Quarterly Report • Jul 30, 2018
Quarterly Report
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| Statutory and Control Bodies | 3 |
|---|---|
| Group Activities | 4 |
| Structure of the Saras Group | 5 |
| Saras Stock Performance | 6 |
| REPORT ON OPERATIONS | 7 |
| Non Gaap measure – Alternative performance indicator |
7 |
| Key financial and operational Group Results | 7 |
| Oil Market and Refining Margins | 10 |
| Segment Review | 12 |
| Refining | 12 |
| Marketing | 15 |
| Power Generation | 16 |
| Wind | 17 |
| Other Activities | 18 |
| Strategy and Outlook | 19 |
| Investments by business Segment | 20 |
| Risk Analysis | 21 |
| Main events after the end of the First Half of 2018 |
23 |
| Other Information | 23 |
| Interim Condensed Consolidated Financial Statements | |
|---|---|
| INTERIM CONSOLIDATED FINANCIAL STATEMENTS | 24 |
| Explanatory Notes To The Consolidated Financial Statements |
28 |
GIANCARLA BRANDA Chairman GIOVANNI LUIGI CAMERA Permanent Auditor PAOLA SIMONELLI Permanent Auditor PINUCCIA MAZZA Stand-in Auditor ANDREA PERRONE Stand-in Auditor
FRANCO BALSAMO Chief Financial Officer
EY SpA
The Saras Group operates in the energy sector and is one of the leading independent oil refiners in Europe. The Sarroch refinery, on the coast south-west of Cagliari, is one of the biggest in the Mediterranean in terms of production capacity (15 million tonnes per year, equal to 300,000 barrels per day) and one of the most advanced plants in terms of complexity (10.4 on the Nelson Index (*)). Located in a strategic position in the middle of the Mediterranean, the refinery is owned and managed by the subsidiary Sarlux Srl, and is a reference model in terms of efficiency and environmental sustainability, due to its technological know-how, expertise and human resources acquired over fifty years of activity. To best exploit these extraordinary resources, Saras has introduced a business model based on the integration of its supply chain through close coordination between refinery operations and commercial activities. This context also includes the subsidiary Saras Trading SA, incorporated in Geneva in September 2015, which deals with acquiring crude and other raw materials for the Group's refinery, selling its refined products, and also performing trading activities, acting in one of the main markets for trading oil commodities.
The Group sells and distributes oil products directly, and through its subsidiaries, such as diesel, gasoline, diesel fuel for heating, liquefied petroleum gas (LPG), virgin naphtha and aviation fuel, mainly on the Italian and Spanish markets, but also in various other European and non-European countries. In particular, in 2017 approximately 2.17 million tonnes of petroleum products were sold in Italy on the wholesale market, and a further 1.48 million tonnes were sold on the Spanish market through its subsidiary Saras Energia SAU, active both on the wholesale and retail channels.
In the early 2000s, the Saras Group also undertook the task of producing and selling electricity by means of an IGCC plant (Integrated Gasification Combined Cycle), which has an installed power of 575 MW and is also managed by the subsidiary Sarlux Srl. The feedstock used by the IGCC plant is the heavy products of the refinery, and the plant generates over 4 billion kWh of electricity each year, which corresponds to more than 45% of the electricity requirements in Sardinia.
In addition, the Group manufactures and sells electricity from renewable sources in Sardinia, via the Ulassai wind farm. The farm, operational since 2005, is managed by the subsidiary Sardeolica Srl and has an installed capacity of 96 MW.
Lastly, the Group provides industrial engineering and research services to the petroleum, energy and environment industries, via its subsidiary Sartec Srl.
(*) 11.7 including the IGCC plant
The following picture illustrates the structure of the Saras Group and the main companies involved in each business segment, as of 30 th June 2018.
The following data relate to Saras' share prices and the daily volumes, traded during the first half of 2018.
| SHARE PRICE (EUR) | H1/18 |
|---|---|
| Minimum price (13/02/2018) | 1.598 |
| Maximum price (18/06/2018) | 2.130 |
| Average price | 1.873 |
| Closing price at the end of the first half of 2018 (29/06/2018) | 2.076 |
| DAILY TRADED VOLUMES | H1/18 |
|---|---|
| Maximum traded volume in EUR million (15/01/2018) | 41.9 |
| Maximum traded volume in number of shares (million) (15/01/2018) | 23.7 |
| Minimum traded volume in EUR million (19/02/2018) | 2.2 |
| Minimum traded volume in number of shares (million) (19/02/2018) | 1.3 |
| Average traded volume in EUR million | 8.3 |
| Average traded volume in number of shares (million) | 4.4 |
The Market capitalization at the end of the first half of 2018 was equal to approximately EUR 1,974 million and the number of shares outstanding was approximately 936 million.
The following graph shows the daily performance of Saras' share price during the first half of 2018, compared to the "FTSE Italia Mid Cap" Index of the Italian Stock Exchange:
In order to give a representation of the Group's operating performance in line with the standard practice in the oil industry, the operating results and the Net Result are displayed excluding inventories gain and losses and non-recurring items and reclassifying derivatives. Such figures, called "comparable", are financial measures not defined by the International Accounting Standards (IAS/IFRS) and they are not subject to audit.
The operating results and the Net Result, are displayed valuing inventories with FIFO methodology, excluding unrealised inventories gain and losses, due to changes in the scenario, by valuing beginning-of-period inventories at the same unitary value of the end-of-period ones. Moreover the realised and unrealised differentials on oil and exchange rate derivatives with hedging nature which involve the exchange of physical quantities are reclassified in the operating results, as they are related to the Group industrial performance, even if non accounted under the hedge accounting principles. Non-recurring items by nature, relevance and frequency and derivatives related to physical deals not of the period under review, are excluded by the operating results and the Net Result Comparable.
Non-Gaap financial measures should be read together with information determined by applying the International Accounting Standards (IAS/IFRS) and do not stand in for them.
| EUR Million | H1 2018 | H1 2017 | Q2/18 | Q2/17 |
|---|---|---|---|---|
| NET FINANCIAL POSITION | 42 | (28) | 42 | (28) |
| CAPEX | 85 | 100 | 36 | 54 |
The Groups revenues in H1/18 were EUR 5,591 million. The difference compared to EUR 3,929 million in the first half of last year is due to the higher average oil prices and rising oil and products trading activity of the subsidiary Saras Trading SA. In particular, in H1/18 the price of gasoline averaged at 669 \$/ton (compared to the average of 531 \$/ton in H1/17), while the price of diesel averaged out to 623 \$/ton (compared to the average of 464 \$/ton in H1/17). This increase in the prices resulted in higher revenues of approximately EUR 1,460 million in the Refining segment and approximately EUR 170 million in the Marketing segment. Finally, the revenues from the Power Generation segment were higher by approximately EUR 35 million compared to first half of last year also thanks to higher CIP6/92 tariff.
The Group's reported EBITDA in H1/18 was EUR 271.4 million, strongly above the EUR 141.3 million in H1/17. This difference was almost entirely attributable to the Refining segment which, even if operated in a less favourable market environment in H1/18 and achieved lower volumes compared to the same period last year, enjoyed a strong positive scenario effect inventories. On the opposite such effect was negative in H1/17.
The reported Group Net Result, equal to EUR 81.4 million, compared to EUR 54.5 million in H1/17, essentially due to the reason shown at EBITDA level. In H1/18, amortisation and depreciation charges were lower (EUR 84.9 million as compared to EUR 107.0 million in H1/17) following changes to the amortisation plan for the IGCC plant, which took place with the expiry of the CIP6/92 contract. The financial charges (of EUR 6.7 million) were essentially in line with the same period of last year, while other financial items (which comprise realised and unrealised differentials on derivative instruments, net exchange rate differences and other financial income and charges) were negative by approximately EUR 66 million in H1/18 compared to a positive amount of approximately EUR 55 million in H1/17.
The comparable Group EBITDA was EUR 150.4 million in H1/18, down from EUR 252.5 million achieved in H1/17. This result was mainly due to the Refining segment which operated in a less favourable market scenario and achieved lower volumes also due to a lower operating performance. The comparable Group Net Result in H1/18 was EUR 14.9 million, versus EUR 109.9 million in H1/17.
Investments in H1/18 were EUR 85.0 million, in line with the budget, mainly focused on the Refining segment (EUR 75.3 million).
The Groups revenues in Q2/18 were EUR 3,172 million up 56% versus the EUR 2,032 million in the second quarter of last year as effect of higher average oil prices in the period and rising trading activity of the subsidiary Saras Trading SA. In Q2/18 the price of gasoline averaged at 707 \$/ton (compared to the average of 519 \$/ton in Q2/17), while the price of diesel averaged out to 657 \$/ton (compared to the average of 449 \$/ton in Q2/17). This increase in the prices resulted in higher revenues of approximately EUR 985 million in the Refining segment and approximately EUR 130 million in the Marketing segment. The revenues from the Power Generation segment were higher by approximately EUR 22 million compared to Q2/17 mainly thanks to higher CIP6/92 tariff.
The Group's reported EBITDA in Q2/18 was EUR 199.2 million, well above the EUR -19.1 million in Q2/17 almost entirely due to the Refining segment. In fact, in the second quarter of 2018 the positive effect of the scenario on the inventory differences between the beginning and end of the period, due to the sharp rise in the Brent price, more than offset less favourable market scenario that led to lower unitary refining margins.
The reported Group Net Result was equal to EUR 58.9 million, compared to EUR -37.6 million in Q2/17, essentially due to the reason shown at EBITDA level. In Q2/18, amortisation and depreciation charges were lower (EUR 43.1 million as compared to EUR 54.1 million in Q2/17) following above mentioned changes to the amortisation plan for the IGCC which took place in Q4/17. The financial charges (of EUR 3.2 million) were essentially unchanged from the same quarter last year, while other financial items (which comprise realised and unrealised differentials on derivative instruments, net exchange rate differences and other financial income and charges) were negative at approximately EUR 69 million in Q2/18, compared to a positive amount of approximately EUR 28 million in Q2/17.
The comparable Group EBITDA was EUR 78.8 million in Q2/18, down from EUR 128.5 million in Q2/17. This result was mainly due to the Refining segment which operated in a less favourable market scenario, mainly featured by high Brent prices, that weighted on the refining margins. The comparable Group Net Result in Q2/18 was EUR 6.3 million, down from EUR 57.4 million in the second quarter of last year.
Investments in Q2/18 were EUR 35.9 million, in line with the budget and mainly focused on the Refining segment (EUR 33.8 million).
The tables below present the details of the calculation of comparable EBITDA and comparable Net Result for the second quarter and first half of 2017 and 2018.
| EUR Million | H1 2018 | H1 2017 | Q2/18 | Q2/17 |
|---|---|---|---|---|
| Reported EBITDA | 271.4 | 141.3 | 199.2 | (19.1) |
| Gain / (Losses) on Inventories | (113.2) | 43.8 | (93.1) | 101.1 |
| Hedging derivatives and net FOREX | (33.2) | 55.1 | (42.9) | 30.1 |
| Non-recurring items | 25.3 | 12.4 | 15.6 | 16.4 |
| Comparable EBITDA | 150.4 | 252.5 | 78.8 | 128.5 |
In H1/17, the non-recurring items mainly referred to a provision made in relation to a dispute related to energy efficiency certificates, assigned and to be assigned to the subsidiary Sarlux.
In H1/18 the non-recurring items refer to the change of the fair value of CO2 hedging derivatives and to a provision related to CO2 costs of past years. In H1/18, thanks to the final allocations of energy efficiency certificates received from the GSE, the gains realized on the sales of the same (EUR 11.8 million), were considered recurring by nature, relevance and frequency, and therefore, they contribute to the determination of Comparable results, being related to the recurring industrial activity.
| EUR Million | H1 2018 | H1 2017 | Q2/18 | Q2/17 |
|---|---|---|---|---|
| Reported NET RESULT | 81.4 | 54.5 | 58.9 | (37.6) |
| Gain & (Losses) on Inventories net of taxes | (81.6) | 31.3 | (67.1) | 72.6 |
| Derivatives related to future deals | 4.1 | 4.3 | 3.6 | 2.5 |
| Non-recurring items net of taxes | 11.0 | 19.8 | 11.0 | 19.8 |
| Comparable NET RESULT | 14.9 | 109.9 | 6.3 | 57.4 |
In H1/17, the non-recurring items refer to the provision related to interests requested by the counterparty on past supplies and which are currently under negotiation, on top of the above mentioned provision related to energy efficiency certificates.
In H1/18, the non-recurring items refer to the above mentioned provision net of taxes and to interest charges following the outcome of a litigation on past port taxes.
The Net Financial Position as at 30 th June 2018 was positive by EUR 42 million, compared to the positive amount of EUR 87 million as at 31 December 2017. The cash flow generated by operations was absorbed by the investments, the dividend payment on May 2018 and the inventories increase.
| EUR Million | 30-Jun-18 | 31-Dec-17 |
|---|---|---|
| Medium/long-term bank loans | (49) | (59) |
| Bonds | (198) | (198) |
| Other medium/long-term financial liabilities | (9) | 0 |
| Other medium/long-term financial assets | 8 | 8 |
| Medium-long-term net financial position | (249) | (249) |
| Short term loans | (3) | (0) |
| Banks overdrafts | (29) | (4) |
| Other short term financial liabilities | (32) | (125) |
| Fair value on derivatives and realized net differentials | 7 | 2 |
| Other financial assets | 31 | 43 |
| Cash and Cash Equivalents | 315 | 422 |
| Short-term net financial position | 291 | 337 |
| Total net financial position | 42 | 87 |
Here below there is a short analysis of the trends followed by crude oil quotations, by the crack spreads of the main refined oil products, and also by the reference refining margin (EMC Benchmark) in the European market, which is the most relevant geographical context in which the Refining segment of the Saras Group conducts its operations.
| Average values (1) | Q1/17 | Q2/17 | H1/17 | Q1/18 | Q2/18 | H1/18 |
|---|---|---|---|---|---|---|
| Crude oil price and differential (\$/bl) | ||||||
| Brent Dated (FOB Med) | 53.7 | 49.6 | 51.7 | 66.8 | 74.4 | 70.6 |
| Urals (CIF Med) | 52.5 | 48.9 | 50.7 | 65.2 | 72.8 | 69.0 |
| "Heavy-light" price differential | -1.2 | -0.8 | -1.0 | -1.6 | -1.6 | -1.6 |
| Crack spreads for refined oil products (\$/bl) | ||||||
| ULSD crack spread | 10.3 | 10.6 | 10.0 | 12.1 | 13.7 | 12.9 |
| Gasoline 10ppm crack spread | 11.3 | 12.5 | 11.9 | 8.7 | 10.3 | 9.5 |
| Reference margin (\$/bl) | ||||||
| EMC Benchmark | +3.3 | +3.8 | +3.5 | +1.7 | +2.2 | +1.9 |
(1) Sources: "Platts" for prices and crack spreads, and "EMC – Energy Market Consultants" for the reference refining margin EMC Benchmark
The first quarter of 2018 opened with crude oil at around 67 \$/bl. The strengthening phase which had begun in the latter months of 2017 continued and was due to a series of concurrent factors including the agreement to extend the production cuts to all of 2018, which was reached in Vienna at the end of November by the OPEC producers and other major producers (Russia, in particular), the drop in inventories worldwide, the geopolitical tensions and finally growth in demand. Brent surpassed 70 \$/bl to then weaken from mid-February mainly on account of the continuous increases in US production (tight oil), as well as in Canada and Brazil. The quarter closed at 67.3 \$/bl, with the average settling at \$ 66.8 \$/bl, up by over 13 \$/bl compared to the average in the same quarter last year.
