Good afternoon ladies and gentlemen. Welcome and thank you for joining us this afternoon to discuss our third quarter results of 2013.

Transcription

1 Koç Holding Participants: Funda Güngör Akpınar, Investor Relations Coordinator Ahmet Çimenoğlu, Chief Economist Gökhan Dizemen, Finance Coordinator Funda Güngör Akpınar: Good afternoon ladies and gentlemen. Welcome and thank you for joining us this afternoon to discuss our third quarter results of In today s webcast, our first speaker will be Mr. Ahmet Çimenoğlu, our Chief Economist. During his presentation, Mr. Çimenoğlu will briefly talk about the main developments in the global as well as Turkish economies. Following his presentation, I will walk you through the important developments in those sectors where Koç Group companies are mainly active and I will also mention the operating results of our flagship companies. Finally, Mr. Gökhan Dizemen, our Finance Coordinator, will discuss Koç Holding financial results as of the third quarter of As always, at the end of our presentation, we will have a Q&A session. Briefly before our web-cast, we have sent out our earnings presentation, together with our summary financials. We have also posted both copies to our web-site. The Turkish and English versions are available for downloading and printing. After next week, there will also be a replay facility of the call on our website, together with the transcript and a copy of the presentation. I would like to remind you that our presentation and the Q&A session might contain forward-looking statements. Our assumptions are based on the environment and our businesses as we see them today, and this may be subject to change. Let me now turn it over to Mr. Ahmet Çimenoğlu. Koç Holding Investor Relations 1 / 18

2 Ahmet Çimenoğlu: Thank you Funda. Good afternoon everyone and welcome to our call. Fed s decision regarding the future of quantitative easing has continued to be the main driver of global financial markets. Fed s surprise decision to delay tapering off bond purchases in its September meeting has provided a sigh of relief for emerging markets that remained under pressure since May. However, government shutdown and debt limit discussions in the US shortly after Fed s meeting on September 18th have led to a new round of tension in the markets. Although these problems have been temporarily solved in October, long-term implications of increasing ineffectiveness of the US political elite continue to cast a shadow on economic prospects. Except for the Euro Area, global economic activity continued to disappoint in the second quarter of 2013, forcing the IMF and other global institutions to cut their growth forecasts for 2013 and Following six consecutive quarters of contraction, Euro Area GDP grew by 0.3% in the second quarter of Leading indicators for the third quarter indicate that the deterioration in the European economy might have come to an end, and a recovery, albeit quite weak, could be expected in the upcoming period. ECB s surprise rate cut on November 7th could also be perceived as an indication of the policy makers determination to revive ailing European economies. This is very welcome news for Turkey since Europe is still by far its largest trading and financing partner. Overall, we believe that Fed s decision to delay tapering is only a short-term relief and should be seen as a window of opportunity for countries with high reliance on external financing, such as Turkey, to fix some of their problems that differentiated them negatively from other emerging markets. Although we think that even the slightest improvement in Europe is a very positive development for Turkey, we believe that global growth prospects will remain darkened and will only be providing a limited support to growth in Turkey. Hence, we maintain our cautious stance toward risks in the global economy. Koç Holding Investor Relations 2 / 18

