Having joined the ISE corporate governance index with a rating score of 7.91 in 2007, Tüpraş geared up its performance to reach 9.10 in the year 2012.
I would like to share with you my pride in seeing Tüpraş outperform its rivals and largely meet its financial and operational targets in the year 2012, although this was a period in which economic recovery failed to meet expectations, and the global economy remained on a volatile and fragile course.
Although the global economy continued to decelerate as expected in 2012, the avoidance of a chaotic default in Greece and positive results from the US economy encourage sanguine expectations about the future. On the other hand, worries about the Spanish economy were appeased with various liquidity measures taken by central banks. However, the austerity measures adopted by the European Union economies to overcome the crisis had a negative impact on economies which had posted strong growth rates in previous periods, and dampened their growth drive. In the year 2012, the growth performance of the world economy, including emerging markets, remained below its level in 2011. The IMF reports that the Euro zone shrinks contracted by 0.4%, the growth rate of emerging economies fell from 6.3% to 5.1%, and global growth stood at 3.2%. Likewise, after posting a growth rate of 8.5% in 2011, the Turkish economy joined the ranks of cooling economies with an estimated growth of 3% in 2012. The silver lining in this overall picture was the Turkish current account deficit, a structural problem for the Turkish economy, which fell to US$ 48.9 billion as a result of slowed economic growth.
As the slower-than-anticipated pace of the global recovery reduced inflationary risk, central banks of USA, EU and Japan continued to support the world economy with quantitative easing and bond purchases, and non-OECD economies led by China posted favorable results; all of which increased fund flows into the emerging markets.
Although commodity prices at the beginning and end of the year 2012 were very close, prices fluctuated considerably during the year owing to global economic developments. After closing the year 2011 at US$ 106.6 per barrel, the price of crude oil rapidly rose to US$ 128.17 per barrel in the first quarter of 2012 owing to supply-side worries, US and European sanctions against Iran, and quantitative easing. In the second quarter of the year, due to the European sovereign debt crisis and the slowdown in the Chinese economy, the price fell by around US$ 40 per barrel (30.86%). The inventory decline triggered by this sharp fall had an unfavorable impact on the second quarter financial performance of numerous refineries including Tüpraş.
The demand for crude oil was slashed by 420 thousand barrels per day in the OECD region. However, soaring demand from non-OECD countries, in particular those in Asia, South America and the Middle East, brought the world demand for crude oil up to 89.84 million barrels per day in 2012, corresponding to an increase of 1.02 million barrels per day.
Since the crisis in the Euro zone had a stronger impact on Mediterranean nations, regional demand fell considerably. Besides, US refineries processing WTI (West Texas Intermediate) enjoyed a cost advantage of more than US$ 20 per barrel and boosted their capacity utilization rate. This not only eradicated Mediterranean gasoline exports to the USA, but also bolstered US diesel exports to the Mediterranean and North Europe, thus putting increased pressure on Mediterranean refinery margins in the last two years.
Refinery capacities increased in regions such as China, India and the Middle East, which saw their consumption soar. Besides, many of the the less productive refineries in the OECD nations were either closed temporarily or permanently, or their capacities were lowered, due to sagging regional demand as well as high operating capital requirement and maintenance and repair costs. As a result, the pressure on refinery margins was reduced.
In 2012, Turkey’s fuel oil market continued its previous course. According to EMRA data, diesel consumption increased by 6.1% to reach 15.6 million tons, whereas gasoline consumption fell by 6.6% to 1.85 million tons due to the high tax differential. The fuel oil consumption continued its downward trend owing to the increased use of natural gas in heating and industry.
In the year 2012, Tüpraş’s diesel sales outperformed the overall market, and the Company brought its market share up by 1.6 percentage points to 53.1%. Despite the contraction in the gasoline market, Tüpraş capitalized on its competitive edge based on its storage and terminal infrastructure to increase its market share from 91.5% to 96.4%.
In parallel with the rapid growth of the air transport industry, domestic civilian jet fuel sales in 2012 exceeded the previous year by 499 thousand tons, and Tüpraş’s jet fuel sales grew by 20%.
In 2012, Tüpraş’s aggregate product sales reached 25.44 million tons, whereas its turnover including US$ 5.0 billion in exports stood at TL 47.1 billion (US$ 26.3 billion). The Company posted TL 1.35 billion in EBITDA and TL 1.46 billion in net profits.
As the main pillars of sustainability, health and safety are always highly prioritized at Tüpraş. Practices are continuously improved, and the health and safety of employees and stakeholders are meticulously protected. The HSE-Q Management System lays the foundations of Tüpraş’s health, safety and environment principles. One component of this system is the Management Process of Hazard Effects, which identifies and manages hazards associated with the production of various products and services by Tüpraş and its contractors. As a result of this system, Tüpraş succeeded in bringing its accident frequency rate from 2.2 in 2011 down to 1.5 in 2012, although the latter was a period of intensive physical investment and contractor activity.
Designed to translate short and middle term achievements into longer term success and planned to be launched by November 2014, the Residuum Upgrading Project proceeds as planned and the overall project completion rate has reached 54% with total expenditure standing at US$ 1.263 billion as of year-end 2012.
Upon the completion of the Residuum Upgrading Project, the capacity utilization rates of all refineries will be raised, white product productivity will increase by 14% and the Nelson Complexity of the Izmit Refinery will go up from 7.8 to 14.5, making it one of the refineries with the highest upgrading ratios. The project will slash Turkey’s foreign trade deficit by around US$ 1 billion per annum, and create employment for over 500 individuals.
Tüpraş attaches special importance to R&D activities in order to maintain a close watch on scientific advancements in the industry and integrate the technologies of the future into its organization. In this regard, the Company accelerated work on the development of high quality asphalt, biofuel and catalyst, and resolutely continued its projects on energy efficiency and emission saving.
Having joined the ISE corporate governance index with a rating score of 7.91 in 2007, Tüpraş geared up its performance to reach 9.10 in the year 2012. The Company’s robust financial and corporate structure was confirmed by international credit rating agencies in 2012. Tüpraş capitalized on its high credit rating and the favorable liquidity conditions to tap into alternative funding resources by issuing 5.5-year bonds worth US$ 700 million with an annual return of 4.168% on the London Stock Exchange on November 2, 2012.
Aside from its successful operational and financial results, the Company also made significant achievements in occupational safety, energy efficiency, R&D, environment, exports and financing, which enabled it to top the list of companies paying the highest and most regular dividends to its shareholders.
I wholeheartedly believe that Tüpraş shall sharpen its competitive edge day by day and sustain its consistent operational and financial achievements to continue creating value for its shareholders, stakeholders and Turkey in 2013, a year in which the global and regional refinery capacity is expected to rise considerably.