White Hopes


Economic News

22 Jul 2010
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After a year of good returns, this week sees Turkey's white goods sector gearing up for the initial public offering (IPO) of one of its leading manufacturers.

The industry's leading producers, Arcelik and Vestel, both posted profits for 2005 that were up on the previous 12 months, with this ushering in many new ventures, plans for ambitious IPOs and practical investments in new production facilities.

Vestel White Goods (VWG), 35% owned by Vestel Electronics, announced in late March 2006, it would be renewing a bid for an IPO on the Istanbul Stock Exchange (IMKB).

The company posted net profits last year of around 53m euros. Vestel aims to boost profits in 2006 by up to 9%, projecting a rise in profits to 58m euros.

The firm says total revenues from sales in 2005 came in at around 2.69bn euros, 2.01bn euros of which was realised from foreign sales. Following this upward trend the company has set itself targets for 2006 of 700m euros in domestic sales and 2.3bn euros in foreign sales.

The IPO, which is being co-ordinated by Deutsche Bank and Bender Securities, will also see certain institutional investors overseas being invited to participate.

It is expected that the IPO will raise 120m euros, which could open the door to further investment and an expansion of current facilities.

Backing up the healthy trend seen in Turkish white goods is the announcement by Vestel's rival, Arcelik, that it will invest 25.6m euros in a new tumble dryer factory in Tekirdag's Cerkezkoy industrial region.

The factory will out-produce current facilities in Istanbul by up to 400%, with initial plans for capacity set at 800,000 units per year, compared with the Istanbul factory at Cayirova which currently produces 200,000 units annually.

As Turkish spending power increases with loans and credit cards now more easily obtained, these days white goods in general are seeing marked sales expansion, while consumer interest in new products is also increasing.

Dryers are fairly recent arrivals in the country, presenting "a growing market in Turkey", according to Arcelik's general manager, Gunduz Ozdemir.

The firm's strategy is to invest 125m euros throughout 2006. This investment will go into current manufacturing facilities to improve productivity, which should increase the total for 2005 of 9.15m units to 11m in 2006.

Arcelik announced profits for 2005 of 187m euros with projections of 14% growth for this year.

Ventures such as these should come as welcome news to the Turkish government, which wants to encourage manufacturing growth in order to help tackle the thorny problem of unemployment. While the country has shown positive indicators in many fields in the last few years, jobless rates have failed to budge downwards, despite increasing industrial utilisation rates and exports. They currently rate around 10%.

This concern is not just that of the government either, as a recent survey of Turkish industrialists also reveals that unemployment is seen by businesses as a very serious problem too.

Recent research carried out by the Kayseri Chamber of Industry (KAYSO) on local business expectations showed that 51.9% of the industrialists asked viewed unemployment as one of Turkey's biggest woes.

At the same time, when comparing 2004 and 2005 production figures, 47% of the industrialists asked said that they had seen a definite improvement in production levels.

The implication is that much of this boosted productivity is not transferring into new jobs, but may be take up of previous surplus capacity, coupled with longer hours and more mechanisation.

Meanwhile, the government is now toying with the idea of tax cuts to further stimulate business and help the jobless totals.

This step would be taken, however, at the risk of alienating the IMF, whose support remains crucial for Turkey's economic programme.

Indeed, fears that the government may be tempted to take more populist moves such as this in the months ahead, with elections in 2007 already causing ripples, have been growing in the business community, already jittery over the crisis in appointing a new central bank governor.

At the same time, Arcelik and Vestel's planned expansions show the resilience of Turkish industry and its ability to do well overseas, as well as domestically. This is good news for the jobless, even if more still needs to be done.

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