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Edited Transcript of SRS.MI earnings conference call or presentation 30-Oct-19 3:00pm GMT

Nine Months 2019 Saras SpA Earnings Call

Sardinia Nov 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Saras SpA earnings conference call or presentation Wednesday, October 30, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dario Scaffardi

Saras S.p.A. - CEO, GM & Director

* Francesca Pezzoli

Saras S.p.A. - Head of Investor & Media Relations

* Franco Balsamo

Saras S.p.A. - CFO

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Conference Call Participants

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* Alessandro Pozzi

Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst

* Henri Jerome Dieudonne Marie Patricot

UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst

* Joshua Eliot Dweck Stone

Barclays Bank PLC, Research Division - Analyst

* Massimo Bonisoli

Equita SIM S.p.A., Research Division - Analyst

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Presentation

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Operator [1]

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Welcome, and thank you for joining the Saras Third Quarter 2019 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Francesca Pezzoli, Head of Investor and Media Relations of Saras. Please go ahead, madam.

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Francesca Pezzoli, Saras S.p.A. - Head of Investor & Media Relations [2]

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Yes, good afternoon ladies and gentlemen, and thank you for joining us today for this conference call on Saras' first 9 months and third quarter 2019 results. All the documents, including the press release, the analyst presentation and the interim financial report are available on our website.

I am here with Mr. Dario Scaffardi, CEO and General Manager of the Saras Group; and Mr. Franco Balsamo, CFO. Our agenda today will be the following. Mr. Dario Scaffardi will start with the highlights of the period followed up by a detailed review of the results of each business segment. And afterward, he will provide an update on the most recent developments and on the outlook for Q4.

In the interest of time, we will not present in detail the section on financial, but you have all the data in the slides. And as usual, we are available to answer any questions during the Q&A session.

At this time, I would like to hand over to Dario.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [3]

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Thank you, Francesca. Good afternoon, ladies and gentlemen. Thank you very much for joining us. We are very pleased to present a strong quarter, although a very challenging and interesting market as usual which is the thing that makes the oil business extremely interesting.

I would say that first of all, notwithstanding the attacks in the Middle East and notwithstanding all the reason that would tend to push prices up, prices have remained by and large around the $60 mark. We view this fact as favorable to us because it means that notwithstanding the absence of Iran and Venezuela and the pledged further cuts from the OPEC-plus group still there's ample supply of crude oil, which is the first thing that we look at.

Secondly, in this quarter, we finally start to see in a tangible manner the effects of the IMO regulations. So diesel cracks are strengthened and the price of high-sulfur fuel oil has dropped dramatically as we have anticipated for a long time, and has failed to materialize before.

So coming to our results, the Q3 comparable group EBITDA stood at EUR 118 million compared to the EUR 122 million of the previous year, so broadly in line. The refining sector has given a very good performance driven by the favorable market conditions and by very good operational performance, while the power segment has been a little bit more challenging. But we'll talk about it later on.

The comparable group net result is EUR 56.8 million versus the EUR 44 million of the previous period, while the net financial position as of the 30th of September is positive by EUR 28.6 million versus EUR 46 million as of 31st December of 2018.

If we go look at the market, we see that the gasoline crack, which started off very, very weak at the beginning of the year, has come back in a very strong manner. It has been in the higher side of the range. In our budget, we had anticipated lower numbers, and during the summer it went also above $10 and we feel that is a positive performance for the gasoline given the overall environment.

The diesel has shown some very strong performance all through the year. It started off quite well. It dipped a little bit in the second quarter, only to rebound back strongly remaining in the top of the range of the highest levels that we have seen in the last 4 or 5 years, mainly due to the IMO MARPOL legislation.

