8.05 AA(Trk)/bbb (STABLE)

Corporate Governance Score & Outlook TURKEY Corporate Governance Rating Report This Report has been prepared by JCR-ER in compliance to the regulations of Capital Market Board of Turkey Shareholders Public Disclosure & Transparency Stakeholders Board of Directors Analyst: Ceyhun KIR/ +90 212 352 56 73 ceyhunk@jcrer.com.tr Trade Name Address Chairman CEO Investor Relations Web Corporate Governance Company Information IHLAS EV ALETLERI IMALAT SAN. VE TIC. A.Ş. 8.05 AA(Trk)/bbb (STABLE) 7.55 AA(Trk)/bb () 8.59 AAA(Trk)/a () 7.61 AA(Trk)/bb () 8.21 AA(Trk)/bbb () Merkez Mah.29 Ekim Cad. Ihlas Plaza No:11 B/21 Yenibosna Bahçelievler/ İSTANBUL ABDULLAH TURALI SEDAT KURUCAN Phone: +90.212.875.35.62 yatirimci@iea.com.tr www.iea.com.tr UGUR KURT İHLAS EV ALETLERİ İMALAT SAN.VE TİC.A.Ş. Revised Report NON-FINANCIAL F i n a n c i a l D a t a 2012* 2011* 2010* 2009* 2008* 2007* 2006* Total Assets (000 USD) 171.143 151.307 187.185 192.65 118.34 98.651 44.331 Total Assets (000 TRY) 304.223 285.803 289.389 289.085 178.965 114.898 62.312 Equity (000 TRY) 218.127 203.455 231.488 232.485 111.928 84.004 33.977 Net Profit (000 TRY) 17.631-25.924 5.315-702 -23.996 5.702 1.205 Net Profit Margin (%) 17.42-26.10 5.22-0.78-31.11 8.00 1.68 ROAA (%) 8.00-11.14 1.85 0.84-17.66 8.65 2.41 ROAE (%) 11.20-14.73 2.31 1.14-26.48 12.99 4.43 Equity/Assets (%) 71.70 71.19 79.99 80.42 62.54 73.11 54.53 Debt Ratio (%) 28.30 28.81 20.01 19.58 37.46 26.89 45.47 Asset Size Growth Rate (%) * End of year Overview 6.44-1.24 0.10 61.53 55.76 84.39 3.43 İhlas Ev Aletleri İmalat Sanayi ve Ticaret A.Ş. (IHEVA or the Company) was incorporated on December 5, 1975 under the name of Hizmet Gazetecilik ve Matbaacılık Ltd. Şti and began operating under its current name on July 5, 1995. The Company produces cleaning robots, water purification systems and water heaters at two facilities covering 21,000 m2 within the Beylikdüzü organized industrial zone. Products are sold on the domestic market through İhlas Pazarlama A.Ş. s widespread distribution channels and are exported to over 30 countries, including those of the European Union and Turkic Republics. The separate, specialist-managed Shareholder Relations Unit conducts shareholder relations, organizes General Assembly meetings and is responsible for public disclosures. Company shares have been listed on the ISE under the code of IHEVA since September 26, 1996 and are included in the ISE National 100 Index. 74.83% of shares are publicly traded as of August 2013. The Company s equity stood at TL194 mn, and asset size and sales reached TL284 mn and TL27 mn as of March 2013, respectively. The Board of Directors is composed of 7 members, 3 of which are independent, five members are non-executive. Additionally, Audit, Corporate Governance and Risk Committees have been established within the Board and are chaired by independent board members. Strengths Constraints A female member existing in the Board An effective transparency platform in Turkish through the Company s website Continuation of a strong staff commitment More effective implementation for General Meeting Process Increase in the environmental protection activities The vote of privileged shareholders in determining the Board of Directors Non-disclosure of the remuneration per person provided to senior management Absence of regulations in the articles of incorporation for the invitation of stakeholders and the media to the General Meeting Absence of any union organization among the employees Publication Date: August 1, 2013 Global Knowledge supported by Local Experience Copyright 2011 by JCR Eurasia Rating. Nispetiye Cad.Firuze Sok. Ceylan Apt. No:1-D:8 Akatlar/İSTANBUL Telephone: +90.212.352.56.73 Fax: +90 (212) 352.56.75 Reproduction is prohibited except by permission. All rights reserved. All of the information has been obtained from sources JCR ER believes are reliable. However, JCR-ER does not guaranty the truth, accuracy, adequacy of this information. A JCR ER Rating is an objective and independent opinion as to the creditworthiness of a security and issuer, not a recommendation to buy, hold, sell any security and to issue a loan. This rating report has been composed within the frameworks of SPK (Capital Markets Board of Turkey) regulations and internationally accepted rating principles and guidelines. http://www.jcrer.com.tr