3 Eventually, as you can follow on Slide 3, following a very volatile summer both due to global and local factors, domestic financial markets have seen some improvement since September onwards. Fed s decision to delay tapering was the main factor behind this development. On top of this, Turkish policy makers have adopted a more constructive policy setting, as well as a market friendlier rhetoric that helped market sentiment to improve in September and October. Eventually, losses in Borsa Istanbul that amounted to almost 30% at the end of August when compared to May 22nd have come down significantly as a result of about 16% increase in benchmark index between November 6th and end of August. Interest rate on the two-year benchmark bond that reached 10.16% on August 26th has declined to 8.2%, again as of November 6th. Meanwhile, although foreign portfolio investors demand for FX has declined gradually since summer months, continuing FX demand by local corporates have kept TL under pressure. Moving on to Slide 4, I would like to talk briefly about the economic activity in Turkey. Economic activity during this period has proved to be more resilient to the volatility in the financial markets than previously thought. GDP grew by 4.4% in the second quarter of the year, bringing the first half growth to 3.7%. Industrial production, exports, PMI indicators, loan growth, and sales data in housing, automotive and white goods sectors all point out to a better than expected third quarter despite all the tensions in the financial markets. However, we believe that a part of the strength in domestic demand, especially for large ticket items such as apartments and cars, could be attributable to the future demand being pulled forward in anticipation of higher interest rates and higher prices towards the end of the year. Hence, even if the third quarter numbers would turn out to be better, it is highly unlikely that this momentum would be carried into the upcoming quarters. One important note regarding economic activity in the third quarter is about the capacity utilization rates in manufacturing industry. On the back of weak domestic and external demand, manufacturers have been using a declining share of their capacities, reducing the need for new investments for capacity enhancement purposes. However, capacity utilization Koç Holding Investor Relations 3 / 18

4 rates have been increasing gradually throughout this period with October figure of 75.8% representing the highest level within the last two years. We think that further increases in capacity utilization in the upcoming period could lead to a surge in private sector investments that have been contracting since the last quarter of Meanwhile, the Government has announced its medium term economic program covering the period 2014 to Accordingly, the Government expects the economy to grow by 3.6% this year, and 4% next year. These figures are in line with Koç Holding GDP growth forecasts of 3.5% and 4%, respectively. On slide 5, I would like to discuss briefly about the trends in foreign trade and balance of payments. Turkey s exports declined by 0.4% in the first nine months of 2013, mostly because of the sharp decline in gold exports and continuing weakness in Turkey s key export markets. Imports increased by 6.0% in the first three quarters, leading to a widening in the trade deficit. Strong increase in gold imports has been the main trigger behind overall import growth. Meanwhile, modest growth in domestic demand, contraction in energy consumption, and decline in commodity prices kept import growth under control. Twelve-months running current account deficit widened by around US$ 8.9 billion in the first eight months of 2013 due to the increase in the booming deficit in gold trade. Within this period, gold trade balance produced a deficit of US$12 billion, leading to a widening in current account balance. In other words, if gold trade was excluded, foreign trade deficit would have narrowed by about US$3.1 billion. Meanwhile, about 22% increase in tourism revenues have been supporting the balance of payments throughout the first eight months of the year. On the back of our expectation of subdued domestic demand in the rest of 2013, we think that current account deficit would not change materially from this point on and remain around 7% of GDP by the end of the year. I would like to conclude my remarks on macroeconomic outlook by touching upon briefly the developments about inflation. Koç Holding Investor Relations 4 / 18

5 As you can follow from Slide 6, after closing 2012 at 6.16%, consumer price inflation increased to 7.7% in October mainly due to unusually high food prices, as well as hikes in taxes on tobacco and alcohol in January. Pass-through from a weaker TL on prices has also been more visible within the last couple of months, as can be observed through the sharp increase in wholesale prices and core inflation indicators. Under these conditions, we have revised our 2013 year-end consumer price inflation target up to 7.5%, and set 2014 year-end forecast as 6.5%. Although inflation is still running close to 8%, well above its 5% official target, Central Bank remains confident about its unorthodox use of monetary policy instruments. In the meantime, Central Bank policy has been less controversial since September as the market players have had a better understanding of the Bank s priorities, as well as sounder policies by the Bank. Although Central Bank has left its policy interest rate at 4.5% since May despite tensions in the markets, the fact that average overnight funding costs of the banks have increased by about 200 basis points since then has helped to stabilize the markets. Therefore, as long as TL would not face a substantial sell-off in the upcoming period, it is likely that Central Bank would keep its current monetary policy stance intact. However, we also believe that Central Bank would not hesitate to tighten the monetary policy further if tensions in the markets start to rise again. Within this context, I would like to note that we expect USD/TL exchange rate to be at 2.0 by the end of this year and at 2.06 by the end of Overall, despite all the challenges that the Turkish economy has faced since May, both financial markets and real economic activity proved to be more resilient than previously anticipated, leading us to maintain a constructive outlook for the economy. However, we also acknowledge that financial markets in Turkey will remain under pressure due to its high current account deficit and FX indebtedness of Turkish companies. Hence, we preserve our cautiously optimistic stance towards the Turkish economy. Let me now turn it over to Funda. Koç Holding Investor Relations 5 / 18