In the second quarter of 2018, the reduction in production by OPEC countries and Russia reached record levels (about 50% more than the agreed cuts of 1.7 mbl/d) due to geopolitical tensions in Nigeria and Libya and the involuntary cuts of Venezuela and Mexico, which have been only partially offset by production increases in the United States, Canada, Brazil and Kazakhstan. Brent prices rose to over 80 \$/bl in mid-May, the highest level reached since 2014, also due to the US exit from the nuclear agreement with Iran. The possible response of increased volumes placed on the market by OPEC and non-OPEC countries, which was reflected in the Vienna meeting on 22 June during which it was decided to increase production by about 1 mbl/d, weighed on Brent price. The quarter closed at 77.9 \$/bl and the average was 74.4 \$/bl.
The first quarter of 2018 was characterised by the implementation of the previously announced production cuts which mainly affected the less expensive "heavy-sour" crude oil. However, the spread between "Ural" and "Brent" averaged at -1.6 \$/bl, increasing up to 3 \$/bl at the beginning of March. This dynamic was particularly affected by the drop in demand, following the planned shut downs for maintenance of the Russian and Asian refineries, and the increased competition from alternative crude oil (mainly Iraqi).
In April the "Ural" vs. "Brent" differential progressively widened to reach -3.5 \$/bl at the end of April, the highest level since April 2012. The strong discount supported exports to Asia. This dynamic, in conjunction with the end of the scheduled maintenance period and with fears of lower availability of heavy crude oil from Iran, greatly reduced the differential and brought it on a par with the Brent in early June. The average for the quarter was -1.6 \$/bl.
"Crack spreads" of the main refined products (i.e. the difference between the value of the product and the cost oil)
In January and February 2018, the gasoline crack spread was rather weak and hit its lowest levels of the last few years due to accumulation of the product caused, among other things, by the increased processing required by the cold wave that hit the Northern hemisphere and the increase in the price of crude oil at a seasonally low period for demand. From the second half of March there was a marked recovery that coincided with the shift to summer specifications, closing the quarter at above 11 \$/bl. The average crack spread of gasoline was 8.7 \$/bl in Q1/18.
In April, the gasoline crack spread weakened again due to lower demand growth, driven largely by higher retail prices, and by high production levels, especially by US refineries. The latter in particular, due to the use of very light crude qualities, maximized their gasoline yields. In May the gasoline crack spread was supported in the seasonal increase in demand, however the above mentioned factors along with high inventory levels kept it on levels below recent years ones. The average in Q2/18 was 10.3 \$/bl.
Turning now to middle distillates, in Q1/18 the crack spread of diesel remained stable at satisfactory levels, benefiting from strong demand for heating gasoil, driven by cold winter weather especially in the United States and a lower supply from South American refineries due to planned and extraordinary maintenance. The average crack spread of diesel was 12.1 \$/bl in Q1/18.
Also Q2/18 diesel demand was strong and higher than that of gasoline thanks to robust global economic growth. This dynamic along with rather low inventories levels and strong jet fuel request sustained the crack spread of diesel which posted an average of 13.7 \$/bl in Q2/18.
As regards the analysis of the profitability of the refining sector, Saras traditionally uses the refinery margin calculated by EMC (Energy Market Consultants) as a reference for a medium complexity coastal refinery, located in the Mediterranean Basin, which processes a feedstock made up of 50% Brent and 50% Urals crude oils.
This reference margin (called the "EMC Benchmark") averaged 3.5 \$/bl in 2017. In detail, in the first quarter the EMC averaged 3.3 \$/bl and then strengthened to 3.8 \$/bl in the second quarter and to 4.6 \$/bl in the third quarter thanks to high gasoline and diesel crack spreads during the summer months driven both by structural factors, including strong global demand, and contingent factors (unplanned maintenance at some refineries). Finally, the margin averaged 2.3 \$/bl in the last quarter as a consequence of seasonal weakening of the gasoline and fuel oil cracks and the rapid rise in Brent. Such conditions, together with further strengthening of the price of crude oil, continued in the initial months of 2018 and the reference margin posted an average of 1.7 \$/bl in the first quarter. In the second quarter of 2018 some improvements in gasoline and diesel crack spreads led to an average EMC of 2.2 \$/bl.
As shown in the graph below, thanks to the flexibility and complexity of its plants, the Saras Group refinery achieved a higher refinery margin than the EMC Benchmark reference margin. However, the size of the Saras premium above the EMC Benchmark is variable and mainly depends on the specific market conditions, as well as the performance of industrial and commercial operations in each quarter.
Refining Margin: (comparable EBITDA Refining + Fixed Costs) / Refinery runs in the period IGCC Margin: (EBITDA IGCC plant + Fixed Costs) / Refinery runs in the period EMC Benchmark: margin calculated by EMC (Energy Market Consultants) with 50% Urals – 50% Brent crude oil slate
With the purpose of providing a consistent disclosure of the results for each business of the Saras Group, the financial information of the individual companies within the Group have been calculated and reported according to the same business segments adopted in all previous Financial Reports, including also the intercompany services, which ceased to exist as a consequence of some corporate reorganisations, at the same economic conditions applied in the previously existing contracts.
The Sarroch refinery (South-West of Cagliari) is one of the biggest in the Mediterranean in terms of production capacity and also in terms of the complexity of plants. Located in a strategic position in the centre of the Mediterranean, it has a production capacity of 15 million tons/year, which corresponds to approximately 17% of the total distillation capacity in Italy. The main operating and financial information is provided below.
| EUR Million | H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % |
|---|---|---|---|---|---|---|
| EBITDA | 161.6 | 28.2 | 472% | 142.0 | (75.1) | 289% |
| Comparable EBITDA | 29.9 | 139.7 | -79% | 20.8 | 70.1 | -70% |
| EBIT | 107.8 | (27.1) | 497% | 114.4 | (103.2) | 211% |
| Comparable EBIT | (23.9) | 84.4 | -128% | (6.8) | 42.1 | -116% |
| CAPEX | 75.3 | 88.0 | 33.8 | 46.6 |
| H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % | ||
|---|---|---|---|---|---|---|---|
| REFINERY RUNS | Tons (thousand) | 6,528 | 6,917 | -6% | 3,320 | 3,481 | -5% |
| Barrels (million) | 47.7 | 50.5 | -6% | 24.2 | 25.4 | -5% | |
| Bl/day (thousand) | 263 | 279 | -6% | 269 | 282 | -5% | |
| COMPLEMETARY FEEDSTOCK | Tons (thousand) | 577 | 674 | -14% | 315 | 297 | 6% |
| EXCHANGE RATE | EUR/USD | 1.210 | 1.083 | 12% | 1.191 | 1.102 | 8% |
| EMC BENCHMARK MARGIN | \$/bl | 1.9 | 3.5 | 2.2 | 3.8 | ||
| SARAS REFINERY MARGIN | \$/bl | 4.4 | 6.0 | 5.0 | 6.1 |
Crude refinery runs during H1/18 stood at 6.53 million tons (47.7 million barrels, corresponding to 263 thousand barrels per day), down by 6% compared to H1/17. Complementary feedstock amounted to 0.58 million tons compared to 0.67 in the first half of 2017. This dynamic is mainly due to a maintenance programme that involved both distilling and conversion units and lower than expected operating performance. In H1/18 the scheduled maintenance of the year was substantially completed.
The comparable EBITDA amounted to EUR 29.9 million in H1/18, with a Saras refinery margin of +4.4 \$/bl (as is usual, net of the impact from the maintenance activities conducted during the period). This compares with a comparable EBITDA of EUR 139.7 million and a Saras refinery margin of +6.0 \$/bl in H1/17. As always, the comparison between the two quarters must take into account market conditions and the specific performance of the Saras Group, both from an operational and commercial perspective.
With regard to market conditions, the increase in crude oil prices in H1/18 combined with other market factors resulted in a penalisation of approx. EUR 100 million compared to H1/17 (also including the increase in the cost of "consumption and losses"). The weakening of the gasoline crack spread was more than offset by the strengthened diesel crack spread, with a positive net effect on production of approximately EUR 30 million, compared to H1/17. The effect of the EUR/USD exchange rate (1 EUR was worth 1.2104 USD in H1/18 and 1.0830 in H1/17) reduced the value of production by approximately EUR 25 million.
With regard to operational performance, in H1/18 production planning (which involves optimising the mix of the crude oils for processing, the management of semi-finished products, and the production of finished products, including those with special formulations) resulted in an EBITDA lower by approximately EUR 10 million compared to H1/17, mainly due to a less advantageous crude oil mix available.
The execution of production activities (which takes account of losses in connection with scheduled and unscheduled maintenance, and increased consumption with respect to the technical limits of certain utilities such as fuel oil, steam, electricity and fuel gas) resulted in an EBITDA essentially in line with H1/17.
Commercial management (involving the supply of crude and additional raw materials, the sale of finished products, the rental costs of oil tankers, and inventory management, including mandatory stocks) generated EBITDA lower by approximately EUR 8 million compared to H1/17, due to fewer trading opportunities, among other things.
Investments made in H1/18 were EUR 75.3 million, in line with the scheduled maintenance programme and the business plan.
Crude refinery runs during Q2/18 stood at 3.32 million tons (24.2 million barrels, corresponding with 269 thousand barrels per day), down by 5% compared to the same period in 2017. Complementary feedstock amounted to 0.32 million tons compared to 0.30 in the second quarter of 2017. This dynamic is mainly due to the maintenance carried out in the period and to minor technical issues that led, among others, to some sub-optimisation of the commercial and supply chain management process.
The comparable EBITDA amounted to EUR 20.8 million in the Q2/18, with a Saras refinery margin of +5.0 \$/bl (as is usual, net of the impact from the maintenance activities conducted during the period). This compares with a comparable EBITDA of EUR 70.1 million and a Saras refinery margin of +6.1 \$/bl in Q2/17. As always, the comparison between the two quarters must take into account market conditions and the specific performance of the Saras Group, both from an operational and commercial perspective.
With regard to market conditions, the increase in crude oil prices in Q2/18 combined with other market factors resulted in a penalisation of approx. EUR 55 million compared to Q2/17 (also including the increase in the cost of "consumption and losses"). The weakening of the gasoline crack spread was more than offset by the strengthened diesel crack spread, with a positive net effect on production of approximately EUR 25 million, compared to Q2/17. The effect of the EUR/USD exchange rate (1 EUR was worth 1.1915 USD in Q2/18 and 1.1021 in Q2/17) reduced the value of production by approximately EUR 10 million.
With regard to operational performance, in Q2/18 production planning (which involves optimising the mix of the crude oils for processing, the management of semi-finished products, and the production of finished products, including those with special formulations) resulted in an EBITDA lower by approximately EUR 3 million compared to Q2/17.
The execution of production activities (which takes account of losses in connection with scheduled and unscheduled maintenance, and increased consumption with respect to the technical limits of certain utilities such as fuel oil, steam, electricity and fuel gas) resulted in an EBITDA essentially in line with Q2/17.
Commercial management (involving the supply of crude and additional raw materials, the sale of finished products, the rental costs of oil tankers, and inventory management, including mandatory stocks) generated EBITDA lower by approximately EUR 3 million compared to Q2/17.
Finally Q2/18 results were influenced by higher fixed costs compared to Q2/1,7 mainly as effect of postponement of come costs referring to Q1/18.
Investments made in Q2/18 were EUR 33.8 million.
The mix of crudes that the Sarroch refinery processed in H1/18 had an average density of 33.7°API, and is therefore lighter than the average density processed in H1/17. A more detailed analysis of the crude oil grades shows an increase in the percentage of light crude oils with a very low sulphur content ("light extra sweet") and a reduction in the percentage of medium crude oils with a high sulphur content ("medium sour"). The weight of light crudes with low sulphur content ("light sweet") and of heavy crude oils with low and high sulphur content ("Heavy sour/sweet") remained broadly stable instead. This processing mix was partly due to contingent plant set-up situations (arising from scheduled maintenance in H1/18) and to economic and commercial choices in view of market supply conditions.
| H1 2018 | H1 2017 | Q2/18 | ||
|---|---|---|---|---|
| Light extra sweet | 37% | 32% | 35% | |
| Light sweet | 13% | 14% | 13% | |
| Medium sweet/extra sweet | 0% | 0% | 0% | |
| Medium sour | 35% | 39% | 37% | |
| Heavy sour/sweet | 16% | 15% | 15% | |
| Average crude gravity | °API | 33.7 | 33.0 | 33.4 |
Turning to the analysis of finished product yields, we note that in H1/18 the yield of the light distillates (29.0%) was higher than in H1/17. The yield of middle distillates (49.4%) instead was broadly stable vs H1/17, as well as LPG yields (2.0%). Finally fuel oil yield was lower (5.7%) as opposed to a higher yield of TAR (7.2%). These changes are mainly due to the maintenance activity carried out in the period and commercial choices.
| H1 2018 | H1 2017 | Q2/18 | ||
|---|---|---|---|---|
| LPG | Tons (thousand) | 145 | 149 | 72 |
| yield (%) | 2.0% | 2.0% | 2.0% | |
| NAPHTHA + GASOLINE | Tons (thousand) | 2,058 | 2,067 | 1,058 |
| yield (%) | 29.0% | 27.2% | 29.1% | |
| MIDDLE DISTILLATES | Tons (thousand) | 3,509 | 3,780 | 1,826 |
| yield (%) | 49.4% | 49.8% | 50.2% | |
| FUEL OIL & OTHERS | Tons (thousand) | 408 | 625 | 168 |
| yield (%) | 5.7% | 8.2% | 4.6% | |
| TAR | Tons (thousand) | 512 | 482 | 281 |
| yield (%) | 7.2% | 6.4% | 7.7% |
Note: Balance to 100% of the production is "Consumption and Losses".
