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 largest in the Mediterranean in terms of production capacity (15 million tonnes per year, or 300,000 barrels per day) and one of the most advanced in terms of plant complexity (Nelson Index of 11.7). 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 acquired over fifty years of activity. To best exploit these 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 also includes the subsidiary Saras Trading SA, based in Geneva, one of the world's main hubs for trading in oil commodities, which buys crude oil and other raw materials for the refinery, sells refined products, and carries out trading activities.
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, fuel for aviation and bunkering, mainly on the Italian and Spanish markets, but also in various other European and non-European countries.
The Group is also active in the production and sale of electricity, through the IGCC plant (Integrated Gasification Combined Cycle), combined with the refinery and also managed by the subsidiary Sarlux, with an installed capacity of 575MW. The plant, which since April 2021 has been recognized by ARERA as one of the essential plants for the safety of the Italian electricity system, uses heavy refining products and transforms them into approximately 3.5 billion kWh/year of electricity, contributing to about 40% of the electricity needs of Sardinia.
Also in Sardinia, the Group produces and sells electricity from renewable sources, through three wind farms managed by the subsidiaries Sardeolica Srl, Energia Alternativa Srl and Energia Verde Srl located in Sardinia, for a total installed capacity to date of 171 MW. The Saras Group's activity in the renewable sources sector is expected to expand significantly in the medium term, with an installed capacity target of 500MW by 2025.
Lastly, the Group provides industrial engineering and research services to the petroleum, energy and environment industries, via its subsidiary Sartec Srl.
1970s Revamping plants
- Start-up of the Integrated Gasification Combined Cycle plant (IGCC).
- Start-up of a second Mild HydroCracking Unit (MHC2).
- Start-up of an Etherification Unit (TAME).
- Achievement of EMAS environmental registration (Eco Management Audit Scheme).
- Start-up of the Tail Gas Treatment and Sulphur recovery Unit (TGTU).
- Start-up of the gasoline desulphurisation unit (U800).
- Sales of gasoline and diesel with 10 ppm (parts per million) sulphur content begin. Significant reduction of indirct SO2 emissions.
- Saras is the first refinery in Italy to obtain the AIA authorisation (Integrated EnvironmentalAuthorisation), which represents part of a journey to improve the technical and structural characteristics of the plant and production site, in order to minimise the environmental impact of the production activities.
- Extension of the retail network in the Southern area of Spain, through the integration of 71 new service stations acquired from ERG.
- During maintenance of plant MHC1, there was a tragic event in which three workers died.
- Completion of an important cycle of maintenance and investments, critical for the future growth of the Company, on the following Units: Topping 1, FCC, ALKY, TAME, MHC1, MHC2 and VSB.
Years 2010/20 Focus on safety, environment, efficiency and improvement on profitability
- Start of the “Project Focus”, the purpose of which is improving production efficiency, effectiveness of the operations and cutting costs.
- Saras becomes a certified member of the OCIMF (Oil Companies International Marine Forum) and it is now allowed to perform “vetting” operations within the SIRE Programme managed by OCIMF.
- BondissueontheLuxembourg Stock Exchange, restricted to institutional investors, with a total nominal amount of EUR 250 million and a maturity of 5 years.
- “Project Focus” is successful and is also extended to “Planning” and “Supply & Trading”.
- The Group relies on its commercial and operational flexibility to overcome the shortage of Libyan crude oils, as a consequence of the civil war devastating that country.
- The ten-year shut-down for scheduled maintenance of the entire IGCC plant takes place..
- The subsidiary “Sardeolica Srl” increases the installed capacity of the Ulassai wind farm from 72 to 96 MW.
- The Board of Directors of Saras approves the Group Business Plan for 2013- 2017, which is focused on activities aimed at improving effectiveness and efficiency, as well as pursuing new commercial opportunities.
- In the Refining segment, MildHydroCracking-2(MHC2) is revamped
- Inacompetitiveenvironment, which becomes increasingly harder due to the recession in the Eurozone, the Saras Group continues to aim to be a leading operator in terms of safety and efficiency within its sector.
- The industrial strategy of the Group remains focused on striving to achieve operating performance excellence..
- A major corporate reorganisation is completed, by transferring the business operations of the Refining segment of Saras SpA to the subsidiary Sarlux Srl.
- At the end of April, Rosneft acquires 13.70% of the share capital of Saras SpA from majority shareholders, Gian Marco and Massimo Moratti and, in mid-June, an additional 7.29% from the financial markets via a voluntary and partial tender offer.
- The Saras Group pursues asset management initiatives aimed at cost reduction, increased energy efficiency and the coordination of its refining business activities andoperationalmanagement.
- Bond issue on the Austrian multilateral trading system, with a total nominal amount of EUR 175 million and a maturity of 5 years.
