< PreviousEnterprise Europe Network ISTANBUL www.een-istanbul.org Foreign Trade Research&Development Intellectual Property Rights Internationalization Innovation Horizon 2020 EU Technical Standards Access to New Technologies CE Mark Access to New Markets Technological Cooperation&Partnership enterprise europe network een.ec.europa.eu60 AUGUST 2021 The decrease in cost of sales boosted profitability. In 2020, the ratio of cost of sales to net sales decreased by 2.5 points to 82.5 percent, resulting in a gross ROS of 17.5 percent. Meanwhile, the ratio of operating expenses to net sales dropped by 0.1 points to 6.8 percent. Thus, the operating profit ratio of ISO 500 industrial enterprises went up from 8.1 to 10.8 percent. The decrease in the production costs and operating ex- penses of the ISO 500 in 2020 had a positive impact on operating profitability. The fact that raw material and in- put prices remained quite low for a certain period in 2020 helped to drive the cost of sales down. The increase in costs in late 2020 were reflected in prices to a significant extent. Under the adverse conditions created by the pan- demic, the ISO 500 also maximized their savings from their operating expenses. In 2020, the ratio of income and profit from other opera- tions to net sales recorded a 4.4-point increase, reaching 17.9 percent. 14.8 percentage points of this ratio came from profit from foreign currency exchange. The aggregates and ratios in the cumulative income statements of the ISO 500 for 2020 provide valuable insights into the profitability of enterprises. Cumulative Income Statement Values (TL) Change (%) Share in net Sales (%) 2019202020192020 Net Sales 1,143,7771,325,31215.9100.0100.0 - Cost of Sales 972,3111,093,30612.485.082.5 Gross Sales Profit (Loss) 171,466232,45935.615.017.5 - Operating Expenses 79,35489,65413.06.96.8 Operating Profit (Loss) 92,113142,80555.08.110.8 + Income and Profit from Other Operations 154,318237,87554.113.517.9 Profit from Foreign Currency Exchange 112,892196,72274.39.914.8 - Expenses and Losses from Other Operations 117,090194,42666.010.214.7 Loss from Foreign Currency Exchange 98,915177,71279.78.613.4 Profit (or Loss) before Financial Items 129,342186,25344.011.314.1 - Financial Expenses 63,83188,84539.25.66.7 Ordinary Profit (or Loss) / Profit or (Loss) after Financial Items65,51197,40948.75.77.3 + Extraordinary Revenues and Profits 6,2247,21916.00.50.5 - Extraordinary Expenses and Losses 10,12112,12519.80.90.9 Profit (or Loss) for the Period (Before Tax) 61,61492,50350.15.47.0 CUMULATIVE INCOME STATEMENT AND ANALYSISAUGUST 2021 61 The ratio of ordinary expenses and losses from other operations to net sales was 14.7 percent, 13.4 points of which stem from FX losses. These data indicate that, as was the case in 2019, the impacts of the exchange rate hikes in 2020 were managed effectively. The ratio of net income and profit from other operations of the ISO 500 enterprises to net sales was 3.3 percent in 2020, remaining flat YoY. In the same period, the ratio of net profit from FX to net sales increased by 0.2 points to 1.4 percent. Good management of FX rate risk once again made a positive contribution to the profitability of the ISO 500 in 2020. With the 3.3-point contribution from income and profit from other operations, the ISO 500 reached a profitability of 14.1 percent before financial expenses in 2020. Accor- dingly, the profit rate before financial expenses increased by 2.8 points YoY. At the same time, the ratio of financial expenses to net sales saw a 1.1-point increase, hitting 6.7 percent in 2020. Financial cost burden recorded a slight YoY increase in 2020. As a result, the ISO 500’s ordinary profitability after financial expenses was at 7.3 percent in 2020, up by 1.6 points YoY. After extraordinary revenues and profits (0.5 percent) and extraordinary expenses and losses (0.9 percent), the pre- tax profitability/net sales ratio of the ISO 