Sunoco 2004 Annual Report Download - page 4

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To Our Shareholders
2004 was an outstanding
year for Sunoco. We generated
record earnings and our share
price rose to record levels. We
had our best-ever overall
operating and Health,
Environment and Safety
performance. We grew and
upgraded our asset base while
returning significant cash to our
shareholders. We improved our balance sheet and grew
our financial capacity.
Financially, it was our best year as an independent
refiner and marketer. Income before special items*
was $629 million ($8.40 per share), almost double
the relatively strong 2003 performance. Return on
Capital Employed** — a key strategic and financial
metric for the Company — was a sector-leading 21.7
percent. Share price, the ultimate scorecard for our
owners, increased 60 percent for the year — on the
heels of a 54 percent increase in 2003.
The strengthening global economy in 2004
increased demand for our key products. The resulting
high refining margins allowed us to demonstrate the
earnings power of Sunoco’s refining assets at a time
when we also saw significant income contributions
from the balance of our diversified asset portfolio. I’d
like to share with you what we accomplished in 2004
and our ongoing strategy to create shareholder value.
• The Refining and Supply business led the way
with pacesetter performance combined with
record high margins. We took advantage of the
strong refining margin environment by running
our refineries at record operating rates. We set
production records, particularly for high-valued
products, and improved both the utilization and
energy efficiency of our facilities. We have made
significant reliability improvements through our
long-term program of investing in refining infra-
structure and by driving operational excellence.
These gains have been steadily accumulating
over the past several years. Since 2000, refinery
production increased by 18 million barrels,
excluding the Eagle Point refinery acquired in
2004. Over this period, we have been able to add
a 50,000 barrels-per-day “refinery within our
refineries" at little or no capital cost.
Refining and Supply results were substantially
enhanced by cost-advantaged marine time charters,
programs that expanded our crude oil mix, particularly
the use of heavily discounted high-acid crude oils,
and sales strategies that maximized product values.
All of these actions have improved the earnings
power and competitiveness of our refining system
and contributed significantly to our record 2004
refining results. We will continue to do more. We
still have unrealized potential.
• While Refining and Supply led the way in 2004,
our other businesses also generated $233 million
of earnings in 2004. We expect this contribution
to grow in the years ahead.
Chemicals earned $94 million, including $70
million over the second half of the year. Despite
persistently rising feedstock costs, Chemicals
results have improved year-on-year for seven
consecutive quarters. Market fundamentals are
healthy, and a continued cyclical recovery should
lead to growth in earnings going forward.
Retail Marketing earned $68 million in 2004, an
outstanding result given the challenging retail
marketing conditions during most of the year. We
are aggressively expanding our geography and
upgrading our retail portfolio through targeted
acquisitions and divestitures. We have generated
significant proceeds from our Retail Portfolio
Management (RPM) program, divesting of selected