Ladies and gentlemen, thank you for standing by. I am Geli, your Chorus Call operator. Welcome, and thank you for joining the Tüpraş conference call and live webcast to present and discuss the third quarter 2026 financial results. Before we start, I will kindly draw your attention to Tüpraş' cautionary statement on page two of today's presentation. For further details beyond the scope of today's presentation, please refer to the financial reports and material disclosures available on the company website. At this time, I would like to turn the conference over to Mr. Gökhan Dizemen, CFO, and Ms. Gülsen Ayaz, Investor Relations and Enterprise Risk Executive Director. Ms. Ayaz, you may now proceed.
Hello, everyone. Good evening from Tüpraş headquarters in Istanbul, and welcome to our teleconference. Thank you for being with us today. I am here with Gökhan Dizemen, our CFO, and my colleagues from Tüpraş IR and financial reporting. Over the next hour or so, we will review the third quarter industry backdrop and discuss our operational and financial performance, which, as usual, will be followed by a Q&A session. Geopolitical developments and supply disruptions remained key drivers of crude and product market dynamics during the quarter, which was characterized by continued challenges across Russia, the Strait of Hormuz, and Red Sea, affecting refinery availability and creating widespread logistics bottlenecks across key transit hubs. Importantly, the resulting tightness was more pronounced on the product side, providing strong support to crack margins.
Starting with Russia, refinery disruptions intensified during the quarter amid continued Ukrainian attacks on refining assets, while damage to Black Sea port infrastructure added further pressure on export logistics. This resulted in a material reduction in processing capacity and severe constraints on exports. Russia introduced export bans on key refined products, most importantly diesel, of course, which has since been repeatedly extended to protect domestic supply. The resulting decline in product exports tightened global supply, pushing crack margins higher. Limited processing, on the other hand, led to higher crude exports from Russia, preventing oil prices from moving higher than they otherwise would have. More recently, the U.S. introduced a limited license allowing Russian diesel exports, which could provide some near-term relief.
However, the physical impact remains uncertain, as a meaningful recovery in exports will depend on processing capacity returning to operation, while existing sanctions and compliance restrictions in other markets may continue to limit how freely these barrels will flow. Turning on to the Strait of Hormuz, crude flows recovered significantly towards the end of the quarter, improving crude availability and supporting more favorable official selling prices. However, the discounts have mostly been captured by vessels and traders willing to take the additional risk associated with transit. On the product side, flows recovered more slowly than crude flows across the GCC, keeping regional availability relatively tight due to refinery outages, logistical limitations, and increased safety risks, with product outflows remaining approximately 50% below September 2025 levels. In the Red Sea, security risks continued to affect shipping routes and freight costs, with vessels facing longer and more extensive transit routes.
The escalation of the conflict involving the Houthis, Yemen's government, and Saudi Arabia contributed to renewed upward pressure on crude benchmarks, particularly towards the end of the quarter. While the disruption to the East-West pipeline was temporary and flows have since resumed, the corridor remains exposed to geopolitical risks. Moving on to the key developments in the global refining and the Turkish macro environment. Global crude throughput remained constrained throughout the quarter, with weakness largely concentrated in the Middle East and Russia, and to a lesser extent in Asia. While refinery runs in the Middle East showed some recovery during Q3, this was more than offset by the continued decline in Russian refining.
At the same time, Europe and North America operated above both 2024 and 2025 levels, but this was not sufficient to compensate for the weakness in Russia and the Middle East, leaving global crude throughput below historical levels. On the product side, inventories entered Q3 at relatively low levels following the drawdowns in the second quarter, when demand initially adjusted to tighter market conditions and buyers relied more heavily on existing stocks. Global crude throughput partially recovered in July and August, largely in response to seasonal demand, but without leading to a meaningful inventory rebuild, as the improvement in supply remained insufficient. As throughput softened again later in the quarter, the market was left with an increasingly thin inventory buffer in mid-distillates.
In contrast, gasoline inventories in Europe started to pick up towards the end of September, contributing to some softening in gasoline cracks more recently, as seasonal demand eased and export economics became less positive. On the macro side, inflation dynamics remained mixed across major economies during the quarter, while monetary conditions tightened as the Fed, ECB, and Bank of Japan all raised rates in September. In Türkiye, annual inflation declined to 29.7% in September, falling below 30% for the first time in 57 months, paving the way for the CBRT to cut the policy rate by 100 basis points to 36% at its October meeting. Domestic fuel demand remained broadly resilient during the first eight months of 2026. Gasoline continued to post robust growth, supported by strong mobility and the summer driving season, while diesel demand improved year-on-year.
