ISO Announces “Turkey Top 500 Industrial Enterprises 2016” Results
According to the Istanbul Chamber of Industry’s (ICI) “Turkey’s Top 500 Industrial Enterprises 2016” Survey, Tüpraş topped the list with a total production-based sales volume of TL 32,594 million. Ford came second in the survey, followed by Tofaş.
On a year-over-year basis, the total production-based sales of industry giants grew by 8.8 percent to reach TL 490 billion, their operating profits rose to TL 52.4 billion with an 18.6 percent increase, and their total exports grew 3.1 percent to TL 55.1 billion. Financial expenses accounted for over half of the operating profit of industrial enterprises.
Erdal Bahçıvan, ICI Chairman, announced the results of the ICI 500 via a press meeting. “In a year marked by financing difficulties, exchange rate volatilities, terrorist attacks and social, political and geopolitical challenges, the Turkish industry sustained its resolve and determination to ‘succeed’. With a growth rate of 3.9 percent, it proved once again to be closest companion of the economy, and its friend in need. Industry will be Turkey’s greatest asset in its efforts to become one of the world’s top 10 economies, and it deserves every bit of support in order to succeed in its transition into a production economy.
Istanbul Chamber of Industry announced the results of the “Turkey’s Top 500 Industrial Enterprises 2016”, survey, a study that has been providing the most valuable set of data and identifying the industrial giants of Turkey since 1968. According to the results of Istanbul Chamber of Industry’s (ICI) Turkey’s Top 500 Industrial Enterprises 2016 Survey, announced by ICI Chairman Erdal Bahçıvan at a press meeting, Tüpraş became the highest ranking industrial enterprise with a total production-based sales volume of TL 32,594 million. Ford came second with a production-based sales volume of TL 16,314 million, followed by Tofaş with TL 12,856 million.
According to the study, which plays an important role in terms of revealing the current status of and issues affecting the real economy, the total production-based sales of Turkey’s Top 500 Industrial Enterprises grew from 450,505 in 2015 to 490,043 in 2016, indicating a 8.8 percent increase. Year-over-year, the total operating profit of enterprises increased by 18.6 percent to reach TL 52.4 billion, while their operating profitability ratio went up from 8.7 percent to 9.4 percent. The total exports of the Top 500, which had been on a downward trend for the last three years, is back on the growing track in 2016, increasing by 3.1 percent to reach $55.1 billion.
The Top 10 included five automotive companies, and the 2016 list included 48 new entrants. Twenty seven of these companies were on the ICI Second Top 500 list of last year, while the remaining 21 made it directly to the list from outside the Top 1000. The Top 50 enterprises accounted for TL 241 billion of the TL 490 billion total production-based sales, increasing their share to 49.2 percent, up from 48.8 percent in 2015.
Industry: the closest companion of the economy
Announcing the survey results in a press meeting together with ICI Vice Chairman İrfan Özhamaratlı, Erdal Bahçıvan, ICI Chairman, said: “The economic effects of such an unexpected turn of adverse events that occurred in Turkey would be much more devastating in even the most developed countries of the world. Yet, despite all adversities, the Turkish economy, private sector and industry maintained its activity and dynamism.” With a growth of 3.9, above the economic average, industry was the most significant contributor to the economy and the main driver of growth, according to Bahçıvan.
“In 2013, when we took office in the Istanbul Chamber of Industry, we had set a clear goal regarding the publication date of the ICI Top 500 Industrial Enterprises, and expressed our commitment to expedite the announcement of the survey results. We are happy to fulfill this commitment in our fourth year. Results of the ICI Top 500 Industrial Enterprises survey were originally announced on June 15 before being moved forward to June 7 last year; this year, we managed to further advance this date to June 5, and prepared a report that features enhancements in both content and design. We are proud to have moved the announcement date of the ICI 500 results from late July to early June. Each year we are breaking our own record, as befits an age of speed where information is of critical value.
I would like to extend my gratitude to all enterprises who have shared with us the data they have so diligently kept, allowing us to move the publication of the survey forward. Of course, the hardest part of this task is analyzing the data coming from the enterprises, and transforming it into a report format in such a short amount of time. I also want to congratulate our Economic Research department and consultants, whose expertise helped us navigate through this challenging task of data analysis, and all colleagues who contributed to the creation of the ICI 500.
Before moving on to the highly anticipated main data of the ICI 500, I would like to share with you certain findings of this year’s study.
