bazan capital market presentation...
TRANSCRIPT
Bazan Capital Market Presentation
2018
March 13, 2019
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Disclaimer
2
This is a translation of the Hebrew Presentation for convenience purposes only.
The information contained in the presentation and any other information that is provided while the giving thepresentation (such information or any part thereof - the “Information”) is presented for the sake of convenience only.The Information does not constitute a basis for investment decision, or replace the need for carrying out independentcollection and analysis of the Information and does not purport to be a recommendation or opinion or substitute forthe independent judgment of any potential investor.
The Company does not warrant the completeness or accuracy of the Information and will not bear any responsibilityfor any damages and/or losses whatsoever resulting from the use of the Information.
In the event of contradiction or discrepancy between the Information and information recorded in the Company'sbooks and/or appearing in official publications, such information will prevail.
The Information may contain forward-looking statements based on current data and expectations. Actual operations,results and other data may differ materially due to various uncertainties and risks, including the risk factors discussedin the Company's financial statements and Board of Directors’ Report as published by the Company.
The Company does not assume any obligation to update the data and expectations or any other part of theInformation.
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Carmel OlefinsManufactures two key products: Polyethylene and PolypropyleneSold to manufacturers of plastic products
Synergy with the petrochemical industry enables optimization
of product mix, increasing aggregate
margins and reducing volatility
Ducor Petrochemicals BV
Manufactures Polypropylene Sold to manufacturers of plastic products
Gadiv Petrochemical IndustriesManufactures raw materials for the plastics and chemicals industries
Company ProfileBazan Group -the Largest Oil and Petrochemical Refinery in Israel
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100%Bazan
100%Carmel Olefins
100%Bazan
Haifa Oil Refinery One of the largest complex oil refineries in the Eastern Mediterranean Basin (refining capacity of 197,000 barrels of crude oil per day) High refining complexity (Nelson Complexity > 9, refining and cracking capacity)
Proximity to diverse crude oil sources and attractive product markets
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Bazan Groupeverywhere in our day-to-day life
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Value of bonds tradedNIS 4.6 billionin 6 Series - NIS and USD linked(March 2019)
Market ValueNIS 6.2 billion
(March 2019)
Listed on TASETA-35, TA-125
Bonds traded on TASETelbond Index
OwnershipStructure(March 2019)
33.0%Israel Corp. Ltd.
51.5%Public
15.5%Petrochemical Enterprises
Bazan in the Capital Market
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Strengths7
SynergyHighly complex oil refinery - downstream facilities enabling the production of high added value distillates
Complex refining with petrochemicals constituting the downstream industry
Cross-sector operational and administrative synergy -single premises
Optimization of Group profitability
Petrochemical profitability - stable foot in the Group's results, which moderates the volatility in refining margins
Key player in the local market and strategically located
A key player in the local market
Strategic position in the Eastern Mediterranean -close to crude oil sources and product markets
Long-standing reputation in the industry
Bazan generates 13 thousand jobs, mainly in the Haifa Bay and North, and dozens of thousands of additional jobs in downstream industries
Bazan’s contribution to the GNP is NIS 7 billion per year
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Strengths
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Efficiency and FlexibilityProducing more raw materials for cracking facilities and petrochemical industry
Quick adaptation of product mix to changing market and broad range processing capacity for various crude oil and interim products
Improving availability of facilities
Improving scope due to process modifications
Fleet of tankers to achieve commercial flexibility
Growth and InnovationElectricity generation - new product with stable income
Innovative and cutting-edge plastic products
Technological incubator
New low-price gas purchase agreement for production energy, as a raw material and for electricity
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Advantages9
Bazan Products - economic enginesOutstanding products for day to day use and continuing to be necessary in the future
New petrochemical and transportation developments will increase demand for the Group’s products
Reliable production, highest quality of products worldwide and strong stable long-standing customer relations
TechnologiesState of the art optimization systems integrated in the Group’s plants
Advanced control systems
Technologies for early malfunction detection
Information systems supporting process control and expenditure management
Professional experienced engineering staff
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Advantages
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Environmental commitmentContinual environmental improvement and product quality with focus on transportation fuels
In 2018 started the production and marketing of the cleanest gasoline worldwide (benzene content 50% lower than the standard)
Compliance with the most stringent safety and environmental standards
Environmental and community commitment and responsibility
Further substantial investments in the environment
Freshwater savings (more recycling and on premises brackish water production)
Robust financial structureFully merged financals - flexible and effective management of financing sources
Effective and stable debt structure and diverse financing sources (banks, capital market, working capital)
Consistent decrease in financing costs and improved leverage
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New Fuel Oil Standard in 2020 (IMO 2020)
11
At the beginning of 2020, a new standard
will take effect for marine fuel sulfur
content
Expected effect on Bazan’s margin
* Note: These charts are part of a presentation published by the Company on July 2, 2018. To see the full analysis, please refer to the full presentation as published
02468
101214161820
2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
Base case - No VGO-SRFO Med Composite Hydrocracking (40% Azeri 60% Urals)
Med Sour Hydrocracking/Coking (Urals) Med Sweet Hydroskimming (Azeri Lt)
Pre IMO years: Bazan margin USD 7/bbl
IMO years: Bazan margin USD 11/bbl
Post IMO years: Bazan margin USD 10/bbl Outside of the IMO years Bazan margin is higher than IHSM Med Sour Hydrocracking/Coking yardstick, however the comparison is not a like for like *
In October 2018 was approved the enforcement of the Standard , as of March 1, 2020
Bazan is prepared for the change in the Standard and can benefit from improvement in market conditions, if any
Adapting refining operations to market conditions and needs, without further investments
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Bazan secures natural gas supply to its plants
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Bazan signed an agreement with Energien for the purchase of natural gas from the Tanin and Karish gas reservoirs. • The deal includes supply of 17
BCM over 15 years• The cost of gas will decrease
significulty as a result of this agreement
Karish will be the first exploration to be developed using a FPSO facility, the only facility of this type in the Eastern Mediterranean basin.