The Saras Group conducts its Marketing business in Italy and in Spain directly and through its subsidiaries, primarily in wholesale channels. The main operating and financial information is provided below.
| EUR Million | H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % |
|---|---|---|---|---|---|---|
| EBITDA | 10.4 | 5.7 | 83% | 6.6 | 3.9 | 69% |
| Comparable EBITDA | 7.2 | 8.3 | -14% | 3.2 | 5.2 | -38% |
| EBIT | 7.7 | 3.1 | 145% | 5.2 | 2.7 | 93% |
| Comparable EBIT | 4.5 | 5.3 | -16% | 1.8 | 3.5 | -48% |
| CAPEX | 0.3 | 0.5 | 0.1 | 0.3 |
| H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % | ||
|---|---|---|---|---|---|---|---|
| TOTAL SALES | Tons (thousand) | 1,821 | 1,784 | 2% | 921 | 914 | 1% |
| of which: in Italy | Tons (thousand) | 1,037 | 1,043 | -1% | 538 | 547 | -2% |
| of which: in Spain | Tons (thousand) | 784 | 741 | 6% | 383 | 368 | 4% |
According to data collected by UP (Unione Petrolifera – the Oil Industry Union), in H1/18 total oil consumption was up by 2% on the Italian market, which represents the main wholesale channel of the Saras Group. In H1/18 new car registrations decreased by 1.4%, with diesel vehicles accounting for 53.7% of the total (compared to 56.5% in H1/17). The Saras Group kept broadly stable its own sales volumes in Italy.
In Spain, the data collected by CORES indicates increases of more than 4% in the first 5 months of 2018. In detail, on the Spanish market the total fuel consumption (gasoline + diesel) was approximately 11.6 million tonnes, up by 3% compared to the same period of the previous year, with gasoline increasing by 3.5% and diesel by 3% approximately. Moreover, consumption of kerosene and fuel oil increased by approximately 6.5% compared to H1/17. In this framework, the Spanish subsidiary Saras Energia increased its volumes sold by 6%.
Comparable EBITDA for the Marketing segment amounted to EUR 7.2 million, down versus the EUR 8.3 million of H1/17 mainly due to lower unitary margins in Spain.
In Q2/18 total oil consumption was up by 1% on the Italian market and by 5% in the Spanish market.
In Q2/18, the Saras Group decreased its sales volumes in Italy by 2% while it increased them by 4% in Spain, keeping the Group volumes substantially stable.
Comparable EBITDA for the Marketing segment amounted to EUR 3.2 million, down versus the EUR 5.2 million of Q2/17 mainly due to lower unitary margins in Italy and Spain.
Below are the main financial and operational data of the Power Generation segment, which uses an IGCC power plant (Integrated Gasification and Combined Cycle power generation) with an installed capacity of 575MW, fully integrated with the Group's refinery and located within the same industrial complex in Sarroch (Sardinia).
| EUR Milion | H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % | |
|---|---|---|---|---|---|---|---|
| EBITDA | 90.6 | 95.8 | -5% | 47.2 | 47.9 | -1% | |
| Comparable EBITDA | 104.5 | 92.9 | 13% | 51.4 | 49.0 | 5% | |
| EBIT | 64.8 | 49.4 | 31% | 34.3 | 24.5 | 40% | |
| Comparable EBIT | 78.7 | 46.5 | 69% | 38.5 | 25.6 | 50% | |
| EBITDA ITALIAN GAAP | 42.4 | 28.8 | 47% | 34.2 | 25.8 | 33% | |
| EBIT ITALIAN GAAP | 33.4 | -0.7 | 4723% | 29.8 | 10.8 | 175% | |
| CAPEX | 9.0 | 11.2 | 1.8 | 7.1 | |||
| Other figures | |||||||
| H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % | ||
| ELECTRICITY PRODUCTION | MWh/1000 | 1,975 | 1,755 | 13% | 1,089 | 1,021 | 7% |
| POWER TARIFF | Eurocent/KWh | 9.5 | 8.7 | 9% | 9.5 | 8.7 | 9% |
| POWER IGCC MARGIN | \$/bl | 4.1 | 3.3 | 24% | 3.8 | 3.3 | 15% |
| Comparable EBITDA stood at EUR 104.5 million, up 13% compared to EUR 92.9 million achieved in H1/17. This difference is due to the lower fixed costs thanks to the lighter maintenance cycle conducted and the increase in the value of the CIP6/92 tariff (+9%) that more than offset higher feedstock (TAR) costs. Sales of steam and hydrogen (not subject to the equalisation procedure) were essentially in line with the H1/17. It should also be noted that the difference between comparable and reported EBITDA is attributable to the change of the fair value of CO2 hedging derivatives. Moving on to the analysis of EBITDA calculated according to Italian accounting standards, this stood at EUR 42.4 million in H1/18, well above the EUR 28.8 million achieved in the same period last year. The difference is due to the combined effect of higher electricity production (+13%), the higher CIP6/92 tariff (+9%) and lower fixed costs. Conversely, the cost of acquiring raw materials (TAR) increased by approximately EUR 15 million compared to the same period last year. |
|||||||
| Investments amounted to EUR 9.0 million, in line with the forecasts. | |||||||
| Comments to Second Quarter 2018 Results | |||||||
| In Q2/18, the Electricity Generation segment conducted the scheduled maintenance work on one "Gasifier – combined cycle Turbine". Electricity production reached 1.089 TWh, up by 7% compared to the second quarter of last year, thanks to a better operating performance. |
|||||||
| Comparable EBITDA was equal to EUR 51.4 million, vs. EUR 49.0 million achieved in Q2/17. This difference is due to the higher the value of the CIP6/92 tariff (+9%) that more than offset higher feedstock (TAR) costs. Sales of steam and hydrogen (not subject to the equalisation procedure) were essentially in stable versus Q2/17. It should be noted that the difference between comparable and reported EBITDA is attributable to the change of the fair value of CO2 hedging derivatives. |
|||||||
| Moving on to the analysis of EBITDA calculated according to Italian accounting standards, this stood at EUR 34.2 million in Q2/18, up vs. The EUR 25.8 million achieved in the same period last year. The difference is due to the |
| H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % | ||
|---|---|---|---|---|---|---|---|
| ELECTRICITY PRODUCTION | MWh/1000 | 1,975 | 1,755 | 13% | 1,089 | 1,021 | 7% |
| POWER TARIFF | Eurocent/KWh | 9.5 | 8.7 | 9% | 9.5 | 8.7 | 9% |
| POWER IGCC MARGIN | \$/bl | 4.1 | 3.3 | 24% | 3.8 | 3.3 | 15% |
combined effect of higher electricity production (+7%) and CIP6/92 tariff (+9%). Conversely, the cost of acquiring raw materials (TAR) increased by approximately EUR 10 million, compared to the same period last year.
Investments amounted to EUR 1.8 million.
Saras Group is active in the production and sale of electricity from renewable sources, through its subsidiary Sardeolica Srl, which operates a wind park located in Ulassai (Sardinia). Below are the financial and operational highlights of the segment.
| EUR million | H1 2018 | H1 2017 Change % | Q2/18 | Q2/17 | Change % | |
|---|---|---|---|---|---|---|
| EBITDA | 5.9 | 10.8 | -46% | 1.3 | 3.9 | -67% |
| Comparable EBITDA | 5.9 | 10.8 | -46% | 1.3 | 3.9 | -67% |
| EBIT | 3.6 | 8.5 | -58% | 0.2 | 2.7 | -93% |
| Comparable EBIT | 3.6 | 8.5 | -58% | 0.2 | 2.7 | -93% |
| CAPEX | 0.1 | 0.0 | 0.0 | 0.0 |
| H1 2018 | H1 2017 Change % | Q2/18 | Q2/17 | Change % | |||
|---|---|---|---|---|---|---|---|
| ELECTRICITY PRODUCTION | MWh | 99,897 | 82,720 | 21% | 32,120 | 31,452 | 2% |
| POWER TARIFF | EURcent/KWh | 5.1 | 4.8 | 6% | 5.0 | 4.1 | 22% |
| INCENTIVE TARIFF | EURcent/KWh | 9.9 | 10.7 | -8% | 9.9 | 10.7 | -8% |
In H1/18 the comparable EBITDA for the Wind Power segment (equal to the IFRS EBITDA) stood at EUR 5.9 million, compared to EUR 10.8 million in H1/17.
In detail, the volumes produced increased by 21% compared to the same period last year, thanks to better wind conditions. This dynamic was partially offset by the reduction of the Incentive Tariff (-0.8 Eurocent/kWh compared to H1/17). Moreover, the incentive period expired on approximately 70% of volumes produced. Finally the electricity tariff rose by 0.3 Eurocent/kWh compared to H1/17.
In Q2/18 the comparable EBITDA for the Wind Power segment (equal to the IFRS EBITDA) was equal to EUR 1.3 million, compared to EUR 3.9 million in Q2/17.
In detail, the volumes produced increased by 2% compared to the same period last year and the electricity tariff was higher than in Q2/17 (+0.9 Eurocent/kWh compared to Q2/17). With reference to the Incentive Tariff, it is worth noting that in Q2/18 it was 0.8 Eurocent/kWh lower than in Q2/17 and the incentive period expired on approximately 80% of volumes produced.
The following table shows the financial highlights of the subsidiaries Sartec Srl, Reasar SA and others.
| EUR Million | H1 2018 | H1 2017 | Change % | Q2/18 | Q2/17 | Change % |
|---|---|---|---|---|---|---|
| EBITDA | 2.9 | 0.8 | 267% | 2.1 | 0.3 | 600% |
| Comparable EBITDA | 2.9 | 0.8 | 267% | 2.1 | 0.3 | 600% |
| EBIT | 2.6 | 0.4 | 491% | 2.0 | 0.1 | 1900% |
| Comparable EBIT | 2.6 | 0.4 | 491% | 2.0 | 0.1 | 1900% |
| CAPEX | 0.3 | 0.2 | 0.1 | 0.1 |
With its high conversion configuration, integration with the IGCC plant and an operational model based on integrated supply chain management, the Saras Refinery in Sarroch (Sardinia) occupies a leading position among European sites. Given such features, the Group is well positioned with respect to the expected evolution of the market of reference, especially with regard to the IMO – Marpol VI Regulations that, as from 1 st January 2020, envisage a reduction in the sulphur content of marine fuel emissions, and will lead to favourable conditions for sites like the one in Sarroch. The Group plans to pursue initiatives to improve the operational performance and reliability of its plants, optimise costs and complete the substantial investment cycle started in 2015. To further strengthen this process, an important digitalization programme has been launched which will leverage on existing assets, such as the huge amount of data and the knowhow of the Group's people, increasing the operational and commercial flexibility that has always characterized the Group's business model. The aim is to harness the opportunities offered by the foreseeable evolution of the reference scenario, so as to maintain a leadership position in the next decade.
The year 2018 opened with Brent on the maximum levels of the last 3 years at approximately 70 \$/bl also thanks to the growth in demand. The supply instead was influenced by the production cuts implemented by OPEC and Russia, by some geopolitical tensions in Libya and Nigeria and by the involuntary reductions of Venezuela and Mexico, which were only partly offset by rising volumes from United States, Canada, Brazil and Kazakhstan. In mid-May, the Brent hit 80 \$/bl following the announcement of the US exit from the nuclear agreement with Iran and then fall back thanks to the response of the OPEC countries (Saudi Arabia in particular) that decided to increase their supply by around 1 mbl/d. Brent current forward curves point to approx. 75 \$/bl for in the second half of the year. As far as the price differential between light and heavy crude is concerned, no particular changes are foreseen compared to the values recorded in 2017.
Looking at the demand side, in the report published in July 2018, the International Energy Agency (IEA) expects global demand to grow by +1.4 mbl/d in 2018, driven by non-OECD countries (primarily China).
Moving to the profitability of the main refined products, gasoline crack spread was penalized by the sharp increase of Brent price. With regards to the middle distillates, instead diesel crack spread was above previous year, driven by demand of gasoil for industrial uses, which is directly correlated to the economic cycle (2018 GDP expected to grow by 2.2% in Europe in 2018 and by 3.7% globally). All in all, the above described market conditions should pave the way for positive refining margins, even if slightly lower than in 2017, and the Saras Group will aim to achieve a premium above the EMC benchmark margin of approx. 2.5 ÷ 3.0 \$/bl (net of maintenance).
From an operational standpoint, in the Refinery segment, scheduled maintenance was carried out regularly in the first half of the year and annual activity was substantially completed. In details, for the remaining part of the year, it is worth noting that in the third quarter no major activity is planned and finally, in the fourth quarter, the scheduled activities will take place on the Catalytic Reforming "CCR". Overall, yearly crude runs are expected at 13.8÷14.2 million tons (corresponding to 100÷105 million barrels), plus further 1 million tons of complementary feedstock (corresponding to approx. 7 million barrels).
With reference to the Power Generation segment, the heaviest part of the annual maintenance programme was realised in the first half of the year. Between the third and the fourth quarter maintenance will be performed on one "Gasifier – Combined Cycle Turbine" train. Therefore, total production of electricity in 2018 is expected to recover compared to previous year, reaching approx. 4.30 TWh (vs. 4.09 TWh produced in 2017).
In the Marketing segment the profitability achieved previous year thanks to the costs and clients portfolio optimisation actions undertaken will be consolidated.
Finally, with regard to the Wind segment, in 2018 the incentive period on 42 of the 48 wind turbines expired, while the remaining 6 will remain incentivised until 2025. The subsidiary Sardeolica in July obtained a positive opinion on the environmental compatibility for the expansion project of the Ulassai wind farm (located in the municipality of Ulassai and Perdasdefogu) for a capacity of an additional 30 MW.
| EUR Million | H1 2018 | H1 2017 | Q2/18 | Q2/17 | |
|---|---|---|---|---|---|
| REFINING | 75.3 | 88.0 | 33.8 | 46.6 | |
| POWER GENERATION | 9.0 | 11.2 | 1.8 | 7.1 | |
| MARKETING | 0.3 | 0.5 | 0.1 | 0.3 | |
| WIND | 0.1 | 0.0 | 0.0 | 0.0 | |
| OTHER | 0.3 | 0.3 | 0.1 | 0.2 | |
| Total | 85.0 | 99.9 | 35.9 | 54.1 |
Saras bases its risk management policy on the identification, assessment, and possible mitigation with reference to the strategic, operational and financial areas.
The principal risks are reported to and discussed by the Group's top management, to create the prerequisites for their management and also to assess the acceptable residual risk.
The management of the risks found in the company processes is based on the principle by which the operational or financial risk is managed by the person responsible for the related process, based on the indications of top management, while the control function measures and controls the level of exposure to risk and the results of the actions to mitigate such risk. To manage financial risks, the Saras Group policy includes the use of derivatives, only for the purposes of cover and without resorting to complex structures.
The Group's oil business is structurally exposed to fluctuations in exchange rates, because the reference prices for the procurement of crude oil and for the sale of the vast majority of refined oil products are linked to the US dollar. To reduce both the exchange rate risk for transactions that will be executed in the future, and the risk originating from payables and receivables expressed in currencies other than the functional currency, Saras also uses hedging derivative instruments.
Loans at variable interest rates expose the Group to the risk of variations in results and in cash flows, due to interest payments. Loans at fixed interest rates expose the Group to the risk of variation of the fair value of the loans received. The principal existing loan contracts are stipulated in part at variable market rates and in part at fixed rates. The Saras Group also uses derivative instruments to reduce the risk of variations in results and in cash flows deriving from interest.