500 amounted to 7 percent in 2020. In 2020, pre-tax profitability, which was 5.4 percent in 2019, increased by 1.6 points. Financial expenses to operating profits ra- tio dropped to 62.2 percent. In 2020, financial expenses continued to be a key indicator for the ISO 500’s profitability. As the Turkish lira deprecia- ted, inflation climbed and interest rates fluctuated in 2020 due to the financial conditions the COVID-19 pandemic created, the financial expenses significantly increased YoY. However, while same conditions persisted, the incre- ase in operating profit was realized at a higher rate. In 2020, the ISO 500’s financial expenses amounted to TL 88.8 billion following a 39.2 percent increase. That said, the ratio of ISO 500’s financial expenses to operating pro- fits dropped from 69.3 percent to 62.2 percent. Both net income from FX and non-operating profit increased The ISO 500 survey takes into account non-operating re- venues in calculations and analyses. This is partially due to the impact of non-operating expenses on the profitabi- lity (or lack thereof) of enterprises. The second reason is the need to calculate non-operating revenues separately in order to identify the ICI 500’s profit as national income and value added. The value added ge- nerated by enterprises is calculated through revenues or factor income payments. Accordingly, profit as national income, or in other words, the share of manufacturer in national income, is calcula- ted as a factor income. To find the factor income of profit as national income, non-operating revenues are deducted from pre-tax total profit and loss for the period, and the provisions allocated from profit for that year are added to the result. Non-operating revenue comprises dividend income, affi- liate revenues, interest revenues, net FX profits, and sale of current and fixed assets. In 2020, the ISO 500’s net non-operating revenues grew by 16.7 percent to TL 43.4 billion, up from TL 37.2 billi- on. However, the share of non-operating revenues in total profit and loss for the period dropped from 60.4 percent to 47 percent. Industrial enterprises allocated almost all their profit from their main activities to financial expenses in 2018 and the pressure of financial expenses on profitability was relatively lower in 2019. In 2020, while the upward trend in financial expenses led to an increased financial pressure, its extent remained limited thanks to the higher increase in operating profits. PROFITABILITY INDICATORS FINANCIAL EXPENSES/OPERATING PROFIT (%) 2017201820192020 Financial Expenses (TL Million) 35,17595,82363,83188,845 Operating Profit (TL Million) 70,612107,82292,113142,805 Financial Expenses/ Operating Profit (%) 49.888.969.362.262 AUGUST 2021 The Turkish lira continued to depreciate significantly, amid the developments and the unique conditions in 2020. The currency depreciation is also pivotal for industrial enterprises as it drives profit and loss from foreign currency exchange. Profit and loss from FX is the key portion of non-operating revenues and expenses. Non-Operating Revenues (Net) (TL) (Top 500 Industrial Enterprises) Non-Operating Revenues (1) Change (%) Total Profit and Loss for the Period (Before Tax) (2) Change (%)1/2 (%) 201512,948,558,661-4.928,319,545,6784.545.7 2016 14,069,026,3668.737,734,174,18533.237.3 2017 18,844,429,68333.953,084,908,28340.735.5 2018 55,816,782,890196.263,528,258,36119.787.9 2019 37,228,794,798-33.361,614,073,797-3.060.4 2020 43,448,530,15616.792,503,472,32050.147.0 Non-Operating Revenues (Net) (TL) (Private Enterprises) Non-Operating Revenues (1) Change (%) Total Profit and Loss for the Period (Before Tax) (2) Change (%)1/2 (%) 201510,883,627,643-8.425,397,743,389-7.742.9 2016 11,200,909,9472.929,772,961,62617.237.6 2017 16,750,676,79549.550,551,340,12569.833.1 2018 45,705,402,402172.958,241,941,93615.278.5 2019 33,211,281,302-27.358,303,818,8520.157.0 2020 38,595,113,42216.288,601,831,37352.043.6 