ISO Top 500
Istanbul Chamber of Industry
Chairman of Board of Directors
Turkey’s Top 500 Industrial Enterprises-2019
Press Meeting; Presentation-Speech
July 13, 2020
Distinguished Members of the Press,
We are gathered here today with you to share the results of the 2019 edition of “ISO-Turkey’s Top 500 Industrial Enterprises”, Istanbul Chamber of Industry’s (ICI) long-standing survey that has been conducted continuously for the last 52 years, under the unfortunate conditions caused by the Covid-19 pandemic that still affect our lives.
As we begin our press conference where we will add yet another year’s data into this treasure trove of knowledge that delivers greater value to our economy, industry, academy and financial press with each passing year, our Deputy Chairmen İrfan Özhamaratlı and Sadık Ayhan Saruhan and I welcome and greet you on behalf of the Istanbul Chamber of Industry.
I would like to take this opportunity to share my thoughts on the July 15 Democracy and National Unity Day, which we will commemorate two days later. What we experienced four years ago was a harrowing night full of agony that will never be forgotten. I would like to state once again that we will be as united a nation as we were in our fight for Democracy and National Will that night both today and in the future.
At the end of this month, we will celebrate Eid al-Adha, which is a very meaningful religious holiday for us. I would like to wish you a happy Eid al-Adha in advance, hoping that this Eid will bring love, peace, happiness and especially health to humanity.
The value of the ISO 500 surveys lies in their unique ability to provide a check-up of their respective period. We have made it a tradition to reprint and share with you the old issues of our periodical in recent years. As we cherish this tradition this year as well, we have given you the 1970 edition of our survey, which offers valuable information of its respective period just like its contemporary issues.
I would like to take this occasion to express my gratitude to everyone who has contributed to the studies and analyses for years that not only allow us to perform a health check on our industry but also form this invaluable source of historic data that is ISO 500.
I would also like to extend my thanks to the Department of Economic Research and Corporate Finance, our consultants and all our colleagues for their dedication in working day and night to deliver the “ISO-Turkey’s Top 500 Industrial Enterprises Survey” starting from the moment the data was submitted to us.
Dear Members of the Press,
The world and humanity are faced with a great challenge. Since the World Health Organization declared Covid-19 a “pandemic”, nothing has been the same as before. Unfortunately, no one can still predict how long this will last.
And, due to these unprecedented circumstances, the publishing date of our ISO 500 survey had to be delayed. As you will remember, we published the ISO 500 data, which had previously been published in late July, a little earlier each year, finally in the last week of May last year. However, since our enterprises' tax return submissions were delayed due to the pandemic, it also pushed the date forward for us to collect the financial data required for the ISO 500.
And finally, we are crossing, here before you, the finish line of a long marathon that started for us when our distinguished enterprises were able to share their data with us and that we completed in the shortest amount of time possible.
Before sharing with you some of the highlights of this year’s survey, I find it useful to briefly go over the economic conjuncture of the world and Turkey in the year 2019, which our survey focuses on.
2019 was marked by extraordinary developments in the global economy. While protectionism in trade gained more prominence throughout the year, commercial activities suffered the most from the trade war between the U.S. and China. Brexit loomed over the European economy all year round. Although the process finally came to a conclusion in the last month of the year, it took a heavy toll on the economic activities of the Eurozone.
Moreover, political polarizations, bilateral sanctions, especially the US-Iran tensions, and geopolitical developments negatively affected economic activities in many regions, including ours.
All these negative developments in 2019 culminated in a 1.7 percent growth in developed countries – the lowest rate in recent years. While the U.S. grew by 2.3 percent and the Eurozone by 1.3 percent, the growth in the world economy was at 2.9 percent, dropping to a 10-year-low.
With these in mind, it is safe to say that the results of our Turkey’s Top 500 Industrial Enterprises survey reflect the effects of both the financial turbulence caused by external factors and of the subsequent rebalancing process.