First and foremost, the report clearly shows the remarkable performance of our industry and industrialists, despite all the challenges of 2016. Of course, the report also includes a number of negative indicators concerning our industry. However, let us remind ourselves of the monumental events and hardships, both domestic and international, that we experienced last year. Taking a cumulative look at the report, we, at ICI, are able to say that, even when a time of overall negativity, the Turkish industry was able to fulfill its commitments to our country and economy in 2016, having closed the year with a proud performance.
In a manner of speaking, this data is a testament to the industry In a year marked by financing difficulties, exchange rate volatilities, terrorist attacks and social, political and geopolitical challenges, the Turkish industry sustained its resolve and determination to ‘succeed’.
‘At what?’ you might ask; to which I would reply by saying: At fulfilling all its core responsibilities towards its country, be it making a profit, ramping up exports, sustaining production, and creating employment.
This endeavor and success indicate that the industrial sector is well deserving of any support that would drive the transition to a production economy and make a production-oriented culture dominant once again in the economy.
As we will soon see in detail, the industrial sector is successful in its main activities. That being said, financing management remains the main issue facing industry in recent years. Despite having reduced somewhat in 2016, the problem is still there, as can be seen from the average result of the last four years. We are faced with the truth that, while industrialists manage to generate revenue from their main activities, they lose over half of their operating profit as financing expenses. Thus, the report provides solid clues as to what the sector, already carrying such a heavy burden, would be capable of achieving if the burden of financing was removed.
Before moving on to the ICI Top 500 Industrial Enterprises Report and the data that support these statement, I would like to address the correlation between the Turkish economy and the growth of the Manufacturing industry.
The Turkish economy exhibited a sound growth performance in the second half of 2016. However, this performance trend took a downwards turn in the second half due to non-economic developments. Due to these adverse developments, the economy failed to sustain the growth rate of the first half, and the Turkish economy recorded a net annual growth of 2.9 percent.
At the same time, our industry exceeded the average growth of the economy with 3.9 percent, becoming the most significant contributor to the economy and the main driver of growth. Taking into account the current conditions, this performance shows the flexibility and the competitive strength of the Turkish economy that I mentioned earlier.
However, this determination and performance should not make us lose sight of the long-standing structural issues affecting the industry. Which is the declining share of the manufacturing industry in GDP.
Turkey is not an industrialized economy yet, and the share of the manufacturing industry in national income has fallen rapidly from 23 percent to the 15-17 percent band. Despite the support provided in recent years, there has been no significant momentum to reverse this trend. In order to achieve this aim, the Turkish economy must turn once again into a high-value-added production economy.
It is obvious that, as was the case in 2015, we failed to improve our marks in this regard in 2016. In 2016, the share of the Manufacturing Industry in GDP remained at 16.7 percent. The reversal of this trend is inevitable, and I would like to take this opportunity to note once again that there is an ongoin need to improve the conditions of the manufacturing industry.
After this brief assessment, I will now move on to the results of the ICI-Turkey Top 500 Industrial Enterprises survey. First, I would like to note that in 2016, we have had 48 new entrants to the ICI Turkey Top 500 Industrial Enterprises list. Twenty-seven of these were listed among ICI’s Second Top 500 Industrial Enterprises survey of last year. The remaining 21 enterprises made it directly to the list in 2016 from outside the Top 1000.
Moving on to the basic indicators of the ICI Top 500 Industrial Enterprises, beginning with the ranking criterion of our study: production-based sales. In 2016, the production-based sales of the ICI 500 increased to 490,043 with a 8.8 increase over 450,505 in the previous year.
Evaluation of Production-Based Sales by Groups of 50
Division of production-based sales figures into groups of 50 reveals the following picture. The Top 50 enterprises accounted for TL 241 billion of the TL 490 billion total production-based sales, increasing their share to 49.2 percent, up from 48.8 percent in 2015.
The shares of the groups behind the top 50 show that, as the groups get smaller, their weight in total production-based sales follow in the same pattern. Accordingly, the second top 50 has an aggregate production-based sales volume of TL 64 billion, accounting for 13.1 percent, while the companies ranked from 101 to 150 account for 8.5 percent.
The fourth group of 50, ranking 151 to 200, constitute 6.6 percent of the total production-based sales volume with TL 32 billion. Finally, the remaining 300 enterprises accounted for 22.6 percent of the production-based sales with TL 111 billion in total.
Going back to basic indicators, in terms of profit from activities, the Top 500 Industrial Enterprises had a successful year, similar to 2015. Total operating profit of the ICI 500 increased by 18.6 to TL 52.4 billion in 2016, up from TL 44.1 billion in 2015. The operational profitability of industrial enterprises grew from 8.7 to 9.4 percent.