Jet fuel demand was softer, reflecting a relatively high base and subdued aviation activity. Coming to crack margins by product in the third quarter, diesel cracks averaged $81 per barrel, more than tripling year-on-year to reach all-time highs supported by reduced refinery availability in the Middle East and Russia, low inventories, and extended export restrictions as we discussed. Jet fuel cracks averaged $69 per barrel, remaining significantly above the five-year range, supported by seasonal travel demand and tight distillate supply. Gasoline cracks averaged around $45 per barrel, more than doubling year-on-year on the back of robust driving season demand and low inventories entering the season. Finally, HSFO cracks averaged around - $20 per barrel, remaining under pressure as outages at more complex refinery units resulted in higher black product available across the market.
Increased Saudi crude exports and declining power demand following the peak season also weighed on margins towards the end of the quarter, despite some recovery from Q2 levels on average. On this chart, we show a select sample of heavy crude differentials, which have largely eased from the sharp premium seen in May following the outbreak of the US-Iran conflict. As you know, we see the impacts of these market dynamics on official selling prices with some lag. The normalization we see on this chart was supported by ceasefire expectations, improved crude availability as lower Russian refinery runs released additional barrels into the market, the recovery in flows through the Strait of Hormuz, and relatively subdued Chinese crude purchasing for most of the quarter.
Higher freight rates and insurance premiums absorbed much of the benefit from lower official selling prices, limiting the improvement in overall landed crude economics. Geopolitical disruptions kept shipping costs elevated amid heightened transportation risks and tightening vessel availability, particularly in high-risk regions such as the Strait of Hormuz, where much of the crude discount was effectively offset by the premium required to bear the transit risk. Despite this environment, crude availability remained sufficient throughout the quarter, and we did not face any supply constraints. Our diversified sourcing base and flexible crude slate continued to provide access to alternative routes and grades while balancing supply security and overall landed costs. Now moving on to a few highlights from the quarter. We achieved 106% capacity utilization, the highest quarterly level in five years.
Our refining flexibility enabled us to deliver an 82% white product yield and maximize output amid tight market availability, positioning us to successfully navigate the favorable margin environment. On the sales side, domestic volumes reached an all-time high, while total sales rose to 8.8 million tons, again, the highest quarterly level in five years. Against the backdrop of strong domestic demand and tight product availability, we complemented our own production with selective imports, which contributed to the record sales volumes while helping ensure uninterrupted supply to the domestic market. Strong net refining margins, together with disciplined execution and cash management, further strengthened our financial position. Our nine-month free cash flow reached around $3.6 billion, more than covering our full-year CapEx plan and providing further financial flexibility for future investments and shareholder returns. Finally, we are proud of the continuous progress in our ESG performance.
Our S&P Dow Jones Sustainability Score increased from 60 to 68 year-on-year, while our global sector ranking improved from ninth to third place. We also further strengthened our FTSE4Good performance, moving into the top 5% of companies within the global oil and gas sector. These results underline the steady progress we continue to make across our sustainability agenda. On the refining side, our production increased to 7.6 million tons in the third quarter, up 6% year-on-year. We operated at 106% capacity utilization, as I mentioned, to meet strong seasonal demand, with 98% coming from crude distillation and an additional 8% coming from semi-product feedstock processing. On the sales front, domestic and international volumes reached 7.89 and 0.9 million tons respectively, bringing total sales to 8.8 million tons, up 4% year-on-year.
International volumes accounted for only 10% of total sales, as we prioritized meeting strong domestic demand to the greatest extent possible. Domestic sales grew by 13% to reach an all-time quarterly high, supported by strong diesel and gasoline volumes. Diesel sales significantly outperformed the broader market, supported by our product slate optimization. Let's quickly go through the electricity operations. As you know, on this slide, we present the electricity generation and sales activities of Entek and Tüpraş on a combined basis. In Q3, 61% of our electricity generation came from hydro and 20% from wind, with the remainder coming from CCGT and solar. Total zero-carbon electricity sales from our own generation reached 492 GWh, up 43% year-on-year. The majority of these volumes were sold at spot market prices, with a smaller portion sold under the feed-in tariff.
Stronger generation volumes, together with improved electricity prices in Q3, supported the expected increase of EBITDA, which exceeded TRY 1 billion. This performance also benefited from effective reservoir management. By managing our hydro capacity across Q2 and Q3, we were able to capture the improvement in electricity prices and optimize our generation and sales performance. As a final remark, our two projects, Büyükkışla Wind Power Plant and Romania Solar Power Plant, with a combined capacity of more than 300 MW, remain on track to come online soon. While this concludes my part, I will now hand over to our CFO, who will take you through our strong financial performance, which supported another upward revision to the full-year outlook.
