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ISO Top 500

Istanbul Chamber of Industry
Chairman of Board of Directors
ERDAL BAHÇIVAN

Turkey’s Top 500 Industrial Enterprises-2020
Press Meeting; Presentation-Speech
May 26, 2021

Distinguished Members of the Press,

Dear Guests,

We are gathered here today to announce the results of the 2020 edition of “ISO-Turkey's Top 500 Industrial Enterprises Survey”. Our Deputy Chairmen İrfan Özhamaratlı and Sadık Ayhan Saruhan and I welcome and greet you on behalf of the Istanbul Chamber of Industry.

This year’s results mark the 53rd anniversary of our Top 500 survey. Each of these surveys, which has been prepared every year with the meticulous efforts of our experts for more than half a century, is a treasure trove of knowledge that offers valuable insights into the history of Turkey’s economy.

We have made it a tradition to reprint and share with you the old issues of our periodical since the 50th anniversary of the ISO 500. This year, you will find our periodical published in 1971, exactly 50 years ago, among your materials. I would like to take this opportunity to commemorate Ertuğrul Soysal, who was the Chairman of our Chamber at that time, with mercy, and thank everyone for their contribution.

When we focus back on this year, I think this period we are going through speaks for itself. Even our meeting platform paints a clear picture of our situation. It is now a fact that the impact of the Covid-19 pandemic on us is here to stay. The pandemic has led to the emergence of new behaviors, systems and approaches across all aspects of life, from health to education, social life to logistics and ultimately consumption.

The pandemic also had a negative effect on the announcement schedule of the Top 500. After having made great efforts in recent years to move the announcement of the Top 500 as far back as June and later May, we had to postpone it to mid-July last year due to the pandemic. While same conditions persist this year as well, we managed to announce the 2020 results of our ISO 500 survey thanks to the commitment and meticulous efforts of our consultants, especially our Department of Economic Research and Corporate Finance.

Today, we are proud to be able to announce the ISO 500 on May 26, which marks the earliest date it has ever been announced. In this day and age when early access to information is key, I would like to extend my thanks once again to all our colleagues who have made it possible for us to share this valuable treasure with you today.

I would like to take this occasion to express my gratitude to all the enterprises for sharing with us extremely valuable information over the years, thus not only allowing us to perform a health check on Turkey’s economy and our industry but also helping us form this invaluable source of historic data that is ISO 500.

Dear Members of the Press

As I have just mentioned, humanity is witnessing history as it still continues to unfold. Although we are yet to be in the clear about its duration, the pandemic does leave a certain mark on everyone and everything. It is definitely not easy for anyone to get through these days unaffected. Apart from our individual traumas, every social organism, from families – the smallest unit of society, to companies and even states, deeply feels the effects of this virus. Turkey’s economy and industry has also had their fair share of this adversity.

In a short while, we will take a deep dive into these effects through the data of our companies. But first, I would like to briefly touch on how the world economy and Turkey’s economy performed in this challenging process.

The pandemic in 2020 had a negative impact on all economies around the world. So much so that in 2020, the world economy faced the sharpest contraction of the last decades with 3.3 percent, and the contraction was felt in almost all regions and countries.

The U.S., the largest economy in the world, contracted by 3.5 percent and the Eurozone by a historic 6.6 percent. Despite this economic shrinkage that took the world by storm, from Japan to India, Brazil to Russia, Turkey was one of the few countries in the world to record positive growth with 1.8 percent.

It is of utmost importance to stress the pivotal role our industry played in the growth performance of Turkey. As you can see on the screen, while our economy grew by 1.8 percent in 2020, our industrial sector achieved a stronger performance with 2 percent. The contribution our industry made in these challenging times deserves all the praise.

I would like to say a little bit more about this performance. As it did in the past when times were challenging for many sectors, the Turkish industry acted with a great sense of responsibility to ensure continuity in production during this pandemic.