6 Funda Güngör Akpınar: Thank you Ahmet. Once again good afternoon to you all turned out to be one of those years to be remembered by the market players. Obviously, the volatility and uncertainties within the financial markets create difficulties in the operating environment of not only financial but also industrial companies. However, despite all the challenges that were summarized by Ahmet during his presentation, our operating and financial performance as Koç Holding and our group companies continued to be solid. Compared to a year ago, our combined gross profit increased by 10%, our combined net income increased by 36% and Koç Holding s consolidated net income after the share of JV partners and minority interests were up by 31%. Let me now go over the developments in our main sectors and the positioning of our companies to shed some light on these financial results. I will start with energy sector and the developments in our two flagship companies in energy, Tüpraş and Aygaz, which you can follow on Slide 8. Third quarter of 2013 continued to present a difficult operating environment for the refining business. The benchmark Med complex refining margin averaged at around $1.1 per barrel during the third quarter, which suggests around 80% contraction compared to the same period of the previous year. Increasing price of the Ural crude following a higher demand with the Iranian sanctions; lower refinery stoppages; and lower product price ratios due to weak demand in Southern Europe were among the main reasons of the easing in refining margins. Tüpraş refining margins were also down but much less compared to the Med-complex. Tüpraş net refining margin stood at $4.1 per barrel which was around 30% less compared to the previous year. The reasons were similar with increasing crude costs, higher energy costs, decreasing product spreads and tighter heavy-light differential. However, higher capacity Koç Holding Investor Relations 6 / 18

7 utilisation rates and a more favorable product mix allowed Tüpraş to maintain a better margin compared to Mediterranean averages. The white product yield in Tüpraş increased to 72.1% by September 2013, compared to 70.1% during the same period in to As you might already know, Tüpraş management guides for a net refining margin of $ per barrel for the last quarter of the year, which also reflects the seasonality impact. As of September, the completion rate of our residuum upgrade project reached 85%. So far, we have spent around $2bn on procurement and construction. As was also stated by Tüpraş management during their conference call, the investment is very much on track in terms of the time table and we have full confidence in the finalization of the Project by year-end next year. The completion of the RUP is very important for us. As also penciled in by some of our analysts, the local premium advantage as well as the completion of the Residuum Upgrade Project are expected to support Tüpraş earnings, making it much more defensive compared to its peers during the following years even if the European refining margins and the product spreads continue to stay under pressure. Our other flagship company in energy, Aygaz, registered total LPG sales of 432K tones in the third quarter of Aygaz net sales increased to TL1.6bn, registering 15% increase YoY. During the third quarter, higher inventory gains and more importantly the significant deferred tax income bolstered Tüpraş earnings, which also helped Aygaz net income to improve significantly in line with increasing participation income. Let me now move on to the automotive sector on slide 9. Domestic automotive market performed somehow surprisingly this year. In the first 5 months of the year, declining interest rates, model year changes and improvement in consumer confidence supported the PC sales. After June, local and global developments led to a volatility in the currency and interest rates. Devaluation of the currency and the expectation of increasing borrowing costs led to an anticipation of an increase in vehicle prices which, in turn, pulled some demand forward. Accordingly, sales in July and August had Koç Holding Investor Relations 7 / 18