The refining sector represents the Group's reference market and it is principally made up of multinational companies operating in the oil sector. Transactions executed are generally settled very quickly and are often guaranteed by primary credit institutions. Sales in the retail and wholesale markets are small on an individual basis; nonetheless, also these sales are usually guaranteed or insured.
The Group finances its activities both through the cash flows generated by operating activities and through the use of externally-sourced financing, and it is therefore exposed to liquidity risk, comprising the capacity to source adequate lines of credit as well as fulfil contractual obligations deriving from the financing contracts entered into. The capacity for selffinancing, together with the low level of debt, leads us to consider that the liquidity risk is moderate.
The results of Saras Group are influenced by the trend in oil prices and especially by the effects that this trend has on refining margins (represented by the difference between the prices of the oil products generated by the refining process and the price of the raw materials, principally crude oil). In addition, to carry out production, the Saras Group is required to maintain adequate inventories of crude oil and finished products, and the value of these inventories is subject to the fluctuations of market prices.
Also subject to fluctuations is the selling price of electricity, produced and sold by our subsidiaries, as well as the prices of green certificates and emissions credits.
The risk of price fluctuation and of the related financial flows is closely linked to the very nature of the business and it can be only partly mitigated, through the use of appropriate risk management policies, including agreements to refine oil for third parties, at partially preset prices. To mitigate the risks deriving from price fluctuation, the Saras Group also takes out derivative contracts on commodities with hedging nature.
A relevant portion of the crude oil refined by Saras originates from countries exposed to political, economical and social uncertainties, higher than in other countries: changes in legislation, political rulings, economic stability and social unrest could have a negative impact on the commercial relationships between Saras and those countries, with potential negative effects on the Group's economic and financial position.
The activity of the Saras Group depends heavily on its refinery located in Sardinia, and on the contiguous IGCC plant. This activity is subject to the risks of accident and of interruption due to non-scheduled plant shutdowns.
Saras believes that the complexity and modularity of its systems limit the negative effects of unscheduled shutdowns and that the safety plans in place (which are continuously improved) reduce any risks of accident to a minimum: in addition Saras has a major programme of insurance cover in place to offset such risks. However, under certain circumstances, this programme may not be sufficient to prevent the Group from bearing costs in the event of accidents and/or interruption to production.
The activities of the Saras Group are regulated by many European, national, regional and local laws regarding the environment.
The highest priority of the Saras Group is to conduct its activity with the utmost respect for the requirements of environmental legislation. The risk of environmental responsibility is, however, inherent in our activity, and it is not possible to say with certainty that new legislation will not impose further costs in the future.
The characteristics of the business carried out by the group is conditioned by the legislation of the countries in which it operates. With regard to this, Saras is committed to a continuous activity of monitoring and constructive dialogue with national and local institutions aimed at researching joint activities and promptly evaluate the applicable normative amendments, acting on minimising the economic impact deriving from them. In this context, the most significant elements among the main regulatory developments, relate to:
The IGCC plant, owned by the Sarlux Srl subsidiary, depends, on top of raw materials derived from crude oil supplied by Saras , also on oxygen supplied by Air Liquide Italia. If these supplies should fail, Sarlux would have to locate alternative sources, which the company may not be able to find, or to source at similar economic conditions.
The Saras Group operates in compliance with the current regulations on data protection regarding its customers, employees, suppliers and all those with whom it comes into contact daily. In particular, on 25 May 2018 entered in force the new European Regulation no. 679/2016 (the so-called "GDPR") concerning the protection of personal data. The Saras Group activated a project aimed at implementing the new measures required by the GDPR and aligning its procedures and processes with the changes introduced by this Regulation.
On 10th of July 2018 the subsidiary Sardeolica obtained a positive opinion on the environmental compatibility for the expansion project of the Ulassai wind farm (located in the municipality of Ulassai and Perdasdefogu) for a capacity of an additional 30 MW.
During the first half of the year, the appeal presented by the Company relating to the dispute established with the Customs Authority, with reference to port taxes for the period 2005-2007, was rejected in the second instance. Therefore, in July, Saras SpA paid the amount due in addition to late payment interests.
Saras did not undertake meaningful "Research and Development" activities in the period; therefore, no significant cost was capitalized or accounted in the Income Statement during the first half of 2018.
During the first half of 2018 no transactions took place, involving the sale or purchase of Saras SpA own shares. Therefore, as of 31th June 2018, Saras SpA held in treasury 14,989,854 own shares, corresponding to 1.576% of the company's issued share capital.
During the first half of 2018 there were no activities originated from non-recurring and/or unusual transactions, and there are no open positions originating from such transactions.
Following the authorisation received by the Ordinary Shareholders Meeting of Saras SpA held on the 27th of April 2018, the company paid, on the 23 rd of May 2018, a dividend equal to EUR 0.12 per each of the 936,010,146 ordinary shares in circulation, for a total payment of EUR 112,321,217.52.
| Thousands of euros | 30/06/2018 | 31/12/2017 | |
|---|---|---|---|
| ASSETS | (1) | ||
| Current assets | 5.1 | 1,974,833 | 1,960,049 |
| Cash and cash equivalents | 5.1.1 | 315,245 | 421,525 |
| Other financial assets | 5.1.2 | 109,708 | 98,291 |
| Trade receivables | 5.1.3 | 413,580 | 391,400 |
| Inventories | 5.1.4 | 970,255 | 875,269 |
| Current tax assets | 5.1.5 | 18,426 | 24,562 |
| Other assets | 5.1.6 | 147,619 | 149,002 |
| Non-current assets | 5.2 | 1,195,478 | 1,197,112 |
| Property, plant and equipment | 5.2.1 | 1,035,807 | 1,020,210 |
| Intangible assets | 5.2.2 | 136,185 | 152,691 |
| Other investments | 5.2.3 | 502 | 502 |
| Deferred tax assets | 5.2.4 | 15,102 | 15,969 |
| Other financial assets | 5.2.5 | 7,882 | 7,740 |
| Total assets | 3,170,311 | 3,157,161 | |
| LIABILITIES AND EQUITY | |||
| Current liabilities | 5.3 | 1,625,730 | 1,530,482 |
| Short-term financial liabilities | 5.3.1 | 134,436 | 183,068 |
| Trade and other payables | 5.3.2 | 1,178,773 | 1,150,284 |
| Current tax liabilities | 5.3.3 | 245,379 | 120,366 |
| Other liabilities | 5.3.4 | 67,142 | 76,764 |
| Non-current liabilities | 5.4 | 501,071 | 554,383 |
| Long-term financial liabilities | 5.4.1 | 256,396 | 257,140 |
| Provisions for risks and charges | 5.4.2 | 117,199 | 122,085 |
| Provisions for employee benefits | 5.4.3 | 10,887 | 10,250 |
| Deferred tax liabilities | 5.4.4 | 4,955 | 4,848 |
| Other liabilities | 5.4.5 | 111,634 | 160,060 |
| Total liabilities | 2,126,801 | 2,084,865 | |
| EQUITY | 5.5 | ||
| Share capital | 54,630 | 54,630 | |
| Legal reserve | 10,926 | 10,926 | |
| Other reserves | 896,536 | 765,904 | |
| Net result | 81,418 | 240,836 | |
| Total equity | 1,043,510 | 1,072,296 | |
| Total liabilities and equity | 3,170,311 | 3,157,161 | |
(1)Please refer to the Notes to the consolidated financial statements, section 5 "Notes on the Statement of Financial Position"
| Thousands of euros | (1) | 1st January 30 June 2018 |
of which non recurring |
1st January 30 June 2017 (2) |
of which non recurring |
|
|---|---|---|---|---|---|---|
| Revenues from ordinary operations | 6.1.1 | 5,519,764 | 3,916,863 | |||
| Other income | 6.1.2 | 70,946 | 5,821 | 12,270 | ||
| Total revenue | 5,590,710 | 5,821 | 3,929,133 | 0 | ||
| Purchases of raw materials, replacement parts and consumables | 6.2.1 | (4,870,716) | (3,405,609) | |||
| Cost of services and sundry costs | 6.2.2 | (373,283) | (17,277) | (307,613) | (15,192) | |
| Personnel costs | 6.2.3 | (75,256) | (74,559) | |||
| Amortisation/depreciation and write-downs | 6.2.4 | (84,967) | (107,027) | |||
| Total costs | (5,404,222) | (17,277) | (3,894,808) | (15,192) | ||
| Operating result | 186,488 | (11,456) | 34,325 | (15,192) | ||
| Net income (charges) from equity investments | ||||||
| Financial income | 6.3 | 143,396 | 133,452 | |||
| Financial charges | 6.3 | (215,608) | (3,625) | (83,506) | (11,592) | |
| Result before taxes | 114,276 | (15,081) | 84,271 | (26,784) | ||
| Income tax | 6.4 | (32,858) | 4,066 | (29,792) | 7,021 | |
| Net result | 81,418 | (11,015) | 54,479 | (19,763) | ||
| Net result attributable to: | ||||||
| Shareholders of the parent company | 81,418 | 54,479 | ||||
| Third-party minority interests | 0 | 0 | ||||
| Net earnings per share – base (euro cents) | 8.71 | 5.82 | ||||
| Net earnings per share – diluted (euro cents) | 8.71 | 5.82 |
| Thousands of euros | 1st January 30 June 2018 |
1st January 30 June 2017 (2) |
|---|---|---|
| Net result (A) | 81,418 | 54,479 |
| Items that may be reclassified subsequently to profit or loss | ||
| Effect of translation of the financial statements of foreign operations | (74) | 296 |
| Items that will not be reclassified to profit or loss | ||
| Actuarial effect IAS 19 on employee post-employment benefits | 0 | 0 |
| Other profit/(loss), net of the fiscal effect (B) | (74) | 296 |
| Total consolidated net result (A + B) | 81,344 | 54,775 |
| Total consolidated net result attributable to: | ||
| Shareholders of the parent company | 81,344 | 54,775 |
| Third-party minority interests | 0 | 0 |
(1) Please refer to the Notes to the consolidated financial statements, section 6 "Notes to the Income Statement"
(2) Comparison carried out to reflect the effects of the introduction of the new principle IFRS 15, as explained in par. 2.2 of the Notes to the Consolidated Financial Statements
| Thousands of euros | Share Capital | Legal Reserve |
Other Reserves |
Profit (Loss) period |
Total Equity Attributable to the Parent Company |
Third-party Minority Interests |
Total Equity |
|---|---|---|---|---|---|---|---|
| Balance as at 31/12/2016 | 54,630 | 10,926 | 660,841 | 196,330 | 922,727 | 0 | 922,727 |
| Allocation of profit previous year | 196,330 | (196,330) | 0 | 0 | |||
| Distribution of dividends | (93,601) | (93,601) | (93,601) | ||||
| Conversion effect balances in foreign currency | 296 | 296 | 296 | ||||
| Actuarial effect IAS 19 | 0 | 0 | |||||
| Reserve for stock option plan | 987 | 987 | 987 | ||||
| Net result | 54,479 | 54,479 | 54,479 | ||||
| Total net result | 1,283 | 240,836 | 242,419 | 0 | 242,419 | ||
| Balance as at 30/06/2017 | 54,630 | 10,926 | 764,853 | 54,479 | 884,888 | 0 | 884,888 |
| Allocation of profit previous period | 0 | 0 | 0 | 0 | |||
| Distribution of dividends | 0 | 0 | 0 | ||||
| Conversion effect balances in foreign currency | (523) | (523) | (523) | ||||
| Actuarial effect IAS 19 | 751 | 751 | 751 | ||||
| Reserve for stock option plan | 823 | 823 | 823 | ||||
| Net result | 186,357 | 186,357 | 186,357 | ||||
| Total net result | (759) | 0 | 0 | 0 | 0 | ||
| Balance as at 31/12/2017 | 54,630 | 10,926 | 765,904 | 240,836 | 1,072,296 | 0 | 1,072,296 |
| Allocation of profit previous year | 240,836 | (240,836) | 0 | 0 | |||
| Distribution of dividends | (112,321) | (112,321) | (112,321) | ||||
| Conversion effect balances in foreign currency | (74) | (74) | (74) | ||||
| Actuarial effect IAS 19 | 0 | 0 | 0 | ||||
| Reserve for stock option plan | 987 | 987 | 987 | ||||
| First time adoption IFRS 9 | 1,204 | 1,204 | 1,204 | ||||
| Net result | 81,418 | 81,418 | 81,418 | ||||
| Total net result | (74) | 81,418 | 81,418 | 0 | 81,418 | ||
| Balance as at 30/06/2018 | 54,630 | 10,926 | 896,536 | 81,418 | 1,043,510 | 0 | 1,043,510 |
| Thousands of euros | (1) | 1/1/2018- 30/06/2018 |
1/1/2017- 30/06/2017 |
|---|---|---|---|
| A - Initial cash and cash equivalents | 421,525 | 359,175 | |
| B - Cash flow from operating activities | |||
| Net result | 5.5 | 81,418 | 54,479 |
| Unrealised exchange rate differences on bank current accounts | 6,656 | (641) | |
| Amortisation/depreciation and impairment losses | 6.2.4 | 84,967 | 107,027 |
| Net change in risk provisions | 5.4.2 | (4,886) | (14,804) |
| Net change in provision for employee benefits | 5.4.3 | 637 | 689 |
| Net change in deferred tax liabilities and deferred tax assets | 5.2.4 - 5.4.4 | 974 | 23,643 |
| Net interest | 6,671 | 5,042 | |
| Income tax set aside | 6.4 | 31,884 | 6,149 |
| Change in the fair value of derivatives | 5.1.2 - 5.3.1 | (6,815) | (23,089) |
| Other non-monetary components | 5.5 | 2,117 | 1,283 |
| Profit (loss) for the period before changes in working capital | 203,623 | 159,778 | |
| (Increase)/Decrease in trade receivables | 5.1.3 | (22,180) | 182,362 |
| (Increase)/Decrease in inventories | 5.1.4 | (94,986) | (73,293) |
| Increase/(Decrease) in trade and other payables | 5.3.2 | 28,489 | (220,029) |
| Change other current assets | 5.1.5 - 5.1.6 | 7,519 | (10,864) |
| Change other current liabilities | 5.3.3 - 5.3.4 | 83,507 | 74,897 |
| Interest received | 282 | 18 | |
| Interest paid | (6,953) | (5,060) | |
| Taxes paid | 5.3.2 | 0 | 0 |
| Change other non-current liabilities | 5.4.5 | (48,426) | (66,753) |
| Total (B) | 150,875 | 41,056 | |
| C - Cash flows used in investing activities | |||
| (Investments) in tangible and intangible assets | 5.2.1-5.2.2 | (84,058) | (97,731) |
| (Increase)/Decrease in other financial assets Total (C) |
5.1.2 | 66,651 (17,407) |
78,413 (19,318) |
| D - Cash flows used in financing activities | |||
| Increase/(decrease) m/l-term financial payables | 5.4.1 | (744) | 0 |
| Increase/(decrease) short-term financial payables | 5.3.1 | (120,027) | (81,116) |
| Distribution of dividends and treasury share purchases | (112,321) | (93,601) | |
| Total (D) | (233,092) | (174,717) | |
| E - Cash flows for the period (B+C+D) | (99,624) | (152,979) | |
| Unrealised exchange rate differences on bank current accounts | (6,656) | 641 | |
| F - Final cash and cash equivalents | 315,245 | 206,837 |
(1) Please refer to the Notes to the consolidated financial statements, section 5 "Notes on the Statement of Financial Position"
For the Board of Directors The Chairman Massimo Moratti
Publication of the condensed consolidated half year financial report of Saras Group at 30 June 2018 was authorised by the Board of Directors on 30 July 2018.
