Ladies and gentlemen, thank you for standing by. I'm Constantinos, your call operator. Welcome and thank you for joining the Tüpraş conference call and live webcast to present and discuss the second quarter 2025 financial results. At this time, I would like to turn the conference over to Mr. Doğan Korkmaz, CFO , and Mr. Levent Bayar, Investor Relations Executive Director. 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 am Levent Bayar, Enterprise Risk and Investor Relations Executive Director. I'm here with Doğan Korkmaz, our CFO, and team members from Tüpraş Investor Relations and Reporting Departments. Over the next hour, we will first go over our operational and financial results for the second quarter of 2025. We will continue with the Q&A session. I would like to draw your attention to our cautionary statement here. 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 three slides, we will provide you with a brief summary of the key highlights regarding the second quarter of 2025.
We will go into detail for each subject on the following slides. Now, moving on to Tüpraş highlights in detail for the second quarter of 2025. The chart on the top shows a steady rise in gasoline vehicle sales. While diesel sales once dominated the Turkish passenger car fuel demand, gasoline demand grew by 19.6% year-on-year in the first five months of 2025, with gasoline vehicles accounting for 77% of the new passenger car sales. Over a seven-year span, the share of gasoline cars in the vehicle park rose from 25% in 2018 to 31% in 2025. This reflects a clear customer shift driven largely by narrowing fuel price gaps at the pump. As a result, we saw a historic high in the second quarter of 2025, domestic gasoline sales reaching 1.4 million tons, more than double the second quarter of 2018 sales.
The middle chart illustrates the resilience of Tüpraş's core cash generation capabilities, which remained intact despite the temporary one-off impacts recorded in the previous quarter. Solid operational execution and effective working capital management supported a strong cash position of $2.3 billion at the end of the quarter. This liquidity was further bolstered not only by healthy business performance but also through the $500 million club loan secured in May. Going forward, approximately $350 million is allocated for the second dividend payment, which will happen in September, and an additional approximately $350 million for the remaining capital expenditures, both of which are well supported by our current cash reserves. Overall, our performance demonstrates not only strong operational profitability but also the company's ability to maintain strategic agility, funding investments, meeting shareholder commitments, and sustaining a healthy balance sheet simultaneously.
The graph at the bottom outlines several milestones in our strategic transition plan in the first half of 2025. In January, we finalized the acquisition of a solar power plant license and land in Romania through Antech. In March and April, we completed the first installment of 2025 dividend payments. May brought the successful arrangement of a $500 million club loan, marking our first sustainability-linked financing with only a cost of SOFR 2.25%. A clear testament to our financial credibility in global markets. In June, an agreement was signed with Turkish Airlines to supply SAF, which is Turkey's first domestic SAF procurement agreement. Let's now walk through the key global developments of the second quarter of 2025, which have impacts on the refining sector. The year started with additional U.S. sanctions on Russian crude and products.
The additional sanctions created a supply shortfall, which pushed refining margins higher and caused the differentials to narrow. In April, a major power outage affected Spain and Portugal. Spain alone accounts for nearly 1/3 of the mid-distillates supply in the Mediterranean Basin. The electricity cut led to unplanned refinery shutdowns, causing a sharp spike in mid-distillate crack margins due to tighter regional supply. In response to market conditions and reduced availability of Russian oil, OPEC+ increased production levels. The group added 138,000 bbl per day in April, followed by an additional 411,000 bbl per day in May, June, and July, with plans to reach a total additional 548,000 bbl per day in August. These adjustments reflected changes in geopolitical risks and market demand for crude oil. However, much of the additional supply comes from light sweet crude, whereas complex refineries are currently seeking heavier grades.
