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Edited Transcript of SRS.MI earnings conference call or presentation 30-Jul-20 2:30pm GMT

Q2 2020 Saras SpA Earnings Call

Sardinia Jul 31, 2020 (Thomson StreetEvents) -- Edited Transcript of Saras SpA earnings conference call or presentation Thursday, July 30, 2020 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dario Scaffardi

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

* Franco Balsamo

Saras S.p.A. - CFO

* Ilaria Candotti

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Conference Call Participants

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* 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

* Monika Rajoria

Societe Generale Cross Asset Research - Equity Analyst

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Presentation

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Operator [1]

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Good afternoon. This is the Chorus Call conference operator. Welcome and thank you for joining the Saras Second Quarter and First Half 2020 Results Conference Call. (Operator Instructions)

At this time, I would like to turn the conference over to Ms. Ilaria Candotti, Head of Investor Relations of Saras. Please go ahead, madam.

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Ilaria Candotti, [2]

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Good afternoon, everybody, and thank you for joining us today for this conference call on Saras' first half and second quarter 2020 results. All the documents, as usual, including the press release, the analyst presentation and the half-year financial report are available on our website directly in the home page and in this section dedicated to investor financial results.

Our agenda today starts with me Mr. Dario Scaffardi, Chief Executive Officer and General Manager of the Saras Group, who will comment the highlights of the period followed by a detailed review of the results of each business segment. Mr. Scaffardi will then provide the outlook for the year with a brief comment to the more recent outlook of the International Energy Agency on the oil demand. Afterwards, Mr. Scaffardi will introduce an overview of Saras' road map to the energy transition with a discussion of the main target and projects under study by the group.

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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Ilaria, thank you very much. Thank you, ladies and gentlemen, for joining us.

Today, what can I say? The second quarter has been, of course, an extraordinary market from every point of view, and everything that could have gone wrong actually did go wrong. This notwithstanding in this very difficult situation the group reported a positive comparable EBITDA both in Q2 and in H1, equal, respectively, to EUR 15 million in Q2, which was then -- was EUR 55 million in Q2 of '19 and EUR 71 million in the first half of the year compared to EUR 108 million in the first half of 2019. This has been achieved notwithstanding the dire refining market, thanks to a strong commercial performance in the Refining and Marketing segments. In particular, there was a premium of $3.50 over the average margin of the $3.80 of the premium on the EMC benchmark, which, in certain moments, was negative in -- still is negative, unfortunately, in the first half of the year. Instead, if we look at Q2, the premium was over $4.50 per barrel with the EMC benchmark negative by $0.70. I think a remarkable achievement has been to keep the financial position at minus EUR 337 million with a deterioration of slightly more than EUR 100 million compared to the 31st of March of 2020.

During this quarter, the market did some very, very extraordinary things. In the previous call, we did mention the huge gap between quality differentials on crude, the spreads on products, the discrepancies between the futures market and the physical market. All these effects seem to be slowly correcting themselves.

So if we look at the absolute price of oil, it would seem that in the last weeks, more or less Brent is hovering around the $40, $44 range with a relative stability. The discount compared to ICE Brent, to the futures contract, is only $0.86, which, I would say, is more or less within the historical range of variability of Brent Dated compared to ICE Brent. In March, it went to minus 9, an extraordinary level. At the same time, in the quarter -- in the second quarter, we had some extraordinary market (inaudible) emissions, a very strong contango, meaning that the future market was much stronger than the [spot] market. This entailed a huge amount of storage. This has since disappeared. The forward curve is basically flattish. The overhang of stocks, which have so negatively affected the market, has slowly been absorbed. So all in all, it would seem like an encouraging picture. Another big factor was crude premiums, which went from being very negative in March and beginning of April to very positive. Now they seem to have reached what we can say more normal, whatever normal means, levels. So sweet crudes are back in the historical range in which they move. The negative impact is from sour crudes that are still extremely strong compared to their historical levels. In particular, we've had Urals that reached $2, $3 premium. Now it would seem to be back to a small premium, but normality would be a more significant discount.

It would seem at the moment that the market is slowly heading back into that direction, thanks also the fact that China is not buying the big amounts it was buying in May, June. So there will be -- seem to be a normalization of the market. Also, the alarm on freight rates for vessels has succeeded since there is no more demand for vessels for contango plays and there's slightly less traffic and freight rates have gone down to historically low levels.