8 been better than our initial expectations. As of September onwards, we have seen the expected normalization and deceleration in the rate of growth. The Turkish automotive industry grew 10% YoY in the first nine months of 2013, reaching 608K units, driven mainly by the growth in the passenger car segment. Between January and September, PC sales went up by 19% YoY. However, LCV sales were slow and contracted by 11%. Accordingly, we have witnessed an average 10% incline in auto sales where the share of PCs reached 74% whereas the share of LCVs came down to 12%. In terms of market shares, Ford Otosan positioned itself in the 2 nd ranking with 12.3% and Tofaş in the 4 th ranking with 11.6% in the total automotive sector. Ford Otosan continued to maintain its leadership position in MCVs with around 33% and Tofaş was the leading player in the LCV segment with 38%. The export performance of our auto companies had also been quite strong and the expected recovery in Europe are expected to translate in to higher sales in the upcoming months. I will now briefly touch upon consumer durables and our flagship company Arçelik as you can follow on slide 10. Consumer durables sales grew by 7% in units in the domestic market during the first nine months of the year compared to the same period of Sales in the third quarter, especially in June, had been quite strong. Most of the growth was triggered by the refrigerator segment, which registered 18% YoY growth in units. In the third quarter, gross margins improved both in white goods as well as electronics, while the share of white goods registered an increase. Arçelik domestic revenues had gone up by 1% in the domestic market and 1% in international markets. Share of the domestic market in total stood at 43.5%, while 29.1% of sales were destinated to Western Europe, followed by 12.5% to CIS and Eastern Europe and 8.7% to Africa. Koç Holding Investor Relations 8 / 18

9 As you know, we continue to work on inorganic growth opportunities through Arçelik both in terms of new manufacturing centers, especially in low-cost manufacturing hubs and also opportunistic buyouts vis-à-vis brand names and distribution channels. In the light of the developments of the first nine months, Arçelik management trimmed its full-year growth guidance slightly to a year-end expectation of above 7% rather than last quarter s 8%. There was also a slight change in EBITDA guidance to 10.4%, compared to the initial expectations of 10.5%. EBITDA margin in the 3 rd quarter was quite strong at 11%, with increases both in the white goods as well as the electronics segment; however, since the 4 th quarter is usually seasonally the weakest, Arçelik management decided to slightly revise its margin guidance for the full year. In regional basis, we have maintained our domestic white goods volume growth expectation at 3-4% and our international volume growth at higher than 5%. Finally, let me also briefly touch upon our finance sector and the developments in YKB on slide 11. Yapı Kredi Bank registered 29.3% return on average tangible equity during the first three quarters of Obviously, capital gain that was raised after the sale of the insurance business bolstered the profitability as a one-off item. Excluding the capital gain of around TL 1.3 bn from sale of insurance business, net income was realised at TL 1 bn still registering 24% YoY growth and corresponding to a return on average tangible equity of 16.9%. In the first nine months of 2013, Yapı Kredi further reinforced its positioning in 4 key areas: capital base, liquidity, cost management and revenue generation. In terms of capital, YKB s capital adequacy ratio and Tier-1 ratio reached 16.4% and 11.7%, respectively, following the sale of the insurance business. In terms of liquidity, YKB continued to manage its position through balanced growth in loans and deposits. Total loans increased 20% YTD, mainly driven by high margin products such as credit cards with 28% YTD growth, mortgages with 21% YTD growth and SME lending with Koç Holding Investor Relations 9 / 18

