One ring to hold them all

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18 May 2004

Dogus

Dogus Otomotiv

Otomotiv

One ring to hold them all

Sinan Velioglu Sinan Velioglu Sinan Velioglu Sinan Velioglu (+90) 212 252 4959 [email protected] Murat Gulkan Murat Gulkan Murat Gulkan Murat Gulkan (+90) 212 252 4648 [email protected] Deutsche Bank AG Deutsche Bank AGDeutsche Bank AG Deutsche Bank AG

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be awareDeutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

that the firm may have a conflict of interest that could affect the objectivity of this report.that the firm may have a conflict of interest that could affect the objectivity of this report. that the firm may have a conflict of interest that could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision. Investors should consider this report as only a single factor in making their investment decision.Investors should consider this report as only a single factor in making their investment decision. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCHDISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH

Initial Public Offering

One stop shop in the Turkish automotive One stop shop in the Turkish automotiveOne stop shop in the Turkish automotive One stop shop in the Turkish automotive business

businessbusiness business

Dogus Otomotiv is the exclusive Turkish importer and distributor of VW, Audi, Porsche, Scania, Seat and Skoda. With imports accounting for more than half of the total motor vehicle sales volumes in Turkey, Dogus Otomotiv has 12% market share with no fixed investments and provides a one stop shop for all aspects of the automotive business. The Dogus Group, which fully owns the company, plans to offer a 34.5% stake (30% plus 4.5% over–allotment option) to the public. GlobalGlobalGlobalGlobal Equi ty Res Eq ui ty Res Eq ui ty Res Eq ui ty Res

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18 May 2004

Dogus Otomotiv

One ring to hold them all

Sinan Velioglu Sinan Velioglu Sinan Velioglu Sinan Velioglu (+90) 212 252 4959 [email protected] Murat Gulkan Murat Gulkan Murat Gulkan Murat Gulkan (+90) 212 252 4648 [email protected]

One stop shop in the Turkish automotive business One stop shop in the Turkish automotive businessOne stop shop in the Turkish automotive business One stop shop in the Turkish automotive business

Dogus Otomotiv is the exclusive Turkish importer and distributor of VW, Audi, Porsche, Scania, Seat and Skoda. With imports accounting for more than half of the total motor vehicle sales volumes in Turkey, Dogus Otomotiv has 12% market share with no fixed investments and provides a one stop shop for all aspects of the automotive business. The Dogus Group, which fully owns the company, plans to offer a 34.5% stake (30% plus 4.5% over-allotment option) to the public.

Deutsche Bank AG Deutsche Bank AGDeutsche Bank AG Deutsche Bank AG

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be awareDeutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.

that the firm may have a conflict of interest that could affect the objectivity of this report.that the firm may have a conflict of interest that could affect the objectivity of this report. that the firm may have a conflict of interest that could affect the objectivity of this report.

Investors should consider this report as only a single factor in making their investment decision. Investors should consider this report as only a single factor in making their investment decision.Investors should consider this report as only a single factor in making their investment decision. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCHDISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH

Initial Public Offering

Market data Market data Market data Market data XU 100: TL15,922 Exchange rate: 1$ = TL1,524,600 Dogus Dogus Dogus

Dogus Otomotiv’s ownership structure - 1Q04Otomotiv’s ownership structure - 1Q04Otomotiv’s ownership structure - 1Q04Otomotiv’s ownership structure - 1Q04

Dogus Insaat ve Ticaret A.S. 50.1% Others

1.2%

Som tas Tarim ve Ticaret A.S. 20.0% Dogus Yapi Sanayi A.S. 10.0% T. Garanti Bankasi A.S. 18.8%

Source: Company data

Turkish motor vehicles market (1995-2005E) Turkish motor vehicles market (1995-2005E) Turkish motor vehicles market (1995-2005E) Turkish motor vehicles market (1995-2005E)

0 50,000 100,000 150,000 200,000 250,000 300,000 350,000 400,000 450,000 500,000 199519961997199819992000200120022003 2004E 2005E 0% 10% 20% 30% 40% 50% 60%

Passenger Cars Com mercial Vehicles Im ports Im ports

Source: Automotive Manufacturers' Association, Deutsche Bank and Bender Securities estimates

Dogus Dogus Dogus

Dogus Otomotiv’s market share (1995- 2005E)Otomotiv’s market share (1995- 2005E)Otomotiv’s market share (1995- 2005E)Otomotiv’s market share (1995- 2005E)

0% 3% 6% 9% 12% 15% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 2005E

Source: Automotive Manufacturers' Association, Company data, Deutsche Bank and Bender Securities estimates

Car park per 1,000 people and growth in Europe Car park per 1,000 people and growth in Europe Car park per 1,000 people and growth in Europe Car park per 1,000 people and growth in Europe

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Czech Republic

Slovenia Rom ania Austria Slovakia Hungary Turkey

Source: JD Power-LMC

Vehicle to gain exposure to the vibrant Turkish auto sector Vehicle to gain exposure to the vibrant Turkish auto sectorVehicle to gain exposure to the vibrant Turkish auto sector Vehicle to gain exposure to the vibrant Turkish auto sector

As a pure importer, Dogus Otomotiv offers an alternative way of gaining exposure to the recovering Turkish auto market than the local original equipment manufacturers (OEMs) which have transformed into exporters for their parent companies’ European operations. Last year, imports accounted for 67% of the Turkish passenger car (PC) market and more than half of the total motor vehicles market. Furthermore, while PC sales volumes rose 126%, capacity utilisation remained at a mere 41%.

Local know-how bolsters strong branding Local know-how bolsters strong brandingLocal know-how bolsters strong branding Local know-how bolsters strong branding

Imports, especially from Germany, are perceived as high quality performance cars in Turkey and customers throughout Europe are prepared to pay a premium for a brand such as VW, even in the volume segment. In addition to the strong brand image of the cars, Dogus Otomotiv brings local know-how, access to customers and its relationships with dealers and other parties involved in the business. Dogus Group, with its service-oriented strategy, bolsters the strong branding and has increased VW’s market share through the years.

Attractive business model, but much depends on VW Attractive business model, but much depends on VWAttractive business model, but much depends on VW Attractive business model, but much depends on VW

We value Dogus Otomotiv between $562m and $732m. In our view, the main risk associated with Dogus Otomotiv, other than the highly volatile nature of the Turkish automotive sector and the currency fluctuation, is the company’s dependence on one supplier, namely Volkswagen AG. Despite the strong and proven partnership between VW and Dogus Otomotiv, VW could impose a new pricing policy to lower margins or even, in the extreme case, terminate its distribution agreement with Dogus Otomotiv, simply by giving 12 months’ advance notice. Yet, we feel that this risk is negligible, as evidenced by VW’s decision to invest in a JV consumer finance company, VDF– the only one of its kind for VW.