So the EMC benchmark has been extremely positive in the quarter. We have largely beaten our guidance, which was $2.50 to $3. We did $4.50 considering also the low runs in the quarter.

If we look at the segments -- if we review the segments on refining, refining was -- has been, for us, extremely challenging in this period. We were -- we had planned our largest maintenance ever starting in March, exactly when the pandemic hit. The refinery was able to keep on operating, so we've had no shutdowns due to the coronavirus. And all the work that was planned in the refinery has been carried out, albeit at a slower rate, of course, because we had to enact new protocols for social distancing and working with many people, or we had to actually reduce the number of people actually coming into the refinery to perform the work that was planned. So maintenance lasted longer than expected. At the same time, we did -- due to the very negative environment in May and in June, we did not have a big incentive to restart units. Our FCC unit was supposed to be -- have complete all the maintenance at the beginning of May. Actually, the maintenance was completed in June, and then we decided to restart it at the beginning of July. We've not called it for the month of June because being a big producer of gasoline, the market for gasoline was particularly negative in June. Later on, we will give a little bit of details on where the market is heading.

In the refining sector, we also concentrate all the activities regarding supply and trading because we run an integrated book between refining and supply and trading. In this period, we responded very well to extraordinary circumstances. We try to take advantage, where possible, of the contango opportunities. So we loaded a lot of vessels and sold them forward, and we are unwinding these positions. We had good opportunities on crudes in the beginning of the quarter when it was possible to buy very cheap certain crudes and we tried to take full advantage of that. And we also enacted some hedging on -- particularly on diesel cracks in order to try to maintain the margin. And all this has delivered very well.

The refinery has been able to operate without a single case of COVID and without any major security incidents. So an extraordinary performance in these circumstances. At the same time, we tried to concentrate in this period, overlapping also a bit into July, all the maintenance or the majority of the maintenance that was planned for the second part of the year and also for 2021, we have anticipated into June and July. So certain works that were planned for 2021 have already been performed, enabling us to reduce the amount of maintenance next year. In the second part of this year, there was maintenance planned on one of our hydrocrackers. And again, we anticipated that to July, taking into consideration that there is still a low-margin environment which is expected to improve going forward.

If we look at the crude oil slate, I think this is a very good indication, first of all, of the runs that have been diminished in the first half of the year due to the maintenance but also due to adverse marketing conditions, and we had also a very significant change in our diets of crudes. The change was mainly due to the turnaround and not to particular market conditions; having a large maintenance on one of the topping units; and the FCC, which is a unit that is designed to run sweet and extra sweet crudes. And of course, it's normal that this percentage of crude should diminish. And at the same time, automatically, since we try to meet our commitments in terms of power production in Sardinia, the quote on the medium and heavy sour crudes has increased likewise. But I don't -- there is no structural change. This is a strategic move, of course, to -- a tactical move to take advantage of the market conditions and the maintenance that we have. Conversely, we tried to minimize gasoline production, of course, as you can see from the outputs of products, at the same time maintaining high tar yields in order to keep in mind the production of tar for power and very low-sulfur fuel oil for the bunker market.

In terms of fixed and variable costs, there is no significant change, more or less in line with the same semester of last year.

If we look at Marketing, Marketing has performed extremely well, notwithstanding the fact there's been a very sharp reduction in oil consumption in the quarter. In Italy, this oil consumption has decreased by about 34%, with 43% on gasoline and 32% on diesel. Spanish market was a little bit less negative than the Italian one with a drop of about 25%. Our sales fell more or less in line with the market, maybe a little bit better. In Italy, we decreased by about 27%, but the margin has increased significantly.

We have been able to maximize our channels. And also, we've tried to help are our customers who were facing very challenging conditions by providing credit lines and providing security to them. So we gained a lot of new client. And also, the margins have been higher, helped also by the fact that, well, there's a drop in price. The same drop in price is generally not passed on to the market with the same speed. So there were good opportunities here that were captured.

