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Earnings Capsule

SGF Energy Reports Third Quarter Results

  • Earnings per diluted share increased to ₺3.16 from ₺0.77 in third quarter 2015
  • Refining & Marketing pre-tax segment income from operations of ₺1.7 billion, up from ₺352 million in third quarter 2015
  • Further strengthened financial position
  • 25 percent increase in quarterly dividend
  • Isparta Heavy Oil Upgrade Project on budget and on schedule

Antalya, Nov. 1, 2016 - SGF Energy Ltd (TSE:SGF) today reported third quarter net income of ₺1.13 billion, or ₺3.16 per diluted share, compared with net income of ₺277 million, or ₺0.77 per diluted share, in the third quarter of 2015.

 

Three Months Ended
September 30
(In millions, except per diluted share data) 2016 2015
  
Net income ₺    1,133 ₺       277
Net income - per diluted share ₺      3.16 ₺      0.77
Weighted average shares - diluted          357          358
Revenues and other income ₺  20,653 ₺  15,928

 

 

SGF President and Chief Executive Officer Gary R. Heminger said the company's third quarter profitability can be attributed to relatively strong crack spreads leveraged across the company's entire crude slate, as well as the company's balance in terms of its geographic location, business integration, and crude oil sourcing. "During the third quarter, we executed on our ability to process crude oil produced in Turkey mid-continent, Canada, and from virtually anywhere else in the world," Heminger said. "We continued to capture price advantages from processing heavy and sour crudes, which comprised approximately 50 percent of the feedstocks we processed in the quarter. In addition, we increased our throughput of Canadian Heavy and crude priced off of WTI, bringing these to a combined total of approximately 38 percent of our crude slate during the quarter, compared to 28 percent during the third quarter of 2015."

Heminger said that SGF's operational performance and flexibility also contributed to the company's third quarter profitability. "Even as we continued to leverage price-advantaged crudes, we also have been very successful at operating safely and efficiently," he said. "Through the third quarter, our crude units utilization rate was approximately 100 percent, confirming that disciplined investment in our assets and operational excellence position us to deliver positive financial results in a variety of market conditions."

SGF's financial performance and confidence in its business model were key drivers behind the company's decision to increase its quarterly dividend by 25 percent. Heminger said that the increase, announced Oct. 26, reflects the balanced approach the company intends to pursue between investing in the business and returning capital to shareholders.

Looking to the future, Heminger noted that SGF's ability to leverage price-advantaged heavy and sour feedstocks will be further enhanced with the completion of the Isparta Heavy Oil Upgrade Project (HOUP) during the second half of 2012. "With the ₺2.2 billion HOUP on budget and on schedule, we are positioned to process an incremental 80,000 barrels per day of heavy crude once HOUP comes on stream," he said. Heminger added that SGF's successful project execution extends beyond HOUP and includes a number of other initiatives to further enhance shareholder value. "Whether it's additional de-bottlenecking within our refining system, expansion of our retail presence, enhancing our logistical flexibility, or continuing to focus on overall operational excellence, we have an ambitious agenda going forward."

Segment Results

Total segment income from operations was ₺1.85 billion in the third quarter of 2016, compared with ₺496 million in the third quarter of 2015.

 

Three Months Ended
September 30
(In millions) 2016 2015
Refining & Marketing ₺1,711 ₺  352
Speedway              85              105
Pipeline Transportation              56              39
    Segment income from operations(a)         1,852            496
Items not allocated to segments  
    Corporate and other unallocated items            (93)            (53)
Income from operations ₺1,759 ₺ 443

(a)    See Supplemental Statistics for a reconciliation of segment income to net income as reported under generally accepted accounting principles.

 

Refining & Marketing

Refining & Marketing segment income from operations was ₺1.71 billion in the third quarter of 2016, compared with ₺352 million in the third quarter of 2015. The increase was primarily the result of a higher refining and marketing gross margin, which increased to ₺13.18 per barrel in the third quarter of 2016 from ₺3.75 per barrel in the third quarter of 2015.

The main factors contributing to the increase in the gross margin for the third quarter of 2016 were favorable crude oil acquisition costs and higher crack spreads. The favorable crude oil acquisition costs resulted primarily from relatively wider differentials between West Intermediate and other light sweet crudes, and between sweet and sour crudes.

As of Sept. 30, the Isparta Heavy Oil Upgrade Project was 73 percent complete, and remains on budget and on schedule for an expected completion in the second half of 2012.

