Ladies and gentlemen, thank you for standing by. I'm Vasilios, your conference call operator. Welcome and thank you for joining the Tüpraş conference call and live webcast to present and discuss the Q2 2024 financial results. At this time, I would like to turn the conference over to Mr. Doğan Korkmaz, CFO, Mr. Levent Bayar, Head of Investor Relations. Mr. Bayar, you may now proceed.
Thank you. Hi everyone, good evening to all from Tüpraş headquarters in Istanbul, and welcome to our teleconference. I'm Levent Bayar, Head of Investor Relations. I am here with Doğan Korkmaz, CFO, and team members from Tüpraş Investor Relations and Reporting Department. Over the next hour, we will first go over our operational and financial results for the Q2 of 2024. Then, we will continue with the Q&A session. I'll draw your attention to our cautionary statement. During today's presentation, we will make forward-looking statements that refer to our estimates, plans, and expectations. Actual results and outcomes could differ materially. Please refer to our financial reports and material disclosures for more details. These documents are available on our website. In the next two slides, we will provide you with a brief summary of the key highlights regarding the Q2 of 2024.
We will go into detail for each subject on the following slides. Now, let's take a look at Tüpraş highlights in detail for the Q2 of 2024. As you will see from the top left chart, we recorded high sales volumes in the last seven years during the Q2. These sales were supported by both strong international sales, which reached an all-time high, and consistent domestic sales. Overall, Tüpraş reported sales of 7.8 million tons. The chart in the top right corner illustrates the progress of our capacity utilization over the first six months of this year compared to the same period of last year. During the RUP maintenance, over a three-month period, our high operational efficiency resulted in a strong capacity utilization, limiting the adverse effect of the maintenance. We have completed the Q2 with 93.5% capacity utilization compared to last year's performance of 83%.
Now, let's take a look at the graph in the lower left corner, which displays the combined effect of high sales and high utilization on our EBITDA generation. Our EBITDA remained solid, indicating strong operational efficiency, even with a reduced contribution from inventory gains compared to the previous quarter. Throughout the Q2, we actively managed and preserved our cash reserves. Our strong cash position is also sustained by reduced working capital requirements, the result of our effective management of geopolitical rerouting impacts. Solid EBITDA generation supported by high sales and high capacity utilization rate and ongoing interest income also supported our cash reserves. The first half of 2024 has marked an important period for our considerable advancements in our strategic transition plan. We aspire to produce value-added products and reduce our carbon footprint. To this end, we have initiated two major investment projects in our refineries.
The first one is the propane splitter project, which will enable us to produce more propane from our existing streams and sell it as a feedstock. The second one is propane storage and sales system facility projects, which will provide us with more flexibility and efficiency in storing and selling these valuable products. These projects have a total investment budget of $256 million. Regarding biofuels, we are monitoring the market trend closely and prioritizing our leadership in SAF production in Turkey. Through proactive engagement, we have secured a reliable feedstock supply, which is a crucial step for SAF production. Starting from 2029, we will receive a minimum of 300,000 per year feedstock for a duration of 10 years, which will enable us to produce SAF with a 75% yield. In addition, we are expanding our zero-carbon electricity capacity.
As of today, we have 416 megawatts of zero-carbon electricity installed capacity from wind, solar, and hydropower sources. 155 megawatts out of the recently acquired pre-licenses is developing fast by our subsidiary Entek. Moreover, we have successfully completed a share purchase agreement for a solar power plant project in Europe, which has a potential capacity of 214 megawatts. These investments will help us to expand our profitability from zero-carbon electricity business lines. As you know, we cover this section in two main components: developments in the global oil market and developments in the Turkish market. Let's start with the global oil market. In the first half of 2024, we saw a net increase in refining capacity of 438,000 barrels per day, with significant contributions expected from Nigeria and China in the latter half.
For 2025, net capacity additions will be minimal, counterbalanced by the closure of refineries in Europe and North Africa. This marks the end of net capacity expansion as no further plans for new capacities have been announced. When the market stabilizes and new capacities become integrated into the system, we expect supply will be limited compared to the higher demand. The year started with Red Sea tensions that resulted in the rerouting of cargoes and traveling all the way down to Cape of Good Hope, a longer and more costly route. This delayed the supply, increased the transportation costs, and supported the cracks. However, this positive effect was rather short-lived as the redirected cargoes eventually arrived at their destinations, creating elevated inventory levels for mid-distillate products.
