IS INVESTMENT BOARD OF DIRECTORS QUARTERLY REPORT 1 JANUARY JUNE 2013

Transcription

1 IS INVESTMENT BOARD OF DIRECTORS QUARTERLY REPORT 1 JANUARY JUNE 2013

2 CONTENT 1. AUDITOR OPINION ABOUT THE REVIEW REPORT 1 2. OVERVIEW OF THE ECONOMY 2 3. BOARD OF DIRECTORS AND EXECUTIVES 4 4. SUMMARY BALANCE SHEET AND INCOME STATEMENT 6 5. DOMESTIC CAPITAL MARKETS 7 6. DOMESTIC SALES AND MARKETING NEW PRODUCTS AND SERVICE NETWORK INTERNATIONAL CAPITAL MARKETS CORPORATE FINANCE INVESTOR RELATIONS CORPORATE GOVERNANCE PRINCIPLES COMPLIANCE REPORT 17

3 Auditor Opinion about the Review Report on Interim Activity Report 1 January June 2013 To the Board of Directors of İş Yatırım Menkul Değerler A.Ş., We have been assigned for reviewing whether the financial information contained in the interim activity report of İş Yatırım Menkul Değerler Anonim Şirketi (the Company ) and its affiliates, which was prepared as of 30 June 2013, is consistent with the interim summarized financial statements reviewed. The interim activity report which is the subject of the report is under the responsibility of the Company management. Our responsibility as the institution carrying out independent review is disclosure of the result obtained as to whether the financial information contained in the interim activity report is consistent with the interim summarized financial statements and explanatory notes which are the subject of the review report dated 15 August 2013 and which underwent independent review. The review has been carried out pursuant to the regulations of the Communiqué on Principles Regarding Financial Reporting in Capital Markets. These regulations cover the implementation of review techniques in relation to whether the financial information contained in the interim activity report is consistent with the financial statements and explanatory notes which underwent independent review. As the scope of this review is narrower compared to the independent auditing activity carried out within the framework of independent auditing standards published by the Capital Markets Board, the review does not provide guarantee in terms of being able to reveal all important issues which must be known in independent auditing. Therefore, no independent auditing opinion has been disclosed as a result of our review. As a result of our review, no issue was encountered indicating that the financial information contained in the annexed interim activity report is inconsistent with the information given in the interim summarized consolidated financial statements and explanatory notes which underwent independent review, in all of its important aspects. Istanbul, 15 August 2013 Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik A.Ş. Orhan Akova, SMMM Responsible Partner, Chief Auditor IS Investment 01 January 30 June 2013 Interim Report 1

4 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Overview of the Economy Turkey encountered an unfortunate conjuncture where risk appetite towards developing countries decreased with the shock of FED, its economy started to decelerate, social tension within the country increased and political risk premium increased. The announcement that if the US economy continues to strengthen, FED will gradually decrease asset purchases before the year-end and stop thereof completely in 2014 marked the first half of The fact that signs of tightening in the US money policy combined with the sharp deceleration in the Chinese economy led to sharp sales in the markets of developing countries. Turkey, which is sensitive to global risk appetite, ranked among the developing markets which depreciated the most in the first six months of While developing markets experienced a depreciation of 10.9%, MSCI Turkey depreciated by 10.1%. Turkey encountered an unfortunate conjuncture where risk appetite towards developing countries decreased with the shock of FED, its economy started to decelerate, social tension within the country increased and political risk premium increased. Increase of downward risks in economic growth necessitates continuing to keep monetary policy loose. However, the disruption in the risk appetite towards developing countries threatens financial stability and inflation target and forces the Central Bank to tighten its monetary policy. If the Central Bank continues to keep its monetary policy loose due to the risks on growth, the weak Turkish Lira will threaten price stability through cost inflation and financial stability through open position losses. But if a sharp tightening is adopted in monetary policy, Turkish economy, which is highly probable to enter into the area of early election, will come face to face with a risk of sharp decrease. Figures of the first quarter indicate a sharp disruption in growth dynamics despite the expansionary monetary policy applied. When contribution of the public sector is taken out, growth has reached the recession point. There is a serious decline in private sector investments despite the incentives provided and low interest rates. Economic picture was expected to thrive in the second quarter. After the interest rate cuts in April and May, credit growth had started to accelerate. However, the decline in retail sales and the cancellations which occurred in hotel reservations in June due to the social events experienced and continuation of recession in Europe indicates that acceleration of growth in the second quarter is difficult. It would not be correct to make generalization setting out from a few months of data but if political tension inside and FED wave outside continue, third quarter growth might also be jeopardized. In the face of the mentioned developments, we had decreased our growth estimate from 4% to 3.3%. However, if negative developments continue, we might be talking about 3.0% and even lower percentage for growth in 2013, in the following months. When we look at the side of companies which are the propellant power of economy, we do not see an optimistic table. Increasing pressures on global growth restrict turnover increases of companies on the one hand and create pressure on profit margins on the other hand. The recession in Europe and China s inactive capacity pulls down profit margins globally. Increase of interests due to the disruption in risk appetite towards developing countries will increase the financial load of the household and companies and cause the economic outlook to become even worse. Each increase by 100 base points experienced in interest rates leads to an increase of approximately TL 9 billion (0.6% of national income) in interest payments. In an environment where probability of sharp decrease in economy is increasing, companies probability of reflecting such cost increase on their prices is low. The household whose purchasing power is already low has no chance but to cover such interest rate increase by cutting down on their expenses. IS INVESTMENT