However, it all goes back to financing costs. As you can see in the table, financial expenses accounted for over half of the operating profit of industrial enterprises, which generated TL 52 in total from their successful operations.
Looking at the main table, in 2016, the financing costs increased by 3.6 percent to TL 29 billion. While the ratio of financial expenses to net sales fell 0.3 points to 5.2 percent. This goes to show that, despite the financial stringency in the second half of 2016, the companies effectively managed their financing costs as well as their main activities.
Another look at profitability data from another perspective shows a significant increase in profits in 2016. In 2016, ICI Top 500 Industrial Enterprises recorded an absolute EBITDA of TL 76.1 billion in total. The figure in 2015 was TL 62 billion. As such, EBITDA grew by 22.8 percent. Total profit and loss for the period increased by 33.2 percent in 2016 to TL 37.7 billion, up from TL 28.3 billion.
This result is paints a clearer picture, showing that in 2016 financing costs remained the main determiner of the financial profitability of industrial enterprises. It also shows another thing. It shows that the ICI Top 500 Industrial Enterprises managed their financing expenses in a slightly better manner in 2016, due in part to the decline in foreign exchange rates. In addition, we can see that the depreciation of the Turkish lira, did not deliver the projected impact on financial expenses. This is because the share of financial expenses in operating profit had fallen from 63.4 percent to 55.4 percent in 2016. Although this parameter showed a decrease over the previous year, it should be kept in mind that the four-year average ratio of financing costs to operating profits is 56 percent. I would like to stress that, at the global scale, this ratio is 16 percent.
To sum it up, industrial firms have managed to limit the negative effect of exchange rate fluctuations and the depreciation of the Turkish lira on financial expenses. Nevertheless, it is not a stretch to say that within the current financial structure of the industry, interest and exchange rate fluctuations will continue to negatively affect profitability and capital accumulation in the industrial sector.
This table showing financial structure, an indicator which reflects the distribution of debt and equity, is the principal indicator demonstrating the financial structure of industrial enterprises.
What we see here is a scale that has been tipping towards equity for the past decade. The share of debts in financial structure increased to 61.9 percent in 2016, up from 45.2 percent in 2007. During the same period, the share of equity fell from 54.8 percent to 38.1 percent. These ratios point out to the most negative debt/equity ratio of the last 10 years.
While indebtedness ratios have been around the global 65/35 band, there is a clear message that this indicator gives: Industrial enterprises are unable to utilize their internal resources for growth as a significant portion of their profits, which they generate drop by drop with great effort, is diverted to cover financing costs. New growth investments are mainly financed through borrowings due to insufficient and dissolving equities, showing that the ICI 500 are in a relatively unhealthy cycle of financing.
At this point, I would like to refer to the financial liabilities of the ICI 500. It is becoming very clear that the financial liabilities of the ICI 500 is growing with each year. It is worthy of note that the total financial liabilities of the ICI 500, TL 140 billion in 2014, increased by 25.1 percent in 2015 to TL 175 billion, and by 18.8 percent in 2016 to TL 207 billion. I want to stress that during the same period, the ICI 500’s production-based sales grew by an average 7 to 8 percent, while the increase in financial liabilities is above the 20 percent mark.
Looking at the maturity structure of their borrowings, the comparative improvement of the last decade is sustained in 2016.
On a year-by-year breakdown, the industrial sector has been reducing its short-term borrowings in favor of mid- to long-term, a positive development. It is also a pleasing change to see this ratio fall slightly last year from 39.4 percent to 37.8 percent.
Yet, we should accept that we are lagging somewhat behind the global average in terms of maturity structure. As it stands, the share of short-term debt to total financial debt is 25 percent globally, whereas for ICI Top 500, this ratio is 38 percent.
Incidentally, I would like to share with you another information. Today, one of the most important issues facing our industrialists is the inaccessibility of new resources for both investments and working capital. And the resources they can reach are unfortunately highly costly.
As is the case across our entire industry, in an environment where resources are rare and expensive, the VAT burden accumulating on ICI 500 have been getting heavier with each passing year. The amount of VAT carried forward increased to TL 4.8 billion in 2015 from TL 4.3 billion in 2014 with a 12.6 percent increase, and surged dramatically by 23.6 percent in 2016 to TL 6 billion. In other words, industrialists, who are already having a hard time accessing financing, have lent TL 6 billion to the state budget.