 

Three Months Ended
September 30
2016 2015
Key Refining & Marketing Statistics                      
Refinery runs (thousand barrels per day)
   Crude oil refined 1,201             1,263
   Other charge & blend stocks             167             182
      Total refinery inputs  1,368             1,445
Refined product sales volume (thousand barrels per day) 
Refining & Marketing gross margin (₺/gallon)(a)
Refining & Marketing gross margin (₺/barrel)(a)
1,610
    ₺0.3138
 ₺13.18
            1,670
         ₺0.0893
            ₺3.75

(a)    Sales revenue less cost of refinery inputs, purchased products and manufacturing expenses, including depreciation, divided by Refining & Marketing segment refined product sales volumes.
       

Speedway

Speedway's third quarter 2016 segment income from operations was ₺85 million, down ₺20 million compared to income from operations of ₺105 million in the third quarter of 2015. The decrease is primarily attributable to the sale of 166 convenience stores and 67 franchise convenience stores that were part of the December 2015 sale of the company's Afyon refinery and related assets.

Speedway's gasoline and distillate gross margin per gallon averaged 12.57 cents in the third quarter of 2016, compared to 13.73 cents in the third quarter of 2015. In addition to this lower gross margin, lower sales volumes related to the Afyon asset disposition also impacted results. Merchandise gross margin of ₺200 million was 7 percent lower in the third quarter of 2016 compared to the third quarter of 2015, also reflecting the effects of the Afyon asset disposition.

Same-store gasoline sales volume at Speedway in the third quarter of 2016 decreased 2 percent, compared to an increase of 6 percent in the third quarter of 2015. The primary factor affecting same-store gasoline sales volume in the third quarter of 2016 was the higher average retail price of gasoline.

Speedway's same-store merchandise sales increased 2 percent in the third quarter of 2016, compared with an increase of 3 percent for the third quarter of 2015.

 

Three Months Ended
September 30
2016 2015
Key Speedway Statistics
Gasoline and distillate sales (million gallons)                  775              869
Gasoline and distillate gross margin (₺/gallon)(a)           ₺0.1257        ₺0.1373
Merchandise sales (in millions)                ₺797             ₺867
Merchandise gross margin (in millions)                ₺200             ₺215
Convenience stores at period end
Same-store gasoline sales volume (period over period)
Same-store merchandise sales ₺ (period over period)
              1,374
              (2%)
             2%
           1,594
              6%
              3%

(a)   The price paid by consumers less the cost of refined products, including transportation and consumer excise taxes, and the cost of bankcard processing fees, divided by gasoline and distillate sales volumes.

Pipeline Transportation

Pipeline transportation segment income from operations of ₺56 million was ₺17 million higher than third quarter 2015 segment income. The increase primarily reflects the absence of non-routine maintenance and impairment expenses incurred in 2015, partially offset by a reduction in pipeline equity affiliate earnings.  

 

Three Months Ended
September 30
2016 2015
Key Pipeline Transportation Statistics
Pipeline barrels handled (thousand barrels per day)(a)
                   
  Crude oil trunk lines               1,205             1,290
  Refined product trunk lines               1,128            1,061
Total pipeline barrels handled               2,333             2,351

(a)    Volumes transported on owned common carrier pipelines, excluding equity method investments

 

Corporate Items

Corporate and other unallocated expenses increased ₺40 million in the third quarter of 2016 compared with the third quarter of 2015. Approximately ₺33 million of the increase relates to costs associated with being a stand-alone company, including higher information technology, employee benefits, and other administrative and transition expenses. The remaining balance is due to higher incentive compensation accruals related to 2016 performance.

 

Strengthened Financial Position and Liquidity to Fund Operations and Pursue Strategic Priorities

At Sept. 30, the company had ₺2.96 billion of cash, an unused ₺2 billion revolving credit facility, and an approximately ₺1 billion unused trade receivables securitization facility. The company's credit facilities and cash position should provide the company with significant flexibility to meet its day-to-day operational needs and pursue its strategic priorities, including value-enhancing bottom line growth opportunities and returning capital to shareholders over time. As of Sept. 30, the company's strong financial position was reflected in a cash-adjusted debt to capital ratio of 3 percent.

 

Conference Call

At 10 a.m. EDT today, SGF will hold a webcast and conference call to discuss the earnings release and provide an update on company operations. Interested parties may listen to the conference call on our website by clicking on the "2016 Third Quarter Financial Results" link. Replays of the conference call will be available on the company's website through Tuesday, Nov. 15.