Thank you, Gülsen. Good evening, everyone, and thank you for joining our call. The third quarter was an exceptionally strong period for Tüpraş, with our operational and commercial performance translating into strong profitability and cash generation. Market conditions were supportive, with product cracks reaching exceptionally strong levels during the quarter. Crude availability improved as regional flows recovered and additional barrels returned to the market, while freight and insurance costs remain elevated amid continued geopolitical and logistical disruptions. Against this backdrop, our operational flexibility, diversified crude sourcing, and strong execution enabled us to deliver a particularly strong set of financial results. All figures on this slide are presented under IAS 29 inflation accounting, with prior years' figures restated for comparability. Net sales increased by 56% year-on-year, supported by higher sales volumes and significantly stronger product cracks.
On the cost side, improved crude availability and more favorable official selling prices supported feedstock economics. At the same time, freight and insurance costs remain elevated across the broader shipping market, while semi-product costs also increased due to tight availability. Still, the strength in product margins and our high utilization translated into a substantial improvement in financial performance, both quarter-on-quarter and year-on-year. Gross profit more than tripled year-on-year to around TRY 94 billion, while operating profit increased to approximately TRY 82 billion. This performance reflects the strong contribution from refining margins, high refinery utilization, and disciplined cost management during the quarter. Below the operating line, financial income increased materially year-on-year, supported by our higher cash position. At the same time, the larger cash balance resulted in a higher monetary loss under inflation accounting, reaching TRY 3.4 billion in the quarter.
As a result, profit before tax more than quadrupled year-on-year to TRY 88 billion. Net profit reached approximately TRY 69 billion, while EBITDA more than tripled to TRY 90 billion, underscoring the strength of our operational performance. Moving on to the drivers of profit before tax performance year-on-year, the main contributor was the significant improvement in refining profitability, with stronger crack margins adding TRY 77 billion year-on-year. A proactively managed trade flow helped contain the annual impact of crude and other feedstock cost increases to TRY 13 billion. The overall inventory effect remained relatively limited, as the price volatility was largely mitigated through hedging activities. Overall, in the absence of meaningful de-escalation in geopolitical challenges, the strong operating momentum continued into the third quarter, supported by favorable refining margins and disciplined execution, which enabled us to maximize capacity utilization and efficiency and generate four times profit before tax year-on-year.
Net debt-to-EBITDA multiples stood at - 0.9 at the end of the quarter. Cash, excluding blocked revenue share, was TRY 238 billion versus financial debt totaling TRY 51 billion. Net working capital was -TRY 24 billion at quarter end, partially normalizing from the exceptionally favorable level recorded in Q2, as expected. This reflects the partial release of the exceptional working capital gains realized in the previous quarter. We continue to actively manage inventories, receivables, and payables while recognizing that the current cash flow of support from working capital is temporary and should gradually normalize towards a more neutral level over time. Consistent with our policy of maintaining a square FX position, we ended the first nine months at our target level through disciplined FX management. The next slide provides an overview of our nine-month performance against our revised 2026 guidance.
I will elaborate on the key drivers behind our latest guidance revision in the following slides. Our net refining margin reached $36.3 per barrel in the third quarter, bringing the nine-month net refining margin to $23 per barrel. Our nine-month capacity utilization rate came close to 99%, in line with our guidance. Production and sales reached 21.3 million tons and 24 million tons, respectively, keeping us well on track towards our full-year targets. We spent $532 million on plant investments over the nine-month period. Our refinery maintenance schedule remains broadly unchanged from last quarter, with only minor updates. The duration of the İzmir FCC has been revised to eight weeks, while the seasonal maintenance previously planned at the Batman refinery has been canceled. All activities scheduled for 2026 consist of routine periodic maintenance.
Execution remains on track with no major unplanned maintenance projects this year, supporting high capacity utilization and underpinning our full-year production guidance. Given the strong refining environment and favorable market conditions we have experienced over the first nine months of the year, we are once again revising our full-year net refining margin guidance upward to $20-$22 per barrel from $13 to $15 per barrel. Our revised outlook takes into account seasonally softer demand in the fourth quarter, as well as potential risks affecting both crude and product markets. On the product side, crack margins remain significantly above our earlier expectations during the third quarter, supported by continuous refinery disruptions, low inventory levels, tight product availability, and strong seasonal demand.
