ICI Announces “Turkey’s Second Top 500 Industrial Enterprises 2016” Survey Results
The İstanbul Chamber of Industry (ICI) has announced “Turkey’s Second Top 500 Industrial Enterprises 2016” results today. In 2016, 100 new companies entered the ICI’s Second Top 500 Industrial Enterprises list. 77 of these companies made it to the list from outside the top 1000 industrial enterprises of the previous year. Meanwhile, 23 companies that had made it to the ICI Top 500 in 2015 fell back to the ICI Second Top 500 this year.
The Turkey’s Second Top 500 Industrial Enterprises 2016 results are significantly compatible with the ICI Top 500 data, some of which were announced one and a half months ago. In particular, financial expenses remained the main determiner of the profitability for the ICI Second Top 500, as is the case with the ICI Top 500. Centered on production-based sales as the ranking criterion, results of the ICI Second Top 500 Industrial Enterprises 2016 research offered some interesting data.
The ICI Second Top 500 Industrial Enterprises registered TL 82.2 billion net production-based sales in 2016, compared with 8.6 percent increase to TL 75.6 billion in 2015. Having decreased in real terms in 2015, net production-based sales remained virtually the same throughout 2016.
The Second Top 500 achieved improvement in operating profitability with the help of a relative slowdown in the cost of sales during 2016. Total operating profit climbed by 17.5 percent up to TL 8.7 billion, compared with TL 7.4 billion year-on-year. The operating profit to net sales ratio soared from 8.5 percent to 9.4 percent during the same period.
The results of the research show that financial expenses of the industrial enterprises went up to TL 4.4 billion by 16.3 percent in 2016, from TL 3.8 billion recorded in 2015. The ratio of financial expenses to net sales, on the other hand, rose 0.4 points to 4.7 percent.
In 2016, the ICI Second Top 500 Industrial Enterprises’ earnings before interest, tax, depreciation and amortization (EBITDA) along with their pre-tax profit for the period was recorded as follows: The EBITDA climbed by 7.2 percent up to TL 11.1 billion in 2016, compared with TL 10.4 billion in 2015, while pre-tax profit for the period went up to TL 4.4 billion with 0.6 percent rise. Both of the profits dropped in real terms.
Financial expenses remained one of the main determiners in the profitability of industrial enterprises in 2016. The financial expenses to operating profit ratio of the Second Top 500 fell from 51.1 percent to 50.6 percent in 2016. However, despite this improvement, industrial enterprises had to spend half of their operating profit on financial expenses. These developments show that interest and FX rate fluctuations continue to affect the profitability and capital accumulation in the industry.
Financial structure, an indicator which reflects the distribution of debt and equity, is the principal indicator demonstrating the financial structure of enterprises.
The share of total debts in the financial structure of the ICI Second Top 500 Industrial Enterprises was 61.2 percent in 2013 and went down to 60.5 percent in 2016. During the same period, the share of equity rose from 38.8 percent to 39.5 percent.
Despite a downward trend in equity during the recent years, we see that the debt to equity ratio in the financial structure of the ICI Second Top 500 Industrial Enterprises remained mostly the same and the balance was maintained at around 60/40 percent.
According to the survey results, the financial liabilities of the ICI Second Top 500 have grown. It is particularly noteworthy that financial debt has grown faster than total debt. In 2016, total financial debt reached TL 36.1 billion with 17.5 percent rise, compared with TL 30.7 billion in 2015. Thus, the share of financial debt in total debt rose from 57.6 percent in 2015 to 58.1 percent in 2016.
As for the maturity structure of financial debts, we have seen a relative improvement in long-term financial debts during the recent years. The share of short-term debt in total financial debt was 50 percent in 2015, with the figure dropping to 48.4 percent in 2016. This development marks a comparable increase in medium- and long-term financial borrowing capacity of the industrial enterprises.
That being said, it is worthy of note that the short-term financial debt to total financial debt ratio of the ICI Second Top 500 was 11 points higher than that of the ICI Top 500.
The ICI 500 also offered important data regarding the amount of VAT carried forward. In an industrial environment with limited resources, the VAT burden accumulating on the ICI Top 500 increased by 23.6 percent to reach TL 6 billion, compared with TL 4.8 billion last year. This burden grew to a serious level in the Second Top 500 as well. In the ICI Second Top 500, the amount of VAT carried forward increased to TL 1.1 billion in 2015 from TL 996 million in 2014 with a 7.9 percent increase, and surged by 7.5 percent in 2016 to TL 1.2 billion.
