Presentation Structure Our presentation is split into sections on the market, operations and finances

Transcription

1 Welcome Welcome to our 4th Quarter 2015 Teleconference From Tupras we have Mr. Doğan Korkmaz, our new CFO, Tuncay Önbilgin, investor relations and reporting director, and Mr Deniz Değirmenci, our new Investor Relations Manager and Harun Bulgan and Mehmet Eder. As usual we will first present the results and take your questions afterwards Presentation Structure Our presentation is split into sections on the market, operations and finances 2015 Fourth Quarter Market Conditions In the last quarter of the year market dynamics for our sector were not as positive as the 3rd quarter within the declining refining margins. The seasonality effect in the demand and price ratios were the sluggish effects on the financial results. On the other hand, the negative effects of excess Crude Supply and the slowing in Chinese Economy was balanced by the increased geopolitical risk perception and especially the lower price environment. For that reason, the margins were weaker than 3rd quarter, but higher than seasonal averages. After the perception of the market for lifting of the US export ban on Crude oil, the spread between the Brent and WTI has narrowed in the last quarter of the year, while the actual decision has been taken on 18th of December. The average WTI spread narrowed to 2 dollars per barrel in the 4th quarter positively affecting the Med margins. Besides that, increased spread between the Brent and Urals has strengthened the Med Margins. 11 Month Turkish Consumption (Million Ton) Turkish Market, with its usual strength in ULSD and Jet fuel, has continued its extremely high growth pattern. According to the 11 month data from EMRA, especially the diesel and Jet Fuel consumption has risen 15,9 % and 12,6%, reaching high volumes of 18,4 million tonnes and 4,25 million tonnes respectively. Unlike the trend in past ten years, thanks to the low price environment, gasoline demand has started to increase again (The consumption has increased 9,1% yoy in the first 11 months and reached to 1,92 mil. Tons) Crude Differentials $/Barrel The differential between the Urals and Brent has deepened in November, down to minus 2 dollars per barrel which was lowest level in the quarter. Due to the further

2 decrease in Brent price, the differential has bounced back to seasonal normals of minus1,30 dollars per bbl in December. Iranian Heavy, Kirkuk and Arab Heavy differentials were around - 5 to -6,5 spread. That was another positive factor for the refineries which are capable of processing such crudes. The differential trends are still at similar levels with the previous years, although crude prices lost ground and fell sharply. Therefore practically existing differentials are benefiting to the refinery margins a lot. Quarterly Crack Gasoline cracks in the 4th quarter are at record high levels with low price environment and the increased consumption in the developed countries, besides in India and China. Diesel and jet fuel crack margins were weakened towards the end of 2015, mainly due to the concerns on the slowdown of Chinese economic growth, decreased consumption in the winter months because of the El-Nino effect and the amount of additional new refining capacity in Middle East and China. But the effects are expected to be vanishing in the course of the upcoming months the stabilization of the market dynamics. Fuel Oil ratios were also very low because of the same reasons. In order to cope with loosening diesel cracks, the optimisation has been made by processing high gasoline yields crude. All the naphtha have been converted to Gasoline components and exported with advantageous Gasoline price which was 80 $/ton higher than naphtha. Although lower bitumen sales and higher refinery fuel oil requirements were expected to be leading us to lighter crude slates, thanks to the RUP and mild weather conditions, we achieved to process advantageous heavier crudes and our average API was much lower y-o-y. Bitumen demand were higher than expected and this enabled us to increase middle distillates. El Nino : a 3-month average warming of at least 0.5 C (0.9 F) in a specific area of the east-central tropical Pacific Ocean. This anomaly happens at irregular intervals of two to seven years, and lasts nine months to two years. The average period length is five years. When this warming occurs for seven to nine months, it is classified as El Niño "conditions"; when its duration is longer, it is classified as an El Niño "episode«. (Wiki) This year's El Nino ONI readings are roughly equal to temperatures from the El Nino, making it one of the strongest ever recorded. (cnbc) Product / Crude Price Ratio Effect on Tupras, 4Q Compared to the fourth quarter of 2014, the crack margin was 1,45 dollars per barrel less. 56 million barrels were processed and total negative impact was 81 million US dollars. As you would see from previous slide, mainly lower diesel and jet fuel cracks caused negative differences of 237 million TL, however compared to previous year, such a negative effect was balanced with lower inventory losses in the 4th Quarter. Inventory Effect* Analysis