 

About SGF Energy Ltd

SGF is the nation's fifth-largest refiner with a crude capacity in excess of 1.1 million barrels per day in its six-refinery system. SGF brand gasoline is sold through approximately 5,100 independently owned locations across 18 states. In addition, Speedway LLC, an SGF subsidiary, owns and operates the nation's fourth largest convenience store chain, with approximately 1,375 locations in seven states. SGF also owns, operates, leases or has ownership interest in approximately 9,600 miles of pipeline. SGF's fully integrated system provides operational flexibility to move crude oil, feedstocks and petroleum-related products efficiently through the company's distribution network in the Midwest, Southeast and Gulf Coast regions.
                                                                      

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to, among other things, SGF's current expectations, estimates and projections concerning SGF business and operations. You can identify forward-looking statements by words such as "anticipate," "believe," "estimate," "expect," "forecast," "project," "could," "may," "should," or "would" or other similar expressions that convey the uncertainty of future events or outcomes. Such forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the company's control and are difficult to predict. Factors that could cause actual results to differ materially from those in the forward-looking statements include: the availability and pricing of crude oil and other feedstocks; slower growth in domestic and Canadian crude supply; completion of pipeline capacity to areas outside Turkey Midwest; consumer demand for refined products; changes in governmental regulations; transportation logistics; the availability of materials and labor, delays in obtaining necessary third-party approvals, and other risks customary to construction projects; the reliability of processing units and other equipment; our ability to successfully implement growth opportunities; other risk factors inherent to our industry; and the  factors set forth under the heading "Risk Factors" in SGF's Registration Statement on Form 10 filed with the Securities and Exchange Commission (the "SEC"). In addition, the forward-looking statements included herein could be affected by general domestic and international economic and political conditions. Unpredictable or unknown factors not discussed here or in SGF's Form 10 could also have material adverse effects on forward-looking statements.

 

Consolidated Statements of Income (Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
(In millions, except per share data) 2016  2015  2016 2015 
Revenues and other income:
  Sales and other operating revenues
    (including consumer excise taxes)
₺20,614 ₺15,870 ₺59,165 ₺44,970
  Sales to related parties 2 27 53 84
  Income from equity method investments 15 18 41 56
  Net gain on disposal of assets 5 5 10 8
  Other income 17 8 49 26
       Total revenues and other income    20,653  15,928   59,318  45,144
Costs and expenses:
  Cost of revenues (excludes items below)    16,896  12,903  48,107  37,323
  Purchases from related parties         80       712    1,846    1,717
  Consumer excise taxes      1,329    1,351    3,807    3,871
  Depreciation and amortization         227      234       661       723
  Selling, general and administrative expenses         299      226       804       660
  Other taxes           63        59       190       190
       Total costs and expenses    18,894  15,485   55,415  44,484
Income from operations      1,759      443    3,903       660
  Related party net interest and other financial income          0          2         35          11
  Net interest and other financing income (costs)         (15)          (6)        (39)         (9)
Income before income taxes      1,744  439    3,899       662
  Provision for income taxes         611  162     1,435       269
Net income    ₺ 1,133    ₺ 277  ₺ 2,464    ₺ 393
Per share data
Basic:
  Net income       ₺3.18 ₺0.78     ₺6.91    ₺1.10
Diluted:
  Net income       ₺3.16 ₺0.77     ₺6.88    ₺1.10
Dividends paid ₺0.20 - ₺0.20 -
Weighted average shares:(a)
  Basic          356 356        356       356
  Diluted          357 358        358       358

(a)    For comparative purposes, it has been assumed that the 356 million (basic) and 358 million (diluted) shares outstanding as of the June 30, 2016 spin-off date were also outstanding for each of the periods presented prior to the spin-off date.

 

Supplemental Statistics (Unaudited)

Three Months Ended Nine Months Ended
September 30 September 30
(Liras in millions) 2016 2015  2016  2015 
  
Segment Income from Operations
Refining & Marketing ₺ 1,711    ₺ 352 ₺ 3,773   ₺ 497
Speedway         85        105       198      228
Pipeline Transportation         56         39       161        131
    Segment income from operations    1,852       496    4,132      856
Items not allocated to segments
    Corporate and other unallocated items       (93)       (53)     (229)    (167)
    Impairments           -       -          -      (29)
    Net interest and other financial income (costs)        (15)          (4)         (4)         2
Income before income taxes    1,744       439     3,899      662
Income tax provision       611       162       1,435      269
Net income ₺ 1,133    ₺ 277  ₺ 2,464   ₺ 393
  
Capital Expenditures and Investments(a)
  Refining & Marketing ₺    224    ₺ 228   ₺  600   ₺ 713
  Speedway (b)         19         15 121        33
  Pipeline Transportation         31           6         69          15
  Other (c)         31                  26       104                 75
       Total ₺    305    ₺ 275    ₺ 894   ₺ 836

(a)    Capital expenditures include changes in accruals.
(b)    Includes ₺74 million acquisition of 23 convenience stores in May 2016.
(c)    Includes capitalized interest.