10 34% YTD growth. Loans to assets ratio was maintained at 61% confirming our customerbusiness focus while securities to assets declined further to 14%. While increasing lending base, focus on asset quality was sustained with NPL ratio standing at 3.7%. Cost of risk (net of collections) was realised at 1.2% while specific coverage increasing to 67% from 62% at year-end On the deposit side, Yapı Kredi recorded 17% YTD growth with significant increase in share of demand deposits which reached almost 18%. Accordingly, loans to deposit ratio remained stable at 112%. In terms of revenue generation, Yapı Kredi maintained its consistent growth trend. Total revenues registered 25% YoY growth on a comparable basis driven by solid contribution of core revenues, which made 90% of total revenues. Net interest margin was realised at 3.8%. Despite quarterly pressure on margins, annual contraction was limited with ongoing disciplined pricing via one-to-one deposit pricing approach. Fee and commission income also registered 15% YoY growth, mainly driven by lucrative lending, asset management and bancassurance. Finally, in terms of cost management, cost growth was realised as 13% YoY. Accordingly, cost to income ratio decreased to 43%. This brings me to the conclusion of the sectoral review and highlights of our companies. Now in the light of these developments within our respective sectors and the operating environment, Gökhan will briefly evaluate our financial performance on a combined as well as segmental basis. Gökhan Dizemen: Thank you Funda. Let me now, share with you the analysis of our reported numbers. On slide 13, we have provided a summary of Koç Group s financial results on a combined basis. Once again, we would like emphasize that combined figures in our financial report Koç Holding Investor Relations 10 / 18

11 and investment presentations include 100% of the related P&L line items of Koç Group s joint ventures as well as its subsidiaries. You can follow on slide 13 that Koç Group registered 90 billion TL in revenues, 5.5 billion TL in operating profit and 6.2 billion TL in net income in the first three quarters of Koç Holding s consolidated net income after the share of non-controlling interest and joint venture partners amounted to 2.2 billion TL in the first three quarters of Now, let s move on to slide 14, to analyze the segmental performance within our top-line. As I previously stated, our combined revenues stood at 90 billion TL in the first three quarters of 2013, up by 4% YoY. Automotive achieved the highest revenue growth by registering 12% increase compared to a year earlier. The increase in export volumes of Tofaş and Ford Otosan as well as the increasing EUR rates were the major reasons of Automotive Segment s 12% revenue growth in the first three quarters of On the other hand, Energy and Consumer Durables had parallel YoY revenue performance in the first three quarters of Slide 15 contains Koç Group s operating profit performance. Positive YoY operating profit performances of Finance, Automotive as well as Consumer Durables offset the negative impact coming from Energy. As a result, Group s combined operating profit displayed 2% YoY growth in the first three quarters of Increase in operating profit at Finance Segment was mainly driven by the improvement in net interest margins (especially during the first half of the year), loan volume growths in lucrative retail segments and non-interest income registered from the sale of available-for-sale Eurobond portfolio. Automotive s overall revenue growth of 12% was also reflected to the operating profit. At Consumer Durables, despite the parallel YoY revenue performance, operating profit increased by 34%, thanks to the positive impact of the rise in net FX gain on trade receivables and payables reported under other operating income according to the Capital Markets Board reporting framework. Excluding the related net FX gain on trade receivables and payables, YoY operating profit performance at Consumer Durables was flat. Energy, which was the only segment Koç Holding Investor Relations 11 / 18

