects were concerned with issues whose results will likely be incorporated into existing products or new models in the coming year while others are long-term market trends.


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Tofaş strives to increase environment and climate change responsibility awareness throughout its value chain.

CLIMATE CHANGE

ONE OF THE BIGGEST PROBLEMS TODAY IS CLIMATE CHANGE

Climate change is one of the most serious problems confronting today’s world. Climate change has the potential to pose not just environmental but also social and economic risks whose implications for the world can be addressed only by a comprehensive and concerted response by every possible actor involved.

Scientists are generally in agreement that the problem of climate change today is largely the result of greenhouse gas emissions generated by human beings. Efforts are now being made throughout the world to create control mechanisms and legal frameworks that will allow measures to be taken to deal with this critical situation. The automotive industry has been actively involved in such efforts by identifying what needs to be done to resolve the problem not only at the level of industry-wide organizations but also, out of their own sense of responsibility, by individual producers.

LASTING SOLUTIONS THROUGH SUSTAINABLE METHODS

On the issue of climate change, Tofaş understands that its stakeholders expect the company to manage the contributory effects of its existing manufacturing and other operations while also developing vehicles whose emissions are lower and/or which use alternative fuels. Additionally, Tofaş is expected to make vehicles that will enable people to exercise their right to travel and transport in ways that are more sustainable.

At the same time, Tofaş sees climate change as an issue having statutory and regulatory dimensions (such as emission limits), physical and operational dimensions (such as radical changes in weather conditions), and financial dimensions (such as emissions-trading). As a result, Tofaş looks for ways to create opportunities for the company by formulating proactive enterprise risk management responses to the types of risks that all these dimensions might pose.

EFFORTS TO FIGHT CLIMATE CHANGE

Tofaş works diligently to satisfy its stakeholders’ expectations with respect to fighting climate change and to fulfill all of its responsibilities in this area.

To this end:• As one of FCA’s most important R&D and manufacturing

hubs and in line with FCA product strategies, Tofaş supports efforts to boost the efficiency of the conventional motor vehicles that the company is already making, increase the use of alternative-fuel systems such as natural gas and biofuels, and develop electrical and hybrid vehicles;

• Tofaş improves the energy efficiency of its manufacturing operations and reduces their greenhouse gas emissions;

• Tofaş engages in efforts to make its logistical processes more efficient;

• Tofaş strives to increase environment and climate change responsibility awareness throughout its value chain by informing and educating suppliers, dealers and customers.

SUSTAINABILITY

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Safe work spaces and sustainable business safety culture are Tofaş’s priorities.

OCCUPATIONAL HEALTH & SAFETY

• Abiding by the principle that improvements in OHS performance are a responsibility shared by all personnel;

• Setting targets at every level for participation in risk-assessment and risk-mitigation activities;

• Achieving a sustainable “Zero Accident” target by constantly improving the company’s occupational health and safety culture.

Zero accidents & zero diseases Tofaş’s ultimate goal is to achieve zero accidents/zero diseases through the implementation of its Occupational Health & Safety Management System. Since initiating world-class occupational safety practices, Tofaş has reduced Lost Time Accident rate by 96%.

In 2016, 6,966 Tofaş employees received a total of 55,460 hours of training on OHS issues. During the year, OHS related information and/or training was also provided to 18,180 visitors to Tofaş premises and to Tofaş contractor and subcontractor personnel (4,618 hours).

Occupational health and safety is the most important element of the World Class Manufacturing (WCM) methodology. In that respect, Tofaş Plant is considered a benchmark within the FCA community with representatives of many companies frequently visiting the facility to observe Tofaş’s OHS operations and practices.

Adhering to a proactive and lean WCM-based approach to occupational health and safety issues, Tofaş aims to protect everyone coming into contact with its operations from risks that could be detrimental to their health or safety. This goal is accomplished by fostering a sustainable OHS culture and creating environments that are intrinsically safe.

OHS CultureTofaş strives to maximize OHS awareness not just among its own employees but also among the company’s trainees, visitors, suppliers and contractors. To this end, Tofaş is committed to:• Fulfilling all its legal, regulatory and other obligations with

respect to occupational health & safety issues;


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Some aspects of OHS activities carried out in 2016 are highlighted below.

Safety Simulation Area Training: Safety Simulation Area (DOJO) training is conducted to instruct personnel on safety-related issues and risks by allowing employees to work with real and simulated equipment and tools in carefully controlled environments. DOJO training is highly effective in manufacturing operations such as body in white, assembly, painting, stamping, and chassis suspension. A total of 10,400 hours of DOJO training was administered to employees in 2016.

Contractor Management Procedures: The company created and currently uses a total of 29 sets of instructions and associated forms to proactively manage contractors’ operations. This approach ensures that all rules are communicated and understood before work begins and that the rules are abided by during the conduct of work through audits and inspections.

Safety Dramatization Training: Interactive role-playing is used as a training methodology both to bolster the OHS culture in general and to draw attention to the consequences of unsafe behavior in non-routine works.

Attention & Perception Testing: Also known as the “Vienna Test,” this method is especially useful for determining attention, perception, concentration, and motor-skill levels among machinery and equipment operators, maintenance personnel, quality control personnel and vehicle drivers.

Safety Captain: In this safety implementation method, a blue-collar worker is designated the safety captain of a so-called “lean” team of 8–15 people and given responsibility for their safety for a week. Although the captain is identified by a special cap and armband, he continues to perform his regular job while also keeping lookout for instances of acts and other infractions of safety rules.

Safety Pennants: Safety pennants are used to indicate the situation of production teams. Blue pennants are hung to indicate that no accidents have occurred there; orange ones signal that one has.

Tofaş’s successful performance on OHS issues has earned both national and international recognition. In 2015 and 2016, the company won two awards—“Golden Glove” in the “Companies” category and “Golden Suggestion” in the “Individuals category—at the Occupational Health & Safety Best Practices Awards program conducted by the Metal Industrialists’ Union of Turkey.

OCCUPATIONAL HEALTH & SAFETY

Thanks to its successful occupational health and safety practices, Tofaş has won the biggest award “Golden Glove”, granted by MESS (Metal Industrialists’ Union of Turkey), for two years in a row.

SUSTAINABILITY

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Tofaş collaborates with its suppliers to reduce dependence on foreign supplies and boost domestic production, which figure among the company’s medium- and long-term objectives.

SUPPLY CHAIN MANAGEMENT

CONTRIBUTING TO THE GROWTH AND DEVELOPMENT OF THE DOMESTIC SUB-INDUSTRY

Since day one, Tofaş has contributed significantly to the expansion and development of a home-grown automotive sub-industry by giving utmost importance to localizing its procurement and manufacturing processes as much as possible. Tofaş today procures 71% of its components other than engines and transmissions from domestic suppliers.

Reducing its dependency on non-domestic sources and increasing localized content have always beentwo of Tofaş’s medium- and long-term strategic priorities. The company especially works with suppliers to localize the production and procurement of transmissions and of electrical, electronic, and mechatronic components. New projects undertaken for this purpose not only contribute to Tofaş’s own development but also support those suppliers that Tofaş identifies as business partners in their efforts to compete and succeed at the global level.

Tofaş, in activities carried out; has adopted the principle of continuous improvement of its suppliers, organizational excellence and continuous improvement of business processes in order to maintain competitive advantage, reduce production and procurement costs, ensure and maintain the highest possible quality and delivery performance in goods and services purchased.

Procurement activities are mainly conducted in the categories of Direct Materials, Spare Parts, Investment–Services and Indirect Materials. In 2016, the Department’s purchases amounted to EUR 3.8 billion. Tofaş purchases direct materials from 147 suppliers in 14 cities across the country.


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Among the many components that Tofaş procures locally, the most important are preformed sheet metal components; machined wrought and cast components; mechanical and electromechanical components; electrical system elements; molded and extruded plastic and rubber components; seats; door panels; windshields and windows; dashboards; bumpers; exhaust system components; chemicals; interior and exterior trim components; and fasteners.

IMPROVEMENTS IN PROCUREMENT PROCESSES

Whenever Tofaş considers the procurement aspects of new projects that it plans to undertake, the company pays particular attention to acquiring new technological capabilities for the Turkish automotive industry while boosting its own competitive strength. Tofaş encourages international firms that are global manufacturers of automotive components to invest in Turkey or to enter joint ventures with local suppliers.

While taking measures to reduce its procurement costs, Tofaş also works to streamline its procurement processes. With the new projects launched in 2016, Tofaş plans to become Turkey’s top original equipment manufacturer (OEM) with the highest production capacity in 2017. To this end, the Purchasing Department has formulated plans to expand the production capacities of suppliers to ensure the continuity in its own production processes.

In all procurement processes, Tofaş manages supplier relationships on the basis of mutual trust and openness, and within the framework of sustainable competition and a long-term business partnership.

SUPPLIER SELECTION

While Tofaş selects suppliers of inputs for its assembly-line operations based on their access to sub-manufacturing capacity, every potential supplier is expected to meet certain basic criteria. These criteria include:

• Having both the technical (quality/cost competitiveness, delivery performance, project management,

• production capacity, co-design) and the organizational competencies capable of meeting the automotive industry’s expectations;

• Being financially robust;• Holding ISO/TS 16949 (quality) and ISO 14001

(environment) certifications;• Having advanced design, manufacturing and testing

competencies;• Successfully passing Tofaş conducted Supplier Eligibility

Assessment and Process Audit inspections;• Having the ability to contribute favorably to Tofaş’s own

competitiveness by supporting improvements in its quality and cost-effectiveness;

• Demonstrating an ability to consistently improve and boost its competitive strength by closely monitoring what domestic and international competitors do;

• Showing a willingness and an ability to engage in a transparent, mutual-trust based business partner relationship in its dealings with Tofaş.

Aiming to enhance its own competitive abilities by protecting its manufacturing quality and continuity, Tofaş monitors and rates its suppliers’ performance in such areas as businessviability, quality, and delivery on the basis of its stipulated standards.

SUPPLY CHAIN MANAGEMENT

Tofaş engages in an ongoing effort to streamline its procurement processes.

SUSTAINABILITY

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SUPPLIER DEVELOPMENT ACTIVITIESTofaş takes a business partnering approach in all procurement processes. The company carries out various activities to support supplier development in a number of area. These include product design, organizational/technical development, quality, cost improvement, physical and financial risk management, manufacturing process improvement and joint procurement.

In keeping with continuous improvement and sustainability related objectives, Tofaş undertakes the following supplier development activities:

• Expanding WCM (World Class Manufacturing) Methodologies and Techniques across Suppliers: Tofaş began encouraging its suppliers to adopt World Class Manufacturing practices in 2009; by end-2016, 24 suppliers have started implementing WCM. Under the world-class supplier management model, Tofaş shares its innovative and best practices in automation with its suppliers.

• Financial Risk Management: As of year-end 2016, Tofaş completed financial risk assessment for 37 suppliers and developed action plans, as needed.

• Tofaş Academy Training Courses for Suppliers: Tofaş Academy is a training platform via which the company shares its technical knowledge and expertise with its suppliers. In 2016, 808 employees of 66 supplier firms completed 45 training modules that are designed for suppliers.

• “UP” Program (Use Your Competencies, Plan Your Development): Launched in 2016, the “UP” Program aims to improve suppliers’ competencies in key areas such as sales, quality, project planning and logistics. To this end, 24 employees of nine supplier firms completed their basic training. Training programs in specific areas of expertise will continue in 2017.

• Management Projects for Suppliers: Management projects are designed to improve suppliers’ management skills such as problem-solving, planning, diagnostic skills and organizational competencies in order to boost the efficiency of their human resources and business processes. These projects continued in 2016.

• Supplier Orientation: The supplier orientation program aims to provide suppliers with accurate information about Tofaş’s business processes. In 2016, 168 employees of 34 supplier firms participated in the “Synergy” program.

• Suppliers HR Summit: In 2016, 46 suppliers participated in the “Focus on Improvement Summit” where successful HR practices were shared.

Under the world-class supplier management model, Tofaş shares its innovative and best practices in automation with its suppliers.


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TRANSPARENCYDetailed information about Tofaş is available to all stakeholders 24 hours a day/seven days a week via its websites and the Tofaş Call Center. Any questions, requests, or complaints that stakeholders may have can be forwarded to the company through the same channels.

ACCESSIBILITY• Fiat Call Center: 444 22 55• Fiat website: www.fiat.com.tr• Alfa Romeo & Lancia Call Center: 444 19 10• Jeep® Call Center: 444 53 37• Alfa Romeo website: www.alfaromeo.com.tr• Lancia website: www.lancia.com.tr• Jeep® website: www.jeep.com.tr

RESPONSIVENESSAll requests for information submitted via company websites and call centers are responded to within specified periods of time.

OBJECTIVITYAll questions, requests, and complaints are addressed and responded to fairly and without prejudice.

FEESThose who submit questions, requests or complaints are not charged any fees.

CONFIDENTIALITYAll personal information that is submitted to Tofaş is treated with the strictest confidence and is never revealed to any outside party.

CUSTOMER FOCUSTofaş is committed to resolving customers’ problems, satisfying customers’ needs and protecting customers’ rights under all conditions pursuant to applicable company policies and legal requirements.

ACCOUNTABILITYAll questions, requests and complaints that are received are recorded upon arrival. When they are responded to, a full account is given of all decisions and actions that were taken along with the justifications for them.

CONTINUOUS IMPROVEMENTAll communications received from Tofaş stakeholders are used proactively as feedback for making improvements in the company’s business processes, products and services.

CUSTOMER SATISFACTION POLICY

SUSTAINABILITY

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In all its business activities, Tofaş is committed to the highest standards of ethical conduct, which constitute the foundation of its organizational culture. Adherence to the highest ethical standards is the top priority and responsibility of every Tofaş employee. Tofaş personnel in addition to Tofaş dealers, suppliers and business partners, and all other stakeholders with whom the company engages are also expected to abide by the company’s rules of ethical conduct.

Tofaş takes a “zero tolerance” approach to bribery and corruption and is committed to undertaking its activities fairly and honestly in line with legal and ethical rules. Situations in which the company may be exposed to risks of bribery or corruption are identified and measures to mitigate the risks are taken accordingly. In all the policies and procedures that it formulates, Tofaş strives to be in full compliance with the requirements of applicable laws, rules and regulations, with ethical and professional standards, and with the principles of the Universal Declaration of Human Rights.

The Tofaş Code of Ethics provides a comprehensive approach to dealing with issues involving potentially questionable conduct that might be encountered when dealing with company employees and other stakeholders. The Tofaş Code of Ethics is a document that sets out guidelines governing such matters as interacting with internal and external stakeholders, managing assets and information, avoiding conflicts of interest, protecting occupational health and safety, and preventing corruption, malfeasance and bribery. The Tofaş Code of Ethics likewise specifies what is to be done in the event that its guidelines are breached.

Since Koç Holding, one of Tofaş’s major shareholders, has endorsed the United Nations Global Compact, all the 10 principles contained in that document that pertain to human rights, labor standards, environment and anti-corruption are essential elements of Tofaş’s own commitment to ethical behavior.

Due care is given to protecting human rights and supporting the company’s performance on such issues in the conduct of its business processes through policies and practices. The importance Tofaş places on human rights and practices is supported with the principle declared in the first article of the Tofaş Code of Ethics which states that the company: “respects human rights and the constitutional rights of freedom of association and collective bargaining.”

All forms of discrimination based on language, race, gender, political affiliation, religious belief, or similar considerations are prohibited in the conduct of business and workplace relationships at Tofaş. Work agreements between the company and its employees may incorporate no terms or conditions which, directly or indirectly, would subject an employee to different treatment on the grounds of gender or pregnancy at the time the agreement is executed, while it is in effect, or when it is terminated except in cases where job related risks, employee safety, or the requirements of law dictate otherwise. The principle of “Equal Pay for Equal Work” applies to everyone and no employee may be paid more or less based on their gender. All hiring, assignment and promotion decisions must be based on objective performance criteria and never on considerations such as language, religion, gender, race, or the like. Tofaş condones neither the employment of children nor any form of forced or compulsory labor.

ETHICAL VALUES AND ANTI-CORRUPTION POLICY

STRONG PRODUCTION PERFORMANCETofaş, a “Gold” status in World Class Manufacturing (WCM), continues to create value for its customers with more than 10 thousand employees.


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AGENDA OF ORDINARY GENERAL ASSEMBLY MEETING

AGENDA OF 49TH ORDINARY GENERAL ASSEMBLY MEETING OF TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİ TO BE HELD ON 28 MARCH 2017

1. Opening and election of Meeting Chairmanship,

2. Reading, discussion and approval of 2016 Activity Report prepared by the Company’s Board of Directors,

3. Reading of Independent Audit Report Summary for 2016 accounting period,

4. Reading, discussion and approval of 2016 Financial Statements,

5. Approval of replacements of the members of Board of Directors within the year under Article 363 of Turkish Commercial Code,

6. Acquittal of each Board Member for 2016 activities of the Company,

7. Approval, approval with amendment or rejection of the Board’s proposal on appropriation of 2016 profits and the date of appropriation created as per the Company’s profit distribution policy,

8. Approval, approval with amendment or rejection of the Board’s proposed amendments to Article 6, titled (“Capital”) of the Company’s Articles of Association,

9. Determining the number and term of office of Board Members, holding the election based on the number of members determined, electing Independent Board Members.

10. Informing the Shareholders on “Remuneration Policy” for Board Members and Top-Level Managers and the payments made within the frame of such policy as required by Corporate Governance Principles,

11. Determination of annual remunerations of Board Members,

12. Approval of selection of Independent Auditing Organization by the Board of Directors as per the Turkish Commercial Code and Capital Markets Board regulations,

13. Informing the Shareholders on donations made by the Company in 2016 and setting an upper limit for donations in 2017,

14. Informing the Shareholders, on assurances, pledges, securities and indemnities supplied by the Company and its affiliates in favor of third parties and the profits and benefits gained in 2015 as per the Capital Markets Board regulations,

15. Authorization of the majority shareholders, members of the Board of Directors, top level managers and their spouses and up to second-degree relatives within the frame of Turkish Commercial Code Articles 395 and 396 and informing the shareholders on such business and transactions of this nature in 2016 as per the Capital Markets Board Corporate Governance Communiqué,

16. Wishes and opinions.

CAPITAL STRUCTURE, CORPORATE GOVERNANCE AND OTHER ISSUES

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INFORMATION ON THE CAPITAL STRUCTURE AND SHAREHOLDING OF THE COMPANYTHE COMPANY’S CAPITAL, SHAREHOLDERS WHO OWN MORE THAN 10% OF THE CAPITAL:

As of 31 December 2016, the company’s recorded equity ceiling was TL 1 billion, and its issued (paid) capital was TL 500 million.

SHAREHOLDER SHARE GROUP SHARE AMOUNT (TL) VOTING RIGHT SHARE RATIO (%)

Fiat Auto S.p.A. D 189,279,856.87 18,927,985,687 37.8560

Koç Holding A.Ş. A 187,938,121.26 18,793,812,126 37.5876

Temel Tic. Ve Yat. A.Ş. A 175,693.44 17,569,344 0.0351

Koç Family A 1,166,042.17 116,604,217 0.2333

Others E 121,440,286.26 12,144,028,626 24.2880

500,000,000.00 50,000,000,000 100

There was no change in the Company’s capital and shareholding structure in the period 01 January2016 – 31 December 2016. The Company is controlled by its main partners, namely Fiat Auto SPA (FCA Fiat Chrysler Automobiles N.V.), Koç Holding A.Ş., the Koç Family and companies owned thereby. The last time the Company made a bonus issue increase at the rate of 11.111111% from internal sources to a total of TL 50,000,000 was in 2005, and in the following years, including 2015, there was no capital increase. Information on Capital increases since the foundation of our company can be found on the website www.tofas.com.tr.

The 20th distribution of share bonds, which were issued because our company merged with the dissolved Tofaş Oto Ticaret A.Ş. with the 11-19th distribution of share bonds, which was quoted for the Stock Exchange and issued based on the capital increase, and the 21st distribution of share bonds together with the capital increase in 2001 within the framework of the Capital Market Regulations were held subject to change. Furthermore, with the capital increase carried out in 2003 being issued with the 22nd distribution of share bonds, and again the capital increase in 2005 being issued with the 24th distribution of share bonds, and these were quoted in the İMKB (BIST). The intermediate 23rd distribution had no connection to the capital increase, and because of registration procedures, a distribution was not issued. To this end, primarily within the scope of capital market tools being registered and recorded, with the Resolution no. 42/1318 dated 28.10.2005 of the Capital Markets Board being related to the follow-up of the share bonds’ registration, all the share bonds in circulation at the Stock Exchange and before Takasbank have been registered.

Furthermore, as of 31.12.2006, in line with the Central Registry Agency (MKK), within the scope of processes begun with the aim of being able to follow up the records of share bonds unregistered due to a change in kind, in line with related regulations of the Capital Markets Board (SPK), published in 2007, and applications of the MKK relating to the subject, in accordance with the concerned regulations in operation, legislation related to the recorded follow-up of capital market tools was applied from 31.12.2007.

In accordance with legal regulations and legislation concerning the aforesaid work between the MKK, the brokerage house (Yapı Kredi Yatırım) and our company, was carried out properly by the Executive Board and our Corporate Governance and Shareholder Relations Unit.

To this end, according to temporary 6th article of the Capital Markets Law, which replaced the 157th article of Law no. 6111, which came into operation by being published in the repeated Official Gazette of 25.02.2011 and within the framework of the General Letter of the MKK, no.551, of 28.04.2011, in order to register the physical bonds of bondholders up until 31.12.2012 by applying to our company, the transactions of the aforementioned bonds and the registering of the physical bonds before the MKK are provided by law. To this end, the necessary announcements are contained in both the company’s website and the e-Manage portal. Furthermore, by being announced twice in three daily newspapers published throughout Turkey, the information was presented to shareholders.


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INFORMATION ON THE CAPITAL STRUCTURE AND SHAREHOLDING OF THE COMPANYIn accordance with the applications of shareholders who hold the physical shares belonging to our company in their hands, first of all, they had to complete the transactions pertaining to previous years, if necessary, at our Company Headquarters, and then they could make an application at Yapı Kredi Yatırım or all Yapı Kredi Bank branches, which represent them, by 31.12.2012. In this context, so that shareholders who held physical bonds did not lose their rights, the shareholders who applied to our company up to the aforementioned date by completing the necessary transactions on time brought the legal process to a close.

Pursuant to Paragraph 4, Article 13 of Capital Market Law No: 6362, which was published in the Official Gazette on December 30, 2012 and thereby came into effect, - “Capital market instruments which are not delivered until the end of the seventh year following the date when they started to be monitored on records shall be transferred to the Investor Compensation Center (“ICC”). The limited real rights on them shall be automatically regarded as terminated. They shall be sold within three months starting from the date when they have been transferred to the account of ICC”- , all securities that haven’t been registered on behalf of the Holders, were transferred to the Investor Compensation Center on December 31, 2012.

However, the Constitutional Court repealed the mentioned Law on the ground that it violated Constitutional Provisions on the protection of civil rights, civil liberties, and right to property, with a decree dated October 22, 2015, which was published in the Official Gazette No: 29530 on November 12, 2015.

The transitional article No:10 of the Capital Market Law on the “Principles and Procedures Regarding the Repayment Mechanism for Dematerialized Capital Market Instruments Transferred to Investor Compensation Center (ICC)” was published in the Official Gazette No: 29695 on April 26, 2016. This new mechanism allows investors to apply to ICC and claim payments for dematerialized capital market instruments. If ICC has not sold the instrument, the exact amount of the instrument will be paid to the claimant; if ICC Centre has sold the instrument, then the instrument’s sale amount will be paid in cash, plus the interest which will be calculated according to the procedures set forth by CMB.

The detailed procedures are described in the “Regulation on the Principles and Procedures Regarding the Payments to be Made to the Investors by the Investor Compensation Center due to the Partial Cancellation of Article 13 Paragraph 4 of the Capital Market Law No. 6362” (“Regulation”), which was published in the Official Gazette No: 29824 on September 7 2016.

Pursuant to the Regulation, investors shall deliver physical capital market instruments to issuer companies with a delivery record. Subsequently, issuer companies shall direct the claims relating to capital market instruments that are registered in the Central Registry Agency (“MKK”) system to MKK, and the claims relating to instruments that are not registered in the MKK system to ICC.

Capital market instruments that are registered in the MKK system shall be annihilated by MKK upon delivery; whereas, capital market instruments that are not registered in the MKK system shall be annihilated by the Company in the presence of a notary after the process is finalized.

After delivering the physical capital market instruments to issuer companies, claimant investors shall apply to ICC with the delivery record and other required documents, and then ICC shall make the payments. Annihilation of physical instruments shall be undertaken by either MKK or issuer companies. Investors may apply to ICC within the next 10 years (until September 7, 2026).

Shareholders can obtain the necessary information on this subject or similar shareholder’s rights from the Corporate Governance and Shareholder Relations unit at Company Headquarters. Furthermore, our corporate investors can also obtain information on other matters by application to the Financial Risk and Investor Relations Unit.

According to the Capital Markets Legislation and regulations, the responsibilities regarding the rights and benefits of the Company’s shareholders are tracked before the Capital Markets Board, BIST and MKK and the necessary activities are performed. Shareholders registry is updated based the data received from MKK. Tofaş is listed in BIST 30 and BIST 100 Indexes as well as the Corporate Governance Index and Sustainability Index. Company shares are quoted in Luxembourg Stock Exchange Market and traded in the international markets.

Each shareholder has one voting right at the General Assembly Meetings and there is no privileged vote. However, Board Members and Auditors are elected among the nominees who will be nominated by Group A and D Privileged Shareholders. (Article 10 of the Company Articles of Association) As per the Company’s shareholding structure and as specified in Company’s Articles of Association, only A and D Group shareholders have the privilege of nominating the Members of the Board of Directors and Members of Auditing Board and one of the nominees for each of these committees should meet the requirements for independence as set forth by the regulations by Capital Markets Board. There is no privilege regarding allocation of dividends (as per Article 18 of Articles of Association).


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Detailed information and explanations relating to these matters are contained in more detail in the Corporate Governance Principles Compliance Report within the annual report.

In addition, there was no law suit which may affect the finances and activities of the Company and there was no administrative or financial sanction imposed on the Company or the members of its managing bodies due to breach of legislative provisions. There was no capital risk and it is concluded that the activities can continue.

There was no capital risk, and it was concluded that the capital is adequate for continuation of operations, as specified also in the related Committee report.

The shareholders can access corporate, financial and stock exchange data regarding the Company under the “Investor Relations” section at www.tofas.com.tr website and Access information on other issues regarding the Company by sending an e-mail to [email protected] or through Institutional Investor Relations Unit or Corporate Governance and Shareholder Relations Unit.

Amendments to the Articles of Association during the Reporting Period

In 2016, there were no amendments to the Articles of Association.

In 2013 with the purposes of adopting to Turkish Commercial Code 6102, Capital Markets Board and the related regulations, all articles of the Company’s Articles of Association except for Article 1 titled “Establishment” were amended and some articles were annulled with the required permits taken from the Capital Markets Board and T.R. Ministry of Customs and Trade.

