Following the release of the "ISO Türkiye's Top 500 Industrial Enterprises-2023" survey in June, the Istanbul Chamber of Industry (ICI) has now disclosed the results of the "ISO Türkiye's Second Top 500 Industrial Enterprises-2023" (ISO Second 500) survey, which includes smaller and medium-sized companies in comparison to the ISO 500.

This year, just like every year, the ISO Second 500-2023 survey has unveiled crucial insights into the economic and financial landscape faced by SMEs, their export performances, and key indicators related to R&D and technology activities.

Naturally, in assessing these results, it is vital to consider not only the impacts of the February 6 earthquake and the shifts in Türkiye’s economic policies but also a host of developments that have dampened global growth.

Considering the results of the ISO Second 500 against this backdrop, the production-based sales of the ISO Second 500 grew from TL 695 billion to TL 988 billion with a 42.2 percent increase.

In contrast to 2021 and 2022, this increase—which signals a lackluster performance—has been propelled by a slowdown in global demand, the earthquake disaster, an extended pre-election period, and the monetary tightening in line with the new economic framework.

A closer examination of production-based sales in the ISO Second 500, adjusted for year-end CPI inflation, reveals a 13.7 percent decline in 2023.

Consistent with recent practices, year-end CPI inflation was used in calculating real changes. However, it is important to remember that annual inflation fluctuated wildly throughout 2023. To recap, year-end inflation was 64.77 percent for CPI, while it was lower at 44.22 percent for PPI. The average annual inflation stood at 53.86 percent for CPI and 49.93 percent for PPI.

Regardless of the indicator used, the ISO Second 500's production-based sales in 2023 fell short of inflation and declined in real terms. If average CPI inflation had been used for the calculation, the real decline would have been 7.6 percent.

The Top 3 of the ISO Second 500

In the 2023 ISO Second 500 ranking by production-based sales, Biska Tekstil claimed the top spot with TL 2.958 billion. Karel Elektronik followed closely with TL 2.949 billion, and Küçükçalık Tekstil secured third place with TL 2.945 billion.

Enterprises with production-based sales ranging from TL 2.958 million to TL 1.294 billion were eligible for inclusion in the 2023 ISO Second 500 ranking. In the previous year's ISO Second 500 list, the production-based sales of companies ranged between TL 886 million and TL 2.054 billion.

In 2023, 76 new organizations made their mark by entering the ranks of the ISO Second 500. Conversely, 37 companies fell from the ISO 500 to the ISO Second 500 this year. 387 enterprises were ranked in the ISO Second 500 in both years.

Despite the slowing global growth in 2023, Türkiye's exports surged by 0.5 percent to $255.4 billion. In the same year, Türkiye's industrial exports experienced a slight decline of 0.2 percent, totaling $245.6 billion.

Exports from the ISO Second 500 dipped by 6.5 percent, totaling 15 billion dollars. This trend, indicating performance below that of Türkiye as a whole and the ISO 500, underscores the considerable challenges smaller and medium-sized enterprises face in expanding into international markets and maintaining their competitiveness.

As a result of these developments, the share of the ISO Second 500 in Türkiye's industrial exports dropped by 0.4 percentage points to 6.1 percent in 2023.

In 2023, the ISO Second 500 grappled with disappointing results in profitability, alongside sales.

During the year in question, the operating profit of the ISO Second 500 surged by 44.9 percent, climbing from TL 100.4 billion to TL 145.5 billion. Nevertheless, the operating profitability ratio held steady at 12.6 percent during this period.

Likewise, earnings before interest, tax, depreciation and amortization surged by 46 percent, soaring from TL 121.1 billion to TL 176.8 billion. Despite the increase, EBITDA profitability rose modestly by just 0.1 percentage point to reach 15.3 percent.

The total pre-tax profit and loss rose by 26.8 percent from TL 74.7 billion to TL 94.7 billion. Nonetheless, the return on sales rate dipped by 1.2 points from its previous 9.4 percent, settling at 8.2 percent.

The weakness in profitability is also reflected in the number of enterprises recording a profit and loss.

According to pre-tax profit and loss figures in the ISO 500, the number of profitable enterprises dropped from 457 in 2022 to 428 in 2023. Meanwhile, the number of enterprises incurring loss rose from 43 to 72. This figure marks the highest level since 2018.

On a brighter note, based on EBITDA, which reflects operational profitability, the number of profit-makers maintained its high level with 495.

A comparison of this table, which illustrates the profitability components of the ISO Second 500, reveals that the most significant development of 2023 was a nearly fivefold increase in net foreign exchange losses, soaring to TL 4.1 billion.