As China experienced an economic slowdown, the flow of products from Asia to the Middle East and Europe has increased, leading to higher inventory levels. Furthermore, new production capacity is coming online, and Russia's removal of its gasoline export ban contributed to an increased supply of gasoline, leading to high inventory levels despite stable demand in Europe. These developments weighed on the crack margins in the Q2. Now, taking a look at the bottom row of the Turkish market. Over the last 12 months, inflation surged to a high of 75% but began to fall in June due to previous year's high base. The policy rate has remained unchanged since March, yet as inflation decreases, the difference between the policy rate and inflation has lessened over the year.
The central bank forecasts a 38% inflation rate by year-end, with a predicted range of 34%-42% for the remainder of the year, according to the inflation report published on May 9th. Regarding demand, Turkey's consumption of oil products has been steady annually. Notably, there has been a substantial increase in gasoline demand by 18% year-over-year during the first five months. Now, let's take a look at the cracks for the Q2 of 2024 in comparison to last year's as well as past five years' average on this page. In the Q2, diesel cracks averaged at $18.4 per barrel, higher year-over-year due to continued geopolitical tensions in the Red Sea region. However, heightened shipments from the Middle East and Asia to Europe, prompted by China's economic slowdown and the arrival of cargoes that are rerouted, contributed to higher inventory levels.
This surge in supply caused downward pressure on cracks compared to the previous quarters. Jet fuel cracks averaged at $16.3 per barrel in the Q2, slightly above the same period last year, lower quarter-over-quarter. Higher demand in aviation continued to support the cracks. However, similar to the diesel trend, as the diesel cracks spread decline, refineries shift their production slate to produce more jet fuel, leading to an uptick in its supply as well. Gasoline cracks averaged at $21.5 per barrel in the Q2. High global demand in the Q2 and seasonal shift supported the gasoline cracks. Gasoline cracks were lower year-over-year due to last year's high days. High sulfur fuel oil cracks averaged around -$13.2 per barrel in the Q2. OPEC cut decision extension in June and increased bunker demand supported high sulfur fuel oil cracks.
Moving over to the crude price differentials. Differentials tightened in the Q2 after expanding in the Q1. The decision by OPEC+ to extend production cuts led to a narrowing in differentials. Although Basra Heavy continued to show wider spreads, our crude slate still felt the impact compared to the Q2 of last year. Due to the RUP being under maintenance during the initial two months of this quarter, we shifted towards lighter grades in our crude mix, which generally exhibits much tighter differentials to the Brent. The current geopolitical tensions make it challenging to forecast the direction of the differential trends. However, considering OPEC+ stance and impending US elections, we might anticipate a continued compression on these differentials. Now, let's take a look at Tüpraş operations, starting with the production volume.
Our production in the Q2 of 2024 was 6.8 million tons, higher than last year despite RUP maintenance. For the crude distillation, we attained a capacity utilization rate of 88.1%, and the utilization rate for processing other feedstocks stood at 5.3%, resulting in a system-wide rate of 93.5% during the Q2 of 2024. Moving over to the sales. Let's start with the chart on the left-hand side. In the Q2, our domestic and international sales increased to 5.7 million tons and 2.2 million tons, respectively, summing up to 7.8 million tons in total, which represents a 7% increase in sales compared to the Q2 of last year. This quarter's sales were the highest we've seen in the Q2 over the last seven years. Our domestic sales are slightly below last year.
A 7% decrease in diesel sales was almost fully offset by a 27% rise in the gasoline sales. Our exports increased by 56% year-on-year, primarily driven from almost twofold increase in gasoline and 7 times increase in fuel oil sales. Now, let's move to the electricity operations. This slide summarizes electricity production and sales activities of Entek and Tüpraş in the Q2 of 2024. In the Q2, 55% of the electricity generated was from hydropower, 25% was from wind power, and the rest was CCGT and solar power. Out of 640 gigawatt-hours of zero-carbon electricity produced, around 30% was sold to feed-in tariff. The rest were sold to the spot market. The addition of Kınık Wind Power Plant, which was 50 megawatts, and better hydrology increased the production of Entek and contributed to the EBITDA generation. Now, let's move to the financials.