The Company’s Articles of Association were registered on 03.07.2013 as per the resolution by the Extraordinary General Assembly Meeting dated 01.07.2013 and issued on the Turkish Trade Registry Gazette 8359 dated 09.07.2013.

The Company’s Articles of Association are also available for review on our Company’s website at www.tofas.com.tr.

Dividends Distributed in the Last Three Years and Ratios:In accordance with the Turkish Commercial Code, the Capital Market Legislation, provisions of the Articles of Association, and the Profit Distribution Policy,

Starting from April 7, 2016, the Company paid cash dividends in the total amount of TL 365,000,000.- corresponding to 73% (73% gross, 62.05% net) of the 2015 profit during 2016.

Previous year; cash dividends in the total amount of TL 485,000,000.- corresponding to a rate of 97% (97% gross, 82.45% net) of the 2014 profit were paid out during 2015, starting from 03 April 2015.

Furthermore, cash dividends in the total amount of TL 325,000,000.- corresponding to a rate of 65% (65% gross, 55.25% net) of the 2013 profit were paid out during 2014, starting from 04 April 2014.

A detailed table of allocation of dividends in the mentioned and previous years is accessible at www.tofas.com.tr for review.

Issued SecuritiesThe Company issued stocks of TL 520 as of its establishment. The entire of these issued stocks was redeemed by payment on due term. As of the establishment, issued shares of the series 1-10 were replaced by the series 11 and series 11-20 shares were replaced by series 21 shares, then series 22 shares, and finally series 24 shares were issued. As mentioned above the procedures related with the dematerialization of the shares are conducted through the issuing company, intermediary institution/bank and MKK. As per the relevant resolution of SPK, dematerialization of all shares was commenced on 31.12.2007 and as per the Provisional Article 6 of the Capital Markets Law as amended by Article 157 of Law No. 6111 made effective upon its publication in 25.02.2011 second issue of the Official Gazette and within the frame of General Letter 551 of MKK dated 28.04.2011, dematerialization process of physical shares was finalized as of 31.12.2012 as required by the legislation.

Company Partners and Affiliated Partners• As of 31 December 2016, our company’s partner share

total in our TL45,000,000 nominal capital affiliated partnership KOÇ FIAT KREDİ Finansman A.Ş., which operates in Istanbul, was TL 44,999,996, a share rate of 99.99%.

• The Ordinary General Meeting concerned with 2016 operations of KOÇ FIAT KREDİ Finansman A.Ş. was completed as of 24 February 2017.

• As of 31 December 2015, our company, which has a partnership in FER MAS Oto Ticaret A.Ş., which operates in Istanbul with the nominal capital of TL5,500,000, has the share total in the aforesaid company of TL5,500,000, a share of 100%.

The FER MAS Oto Ticaret A.Ş. Executive Board, in line with the Resolution pertaining to their continuing activities with the status of a “single partner company”, in accordance with the provisions of Turkish Commercial Law no.6012, the matter relating to the company of Tofaş Türk Otomobil Fabrikası A.Ş. being the sole shareholder, thereby being registered on 24.06.2013, and being publicized in the Turkish Register of Trade Gazette, no. 8354, on28.06.2013.

• The Ordinary General Meeting concerned with 2015 operations of FER MAS Oto Ticaret A.Ş. will have been completed by 10 March 2017.

The General Board meeting Minutes and Prepared Statements of our partners and affiliated partners can be viewed on our company’s website at www.tofas.com.tr.


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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORTSECTION I: DECLARATION OF COMPLIANCE WITH CORPORATE GOVERNANCE PRINCIPLES

In 2016, full compliance was achieved with the applicable compulsory principles of the Corporate Governance Communiqué II-17.1 while compliance was achieved with most of the noncompulsory principles.

Although the aim is to achieve full compliance also with the noncompulsory Corporate Governance Principles, full compliance has not yet achieved due to reasons such as; difficulties in practicing some of the principles, continuing evaluations in our country and on international platform about complying with some of the principles, some of the principles not fully matching with the existing structure of the market and our Company. The process regarding the principles which have not yet been adopted is in progress and they are scheduled for adoption following the completion of managerial, legal, operational and technical infrastructure works in a manner to assist the Company in effective management. Comprehensive activities carried out within our company within the scope of the Corporate Governance Principles, and principles that was not complied with in relevant departments and conflicts of interest (if any) arising for this reason, are explained below.

In 2016, Corporate Governance activities were carried out particularly to achieve compliance with the Capital Markets Law that includes the new regulations about SPK’s Corporate Governance Principles, and with the Communiqués based on this Law. Within this context, our Board of Directors and our Committees were formed in line with the requirements in the Corporate Governance Communiqué and the Board of Directors’ Committees so set up pursue their activities efficiently.

Board of Directors’ and executive managers’ remuneration policy was determined and presented for the shareholders’ information at the General Assembly. With the informative document prepared for the General Assembly; (i) General Assembly information (that must be announced according to the principles) such as privileged shares, rights to vote, organizational changes, (ii) résumés of the candidate Members of the Board of Directors, (iii) Board of Directors’ and executive managers’ remuneration policy, (iv) necessary reports that must be prepared and necessary information that must be announced regarding the related party transactions, were presented for the information of our shareholders and investors 3 weeks in prior the General Assembly. Furthermore, our Company’s corporate website and Annual Report were reviewed, necessary revisions were made in order to achieve full compliance with the principles.

In the upcoming period, developments in the legislation and practices will be taken into account and necessary activities will be carried out in order to achieve compliance with the Principles.

Within the scope of the Compulsory Corporate Governance Principles, in the context of exceptions in practicing the Corporate Governance principles – as per the first paragraph of the 6th Article of the Corporate Governance Communiqué; our Company’s status is a “business partnership” (.IV) composed of “two juridical persons” who “equally control the management with an agreement” while the number of the independent members of the Board of Directors is “two” in line with this regulation. With the Capital Markets Board decision n.5/129 (date: 16.02.2012) approval was received for that it was sufficient to determine the number of the independent members of the Board of Directors as 2 (two).

Furthermore; as per Article 5 paragraph 6 of the said Communiqué, nominees for independent membership on the Board of Directors were determined in conformity with the requirement that reads “It is sufficient that [...the principle.....] is met by at least half of the independent members “ with respect to the criterion of “being considered a resident in Turkey in accordance with the Income Tax Law” as specified in paragraph (d) of the first clause of the compulsory principle numbered 4.3.6, and necessary permission has been obtained from the SPK. Along this line, the necessary consent has been received for the Board of Directors’ independent member nominees with the SPK decision no. 5/136 and dated 17.02.2014, and the independent members were elected at the General Assembly as at 28 March 2014 for a three-year term of office.

The implementation of Corporate Governance Principles has a decisive and ever-increasing importance for the Company as a result of the developments in Capital Markets and as a dynamic process. The Company continues its efforts to adopt corporate governance as a corporate culture by adopting the Corporate Governance Principles issued by the Capital Markets Board, making the necessary improvements and regulations based on current conditions on areas which require adoption and making the necessary changes. We integrate sustainability into our corporate governance practices in accordance with the principles of transparency, accountability, fairness and responsibility, as described in the Corporate Governance Communiqué.

Following suit of previous years, our activities were meticulously carried on in 2016 by keeping a close eye on the changes made in the legislation or capital market regulations, and in line with our Company’s corporate governance


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activities. Our Company’s Information Disclosure Policy was revised and posted on the Public Disclosure Platform (“KAP”) and the corporate website on November 30, 2016.

Within the framework of our corporate governance practices, our corporate governance rating was revised once periodically by the corporate governance rating firm SAHA Kurumsal Yönetim ve Kredi Derecelendirme Hizmetleri A.Ş. Within the scope of the Corporate Governance Rating Report issued on 03 November 2016 upon review of 2016 operations, our rating score was upgraded once again and declared as 9.14 (91.38). The rating report can be reviewed on our Company website.

Due to reasons also mentioned above, full compliance has not yet been achieved with the non-compulsory Corporate Governance Principles specified below. Detailed information regarding the issue is presented in the relevant sections below. Our Company is not exposed to any conflicts of interest by reason of failure to fully comply with the non-compulsory principles.

Regarding the principle no. 1.4.2, privileges listed below in section 2.4 were specified in our Articles of Association.

Regarding the principle no. 1.5.2; our Articles of Association do not stipulate minority rights for those who hold less than one twentieth of the capital, and thus rights were provided within the framework of the general regulations in the legislation.

Regarding the principle no. 4.3.9; there is no target ratio and time set for the ratio of female members on the Board of Directors, and evaluation of the matter continues. Detailed information regarding the issue is given in section 5.1. below.

As per the principle no. 4.5.5., board members are assigned to committees based on their knowledge and experience levels and in accordance with applicable regulations. Some board members serve on multiple committees. Board members, who serve on multiple committees, are responsible for ensuring communication and cooperation between committees that oversee areas related to each other.Regarding the principle no. 4.4.7, there are no restrictions for the members of the Board of Directors to assume duties outside the company as stated in section 5.1. below.

Our Company has espoused a sustainable approach to governance by ensuring a broad-basedestablishment of the corporate governance concept as a dynamic process and corporate culture, in line with the implementation of Corporate Governance Principles.

Additionally, in case of a significant change during the period, such change will be included in the interim activity report.

SECTION II - SHAREHOLDERS:

2.1. Investor Relations DepartmentRegarding the issue of performing the tasks stipulated within the scope of the 11th Article of the SPK’s Corporate Governance Communiqué n.II-17.1; with the Board of Directors decision n.2014/15 (date: 27.06.2014) necessary organization was made for our Company’s Financial Director and Financial Risk Management and Investor Relations Unit under the Financial Director, and the Corporate Governance and Shareholder Relations Unit to carry out the relevant tasks, and was publicly announced via Public Disclosure Platform on a consecutive date. In 2015, necessary arrangements were made in line with the change that took place based on the Board of Directors decision no. 2015/13 dated 15 April 2015.

In this framework, by the Company’s Board of Directors decision no. 2015/13, Mr. Stefano Reganzani was appointed Financial Director to succeed Mr. Cengiz Eroldu who was appointed the Company CEO. Accordingly, the duties of the Investor Relations Unit are being led by Mr. Stefano Reganzani, the Financial Director, and fulfilled by Financial Risk and Investor Relations Executive Mr. M. Emre Ertürk and Mr. M. Adil Salepçioğlu, Corporate Governance and Shareholder Relations Executive. It was also decided to appoint Mr. Stefano Reganzani -besides the existing members- to the Corporate Governance Committee, which pursues activities within the frame of the operating principles set by our Board of Directors. The Board of Directors decision on this change has been publicly disclosed on 15 April 2015 through the Public Disclosure Platform (KAP). Budget, Planning and Commercial Control Manager, Mr. M. Emre Ertürk holds the compulsory licenses specified in the relevant Communiqué, and the necessary disclosure was made on KAP on 30 June 2015.

Besides the existing members, Mr. Stefano Reganzani also serves on the Corporate Governance Committee that pursues activities within the frame of the operating principles set by our Board of Directors. Financial Risk and Investor Relations Executive Mr. M. Emre Ertürk, who works in the Unit, holds a Capital Markets Advanced Level (Capital Market Activities Level 3) License and Corporate Governance Rating License. Corporate Governance and Shareholder Relations Unit Executive Mr. M. Adil Salepçioğlu has a Corporate Governance Rating License and a Capital Market Activities Level 2 License.


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DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORTWithin the scope of the considerations stipulated in Article 11 of the SPK Corporate Governance Communiqué, Investor Relations Department Report was prepared regarding the activities carried out in 2016, and was presented to the Board of Directors as of 01.02.2017 after it was discussed in the Corporate Governance Committee.

Within this framework; the Risk Management and Investor Relations Unit held 340 meetings with investors and analysts, 1 analyst meeting, 3 web broadcastings, 43 teleconferences about our Company. 7 investor conferences and 1 roadshow were attended and existing and potential investors, were contacted and informed about the latest developments. As of the end of 2016, 86% of the Company’s publicly-floated shares were being held by foreign investors.

The General Assembly meeting, which was organized during the reporting period within the frame of shareholder relations and in line with the activities of the Shareholder Relations Unit, was convened as per the legislation in force via e-GK system. The meeting, announcements and records regarding the meeting were organized in conformity with the capital market regulations, the Company’s Articles of Association and other internal regulations.

This unit is also responsible for monitoring the relevant procedures and keeping records concerning the activities of the Committees under the Board of Directors. The unit handles and monitors relevant aspects including public disclosures, responds to shareholders’ and investors’ information requests, and makes material event disclosures through the Company’s corporate website, such portals as e-Company and e-Governance, and KAP within the scope of the Capital Market legislation. In addition to the above, as stated in the Declaration of Compliance section above, the Company’s corporate governance rating was revised upwards to 9.14 (91.38) upon the annual periodic review performed.

During the reporting period, 22 material event disclosures were released; disclosures of an important nature for the investors, along with their translations into the English language, were posted on the corporate website as well as on the Public Disclosure Platform (KAP). In 2016, 300 queries were received from shareholders in writing or via telephone, and information continued to be provided as necessary. While queries were mostly concerned with financial statements, sales performance, projections, there were requests for annual reports and sustainability reports. Moreover, necessary responses were given to information requests regarding capital market regulations.

2.2. Using Shareholders’ Right To InformationNo discrimination is made among the shareholders in using right to information and review while all information that does not interfere with trade secrets is shared with the shareholders. Under the scope of Financial Directorate, questions sent to Budget, Planning and Commercial Control Directorate, Financial Risk Management and Institutional Investor Relations Unit and Corporate Governance and Shareholder Relations Unit, that do not interfere with confidential information and trade secrets are answered either in writing or on the phone by the highest level person relevant with the issue according to the Company’s information policy. As explained in section 3.1 in this report, all information and announcements that may have impact on using shareholders rights are available on the corporate website.

During the reporting period, maximum efforts were spent to ensure information flow within the frame of necessary activities and relevant implementations under the Company’s Disclosure Policy, as well as for the purpose of fulfilling shareholders’ information requests.

However, any shareholder may request -even in the absence of such a request in the general meeting agenda- from the general assembly of shareholders that certain events be clarified through a special audit pursuant to Article 438 of the Turkish Commercial Code, to the extent that the same is necessary for exercising shareholding rights and provided that the right to information and review has been exercised in advance.

There is no information or practice about this topic with respect to the existing regulations or general customs. As specified regarding the audit of other issues stipulated in the legislation, our Company implements the relevant provisions of the Turkish Commercial Code and Capital Market legislation. In addition to internal audit and internal control practices, our Company is audited by its two main partners, Koç Holding and Fiat Auto.

Furthermore; Company activities are periodically audited by the Independent Auditor elected at the General Assembly.

As mentioned in section 2.1 above, for information requests and queries falling under the scope of the Investor Relations Unit activities, Budget Planning and Commercial Controller Mr. M. Emre Ertürk, the Financial Risk and Institutional Investor Relations Manager can be contacted via email ([email protected]) or via telephone (0212 - 275 33 90 (pbx) extension 2751) or Dr. M. Adil Salepçioğlu from the Corporate Governance and Shareholder Relations Unit can


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be contacted via email ([email protected]) or via telephone (0212 - 275 33 90 (pbx) extension 2749).

Our Company’s shareholders can also reach the Unit executives through the Headquarters phone numbers to convey their information requests, and they may also do so by sending an email to the corporate account [email protected].

2.3. General Assembly MeetingsDuring the reporting period, Ordinary General Assembly Meeting of Shareholders was held on 31 March 2016 at the Company’s Headquarters at Büyükdere Caddesi Tofaş Han No: 145 Zincirlikuyu 34394 Şişli – İstanbul. The announcements for the invitation to the General Assembly Meeting, including all necessary details were published on the company’s website at www.tofas.com.tr, e-GKS (Electronic General Meeting System) and e-Company portals of the Central Registry Agency (MKK), and on the Public Disclosure Platform (KAP), as well as being promulgated in the Turkish Trade Registry Gazette within the legally due time. In addition, written notices were sent to privileged shareholders who are registered in the Shareholders Ledger.

Moreover, anyone wishing to attend the General Assembly Meeting as a viewer was welcomed, in line with the goal of securing attendance of stakeholders, media members, and all stakeholders in general. In this framework, media members, experts from various intermediary institutions and banks, along with officials from related associations, nongovernmental organizations and rating firms attended the said General Assembly Meeting.

The General Assembly Meeting was also broadcast live through MKK and e-GKS, and a list of those attending via electronic means was prepared, as well as a list of physical participants. The lists of physical and electronic attendants to the Ordinary General Assembly Meeting of 31 March 2016 reveal that 525 shareholders in total were included in the lists.

In this frame, procedure of general meeting is made to ensure the utmost presence of the shareholders and the minutes of such meetings shall be accessible in writing or electronically at all times. Any measure aimed at increasing the efficiency of the meeting is taken in accordance with the legislation. All measures necessary to provide the required functionality of the General Assembly are taken.

The most natural rights of our shareholders in the General Assembly Meetings are asking questions and raising their opinions, which are shown the utmost respect. Therefore, the right of the Shareholders to ask questions in the General

Assembly or make suggestions about the Agenda items, or to deliver speeches regarding their suggestions and current matters is provided by the Board and the required records are kept as per the requirements.

In this context, written and oral suggestions made by the shareholders to the Meeting Chairmanship about various topics at the General Assembly are added to the Minutes of the General Assembly Meeting, which are also posted on the Company’s Internet address (website). In 2016, no questions were raised for which written responses were demanded. However, a question via electronic general assembly system (EGKS) directed by a shareholder during the meeting was responded to by the Meeting Chairman and the shareholder’s dissenting opinion was recorded in the Meeting Minutes.

Furthermore, shareholders did not give any proposals for the agenda. In addition to this, records in the Meeting Minutes for the shareholders’ negative votes (if any) against any of the agenda items are available in the General Assembly documents on www.tofas.com.tr.

All the Minutes of Ordinary and Extraordinary General Assembly Meetings and Lists of Attendants for previous years can be found and reviewed at the Company Headquarters, as well as in the archives of the Turkish Trade Registry Gazette retained at the Istanbul Trade Registry Office. Furthermore, the Minutes of General Assembly Meetings and other relevant documents for the last 5 years can be accessed and reviewed from the Company’s corporate web site (www.tofas.com.tr) in “pdf” format.

There were no instances where the affirmative votes of the majority of independent Board members were required for passing a Board of Directors decision, which had to be referred to the General Assembly because of the negative votes cast by independent Board members.

At the Ordinary General Assembly meeting held in 2016, information about the donations and charitable grants made in 2015 was presented under a separate agenda item and a TL 10,000,000 limit was set for donations that can be made in 2016 while no changes were made in the donations policy.

In case the shareholders (who control the management of the Company), Board of Directors’ members, managers who have administrative responsibilities, and their spouses and blood relatives and relatives by marriage up to second-degree make any important transaction with the Bank or its associate companies which may lead to conflicts of interest, or in case, the aforementioned persons make any transaction, related to a commercial business that is within


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the scope of the corporation or its associate companies’ field of activity, for their own account or for the account of others or if they become unlimited partners in other companies carrying out similar commercial businesses; permission was given by the General Assembly – within the framework of the 395th and 396th Articles of the Turkish Code of Commerce – for such transactions and transactions performed within the Company’s field of activity by persons (on behalf of themselves) who have access to company information apart from the ones mentioned above. Furthermore; in line with the Capital Markets Board Corporate Governance Communiqué, information was presented to the General Assembly about the fact that no transactions were made within this scope in 2015. Some of our Company’s controlling shareholders, Board Members, managers who have administrative responsibilities, and their spouses and blood relatives and relatives by marriage up to second-degree serve as board members at some of the Koç Group companies, including those that engage in business areas similar to our Company’s business areas. In 2016, no major transactions leading to conflict of interest took place between related parties and the public company and its subsidiaries.

2.4. Rights to Vote and Minority RightsAt the General Assembly, there is one right to vote for each share, but there are no privileges in right to vote. Shareholders attending the General Assembly meeting use their rights to vote in proportion to the nominal value of the total shares. However, Members of the Board of Directors must be elected from among the candidates who will be nominated by the Privileged Shareholders of Group A and D. (10th Article of the Articles of Association). This issue is legally confirmed due to the fact that our Company’s status is a “business partnership” (joint venture) composed of “two juridical persons” who “equally control the management with an agreement”.

Voting rights are exercised as per the provisions contained under the Articles of Association. The regulations of the Capital Markets Board on voting by proxy are observed. The Company’s Articles of Association do not grant minority rights to those holding less than one twentieth of the capital, and rights are provided within the framework of the general regulations in the legislation.

In case of mutual participation, sovereign shareholder is not possible. The Articles of Association do not contain any provision for the representation of minority shares in the management or cumulative voting method. Due to voluntary application matter and non-planning for sovereign shareholding by the major shareholders as per the Capital Markets Legislation, provision on quorum was not applied for the existing General Assembly (Article 14 of the Articles of Association).

Transactions related to shareholders are based strictly on the principles of equality in transactions in accordance with the regulations, and our Company pays the utmost attention to this by providing the necessary arrangements.

2.5. Dividend RightsThere is no privilege regarding participation in Company profit or allocation of dividends. Dividends are distributed equally regardless of the whole current shares or their dates of issuance and acquisition.

Our Company’s Dividend Policy is available in the Company’s Annual Report and on the corporate website; also, the Dividend Policy covering matters related to dividend distribution has been laid down for the approval of the General Assembly, and the General Assembly Meeting Minutes incorporate the fact that it has been ratified. Accordingly, profit distribution is made as per the provisions of the Turkish Commercial Code, Capital Market regulations, Tax Regulations, other applicable legislation and the article concerning profit distribution of the Articles of Association. A balanced and consistent policy between the shareholders’ and Company’s interests is pursued in profit distribution in line with the Corporate Governance Principles; in principle, the net distributable profit for the period is calculated as per the Capital Market regulations by taking into account the market projections, the Company’s long-term strategies, investment and financing policies, profitability and cash status, and the maximum amount of cash dividends and/or bonus shares are distributed to our shareholders, so long as it can be covered from our financial records, and to the extent permitted by the applicable regulations and financial means. Furthermore, within the scope of this Profit Distribution Policy, the aim is to make profit distribution within maximum one month after the General Assembly meeting while the profit distribution date is decided by the General Assembly. The General Assembly or the Board of Directors, in case authorized by the General Assembly, may decide to distribute dividends with installments in conformity with the Capital Market Regulations.

DECLARATION OF CORPORATE GOVERNANCE PRINCIPLES AND COMPLIANCE REPORT


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According to the Articles of Association of the Company; the Board of Directors, provided that it is authorized by the General Assembly and it complies with the Capital Markets Regulations, may make advanced dividend payment.

2.6. Transfer of SharesArticle 8 of the Articles of Association “Transfer of Shares and Establishment of Usufruct on Shares” stipulates the provisions to be applied regarding the sale and transfer of registered shares of Issues A and D and there are restrictions on transfer of shares subject to the said rules and arrangements. This features the protection of the existing rights of the dominant shareholders and the limitation of the transfer of shares to any automobile manufacturer or to companies that are controlled indirectly.

Capital Markets Board regulations are applicable for transferring Company’s publicly traded Group E registered shares.

SECTION III - PUBLIC DISCLOSURE AND TRANSPARENCY:

3.1. Company Website and Its ContentThe Company has an active and up-to-date website. The website is at www.tofas.com.tr, and the information and relevant sections of the corporate website are also available in English language. Our website was revised in 2014 and was updated once again in 2015 and 2016 based on needs in order to improve its visual effectiveness and information flow. The website includes detailed information on topics included in the Corporate Governance Principles and the Investor Relations section features sub-sections titled Corporate Governance and Corporate Governance Policies. Additionally, a section dedicated to environmental, social and administrative matters also went live in 2014 on the corporate website within the frame of “Sustainability” activities that were introduced along with corporate governance. There is another Corporate Governance tab under this section that deals with topics falling under the scope of sustainability.

The website presents various detailed information about the Company. The website offers a broad range of information gathered under different headings, including About Tofaş, News, HR and R&D activities, Career and Training at Tofaş, and social responsibility initiatives. Updated to keep abreast of new developments, the website has a dedicated “Investor Relations” section covering the minimum matters set forth by the SPK, which is accessible at the address www.tofas.com.tr as mentioned above. The subsections on the website feature necessary details, records and information.

These sub-sections include the following: “Stock and Stock Exchange Market Info”, “Shareholding Structure and Board of Directors”, “Corporate Governance”, “Corporate Governance Policies”, “Annual Reports”, “Financial Statements”, “Material Disclosures”, “General Assembly Meetings”, “Subsidiaries”, “Links and Information for Investors”, “Information on Main Partners and Shareholding Structures”, “Notices”, “Organization Chart”, “Calendar” and “Archive”, as well as “Analysts”, “Presentations”, “Survey and Information Form”, “Webcast”, “Investor Feedback” and “Contact Us/FAQ”. Informational surveys and electronic mailing systems were introduced for our shareholders, investors and analysts through the “Survey and Information Form” section, and there is also a tab for the “Investor Feedback” system.

The “Stock Exchange Market Info” subsection that was introduced previously was also enabled and was kept up-to-date during 2016 as it was in previous years, and served as an information tool giving our shareholders, investors and analysts access to BIST data.

In addition to those, the Company’s Annual Reports can be obtained in print and are also available on the website in current and archived information for review. As stated, periodic financial statements and reports are accessible any time on the website, which presents up-to-date information including, but not limited to, minutes of the General Assembly meetings, investor and analyst presentations.

Responds to surveys coming from these links on the Investor Relations section of the website are followed, recorded and the information requests are responded as necessary.

Besides our main Shareholders Koç Holding A.Ş. and Fiat Auto S.p.A., information is also available on our website about our shareholders who exceed 5% (within our Company’s shareholders structure) within the framework of the legislation. Thus, from the link (to Koç Holding’s and Fiat Auto’s relevant websites) available to have information about our main Shareholders’ capital and shareholders’ structures, publicly announced information and shareholders’ structures of both Companies (that are quoted on their stock exchange) can be viewed.


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Furthermore, as required by the Regulation on the Websites of Stock Corporations enforced upon its publication in the Official Gazette 28663 dated 31.05.2013 by T.R. Ministry of Customs and Trade within the scope of the TCC, a link was provided to the “Information Society Services” (e-Company) Portal, launched on our websites (www.tofas.com.tr and www.fiat.com.tr) in due time, and are being kept up-to-date. The Central Registry Agency (MKK) provides the infrastructure required for the delivery of “Information Society Services” (e-Company).

The Company pays utmost attention to necessary considerations and information flow as per the Capital Market regulations and applicable legislation.

3.2. Annual ReportBoard of Directors prepares the annual and interim Annual Reports with the details to fully and accurately inform the public on company activities. Information listed by Corporate Governance Principles are included with due care.

Our Annual Report for the past period, prepared in conformity with the Corporate Governance Principles stipulated in the SPK’s “Corporate Governance Communiqué” n.II-17.1 that entered into force after being 03.01.2014) is an accurate and reliable source just like in the previous years, available both in print and online via our website.

In addition, necessary additions have been made to our Annual Report which has been produced in view of the provisions of the Regulation on Determining the Minimum Contents of Annual Reports of Companies published by the T.R. Ministry of Customs and Trade in the Official Gazette dated 28 August 2012, and our Annual Report is being updated within the frame of the legislation and regulations.