Even at the height of the outbreak, our industry made the greatest contribution to eliminating problems, from healthcare to basic needs. Moreover, it has proven itself to be the backbone of the Turkish economy in terms of exports, employment and tax revenues. Despite the negative effects of the pandemic, our overall narrative remains unchanged with an annual industrial performance to be proud of.

While there are some negative indicators, the ISO 500 data reveal that our industry managed to end the year on the positive side. This shows once again that the industry should be valued and supported not only in challenging times but also throughout the entire economic cycle. I would like to take this opportunity to congratulate all our investors and industrialists, who are not included in the ISO 500, but have contributed to and supported our economy to achieve this performance.

Dear Members of the Press

Distinguished Guests,

Now, I would like to move on to the long-awaited results of the “Istanbul Chamber of Industry Top 500 Industrial Enterprises-2020 Survey”, starting with our first figure.

In 2020, the ISO 500’s production-based sales recorded a 15.3 percent increase to TL 1.179 trillion, up from TL 1.022 trillion. Compared to the 34.5 percent and 16.4 percent increases respectively in 2018 and 2019, growth performance in production-based sales decelerated.

In 2020, the consumer inflation adjusted production-based sales achieved an increase of only 6 per mil in real terms. This has been the lowest real increase rate in the last four years.

The slowdown in 2020 obviously stems from the Covid-19 restrictions and the fact that global markets remained closed for a while. Although demand started to recover in the second half of the year, the financial fluctuation, rising interest rates and the second wave of the pandemic hampered domestic sales.

When evaluating the ISO 500 in groups of 50, we see that while the top 10 still accounts for a quarter of the total production-based sales of the ISO 500, this share now follows a downward trend compared to previous years.

The share of the top 50 in production-based sales, however, maintains its levels close to 50 percent overall, albeit down slightly.

One of the most pivotal and one of the most discussed data representations of the ISO 500 is this table showing their sales and profitability performance.

The operating profit of the ISO 500, which indicates profit from core businesses, increased by 55 percent year-over-year (YoY) to reach TL 142.8 billion. Operating profitability also increased by 2.7 points to 10.8 percent.

Similarly, EBITDA, which had increased continuously since 2013 – except for 2019 – when it started to be calculated, surged by 43.1 percent in 2020 to TRY 184.4 billion. The EBITDA profitability ratio also increased by 2.6 points to 13.9 percent.

Again, the total pre-tax profit and loss for the period grew by 50.1 percent to TL 92.5 billion. The data attest that the profits of industrial enterprises showed an increasing trend in 2020.

When we look at the profitability data of the ISO 500, in addition to the improvement in operating profitability, the rise in non-operating revenues, especially when combined with the net profit from foreign currency exchange, also had a positive contribution to profitability.

While the ISO 500’s income and profit from other operations amounted to TL 237.9 billion, their expenses and losses totaled TL 194.4 billion in 2020. The difference between these two indicators show that the ISO 500 recorded a net non-operating revenue of TL 43.4 billion.

Financial expenses continued to be a key indicator for the ISO 500’s profitability. As the Turkish lira depreciated, inflation climbed and interest rates fluctuated in 2020 due to the financial conditions the Covid-19 pandemic created, the financial burden increased significantly YoY.

In 2020, the ISO 500’s financial expenses amounted to TL 88.8 billion following a 39.2 percent increase. On the other hand, operating profit rose by 55 percent to TL 142.8 billion, and thus, the ratio of financial expenses to operating profit decreased from 69.3 percent to 62.2 percent. Despite this relative improvement, our industrial enterprises continued to allocate a significant portion of their profits from their main operations to financial expenses.

Dear Members of the Press

Currently on the screen, this table shows the main balance sheet items of the ISO 500 and their changes over the course of the last three years. When we look at the table, we see that the total debts of the ISO 500 increased by 23 percent in 2020. Backed by the increase in operating profitability, our enterprises were able to expand their equity capital at a similar rate with 23.2 percent.