1- Executive Summary and Rating Rationale This revised report was prepared in light of JCR-ER s original methodological procedures in accordance with the Corporate Governance Principles (the code) set by the Capital Market Board (CMB-Turkish SPK) and states the İhlas Ev Aletleri İmalat San. Ve Tic. A. Ş. s (İHEVA or the Company) level of compliance level with corporate governance principles as of August 2012. The report should be evaluated taking into consideration the previous reports published on 28.12.2010, 20.12.2011 and 27.09.2013 to better understands the Company s compliance level. CMB Corporate Governance Principles (the code) were first published in 2003 and important revisions and changes were made at the beginning of 2012. The Principles, detailed in communiqué Serial: IV, No: 56 are accessible on www.spk.gov.tr The Board of Directors, shareholders rights, stakeholders rights and Company s practices in terms of public disclosure and transparency have been assessed within the framework of CMB regulations and information as well as findings ascertained therein and have been quantified by assessments regarding weighting factors on which JCR ER has predicated the subcategories. Subject to the preservation of integrity of regulations by the CMB and compliance with the limitations thereof, this revised report also covers such topics as implementations regarding Outlook determinations and Financial Efficiency analyses all of which exist in JCR ER s original methodological structure. Findings and assessments within the content of the report are based on information and documents disclosed by the Company to the public through various channels and also submitted to JCR ER in writing and verbally, as well as reports and statistics by the CMB and CRA(Central Registry Agency). Through the analysis of JCR ER s original methodology, the general compliance level of the Company with corporate governance principles as of August 2013 and the corresponding levels within the JCR ER s notation have been determined as follows; Numerical value is 8.05, Convergence Level AA(Trk) representing the category of Merit Compliance, Notch degree (bbb) representing the category of outsatnding, Outlook () First Corporate Governance Principles Compliance scores, as published on 28.12.2010, can be seen in the table below; Fields Numerical Value Shareholders 57.69 Public Disclosures and Transparency 81.15 Stakeholders 66.27 Board of Directors 73.62 Overall 71.17 28.12.2010 Convergence Notch Degree Outlook Level B (Trk) (Insufficient ) AA (Trk) (Merit) A (Trk) (Satisfactory) AA (Trk) (Merit ) AA (Trk) (Merit ) (c) (Borderline) (bbb) (Outstanding) Positive (ccc) (Average) Positive (b) (Adequate) Positive (b) (Adequate) Positive Through both 12 months of observation from December 28, 2010 as well as a comprehensive review done in December 2011, the conclusions reached by JCR ER and corresponding notation are shown in the following table; Fields Numerical Value Shareholders 68.07 Public Disclosures and Transparency 80.36 Stakeholders 68.33 Board of Directors 73.97 Overall 73.88 20.12.2011 Convergence Notch Degree Outlook Level A (Trk) (Satisfactory ) AA (Trk) (Merit) A (Trk) (Satisfactory) AA (Trk) (Merit ) AA (Trk) (Merit ) (ccc) (Average) (bbb) (Outstanding) (ccc) (Average) (b) (Adequate) (b) (Adequate) Through both 9 months of observation from December 20, 2011 as well as a comprehensive review done in September 2012, the conclusions reached by JCR ER and corresponding notation are shown in the following table: 1