Power generation, unfortunately, suffered by the fact that there were a variety of negative effects. Well, first of all, we have decided to anticipate the maintenance on one of our turbines. We had one of the turbines that was expected to reach it's end of life in the second part of the year, and we anticipated the turnaround taking effect, the challenge that we're seeing in finding a convenient price, heavy crudes. So we cut back on power production. And also, of course, the absolute price of power in Italy has halved from the beginning of the year. And furthermore, there have been effects on linearization and other effects on the way we establish this figure. So basically, we have a situation here of lower absolute power, lower CIP6 tariffs and also less power production, which we plan to regain in the second part of the year when we had outages already planned for the turbine.

In terms of fixed and variable costs, the fixed costs have been lower. Variable costs here, as in the Refining segment, have been significantly lower due to the fact that a large part of the variable costs were energy-related costs.

On wind, so - -it was very much similar to what we just mentioned on power generation, notwithstanding the fact that we have added 30 megawatts to our wind farm. Volumes increased only by 3% due to very unfavorable wind conditions in the sense that we had a very, very mild end of winter and spring. And of course, there was a decline in power tariff by 56%, which is the main effect.

In our outlook, we have added a little bit more pages than usual. We'd like to try to give a little bit of flavor on what we expect in the next months. First of all, the picture for global oil demand in the very last International Energy Agency Oil Market Outlook is less bearish than the previous edition. Of course, we all see the very sharp decline in April, May and June. But by the end of the year, there is expected to stabilize at minus 4 million barrels of annual demand, basically all concentrated on jet/kero which, of course, affects the diesel pool.

World oil product demand is projected and -- to reach it's more or less normal range of the last 4 years by the fourth quarter. So there is a more positive outlook, although, of course, there is a widespread worry that the pandemic might return in the autumn.

We see the same sort of indications of -- when we look at the global mobility indexes. In Europe and in China, they -- and in the U.S., they are almost back to normal or back to normal. The negative spot here is Africa, Latin America. Particularly, Latin America, which is an important consumer and important -- of oil products, is affecting negatively the diesel crack since their consumption is significantly down. While in Europe, as you can see from the next graph, the mobility and seasonality is back to normal in Germany and maybe 20% lower in Italy and in France but improving.

What can we -- we can expect from -- the most important thing to look at is the diesel crack at the moment, which is still under a significant pressure. And I would say that a lot of this pressure is due to the fact that the large stocks that have been accumulated in the last months, these stocks are trying -- are starting to dry up. And there not being a contango structure in the market no longer, unwind -- this -- the unwinding is taking place at slightly faster pace than expected. And as you can see from this graph, it would seem that we're heading towards the 4-year average.

In the outlook, we have provided in this presentation for the first time our road map for energy transition. About this time last year, we have decided to establish a specific unit which responds -- which answers directly to me, headed by [Joel Moratti], which is in charge of defining the road map for energy transition. And here we tried to outline, first of all, the opportunities that there are. First of all, there is the Green Deal in Europe, which wants to extend the emission trading system to other sectors which today are not covered like industry, transport, buildings. There is a strong emphasis to increase renewable energy, to implement energy efficiency programs and also to support innovative energy technology. So basically, within this new deal and which has been incorporated in the Italian integrated plan, which is called PNIEC, there is a carbon phase-out for energy production by 2025. So coal will not be used in Italy by 2025. There is the target to increase renewable energy production to 32% of all energy consumption by 2030; to increase the quota of biofuels; and also, at the same time, which was something that we think is very important, safeguard the role of the Italian refining industry in order reduce dependency on the imports of fuel.

So within this framework, we have developed a road map which confirms our projects on renewable energy. So we aim to develop a further 400 megawatts of basically greenfield projects mainly concentrated in Sardinia, where we have our company and where we can leverage our technical and operational skills. So we have a pipeline of projects, some of which have already the relevant technical authorizations. Other are in the process of obtaining the various authorizations.

The landscape in terms of authorization process is sort of changing. So the government is supposed to simplify the process and speed up this process. So we are hopeful that we will be able to, in the next couple of years, add a significant portfolio of renewables, both in Wind and photovoltaic. There's a slight mistake here what we call exit instead of wind, excuse me.

Another important push which we have already developed in our refinery is the use of biofuels. We already use today vegetable oils which we co-process with normal oil in hydrogenating units in the hydrocrackers basically. So we are able to produce HVO, which gains certificates and gives certain bonuses.