Therefore, the effect on differentials remains to be neutral. However, the most critical development of the quarter was the rising geopolitical tension between Israel and Iran. While a temporary ceasefire was declared shortly after the tension, the uncertainty and security risks in the region, especially around the Strait of Hormuz, remain high. The Strait is one of the most important oil routes in the world because it lies between Iran and its Gulf Arabian neighbors, and it is responsible for transporting nearly 20 million bbl of oil per day, which equally, approximately, is 20% of the global oil flow. In the days following the escalation, markets responded quickly. While crack margins increased sharply, particularly for the mid-distillers, freight rates surged due to the heightened war risk premiums in the Gulf, and differentials began to narrow, reflecting increased pricing pressures dependent on the mid-Eastern feedstocks.
Ongoing security issues in the Red Sea since late 2023 helped Suez Canal commercial traffic, disrupting crude and product shipments and driving up freight costs. As a result, the impact was twofold: crack margins increased due to limited product supply, and differentials widened because of the disrupted oil flows. As you know, we cover this section in two main components: developments in the global oil markets, as well as the developments in the Turkish market. Let's start with the global one. The second quarter began with a heightened volatility in Brent prices. In January, additional sanctions on Russia led to a supply squeeze, pushing Brent toward $80 per barrel. This surge was short-lived, as OPEC+ decided to increase production in March, which softened prices.
However, the increased geopolitical risks caused by the tension occurred between Israel and Iran elevated Brent prices once again, as the security risk in the Strait of Hormuz was triggered. Since the ceasefire, the situation de-escalated by the end of June, allowing prices to stabilize relatively at lower levels. Thanks to our very active inventory hedging policy, we were once again able to mitigate this volatility and navigated the uncertainty very effectively on the mid-distilled products side. By the end of the second quarter, we are already seeing inventory levels dropping below last year's five-year average levels. As illustrated on the right, mid-distilled crack spreads have shown consistent month-on-month improvement, reaching $24 per barrel in July. This upward trend is attributable to sustained supply constraints, power outages in Europe, as well as the increased geopolitical tensions. Now, taking a look at the bottom row, the Turkish market.
In the second quarter, inflation continued to increase. Over the last 12 months, inflation was eased, dropping down to 35%. The Turkish Central Bank lowered the policy rate to 43% in the latest MPC. However, the real positive interest rate environment continues with lowered inflation momentum. On the demand side, Turkish demand for oil products improved in the first five months of 2025. There was a 4% increase in the overall demand compared to the same period in the previous years. Notably, the appetite for gasoline continued, showing a sign of 19.6% year-over-year in the first five months of 2025. Now, let's take a look at the cracks for the second quarter of 2025 in comparison to last year's, as well as the past five years' average on this page.
In the second quarter, diesel cracks averaged at $17.1 per barrel, slightly lower quarter- over- quarter due to the normalization of margins. Year-on-year diesel cracks are lower due to the high base of last year. In July, diesel cracks surged significantly, reaching $27 per barrel due to the lower European inventories, refinery outages, and the concerns over the Strait of Hormuz. Jet fuel cracks averaged at $16 per barrel in the second quarter, lower year-on-year due to the high base. Cracks started to increase from mid-June onwards and reached $22 per barrel in July due to a seasonal rebound in aviation activity and geopolitical tensions around critical oil routes. Gasoline cracks averaged at $16.2 per barrel in the second quarter, lower year-on-year due to the high inventory levels. Seasonal demand supported gasoline cracks when compared against the previous quarter.
High sulfur fuel oil cracks averaged around -$5.7 per barrel in the second quarter of 2025, up by $7.5 per barrel on a year-over-year basis. High sulfur fuel oil cracks were mainly supported by the increased demand of complex refineries and tighter supply conditions. Moving over to the crude price differentials, the OPEC+ decision to increase production, which began in April and continued throughout August, totaling to an amount of 1.9 million bbl, has limited effect on differentials. This is largely because ongoing security risks in key shipping routes, particularly around the Red Sea, continue to disrupt trade flows and kept benchmark prices elevated for specific grades. Therefore, differentials continue narrowing in the second quarter as well. Thanks to our flexible sourcing model, we were able to successfully diversify our crude intake, adjusting dynamically to market chains and regional imbalances.
