Inorganic EXPANSION
In line with its plans for expansion, Ak-Kim is looking at acquisitions to grow the company further and even go public.
Ak-Kim has recently diversified its business through the acquisitions of Gizem Frit, Dinox, and Mega Color. What motivated these three acquisitions?
In January 2015, we acquired Gizem Frit, a completely separate business from what we do at AkKim. Gizem Frit is successful in the high-performance coating field. It is the most important player in the Turkish market, with 70% market share. Globally, it is among the top-three companies in the field. About 60% of its products are exported, which is important for Ak-Kim because we were previously low on exports. Dinox is a chemical distribution company based in Dortmund, Germany. It was more of an integration for us to get closer to the customer and create new opportunities. It was a natural expansion for us. Finally, through Gizem Frit, we acquired Mega Color in 2017. It is located in Castellón, Spain, one of the largest areas for ceramic production in the world. The ceramic industry is now using jet printing technology, making this acquisition complementary to our product range. Mega Color has two subsidiaries, one in China, and one in Mexico, which are helping improve exports.
Among Ak-Kim’s sectors of involvement, where do you expect to see the most growth in demand in the near future?
Our paper products and water treatment segments are growing quickly. We are active in two growing segments in paper: tissue and recycled paper. Looking at growth in water treatment, we see new water treatment plants being developed all around the world. Water stress is coming, and it will get increasingly severe. Another area we are also working heavily on is the composite industry, or products such as carbon fiber. We have a sister company, DowAksa, with which we have a number of R&D projects involving composite chemicals. We have already produced some important products for that company.
What complementary or entirely new business lines is AkKim developing?
We have a few mature and developing business, such as textiles, paper, construction, and water treatment. Each group has about 50-100 different products. Part of the job is to constantly improve these products. We always need new products to complete the product rage and develop new complementary products. These are ongoing, though some projects are more difficult than others. Some could require small tweaks and others could require entirely new innovations. We also have projects in completely new industries or businesses. One of these is plastics. Turkey is a large consumer of plastic products and perhaps ranks third in the world for plastic imports as well as PVC consumption. We are developing these products from scratch. This is a big industry, and we must do something. Most performance additives are imported. Another area is the composite industry, and we have been selling finish oils and such. The chemical business is a long-term business.
What are your most important expansion plans in the coming three to five years?
We are starting an investment in hydrogen peroxide. We are one of two players in Turkey. We had 40,000 tons of capacity and are investing in another 40,000 tons of capacity. Demand for this product is growing globally, and this is one of our important projects. We are also after some inorganic growth initiatives. The target of the company is to make acquisitions, especially in Europe, in the EUR300-400 million range. It could be something with synergies or something new. We have a few targets in mind. We want to acquire one of these assets, combine it with our existing EUR300-million company, and eventually grow to a EUR600-700-million company. We can also attempt an IPO, probably in Europe. This is the big vision for the next three to four years. We need to identify the correct targets and raise the capital over the next year, and then we will work on merging companies and optimizing the business. The acquisition will more than double the size of the company. ✖
How has Nurol Holding diversified its operations over the past decade?
Since its creation, Nurol Holding’s diversification has followed Turkey’s economic growth, though we have adopted a more strategic mode of planning further diversification, as evidenced in our defense sector investments. Nurol started its involvement in the defense sector in 1989 through a JV with a US defense company then known as FMC, which has since been acquired by BAE, which remains our partner. At the time, the Turkish armed forces wanted to develop a fleet of armored personnel carriers called the M113, which FMC agreed to produce in Turkey with Nurol. That partnership eventually became known as FNSS, of which Nurol is currently a 51% shareholder, with BAE holding the remaining 49%. That project was extremely profitable, and at that time Turkey was starting to push growing the indigenous defense industry to the top of the national agenda, so we began to further expand our presence in the sector. First, we set up another 100% Nurol subsidiary, Nurol Makina (Nurol Machinery) to create components for FNSS. In time, Nurol Machinery started its own R&D and began producing its own vehicles as well.
Outside of vehicles, how is Nurol further involved in the defense sector?
Turkey has been and remains a major purchaser of international defense products, but it has long been growing its indigenous industry to maximize local content, including armor. Before we decided to enter the armor sector, we invested around USD100 million into R&D to design and produce armor around 60% lighter than traditional steel armor. It is chiefly used in body armor, but it has also been a big success when used in armored and civilian vehicles. Only the US, China, and Germany have this technology, and we have been able to sell it so far to 27 countries. Those three companies make up the majority of our defense business, but we are also beginning to work in the aerospace industry. Turkey has begun a program to build its own indigenous fighter jet program. The government has mandated that the jet be as locally produced as possible, which will further develop the broader aerospace industry in Turkey. We have set up a subsidiary here to design software for the flight, fuel, and landing management systems that can go into that aircraft. The subsidiary, BNA, is a JV with BAE, which has been operational now for two years.
What is the status of your precious mineral mining operations?
Our gold mine in Lapseki is already operational and produces between 5,000 and 6,000 ounces of gold per month. This is the first mine in Turkey that entirely abides by international standards, and the project financing is from a consortium of banks including EBRD, which has strict environmental and social impact policies. Our second gold mine is in Ivrindi and is expected to produce around 10,000 ounces of gold per month once operational. For our mining operations, our production costs—including financing costs—are at about USD550 per ounce, so at today’s gold prices that equates to a minimum 55% EBITDA margin, which is excellent. The 2018 turnover with only six months of operations of the smaller facility was TRY305 million, and it will rise to over TRY1 billion this year. The mining share of the total business turnover in 2018 was only 4% and will rise to 9% in 2019 and 14% in 2020. This is while defense business sales are exponentially growing, so we can see the impact of the mine business on total turnover.
Over the next 12 months, what are your top operational objectives?
For 2019, one of our key objectives is to open the second mine facility, which hopefully will be just as successful as the first. Our biggest challenge in 2020 will be to make sure that the second mine performs as well as the first. ✖