We closed 2019 with a 0.9 percent growth due to the deceleration in economic activity around the world and increasing costs and stagnating demand in Turkey. Our industry sector grew by a mere 0.2 percent in the same year.
Speaking of the economic conjuncture of the past year, we should not forget the local elections held on March 31 and the repeated Istanbul election. I would especially like to emphasize the negative effects of this election atmosphere, which spanned half of the year, on the economy.
It is through this perspective that I would like to underline the following about the ISO 500 results: Our ISO 500 industrial enterprises had to deal with the challenges of financial vulnerabilities carried over from the previous periods and the strain caused by the efforts to return to the growth path.
Distinguished Members of the Press,
Before moving on to core data and company rankings of the ISO 500, I would like to highlight two positive developments that the study reveals and that I especially underlined last year.
According to the ISO 500 results, the share of both mid-high- and high-tech industries in the value-added generated has been steadily on the rise for the last three years. Accounting for 20.2 percent in 2017, the share of mid-high-tech climbed to 22.2 percent in 2018 and to 23.5 percent in 2019. Recorded at 3.6 percent in 2017, the share of high-tech rose to 5.3 percent in 2018 and to 6.9 percent in 2019. For the first time in 2019, the share of mid-high- and high-tech industries in the value-added generated exceeded 30 percent. These are, without a doubt, promising developments for the future of our industry.
Undoubtedly, one of the key enablers for our industry to generate technology-intensive value-added is the current and future R&D expenditures of the enterprises. The ISO 500’s 2019 data offer results that give us hope.
Looking at the data, we see that R&D expenses totaled TL 9.7 billion in 2019, which indicates a 152 percent increase year-over-year. I would like to emphasize that the ratio of R&D expenses to production-based sales increased from approximately 5 permille to 1 percent in the same period.
In addition to these positive indicators, the ISO 500 also reveals crucial industrial data we should dwell on, the most important of which is financial indicators. Unfortunately, it is hard to say that these indicators improved this year. We see that the success our industrial enterprises achieved in their core businesses despite all the negative developments in 2019 has also been overshadowed by financial expenses.
In 2019, the financial expenses of the ISO 500 dropped by 33.4 percent to TL 63.8 billion, while the share of financial expenses in operating profit decreased from 88.9 percent to 69.3 percent. These figures tell us that even though the pressure on financial expenses declined in 2019, these expenses were still high.
Another issue to which I would like to draw your attention regarding the financial indicators is the share of total debt in the resource structure of the ISO 500. We see the continuation of the trend of deterioration in this indicator of the ISO 500, which has persisted for the last five years.
The share of total debt, which had exceeded 60 percent for the first time in 2015, increased by 1.4 points to 68.4 percent. However, the share of their equity dropped to 31.6 percent. I think it would be useful to remember that the imbalance in the resource structure of the ISO 500 peaked as of 2019 and to stress the fact that the ratio is above the world average.
Today, the biggest advantage the industrialists, who are faced with this debt and financial burden, has is low interest rates. The main indicators of the ISO 500 also show that industrialists are unable to pay off their debt with their earnings. They have to live with debt. Low interest rates are a must for them to roll over their debt. Therefore, we should never underestimate the struggle against high interest rates.
Dear Members of the Press,
Now, I would like to move on to the long-awaited results of the “Istanbul Chamber of Industry Top 500 Industrial Enterprises-2019 Survey”, starting with our first table.
In 2019, the ISO 500 Industrial Enterprises increased their net production-based sales by 16.4 percent to exceed TL 1 trillion, up from TL 878 billion in 2018.
When the growth in 2019 is compared to the 33.2 percent increase in 2017 and the 34.5 percent increase in 2018, growth performance in production-based sales seems to have decelerated. The 16.4 percent rate of increase is the weakest growth performance in the last three years.
Looking at the production-based sales performance of the ISO 500 over the years, the weak growth in the 2012-2016 period was followed by remarkable real growth rates of 19 percent and 11.8 percent in 2017 and 2018, respectively. We see that the real growth trend was carried over to 2019 as well.