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Automotives Dogus Otomotiv USD Page FYE 31-Dec

PER SHARE DATA 2001 2002 2003 2004E 2005E

Earnings per Share (USc) -0.14 -0.09 0.13 0.21 0.21

Cash Flow per Share (USc) -0.12 0.00 0.29 0.12 0.20

PROFIT & LOSS (USD m) 2001 2002 2003 2004E 2005E

Net Sales 270 281 914 1,686 1,647 COGS -231 -229 -789 -1,464 -1,431 Gross Earnings 39 51 124 222 217 EBITDA -24 -1 76 143 139 EBITDA Margin (% ) -8.8% -0.3% 8.3% 8.5% 8.5% D&A -5 -7 -8 -8 -8 EBIT -29 -7 68 134 131 EBIT Margin (% ) -10.9% -2.7% 7.4% 8.0% 8.0%

Net Int erest: income/(expense) -3 -49 12 2 4

Equity Income (pre-t ax) -3 -1 -6 0 0

Extraordinaries (pre-tax) 5 17 2 2 1

EBT -30 -40 75 138 136

Income Tax: income/(expense) -15 11 -17 -46 -46

Equity Income (post -t ax) 0 0 0 0 0

Extraordinaries (post -t ax) 0 0 0 0 0

Minority Interests -1 0 1 0 0

Net Earnings -47 -30 59 92 91

Net Margin (% ) -17.3% -10.6% 6.4% 5.4% 5.5%

Earnings Pre-Extraordinaries -47 -30 59 92 91

Normalized Net Earnings -49 -46 55 90 89

CASH FLOW (USD m) 2001 2002 2003 2004E 2005E

EBITDA -24 -1 76 143 139

Taxes -15 11 -17 -46 -46

Divs t o Board Members and Employees 0 0 0 -5 -5

Cash Flow -39 10 59 92 89

Capex 0 0 0 -5 -5

Change Net Working Capit al 0 -12 65 -35 1

Unlevered Free Cash Flow -39 -1 124 52 85

BALANCE SHEET (USD m) 2001 2002 2003 2004E 2005E

Current Assets 152 111 205 289 317 Cash 76 55 69 96 128 Trade Receivables 14 14 48 76 74 Inventory 44 34 80 105 102 Ot her Asset s 19 8 10 12 12 Long-Term Assets 109 137 147 153 153 Net Tangibles 92 59 67 70 70 Net Intangibles 7 3 2 2 2

Net Goodw ill 0 0 0 0 0

Af filiates & Ot her Asset s 10 76 78 81 81

Total Assets 261 248 352 442 469

Current Liabilities 113 89 137 215 211

Trade Payables 81 75 100 174 170

Short -Term Debt 23 5 19 19 19

Ot her Payables & Other Liabilit ies 10 9 18 23 23

Long-Term Liabilities 43 65 33 47 46

Trade Payables 24 32 21 37 36

Long-Term Debt 7 30 8 5 5

Deferred Taxes & Other Liabilities 11 3 4 5 5

Total Liabilities 156 154 169 262 257

Minorit ies 6 4 6 6 6

Majority Equity 100 90 177 174 206

Total Equity 106 94 183 180 212

Total Liabilities & Equity 261 248 352 442 469

SHARES 2001 2002 2003 2004E 2005E

Shares (m) 33,000 33,000 43,381 43,381 43,381 Source: Company data, DB and Bender estimates

[email protected] + 90 212 252 4959 Sinan Velioglu

Margin Trends (% ) -20% -15% -10% -5% 0% 5% 10% 2001 2002 2003 2004 2005

EBITDA Margin (%) EBIT Margin (%) Net Margin (%)

Per Share Data

-0.20 -0.15 -0.10 -0.05 0.00 0.05 0.10 0.15 0.20 0.25 0.30 0.35 2001 2002 2003 2004 2005

Earnings per Share (USc) Cash Flow per Share (USc)

Return on Capital (% ) -60% -40% -20% 0% 20% 40% 60% 2001 2002 2003 2004 2005 ROE (%) ROA (%)

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Deutsche Bank AG Page 5

Executive summary

Outlook

In our view, the Turkish automotive sector represents an impressive turnaround story. Even though sales grew by 126% in 2003, this figure was still lower than the ten-year average. Declining interest rates and pent-up demand from 2001 and 2002 saw the sector break sales records for four consecutive months in 2004 leading to a further 272% YoY increase between January and April 2004. There is still further room for growth as the car park per capita in Turkey (96) is less than half of that of the emerging European country average (200). Therefore, even though we anticipate a 10% decline in sales volumes in 2005, we feel that Turkey can maintain a 4.5% CAGR in vehicle sales volumes. This is due to the low inflation-low interest rate environment, sustainable GDP growth of 5% pa and expected start to accession talks for potential membership into the EU.

Despite the favourable environment, we believe that local OEMs such as Ford and Tofas have failed to fully exploit this growth as they have transformed into low cost production centres for light commercial vehicles for the European operations of their parent companies. Imports now represent 67% of the passenger car segment, compared to 15% in 1995, the year before the Customs Union agreement came into effect. However, the local OEMs’ import businesses are low margin compared to the pure importers as this is not their main line of business.

In our view, Dogus Otomotiv, the third largest distributor in Turkey, has much to gain in this competitive environment. Capitalising on the strong brand image of the products it imports from VW Group (VW, Audi, Scania, Seat, Skoda) and Porsche, the company has local know-how and a well-established dealer network to provide a one-stop shop. It also offers peripheral products (spare parts and accessories, a used car business, fleet rental, consumer finance, insurance and motor sport events) within the company and printed material (magazines) and programs (tv) related to the automotive sector in the group’s media companies. We believe that Dogus, which is a service-oriented group as epitomised in its banking operations, is particularly good at interacting with the targeted high-end client base. In our view, Dogus Otomotiv offers an alternative way of gaining exposure to Turkey’s vibrant domestic market than the local OEMs.

Valuation

We estimate that Dogus Otomotiv is worth between $562m and $732m based on our discounted cash flow analysis and multiple comparisons with international peers. Note that we apply an 8% discount when valuing the company, which is the maximum amount of distributable profit that can be given to board members and company employees. This item deducts from the value attributable to the shareholders and we believe it should be viewed as a salary payment.

Risks

The Turkish automotive business has proved to be highly volatile over the years, widely depending on the country’s macroeconomic developments despite low car park level per capita. The recent hike in interest rates and currency weakness may curb consumer appetite. Furthermore, while we believe Dogus Otomotiv has added its own value to VW’s brand name and the business relationship is long standing, both companies have the right to terminate the relationship by giving 12 months’ advance notice. Not all of the relevant risk factors associated with Dogus Otomotiv are discussed in this document.

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Table of contents Table of contents Table of contents Table of contents

Executive summary

Executive summary ...

...

...5555

Valuation

Valuation ...

...

... 7777

...

SWOT analysis

SWOT analysis ...

...

...14

...

14

Sector overview

Sector overview ...

...

... 17

17

Pertinent regulations

Pertinent regulations...

...

... 24

...

24

Company overview

Company overview ...

...

... 26

...

26

Company financials

Company financials...

...

... 32

32

Appendix 1: Brands & models

Appendix 1: Brands & models ...

...

... 40

40

Volkswagen

Volkswagen...

...

....

.... 43

....

43

Audi

Audi ...

...

... 45

45

Porsche

Porsche ...

...

...47

47

Scania

Scania...

...

... 48

48

Seat

Seat ...

...

