The Business Year

Kerim Kemahlı

TURKEY - Industry

The Future is Golden

CFO, Nurol Holding


Having graduated from Heriot-Watt University in Edinburgh with a BA(Hons)degree in Business Organization, Kerim Kemahli began his career with West LB in 1990 where he held several posts until 1996 ranging from Credit Analyst to Corporate Marketing Manager and also established West LB Istanbul’s Treasury Marketing Unit. Between 1996 and 1998 he managed the Corporate Marketing actvities of Finansbank’s Main Branch. In 1998 he moved to Finansbank’s International Division where until 2007 he was responsible for arranging funding for the Bank’s project and trade finance activities through bilateral agreements with multilaterals as well as syndications and bond issuances. Between 2007 and 2010, he held CFO positions at Abalioglu Group and Celebi Group. At Celebi, he assisted the Group’s penetration into the Indian market as well as arranged the financing of the Bandirma Port Privitization. He joined Nurol Group in late 2010 as their CFO as well as Board Member of Nurol Bank, and later as Board Member of Nurol Holding and FNSS, and acted as the chief negotiator for the Gebze-İzmir Consortium in arranging the USD 5 Billion project financing facility. He is currently focused on complimenting Nurol Construction’s contracting services with medium-long term funding solutions for sovereign clients. In 2016 and 2018, he received an award as one of Turkey’s 50 Leading CFOs, chosen jointly by Fortune Magazine and Data Expert Consultancy.

“For 2019 our first objective is to finish the motorway and secondly to open the second mine facility.“

How has Nurol Holding diversified its operations over the past decade?

Since its creation, Nurol Holding’s diversification has followed Turkey’s economic growth story. For example, the group diversified into tourism when the tourism industry was just beginning to bloom, and invested in an investment bank in the early 1990s as the banking and finance sector was experiencing growth. Over the past 10 years this strategy has changed because of the inherent problem with such policy. We thus adopted a more strategic mode of planning further diversification, as evidenced in our defense sector investments. Nurol started its involvement in the defense sector in 1989 through a joint venture with a US defense company then known as FMC, which has since been bought by BAE, which remains our partner. At the time, the Turkish armed forces wanted to develop a fleet of armored personnel carriers called the M113, which FMC agreed to produce in Turkey with Nurol. That partnership eventually became known as FNSS, of which Nurol is currently a 51% shareholder with BAE holding the remaining 49%. That project was extremely profitable, and at that time Turkey was starting to push growing the indigenous defense industry to the top of the national agenda, so we began to further expand our presence in the sector. First, we set up another 100% Nurol subsidiary, Nurol Makina (Nurol Machinery) to create components for FNSS. In time, Nurol Machinery started its own research and development and began producing its own vehicles as well, under the understanding between FNSS and Nurol Machinery wherein FNSS would produce tracked, 8×8, and 6×6 vehicles and it would leave the field for 4×4’s for Nurol Machinery.

Outside of vehicles, how is Nurol further involved in the defense sector?

Turkey has been and remains a big purchaser of international defense products, but it has long been growing its indigenous industry to maximize local content, including armor. Before we decided to enter the armor sector we invested around USD100 million into R&D to design and produce armor that is around 60% lighter than traditional steel armor. Now produced under a third defense company, Nurol Technologies, our armor uses boron carbides and silicon carbides ceramics joined together to make plates which are lighter, and more durable and protective. It is chiefly used in body armor, but it has also been a big success when used in armored vehicles as well as civilian vehicles because of the need to be light so as not to change the performance of the vehicle. Only the US, China, and Germany have this technology, and we have been able to sell it so far to 27 countries. Those three companies make up the majority of our defense business, but we are also beginning to work in the aerospace industry. Turkey has begun a program to build its own indigenous fighter jet program, known as the TF-X. The government has mandated BAE UK to do the concept design, but has also required that the jet be as locally produced as possible, which will further develop the broader aerospace industry in Turkey. As a result, we set up a subsidiary in Turkey where we will design such software as the flight, fuel, and landing management systems that can go into that aircraft. The subsidiary, BNA, is a joint venture with BAE, which has been operational now for two years. Since the TF-X program is a long-term proposition, in the meantime BNA is looking at work in the civilian aviation sector as well. BNA wants to produce software for Turkey’s civilian helicopter and civilian training airplane programs, and is now bidding for the electronic systems for those civilian programs.

How quickly is your defense sector business growing?

In 2017, 32% of our turnover was from defense-related work, and in 2018 it rose to 34%, while for 2019 we project it at 46%, and reaching as high as 60% in 2023. Along with growth in our mining business, our defense business will continue to become increasingly important for turnover, while our construction business will remain at more or less the same turnover levels as today. Construction accounted for 58% of turnover in 2017 and fell to 51% in 2018, not so much because of the pickup in the defense business, but because our mining turnover was just beginning. In 2019, construction turnover will be reduced to 37% and then by 2023 we expect it to decline to around 23% of our turnover.

When did you begin exporting defense products?