Saras S.p.A. (the Parent) is a company limited by shares listed on the Milan stock exchange. Its registered office is in Sarroch (CA), Italy, 195 "Sulcitana" Km. 19. It is jointly controlled by MOBRO S.p.A. and Massimo Moratti S.A.P.A., which own 25.01% each and 50.02% jointly of the share capital (excluding treasury shares), under the shareholders' agreement signed by the two companies on 1 October 2013 and subsequently renewed on 1 October 2016. The company is established until 31 December 2056, as stated in its articles of association.
Saras S.p.A. operates in the Italian and international oil markets as a buyer of crude oil and a seller of finished products. Saras Group's activities include refining of crude, the production and sale of electricity via an integrated gasification combined cycle (IGCC) plant operated by its subsidiary Sarlux S.r.l. and a wind farm run by the subsidiary Sardeolica S.r.l..
The condensed consolidated half-year financial report at 30 June 2018 were prepared pursuant to IAS 34 - Interim Financial Reporting.
The condensed consolidated half-year financial do not provide all the information required in the preparation of the annual consolidated financial statements. For that reason, these condensed consolidated financial statements shall be read together with the consolidated financial statements at 31 December 2017.
The standards and interpretations which had already been issued at the preparation date of these condensed consolidated half-year financial and which became effective during the year are listed below.
In July 2015, the IASB issued the final version of IFRS 9 - Financial Instruments replacing IAS 39 - Financial Instruments and all previous versions of IFRS 9. IFRS 9 comprises three parts:
classification and measurement of the financial instruments on the basis of the entity's business model and the characteristics of cash flows generated by the same financial instruments;
impairment of financial instruments on the basis of a new and single impairment model based on the recognition of the losses expected by an entity. This model does not apply to equity instruments and provides for operating simplifications for trade receivables;
hedge accounting based on a more flexible approach than that set out in IAS 39.
IFRS 9, endorsed by the European Union, is effective for annual periods beginning on or after 1 January 2018. Early application was permitted. With the exception of hedge accounting, the retrospective application of the standard is required, but it is not necessary to provide comparative information. As regards hedge accounting, the standard is generally applied prospectively, with certain limited exceptions.
The Group decided to adopt the new standard on the date it became effective.
Following the new provisions governing the classification and measurement of financial instruments introduced by IFRS 9, during the previous year, the Group carried out a detailed analysis of the instruments currently in portfolio and the related accounting balances at 31 December 2017. For each category identified, the Group first analysed the accounting treatment under IAS 39, compared with the classification under IFRS 9, considering the specific contractual characteristics of the instruments and the classification options allowed by the standard. The analysis identified the following impacts:
They were previously recognised at cost in accordance with IAS 39. Under IFRS 9, they are recognised at fair value, with a balancing entry in the income statement or the statement of comprehensive income. These interests (Sarda Factoring and Consorzio La Spezia Utilities) are of a modest value. Consequently, the estimate of the current value had no significant quantitative effects on the financial statements.
Trade receivables were previously measured at amortised cost which is substantially equal to their nominal amount as there were no transaction costs. Under IFRS 9, these components are considered as debt instruments to be measured at fair value. Indeed, as they are not held to maturity, they cannot be allocated to a hold-to-collect business model as required by IFRS 9 in order to measure a financial asset at amortised cost. The new classification under IFRS 9 has no impact on the carrying amount of these receivables. Indeed, in general, the fair value of a short-term trade receivable can be deemed to reasonably approximate its nominal amount when there are no significant transaction costs.
The carrying amount of the liabilities to be renegotiated at 31 December 2017 was recalculated in accordance with the new calculation approach defined by IFRS 9 and, when re-opening the balances at 1 January 2018, the difference compared to the carrying amount calculated under IAS 39 was adjusted with a balancing entry in shareholders' equity. This difference amounts to Euro 1,204 thousand.
With respect to the other financial statements captions covered by the analysis (Other current receivables at amortised cost, Guarantee deposits, Intragroup loans in the separate financial statements, derivatives, financial liabilities), no potential impacts arose from the introduction of IFRS 9 such to require detailed analyses.
With respect to impairment rules, the analysis highlighted the following:
most of the receivables arising from the Group's operations are factored without recourse (and derecognised) and/or covered by other credit risk mitigation measures applicable to wholesale customers (mainly through insurance policies and, to a lesser extent, bank sureties) and receivables from cargo trading activities (collection, including through letters of credit, bank sureties or parent company guarantees);
most of the receivables arising from cargo trading activities (with a significant unit value) are characterised by very tight payment terms (i.e., a few days after the delivery of the goods);
the allowance for impairment is currently calculated based on specific assessments of the recoverability of past due positions;
the credit losses historically incurred by the Group are negligible.
Consequently, it is estimated that the credit risk attributable to the expected loss on performing loans - a new factor to be included in the estimate of the allowance for impairment under IFRS 9, may be considered irrelevant.
At present, the Saras Group does not apply hedge accounting rules to its derivative portfolio. Following this accounting policy, the application of the new rules introduced by IFRS 9 starting from 1 January 2018 had no accounting impact on the opening balance or the presentation of derivatives in the statement of financial position. However, given the simplifications introduced on this issue by IFRS 9 and the larger number of circumstances which could be managed under hedge accounting rules, in the future, the Group may carry out further analyses in view of the potential application of hedge accounting to its derivative portfolio.
IFRS 15, which was issued in May 2014, introduces a new five-step model that applies to revenue from contracts with customers. Under IFRS 15, an entity shall recognise revenue that reflects the consideration to which it expects to be entitled in exchange for goods or services to customers.
The new standard supersedes all current IFRS requirements on revenue recognition. It is effective for annual periods beginning on or after 1 January 2018, with full retrospective or amended application. Early application was permitted.
The Group decided to apply the new standard starting from its mandatory effective date, using the full retrospective approach.
IFRS 15 introduces a new revenue recognition model which applies to all contracts with customers with the exception of those that fall under the scope of other IFRS, such as leases, insurance contracts and financial instruments. The fundamental steps for revenue recognition under the new model are as follows:
identify the contract(s) with a customer;
identify the performance obligations in the contract;
determine the transaction price;
allocate the transaction price to the performance obligations in the contract;
recognise revenue when (or as) the entity satisfies a performance obligation.
In 2017, the Group analysed the impact of the adoption of the new standard. The main findings are given below.
The Group earns revenues from the sale of oil products, according to the following transaction classes: Oil sales (Cargo, Transfer Stock), wholesale and network sales (the latter limited to the sale outlets of the Spanish subsidiary). Furthermore, it earns revenues from the sale of electricity to a private operator and GSE S.p.A., while other income is generated, in particular, by the grants related to the feed-in tariff for the generation of electricity from renewable sources, white certificates for energy-saving projects, emission trading charges, sale of biodiesel certificates and other residual income.
The Group analysed these transaction classes considering the above five steps indicated by the standard:
identify the contract, the customer and the relevant contractual clauses
identify the goods or services covered by the performance obligation in the contract, including guarantees, options, ancillary and multiple services
determine the transaction price, including variable, financial, non-monetary and amending components
allocate any variable or discount factors to the performance obligations
recognise revenue in profit or loss when the performance obligation is satisfied, checking the transfer of control and any acceptance, repurchase, deposit and other significant clauses.
Furthermore, the clauses providing for the invoicing of ancillary costs were analysed, including, in particular, the transport costs related to Cargo sales.
The use of contracts based on a standard form which uniquely highlights the main characteristics of the transaction (buyer, seller, product, delivery, quantity, quality, laydays, payment condition, price, laytime and demurrage, etc.) facilitates the creation of similar categories of transactions with respect to Oil sales.
The oil sale categories and the peculiarities on which the analysis mainly focused were as follows: Cargo sales
These refer to the sale of oil products by vessel, where revenue is recognised upon the transfer of control of the asset identified based on generally recognised international commercial conditions (In.co.term). These contracts do not include performance obligations other than the sale of the asset or financial or discount policies. Any recharging of transport costs, managed on behalf of the buyer and recharged to the same, is considered, similarly to demurrage costs, if any, an ancillary charge to the characteristic performance, which does not configure an independent sale transaction in which Saras acts as the agent. The consideration is determined based on the qualitative characteristics of the product, checked by an independent expert who observes the loading or unloading of the vessel, depending on the trade condition applied. Therefore, these transactions did not highlight the need to modify the accounting treatments applied to date.
These refer to the sale of oil products by delivering the product to a third-party depositary where it can be collected by the buyer. From the moment the product is delivered to the depositary, the seller ceases to have title to the product. Indeed, title thereto is transferred to the buyer in line with the tax registers and the seller can no longer dispose of it. Saras recognises the revenue from the sale in this moment. Similarly to Cargo sales, an independent experts checks the quality of the product delivered upon its delivery at the depositary. Therefore, these transactions did not highlight the need to modify the accounting treatments applied to date.
Since 2016, the Group has launched its business, focusing on optimisation and trading through the subsidiary Saras Trading SA. These transactions essentially follow the above structure of oil and product sales, purchasing and selling the physical product and, when the company only acts as the trader within the Group, it is not necessary to identify the roles of agent and principal at consolidation level. Therefore, these transactions did not highlight the need to modify the accounting treatments applied to date.
Electricity sales are recognised in profit or loss upon the supply of the energy to one of the two buyers, while measuring the electricity supplied and subsequently invoicing the agreed price. None of the above specific cases covered by IFRS 15, which may modify the revenue measurement and recognition criteria currently in place, apply.
With respect to other income, the following categories were reclassified to revenues from sales and the comparative data included in the Consolidated Income Statement restated:
the feed-in tariff on the generation of electricity from renewable sources (wind), which previously consisted in the allocation of green certificates which could be sold independently, is now considered as revenue from the entity's ordinary activity, as described in IFRS 15: as it is now an integral part of the sale price, it is no longer separately classified. Such item was registered, in the Consolidated Half Year Financial Report as of 30th June 2017, for Eur 8,879 thousand
revenues from the sale of biodiesel certificates as they are generated by the core product of ordinary refining activities. Such item was registered, in the Consolidated Half Year Financial Report as of 30th June 2017, for Eur 19,848 thousand
similarly to the recharging of transport costs, revenues from the recharging of demurrage costs to oil product buyers are considered as ancillary charges to the ordinary performance and do not configure an independent sale transaction. Such item was registered, in the Consolidated Half Year Financial Report as of 30th June 2017, for Eur 5,621 thousand. Conversely, revenues from white certificates for energy-savings projects and the granting of contributions for emission trading charges are maintained under other income as they are not generated by the ordinary activities of the entity that manufactures the products sold to customers, as per IFRS 15.
Amendments to IFRS 10 and IAS 28: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
The amendments concern the conflict between the IFRS 10 and IAS 28 with reference to the loss of control of a subsidiary that is sold or assigned to an associate or by a joint venture. The amendments clarify that the profit or loss resulting from the sale or assignment of activities that constitute a business as defined by IFRS 3, between an investor and an associate or joint venture, must be fully recognised. Any profit or loss resulting from the sale or assignment of an asset that does not constitute a business, is only recognised up to the limits of the stake held by third-party investors in the associate or joint venture. IASB has indefinitely postponed the date of application of these amendments, but an entity should apply them retrospectively if they decide to apply them in advance.
IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses – Amendments to IAS 12
These amendments clarify how to account for deferred taxes relating to debt instruments valued at fair value. This standard, which is expected to come into force on 1 January 2017, has not been approved by the European Union.
IASB has issued amendments to IFRS 2 Shared-based payment which deal with three main issues: the effects of a vesting condition on the measurement of a cash-settled share-based payment; the classification of a liability-settled share-based payment; accounting in the eventuality of an amendment in the terms and conditions of a share-based payment transaction modifies its classification from a cash-settled to an equity-settled transaction. At the time of adoption, entities must apply the amendments without restating previous financial periods, but the retrospective application is allowed if chosen for all three amendments and if other criteria apply. These amendments are effective for annual periods beginning on or after 1 January 2018, with early application permitted. These amendments had no significant effects on the consolidated financial statements.
IFRS 16, which was issued in January 2016, replaces IAS 17 Leases, IFRIC 4 Determining whether an arrangement contains a lease, SIC-15 Operating leases – Incentives and SIC-27 Evaluating the substance of transactions in the legal form of a lease. IFRS 16 defines the criteria for the recognition, measurement, presentation and disclosure of leases, requiring lessees to recognise all leases on the basis of a single model similar to that used for finance leases in accordance with IAS 17. The standard provides for two exemptions for the recognition of lessees - leases relating to "low value" assets (for example personal computers) and short-term leases (for example the lease term is 12 months or less) On the commencement date of a lease, the lessee will recognise a liability for lease payments (the lease liability) and an asset that represents the right of use of the underlying asset for the term of the lease (the right-ofuse asset). Lessees shall recognise separately the interest on the lease liability and the amortisation of the right-of-use asset.
They shall also remeasure the lease liability when specific events take place (for example: a change in the conditions of the lease, a change in future lease payments due to a variation in an index or rate used for determining those payments). The lessee shall generally recognise the amount of the new measurement of the lease liability as an adjustment of the right-of-use asset.
Under IFRS 16, lessees shall provide more detailed information compared to IAS 17.
This standard will come into force for annual periods beginning on or after 1 January 2019. Early application is permitted, but not before the entity has adopted IFRS 15. A lessee can chose to apply the standard using a fully retrospective approach or a modified retrospective approach. The transitional measures included in the standard allow some facilitations.
The Group began the analysis activites to assess the impacts of the new IFRS introduction.
The analysis consists of the following stages:
The analysis is currently underway. No significant impacts are expected since the Group did not enter into any significant leases.
The objective of this interpretation is that of establishing the exchange rate to be used in the translation of advances in foreign currency, paid or received. In the presence of paid or received advances, the exchange rate to be used to translate assets, liabilities, revenues or costs identified at a later time is that used to translate the advance. This interpretation, which is expected to come into force on 1 January 2018, has not yet been endorsed by the European Union.
Consolidated subsidiaries are listed below.
| Consolidated on a line-by-line basis | % of investment |
|---|---|
| Deposito of Arcola S.r.l. | 100% |
| Sarlux S.r.l. | 100% |
| Saras Ricerche e Tecnologie S.r.l. | 100% |
| Sarint S.A. and subsidiaries: | 100% |
| Saras Energia S.A. | 100% |
| Terminal Logistica de Cartagena S.L.U. | 100% |
| Reasar S.A. | 100% |
| Sardeolica S.r.l. | 100% |
| Alpha Eolica S.r.l. (in liquidation) | 100% |
| Saras Trading S.A. | 100% |
| Other equity investments at fair value |
The consolidation scope is unchanged compared to 31 December 2017.