27.09.2012 Fields Numerical Value Shareholders 72.73 Public Disclosures and Transparency 80.50 Stakeholders 70.65 Board of Directors 79.18 Overall 76.75 Convergence Notch Degree Outlook Level AA (Trk) (b) (Merit ) (Adequate) AA (Trk) (bbb) (Merit) (Outstanding) AA (Trk) (b) (Merit) (Adequate) AA (Trk) (bb) (Merit ) (Good) AA (Trk) (bb) (Merit ) (Good) Finally, through both 10 months of observation from September 27, 2012 as well as a comprehensive review done in August 2013, the conclusions reached by JCR ER and corresponding notation are shown in the following table Fields Numerical Value Shareholders 75.45 Public Disclosures and Transparency 85.90 Stakeholders 76.05 Board of Directors 82.13 Overall 80.49 01.08.2013 Convergence Notch Degree Outlook Level AA (Trk) (bb) Merit Good AAA (Trk) (a) Distinctive Excellent AA (Trk) (bb) Merit Good AA (Trk) (bbb) Merit Outstanding AA (Trk) (bbb) Merit Outstanding JCR ER s notation system may be viewed at: http://www.jcrer.com.tr/administrator/files/436_kyder_notation.pdf Outlook Corporate Governance Overall Results 8.05 AA (Trk)/bbb The outlook has been determined as considering that the Company is expected to maintain its current compliance level in the monitoring period to come. 2- Company Overview IHEVA was incorporated on December 5, 1975 under the name of Hizmet Gazetecilik ve Matbaacılık Ltd. Şti and, following changes in name on May 2, 1990, July 30, 1990, and January 01, 1994, began operating under its current name on July 5, 1995. The Company produces cleaning robots, water purification systems, water heaters, and their plastic components at two facilities in the Beylikdüzü organized industrial zone. IHEVA is also the widespread dealers and marketing channels of its distributor İhlas Pazarlama A.Ş. The Company offers its products mainly on the domestic market and exports to over 30 countries, including those of the European Union and Turkic Republics. Company shares have been listed on the ISE under the code of IHEVA since December 26, 1996. As of July 2013 74.83% of shares are publicly traded. Additionally, the Company has been listed on in the ISE National 100 Index since October 1, 2007 and the Corporate Governance index since December 29, 2010. Information on the Company s affiliates and subsidiaries is given in Table 2 in the Appendix. 2

Beginning in 2006, the Company focused on and made important investments in the mining and energy sectors. According to March, 2013 consolidated financial statements, the Company s equity stood at TL191Mn and its asset size and sales reached TL284Mn and TL27Mn, respectively. Balance sheet items and ratios that reflect the Company s financial structure are exhibited in Table 3 of the Appendix. As of August 2013, a total of 298 workers were employed by the Company, 91 of which were administrative staff members. The Board of Directors is composed of 7 members, three of which are independent. Furthermore, the five members have nonexecutive position in the Company. The qualifications of the Board members are detailed in Table 4 of the Appendix. 3- Shareholders This section on the shareholders compliance with CMB Principles includes rules and practices covering the rights of company shareholders and the facilitating of the exercise of these rights. Through the 10 months of observation period, compliance in the Shareholder field has been improved further to 7.55 from a score of 7.27. The primary reasons behind this increase are that the effective operation of the investor relations department lead to greater shareholder information sharing and a more effective general meeting process was implemented JCR-ER changed the coefficients of the subsections and standards in the main section. The corresponding level of this note in JCR ER s notation system is outlined below: Numerical value is 7.55, Convergence Level AA(Trk) representing the category of Merit Compliance, Notch degree (bb) representing the category of Good, Outlook () Shareholders Results 7.55 AA(Trk)bb Activities carried out during the monitoring period in the Shareholder field: IHEVA s 2012 general meeting was held on Thursday March 29, 2013 at 10:00 and the privileged shareholders general meeting was held on the same day at 12:00 at İhlas Holding s Headquarters located at Merkez Mahallesi 29 Ekim Caddesi İhlas Plaza No: 11Yenibosna- Bahçelievler/İstanbul. Our analyst attended the meetings as a monitor. All measures were taken to facilitate the attendance of Company shareholders and all preparations were carried out according to Code. The meeting was run by the chairman according to democratic rules, all agenda items were discussed separately, shareholders were able to express their opinions, all agenda items were voted on through a show of hands and voting outcomes were recorded in the minutes. Following the meeting all related documents were released to the public on the company s website within a reasonable time period. The Investor Relations Department received 33 inquiries through email and telephone during the monitoring period. The Company has declared that all inquiries were answered. Any investor information meeting was not held with the Investor Relations Department and senior management during the monitoring period. According to the Company s 2012 legal records, no dividend was distributed due to the fact that the previous years losses were deducted from current year profit. After approval of retention by the Shareholders at the general meeting, the dividend distribution table was disclosed to the public via the company s website and the PDP following the general meeting. Seventeen items were amended in the articles of incorporation during the 2012 general meeting. Information regarding these changes was presented to the shareholders prior to the meeting. 3