So I would say by and large a very constructive period in terms of absolute prices of diesel, of the discounts of fuel oil. The only area of attention is on the discounts of the various quality of crude oil which due to the absence of Iran and Venezuela, have been abnormally strong. And also certain sweet grades, which are particularly suitable for the production of the very low-sulfur fuel oil for marine use, also has shown strength. So this is one of the reasons why the margins haven't been actually higher. They have been counterbalanced by a very constructive product picture, also a very constructive demand situation -- more challenging the crude oil supply side.

Although we are starting to see some changes in this respect, it started with Euros in this quarter which has had a very variable position due also to the aftermath of the situation of the contamination in the Russian pipelines. But I would say that on certain specific crudes of the heavier types, which are not particularly abundant, we are starting to see some encouraging signs of prices weakening which is -- relative price weakening, which is constructive for Saras.

If we look at the margins, the EMC benchmark has touched one of its maximum levels in this past quarter so it has been at $3 and we have been able to add about $3.10 above this. Our guidance, we'll talk about it a little bit later, but our guidance for the fourth quarter is that we should be able to achieve certainly a level above $3 in the quarter due to the very strong beginning of the month of October. So I would be constructive in this respect.

If we look at the segments, our refinery runs in the quarter have been 6% above those of the same quarter of the previous year. And if we look at the 9-month average, they're broadly in line. There is a less use of complementary feedstocks, and when I talk of complementary feedstocks, we mean straight-run fuel oils, semi-processed material, let's say. That has become extremely expensive due that many of these materials are used as blending components for the new ultra-low-sulfur fuel for marine use. So they have become very expensive, making it a little bit less economical to run. So this is the reason why we have basically run less.

The operational performance of the refinery has been extremely positive. Likewise the programming and commercial performances of our trading division in Geneva. So a very, very good quarter from this point of view.

If you look at the next slide, again, we present 9 months results on the qualities of crude oil. The quality of crude oil has become lighter, and the reason is it's purely economical. Basically, the less availability of heavy crudes, or the fact that they are more expensive, incentivized the use of certain particular crudes which are neither particularly suitable for the production of very-low-sulfur fuel oil nor for other reasons. So they have become more discounted. This is the reason why our average API has gone up by about 1 point.

In terms of product yields, we maintain a broad yield line. Of course the lightening of the crude, too, as shown as an increase in the middle distillates since we try to maintain the fuel output basically constant.

If we look at the fixed and variable costs, these are in line with the signs of improvement. We have a strong campaign to reduce overall costs in the market where costs are increasing in a way, and we have some significant improvement using the fixed cost, while the variable costs, they're basically due to the higher value of chemicals, hydrogen and CO2.

If we look at -- if we look at power generation, power generation this month has been slightly disappointing. This is due mainly to some operational hiccups where we've had about 5% less production in the quarter compared to the previous quarter, and 5% reduction in the full 9 months compared to the same period of last year. But I would say that more importantly there is a change in the power tariff where the price of gas has decreased, and also the price of power has been below the EUR 50 mark. I think the average of the quarter has been something like EUR 47 per megawatt.

If we look to the fixed and variable costs again, there is nothing much to add. Marketing side has been favorable. In this quarter we have completed the sale of our business unit of the retail segment of our Spanish division to Kuwait Petroleum. So this has been completed and (inaudible) in the total consideration of EUR 35 million to which we have to add a little bit of capital inventory requirements that were transferred at the time.

Overall, sales in Italy have been on the increase. In the quarter we have shown 6% more while logically in Spain considering the absence of the retail network we've had a 7% decrease, but with good margins. So the market overall continues to remain strong.

The wind segment has been also positive. Traditionally the summer month is a weak period for wind, and of course, we've been negatively affected by the power tariff which is significantly lower than last year. So there's been almost a 30% change in the power tariff quarter-on-quarter while electricity production has actually been higher in this quarter compared to that of the previous year.