- Important five - year turnaround activities are successfully carried out at the Fluid Catalytic Cracking plant (FCC) and its two main ancillary units: Alkylation (Alky) and Etherification (TAME).
- Arcola Petrolifera Srl was merged into Saras SpA, with effect for accounting and tax purposes as of 1st January 2014.
- On 29th December 2014, Sarlux Srl purchases a business unit of Versalis SpA, including approximately 80% of the production units of the Versalis petrochemical complex in Sarroch, Sardinia to achieve considerable industrial and organisational synergies and further strengthen the international competitive landscape.
- 2015 marks a structural change for oil markets: more balanced crude prices; greater availability of non- standard types of crude; recovery in consumption of petroleum products; streamlining of the European refining system; reduction of spare capacity at global level; and the correction of some market distortions contribute to the recovery in refining margins, mostly benefiting complex refineries such as that of the Saras Group.
- In order to take full advantage of the opportunities offered by the market, the Saras Group has adopted an innovative business model based on the integrated management of the supply chain (or of the raw materials supply chain). This model is based on the characteristics of flexibility and high conversion of the Sarroch refinery, in addition to the close coordination of planning activities, trading and operational management of plants.
- On 15th October, the Capital Markets Day of the Saras GroupwasheldattheSarroch refinery with presentation of the Business Plan 2016- 2019, which is based on the optimal execution of the integrated Supply Chain management model and on a series of improvement initiatives related toreliability, energy efficiency and developments of the site configuration, with moderate investments and short re- entry periods.
- On 19th October, Rosneft sold about 8.99% of the share capital of Saras SpA to a qualified group of institutional international investors and reduced its shareholding to 12%.
- On 10th December, Saras signed a EUR 265 million five-yearbankloanagreement to refinance existing debt.
- 2016 was another positive year for the European refining industry, due to the continued abundance of crude oil, including non-conventional crudes processed preferably in complex, integrated and high conversion sites such as the Saras plant and an increase in overall demand for refined products (+1.3 mb/d compared to 2015).
- In January, Saras Trading SA became fully operational in Geneva, one of the main global markets for trading oil commodities. This company is a key element in the implementation of the integrated management of the Supply Chain model. It purchases raw materials and sells refined products from the refinery and performs independent crude oil and petroleum product trading activities.
- On22nd April, the Shareholders’ Meeting voted to distribute a dividend of EUR 0.17 for each share (corresponding to a dividend yield of 10.8%), for a total of EUR 159.1 million. The return to the payment of a dividend after many years has been made possible by improved refining market conditions and the excellent results in the year 2015.
- The year 2016 sees the Saras Group engaged in a major process to reduce average debt costs, seizing the opportunities offered by the low interest rates resulting from the expansionary policies of the European Central Bank.
In 2017, the refining industry continues to benefit from favourable conditions characterised by satisfactory margins on the main refined products. Crude oil was well supplied, despite the implementation of cuts in production by OPECcountries and other major producers, although there was some pressure on discounts of heavy crude products, which were most affected by such production cuts. Overall demand for refined products continued to grow and increased by +1.5 mb/d compared to 2016.
- On 17th January, Rosneft places all the shares in Saras SpA which it held, corresponding to 12% of the share capital of Saras, with a group of international investors.
- On20th April, the Shareholders’ Meeting voted to distribute a dividend of EUR 0.10 for each share (corresponding to a dividend yield of 4.6%), for a total of EUR 93.6 million.
- The #digitalSaras program was launched during the year, for the purpose of defining and implementing the most appropriate technological innovations within the framework of Industry 4.0, with a view to further improving operating performance and efficiency.
- On 22nd December, the Company completes the private placement of bonds with a nominal value of EUR 200 million, maturing on 28th December 2022 and bearing a fixed annual coupon rate of 1.70%. The operation is a continuation of the financial optimisation process that started in 2016. The proceeds were used to refinance part of the gross debt, even with a positive net financial position, in support of the investment plan.
- 2018 is a year characterised by strong volatility in the price of crude oil, also influenced by geopolitical tensions.
- On26th February, the Chairman of the Board of Directors, Gian Marco Moratti, passed away. Gian Marco was the son of Angelo Moratti, who founded the Company. He was CEO until 1981, when he became Chairman.
- On 12th March, the 2018-2021 Business Plan is presented, which aims to maintain a leading position in the refining sector over the next decade and focuses on operational excellence through investments of EUR 800 million focused on maintaining state-of-the- art facilities, also thanks to the contribution of technological innovation and digitalisation.
- After the identification of the available technologies and the start of 10 pilot projects, the industrialisation phase of the digitalisation initiatives was undertaken.
- On27th April, the Shareholders’ Meeting resolves to distribute a dividend of EUR 0.12 for each share (corresponding to a dividend yield of 6.2%), for a total of EUR 112 million andappointedthenewBoard of Directors in office for a three-year period until the date of the shareholders’ meeting called to approve the financial statements as at 31st December 2020.