The headings in the present 2015 Annual Report have been addressed under 6 main sections: These main sections are titled as “Tofaş At a Glance”, “Management”, “Activities”, “Sustainability”, “Capital Structure, Corporate Governance and Other Issues”, and “Financial Information”.

The following subsections are listed under the main sections: Key Financial and Operational Indicators, Institutional Investor Relations, Board of Directors, Senior Management, Automotive Industry, Tofaş’s Place in the Industry, Subsidiaries, Sustainability and Social Responsibility Policy, Customer Satisfaction Policy, Agenda of General Assembly Meeting, Declaration of Corporate Governance Principles

and Compliance Report, Associate Company Report, 2015 Dividend Distribution Proposal, Consolidated Financial Statements, and Independent Auditor’s Report.

The Annual Report for the past period was prepared in strict conformity with the Corporate Governance Principles stipulated in the CMB’s “Corporate Governance Communiqué” No. II-17.1, Article 2.2. titled “Annual Report”, and contains accurate and complete information.

The 2016 Annual Report will also be prepared and reviewed in accordance with applicable laws and regulations.

Issues set forth by the mentioned Communiqué Vol. II-17.1 on Designation and Implementation of Corporate Governance Principles issued by Capital Markets Board Article 2.2 Activity Report Section were provided with the details for informing the public fully and accurately.

The 2016 Annual Report will also be prepared and reviewed in accordance with applicable laws and regulations.

SECTION IV- STAKEHOLDERS

4.1. Keeping Stakeholders InformedBased on the concept of “stakeholders” referring to employees, suppliers, customers and basically third parties in direct relationship with the company, our Company develops policies for various stakeholders and/or stakeholder groups.

All rightful parties and stakeholders are entitled to the same practices, implementations and effective communications. Our corporate governance practices ensure the protection our stakeholders’ rights, which are both defined by relevant regulations and also those which are not defined yet.

Necessary and systematic communication channels have been established to keep the Company’s stakeholders informed on matters that are of concern to them. Additionally, the Company has also made available the necessary mechanisms for reporting the illegitimate and unethical transactions to the Audit Committee via Internal Audit. Both the Audit Committee and the Early Detection of Risk and Risk Management Committee pay maximum attention to these matters during the meetings. Besides Tofaş Rules of Ethical Conduct and Operating Guidelines for the Ethics Board, Anti-bribery and Anti-Corruption Policy was issued in 2015, and posted on the corporate website. Within the scope of anti-bribery and anti-corruption program, necessary guidelines, procedures and policies have been produced and put into force.



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Specifically, headings such as Human Resources, Business Management Policies, Rules of Ethical Conduct andtopics related to Tofaş Dealer Network and Supply Chain Management practices are addressed in the Company’s Annual Report.

We adhere to, and are guided in our actions by, the principles spelled out in the “United Nations Global Compact”, to which our partner Koç Holding is a signatory, and which are implemented at Koç Group companies in the audit and reporting of related processes, and by the principle of being a responsible corporate citizen together with all our employees, dealers, suppliers and authorized service outlets.

Tofaş Code of Ethics and Ethic Board procedures are available on our Company’s website and intranet. Thus, a communication channel is available to make applications about any actions nonconforming with the code of ethics, and issues of misconduct within the scope of practicing legal legislation and unethical actions. Applications can be made sending e-mail to [email protected] or with a written application. Application that will be made to the Board will be kept confidential.

Through the communication and whistleblower line, stakeholders can notify illegitimate practices and unethical acts and actions to Tofaş Ethics Board for handling by the relevant Committee. The Ethics Board will adhere to the procedures in its preliminary assessment.

Tofaş Ethics Board is formed of the Company’s CEO, related Directors, HR Director and the Company’s Chief Legal Counsel and Internal Audit Manager. The Board holds periodic meetings; in addition, the Ethics Board is required to meet within no later than two business days upon invitation by any one of its members.

The Board is ex officio or upon any application, entitled to make necessary investigation and research about actions and practices contrary to principles. ID and contact information must be included in these applications. For the investigation and research it will make about actions and practices contrary to principles, the Board may request information and documents from entities by using channels of public authorities.

In terms of Corporate Governance Principles, the system implemented and the Board decisions taken within the scope of the Company’s internal control and internal audit are submitted for the information of the Audit Committee. The Audit Committee determines the methods and criteria to be implemented for reviewing and resolving the complaints received regarding the Company’s accounting and internal control system and independent audit, and for handling the Company employees’ notifications regarding the Company’s accounting and independent audit within the frame of confidentiality principle. Furthermore, relevant issues can also be separately addressed by the Early Detection of Risk and Risk Management Committee, if deemed necessary.

Anti-Bribery and Anti-Corruption Policy sets out the basics about the topic. Information on the Tofaş Ethics Board and its operation setting out the duties, responsibilities and operating principles of the Ethics Board are available to the public on Tofaş website.

4.2. Participation of Stakeholders in ManagementProcedures allowing the participation of the stakeholders in the improvement of administrative matters and expressing their ideas actively in this respect are in place in our company. The process and mechanisms to ensure that beneficiaries as stakeholders participate in Company Management regarding the issues related with them are supported and implemented by the Company.

With the objective of becoming WCM (World Class Manufacturing) and WCC (World Class Company), similar implementations are being developed and maintained. For its outstanding manufacturing capacity, our Company has earned gold level status in WCM in 2013, and repeated this achievement in 2014, 2015 and 2016. Additionally, our Company undertakes strategic efforts based on total quality philosophy, such as quality planning and quality control systems, quality improvement methods, Kaizen studies, and open door meetings, all of which aim to increase productivity. Detailed information relating to these efforts are provided in the Annual Report and the Sustainability Report.

Stakeholder expectations are managed and addressed by relevant Departments. To this end, systematic meetings and training programs are organized so that employees, suppliers and customers can voice their demands. Also, surveys such as “working life assessment questionnaires” are conducted in line with Human Resources Policies. In addition to the corporate website, the Company also has an intranet and an internal publication (“Tofaş Gazete”) aimed at improving internal communication and facilitating information flow.


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In addition to dealership council and dealership organization meetings, there is a system through which customer demands and satisfaction level are analyzed. The company management evaluates this information, takes necessary actions and provides feedback accordingly. Moreover, activities regarding “Customer Relations Principles” and similar practices ensure effectiveness and maximization of customer relations and implementation of policies towards improvement of the service quality. In connection with these practices, we have planned and implemented studies covering current events within the reporting period. Additionally, practices aimed at customers and suppliers are monitored and updated continuously in line with modern practices.

Within the frame of relations with customers and clients, any and all actions to ensure customer satisfaction during marketing, sale and post-sale of the goods and services of the company have been taken and put into practice. A prompt response is made to customer queries and demands regarding our products and the customers are provided with the required feedback. Maximum efforts and resources are used for proactive solutions to company complaints. Improvement studies are organized systematically and high quality is assured by means of quality certifications and quality standards.

The principles and policies for suppliers as well as satisfaction criteria in customer centered product and services are regularly measured and followed up by the related units of the company. Furthermore, we attach importance to arrangements related to customers and suppliers based on the market developments. Comprehensive application procedures are available in this regard.

In addition to those, the Customer Relations Management department continued to work effectively and in coordination in 2016 as it did in previous years to enhance customer satisfaction concerning marketing and sales of the Company’s products and services.

Our company accords utmost importance to practices that are built upon quality, efficiency and institutionalization. Also due care “governance” methods that will increase participation of beneficiaries in management in line with the stakeholders’ feedback. Therefore, beneficiaries’ comments and feedback are regarded as important inputs with respect to significant decisions that bear an implication in respect of beneficiaries or that directly concern them.

Furthermore, “Sustainability Management” and “Stakeholder Relations” bear significance in terms of “Governance and Sustainability”, as underlined in the 2013,2014 and 2015 Sustainability Reports which have been prepared under the Company’s Sustainability Policy and which can be accessed and reviewed from our website. Necessary efforts are being spent to implement these two topics effectively. Working environment, improving the value chain and corporate citizenship gain visibility as our key parameters. Additionally, “we deem it as a primary responsibility to establish an environment of communication” with a special focus on “transparency with stakeholder groups”, as mentioned in the 2014 and 2015 Sustainability Report. We seek stakeholders’ opinions about our operations and we constantly inform them. “When planning our activities, we take into account the characteristics of stakeholder groups in order to develop the most appropriate channels.”

4.3. Human Resources Policy“Human Resources Policy” of the Company has been prepared in accordance with the company strategies and policies and they are accurately implemented as per the new implementations.

In this context, recruitment, career planning and rotation, individual development, wage and performance management issues are handled. Work-related issues and main duties and responsibilities of employees are also outlined in the Personnel Guidelines which are prepared in line with the relevant law and collective bargaining. Various committees have been established to coordinate employee relations and employees also have representatives in each of these committees. However, no representative has been selected and/or assigned to coordinate relations directly with the employees except for the employee union relationships.

The rights and work conditions of both the white collar and blue collar personnel are ensured both in our plant and headquarters without any discrimination or abuse. No employee complaints were made during the reporting period. Due care is taken for participation of Company employees in management at all levels through feedbacks, periodic meetings and other efforts.



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Tofaş pays special attention to protecting human rights and to supporting the performance in this field with policies and practices within business processes. In addition, cultural exchange clubs started activities within the frame of various events that are open to participation by all employees and are intended to promote employee development as part of the corporate culture efforts. Activities are being planned according to evolving priorities and carried on as they were in previous years.

Special emphasis is placed on performance evaluations, behavioral competencies, career planning and career management. In 2014, our Company was awarded by Peryön (Turkish Personnel Management Association) for its “Performance Management System”. Our Company received awards in two categories from TEGEP (Learning and Development Association) in 2015, while collecting the Brandon-Hall Excellence Award in four categories. In 2016, the Human Resources Department contributed to organizational improvement efforts and sustainable business processes.

An employee compensation policy was created and issued on the company website. Human Resources and Business Management Policies were improved and made available for access by all employees. It is posted on the company intranet, as well as on the corporate website.

A structuring initiative under the name Tofaş Academy was initiated previously, which also tackled development processes; it was used effectively along with Koç Academy in 2014 and continued with scheduled formal and informal training programs and activities during 2015 and 2016. Effective and efficient use of Tofaş Akademi and Koç Akademi portals is promoted especially in terms of training. In this frame, our Company attaches the utmost importance to social rights and professional training of its employees. It closely monitors and adopts developments in HR practices.

Tofaş Personnel Directive, in which recruitment, working process and dismissal procedures based on effective, efficient and concrete criteria are determined in detail, is available both on our website and on intranet. Company employees’ job descriptions, job distributions, subrogation procedures for top management and orientation conditions for all employees were determined while performance management regarding the targets, and criteria regarding behavioristic competencies and technical competencies were defined through a systematic SAP HR program. Our HR Policy can be accessed for review on our corporate website. Also available on our website is information on Tofaş Personnel Bylaws (Recruitment, Terms of Employment,

Termination of Employment Contract etc.). The job descriptions of Company employees, their distribution by job families, performance criteria and the rewarding system have been determined and released.

Our Company is in the status of a workplace subject to collective bargaining agreement (the Bursa factory), and workplace union representatives (Employee Representatives) comprise 9 individuals namely, Mr. İlhan Köse, Mr. Mustafa Molla, Mr. Aydın Pakça, Mr. Ferdi Pak, Mr. Mr. Serdar Belli, , Mr. Murat Hürsever, Mr. Yılmaz Dalkıran, Mr. Hakan Ekin, and Mr. Hasan Özen as of 31.12.2016. Their duties are specified in the collective bargaining agreement in force.

In addition, we have a comprehensive Human Resources system composed of occupational health and safety management, and Business Management policies. Creating safe working areas and work safety culture with its “Seven Step Work Safety” methodology based on simple, proactive and World Class Production approach, Tofaş aims to protect all Human Resources within the company against work accidents and injuries caused by occupational diseases. Furthermore, Tofaş aims to zero work accidents and occupational diseases by using Occupational Health and Safety (OHS) Policy management system.

Tofaş takes an integrated approach to HR management and performance management based on leadership and continuous improvement in order to quickly adapt to fast-changing competitive conditions. Additionally, employees are encouraged to participate in clubs and sports activities on a voluntary basis. Information on these topics is presented in the Sustainability Report, as well as in the Annual Report. The Company’s Sustainability Reports are available at www.tofas.com.tr.

4.4. Ethics and Social ResponsibilitySocial activities for the district where the plant is located and the society in general are organized, carried out and followed up according to corporate social responsibility and societal impact area criteria. Related activities during the reporting period are detailed in the Annual Report. Furthermore, the internal publication (Tofaş Gazete), which is periodically published on the intranet (tofasweb) and in print, covers our social initiatives ranging from corporate to individual activities, as well as various news and information. In addition to sponsorship of a range of printed works, sponsorship support is extended to Koç Group’s social responsibility initiatives and/or associations, foundations and organizations working for social causes.


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In this context, support is given to projects in a wide range of disciplines from education to sports, from cultural activities to the arts. These initiatives include, among others, Fiat Laboratory, Master’s Program, Tofaş Science High School, Tofaş Sports Club, Tofaş Basketball Schools, Bursa Museum of Cars and Anatolian Carriages, Pamukkale Hierapolis Archeological Excavations, and Küçükyalı Arkeopark Excavation sponsorships. The Company’s social responsibility policy focuses on dynamics that will drive corporate and social development.

Activities that will raise awareness and recognition, and “sustainability perspective” are important elements of these social responsibility initiatives and sponsorships. The Sustainability Policy is of particular importance in this respect. Information on these topics is available in the Company’s Annual Report and Sustainability Report and also on the environmental, social and corporate sustainability application at our corporate website.

There were no complaints regarding environmental issues during the reporting period and we have records including environmental assessment reports. We have been implementing effective practices and inform our stakeholders within the scope of environmental sensitivity policies with the existing ISO certificates related to meeting quality and effectiveness standards. Furthermore, our Company continues its extensive activities related to Social Responsibility projects and environmental protection and presents them to the knowledge of the public. Furthermore; with comprehensive Corporate Social Responsibility projects, issues of protecting the environment, energy management and awareness and activities for climate change are given maximum importance. Our Company continues and publicly announces the issues regarding these activities it carries out. In 2016, our Company was recognized with an award in the “Social Responsibility” category with its “Fiat Laboratories – Fiat Technical Education Program” at the “Learning and Development Awards” organized by TEGEP. Tofaş was also awarded the “Sustainable Green Business Award” in the “Carbon and Energy Management” category by the Sustainability Academy for its project “Proactive Carbon and Energy Management in 7 Steps” in the reporting period. In 2016, Tofaş won first prize with its project “5R for Sustainable Waste Management” in the “Waste Management” category at the Sustainable Business Awards, which is organized by the Sustainability Academy. The Project also received first prize at the “2016 Green Dot Industry Awards”, organized by ÇEVKO (Environmental Protection and Packaging Waste Recovery and Recycling Foundation).

In 2016, Tofaş continued to report its activities to CDP (Carbon Disclosure Project). As a result of its 2014 Climate Change Report, Tofaş became the first Turkish company to be included in CDP’s global “A” list of 187 corporations. In 2016, Tofaş also received the “CDP Turkey Climate Leadership Award”.

Additionally, Tofaş was the first automotive company to be included in Borsa Istanbul (BIST) Sustainability Index in 2014. According to an assessment conducted by EIRIS, Tofaş fulfilled all criteria, and qualified for inclusion in the BIST Sustainability Index in both 2015 and 2016.

Furthermore, Tofaş won first prize with its “SolarDRY” project at the European Business Awards for the Environment-Turkey Program.

Tofaş’s Environment & Energy Policy reflects the Company’s environmental sensitivity and efforts related to about sustainable manufacturing and green products.

The Company takes necessary steps to ensure compliance with, and implementation of ethical rules in general. Related information has been presented in detail in the relevant subsections hereinabove. The members of the company comply with the generally accepted ethical rules forming a part of the regulations and arrangements. In addition, in the context of Principles of Corporate Governance, our ethical rules are formalized in a written document and announced as “Tofaş Business Ethics Principles” in our “Personnel Regulation”. These ethical rules covers issues regarding our shareholders, disclosure of information, employee activities, stakeholders and the Board of Directors.

The said “Tofaş Business Ethical Principles” are published in our website under the ethical rules section. In 2009, an Ethics Board was also established within the scope of Company’s Corporate Policies. Previously revised “Ethics Rules and Implementation Principles” were issued and information was provided by distribution to Tofaş employees at all levels periodically.

Tofaş Code of Ethics applies to all Tofaş employees, Board of Directors members, Shareholders, Subsidiaries, Dealers and Suppliers - in brief all Tofaş people. All Tofaş people are expected to comply with Tofaş Code of Ethics. Tofaş People are obliged to abide by Tofaş Code of Ethics.



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Tofaş does not exercise discrimination in whatsoever manner in its business dealings on the basis of language, race, gender, political affiliation, philosophical belief, religion, sect or similar reasons. Unless dictated by reasons pertaining to the nature of the job such as the risk associated with the specific position, employee safety, legal obligations, etc., different practices are not implemented directly or indirectly by reason of gender or pregnancy when concluding an employment contract, formulating its terms and conditions, and/or terminating it. Lower remuneration cannot be determined due to gender for the same or equivalent job. Recruitment, appointment and promotion are based on objective performance criteria without discriminating on the basis of language, religion, gender, race, etc.

In accordance with Tofaş Code of Ethics, all employees of the Company fill out a Conflict of Interest Statement form, pledging that they will not be involved in any situations that may generate a conflict of interest and therefore negatively impact their decisions, impartiality or loyalty to the Company.

For our employees, in particular, and for all our shareholders in the value chain we have created, Tofaş tries to expand the practices that have respect and awareness for human rights. As a consequence of our approach in this issue, absolutely no “child workers” are employed in Tofaş; and there are no “involuntary servitude” practices.

One instance of the importance Tofaş gives to human rights and practices related to them is to be seen in the first article of the Tofaş Code of Ethics which states that the company “respects human rights and the constitutional rights of freedom of association and collective bargaining”.

Acting in compliance with the principles determined by the “United Nations Global Compact”, to which our partner Koç Holding is a signatory and which is implemented at Koç Group companies in the audit and reporting of related processes, has been espoused within the frame of the principle of being a role model of corporate citizenship together with all our employees, dealers, suppliers and authorized service outlets.

The Company confirms that its anti-corruption policy, procedures and systems are adequate and in place. To this end, the Early Detection of Risk and Risk Management Committee oversees internal audit, internal control, anti-corruption and anti-bribery mechanisms implemented by the Company.

Related activities have been carried out exercising due care in 2016, as in previous years.

The Company’s Information Disclosure Policy was revised and posted on the Public Disclosure Platform (“KAP”) on November 30, 2016. All stakeholders, shareholders in particular, and the public are informed of any amendments or updates to the Policy.

SECTION V – BOARD OF DIRECTORS

5.1. Board of Directors’ Structure and FormationThe task and duties of the Chairman of the Board of Directors and the CEO are assumed by different persons. Company CEO is an executive Member of the Board of Directors. Members of the Board of Directors pay attention to spare the necessary time for the Company affairs. There are no restrictions for them to assume other tasks outside the company. Particularly for the reason that independent members’ Professional and sectoral experience has significant contribution to the Board of Directors, there is no need for such restriction. Before the General Assembly, members’ résumés and tasks they assume outside the company are presented for the shareholders’ information.

Corporate Governance Committee carries out the tasks of the Nomination Committee within our Company.


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The number of independent member candidates presented to the Corporate Governance Committee for 2014 was two. ID information, statement of candidacy and résumés of these persons were evaluated at the Corporate Governance Committee meeting held on 27.01.2014 and at the Board of Directors meeting n.2014/1 held on 27.01.2014, and a decision was taken to nominate all of them as independent member candidates. Independent All Members of the Board of Directors presented their independence statements to the Corporate Governance Committee. As per the sixth paragraph of the 5th Article of the mentioned Communiqué, Mr. Gökçe Bayındır and Mr. Libero Milone were determined as Board of Directors’ independent member candidates in conformity with the regulation “minimum half of the independent members (would be sufficient)” for the criteria “to be considered resident in Turkey according to the Income Tax Law” stipulated in the paragraph (d) of the first clause of the compulsory principle n.4.3.6., and an application was made on 27.01.2014 to the Capital Markets Board within the scope of the Article n.4.3.7 of the Communiqué. After the necessary consent received with the Capital Markets Board decision n.5/136 (date: 17.02.2014) for the independent member candidates of the Board of Directors, the independent members were elected for a 3 year term at the General Assembly held on 28.03.2014. As of 2014 operating period, there were no situations that would end the independency.

Independent Member of the Board of Directors Mr. Gökçe Bayındır’s Independence Statement is given below;

I do declare that I am a candidate for assuming the role of an “Independent Member” in the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş. (Company); within the scope of the criteria stipulated in the legislations, the Articles of Association of the Company and the Capital Markets Board’s Corporate Governance Communiqué II-17.1, and within this scope;

a) Within the last five years, no executive employment relation that would give important duties and responsibilities has been established between myself, my spouse, my second degree relatives by blood or by marriage and (i) the Company and (ii) the subsidiaries of Company, and (iii) shareholders who control the management of Company or who have significant influence in Company and juridical persons controlled by these shareholders; and that I neither possess more than 5% of any and all capital or voting rights or privileged shares nor have significant commercial relations,

b) Within the last five years, I have not worked as an executive manager who would have important duties and responsibilities or have not been a member of the Board of Directors or been a shareholder (more than 5%) particularly in the companies that provide auditing, rating and consulting services for the Company (including tax audit, legal audit, internal audit), and in the companies that the Company purchase products and services from or sells products and services to within the framework of the agreements signed (during the timeframe of selling/purchasing of the products and services,

c) I do have the professional training, knowledge, and experience that will help me properly carry out the tasks

and duties I will assume as a result of my independent membership in the Board of Directors,

ç) In accordance with the legislations, I will not be working fulltime in public institutions and organizations (except working as an academician at the university) after being elected as a member,

d) I am considered a resident in Turkey according to the Income Tax Law (n.193) dated 31/12/1960,

e) I do have the strong ethical standards, professional standing and experience that will help me positively contribute to the activities of Company and remain neutral in conflicts of interests between Company shareholders, and that will help me take decisions freely by taking the rights of the stakeholders into consideration,

f) I will be able to spare the sufficient time for the activities of the Company to an extent that will help me pursue the activities of the Company and fulfill the requirements of my tasks and duties,

g) I have not been a member of the Board of Directors of the Company for more than 6 years in total within the last decade,

ğ) I have not been an independent member of the Board of Directors in more than three of the companies

controlled by the Company or by the shareholders who control the management of the Company and in more than five of the publicly traded companies in total,

h) I have not been registered and announced on behalf of the juridical person elected as member of the Board of Directors,

GÖKÇE BAYINDIR



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Independent Member of the Board of Directors Mr. Libero Milone’s Independence Statement is given below;

I do declare that I am a candidate for assuming the role of an “Independent Member” in the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş. (Company); within the scope of the criteria stipulated in the legislations, the Articles of Association of the Company and the Capital Markets Board’s Corporate Governance Communiqué II-17.1, and within this scope;

a) Within the last five years, no executive employment relation that would give important duties and responsibilities has been established between myself, my spouse, my second degree relatives by blood or by marriage and (i) the Company and (ii) the subsidiaries of Company, and (iii) shareholders who control the management of Company or who have significant influence in Company and juridical persons controlled by these shareholders; and that I neither possess more than 5% of any and all capital or voting rights or privileged shares nor have significant commercial relations,

b) Within the last five years, I have not worked as an executive manager who would have important duties and responsibilities or have not been a member of the Board of Directors or been a shareholder (more than 5%) particularly in the companies that provide auditing, rating and consulting services for the Company (including tax audit, legal audit, internal audit), and in the companies that the Company purchase products and services from or sells products and services to within the framework of the agreements signed (during the timeframe of selling/purchasing of the products and services,

c) I do have the professional training, knowledge, and experience that will help me properly carry out the tasks and duties I will assume as a result of my independent membership in the Board of Directors,

ç) In accordance with the legislations, I will not be working fulltime in public institutions and organizations (except working as an academician at the university) after being elected as a member,

d) I do have the strong ethical standards, professional standing and experience that will help me positively contribute to the activities of Company and remain neutral in conflicts of interests between Company shareholders, and that will help me take decisions freely by taking the rights of the stakeholders into consideration,

e) I will be able to spare the sufficient time for the activities of the Company to an extent that will help me pursue the activities of the Company and fulfill the requirements of my tasks and duties,

f) I have not been a member of the Board of Directors of the Company for more than 6 years in total within the last decade,

g) I have not been an independent member of the Board of Directors in more than three of the companies controlled by the Company or by the shareholders who control the management of the Company and in more than five of the publicly traded companies in total,

ğ) I have not been registered and announced on behalf of the juridical person elected as member of the Board of Directors,

LIBERO MILONE

Brief information about the members of our Board of Directors, elected by the General Assembly in 2014, and their positions as of the end of the reporting period are presented below. By the Board of Directors resolution no. 2015/1 dated January 13, 2015, Mr. Cengiz Eroldu was appointed the Company’s CEO and Board Member to succeed Mr. Kamil Başaran who held these positions previously. Later in the year, Mr. Osman Turgay Durak was appointed to succeed Mr. Levent Çakıroğlu by the Board of Directors decision no. 2015/11 dated 01 March 2015, and Mr. Giorgio Fossati to succeed Mr. Ali Aydın Pandır by the Board of Directors decision no. 2016/4 dated 18 February 2016 as Board members. Mr. Mustafa Vehbi Koç, the Chairman of our Board of Directors, sadly passed away on 21 January 2016. By the Board of Directors resolution no. 2016/10 dated April 6, 2016, Mr. Mehmet Ömer Koç was appointed Chairman and Board Member to succeed the late Mr. Mustafa V. Koç.The résumés of the Members of the Board of Directors and Company CEO are available in the relevant section of our Annual Report.


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NAME SURNAME GENDER POSITION JOB POSITIONS IN PARTNERSHIP FOR THE LAST

5 YEARS

CURRENT POSITIONS HELD

OUTSIDE THE PARTNERSHIP

SHARE OF CAPITAL (%)

SHARE GROUP

INDEPENDENT/NON-

INDEPENDENT

COMMITTEES AND POSITION

Mehmet Ömer KOÇ Male Chairman Director - Chairman of the Board of Directors in Koç

Holding A.Ş.

0.0389 A Non-independent -

Sergio MARCHIONNE

Male Vice Chairman Director Vice Chairman of the Board of

Directors

Chairman of the Board of Directors in

Fiat Industrial S.p.A & Chairman of the Board

of Directors and CEO in Chysler Group

- D Non-independent -

Cengiz EROLDU Male Member & CEO

Director Finance Director (CF))

- - D Non-independent -

Temel Kamil ATAY Male Member Director Member of the Board of

Directors

Member of the Board of Directors in Koç

Holding A.Ş.

- A Non-independent -

Levent ÇAKIROĞLU Male Member Director - CEO of Koç Holding A.Ş.