...51

51

Skoda

Skoda...

...

... 54

54

Appendix 2: Taxation

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Valuation

Summary

We value Dogus Otomotiv (DO) between $562m and $732m based on an equally-weighted average of our DCF valuation, fair value based on multiple comparisons with international peers and other valuation techniques. Although the company also owns stakes in complementary businesses such as consumer finance, a motor sports event organisation and insurance, we have not taken these into account as, while they help to foster brand loyalty, their impact on earnings is negligible since they are not consolidated and do not distribute significant dividends.

Note that of the two 50/50 JVs the company owns with the Yuce Group, the company fully consolidates Katalonya Otomotiv (Seat distributor) as it has a controlling stake, but does not consolidate Yuce Auto (Skoda distributor) since it does not control it. As both companies have similar volumes, we believe no adjustments to the top line or at the EBITDA level are necessary when valuing the company.

Our valuations do take into account the fact that the company’s articles of association allow it to distribute up to 4% of the distributable profit to board members and another 4% to company employees. In our view, this should be treated as salaries above the EBITDA line, and therefore we adjust the figures for the full amount when comparing DO with its peers. We also apply a 10% discount to reflect the country risk when comparing DO to companies that operate in more stable countries such as Belgium, Portugal and the UK.

We do not assign a company specific discount rate because Dogus, as a group, is one of the forerunners of implementing corporate governance principles in Turkey. Fitch rated Dogus Holdings’ long-term TL and fx credit rating at B+ with a stable outlook and also gave the group’s retailer, Tansas, a corporate governance rating (7), which is a first for a Turkish company.

Figure Figure Figure

Figure 1111: Dogus : Dogus : Dogus : Dogus Otomotiv: summary valuation table ($m)Otomotiv: summary valuation table ($m)Otomotiv: summary valuation table ($m)Otomotiv: summary valuation table ($m)

Minimum Maximum

Equal-weighted average 562 732

Discounted cash flow analysis (average) 614 796

WACC & terminal growth rate 672 779

Initial motor vehicle sales volume and phase 2 CAGR 564 858

Impact of Euro/dollar parity on Eurozone import prices and volumes 620 824

Impact of BER on new vehicle sales and after sales margins 597 722

Multiple comparisons (average) 643 751

EV/EBIT 714 793

EV/EBITDA 548 594

EV/Sales 660 716

P/E 650 900

Other valuation techniques (average) 387 622

Target P/E using simplified Gordon growth model with payout ratio 428 671

Target P/E using simplified Gordon growth model with return on equity 573 717

P/BV 159 478

Source: Deutsche Bank and Bender Securities estimates

Discounted cash flow

In our base-case scenario, we have applied a WACC of 14.2% and a terminal growth rate of 2%. The WACC is derived from a 10.6% yield on 30-year Eurobonds, which we use as a benchmark for the

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risk-free rate, a 4% equity risk premium and a Beta of 1.0x – which yields a cost of equity of 14.6%. The cost of debt is 6% on $24m outstanding debt and the effective tax rate is 33.5%.

Figure 2222: Dogus : Dogus : Dogus : Dogus Otomotiv: WACC calculationOtomotiv: WACC calculationOtomotiv: WACC calculationOtomotiv: WACC calculation

Risk free rate 10.6%

Risk premium 4.0% Beta 1.0 Cost of equity 14.6% D/E 3.4% Cost of debt 6.0% Tax rate 33.5% WACC 14.2%

A sensitivity analysis applied to our DCF model using the weighted average cost of capital and terminal growth rate as variables derived a valuation range of between $672m and $779m.

Figure 3333: Sensitivity analysis on WACC and terminal growth rate: Sensitivity analysis on WACC and terminal growth rate: Sensitivity analysis on WACC and terminal growth rate: Sensitivity analysis on WACC and terminal growth rate

Dogus Otomotiv fair value ($m) Terminal growth rate

1.0% 1.5% 2.0% 2.5% 3.0%

15.0% 672 681 690 700 711

14.5% 692 701 711 722 733

14.2% 703 712 722 733 745

14.0% 713 723 733 744 756

Weighted average cost of capital

13.5% 735 745 755 767 779

We have conducted a sensitivity analysis with the initial sales volume and phase 2 sales volume CAGR (2006E-2013E) as variables. We think this is useful particularly as our base-case estimate (600,000 units) for DO is lower than that forecast for the local OEMs (between 650,000 and 760,000 units according to local press). As is shown in Figure 4, this yields a valuation range of between $564m and $858m.

Figure 4444: Sensitivity analysis on 2004E motor vehicle sales volume and sales volume: Sensitivity analysis on 2004E motor vehicle sales volume and sales volume: Sensitivity analysis on 2004E motor vehicle sales volume and sales volume: Sensitivity analysis on 2004E motor vehicle sales volume and sales volume growth between 2006E and 2013E

growth between 2006E and 2013E growth between 2006E and 2013E growth between 2006E and 2013E

Dogus Otomotiv fair value ($m) 2004E domestic motor vehicle (PC+LCV) sales volume 500,000 550,000 600,000 650,000 700,000

0.0% 564 615 666 716 767

1.5% 579 631 683 735 788

3.0% 595 649 702 756 810

4.5% 612 667 722 778 833

Sales volume growth rate between 2006E and 2013E

6.0% 630 687 744 801 858

While we have assumed that the company is able to pass on any Euro/TL currency volatility to the end customer, we believe the change in the Euro/dollar parity is a different issue. The continued strengthening of the euro against the dollar means that unless the Eurozone importers alter their margins, they could lose market share to the importers of US and Asian products. Since we do not have hard data on the demand elasticity of motor vehicles to exchange rate parity, we have provided a hypothetical study on the parity change impact on prices and volumes in Figure 5. This analysis yields a valuation range for DO of between $620m and $824m.

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Figure 5555: Sensitivity analysis on impact of Euro/dollar parity change on : Sensitivity analysis on impact of Euro/dollar parity change on : Sensitivity analysis on impact of Euro/dollar parity change on : Sensitivity analysis on impact of Euro/dollar parity change on Eurozone productsEurozone productsEurozone productsEurozone products prices and volumes

prices and volumes prices and volumes prices and volumes

Dogus Otomotiv fair value ($m) Impact on volumes

-5.0% -2.5% 0.0% 2.5% 5.0%

-10% 620 634 648

-5% 671 686 702

0% 722

5% 737 755 773

Impact on prices in $ terms

10% 786 805 824

We have also conducted a sensitivity analysis on the potential impact of Turkey’s adaptation of the new block exemption regulation on motor vehicles, which has already been implemented in the European Union. These regulations may change the relationship between dealers and suppliers (OEMs and importers) and may have an adverse effect on DO’s margins. Accordingly, our fair value range for Dogus Otomotiv is between $597m and $722m using our base case scenario of a WACC of 14.2%, a terminal growth rate of 2%, no change to the Euro/dollar parity and 2004E sales volume of 600,000 units.