12 registering YoY deterioration at operating profit, suffered mainly from the decline in net refining margins as well as the increase in energy and transportation costs. When we move on to Group s combined net income performance on slide 16, we see that there is a 36% increase driven mainly by 1.3 bn TL capital gain recognized from the sale of insurance business in Finance Segment. Excluding the impact of this capital gain, Group s normalized combined net income displays 9% YoY growth. Despite the negative effect of increasing net FX losses on financial assets and liabilities, Energy s negative YoY gap at operating profit significantly balanced at net income, thanks to the deferred tax asset income of Tüpraş on its investment tax credits from Residuum Upgrade Project. At Automotive and Consumer Durables, positive YoY operating profit performances deteriorated at net income, due to the net FX losses on financial assets and liabilities, which were offsetting the positive effect of FX gain on trade receivables and payables recognized at operating profit level. Finance Segment s normalized YoY net income performance was in line with the performance at operating profit. YoY performance of Koç Holding s consolidated net income is presented on Slide 17. The Group s consolidated net income in the first three quarters of 2013 was up by 31% compared to a year earlier. Again, when normalized by the consolidated net income effect of the capital gain recognized from the sale of insurance business, which is around 400 million TL, consolidated net income shows 7% YoY increase. As per the composition of our consolidated net income breakdown, 48% came from Finance, 21% came from Automotive, 18% came from Energy and 8% came from Consumer Durables Segments. Slide 18 shows our performance in exports and international revenues. Automotive s positive export performance offset the negative performances at Consumer Durables and Energy. As a result, Groups combined exports were flat compared to a year earlier. Koç Holding Investor Relations 12 / 18

13 On slide 19, you can see our total investments in Group s total combined investments was around 4.6 billion TL in the first 3 quarters of 2013, where major investments were concentrated in Energy and Automotive Segments. Now, let s move on to the risk management issues. As we always emphasize, the strength of the balance sheet structure is of paramount importance at the Holding level as well as underlying companies. As you can see on slide 20, our net cash position at the Holding company stands at 841 million dollars at the end of September Gross total debt at Holding level as of the end of September 2013 only includes 750 million dollar Eurobond issue of Koç Holding. Our consolidated net debt excluding finance segment stands at around 3.3 billion dollars. Our combined net debt excluding Finance Segment is at 4.6 billion dollars and combined net debt / EBITDA multiplier is at 1.7 times. At this point, it may also be worth to note that the debt at the SPV level of Tüpraş acquisition financing amounted to 330 million dollars as of September We are expecting to finalise the repayment of the related SPV debt by Therefore, from 2015 onwards, Tüpraş s dividend stream will flow to Koç Holding and Aygaz. As you can see on slide 21, at the holding level, we carry a small long FX position of 226 million dollars. Consolidated short FX position is at 3.4 billion dollars, and 1.7 billion dollars of this 3.4 billion dollars is subject to a natural hedge due to the FX linked pricing of Tüpraş & Aygaz inventories. The FX position weighted by the effective ownership, which leads to the real P&L affecting position stands at around 1.4 billion dollars and a significant portion of this position is naturally hedged. In terms of the P&L effect of the net short FX position, it is also important to note that FX losses resulting from Residuum Upgrade Project financing loans of Tüpraş, which is around 1,6 bn dollars as of the end of September 2013, have limited negative effect on Tüpraş s P&L due to the fact that the related FX losses - in aggregate with interest paid and accrued - can be capitalized during the construction phase of the project with reference to the interest cost of a TL denominated benchmark loan. Koç Holding Investor Relations 13 / 18

14 As we always emphasize in our previous web-casts, we have been applying an extremely prudent risk management policy across the board. In Koç companies, we do not maintain speculative foreign exchange positions. We also want to maintain the net financial borrowing and the current ratios of our companies within certain limits so as to keep their financial debt and liquidities at comfortable levels. This concludes my presentation. Thank you for listening. Now we can open the floor for questions. Q&A OPERATOR: We have a question from our online webcast participant; of Ilgin Erdogan of Renaissance Capital. The question, and I quote, is: ERDOGAN I: Can you please provide a guidance for dividend income? Will there be drops on a segmental basis, (i.e. automotive)? If so, would you ask for higher payout ratios from your subsidiaries with strong balance sheets? Thank you. GUNGOR AKPINAR F: Thank you, Ilgin. Well, as you all know, the dividend policy in terms of the underlying companies, we always ask our underlying companies to pay the highest dividends possible, as long as they don t use that cash in order to grow their own balance sheet. So already, vis-à-vis the collection of the dividend stream from our companies so far, we believe we have collected the highest dividend possible. You know, usually some of our companies from year-to-year they pay more than once within the year dividends, but specific to this year that you know, we may not see some of those companies paying second dividend to our shareholder base; both the minorities and the main shareholders. However, this doesn t mean that we will try to impose on other companies in terms of trying to increase their dividend payments. I am not sure if this is a clear answer to your question, Ilgin. But going forward, we will continue to ask from our companies again the highest dividends, but obviously this should be only in line with their distributable income, and also again, the cash should not be needed for the growth potential of their own balance sheet. Besides that, from underlying companies to the holding company, to the minorities, all of our companies will try to maximize their dividend, and at the holdings level, the strategy that Koç Holding Investor Relations 14 / 18