Mr. Murat MEMİOĞLU was appointed as an independent member replacing board members Mr. Ahmet OLGUN. No shareholders have canceled any agreement or opened any lawsuit against the Company. Outlook JCR-ER is of the opinion that during the monitoring period the Company maintained its level of compliance with the Code in the Shareholders field. For this reason, the Outlook for this section has been determined as. 4- Public Disclosure and Transparency The compliance level of the Company with the rules and implementations in the Public Disclosure and Transparency section has been increased to 8.59 from 8.05. The primary reasons behind this increase are that the Turkish website content is kept up to date and comprehensive annual reports were published. This important main section focuses on the disclosure of information and documents needed by shareholders and stakeholders while protecting trade secrets The Company s level in this field and their corresponding notes are outlined below; Numerical value of 8.59, Convergence Level AAA(Trk) representing the category of Distinctive Compliance, Notch degree (a) representing the category of Excellent, Outlook () Activities carried out during the monitoring period in the Public Disclosure and Transparency field: The company s website is kept up to date in Turkish. Significant improvements in the Company s organizational structure and operations are published in a timely manner. The 2012 annual report was also published with high compliance level with the code. The Company disclosed a total of 34 notifications to the PDP in the monitoring period. Following these disclosures not further information was requested. A link to the PDP is available on the Company s internet site. The Company s quarterly financial statements were regularly publically disclosed on its internet site. The Company was not delisted on the BIST. Annual figures for 3rd-party commercial and financial relations were disclosed to the public via the Company s internet site. All IHEVA share transactions conducted by managers with access to important company information were disclosed to the public through the PDP and internet site. The independent audit firm was changed in the monitoring period. The Company will be audited next year by Bilgili Bağımsız Denetim ve Yeminli Mali Müşavirlik A.Ş. Outlook JCR-ER is of the opinion that the Company will maintain its level of compliance with Code in the Public Disclosure and Transparency field during the upcoming monitoring period. For this reason, the Outlook for this section has been determined as. 5- Stakeholders Public Disclosures & Transparency Results 8.59 AA (Trk)/bbb With the exception of upper-level managers, a company s employees, customers, suppliers, creditors, public authorities and the public in general are considered as the stakeholders of an institution. The rules and practices in this main section primarily aim to secure the rights of stakeholders and to facilitate the exercise of their rights, thus to maximize their contributions to the institution. The compliance level of the Company with the rules and implementations in the Stakeholders section has been increased to 7.61 from 7.07. The primary reason 4