Many driving factors affected the slowdown in 2019. First, due to the economic rebalancing policies, domestic demand and consequently domestic sales slowed down. On the other hand, the decline in inflation, limited the nominal sales volume. Moreover, the stagnation in exports caused by the shrinkage in world trade, especially in the Eurozone, also played a pivotal role in triggering a slowdown in the rate of increase of sales. Finally, the downward trend in commodity prices can be cited among the reasons for this weak performance.
When evaluating the ISO 500 in groups of 50, we see that the aggregate share of the top 50 in production-based sales remains at the 50 percent mark.
Dear Members of the Press,
This is yet another table showing the most important indicators of the ISO 500. In 2019, operating profits of the ISO 500 recorded a 2.8-point drop, falling from 10.9 percent to 8.1 percent. The aggregate operating profit, which stood at TL 108 billion in 2018, declined by 14.6 percent to TL 92 billion in 2019.
In 2019, due to the fall in domestic demand and challenging conditions in foreign demand, industrial enterprises could not reflect their cost increases sufficiently in sales prices and even resorted to reducing their prices. Therefore, operating profits declined significantly.
When we look at the results based on EBITDA (Earnings Before Interest, Tax, Depreciation and Amortization), an important financial baseline, we see that EBITDA, which had increased continuously since 2013 when it started to be calculated, fell by 8.1 percent for the first time in 2019 to TL 129 billion, down from TL 140 billion.
While the ISO 500’s income and profit from other operations amounted to TL 154 billion, their expenses and losses totaled TL 117 billion in 2019. The difference between these two indicators show that the ISO 500 recorded a net non-operating revenue of TL 37 billion.
As I have stressed at the beginning of my speech, financial expenses continued to be a key indicator for the ISO 500’s profitability in 2019.
As a result of the drop in financial fluctuations, the depreciation of the Turkish lira, the fall in inflation and the decline in interest rates, financial expenses decreased significantly in 2019. Especially in the second half of 2019, the decline in interest rates and the relative stability in the Turkish lira created more favorable financial conditions for the ISO 500 compared to 2018.
In 2019, financial expenses dropped by 33.4 percent to TL 64 billion, down from TL 96 billion, while the share of financial expenses in operating profit decreased from 88.9 percent to 69.3 percent.
While industrial enterprises allocated almost all their profit in 2018 to financial expenses, the pressure of financial expenses on operating profits followed a downward trajectory in 2019.
The distribution of debt and equity is one of the leading indicators demonstrating the financial structure of enterprises.
The share of ISO 500’s total debt, which exceeded 60 percent for the first time in 2015, maintained its upward trend in the years that followed. And in 2019, it increased by 1.4 points over the previous year, hitting 68.4 percent.
The financial debts of the ISO 500 grew from TL 329 billion to TL 406 billion with a 23.7 percent increase. Although the rate of increase in financial debts slowed down compared to last year, it continued its growth trend in real terms.
That said, a promising development in financial debts was the improvement in the maturity structure. Recorded at 41.9 percent and 45.3 percent in 2017 and 2018, respectively, the share of short-term financial debts in total financial debts dropped to 41.4 percent in 2019. The share of long-term financial debts increased to 58.6 percent. This indicates that the debt restructuring efforts in 2018 turned a large amount of short-term financial debt into long-term.
Another topic we have been mentioning frequently over the years is the "Deferred VAT” balances. When we look at the numbers, the outstanding VAT burden of the ISO 500 recorded a limited increase in 2019 following long years of high rates of increase.
However, industrialist still feel the heavy burden of VAT. The VAT burden accumulating on the ISO 500 increased by 1.9 percent year-over-year to reach TL 10.8 billion.
While the need for financing has become an urgent matter for our industrialists, we, unfortunately, must point out that they continue to lend an important portion of their resources to the government with zero interest.
Another crucial indicator that reveals the investment motivation of the industry is the relationship between current and fixed assets.