15 we adopt in terms of the dividend streams from the holding company to our minorities and the main shareholders. We believe at the current stage, for their interest certain level of cash is extremely important. You might call this as a war chest or as being able to prepare ourselves for any opportunistic moves, depending on the macro-environment, operating environment, and the pricing levels vis-à-vis those assets that we have interest for. So, we strongly value to hold onto some cash in terms of being ready for any opportunistic moves, whether this is a good scenario where we might see privatizations coming into the picture or whether this is the best scenario where things are going for the worse, but this time we might see some distressed assets, whereby we can use this cash for opportunistic moves. So this is how we will be trying to hold on to the cash, and we will also try to maintain a certain level of dividend yields in terms of the dividend stream from the holding company to the shareholders. And for that you can look at the averages of last three years or so that should be a good guidance for the, you know, next year as well preferably Thank you. OPERATOR: The next question is from Mr. Yurtcan Can of Erste Group. Please go ahead. YURTCAN C: Good evening. Thank you very much for the presentation. I have a basic question, what is the Net debt level of Enerjisa sorry in Enerji Yatirimlari at SPV. I could barely hear you, so could you please repeat the Net debt level of Enerji Yatirimlari? GUNGOR AKPINAR F: Sure Can, it didn t really change, it is $330 million. YURTCAN C: $330 million, and the duration of this debt group is to be redeemed as of 2015 or in a longer. GUNGOR AKPINAR F: 2015, we will be making the last payment. YURTCAN C: Thank you very much. GUNGOR AKPINAR F: Thank you. OPERATOR: The next question is from the line of Orcan Cenk of HSBC. Please go ahead. ORCAN C: Actually, I was going to ask the same question SPV net debt level, so I got the answer. Thanks. GUNGOR AKPINAR F: Thank you, Cenk. Koç Holding Investor Relations 15 / 18

16 OPERATOR: Thank you. The next question is from Mr. Paksoy Alper of BNP Paribas. Please go ahead. PAKSOY A: Hi Funda, hi Ahmet. Thanks for the presentation. There is an ongoing tax investigation against controlling Energy companies. Are these investigations having any impact on controlling M&A decisions? In other words, would you prefer to wait for those investigations to be completed before making a significant M&A decision? Thank you. GUNGOR AKPINAR F: Thank you, Alper. In terms of the tax investigation, obviously we are not yet sure about the extent of the investigation. And as I previously suggested, we always try to hold on to a certain level of cash as a war chest at anytime, this might be you know, for any use of cash which was not expected initially, that s how we frame the war chest statements. However, overall you know, we strongly believe in the potential of the Turkish market, so vis-à-vis any potential opportunities that we might have impact for, none of these investigations would result in any delays or contraction in terms of our plan. We are still looking into different acquisition opportunities, inorganic growth opportunities, both domestically and internationally as we have discussed before. And from that end, we believe we have a very strong balance sheet to work, whether you know there are different opportunities, as well as different externalities as might be coming in into the picture. Thank you. PAKSOY A: Thank you. OPERATOR: The next question is from our online participant of Yavuz Birdal of Merrill Lynch. The question is and I quote: BIRDAL Y: Considering the cash and the balance sheet, what would be the potential new areas to enter? If there is no new business, would you consider distributing more dividends? Thank you. GUNGOR AKPINAR F: Thank you. As I tried to discuss in my previous answer as well, we believe especially these three years are extremely key in terms of maybe once in a lifetime opportunities. From this end, we will be looking into different opportunities, both in the domestic market and also in international markets. We are looking for inorganic growth opportunities in those businesses that we are already in, you know, we had been looking Koç Holding Investor Relations 16 / 18