I will say that one of the items that I would like to highlight is the effect of IMO. This is something that we've talked about for a long time, and finally, these are manifesting themselves in a clear manner. First of all, there's been a constant and steady rise of the diesel cracks and a decline in high-sulfur fuel oil cracks. A complex refinery has its economics which are directly linked to the difference between these 2 values. So a higher spread means higher refinery margins for a complex conversion refinery. The opposite is true for a hydroskimming refinery. So we might have some different effects depending on the configuration.

And if you look at the next slide, this I think exemplifies a little bit what I've been trying to point out. This slide here represents the ratio between the value of diesel and the value of high-sulfur fuel oil, and it's a metric which is directly linked to refined margins. So we had a period of that, a cycle you know, a negative cycle on refining margins which has been the period between 2010 and 2014. And you can see that in this ratio.

And then this ratio started to rise, and we've had a period of very positive margins. Then it went back down in 2017 and 2018, but for the opposite reasons. It has not been a weakening of diesel but a strengthening of fuel oil.

Fuel oil, in the last couple of years, has been abnormally strong notwithstanding the decline in demand. This is what negatively affects this ratio and gives a positive boost to a simple refinery and a negative boost to a complex refinery. This situation, as you can see from the last part of the [leg] is changing very dramatically. So I believe we're going to enter into a phase which will be a bullish cycle for the complex refineries.

In this period, we have started our bunkering business which is the retail business to selling marine fuels to ships. We have started at the end of April and already in September we had a very, very positive result. We've been able to sell about 17,000 tons of product. We actually budget about 10,000 in the first month and are -- this level of service and the -- and with that lightering vessel that we have, the maximum over amount would be about 20,000 to maybe 25,000. SO if we're able to secure a market above that we would probably need to consider to getting a second lightering vessel to perform the service.

Many ships have started to call on our port, not necessarily because they are calling on Saras to provide us with product. So this is a very positive start for us, and we expect to have a very, very interesting 2020 in this respect. Keep in mind that our first sales have been of the old type of fuels because if you look back at the graph, and you look at the difference between the price of high-sulfur fuel oil and the new, very-low-sulfur fuel oil, that -- the very-low-sulfur fuel oil is sold on the basis of diesel minus, anything between diesel minus. It's been a very variable price. I would say anything in the range of diesel minus, $50 to $100.

Fuel oil, high-sulfur fuel oil, is $150 to $100 cheaper than that. So, of course, any ship owner will try to buy the high-sulfur fuel oil quality until the very last possible day. So the majority of our sales in September -- only in October have we started to see a little bit of shift, but still the actual sales of very-low-sulfur fuel oil at the retail level have been comparatively modest.

This has been also a very good quarter for our wind farm. I think I mentioned in the previous call that we at the end of last year, our people in our associative -- our control company, Sardeolica, obtained the authorization to increase capacity so we have built 9 new towers, each of about 3 megawatts. So we have added roughly 30 megawatts to our existing wind farm, so an increase of 30%. And this has been completed in a period of 7 months. So by August, the whole project has been basically completed, and taking blades which are longer than 117 meters -- sorry. That's the diameter. The radius is half of that. And on mountain roads, is no small feat, which has been performed in an impeccable manner. At the same time, we have received authorization to reblade our existing farm on the old towers, and this is already underway. We have purchased the blades and we are going to start installing them in the forthcoming weeks, and maybe by the end of the year, the beginning of next year, we have -- we will complete on that. It will not change the installed capacity but it will increase the possibility of production in lower wind conditions. So this is a further positive development.

On the outlook for the last quarter, as I mentioned at the beginning, this quarter looks extremely constructive with the effects of the IMO MARPOL regulations driving the very strong diesel spread and a very strong outlook for very-low-sulfur fuel oil. So we expect this to impact significantly on our refining margins and on our bunker activity.

So the premium above the ENC benchmark is similar to the level that we have obtained in Q3, so above $3. There has been a slight misunderstanding in the data we are presenting, where we have presented the premium, which is based on the full year of course, including the maintenance in the first quarter.