Figure 6666: Sensitivity analysis on the impact of BER on new vehicle sales and after sales: Sensitivity analysis on the impact of BER on new vehicle sales and after sales: Sensitivity analysis on the impact of BER on new vehicle sales and after sales: Sensitivity analysis on the impact of BER on new vehicle sales and after sales margins

margins margins margins

Dogus Otomotiv fair value ($m) Impact on after sales margins

-20.0% -15.0% -10.0% -5.0% 0.0%

-10.0% 597 609 620 632 643

-7.5% 617 628 640 651 663

-5.0% 637 648 660 671 682

-2.5% 657 668 679 691 702

Impact on new vehicle sales margins

0.0% 676 688 699 711 722

Multiple comparisons

A multiple comparison based on 2004 and 2005 forecasts leads to a fair value range between $643m and $751m for Dogus Otomotiv. Below, we provide an in-depth analysis of the factors underpinning our valuation.

The listed Turkish OEMs, such as Tofas and Ford Otosan, have been transformed into a low-cost manufacturing hub for their parent companies’ European operations. They also conduct import and distribution business on behalf of their parent companies. However, they are not comparable to Dogus Otomotiv due to their different risk profiles and capital intensity. Therefore, we have opted to compare Dogus Otomotiv with listed European and Asian importers but have applied a 10% country risk discount to reflect Turkey’s more volatile profile.

Figure 7777: Dogus : Dogus : Dogus : Dogus Otomotiv’s peer group as of 14 May 2004Otomotiv’s peer group as of 14 May 2004Otomotiv’s peer group as of 14 May 2004Otomotiv’s peer group as of 14 May 2004

Company Country Presence in other markets Brands Market cap ($m) Enterprise value ($m)

Astra International Indonesia Toyota, Honda, Daihatsu, Isuzu, Nissan 2,215 2,257

Bilia AB Sweden Volvo, Renault, Ford 257 252

Cycle & Carriage Singapore Malaysia Mercedes, Mitsubishi, Proton, Kia, Mazda, VW,

Audi, Porsche, Seat, 1,036 249

D'leteren Belgium Skoda, Bentley, Lamborghini 905 2,532

Inchcape UK Hong Kong, Australia, Greece, Belgium, New

Zealand, Finland, Singapore, Brunei BMW, Mazda, Subaru, Jaguar, Toyota, Lexus,Ferrari, Maserati 1,863 1,716

SAG Portugal Brazil VW, Audi, Skoda, Bentley, Rolls Royce 204 533

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Source: Deutsche Bank and Bender Securities estimates, Bloomberg

Figure 8888: Dogus : Dogus : Dogus : Dogus Otomotiv peer group analysisOtomotiv peer group analysisOtomotiv peer group analysisOtomotiv peer group analysis

Company Sales ($m) EBITDA margin (%) EBIT margin (%)

2003 2004E 2005E 2003 2004E 2005E 2003 2004E 2005E

Astra International 3,712 3,906 4,425 11.6% 13.3% 13.1% 9.2% 10.5% 10.1%

Bilia AB 1,478 1,507 1,567 3.7% 4.0% 4.2% 2.3% 2.6% 2.7%

Cycle & Carriage 1,492 1,718 1,742 4.0% 4.4% 3.9% 3.4% 3.9% 3.4%

D'leteren 3,427 3,929 3,903 18.7% 17.3% 18.5% 4.7% 4.4% 4.4% Inchcape 5,690 6,935 7,245 4.1% 4.4% 3.9% 3.3% 3.7% 3.8% SAG 791 937 1,104 12.0% 14.2% 14.5% 6.1% 8.1% 8.8% Average Average Average Average 2,7652,7652,7652,765 3,1553,1553,1553,155 3,3313,3313,3313,331 9.0%9.0%9.0%9.0% 9.6%9.6%9.6%9.6% 9.7%9.7%9.7%9.7% 4.8%4.8%4.8%4.8% 5.5%5.5%5.5%5.5% 5.5%5.5%5.5%5.5% Dogus Dogus Dogus

Dogus OtomotivOtomotivOtomotivOtomotiv 914914914914 1,6861,6861,6861,686 1,6471,6471,6471,647 8.3%8.3%8.3%8.3% 8.5%8.5%8.5%8.5% 8.5%8.5%8.5%8.5% 7.4%7.4%7.4%7.4% 8.0%8.0%8.0%8.0% 8.0%8.0%8.0%8.0%

Of the companies included in the peer group, D’Ieteren and SAG are importers of VW brands in Belgium and Portugal, respectively. SAG is most similar to Dogus Otomotiv in terms of products and businesses, while D’Ieteren has a significant car rental business with the AVIS group that accounts for 40% of its turnover. Note that SAG recently revised its ongoing contract with VW with a two-year cancellation period in favour of a five-year contract. However, past performance does not guarantee that SAG will retain distribution rights past 2008, especially since VW already distributes vehicles directly in neighbouring Spain.

Bilia is the Swedish car distributor, primarily of Volvo although it is increasingly positioning itself as a service company. Bilia also has significant real estate income (63% of EBIT comes from cars). Inchcape is the leading UK based distributor, although its local market only accounts for 35% of turnover. Astra is the Indonesian importer of mainly Japanese and Korean OEMs with 80% of the revenues derived from vehicle sales. Cycle & Carriage, which imports to Singapore and generates 50% of its revenues from the auto business, also owns a 37% stake in Astra.

Astra, Bilia and Inchcape like Dogus, have little debt/cash if at all. The high debt for SAG is from funding the expansion of auto services operations. D’Ieteren has, on the other hand, a more capital intensive nature that requires financing. The high cash in Cycle & Carriage is from the sale of its stake in the manufacturing arm.

Our valuations are based on 2004 and 2005 forecasts, but we also provide 2003 multiples in order to give a broader perspective. Valuations solely based on 2003 results would be misleading as the recovery last year stemmed from a low-base year and the results were still lower than the ten-year average in terms of unit sales volume. Accordingly, we value Dogus Otomotiv between $714m and $793m using EV/EBIT comparisons but note that this method accentuates the company’s low capital intensity. In addition, we exclude D’Ieteren from the peer group average because it is an outlier.

Figure 9999: Dogus : Dogus : Dogus : Dogus Otomotiv EV/EBIT comparison with international peers as of 14 May 2004Otomotiv EV/EBIT comparison with international peers as of 14 May 2004Otomotiv EV/EBIT comparison with international peers as of 14 May 2004Otomotiv EV/EBIT comparison with international peers as of 14 May 2004

Company EV/EBIT

2003 2004E 2005E

Astra International 8.4 7.0 6.9

Bilia AB 8.9 7.9 7.2

Cycle & Carriage 5.9 4.5 5.1

D'leteren 17.7 17.6 17.5 Inchcape 9.3 8.1 7.5 SAG 12.5 8.5 6.6 Average Average Average Average 9.09.09.09.0 7.27.27.27.2 6.76.76.76.7

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The international peers are more asset intensive than Dogus Otomotiv as they incorporate other businesses. While in our view EV/EBITDA does not represent Dogus Otomotiv’s business structure accurately, Figure 10 provides a comparative table based on this multiple as investors generally regard this metric as important. On EV/EBITDA, Dogus Otomotiv’s fair value would be between $548m and $594m based on 2004 and 2005 forecasts.