We have a target by the end of the year to be able to process about 100,000 tonnes of vegetable oil by the end of the year, which can be expanded to a further 150 million without any significant CapEx and probably to 250,000, 300,000 with some small CapEx mainly all logistics in order to be able to handle in a segregated manner the vegetable oils both in and out.

Another exciting opportunity we have is to use a plant which has been mothballed. We have a plant, which is called TAME, T-A-M-E. This plant used to use methanol together with FCC gasoline in order to create, through a etherification process, a better quality gasoline. The plant has been mothballed because this plant adds oxygen to the gasoline, and many markets today do not want a gasoline which has oxygen components. It becomes difficult to market. So we have decided to mothball the plant. But this plan can be easily converted instead of, well, using methanol, to use bioethanol and produce an asset which would be able to use about 50,000 tonnes of bioethanol a year, so producing a component that can be either blended into gasoline or sold as is with all the advantages.

And a further exciting opportunity is the use of waste plastics to create oils that can be converted in our units. Just to give an order of magnitude, that the amount of bio oils that we would be able to process is comparable to the size of certain biorefineries in the Mediterranean. So it's a very, very sizable amount.

Another area which we have invested technical resources and engineering process is the study of CCS, carbon capture and storage. We believe that the regulatory framework for this technology is delivered by the European Union and by the Italian government. It could be a breakthrough technology in order to continue operating our plant and, at the same time, cutting emissions of CO2 by 50%. Of course, this project is an expensive project and requires full support by the authorities.

Another area of development, we have the possibility in our industrial sites to build a small-scale energy terminal and storage. And this could also be used partially in our refinery. And again, for this, we are waiting for the regulatory framework that can make this project viable.

Last but not least, hydrogen. Hydrogen is a topic which has become mixed -- extremely interesting. We are ideally placed to use hydrogen. First of all, we already introduce very large amounts, more than 120,000 cubic meters an hour, of great hydrogen, hydrogen which is produced from our gasifier and from our reforming units. We have 2 reforming units. So we have basically 3 units which are hydrogen producers. If there is availability of green or blue -- well, blue hydrogen would be hydrogen produced, for instance, by the plant if the carbon is sequestered on the ground. So that would then automatically transform the hydrogen into blue hydrogen. Green hydrogen is -- that would need to be used either by the bioplant or by using renewable electricity, which is abundant in Sardinia to store hydrogen which could be used in the refinery. So we are ideally placed -- the easiest place to use hydrogen is in a existing industrial plant.

So I forgot to mention on the short-term outlook. So short-term outlook for the rest of the year is a scenario which clearly is still extremely uncertain. We have completed our maintenance plan for the year and for the next year in the first half of the year. So second part of the year, we'll be able to take advantage of any expected recovery in the oil refining market.

We maintain our guidance for $2.50 to $3 premium over the EMC benchmark, net of maintenance, although we have delivered a much better number in the first part of the year. So no major maintenance planned in Q3 and Q4 apart from what has already been planned in -- now in July due to the low-margin environment.

I would -- on financials, we prefer to answer any specific questions which we might have. Franco is here with me. So thank you for for listening, and we are available to answer any of your questions.

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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 with 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, please. First, I noticed in the press release you talked about the need to renegotiate some lines of credit and a review on some financial ratios associated with those credit lines. I was wondering if you could provide maybe a bit more detail on this and sort of what ratios are we talking about and how much room Saras currently has left or, maybe more generally, how you perceive liquidity risk at the moment.

And then secondly, focusing on the second part of your presentation on the green initiatives, you talked about wanting a better regulatory environment to get some of these projects going. Can you maybe touch on what sort of incentives you're looking at or would like to see? And maybe related to that, would you be willing to take on a bit more debt to finance some of these projects?

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

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Well, Joshua, just going on the green initiatives, and then, I think, Franco can give you a little bit of detail on our credit lines, well, what -- I mean, on the renewables, we are going ahead within the current regulatory environment. I would say there are 2 areas here that need some backing on the others. One is CCS is an important investment and an investment of a magnitude of EUR 300 million, EUR 400 million probably a little bit being conservative. So an investment like that can only be undertaken if there is an environment in which tariffs are fixed in a way and which one can make this investment counting on being able to repay over a long number of years. So clearly, it's the type of investment that needs either direct financing or a regulatory environment which provides tariffs which cover fully the cost.