behind this increase is that developments about the environmental protection activities. At the end of the monitoring period and according to JCR-ER s original methodology, the Company s level of compliance in the Stakeholder field is outlined below; Numerical value of 7.61 Convergence Level AA(Trk) representing the category of Merit Compliance, Notch degree (bb) representing the category of Good, Outlook () Additionally four lawsuits also resulted against the Company in the monitoring period. There are no warning and penalty which were given by the regulatory bodies. No donations were made during monitoring period. The Company has initiated the carbon footprint report this year in scope of the Carbon Disclosure Project. Additionally, the contract through TÜKÇEV for the Company s recycling is ongoing. Outlook JCR-ER is of the opinion that during the following monitoring period the Company will maintain its level of compliance with the code in the Stakeholders field. For this reason, the Outlook for this section has been determined as. 6- Board of Directors Stakeholders Results 7.61 AA (Trk)/bb Activities carried out during the monitoring period in the Stakeholder field: The Company hired 105 new employee, 74 employees left the company for various reasons and 3 employee retired in the monitoring period. Seven lawsuits were opened against the Company by employees. These lawsuits are currently ongoing. IHEVA products reach the final customer through İhlas Pazarlama A.Ş. For this reason, customer complaints are received by the marketing company, although IHEVA plays an active role in the resolving of these complaints. During the monitoring period 19.475 complaints were received by the call center. Of these, 95% have been resolved and 5% are ongoing. Five lawsuits were opened against the Company by customers and vendors. This section consists of the board functions, qualifications, duties, powers and responsibilities of its members and the upper-level managers, and rules and practices related with established systems for effective supervision and control. The compliance level of the Company with the rules and implementations in the Board of Directors section has been increased to 8.21 from 7.92. The primary reasons behind this increase are that a more effective risk management was implemented and the risk committee was established within scope of Board of Directors. At the end of the monitoring period and according to JCR-ER s original methodology, the Company s level of compliance in the Board of Directors field is outlined below; Numerical value is 8.21, Convergence Level AA(Trk) representing the category of Merit Compliance, Notch degree (bbb) representing the category of Outstanding, Outlook () 5

Board of Directors Results 8.21 AA (Trk) /bbb maintain its sufficiency to meet funding requirements needed for sustainability and improvement capability of Ihlas Ev Aletleri compliance level to corporate governance principles. Although the Company has exhibited a fluctuating growth trend since the year of 2005, it has materialized a cumulative asset growth at the rate of 376.14% during this period. Activities carried out during the monitoring period in the Board of Directors field: The Board of Directors was acquitted at the general meeting held on March 29, 2013. Mr. Murat MEMIOGLU was approved by shareholders in the general meeting as an independent member of the Board, this change were disclosed in a timely manner to the PDP. There were no changes in the top management. The risk committee was established in scope of the Board and Mr. Tolga SONMEZ was appointed as the chairman, Mr. Mehmet KUSMEZ was appointed as the member of committee. The Board of Directors held 17 meetings as of 30.06.2013. All votes and decisions made during these meetings were recorded in the minute book and archived in accordance with the Code. The Audit Committee held 4 meetings in monitoring period. All decisions reached during these meetings were forwarded to the Board as suggestions. The Corporate Governance Committee held 4 meetings in monitoring period. All decisions reached during these meetings were forwarded to the Board as suggestions. Outlook JCR-ER is of the opinion that the Company will maintain its level of compliance with Code in the Board of Directors field during the following monitoring period. For this reason, the Outlook for this section has been determined as. 7- Financial Efficiency Since the year of 2009, the Company s equity capital s absolute and relative amounts have suffered from erosion by reason of negative profitability during the same period. However, its equity capital s high amount in source composition is at a level which is expected to The Company, generating loss since 2006 cumulatively from the aspect of basic profitability performance indicators like ROAA and ROAE, reached a sufficient level of profit generation in as of 2012. 20.00 15.00 10.00 5.00 - -5.00-10.00-15.00-20.00-25.00 ROAA (%) ROAE (% ) -30.00 2006 2007 2008 2009 2010 2011 2012 ROAA (%) 2.41 8.65-17.66 0.84 1.85-11.14 8.00 ROAE (% ) 4.43 12.99-26.48 1.14 2.31-14.73 11.20 It can be noted that the Company owns adequate capital structure within its balance sheet composition because the largest source of the Company exhibiting also the fastest growth rate is its equity capital in its present structure. 6

compliance level with the corporate governance principles. 8- Appendices (4 Tables) Since 2006, the Company leverage ratio has retreated back from 45.47% to the rate of 29.21% and its equity capital share against its liabilities has increased significantly. Fast increase of its equity capital raised balance sheet cash items in significant amount to the extent that it improved liquidity ratios and this situation helped the maintenance of increase in working capital. On the other hand, the fact that the Company bought shares of the Group companies deteriorated the liquidity and cash ratios. Commitment and contingency risks, forming by reason of on-balance-sheet and off-balance-sheet transactions are very high. Even currency and interest rate risks are compatible with ratios in the sector in general; profitability is one of the most important inputs of its stability. In conclusion, although high equity capital level which IHEVA has maintained in its balance sheet during the previous 7 years has been pressed downwards due to negative profitability performance, it is adequate to contribute to the sustainability of the Company s 7