After we fulfilled the original order for M113s, the Turkish army no longer had a need for additional armored vehicles. Either we were going to fold the company because it had no business, or else look for export markets, and so we made two decisions at that point. One was to push for export markets and the other was to develop our own wheeled vehicles to meet the growing demand for them in lieu of tracked vehicles. Meeting the second goal, we started developing our own 6×6 and 8×8 vehicle production capabilities. We were extremely successful in developing these products, which has been evidenced by our export growth. No army just says I want to buy an FNSS product or a Nurol Machinery product, they get the whole range and test them in their own environment. Our vehicles had been tested against all of these different products in the market, and we continue to win business because our vehicles are just as good, if not better than anything else in the market in their own category. We were extremely successful with that, and grew the export market by basically providing the best product available at the best price. FNSS has sold products to Oman and Malaysia. Meanwhile, with Nurol Machinery, which produces our 4×4 vehicle, we have been hugely successful in the African market.

Do you work with other countries to help them develop their own indigenous defense capabilities?

Yes. Just like Turkey, Indonesia also wants an indigenous defense sector, so it was required for a local company to be involved in the development of the medium weight tank program they sought. When we became partners with the state-owned defense manufacturing company, the product was developed here in Turkey with additional assembly taking place in Indonesia. We have a similar model with Oman, which wants a certain level of localization, albeit to a lesser extent. In general defense sector companies do not prefer to have manufacturing facilities outside their own country as there is considerable confidential R&D involved. Sometimes the customer requires it and you have to find innovative ways to share what you can of your business in order to secure the contract, which is why we have these local activities.

What other markets are you looking to expand your defense business into?

The European market would be really exciting for us. Defense is a strange business and you never know where the demand will come from next, as it is usually depends on areas of conflict. At the moment, we see that Africa need considerable defense products to better equip themselves against terrorism threats, and currently have underdeveloped vehicle fleets. These African armies are keener on the 4×4 vehicles, so Nurol Machinery focuses on that continent. For FNSS, we are looking at the Latin American and South East Asian markets. Because our partner is BAE USA we have to be aligned with USA defense policy, which has restrictions on whom they can sell to. In addition, BAE has its own land platform, and FNSS focuses on markets where BAE is not active. Nurol Machinery doesn’t have such a non-compete clause with anyone and can go anywhere.

Looking to mining, what is the status of your precious mineral mining operations?

Our gold mine in Lapseki is already operational and producing between 5,000 and 6,000 ounces of gold per month. Our feasibility study had projected the mine producing around 4,000—5,000 ounces per month, and so we are exceeding our own forecast. This is the first mine in Turkey that entirely abides by international standards, and the project financing is from a consortium of banks including EBRD, which has strict environmental and social impact policies. Our other gold mine is in Ivrindi and is expected to be operational within six months as we are 70% complete in our investment. These two mines use different types of technologies; one uses tank leaching and the other heap leach. In short, tank leaching requires you to put ore in a tank and treat it with certain chemicals to extract the gold, where the heap leach technique, depending on the geology, is where you dump the ore across a vast area and then sprinkle the chemicals on top. The heap leach technique requires a lot more tonnage of ore processing to obtain the same volume of gold. That said, our Ivrindi operations are expected to produce around 10,000 ounces of gold per month using the heap leach technique. For our mining operations, our production costs (including financing costs) are at about USD550 per ounce, so at today’s gold prices that equates to a minimum 55% EBITDA margin, which is excellent. The 2018 turnover with only six months of operations of the smaller facility was USD57.59 million, and this year will rise to over TRY1 billion. The mining share of the total business turnover in 2018 was only 4%, and will rise to 9% in 2019 and 14% in 2020. This is while defense business sales are exponentially growing, so you can see the impact of the mine business on total turnover.

What are the most exciting construction projects you are working on?

We have our construction business largely involves infrastructure projects. On the contracting side our biggest project is the Istanbul to Izmir motorway, where we are also the 27% investor and consortium leader of the PPP toll road project. This involved building the world’s fourth longest suspension bridge of around 2.7km in total length. The motorway project also has Turkey’s longest motorway tunnel, which took us 2 years to drill, which is 10 years less than Turkey’s second longest motorway tunnel took. This is an USD7 billion project, for which the consortium took out Turkeys largest ever project finance loan just shy of USD5 billion. At the moment we are around 85% complete, with completion expected by October 2019. Overseas our biggest business is in Algeria where at the moment we are building two irrigation dams and a highway between Ouzou and Tizi. Our total contract value in Algeria is around EUR1 billion, and increases every year as in Algeria they have a system of starting the project small and then raising it by a certain amount each year. In the UAE we mainly have high rise building contracts, and are involved in several interesting projects in Dubai, plus certain infrastructure work in Abu Dhabi. Otherwise in Turkey we have road, viaduct, dam and metro tunnel projects nationwide.

Over the next 12 months, what are your top operational objectives?

For 2019 our first objective is to finish the motorway and secondly to open the second mine facility, which hopefully will be just as successful as the first. Our biggest challenge next year will be to make sure that the second mine performs as well as the first.



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