Alfredo ALTAVILLA Male Member Director Member of the Board of

Directors

CEO of Fiat Group S.p.A. EMEA &

Chairman of the Business Development

in Fiat

- D Non-independent Corporate Governance Committee -

Member

İsmail Cenk ÇİMEN Male Member Director Member of the Board of

Directors

Chairman of Koç Holding A.Ş.

Automotive Group

- A Non-independent Corporate Governance Committee – Member Risk

Early Detection and Management

Committee Member

Kudret ÖNEN Male Member Director Member of the Board of

Directors

Chairman of TİSK Chairman of MESS

Chairman of OSD


Giorgio FOSSATI Male Member Director - General Counsel for Fiat Chrysler

Automobiles N.V. ;General Counsel for

FCA EMEA

- D Non-independent Risk Early Detection and Management

Committee - Member

Scott Richard GARBERDING

Male Member Director - Purchase Chairman of Fiat Chrysler Group

and Memner of Executive Committee

of Group

- D Non-independent -

Gökçe BAYINDIR Male Independent Member

Director Independent Member of

the Board of Directors

Independent Member of the Board of

Directors in Tüpraş A.Ş.

- A Independent Audit Committee – Chairman Corporate

Governance Committee – Member Risk


Committee - Chairman

Libero MILONE Male Independent Member

Director Independent Member of

the Board of Directors

Independent Member of the Falck

Renewables S.p.A and Paltrona Frau Group

- D Independent Audit Committee – Member Corporate

Governance Committee – Member Risk


Committee - Member

Curriculum vitae of current Board Members and Company CEO are included in the relevant section of the Annual Report.



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We believe that diversity of knowhow, experience and point of view in our Board of Directors will have positive impacts on the Company activities and will enable the Board of Directors to work effectively. Furthermore; Corporate Governance Principle n.4.3.9 is evaluated within this scope. Our evaluations continue to set a target ratio and policy for female Members of the Board of Directors who also serve as an instrument for representing different ideas.

5.2. Functioning of the Board of DirectorsTitles or agenda items regarding Resolutions of the Board of directors are prepared and issued periodically and as necessary. The number of the meetings of the Board may vary depending on emerging needs.

The Board of Directors has made 21 decisions in 2016 and the minutes of meetings regarding the decisions are duly registered. Board of Director meetings are called and convened whenever Company business requires it.

The relevant unit coordinates the meeting agenda, minutes, and board resolution records. When there is a dispute regarding a board resolution, the relevant case, along with its justifications, is recorded. Board resolutions also should contain relevant inquiries and responses in this regard. Board decisions are made by attendance and positive vote of absolute majority of members (within the scope of Article 10 of the Articles of Association). Requirements set forth by Corporate Governance Principles by Capital Markets Board are reserved.

No weighted votes or vetoing rights are granted as per the TCC. Articles 10 and 11 of the Articles of Association govern the election, formation, decision quorum and term of office ofthe Board of Directors, the distribution of tasks in the Board of Directors, representation and delegation of management. As mentioned above, all Board of Directors decisions are passed by the attendance and affirmative votes of the absolute majority of all members. However,attendance and affirmative votes of at least two non-independent Board members representing Group A shares and of at least two non-independent Board members representing Group D shares are required for achieving this quorum as per Article 10 of the Articles of Association. The provision of Article 15 of the Articles of Association is reserved with respect to decisions requiring the attendance and affirmative vote of independent members.

Article 11 of the Company Articles of Association regulates “Division of Tasks, Representation and Transfer of Management for the Board of Directors”. In addition, other items the Articles of Association also cover the required

issues. The Company management is specified pursuant to Turkish Trade Code and the relevant regulations mainly based on representation and binding of the company, and the authorities are exercised pursuant to legal requirements. Duties and responsibilities of members of the Board of Directors and the executives of the Company are included in the legal regulations, capital market regulations and the Articles of Association.

The Corporate Governance Committee carries out the procedures related to nominating candidates to the seats on the Board of Directors, and to election and appointment of the nominees. There is an “Officers’ Liability Insurance” policy for our Company’s Board of Directors members and senior executives separately for Koç Holding and Fiat Auto representing Group A and Group B.

While overseeing the Company’s operations, the Board of Directors assesses whether a conflict of interest is likely to arise, and the outcomes of such conflict, if applicable, and passes the necessary decisions to the best interests of the Company. Moreover, The Board of Directors ensures regulatory compliance in related party transactions, considers possible misconduct risks, and meticulously addresses related party transactions.

5.3. Number, Structure and Independency of Committees Formed under the Board of DirectorsPursuant to the Article 11 of the Articles of Association, an Executive Committee consisting of 4 persons -2 Group A and Group D shareholders – can be established if and when deemed necessary. The Committee can be established among the members of the Board of Directors in order to carry out the necessary actions between two Board meetings.

Pursuant to the relevant SPK Communiqué, an Audit Committee has been set up and pursuingactivities since 2003; the Committee is responsible for presenting its opinion and proposal regarding the financial results to the Board of Directors based on available information derived by following up financial matters, reviewing periodical financial statements and notes thereto, carrying out the necessary activities as defined by the Corporate Governance Principles and reviewing the Independent Auditor’s Report. The Audit Committee is also charged with monitoring the internal audit process and it is constituted by independent Board members pursuant to the SPK Communiqué No: II-17.1. In 2012, the operating principles of the Audit Committee were revised and publicly disclosed.


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The Audit Committee has been reconstituted by the Board of Directors decision no. 2014/12 dated 11 April 2014. As at the end of the reporting period, Mr. Gökçe Bayındır (Chairman – independent Board member) and Mr. Libero Milone (Member independent Board member) was serving on the Committee.

Furthermore, Corporate Governance Committee under Corporate Governance Principles been established in 2008. Corporate Governance Committee has started its activities in accordance with the Corporate Governance Principles, regulations issued by SPK as per the related legislation and the activities of the Company regarding Corporate Governance Principles. The said Committee carried out its activities effectively in 2013, as it has since its establishment. Compliance of the Company with Corporate Governance Principles is followed up by the Board of Directors, rules of procedures of Corporate Governance Committee have been revised in 2012 and disclosed.

The Corporate Governance Committee was restructured by the Board of Directors Decision no. 2014/12 dated 11 April 2014. Based on a subsequent Decision no. 2014/15 of the Board of Directors taken on 27 June 2014 in line with the SPK Corporate Governance Communiqué no. II-17.1, it was decided to appoint the Company’s Financial Director (CFO) Mr. Cengiz Eroldu to the committee, besides the existing members, under Article 11 of the Communiqué. However, upon appointment of Mr. Cengiz Eroldu as CEO, Mr. Stefano Reganzani was appointed the Financial Director (CFO) position vacated by Mr. Eroldu based on the Board of Directors decision no. 2015/13 dated 15 April 2015, whereby Mr. Reganzani was also appointed member of the Corporate Governance Committee. As at the end of the reporting period, the Committee was formed of Mr. Libero Milone (Chairman – Independent Board Member), Mr. Gökçe Bayındır (Member – Independent Board Member), Mr. İsmail Cenk Çimen (Member – Board Member), Mr. Alfredo Altavilla (Member – Board Member) and Mr. Stefano Reganzani (CFO).

As per the related provisions of new Turkish Commercial Code effective as of 01.07.2012, Early Detection of Risk and Risk Management Committee has been established with the purposes of efficiency of Committees established under the Board of Directors, early detection of risks which may jeopardize the Company’s existence, improvement and progression, implementation of measures related with such risks and risk management and implementation and follow-up of Company’s internal control, internal audit and risk management activities and its rules of procedures have been set as of 2012.

Early Detection of Risk and Risk Management Committee was restructured by the Board of Directors decision no. 2014/12 dated 11 April 2014. Subsequently, Mr. Giorgio Fossati was appointed to succeed Board member Mr. Ali Aydın Pandır based on the Board of Directors decision no. 2016/4 dated 18 February 2016, whereby Mr. Fossati was also appointed to the member seat vacated by Mr. Pandır on the Early Detection of Risk and Risk Management Committee. As at the end of the reporting period, the Committee was formed of Mr. Gökçe Bayındır (Chairman – Independent Board Member), Mr. Libero Milone (Member – Independent Board Member), Mr. İsmail Cenk Çimen (Member – Board Member) and Mr. Giorgio Fossati (Member - Board Member).

Board members are assigned to committees based on their knowledge and experience levels and in accordance with applicable regulations. Some board members serve on multiple committees. Board members, who serve on multiple committees, are responsible for ensuring communication and cooperation between committees that oversee areas related to each other. The Chairmen of these Committees should be selected among Independent Board Members as per the mentioned Communiqué on Corporate Governance Principles. Both Independent Board Members are members of each committee. Mr. İsmail Cenk Çimen, member of Corporate Governance Committee is also a member of Early Detection of Risk and Risk Management Committee. Board Member is a member of both Committees for their coordination.

Audit Committee, Corporate Governance Committee and Early Detection of Risk and Risk Management Committee hold periodic and other meetings as required by the legislation. In accordance with the rules of procedures, meetings with a certain agenda can be held other than periodic meetings. In this context, Audit Committee has held 5 meetings and Corporate Governance Committee has held 5 Early Detection of Risk and Risk Management Committee has held 6 meetings in 2016.

Board of Directors is informed about the committee roles, its activities and the reports. When required, experts and other managers who are not Committee members but related with the agenda can be invited to the Committee. Furthermore, task groups consisting of people with required experience and information can be formed. The committees act in line with their responsibilities and submit their comments and recommendations to the Board. Final decisions are made by the Board. The Board of Directors expressed its positive opinion regarding the efficiency of the Committees.



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5.4. Risk Management and Internal Control MechanismA risk management is envisaged and internal control organization is established depending on financial and administrative activities of the company and the functioning and effectiveness of the internal auditing shall be followed up according to capital market regulations and rules.

Board of Directors is responsible for proper functioning of internal control system and internal audit and CEO will make the coordination on behalf of the Board of Directors. Early Detection of Risk and Risk Management Committee as well as the Audit Committee will follow-up proper functioning of internal control system, internal audit and risk management and submit the results to the Board of Directors.

Thus, corporate risk management and internal control systems were established by the Board of Directors. The activities of these processes and systems are coordinated within the Committees. Internal Control Systems and Internal Audit Process are primarily monitored and pursued in theAudit Committee. Furthermore; the effectiveness of these systems are evaluated by the Early Risk Detection and Risk Management Committee together with the corporate risk management process.

In line with the Risk Management Policy, Company’s risk management is organized in conformity with the legal regulations and legislation to make reporting to the Board of Directors. Within this framework the policy is based on the following principles; “protecting company assets and values”, “ensuring commercial, financial and operational confidence” and “ensuring sustainability in corporate risk management”. In addition to this, Company Management is financially, commercially, operationally and organizationally responsible for taking and implementing all measures necessary for corporate risk management and internal audit activities.

As of the end of ,2016 it has been assessed that proactive measures are taken against financial and operational risks and predictable potential risks through the Company’s internal control system, internal audit activities and corporate risk management and that the Company meets the legislative requirements regarding internal control, internal audit and risk management. After reviews, it has been stated that no important problems were observed on the effectiveness of internal controls for providing effective, secure and uninterrupted provision of Company’s activities and services; integrity, consistency, timely availability and reliability of data provided by the Company’s accounting and financial reporting system; effectiveness, efficiency

and adequateness of internal controls aimed at providing security and the running of internal control, internal audit and risk management system regarding the preparation of consolidated financial tables in accordance with the applicable legislation and corporate risk management and the internal control system function well and the related records are kept.

The unit responsible for Internal Audit directly reports to the Company’s CEO who at the same time is a Member of the Board of Directors. This unit examines processes and prepares reports regarding current and potential risks and proposes solutions. Predictable risks attached to the activities will be evaluated, information flow will be followed up by the Board Member and CEO and the results will be evaluated by the Audit Committee and Early Detection of Risk and Risk Management Committee and submitted to the Board of Directors.

Within this framework, the Board of Directors carries out risk management activities via the Early Detection of Risk and Risk Management Committee, as stated in related sections hereinabove. The Early Detection of Risk and Risk Management Committee reviews the effectiveness of the risk management systems, and reports its activities and assessments to the Board of Directors. The Committee’s activities are covered in the section titled “Activities of the Early Detection of Risk and Risk Management Committee” of this Annual Report. The Annual Report also includes the Auditor’s Report containing the independent auditor’s assessment and clearance about the topic.

5.5. Strategic Targets of the CompanyCompany’s strategic targets are set, approved, and implemented by the Board of Directors. Board of Directors makes assessments by periodically reviewing the level of achieving Company’s targets, and activities and previous performance of the Company. In this context, the Board of Directors ensures that necessary measures are taken in a manner most appropriate to Company’s risk, growth and revenue balance in terms of strategic decisions while it administers the Company by overseeing the Company interests. As per the strategic priorities and objectives, the mission, vision and values of the Company have been formulated and published and renewed upon revisions in line with the improvements. Board of Directors audits the management and performance of the Company within the scope of providing necessary resources and risk management by identifying Company’s strategic targets.


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Vision, mission and values along with designation and implementation of Company’s strategic objectives will be completed by the Company top-level management, submitted to the Board of Directors and followed-up. Strategic decisions of our Company were implemented in 2016 according to their priorities. Based on the strategic targets, the Board of Directors reviews and evaluates previous year’s performance, compares the results with targets and determines the upcoming year objectives proposed by the senior management.

Board of Directors will coordinate the Company Top-Level Management in designation of Company’s strategic objectives, actively participate in approval and implementation processes, periodically review the level of achievement of objectives, activities and performance of the Company and evaluate the functioning, efficiency and outcomes of the related system.

In accordance with the vision and methods offered by the Board of Directors and the legislation, Company Top-Level Management will use its maximum efforts to ensure effective management of the Company and periodically inform the Board of Directors and the related Board Committees as per the regulations and the legislation based on Directorates on behalf of the CEO and all stakeholders.

The Board of Directors exercises the necessary degree of responsibility with respect to the sustainability of these strategic efforts, as well as to enhancing their efficiency.

5.6. Financial RightsBoard of Directors is responsible for Company’s determined and publicly announced operational and financial performance targets. Furthermore; remuneration principles for the Members of the Board of Directors and executives who have administrative responsibilities were printed and presented to the shareholders’ information with a separate agenda item at the General Assembly.

Our Company’s “Remuneration Policy for the Members of the Board of Directors and Executive Managers” – that includes all their rights, benefits and remuneration of the Members of the Board of Directors and executive managers as well as the criteria and remuneration principles used in determining these rights, benefits and remuneration – was presented to our shareholders’ review on our corporate website and in the Annual Report and also with the “Informative Document” issued three weeks prior to our Ordinary General Assembly held on 31.03.2016. Subsequently, the policy was put into practice after the General Assembly. No revisions were made to the said policy during 2016.

The policy, which has been publicly disclosed on the corporate website and in the Annual Report, has been included in the agenda of the Ordinary General Assembly meeting that will be held to address 2016 activities, the date of which will be released by the Board of Directors once it is definitively set. The policy will be laid down for the opinions of shareholders in the General Assembly Meeting.

The total amount of payments made and benefits provided to Members of the Board of Directors and Executive Managers within the framework of the Remuneration Policy, are evaluated every year by the Corporate Governance Committee and Board of Directors. In our financial statements’ footnotes, the payments made and benefits provided to the Members of the Board of Directors and executive managers are classified together and publicly announced in parallel to general practices.

Furthermore, the Company does not perform any transactions that may create conflicts of interest and does not lend money, extend credit, or does not give surety to any of the members of the Board of Directors or executive managers who have administrative responsibilities.

In the reporting period and as of 2016, no loans were granted to the members of the Board or to the senior managers and no credit was utilized by them; none of them received benefits through third–persons and moreover, no indemnities or similar were provided in their favor.



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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEEa. Risk ManagementA significant portion of commercial risks are managed under the guarantee of ‘take-or-pay’ export contracts conducted with FCA, PSA and GM groups for the allocation of a certain portion of annual factory capacity to export sales. These export contracts provide substantial protection to the Company against cost, profitability, FX and foreign market risks and help keep commercial risks to a minimum.

In terms of commercial risk management, Tofaş successfully and strategically diversified its product range and markets in 2016. The Company began manufacturing Egea Sedan model in the last quarter of 2015, and Egea Hatchback and Station Wagon models in 2016, thereby further diversifying its product range. For the first time in its history, Tofaş allocated its manufacturing capacity equally to automobiles and light commercial vehicles. Thanks to the successful sales performance of Egea product family, Tofaş entered into new export markets, such as Mexico and the Gulf Region, further increasing diversification which helped render the market risk optimally manageable.

The financial debt of the Company is composed of long-term bank loans that do not bear foreign exchange risk, and are related to New Doblò, Fiat Egea line and the Fiat Florino revamp facelift project. Revenues and cash flows of these models and projects are covered under the guarantee of export agreements. Other financial debts apart from project loans are those of Koç Fiat Kredi Tüketici Finansmanı A.Ş. FX and interest rate risks were minimized through swap and derivative transactions.

FINANCIAL INDICATORS(TL MILLION, UNLESS INDICATED OTHERWISE)

2016 2015

Total Net Sales 14,236 9,921

Net Profit 970 831

RATIOS

Current Ratio 1.10 1.15

Profit Before Tax/Net Sales 5.6% 6.2%

Profit Before Tax/Equity 27.0% 23.9%

Total Debt/Equity 194.5% 176.1%

b. Activities of the Early Detection of Risk and Risk Management Committee Early Detection of Risk and Risk Management Committee was established as per the Tofaş Board of Directors resolution dated October 1, 2012 in order to ensure compliance with Article 378 of the Turkish Commercial Code No. 6102, which went into force on July 1, 2012, and also to ensure efficient operation of the Board Committees. The Committee is responsible for early detection of risks that may threaten the Company’s existence, development and continuity, and takes necessary actions relating to identified risks, and manages these risks.

The Committee held 26 periodic meetings in total; 2 (two) meetings following its establishment, 6 (six) meetings each in 2013, 2014, 2015 and 2016. Following the re-constitution of the Board of Directors by the General Assembly in 2014, the Board of Directors decided, with the resolution no. 2014/12 dated April 11, 2014, that the Committee would continue its activities with the same members and would preserve its existing structure in line with the previously determined operating principles. Pursuant to the Board of Directors resolution no. 2016/4 dated February 18, 2016, Mr. Giorgio Fossati was appointed to the Committee to fill the member seat vacated by Mr. Ali Aydın Pandır.

Following its establishment, the Committee initially evaluated the Risk Management System in place at Tofaş Türk Otomobil Fabrikası A.Ş., and spelled out the principles of risk reporting. Reports produced in accordance with the set principles and the Committee’s assessments are being presented for the information of the Board of Directors periodically.

The Company management carefully considers the extent of the impact the Company’s operations, risks and financial, commercial and operational results stemming from the risks will have upon the Company, and manages the same proactively. For the purpose of systematically managing risks, the Company management takes necessary measures to define, measure, assess the risks and to mitigate/transfer them when necessary, and ultimately to monitor and report them.


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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEERisk management at Tofaş has been organized in line with the Risk Management Policy and with the applicable legislation and so as to be reported to the Board of Directors. It is based on the principles of “protecting the Company assets and values”, “ensuring commercial, financial and operational confidence” and “sustainability of enterprise risk management”. The Company management is financially, commercially, operationally, and organizationally responsible for, and charged with, taking and implementing all necessary measures necessitated by risk management, internal audit and internal control activities.

c. Internal Control System and Internal AuditAn internal control system was built to cover (i) the Company activities and services carried out effectively, reliably and uninterruptedly in conformity with the existing laws and regulations, and (ii) controls made to maintain the integrity, consistency, timeliness and reliability and safety of the accounting and financial reporting system.

Tofaş Türk Otomobil Fabrikası A.Ş. coordinates and carries out an internal audit activity that will provide constant monitoring and assessment of the internal control system.

The Audit Committee has the primary responsibility for monitoring the internal control system and internal audit process. In addition, the Early Detection of Risk and Risk Management Committee takes care to address the related system in conjunction with risk management. The Audit Committee makes assessments to verify that necessary proactive measures are adopted in relation to the Company’s internal control system and internal audit activities, enterprise risk management, financial, commercial and operational risks, and foreseeable potential risks, and that the Company fulfills the responsibilities imposed by the legal regulations in relation to internal control, internal audit and risk management.

Committees’ statements and reports are directly presented to the Board of Directors. An internal audit activity is carried out that enables continuous monitoring and evaluation of the Company’s internal control system.

Accordingly it has been established as per the Turkish Commercial Code, Capital Market Law and Capital Market legislation, that internal audit activities and the internal control system did function solidly as at year-end 2016 and that there were no important problems about the processes so far.Furthermore, records indicating the healthy functioning of the enterprise risk and internal control systems were kept and it was declared that no important issues were found.

The administrative body maintains a positive opinion about the Company’s internal control system and internal audit activities. In the report presented to the Board of Directors, the Committee expresses its positive opinion about the efficiency, adequacy and appropriateness of the internal controls carried out to ensure efficient, reliable and uninterrupted performance of Company activities and services, and to guarantee the integrity, consistency, timely availability, reliability and safety of the data derived from the accounting and financial reporting system, as well as for the activities of internal audit and risk management systems in relation to the preparation of consolidated financial statements.

Furthermore; in this context, the Independent Audit firm PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. (old name: Başaran Nas Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş) Auditor Report about the Early Risk Detection System Committee states that: “As a result of our activities we have reached the conclusion that; Tofaş Türk Otomobil Fabrikası A.Ş.’s Early Risk Detection Committee is sufficient in all significant aspects within the framework of the 378th Article of the Turkish Code of Commerce.”


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ASSOCIATE COMPANY REPORT

THE ASSOCIATE COMPANY REPORT PREPARED AND ISSUED WITHIN THE SCOPE OF THE 199TH ARTICLE OF THE TURKISH CODE OF COMMERCE

As per the 199th Article of the Turkish Code of Commerce n.6102 (that entered into force on the 1st of July 2012), Tofaş Türk Otomobil Fabrikası A.Ş. Board of Directors is obligated; (i) to prepare and issue a report within the first quarter of the operating year about the Company’s relations with its parent company and associate companies of the parent company in the previous operating year, and (ii) to include the conclusion part of this report in the Annual Report. Necessary explanations about Tofaş Türk Otomobil Fabrikası A.Ş.’s transactions with the related parties are available in the 26th footnote of the financial report.

The Report issued by Tofaş Türk Otomobil Fabrikası A.Ş. Board of Directors on 28.02.2017, states: “In all Tofaş Türk Otomobil Fabrikası A.Ş. transactions carried out with the parent company and the associate companies of the parent company in 2016; we have concluded that; (i) reasonable return was provided on each transaction according to the circumstances at the time of making the transaction or at the time of taking/not taking measure, and (ii) there were no measures taken/not taken against any transactions that could cause loss for the Company, and (iii) there were no transactions or measures that would require settlement within this framework.”


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ACTIVITIES OF THE EARLY DETECTION OF RISK AND RISK MANAGEMENT COMMITTEE

To the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş.,

1. We have audited the early risk identification system and committee established by Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company”).

Board of Director’s responsibility2. Pursuant to the subparagraph 2 of Article 378 of Turkish Commercial Code No. 6102 (“TCC”), Board of Directors is required

to form an expert committee, and to run and to develop the necessary system for the purposes of early identification of causes that jeopardize the existence, development and continuity of the company; applying the necessary measures and remedies in this regard; and, managing the related risks.

Auditor’s responsibility3. Our responsibility is to reach to a conclusion on the early risk identification system and committee based on our audit. Our

audit was conducted in accordance with TCC and “Principles on the Auditor’s Report on the Early Risk Identification System and Committee” issued by the Public Oversight Accounting and Auditing Standards Authority. Those principles require us to identify whether the Company established the early risk identification system and committee or not and, if established requires to assess whether the system and committee is operating or not within the framework of Article 378 of TCC. Our audit does not include evaluating the adequacy of the operations carried out by the management of the Company in order to manage these risks.

Information on the early risk identification system and committee4. The Company established the early risk identification system and committee and it is comprised of 4 members. The

committee has submitted the relevant reports for the period 1 January - 31 December 2016 to the Board of Directors that had been prepared for the purpose of early identification of risks that jeopardize the existence of the Company and its development, applying necessary measures and remedies in this regard, and managing the risks.

Conclusion5. Based on our audit, it has been concluded that Tofaş Türk Otomobil Fabrikası A.Ş.’s early risk identification system and

committee is sufficient, in all material respects, in accordance with Article 378 of TCC.

PwC Bağımsız Denetim veSerbest Muhasebeci Mali Müşavirlik A.Ş.

Beste Gücümen, SMMMPartner

Istanbul, 1 February 2017


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REMUNERATION POLICY FOR TOP-LEVEL MANAGERS AND MEMBERS OF THE BOARD OF DIRECTORS

This policy document defines the remuneration system and practices for the members of the board of directors and top-level managers with administrative responsibilities as defined by SPK regulations.

Fixed wages payable to members of the board of directors are designated by the ordinary general assembly every year. Executive board members are paid in accordance with the policy applicable for top-level managers and detailed below.

Performance-based payments are not used for remuneration of independent members of the board of directors.

Members of the board of directors are paid based on the period from assignment to resignation. Expenses of the members of the board of directors related with the benefits they provide for the company (transportation, telephone, insurance, etc.) are covered by the company.

Remuneration for Top-Level Managers consists of fixed and performance based components.

Fixed wages of Top-Level Managers are determined in accordance with international standards and legal liabilities based on macroeconomic market data, wage policies applicable in the market, size of the company, long-term objectives and individual positions.

Bonuses payable to Top-Level Managers are based on bonus base, company performance and individual performance. The criteria are as follows:

• Bonus Base: Bonus Base is updated every year and varies according to the positions of managers and volume of business. Bonus base is updated based on the top-management bonus policies applicable in the market.

• Company Performance: Company performance is calculated every year by measuring the financial and operational (market share, exports, international operations, efficiency etc.) objectives of the company in terms of achievement at the end of the year. The basic principles while defining the company objectives are ensuring that achievements are sustainable and improvements are made as compared to the previous year.

• Individual Performance: Definition of individual performance is based on company objectives as well as objectives related with employees, customers, processes, technology and long-term strategies. In measurement of individual performance, company performance and longterm sustainable improvement in non-financial area are significant principles.

In case of resignation of a top-level manager, a certain amount of bonus can be paid based on the term of assignment, term of assignment as a top-level manager, benefits provided, last target bonus before resignation, wages paid in the last year and bonus data.

Total amounts paid to Top-Level Managers and Members of the Board of Directors based on the principles listed above are submitted to the information and/or approval of the shareholders at the next general assembly meeting.

This is to inform our esteemed Shareholders.


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DIVIDENDS DISTRIBUTION POLICY

Our Company distributes dividends in accordance with the related provisions of Turkish Commercial Code, capital markets regulations, tax regulations, other related regulations and dividends distribution article of Articles of Association. Dividends are distributed with a policy which is balanced and consistent in terms of the interests of shareholders and the Company in accordance with Corporate Governance Principles.

As a basic principle and to the extent possible based on the applicable regulations and financial resources, net distributable profit within a certain period calculated based on the market expectations, long-term company strategy, investment and financing policies, profitability and cash position and in accordance with Capital Markets Regulations is distributed to the shareholders in the form of cash and/or bonus share provided that it can be covered from the legal reserves.