Looking into Q4, we have already seen some normalization in crack margins from the exceptional Q3 levels, and this trend could continue if crude flows increase further, additional reserves are released, or more product volumes return to global markets, including Russian diesel following the recent easing of sanctions by the U.S. Gasoline cracks have already normalized rapidly as we moved beyond the peak demand season and European inventories started to recover. On the other hand, low inventories of middle distillates, constrained refinery availability, and potential maintenance activity remain key supply-side factors supporting cracks. Therefore, while we expect cracks to ease from the exceptional levels seen in Q3, we still expect them to remain supportive relative to historical seasonal levels.
On the crude side, availability has improved, particularly since September, with the recovery in flows through the Strait of Hormuz and additional barrels coming to the market as a result of lower refinery runs in Russia and the Middle East. However, renewed crude purchasing from China, the potential for renewed tensions in the Red Sea and the GCC region, and elevated freight and insurance costs remain important factors to monitor. In the absence of meaningful geopolitical de-escalation, the risk of further disruptions across key regional trade routes remains. Against this backdrop, we believe the revised $20-$22 per barrel range appropriately reflects the strength of the year-to-date performance, softer Q4 seasonality, and the geopolitical uncertainties ahead. We maintain our annual production guidance at around 29 million tons, sales at around 30 million tons, capacity utilization at 95%-100%, and consolidated CapEx at approximately $700 million.
Thank you for your attention. This concludes our presentation, and we will now be happy to take your questions.
First question is from the line of Ricardo Rezende with Morgan Stanley. Please go ahead.
Hello. Good afternoon. Thanks for taking my question. If I may, the first question, we look at your balance sheet in a very solid cash position, and that's what implied by your guidance as well. Just curious, when we think about CapEx for 2027, what's management perspective relative to 2026? Should we keep on assuming about $700 million for next year as well? Second, curious about your thoughts on the strength of the Turkish market, especially for gasoline. Despite the current prices, we're still seeing an annual increase of above 10%. Do you think we might see any sort of demand destruction if prices keep on going up? What do you think would be the break point for, especially for gasoline? Thank you.
Thank you, Ricardo, for the questions. Let me start with the second one, which was related with the gasoline demand in Türkiye. As you follow up from the presentation, gasoline demand continues to grow rapidly in the Turkish market as the share of gasoline vehicles in the car park increase. Currently, it reached around 30% of the total car park in Türkiye. As you know, the market also has delivered consecutive double-digit growth over the past four years. This year, in the first eight months, again, we observed double-digit growth in the market, thanks to the increase in the park. As you see from the numbers, up until now, we haven't observed any demand destruction in the Turkish markets in gasoline.
In the case of diesel, you know that the market is structurally short. We still observe a slight increase in the diesel demand in Türkiye in the first eight months of the year. So all in all, up until now, I mean, we haven't observed any meaningful demand destruction in the Turkish market regarding both gasoline and diesel. In relation to your first question, which was about the CapEx guidance for 2027, we are still working on our budget as of this month, and we haven't yet concluded our budget process. Obviously, there'll be some maintenance CapEx that is required each and every year to keep our assets operational. I think that we're not in a position to provide you any guidance for now regarding our CapEx plan for 2027, as we are still working on the budget.
On top of that, there is this SAF project, which is a part of our energy transition plan. We haven't yet received any final investment decision regarding this SAF project. The technical studies and the feasibility studies are still going on. We are in touch with some EPC contractors, and we expect to get a final investment decision by the end of this year. This will also have a major impact on our CapEx plan for 2027. But all in all, as I said, there'll be some maintenance requirements, maintenance CapEx requirements in our refineries, plus there could be also some additional CapEx coming from the energy transition part. So once we firm up the details, we're going to share this as a guidance at the end of the year. Thank you.
Okay. Thank you very much.
The next question is from the line of Anna Kishmariya with UBS. Please go ahead.
Good day. Thank you very much for taking my questions. I have three, if I may. Starting with the net refining margins and the bridge to your EBITDA level from that. I think that's the usual exercise I'm trying to do every quarter, and it feels like this time around, we have something similar to first quarter when the net refining margins, if we just multiply it by the production, would suggest a bit stronger EBITDA. Previously, it was a matter of timing, and we saw that reflected in a bit stronger second quarter. Is there this timing issue this time around again? Should we expect a bit of a support or some extra EBITDA in fourth quarter from, like, I don't know, timing issue? That would be my first question. The second question would be around differential for crudes and freight and insurance costs.
During the presentation, you mentioned that the availability of the crude improved, but at the same time, on the screens, we see a significant spike in freight costs, and we know that insurance cost is higher. Could you please give us some color around what is happening in fourth quarter in terms of your premium to crude that you're actually paying and the OpEx of your operations? Probably the final one is around dividend. If I just look at your slide number 14 on the nine months net profit and multiply it by the usual target rate for dividends of like 80% payout, I'm already getting to mid-teens dividend yield for the year. Is it fair to say to do just this math, or should we maybe be more cautious and clean your net profit from the deferred tax one-off? Maybe I may squeeze in one more here.