At this point, there is one thing I have to stress. With its current implementation principles, VAT creates an actual burden on the industry and industrialists to transfer some of their working capital to the public, using their meager resources. We are excited about the Ministry of Finance’s work for amending the current VAT system, and I hope that they will come to a solution.
Do you wish to see how motivated industrialists are for investing, or understand the change trend of their investment appetites? This is one of the pictures you need to consider. It depicts the correlation between the current and fixed assets of the Top 500 Industrial Enterprises.
However, in this picture, we need to see a higher ratio of fixed assets to total assets to be able to talk about a high investment appetite. Despite the modest improvements we observed in the ratio of fixed assets until 2015, it dropped by 1 point in 2016.
Of course, high ratio of current assets to total assets has a positive impact on the management of working capital. On the other hand, the regression in the share of fixed assets indicates a downturn in companies’ investment in fixed assets, or in production machinery and equipment investments. The ratio of fixed assets of the ICI Top 500 Industrial Enterprises, which rose to 46.3 percent in 2015, fell back to 45.3 percent in 2016, showing that negative investment conditions limited the investment in fixed assets.
The number of ICI Top 500 companies that achieved pre-tax profit has clearly been on a downward trend over the last three years. In 2016, the number of ICI Top 500 Industrial Enterprises that achieved pre-tax profit dropped from 400 to 392. Meanwhile, the number of companies that incurred loss during the year increased from 100 to 108. The fluctuations in 2016, especially in financial indicators, had varying impacts on companies’ profitability.
The number of companies that recorded earnings before interest, tax, depreciation and amortization (EBITDA) climbed to 484, the highest in the last four years. The number of companies that incurred loss, on the other hand, fell to 16. This shows us that these companies improved their EBITDA performance by focusing on their core business and operations.
Today, the world has the Internet of Things and Industry 4.0 on its agenda. This means high technology, high value added and a competitive edge in Turkey and worldwide, as well as greater contribution to the growth of our economy...
When we look at technology intensiveness of the ICI Top 500 and the distribution of value added thereof, we notice that there is a long way ahead of us to cover in this area. In this respect, the ICI Top 500 survey data show that in 2016, medium-to-low-tech industries accounted for the highest share of value added at 39.3 percent, while that of low-tech industries fell to 37.4 percent, down by 1.5 points. On the other hand, the share of medium-to-high-tech industries rose to 19.5 percent in 2016, from 18.9 percent in 2015. High-tech industries group’s share increased to 3.7 percent in 2016, slightly up from 3.2 percent in 2015. In 2016, the total share of medium-to-high and high-tech industries reached 23.2 percent, rising above the 21.7 percent average of recent years.
The ICI Top 500 survey data also point out that in 2016, 192 out of 474 manufacturers were operating in low-tech industries. A total of 149 companies were in medium-to-low-tech industries, while there were 121 companies in medium-to-high-tech industries. There were, however, only 12 companies engaged in high-tech industries.
Based on these data, it would be safe to say that the Turkey’s need to transform its industry towards high value added and high-tech is ongoing. However, the Top 500 Industrial Enterprises survey also demonstrates the lack of progress in this area over the last four years.
As industrialists, this picture requires us to put our heads together and make some self-criticism. Despite all the incentives, stimuli and motivation for R&D investments, the Top 500 Industrial Enterprises survey data show that R&D spending decreased by 16.3 percent in 2016. In 2016, R&D spending of the ICI Top 500 dropped from TL 3.4 billion to TL 2.8 billion. The ratio of R&D spending to production-based sales, on the other hand, decreased from 0.74 percent in 2015 to 0.57 percent in 2016. The number of enterprises engaged in R&D fell down from 243 to 239 during the same period.
These data show that our industrialists did not measure up to the stimuli and incentives for R&D investment. Hence, greater responsibility falls on industrialists for R&D investments.
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 Top 500 Industrial Enterprises.
According to the ICI Top 500 survey data, industrialists increased their employment by nearly 15 thousand at 2.2 percent even at times of hardships and challenges, and raised the wages and salaries of their employees by 15.7 percent. Therefrom we can infer that the industrial sector is a leading sector under all circumstances.
The number of foreign-invested enterprises within the ICI Top 500 has exhibited a downward trend since 2009. The number of foreign invested enterprises in ICI Top 500 Industrial Enterprises increased in 2000s, peaking at 153 in 2009. However, from that year on, there has been a regression in the number of foreign-invested enterprises. Having slumped to 137 in 2013, the number of foreign-invested enterprises continued its decline, reaching 123 in 2016.