This adaptability once again proved critical in helping us navigate a highly volatile and geopolitically sensitive environment. Now, let's take a look at the production volumes. Let's check Tüpraş operations. Our production in the second quarter of 2025 was 7 million tons, above the 2023 and 2024 levels. With no material maintenances going on and with strong demand, we are operating at a capacity utilization rate above 100% in the third quarter so far and capturing the strong margin environment that we have discussed earlier. For the crude distillation, we managed to achieve a capacity utilization rate of 91% and the utilization rate for processing other feedstocks stood at 7%. Our system-wide capacity utilization rate was 98% for the second quarter of 2025. Moving on to the sales, let's start with the total product sales.
In the second quarter of 2025, our domestic and international sales were respectively 5.9 million tons and 1.7 million tons, summing up to 7.6 million tons in total, which represents a 4% decrease in sales year-over-year. Our domestic sales are in line with the previous years. Our gasoline sales are up by 13% year-on-year, while domestic diesel sales were down by 9%. Now, let's move to the electricity operations. This slide summarizes electricity production and sales activities of Entek and Tüpraş in the second quarter of 2025. In the second quarter, 54% of the electricity generated was from hydropower due to improved hydrological conditions. 24% was from wind power, and the rest was CCGT and solar. The EBITDA contribution of the sales from production of electricity increased by 5% in the second quarter of 2025, year-over-year.
Out of the 330 GWh of zero-carbon electricity produced, around 28% was sold to feed inventories, which is $73 per megawatt-hour, and the rest was sold to the spot market. Now, let's move to the financials. Taking a look at the P&L items in detail for the second quarter of 2025. Within the IAS 29 standards, all financials that are provided in this presentation and in our quarterly financial reports are calculated with inflationary adjustments. Additionally, the financial figures of 2024's second quarter have been scaled up by a factor of 1.35 in accordance with the June 2025 CPI in order to reflect the purchasing power of the current quarter. This adjustment is the main reason of year-over-year dropping figures. Our revenues came in at TRY 183 billion, equivalent of almost $4.6 billion in the second quarter. Cost of goods sold stood at TRY 165 billion, affected by narrowed differentials.
As a result of these, our gross profit stood at TRY 18 billion. Operational expenses were down by 22%, as our operational expenses rose less than inflation. Loss from other operations is affected by the effects lost from trade payables. In the second quarter, Turkish lira depreciated by approximately 5%, which is the main cause of this. Income and loss from equity pickup was recorded at TRY 652 million, coming dominantly from OpEx improved profitability. In the second quarter of 2025, we recorded lower financial income of almost TRY 0.5 billion, mainly due to the decreased net interest income. There is a TRY 0.2 billion positive impact coming from monetary gain because of the reduced cash amount in this quarter after a strong dividend payout. As a conclusion of these, we have recorded TRY 11 billion of PBT in the second quarter of 2025.
The third tax item normalized as opposed to the other quarters with the mitigated adverse effects of inflation accounting due to the decrease in inflation. Below PBT, we have recorded TRY 2.1 billion of tax expense, and as a result, we have recorded TRY 8.9 billion in net income in the second quarter of 2025. Now, for the EBITDA, our reported EBITDA is materialized at TRY 15 billion. We recorded TRY 1.2 billion of positive inventory effects. Our EBITDA CCS materialized at TRY 13.8 billion, and TRY 0.5 billion of this EBITDA was recorded from our electricity production company, Antech. Now, let's take a look at the profit before tax breach. As you can see from the waterfall chart, improved wide product yield with completed maintenances and increased capacity utilization have led to TRY 1.9 billion of positive impact. Contribution from inventory impact was also positive with TRY 1.1 billion.