Let's take a look at the P&L items in detail for the Q2 of 2024. Within the IAS29 standards, all financials that are provided in this presentation and in our quarterly financials report are calculated with inflationary adjustments. Additionally, the financial figures for 2023 Q2 have been scaled up by a factor of 1.72 in accordance with the Q2 2024 CPI in order to reflect the purchasing power of the current quarter. Revenues of the Q2 came in at TRY 191 billion, equivalent of almost $5.8 billion in the Q2, up by 4% compared to last year, supported by strong sales and increased capacity utilization. Cost of goods sold stood at TRY 173 billion, affected by narrower differentials and RUP maintenance. Gross profit was TRY 17 billion, mainly with narrow differentials. Operational expenses were predominantly affected by elevated logistics expenses.
Loss from other operations is affected by the FX gain loss from the trade payables. Last year, Turkish lira depreciated by approximately 40% in the Q2, resulting in FX loss on trade payables. This year, depreciation was much less, creating a positive impact on this item. Income and loss from equity pickup was at break-even, coming dominantly from OPEC. In the Q2 of 2024, we recorded a financial income of TRY 1.1 billion, originating from net interest income. The monetary loss of TRY 2.7 billion primarily stems from adjustments for inflation on retained earnings. As a conclusion of these, we have recorded TRY 8.9 billion of profit before tax in the Q2 of 2024. Below PBT, we have recorded TRY 3.9 billion of tax expense as a result of devaluation of the deferred tax, which creates a negative impact on the tax line item.
As a result, we have recorded TRY 5 billion net income in the Q2. Now, for the EBITDA, our EBITDA CCS materialized at TRY 12.4 billion. Year-over-year decrease was mainly driven by inflation outpacing the depreciation of lira. Around TRY 1 billion of this EBITDA was recorded from our electricity production company, Entek. Our reported EBITDA materialized at TRY 12.4 billion, as very little inventory effect was recorded for this quarter. Now, let's take a look at the PBT. As you can see from the waterfall chart, TRY 2.3 billion was gained with higher sales in the Q2 and lower energy expenses contributed to PBT. As disclosed previously, routine maintenance had a negative impact around TRY 4.4 billion to the profit before tax in the Q2. TRY 0.4 billion negative impact came from crack margins as cracks remained slightly below last year.
Around TRY 6.2 billion negative impact came in from narrow differentials compared to last year. The combined positive effect of FX and inventory stood at TRY 4.8 billion. The net interest income has a positive impact on our financial results for this quarter, as it was realized at TRY 2.6 billion, offsetting the negative impact of monetary loss. All in all, the 2024 Q2 profit before tax is materialized around TRY 9 billion. Now, let us take a look at the financial highlights. In the Q2 of 2024, we have recorded TRY 12.4 billion of EBITDA, decreasing from TRY 26.9 billion in the Q2 of 2023. This change is attributable to a contraction in differentials while undergoing RUP maintenance. Accordingly, we recorded TRY 5 billion net profit in the Q2 of 2024.
Cash and cash equivalents and financial liabilities at the end of the Q2 stood at TRY 88 billion and TRY 33 billion, respectively. We ended the quarter with TRY 55 billion of net cash, preserving our strong cash position. With ongoing deleveraging, our net debt to EBITDA materialized at negative 1.2 times as of the end of the Q2. Our working capital requirement decreased compared to the previous quarter, as the effects of Red Sea tensions are mitigated with the measures we have implemented during this quarter. Now, looking at the maintenance calendar for 2024, we operated with 93.5% utilization rate in the Q2. Routine maintenance has been completed as scheduled. Two of our maintenances are postponed as a result of our reassessment for the process. On this slide, we have our expectations for 2024.
Looking at the details, based on the weekend crack margins and weaker output for the year, we lowered the guidance for Tüpraş crack margin to around $12 per barrel. Regarding production and sales, there is no change in our expectations as we still expect approximately 26 million tons of production and approximately 30 million tons of sales. We expect capacity utilization to be within a range of 85%-90%, mainly due to plant maintenance shared in detail in our previous slide. Our consolidated CapEx target for 2024 is revised at $400 million, as some investments have been postponed. On this slide, we would like to sum up some key figures for the Q2 and compare them against our full year 2024 guidance.