The high ratio of current assets to total assets has a positive impact on the management of working capital. However, the decline in the share of fixed assets indicates a downturn in companies’ tendency to invest in fixed assets, or in production machinery and equipment.
The ratio of fixed assets to total assets increased to 46.3 percent in 2015 before starting its decline and dropped to 38.8 percent in 2018. In 2019, the share of fixed assets recorded a limited increase to reach 39.1 percent.
The number of profitable ISO 500 enterprises increased from 381 to 411. The number of enterprises with positive EBITDA decreased by five and fell to 483 in 2019.
Distinguished Members of the Press,
Looking at the breakdown of the ISO 500’s value added by technology intensity, low-tech industries have reached the highest share in the value-added generated in 2019 with 40 percent.
The share of mid-low-tech industries fell to 29.6 percent, down by 5.4 points in 2019. On the other hand, the share of mid-high-tech industries rose to 23.5 percent in 2019, up from 22.2 percent in 2018. The share of high-tech industries climbed from 5.3 percent in 2018 to 6.9 percent in 2019.
There is an ongoing need for Turkey to transform its industry towards high value-added and high-tech sectors. The ISO 500 results pointed to a noticeable increase in the share of high-tech sectors in 2018 and 2019 for the first time in the last seven years considered as part of the survey.
As I have mentioned at the beginning of my speech, the share of the mid-high- and high-tech ISO 500 enterprises in value-added generated exceeded 30 percent for the first time in 2019, reaching 30.4 percent. The main drivers behind this growth is the major advances in defense and aviation industries in recent years.
While the number of ISO 500 enterprises with R&D expenses was 276 in 2018 – at its highest since 2013 when we started measuring this data –, it decreased by 14 to 262 in 2019.
While the number of enterprises engaged in R&D declined, as I emphasized at the beginning of my speech, there was a significant increase in R&D expenses. In 2019, R&D spending of the ISO 500 enjoyed a 150 percent surge and jumped from TL 3.8 billion to TL 9.7 billion.
As with every year, the industrial sector continues to be one of the most important areas for employment and qualified human resources. Accordingly, changes in wages and salaries paid and the number of employees of the private enterprises in the ISO 500 serve as significant indicators.
In 2019, total employment of the ISO 500 grew by approximately 1 percent. The increase in wages and salaries paid was recorded at 20.5 percent. This is an important indicator, showing ISO 500’s continued support for employment.
The number of foreign-invested enterprises in the ISO 500 remained unchanged year-over-year at 117 in 2019.
I would like to share with you the number of publicly traded enterprises, a piece of data we have included in the ISO 500 survey for three years now. While there were 69 publicly traded entities within the ISO 500 in 2017 and 67 in 2018, the number was 66 in 2019.
The fact that the number of publicly traded entities is limited once again reveals the need to strengthen the link between the industrial sector and the capital markets. In this respect, it is very important for our industrial enterprises to find the support they need to expand into and source funding from capital markets.
Dear Members of the Press,
Now, we are moving onto the most anticipated section of our ISO 500 survey. The table shows the top 10 enterprises of 2019.
When we look at net production-based sales within ISO Turkey’s Top 500 Industrial Enterprises survey, the ranking of the top four remained unchanged in 2019 over the previous year. The ranking of the top 10 are as follows.
According to net production-based sales in 2019, “Tüpraş” once again maintained its leadership position with TL 87.949 billion.
According to the study, Turkey's second largest industrial enterprise was "Ford Otomotiv" with TL 37.071 billion in production-based sales, followed by "Toyota Otomotiv" with TL 25.851 billion.
Ranking fourth just as last year, “Oyak-Renault” generated TL 24.635 billion in production-based sales.
Among the top 10 of 2019, there is an enterprise that was listed in the ISO 500 for the first time this year. Star Rafineri ranked fifth in the list with TL 20.831 billion worth of production-based sales, followed by “Arçelik” in the sixth place (same as 2018) with TL 18.618 billion.
“Tofaş” ranked seventh with TL 17.214 billion. İskenderun Demir Çelik followed Tofaş, ranking eighth with TL 16.392 billion.