Figure 10101010: Dogus : Dogus : Dogus : Dogus Otomotiv EV/EBITDA comparison with international peers as of 14 May 2004Otomotiv EV/EBITDA comparison with international peers as of 14 May 2004Otomotiv EV/EBITDA comparison with international peers as of 14 May 2004Otomotiv EV/EBITDA comparison with international peers as of 14 May 2004

Company EV/EBITDA Depreciation/Sales

2003 2004E 2005E 2004E

Astra International 6.6 5.5 5.3 2.8%

Bilia AB 5.6 5.0 4.7 1.5%

Cycle & Carriage 5.0 4.0 4.5 0.5%

D'leteren 4.5 4.5 4.2 12.9% Inchcape 7.4 6.8 6.3 0.7% SAG 6.3 4.8 4.0 6.1% Average Average Average Average 5.9 5.1 4.8 4.1%4.1%4.1%4.1% Dogus Dogus Dogus

Dogus Otomotiv fair value ($m)Otomotiv fair value ($m)Otomotiv fair value ($m)Otomotiv fair value ($m) 364 594 548 0.5%0.5%0.5%0.5%

Based on 2004 and 2005 EV/Sales, we estimate the value of the company between $660m and $716m.

Figure 11111111: Dogus : Dogus : Dogus : Dogus Otomotiv EV/Sales comparison with international peers as of 14 May 2004Otomotiv EV/Sales comparison with international peers as of 14 May 2004Otomotiv EV/Sales comparison with international peers as of 14 May 2004Otomotiv EV/Sales comparison with international peers as of 14 May 2004

Company EV/Sales

2003 2004E 2005E

Astra International 0.77 0.73 0.70

Bilia AB 0.21 0.20 0.19

Cycle & Carriage 0.20 0.18 0.17

D'leteren 0.84 0.77 0.78 Inchcape 0.30 0.30 0.29 SAG 0.76 0.68 0.58 Average Average Average Average 0.51 0.48 0.45 Dogus Dogus Dogus

Dogus Otomotiv fair value ($m)Otomotiv fair value ($m)Otomotiv fair value ($m)Otomotiv fair value ($m) 413 716 660

We value Dogus Otomotiv between $650m and $900m based on a P/E multiple comparison with the peer group.

Figure 12121212: Dogus : Dogus : Dogus Otomotiv P/E comparison with international peers as of 14 May 2004: Dogus Otomotiv P/E comparison with international peers as of 14 May 2004Otomotiv P/E comparison with international peers as of 14 May 2004Otomotiv P/E comparison with international peers as of 14 May 2004

Company P/E (x)

2003 2004E 2005E

Astra International 6.3 na 6.9

Bilia AB 12.9 na 10.9

Cycle & Carriage 5.5 9.2 na

D'leteren 10.8 na 9.2 Inchcape 12.9 21.1 11.2 SAG 10.1 5.2 5.1 Average Average Average Average 9.8 11.8 8.7 Dogus Dogus Dogus

Dogus Otomotiv fair value ($m)Otomotiv fair value ($m)Otomotiv fair value ($m)Otomotiv fair value ($m) 456 900 650

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Other valuation techniques

Gordon’s growth model based on payout ratio: Since the company plans to distribute at least 50% of the distributable profit as cash dividends between 2004 and 2008, we believe that a simplified Gordon’s growth model accurately reflects the company’s valuations. Gordon’s growth model with payout ratio and growth as variables gives a range of $428m and $671m when applied to the target P/E calculated using the payout ratio.

Figure 13131313: Motivated fair value sensitivity analysis on payout ratio and growth with P/E =: Motivated fair value sensitivity analysis on payout ratio and growth with P/E =: Motivated fair value sensitivity analysis on payout ratio and growth with P/E =: Motivated fair value sensitivity analysis on payout ratio and growth with P/E = [payout ratio x (1 + g)] / [(r – g)]

[payout ratio x (1 + g)] / [(r – g)] [payout ratio x (1 + g)] / [(r – g)] [payout ratio x (1 + g)] / [(r – g)]

Dogus Otomotiv fair value ($m) Payout Ratio

50% 55% 60% 65% 70% 4.00% 428 471 514 557 600 4.25% 440 484 528 572 616 4.50% 453 498 543 588 634 4.75% 466 512 559 605 652 Growth 5.00% 479 527 575 623 671

Gordon’s growth model based on return on equity: Our target P/E calculated using the return on equity yields a fair value range between $573m and $717m.

Figure 14141414: Motivated fair value sensitivity analysis on ROE and growth with P/E = [(ROE – g)] /: Motivated fair value sensitivity analysis on ROE and growth with P/E = [(ROE – g)] /: Motivated fair value sensitivity analysis on ROE and growth with P/E = [(ROE – g)] /: Motivated fair value sensitivity analysis on ROE and growth with P/E = [(ROE – g)] / [ROE (k – g)]

[ROE (k – g)] [ROE (k – g)] [ROE (k – g)]

Dogus Otomotiv fair value ($m) ROE

10% 13% 15% 18% 20% 4.00% 573 586 595 601 605 4.25% 551 579 597 610 620 4.50% 525 570 600 622 638 4.75% 476 554 606 643 671 Growth 5.00% 409 532 614 673 717

Current year P/BV: Since Dogus Otomotiv is not asset intensive and plans to distribute high dividends, its book value leads to a lower valuation (between $159m and $478m) compared to its peers at P/BV. This should be especially of note since the business model is structured such that the contracts could be cancelled and thus investors would be left with only the book value (note that we apply the 10% country risk discount in this method).

Figure 15151515: Dogus : Dogus : Dogus : Dogus Otomotiv P/BV comparison with international peers as of 14 May 2004Otomotiv P/BV comparison with international peers as of 14 May 2004Otomotiv P/BV comparison with international peers as of 14 May 2004Otomotiv P/BV comparison with international peers as of 14 May 2004

Company P/BV (x)

Current Year

Astra International 1.8

Bilia AB 1.7

Cycle & Carriage 1.3

D'leteren 1.2

Inchcape 2.6

SAG 3.0

Average 1.9

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Deutsche Bank AG Page 13 1.0 159 1.5 239 2.0 310 2.5 398 3.0 478

Other issues

Dogus Otomotiv is fully owned by the Dogus group companies. One of its major shareholders is Garanti Bankasi (19% direct and 1% indirect stake). As a result of ongoing negotiations between Dogus Holding and Intesa, Garanti Bankasi may be sold once its non-core assets are stripped out. If an intra-group transaction relating Dogus Otomotiv takes place at a low valuation, this could raise some concerns in the future. However, in our view this is unlikely, given the Dogus Group’s strict adherence to corporate governance principles. Group companies have always been held at arm’s length. Furthermore, the CMB would restrict any transaction that would value a listed company significantly lower than its market cap (a +/- 20% cap is applied to the average price of the past 15 trading days). In addition, Dogus Otomotiv also owns a 4% stake in Dogus Holding, which owns stakes in Garanti Bankasi, Tansas and indirectly, in Dogus Otomotiv itself, and is worth an estimated $1-2bn. The book value of this asset (4% stake in Dogus Holding) was $65m as of 1Q04 (implying a value of $1.6bn for the holding). We have not taken this into consideration in our valuation. In addition, the book value of investments in associates was worth another $10m as of 1Q04.