This looks promising compared to the previous two years, when debt followed a steeper growth curve than equity capital. Despite this improvement in the ratio, as we will see more clearly in the table that I will share a little later, the current debt-equity capital distribution points to a chronic problem that is faced by our industrialists and that must be addressed.

The table you see now shows us the debt-equity capital ratio. The share of ISO 500’s total debt, which had exceeded 60 percent for the first time in 2015, maintained its rising trend in the years that followed. In 2020, however, the shares of total debts and equity capital remained the same with 68.4 and 31.6 percent, respectively.

The total financial debts of ISO 500 increased by 23 percent in 2020 to reach TL 499.6 billion, up from TL 406.3 billion. The change in debts according to their maturities indicate a 22.4 increase in short-term financial debts, reaching TL 206 billion, up from TL 168.3 billion in the previous year. Long-term financial debts, on the other hand, climbed by 23.3 percent from TL 238 billion to TL 293.5 billion.

Now, I would like to focus on one particular aspect here. While Turkey saw a highly strong loan growth of 35 percent in 2020, the fact that the increase in the financial debts of the ISO 500 was limited to 23 percent indicates that loans were mostly utilized by non-industrial sectors.

When we look at the share of short-term financial debts in total financial debts, we see that this ratio, which had showed an increasing trend in 2017 and 2018, decreased to 41.4 percent in 2019 and to 41.2 percent in 2020. In the last two years, despite debt restructuring and various financial instrument options, the share of short-term financial debts in total financial debts has remained flat.

One of the key indicators that we have been sharing with you in recent years is this table, which shows the current and fixed assets within total assets.

The ratio of fixed assets to total assets increased up to 46.3 percent in 2015 before starting its decline, and dropped to 39.1 percent in 2019. In 2020, the share of fixed assets fell further by 2.8 points to 36.3 percent. The extraordinary conditions forced the hands of enterprises to turn to liquid assets and limited their fixed asset investments.

Although the fixed assets in this table have followed a downward trajectory in recent years, I would like to draw your attention to another factor that caused this. As you well know, the last inflation accounting was in 2004. In the years that followed, the revaluation of the balance sheets of the enterprises was generally not possible. Considering that high inflation has re-entered our lives in the last 3 years, there is a clear need to revalue the fixed assets of our industry. The fact that our industrialists have been voicing their revaluation demands more and more frequently in recent times is a testament to its necessity.

Dear Members of the Press

Another topic we have been mentioning frequently over the years is the "Deferred VAT” balances. When we look at the figures, the deferred VAT burden of the ISO 500 continued to rise after a limited increase in the previous year. The de VAT burden accumulating on the ISO 500 increased by 14.3 percent YoY to reach TL 12.4 billion. I would like to remind you that this figure accounts for 2.5 percent of the total financial debts of the ISO 500.

While our industrialists are still in a high financing need, our enterprises continue to offer an important resource to the government for borrowing with zero interest. At this point, I would like to reiterate that the VAT reform, which we always bring to the agenda, should be implemented and the industrialists should be relieved of their burden.

When we look at this table, which we share every year to show the ISO 500 enterprises that recorded profit/loss, the number of profitable enterprises increased from 411 to 423 in 2020.

This table offers crucial data on the nature of the production structure of the ISO 500. Considering the distribution of value-added generated based on technology intensity, we see a promising progress in the last three years, especially in mid-to-high-tech and high-tech groups, albeit with small increments.

While the total value-added generated by mid-to-high-tech and high-tech industries among the value-added generated by the ISO 500 in 2018 was 27.5 percent, this rate climbed to 30.4 percent in 2019 and to 31.2 percent in 2020.

Undoubtedly, one of the key ways of increasing the technology intensity of our industry is through the R&D efforts of our enterprises.

When we look what the ISO 500 data tell us in this regard, we see that the number of enterprises with R&D expenses has increased gradually since 2013. After a stagnant period last year, the number of enterprises engaged in R&D within the ISO 500 in 2020 was recorded as 271.