5 1 January June 2013 Nothing is better in the foreign currency front either. Non-bank companies in Turkey have approximately USD 145 billion of deficit foreign currency position. Not taking measures in derivatives markets (not hedging) for such deficit in general increases companies sensitivity towards global shocks. Turkish Lira depreciated against US dollars and Euro by 5% and 8% respectively in the second quarter of the year. The foreign exchange loss which Turkish companies will write in the second quarter of the year might reach USD 8-9 billion (approximately 1.0% of the GDP). The fact that an important part of company owners hold their wealth in foreign currency assets and companies have prepared their payments around 6 months limits the effect of short-term shocks. However, the damage to be caused by long-term and severe shocks is still very high. What concerns investors is whether the low interest strong market period which started after 2008 has come to an end, or is the selling wave in the markets a purchase opportunity. In the current conjuncture where European economy is struggling with recession and Chinese economy is facing a risk of sharp decrease, we do not believe that we have reached the end of low interest period. In parallel with the clarification of downward risks on global growth and the weak data coming from the US economy, we can see that the sales in US bonds are reversed in the following months. We associate such severe sales in the markets, despite the cautious picture painted by Bernanke for the medium term, with stop-loss orders of investors carrying above normal leveraged positions. The height of financial leverage causes the wavelength created by good and bad news to be much more extensive than normal. Despite the latest developments experienced, we do not make changes in our base scenario where global growth will continue to be slow, commodity prices weak and interest rates comparatively low. Due to downward risks on growth, we do not expect central banks of the USA, Europe, Japan, China and the UK to make an important increase in interest rates before A difficult period is awaiting economy management in the second half of the year. Our estimate is in the direction that economy management will endure for as much as possible and try to overcome global wave without making a sharp increase in interest rates. In our base scenario where the Central Bank will not resort to a sharp interest rate increase, we believe that commodity importer economies growing based on foreign resource with a weight of domestic demand such as Turkey will continue to preserve their attraction. IS Investment 01 January 30 June 2013 Interim Report 3

6 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Board of Directors and Executives Board of Directors İlhami Koç Güzide Meltem Kökden Feray Demir Işıl Dadaylı Volkan Kublay Melih Murat Ertem Tolga Achim Müller Özgür Temel Abdullah Akyüz Behzat Yıldırımer Chairman Deputy Chairman Member Member Member Member Member Member Member (Independent) Member (Independent) The Board of Directors has been assigned in the Ordinary General Meeting of Shareholders held on 30 April 2013 till the date of next Ordinary General Meeting of Shareholders. Members of the Board do not play an execution role at IS Investment. Audit Committee Behzat Yıldırımer - Chair Abdullah Akyüz - Member Corporate Governance Committee Behzat Yıldırımer - Chair Volkan Kublay - Member Risk Committee Behzat Yıldırımer - Chair Volkan Kublay - Member Executives Ali Erdal Aral Murat Kural Ufuk Ümit Onbaşı Mert Erdoğmuş Funda Çağlan Mursaloğlu Melih Murat Ertem Zeynep Yeşim Karayel General Manager Shareholding Structure (%) IS Bank IS Leasing 2.43 IS Factoring 2.43 Camis Investment Holding 0.17 Free Float Registered Capital Issued Capital * TL 600 million TL million * TL 24.5 million of the 2012 net profit (8.57% per share) will be distributed as stock dividend on 27 th of June Therefore, the issued capital will increase to TL million from TL 286 million. IS INVESTMENT

7 1 January June 2013 Information about Shares Representing the Capital Group Registered/ Bearer Total Nominal Value (TL) Ratio to Capital (%) Privilege A Registered 150, (six) members of the Board of Directors shall be elected among the nominees that are nominated by the majority of the Group A shares. Exchange Traded or Not Not traded. B Bearer 310,350, None 91,013,317 shares are traded on the exchange. 310,500, In case of capital increase, no Group (A) shares may be created, but Group (B) shares shall be issued to represent such increased capital. Current List of Exchanges where the Company s Capital Market Instruments are listed or Traded Type of The Listed Instrument Date of Listing/ Trading Name of the Market/Stock Exchange Relevant sub-market of the Market or Stock Exchange Shares 18/05/2007 Borsa Istanbul Equity Market / National market Exchange Traded Fund 25/05/2007 Borsa Istanbul Equity Market / Collective Products Market Warrants 01/11/2010 Borsa Istanbul Equity Market / Collective Products Market Commercial Papers 16/04/2012 Borsa Istanbul Debt Instruments Market / Outright Purchases and Sales Market IS Investment s Commercial Papers 1 st Tranche 2 nd Tranche 3 rd Tranche Credit Rating AAA(tur) National AAA(tur) National AAA(tur) National long-term long-term long-term Term 179 days 179 days 179 days Issue Size TL 100 million TL 100 million TL 115 million Maturity 9 October March September 2013 Bookbuilding April September March 2013 Interest Accrual and Settlement 13 April September March 2013 Reference Yield 9.60 % (simple) 6.83 % (simple) 5.43 % (simple) Spread 0.70% (70 basis points) 0.90% (90 basis points) 0.80% (80 basis points) Issue Yield 10.30% (simple), 7.73% (simple), %6.23 (simple), 10.57% (compound) 7.88 (compound), %6.33 (compound) Issue Price TL TL TL Allocations Domestic Retail - 25% Domestic Retail - 12% Domestic Retail - 15% Institutional - 75% Institutional - 88% Institutional - 85% IS Investment 01 January 30 June 2013 Interim Report 5