The effective tax rate for the fourth quarter, given that so far, like in second and third quarter, it was significantly lower than previous times. What is your outlook? Apologies for so many questions. Thank you.
No worries, Anna. Thanks for all the questions. Let me start with the differentials on crude procurements. As you may have seen in the presentation, premiums over Dated Brent fell sharply after peaking up in May and June, supported mainly by the peace talks and increased oil flows from the Gulf during that period. These flows from the Strait of Hormuz were mainly carried by VLCCs, very large crude carriers, passing through the Strait of Hormuz, then making ship-to-ship transfer after they exited the strait. However, the renewed disruption linked to the Houthi attacks, as Gülsen mentioned during the presentation, as well as the geopolitical tensions in the Red Sea, has again put upward pressure on crude differentials in Q4.
We think that crude procurement premiums remain elevated in Q4 because of the fact that changes in national oil companies' official selling prices typically feeds the market with around one-and-a-half to two months of lag, so that you could expect the impact of the crude differentials, especially in November and December procurements. On top of it, as you pointed out, higher shipping costs and insurance are also another headwind, and also are expected to weigh on Q4 differentials, and obviously, that refining margin. Your second question was on the dividend. I think that this was the third question. I'll explain you the dividend, then maybe pass on the last one. I think at this stage, it is still early to be able to comment on a potential dividend amount based on the nine months financial results.
Having said that, the outlook is clearly supported by our strong earnings momentum, as well as the strong cash position as of now. In terms of the dividend distribution, you know that we have a publicly announced policy whereby we target to distribute at least 80% of our distributable profits, calculated in accordance with the Capital Markets Board requirements. While looking at the distributable profit amount, we both consider IFRS financial statements, which are publicly announced, as well as the statutory financial statements, which are prepared on a standalone basis for Tüpraş only. There might be some divergence between those financials, so we'll be considering both financial statements while making the dividend decision. On top of it, obviously, we will take into account our CapEx plan for 2027, liquidity requirements, and the cash buffer that we plan to hold on the balance sheet.
These will be the other factors that we will be considering while determining the dividend amount. As a result, our priority will be to keep a healthy balance sheet after the distribution of the dividends. Overall, we always want to make sure that after the distribution of the dividends, we keep a solid balance sheet and strong cash position on our balance sheet. I think the last question was on the EBITDA that you try to derive from the net refining margin. As discussed before, I mean, we provide net refining margin as an indicator of our operational performance, and it does not necessarily need to directly reconcile with the EBITDA. This figure may sometimes be higher or lower depending on the monthly production cycle, as well as the crack volatility, as the pricing may not be adjusted immediately.
You may remember that there was a lag for our jet fuel sales in Q1. There is not such a large or big lag in Q3 results, but there might be some differences in the monthly production and sales volumes compared to what you use in your EBITDA calculation by taking into account the net refining margin. Overall, as I said, I mean, it is just an operational indicator that we use to make an apple-to-apple comparison with other global refineries, and it just does not necessarily need to directly reconcile with the EBITDA.
Thank you so much. All clear.
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. Before we conclude, I would like to share a few closing remarks. Over the past several years, the global energy ecosystem has repeatedly been tested by significant challenges. Since the pandemic, we have navigated the Russia-Ukraine war, disruptions in the Red Sea, and more recently, severe constraints around the Strait of Hormuz following the outbreak of the US-Iran conflict. Each of these events has reshaped crude and product flows, challenged logistics, and tested the resilience of upstream and downstream operations across the global oil and gas industry. Against this backdrop, what stands out to us is the consistency with which we have continued to deliver both operationally and financially. Through very different market environments, we have maintained strong operational performance, protected our financial strength, and continue to generate value.
For us, this track record is a demonstration of the operational resilience and flexibility we have built into our business, supported by the quality of our assets and, importantly, the capabilities of our people. As market conditions continue to evolve, our ability to adapt quickly, preserve operational reliability, and capture opportunities will remain a key strength. At the same time, our focus has expanded well beyond managing short-term volatility. In line with our strategic transition plan, we have remained firmly committed to creating sustainable long-term value while continuing to strengthen our core refining business and invest in the energy transition. Importantly, this approach to value creation has also translated into consistent returns to our shareholders. Returning value through dividends remains an integral part of our capital allocation framework, alongside maintaining a strong balance sheet and investing in the future of the company.
Thank you once again for joining us today, and we look forward to speaking with you again in next quarter.