The survey data for 2020 reveals that the R&D expenses of the ISO 500 was TL 6.2 billion, indicating a rise of 4.9 percent over 2019. The ratio of R&D expenses to production-based sales, which was 0.58 percent in 2019, saw a slight drop in 2020, stopping at 0.53 percent.

As with every year, the industrial sector continues to be a pivotal area for employment and qualified human resources. Accordingly, changes in wages and salaries paid and the number of employees of the ISO 500 serve as significant indicators.

Despite all the negative developments in 2020, the employment within the ISO 500 increased by 2.9 percent. The rise in wages and salaries paid was recorded at 14.4 percent. These figures are important, in that they reveal how the industrial sector makes sure to protect its employment performance despite all the challenging conditions.

In 2020, the number of foreign-invested enterprises within the ISO 500 fell to 110. The gradual decline in the number of foreign-invested enterprises in the ISO 500 has continued since 2009.

Capital markets play a pivotal role for industrial enterprises to access new financing resources. When we look at the ISO 500 data, we see that a limited number of enterprises are publicly traded. Although the interest in IPOs (initial public offering) has increased recently, the number of publicly traded enterprises within the ISO 500 remained flat with 67.

The fact that the number of publicly traded enterprises 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.

When we rank the ISO 500 according to their respective chambers, we see that the weight of Anatolia in the industry is increasing, though at a slow pace.

Although there has been a decrease in numbers in recent years, the largest share still belongs to the Istanbul Chamber of Industry with 161 enterprises (cf. 180 five years ago). While Istanbul is followed by the Aegean Region Chamber of Industry with 44 enterprises, Ankara has 37, Kocaeli 36, Gaziantep 29, and Bursa 19.

This table shows the distribution of the ISO 500 based on the sector groups of 10 created by the ICI.

According to the data, more than half of the enterprises within the ISO 500 are concentrated in three sector groups: These are, in order, "food products" with 118 enterprises, "basic metals and machinery" with 85 enterprises, and "chemical, plastic and rubber products" with 65 enterprises.

According to the 2020 data, these sectors also account for more than half of the production-based sales. On the other hand, when we look at their shares in production-based sales, we see that the largest share belongs to the "basic metals and machinery" group, which ranks second by number of enterprises.

Compared to five years ago, the most striking change in the sectoral distribution is the fact that the number of enterprises increased by 10 in the manufacture of food products group, but decreased by 20 in the mining, quarrying and mineral products industry.

Dear Members of the Press

Now it's time for the most anticipated part of our research, the ISO 500 ranking by aggregate. In the documents we provided to you, you can analyze the ranking of the Top 500 by production-based sales in more detail. We will be looking at the top 10 today.

According to the ISO 500 Industrial Enterprises 2020 survey, the largest enterprise according to production-based sales was "TÜPRAŞ-Türkiye Petrol Rafinerileri A.Ş.” with TL 58.593 billion, same as last year. “Ford Otomotiv Sanayi A.Ş.” ranked second with TL 45.223 billion.

“Oyak-Renault Otomobil Fabrikaları A.Ş.” ranked third with production-based sales totaling TL 31.242 billion, immediately followed by "Toyota Otomotiv Sanayi Türkiye A.Ş." with TL 30.812 billion.

The fifth enterprise preferred to remain anonymous. “Star Rafineri A.Ş.” ranked sixth with TL 24.030 billion. “Arçelik A.Ş.” ranked seventh with TL 21.803 billion.

In the eighth place was “TOFAŞ Türk Otomobil Fabrikası A.Ş.” with TL 20.719 billion in production-based sales, and “Ereğli Demir ve Çelik Fabrikaları T.A.Ş.” ranked ninth with TL 16.976 billion in production-based sales. “İskenderun Demir ve Çelik A.Ş.” ranked tenth with TL 16.910 billion.

I opened with how Covid-19 affected all aspects of life negatively and how this was reflected in some of the ISO 500 data. The export performance of the ISO 500 represented in this table is a clear example of this.