TRY 3.7 billion negative impact comes from narrowed differentials compared to last year. Decreased net interest income due to cash outflows and effects losses caused by lira depreciation has a cumulative negative impact of TRY 3.5 billion. There is a TRY 3.9 billion positive impact coming from much lower monetary loss based on the decreased gap between inflation and interest rate, as well as lower cash position. With the recent price hike, energy costs increased, and we have recorded TRY 1.4 billion negative impact in this quarter. All in all, 2025's second quarter profit before tax is materialized at TRY 11 billion. Now, let's take a look at the financial highlights. Our net debt/EBITDA materialized at - 0.9 x as of the end of the second quarter. Cash and cash equivalents and financial liabilities at the end of the second quarter stood at TRY 19.4 billion and TRY 41.3 billion, respectively.
We ended the quarter with TRY 49 billion of net cash, preserving our strong cash position. Our working capital requirement came down to TRY 1.1 billion, returning to normalized levels and further supporting the cash levels as the one-off effects of the first quarter were eased during the second quarter. Regarding our FX exposure management, we continue to apply our square FX position policy and ended the second quarter with only $7 million short position managed through a disciplined FX management policy and our natural hedge coming in from FX-based pricing mechanism. Now, looking at the maintenance calendar for 2025. Looking at the maintenance plan, we are on track with our maintenance schedule. The FCC r evamp at İzmir Refinery is still ongoing. Due to the additional work that has been initiated related to the earthquake strengthening, the duration of this revamp has been extended.
Overall, there are no major maintenance operations this year that would significantly impact our production capacity and capacity utilization. On this slide, we have our expectations for 2025. Based on our operational performance in the second quarter and ongoing developments, we haven't changed the $5 per barrel - $6 per barrel net refining margin guidance. Regarding production and sales figures, there is no change in our expectations as well. We expect approximately 26 million tons of production and approximately 30 million tons of sales. We expect capacity utilization to be within a range of 90% - 95%. Our consolidated CapEx target for 2025 remains at $600 million. On this slide, we would like to sum up some key figures for the second quarter of 2025 and compare them against our 2025 guidance. The net refining margin was $5.3 in the second quarter, which is in line with our guidance.
Our capacity utilization rate was at 90% in the first half, which is within our guidance range of 90% - 95%. Our production and sales reached approximately 12.9 million tons and 14 million tons in the first half of the year. We have spent $232 million in the first half in terms of CapEx. This slide concludes our presentation, and we can now proceed with the Q&A session.
The first question comes from the line of Rezende Ricardo with Morgan Stanley. Please go ahead.
Hello. Good evening. Thanks for taking my question. The first one, it's on the domestic sales of diesel. When you look at the chart on slide 11, we can see that this quarter was probably the weakest quarter in a few years on domestic sales. I just want to get a better sense on why that has happened. Was there any strategy of exporting more, or are you seeing any competition on the domestic markets? The second question is on the guidance for the year. You mentioned on the remarks that the third quarter so far you've been running at above 100%. You've been capturing some strong margins. Could that imply that if that continues, you could see some upside risk to your guidance for 2025? Thank you.
Thank you for your questions. This is Doğan speaking. Let's start with your first question on the domestic sales. Domestic sales in the market have been flat for the last year or so, which is a bit abnormal because given the emerging Turkish market dynamics, we used to see even double-digit volume growth for quite some time. Even during the pandemic, the sales of diesel were holding on. Increasingly, with the limited devaluation of the currency in comparison to the inflation inside the country, we kind of follow that exporting industries in the country are somewhat struggling to compete in their major markets, i.e., the European markets, with increasing cost base on their front, but also limitations on their price increases in their target markets. Euro or dollar, as the case may be, increases against Turkish lira less than the inflation inside the country.
Therefore, the margins that the exporting industries in Turkey make are getting less and less by time. When it comes to exports from Turkey, they are mostly to Europe, and they are mostly done via trucks from Turkey. All in all, the trickling effects of those exporting industries towards their own suppliers inside the country, there's a bit of slowdown in those industries and the ones supporting them. That can be followed from diesel sales. Mind you, we had a major earthquake in Turkey. In the last two years, last year being because of the earth-moving activities in that region, and this year because of construction activities going on, we believe there's around 2% addition to the overall demand inside the country because of those activities in that region. Even with the support of that, diesel is somewhat flat.