We had a weighted average crack margin of $12.9 per barrel in the first half of 2024, which is slightly above our full year guidance of $12 per barrel. Our capacity utilization rate was 87.8% in the first half, which is in line with our guidance range of 85%-90%. In the first half, we produced 12.7 million tons and sold 14.8 million tons. We have spent $178 million as CapEx in the first half of the year. This slide concludes our presentation, and we can now proceed with the Q&A session.
The first question comes from the line of Ricardo Rezende with Morgan Stanley. Please go ahead.
Hi, good afternoon. Thanks for taking my question. Actually, a couple of my questions are on the new 2024 expectations. On the first one, would you be able to provide us some color on the different cracks that you expect now on the new margin expectation on the different products? And then the second one on the new CapEx, when we compare that with the previous CapEx, is the delta coming more from your postponing some CapEx to 2025, or are you really cutting some CapEx compared to what you had originally expected? Thank you.
Hi, Doğan speaking. Let's start with your first question in terms of the breakdown of the expectations on cracks. We don't provide that breakdown in our expectations. I won't be able to give you that. In terms of CapEx, yeah, this is a postponement of a one-off. In particular, it was a ship purchase on our subsidiary Ditaş, where we decided that we are in the peak of the cycle for the cost of ships. Therefore, we decided to postpone that acquisition to the following year.
Okay, thank you.
The next question comes from the line of Anna Kishmariya with UBS. Please go ahead.
Yes, good day. Thank you for the presentation, and thank you for taking my question. I have several questions. First, on the utilization rates, despite the maintenance, you reported a very strong utilization rate in the Q2. Could you please give some guidance or comment on what's the utilization rates in July and what should we expect in the remaining of the year? Does some unit run above 100% capacity? That would be the first question. And the second question would be on the investments in Petchems. Could you provide some more details on what the rate of returns you expect? When do you expect these units to be live? And any details on this regard would be very much appreciated. Thank you.
Okay, let me take the first one on the utilization side, Anna. As you know, we are fully aware of the status of the maintenance during the maintenance period. Since we knew that RUP was going on track, we started increasing capacity utilization throughout the Q2 in order to create the intermediate products that are going to be used by RUP. So that's why the utilization rate went up. Obviously, summer season is also important. It has been a strong season for the fuel demand in Turkey. And both factors combined led to this increase in the utilization.
For the whole year guidance, what we can say is the numbers that have been shared with you, which is 85%-90% for the whole year. For the petrochemical investment, it is a combination of two different investments in two of our refineries in Izmir and Izmit. The production will start in the year 2026. Chemicals in the C3 and C6 range that are high-value-added petrochemical precursors will be used, and they will be further sold to petrochemical facilities, either in the country or outside the country.
It is effectively stripping the propylene and propane from the current production process, which will definitely help with our scope 3 emissions in the future. But at the same time, it's a profitability investment pretty much aligned with our sustainable refining targets. We're not able to provide you with a return, but it's pretty much in line with the return rates we're getting from the rest of our operations.
Thank you very much.
The next question comes from the line of Ildar Khaziev with HSBC. Please go ahead.
Yes, hi, thank you. Just a quick question on the refining operating costs. Could you give us a guidance of what are your current units refining costs in the refining business and dollars and dollar terms per barrel of throughput, and how those costs have changed year-over-year? Thank you.
Unfortunately, we are unable to provide the details about operational expenses in terms of process.
Understood, thank you.
The next question comes from the line of Evgeniya Bystrova with Barclays. Please go ahead.
Yes, hello. Thank you very much for the presentation. I have a couple of questions. My first question, it seems that your cash position, at least in US dollar terms, has decreased since the end of last year. Could you please explain what happened and what was the key driver there? My second question is, can you provide any updates in terms of the upcoming bond maturity and your plans? Thank you.
Thank you for your questions. Let's start with your first question in terms of so-called deterioration in the cash position since the end of the year. Obviously, our cash position is pretty strong. The working capital requirement is negative, but it was even more negative at the end of the year. We always mention that the target is not really to keep that too much negative working capital requirement in the system because definitely we're paying for the terms we're getting from our suppliers, not necessarily in way of direct interest expense, but I mean, we're sure it's in the price.
Therefore, we're managing it delicately. Since the end of the year, obviously, there has been a couple of developments, especially on the geopolitical front, where we ended up moving our cargoes for our supplies around the continent, Africa, which increased, obviously, the overall inventories at sea. It would be in the region of 3.5 4 cargoes at any point in time. And on the top of that, obviously, we had an issue where one of our cargoes were seized by Iranian authorities, which we have resolved during the month of July.