Regarding the power, there is maintenance that has been completed. The CIP tariff is influenced by the lower gas prices and on the wind we have already mentioned. So, by and large, we expect a strong Q4 to complete the year, and with the positive outlook for next year.

We have decided not to comment specifically on the financial figures, waiting for your specific questions in this respect. And Franco is right next to me and he will be able to answer any questions you might have.

Thank you.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Joshua Stone of Barclays.

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Joshua Eliot Dweck Stone, Barclays Bank PLC, Research Division - Analyst [2]

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I've got 2 questions on refining, please. First, to just follow up on the guidance you've given for 4Q, I have to say in terms of total refining margin if you printed 6.1 in 3Q, did you think it likely would be up in 4Q or broadly the same, if you could be maybe a little bit more specific that'd be great. And then the second question on -- we've seen freight rates go very high, or extremely high parts of September, and they have come down. I was wondering if you could talk about what impact that's had for Saras if any, and how it could go from here. Thank you.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [3]

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Thank you, Joshua. Well, on our guidance we don't -- we give guidance on the ENC premium, on our premium to the ENC benchmark. So what we can certainly confirm is that we expect to be able to be above the $3 mark in Q4 if the market continues in this manner. What the actual value of the EMC benchmark will be is something that we don't usually comment upon. But I will be sort of surprised to see any strong deviation from what we've had from Q3. So the market at the moment looks constructive and looks well-balanced. On the freight rates, thank you, because I think it's an interesting question in which many people give conflicting views. Now, we are based on an island, so one can assume that high freight rates affect us adversely. And too, in a way, this is true. But I will say that high freight rates for Saras are actually a relatively positive thing. We have been badly hurt during the period of negative cycle by very low freight rates that were permitting unreasonable arbitrages. We have been affected by the fact that people were importing diesel from China, which is really an anomaly considering the fact that the freight rate to bring crude to China and bring the products back is sort of ridiculous. I mean, it's higher than the refining margin. So it was a very abnormal situation. So having freight rates that have risen significantly and have come back down -- so again, when things are influenced by political factors like they've been on the freight rates with the costs, the thing on -- with American sanctions is, I think we need to wait and see. But there is a consensus that the freight market has moved a step higher. Let's remember that it moved -- it moved a step higher from a very, very, very low level. So I think this is beneficial also for the ship owners. From our point of view, if we look at crude, there are 2 considerations here. One, that the price of transport on crude is borne basically by the suppliers. The majority of crude quotations like the Euro Med quotation, is the CIF (inaudible) quotation. So the supplier discounts whatever the crude -- the transport price, maybe not on the immediate of course. After the event happened, when things normalize, that is the case. As a matter of fact, if you look at the Iraqi contracts, they have a specific provision for freight adjustment. So the freight is basically borne by the crude seller and this is also very beneficial for us because Saras has access to many crudes in its basin. Which where we have competition from the Far East, if crude prices are higher it becomes a lot more convenient for the former Soviet Union producer or for North African, to sell crude to Saras rather than ship it to the Far East. So this is advantageous. It is also advantageous in terms of product supplies because then arbitrages of oil products from the U.S. Gulf, from the Arabian Gulf, the Persian Gulf, from India, are less attractive. So this strengthens our position as a seller. The negative is that of course, the freight that we pay to supply our basins around the Mediterranean becomes affected. But I would say that the other effects by far counterbalance the increase in price that we have in our domestic network.

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Joshua Eliot Dweck Stone, Barclays Bank PLC, Research Division - Analyst [4]

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That's very clear, thanks for the decent answer. Just a quick point of clarification on the first question. So is the idea the additional margin would be at -- you think will be above $3 in 4Q?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [5]

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I would think so, yes.

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Operator [6]

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The next question is from Alessandro Pozzi of Mediobanca.