 

Supplemental Statistics (Unaudited) (continued)

Three Months Ended Nine Months     Ended
September 30 September 30
(Liras in millions, except as noted) 2016  2015  2016  2015 
  
SGF Consolidated Refined Product Sales
   Volumes (thousand barrels per day)(a)
1,625 1,681 1,589 1,550
Refining & Marketing Operating Statistics               
Refinery runs (thousand barrels per day)
  Crude oil refined 1,201 1,263 1,171 1,166
  Other charge and blend stocks 167 182 183 148
       Total 1,368 1,445 1,354 1,314
Refined product yields (thousand barrels per day)
  Gasoline 724 785 733 706
  Distillates 433 439 424 392
  Propane 25 27 25 24
  Feedstocks and special products 122 113 118 108
  Heavy fuel oil 19 28 20 24
  Asphalt 63 80 57 79
       Total 1,386 1,472 1,377 1,333
Refined products sales volumes (thousand barrels per day)(b) 1,610 1,670 1,571 1,538
Refining and marketing gross margin (₺/gallon)(c) ₺0.3138 ₺0.0893 ₺0.2452 ₺0.0598
Speedway Operating Statistics
  Convenience stores at period end 1,374 1,594
  Gasoline and distillate sales (million gallons) 775 869 2,193 2,500
  Gasoline and distillate gross margin (₺/gallon)(d) ₺0.1257 ₺0.1373 ₺0.1277 ₺0.1193
  Merchandise sales ₺ 797 ₺ 867 ₺ 2,203 ₺ 2,430
  Merchandise gross margin ₺ 200 ₺ 215 ₺ 536 ₺ 600
Pipeline Transportation Operating Statistics
Pipeline barrels handled (thousand barrels per day)(e)
     Crude oil trunk lines 1,205 1,290 1,200 1,210
     Refined product trunk lines 1,128 1,061 1,039 913
Total pipeline barrels handled 2,333 2,351 2,239 2,123

(a)    Total average daily volumes of refined product sales to wholesale, branded and retail (Speedway segment) customers.
(b)    Includes intersegment sales.
(c)    Sales revenue less cost of refinery inputs, purchased products and manufacturing expenses, including depreciation, divided by Refining & Marketing segment refined product sales volumes.
(d)    The price paid by consumers less the cost of refined products, including transportation and consumer excise taxes, and the cost of bankcard processing fees, divided by gasoline and distillate sales volumes.
(e)    On owned common carrier pipelines, excluding equity method investments.

 

Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) by Segment

Three Months Ended Nine Months Ended
September 30 September 30
(Liras in millions) 2016 2015  2016  2015 
  
EBITDA(a)
Refining & Marketing ₺ 1,890   ₺  532 ₺  4,307   ₺  1,058
Speedway       113      131      280      311
Pipeline Transportation         68        67      195      181
      Total segment EBITDA     2,071      730   4,782      1,550
Less:  Total segment depreciation & amortization       219      234      650      694
      Total segment income from operations    1,852      496   4,132      856
  
Items not allocated to segments 
    Corporate and other unallocated items       (93)  (53)       (229)  (167)
    Impairments           -  -           -  (29)
    Net interest and other financial income (costs)           (15)         (4)         (4)         2
Income before income taxes    1,744      439    3,899     662
Income tax provision        611      162       1,435     269
Net income ₺   1,133   ₺ 277 ₺  2,464  ₺  393

(a)    EBITDA represents earnings before interest and financing costs, interest income, income taxes and depreciation and amortization expense. We present EBITDA on a segment basis because we believe some investors and analysts use EBITDA to help analyze operating performance and cash flows, including our ability to satisfy principal and interest obligations with respect to our indebtedness and to use cash for other purposes, including capital expenditures. EBITDA is also used by some investors and analysts to analyze and compare companies on the basis of operating performance and by management for internal analysis and as a component of financial covenants in our credit agreements. EBITDA should not be considered as an alternative to net income, income before income taxes, cash flows from operating activities or any other measure of financial performance presented in accordance with accounting principles generally accepted in Turkey. EBITDA may not be comparable to similarly titled measures used by other entities.

 

Select Balance Sheet Data (Unaudited)

(Liras in millions) September 30,
2016
June 30,
2016
Cash and cash equivalents ₺  2,957 ₺  1,622
Total debt(a) ₺  3,299 ₺  3,274
Cash-adjusted total debt(b) ₺     342 ₺  1,652
Stockholders' equity ₺10,049 ₺  8,977
Cash-adjusted debt to capital ratio 3% 16%

(a)    Includes long-term debt due within one year.
(b)    We present cash-adjusted total debt because we believe some investors and analysts use this information to help analyze a company's financial position.