Industrial Top 500

Turkish industrial giants spend more than half of profits on financing, ISO reports

Dünya Executive - - COVER PAGE -

The top 500 industrial enterprise­s increased production-based sales by 8.8 percent for a combined 490 billion lira, and operationa­l profit by 18.6 percent to reach 52.4 billion lira, a new report by the Istanbul Chamber of Commerce (ISO) showed.

However, the companies lost more than half of this operationa­l profit as financing expenditur­e, the report also showed.

Financing expenditur­es had increased by 3.6 percent to 29 billion lira, ISO Chairman Erdal Bahcivan said at the launch of the report.

“The ratio of financing expenses to net sales declined by 0.3 points to 5.2 percent. That indicates that despite the fiscal distress, the industrial­ists could efficientl­y manage their core operations and financing expenses as well,” Bahcivan said.

“The top 500 industrial­ists managed their financing expenses rather more efficientl­y due to the decline in interest rates. And we observe that the depreciati­on of lira had a less-than-expected effect on financing expenses, because the share of financing expenses within the operationa­l profit declined from 63.4 percent to 55.4 percent in 2016,” he added.

The ISO 500’s financial liabilitie­s were 140 billion lira in 2014, which increased by 25.1 percent in 2015 to 175 billion lira and by 18.8 percent in 2016 to 207 billion lira. The number of industrial enterprise­s that generated a profit before taxes declined from 400 to 292, while the number of industrial enterprise­s that suffered a loss increased from 100 to 108 in 2016, according to the report.

Managing foreign-exchange risk

Industrial enterprise­s succeeded in managing to restrict the negative effects of foreign-exchange fluctuatio­ns and the depreciati­on of the lira on financing expenses, Bahcivan said.

However, interest and ex- change rates will still influence profitabil­ity and capital accumulati­on negatively within the current fiscal structure of industry, he added.

Profits jumped 33 percent in 2016, said Bahcivan, pointing to the total size of earnings before interest, tax, depreciati­on and amortizati­on (EBITDA) of the ISO 500 of 76.1 billion lira. In 2015, this was 62 billion lira.

“EBITDA increased by 22.8 percent and net profits by 33.2 percent in 2016 from 28.3 billion lira to 37.7 billion lira,” said Bahcivan.

There was a deteriorat­ion in

shareholde­r’s equity, Bahcivan also said. The share of liabilitie­s increased to 61.9 percent in 2016 from 45.2 percent in 2007, and the share of shareholde­r’s equity declined from 54.8 percent to 38.1 percent in the same period.

The report found that these figures indicate the worst debt-equity ratio of the last decade.

“Debt ratios being around 65 to 35 is well near the global average, but gives an important message. As industrial enterprise­s spend a majority of their profit - which they earned drop by drop with tremendous efforts - for financing expenses, they can’t use their internal resources for growth,” Bahcivan said.

“New investment­s are being done more dependent on debt due to insufficie­nt and melting equities, which shows that the Top 500 industrial enterprise­s are today in a poorer financing loop,” he said.

Industry lagging in R&D

Research and developmen­t expenses decreased by 16.3 percent to 2.8 billion lira, the report found. The production-to-sales ratio of research and developmen­t expenses also declined to 0.57 percent in 2016, and the number of enterprise­s engaged in research and developmen­t fell to 239.

“The data shows that the incentives and stimulus given by the state for R&D didn’t receive the sufficient response. Industrial­ists should bear more responsibi­lity for R&D investment­s,” Bahcivan said.

Historical structural problems in the industrial sector continue, Bahcivan said. The report identified the decline of manufactur­ing’s share of gross domestic product as the main structural problem of the sector.

“The Turkish economy should transform into a high added-value manufactur­ing again. As in 2015, we didn’t succeed in improving our grades on this issue. The share of manufactur­ing in GDP stayed at 16.7 percent. We must reverse this trend,” said Bahcivan.

Medium and low-tech sectors dominate

The lion’s share of industry has medium-low technology intensity at 39.3 percent, the report found. The share of low-tech intensive industries declined by 1.5 percent to 37.4 percent in 2016.

The share of medium-high tech intensive industries increased to 19.5 percent, and the share of high-tech intensive industries was 3.7 percent, a slight increase in 2016. The average share of medium-high and hightech intensive sectors increased above the average of 21.7 percent in recent years to 23.2 percent. Of 474 manufactur­ing enterprise­s, 192 operate are low tech, 149 medium-low tech, 121 medium-high tech and 12 high-tech intensive industries.

Tupras is Turkey’s biggest industrial enterprise with 32.59 billion lira in sales from production in 2016

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