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Alessandro Pozzi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [7]

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I have 2 questions. The first one is on the fuel oil. I don't think you have sold an awful lot of very-low-sulfur fuel oil in Q3 but that's probably going to change in Q4. So I was wondering, can you help me understand how much very-low-sulfur fuel oil versus the high-sulfur fuel oil are you planning to produce into Q4 and then of course into Q1 in 2020? My second question is on maintenance activities. I was wondering if you can maybe give us an update on the level and the timing of maintenance activities in 2020? Thank you.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [8]

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On the fuel oil, basically if you go back to a slide where we have the production, our production of fuel oil in the 9 months has been 500,000 tons, roughly 5%. This is on -- and if we transform this on a yearly basis that would be something in the range of about 700,000 tons a year, which at the moment is sort of our target. And it will be all or almost all very-low-sulfur fuel oil. We have sold relatively small quantities of very-low-sulfur fuel oil directly to ships because they didn't want it for the time being. But we have sold instead, full cargos to other international bunker operators, particularly in northern Europe that were storing up in their tankage system for their future demands. So we have been producing it and for 2020 we expect to produce 100% of our production, or a number which is very close to 100% as very-low-sulfur fuel oil and in the range of anything between 600,000 to 800,000 tons a year which is roughly 5% of our production. Regarding maintenance, we will publish our schedule for 2020, I think later on, in the next quarter results. 2020 will be a year in which we will have between the first and the second quarter, we will complete our 10-year maintenance cycle, our 6-year maintenance cycle, excuse me, of our core conversion units. So we will perform work on our FCC units where we will have -- and during this period we will also complete the investments which are switching the accessory units from steam and some fuel-oil-powered to electric power. So this will happen between March and May of next year.

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Alessandro Pozzi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [9]

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Okay, thank you. And going back to the fuel oil, so in Q4 are you planning to sell all the fuel oil that you're planning to sell is going to be the 0.5% compliant fuel oil?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [10]

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It depends on the request from the market. We are planning to produce only that. On the level of shipbuilders calling up the port, there is still demand for the high-sulfur and I think there's going to be, until the very last day in which they will be able to -- to purchase it, although it is declining, of course. I would say that the more sophisticated ship owners are switching, and maybe the more aggressive ones are trying to hold on to lower price as long as they can. Because now they've got a boost from the freight rate. So maybe they're going to be a little bit more relaxed to paying up, hopefully.

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Alessandro Pozzi, Mediobanca - Banca di credito finanziario S.p.A., Research Division - Research Analyst [11]

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Okay. Because I think at the moment you're selling the 0.5% alongside the 1% fuel oil, is that fair?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [12]

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No. No, no. The 1% basically almost -- that almost doesn't exist anymore. There's a very limited market. There is a little bit of over-land market for 1% but it's tiny in terms of quantity. It's irrelevant.

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Operator [13]

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The next question is from Henri Patricot of UBS.

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Henri Jerome Dieudonne Marie Patricot, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [14]

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Two questions for me. The first one on the refining and your crude slate, you mentioned a changing environment for crude and differentials. I was wondering if we should expect any change in your crude slate in the coming months, in particular given the changes we're seeing on the products side of things. And secondly, was wondering if you can give us some indication of your latest expectations in terms of CapEx for next year, in light of the major turnaround that is going to take place?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [15]

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In terms of crude slate, looking forward, you know, we continue to capitalize on our flexibility. So we maintain very -- we monitor the market very, very closely and we look for opportunities. We are starting to see some signs that particularly the heavier grades are starting to be a little bit more discounted. So there is some positive sign. This has not been felt yet by the more standard crudes like Euros and the standard Iraqi and Saudi Arabian productions, but I would say that there are some encouraging signs. We, of course, tend to exploit the market as much as we can. Of course, it's not our policy to give out any specific details to exactly what and from whom we buy, but there are some interesting developments. I would say that there is -- on the sweet crudes there's a 2-tier market. One for the crudes that are particularly suitable to produce the very low sulfur fuel oil and these are sort of increasing in terms of price which is correct since this very-low-sulfur fuel oil is almost at the same level of diesel. So there's a very strong incentive to produce. There also is a straight-run product. So also a simple refinery might be able with certain crude, to produce the (inaudible) and with good economic results. Instead, those sweet crudes that are not particularly suitable for this are becoming, are coming under pressure. So these become automatically opportunity crudes for us, which we try to maximize in our slate. On the CapEx maybe, if that's a more difficult question I would like to have Franco.