Coming in ninth was an enterprise that wished to remain anonymous. “Ereğli Demir ve Çelik” ranked 10th with TL 14.146 billion in production-based sales.
If you could take a look at the 1970 issue of the Turkey’s largest enterprises survey included in your binders, I would like to draw your attention to the fact that Arçelik and Ereğli Demir Çelik were among the top 10 enterprises back then as they are today. Although half a century has passed, these enterprises are still among the largest.
As for the total exports of the ISO 500, our enterprises recorded a 2.4 percent increase to reach USD 73.5 billion in 2019. In the same year, Turkey's exports and industrial exports increased by 2.1 percent and 2.3 percent, respectively. The ISO 500’s exports achieved a growth rate that is quite close to these figures.
2019 was, without a doubt, marked by one of the lowest rates of increase in exports due to the global conjuncture. With that being said, I think it would be best to emphasize that the limited export performance in 2019 when the foreign exchange rates had a turbulent run shows that the increase in exports does not depend on FX alone.
With trade wars on one hand and protectionism measures around the globe on the other, 2019 was a major challenge for foreign markets. World commodity trade shrank and competition in exports increased even further. Metal exports, one of Turkey's major export items, also suffered from the safeguard measures of the U.S. and the EU.
Moreover, the contraction that hit Turkey’s key export markets, especially in the second half of the year, also had a negative effect on the export performance of industrial enterprises. In this conjuncture, the ISO 500’s share in Turkey’s industrial exports was 42 percent.
Another promising development is the number of exporters in the ISO 500. The number of exporters, which was 409 thirty years ago, has crossed the 450 mark in recent years, finally reaching 463 in 2019. This once again attests that exporting is a prerequisite to be included in the ISO 500.
Dear Members of the Press,
As I have previously stated, the ISO-Turkey's Top 500 Industrial Enterprises-2019 report provides us with a check up of not only our industry but also our economy with its results.
Although our economy was off to a rough start in 2019, we can see that our industry sector overcame all the challenges to a certain extent and continued to make a strong contribution to our economy. The strong growth performance of around 6 percent achieved in the fourth quarter played an important role in keeping our economy on a growth path. The growth in our industry has proven itself once again to be a safety net in the face of major challenges with its significant contribution.
I would also like to talk a little bit about the Covid-19 pandemic and what it means for our industry and production. Since the pandemic started at the beginning of 2020, we will only be able to see its effects on our industry sector reflected in the ISO 500 next year.
It should be noted that the world is going through an unprecedented crisis. We are faced with an outbreak that forces people to stay indoors and cuts demand in many areas from oil to industry and consumption. We are learning by experience that the most crucial principal in economics is the creation of demand. We are observing what happens when demand is removed from the equation.
All sectors have been affected by this extraordinary process. It is also important to point out that, even though the current state of things is significantly challenging, the Turkish industry still fulfills its social responsibility and once again demonstrates the vital importance of production.
Although our country has problems, we can proudly say that there are industrialists who have a strong production structure and desire to produce despite crises. Even though life has almost come to a standstill in the last five months, we are, together with our devoted employees, among the authors of a production success story, from healthcare to basic necessities. Our export operations continue against all odds.
The Turkey Manufacturing PMI and Turkey Export Climate Index published by the Istanbul Chamber of Industry point to a strong recovery for the industry in June. While Turkey Manufacturing PMI climbed from 40.9 to 53.9, the Export Climate Index jumped from 34.1 to 47.5, showing that the industry started to pick up speed. In addition, positive developments in export markets also give hope for the future.
All our enterprises operating during this process look for ways to create healthier and safer working conditions. At the Istanbul Chamber of Industry, we strive to deliver on our responsibilities in the best way we can. As part of our corporate and social responsibilities, we facilitate this process with our “Covid-19 Working Standards” and many other training activities.
We must keep our industry and our production potential alive for our country to have a brighter future. As I close my speech, I would like to thank all of you once again for joining us here today as we revealed the results of this important study.