As for the relationship between current and fixed assets of the Second Top 500 in 2016, one of the key industrial indicators, the ratio of fixed assets to total assets was recorded as 39.6 percent, whereas the ratio of current assets was 60.4 percent. Despite the modest improvement in the ratio of fixed assets, it should be underlined that it remained far below the global average of 66 percent with 39.6 percent.
The number of profitable companies among the ICI Second Top 500 dropped to 384 in 2016, in contrast with a total of 116 companies which incurred loss. Thus, in 2016, the number of unprofitable enterprises was recorded above 100 for the fifth time over the last decade. In terms of the EBITDA, on the contrary, 482 companies closed 2016 with profit. The number of companies that incurred loss, meanwhile, was 18. There has not been a major change in the number of enterprises that recorded EBITDA profit over the last three years.
This shows us that, despite a regression in profitability and the decline in the number of companies which recorded profit for the period, the companies improved their EBITDA performance by focusing on their core businesses and operations.
In terms of value added generated by technology intensiveness, low-tech industries in the Second Top 500 accounted for the highest share of value added at 44.2 percent in 2016, while that of medium-to-low-tech industries fell to 30.3 percent, down by 3.4 points. On the other hand, the share of medium-to-high-tech industries dropped to 21.1 percent in 2016, from 24.1 percent in 2015. Meanwhile, high-tech industries group’s share fell to 4.3 percent in 2016, down from 6.6 percent in 2015.
These data show that Turkey’s need to transform its industry towards high value added and high-tech is ongoing. However, the ICI Second Top 500 Industrial Enterprises survey also demonstrates the lack of progress in this area over the last four years. This is clearly illustrated by the fact that the total share of the value-added generated by medium-to-high and high-tech industries in the ICI Second Top 500 Industrial Enterprises was limited at 25.4 percent in 2016.
R&D spending of the ICI Second Top 500 points to a rather superficial increase in absolute size, in contrary to the spending of ICI Top 500. R&D spending of the ICI Second Top 500 increased by 2.2 percent to TL 290 million in 2016, up from TL 283.6 million in 2015. The ratio of R&D spending to production-based sales, on the other hand, decreased from 0.37 percent to 0.35 percent.
Among the Second Top 500, the number of enterprises engaged in R&D fell down from 180 in 2015 to 177 in 2016. Despite R&D’s critical importance in competitiveness, the ICI Second Top 500 companies had to cut back their R&D expenditures due to the conjuncture in 2016, as is the case with the ICI Top 500.
The industrial sector continues to be one of the most important areas for employment and qualified human resource. This is also illustrated by the increases in wages and salaries paid and the rise in the number of employees of the ICI Second Top 500 Industrial Enterprises.
Even at challenging times, the ICI Second Top 500 managed to increase their employment by 1.4 percent and significantly raised the wages and salaries by 18.2 percent in 2016. Although this increase was driven in part by the change in the minimum wage regulation, the 10 percent rise in wages and salaries in real terms was a striking result.
In 2016, the number of foreign-invested enterprises within the ICI Second Top 500 declined by 2, totaling 65. Contrary to the downward trend exhibited by the ICI Top 500 during the recent years, the number of foreign-invested enterprises in the ICI Second Top 500 has changed within a specific range. Since 2007, the number of foreign-invested enterprises within the ICI Second Top 500 has varied between 65 and 70. Yet, it is worth mentioning that the figure rose to 72 in 2012 from 68 in 2007, only to reach 65 in 2016, the lowest over the last decade.
In the ICI Second Top 500 Industrial Enterprises survey, Modavizyon Tekstil topped the list with TL 242.3 million in the production-based sales. Marshall Boya followed in the second place with TL 242.1 million worth production-based sales. Meanwhile, Dardanel Önentaş placed third with TL 241.5 million.
Total exports of the ICI Second Top 500 have been on a downward trend for three consecutive years. The exports of the ICI Second Top 500 Industrial Enterprises recorded 5.4 percent decrease in 2014 before a significant plunge of 17 percent in 2015, followed by a 2.8 percent drop in 2016 to reach USD 7.6 billion. Whereas the ICI Top 500 increased their exports in 2016, the exports of the ICI Second Top 500 continued to recede. This recession had a faster pace than the drop in total national export of Turkey.
In 2016, Pirelli Otomobil Lastikleri achieved the largest export with USD 138 million. It was followed by Kardem Tekstil with USD 74 million in export value, while Greif FPS Turkey Ambalaj ranked third with USD 73 million.