I would like to begin by wishing success to our General Assembly. I would also like to emphasize how proud we are of our Company’s operational and financial results as well as and the value we created for our shareholders and the country during this past year, which was a challenging period for the world and our country’s economy.
The continued downtrend in global economic growth has further highlighted the structural problems in the economies of many countries. The slowdown in capital flows caused by expectations of the Fed’s interest rate hike created additional pressure on the currencies of developing countries. Emerging market currencies fell sharply against the US dollar mainly due to concerns that arose in global markets in the aftermath of the US presidential election and the expectation that Fed could raise interest rates relatively soon. Meanwhile, Turkey’s structural economic problems worsened due to the treacherous coup attempt, increase in terror attacks and internal political uncertainty caused by constitutional amendments and the upcoming referendum. These factors accelerated the Turkish lira’s depreciation against major currencies. 2016 was a difficult year for Turkey, as tourism revenues declined; economic recovery in the EU, traditionally our biggest export market, did not reach desired levels; the Middle East market contracted due to security problems; and exports to Russia fell significantly. Unfortunately, the negative consequences of these developments will most likely be felt this year as well.
Looking back at 2016 from the commodity-refining industry’s perspective, we see that the first half of the year was extremely difficult for the sector, while the second half was relatively positive, albeit volatile, as the industry experienced some recovery.
While low oil prices supported global consumption, the relatively mild winter in the US and the increased number of passenger vehicles in China and India bolstered gasoline demand. Additional demand for naphtha and LPG from the petrochemicals sector was a positive development for the refining industry and supported refining margins in 2016. Despite slow economic activity worldwide, high refinery capacity utilization rates backed by strong demand for light distillates and China’s “teapot” refineries caused excess in supply, creating downward pressure on diesel margins although some recovery was seen in the fourth quarter.
In our region where geopolitical risks became chronic and balances shift quickly, by utilizing the flexibility of processing heavy and high-sulphur crude oil by means of the new Residuum Upgrading Facility, 27.7 million tons of crude oil is successfully procured to achieve the optimal charge composition. Despite declining margins, the refineries reached full capacity utilization after the RUP Facility became operational. As a result of increased production, our country’s middle distillate imports fell by 5.0 million tons, when compared to the period before RUP commenced operations. Meanwhile, gasoline exports, including reformate, increased by 1 million tons, which helped to continue narrow Turkey’s current account deficit.
While consumption of petroleum products in Turkey rose by 7.6% in 2016, Tüpraş’s domestic sales outperformed this growth. Product sales increased by 5.3% amounting to 30.3 million tons and turnover totaled TL 34.9 billion in 2016. Although the Company was unable to achieve its financial targets in the first half year, due to low margins, it reached most of its year-end targets, thanks to partial recovery in margins during the second half, posting pre-tax profit of TL 1.9 billion.
Aiming to become the most competitive refining company in the Mediterranean and to contribute even more to the Turkish economy, Tüpraş continues its aggressive investment program. Over the past 11 years under Koç Group, Tüpraş’s investment spending has amounted to US$ 5.7 billion. In addition to the US$ 212.7 million investment in 2016 for projects that will boost energy and operational efficiency, Tüpraş invested another US$ 78.3 million to expand its marine transport capacity. Tüpraş will continue its investments in 2017 in line with these goals.
We place environmental protection and conservation of natural resources at the forefront of our operations. The energy efficiency projects we implemented between 2008 and 2016 have resulted in CO2 reductions of 2.1 million tons. Additionally, İzmit Refinery started to supply its process water via treatment of domestic wastewater, thanks to a first-of-its-kind project developed with a capital investment of TL 55 million.
In addition to its remarkable operational and financial success over the course of many years, Tüpraş has also become one of the BIST listed companies with the highest dividend yield. We strongly believe that our operational and financial success will continue in the coming periods. As in previous years, we will continue striving to create significant value for all shareholders, and for Turkey, while supporting the economic, social and cultural development of our country.
We would like to thank all our stakeholders-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.
M. Ömer Koç
Chairman of the Board of Directors