Energian announced in November 2018 that all the contingent terms of the agreement had been met.
Exploration drilling at Karish and Taninbegan in March 2019.
Business Environment
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54.9 51.9
47.4
57.2
66.567.3
77.983.7
50.2
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/18
Brent Price
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Brent, USD/Bbl
The decline is due to the easing of sanctions on Iran and the negative trend in the world economy at the end of 2018
Most of the decline in the fourth quarter follows an increase during the year
The price of crude oil declined fromUSD 67 to USD 50 /barrel
Brent Price Volatility 2018
Shortly before approval of the Report, the crude oil price rose to USD 64 /barrel
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0
2
4
6
8
10
12
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/18
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Ural Refining MarginsUral Med Margin, USD/Bbl - Reuters
2017 AverageUSD 5.3 /barrel
2018 AverageUSD 4.6 /barrel
Ural Med Margin, USD/Bbl - Bloomberg
0
2
4
6
8
10
12
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/18
2017 AverageUSD 6.0 /barrel
2018 AverageUSD 5.8 /barrel
The refining margin remained high due to a decline in output of the refineries as a result of planned and unplanned shutdowns and an increase in demand for distillates
The Ural margin was volatile and remained high in 2018
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Distillate vs Brent margins
Gasoline Source: REUTERSDiesel Fuel Oil 3.5%
-20
-10
0
10
20
30
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/18
Products margin (CIF Med) vs Brent, USD/Bbl
2018The diesel fuel margin increased to highs of USD 18-19 per barrel
The gasoline margin declined sharply at the end of 2018 due to surplus production and drop in demand
High diesel fuel marginIn 2018
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Polymer marginsPolymer prices above Naphtha prices, USD/Ton
Polypropylene prices above Propylene prices, USD/Ton
Polyethylene Polypropylene
300
500
700
900
1,100
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/180
200
400
600
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/18
Polymer marginsabove Naphtha
Ducor margins
In 2018 the average margin for Polypropylene was USD 772 per ton and Polyethylene was USD 678 per ton The Polyethylene margin is declining with an increase in supply of less costly raw materials
Polymer margins remained high in 2018
In 2018 the average margin for Polypropylene above Propylene was USD 221 per ton
Source: ICIS, PLATTS
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Aromatic margins
Source: ICIS, PLATTS
12/16 03/17 06/17 09/17 12/17 03/18 06/18 09/18 12/18
Paraxylene prices above Xylene prices, USD/Ton
2018 Margin Average margin of Paraxylene over Xylene was USD 207 per ton Increasing compared to the previous period
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Domestic Consumption of Fuel Products
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Domestic consumption of distillates remained unchanged in 2018 and in the fourth quarter
Transportation fuel consumption decreased by 1% in 2018 and increased by 2% in the fourth quarter
Domestic transportation fuels consumption
Source: Ministry of National Infrastructure201820172016
3254 3169
974
3274 3234
1087
3236 3239
1149
סולר תחבורה בנזין ל"דס
0% - 1%+ 5% 0%
+ 12% + 6%
(Thousands of tons)
(*)Diesel Fuel for Transportation Gasoline Jet Fuel
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Domestic Consumption of Other Products
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Domestic consumption of other products
286
459
615
312
498
634
311
513
581
ביטומן מזוט מ"גפ
+ 9% 0%
+ 8% + 3%
+ 3% - 8%Domestic consumption of distillates remained unchanged in 2018 and in the fourth quarter
Transportation fuel consumptiondecreased by 1% in 2018 and increased by 2% in the fourth quarter
Source: Ministry of National Infrastructure201820172016
(Thousands of tons)
Fuel OilBitumen LPG
Analysis of Results2018
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Strong Operating Results
Periodic maintenance work at Hydrocracker and CDU 3 facilities successfully completed
USD 6.7 per barrelAdjusted refining margin
Another good year for Bazan
Another profitable year during renovation
USD 187 million - net profit
USD 507 millionAdjusted Consolidated EBITDA
USD 188 millionPolymers EBITDA
Financial ActivityRaising rating outlook to A-(positive)
Successful capital raising of bond series
Interest rate decrease with syndication agreement
LIBOR interest exposure reduced
Financial Improvements
1.9xNet financial debt to adjusted EBITDA ratio
USD 968 millionNet financial debt
22
Good performance for operational and financial parameters