It's owing to this reason where really the exporting industries are struggling, and the related logistics from that industries are causing a decrease in diesel demand. I might also say that there is a bit of pickup in exports when it comes to diesel with favorable prices from elsewhere. The major effect really comes from the limitations in the market. There's a lot of differences in between different geographies as well. Regions inside the country where these industries are accumulated are on a decreasing trend in diesel demand. Whereas, as I mentioned, geographies where there are infrastructure expenditures, they are a bit on the rise in terms of diesel demand. Next question was on the capacity utilization. Yes, we went up to 100% capacity utilization. It might be even over that 100% from time to time. Obviously, it was as planned because it's the peak season.
The peak season will end at the end of August, in the middle of August. Therefore, since the end of the second quarter, we're still very positive, and the operations are holding on perfectly well. In terms of any revision, upward revision in our year-end expectations only because of capacity utilization, no. Any changes would only happen if the total number would exceed the ranges that we have given at the beginning of the year. Our expectations at the beginning of the year had included these high levels of capacity utilization during a peak time.
Okay, thank you very much.
The next question comes from the line of Kishmariya Anna with UBS. Please go ahead.
Good day. Thank you very much for taking my questions. I have several. Starting with the effective tax rate, which in the second quarter was pretty low at 19%. What should we expect in the third quarter and fourth quarter? Like, will these levels be sustainable, or will it rebound a little bit to a more normalized level? That would be the first question. Second question around if you can provide us the level of net refining margins so far in July, what you are seeing, that would be super helpful. Final question around trading. In the first quarter, you were mentioning that trading activities were very weak and very low. Did you see a rebound in the second quarter, or what do you expect into the year-end? Thank you very much.
Thank you. Let's start with your first question in regards to the tax effect. It's a bit tricky since the inflationary accounting came back to our lives. Actually, the easiest answer is really we're not paying this tax in cash. This is obviously the calculation of IFRS. Not only that, obviously, tax expense includes both statutory and deferred tax expense, and the indexation effect is negative in both accounts. Under IFRS financial reporting, deferred tax is recognized on all differences between accounting and tax bases that are not subject to current tax computation. For instance, if income is recognized in the IFRS income statement due to the indexation of fixed assets, a deferred tax expense must be recorded accordingly. The main difference comes from this indexation differences typically arising from the use of different inflation indices.
PPI, the Producers Price Index for statutory financial statements, and CPI, Consumer Price Index for IFRS reporting. In the first half of the year, the PPI and CPI differential was approximately 5%, whereas this year, in comparison to last year, it has narrowed down to 1%. Consequently, the indexation differences have decreased, resulting in a lower effective tax rate. The issues we had last year were really the difference in between CPI and PPI being on the very high side. Going forward, I wouldn't expect that to be the case, so I would expect something similar to what we are experiencing today. The next question was on net refining margin for July. Obviously, we will do as we do always, and we will give you the numbers at the end of the month, every month, in regards to the crack margin environment.
I wouldn't be able to give you any color on the margins for July, in refining margins for July for today. Your last question was on trading activities. No, we haven't seen a rebound, although the devaluation of the currency accelerated a bit, and it catches up the inflation. At the same time, the inflation is coming down, but it will take a while for the exporting industries to be more competitive. By the way, Euro/dollar parity is also effective in the competitiveness of exporting industries of Turkey because exports are mainly to Europe and in euros, and semi-products that they use are mostly in dollars.
Understood. Thank you very much.
The next question comes from the line of Alagöz Can with Qatar National Bank. Please go ahead.
Thanks for the call. I have two questions. The first one is that do you expect the EU's recently adopted 18th sanction package against Russia to have any additional impact on the Turkish oil market and Tüpraş specifically? My second question is on the news and the reports claiming that some global oil players are abandoning their net zero emission strategies or scaling them back significantly. In light of these developments, is there any change in Tüpraş's plan, or could its strategy be reshaped in response to this global trend? Thank you.