On a CCS project, there is not just the upfront cost of the unit itself, and -- which is already big, there is an issue with where to store it. So you have to create the caverns and what else. And then there is a large consumption of power, of course, because almost 25% of the power produced is used to compress the gas and reduce the CO2. So it has large running costs. So we are waiting for some clarity on this, and we think that's -- it's going to be a process that's going to take 1 or 2 years, now although there are already big projects which have been financed by the European Union.

So on the one side, we are going ahead with the engineering and being a little bit more specific on the details. And at the same time, we are looking for clarity.

For LNG in Sardinia, it's a little bit more difficult to give a straightforward answer. Sardinia is an island that does not have gas, but it is sparsely populated. The whole of Sardinia has about 1.5 million inhabitants, and, as is well known, it has -- it enjoys fantastic weather conditions. So the consumption of gas is relatively modest also because there is very limited heavy industries, although there are some talks of the reopening of the aluminum smelter. So there might be an increase in demand for base energy. So this, again, there -- we will need clarity on what sort of tariffs -- feed-in tariffs one would have for a gas project, and we would be able to participate in different forms to a project like this. If there was, I mean, a regulatory environment in which there was fixed feed-in tariffs, we could buy -- build a plant, buy the gas and feed into the grid. Or we would just be able to cooperate with one of the many operators, one of the large energy companies in Italy or the gas producers around the world. I mean we would be extremely flexible.

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Franco Balsamo, Saras S.p.A. - CFO [4]

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Okay. In term of your question related to the line of credit, as we have already disclosed at the beginning of the month of February, we have subscribed to credit facility for 4 years of duration for an amount about EUR 350 million. So this -- the credit facility we have in place are good enough to support our current net financial position. In addition, we have a significant amount of other short-term credit facility. But in any case, what we are trying to negotiate now -- we are already negotiating in the final phase of the project -- of the process is to add additional credit facility, and the scope of this new facility is to enhance our liquidity positions in case of future deteriorations on market -- of market conditions. As we have seen, we are in this position to the working capital that might generate a negative cash flow. So the credit facility is already -- we have received the final approval from the banks, and the contract will be signed within the end of month of August. These are additional credit facility for enhancing our liquidity positions.

In this framework, of course, due to the worsening of the reported EBITDA, we have also taken the opportunity to update some financial covenants in order to keep them in line with the current economic performance of the company. So it's a negotiation already executed. We are relation with the banks that are providing the liquidity. So it's a process already executed and will be finalized within the end of the month of August.

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Operator [5]

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The next question is from Henri Patricot with UBS.

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Henri Jerome Dieudonne Marie Patricot, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [6]

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Guidance for CapEx for 2020. And secondly, in terms of the -- some of the moving parts to the second half of the year. So you mentioned the container trade. Should we expect more of that to unwind in third quarter? And then finally, you also mentioned that -- probably some more credit line, et cetera. So I want to check what we should expect in terms of some working capital movements in the second half.

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Franco Balsamo, Saras S.p.A. - CFO [7]

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So the CapEx program is in line with budget that were expected in about EUR 227 million. Most of the investments are -- were concentrated in the first part of the year. So what we are trying to manage is to keep this amount within the budget, the budget limit. So in the second part of the year, the invested would be EUR 40 million, and -- in order to keep the budget at EUR 227 million.

In order of the working capital expectation in the second part of the year, as we have already discussed last time for the first Q, we were negative impacted by the worsening of the commodity price in combination with the decline in the volume of sales. Now the market has reverted. Sales volumes are increased and also commodity prices are at a reasonable level. So due to these positive factor where we created a positive working capital in our expectation, the situation will be positive also for the second part of the year. So - - and a few words in line with the current evolution of the volatility, we do not expect any worsening in our working capital position. So the net financial position expected at the end of the year should be in line with the one at the end of of June with some potential upside in case there is an increase in term of a commodities level.

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Henri Jerome Dieudonne Marie Patricot, UBS Investment Bank, Research Division - Associate Director and Equity Research Analyst [8]

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Okay. Okay. And should we expect some more positive impact from contango trades in the third quarter? And more broadly, it is the supply and trading performance which helped in second quarter. Can that be replicated in the second half?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [9]

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Well, no in the sense that there is no contango to play right now. I think we might have some residual positions that are being unwound in this period. So it's possible that they may show up in Q3 results, but it would be the end of the contango play, so to say.