The preparation of financial statements requires directors to apply accounting standards and methodologies that, in certain situations, are based on difficult and subjective valuations and estimates founded on past experience and assumptions that at the time are considered reasonable and realistic under the circumstances. The application of these estimates and assumptions affects both the recognition of certain assets and liabilities and the assessment of contingent assets and liabilities. The main estimates are used in determining the value in use of the cash generating units and estimating the provisions for risks and charges and the allowances for impairment. Estimates and valuations are reviewed periodically and the effects of each of them are taken to profit or loss. A summary of the most significant estimates is provided in the Group's consolidated financial statements at 31 December 2017, to which reference should be made.
The Saras Group's business segments are:
generation of electricity via wind farms;
other activities.
The refining activities carried out by Parent Saras S.p.A. and subsidiary Sarlux S.r.l. relate to the sale of oil products obtained:
upon completion of the entire production cycle, ranging from the sourcing of raw materials to the refining and production of finished products, which is carried out at the company's plant in Sarroch, Sardinia;
Finished products are sold to major international operators.
Marketing activities concern the distribution of oil products, an activity aimed at smaller-sized customers and/or those with distribution procedures that differ from those described above in relation to refining. These activities are undertaken:
in Italy by Saras S.p.A. (Wholesale Division), to wholesale customers (wholesalers, buying consortia, municipal utilities and retailers of oil products) and oil companies through a logistics network organised on own base (Sarroch), on a third party's base pursuant to a transit contract (Livorno, Civitavecchia, Marghera, Ravenna, Udine, Trieste, Lacchiarella, Arquata) and by Deposito di Arcola S.rl. for the logistics management of the Arcola depot (SP);
in Spain, by Saras Energia SA, for third-party and Group-owned service stations, supermarkets and resellers via an extensive network of depots located throughout the country, the most important of which, the Cartagena terminal, is owned by the company itself.
The electricity generated by the combined cycle plant refers to the sale of the electricty generated by the Sarroch power station owned by Sarlux S.r.l.. Sales take place exclusively with G.S.E. S.p.A. and benefit from the feed-in tariff under CIP 6/92.
The electricity generated by wind farms relates to the activity carried out at the Ulassai wind farm owned by subsidiary Sardeoloica S.r.l..
Other activities include reinsurance activities carried out for the Group by Reasar S.A. and research for environmental sectors undertaken by Sartec S.r.l..
The management monitors the operating results of the business segments separately, in order to determine the allocation of resources and assess performance. The results of each segment are assessed on the basis of operating profits or losses. The breakdown by business segment and the basis on which segment results are determined are the same as in the consolidated financial statements at 31 December 2017.
A breakdown by segment is shown below. For further details, reference should be made to the specific sections of the Report on operations:
| Income statement 1st half 2018 | REFINING | POWER | MARKETING | WIND | OTHER | TOTAL |
|---|---|---|---|---|---|---|
| Revenues from ordinary operations | 6,102,714 | 263,276 | 1,039,064 | 8,226 | 17,113 | 7,430,393 |
| to be deducted: intersectoral revenues | (1,875,252) | (24,921) | (465) | 0 | (9,991) | (1,910,629) |
| Revenues from third parties | 4,227,462 | 238,355 | 1,038,599 | 8,226 | 7,122 | 5,519,764 |
| Other operating revenues | 93,636 | 21,504 | 3,868 | 993 | 339 | 120,340 |
| to be deducted: intersectoral revenues | (48,786) | (250) | 0 | (120) | (238) | (49,394) |
| Other income from third parties | 44,850 | 21,254 | 3,868 | 873 | 101 | 70,946 |
| Depreciation/amortisation and write-downs | (53,799) | (25,817) | (2,721) | (2,285) | (345) | (84,967) |
| Gross operating result | 107,803 | 64,830 | 7,654 | 3,631 | 2,570 | 186,488 |
| Financial income (a) | 131,947 | 14,061 | 193 | 38 | 8 | 146,247 |
| Financial charges (a) | (216,984) | (158) | (1,300) | (14) | (3) | (218,459) |
| Income tax | (9,227) | (21,581) | (1,366) | 10 | (694) | (32,858) |
| Profit (loss) for the period | 13,539 | 57,152 | 5,181 | 3,665 | 1,881 | 81,418 |
| Total directly attributable assets (b) | 1,526,465 | 1,287,418 | 241,908 | 84,736 | 29,784 | 3,170,311 |
| Total directly attributable liabilities (b) | 1,601,411 | 192,070 | 295,138 | 22,995 | 15,187 | 2,126,801 |
| Investments in tangible fixed assets | 75,109 | 9,029 | 57 | 95 | 233 | 84,523 |
| Investments in intangible fixed assets | 171 | 0 | 249 | 0 | 65 | 485 |
| Income statement 1st half 2017 | REFINING | POWER | MARKETING | WIND | OTHER | TOTAL |
|---|---|---|---|---|---|---|
| Revenues from ordinary operations | 3,985,994 | 245,780 | 872,801 | 12,843 | 9,657 | 5,127,075 |
| to be deducted: intersectoral revenues | (1,174,106) | (26,577) | (1,006) | 0 | (8,523) | (1,210,212) |
| Revenues from third parties | 2,811,888 | 219,203 | 871,795 | 12,843 | 1,134 | 3,916,863 |
| Other operating revenues | 79,340 | 6,659 | 3,774 | 9,818 | 298 | 99,889 |
| to be deducted: intersectoral revenues | (51,551) | (150) | (1,190) | (119) | (261) | (53,271) |
| Other income from third parties | 27,789 | 6,509 | 2,584 | 9,699 | 37 | 46,618 |
| Depreciation/amortisation and write-downs | (55,356) | (46,405) | (2,689) | (2,275) | (301) | (107,026) |
| Gross operating result | (27,132) | 49,367 | 3,054 | 8,522 | 514 | 34,325 |
| Financial income (a) | 136,041 | 68 | 179 | 30 | 8 | 136,326 |
| Financial charges (a) | (81,666) | (3,121) | (1,525) | (49) | (20) | (86,381) |
| Income tax | (13,092) | (13,085) | (1,198) | (2,275) | (142) | (29,792) |
| Profit (loss) for the period | 14,151 | 33,229 | 510 | 6,228 | 360 | 54,479 |
| Total directly attributable assets (b) | 992,396 | 1,278,722 | 204,251 | 102,827 | 25,560 | 2,603,756 |
| Total directly attributable liabilities (b) | 1,187,002 | 207,730 | 283,365 | 24,644 | 16,127 | 1,718,868 |
| Investments in tangible fixed assets | 87,519 | 11,032 | 274 | 0 | 234 | 99,059 |
| Investments in intangible fixed assets | 441 | 131 | 203 | 1 | 25 | 801 |
The Group carries out impairment tests each year (31 December) and when circumstances indicate the possibility of a reduction of the recoverable amount of goodwill. The impairment test on goodwill and intangible assets with indefinite useful life is based on the calculation of value in use. The variables used to determine the recoverable amount of the various cash generating units (CGUs) have been described in the consolidated financial statements at 31 December 2017.
In reviewing the indicators of impairment, the Group takes into account, among other factors, the relationship between its market capitalisation and equity. At 30 June 2018, the Group's market capitalisation was higher than equity, thus indicating the absence of a potential impairment loss on recognised property, plant and equipment and intangible assets. With particular reference to recognised goodwill, the updates of the scenarios analyses carried out on the reference CGUs do not highlight any indicators of impairment. Consequently, the directors did not carry out an impairment test at 30 June 2018 for the above segments.
The following table shows a breakdown of cash and cash equivalents:
| Cash and cash equivalents | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Bank and postal deposits | 313,410 | 419,621 | (106,211) |
| Cash | 1,835 | 1,904 | (69) |
| Total | 315,245 | 421,525 | (106,280) |
Bank deposits mainly refer to Saras S.p.A. (Euro 193,710 thousand), Sardeolica S.r.l. (Euro 10,172 thousand) and Saras Trading S.A. (Euro 83,635 thousand). For further details on the company's net financial position, reference should be made to the relevant section of the Report on Operations and the statement of cash flows.
The table below shows the breakdown of other financial assets held for trading.
| Current financial assets | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Current financial derivatives | 78,210 | 55,553 | 22,657 |
| Deposits to secure derivatives | 29,844 | 40,883 | (11,039) |
| Other assets | 1,654 | 1,855 | (201) |
| Total | 109,708 | 98,291 | 11,417 |
Financial derivatives comprise both the positive fair value of existing instruments at the reporting date and the positive differentials realised and not yet received.
Derivative guarantee deposits include deposits requested by the counterparties with which the Group uses derivatives to guarantee open positions at the reporting date (30 June 2018).
Trade receivables amount to Euro 413,580 thousand, up by Euro 22,180 thousand on the 2017 year-end balance. They are shown net of the allowance for impairment, which amounts to Euro 9,449 thousand (unchanged compared to 31 December 2017).
The following table shows a breakdown of inventories and the changes that occurred during the period:
| Inventories | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Raw materials, consumables and supplies | 318,394 | 326,606 | (8,212) |
| Unfinished products and semi-finished products | 70,580 | 62,596 | 7,984 |
| Finished products and goods | 471,430 | 378,892 | 92,538 |
| Spare parts and raw materials, supplies | 109,851 | 107,175 | 2,676 |
| Total | 970,255 | 875,269 | 94,986 |
The increase in oil inventories is mainly due to the rise in the price of oil products. The measurement of inventories at their net realisable value did not result in any write-downs.
No inventories are used as collateral for liabilities.
Current tax assets break down as follows:
| Current tax assets | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| VAT credit | 94 | 1,595 | (1,501) |
| IRES credits | 3,322 | 3,972 | (650) |
| IRAP credits | 11,805 | 12,960 | (1,155) |
| Other amounts due from the tax authorities | 3,205 | 6,035 | (2,830) |
| Total | 18,426 | 24,562 | (6,136) |
IRES (corporate income tax) and IRAP (regional tax on production activities) receivables refer to prior year excess taxation. The change is due to the taxes of the reference period.
The balance breaks down as follows:
| Other assets | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Accrued income | 1,954 | 1,565 | 389 |
| Prepaid expenses | 19,862 | 10,370 | 9,492 |
| Other short-term loans | 125,803 | 137,067 | (11,264) |
| Total | 147,619 | 149,002 | (1,383) |
Prepayments mainly relate to insurance premiums and charges for the biofuel regulations for the Parent.
"Other receivables" mainly comprise:
Euro 17,655 thousand from the subsidiary Sarlux S.r.l. with the Equalisation Fund for the Electricity Sector for the recognition, pursuant to Title II, paragraph 7 bis, Cip regulation no. 6/92, of charges resulting from Directive 2003/87/EC (Emission Trading), in application of the Authority for Electricity and Gas 11 June 2008, ARG/elt 77/08, referring to the first half of 2018;
recovery of the amount paid by the subsidiary Sarlux S.r.l. to GSE of Euro 28,744 thousand, as described in section 7.1;
white certificates of Euro 45,687 thousand, related to the benefits granted to the subsidiary Sarlux in respect of the energy savings achieved through specific projects preliminarily authorised by GSE and carried out at the Sarroch refinery (EUR 49,741 thosuand in 2017); for additional information, reference should be made to section 7.1;
It should be noted that during the period the subsidiary Sarlux Srl fully cashed in the receivable, amounting EUR 14,176 thousand, deriving from the recognition of the status of "energy intensive company" with refrence to the year 2014.
The Company has already obtained the qualification of " energy intensive company" for the years 2013, 2014 and 2016 and believes to have the requisites necessary to obtain it also for 2015, 2017 and 2018.
The following table shows a breakdown of property, plant and equipment:
| Historical Cost | 31/12/2017 | Increases | Decreases | Write-downs | Other changes | 30/06/2018 | |
|---|---|---|---|---|---|---|---|
| Land and buildings | 225,652 | 42 | (943) | 0 | 304 | 225,055 | |
| Plant and machinery | 3,220,527 | 21,085 | (3,580) | 0 | 67,040 | 3,305,072 | |
| Industrial and commercial equipment | 38,682 | 98 | (330) | 0 | 1,285 | 39,735 | |
| Other assets | 566,663 | 126 | (3,331) | 0 | 19,218 | 582,676 | |
| Tangible fixed assets under construction | 143,434 | 63,173 | 0 | 0 | (88,433) | 118,174 | |
| Total | 4,194,958 | 84,524 | (8,184) | 0 | (586) | 4,270,712 | |
| Depreciation Fund | 31/12/2017 | Depreciation/ Amortisation |
Use | Write-downs | Other changes | 30/06/2018 | |
| Land and buildings fund | 122,524 | 2,398 | 0 | 0 | 0 | 124,922 | |
| Plant and machinery fund | 2,583,901 | 53,274 | (3,580) | 0 | 0 | 2,633,595 | |
| Industrial and commercial equipment fund | 27,154 | 1,513 | (163) | 0 | 0 | 28,504 | |
| Other assets | 441,169 | 9,893 | (3,178) | 0 | 0 | 447,884 | |
| Total | 3,174,748 | 67,078 | (6,921) | 0 | 0 | 3,234,905 | |
| Depreciation/ | |||||||
| Net Value | 31/12/2017 | Increases | Decreases | Amortisation | Write-downs | Other changes | 30/06/2018 |
| Land and buildings | 103,128 | 42 | (943) | (2,398) | 0 | 304 | 100,133 |
| Plant and machinery | 636,626 | 21,085 | 0 | (53,274) | 0 | 67,040 | 671,477 |
| Industrial and commercial equipment | 11,528 | 98 | (167) | (1,513) | 0 | 1,285 | 11,231 |
| Other assets | 125,494 | 126 | (153) | (9,893) | 0 | 19,218 | 134,792 |
| Tangible fixed assets under construction | 143,434 | 63,173 | 0 | 0 | 0 | (88,433) | 118,174 |
| Total | 1,020,210 | 84,524 | (1,263) | (67,078) | 0 | (586) | 1,035,807 |
"Land and buildings" chiefly include industrial buildings, offices and warehouses with a carrying amount of Euro 57,442 thousand, office buildings in Milan and Rome belonging to the Parent with a carrying amount of Euro 2,678 thousand and land largely relating to the Sarroch and Arcola sites belonging to the subsidiaries Sarlux S.r.l. and Deposito di Arcola S.r.l., respectively, with a carrying amount of Euro 40,014 thousand.
"Plant and machinery" mainly relates to the refining and combined-cycle power plants at Sarroch.
"Industrial and commercial equipment" includes equipment for the chemical laboratory and the control room for refining activities, as well as miscellaneous production equipment.
"Other assets" mainly include tanks and pipelines used to handle products and crude oil of Group companies (Sarlux S.r.l., Saras Energia S.A.U. and Deposito di Arcola S.r.l.).
