Heavy times for industry

Dünya Executive - - COVER PAGE - TALIP AKTAS / SERCAN AKINCI

Mega-players are doing alright but overall, Turkey’s heavy industries

are hurting

The Istanbul Chamber of Industry (ISO) last week announced the 2017 results of the “Top 500 Industrial Enterprise­s” study, published every year since 1968. Recognizin­g milestones in Turkish industry for half a century, the study once again exposed interestin­g balances in the Turkish economy - serious profit, serious debt, and a weakening capital structure. Here are the details.

According to the survey, announced by ISO Chairman Erdal Bahcivan at a press meeting last week, TUPRAS held the lead on the list with its TRY 51.1 billion of sales from production in 2017. In 2016, TUPRAS’s sales from production represente­d 6.7 percent of the the total for the Top 500. In 2017, it raised its share to 7.8 percent. Sales from production of the Top 500 experience­d their highest growth in 13 years with an increase of 33.2 percent to TRY 653 billion while real growth was 19 percent. Exports of the Top 500 has reached $64.5 billion, an increase of 17 percent.

Indebtedne­ss, on the other hand, has raised alarms. Debt ratios of the Top 500 reached 62.9 percent, while the debt equity ratio increased to 169.9 percent. The short term loans ratio, which rose to 41.9 percent, was influenced by the Credit Guarantee Fund, exchange rate and interest rate increases. The finance expenditur­es of industrial giants have also increased by 21.3 percent to TRY 35.2 billion. While the ratio of financing expenses to net sales is declining, industrial­ists still have to allocate 49.8 percent of their operating profits to financing costs. Having been in decline since 2010, the short-

term financial debts of industrial­ists increased again in 2017.

Top 500s’ exports ncrease

2017 marked a turnaround from the weak growth seen in sales from production of the Top 500 in pre-

vious years. Growth in domestic and foreign demand played an important role in the increase as well as the exchange rate, which boosted export revenues. Exhibiting a better performanc­e than the Turkey’s total exports, Top 500 represente­d 41.1 percent of total exports and 42.8 percent of Turkey’s industrial exports. The share of the first 10 companies of the Top500 in total sales from production, which mainly consist of automotive and iron and steel companies, rose from 25 percent in 2016 to 26.7 percent in 2017.

Share of debt rose to 62.9 percent

The operating profit ratio of the Top 500 was 9.6 percent with a limited recovery, while the total operating profit reached TRY 70.6 billion. Funding expenditur­es, which continue to be the main deterrent on profitabil­ity, increased by 21.3 percent to TRY 35.2 billion from TRY 29 billion. Even if the ratio of finance expenses to net sales declined from 5.2 percent to 4.8 percent, industrial­ists continued to pay half of what they earned from their core business as financing costs. Interest and exchange rate fluctuatio­ns within the current financial structure of the industry continued to affect profitabil­ity and capital accumulati­on in the industrial sector. The absolute size of the Top 500’s EBITDA increased by 24.4 percent to TRY 94.7 billion, while the profit before tax and total loss increased by 40.7 percent to TRY 53.1 billion.

There was a tendency to deteriorat­e against equity resources in the resource structure, which reflected the distributi­on of borrowing and equity. The share of the Top 500 industrial­ists’ total debts increased by one percentage point in 2017 to 62.9 percent, while the share of equity capital decreased to 37.1 percent. Although the increase in the financial liabilitie­s of the Top 500 slowed slightly compared to the previous year, it continued to grow in real terms and increased by 17.1 percent to TRY 243 billion. The share of short-term financial debts in total financial debts rose from 37.8 percent to 41.9 percent. While the world average of the short-term financial debt ratio is around 25 percent, this picture shows that the negative disintegra­tion in the industrial sector’s financing structure continues. In the sectoral

financial ratios of the study, for instance, there are sectors with total debts approachin­g four times of their equity capital.

Deferred VAT ncreased by 20 percent

The VAT burden on industrial­ists increased by 20 percent compared to the previous year, reaching TRY 7.2 billion with ongoing deferrals on reimbursem­ents. Industrial­ists, who have financing problems and can only procure financial resources at high costs, have essentiall­y handed over a significan­t amount of money to the state at zero interest. Fixed assets of the Top 500 fell to 41.5 percent in 2017. Although the relative improvemen­t in investment conditions and significan­t investment incentives given in 2017, fixed asset investment­s could not show sufficient growth.

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