- On 3rd May, the new Board of Directors appoints Massimo Moratti as Chairman and Dario Scaffardi as Chief Executive Officer.
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- On 5th September, Massimo Moratti SApA of Massimo Moratti and MOBRO SpA jointly sold 10% of the capital to a group of institutional investors with the aim of increasing the liquidity of Saras shares on the market.
- The year 2019 was dominated by international trade and geopolitical tensions that led to a global economic slowdown. The refining sector has been affected by high volatility, slowing demand for refined products and high sulphur heavy crude prices.
- In the first months of 2019, one of the largest turnarounds on plants in the last 5 years was completed successfully and on schedule. The Topping "T2", Vacuum "V2", CCR and MHC1 plants were idle for about 60 days.
- On16th April, the Shareholders’ Meeting voted to distribute a dividend of EUR 0.08 for each share (corresponding to a dividend yield of 5.9%), for a total of EUR 75.3 million.
- On 24th June, the total non-proportional demerger of MOBRO in favour of Angel Capital Management SpA (ACM) and Stella Holding SpA (Stella) was concluded. As a result of the demerger, Saras SpA is controlled by Massimo Moratti SapA with 20.01%, Angel Capital Management SpA with 10.005% and of the share capital and an aggregate 40.02%, by virtue of the signing of a supplementary agreement to the Saras Pact, aimed exclusively at implementing the effects of the MOBRO demergerandtheconsequent takeover by ACM and Stella of MOBRO's stake in Saras SpA. As a result of the second tacit renewal of the shareholders' agreement, the next expiry date will fall on 30th September 2022.
- The direct marketing of marine fuels (bunkering) in the Sarroch and Cagliari area began in the second half of August. Refuelling is carried out through a modern ship (barge) equipped with the highest safety standards.
- During the year under review, the Ulassai wind farm was expanded through the installation of 9 new turbines, adding 30 MW of capacity and bringing the total installed capacity to 126 MW. The work was completedon27th September and the new wind turbines came into operation from that date.
- On 14th October 2019, the Australian fund Platinum Investment Management Ltd stated that it held 3.055% of the capital.
- The year 2020 is characterised by the Covid-19 pandemic and theresultingseriouseconomic and social consequences. Though a positive year was expected for the refining industry because of the new specifications for marine fuels with the entry into force of the IMO-Marpol VI, the industry suffered an unprecedented shock with the collapse in fuel consumption which brought the price of Brent Dtd to historic lows of $13.2/bl in mid-April, before the Opec+ countries had reached initial agreements on production cuts, which caused a further deterioration in refining margins.
- During the year, one of the most important turnaround programmes in the history of the Sarroch refinery, involving FCC, ALKY and Topping 1 units, was started and completed as planned
- On 2nd March, the Board of Directorsproposesadividend for the 2019 financial year of EUR 0.04 per share, corresponding to a dividend yield of approximately 3.8%, compared to the closing price of 28th February 2020. On 17th April, the Board of Directors resolves to suspend the dividend distribution proposals on 2019 profits approved on 2nd March 2020, as a matter of prudence in the face of the economic and financial crisis brought about by the Covid-19 emergency.
- On 12th October, Saras finalises an agreement with the Territorial Trade Unions and the members of the RSU, CIGL, CISL, UIL and UGL, for the start of the partial Ordinary Redundancy Fund (Cassa integrazione Guadagni Ordinaria) to cope with the consequences generated by the on-going emergency, effective from 26th October 2020, for an expected period until 30th June 2021, in view of the continuing negative impact of the pandemic situation in the global market and, specifically, in the Group's reference market.
- On12th October,theCompany announces the adoption of a number of extraordinary measures to address the effects of the continuing negative scenario, starting from a reduced refinery operation, confirming, however, the maintenance of all the installations currently in operation and the continuity of the fundamental electricity production to ensure the equilibrium of the Sardinian network; a drastic reduction of investments and costs for the year 2021; and a labour cost containment procedure with the launch of a partial redundancy fund and a plan for voluntary incentivised resolutions of employment relationship.
- On 15th October, the Trafigura Group, which is based in Singapore and trades crude oil and petroleum products internationally through its subsidiary, Urion Holdings (Malta) Limited increases its shareholding to 1.379% whichsubsequentlyincreases to 3.01% on 21st October.
- On 28th December, Saras concludes a EUR 350 million loan agreement with a pool of main banks and financial institutions, 70% of which was backed by the SACE guarantees issued under the Italy Guarantee programme, as part of a financial consolidation plan aimed at limiting the impact of the Covid-19 emergency.