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Operator [10]

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The next question is from Massimo Bonisoli with Equita.

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Massimo Bonisoli, Equita SIM S.p.A., Research Division - Analyst [11]

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Two questions. One for Franco and one for Dario. The first, net financial position outlook. So back on the question on the working capital. If you can elaborate more on this outlook in the sense that you forecasting more or less a stable net financial position versus the end of first half and the net working capital should not be anymore a drag in the second half as well as the operating rate for the refining plant would be favorable in the second half. So at the end of the day, it looks to me that there is some conservatism in your net financial position outlook for the end of the year. So I see some potential improvement from the level of that first half.

And the second question is back on the CCS project. You mentioned about EUR 300 million to EUR 400 million CapEx for this project. I'm curious about if this project may only decarbonize the refinery or is it also accessory to the eventual production of additional hydrogen in the sense that the European hydrogen strategy includes some budget for the retrofitting of gray hydrogen. So I'm curious if you are trying also to increase the production of hydrogen from the gray to blue and include it into the new funding scheme from the European Union.

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

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Well, the estimate -- the CapEx at the moment is a rough estimate based on preliminary engineering. It is a project which uses about 3 million tonnes. I mean our whole site produces roughly 6 million tonnes of CO2, and this CCS designed for about half of that. There's also constraints on the storage of the CO2. So nothing -- of course, you have to be careful. First of all, having the authorizations, which I don't think is going to be easy. And then finding the appropriate geological structures, which are able to contain the hydrogen.

So at the moment, this project is for 3 million tonnes. I do not rule out the possibility that it might become bigger or something like that. I don't know. But at the moment, this is the project. Of course, since our IGCC plant is also a big producer of hydrogen, automatically if we are able to sequester the carbon from the IGCC plant, which is basically the carbon which will go into this unit, automatically the hydrogen would become blue hydrogen which will -- or that -- which entails that, of course.

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Franco Balsamo, Saras S.p.A. - CFO [13]

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Okay. In term of your question related to our forecast for the net financial position at year-end, of course that is complicated method, while [Milano Principle], we -- in our model, we foresee stability in line with the position at the end of June. Probably this is such a cautious position. But on one side, in this part of the year, we are taking benefit from an opportunity to postpone part of the (inaudible) to the second part of the year. And on the other side, the real benefit is that the net financial position is directly correlated to the evolution of the profitability of the company. Of course, on one side, we have to complete the investment process. The working capital forecast is positive. So the combinations of those effects are encounter balanced. And so I say that the net financial position should be line with this current -- the current one at the end of June.

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Operator [14]

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(Operator Instructions)

The next question is from Monika Rajoria with Societe Generale.

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Monika Rajoria, Societe Generale Cross Asset Research - Equity Analyst [15]

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I just have one question on the biofuels that you spoke about. Any color that you can give us what kind of [fixed cells] you would like to use there? And how quickly can you scale up to 250,000?

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [16]

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Thank you for the question. Well, looking at the biofuels on, let's say, on the ethanol side, presumably it would be bioethanol, which generally is made from sugarcane, comes from South America...

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Franco Balsamo, Saras S.p.A. - CFO [17]

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From France.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [18]

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Or France and produced by the distillation of various crops. So a traditional bioethanol.

On -- then on the diesel side, well, there's a variety of feedstocks that we can use. Today, the feedstock that we're using is sustainable palm oil or rapeseed oil or soy oil, whatever is more convenient. Of course, we have a possibility of using cooking oils, animal wastes, but there is little supply in the Mediterranean market, and it's already been soaked up by other operators. So I don't think that this would -- this will probably be a complement but not a major part. But of course, it is something which is changing, and we'll keep our eyes open to opportunities. Using, for instance, animal fats poses some logistic constraints which are not trivial at all to manage.

In terms of scaling up, I would hope that by some time in the next year, we would be able to be in that space.

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Operator [19]

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

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [20]

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Thank you very much.

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Ilaria Candotti, [21]

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Thank you. Thank you very much. We are available for any other questions you may have. So thank you for being with us this afternoon.

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Franco Balsamo, Saras S.p.A. - CFO [22]

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Thanks.

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Dario Scaffardi, Saras S.p.A. - CEO, GM & Director [23]

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Thank you. Bye-bye.

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Operator [24]

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