8 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Summary Balance Sheet and Income Statement Summary Balance Sheet (TL 000) 30 June December 2012 Assets Current Assets 4,332,527 4,017,680 Long-Term Assets 144, ,865 Total Assets 4,476,588 4,183,545 Liabilities Short-Term Liabilities 3,507,194 3,277,950 Long-Term Liabilities 124,406 34,864 Minority Interest 373, ,781 Shareholders Equity 471, ,950 Total Liabilities & Shareholders Equity 4,476,588 4,183,545 Summary Income Statement (TL 000) 1 Jan June Jan June 2012 Sales Revenue (Net) 29,385 54,175 Interest and Derivative Income from Operating Activities 27,810 32,588 Income from Services (Net) 70,508 50,782 Other Operating Income/Expenses(net) 11,228 16,539 Gross Profit/(Loss) 138, ,084 Operating Expenses (117,555) (91,697) Other Income/Expenses (618) 6,015 Operating Profit/(Loss) 20,758 68,402 Share in Net Profit/(Loss) of Invest. 4,301 3,977 Acc. for Under Equity Method Non-Operating Income/Expenses (Net) 11,975 15,222 Profit/(Loss) Before Taxation 37,034 87,602 From Continued Operations Tax (8,817) (11,968) Net Profit from Continued Operations 28,217 75,634 Net Profit from Discontinued Operations - 4,203 Net Profit for the Period ,836 Minority Interest 6,346 34,578 Net Profit (Equity holders of the parent) 21,871 45,258 Earnings Per Share Cont. Operations (TL) * The financial statements and footnotes of IS Investment are disclosed to public at Financial Highlights 30 June December 2012 Current Assets/Short-Term Liabilities Total Liabilities/ Equity ROE (%) IS INVESTMENT

9 1 January June 2013 Domestic Capital Markets In the first half of 2013, IS Investment maintained its leader position in the Equity Market with a trading volume of TL 70.5 billion and a market share of 8.29%. Stock Market Borsa Istanbul Equity Market started 2013 at record levels, at 78,200-79,000 bands, due to G4 central banks continuing their loose monetary policies in an environment where desired growth and inflation figures could not be reached, despite good data coming from the US, and where the economic recession going on for a long time in Europe continued. BIST 100 index, which is sensitive towards global liquidity, reached new historic peaks in the first weeks of the year thanks to the strong expectation that Turkey s credit rating will be increased to investible level in 2013 by S&P or Moody s. BIST 100 index, which also took advantage of periodic increases in global risk appetite, tested the levels of 86,500. The index encountered profit sales at those levels. In this period, the fact that Moody s stipulated conditions for investible level such as decreasing current deficit structurally and taking the increase in the foreign debt of the private sector under control caused BIST 100 index to lose all the premiums it achieved since the beginning of the year. In this period, while levels such as 75,600 were tested in the market, foreign exchange rate in the index decreased down to 64.69%. Thanks to the belief that important steps taken in politics will affect our economy positively in the medium and long terms and S&P s surprise rating increase, Bora Istanbul Equity Market became one of the top-grossing stock exchanges of the world in the first quarter. While the domestic agenda was in this state, the data disclosed abroad was indicating that growth decelerated in the US and China, and recession continued in Europe. Global capital, which regarded the weakness in global growth as a guarantee for the expansionary monetary policies implemented by G4 central banks, continued to tend towards risky assets. The increase in global risk appetite accelerated money flow to the developing countries such as Turkey growing at a reasonable rate and with comparatively high interest rates. In May, the expected Moody s rating increase was made. BIST 100 index, after testing levels of 93,200, receded a bit with the effect of profit realizations. In this period, the fear that FED will decelerate monetary expansion with the effect of the revival experienced in the US recently caused American 10-year bond interest rates to increase to the level of 2.2%. As a result of this, risk appetite towards developing markets decreased. In addition to this, as a result of the sales of foreign investors with the effect of social events experienced specific to Turkey, the index lost value more than 10% within one day, and lost all of its earnings since the beginning of the year. In this period, foreign ownership decreased down to 63.38%. The rumor that FED will gradually decrease asset purchases before the end of 2013 and stop thereof completely in 2014 led to large sales especially in the stock exchanges of developing countries. The increase in political risk premium and the social tension experienced in Turkey also coincided with exactly this period, and Turkey ranked among developing markets which depreciated the most in June. Despite this, MSCI Turkey Index, which closed the first 6 months of the year with a loss of 10.1%, exhibited a parallel performance as per MSCI Developing Markets Index which experienced a loss of 10.9%. In the first half of 2013, IS Investment maintained its leader position in the Equity Market with a trading volume of TL 70.5 billion and a market share of 8.29%. It is expected that in the second half of 2013, trend of markets will be shaped according to FED s monetary policies. As a result of strong data to be received from the US and increasing US 10-year bond interest rates, investments directed towards other regions of the world will be caused to return to the US again. It is considered that the process of decrease in global liquidity might also negatively affect BIST 100 index which has high beta. In addition, it is considered that Turkey will have to compete more fiercely with Brazil, South Africa and Russia in the decreasing liquidity environment. On the other hand, failure to achieve desired growth figures in the US might create a perception of continuation with loose monetary policy and direct risk appetite towards markets which have high beta such as Turkey again. In addition, possible interest rate increase of the Central Bank in the face of excessive depreciation of Turkish Lira and its efforts in creating a sustainable growth environment taking inflation under control will continue to be priced by the market. IS Investment 01 January 30 June 2013 Interim Report 7