Despite the high rate of increase in the net loss from foreign currency exchange, net profit from other income, excluding foreign exchange transactions, more than compensated for these losses, reaching TL 18.5 billion. Consequently, the ratio of net non-operating revenues to net sales climbed from 0.8 percent to 1.2 percent. 

Non-operating income includes items such as interest, dividends and subsidiary incomes, sales of securities and fixed assets, commissions, etc.

Looking at the share of non-operating revenues in the total profit and loss for the ISO Second 500, we note considerable fluctuations over the past five years. After dipping to 8.7 percent in 2022, this rate bounced back to surpass the 15 percent mark once again in 2023. Despite the adverse impact of rising net FX losses, the contribution of non-operating revenues to overall profitability has increased.

In 2023, financial expenses remained a primary determinant of profitability for industrial enterprises within the ISO Second 500, mirroring trends seen in the ISO 500. The financial expenses of the ISO Second 500 jumped by 103.1 percent, reaching TL 65.6 billion. In the same year, operating profit surged by 44.9 percent, reaching TL 145.5 billion. The ISO Second 500’s ratio of financial expenses to operating profit went up by 12.9 percent to 45.1 percent.

Given that the average over the past 12 years stands at 44 percent, industrialists cannot escape the fact that they have been allocating nearly half of their profits to financing expenses –a trend we have been highlighting for years. Although companies largely sustain their operating profitability, soaring financing costs and foreign exchange losses undermine overall profitability for the period.

As we analyze changes in the asset and resource structure of these companies, it becomes clear that the introduction of inflation accounting—after a 20-year hiatus—has had a profound impact on the balance sheet aggregates of the ISO Second 500.

In 2023, following inflation adjustments, total assets for the ISO Second 500 swelled by 110.4 percent, reaching TL 1.4 trillion. TL 343 billion of this increase is attributed to inflation adjustment.

A detailed breakdown of assets reveals that fixed assets, significantly impacted by inflation adjustments, surged by 181.6 percent, reaching TL 668 billion. In contrast, the rise in current assets was considerably more modest at 70.1 percent.

On the liabilities side, equity experienced an increase of 152.1 percent in 2023 after inflation adjustments, climbing to nearly TL 740 billion. The impact of inflation adjustment on this item was TL 339 billion.

The impact on total debt was far less, on the other hand, as the adjustment was applied to non-monetary assets. In essence, while total debt increased by 76.7 percent, to TL 641 billion post-adjustment, the inflation adjustment's impact was limited to TL 4 billion.

Looking at the debt-to-equity table, it is evident that the inflation adjustment significantly bolstered the resource structure of the ISO Second 500, favoring equity.

The share of equity, which was 44.7 percent in 2022, would have fallen to 38.6 percent in 2023 without the adjustment; however, it rose to 53.6 percent after the adjustment. In other words, the inflation adjustment boosts the equity share in the ISO Second 500 balance sheet by 15 percentage points, surpassing total debt.

At this point, the importance of the inflation adjustment becomes evident in terms of making balance sheets more realistic and allowing for a healthier interpretation of the financial indicators.

Analyzing the sub-items of debt, we find that financial debts within the ISO Second 500 rose by 66 percent, totaling TL 303 billion. Other debts also saw a significant increase, climbing by 87.5 percent to reach TL 338 billion.

Since inflation adjustment applies only to non-monetary assets, financial debts remain unaffected, while the impact on other debts is minimal at 1.2 percent.

The last three tables reveal that the inflation adjustment has led to a significant shift on the assets side via fixed assets and on the liabilities side via equity. This has resulted in a more robust resource structure.

Observing debt evolution, we see that other debt grew faster than financial debt in 2023, mirroring trends from 2021 and 2022. This likely reflects the tightening in access to finance during the latter half of last year.

Analyzing maturity structures, it is noteworthy that the 59.4 percent increase in short-term financial debts was less than the 76.4 percent rise in long-term financial debts.

This shift is evident in the share of short-term financial debts within total financial debts. Although the share of short-term financial debts in total debts had been on the rise in 2022, it decreased to 59.1 percent in 2023. Nonetheless, this figure remains considerably higher than it was in 2021 and before.

Outstanding VAT claims, which are one of the issues that industrialists currently expect to see a reasonable solution implemented for, continue to be a serious problem for both the ISO 500 and the ISO Second 500. 

As you might recall, the VAT burden for the ISO 500 approached approximately TL 66.8 billion post-inflation adjustment in 2023, marking a 36.5 percent increase. The VAT burden accumulating on the ISO Second 500 increased by 58.3 percent YoY to reach TL 14.1 billion post-adjustment.

These developments indicate that the problem of outstanding VAT, where industrial enterprises effectively lend money to the state at zero interest with indefinite maturity, has intensified rather than alleviated, particularly with the backdrop of high inflation.