- On 29th December 2020, ARERA (the Italian Regulatory Authority for Energy, Networks and the Environment), in view of the end of the CIP 6 incentive period for the Sarlux Srl, IGCC (Integrated Gasification Combined Cycle) plant which is scheduled for 20th April 2021, lists this power plant among the plants essential to the safety of the electricity system for 2021.
- 2021:
- The year 2021 is characterised by the economic recovery that followed the Covid-19 pandemic crisis, thanks to the effectiveness of global vaccination campaigns that allowed for a gradual easing of the restrictions adopted to contain infections, and to the stimulus given by various governments to cope with the crisis. The prices of the Brent Dtd rose from 50 to around $78/bl over the course of the year. The growth in oil demand, particularly significant from the second half of the year, made it possible to reach pre-pandemic levels of over 100 mb/day at the end of the year. Refining margins also recorded a more substantial improvement starting from the second half of the year. However, the international scenario has shown very heterogeneous trends among countries. In particular in Europe and in Italy there was an increase in inflation driven by high prices in energy goods also due to some constraints on the supply side. In particular, in the second half of the year, in addition to the acceleration in Brent prices, energy costs, particularly for natural gas, electricity and CO2, soared.
- On 16th February 2021, Saras signs a memorandum of understanding with Enel Green Power to develop a "green hydrogen" project in Sardinia, with a solution under study that provides for the use of a 20 MW electrolyser powered by locally produced renewable energy to supply green hydrogen to be used as raw material in the Saras refinery at the industrial site of Sarroch, in the province of Cagliari
- On 30th March, the Board of Directors of Saras SpA approves the Group's Consolidated Financial Statements, the draft SeparateFinancialStatements of Saras SpA and the Sustainability Report at 31st December 2020. The Group's Business Plan for the 2021-24 period is also approved. The Plan includes a number of important measures for 2021 aimed at significantly reducing costs and investments in order to minimise the economic and financial impact of the scenario marked by the pandemic crisis, and contain the debt to levels no higher than those reported at 31st December 2020. The Plan also provides for the continuation of the sustainability and energy transition strategy with the development of new renewable capacity, up to 500 MW in 2024, also through the development of new partnerships. The energy transition strategy is also defined with particular focus on green hydrogen and biofuels.
- On 13th April, with Resolution no. 152/2021/R/EEL, ARERA,within the framework of the Essentiality Regulation, accepts the application for admissiontothereintegration ofcostssubmittedbySARLUX Srl, for the period from 21st April to 31st December 2021, for the IGCC combined cycle power plant, defining the economic conditions of its operation for 2021 and, in particular, the reintegration component of the fixed costs strictly necessary for electricity production, the reintegration of the so- called "QAR component" (depreciation and return on invested capital, as provided for by Resolution no. 111/06), and, for essential electricity production, the integration of the variable costs is provided for, with respect to the amount collected from the sale on the market at the zonal reference price. The main items of variable costs include the fuel of the IGCC plant, the cost of the oxygen necessary for the transformation of the aforementioned fuel into synthesis gas completely clean of all traces of sulphur or other pollutants, and the charges associated with CO2 emission quotas according to the Emissions Trading System. The production set-up of the IGCC power plant will take into account the requirements defined by Terna related to the safe operation of the electricity system, compatibly with the operational constraints of the SARLUX plant..
- On 20th May 2021, the Board of Directors confirms the appointment of Massimo Moratti as Chairman and of Dario Scaffardi as Chief Executive Officer and General Manager.
- On 4th June 2021 the Group, through the subsidiary Sardeolica Srl, acquires the two companies Energia Verde Srl and Energia Alternativa Srl, active in the production of electricity through the operation of two wind farms located in the municipality of Uta (Cagliari).
- On 15th September, Saras signs a Memorandum of Understanding with Air Liquide, world leader in the field of gases, technologies and services for the industry and healthcare sectors, aimed at exploring the opportunities to reduce the carbon footprint of the refinery in Sarroch, evaluating the technical and economic feasibility of solutions for the capture and storage of CO2 emissions related to the processes of the Sarroch refinery.
- On 28th December with Resolution630/2021, ARERA accepts the request for admission to the cost reintegration scheme for the combined cycle power plant of Sarlux Srl, IGCC for the year 2022, determining its registration among the essential plants for the electricity system for 2022.
- On 29th December, the company Sardhy Green Hydrogen Srl is established with the aim, as part of the partnership launched by the two companies on 16th February, of starting the authorisation procedures and, if the financing required under the European IPCEI programme is obtained, of carrying out the engineering, procurementandconstruction of the new hydrolyser through the formalisation of dedicated contracts.
Two years have passed since the start of the Covid-19 pandemic, and the drop in oil demand that had followed the sharp decline in consumption in 2020 has gradually been absorbed by growth, which, especially since the second half of last year, has
been particularly strong, as shown by oil prices, which, after the increases in late 2020, have risen by a further 50% in 2021. Even
the emergence of new variants in the late months of 2021 did not impact the growth in demand, which in the last quarter of 2021 exceeded 100 million barrels/day, a level close to the pre-pandemic numbers. The IEA's mid-February forecast gave a further increase of at least 3 million barrels per day in 2022.