Altogether, although there was a deterioration in the cash position from where we were at the end of the year, as of the end of Q1, we had mentioned during that call that we would mitigate, I mean, the issue, I mean, find the mitigation for the issue and improve the position further. We managed to do that. At the moment, the working capital requirement and the cash levels are better than where they were at the end of Q1. What we have done, we have focused on the payment terms to our suppliers. We recovered our cargo from Iranian waters, and we are still, obviously, in the negative territory when it comes to working capital requirement and have a substantial amount of cash on our bank accounts.
For the bond transaction or the upcoming maturity of the bond, yes, it is maturing at the end of October. We have been following the market since probably the beginning of last year so as to decide on to renew the bond or pay it back. In following the market, we focused on two different fronts, one being the global rates initiated by, obviously, the Fed movements. On the other side, obviously, the risk premium charged on Turkish credit, which can be followed by the CDS levels and mostly, I mean, can be followed from the ratings of the sovereign. There has been improvements, especially on Turkish sovereign ratings together with two previous ratings, two of our ratings being over the ratings by the Turkish sovereign, which will definitely help.
But at the same time, we'll be following the Fed rates, which have been a bit sticky until this point in time, which would probably bring us negative carry if we were to renew our euro bond with the current rates. Having this much cash sitting on our balance sheet, we will not necessarily choose to pay around 7% rates as of today when we're getting around 5% from our deposits. But I believe the market is moving in the right direction. With the current developments in the markets since last week, one might expect Fed rates being faster in a downward trend. And coupling with the current positive developments on Turkish and sovereign rating of Turkey, I would expect to be back in the market probably at the beginning of next year, if not in the following quarters.
Thank you very much. Just to follow up, so as of now, you haven't made your decision in terms of the refinancing or new issues?
To be honest, I mean, we're not prepared to go out to the market in, say, 2 to 3 months' time to renew the euro bonds. But if there is a big substantial change in the market, I believe we can still squeeze that 7 to 8 weeks from today towards the maturity of the current euro bond. But I would be very surprised if that happens.
Okay, thank you very much.
Thank you.
The next question is a follow-up question from the line of Anna Kishmariya
with UBS. Please go ahead. Yes, thank you very much. I actually had a follow-up on the seized cargo, Iran-seized cargo, and whether you expect any one-off gain or loss on your financial statements in Q3 we should expect to.
No, the cargo was insured, so we never had a loss even if we hadn't recovered the cargo. But having recovered that, it's obviously quite a credit on Turkish side with its relationship with the insurers. Anything that we spend in terms of additional cost of freight or anything on the legal expenses, they are also covered through our marine cargo insurance. And regarding the financial impact, it was sitting on inventory the whole time, so there would be no financial impact.
Thank you.
Ladies and gentlemen, there are no further questions at this time. I will now turn the conference over to management for any closing comments. Thank you.
Thank you once again for joining us this evening for the Q2 call of 2024. Before we conclude, I'd like to share a few closing remarks. We're happy to announce a solid operational performance for the Q2 marked by substantial sales and a strong financial standing. Our ample cash reserves enhance our flexibility for new investments, pay dividends, and still ensure a quite secure financial position. The on-time completion of RUP maintenance allowed us to utilize our capacity efficiently this quarter.
Consequently, with these results, we also announced our proposal for a second dividend distribution of TRY 23 billion, which will bring this year's total to TRY 43 billion if obviously approved by our AGM. That is pretty much aligned with our 80% payout ratio target that we had announced when we were announcing the strategic transition plan. The refining sector is as much impacted by geopolitical uncertainties, global recession concerns, shifting trade routes and introduction of new global capacities as other energy companies. Yet, despite these new capacities, supply issues persist.
As one of the more modern refineries that has completed its maintenance cycle to serve an emerging market, Tüpraş is well positioned to maintain strong operational performance. In the meantime, Tüpraş is making progress in line with its strategic transition plan across three new areas of investment, advancing swiftly. We have attained and installed capacity of 416 MW for zero carbon electricity, nearly half of our goal for the year 2030 of achieving 1 GW. We have secured a reliable supply for SAF production, addressing a major global concern regarding feedstock availability. Additionally, we persist in advancing our projects related to sustainable refining. We appreciate your time and trust in our company. Thank you all for listening to us this evening.