The Istanbul Chamber of Industry advocates for the reduction of the financial burden of VAT—non-deductible for years—on businesses, suggesting that the outstanding VAT amount should be returned to taxpayers in accordance with European practices, accompanied by regulatory changes to ease the process.

Another striking indicator of the ISO Second 500 is the breakdown of value-added by technology intensity. These figures reveal that low-tech industries once again claimed the largest share at 44.6 percent, though this group was the only one to experience a decline, decreasing by 4.6 percentage points compared to the previous year.

Meanwhile, the share of mid-to-low-tech industries edged up by 0.9 percentage points to 26.2 percent, mid-to-high-tech industries climbed by 2.6 percentage points to 25.7 percent, and high-tech industries grew by 1.2 percentage points to reach 3.6 percent. 

While these figures hint at a partial improvement in the shares of mid-to-high-tech and high-tech sectors, it is clear that these gains are insufficient. In a future where digitalization and green transformation will dictate global competition, it is evident that this is merely the beginning, and we must intensify our efforts to keep pace.

R&D is vital for the competitiveness of the industrial sector. The number of enterprises engaged in R&D within the ISO Second 500 appears to have stagnated over the last two years after peaking at 235 in 2021. The number of organizations engaged in R&D dipped to 228 in 2022 and fell by one more to 227 in 2023.

Despite the stagnation in the number of R&D-active enterprises, survey data indicates that R&D expenses of the ISO Second 500 in 2023 amounted to TL 3.9 billion. This amount represents a 41.5 percent increase compared to the spending of TL 2.8 billion in 2022.

Meanwhile, the ratio of R&D expenses to production-based sales has been stagnating at around 0.4 percent for the past three years. For a technology-driven, value-added industry, our companies must place greater emphasis on R&D.

In 2023, as industrial employment remained relatively stable, employment within the ISO Second 500 grew by 9.1 percent, reaching 285,000 people. Concurrently, the rise in wages and salaries paid during the same year stood at 131.4 percent. 

After fluctuating between 2017 and 2022, the number of publicly held companies in the ISO Second 500 rose by 4 to reach 30 in 2023. 

For companies, going public is a pivotal avenue for broadening capital access, particularly for industrial enterprises seeking quality financial resources. The increase in the number of publicly held companies within the ISO 1000 signifies a strengthening trend of going public in the industry.

Conversely, the number of foreign-invested enterprises in the ISO Second 500, which had seen growth between 2018 and 2021, stagnated in 2022 and decreased by 7 to 66 in 2023.

The dynamics affecting the number of foreign-invested enterprises are influenced by shifts in the capital structures of firms as well as transitions between the ISO 500 and ISO Second 500.

When the ISO Second 500 enterprises are ranked based on the chambers they are affiliated with, it becomes evident that the weight of Anatolia in the industry has been steadily increasing over the years, resulting in a more balanced distribution of industries throughout Türkiye.

Even though the number has slightly decreased in recent years, the Istanbul Chamber of Industry still holds the largest share in the ISO Second 500 with 134 enterprises. The number of ICI members appears to have fallen by 8 in 2023. Istanbul is followed by the Aegean Region Chamber of Industry with 44 enterprises, while and Kocaeli, Bursa, Gaziantep and Adana are placed high in the ranking with 35, 34, 33 and 19 enterprises, respectively.

When considering the distribution of the ISO Second 500 among the 10 sector groups outlined by the ICI, it is clear that nearly 65 percent of the enterprises are concentrated in four sectors.

The leading sectors include the "food products industry" with 109 companies, the "chemical, plastic and rubber products" with 78 companies, the "manufacture of textiles" with 71 companies, and the "manufacture of basic metals and machinery" with 64 companies.

Collectively, these four sectors account for over 63 percent of net production-based sales, according to 2023 data. Notably, while the share of the first two sectors in net production-based sales increased compared to last year, the shares of the latter two sectors declined.

In the 2023 ISO Second 500 ranking, the top 10 companies, ranked by their production-based sales, are as shown in the table. “Biska Tekstil San. ve Tic. A.Ş." secured the first position in the ISO Second 500 with production-based sales approaching TL 2.958 billion. This enterprise was ranked 405th in the ISO 500 in 2022.

Immediately following, "Karel Elektronik San. ve Tic. A.Ş." took the second place with production-based sales of TL 2.949 billion. Karel Elektronik was ranked 107th in the ISO Second 500 in 2022.

The third-ranked enterprise is "Küçükçalık Tekstil San. ve Tic. A.Ş." with production-based sales of TL 2.945 billion. This enterprise was ranked 374th in the ISO 500 in 2022.