The intention is to complete dividends distribution in maximum one month after the General Assembly meeting and the date of dividends distribution is determined by the General Assembly. General Assembly or the Board of Directors, if authorized, can decide on distribution of dividends in installments in accordance with the Capital Markets Regulations.

As per the Articles of Association, Board of Directors can distribute dividends in advance provided that it is authorized by the General Assembly and acts in accordance with Capital Markets Regulations.

There is no privilege regarding distribution of dividends. Dividends are distributed equally regardless of the whole current shares or their dates of issuance and acquisition.

This is to inform our esteemed Shareholders.


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2016 PROFIT DISTRIBUTION PROPOSAL

As will be seen from a review of the consolidated Balance Sheet and Income/Loss Statement that has been drawn up in accordance with the International Financial Reporting Standards (IFRS) pursuant to the SPK Communiqué Serial: II-15.1 on Principles of Financial Reporting in the Capital Market and Communiqué Serial: II-19.1 on Dividends,

The Company booked a net profit for the period of TL 970,228,000 in 2015 after deducting the tax provisions. The donations and charitable grants made to foundations and associations during the reporting period amounted to TL 8,964,187.

It is hereby proposed that;• Cash dividends in the total amount of TL 350,000,000.- corresponding to a rate of 70.00% be paid out of the net profit for

the period to our Shareholders after deducting the legal liabilities in accordance with the provisions of the Turkish Commercial Code, Capital Market legislation, and the Company’s Articles of Association and the Dividend Policy.

• Resident corporate entities and non-resident corporate entities deriving dividends via a workplace or permanent representation in Turkey be paid out a cash dividend at a rate of 70.00% and in the amount of Kr 0.70 Gross=Net for each share with a nominal value of KR1,

• Our other shareholders be paid out a cash dividend at the rate of 70.00% and in the amount of Kr 0.70 gross and Kr 0.5950 net per share with a nominal value of Kr. 1., and;

• The beginning date of dividend distribution be set as 03 April 2017.

We hereby lay it down for the approval of the General Assembly of Shareholders and propose that the dividend distribution and timing be resolved as proposed above and that the consolidated balance sheet and income/loss statement for 2016 fiscal year be approved. We offer our best regards to our esteemed Shareholders and your Assembly.

ÖMER M. KOÇChairman of the Board of Directors


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2016 DIVIDENDS DISTRIBUTION TABLE

TOFAŞ TÜRK OTOMOBIL FABRIKASI A.Ş. 2016 DIVIDENDS DISTRIBUTION TABLE (TL)

1. Paid Up/Issued Capital 500,000,000

2. Legal Reserves (According to Legal Records) 277,265,506

Information on privileges related to the distribution of profit pursuant to the Articles of Association, if any

ACCORDING TO CMB

ACCORDING TO LEGAL RECORDS (LR)

3. Term Profit 797,936,000 387,799,551

4. Taxes ( - ) -172,292,000 1,458,439

5. NET TERM PROFIT ( = ) 970,228,000 386,341,112

6. Losses Pertaining to Previous Years ( - )

7. Legal Reserves ( - )

8. NET DISTRIBUTABLE TERM PROFIT (=) 970,228,000 386,341,112

9. Donations Within the Year ( + ) 8,964,187

10. Net Distributable Term Profit with Donations 979,192,187

11. Primary Dividends for Shareholders

- Cash 350,000,000 25,000,000

- Non-Paid

- Total 350,000,000 25,000,000

12. Dividends Distributed to Preferred Shareholders 0

13. Other Dividends Distributed

- To Members of the Board of Directors,

- To Employees

- To Persons Other Than Shareholders 0

14. Dividends Distributed to Redeemed Shareholders

15. Secondary Dividends for Shareholders 0 325,000,000

16. Legal Reserves 32,500,000 32,500,000

17. Status Reserves

18. Special Reserves

19. EXTRAORDINARY RESERVES 587,728,000 3,841,112

20. Other Resources Planned for Distribution 0 0

21. Reserves Appropriated from Other Sources Envisaged to be Distribute

0 0

(1) There is no privileged share group in profits.(2) No withholding tax will be applied as Group A shares which correspond to 37.62% of the capital belong to full-fledged legal persons. And as Group A shares which

correspond to 0.23% of the capital belong to full-fledged real persons, 15% withholding tax will be applied, and for a share with 1 TL nominal-value, 0.5950 TL net dividend will be paid.

(3) 15% withholding tax is applied by taking into account that all Group D shares belong to limited liability real persons.(4) 15% withholding tax is applied accepting that all Group E public shares belong to real persons.

GROUPTOTAL DIVIDENDS

DISTRIBUTED

TOTAL DIVIDENDS DISTRIBUTED / NET

DISTRIBUTABLE TERM PROFIT

DIVIDENDS CORRESPONDING TO SHARES WITH A NOMINAL

VALUE OF TL 1

CASH (TL) NON-PAID(TL)

RATE (%) AMOUNT (TL) RATE (%)

NET

A (Real person) 693,795 0.07 0.5950 59.50

A (Legal person) 131,679,670 13.57 0.7000 70.00

D 112,621,515 11.61 0.5950 59.50

E 72,256,970 7.45 0.5950 59.50

TOTAL 317,251,951 0 32.70


113

INDEPENDENT AUDITOR’S REPORT ON THE BOARD OF DIRECTORS’ ANNUAL REPORT

To the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş.

Auditor’s Report on the Board of Directors’ Annual Report

1. We have audited the annual report of Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company”) and its Subsidiaries (collectively referred to as the “Group”) for the period ended 31 December 2016.

Board of Directors’ responsibility for the Annual Report2. The Group’s management is responsible for the fair preparation of the annual report and its consistency with the consolidated

financial statements in accordance with Article 514 of Turkish Commercial Code (“TCC”) No. 6102 and Capital Markets Board’s (“CMB”) Communiqué Serial II, No:14.1, “Principles of Financial Reporting in Capital Markets” (the “Communiqué”) and for such internal control as management determines is necessary to enable the preparation of the annual report.

Independent Auditor’s Responsibility3. Our responsibility is to express an opinion on the Group’s annual report based on the independent audit conducted pursuant to

Article 397 of TCC (and the Communiqué), whether or not the financial information included in this annual report is consistent with the Group’s consolidated financial statements that are subject to independent auditor’s report dated 1 February 2017 and presented fairly.

Our independent audit was conducted in accordance with Independent Auditing Standards that are part of the Turkish Standards on Auditing issued by the Public Oversight Accounting and Auditing Standards Authority. Those standards require that ethical requirements are complied with and that the independent audit is planned and performed to obtain reasonable assurance whether the financial information in the annual report is fairly presented and consistent with the consolidated financial statements.

An independent audit requires applying audit procedures to obtain audit evidence on the historical financial information. The procedures selected depend on the professional judgement of the independent auditor.

We believe that the independent audit evidences we have obtained during our independent audit, are sufficient and appropriate to provide a basis for our opinion. Opinion4. Based on our opinion, the financial information in the annual report of Board of Directors is consistent with the audited consolidated

financial statements and presented fairly, in all material respects.

Other Responsibilities Arising From Regulatory Requirements5. Pursuant to subparagraph 3 of Article 402 of the TCC No. 6102, within the context of ISA 570 “Going Concern”, we have not

encountered any significant issue which we are required to be reported with regard to the inability of Group to continue its operations for the foreseeable future.

PwC Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş.


Istanbul, 3 March 2017


114

115

FINANCIAL INFORMATION

TOFAŞ TÜRK OTOMOBİL FABRİKASIANONİM ŞİRKETİ

CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIOD 1 JANUARY - 31 DECEMBER 2016 TOGETHER WITH INDEPENDENT AUDITOR’S REPORT

(ORIGINALLY ISSUED IN TURKISH)

116


CONVENIENCE TRANSLATION INTO ENGLISH OFINDEPENDENT AUDITOR’S REPORT ORIGINALLY ISSUED IN TURKISH INDEPENDENT AUDITOR’S REPORT

To the Board of Directors of Tofaş Türk Otomobil Fabrikası A.Ş.

Report on the Consolidated Financial Statements

1. We have audited the accompanying consolidated financial statements of Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company”) and its subsidiaries (collectively referred to as the “Group”), which comprise the consolidated balance sheet as at 31 December 2016 and the consolidated statement of profit or loss, consolidated statement of other comprehensive income, consolidated statement of changes in shareholders’ equity and consolidated statement of cash flows for the period then ended and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Consolidated Financial Statements2. The Group’s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Turkish Accounting Standards 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.

Independent Auditor’s Responsibility3. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. Our audit was conducted in accordance with standards on auditing issued by the Capital Markets Board of Turkey and Independent Auditing Standards that are part of Turkish Standards on Auditing issued by the Public Oversight Accounting and Auditing Standards Authority. Those standards require that ethical requirements are complied with and that the audit is planned and performed to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement.

An independent audit involves performing procedures to obtain evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on independent auditor’s professional judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to error or fraud. In making those risk assessments, the independent auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements 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 entity’s internal control. An independent audit includes also evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the independent audit evidence we have obtained during our audit is sufficient and appropriate to provide a basis for our audit opinion. Opinion

4. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Tofaş Türk Otomobil Fabrikası A.Ş. and its subsidiaries as at 31 December 2016 and their financial performance and cash flows for the period then ended in accordance with Turkish Accounting Standards.

Emphasis of matter

Without qualifying our opinion, we draw attention to the following matter:

5. As explained in Note 26 to the consolidated financial statements, major portion of the Group’s sales and purchases is conducted through its related parties.

Other Responsibilities Arising From Regulatory Requirements

6. In accordance with subparagraph 4 of Article 398 of the Turkish Commercial Code (“TCC”) No: 6102; auditor’s report on the early risk identification system and committee has been submitted to the Company’s Board of Directors on 1 February 2017.

7. In accordance with subparagraph 4 of Article 402 of the TCC; no significant matter has come to our attention that causes us to believe that the Company’s bookkeeping activities for the period 1 January - 31 December 2016 is not in compliance with the code and provisions of the Company’s articles of association in relation to financial reporting.

8. In accordance with subparagraph 4 of Article 402 of the TCC; the Board of Directors submitted to us the necessary explanations and provided required documents within the context of audit.

PwC Bağımsız Denetim Serbest Muhasebeci Mali Müşavirlik A.Ş.


Istanbul, 1 February 2017

117


CONTENTS PAGE

CONSOLIDATED BALANCE SHEETS 118-119

CONSOLIDATED STATEMENTS OF PROFIT OR LOSS 120

CONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOME 121

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY 122

CONSOLIDATED STATEMENTS OF CASH FLOWS 123

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 124-169

NOTE 1 GROUP’S ORGANISATION AND NATURE OF OPERATIONS 124NOTE 2 BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 124-136NOTE 3 SEGMENT REPORTING 136NOTE 4 CASH AND CASH EQUIVALENTS 137NOTE 5 FINANCIAL ASSETS. 137NOTE 6 FINANCIAL LIABILITIES 138-140NOTE 7 TRADE RECEIVABLES AND PAYABLES 140-141NOTE 8 OTHER RECEIVABLES 141NOTE 9 RECEIVABLES FROM FINANCE SECTOR OPERATIONS 141-142NOTE 10 INVENTORIES 142NOTE 11 INVESTMENT PROPERTIES 143NOTE 12 PROPERTY, PLANT AND EQUIPMENT 143-144NOTE 13 INTANGIBLE ASSETS 145NOTE 14 GOVERNMENT INCENTIVES 146NOTE 15 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES 146-148NOTE 16 EMPLOYEE BENEFITS 149NOTE 17 PREPAID EXPENSES, OTHER ASSETS AND LIABILITIES 150NOTE 18 SHAREHOLDER’S EQUITY 151-152NOTE 19 REVENUE AND COST OF SALES 152-153NOTE 20 RESEARCH AND DEVELOPMENT EXPENSES, MARKETING EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES 154NOTE 21 EXPENSES BY NATURE 154NOTE 22 OTHER INCOME AND EXPENSE FROM OPERATING ACTIVITIES 155NOTE 23 FINANCIAL INCOME AND EXPENSE 155NOTE 24 TAX ASSETS AND LIABILITIES 155-157NOTE 25 EARNINGS PER SHARE 157NOTE 26 TRANSACTIONS AND BALANCES WITH RELATED PARTIES 158-159NOTE 27 FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT 159-167NOTE 28 FINANCIAL INSTRUMENTS (FAIR VALUE EXPLANATIONS AND DISCLOSURES WITHIN THE FRAMEWORK OF HEDGE ACCOUNTING) 168-169NOTE 29 SUBSEQUENT EVENTS 169

TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED FINANCIAL STATEMENTSFOR THE PERIOD 1 JANUARY - 31 DECEMBER 2016

CONVENIENCE TRANSLATION OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH CONVENIENCE TRANSLATION OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH

118


TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2016 AND 2015(Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited AuditedNotes 2016 2015

ASSETS

Current assets:Cash and cash equivalents 4 2,215,727 2,386,516Financial assets 5 167,444 79,742Trade receivables

- Related parties 26 709,249 338,761 - Third parties 7 651,995 698,294

Receivables from finance sector operations 9 1,381,867 1,091,366Other receivables 8 587 200Inventories 10 920,144 548,251Prepaid expenses 17 22,259 22,947Current tax assets 24 7,173 9,657Other current assets 17 157,779 32,997

Total current assets 6,234,224 5,208,731

Non-current assets:Receivables from finance sector operations 9 847,484 852,775Investment properties 11 30,370 29,515Property, plant and equipment 12 2,320,618 2,111,520Intangible assets 13 1,770,199 1,283,973Deferred tax assets 24 601,580 353,133Prepaid expenses 17 11,669 21,643Other non-current assets 8,078 5,276Derivative instruments 5,486 -

Total non-current assets 5,595,484 4,657,835

Total assets 11,829,708 9,866,566

These consolidated financial statements as of and for the year ended 31 December 2016 have been approved for issue by the Board of Directors on 1 February 2017. The aforementioned consolidated financial statements will be finalized after the approval in General Assembly.

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

CONVENIENCE TRANSLATION OF CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH

119


Audited AuditedNotes 2016 2015

LIABILITIES

Current liabilities:Short-term financial liabilities 6 407,727 311,281Short-term portion of long-term financial liabilities 6 1,629,240 1,521,200Trade payables - Related parties 26 1,730,328 1,491,421 - Third parties 7 1,624,877 956,123Employee benefit liabilities 16 72,378 57,663Deferred income 17 26,917 15,592Government incentives and grants 14 8,374 8,374Short-term provisions 15 133,804 99,313Other current liabilities 17 58,539 66,493

Total current liabilities 5,692,184 4,527,460

Non-current liabilities:Long-term financial liabilities 6 2,978,620 2,553,582Government incentives and grants 14 30,298 38,672Long-term provisions - Provisions for employment termination benefits 16 171,155 164,561

Total non-current liabilities 3,180,073 2,756,815

Total liabilities 8,872,257 7,284,275

Equity:Paid-in share capital 18 500,000 500,000Adjustment to share capital 18 348,382 348,382Other comprehensive losses not to be reclassified under profit or losses Actuarial loss on employment termination benefit obligation 18 (23,222) (18,545)Other comprehensive losses to be reclassified under profit or lossesCumulative losses on hedging 18 (378,329) (152,938)Restricted reserves 18 277,363 243,363Retained earnings 18 1,263,029 831,228Net profit for the year 18 970,228 830,801

Total equity 2,957,451 2,582,291

Total liabilities and equity 11,829,708 9,866,566


TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED BALANCE SHEETS AT 31 DECEMBER 2016 AND 2015 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)


120


TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED STATEMENTS OF PROFIT OR LOSSFOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited1 January - 1 January -

Notes 31 December 2016 31 December 2015

Revenue 19 14,235,951 9,920,723Cost of sales (-) 19 (12,888,429) (8,780,540)

Gross profit from operations 1,347,522 1,140,183

Revenue from finance sector operations 369,330 247,819Expenses from finance sector operations (-) (269,111) (171,479)

Gross profit from finance sector operations 100,219 76,340

Gross profit 1,447,741 1,216,523

Marketing, selling and distribution expenses (-) 20 (329,132) (279,543)General administrative expenses (-) 20 (251,938) (218,086)Research and development expenses (-) (22,775) (9,885)Other income from main operations 22 801,516 798,300Other expense from main operations (-) 22 (844,520) (820,755)

Operating profit 800,892 686,554

Financial income 23 867,224 753,339Financial expenses (-) 23 (870,180) (821,906)

Profit before tax from continuing operations 797,936 617,987

Tax income for the period 172,292 212,814

- Taxes on income 24 (18,638) (13,642) - Deferred tax income 24 190,930 226,456

Net profit for the year 970,228 830,801

Net profit attributable to:

Non-controlling interests - -Equity holders of the parent 970,228 830,801

Earnings per share (Kr) 25 1.94 1.66



121


TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED STATEMENTS OF OTHER COMPREHENSIVE INCOMEFOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited1 January - 1 January -

31 December 2016 31 December 2015


Other comprehensive income:

Other comprehensive income not to be reclassified under profit and loss

- Actuarial (loss) / gain on employment termination benefit obligation 16 (5,846) 4,168Taxes relating to other comprehensive income not to be reclassified under profit and loss

Actuarial loss on post employment termination benefit obligation, tax effect 24 1,169 (834)Other comprehensive income to be reclassified under profit and loss

- Cumulative losses on hedging 2 (281,739) (10,586)Taxes relating to other comprehensive income to be reclassified under profit and loss

- Cumulative losses on hedging, tax effect 24 56,348 2,117Other comprehensive (loss) (230,068) (5,135)

Total comprehensive income 740,160 825,666

Total comprehensive income attributable to:

Non-controlling interests - -Parent company interests 740,160 825,666



122


TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015(Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

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123


TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİCONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED 31 DECEMBER 2016 AND 2015 (Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)

Audited Audited

1 January - 1 January -

Notes 31 December 2016 31 December 2015

A. Cash flows from operating activities: 1,129,878 708,313


Adjustments to reconcile profit for the period 536,581 315,274 - Depreciation and amortization 21 522,631 359,521 - Income from revaluation of investment properties 22 (855) (655) - Adjustments related to derivative instruments 23 (5,486) - - Adjustments related to doubtful receivables 15,339 13,600 - Adjustments related to interest income 23 (94,878) (75,833) - Adjustments related to provision for inventories 10 736 1,268 - Gain on sale of property, plant and equipment (4,495) (2,209) - Provision for employment termination benefits 45,445 28,903 - Adjustments related to warranty provisions 15 80,440 56,947 - Adjustments related to interest expense 23 74,938 44,315 - Adjustments for tax losses/ income 24 (172,292) (212,814) - Due date charges on term purchases 22 4,051 2,146 - Adjustments related to unrealized gain on foreign currency differences 71,007 100,085

Changes in net working capital (328,115) (376,635) - Change in inventories (355,687) (76,227) - Change in receivables from third parties 46,749 (142,608) - Change in receivables from related parties (370,488) (49,835) - Change in other receivables from operating activities (387) (99) - Change in trade payables due to third parties 668,890 236,563 - Change in trade payables due to related parties 238,907 380,846 - Change in receivables from finance sector operations (300,523) (626,446) - Change in prepaid expenses 10,662 5,598 - Change in deferred revenue 11,325 (280) - Change in government incentives and grants (8,374) (8,374) - Change in other assets from operating activities (127,584) 12,796 - Change in other liabilities from operating activities (53,903) (57,394) - Change in financial assets (87,702) (51,175)

Net cash generated from operating activities 1,178,694 769,440 - Income taxes paid 24 (16,154) (14,460) - Payments related to employment termination benefits 16 (29,982) (20,474) - Other cash outflows (2,680) (26,193)

B. Cash flows from investing activities (1,230,402) (1,256,791) - Purchases of tangible assets 12 (808,381) (684,169) - Purchases of intangible assets 13 (434,015) (577,350) - Proceeds from sale of tangible and intangible assets 11,994 4,728

C. Cash flows from financing activities (185,358) 1,191,841 - Proceeds from financial liabilities 1,423,529 2,467,025 - Bank loans paid (1,261,119) (822,461) - Dividend paid (365,000) (484,546) - Interest received 96,659 76,679 - Interest paid (79,427) (44,856)

Net (decrease)/ increase in cash and cash equivalents before currency translation differences (285,882) 643,363

D. Effects of currency translation differences on cash and cash equivalents 114,194 31,753

Net change in cash and cash equivalents (171,688) 675,116

E. Cash and cash equivalents at the beginning of the year 2,357,049 1,681,933

Cash and cash equivalents at the end of the year 3 2,185,361 2,357,049




124

TOFAŞ TÜRK OTOMOBİL FABRİKASI ANONİM ŞİRKETİNOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2016(Amounts expressed in thousands of Turkish Lira (“TRY”) unless otherwise indicated.)


NOTE 1 - GROUP’S ORGANISATION AND NATURE OF OPERATIONS

Tofaş Türk Otomobil Fabrikası A.Ş. (the “Company” or “Tofaş”) was established in 1968 as a Turkish-Italian cooperation venture. The core business of the Company is manufacturing, exporting and selling passenger cars and light commercial vehicles under licenses of Fiat Chrysler Automobiles S.p.A. (“Fiat”). Tofaş, which is a joint venture of Koç Holding A.Ş. (“Koç Holding”) and Fiat, also produces various automotive spare parts used in its automobiles. The Company’s head office is located at Büyükdere Cad. No: 145 Zincirlikuyu Şişli, İstanbul. The manufacturing facilities are located at Bursa. The Company manufactures its cars, except for Mini Cargo and New Doblo, pursuant to license agreements between the Company and Fiat. The Company has been registered with the Turkish Capital Market Board (“CMB”) and quoted on the İstanbul Stock Exchange (“ISE”) since 1991.

The Company conducts a significant portion of its business with affiliates of Koç Holding and Fiat Group (Note 26).

The Company’s subsidiaries as of 31 December 2016 and 2015 which are subject to consolidation are as follows:

Rate of ownership of the Company (%)

Name of the company Operating area 2016 2015

Koç Fiat Kredi Finansman A.Ş. (“KFK”) Consumer financing 99.9 99.9Fer Mas Oto Ticaret A.Ş. Trading of automobile and spare parts 100 100

For the purpose of the consolidated financial statements, Tofaş and its consolidated subsidiaries are referred to as the “Group”.

The average number of personnel in accordance with the Group’s categories is as follows:

2016 2015

Blue-collar 7,943 5,490White-collar 1,681 1,582

9,624 7,072 NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS

2.1 Basis of presentation

2.1.1 Financial reporting standards

The accompanying consolidated financial statements are prepared in accordance with the Communiqué Serial II, No:14.1, “Principles of Financial Reporting in Capital Markets” (“the Communiqué”) published in the Official Gazette numbered 28676 on 13 June 2013. According to the article 5 of the Communiqué, consolidated financial statements are prepared in accordance with Turkish Accounting Standards/Turkish Financial Reporting Standards (“TAS/TFRS”) and its addendum and interpretations (“IFRIC”) issued by Public Oversight Accounting and Auditing Standards Authority (“POA”) Turkish Accounting Standards Boards.

The consolidated financial statements of the Group are prepared as per the CMB announcement of 7 June 2013 relating to financial statements presentations.

With the decision taken on 17 March 2005, the CMB announced that, effective from 1 January 2005, the application of inflation accounting is no longer required for companies operating in Turkey and preparing their financial statements in accordance with the financial reporting standards accepted by the CMB (“CMB Financial Reporting Standards”). Accordingly, TAS 29, “Financial Reporting in Hyperinflationary Economies”, issued by the POA, has not been applied in the financial statements for the accounting year commencing 1 January 2005.


125



The Company and its subsidiaries operating in Turkey, maintains its accounting records and prepares its statutory financial statements in accordance with the Turkish Commercial Code (the “TCC”), tax legislation and the uniform chart of accounts issued by the Ministry of Finance. These consolidated financial statements are based on the statutory records, which are maintained under historical cost conversion, with the required adjustments and reclassifications reflected for the purpose of fair presentation in accordance with the TAS.

2.1.2 Comparatives and adjustment of prior periods’ consolidated financial statements

In order to allow for the determination of the financial situation and performance trends the Group’s consolidated financial statements have been presented comparatively with the previous year. Where necessary, comparative figures have been reclassified to conform to the changes in presentation in the current period.

The Group has amended the calculation method of unused and deferred investment incentive used in corporate tax income calculation for 2015 and correspondingly in the final Corporate Tax Income Declaration, subject to tax calculation in the consolidated financial statements at 31 December 2015. As a result of the mentioned method change and in order to be consistent with the financial statements of the current period, deferred tax assets have decreased by TRY1,459 and current tax assets have increased by TRY1,459. Deferred tax income classified under the consolidated profit or loss have decreased by the same amount and taxes on income classified under the consolidated profit or loss have decreased by TRY1,459 in the consolidated financial statements for the period ended 31 December 2015 accordingly.

2.1.3 Functional and reporting currency

The Group’s functional and reporting currency is Turkish Lira (“TRY”). Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation are recognized in the consolidated statement of income.

2.1.4 Basis of consolidation

Subsidiaries are all entities over which the Group has control. The Group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group and deconsolidated from the date that control ceases. Inter-group transactions, balances and unrealized gains on transactions between Group companies are eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the Group’s accounting policies. Minority shares of Tofaş in subsidiaries were not recognized under non-controlling interest (“Minority interest” or “Non-controlling Interests”) since they do not have a material effect in consolidated financial statements. Financial statements of the Company and its subsidiaries subject to consolidation were prepared as of the same date.

2.1.5 Significant accounting judgments, estimates and assumptions

The preparation of financial statements requires the Group management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting year. Actual results could differ from those estimates. Those estimates are reviewed periodically, and as adjustments become necessary they are reported in earnings in the periods in which they become known.

Significant estimates used in the preparation of these consolidated financial statements and the significant judgments with the most significant effect on amounts recognized in the financial statements are as follows:

a) The Company determines warranty provision by considering the past warranty expenses and remaining warranty period per vehicle. In calculation of the warranty provision; vehicle quantity, warranty period and the historical warranty claims incurred are considered. As of 31 December 2016, the amount of guarantee expense is TRY80,440 (31 December 2015: TRY56,947) (Note 15). If the claim assumptions used in the calculation of warranty provisions increase/decrease 5%, the amount of warranty provision would be TRY4,295 (31 December 2015: TRY3,750) higher/lower.


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b) KFK, the subsidiary of the Group, has established a specific credit risk provision for loan impairment to provide for management’s estimate of credit losses as soon as the recovery of an exposure is identified as doubtful. Impairment and uncollectability are measured and recognized individually for loans and receivables that are individually significant, and measured and recognized on a portfolio basis for a group of similar loans and receivables that are not individually identified as impaired. As of 31 December 2016, general provisions for finance loans amounted to TRY24,234 (31 December 2015: TRY20,626) has been booked in the consolidated financial statements (Note 9).