"Assets under construction and payments on account" reflect costs incurred mainly for investment in tanks, and work to adapt and upgrade existing facilities, particularly for environmental, safety and reliability purposes.
The caption increased by Euro 84,523 thousand during the period, mainly reflecting technological work on refinery plants.
The main depreciation rates used are as follows.
| I.G.C.C. plant | other Assets | |
|---|---|---|
| Industrial buildings (land and buildings) | until 2031 | 5.5% |
| Generic plant (plant and machinery) | until 2031 | 8.4% |
| Highly corrosive plant (plant and machinery) | until 2031 | 11.7% |
| Pipelines and tanks (plant and machinery) | 8.4% | |
| Thermoelectric plant (plant and machinery) | until 2031 | |
| Wind farm (plant and machinery) | 10.0% | |
| Equipment (plant and machinery) | until 2031 | 25.0% |
| Electronic office equipment (other assets) | 20.0% | |
| Office furniture and machinery (other assets) | 12.0% | |
| Vehicles (other assets) | 25.0% |
The following table shows the changes in intangible assets:
| Historical Cost | 31/12/2017 | Increases | Decreases | Write-downs | Other changes | 30/06/2018 | |
|---|---|---|---|---|---|---|---|
| Industrial patent and original work rights | 47,846 | 318 | 0 | 0 | 844 | 49,008 | |
| Concessions, licences, trademarks and similar rights | 50,155 | 0 | 0 | 0 | 0 | 50,155 | |
| Goodwill and intangible assets with indefinite life | 21,909 | 0 | 0 | 0 | 0 | 21,909 | |
| Other | 519,898 | 0 | 0 | 0 | 3 | 519,901 | |
| Intangible assets under construction | 1,550 | 168 | 0 | 0 | 0 | 1,718 | |
| Total | 641,358 | 486 | 0 | 0 | 847 | 642,691 | |
| Depreciation Fund | 31/12/2017 | Depreciation/ Amortisation |
Use | Write-downs | Other changes | 30/06/2018 | |
| Industrial patent and original work rights | 42,339 | 1,152 | 0 | 0 | 11 | 43,502 | |
| Concessions, licences, trademarks and similar rights | 24,431 | 923 | 0 | 0 | 0 | 25,354 | |
| Other | 421,897 | 15,814 | 0 | 0 | (61) | 437,650 | |
| Total | 488,667 | 17,889 | 0 | 0 | (50) | 506,506 | |
| Net Value | 31/12/2017 | Increases | Decreases | Depreciation/ | Write-downs | Altri movimenti | 30/06/2018 |
| Industrial patent and original work rights | 5,507 | 318 | 0 | Amortisation (1,152) |
0 | 833 | 5,506 |
| Concessions, licences, trademarks and similar rights | 25,724 | 0 | 0 | (923) | 0 | 0 | 24,801 |
| Goodwill and intangible assets with indefinite life | 21,909 | 0 | 0 | 0 | 0 | 0 | 21,909 |
| Other | 98,001 | 0 | 0 | (15,814) | 0 | 64 | 82,251 |
| Intangible assets under construction | 1,550 | 168 | 0 | 0 | 0 | 0 | 1,718 |
| Total | 152,691 | 486 | 0 | (17,889) | 0 | 897 | 136,185 |
Amortisation of intangible assets totaled Euro 17,889 thousand, and was calculated using the annual rates shown below.
| Industrial patents and intellectual property rights | 20% | |
|---|---|---|
| Concessions, licences, trademarks and similar rights | 3% 33% |
- |
| Other | 6% 33% |
- |
The main items are set out in detail below.
This caption mainly refers to the concessions relating to Estaciones de Servicio Caprabo S.A. (merged into Saras Energia S.A.U.) for the operation of the petrol stations in Spain, and to Sardeolica S.r.l. for the operation of the Ulassai wind farm, which will be fully amortised in 2026 and 2035, respectively.
This caption mainly relates to the goodwill recognised for the subsidiary Sardeolica S.r.l. (Euro 21,408 thousand), which was paid to acquire this company. It was justified given the projection of future cash flows expected by the subsidiary Sardeolica S.r.l. until 2035 when its concessions expire.
This caption mainly includes the value (Euro 75 million) of the long-term contract for the supply of electricity under the CIP6 regime signed between the subsidiary Sarlux S.r.l. and GSE S.p.A.. This contract, which expires in 2020, was measured in accordance with IAS 36 criteria. At 31 December 2017, an independent appraisal confirmed the recognised amount. The analyses carried out do not highlight significant changes during the period in the main assumptions included in the independent appraisal.
Other equity investments break down as follows:
| Other investments | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Consorzio La Spezia Utilities | 7 | 7 | 0 |
| Sarda Factoring | 495 | 495 | 0 |
| Total | 502 | 502 | 0 |
At 30 June 2018, they amount to Euro 15,102 thousand and refers to tax assets considered as recoverable from future taxable income according to the most recent business plan.
The balance at 30 June 2018 amounts to Euro 7,882 thousand (31 December 2017: Euro 7,740 thousand) and is mainly comprised of the long-term portion of a loan asset to the Parent Saras S.p.A. from third parties.
The following table provides a breakdown of short-term financial liabilities.
| Short-term financial liabilities | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Current bank loans | 2,524 | 496 | 2,028 |
| Bank current accounts | 28,997 | 4,163 | 24,834 |
| Financial derivatives | 71,395 | 53,731 | 17,664 |
| Other short-term financial liabilities | 31,520 | 124,678 | (93,158) |
| Total | 134,436 | 183,068 | (48,632) |
"Current bank loans and borrowings" include the short-term portion of bank loans and borrowings raised by the Group, which are measured at amortised cost. The terms and conditions of the loans and bonds are described in note "5.4.1 - Long-term financial liabilities".
"Current bank accounts" comprise the credit lines balance used by the Group as part of the performance of its ordinary activities.
"Financial derivatives" comprise the negative fair value of the financial derivatives in place at 30 June 2018.
"Other current financial liabilities" essentially include receipts related to receivables factored without recourse and without notification, received from customers and not paid back to factors.
For further details, reference should be made to the statement of cash flows.
The table below shows a breakdown of this caption.
| Payables to suppliers | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Customers advances account | 983 | 3,481 | (2,498) |
| Payables to current suppliers | 1,177,790 | 1,146,803 | 30,987 |
| Total | 1,178,773 | 1,150,284 | 28,489 |
"Advances from customers" relate to payments on account received from customers for the supply of oil products.
"Payables to suppliers" mainly comprise the payables related to the provision of raw materials. The increase on the previous year-end balance is essentially due to the rise in the purchase costs of raw materials in the first half of the year.
This caption breaks down as shown below:
| Current tax liabilities | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Payables for VAT | 66,069 | 29,556 | 36,513 |
| IRES payables (and income tax foreign firms) | 52,089 | 28,364 | 23,725 |
| IRAP payables | 7,698 | 223 | 7,475 |
| Other tax payables | 119,523 | 62,223 | 57,300 |
| Total | 245,379 | 120,366 | 125,013 |
The change in "VAT payables", which refer to the payable of the period of Italian and foreign companies, comprises the taxes paid on account by Italian companies in December 2017 in accordance with the law.
The change in the IRES payable reflects the tax liability of the period and the previous year outstanding balance, while the change in the "IRAP payables" is due to the taxable income of the period of Italian companies.
"Other tax payables" mainly include payables for excise duties on products released for consumption by the Parent, Saras S.p.A., (Euro 111,355 thousand) and the subsidiary Saras Energia S.A.U. (Euro 4,997 thousand). The increase mainly arises from the excise tax advance payments made only in December, as required by Italian law.
A breakdown of other current liabilities is shown below.
| Other current liabilities | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Payables employee benefit and social security | 8,535 | 11,658 | (3,123) |
| Payables due to employees | 29,076 | 22,009 | 7,067 |
| Payables due to others | 12,571 | 28,328 | (15,757) |
| Accrued liabilities | 1,576 | 1,421 | 155 |
| Deferred income | 15,384 | 13,348 | 2,036 |
| Total | 67,142 | 76,764 | (9,622) |
"Due to personnel" includes June remuneration not yet paid and the accrued portion of additional monthly payments, as well as performance bonuses.
"Other payables" mainly refer to port fees previously assessed by the Customs in relation to the Parent for the 2005- 2007 period. Following the unfavourable outcome of the relevant litigation, the company paid these fees in July.
This caption breaks down as shown below:
| Long-term financial liabilities | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Non-current bonds | 198,495 | 198,342 | 153 |
| Non-current bank loans | 49,078 | 49,975 | (897) |
| Other long-term financial liabilities | 8,823 | 8,823 | 0 |
| Total | 256,396 | 257,140 | (744) |
It comprises the medium/long-term portions of the bank loans raised by the Parent and renegotiated in the previous year. They are summarised as follows (values in million Euro):
| Commencement / | Original amount | Maturities | |||||||
|---|---|---|---|---|---|---|---|---|---|
| Values expressed in millions of euro | renegotiation of the payable |
Base rate | Residual at 31/12/2017 |
Residual at 30/06/2018 |
1 year | beyond 1 year to 5 years | |||
| Saras SpA | |||||||||
| Unicredit | April 2017 | 50 | 6M Euribor | 50.0 | 49.1 | 49.1 | |||
| Pool financing | October 2016 | 265 | 6M Euribor | - | - | ||||
| Bond | December 2017 | 200 | 1.70% | 198.3 | 198.5 | 198.5 | |||
| Total liabilities to banks for loans | 248.3 | 247.6 | - | 247.6 |
"Long-term financial liabilities" comprise:
< 3.5 and Net financial indebtedness / Equity < 1,5, both calculated based on the Group's consolidated financial statements as at 31 December of each year.
Failure to comply with these covenants will give the banking syndicate the right to demand early repayment of the loan.
On the last verification date, all financial covenants had been met.
Provisions for risks and charges break down as follows.
| Funds for risks and charges | 31/12/2017 | Provisions | Use | Other changes | 30/06/2018 | Change |
|---|---|---|---|---|---|---|
| Plant dismantling fund | 19,038 | 0 | 0 | 0 | 19,038 | 0 |
| Charges for CO2 quotas fund | 43,940 | 50,257 | 32,560 | 0 | 61,637 | 17,697 |
| Other funds for risks and charges | 59,106 | 3,860 | 26,442 | 0 | 36,524 | (22,582) |
| Total | 122,084 | 54,117 | 59,002 | 0 | 117,199 | (4,885) |
The provisions for dismantling plants relate to the future costs of dismantling plant and machinery, which are made wherever there is a legal and constructive obligation to be met in this regard.
The provision for CO2 allowances (Euro 61,637 thousand) was accrued pursuant to Legislative decree no. 216 of 4 April 2006, which introduced limits on CO2 emissions from plants. If these limits are exceeded, allowances covering the excess amount of CO2 must be purchased on the appropriate market. The provision in question represents allowances required and not yet purchased.
During the first half of the year the CO2 quotas fund was used for Eur 32,560 thousand against the purchase (and the delivery) of the quotas referring to previous year.
"Other risk provisions" mainly relate to provisions made to cover probable legal and tax liabilities (including those described in section 7.1), as well as charges related to the acquisition of the Versalis business unit that will be incurred by the subsidiary Sarlux S.r.l. and reimbursed by the transferor.
The following table shows the changes in "Post-employment benefits":
| Provisions for employee benefits | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Post-employment benefits | 10,887 | 10,250 | 637 |
| Total | 10,887 | 10,250 | 637 |
In Italy, post-employment benefits (TFR) are governed by article 2120 of the Italian Civil Code and reflect the estimated amount that the company will be required to pay employees when they leave their employment. The liability accrued at 31 December 2006 was determined using actuarial techniques.
Deferred tax liabilities, totalling Euro 4,955 thousand, relate to the foreign subsidiaries.
Other non-current liabilities break down as follows:
| Other non-current liabilities | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Deferred income straight-line reporting Sarlux/Gse | 110,581 | 158,747 | (48,166) |
| Other payables | 1,053 | 1,313 | (260) |
| Total | 111,634 | 160,060 | (48,426) |
The change compared with 31 December 2017 is mainly due to the decrease in "Deferred income" posted by the subsidiary Sarlux S.r.l.. This caption relates to the agreement for the sale of energy between the subsidiary and G.S.E. S.p.A., Revenues from the sale of energy are affected by the effects of recognition on a straight-line basis since the electricity supply contract, has been recognized, in substance, as a contract regulating the use of the plant by the customer of Sarlux S.r.l., meaning that it is comparable to an operating lease. These revenues have therefore been recognised on a straight-line basis in accordance with both the term of the contract (20 years) and forecasts for the price of gas, which is a determining factor for the electricity tariff.
Equity comprises the following:
| Total equity | 30/06/2018 | 31/12/2017 | Change |
|---|---|---|---|
| Share capital | 54,630 | 54,630 | 0 |
| Legal reserve | 10,926 | 10,926 | 0 |
| Other reserves | 896,536 | 765,904 | 130,632 |
| Net profit (loss) for the period | 81,418 | 240,836 | (159,418) |
| Total | 1,043,510 | 1,072,296 | (28,786) |
Share capital
At 30 June 2018, the share capital of Euro 54,630 thousand, fully subscribed and paid up, comprised 951,000,000 ordinary shares without par value.
The legal reserve, which is unchanged from the previous year-end balance, is equal to one-fifth of the share capital.
This caption totals Euro 896,536 thousand, up by a net Euro 130,632 thousand compared with the previous year-end balance. The net increase is due to:
the allocation of the prior year profit (Euro 240,836 thousand)
Pursuant to IAS 1.1 and 97, it is noted that no equity transactions took place with shareholders acting in their capacity as owners of the company.
The profit for the period amounts to Euro 81,418 thousand.
On 27 April 2018, Saras S.p.A.'s shareholders, in their ordinary meeting called to approve the financial statements at 31 December 2017, resolved to pay a dividend of Euro 0.12 for each of the 936,010,146 outstanding ordinary shares, for a total of Euro 112,321 thousand, distributed during the quarter.
"Revenues from core business" break down as follows:
| Revenues from ordinary operations | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Revenue from sales and services | 5,257,157 | 3,678,971 | 1,578,186 |
| Sale of electricity | 252,552 | 222,575 | 29,977 |
| Other remuneration | 9,667 | 15,080 | (5,413) |
| Change in contract work in progress | 388 | 237 | 151 |
| Total | 5,519,764 | 3,916,863 | 1,602,901 |
Revenues from sales and services rose by Euro 1,578,186 thousand, mainly as a result of the performance of the price of oil products. During the first half of 2018, the Group's purchases and sales of raw materials and oil products rose on the same period of the previous year, following the increased operations of the subsidiary Saras Trading SA.
Revenues from the sale of electricity mainly refer to the gasification plant of the subsidiary Sarlux S.r.l. (Euro 235,497 thousand) and the wind farm owned by the subsidiary Sardeolica (Euro 5,065 thousand).