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Franco Balsamo, Saras S.p.A. - CFO [16]

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In terms of CapEx, as we (inaudible) in the last conference call, we have anticipated roughly EUR 30 million of investment expected in the year 2020 for technical reasons been anticipated in this year. So we are forecasting to close normalizing in that region EUR 30 million more. On the top of it of course we need to consider the investment in the wind side, that in any case is what we are not including in the (inaudible). As far as the investment in the year 2020, at the time being we can confirm what has been already approved in the existing business plan so the [instant] investment will be kept at the same level.

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Operator [17]

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The next question is from Massimo Bonisoli of Equita.

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Massimo Bonisoli, Equita SIM S.p.A., Research Division - Analyst [18]

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Three questions, if I may. Back to the question on the tanker rates, could you be more specific on the magnitude of the positive effects of the higher tanker rates in terms of additional premium or margins per barrel you have seen so far in the month of October? The second, if you can give us an indication of margin premium in October I would assume it would have increased this third quarter. And the third, if you can provide an update on the guidance for power generation division. Thank you.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [19]

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On the tanker rates, I would say that you know, I was trying to give a more qualitative view on the market and with a long-term view. I mean, because if I look at the short-term, crazy things have happened. The freight rates for VOCCs -- by the way, we don't use any VOCCs -- but they went from a rate, if I remember correctly, of about $30,000 a day which is the rate which we can charter a VOCC, to $300,000. And that I think is back to $160,000 or $170,000. So to give an impact on actual numbers for us is, as I would say, difficult and probably also inappropriate. What I would stress from my qualitative point of view that high tanker rates are not necessarily a negative. We don't view a high tanker rate for crude carriers as a negative for Saras. Actually, being very, very close to important production areas such as Libya, Algeria, Egypt, [say and] in Turkey, which is a collection point, this is actually -- we are the first refinery on the line from these routes. So this is actually a positive effect. How positive? Whether it has been a positive effect in October, no. I don't think it has been a positive effect in October, because in October we had to bear the brunt of a sudden change in the market. So the effect has probably not been too positive. But over time, I think it could improve our crude supply by the fact that it incentivizes long-haul voyages. Regarding the premium, it will be inappropriate to provide a guidance on the October number. But as we mentioned before, the Q4 looks very similar to Q3. And excuse me, you had one more question, I think.

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Massimo Bonisoli, Equita SIM S.p.A., Research Division - Analyst [20]

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The power gen.

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Franco Balsamo, Saras S.p.A. - CFO [21]

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As far as the power gen, at the existing electricity price we are forecasting EUR 150 million, EUR 155 million for the full year, to be to the end year.

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Operator [22]

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The next question is from [Christopher Copeland] of Bank of America.

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Unidentified Analyst, [23]

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I think I'm going to try and ask another question that will sound acutely like a question you've tried to answer many times. But any indication you can give us how you think your crude slate will change into 4Q and beyond, and perhaps give you the opportunity to reiterate your 2020 guidance that's been out there for a while. And as a second perhaps add-on, Dario, you've been always quite outspoken that the market will find its weird and wonderful ways to deal with a disruption that I guess the IMO represents. What is your earliest estimate so far given the charts you've presented to us today and the evidence you now have of the IMO impacting the market, whether it's compliance, whether it's your competition, switching, blending, coming up with if you like, market-driven solutions that perhaps we didn't think of a few quarters ago? Thank you.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [24]