2.2 Amendments in Turkish Financial Reporting Standards

Group has implemented the new and revised standards and interpretations effective from 1 January 2016 which are related to its main operations.

a) New standards, amendments and interpretations effective as of 31 December 2016:

- TFRS 14 ‘Regulatory deferral accounts’, effective from annual periods beginning on or after 1 January 2016. TFRS 14, ‘Regulatory deferral accounts’ permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt TFRS. However, to enhance comparability with entities that already apply TFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items.

- Annual improvements 2014, effective from annual periods beginning on or after 1 January 2016. These set of amendments impacts 4 standards:

- TFRS 5, ‘Non-current assets held for sale and discontinued operations’ regarding methods of disposal.- TFRS 7, ‘Financial instruments: Disclosures’, (with consequential amendments to TFRS 1) regarding servicing contracts.- TAS 19, ‘Employee benefits’ regarding discount rates.- TAS 34, ‘Interim financial reporting’ regarding disclosure of information.

- Amendment to TFRS 11, ‘Joint arrangements’ on acquisition of an interest in a joint operation, effective from annual periods beginning on or after 1 January 2016. This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions.

- Amendments to TAS 16 ‘Property, plant and equipment’, and TAS 41, ‘Agriculture’, regarding bearer plants, effective from annual periods beginning on or after 1 January 2016. These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. It has been decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of TAS 16, instead of TAS 41. The produce growing on bearer plants will remain within the scope of TAS 41.

- Amendment to TAS 16, ‘Property, plant and equipment’ and TAS 38, ‘Intangible assets’, on depreciation and amortisation, effective from annual periods beginning on or after 1 January 2016. In this amendment it was clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. It is also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset.

- Amendments to TAS 27, ‘Separate financial statements’ on the equity method, effective from annual periods beginning on or after 1 January 2016. These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements.

- Amendment to TFRS 10 ‘Consolidated financial statements’ and TAS 28, ‘Investments in associates and joint ventures’, effective from annual periods beginning on or after 1 January 2016. These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries.

- Amendment to TAS 1, ‘Presentation of financial statements’ on the disclosure initiative, effective from annual periods beginning on or after 1 January 2016, these amendments are as part of the IASB initiative to improve presentation and disclosure in financial reports.


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b) Standards and amendments issued but not yet effective at 31 December 2016:

- Amendments to TAS 7 ‘Statement of cash flows’ on disclosure initiative, effective from annual periods beginning on or after 1 January 2017. These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the TASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved.

- Amendments TAS 12 ‘Income Taxes’, effective from annual periods beginning on or after 1 January 2017. The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset’s tax base. It also clarify certain other aspects of accounting for deferred tax assets.

- Amendments to TFRS 2, ‘Share based payments’ on clarifying how to account for certain types of share-based payment transactions, effective from annual periods beginning on or after 1 January 2018. This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equity-settled. It also introduces an exception to the principles in TFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee’s tax obligation associated with a share-based payment and pay that amount to the tax authority.

- TFRS 9 ‘Financial instruments’, effective from annual periods beginning on or after 1 January 2018. This standard replaces the guidance in TAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model.

- TFRS 15 ‘Revenue from contracts with customers’, effective from annual periods beginning on or after 1 January 2018. TFRS 15, ‘Revenue from contracts with customers’ is a converged standard from FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally.

- Amendment to TFRS 15, ‘Revenue from contracts with customers’, effective from annual periods begining on or after 1 January 2018. These amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of those areas of guidance. The TASB has also included additional practical expedients related to transition to the new revenue standard.

- TFRS 16 ‘Leases’, effective from annual periods beginning on or after 1 January 2019, This standard replaces the current guidance in TAS 17 and is a far reaching change in accounting by lessees in particular. Under TAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). TFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually all lease contracts. The TASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the TASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under TFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

- Amendments to TFRS 4, ‘Insurance contracts’ regarding the implementation of TFRS 9, ‘Financial instruments’, effective from annual periods beginning on or after 1 January 2018. These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will:

- give all companies that issue insurance contracts the option to recognise in other comprehensive income, rather than profit or loss, the volatility that could arise when TFRS 9 is applied before the new insurance contracts standard is issued; and

- give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying TFRS 9 until 2021. The entities that defer the application of TFRS 9 will continue to apply the existing financial instruments standard TAS 39.


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- Amendment to TAS 40, ‘Investment property’ relating to transfers of investment property, effective from annual periods beginning on or after 1 January 2018. These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence.

- Annual improvements 2014-2016, effective from annual periods beginning on or after 1 January 2018. These amendments impact 3 standards:

- TFRS 1, ‘First-time adoption of TFRS’, regarding the deletion of short-term exemptions for first-time adopters regarding TFRS 7, TAS 19, and TFRS 10 effective 1 January 2018.

- TFRS 12, ‘Disclosure of interests in other entities’ regarding clarification of the scope of the standard. These amendments should be applied retrospectively for annual periods beginning on or after 1 January 2017.

- TAS 28, ‘Investments in associates and joint ventures’ regarding measuring an associate or joint venture at fair value effective 1 January 2018.

- TFRS Interpretation 22, ‘Foreign currency transactions and advance consideration’, effective from annual periods beginning on or after 1 January 2018. This Interpretation addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice.

The Group will evaluate the effect of the aforementioned changes within its operations and apply changes starting from effective date.

2.3 Summary of significant accounting policies

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand and at banks and short-term highly liquid investments whose risk of value change is not material including time deposits generally having original maturities of three months or less (Note 4).

Financial assets

i) Classification

The Group classifies its financial assets in the following categories: loans and receivables, held-to maturity investments and available for sale financial assets. The classification depends on the purpose for which the financial assets were acquired. The Group determines the classification of its financial assets at initial recognition. Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets. The Group’s loans and receivables comprise trade receivables and receivables from finance sector operations in the consolidated balance sheet.

Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity when the Group has the positive intention and ability to hold to maturity. After initial measurement, held-to-maturity investments are measured at amortized cost using the effective interest method. Gains and losses are recognised in profit or loss when the investments are derecognized or impaired, as well as through the amortization process.


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Available for sale financial investments

Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period (Note 5).

ii) Recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date - the date on which the group commits to purchase or sell the asset. Investments are initially recognised at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognised at fair value, and transaction costs are expensed in the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the group has transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortised cost using the effective interest method.

When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognised in equity are included in the consolidated income statement as ‘Gains and losses from investment securities’.

Receivables from finance sector operations

Receivables from finance sector operations are carried at amortized cost in the consolidated balance sheet of the Group (Note 9).

Provision for impairment of receivables from finance sector operations

The Group, recognize provisions for the receivables from finance sector operations for the impairment of consumer finance loans based on a credit review of the receivables portfolio. Provision amount is determined based on the Group’s credit risk policies, composition and financial performance of the credit portfolio and economical environment and reflected as “Doubtful Loans” after deducting the related fair value of the guarantee amounts. Changes in the provision amount are accounted for under period income/loss. When a loan is deemed uncollectible, it is written off against the related provision for impairment. The loan is written off after all necessary legal proceedings have been completed and the amount of the loan loss is finally determined. Subsequent recoveries are credited to the profit or loss if previously written off.

The allowances for impairment of receivables from finance sector operations are established based on a credit review of the Group’s receivables from finance sector operations portfolio.

The Group can also recognize specific provision even if the overdue days are less than the days stated above or receivables are not over due at all, by taking into account all the existing data regarding the creditor and based on the principals of reliability and prudence.

Group also recognises a general provision for the receivables which is not related to a specific transaction that can be recognised for the losses arising from the principal or interest of consumer finance loans that are not over due or overdue less than 90 days but the amount of loss is not certain. Group sets a general provision for consumer finance loans that have not been considered as doubtful yet.

Trade receivables

Trade receivables are amounts due from customers for merchandise sold or services performed in the ordinary course of business and have a maturity range of 30-90 days. If collection is expected in one year or less (or in the normal operating cycle of the business if longer), they are classified as current assets. If not, they are presented as non-current assets. Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment.

An estimate for doubtful provision is made when collection of the full amount is no longer probable. A credit risk provision for trade receivables is established if there is objective evidence that the Group will not be able to collect all amounts due. The allowance is an estimated amount which is difference between existing receivable and collectible amount. Collectible amount is the discounted value of trade receivables, all cash flows including collections from guarantees by using original effective interest rate. Bad debts are written off when identified (Note 7).


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Trade payables

Trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities (Note 7).

Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Inventories

Inventories are valued at the lower of cost or net realizable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials - purchase cost on a monthly average basis; finished goods and work-in-process - cost includes the applicable allocation of fixed and variable overhead costs on the basis of monthly average basis. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and estimated costs necessary to make the sale. The scrap inventory is written off when identified (Note 10).

Derivative financial instruments

Derivative financial instruments, including foreign exchange contracts with maturities, are initially measured at fair value and are remeasured at their fair values subsequently. The classification of gains or losses arising from derivative financial instruments changes depending on the classification of the derivative financial instruments. Even though derivative financial instruments are used as part of the Group’s risk management, they do not meet the criteria for hedge accounting therefore they are measured at fair value including expenses at the time of inception and are remeasured at fair value in subsequent periods. Gains or losses arising from the change in the fair value of such instruments are accounted for in the consolidated statement of income.

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 (Note 11). 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 (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognized.

Property, plant and equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment loss. When assets are sold or retired, their costs and accumulated depreciation are eliminated from the accounts and any gain or loss resulting from their disposal is included in the consolidated statement of income.

The initial cost of property, plant and equipment comprises its purchase price, including import duties and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, plant and equipment have been put into the operation, such as repairs and maintenance and overhaul costs are normally charged to income in the period the costs are incurred. Expenditures are added to cost of assets if the expenditures provide economic added value for the future use of the related property, plant and equipment.


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Depreciation is computed on a straight-line basis over the estimated useful lives (Note 12). The useful lives and depreciation methods are reviewed periodically to ensure that the method and period of depreciation are consistent with the expected pattern of economic benefits from items of property, plant and equipment.

The depreciation terms are as follows;

Years

Land improvements 33Buildings 33Machinery and equipment 12-32Motor vehicles 4-10Furniture and fixtures 8-14Leasehold improvements 5-30

In case of any indication of the impairment in the carrying value of property, plant and equipment, the recoverable amount is reassessed and provision for impairment is reflected in the consolidated financial statements.

Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount. Recoverable amount is the higher of net selling price or value in use. Net selling price is determined by deducting any expenses to be incurred for the sale of an asset from the fair value of the asset. Value in use is calculated as the discounted value of the estimated future cash flows the entity expects to receive from the asset.

Gains and losses on sale of property, plant and equipment are included in other income and expense from investment activities.

Intangible assets

Intangible assets acquired separately from a business are capitalized at cost. Intangible assets, created within the business are not capitalized and expenditure is charged against profits in the year in which it is incurred. Intangible assets are amortized on a straight-line basis over their useful lives. The depreciation period for the intangibles capitalized in relation with the new models will be started after the production of these models is started. The carrying values of intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable (Note 13).

Impairment of assets

The carrying amounts of the Group’s tangible and intangible assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. When an indication of impairment exists, the Group compares the carrying amount of the asset with its net realizable value which is the higher of value in use or fair value less costs to sell. Impairment exists if the carrying value of an asset or a cash generating unit is greater than its recoverable amount which is the higher of value in use or fair value less costs to sell. An impairment loss is recognized immediately in the consolidated comprehensive statement of income.

The increase in carrying value of the assets (or a cash generated unit) due to the reversal of recognized impairment loss shall not exceed the carrying amount of the asset (net of amortisation amount) in case where the impairment loss was reflected in the consolidated financial statements in prior periods. Such a reversal is accounted for in the comprehensive statement of income.


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Research and development expenditures

Expenditures for research and development are charged against income in the period incurred except for project development costs which comply with the following criteria:

- The product or process is clearly defined and costs are separately identified and measured reliably,- The technical feasibility of the product is demonstrated,- The product or process will be sold or used in-house,- A potential market exists for the product or its usefulness in case of internal use is demonstrated, and- Adequate technical, financial and other resources required for completion of the project are available.

The costs related to the development projects are capitalized when the criteria above are met and amortized by straight-line basis over the useful lives of related projects (2-13 years).

Revenue recognition

Automotive sector operations:

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenues are stated net of discounts, value added and sales taxes. Revenue is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer and the amount of revenue can be measured reliably. Net sales are invoiced amounts of delivered goods excluding sales returns.

Service income is recognized when the service is rendered and the amount is reliably measured (Note 19).

Finance sector operations:

The interest income incurred from loans is recognized by using effective interest rate method and on accrual basis. Interest income is not recognised when consumer financing loans given by the Group become doubtful or when the borrower defaults.

Loan investigation fees of the Group which are collected on the execution and disbursement of loans and advances to customers and are recognized as income by netting off from the loan balance using a systematic deduction method over the contractual life of loans in the consolidated financial statements.

Also, the Group has a revenue sharing agreement with the insurance company over the insurance premiums collected form loan customers. The Group recognises insurance premium income as deferred revenue under other liabilities initially and subsequently recognises it as income over the payment plan of loans using a systematic method.

When the arrangement effectively constitutes a financing transaction, the fair value of the consideration is determined by discounting all future receipts using an imputed rate of interest. The difference between the fair value and the nominal amount of the consideration is recognized on an accrual basis as financial income.

Bank borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in profit or loss over the period of the borrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the period of the facility to which it relates (Note 6).


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Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset for its intended use or sale. Such borrowing costs are capitalized as part of the cost of the asset when it is probable that they will result in future economic benefits to the entity and the costs can be measured reliably. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. Other borrowing costs are expensed in the period in which they are incurred.

For the year ended 31 December 2016, the Group has capitalized borrowing costs amounting to TRY10,105 (31 December 2015 : TRY4,129). The capitalization rate used in calculation of borrowing cost is 2.77% (31 December 2016: 3.19%).

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognised in the income statement, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively (Note 24).

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognised on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. Employment termination benefits

In accordance with existing social legislation, the Group is required to make lump sum termination indemnities to each employee who has completed one year of service with the Group and whose employment is terminated due to retirement or for reasons other than resignation or misconduct.

In the consolidated financial statement, the Group has reflected a liability calculated using “Projected Unit Credit Method” and based upon factors derived using the Group’s experience of personnel terminating their services and being eligible to receive benefits, discounted by using the current market yield at the balance sheet date on government bonds.

The current service cost of the defined benefit plan, recognised in the income statement in employee benefit expense, except where included in the cost of an asset, reflects the increase in the defined benefit obligation resulting from employee service in the current year, benefit changes curtailments and settlements. Past-service costs are recognised immediately in income.

The net interest cost is calculated by applying the discount rate to the net balance of the defined benefit obligation and the fair value of plan assets. This cost is included in employee benefit expense in the income statement.

Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise (Note 16).


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Earnings per share

Earnings per share disclosed in the consolidated statement of income are determined by dividing net income by the weighted average number of shares that have been outstanding during the related period concerned.

In Turkey, companies can increase their share capital by making a pro rata distribution of shares “bonus shares” to existing shareholders without consideration for amounts resolved to be transferred to share capital from retained earnings and revaluation surplus. For the purpose of the earnings per share calculation such bonus share issues are regarded as stock dividends. Dividend payments, which are immediately reinvested in the shares of the Group, are regarded similarly (Note 25).

Provisions

Provisions for environmental restoration, restructuring costs and legal claims are recognised when: the group has a present legal or constructive obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated (Note 15). Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.

Warranty expense provision

The Group provides free of charge maintenance service for the vehicles, in accordance with the period determined in the agreement following the date of domestic sale. Export sales of the Group are not under a warranty commitment. Warranty provision is periodically reviewed and reassessed in accordance with the realized expenses in the previous periods. The Group does not have a significant liability due to extended warranty (Note 15).

Contingent assets and liabilities

Contingent liabilities are not recognized in the financial statements, but are disclosed unless the possibility of an outflow of resources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements, but disclosed when an inflow of economic benefits is probable.

Offsetting

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the company or the counterparty.

Foreign currency transactions

Income and expenses arising in foreign currencies during the year have been translated at the exchange rates prevailing at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies have been translated at the exchange rates prevailing at the balance sheet dates, which are announced by Central Bank of the Republic of Turkey. Exchange gains or losses arising from the settlement and translation of foreign currency items have been included in the related income and expense accounts, as appropriate.

Segment reporting

An entity shall report separately information about an operating segment if its reported revenue, including both sales to external customers and intersegment sales or transfers, is 10 per cent or more of the combined revenue, internal and external, of all operating segments, The absolute amount of its reported profit or loss is 10 per cent or more of the greater, in absolute amount, of the combined reported profit of all operating segments that did not report a loss and the combined reported loss of all operating segments that reported a loss, its assets are 10 per cent or more of the combined assets of all operating segments.


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Operating segments that do not meet any of the quantitative thresholds may be considered reportable, and separately disclosed, if management believes that information about the segment would be useful to users of the financial statements.

The Group has identified its operating segments based on the reports reviewed by the Board of Directors and used in taking strategic decisions. The operating segments of the Group has been determined as automobile, trading of spare parts and consumer finance. The Group management evaluates the performance of its operating segments based on operating profit measured in accordance with TFRS.

Cash flow hedge

Changes in the fair value of a hedging instrument that qualifies as a highly effective cash-flow hedge are recognized directly in shareholders’ equity. The ineffective portion is immediately recognized in net profit or loss. If the cash flow hedge results in the recognition of an asset or a liability, all gains and losses previously recognized directly in equity are transferred from equity and included in the initial measurement of the cost or carrying value of the asset or liability. Otherwise, for all other cash flow hedges, gains and losses initially recognized in equity are transferred from hedging reserve to net profit or loss in the same period or periods during which the hedged firm commitment or forecasted transaction affects the statement of income.

When the hedge ceases to be highly effective, hedge accounting is discontinued prospectively. In this case, the cumulative gain or loss on the hedging instrument that has been reported directly in equity is retained in equity until the committed or forecasted transaction occurs. When the committed or forecasted transaction is no longer expected to occur, any net cumulative gain or loss previously reported in equity is transferred to the statement of income. As of 31 December 2016, gains on cash flow hedging accounted for under the statement of other comprehensive income are TRY281,739 (31 December 2015: losses amounting to TRY10,586).

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the current year income statement.

There is an effective cash flow hedge relationship between foreign currency originated long term loans and the realized and forecasted sales (items subject to be hedged) of light commercial vehicles (New Doblo, Doblo FL and Doblo US) and commercial vehicles (Egea, Stationwagon, Hatchback). According to the agreements made between the Company and Fiat, the long term loan liabilities will be covered by the planned sales of New Doblo, Doblo FL and Doblo US to Fiat starting from 2009 until December, 2021. Furthermore, according to the agreement made between Fiat and the Company, long term loan liabilities will be covered through a portion of sales of Egea and Stationwagon / Hatchback to Fiat starting from 2015 until December 2023.

The hedge effectiveness is assessed on an ongoing basis and determined actually to have been highly effective throughout the financial reporting periods for which the hedge was designated, and effectiveness of the hedge consistent with the documented risk management strategy.

Related parties

Parties are considered related to the Group if (Note 25);

(a) directly, or indirectly through one or more intermediaries, the party:

(i) controls, is controlled by, or is under common control with, the Company (this includes parents, subsidiaries and fellow subsidiaries);(ii) has an interest in the Group that gives it significant influence over the Group; or(iii) has joint control over the Group;

(b) the party is an associate of the Group;(c) the party is a joint venture in which the Group is a venture;(d) the party is member of the key management personnel of the Group or its parent;(e) the party is a close member of the family of any individual referred to in (a) or (d);(f) the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (d) or (e); or(g) the party has a post-employment benefit plan for the benefit of employees of the Group, or of an entity that is a related party of the Group.


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Investment, research and development incentives

Government grants are recognized at fair value where there is reasonable assurance that the grant will be received and all attaching conditions will be complied with. When the grant relates to an expense item, it is recognized as income over the period necessary to match the grant on a systemic basis to the costs that it is intended to compensate. Where the grant relates to an asset, it is recorded as deferred income.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to property, plant and equipment are included in non-current liabilities as deferred government grants and are credited to the income statement on a straight- line basis over the expected lives of the related assets.

Investment and research and development incentives are recognized when incentive applications of the Group are approved by fiscal authorities (Note 14).

NOTE 3 - SEGMENT REPORTING

The reportable operational segments for segment reporting as of 31 December 2016 and 2015 are as follows:

Trading of spare parts Consumerand automobile finance Total

Revenue 14,235,951 369,330 14,605,281

Gross profit 1,347,522 100,219 1,447,741

Operating expenses (-) (581,663) (22,182) (603,845)Other income from main operations 801,408 108 801,516Other expenses from main operations (-) (830,924) (13,596) (844,520)

Operating profit 736,343 64,549 800,892

Trading of spare parts Consumerand automobile finance Total

Revenue 9,920,723 247,819 10,168,542

Gross profit 1,140,183 76,340 1,216,523

Operating expenses (-) (485,599) (21,915) (507,514)Other income from main operations 798,259 41 798,300Other expenses from main operations (-) (808,908) (11,847) (820,755)

Operating profit 643,935 42,619 686,554

The distribution of assets and liabilities of consumer finance segment is followed by TRY1,381,867 in current asset, TRY847,484 in non-current asset as receivables from finance sector operations and TRY1,141,110 in current liabilities, TRY1,071,893 in non-current liabilities as financial liabilities.


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NOTE 4 - CASH AND CASH EQUIVALENTS

2016 2015

Cash on hand 24 8Due from banks- time deposits 2,114,000 2,268,748- demand deposits 101,703 117,760

2,215,727 2,386,516 As of 31 December 2016 and 2015, the details of time deposits are as follows:

2016 2015

AmountEffective interest

rate per annum (%) AmountEffective interest

rate per annum (%)

EUR 1,482,469 1.00 - 2.20 1,090,113 1.25 - 2.80TRY 631,531 10.30 - 11.75 1,178,635 11.30 - 14.20

2,114,000 2,268,748

As of 31 December 2016, the maturities of time deposits vary between 3 and 35 days (31 December 2015: between 4 and 49 days).

As of 31 December 2016, the cash at banks comprise time and demand deposits amounting to TRY1,421,146 (31 December 2015: TRY1,395,025) which are deposited at a bank which is a related party of the Group (Note 26).

As of 31 December 2016 and 2015, the reserves of cash and cash equivalent in cash flow statement;

2016 2015

Cash and cash equivalents 2,215,727 2,386,516Less: interest accruals (1,493) (3,274)Less: restricted cash (28,873) (26,193)

2,185,361 2,357,049

As of 31 December 2016, the Company’s TRY28,873 worth of restricted cash consists of required reserve balance of the Central Bank of Turkish Republic (31 December 2015: TRY26,193).

NOTE 5 - FINANCIAL ASSETS

a) Short-term financial assets

As of 31 December 2016, short-term financial assets of the Group consists of time deposits amounting to TRY167,049 with a maturity of 114-119 days bearing an interest rate of 1.70% - 2.20% (31 December 2015: TRY79,440 with a maturity of 96 days bearing an interest rate of 1.60%).

b) Available for sale financial investments

As of 31 December 2016, the Group has available for sale financial investments amounting to TRY395 (31 December 2015: TRY302).


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NOTE 6 - FINANCIAL LIABILITIES

a) Short-term financial liabilities

2016 2015Original amount

(thousand)TRY

equivalentInterest rate

per annum (%)

Original amount

(thousand)TRY


per annum (%)

Borrowings in EUR 102,625 380,727 Euribor + 0.15 - 75,680 240,481 Euribor +0.50Euribor + 1.15

Borrowings in TRY (*) 27,000 11.09 - 16.10 - 70,800 9.70 - 12.65

407,727 311,281

b) Short-term portion of long-term financial liabilities


(thousand)TRY


per annum (%)

Original amount

(thousand)TRY


per annum (%)

Borrowings in TRY (*) - 956,499 11.09 - 16.10 - 804,406 9.70 - 12.65Borrowings in EUR 138,853 515,130 Euribor + 0.80 - 157,663 500,989 Euribor + 0.15 -

Euribor + 2.90 Euribor + 2.90Bonds (1,2,3,…7) - 157,611 11.44 - 13.06 - 215,805 9.37 - 10.27

1,629,240 1,521,200

c) Long-term financial liabilities


(thousand)TRY


per annum (%)

Original amount

(thousand)TRY


per annum (%)

Borrowings in EUR 513,956 1,906,727 Euribor + 0.80 - 554,793 1,762,911 Euribor + 0.15 -Euribor + 2,90 Euribor + 2.90

Borrowings in TRY (*) - 839,605 11.09 - 16.10 - 677,243 10.21 - 15.81Bonds (1,2,3,…7) - 197,096 11.44 - 13.06 - 113,428 9.37 - 10,27Borrowings in USD (*) 10,000 35,192 3.86 - - -

2,978,620 2,553,582

(*) A portion of short-term bank borrowings which are denominated in EUR, the whole short-term and long-term bank borrowings which are denominated in TRY and long term bank borrowings which are denominated in USD comprise bank borrowings obtained by KFK, consolidated subsidiary, to finance consumer financing loans as of 31 December 2016 and 2015. (1) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law no 2499, the Group issued 20-month maturity bonds on 3 June 2016, nominal amount of TRY30,000 and at an interest rate by 11.26%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş..(2) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 10 August 2016, with a nominal amount of TRY30,000 and at an interest rate by 11.13%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş..


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(3) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law, the Group issued 18-month maturity bonds on 4 November 2016, with a nominal amount of TRY75,000 and at an interest rate by 11.82%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş..(4) In accordance with the minutes of Board of Directors meeting held on 26 February 2016, based on the required authorization of the Capital Markets Law, the Group issued 24-month maturity bonds on 23 November 2016, with a nominal amount of TRY70,000 and at an interest rate by 12.29%. The bonds have been sold to qualified investors by the closed issuance method through the agency of İş Yatırım Menkul Değerler A.Ş..(5) In accordance with the minutes of Board of Directors meeting held on 14 April 2015, based on the required authorization of the Capital Markets Law, the Group issued 20-month maturity bonds on 12 November 2015, with a nominal amount of TRY50,000 and at an interest rate by 11.68%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yarırım Menkul Değerler A.Ş..(6) In accordance with the minutes of Board of Directors meeting held on 14 April 2015, based on the required authorization of the Capital Markets Law, the Group issued 16-month maturity bonds on 18 December 2015, with a nominal amount of TRY62,380 and at an interest rate by 12.51%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş..(7) In accordance with the minutes of Board of Directors meeting held on 14 April 2015, based on the required authorization of the Capital Markets Law, the Group issued 18-month maturity bonds on 9 May 2016, with a nominal amount of TRY45,000 and at an interest rate by 11.49%. The bonds have been sold to qualified investors by the closed issuance method through the agency of Yapı Kredi Yatırım Menkul Değerler A.Ş..

Financial liabilities denominated in TRY and USD have bear fixed interest rates while financial liabilities denominated Euro bear floating interest rates.

As of 31 December 2016, TRY377,194 (31 December 2015: TRY234,607) of short-term and long-term financial liabilities are obtained through banks which are related parties of the Group (Note 26).