In the second half of 2021, refining margins in the Mediterranean area also recovered substantially: gasoline margins, which had already returned to pre-Covid levels in the first half of the year, recorded multi-year highs in the summer period thanks to seasonality and extraordinary demand from the Atlantic due to the blockage of refineries and oil platforms affected by several hurricanes in the Gulf of Mexico. The demand for diesel fuel instead recorded a recovery only in the second half of the year, even if the margins remained in a range of about 11-13 USD/bl, still lower than the pre-pandemic multi-year averages of 14-15 USD/ bl, partly due to the absence of at least 40% of jet fuel demand, which, before the pandemic, provided greater support to the middle distillate crack.
Furthermore, in this phase of acceleration, the growth in global oil demand has proved to be more sustained than the supply was able to guarantee, in particular due to the policy of the OPEC countries + Russia that remained conservative and willing to increase production quotas to a moderate extent, resulting in a basically “short” market with an average of just over 2 million barrels per day in the fourth quarter of 2021. Also part of this context is the reduction in global refining capacity which, during 2021, fell for the first time in 30 years, by almost 1.6 mb/d of capacity permanently closed, following the impacts of the crisis, or converted to biorefineries over the year, compared to 0.85 mb/d of new capacity coming on stream.
Countering this constant improvement in the oil scenario in the second half of the year was the unexpected, as well as violent, surge in costs related to electricity and CO2, although the current indications of forward markets seem to indicate a temporary phenomenon, expected to rebalance in the second half of 2022.
In this scenario of increasing operating complexity, our Group has achieved significantly improved economic and financial results in 2021, also thanks to the efficiency and rationalisation of industrial costs and the containment of investments adopted since the end of 2020 to respond to the emergency due to the pandemic crisis while laying the foundations for a more efficient and lean industrial structure, always in full compliance with health, safety and the environment.
With regard to this, I would like to thank all our employees who, during this difficult year, have shown extraordinary professionalism, a sense of responsibility and great dedication to the Company, adhering to the redundancy fund plan, which, although in a reduced form, was extended into the second half of the year.
In particular, in terms of operating costs, in 2021 the Company internalised, through the subsidiary Sartec, its engineering activities and continued the plan to contain the cost of labour started in 2020.
The refinery's operations and processing have also been modulated over the months according to the cost- effectiveness of processing the main refined products, in particular, by maximising production, given its higher profitability compared to diesel, especially in the first part of the year and, at the same time, although representing a secondary component of the yield, we have increased the production of VLSFO, the fuel oil with a very low sulphur content, which showed a growing marginality during the year thanks to the resumption of maritime traffic.
At the same time, in 2021 we have continued our plan to expand the renewables segment with the acquisition of a further 45MWh of installed wind capacity in the south of Sardinia, which immediately became operational at the beginning of the second half and the completion of the re-blading of the existing wind farm with an increase of about 10% in production potential.
These initiatives have contributed to the targeted containment of the debt level below the numbers recorded at the end of 2020.
The sustained growth in oil demand in recent months has also enabled us to draw up a short and medium-term plan based on very positive market fundamentals, with an important return on Group profitability in 2023, also thanks to the essential role played by our thermoelectric plant in Sarroch in Sardinia.
These prospects have been upset by the Ukrainian crisis, primarily due to the explosion in gas prices to which those of electricity are linked, with a strong negative impact on all energy-intensive industrial sectors such as ours.
Secondly, there has been severe turbulence in both crude and commodity oil markets because, although the sector is not currently subject to sanctions, there is a widespread reluctance on the part of many Western countries to resort to use Russian exports.
For the time being, we have chosen, at great sacrifice, to no longer turn to this market. Saras, for technical-economic reasons, has generally used a
limited amount of Russian crude; however, the simultaneous disappearance from the market of this quality of raw, combined with the de facto embargo on Iran and the recent blockade of exports from northern Iraq and, last but not least, the probable blockade and general slowdown in exports from the Black Sea, are creating a very strong shortage of crude oil but also of finished products.
At the same time, however, this situation is greatly increasing the demand for oil products, with positive effects on the refining sector, effects that we believe will remain even after the crisis is resolved, hopefully as soon as possible.
It is evident that, in its seriousness, the emergency we are experiencing highlights once again - after the inflationary pressures of the energy markets that began in the second half of last year - the importance and central role that traditional sources and fuels play in guarantee the sustainability of an orderly, rational and economically sustainable path of energy transition towards renewable sources, a sector in which we are strongly committed.
