‘Second Top 500’ Turkish companies’ profits plunge due rising debt

ISTANBUL

Despite a 13.4 percent increase in their sales, second-tier companies’ profits plunged by 30.2 percent to 2.2 billion Turkish Liras last year. REUTERS Photo

Turkey’s second top 500 industrial companies, which rank among the country’s largest 501 to 1,000 firms, have suffered from growing debt and low profitability in 2013, as shown July 22 by an Istanbul Chamber of Industry (İSO) study.

The drop has affected the second-tier companies to a more severe extent than their larger counterparts the İSO report also showed.

Despite a 13.4 percent increase in their sales, second-tier companies’ profits plunged by 30.2 percent to 2.2 billion Turkish Liras last year, due a remarkable debt stock growth, expanded by the volatility in the foreign currency exchanges.

According to the “İSO Second 500 Largest Industrial Firms” study unveiled by the İSO, the total debts of the 500 companies rose by 28.5 percent, along with an eye-catching 61.8 percent increase in long-term debts.  While the long-term debts became 15.3 billion liras, the total debt has reached 44 billion liras as of the end of last year.

The companies actually recorded a strong sales performance in 2013, raising their operational profit, which was 5.5 percent in 2012, to 7.3 percent in 2013.

The recovery in operational revenues was particularly stemmed from an import of main crude materials at pre-volatility low currency rates and the positive impact of currency rate increase in prices and revenue sheets, the İSO said.

However, increased funding costs caused around half of the companies’ real operating profits to be used to cover financing expenditures.

Accordingly the “second top 500” lost 2.7 billion liras of the 5.4 billion-lira real operating profits as financing cost.

The İSO study ranking Turkey’s top 500 industry companies was disclosed June 24, revealing the worst debt/equity ratio from the past 10 years was recorded in 2013, as the companies were not able to manage financing soaring debts, even by raising their total sales by 7.4 percent to increase their operational profit by 43.9 percent.

Rising financing costs caused the number of companies that recorded profits to plunge to 371 from 437 of the previous year, while loss-making firms rose to 129 from 63 among the “top 500.”

The U.S. Federal Reserve’s announcement of plans to taper its asset purchasing program in May of last year had a great impact on Turkish markets, leading to a massive fluctuation in foreign exchange rates, as well as causing a slowdown in portfolio entrances into the country.

Turkish companies, which have a great dependency on foreign funds to finance big investments, have been hugely affected by the increased funding costs, as well as a gloomier market outlook that raised uncertainties over future investments.