With the exchange rate developments in 2020, the ISO 500’s net profit from foreign currency exchange increased by 36 percent to TL 19 billion, up from TL 14 billion. This indicates that the risks emerged with the lire depreciation were managed well. Increasing profit from foreign cur- rency exchange also boosted non-operating profits. On a sector-by-sector basis, the largest absolute non-o- perating revenue in 2020 was recorded by the manufac- ture of basic metals with TL 10.9 billion. The sector with the highest non-operating revenue/net sales ratio was the manufacture of beverages with 22.8 percent. The ra- tio of non-operating revenues to net sales of many other manufacturing sectors remained considerably low.AUGUST 2021 63 Non-Operating Revenues (Net) (TL) Sectors Non-Operating Revenues (Net) Non-Operating Revenues (Net) / Net Sales 05-08Mining and quarrying6,602,739,94320.2 10Manufacture of food products-199,506,625-0.1 11Manufacture of beverages2,145,469,06822.8 12Manufacture of tobacco products259,867,1553.5 13Manufacture of textiles1,206,103,2642.5 14Manufacture of wearing apparel-83,868,406-0.7 16 Manufacture of wood and of products of wood and cork (except furniture) 1,792,736,98910.7 17Manufacture of paper and paper products-80,817,324-0.4 19Manufacture of coke and refined petroleum products3,592,467,7453.6 20Manufacture of chemicals and chemical products3,082,574,0704.1 21 Manufacture of basic pharmaceutical products and pharmaceutical preparations 362,848,5003.2 22Manufacture of rubber and plastic products-25,473,033-0.1 23Manufacture of other non-metallic mineral products3,203,105,6018.6 24Manufacture of basic metals10,890,005,3044.6 25 Manufacture of fabricated metal products (except machinery and equipment) 21,229,8130.1 26Manufacture of computer, electronic and optical products1,060,987,9813.7 27Manufacture of electrical equipment2,666,541,7503.2 28Manufacture of machinery and equipment N.E.C.1,540,657,5626.7 29Manufacture of motor vehicles, trailers and semi-trailers2,301,667,7441.0 30Manufacture of other transport equipment223,840,4221.8 31Manufacture of furniture96,861,2681.4 32Other manufacturing-212,515,518-0.6 32Other manufacturing-95,375,821-0.4 32.1Manufacture of jewellery, bijouterie and related articles -212,515,518-0.6 35Electricity, gas, steam and air conditioning supply2,927,790,3325.7 Total43,448,530,1563.3 Non-Operating Revenues (Net) (TL) (Public Enterprises) Non-Operating Revenues (1) Change (%) Total Profit and Loss for the Period (Before Tax) (2) Change (%)1/2 (%) 20152,064,931,01819.32,921,802,289-820.770.7 2016 2,868,116,41938.97,961,212,559172.536.0 2017 2,093,752,888-27.02,533,568,158-68.282.6 2018 10,111,380,488382.95,286,316,425108.7191.3 2019 4,017,513,496-60.33,310,254,945-37.4121.4 2020 4,853,416,73420.83,901,640,94717.9124.4VALUE ADDED, EFFICIENCY AND PRODUCTIVITY Efficiency and productivity of the enterprises are measured by value added generated, relative output ratios, turnover ratios and labor productivity.AUGUST 2021 65 The distribution of net value-added normalized relatively. The calculation of value-added generated by the industri- al enterprises in the ISO 500 survey is based on the factor income payments for factors of production. Therefore, the survey compiles data on the factor incomes the enterpri- ses pay for factors of production. Data on wages and salaries paid to labor as a factor of production (including workforce shares as full compen- sation and social security premiums paid by the emplo- yer), interest paid for capital and profit as national income for the producers' share are collected to calculate the va- lue added generated by ISO 500 enterprises. Amortization set aside for the period and net indirect taxes (indirect taxes and subsidies) are added to the net value added to calculate gross value added at basic prices Distribution of Net Value Added by Factor Incomes (%) Top 500 Industrial Enterprises 