In this area, our expansion plan is proceeding with a target of 500MW of renewable capacity installed in 2025, with the recent completion of the authorisation process for a new 80MW photovoltaic park in southern Sardinia.
In addition to renewables, other projects launched in 2020 and currently in progress aim to reduce the refinery's carbon footprint. For some of these, such as those in the field of green hydrogen and carbon capture, important partnerships were launched in 2021. We also continue to closely monitor opportunities and market developments for an immediate expansion of our biorefining capacity.
In line with the Purpose to "be an innovative, sustainable Group and a benchmark among energy suppliers", Saras is embarking on a journey towards a mixed business model, based on sustainable refining and production of energy from renewable sources, to ensure energy in modern life.
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EUR MILLION | 2021 | 2020 | ||
REVENUE | 8,636 | 5,342 | ||
EBITDA | 277.1 | (87.1) | ||
Comparable EBITDA 1 | 54.1 | (20.8) | ||
EBIT | 78.5 | (341.1) | ||
Comparable EBIT 1 | (144.5) | (238.9) | ||
NET PROFIT | 9.3 | (275.5) | ||
COMPARABLE NET RESULT 1 | (136.0) | (197.0) | ||
Shares outstanding, ‘000,000 (average no.) | 951 | 940 | ||
Comparable NET RESULT 1 per share (EUR) | (0.14) | (0.21) | ||
NET FINANCIAL POSITION BEFORE IFRS 16 EFFECT | (453) | (505) | ||
NET FINANCIAL POSITION AFTER IFRS 16 EFFECT | (494) | (545) | ||
CAPEX | 78 | 256 | ||
REFINERY RUNS | Thousand tonnes | 12,978 | 11,369 | |
Million barrels | 94.7 | 83.0 | ||
Thousand barrels/day | 260 | 229 | ||
EXCHANGE RATE (ANNUAL AVERAGE) | EUR/USD | 1.18 | 1.14 | |
EMC BENCHMARK MARGIN | USD/bl | (0.2) | (0.5) | |
SARAS IND & MKTG MARGIN | USD/bl | 4.5 | 4.7 | |
IGCC ELECTRICITY PRODUCTION | MWh/1,000 | 3,524 | 4,071 | |
TOTAL MARKETING SALES | Thousand tonnes | 3,336 | 2,956 | |
of which in Italy | Thousand tonnes | 2,156 | 1,909 | |
of which in Spain | Thousand tonnes | 1,180 | 1,048 | |
RENEWABLE ELECTRICITY PRODUCTION | MWh | 258,453 | 225,530 | |
POWER TARIFF | EURcent/KWh | 12.2 | 3.7 | |
INCENTIVE TARIFF | EURcent/KWh | 10.9 | 9.9 | |
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BOARD OF DIRECTORS
MASSIMO MORATTI | Chair and Director |
DARIO SCAFFARDI | Chief Executive Officer, General Manager and Director ANGELO |
ANGELO MORATTI | Director |
ANGELOMARIO MORATTI | Director |
GABRIELE MORATTI | Director |
GIOVANNI EMANUELE MORATTI | Director |
GILBERTO CALLERA | Independent Director |
ADRIANA CERRETELLI | Independent Director |
MONICA DE VIRGILIIS | Independent Director |
LAURA FIDANZA | Independent Director |
ISABELLE HARVIE-WATT | Independent Director |
FRANCESCA LUCHI | Independent Director |
BOARD OF STATUTORY AUDITORS
GIANCARLA BRANDA | Chair |
FABRIZIO COLOMBO | Auditor |
PAOLA SIMONELLI | Auditor |
PINUCCIA MAZZA | Alternate Auditor |
ANDREA PERRONE | Alternate Auditor |
MANAGER IN CHARGE OF FINANCIAL REPORTING
FRANCO BALSAMO | Chief Financial Officer |
AUDIT FIRM
EY S.p.a. |
The Company adheres to the Corporate Governance Code, published in January 2020 (the "Code") and entered into force starting from the 2021 financial year, with information to be included in the Corporate Governance Reports to be published in 2022. The Annual Report on Corporate Governance (the “Report”) is prepared by the Board of Directors (the “Board”) and published within 21 days of the Shareholders’ Meeting (the “Shareholders’ Meeting”) called to approve the 2021 financial statements.
In this Report, which is drawn up pursuant to Article 123-bis, paragraph 1 of Legislative Decree no. 58 of 24th February 1998 (the Consolidated Finance Act or TUF), as amended, the main features of the Saras corporate governance system are described, as well as how its various components function in practical terms, with a specific focus on compliance with the recommendations contained in the Code.
The Company’s governance system is formalised in the Code of Ethics, the Articles of Association, the Regulations of the Shareholders’ Meetings, the Regulations of the Board Committees and in a set of principles and procedures periodically updated based on national and international best practices. The corporate organisation of Saras SpA complies with the Italian Civil Code and other laws on corporations, specifically those contained in the Consolidated Finance Act.