10 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Domestic Capital Markets In the first half of 2013, IS Investment ranked second among brokerage houses in Borsa Istanbul Corporate Bonds transactions with a trading volume of TL 1.6 billion and market share of 15%. Bills and Bonds Market The first half of 2013 was a period when historic decreases were seen in terms of bonds and bills market. The fact that data in Europe and China continued their weak progress in the first half of the year and that the US did not pose a threat to this picture in the first quarter kept expectations that central banks will continue monetary expansion alive. Purchases in bond markets of developing countries intensified. Within the country, bond market outperformed other developing bond markets with the support of expansionary monetary policies of the Central Bank and the preservation of rating increase expectations. The loose liquidity policy implemented by the Central Bank by not seeing a threat in inflation and decreases made in policy interest and interest corridor increased risk appetite within the country. After the rating increase made by Moody s in May, historic bottom levels were seen in the bond market. Benchmark bond with a maturity of 2 years decreased down to the compound level of 4.60%; and the bond with a maturity of 10 years decreased down to the compound level of 5.97%. With this performance, Turkey reached lower real interest rates compared to other developing countries. After historic bottom levels were seen in the bond market, the bond market transited into sales trend with social events which arose in June and the expectation that US Central Bank will decrease monetary expansion until the end of the year. In June, risk appetite decreased substantially in proportion to the first 5 months of the year. Turkish credit default swap (CDS) rate with a maturity of 10 years, which was at the level of 130 before June, reached the level of 180 at the end of June. While benchmark bond completed the first half of the year by rising to the compound level of 7.89%, the bond with a maturity of 10 years ended the first half at the compound level of 8.74%. With the effect of yiled of government bonds being at historic low levels, the interest (concern) towards corporate bonds was fairly high also in the first half of the year. In the first half of 2013, IS Investment ranked second among brokerage houses in Borsa Istanbul Corporate Bonds transactions with a trading volume of TL 1.6 billion and market share of 15%. When we look at the general, in the first half of 2013, IS Investment ranked fifth among brokerage houses in Debt Instruments Market Outright Purchases and Sales Market with a trading volume of TL 4.9 billion and market share of 6.5%. In the currency basket, two different progresses dominated in the first half of the year. The currency basket, which followed a horizontal progress at 2.09 and 2.05 bands until May, had difficulty in raising in value in favor of TL, despite all the positive developments in risk appetite and rating increase. Downward trend in the interest rates of the Central Bank was effective in this. The exchange rate increased up to the level of 2.26 in June. Tightening steps of the Central Bank was not sufficient for carrying the exchange rate below Derivatives Market Turkish Derivatives Exchange (TurkDEX) spent the first half of the year under the lead of BIST 30 contracts. BIST 30 index, which tested the level of 115,000 in May, decreased below the level of 90,000 in parallel with the losses experienced in other developing countries due to both domestic political concerns and the expectations that FED will resort to monetary tightening. However, it completed June above the level of 92,000. While trading volume focused on the closest maturities of BIST 30 contracts, TL/Dollar contracts with the closest maturity followed these contracts. IS Investment maintained its title of being the only intermediary institution undertaking the duty of market making in all foreign currency and gold contracts (Gold/TL, Dollar/Ounce Gold, TL/Euro, TL/Dollar, and Euro/Dollar) with cash settlement. IS Investment maintained its leader position in TurkDEX in the first half of 2013 with a trading volume of TL 64.8 billion and market share of 14.0%. With the development of derivative markets, IS Investment continued to diversify derivative products in its portfolio. IS Investment, which is currently only domestic issuer and one of the two market makers in the Warrant Market in Collective Products Market, added two more new products into its warrant portfolio in types of quanto and flexo as of 14 January 2013 by looking after IS INVESTMENT