TABLE: 1 İHLAS EV ALETLERİ İMALAT SANAYİ VE TİCARET ANONİM ŞİRKETİ SHAREHOLDING STRUCTURE 2008 2009 2010 2011 2012 August 2013 TL (000) 95,685 191,370 191,370 191,370 191,370 191,370 USD (000) 63,271 127,532 123,784 101,313 105,934 100,721 Share Share Share Share Share Share Shareholders % % % % % % İhlas Holding A.Ş 25.96% 17.60% 4.18% 7.32% 7.32% 7.32% İhlas Pazarlama Yatırım Holding A.Ş. 0.00% 0.00% 17.60% 17.60% 17.60% 17.60% Ahmet Mücahit ÖREN 0.00% 0.23% 0.23% 0.23% 0.23% 0.23% Ali Tubay GÖLBAŞI 0.00% 0.02% 0.02% 0.02% 0.02% 0.02% Other 0.25% Public 73.79% 82.15% 77.97% 74.83% 74.83% 74.83% Total 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 8

TABLE: 2 As of August 2013 Share % Consolidated Subsidiaries 1-İhlas Madencilik A.Ş. 62.25% 2-Mir Maden Işletmeciligi Enerji ve Kimya San.Tic.Ltd.Şti. 51.50% 3-Detes Enerji Üretim A.Ş. 99.84% Unconsolidated Subsidiaries 1-İhlas Mining Ltd. Şti. 56.02% 2-İhlas Gazetecilik A.Ş. 1.03% 9

TABLE: 3 İHLAS EV ALETLERİ İMALAT SAN.VE TİC.A.Ş. F i n a n c i a l D a t a 2012* 2011* 2010* 2009* 2008* 2007* 2006* Total Assets (000 USD) 171.143 151.307 187.185 192.65 118.34 98.651 44.331 Total Assets (000 TRY) 304.223 285.803 289.389 289.085 178.965 114.898 62.312 Equity (000 TRY) 218.127 203.455 231.488 232.485 111.928 84.004 33.977 Net Profit (000 TRY) 17.631-25.924 5.315-702 -23.996 5.702 1.205 Net Profit Margin (%) 17.42-26.10 5.22-0.78-31.11 8.00 1.68 ROAA (%) 8.00-11.14 1.85 0.84-17.66 8.65 2.41 ROAE (% ) 11.20-14.73 2.31 1.14-26.48 12.99 4.43 Equity/Assets (%) 71.70 71.19 79.99 80.42 62.54 73.11 54.53 Debt Ratio (%) 28.30 28.81 20.01 19.58 37.46 26.89 45.47 Asset Size Growth Rate (%) 6.44-1.24 0.10 61.53 55.76 84.39 3.43 * End of year 10

TABLE: 4 BOARD OF DIRECTORS Name Task Profession Abdullah TURALI Chairman Chartered Accountant Election Date Experience (Year) Education Executive/ Non Executive Independent/ Not Independent 10.05.2004 36 University Non-Executive Not Independent Committee Membership Sedat KURUCAN Vice-President Mechanical Engineer 17.12.2002 30 Master Executive Not Independent Mehmet KÜSMEZ Member Financial Officer 16.03.2001 25 University Executive Not Independent Risk Committee Member H. Alev VOLKAN Member Accountant 31.05.2012 43 University Non-Executive Not Independent Corp. Gov. Committee Member Tolga SÖNMEZ Member Financial Officer 31.05.2012 16 University Non-Executive Independent Risk Committee Chairman, Audit Committee Member Salman ÇİFTÇİ Member Accountant 31.05.2012 20 University Non-Executive Independent Audit Committee Chairman Murat MEMİOĞLU Member Engineer 04.03.2013 16 University Non-Executive Independent Corp. Gov. Committee Chairman 11