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Christopher, I think it's a question which is definitely to the point. I think we are in a situation where the market is going to find some sort of equilibrium. Right now, we have a very high value of this very-low-sulfur fuel oil and a very low value of high-sulfur fuel oil. So this is an area, in my opinion, which is of an unstable equilibrium, which on the one hand incentivized strongly the ship owner to install scrubbers, to cheat, to do anything because there is a huge, at the moment, financial incentive. So I think this gap in a way will close a little bit. I don't think it will close that much because the majority of the big ship owners, and we see this from our bunker activity, have looked very, very favorably. To be honest, when we started our bunkering activity in our port in August, I was recommending our guys to go slowly and to be cooperative with the ship owners thinking that the ship owners would be reluctant to buy from a new player. Instead, quite the opposite has happened. They were very pleased to be able to buy directly from a refinery, so where they had a guarantee on the quality and on costs, of results, and the willingness to participate in any fine-tuning that might be necessary. So we had a very easy start, to be honest, which I was surprised. And we've been able to subtract a certain amount of volume from other bunkering bases. So this, from the point of view, the micro point of view of our activity, is extremely constructive. From a more global point of view I would say that again, these high VLSFO prices promote running of certain type of crudes, but at the same time the prices of these crudes has become rather high. So if you're not able to exploit them properly, particularly in their middle distillate cuts and in their -- [in other words] you're paying a lot to make fuel oil. So this again will find some sort of equity. But one of the recent things that I've been reading is that certain countries are thinking of trying to put waivers and this might happen. I mean, I would not rule it out, but I think that by and large the picture is kind of constructive, and there will be more opportunities particularly for refiners such as us. And I look forward to the possibility of buying more high-sulfur fuel oil which we could use as a complementary feedstock in the refinery and this is something that we would be easily able to do compared to others that instead would not be able to treat some stuff. So I think we're going to see some very interesting times in the next couple of months, and of course, the market will maybe find some sort of equity, maybe next summer in my opinion. It'll take at least 6 months to find some sort of stability.

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Unidentified Analyst, [25]

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And just a quick one on your 2020 guidance, what's embedded there in terms of expected changes to your crude slate?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [26]

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Well, the only thing that is not really going according to our plans is the crude differentials. That is an area that still is challenging. The prices of heavy crudes are abnormally high. I'm waiting to see the effects of IMO 2020 on these crudes. I don't think we have seen the full effects yet. So I think there is room for improvement there. If that materializes again, you know, a dollar decrease or one or 2 dollar decrease in high-sulfur crude, differential equates back into $100 million basically.

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Operator [27]

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(Operator Instructions) The next question is a follow-up from Joshua Stone of Barclays.

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Joshua Eliot Dweck Stone, Barclays Bank PLC, Research Division - Analyst [28]

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Just a follow-up on the crude differentials. I noticed the Russian-Euros price has gone up quite substantially, as has Brent in the last month. I don't know if you have a view on what's driving that, if it's being replicated in any other crude differentials?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [29]

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Well basically it's a question of demand and supply. The program for October-November has been a tighter program, both from the north, from [Oskug] and Primorsk and from the Black Sea. So less availability. The quotation of Euros is a quotation which of course is the most liquid markets, so it immediately reflects availability. On the other hand, there are other crudes that we purchase that (inaudible) always on the heavy high-sulfur crudes that have shown an opposite trend. So with increased discounts in the latter part of the year. So I am cautiously optimistic. Generally, we don't buy Euros so Euros is a benchmark. But we very rarely buy Euros.

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Operator [30]

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(Operator Instructions) Mr. Scaffardi, there are no more questions registered at this time.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [31]

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Thank you very much.

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Francesca Pezzoli, Saras S.p.A. - Head of Investor & Media Relations [32]

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Thank you very much for listening, and we are available for any follow-up question you might have. Thank you.

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Operator [33]

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Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.