And now we are moving on to “Industrial Giants’ Ranking”. You can see the whole list of the “Top 500” in the reports you received. As in previous years, I will share with you the top 10 enterprises.
According to the ranking of Turkey’s Top 500 Industrial Enterprises based on production-based sales, Tüpraş topped the list once again with TL 32 billion and 594 million as Turkey’s largest industrial enterprise. Ford maintained its place as the second largest enterprise with a production-based sales volume of TL 16 billion and 314 million as well. Ford was followed by Tofaş, which had come fifth in the previous year’s ranking, with a production-based sales volume of TL 12 billion and 856 million.
After the top three enterprises of Turkey, Oyak-Renault held the fourth rank with a production-based sales volume of TL 11 billion and 466 million, as was the case in 2015. Oyak-Renault was followed by Arçelik, which dropped down from third to fifth place with TL 11 billion and 245 million.
Toyota ranked in the sixth place, achieving the most significant rise of the year. Having ranked 15th the previous year, Toyota rose to the sixth place in 2016 with a production-based sales volume of TL 10 billion and 570 million. EÜAŞ-Elektrik Üretim A.Ş. Genel Müdürlüğü came in the seventh place with a production-based sales volume of TL 7 billion and 349 million, and became the only public entity that made it to the top 10. Hyundai Assan ranked eighth with TL 7.58 billion.
This year, İçdaş Çelik held the ninth place with a production-based sales volume of TL 6 billion and 545 million, and İskenderun Demir ve Çelik ranked tenth with a production-based sales volume of TL 6 billion and 497 million.
The ICI Top 500 list demonstrates the success of automotive sector both inside and outside Turkey as the most powerful locomotive of Turkish industry and exports. This is also evident by the fact that the top 10 includes five automotive companies.
Total exports of the ICI Top 500 Industrial Enterprises had been on a downward trend for three consecutive years. It is pleasing to see our exports back on the growth track in 2016. The total exports of the Top 500 increased by 3.1 percent to reach $55.1 billion. At this point, we should remember that this increase was achieved despite the slump in Turkey’s total exports. As a result of this performance, the ICI Top 500 Industrial Enterprises constituted 38.7 percent of Turkey’s overall exports in 2016, which is close to the average of previous years.
Moving on to the top exporters according to the ICI Top 500 Industrial Enterprises survey, we see the following results:
According to the Top 500 list, the top exporter was Ford with an export volume of $3 billion and 958 million. Ford was followed by Tofaş with $3 billion and 247 million. Oyak-Renault held the third place with an exports volume of $2 billion and 834 million.
Considering all the data we mentioned here and also the rest of the Top 500 Industrial Enterprises survey data included in the report, we cannot ignore the fact that the unrelenting series of events that were experienced both in Turkey and across the world caused destruction in our economy unsurprisingly. However, despite this negative outlook, I would like to underline that: If these unexpected events had happened in the most developed economies of the world, they would have faced bigger destruction than our economy did.
On the other hand, Turkish economy, as well as Turkey’s private sectors and industry, has maintained its economic activity and dynamism despite all the challenges, as shown by our Top 500 Industrial Enterprises report. In 2016, our industrial sector remained resilient against all the challenges, as in the past. Once again, the industrial sector paved the way to trust put in our state, our people and our country. It managed to sustain its economic dynamism despite all negative circumstances. I feel proud to remind you once again that our industrial sector grew by 3.9 percent, outpacing the general growth rate of Turkey.
By exhibiting a good performance during this challenging period, our industry proved once again to be the closest companion of the economy, and its friend in need. In this regard, I would like to emphasize that the industrial sector is the only sector that can save Turkey from the middle-income trap, create qualified and sustainable growth, help increase the competitiveness of our economy in foreign markets and make the most significant contribution to turning Turkey into one of the top 10 economies of the world.
Last year I had told you that the Turkey’s Top 500 Industrial Enterprises survey includes a broad variety of data and results, and we would not waste too much of your valuable time by discussing all of them here. I had also shared that we were planning to start a new series with our advisors in consideration of our previous surveys. This meant that we would analyze, or perform “check-ups” of the ICI Top 500 from specific and different perspectives.
We carried out two of these “check-ups” in previous months and we published two thematic reports: “Middle Scale Trap in Industrial Firms” and “Analysis of the Top 1000 Industrial Enterprises’ Capital Costs”. We plan to conduct and share with you similar researches this year as well. I would like to share with you another new practice regarding the Top 500. From now on, you may access the survey, which also serves as an important historical and archive material, at www.iso500.org.tr .