According to current CMB regulations, listed companies have to distribute at least 20% of their distributable profit (95% of the net profit as 5% has to be allocated as legal reserves until reserves reach 20% of the paid in capital). However, prior to the IPO, Dogus Otomotiv will change its articles of association to distribute at least 50% of the distributable profit to its shareholders until 2008. Also note that up to 8% of the distributable profit can be distributed to employees and board members. The retention ratio of the company is low as it is a service-oriented company that should not require heavy capital expenditure.

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SWOT analysis

Strengths

Brand recognition: The company benefits from the strong brand image of the Volkswagen group (Volkswagen, Audi, Seat and Skoda), Scania and Porsche. Dogus Group also adds its own strong brand name and domestic recognition in addition to its strong retail network.

Corporate image: Dogus Group is one of the leading conglomerates in Turkey. The group has critical mass on financing related issues which reflects favourably on Dogus Otomotiv. The group’s expertise in international relations, consumer-oriented approach, life stage marketing and wider pool of highly-skilled personnel provide it with operational leverage. In addition, with its media subsidiaries targeting high income audiences, the group has access to more economical advertisement outlets than its peers.

Client base: The group’s bank, Garanti, offers easy access to target customer segments. Garanti Bank has close to 4m customers although it is subject to privacy restrictions.

Dealer network: The group has a well-established and professional dealership network throughout Turkey. Of its 87 dealers, the company owns six, which generate 30% of total sales. These dealers provide a benchmark for the independent franchises.

Used car business: The company’s used car business increases the future resaleability of its brands. This is also reflected in new vehicle sales volumes as Turkish consumers tend to regard cars as investments. Also, this business line allows its subsidiary, VDF, to offer different consumer finance options where it can either repurchase the vehicle after a certain time period and/or allow the consumer to sell it and make the final repayment when it is time to renew the car.

Different models for different needs: The company offers products that appeal to different segments of the market. The versatility in the product line gives it a competitive advantage over its domestic peers, particularly in the fleet business.

Weaknesses

Dependence on Volkswagen AG: VW has the right to terminate its distribution agreement with Dogus Group at any time given an advanced notice of between six (for Porsche and Krone) and 12 months (for VW, Audi, Scania, Seat and Skoda). Volkswagen owns VW, Audi, Seat and Skoda, controls 34% of the voting power in Scania and works very closely with Porsche, all of which are distributed by Dogus Otomotiv.

Increased competition: Competitors not only continuously bring new models to the market, but work hard to improve their dealer networks. Dogus Otomotiv should continue to deliver high quality after sales service in order to remain competitive.

Opportunities

Low inflation and declining real interest rates: With the inflation target of 12% by year-end being more widely accepted as achievable, interest rates have been declining. TL consumer loans have fallen down to 2% per month, which have encouraged a boom in auto sales by credit, much like the year 2000.

Low car park: According to JD Power-LMC, the number of vehicles per 1,000 people averages 833 in the US, 588 in Japan and 556 in the European Union. The car park per capita, which stands at 96 units

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Turkey’s EU convergence prospects brighten then we believe that the auto sector should catch up with its peers in the long term.

Expansion into other countries: With the current contract, Dogus Otomotiv is only allowed to sell VW branded cars in Turkey. However, given Volkswagen and Dogus’s strong relationship, the company could potentially be given exclusive importer status to Iraq and/or Central Asian Republics of the CIS countries. Dogus would be a fast learner with respect to the corporate culture there as it is similar to Turkey. We believe that this makes sense especially given that Turkey has been a success story thanks in part to Dogus’s commitment and exemplary corporate strategy, which has led it to become a benchmark for importers in other countries.

Threats

Block exemption regulation: This regulation concerns motor vehicle distribution and repair with the aim of liberalising the market, increasing competition and ultimately benefiting the customer. Dealers will have to meet set standards, which could lead to additional investments. In order to justify such demands, dealers may ask for higher margins or may start offering other brands in their showrooms as exclusivity no longer proves applicable. Furthermore, dealers could buy vehicles from other dealers either from within Turkey or even the EU if justified by the price. Although we feel that the new vehicle sales would not be as adversely impacted as initially thought, the suppliers’ control on after sales providers is severely restrained. Hence, competition in that segment could hurt margins in the after sales operations.

Macro instability: The automotive sector has been volatile and is sensitive to macroeconomic developments, despite low penetration levels. While the company is not a manufacturer and fixed costs are minimal, if it can not gauge market trends then inventories could weigh on the company’s bottom line.

Taxes: The taxes on automotives in Turkey are some of the highest in Europe. Yet, in order to finance the budget gap and curb import demand, the government may opt to increase vehicle taxes directly or impose further taxes on consumer loans. The high taxes on fuel can also be a deterrent on reaching the car ownership levels achieved in other European countries.

Exchange rate volatility: With the strengthening of the Euro against the dollar, importers from the Eurozone have faced significant competition from Asian and American OEMs. On the other hand, the strong local currency led to an increase in imports overall. Therefore, if the Euro continues to strengthen against the dollar or the TL, then importers of European cars could face increased competition. Since the company’s payables and loans are foreign currency denominated, an inability to reflect the volatility in exchange rates to the sales price would inadvertently lead to lower margins.

Control: Dogus Holding is currently in negotiations with Intesa to sell its 40% stake in Garanti Bankasi, with an option to buy another 10% stake in the bank. As the free float is 31%, the group could lose control of the bank. This transaction is important in the sense that Garanti Bankasi owns a 20% stake in Dogus Otomotiv (19% directly and 1% through a wholly owned subsidiary, Dogus Hava Tasimaciligi). However, the proposed deal also states that the Dogus Group will purchase some non-core assets from the bank with no indication of size or price. We think Dogus Group would purchase these shares at close to market value instead of book value, especially given that the entity will be a listed company and CMB enforces the average of the past 15 days as a basis (+/- 20%) for valuing such transactions.

Investment in other areas of the business: We believe Dogus has become a one-stop shop in the automotive business. Going forward, we believe that there are only two areas left for development: 1) transforming into an OEM to become an integrated supplier of vehicles, and/or 2) developing its consumer finance division into a fully fledged banking business. Although this may present opportunities at the right place and time, we would view them as negative given that a significant capital allocation would be necessary. VW already has plants throughout Eastern Europe (eg in Poland, Czech

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Republic and Slovakia) and therefore do not think such an investment is likely. The consumer finance business also works well as it is and we feel that there is no reason to open a banking network.

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Sector overview

Domestic sales volume

Even though sector sales volumes more than doubled in 2003 partly due to the low comparative base, the figure was still lower than the ten-year average. Note that following the economic crisis, vehicle sales plummeted after a record year in 2000.

Figure 17171717:::: Domestic sales volume of motor vehicles in Turkey (units)Domestic sales volume of motor vehicles in Turkey (units)Domestic sales volume of motor vehicles in Turkey (units)Domestic sales volume of motor vehicles in Turkey (units)

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 2005E

Passenger Cars Commercial Vehicles

Source: Automotive Manufacturers’ Association, Deutsche Bank and Bender Securities estimates

We forecast PC and LCV sales volumes to reach 600,000 units in 2004. Our estimates may be conservative as according to interviews given to the local press, Turkish OEMs expect between 650,000 and 760,000 units to be sold this year based on the strong data released in 1Q04. However, we are more cautious, especially with the recent rise in interest rates and volatility in the exchange rate which is likely to adversely impact consumer appetite.