11 1 January June 2013 the needs of investors and development of the market in the first half of the year. Thanks to these products which take ounce price of the gold as underlying asset, investors had the opportunity to invest in gold by eliminating currency risk. IS Investment, which issued six quanto and six flexo warrants in the first half of the year, maintained the strike price and maturity diversity in warrants. With the participation of warrants based on HALKB and EREGL shares into IS Warrant family from April, the number of underlying assets of IS Investment s intermediary institution warrants rose to fifteen. While warrants taking BIST 30 index as underlying asset on the basis of trading volume took the lead again, share-based warrants followed the index warrants. While IS Investment issued 168 warrants in the first half of the year, a total of 206 warrants of IS Investment were traded in the market. IS Investment also became the institution with the highest trading volume in the Futures and Option Market (VİOP) at Borsa Istanbul in the first six months of the year. Is Investment also maintained its leadership by far in this new market with a market share of 38.76% in futures contracts and 87.05% in option contracts. Portfolio Management In addition to the funds managed by its affiliate IS Portfolio Management, IS Investment carries out activities of managing mutual funds in different categories such as hedge funds, exchange traded funds and mutual funds, founded by it, capital protected/guaranteed mutual funds, founded by Isbank, and direct investor funds within the framework of private asset management service. Mutual fund sector reached the size of TL 33.3 billion by growing around 10% compared to 2012 year-end. While especially type B variable and bond/bill funds were effective in this, type A funds also exhibited growth. Arrival of new products into the capital markets enables them to be used by mutual funds as well. Within this framework, it was seen that in the first half of 2013, lease certificate funds which mainly invested in lease certificates also started to be established. The shrinkage process experienced in capital protected and guaranteed funds also continued in this period and the size of these types of funds decreased down to TL 655 million. In the same period, while the size of total mutual funds managed by IS Investment rose from TL 6.7 billion to TL 7.9 billion on annual basis, managed pension funds which were at the level of TL 3.4 billion in the same period of last year also rose to TL 4.4 billion. Total assets under management became TL 14.9 billion with an increase of approximately 20% on annual basis. The most important development which would affect asset management sector was the clarification of sub-regulations after the Capital Market Law which entered into force towards the end of After communiqués opened to the opinion of the sector, official communiqués regarding mutual funds, asset management companies and asset custody service were published as of July, and the effective date was determined as 1 July Activities for product development were continued in the first half of 2013, and in February, transformation of IS Investment iboxx Turkey Benchmark Bond Type B Exchange Traded Fund into IS Investment Long Term Bond Index Type B Exchange Traded Fund was realized. In April, management of Sardes IS Investment Dividend Yield Type B Variable Fund, founded by IS Investment, was transferred to IS Investment and title of the fund was changed as İş Yatırım Menkul Değerler A.Ş. Dividend Yield Type B Variable Fund. The first half of this year was a period when a notably fluctuating progress was observed in terms of markets. BIST 100 index, which increased around 19% until mid-may, decreased around 2.5% as of the end of June compared to the beginning of the year with sales experienced afterwards. Benchmark bond interest rate also followed a similar progress and decreased down to 4.79% - its lowest level - around mid-may, in 2013 which it started at the level of 6.18%, and as of the end of June, it rose up to the rate of 7.89%. In the same period, while KYD (Institutional Investment Managers Association) Type A Fund Index decreased by 1.92%, KYD Type B Fund Index increased by 1.48%. Following the communiqués published by the Capital Markets Board about the asset management sector, sector participants realizing structural regulations for complying with these communiqués and the restructuring of the sector in this sense will be at the forefront in the following period. IS Investment 01 January 30 June 2013 Interim Report 9

12 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Domestic Sales and Marketing With a view to gain new customers, IS Investment visited potential/new customers across the country in the first half of the year, and gained new investors as a result of such visits. IS Investment has passed through a successful period in the field of domestic sales and marketing in the first half of The assets of our investors gained in value as proper investment strategies followed and new fund inflows in parallel therewith gaining new investors, the total size of the portfolio managed within the scope of domestic sales exhibited an increase in the first half of With a view to gain new customers, IS Investment visited potential/new customers across the country in the first half of the year, and gained new investors as a result of such visits. IS Investment also visited the regions, where we do not have a branch yet, but which pose significant potential as such Konya, Balıkesir, Niğde, Antalya, Bodrum, Isparta and Kayseri. During such visits, we interviewed with the potential investors and introduced the products and services of our Company. Together with Ankara and Bursa branches, we arranged investor meetings and shared our expectations about Turksih and global capital markets. The TradeMaster, the electronic trading platform, which was introduced to the investors through , IS Investment launched TradeMaster FX and started a new advisement in March. In the second half, marketing campaigns will be continued and expected to gain new investors in changing capital markets. IS INVESTMENT

13 1 January June 2013 New Products and Service Network IS Investment, the first Turkish company which issues the intermediary institution warrants, has issued warrants written on BIST 30 index, gold, currency and single stock as well. Like in the previous periods, IS Investment maintained its active attitude about establishing mutual funds within the scope of prime brokerage services in the first six months of 2013 as well. Within this framework, IS Investment provided assistance and support to asset management companies such as Istanbul, Ashmore, Libera, Logos, Arma, Sardes and Notus so far. In addition, there are 3 more mutual funds of Bosphorus Capital that are registered by the CMB in As a leading institution in the Turkish capital markets, IS Investment pioneered the market as issuing its own corporate bills. The third tranche, nominal value of TL 115 million, was issued in March. The issue was oversubscribed and this reflects the high confidence that our financial structure and market performance built up. IS Investment, the first Turkish company which issues the intermediary institution warrants, has issued warrants written on BIST 30 index, gold, currency and single stock as well. IS Investment also issued exotic warrants and applied to issue new certificates on the 2 nd of April. IS Investment 01 January 30 June 2013 Interim Report 11