Thank you for your questions. This new package by the European Union, the sanction package against Russia, is obviously pretty new, and we're obviously looking into the details of that. Having said that, in the case of Tüpraş, there are only a couple of products that we are exporting. We're mainly targeting the domestic market. The products we sell are mostly the ones which are a surplus for the country. Those products really find their way in different target markets, although the intermediaries, i.e., the traders in between, might be in different jurisdictions. Whenever there is an interruption within the supply chain, obviously in a commodity market, the products would find a different alternative target market, but the margins would be influenced. It's not a matter of being able to sell.
Therefore, it wouldn't be a limitation on our capacity utilization, but it might mean a different margin to be made if you were to be restricted in some of your markets. The counterbalancing effect might come from an increased level of margins because of this disruption globally. Therefore, the balance would really be known to us when you find out what the real disruption is and how much of that would be recovered from the additional margins that you would pick up from your overall sales. Europe is not one of our major export markets, but we do have exports to Europe. We will need to really understand the specifics of the new sanctions package because we have more than one refinery, and the sourcing of those refineries might be different. Some products might be within the package. Some might not be within the coverage of the package.
Yet to be seen. We still have time to consider all of these before we make our plans for next year and the forecast relating to that. The oil majors abandoning their emission strategies. We wouldn't necessarily only follow the oil majors. We look out to the different decision makers, the expectations of people, clients. Obviously, the idea behind emission strategies is not only for being green but also being still the leader in our industry in the future to stay relevant. The expectations about the future might change from one company to another. With our own current expectations, we have revised our transition plan pretty recently at the beginning of this year and announced our plans. I must say we haven't changed it majorly, and we have a couple of revisions in both sides. Not only in emissions, but we have increased our CapEx expenditures.
We have increased our expected income throughout this period. It was a very well-balanced revision that we have achieved. The short answer is we wouldn't necessarily change our plans only because that has been a major change in one of our or a couple of our competitors in the market.
Thank you.
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 for joining us this evening for the second quarter call of 2025. Before we conclude, I would like to share another piece of information to start with, and then I will share a few closing remarks. We have just minutes ago announced an upgrade by Moody's to our rating following Turkey's own rating upgrade. That was a positive new piece of news which coincided with this meeting tonight. We're very happy to post a solid operation and financial performance for the second quarter, delivered also with a strong cash position, resilient operations, and equally important, prudent balance sheet management during a very volatile market environment proved to deliver results. This quarter was shaped by geopolitical tensions, including additional sanctions on Russia, ongoing Red Sea disruptions, and heightening risks stemming from the conflict between Israel and Iran.
These developments weighed on supply security, reinforcing the importance of operational agility and financial strength. Our proactive hedging strategy effectively shielded our inventory values and supported our financial performance, which is a key differentiator in an otherwise unpredictable quarter. In response to evolving dynamics, OPEC+ accelerated production increases, and by August, output hikes reached up to three times the initial projections. Combined with low inventory levels in Europe, these factors drove mid-distillate crack margins to current high levels. We remained highly responsive to market dynamics. We ran at 98% capacity utilization in the second quarter and are currently operating above 100% in the third quarter, fully capturing strong margins. Our solid financial positions remain a cornerstone of our strategy. Our cash positions stood at $2.3 billion by the end of the second quarter, enabling us to continue investing, pay dividends, and manage working capital efficiently.
The dissipation of first quarter runoffs and normalization of working capital requirements further supported our financial strength. Following on our strategic transition plans, we achieved key milestones this quarter, including the successful execution of our first sustainability-linked club loan, a $500 million facility priced at SOFR + 225 basis points, way lower than the country risk premium, and Turkey's first domestic SAF procurement agreement with Turkish Airlines. These steps align strongly with our energy transition roadmap. Looking ahead, we remain confident that our strong foundations, operational discipline, financial flexibility, and market responsiveness will allow us to navigate dynamic conditions and seize further opportunities. Thank you for your time and continued trust. We wish you a great day ahead.