The redemption schedule of the long-term bank borrowings as of 31 December 2016 and 2015 is as follows:

2016 2015

1-2 years 1,405,452 1,299,6472-3 years 609,478 351,3983-4 years 418,466 301,0354-5 years 343,605 275,1235 years and more 201,619 326,379

2,978,620 2,553,582 At 4 March 2008, a loan agreement has been signed between the Company and i) Societe Generale, Credit Agricole, Fortis Bank S.A., Ing Bank NV and Intesa Sanpaolo banks as regulator, grantor and guarantor ii) EIB as guarantor and credit grantor and iii) Servizi Assicurativi per il Commercio Estreo S.p.A. (SACE) as guarantor role in the consortium amounting to EUR450 million. The loans, amounting to TRY214,006 (equivalent of EUR57,685 thousand) have been utilized as of 31 December 2016 (31 December 2015: TRY366,597 equivalent of EUR115,369 thousand) and have a maturity of ten years with two years grace period and it has been used for financing investment expenditures regarding the development and production of New Doblo. The Group’s exposure to foreign exchange rate and interest fluctuations for the loan obtained in relation with the investment for New Doblo model is undertaken by Fiat.

In 2011, the Group has obtained a credit line by EUR36 million in order to use in capacity increase of New Doblo constructions. The repayment of principle amounts will be on equal installments between 2012 and 2018. As of 31 December 2016, the remaining balance of the loan amount to TRY38,160 (equivalent of EUR10,286 thousand) (31 December 2015: TRY49,026 (equivalent of EUR15,429 thousand)).

On the consolidated financial statements, the total carrying value of the Group’s loans obtained from Eximbank on 15 November 2016, 16 December 2016 and 27 December 2016 is TRY166,945 (equivalent of EUR45,000 thousand) (31 December 2015: the total carrying value of the loans obtained on 19 October 2015, 22 October 2015 and 10 December 2015 is TRY238,320 (equivalent of EUR75,000 thousand)).

The Group has obtained a credit by TRY136,030 (equivalent of EUR36,667 thousand) (31 December 2015: TRY145,640 (equivalent of EUR45,833 thousand) ) at 9 December 2014 from European Investment Bank (EIB) with a maturity until 2020 in order to use in “New Sedan R&D” projects as of 31 December 2016.

The Group has obtained a working capital loan from HSBC PLC on 31 March 2014 amounting to TRY108,205 (equivalent of EUR29,167 thousand) (31 December 2015: TRY119,160 (equivalent of EUR37,500 thousand)) which has a maturity until 2020.


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The Group signed the long-term external financing amounting by EUR250 million with HSBC Bank plc, J.P. Morgan Limited, Societe General and BNP Paribas as authorized regulators and HSBC Bank plc, J.P Morgan Limited/ JPMorganChase Bank N.A London Branch, Societe General and BNP Paribas Fortis SA/NV as creditor, HSBC Bank Plc as coordinator corporation and BNP Paribas Fortis SA/NV as per procuration on 17 February 2015, the carrying amount of aforementioned loan which is used on Doblo FL and US projects investments in the consolidated balance sheet is TRY654,005 (equivalent of EUR176,286 thousand) (31 December 2015: TRY674,259 (equivalent of EUR212,191 thousand)).

At 11 August 2015 a loan agreement has been signed between the Company and HSBC Bank Plc and Ing Bank, A Branch Of Ing-Diba Ag as creditor, HSBC Bank Plc as coordinator SACE as credit agent role amounting to EUR200,000 thousand with a maturity until 2022. Maturity schedule of interest payments every six months, which expires in December 2022 and the average maturity is taken into account, the total annual costs, including insurance premiums will be about 6 months Euribor + 2.4%. As of 31 December 2016 the remaining amount is TRY650,714 (the equivalent of EUR175,399 thousand) (31 December 2015: TRY593,060 (equivalent of EUR186,638 thousand)).

The Group signed the loan agreement amounting to EUR200 million with European Bank for Reconstruction and Development, HSBC Bank Plc and Bank of America, N.A., London Branch as authorized regulators and as per procuration of creditors on 22 October 2015. Considering the expected loan usage schedule and average term of the aforementioned six-monthly paid loan with the due date of December 2022, Yearly total cost will be 6 months Euribor + 2.3%. EUR100 million of the total loan has been used as of 5 November 2015 and the remaining EUR100 million is used on March 2016. The remaining balance of the loan which is used Egea Hatchback and Station Wagon projects investments as of 31 December 2016 is TRY682,199 (equivalent of EUR183,886 thousand) (31 December 2015: TRY314,080 (equivalent of EUR98,842 thousand).

The Group signed the loan agreement amounting to EUR44,300 thousand with Citibank NA Jersey for MCV FL project as of 24 May 2016. Annual interest is Euribor + 1.80% for five years. The carrying amount of aforementioned loan in the consolidated balance sheet is TRY147,911 (equivalent of EUR39,869 thousand) as of 31 December 2016.

NOTE 7 - TRADE RECEIVABLES AND PAYABLES

a) Trade receivables

2016 2015

Trade receivables 654,650 701,425Doubtful trade receivables 7,337 7,311

Less: provision for doubtful receivables (7,119) (7,093)Less: unearned credit finance income (2,873) (3,349)

651,995 698,294

Movement of the provision for doubtful receivables is as follows:

2016 2015

1 January 7,093 7,093Additions 26 -

31 December 7,119 7,093


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Collateral received related with trade receivables

As of 31 December 2016, the letter of guarantees amounting to TRY71,004 guarantee cheques and notes amounting to TRY2,777, mortgages amounting to TRY40,998 and direct debit system limit (payment guarantee limit secured by the banks) obtained as collateral for Group’s trade receivables amount to TRY578,826, respectively (31 December 2015: letter of guarantees amounting to TRY131,792, guarantee notes amounting to TRY3,648, mortgages amounting to TRY38,800 and direct debit system limit amounting to TRY518,995). b) Trade payables

2016 2015

Trade payables 1,629,522 960,632Less: unaccrued credit finance expense (4,645) (4,509)

1,624,877 956,123

NOTE 8 - OTHER RECEIVABLES

As of 31 December 2016 other receivables consist of deposits and guarantees given, amounting to TRY587 (31 December 2015: TRY200).

NOTE 9 - RECEIVABLES FROM FINANCE SECTOR OPERATIONS

2016 2015

Short-term consumer financing loans 1,364,659 1,064,911Non-performing loans 63,667 59,711

1,428,326 1,124,622

Provision for specific loan impairment (31,042) (21,540)Provision for general loan impairment (15,417) (11,716)

1,381,867 1,091,366

Long-term consumer financing loans 856,301 861,685

Provision for general loan impairment

Provision for general loan impairment (8,817) (8,910)

847,484 852,775

As of 31 December 2016, TRY denominated loans originated by the Group bear interest rates ranging between 0,01% and 1,49% per month (31 December 2015: between 0.01% and 1.49% per month).


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The maturities of long-term consumer financing loans are as follows:

Years 2016 2015

1 to 2 years 557,988 612,8382 to 3 years 232,061 187,2683 to 4 years 66,155 52,6294 years and more 97 8,950

856,301 861,685

Movements in the allowance for loan impairment are as follows:

2016 2015

1 January 42,166 31,863Current year provision 15,313 13,600Collections during the year (-) (2,203) (3,297)

31 December 55,276 42,166

The Group has obtained pledge rights as a guarantee for its consumer financing loans, up to total amount of receivables, depending on the agreement between the Group and the consumers. As of 31 December 2016, the fair value of guarantees obtained for the consumer loans amount to TRY2,581,858 (31 December 2015: TRY2,261,081). Furthermore, the Group obtains mortgage guarantees where necessary. The Group has mortgage guarantee on vehicles for all consumer financing loans that Group booked special provision amounting to TRY31,042 (31 December 2015: TRY21,540) as of 31 December 2016.

NOTE 10 - INVENTORIES

2016 2015

Raw materials 173,370 124,960Work-in-progress 148,386 94,542Finished goods 164,621 63,450Imported vehicles 174,695 89,532Spare parts 54,141 46,184Goods in transit 212,395 136,311Less: provision for impairment on inventories (7,464) (6,728)

920,144 548,251 Movements in the provision for impairment on inventory are as follows:

2016 2015

1 January (6,728) (5,460)Current year provision, net (736) (1,268)

31 December (7,464) (6,728)


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NOTE 11 - INVESTMENT PROPERTIES

For the years ended 31 December 2016 and 2015, the movement of investment properties is as follows:

2016 2015

1 January, net book value 29,515 28,860Fair value increase (*) 855 655

31 December, net fair value 30,370 29,515

(*) As of 31 December 2016, the fair value of the property has been determined as TRY30,730 (31 December 2015: TRY29,515), by using benchmarking method. As a result of the revaluation of the investment property, revaluation gains amounting to TRY855 (31 December 2015: TRY655) has been accounted under other income (Note 22). Relevant valuation report is prepared by an independent firm which has CMB license and necessary professional experience.

NOTE 12 - PROPERTY, PLANT AND EQUIPMENT

The movement of property, plant and equipment and the accumulated depreciation as as of 31 December 2016 is as follows:

Land, land improvements and buildings

Machinery and

equipmentsFurniture

and fixtures VehiclesLeasehold

improvementsConstruction

in progress Total

1 January, net book valueCost 383,832 3,993,615 454,662 58,038 11,233 502,956 5,404,336Accumulated depreciation (218,542) (2,721,493) (307,839) (38,745) (6,197) - (3,292,816)

Net book value 165,290 1,272,122 146,823 19,293 5,036 502,956 2,111,520

1 January 2016, net book value 165,290 1,272,122 146,823 19,293 5,036 502,956 2,111,520Additions 62,776 929 590 1,877 - 742,209 808,381Disposals (514) (2,697) (501) (3,787) - - (7,499)Transfers (*) 10,894 725,950 99,559 16,625 - (1,168,380) (315,352)Depreciation charge for the year (8,144) (223,895) (35,929) (7,859) (605) - (276,432)

31 December 2016, net book value 230,302 1,772,409 210,542 26,149 4,431 76,785 2,320,618

As of 31 December 2016Cost 456,988 4,717,797 554,310 72,753 11,233 76,785 5,889,866Accumulated depreciation (226,686) (2,945,388) (343,768) (46,604) (6,802) - (3,569,248)


(*) Transfers amounting to TRY315,352 consist of intangible assets, previously accounted under construction in progress.

As of 31 December 2016, there are no pledges or collaterals on property, plant and equipment.


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The movement of property, plant and equipment and the accumulated depreciation as as of 31 December 2015 is as follows:

Land, land improvements and buildings

Machinery and

equipmentsFurniture

and fixtures VehiclesLeasehold

improvementsConstruction

in progress Total

1 January, net book valueCost 373,480 3,500,320 390,654 42,736 11,093 404,403 4,722,686Accumulated depreciation (210,953) (2,570,671) (279,849) (34,083) (5,768) - (3,101,324)

Net book value 162,527 929,649 110,805 8,653 5,325 404,403 1,621,362

1 January 2015, net book value 162,527 929,649 110,805 8,653 5,325 404,403 1,621,362Additions - 3,137 108 1,809 7 679,108 684,169Disposals, net (30) (703) (409) (1,374) (3) - (2,519)Transfers 10,382 490,861 64,309 14,867 136 (580,555) -Depreciation charge for the year (7,589) (150,822) (27,990) (4,662) (429) - (191,492)


As of 31 December 2015Cost 383,832 3,993,615 454,662 58,038 11,233 502,956 5,404,336Accumulated depreciation (218,542) (2,721,493) (307,839) (38,745) (6,197) - (3,292,816)


As of 31 December 2015, there are no pledges or collaterals on property, plant and equipment.


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NOTE 13 - INTANGIBLE ASSETS

The movement of intangible assets is as follows:

Licenses and development costs Other Total

1 January 2016Cost 2,434,195 84,683 2,518,878Accumulated amortization (1,171,122) (63,783) (1,234,905)

Net book value 1,263,073 20,900 1,283,973

1 January 2016, net book value 1,263,073 20,900 1,283,973Additions (*) 735,540 13,827 749,367Amortization charge for the year (252,004) (11,137) (263,141)

31 December 2016, net book value 1,746,609 23,590 1,770,199

As of 31 December 2016Cost 3,169,735 98,510 3,268,245Accumulated amortization (1,423,126) (74,920) (1,498,046)


Licenses and development costs Other Total

1 January 2015Cost 1,865,855 75,673 1,941,528Accumulated amortization (994,608) (52,215) (1,046,823)

Net book value 871,247 23,458 894,705

1 January 2015, net book value 871,247 23,458 894,705Additions 568,340 9,010 577,350Amortization charge for the year (176,514) (11,568) (188,082)


As of 31 December 2015Cost 2,434,195 84,683 2,518,878Accumulated amortization (1,171,122) (63,783) (1,234,905)


(*) Transfers amounting to TRY315,352 consist of intangible assets, previously accounted under construction in progress.


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NOTE 14 - GOVERNMENT INCENTIVES

Investment incentive certificates

The Group has obtained investment encouragement certificates from government authorities in connection with certain major capital expenditures, which entitle the Group to:

i) 100% exemption from customs duty and VAT on machinery and equipment to be imported

ii) 100% VAT exemption on local capital expenditures

iii) Corporate tax exemption

The Group has considered its investment expenditures amounting to TRY1,808,526 (31 December 2015: TRY1,219,224) in the context of the investment certificate obtained and has accounted for deferred income tax asset amounting to TRY802,521 (31 December 2015: TRY504,684) as of 31 December 2016 in accordance with Article 32/A of the Tax Law numbered 5520 (Note 24).

Research and development incentive rate which will be calculated over the research and development expenditures, is raised to 100% from 40% with the amendment made to the 10th article of the Tax Law numbered 5520 as a result of the amendment in the 35th article of the Law 5746 related to the Support of Research and Development Operations. The aforementioned law has been enacted as of 1 April 2008. Accordingly, in 2008, income tax-payers can deduct 100% of the expenditures which are related to research and development related to new technology and information developments.

As of 31 December 2016, total amount of research and development expenses is TRY440,280. The amount subject to corporate income tax R&D allowance is TRY184,039 after deduction of TEYDEB, European and Mess support collected during the year amounting to TRY2,641 and TRY263,600 which is not subject to corporate income tax research and development allowance. (As of 31 December 2015, total amount of research and development expenses is TRY612,547. The amount subject to corporate income tax R&D allowance is TRY348,567 after deduction of TEYDEB support collected during the year amounting to TRY3,320 and TRY260,660 which is not subject to corporate income tax research and development allowance).

As of 31 December 2016 government incentives of the Group amounting to TRY8,374 (31 December 2015: TRY8,374) of short-term and TRY30,298 (31 December 2015: TRY38,672) of long-term, total of TRY38,672 (31 December 2015: TRY47,046) have been originated from deferral of research and development incentive premiums provided to support research and development expenditures of Mini Cargo and New Doblo projects by the Scientific & Technological Research Council of Turkey (Tübitak). The related balance will be offset on amortization expense in cost of goods sold in line with the amortization terms of the research and development investments.

NOTE 15 - PROVISIONS, CONTINGENT ASSETS AND LIABILITIES

Short-term provisions

2016 2015

Provision for warranty claims 91,551 72,695Provision for legal cases 5,857 11,159Administrative expense accruals 4,343 3,078Other 32,053 12,381

133,804 99,313


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Movement of the provision for warranty is as follows:

2016 2015

1 January 72,695 66,923Paid during the year (61,584) (51,175)Increase in provision during the year (Note 20) 80,440 56,947

31 December 91,551 72,695

The movement of the provision for litigation is as follows:

2016 2015

1 January 11,159 4,577Movement during the year, net (5,302) 6,582

31 December 5,857 11,159

Litigations against the Group

As of 31 December 2016 the total amount of outstanding legal claims brought against the Group is TRY8,895 (31 December 2015: TRY14,767). The Group has reflected a reserve amounting to TRY5,857 (31 December 2015: TRY11,159) in the consolidated financial statements.

Tax penalties

The tax audit reports related with 2008-2012 financial years that have been prepared following a tax inspection, are delivered to the Company in December 2013 by the Presidency of Tax Audit Committee of İstanbul Large Scaled Tax Payers. In these tax audit reports, various payments made to foreign based tax payer institutions are critised because of witholding and VAT as a responsible issues. In accordance with the tax audit reports, Tofaş is imposed to pay 13.4 million TRY as tax base and TRY23.8 million tax penalty in 2008, TRY8.4 million tax base and TRY14.9 million tax penalty in 2009, TRY9.1 million tax base and TRY16.2 million tax penalty in 2010 and TRY5.1 million tax base and TRY5.1 thousand tax penalty in 2011 and TRY4.8 million tax base and TRY4.8 thousand tax penalty in 2012. The announcement of these reports and their details had been made by the Company on 16 December 2013 and 30 December 2013 and 11 April 2014 via Public Disclosure Platform (“PDP”).

According to the Group management, practices subject to critisizm, is in compliance and consistent with the related regulations and international agreements regarding to the prevention of double taxation. The Company is planning to perform all its legal rights including settlement and all other legal process with regard to these reports. In case of a possible legal process, it is more likely to result in favor of the Company than against the Company, no additional provision is reflected to the consolidated financial statements of the Group.


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Guarantees provided by the Group:

The breakdown of letters of guarantee, guarantee notes given, mortgage and pledges (together referred to as guarantees) by the Group as of 31 December 2016 and 2015 is as follows:

2016 2015TRY

equivalent EUR TRYTRY

equivalent EUR TRY

A. Total amount of guarantees provided by the Company on behalf of itself 16,536 2,000 9,116 314,562 97,000 6,335B. Total amount of guarantees provided on behalf of the associates accounted under full consolidation method - - - - - -C. Provided on behalf of third parties in order to maintain operating activities (to secure third party payables) - - - - - -D. Other guarantees given - - - - - -

i) Total amount of guarantees given on behalf of the parent Company - - - - - -iii) Total amount of guarantees provided on behalf of the associates which are not in the scope of B and C - - - - - -iv) Total amount of guarantees provided on behalf of third parties which are not in the scope of C - - - - - -

16,536 2,000 9,116 314,562 97,000 6,335

Other

As of 31 December 2016 the Group has realized USD2,148,337,044 of export commitments numbered D1-01743 to be realized until 30 September 2016 in connection with the export incentive certificates amounting to USD2,347,649,907 thousand. The Group has realized USD1,103,836,789 of export commitments in connection with the export incentive certificates amounting to USD1.304.795,379.

Furthermore, the Group has realized USD1,932,863,442 of export commitments numbered 2016/D1-02494 to be realized until 5 May 2017 in connection with the export incentive certificates amounting to USD2,584,755,200. The Group has realized USD832,557,632 of export commitments in connection with the export incentive certificates amounting to USD1,592,355,155.

The long-term bank borrowing agreement related to the financing of MCV, New Doblo, Egea and Stationwagon / Hatchback projects requires the Group to comply with certain financial ratios. Such financial ratios are met by the Group as of 31 December 2016 and 2015.


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NOTE 16 - EMPLOYEE BENEFITS

a) Short-term employee benefits:

2016 2015

Payables to employees 36,402 32,013Social security premiums 22,431 14,664Unused vacation provision 13,545 10,986

72,378 57,663

b) Long-term employee benefits:

Within the framework of current laws in Turkey, the Group is required to pay severance to each employee who has completed one year of service, has been laid off without cause, has been called-up for military service.

Severance liability as of 31 December 2016 is subject to a monthly wage cap of TRY4,297.21 (exact TRY) cap (31 December 2015: TRY3,828.37) with one month’s wage to be paid for every year of service. The severance payment cap is revised every six months and the TRY4,426.16 applicable as of 1 January 2017 has been used to calculate the Group’s provision for severance liability (1 January 2016: TRY4,092.53).

In the consolidated financial statements, the Group reflected a liability calculated using the projected unit credit method and based upon factors derived using their experience of personnel terminating their services and being eligible to receive retirement pay and discounted by using the current market yield at the balance sheet date on government bonds in accordance with TAS 19. Assumptions used in the calculations are as follows:

2016 2015

Discount rate, net (%) 4.50 4.60Estimated turnover rate for retirement (%) 98.35 99.41

Movement in reserve for employment termination benefits for the years ended 31 December 2016 and 2015 is as follows:

2016 2015

1 January 164.561 162,506

Service expenses 11.489 9,984Interest expenses 19.241 16,713Payments during the year (29.982) (20,474)Actuarial loss 5.846 (4,168)

31 December 171.155 164,561


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NOTE 17 - PREPAID EXPENSES, OTHER ASSETS AND LIABILITIES

a) Other current assets

2016 2015

Value Added Tax (“VAT”) 150,760 26,903Other 7,019 6,094

157,779 32,997

b) Short - term prepaid expenses

2016 2015

Credit commission expenses (*) 13,318 13,762Advances given 3,547 2,487Other 5,394 6,698

22,259 22,947

(*) Credit commission expenses are composed of the commission given to dealers in advance by KFK as of 31 December 2016 and 2015.

c) Long - term prepaid expenses:

As of 31 December 2016, TRY11,669 (31 December 2015: TRY21,643) of non-current prepaid expenses are composed of advances given for fixed asset purchases.

d) Other current liabilities

2016 2015

Taxes and funds payable 22,593 19,625Expense accruals 14,764 21,055Advances received 11,992 8,101Other 9,190 17,712

58,539 66,493

e) Deferred income

As of 31 December 2016, deferred income amounting to TRY26,917 (31 December 2015: TRY15,592) is composed of intelligence income and insurance income of consolidated subsidiary KFK.


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NOTE 18 - SHAREHOLDER’S EQUITY

a) Non - controlling interests/ Profit attributable to non - controlling interests

None (31 December 2015: None).

b) Share capital/adjustments to share capital and equity investments

Registered capital ceiling of the Company is TRY1,000,000. The Company’s historical authorized and issued share capital as of 31 December 2016 and 2015 is TRY500 million (exact TRY) and consists of 50 billion shares with TRY0.01 (exact TRY) par value each. As of 31 December 2016 and 2015, the breakdown of issued share capital of the Company is as follows:

2016 2015Share group

Amount (historical) Amount%

Amount (historical) Amount%

Fiat Auto S.p.A. D 189,280 37.86 189,280 37.86Koç Holding A.Ş. A 187,938 37.59 187,938 37.59Koç Holding companies and Koç family A 1,342 0.27 1,342 0.27Other, including publicly traded shares E 121,440 24.28 121,440 24.28

Total paid in share capital 500,000 100.00 500,000 100.00

Half of the Board of Directors’ (“BoD”) members are required to be elected from the nominees of A group shareholders, while the remaining half is to be nominated by D group shareholders. The General Assembly is authorised for determining the number and election of BoD members. At least one nominee from both A and D type of shareholders have to fulfill the requirements of an independent member as prescribed by the CMB legislation.

c) Legal reserves - retained earnings

Retained earnings in statutory records is available for distribution, except the fact mentioned below.

The legal reserves consist of first and second legal reserves, per the Turkish Commercial Code (TCC). The Turkish Commercial Code stipulates that the first legal reserve is appropriated out of net statutory profits at the rate of 5% per annum, until the total reserve reaches 20% of the Group’s historical paid-in share capital. The second legal reserve is appropriated at the rate of 10% per annum of all cash distributions in excess of 5% of the historical paid-in share capital. Under the Turkish Commercial Code, the legal reserves are not available for distribution unless they exceed 50% of the historical paid-in share capital but may be used to offset losses in the event that historical general reserve is exhausted.

Listed companies are subject to dividend requirements regulated by the Turkish Capital Market Board as follows:

In accordance with the Capital Market Board decision number 1/6 dated 9 January 2009, during the calculation of distributable profits by the companies obliged to prepare financial statements; the companies can determine the amount of distributable profits by taking into account the net profit on the financial statements that are prepared and announced to the public according to No:XI-29 “Communiqué on Financial Reporting Standards in Capital Markets” which includes profits from associates, joint ventures and subsidiaries that are transferred to the profit of the Company, regardless of whether these companies’ general assembly approved any dividend distributions, as soon as these distributable profits can be funded by the reserves in the statutory accounts of the companies.

In accordance with the Capital Market Board decision on 27 January 2010, it is decided that there is no dividend distribution requirements for the listed companies whose shares are traded on the stock exchange.

Inflation adjustment to shareholders’ equity can only be netted-off against prior years’ losses and used as an internal source in capital increase where extraordinary reserves can be netted-off against prior years’ loss and used in the distribution of bonus shares and dividends to shareholders. Inflation adjustment to shareholders’ equity, in the case of cash used for profit distribution will be subject to corporate income tax.


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In accordance with the decision taken at the General Assembly Meeting held on 31 March 2016, dividend amounting to TRY365,000 related to the profit of 2015 after deduction of legal liabilities, is distributed from retained earnings to the shareholders (31 December 2015: amounting to TRY484,546 related to the profit of 2014). As of 31 December 2016 and 2015, dividend distributed per share is Kuruş 0.73 and Kuruş 0.97, respectively.

Historical values of legal and extraordinary reserves of the Company in the statutory financial statements are as follows:

2016 2015

Legal reserves 277,363 243,363Extraordinary reserves 30,309 31,631

307,672 274,994

NOTE 19 - REVENUE AND COST OF SALES

a) Revenue

2016 2015

Export sales 9,839,301 5,729,275Domestic sales 4,291,021 4,121,142Other 105,629 70,306

14,235,951 9,920,723

The amount of sales discounts is TRY453,864 (31 December 2015: TRY457,216).

The distribution of the Group’s sales in 2016 and 2015 based on product type is as follows.

2016 2015

Commercial vehicles 6,752,462 6,637,099Passenger cars 6,706,721 2,592,246Spare parts 671,139 621,072Other 105,629 70,306

14,235,951 9,920,723

b) Other

2016 2015

Income from scrap sales 60,666 44,964Package sales income 17,646 17,156Income from mould sales 1,951 -Other 25,366 8,186

105,629 70,306


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c) Cost of sales

2016 2015

Direct material expense 10,896,173 6,762,594Depreciation and amortization expense 496,266 336,181Direct labor expense 230,025 168,541Other production expenses 469,458 326,657Change in work-in-process (53,844) 17,252Change in finished goods (101,171) 9,950Cost of merchandise sold 951,464 1,159,330Cost of other sales 58 35

12,888,429 8,780,540 d) Production and sales quantities

Production Sales2016 2015 2016 2015

Manufactured vehicles

New Doblo 137,847 133,327 135,964 133,962MCV 82,397 90,087 81,419 90,411Egea 80,707 11,237 80,794 10,157Egea Hatchback 49,657 286 49,390 -Egea Stationwagon 20,124 42 19,871 -Linea 7,526 35,202 7,653 35,375Doblo 5,233 8,071 5,236 8,097

383,491 278,252 380,327 278,002

Import Sales2016 2015 2016 2015

Imported vehiclesDucato 6,471 9,121 5,465 9,028Fiat 500 1,933 3,752 2,224 3,582Jeep 1,771 3,629 2,007 3,567Fullback 1,215 - 457 -Grande Punto 573 1,184 563 1,311Alfa Romeo 492 910 625 868Panda Futura 134 184 133 152Maserati 78 70 72 73Ferrari 15 6 17 11Fiat 124 Spider 2 - 2 -Freemont 4x4 - 20 43 91Transit sales - - 90 124Bravo - - 2 1Lancia - - - 2

12,684 18,876 11,700 18,810


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NOTE 20 - RESEARCH AND DEVELOPMENT EXPENSES, MARKETING EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES

2016 2015

Marketing expenses 329,132 279,543General and administrative expenses 251,938 218,086Research and development expenses 22,775 9,885

603,845 507,514

a) Marketing expenses

2016 2015

Warranty expenses 80,440 56,947Advertisement expenses 71,507 75,690Transportation and insurance expenses 65,909 61,643Personnel expenses 52,509 42,031Exhibition and fair expenses 4,608 7,947Depreciation and amortization expenses 1,942 1,998Other 52,217 33,287

329,132 279,543

b) General administrative expenses

2016 2015

Personnel expenses 97,522 77,245Services obtained from third parties 23,448 18,117Information technology expenses 20,970 17,449Depreciation and amortization expenses 19,252 20,594Duties, taxes and levies 12,910 8,333Donations 8,821 6,279Insurance expenses 7,081 6,173Lawsuit provision expenses 6,928 6,805Travel expenses 5,164 5,362Rent expenses 1,644 2,154Other 48,198 49,575

251,938 218,086 NOTE 21 - EXPENSES BY NATURE

Between 1 January - 31 December 2016, the Group’s personnel and depreciation/ amortization expenses are TRY702,176 and TRY522,631 respectively (between 1 January - 31 December 2015: TRY499,502 and TRY359,521 respectively).