14 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT International Capital Markets With the return of investors who preferred not to trade due to the negative atmosphere created by the crisis in 2012, trading volume reached USD 641 million in the first 6 months of the year, thus an increase over 200% was realized compared to the first six months of Stock Markets Despite European Central Bank s continuing liquidity with low interest rate policy and in spite of FED s bringing forward that it will decrease monetary expansion on the US side, global stock markets managed to close the first half of 2013 as positive with a value increase of approximately 7.3%. With the effect of the orientation and support provided for investors, together with the high fluctuation formed in stock indexes, significant increases were seen in trading volumes in the first half of this year. With the return of investors who preferred not to trade due to the negative atmosphere created by the crisis in 2012, trading volume reached USD 641 million in the first 6 months of the year, thus an increase over 200% was realized compared to the first six months of Fixed Income Securities In the first half of 2013, international bond market was able to preserve the levels at the beginning of the year until the beginning of May. Starting from May, sharp increases were realized in interest rates together with expectations that FED might decrease bond purchases upon the start of recovery of US economic data. Especially receiving signals that bond purchases might be decreased and ended at the end of 2013 or in 2014 depending on the data from FED meeting in June and US monthly employment data disclosed with a recovery above expectations in the last two months of the first half in a consistent way caused US 10-year bond interest rates to rise from the level of 1.91% at the beginning of the year up to the level of 2.60% towards the end of June. A significant part of the liquidity offered to the market by FED was used for investment in developing country markets. The possibility of FED s restricting and ending liquidity caused the Eurobonds of developing countries to be affected negatively the most. EMBI+ (Emerging Markets Bond Index) index depreciated by 9.6% in the first half. Together with these developments, while there was a volatility increase in developing country and company Eurobonds, it was observed that Eurobond investors started to reshape their positions. Derivatives The fact that the uncertainty about US budget regulations which occupied the agenda was finalized by the end of 2012 enabled derivative markets to make a positive start to 2013 together with the psychological positive effect brought by the new year. The recovery plan aimed at Southern Cyprus banks which was brought to agenda towards the end of the first quarter introduced the first large selling wave into derivative markets. During the rest of the first half, complicated explanations of FED regarding the ending of monetary loosening policy caused the selling movements dominating the markets to deepen. Following this, it was recorded that short positions reached record levels, especially in commodity markets. In the first half of the year, unsuccessful performance of the Chinese economy in metal markets which depreciated between 10-35%, decrease of metal purchasing and record stock levels in London Metal Exchange took place among developments which pulled down markets. It was observed that investors took position more cautiously and volumes decreased in markets where downward trend dominated. In the following period, it is expected that the authority to make transaction in over-the-counter markets for customer accounts given by the Capital Markets Board to intermediary institutions will create mobility on the investor side. FX Margin Trading Although some decrease was observed in FX margin trading volume compared to the same period of the last year, significant increase was seen compared to the last six months of Trading volume, which concentrated on a limited number of accounts in the first six months of 2012 with the evaluation of the advantage of continuing growth of FX margin trading market in Turkey and the increasing trading volume in global forex markets, spread to a much wider investor base in the same period of It is expected that our FX margin trading transactions will continue with a similar performance in the second half of the year as well. IS INVESTMENT

15 1 January June 2013 Corporate Finance In M&A transactions, the first half of 2013 comes to the forefront as the most productive period for our Company, when compared to previous periods in terms of transaction diversity, transaction size and number of transactions. Merger & Acquisitions While a total of 129 Merger and Acquisition (M&A) transactions at the amount of USD 8.5 billion were realized in the first half of 2012, a total of 192 M&A transactions at the amount of USD 12.2 billion were realized in the first half of % of this figure came from privatization transactions. Foreign investor transactions took a share of 20% in total (9 transactions at the amount of USD 6.4 billion). What comes to the forefront in privatization transactions are Başkent Natural Gas Distribution, Kangal and Hamitabat thermal power plants, Toroslar & Dicle & Van Lake and Istanbul Anatolian Side Electricity Distribution tenders and Galataport tender. In addition, investments of Turkish firms aimed at foreign markets also started to take an important place. Kürüm Holding s energy investment in Albania, purchases completed by Şişecam Group in India and Germany, purchasing of Italian Rondine Group by Seramiksan and Romania investment of Sütaş can be mentioned. Among the important private sector M&A projects completed within the country, sale of Alternatifbank to Commercial Bank of Qatar, purchasing of Yapı Kredi Sigorta by Allianz, purchasing of DiaSA by Yıldız Holding, sale of majority shares of Onur Air, purchase of Beymen shares from CVCI by Boyner Holding and sale of Show TV to Ciner Group can be mentioned. When the sectoral breakdown is considered, as a result of large volume transactions in the energy sector due to privatization transactions, the transactions realized in this sector constituted 55% of total trading volume. When considered in terms of number, telecom-media-technology sector took a share of 25% in total number of transactions because of the investments made, even though in small amounts, and the deep interest in e-commerce companies. IS Investment served as counsellor in 7 transactions in the first half of 2013, and 6 of them have been completed. Two of the completed transactions were purchasing party counselling projects given to Trakya Cam Sanayii A.Ş., one of which was provided for 50% participation in HNG Float Glass Ltd in India Gujarat and the other one was provided for purchasing of Richard Fritz Holding established in Germany. In the food sector, purchasing party counselling was provided for purchasing of 100% shares of Kraft Gıda Sanayi ve Ticaret A.Ş., which is the owner of Patos, Cipso, Çerezos brands within the body of Mondelēz International Inc., by Doğuş Çay A.Ş. In health and service sector, selling party counselling service was provided to Dharma İlaç for purchasing all of the shares of Dharma İlaç Pazarlama Sanayi ve Dış Ticaret A.Ş. by Expanscience S.A.; selling party counselling service was provided in the sale of IS Private Equity s shares in Aras Kargo. In the production sector, apart from Şişecam projects, purchasing party counselling was provided for purchasing Seramiksan Turgutlu Seramik Sanayi ve Ticaret A.Ş. s shares corresponding to 50% of Rondine SPA, established in Italy, from Progression SGR SPA. The seventh transaction the closure of which is planned to be completed in the second half of the year is the selling party counselling project provided for purchasing of majority shares of Hakan Plastik Boru ve Profil Sanayi ve Ticaret A.Ş. by Georg Fischer Piping Systems Ltd. In M&A transactions, the first half of 2013 comes to the forefront as the most productive period for our Company, when compared to previous periods in terms of transaction diversity, transaction size and number of transactions. IS Investment 01 January 30 June 2013 Interim Report 13