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Adjusted Consolidated EBITDA by segment - 2014-2018 USD million
23
421
677
427
552507
2014 2015 2016 2017 2018
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FuelsPolymersCarmel Olefins and Ducor
Other segments
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Adjusted EBITDA by segment per quarter 2017-2018 USD millions
24
74
157
182
139
120
151
123114
Q1.17 Q2.17 Q3.17 Q4.17 Q1.18 Q2.18 Q3.18 Q4.18
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FuelsPolymersCarmel Olefins and Ducor
Other segments
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Consolidated net profit 2014-2018 USD million
25
187
262
158
225
-93
20182017201620152014
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4.84
5.34.6
6.4
9.2
6.2
7.56.7
3.7
5.44.5
6.0 5.8
2014 2015 2016 2017 2018
Bazan adjusted refining margin* vs Reuters Ural and Bloomberg Ural margins USD per barrel
Bazan Margin (Adjusted)
*
Reuters Ural Margin
Adjusted Bazan margin as defined in the Company's Board of Directors' Report
Bloomberg Average Ural Margin
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Refinery Utilization
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Utilization Periodic Maintenance Standard
0.90.91
0.93
0.980.97
80%
82%
84%
86%
88%
90%
92%
94%
96%
98%
100%
2014 2015 2016 2017 2018
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Results of Polymers Segment *
EBITDANet profit
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(*) Carmel Olefins and Ducor
40
108 108123
105
141
206 203212
188
2014 2015 2016 2017 2018
2014-2018 USD millions
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968
11501193
1437.3831411.4
1935.213351
12.201812.201712.201612.201512.201412.2013
Development of Net Financial Debt *2013-2018 USD millions
* To Financial Institutions and Bondholders
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176 169140
179 179127
67
53 5254
44 35
42
73
229 221194
223 214
169140
2019 2020 2021 2022 2023 2024 2025
הלוואות ח"אג
Projection for Repayment Financial Debt USD millions
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Loans Securities
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12.201812.201712.201612.201512.201412.2013
7.4x
3.4x
2.1x2.8x
2.1x 1.9x
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Net financial debt to EBITDA ratio2013-2018 in USD millions
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• Net financial debt to financial institutions and bondholders• Adjusted EBITDA as defined in the Company's Board of Directors’ Report
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Net interest expenses 2014-2018 USD million
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145
121116
108 111
0.3%0.5%
1.1%
1.4%
2.2%
0
0.01
0.02
0.03
0.04
0.05
0
20
40
60
80
100
120
140
2014 2015 2016 2017 2018
Average LIBOR rate Interest expenses
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2013 2014 2015 2016 2017 2018 2019
Measures adopted for financial stabilization 2013-2018
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Diversifiction of credit resources(2013-2018)
Refinancing of bank funding (2013-2018)
Raising rating A-(positive) (2018)
Completing financial merger (2016)
Exchanging Carmel Olefins bonds for Bazan bonds (2015)
USD 1 billion raised from bonds/extended duration (2013-2018)
Lowering of financing costs (2015-2018)
Cash Flow2018 USD millions
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Note: The property plant and equipment acquisition and interest items include development levies in the amounts of USD 67 and USD 14 million, respectively
Cash Cash Other Dividend Property plant and equipment acquisitions
Repayment of Bonds
Repayment of loans
Interest Issue of Bonds Decrease in working capital
Cash from ongoing operations
Long term credit deposits
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377400185111
-401
12.201812.201712.201612.201512.2014
429402.529
370.769310.251
266.863
12.201812.201712.201612.201512.2014
Key balance sheet parameters
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1,3201,204
1,037874
654
12.201812.201712.201612.201512.2014
Equity (USD million)
35%30%28%
0.249614829
0.176730278
12.201812.201712.201612.201512.2014
Shareholders equity to balance sheet ratio
Working capital (USD million)
Liquid financial assets (USD million)
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ORL shares
Tel Aviv 35 index
Bazan shares vs TA-35 index
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
+ 24%
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0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
12.2016 03.2017 06.2017 09.2017 12.2017 03.2018 06.2018 09.2018 12.2018
%
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Bazan Debentures E vs similar Government Bonds
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