201220132014201520162017201820192020 Salaries and Wages Paid55.055.957.556.552.746.954.751.544.5 Interest Paid9.611.614.315.413.916.834.427.125.3 Profit as National Income35.432.428.228.233.436.310.921.330.3 Net Value Added100.0100.0100.0100.0100.0100.0100.0100.0100.0 Private Enterprises 201220132014201520162017201820192020 Salaries and Wages Paid53.755.352.655.554.645.551.250.543.0 Interest Paid10.512.914.316.215.117.033.626.925.2 Profit as National Income35.731.833.228.430.237.515.222.631.7 Net Value Added100.0100.0100.0100.0100.0100.0100.0100.0100.0 Public Enterprises 201220132014201520162017201820192020 Salaries and Wages Paid64.161.0183.368.238.771.9306.570.480.1 Interest Paid2.72.115.96.14.814.495.530.626.2 Profit as National Income33.237.0-99.225.856.613.7-302.0-1.0-6.3 Net Value Added100.0100.0100.0100.0100.0100.0100.0100.0100.0 EFFICIENCY AND PRODUCTIVITY and producer’s prices for each enterprise. Accordingly, the survey examines and analyzes net values added and the share of the factor incomes that constitute these. In 2020, net value-added to factor income of the ISO 500 displayed a sharp change in share. The share of profit as national income increased from 21.3 percent to 30.3 per- cent in 2020. The share of profit as national income recu- perated to its previous high levels. The share of interest paid in net value-added dropped from 27.1 percent to 25.3 percent in 2020, and the share of wages and salaries paid decreased from 51.5 percent to 44.5 percent. These developments point to the fact that, in the conditi- ons that emerged in 2020, profits are the most positively affected factor income within the distribution of net valu- e-added. 66 AUGUST 2021 Manufacture of chemical products was the sub-sector with the highest relative output ratio. The relative output ratio is calculated by dividing the per capita gross value-added generated by the per capita value-added generated across the ISO 500. As such, relative output ratios indicate the value-added productivities of individual sub-sec- tors. This evaluation does not include high gross value-added se- ctors that subject to significant indirect taxes, such as “Manu- facture of Beverages” (11), “Manufacture of Tobacco Products” (12) and “Manufacture of Coke and Refined Petroleum Pro- ducts” (19). As of 2020, the sectors with the highest relative output ratio are electricity, gas, steam and air conditioning supply, and mining and quarrying. The manufacture of chemicals and chemical products recorded the highest relative output ratio. Manufacturing industry sectors continued to have varying re- lative output ratios in 2020 as well. The manufacture of texti- les and the manufacture of wearing apparel had the lowest relative output ratios. DISTRIBUTION OF NET VALUE ADDED BY FACTOR INCOMES (%) RELATIVE OUTPUT RATIOS BY SECTOR Salaries and Wages Paid Interest Paid Profit as National Income Electricity, gas, steam and air conditioning supply Mining and quarrying Manufacture of chemicals and chemical products Manufacture of computer, electronic and optical products Manufacture of paper and paper products Manufacture of basic pharmaceutical products and pharmaceutical preparations Manufacture of basic metals Manufacture of wood and of products of wood and cork (except furniture) Manufacture of other non-metallic mineral products Manufacture of fabricated metal products (except machinery and equipment) Manufacture of machinery and equipment, not elsewhere classified Manufacture of other transport equipment Manufacture of motor vehicles, trailers and semi-trailers Manufacture of rubber and plastic products Manufacture of jewellery, bijouterie and related articles Manufacture of electrical equipment Manufacture of food products Manufacture of furniture Manufacture of textiles Manufacture of wearing apparel 050100150200250 220.1 218.7 204.3 152.2 149.5 143.7 133.3 121.6 122.6 125.7 104.2 99.5 97.5 92.7 92.6 84.6 59.4 55.5 49.8 30.8 