Revenues from the sale of electricity by the subsidiary Sarlux comprise the effect of the recognition of figures on a straight-line basis, calculated over the residual term of the contract that expires in 2020, principally taking into account the tariff amount and the forward curves of both the price of gas and the projected Euro/USD exchange rate until the contract expires. The projections are reviewed when there are significant changes.
Other fees mainly refer to the revenues earned by the subsidiaries Sartec S.r.l. and Reasar SA in their respective business segments.
6.1.2 Other income The following table shows a breakdown of other income:
| Other operating revenues | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Compensation for storage of mandatory stocks | 3,482 | 1,921 | 1,561 |
| Sale various materials | 272 | 203 | 69 |
| Grants | 820 | 824 | (4) |
| Chartering | 2,067 | 50 | 2,017 |
| Recovery for claims and compensation | 1,112 | 127 | 985 |
| CO2 charges reimbursement | 17,316 | 6,509 | 10,807 |
| Other revenues | 45,877 | 2,636 | 43,241 |
| Total | 70,946 | 12,270 | 58,676 |
| "Repayment of CO2 charges" refers to the revenues recognised obtainment, pursuant to Title II, point 7-bis of CIP measure no. 6/92, of the repayment of the charges incurred as part of the application of Directive 2003/87/EC (Emission Trading) as per AEEG's resolution no. 77/08. The increase on the |
by the subsidiary Sarlux S.r.l. following the | ||
| same period of the previous year is mainly due to the rise in the value of the relevant allowances. "Other revenues" mainly comprise revenues from energy efficiency certificates earned during the period following the sale on the market (approximately EUR 11.8 million) and those earned during the period. Furthermore, the caption comprises revenues from the services provided by the subsidiary Sarlux S.r.l. at the Sarroch site to leading oil operators (EUR 6.9 million). It includes non-recurring items for EUR 5,821 thousand. 6.2 Costs The following table shows a breakdown of the main costs. 6.2.1 Raw materials, consumables and supplies |
|||
| Purchase of raw materials, consumables and supplies | 30/06/2018 | 30/06/2017 | Change |
| Purchase of raw materials | 2,783,365 | 2,182,124 | 601,241 |
| Purchase semi-finished products | 76,559 | 107,465 | (30,906) |
| Purchase supplies and consumables | 48,022 | 35,503 | 12,519 |
| Increase in property, plant and equipment Purchase finished products |
(8,340) 2,065,990 |
(3,348) 1,156,940 |
(4,992) 909,050 |
| Change in inventories | (94,880) | (73,075) | (21,805) |
| Total | 4,870,716 | 3,405,609 | 1,465,107 |
| Costs to purchase raw materials, consumables and supplies rose by Euro 1,465,107 thousand on the same period of the previous year due to the price trend of oil products and the volumes purchased during the semester. . As described in section 6.1, during the first half of 2018, the Group's purchase and sale of raw materials and oil products rose on the same period of the previous year as a consequence of the increased operations of the subsidiary Saras Trading SA. 6.2.2 Services and sundry costs |
|||
| Cost of services and sundry costs | 30/06/2018 | 30/06/2017 | Change |
| Costs for services | 355,109 | 288,583 | 66,526 |
| Capitalisations | (13,832) | (12,450) | (1,382) |
| Costs for use of third-party goods | 7,504 | 6,703 | 801 |
| Provisions for risks | 16,779 | 15,855 | 924 |
| Other operating costs | 7,723 | 8,922 | (1,199) |
| Totale | 373,283 | 307,613 | 65,670 |
| Costs for services mainly comprise maintenance, rentals, transport, electricity and other utilities, as well bank charges. "Use of third party assets" includes the costs incurred by the Parent and the subsidiary Sarlux S.r.l. (for the lease of its offices in Milan, the state concession at the Sarroch site and the lease of equipment) and the subsidiary Saras Energia S.A.U. to lease the network of distributors. "Provision for risks" comprises the amount accrued in relation to the charges arising from the application of Directive 2003/87/EC (Emission Trading). The increase on the same period of the previous year is mainly due to the rise in the |
|||
| volume of allowances. |
| Purchase of raw materials, consumables and supplies | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Purchase of raw materials | 2,783,365 | 2,182,124 | 601,241 |
| Purchase semi-finished products | 76,559 | 107,465 | (30,906) |
| Purchase supplies and consumables | 48,022 | 35,503 | 12,519 |
| Increase in property, plant and equipment | (8,340) | (3,348) | (4,992) |
| Purchase finished products | 2,065,990 | 1,156,940 | 909,050 |
| Change in inventories | (94,880) | (73,075) | (21,805) |
| Total | 4,870,716 | 3,405,609 | 1,465,107 |
| Cost of services and sundry costs | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Costs for services | 355,109 | 288,583 | 66,526 |
| Capitalisations | (13,832) | (12,450) | (1,382) |
| Costs for use of third-party goods | 7,504 | 6,703 | 801 |
| Provisions for risks | 16,779 | 15,855 | 924 |
| Other operating costs | 7,723 | 8,922 | (1,199) |
| Totale | 373,283 | 307,613 | 65,670 |
"Other operating costs" chiefly comprise indirect taxes (municipal tax on property and air emission taxes) and membership fees.
It includes non-recurring items for Euro 17,277 thousand.
"Personnel expense" breaks down as follows.
| Personnel costs | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Salaries and wages | 57,477 | 54,738 | 2,739 |
| Increases in fixed assets for internal work | (5,121) | (2,912) | (2,209) |
| Social security contributions | 16,440 | 16,158 | 282 |
| Post-employment benefits | 3,339 | 3,225 | 114 |
| Other costs | 2,029 | 1,961 | 68 |
| Remuneration to the Board of Directors | 1,092 | 1,389 | (297) |
| Total | 75,256 | 74,559 | 697 |
Given the substantial stability of the Group's average workforce, personnel expense is in line with the first semester of the previous year.
Amortisation and depreciation figures are shown below.
| Purchase of raw materials, consumables and supplies | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Depreciation of intangible fixed assets | 17,889 | 17,139 | 750 |
| Depreciation of tangible fixed assets | 67,078 | 89,888 | (22,810) |
| Total | 84,967 | 107,027 | (22,060) |
Depreciation of tangible assets decreased by Euro 22,810 thousand on the previous year, mainly as a consequence of the review of the useful life of I.G.C.C.'s plant in the last quarter of the previous year.
A breakdown of financial income and charges is shown below:
| Financial income | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Bank interest income | 282 | 18 | 264 |
| Unrealised differences on derivatives | 63,968 | 43,408 | 20,560 |
| Realised differences on derivatives | 22,226 | 35,498 | (13,272) |
| Other income | 127 | (258) | 385 |
| Profit on exchange rates | 56,793 | 54,786 | 2,007 |
| Total | 143,396 | 133,452 | 9,944 |
| Financial charges | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Unrealised differences on derivatives | (67,386) | (29,131) | (38,255) |
| Realised differences on derivatives | (85,608) | 3,835 | (89,443) |
| Interest expenses on loans and other financial charges | (6,952) | (5,061) | (1,891) |
| Other financial charges | (3,625) | (11,591) | 7,966 |
| Exchange rate losses | (52,037) | (41,558) | (10,479) |
| Total | (215,608) | (83,506) | (132,102) |
The table below shows net income/charges by type:
| Financial income and Financial charges | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Net interest | (6,670) | (5,043) | (1,627) |
| Result of derivative instruments, of which: | (66,800) | 53,610 | (120,410) |
| Realised | (63,382) | 39,333 | (102,715) |
| Fair value of open positions | (3,418) | 14,277 | (17,695) |
| Net exchange rate differences | 4,756 | 13,228 | (8,472) |
| Others | (3,498) | (11,849) | 8,351 |
| Total | (72,212) | 49,946 | (122,158) |
The change in this caption is mainly due to the significant fluctuations in the price of raw materials and oil products recorded in the first half of the year compared to the same period of the previous year.
The fair value of derivatives at 30 June 2018 resulted in a net charge of Euro 3,418 thousand (compared to net income of Euro 14,277 thousand in the same period of the previous year).
These derivatives relate to hedging transactions not subject to "hedge accounting" rules. It includes non-recurring items for Euro 3,625 thousand.
Income taxes may be analysed as follows.
| Income tax | 30/06/2018 | 30/06/2017 | Change |
|---|---|---|---|
| Current taxes | 9,959 | 26,452 | (16,493) |
| Net deferred tax assets | 22,899 | 3,340 | 19,559 |
| Total | 32,858 | 29,792 | 3,066 |
Current taxes comprise the IRAP and IRES taxes calculated on the taxable income of consolidated companies.
The change in deferred taxes is due to the recovery, realized in the first half of 2017, continued and completed in the previous year and not present in the first half of 2018, of the prior year tax losses of the Italian subsidiaries.
It includes the net positive fiscal effect of the above mentioned non-recurring items for Euro 4,066 thousand.
For information on the events after the reporting date, reference should be made to the relevant section in the Report on operations.
The Parent Saras S.p.A., Sarlux S.r.l. and Sareolica S.r.l. were subject to a tax audit by the tax authorities which led, in some cases, to disputes pending before tax courts.
The Group Companies are involved in legal disputes brought on by different plaintiffs for various reasons. Although there are some difficulties in predicting the relative outcomes, it is considered that the likelihood of liabilities is remote and therefore no provisions were set aside in these half year financial report.
Although the decisions made by the tax courts were contradictory with regard to the alleged violations, the company assumes that probability of any liability is remote; where instead the liability was deemed probable, appropriate accruals were made to the provisions for risks.
In particular, it is worth noting that in the period it was rejected in second instance the appeal presented by the company related to the long standing dispute related to past years with the Customs Authority for port taxes for the period 2005-2007. Therefore, the holding company in July paid Eur 17,539 thousand plus late payment interests.
Moreover, as regards the subsidiary Sarlux S.r.l., there are ongoing disputes about the non-recognition of the categorisation of the IGCC plant as cogeneration and the subsequent alleged obligation to purchase "green certificates"; the companies producing electricity from non-renewable or cogeneration sources (pursuant to Legislative decree no. 79/99 and the Resolution of the Electricity and Gas Authority - AEEG - no. 42/02) are, in fact, subject to the obligation to purchase green certificates for a certain percentage of electricity fed into the grid. Specifically:
i) 2002-2005 generation After inspecting the IGCC plant in 2007, an ad hoc AEEG committee subsequently and differently reinterpreted the above resolution contrary to that discussed during the generation period. As a result, the AEEG deemed that the company was required to buy green certificates for the years from 2002 to 2005; Sarlux initiated administrative proceedings for all the years in question. In March 2015, the Council of State allowed, in its final decision, Sarlux's appeal for the years from 2002-2005, voiding the outcome of the inspection and the challenged acts that had obliged the company to buy green certificates. In 2018, the GSE completed the repayment of the amount paid by Sarlux.
ii) 2009 Generation. The Council of State, in the above decision, did not deliver any opinion on one of the items appealed (hydrogen produced by the plant qualifying as "useful heat"), an interpretation that, if granted, would have enabled the subsidiary to be considered a cogeneration plant, including with reference to 2009 Generation. As it believes in the reasons already included in the appeal filed with the Council of State, Sarlux commenced new proceedings to obtain recognition of the validity of its reasons about the cogeneration arising from the production of hydrogen as "useful heat". This applies to all units, including the third one, for which, meanwhile, it paid green certificates, net of the expected reimbursement, in February 2017.
iii) 2011 and subsequent generation. As regards the 2011, 2012, 2013 and 2014 generation years, the Company submitted the cogeneration declaration pursuant to the requirements of Resolution 42/02 as in previous years, since it considered the resolution still in effect. Conversely, GSE deemed that, starting with the 2012 obligation (2011 and subsequent generation), the only reference regulation was that for High Yield Cogeneration (CAR) as set out in the Ministerial decree of 4 April 2011, and therefore rejected the Company's request. Therefore, Sarlux S.r.l. lodged various appeals with the Regional administrative court (TAR) with the aim of receiving confirmation that Resolution 42/02 is applicable or, if the regulation for High Yield Cogeneration is applicable, that cogeneration conditions were satisfied for the years in question. In the meantime, to avoid incurring administrative penalties, the Company purchased green certificates for the 2011, 2012, 2013 and 2014 generation years in accordance with GSE's calculation worth Euro 67.0 million and immediately submitted a claim for reimbursement to the AEEG, obtaining Euro 11.7 million for the 2011 generation year, Euro 15.1 million for 2012 and Euro 14.6 million for 2013. The appeal to the Regional Administrative Court relative to the 2012 generation year, which sought confirmation regarding the applicability of resolution 42/02, was rejected in February 2015. Sarlux S.r.l. appealed to the Italian Council of State in September 2015 and deems that the grounds for that appeal and petitions to the Regional Administrative Court that sought to obtain confirmation that cogeneration parameters had been observed in the event that High-Yield Cogeneration regulations are valid and applicable for all years in question. Consequently, the company did not recognise any expense or any revenue with reference to the 2011 generation year.
Furthermore, it recognised receivables for white certificates under other assets (as described in section 5.1.6 – Other assets), against the energy savings achieved through specific projects preliminarily authorised by GSE. During 2016, the GSE began inspecting all projects, despite the preliminary authorization; upon completion of the inspections, GSE during 2017 redetermined the number of white certificates pertaining to the company in respect of the inspected projects. The Group commenced administrative proceedings against the outcome of the above investigations and reflected its assessment of the risk inherent to the possible outcome of the proceedings in the financial statements. During the first half of 2018 GSE partially accepted, on some projects, the claim moved by the subsidiary, and reached a final decision: the effects of such evolution were properly reflected in current half year financial report.
Furthermore, the group companies were subjected to tax audits by the tax authorities throughout the years which, in some cases, resulted in disputes pending before the tax courts.
The transactions carried out by Saras Group with related parties mainly concern the exchange of goods, the provision of services and arrangements of a financial nature. During the period, there were new types of related party transactions.
The undersigned, Dario Scaffardi, Chief Executive Officer, and Franco Balsamo, the Executive responsible for the preparation of Saras S.p.A. financial reporting, hereby attest, pursuant also to the provisions of article 154-bis, paragraphs 3 and 4 of Legislative Decree 58 of 24th February 1998:
In addition, the undersigned declare that:
the Half-Year Financial Report as at 30th June 2018:
a) was prepared in accordance with the applicable international accounting standards recognised in the European Union, pursuant to European Parliament and Council Regulation (EC) n. 1606/2002 of 19th July 2002;
c) gives a true and fair view of the assets, liabilities and financial position of Saras S.p.A. and all consolidated companies.
the interim "report on operations" includes a reliable analysis of the main events which took place during the first semester of the financial year and their impact on company results together with a description of the main risks and uncertainties for the remaining semester of the financial year.
The Half-Year Financial Report also contains a reliable analysis of the transactions with related parties.
This declaration is made pursuant to article 154-bis, paragraphs 2 and 5, of the Legislative Decree 58, dated 24th February 1998.
Milan, 30th July 2018
Signature: delegated authority Signature: director responsible for drawing up the accounting statements
Chief Executive Officer
(Ing. Dario Scaffardi) (Dott. Franco Balsamo)
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