The Company is structured in accordance with the traditional model for administration and control, with a 12-member Board of Directors tasked with managing the Company. Within the Board, there is a Remuneration and Appointments Committee, whose functions also include those of the Committee for Related-Party Transactions, a Control, Risks and Sustainability Committee, and a Steering and Strategies Committee, as well as a Board of Statutory Auditors, composed of three standing members and two alternate members, whose tasks include monitoring compliance with legislation and with the Articles of Association and controlling the adequacy of the Company’s organisational structure, internal audit system and administrative and accounting systems.
The composition of the current Board of Directors and the current Board of Statutory Auditors, the former in office for one year until the date of the Shareholders' Meeting called to approve the financial statements at 31st December 2021 and the latter in office for three years until the date of the Shareholders' Meeting called to approve the financial statements at 31st December 2023, was defined during the Shareholders' Meeting of 12th May 2021, which appointed its members. On 19th May 2021, the Board of Directors appointed and conferred the office of Chair to Mr Massimo Moratti and of Chief Executive Officer to Dario Scaffardi.
The Company has entrusted the audit firm EY SpA (EY) with the task of auditing the separate and consolidated financial statements for the financial years 2015-2023, as well as the limited audit of the half- year reports for the same period.
The Report provides details of the role and tasks of the Board of Directors, listing the functions that can and cannot be delegated and providing up-to-date information on its composition and the meetings held in 2021 and in the first months of 2022.
The Board of Directors' meeting of 19th May 2021, having assessed compliance with the independence requirements for Directors Gilberto Callera, Adriana Cerretelli, Laura Fidanza, Isabelle Harvie-Watt and Francesca Luchi, Lawyer and Monica De Virgilis, has also appointed as Lead Independent Director Mr Gilberto Callera, the Remuneration and Appointments Committee (composed of Gilberto Callera, Laura Fidanza and Francesca Luchi), the Control, Risks and Sustainability Committee (composed of independent non-executive directors, Gilberto Callera, Adriana Cerretelli, Laura Fidanza, Isabelle Harvie-Watt and Monica De Virgiliis).
Both Committees have consultative and advisory functions, as provided for in the Code and have met regularly during 2021 and in the first few months of 2022, as illustrated in detail in the Report on Corporate Governance.
In particular, the Remuneration and Appointments Committee has also been assigned the main functions of the Related Parties Committee to perform whenever necessary in compliance with the provisions of the relevant Procedure adopted by the Company pursuant to Art. 2391- bis of the Civil Code as implemented by the Consob Regulation adopted with resolution no. 17221 of 12th March 2010 and subsequent amendments; in addition, in the aforementioned Board meeting of 19th May 2021, the Board of Directors has also established the Control, Risks and Sustainability Committee and the Steering and Strategies Committee with consultative and support functions for the Board itself in defining strategic business and also finance guidelines, as well as sustainability guidelines.
The Report also describes the Company’s internal control system, for which the Board of Directors is responsible and which establishes the guidelines and periodically reviews the operational adequacy and effectiveness, using the Control, Risks and Sustainability Committee and the Internal Audit Function.
The Board appointed the Chief Executive Officer Dario Scaffardi as the Executive Director responsible for overseeing the operations of the internal control system.
The Company has also appointed the Chief Financial Officer, Mr Franco Balsamo, as the manager in charge of financial reporting, according to Art. 154-bis of the Consolidated Finance Act.
The Company has had an "organisation, management and control model” in place since January 2006. It has been updated on many occasions, in implementation of the legislation relating to the "Rules governing the administrative liability of companies" pursuant to Legislative Decree no. 231/2001, which is overseen by a special supervisory body.
The Group’s Code of Ethics (approved by the Board of Directors of Saras SpA on 1st August 2016 and subsequently transposed by the Boards of Directors of other companies in the Group) is also part of the internal control system. It sets out, in a single document, the shared values and principles which underpin the action of the Saras Group and which must be observed by all employees, collaborators and all those who establish relationships with the Group.
In view of the growing importance that Saras assigns to non-economic aspects in terms of defining the Company's value, the Report briefly illustrates, including with references to the "Sustainability Report" that has been published by Saras since 2017, the Company's orientation towards sustainability (inspired by the main national and international standards such as the Corporate Governance Code and Legislative Decree no. 254/2016 and the declaration of non-financial information and diversity (so-called NFS)).
Finally, the Report describes the contents of the internal “Compliance Guideline – Rules for managing relevant information and inside information and the establishment of an Insider Register”, as well as the Procedure to be followed for internal dealing, procedures for related- party transactions and the Code of Conduct for Saras Group Directors, as adopted by the Company’s Board of Directors.