44.5 25.3 30.3 2020AUGUST 2021 67 Distribution of Employment and of Gross Value Added and Relative Output Ratio (%) Sectors 20192020 Distribution of Employment Distribution of Gross Value Added Relative Output Ratio Distribution of Employment Distribution of Gross Value Added Relative Output Ratio 05-08 Mining and quarrying3.57.3211.23.06.5218.7 10 Manufacture of food products18.612.768.419.111.459.4 13 Manufacture of textiles10.85.046.210.35.149.8 14 Manufacture of wearing apparel4.01.434.53.91.230.8 16 Manufacture of wood and of products of wood and cork (except furniture) 1.21.3114.21.31.6125.7 17 Manufacture of paper and paper products1.62.1129.21.62.4149.5 20 Manufacture of chemicals and chemical products4.28.2198.34.28.6204.3 21 Manufacture of basic pharmaceutical products and pharmaceutical preparations 1.52.3156.01.72.4143.7 22 Manufacture of rubber and plastic products4.03.691.53.93.692.7 23 Manufacture of other non-metallic mineral products3.33.7112.54.25.2122.6 24 Manufacture of basic metals9.49.4100.18.911.8133.3 25 Manufacture of fabricated metal products (except machinery and equipment) 3.43.9112.03.64.4121.6 26 Manufacture of computer, electronic and optical products2.54.8191.43.04.6152.2 27 Manufacture of electrical equipment7.35.473.87.86.684.6 28 Manufacture of machinery and equipment N.E.C.2.62.388.92.62.8104.2 29 Manufacture of motor vehicles, trailers and semi-trailers15.915.899.514.914.597.5 30 Manufacture of other transport equipment2.13.6168.22.22.299.5 31 Manufacture of furniture1.40.856.11.50.855.5 32 Other manufacturing0.20.159.20.20.292.6 32.1 Manufacture of jewellery, bijouterie and related articles0.20.159.20.20.292.6 35 Electricity, gas, steam and air conditioning supply2.26.0271.11.73.7220.1 Note: This table excludes "manufacturing of beverages" (11), "manufacture of tobacco products" (12) and "manufacture of coke and refined petroleum products" (19) sectors. EFFICIENCY AND PRODUCTIVITY68 AUGUST 2021 Asset turnover lost momentum to a limited extent. Asset turnover is an indicator of productivity and efficiency of an enterprise’s activities, and is calculated as the ratio of net sales to total assets. A high asset turnover means high efficiency and productivity. The asset turnover trajectory of ISO 500 trended down without any instances of recovery after 2011 until 2016 and recuperated in 2017 and 2018, climbing to 1.12. However, this recovery was temporary; following its drop to 1.09 in 2019, the asset turnover further decreased to 1.03 in 2020. As domestic and foreign sales fluctuated or even came to a near standstill due to the pandemic in 2020, asset turnover slowed down. Working capital turnover declined. Working capital turnover is calculated as the ratio of net sales to current assets (working capital). The working capital turnover of the ISO 500 in 2018 and 2019 was, in order, 1.83 and 1.79. In 2020, it continued its downward trend and was recorded at 1.61. Equity turnover dropped. Equity turnover is another indicator of an enterprise’s effi- ciency and productivity, and is calculated as net sales divi- ded by equity capital. The equity turnover rate of ISO 500, which was at its highest in recent years in 2018 with 3.41, maintained its upward momentum in 2019 and was rea- lized as 3.46. In 2020, fluctuations in foreign and domestic demand slowed the growth in sales down, causing the equity turnover to fall to 3.25. The sectors with the highest equity turnover in 2020 were the manufacture of refined petroleum products with 31.8 and the manufacture of jewelry with 21.9. The lowest equity turnover was recorded in mining and quarrying at 0.8. TURNOVER RATIOS - 2020 1.611.033.25 Asset Turnover Equity Turnover Working Capital Turnover ASSET TURNOVER RATIO 2 1 0 201720182019202020162015 1.00 0.91 1.04 1.12 1.09 1.03 As domestic and foreign sales fluctuated or even came to a near standstill due to the pandemic in 2020, asset turnover slowed down.Next >