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Figure 18181818:::: Domestic sales volumes of passenger cars in Turkey (units)Domestic sales volumes of passenger cars in Turkey (units)Domestic sales volumes of passenger cars in Turkey (units)Domestic sales volumes of passenger cars in Turkey (units)

0 10 20 30 40 50 60 J a n uar y F e br uar y Ma rc h Ap ri l Ma y Ju n e Ju ly A u gus t S e ptem be r O c tobe r N o v e m ber D e c e m ber 2003 2004 10-yr ave.

Source: Automotive Manufacturers’ Association

Note that more than half of all sales are due to imports rather than locally manufactured vehicles. Two-thirds of all passenger cars and almost two-fifths of all light commercial vehicles are currently imported. Part of the reason for the increase in the passenger car segment and the decline in the light commercial vehicle segment in recent years is due to factories specialising in specific segments to achieve economies of scale. The transformation of the two key Turkish OEMs (Ford Otosan and Tofas) into LCV hubs for the European operations of their parent companies has fuelled the growth in passenger car imports.

Figure 19191919:::: Imports as a percentage of domestic sales volumesImports as a percentage of domestic sales volumesImports as a percentage of domestic sales volumesImports as a percentage of domestic sales volumes

0 100,000 200,000 300,000 400,000 500,000 600,000 700,000 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E 2005E 0% 10% 20% 30% 40% 50% 60%

Sales Imports Imports (%)

10-yr average = 387k

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Figure 20202020:::: Imports as a percentage of domestic sales volume by segmentImports as a percentage of domestic sales volume by segmentImports as a percentage of domestic sales volume by segmentImports as a percentage of domestic sales volume by segment

0% 10% 20% 30% 40% 50% 60% 70% 80% 1995 1996 1997 1998 1999 2000 2001 2002 2003

Total M arket Passenger Cars Light Com m ercial Vehicles

There is a high correlation between GDP growth and domestic vehicle sales volume growth. For example, volume growth in 2003 was very significant, but expected given the low base. Growth in 2004 is likely to continue to be strong due to pent-up demand, especially in the passenger car segment. We believe the growth rate is likely to be between 4% and 5% CAGR from 2005 onwards, parallel to GDP growth.

Figure 21212121:::: Domestic sales volume growth to GDP growthDomestic sales volume growth to GDP growthDomestic sales volume growth to GDP growthDomestic sales volume growth to GDP growth

- 100% - 75% - 50% - 25% 0% 25% 50% 75% 100% 125% 150% 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004E - 10.0% - 7.5% - 5.0% - 2.5% 0.0% 2.5% 5.0% 7.5% 10.0%

Dom est ic Vehicle Sales (lhs) GDP (rhs)

It is generally accepted that there is an inverse correlation (-0.6) between consumer credit rates and domestic sales volume growth. Consumer spending on vehicles tends to increase when interest rates decline. Should interest rates continue to fall or even remain at these levels – our economics team believes that since the government’s inflation targets is achievable, it is reasonable to assume this – then vehicle sales should also continue to grow.

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Figure 22222222:::: Domestic vehicle sales and consumer credit ratesDomestic vehicle sales and consumer credit ratesDomestic vehicle sales and consumer credit ratesDomestic vehicle sales and consumer credit rates

- 75% - 50% - 25% 0% 25% 50% 75% 100% 125% 150% 1999 2000 2001 2002 2003 2004E 20% 40% 60% 80% 100% 120% 140%

Dom est ic Vehicle Sales (lhs) Consum er Credit Rat es (rhs)

To argue that the number of vehicles per 1,000 people should reach the level of developed nations – average 833 in the US, 588 in Japan and 556 in the European Union – would be futile in our view. However, the car park per capita, which stands at 96 units per 1,000 people in Turkey, is much lower than the 200 for Eastern European countries. If Turkey’s EU convergence prospects brighten, then we believe that the auto sector should catch up with its peers in the long term. Sustainable 5% GDP growth and a low inflationary environment with low real interest rates could provide the necessary stimuli to achieve this.

Figure 23232323:::: Car park comparison by country (units per 1,000 people) in 2003Car park comparison by country (units per 1,000 people) in 2003Car park comparison by country (units per 1,000 people) in 2003Car park comparison by country (units per 1,000 people) in 2003

0 100 200 300 400 500 600 700 800 900 USA Ger ma ny Franc e Japa n Canada_Eng land Por tugal Greec e Hun gar y Pola nd Bul gar ia Sout h K orea Rom ania _Braz il Turk ey

Total M otor Vehicles Passenger Cars

Source: DRI World Car Industry Forecast Report, VDA International Auto Statistik Edition, Deutsche Bank and Bender Securities estimates

As should be expected, the number of residents per vehicle is closely related to the wealth of the country. Thus, Turkey and Brazil have similar ratios. The GDP growth and wealth effect would lead to the gap in the car park narrowing as well.

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Figure 24242424:::: GDP per capita and residents per vehicleGDP per capita and residents per vehicleGDP per capita and residents per vehicleGDP per capita and residents per vehicle

R2 = 0.9874 0 2 4 6 8 10 12 14 0 5,000 10,000 15,000 20,000 25,000 30,000 GDP ($) per capita H a bi ta nt s pe r v e hi c le _Turkey Brazil Mexico Argentina Spain Italy Sw eden United Kingdom FranceGermany

According to JD Power-LMC, car park growth between 2003 and 2009 in Turkey is expected to be more than twice that of other Eastern European countries. Note that our CAGR estimate for Turkey (4.5%) is similar to JD Power-LMC’s forecast (4.6%).

Figure 25252525:::: Estimated car park growth between 2003 and 2009EEstimated car park growth between 2003 and 2009EEstimated car park growth between 2003 and 2009EEstimated car park growth between 2003 and 2009E

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% Czech Republic

Slovenia Romania Austria Slovakia Hungary Turkey

Source: JD Power-LMC

Key players

Dogus Otomotiv is ranked third in terms of market share in the Turkish automotive sector according to data from the Automotive Manufacturers’ Association. Renault, Ford and Fiat all have manufacturing facilities in Turkey, which they own via local partnerships (Army Pension Fund for Renault and Koc Holding for both Ford and Fiat).

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Figure 26262626:::: Market share of key players in the Turkish automotive sector in 1Q04Market share of key players in the Turkish automotive sector in 1Q04Market share of key players in the Turkish automotive sector in 1Q04Market share of key players in the Turkish automotive sector in 1Q04

Renault 17% Ford 15% Dogus 12% Fiat 11% Opel 9% Hyundai 8% Peugeot 8% Others 20%

Source: Company data, Automotive Manufacturers’ Association

Dogus has one of the most extensive dealer networks and sales points in Turkey. Dogus Otomotiv’s dealers and sales points total 129 and 163, respectively. The ongoing relationship with the dealers, most of whom are independent, is one of the company’s most important assets, in our view.