16 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Corporate Finance IS Investment preserved its leadership in debt instrument issuances in the first half of 2013 as well with a market share of 25% and a total of 28 transactions at the amount of TL 6.4 billion. Public Offerings In the first half of 2013 in Turkey, 4 equity IPOs were realized in Borsa Istanbul Emerging Companies Market with a total revenue amount of TL 23.9 million and 7 IPOs realized in Borsa Istanbul National Market with a total revenue amount of TL 1.2 billion. The highest issuance size of the mentioned period was achieved under the leadership of our corporation in the public offering of Pegasus Airlines. This public offering, which has a size of TL million, also had the characteristics of being Turkey s first private airline company and the first low cost airline company public offering. In this offering, which provided the opportunity of making proposal at different price levels for individual investors as a first again, was 4.7 times oversubscribed by those investors. Bid-to-cover ratio was realized as 2.1. Debt Instruments Issuances Corporate bond and bill issuances which developed fast since the beginning of 2011 continued their growth in the first half of 2013 as well. While a total of 149 debt instruments at the amount of TL 25.2 billion (public offerings and private placements) were issued in this period, a total of 96 debt instruments at the amount of TL 20.9 billion were issued in the first half of the previous year. IS Investment preserved its leadership in debt instrument issuances in the first half of 2013 as well with a market share of 25% and a total of 28 transactions at the amount of TL 6.4 billion. In addition, IS Investment also maintains market leadership on the side of structured debt instruments with the first domestic sukuk offering and first asset backed security issuance in the factoring sector in the first half of Our company had a market share of 54% in terms of size in public offerings of shares. IS INVESTMENT

17 1 January June 2013 Investor Relations IS Investment distributed at least 30% of its distributable profit as cash to its shareholders in the direction of its profit distribution policy since its public offering. Within this scope, it distributed cash dividend at the total amount of TL 20 million from its 2012 profit on 6 May As a result of information about restructuring of capital markets, our business model, our activity and financial performance in investor meetings held since the beginning of the year, expectations about ISMEN (IS Investment share ticker) turned positive. That made attracted deep interest of foreign and domestic investors. In this direction, share price entered into an upward trend after completing resistance against the sale pressure, especially around the end of May. After this upward trend, share price exhibited an increase of 14% compared to the beginning of the year and exhibited a performance even 5% above BIST 100 index as of 30 May. ISMEN also resisted to a great extent against the sharp fall seen in the markets due to FED turmoil; however, a decrease was seen in the price after the strong sale in the market. Despite all these negativities, ISMEN closed the first half of the year by rising in value by 2% and exhibiting a performance 5% above BIST 100. With this performance, ISMEN became the eleventh share with the highest return among 33 financial company shares. ISMEN Total Return Performance ISMEN BIST D-12 J-13 F-13 M-13 A-13 M-13 J-13 IS Investment distributed at least 30% of its distributable profit as cash to its shareholders in the direction of its profit distribution policy since its public offering. Within this scope, it distributed cash dividend at the total amount of TL 20 million from its 2012 profit on 6 May Thus, approximately 100% of the IPO proceeds at the amount of TL 100 million obtained in May 2007 was paid back in cash as of May ISMEN, the average dividend yield of which in the last 6 years is 4.7%, is also traded on BIST Dividend Index. IS Investment 01 January 30 June 2013 Interim Report 15

18 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Investor Relations IS Private Equity (ISGSY) sold all of its shares in Aras Kargo (20% of the capital of which was acquired by the investment of TL 17.5 million on 15 November 2011) to the Austria-origin Post 206 Beteiligungs GmbH on 30 July 2013 for TL 100 million. Net profit of TL 82.5 million from this transaction will be reflected to our third quarter financial statements in proportion of our stake (29%) in ISGSY. Cash Dividend TL Million 30% 30% 30% 32.5% 30% 30% 50 9% 8.2% 8% 40 7% 30 6% 4.8% 4.1% 4.0% 4.1% 5% % 4% 3% 10 2% % 0 0% May-08 May-09 May-10 May-11 May-12 May-13 Cash Dividend ISMEN Dividend Yield BIST Dividend Yield Pay-out Ratio Significant Developments Regarding Subsidiaries IS Private Equity (ISGSY) sold all of its shares in Aras Kargo (20% of the capital of which was acquired by the investment of TL 17.5 million on 15 November 2011) to the Austria-origin Post 206 Beteiligungs GmbH on 30 July 2013 for TL 100 million. Net profit of TL 82.5 million from this transaction will be reflected to our third quarter financial statements in proportion of our stake (29%) in ISGSY. In the Extraordinary General Meeting of IS Investment Trust dated 3 May 2013, amendment of articles of association in relation to the company s transition to type B investment trust was accepted. Based on this amendment, the trade name of the Company was also changed as IS Tyep B Investment Trust and this change was registered on 8 May IS INVESTMENT