3 Oil prices have declined in the last quarter especially in December, reflecting expectations of sustained increases in production of OPEC in excess oil consumption and other mentioned before. Especially the declining crude price in December generated considerable stock losses, but still 4th Quarter loss in 2015 was less than the one in The inventory effect for crude and product in the 4th Quarter was 83,5 million dollars but thanks to the 153 million dollars of positive effect coming from hedging operations in 2015, we have covered such losses. Futures commodity hedge transactions (Brent Crude Oil Futures Asian Swap Deals) have been made by Tüpraş for 12 million barrels that has been exposed to market price risk. The weighted average price of commodity hedge transactions (Brent Crude Oil Futures Asian Swap Deals) was 51,67USD/barrels and with the maturity price of 38,913 USD/bbl, 12,758 US/bbl of gain have been generated amounting 153,1 mn dollars.» Med & Tüpraş Net Margins, $/bbl Med complex margins were 3.54 dollars per barrel, with a decline of 1,38 USD/bbl compared to the 3rd quarter, and 30 cents below the level of last year. Similarly Tüpraş net margins declined from 8.32 to 5.17 dollars per barrel in this quarter, but taking into account of the seasonality and the general weakness of the 4th quarters, still it is the strongest margin of the last 5 years within the 4th quarters. In 4th quarters,thanks to the RUP complex, the premium over Med has risen 0.9 dollars from 0.7 to 1.6 dollars per barrel. Besides that, Capacity utilizations were over 111,6 percent in an average, and therefore value was captured in volumes, at the expense of margins. Margin Comparison & Inventory Effect When we look at the margin analysis in detail; Inventory effect was an important parameter. Compared to 4th quarters of 2014, both the inventory effect and operating costs have declined yoy as 0,69 USD/bbl and 1,51 USD/bbl giving us a strong clean net margin close to that of 2014, although the gross margin decreased 1,6 USD/bbl Despite the decreasing Crude prices, devaluation in TL reversed in the fourth quarter and the TL appreciated 3,6% (i.e. Starting the quarter from 3,03 TL/USD and reaching to levels of 2,92 TL/USD at the end of 4th quarter) The numbers are all given before hedging accounts of 153 mn $. Production Considering 2015 as a whole, the effect of RUP and strong margin environment on the Capacity Utilizations was very clear, enabling ourselves to reach 102,5%. We have experienced record high quarterly production volume of 7,42 million tonnes in Q4 Although our RUP supports high capacity utilizations independent from the margin environment, thanks to the market conditions favoring additionally higher capacity

4 utilisation and higher export, we created extra EBITDA, despite lower total refining margin. By the way, there has been some questions about the incident which took place on 3rd of February. Please be advised that there was no material effect and the interruption in Izmit Refinery is local and very limited in nature. It will take only a couple of weeks to restart the operation and the effects are going to be covered throughout the year before the high season starts Product Yields The operation of the RUP complex has enabled us to process a significantly heavier and more profitable crude oil mix as we have stated before. API was 30.3 versus 31.9 last year This combined with high capacity utilisations and a buildup of semi-finished products for processing in RUP, has reduced the yield improvement There has also been high asphalt demand this year, compared to 2014, similar to 2013 level. Nonetheless, middle distillate yields rose to 52.3% compared to 42.5% a years ago, 10 percent increase Black product yield was 21% versus 28% a year ago The fuel oil yield was just 7% compared to 20% a year ago. This number includes some semi-finished products which will be processed later. Domestic Sales, million tons Compared with the results of 2014; Domestic sales were higher in all major product groups due to the increase in our production and dynamic market conditions Gasoline sales rose 15% Domestic diesel sales rose a massive 49,4% Jet sales growth was 19.5% Thanks to mild weather conditions, Asphalt sale was up by 75.5% over the same quarter last year. As a result, strong demand in Turkey has been fulfilled in 2015 with the increased production capacity and market share strategy of Tüpraş which leaded to a 31,9 % increase in total domestic sales and 33% increase in domestic diesel sales, with high volumes of 22,2 and 8,9 million tons respectively. (total sales increase including exports was up 29,5%) Opet Currently being the 2nd biggest fuel-oil distribution company in Turkey, OPET has more than 1400 stations under the brand of OPET & SUNPET. White Product market share is 17.72% High investment 2015 for station replacement. OPET plan to acquire station instead of DoDo Profitability Indicators, Compared to the same quarter last year, crude oil prices are 43 % lower, Med Complex margins have also deteriorated by 8%.

5 Despite heavier crude charge, White product yield realised as 77,50% in the 4th quarter of As you can see from the table API decreased to 30,27 from 31,91, means that Tüpraş purchased heavier and sour also cheaper crude. For the quarter EBITDA was 433 million dollar higher than the same quarter last year and operating profits was very strong at 422 million US dollar level. For the full year, EBITDA now stands at million dollars, versus just 338 million last year. On a clean cost of sales basis, EBITDA in 2015 was a billion dollars higher than the full year Financial Highlights (mn $) Despite the inventory loss, thanks to the strong Q4 and RUP, 2015 was one of the historical years for Tupras with the record high EBITDA of 1,4 billion dollars Starting from the 2nd quarters, both EBITDA and Net Income have been stable and strong for all quarters around the levels of million dollars and million dollars respectively. Thus, net income for 2015 has risen to 938 million dollars Net debt has declined 378 mn dollars as we have indicated in the previous call. 2,0 billion dollars of net debt has been hedged through cash flow hedging and forwards. Return on equity and indebtedness ratios are far better than they were now as planned. Balance Sheet Analysis Cash levels have improved in the last quarter. This is entirely due to changes in working capital. The primary reason is receivables which have risen by 796 million dollars year on year. The reasons were high sales volume and some reductions in factoring. Factoring amount was 981,8 million $ in year end 2014 and reduced 267,6 million $ at the end of Gross debt entered the downward trend. There was 148 mn $ RUP repayments. We do not plan to make repayments earlier than scheduled. Net working capital in 2015 recovered from -677 to -53 million $, FX Risk Exposure As of the 31 st of December the foreign exchange exposure (excluding RUP) stood at 177 million dollars With RUP debt, it stands at 1,85 billion dollars. Remember that the RUP portion (1,709 mn$) of this risk is being managed using cash flow hedge accounting. As we have explained in the slide before, due to a fire on 3rd of February in RUP complex, a slight loss of production is expected. However the effects of the loss is going to be covered throughout the year. Increased production and buildup of the stocks in middle distillates creates a sluggish effect in diesel cracks, however it is believed that seasonality is also a having a considerable affect in the low diesel margins and the upcoming months are expected to be stronger. Depending on the existing data, it is observed that the weakness in diesel crack has already been coming to an end especially with the decreasing trend in the exports of the countries having new refineries. More, narrowed WTI-Brent spread and higher maintenance in the refineries is expected to be supporting middle distillates.

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