Figure 27272727:::: Dealer networks in TurkeyDealer networks in TurkeyDealer networks in TurkeyDealer networks in Turkey

0 20 40 60 80 100 120 140

Dogus Fiat Renault Ford Toyota Hyundai Opel Peugeot

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Figure 28282828:::: Sales points in TurkeySales points in TurkeySales points in TurkeySales points in Turkey

0 20 40 60 80 100 120 140 160 180

Dogus Renault Fiat Ford Peugeot Toyota Hyundai Opel

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Pertinent regulations

Block exemption regulation (BER)

The European Union started to implement the new block exemption regulation in the motor vehicles sector in October 2003 following a one-year transition period. This regulation concerns motor vehicle distribution and repair with the aim of liberalising the market, increasing competition and ultimately benefiting the customer. The new regulation is designed to open new distribution techniques (such as Internet sales and multi-brand dealerships), make cross-border purchases of new vehicles easier, increase access for maintenance and repair services (which is estimated to account for around 40% of the sale’s value over the lifetime of the vehicle) and eventually lead to price competition. The regulation separates dealers involved in new vehicle sales from dealers who are engaged in after sales services. These changes have already started to change the relationship between dealers and suppliers (OEMs and importers) in Europe.

In accordance with Turkey’s convergence, Turkish regulations are being updated to comply with EU regulations. In July 2003, the Turkish government announced in the Official Gazette its intention to adopt the new block exemption regulation (BER). We anticipate the regulation to be approved this year and to take effect one year later. Below, we discuss how this regulation may change various aspects of the automotive business in Turkey provided that the regulation is promulgated without any amendments.

New vehicle sales

The regulation offers suppliers a choice between exclusive and selective dealerships. If dealers are exclusive, then they can sell vehicles to resellers (galleries, supermarkets or over the Internet) and they are not limited by geographic location. If dealers are selective, then they cannot sell to resellers, but can open new showrooms, and distribution centres in specific geographic locations assigned to them by the supplier. Dealers who engage in new vehicle sales cannot offer after sales services, but can subcontract it to a service and parts dealer.

Dogus Otomotiv has opted for selective dealership. This requires the dealers to meet pre-defined quantitative and qualitative standards. The quantitative measures range from the number of demonstration vehicles, extent of display area, level of stock and number of sales personnel. The qualitative measures are personnel education level, organisational structure, CRM applications and IT standards, etc. The number of dealer sites is limited by the supplier and the supplier can restrict the sales to a non-authorised reseller. Although BER in Europe defines the European Union as the market area, Dogus Otomotiv’s contract with VW would restrict it to Turkey.

Dogus Otomotiv has already begun to prepare for the changing business structure. The company has taken measures to enforce minimum standards nationwide, revised its dealer standards and looked at how it might introduce a new dealer bonus system. The bonus would be limited to a maximum of 8%, much as is the case today, but will include components such as basic margin (compliance with basic standards), corporate defined margin (such as implementing a showroom concept) and bonus margin (based on absolute volume, relative volume and customer satisfaction). Note that the dealer margins are higher (between 10% and 19%) in the European Union. Note also that the breakeven margin covering all costs for the dealers range between 2.0% and 3.1% for 98% of the VW dealers in Turkey (the remaining 2% increases to 5.7% as they lack sufficient size).

As a result of these differences in dealer margins, we do not think cross-border purchases are feasible, even within the EU. The same is likely to be the case for acquiring vehicles from other dealers as the

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we do not expect the new regulations to impact Dogus Otomotiv’s new vehicle sales volumes and prices.

Furthermore, while none of the importers can legally prohibit multi-branding, they can dictate standards and therefore limit what other brands their dealers can offer, by for example insisting on a high standard for the display of their brands. Given that margins will also be a key issue for the dealers, we do not expect Dogus Otomotiv or any other supplier to be able to penetrate other brands’ networks. It should be relatively straightforward for suppliers like Dogus Otomotiv to maintain a base of loyal dealers that are financially viable, brand specific and able to present a uniform image for the groups.

Service and parts

Service and part providers will remain independent of the dealers. Although qualitative standards will be employed, some of them will be recommendations only. The supplier will not be able to withhold a contract from a prospective dealer if it fulfils the qualitative standards, regardless of location. Brand separation would also be in jeopardy, both within the group and without. A bonus system does not exist for the service part of the business as the income is based on the hourly labour rate. It is only in the parts business that the dealers may receive bonuses.

The impact on after-sales services may be more profound. The supplier has no control over the service and parts providers, geographically. These developments could potentially lead to: 1) a deterioration in services provided, despite the qualitative standards put in place, which would ultimately impact sales volumes, and 2) a deterioration in after-sales services’ margins due to increased competition in concentrated areas.

Figure 29292929: Suppliers’ power over dealers: Suppliers’ power over dealers: Suppliers’ power over dealers: Suppliers’ power over dealers

Distribution System Current Proposed

Exclusive Selective

Qualitative Quantitative

Market share limit N 30% 30% N

Sales and service network Y N N N

Technical know-how and training N Y Y Y

Region restriction for services and parts Y N N N

Original part manufacturer using its own logo N Y Y Y

Authorised service and parts dealers to sell to third party repairers N Y Y Y

Geographical restrictions to dealers Y Y N N

Restrictions on number of dealers Y Y Y N

Multi-branding N Y Y Y

Limiting intermediary agents Y N Y Y

Requirement to provide all models N Y Y Y

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Company overview

Ownership

Dogus Otomotiv (DO) is the automotive arm of the Dogus Group and is 100% owned by the group’s companies. Dogus Group is one of Turkey’s leading family-owned conglomerates, which also has stakes in companies active in banking and finance (Garanti Bankasi), retailing (Tansas), construction (Dogus Insaat and Dogus Yapi) and other diverse industry segments of which the most prominent is the media sector (NTV and CNBC-e). Dogus Insaat is set to be the seller of the proposed 34.5% stake (30% plus an over-allotment option of 4.5%).

Figure 30303030:::: Ownership structure of Dogus Otomotiv as of 1Q04

Somtas Tarim ve Ticaret A.S. 20.0% Dogus Insaat ve Ticaret A.S. 50.1% T. Garanti Bankasi A.S. 18.8%

Dogus Yapi Sanayi A.S. 10.0%

Others 1.2%

Source: Company data

Figure 31313131:::: Proposed ownership structure of Dogus Otomotiv post the planned IPO with the over-allotment option exercised

Free Float 34.5% Somtas Tarim ve Ticaret A.S. 20.0% Dogus Insaat ve Ticaret A.S. 15.6% T. Garanti Bankasi A.S. 18.8%

Dogus Yapi Sanayi A.S. 10.0%

Others 1.2%

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Parent group

Dogus Otomotiv is one of the crown jewels of Dogus Holding, which was established in 1951 and is still owned by the Sahenk family. The automotive business accounted for 23% of the holding’s revenues in 2003. The family’s other two major businesses are publicly traded and are included in the ISE-30 (Garanti Bankasi and Tansas). With the proposed listing of Dogus Otomotiv, the group’s major underlying assets would all be quoted on the stock exc