2020 was a year of challenges for global trade and exports. In this difficult year, Turkey's exports fell to USD 169.7 billion, shrinking by 6.2 percent. The exports of the industrial sector decreased by 6.6 percent to USD 163.6 billion. On top of that, the export performance of the ISO 500 dropped by 12.8 percent to USD 64.1 billion.

Even though the export performance of ISO 500 in 2020 fell somewhat short of Turkey's general and industrial export performance, the ISO 500 still has a significant weight in Turkey's exports. In 2020, the ISO 500 accounted for 37.8 percent of Turkey's exports and 39.2 percent of industrial sector exports.

This figure shows the number of enterprises engaged in exports. The number of exporters, which had been around 460 since the mid-2000s, reached 465 in 2020.

Dear Members of the Press

The ISO-Turkey’s Top 500 Industrial Enterprises-2020 survey results provide us with extremely enlightening and eye-opening insights into our national economy, as it has done in previous years. As the more than 50 reports published so far, this survey will surely make an invaluable addition as one of the key sources of our economic history.

By referencing these results, the message we want to convey to the relevant authorities is as follows: The 2020 results of the ISO 500 show that our industry is a strong pillar upon which our economy rises. But in order to ensure its sustainability, we should benchmark the previous results against current developments and data.

To this end, when we look at the Manufacturing Industry Purchasing Managers Index (PMI) data announced as part of the cooperation between the ICI and Markit, we see that Turkey has fallen behind the rest of the world based on industry data, especially in the last few months.

Turkey had a promising performance last year as a byproduct of the strong global industrial growth. But when we look at this year's PMI data, the same cannot be said for our country’s current trajectory.

Analyzing the most recent PMI data, announced in April 2021, we see that the Global Manufacturing Industry Purchasing Managers Index (PMI), measured as 55.8, seems to have reached its highest level in the last 11 years. The PMI index for the Eurozone, which is our largest export market, has broken its 24-year record with 62.9.

I think that every industry should be alarmed by the negative divergence of Turkey's PMI index from the world with 50.4 in April. While the world industry has had its most positive run since 2009, we should not overlook the fact that we are fourth to last by PMI data performance, which is measured in the manufacturing industries across 34 economies to provide the most valuable and reliable global benchmark.

We must look into the root causes of this. In this regard, it is safe to cite the recurrence of negativities in terms of inflation and financial markets as the two main reasons. In addition, the extreme price hikes in imported raw materials are putting more and more pressure on our industrialists. These increases in prices will exert serious stress on the industry in the coming days as they create an additional need for working capital and, consequently, for financing.

Another stress factor affecting our industrialists this year is inflation. We, industrialists, never want to live in an environment with high inflation. We believe that inflation means unpredictability and instability for societies, economies and industries. Therefore, we must do all we can to emerge victorious from the fight against inflation.

Because where there is inflation, there can be no foresight; where there is inflation, there can be no long-term business. Making investments is not easy in an environment of inflation. As a matter of fact, we can clearly see that despite the high rate of increase in investment incentive certificates last year, the investment appetite is yet to be acted upon.

Dear Members of the Press

As I conclude my words, I would like to re-emphasize in reference to the ISO 500 results that Turkish industrialists have displayed a great sense of responsibility towards our country by utilizing all the means at their disposal in the most optimal and effective way possible from the very first day of the outbreak to take their place at the forefront of Turkey's fight against the pandemic.

We wish this successful performance was provided with the opportunity to grow into a globally competitive one through new investments backed by strong support. We wish that our industry was given the chance to not only contribute to but also elevate the level of growth quality and export performance that Turkey needs. We wish that our industry was empowered to achieve a high-tech- and value-added-oriented industrial infrastructure and power. When such a window of opportunity is created, I hope and believe that the ISO 500s of the coming years will be able to deliver more positive, stronger and more sustainable results than those of today.

Concluding my speech on that note, I would like to once again sincerely greet you all with respect and wishes of good health.

Now, please feel free to ask questions if you have any...

Presentation-Speech Text