17 after those kinds of opportunistic moves for a long time. So for a long time we have been doing the cost and benefit analysis, the underlying growth. But at the same time, we are also looking into other opportunities in new sectors, as well, as long as there is a compelling story attached to it, especially in the domestic markets. We know the domestic market extremely well. We have been active in this market for over 87 years. We know the customer database extremely well. From that end, even if we were to enter to a new business, we believe from day one, we can have very strong positioning. As long as, as I previously stated, there is a very compelling story attached to that investment, obviously we have very strict requirement in terms of IRR expectation, the synergies we expect from that business. Some businesses might be extremely strong in terms of cash flows, some in terms of the turnaround stories, and some in terms of the economies of scale or the positioning that they might suggest in the marketplace. We would be looking into all those kind of different criteria and evaluate each investments, vis-à-vis those different criteria, and at the end we give our decisions. But again, especially in the domestic market, we don t restrain ourselves to those sectors we are already in. We are also looking into a wide variety of different businesses that might bring in the IRR that we do look for. For at least this year, next year it is important for us to seek those kinds of opportunistic moves, before considering an extra dividend stream from KOC Holding. Thank you. OPERATOR: Thank you. We have a follow-up question from our online webcast participant of Ilgin Erdogan of Renaissance Capital. The question is and I quote: ERDOGAN I: Thank you for some of your earlier answer I have a follow-up question what is your dividend expectation from Tüpraş to EYAS in May I also ask the debt level of AES-Entek as of 9M13? and EBITDA generated in 9M13 in power generation subsidiary vs. 9M12? Thank you. GUNGOR AKPINAR F: Thank you. In terms of unlisted companies, we only announce every six months vis-à-vis their key financial statistics and last quarter s results were announced in our website. So you can always find those from our website. The second question, if you Koç Holding Investor Relations 17 / 18

18 can repeat it, please? One was about the EBITDA and debt level at AES Entek and the second was? OPERATOR: Of course, I ll repeat the question. First was the dividend expectations from Tüpraş to EYAS in 2014, and the debt level of AES Entek as of 9M13 and EBITDA generated in 9M13 in power generation subsidiary vs. 9M12? GUNGOR AKPINAR F: Okay. Again for AES Entek, for the results you can always refer to the statistics that we have already advertised or published on our website. For the dividend expectations, obviously, we never announce the dividend expectation from our underlying companies as much as we don t give any expectation for their exact earnings, you know, which will be in line. From that end, I wouldn t be able to put a number in terms of the expectations of Tüpraş dividend for But some times the concern is usually related to the dividends and if and how they would be related to the SPV payments is definitely the concern of the question, 2014 payments obligatory payments are quite limited, and easily payable by the dividend streams that we can expect from Tüpraş. So, we see no problems vis-à-vis meeting the SPV debt in And we don t expect any need for capital injection in that sense from KOC Holdings if this is the reason of that question. But other than that, unfortunately, we never give an exact EPS guidance or dividend guidance from our company, always the track records would be the best guidance for you. Thank you. OPERATOR: Madam, gentlemen, there are no more questions registered at this time. You may now proceed with your closing statements. GUNGOR AKPINAR F: Many thanks for you all to participating in our nine months results. If you have any follow-up questions, you can always reach us through as well. Once again, a replay of this facility, as well as a transcript will be published next week on our website. I hope you all have a nice week, and if you have any further questions, please give us a call. Many thanks. Good night. Koç Holding Investor Relations 18 / 18