I would like to begin by commemorating Mustafa V. Koç, my dear brother, and our late Chairman, who left an indelible mark with his vision, benevolence, leadership, and above all humanistic values. We are deeply saddened by his sudden passing. I offer my deepest condolences to all of us. May God bless his soul and rest him in peace.
We closed another year, during which global economic activity remained weak amid ongoing vulnerabilities. In spite of limited recovery of developed economies, developing countries experienced a significant slowdown in economic growth, and although strong demand growth was observed in both domestic and international markets, the adverse effects of market fluctuations were still felt. Meanwhile, Tüpraş commissioned the Residuum Upgrading Facility, the most important investment under the Company’s medium-term strategic plan. And we are already seeing its positive effects on operational and financial results, in line with our projections.
Developing economies have been losing growth momentum for five consecutive years; meanwhile, fluctuations in the global economy have also affected the Turkish economy. As Brazil and Russia remained stuck in recession, China’s economic slowdown put downward pressure on commodity prices. The intensifying geopolitical risks in our region have adversely affected our economy; however, increased demand from European countries have partially balanced out these negative effects and the Turkish economy has continued to grow. Even though declining commodity prices helped reduce the current account deficit, exchange rates fluctuated and remained in an upward trend due to the Fed’s interest rate hike, growing risk perceptions toward developing countries, weakened portfolio flows, and concerns over the financing of the current account deficit.
In 2015, the price of crude oil started the year at US$ 55/bbl, and then fell to US$ 45/bbl due to the anticipation of a limited increase in demand and excess supply, climbing again to US$ 67/bbl, due to the expected decline in shale oil production and reports suggesting that actual demand would exceed forecasts. However, due to the slowdown in emerging economies, and particularly in China, the positive outcomes of negotiations with Iran, OPEC’s above-the-quota production, and high crude oil inventories around the world, the price of crude oil tumbled to US$ 35/bbl. Especially after the removal of restrictions on U.S. crude oil exports, the price of crude oil fell significantly in the last quarter. Yet despite that, Tüpraş maintained profitability through effective inventory management, minimizing inventory and exchange rate risks through the utilization of financial instruments.
Through alternative crude oil suppliers including South America and Africa, Tüpraş was able to overcome potential bottlenecks resulting from chronic geopolitical risks in our region. Tüpraş increased its crude oil purchases by 7.2 million tons over 2014 and purchased a total of 27.4 million tons of crude oil in 2015.
Demand for middle distillates remained flat, mainly due to slowing growth in China, India, and the Middle East, the key drivers of global oil demand, and where new capacity was added. In addition to the expanded exports from these regions, the advantageous position of the US refineries due to the low natural gas prices and the Brent-WTI spread till the restrictions on U.S. crude oil exports were removed, increased the competition in the refining industry and in our region. Increased global demand with the support from the low price environment, improved gasoline demand arising from the strength of the Chinese and Indian gasoline-powered vehicles sales, extra naphtha demand from the petrochemical industry due to the high LPG prices were the factors which improved refining margins in 2015. Consequently, the Mediterranean Refining Margin rose from US$ 1.95/bbl in 2014 to US$ 4.83/bbl, while Tüpraş's net refining margin rose from US$ 3.21/bbl to US$ 6.47/bbl after the commissioning of the Residuum Upgrading Facility
After the commissioning of the Residuum Upgrading Facility and thanks to the high product margins, Tüpraş has achieved full capacity utilization in 2015.
With the effective utilization of the conversion units, and the significant contribution of the Residuum Upgrading Facility, white product yield increased and production reach to 27.3 million tons. When compared to the previous year, Turkey’s middle distillate imports fell by 4.4 million tons, while gasoline exports increased by 1 million tons, resulting in a reduction in the current account deficit.
In 2015, nationwide fuel oil consumption increased by 13.7%, while our Company’s domestic sales grew 31.9% reaching 22.25 million tons. Tüpraş posted total turnover of TL 36.9 billion in 2015 as total sales increased 29.5% to 28.7 million tons. Having reached both its operational and financial goals in 2015, the operating profit of our company amounted to TL 2.8 billion and the profit before tax was TL 2.2 billion, while the net profit reached TL 2.6 billion with the contribution of deferred tax income arising from the Residuum Upgrading Project investment incentive.
Over the past 10 years under Koç Group, Tüpraş has achieved successful operational and financial results, and paid a total of US$ 4.1 billion in dividends, thus becoming one of the BIST listed companies with the highest dividend yield.
As in previous years, Tüpraş will continue to create significant value for all shareholders, and for our country. Thanks to our completed new investment project, we strongly believe that our operational and financial success will continue in 2016. The importance we place on human resources will remain our greatest advantage. We will also continue to support the economic, social and cultural development of our country.We would like to thank all our stakeholders, and especially our employees, suppliers and business partners for their valuable contributions to our success, as well as for their confidence in, and loyalty to Tüpraş.
Ömer M. Koç
Chairman of the Board of Directors