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NOTE 22 - OTHER INCOME AND EXPENSES FROM OPERATING ACTIVITIES

2016 2015

Foreign exchange gains on operating activities 726,255 744,970Interest income on operating activities 31,169 29,256Fair value increase in investment property (Note 11) 855 655Other 43,237 23,419

801,516 798,300

2016 2015

Foreign exchange loss on operating activities (768,880) (761,563)Interest expense on operating activities (35,220) (31,402)Other (40,420) (27,790)

(844,520) (820,755)

NOTE 23 - FINANCIAL INCOME AND EXPENSES

2016 2015

Foreign exchange gain 766,860 677,506Interest income 94,878 75,833Gain on derivative financial instruments 5,486 -

Total financial income 867,224 753,339

Foreign exchange loss (795,242) (777,591)Interest expenses (74,938) (44,315)

Total financial expenses (870,180) (821,906)

Financial expenses, net (2,956) (68,567)

NOTE 24 - TAX ASSETS AND LIABILITIES

a) General

The Group is subject to taxation in accordance with the tax regulation and the legislation effective in Turkey.

In Turkey, the corporation tax rate from 1 January 2006 onwards is 20%. Corporate tax returns are required to be filed by the twenty-fifth day of the fourth month following the balance sheet date and taxes must be paid in one installment by the end of the fourth month. The tax legislation provides for a temporary tax of 20% to be calculated and paid based on earnings generated for each quarter. The amounts thus calculated and paid are offset against the final corporate tax liability for the year.

As a result of the assessment of, a deferred income tax asset amounting to TRY802,521 (31 December 2015: TRY504,684) results from temporary differences as of 31 December 2016 that are arising from the tax allowances and can be used as long as the tax allowances continue. The Group is entitled with corporate tax allowances in accordance with Corporate Tax Law No. 5520, article 32/A.

In Turkey, the tax legislation does not permit a parent company and its subsidiaries to file a consolidated tax return. Therefore, provision for taxes, as reflected in the consolidated financial statements, has been calculated on a separate-entity basis.


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Corporate tax losses can be carried forward for a maximum period of five years following the year in which the losses were incurred. The tax authorities can inspect tax returns and the related accounting records for a retrospective maximum period of five years.

For the years ended 31 December 2016 and 2015, the analysis of the tax expense in the profit or loss is as follows:

2016 2015

Current year tax expense (18,638) (13,642)Deferred tax income 190,930 226,456

172,292 212,814

2016 2015

Current year corporate tax 18,638 13,642Less: prepaid corporate tax (25,811) (23,299)

Prepaid income tax (7,173) (9,657)

The analysis of tax expense accounted for under the statement of profit or loss for the years ended 31 December 2016 and 2015 is as follows:

2016 2015

Profit before tax 797,936 617,987

Income tax charge at effective tax rate (20%) (159,587) (123,597)Disallowable expenses (414) (450)Deduction of research and development incentive expenditures during the period 50,720 52,132Effect of investment incentive, net 19,218 21,317Adjustments not subject to deferred taxation (35,482) -Used and earned investment incentive 297,837 263,412

172,292 212,814


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b) Deferred tax assets and liabilities

The breakdown of temporary differences and the resulting deferred tax assets as of 31 December 2016 and 2015, using the effective tax rates were as follows:

Cumulative temporary differences

Deferred tax assets / (liabilities)

2016 2015 2016 2015

Unused investment incentive allowances (*) 1,808,526 1,219,224 802,521 504,684Provision for employment termination benefits and unused vacation 184,700 175,547 36,940 35,109Deferred income 38,733 44,175 7,747 8,835Warranty provisions 91,551 72,695 18,310 14,539Property, plant and equipment and intangibles 1,390,709 1,121,327 (278,142) (221,974)Inventories (29,117) (34,197) 5,823 6,839Other 41,903 25,505 8,381 5,101

Deferred tax asset, net 601,580 353,133

(*) The Group uses various discounted tax rates in relation to its fixed asset investments. The movement of the deferred tax asset balance during the year is as follows:

2016 2015

Deferred tax asset at 1 January 353,133 125,394Deferred tax income 190,930 226,456Actuarial gain/(loss) on employment termination benefit obligation attributable to equity 1,169 (834)Net gain on cash flow hedging attributable to equity 56,348 2,117

Deferred tax assets at 31 December 601,580 353,133

The analysis of deferred tax assets is as follows:

2016 2015Deferred tax assets- Deferred tax assets to be recovered after more than 12 months 566,365 324,452- Deferred tax assets to be recovered within 12 months 35,215 28,681

601,580 353,133

NOTE 25 - EARNINGS PER SHARE

Earnings per share are determined by dividing net income by the weighted average number of shares that have been outstanding during the related period concerned. In 2016 and 2015, the weighted average number of shares outstanding is 50,000,000,000 and as of 31 December 2016 and 2015 earnings per share is Kuruş 1.94 and Kuruş 1.66, respectively.


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NOTE 26 - TRANSACTIONS AND BALANCES WITH RELATED PARTIES

Related party balances:

Deposit and financial loan balances from related parties 2016 2015

Yapı ve Kredi Bank A.Ş. (deposit) (1) 1,421,146 1,395,025Yapı ve Kredi Bank A.Ş. (financial loan) (1) (377,194) (234,607)

Trade receivables due from related parties 2016 2015

Otokoç Otomotiv Tic. ve San. A.Ş. (1) 375,913 225,030Fiat (2) 304,343 92,346Other (1) 28,993 21,385

709,249 338,761

Trade payables due to related parties 2016 2015

Fiat (2) 1,539,911 1,369,831Magnetti Marelli Group(1) 56,847 32,170Other (1) 133,570 89,420

1,730,328 1,491,421

Related party transactions

Sales 2016 2015

Fiat (2) 9,455,444 4,898,856Otokoç Otomotiv Tic. ve San. A.Ş.(1) 1,272,300 1,282,167Other (1) 46,254 63,143

10,773,998 6,244,166


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Domestic goods and services purchases 2016 2015

Ram Dış Ticaret A.Ş. (1) 208,418 167,078Mako Elektrik Sanayi ve Ticaret A.Ş. (1) 172,487 129,232Zer Merkezi Hiz. ve Tic. A.Ş. (1) 149,643 138,392Otokoç Otomotiv Tic. ve San. A.Ş. (1) 110,080 121,799Matay Otomotiv Yan Sanayi ve Tic. A.Ş.(1) 87,668 51,971Entek Elektrik Üretimi A.Ş. 55,000 -Plastiform Plastik San. Tic. A.Ş. (1) 51,845 40,660Koç Holding A.Ş.(2) (*) 18,032 15,037Koç Sistem Bilgi ve İletişim Hizmetleri A.Ş.(1) 14,734 14,205Setur Servis Turistik A.Ş. (1) 13,345 12,661Akpa Dayanıklı Tüketim Lpg ve Akaryakıt Ürünleri Paz. A.Ş.(1) 11,083 8,292Opet Fuchs Madeni Yağlar San. ve Tic. A.Ş. (1) 4,965 5,559Other (1) 106,270 79,105

1,003,570 783,991 Foreign trade good, material and service purchase 2016 2015

Fiat (2) 6,373,239 4,415,283Other (1) 45,858 53,366

6,419,097 4,468,649

(1) Represents the related parties of joint ventures; comprise of subsidiaries, joint managing company or associates.(2) Represents the joint ventures.

(*) These service expenses are related with the invoices arising from the allocation of finance, law, planning, tax consultancy services provided by Koç Holding A.Ş. to its subsidiaries and associates. Expenses related to these services provided by Koç Holding A.Ş. are allocated in accordance with the General Communiqué on Disguised Profit Distribution by Means of Transfer Pricing - 11 Intra-group Services regulations.

Interest income from related parties, for the year ended 31 December 2016 is TRY50,117 (31 December 2015: TRY39,318).

Interest expense paid or accrued to related parties, for the year ended 31 December 2016 is TRY46,934 (31 December 2015: TRY51,703).

Salaries and similar benefits paid to the top management of the Group for the year ended 31 December 2016 (35 people) (31 December 2015: 35 people) is TRY28,807 (31 December 2015: TRY23,025).

Furthermore, as of 31 December 2016, wholly owned subsidiary KFK has sold the exclusive issuance of bonds and treasury bills over subsidiaries. It is accounted under other financial liabilities with a carrying amount of TRY283,833 (31 December 2015: TRY298,957).

NOTE 27 - FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

Financial risk management objectives and policies

The Group’s principal financial instruments are cash and cash equivalents and bank borrowings. The main purpose of these financial instruments is to raise finance for the Group’s operations. The Group has various other financial instruments such as trade debtors and trade creditors, which arise directly from its operations. The main risks arising from the Group’s financial instruments are interest rate risk, liquidity risk, foreign currency risk and credit risk. The Group management reviews and agrees policies for managing each of the risks as summarized below:


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Credit risk

Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counterparties, and continually assessing the creditworthiness of the counterparties. It is the Group policy that all customers who wish to trade on credit terms are subject to credit screening procedures and the Group also obtains collaterals from customers when appropriate. In addition, receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant. Trade receivables are evaluated by management based on their past experiences and current economic condition, and are presented in financial statements net of provision for doubtful receivables (Note 7).

Amounts carried in the balance sheet reflect maximum credit risk of the Group.

The amounts stated in the balance sheets reflects the maximum risk exposure of the Group.

Types of credit exposure of financial instruments;

Trade receivables

2016Related parties

Other parties

Other receivables

Bank deposits

Derivative instruments

Receivables from finance

operations

Maximum credit risk exposure as of reporting date (A+B+C+D+E) (1) 709,249 651,995 587 2,215,703 167,444 2,229,351

- Maximum risk secured by guarantee (2) 34,250 659,355 - - - 2,255,876A. Net book value of financial assets neither overdue nor impaired 700,480 556,437 587 2,215,703 167,444 2,179,086

- Maximum risk secured by guarantee 34,250 659,355 - - - 2,179,086B. Net book value of financial assets of which conditions are negotiated, otherwise considered as impaired or overdue - - - - - -C. Net book value of assets overdue but not impaired 8,769 95,558 - - - 17,640

- Maximum risk secured by guarantee - - - - - -D. Net book value of impaired assets - - - - - 32,625

- Overdue (gross book value) - 7,119 - - - 63,667- Impairment (-) - (7,119) - - - (31,042)- Net value under guarantee - - - - - 26,525- Not overdue (gross book value) - - - - - 2,203,142- Impairment (-) - - - - - (24,234)

- Net value under guarantee - - - - - 2,284,628E. Off- balance sheet items having credit risk - - - - - -


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Trade receivables

2015Related parties

Other parties

Other receivables

Bank deposits

Derivative instruments

Receivables from

finance operations

Maximum credit risk exposure as of reporting date (A+B+C+D+E) (1) 338,761 698,294 200 2,386,508 79,742 1,944,141- Maximum risk secured by guarantee (2) - 693,235 - - 1,924,547A. Net book value of financial assets neither overdue nor impaired 256,817 621,485 200 2,386,508 79,742 1,905,992

- Maximum risk secured by guarantee - 693,235 - - - 1,905,992B. Net book value of financial assets of which conditions are negotiated, otherwise considered as impaired or overdue - - - - - -C. Net book value of assets overdue but not impaired 81,944 76,809 - - - 15,733

- Maximum risk secured by guarantee - - - - - -D. Net book value of impaired assets - - - - - 22,416

- Overdue (gross book value) - 7,093 - - - 43,956- Impairment (-) - (7,093) - - - (21,540)- Net value under guarantee - - - - - 18,555- Not overdue (gross book value) - - - - - 1,926,596- Impairment (-) - - - - - (20,626)- Net value under guarantee - - - - - 2,261,081

E. Off- balance sheet items having credit risk - - - - - -

(1) Guarantees received and factors increasing the loan reliability are not considered when determining this amount.(2) Guarantees consist of guarantee notes, guarantee checks, mortgages and car pledges received from customers.


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Aging analysis of trade receivables and receivables from finance sector operations

Aging of the Group’s receivables which are overdue but not impaired is as follows:

2016

1- 30 days past due 66,8441- 3 months past due 11,8753- 12 months past due 36,9041- 5 years past due 6,344Over 5 years past due -

121,967

2015

1- 30 days past due 132,7161- 3 months past due 13,4353- 12 months past due 24,0171- 5 years past due 4,318Over 5 years past due -

174,486

Amount secured with guarantee -

As of 31 December 2016, TRY3,103 of total past due receivables of the Group is due from the Group’s related party, Fiat (31 December 2015: TRY80,266). As of 31 December 2016, the Group’s payables to Fiat amount to TRY1,539,911 (31 December 2015: TRY1,369,831).

Foreign currency risk

The Group is exposed to foreign exchange risk arising from the ownership of foreign currency denominated assets and liabilities with sales or purchase commitments. The policy of the Group is to compare every foreign currency type for the probable sales or purchases in the future.

As explained in detail in Note 6, according to the manufacturing agreements signed by the Group, the repayment obligations related to loans obtained for Doblo are guaranteed by Fiat and for Mini Cargo by Fiat and PSA through future purchases, As of 31 December 2016, loans obtained related with Doblo and Mini Cargo vehicle project have entirely been repaid. The Group’s exposure to foreign exchange rate and interest rate fluctuations in relation with the loan obtained to manufacture 356 Stationwagon / Hatchback vehicles is undertaken by Fiat.


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TRY equivalent (functional

2016 currency) USD EUR Other

1. Trade receivables 330,396 2 89,056 -2a. Monetary financial assets (including cash, bank

accounts) 1,684,099 13 453,935 -2b. Non-monetary financial assets - - - -3. Other 340,709 - 91,838 -4. Current assets (1+2+3) 2,355,204 15 634,829 -5. Trade receivables - - - -6a. Monetary financial assets - - - -6b. Non-monetary financial assets - - - -7. Other 156,316 42 42,095 -8. Non-current assets (5+6+7) 156,316 42 42,095 -9. Total assets (4+8) 2,511,520 57 676,924 -10. Trade payables (1,784,282) (554) (480,426) -11. Financial liabilities (895,857) - (241,477) -12a. Monetary other liabilities (4,415) - (1,190) -12b. Non-monetary other liabilities - - - -13. Current liabilities (10+11+12) (2,684,554) (554) (723,093) -14. Trade payables - - - -15. Financial liabilities (1,941,919) (10,000) (513,956) -16a. Monetary other liabilities - - - -16b. Non-monetary other liabilities - - - -17. Non-current liabilities (14+15+16) (1,941,919) (10,000) (513,956) -18. Total liabilities (13+17) (4,626,473) (10,554) (1,237,049) -19. Net asset / (liability) position of off- balance

sheet derivative instruments (19a-19b) 35,192 10,000 - -19a. Total hedged asset amount 35,192 10,000 - -19b. Total hedged liability amount - - - -20. Net foreign currency asset/(liability)

position (9+18+19) (2,079,761) (497) (560,125) -21. Net foreign currency asset/(liability)

position of monetary items (1+2a+5+6a-10-11-12a-14-15-16a) (2,271,269) (10,539) (602,220) -

22. Total fair value of financial instruments used for foreign currency hedging - - - -

23. Export (10,009,857) - (2,935,755) -24. Import 7,488,125 488 2,033,439 2

The Groups exposure to foreign exchange rate fluctuations on the long-term bank borrowings denominated in EUR are undertaken by Fiat and PSA. Accordingly, net foreign currency exposure of the Group excluding such borrowings as of 31 December 2016 is TRY374,972 of foreign currency liability position.


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TRY equivalent (functional

2015 currency) USD EUR Other

1. Trade receivables 190,946 14 60,079 -2. Monetary financial assets (including cash,

bank accounts) 1,244,238 42 391,527 -2b. Non-monetary financial assets - - - -3. Other 221,317 - 69,649 -4. Current assets (1+2+3) 1,656,501 56 521,255 -5. Trade receivables - - - -6a. Monetary financial assets - - - -6b. Non-monetary financial assets - - - -7. Other 254,723 - 80,162 -8. Non-current assets (5+6+7) 254,723 - 80,162 -9. Total assets (4+8) 1,911,224 56 601,417 -10. Trade payables (1,674,150) (885) (526,050) -11. Financial liabilities (739,030) - (232,575) -12a. Monetary other liabilities (19) - (6) -12b. Non-monetary other liabilities - - - -13. Current liabilities (10+11+12) (2,413,199) (885) (758,631) -14. Trade payables - - - -15. Financial liabilities (1,761,112) - (554,227) -16a. Monetary other liabilities - - - -16b. Non-monetary other liabilities - - - -17. Non-current liabilities (14+15+16) (1,761,112) - (554,227) -18. Total liabilities (13+17) (4,174,311) (885) (1,312,858) -19. Net asset / (liability) position of off- balance

sheet derivative instruments (19a-19b) - - - -19a. Total hedged asset amount - - - -19b. Total hedged liability amount - - - -20. Net foreign currency asset/(liability)

position (9+18+19) (2,263,087) (829) (711,441) -21. Net foreign currency asset/(liability)

position of monetary items (1+2a+5+6a-10-11-12a-14-15-16a) (2,517,810) (829) (791,603) -

22. Total fair value of financial instruments used for foreign currency hedging - - - -

23. Export (5,777,792) - (1,895,951) -24. Import 4,912,108 196 1,549,496 22

The Groups exposure to foreign exchange rate fluctuations on the long-term bank borrowings denominated in EUR are undertaken by Fiat and PSA. Accordingly, net foreign currency exposure of the Group excluding such borrowings as of 31 December 2015 is TRY244,970 of foreign currency liability position.


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The following table demonstrates the sensitivity to a possible change of 10% in the USD, EUR and other exchange rates in the Group’s foreign currency denominated liabilities (excluding foreign currency denominated inventory and fixed asset purchase advances), with all other variables held constant, on the Group’s income before tax as of 31 December 2016 and 2015:

Exchange rate sensitivity analysis table 2016Profit/loss Equity

Appreciation of foreign currency

Depreciation of foreign currency



In case 10% appreciation of USD against TRY:

1- USD net asset/liability (4,433) 4,433 - -2- Amount hedged for USD risk (-) 4,433 (4,433) - -3- USD net effect (1+2) - - - -

In case 10% appreciation of EUR against TRY:

4- EUR net asset/liability (249,361) 249,361 - -5- Amount hedged for EUR risk (-) 294,568 (294,568) 294,568 (294,568)6- EUR net effect (4+5) 45,207 (45,207) 294,568 (294,568)

In case 10% appreciation of other exchange rates against TRY

7- Other exchange rates net asset/liability - - - -8- Amount hedged for other exchange rates risk (-) - - - -9 Other exchange rates net effect (7+8) - - - -

Total (3+6+9) 45,207 (45,207) 294,568 (294,568)

2015Profit/loss Equity





In case 10% appreciation of USD against TRY:

1-USD net asset/liability (241) 241 - -2-Amount hedged for USD risk (-) - - - -3-USD net effect (1+2) (241) 241 - -

In case 10% appreciation of EUR against TRY:

4-EUR net asset/liability (251,540) 251,540 - -5-Amount hedged for EUR risk (-) 201,812 (201,812) 201,812 (201,812)6-EUR net effect (4+5) (49,728) 49,728 201,812 (201,812)

In case 10% appreciation of other exchange rates against TRY

7-Other exchange rates net asset/liability - - - -8-Amount hedged for other exchange rates risk (-) - - - -9 Other exchange rates net effect (7+8) - - - -

Total (3+6+9) (49,969) 49,969 201,812 (201,812)


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Interest rate risk

Interest rate risk stems from the probability of an impact of rate changes on financial accounts, The Group is exposed to interest rate risk due to maturity mismatch or differences of the assets and liabilities that are re-priced or matured in a specific period, These exposures are managed by using natural hedges that arise from offsetting interest rate sensitive assets and liabilities,

As of 31 December 2016 and 2015, the effect of +/- 0.5% change in interest rates until the next reporting period on the interest sensitive financial instruments in the balance sheet has been calculated as follows:

2016 2015

Change in interest rates (%) 0.50 0.50Effect on net income before for taxes (34) (17)

Liquidity risk

Liquidity risk is the risk that an entity will be unable to meet its net funding requirements. The risk is mitigated by matching the cash in and out flow volume supported by committed lending limits from qualified credit institutions.

The breakdown of financial assets and liabilities according to their maturities is disclosed considering from balance sheet date to due date period. Financial assets and liabilities that have no certain due dates are classified in over one year column.

2016

Expected maturities Book value

Total cash outflow per agreement

(=I+II+III+IV)Less than 3

months (I)

Between 3-12

months (II)

Between 1 - 5 years

(III)Over 5

years (IV)

Non-derivative financial liabilities

Bank loans 4,660,880 4,706,181 128,795 1,717,662 2.631,423 228,301Trade payables 3,355,205 3,628,619 2,853,956 774,663 - -Bonds 354,707 356,483 - 159,386 197,097 -

8,370,792 8,691,283 2,982,751 2,651,711 2,828,520 228,301

Expected maturities (or maturitiesper agreement) Book value



months (I)

Between 3-12

months (II)

Between 1 - 5 years

(III)Over 5

years (IV)

Derivative financial assets (net) 5,486 30,953 - - 30,953 -Derivative cash inflows 5,486 30,953 - - 30,953 -Derivative cash outflows - - - - - -


167



2015

Expected maturities Book value



months (I)

Between 3-12

months (II)Between 1

- 5 years (III)Over 5

years (IV)

Non-derivative financial liabilities

Bank loans 4,056,830 4,109,536 227,459 1,332,275 2,256,426 293,376Trade payables 2,447,544 2,452,053 2,293,146 158,907 - -Bonds 329,233 364,549 66,728 165,575 132,246 -

6,833,607 6,926,138 2,587,333 1,656,757 2,388,672 293,376

Expected maturities (or maturitiesper agreement) Book value



months (I)

Between 3-12

months (II)Between 1

- 5 years (III)Over 5

years (IV)

Derivative financial assets (net) - - - - - -Derivative cash inflows - - - - - -Derivative cash outflows - - - - - -

Capital management policy

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Group manages its capital structure and makes amendments to it, in light of changes in economic conditions.

The Group has the power to organize the dividend payments in order to regulate and keep the capital structure. There is no change in policy, target or processes of the Group as of 31 December 2016.

Consolidated net financial debt/total equity ratio as of 31 December 2016 and 2015 is as follows;

31 December 2016 31 December 2015

Total borrowing 5,015,587 4,386,063Cash and cash equivalents (-) (2,215,727) (2,386,516)

Net financial debt 2,799,860 1,999,547Equity 2,957,451 2,582,291

Net financial debt/total equity multiplier 0.95 0.77


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NOTE 28 - FINANCIAL INSTRUMENTS (FAIR VALUE EXPLANATIONS AND DISCLOSURES WITHIN THE FRAMEWORK OF HEDGE ACCOUNTING)

The estimated fair values of financial instruments have been determined by the Group using available market information and appropriate valuation methodologies, However, judgment is necessarily required to interpret market data to estimate the fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Group could realize in a current market exchange, The following methods and assumptions were used to estimate the fair value of the financial instruments for which it is practicable to estimate fair value:

Financial assets monetary assets for which the fair value approximates carrying value, balances denominated in foreign currencies are translated at year-end exchange rates. The fair values of financial assets (except short-term consumer financing loans) carried at cost are considered to approximate their respective carrying values due to their short-term nature and negligible credit losses. The fair values are calculated by discounting the future cash flows of consumer financing loans with the current interest rate which is monthly 10.08% (31 December 2015: 8.34%).

2016 2015Carrying value Fair value Carrying value Fair value

Consumer financing loans 2,229,351 2,123,867 1,944,141 1,903,413

Financial liabilities are monetary liabilities for which fair value approximates carrying value; balances denominated in foreign currencies are translated at the year-end exchange rates. Trade payables and other monetary liabilities are considered to approximate their respective carrying values due to their short-term nature.

Management considers an effective cash flow hedge relationship between foreign currency originated long term loans and the realized and forecasted sales (items subject to be hedged) of light commercial vehicles (Egea, Doblo, New Doblo and Mini Cargo (MCV)). Effectiveness of hedge relationship has been determined by the agreements made between the Company and Fiat and Peugeot Citroen Automobiles S.A. (PSA). It is vastly probable to cover long term loan liabilities by the planned sales of MCV to Fiat and PSA starting from 2008 until December 2015. Furthermore, according to the agreement made between Fiat and the Company, long term loan liabilities will be covered through a portion of sales of New Doblo to Fiat starting from 2009 until December 2017 and sales of Egea starting from 2015 until December 2023. Additionally, the carrying amount of long - term loan liabilities for Doblo had been covered by sales to Fiat until the beginning of 2009.

Fair value estimation

The table below analyses financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:

- Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).- Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (Level 2).- Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).


169



2016

Level 1 Level 2 Level 3

Investment property - 30,370 -Derivatives held for trading - 5,486 -

Total - 35,856 -

2015

Level 1 Level 2 Level 3

Investment property - 29,515 -Derivatives held for trading - - -

Total - 29,515 -

As of 31 December 2016, the Group has not made any transfers between second level and first level, and also between third level and other levels.

NOTE 29 - SUBSEQUENT EVENTS

None.

Headquarters Büyükdere Caddesi No: 145 Tofaş Han 34349 Zincirlikuyu-İstanbul/Turkey Phone: +90 212 275 33 90 - 275 29 60 Fax: +90 212 275 39 88 - 275 03 57

Factory Yeni Yalova Yolu Caddesi, No: 574 16369 Bursa/Turkey Phone: +90 224 261 03 50 Fax: +90 224 255 09 47 - 261 13 50 www.tofas.com.tr

Istanbul Trade Register Number: 100324

Central Registration System Number: 0846000042200017

www.tofas.com.tr

100% recycled paper is used for the production of this report.

Documents

LIFE IS RENEWAL...in 2016 correspond to an increase of 37.8% compared to 2015. In 2016, shipments amounted 392,027. 383,491 In 2016, Tofaş recorded 14.2 billion TL in sales revenues