19 Corporate Governance Principles Compliance Report 1 January June 2013 Corporate Governance Compliance Statement Increasing the quality and amount of international capital directed towards Turkey is of great importance for our developing economy. The global financial crisis, which started to make its effect felt especially from the third quarter of 2008 onwards, dragged the world economies to stagnation and led to a decrease in the desire to invest. This negative economic outlook revived the importance of good corporate governance applications for companies, investors and all relevant parties. A good corporate governance application was one of the most important indicators in terms of growth of companies and the sustainability of their activities in 2012 as well. IS Investment, which is in the position of representative the understanding of corporateness which the emblem of İş has created in our society in the sector it operates in, is aware that good corporate governance applications can be possible with applications such as determination of the governance strategy, creating an effective risk management and internal control mechanism, determination of ethical rules, fulfilling investor relations activities and the liability of public disclosure in the required quality within the scope of Information Policy and carrying out Board activities in a transparent way. Within this framework, IS Investment carries out the rights and responsibilities between its employees, customers and all relevant parties mainly its shareholders and itself with the understanding of accountability, equality, transparency and responsibility the universal elements of the understanding of corporate governance and within the framework of an effective management and supervision. With this approach, in addition to compulsory regulations on corporate governance of the Capital Markets Board, IS Investment also complies with many principles which are not compulsory. IS Investment, which carries out its activities in parallel with Turkish Commercial Code, Capital Market Law and relevant legislation and in compliance with the ethical values it has determined, believes that complying with Corporate Governance Principles is just as important as financial performance in providing long term added value to its investors. As a result of reviews made by JCR Eurasia Rating in 2012, it was announced to the public on September 11, 2012 that our Company s corporate governance degree was raised from 8.63 to 8.87 in total score. Distribution of our corporate governance rating in terms of main sections in comparison with the previous periods is as follows: Main Sections Previous Rating 23/12/2011 Revision 11/09/2012 Shareholders Public Disclosure and Transparency Stakeholders Board of Directors Total IS Investment 01 January 30 June 2013 Interim Report 17

20 IS INVESTMENT BOARD OF DIRECTORS QUARTERY REPORT Corporate Governance Principles Compliance Report With this corporate governance rating obtained, IS Investment continues to be traded in BIST Corporate Governance Index within the scope of the Circular numbered 424 of Borsa Istanbul. We currently meet the criteria of each main part of corporate governance principles being minimum 6.5 out of 10 as to be applied as of 01/07/2013 in the same Circular. This Corporate Governance Compliance Report contains the information and parts announced in the Weekly Bulletin dated 12/02/2013 of the Capital Markets Board and also includes some additional details which are deemed appropriate to be announced by our Corporation. PART I SHAREHOLDERS Investor Relations Department With the aim of timely fulfilling the activities necessary for establishing relations with shareholders and stakeholders in a healthy way in addition to fulfilling public disclosure liability and information activities in the desired quality, IS Investment proved the importance it attaches to this issue by setting up Investor Relations Department before the realization of public offering transaction. Investor Relations is a department which is responsible for giving information about the activity and financial performance of the company within the scope of capital market legislation and IS Investment Information Policy aimed at shareholders and all relevant parties; fulfilling the liability of public disclosure and in general, coordination of relations with shareholders and stakeholders. Investor Relations Department has been assigned with the coordination of IS Investment Information Policy which was approved by the Board of Directors and disclosed to the public. The Department carried out mainly the activities given below within the last period: Ensuring that explanations and information which do not qualify as inside information are transmitted to shareholders and stakeholders in time, in a correct, complete, comprehensible, easy way and in a way accessible with the lowest cost as much as possible and under equal conditions and giving the necessary information so that the information transmitted can be interpreted correctly. Ensuring that all kinds of questions directed by shareholders and stakeholders are answered as soon as possible and correctly by establishing the necessary coordination; showing necessary care for protection of inside information in the information shared. Fulfilling the Company s liability of public disclosure about important developments which might affect the value of capital market instruments of the Company that are traded at the stock exchange within the scope of Capital Market Legislation and/or which might be effective in the investment decisions of investors. Overseeing that financial reports are prepared quarterly in compliance with capital market legislation and ensuring that they are announced to the public within the legal periods stipulated. Carrying out relations with current and potential investors. Overseeing that General Meetings are held in compliance with the legislation in effect, the articles of association and the Corporate Governance Principles published by the Capital Markets Board and that General Meeting results are maintained in a healthy way. Ensuring that Investor Relations sections with Turkish and English language options on the web site of the company are used actively in public disclosure; ensuring that material disclosures, informative presentations, relevant corporate details and in general, the information and data stipulated by regulatory authorities and Capital Markets Board Corporate Governance Principles are included in updated form. Observing the Corporate Governance Principles announced by the Capital Markets Board in activities of informing shareholders and stakeholders and public disclosure. Reporting to Corporate Governance Committee and the Board of Directors in periods of 6 and 12 months and in other periods deemed necessary about the activities of the Investor Relations Department. Monitoring share price performance and making suggestions for improving price performance. Preparing reports for the compliance of the Company with the Corporate Governance Principles published by the Capital Markets Board and making suggestions about this issue. The Investor Relations Department has responded to information requests presented by telephone, or in face-to-face investor interviews in a detailed way within the scope of IS Investment Information Policy, has participated in meetings inland and abroad and has been organizing teleconferences since the day it was established. In certain periods, necessary IS INVESTMENT