The most important regulations in 2021 relating to the energy, environment and health and safety at work sectors are as follows:
- Law no. 234 of 30th December 2021, on “State budget for the financial year 2022 and multi-year budget for the three-year period 2022-2024”;
- Decree-Law no. 228 of 30th December 2021, named “Urgent provisions regarding legislative deadlines”;
- Law no. 233 of 29th December 2021, on “Conversion into law, as amended, of the decree-law no. 152 of 6th November 2021, containing urgent provisions for the implementation of the National Recovery and Resilience Plan (PNRR) and for the prevention of mafia infiltrations";
- Resolution no. 630/2021/R/ EEL of 28th December 2021, on "Determinations regarding the Application for Admission to the SARLUX Essential Plant Reintegration Scheme, for the year 2022";
- Decree-Law no. 221 of 24th December 2021, on “Extension of the national state of emergency and further measures to contain the spread of the Covid-19 epidemic”;
- Law no. 215 of 17th December 2021, on “Conversion into law, as amended, of the decree-law no. 146 of 21st October 2021, containing urgent measures in economic and fiscal matters, to protect work and for non-postponable needs";
- Regulation no. 2021/2204/EU of 13th December 2021, on “Regulations of the Commission amending Annex XVII of Regulation (EC) no. 1907/2006 of the European Parliament and the Council concerning the registration, evaluation, authorization and restriction of Chemical Substances (REACH), as regards substances that are carcinogenic, mutagenic or toxic for reproduction (CMR)";
- Implementing Resolution no. 2021/2326/EU of 30th November 2021, on "Decision establishing the conclusions on the best available techniques (BAT), pursuant to Directive 2010/75/EU of the European Parliament and the Council, for large combustion plants";
- Law no. 171, of 25th November 2021, on “Conversion into law, as amended, of the decree-law no. 130 of 27th September 2021, with urgent measures to contain the effects of price increases in the electricity and natural gas sector";
- Decree of the Ministry of the Interior of 24th November 2021, on "Amendments to Annex 1 of the Decree of the Minister of the Interior of 3rd August 2015, concerning the approval of technical fire prevention standards";
- Regulation 2021/2045/EU of 23rd November 2021 on "Commission Regulation amending Annex XIV of Regulation (EC) no. 1907/2006 of the European Parliament and of the Council on the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)";
- Decree of the Ministry of Economic Development of 12th November 2021, on "Amendment of the technical annex of the Decree of the President of the Republic no. 160, of 7th September 2010, concerning technical specifications and reorganisation of the discipline on the Single Desk for Productive Activities (SUAP)";
- Decree of the Ministry of Ecological Transition 12th November 2021, on "Implementation of the Energy Transition Fund in the industrial sector - Compensation for indirect CO2 costs";
- Legislative Decree no. 210 of 8 th November 2021, on "Implementation of EU Directive 2019/944 of the European Parliament and the Council of 5th June 2019 concerning common rules for the internal market in electricity and amending Directive 2012/27/EU, as well as laying down provisions for the alignment of the national legislation with the provisions of EU Regulation 943/2019 on the internal market in electricity and EU Regulation 941/2019 on risk preparedness in the electricity sector and repealing Directive 2005/89/EC";
- Legislative Decree no. 199 of 5 th November 2021, on "Implementation of Directive 2018/2001/EU on the promotion of the use of energy from renewable sources";
- Decree-Law no. 146 of 21st October 2021, on "Urgent economic and fiscal measures to protect work and for non-postponable needs";
- Decree of the Ministry of the Interior 2nd September 2021, on "Criteria for the management of workplaces in operation and in emergency situations and characteristics of the specific fire prevention and protection service, pursuant to Art. 46, paragraph 3, letter a), point 4 and letter b) of Legislative Decree no. 81 of 9th April 2008";
- Decree of the Ministry of the Interior of 1st September 2021, on "General criteria for the control and maintenance of systems, equipment and other fire safety systems, pursuant to Art. 46, paragraph 3, letter a), point 3, of legislative decree no. 81 of 9th April 2008";
- Delegated Regulation no. 2021/1962/EU of 12th August 2021 on “Commission Delegated Regulation correcting Annex VI to Regulation (EC) no. 1272/2008 of the European Parliament and the Council on classification, labelling and packaging of substances and mixtures";
- Decree of the Ministry of Sustainable Infrastructure and Mobility of 10th August 2021, on “Adoption of tariffs for authorizations, permits or concessions for the construction and verification of energy plants and infrastructures”;
- Delegated regulation no. 2021/2003/EU of 6th August 2021, on "Delegated regulation of the commission that supplements Directive (EU) 2018/2001 of the European Parliament and the Council by establishing the Union platform for the development of renewables";
- Law no. 113 of 6th August 2021, on “Conversion into law, with amendments, of the decree-law no. 80 of 9th June 2021, on urgent measures for strengthening the administrative capacity of public administrations that is functional to the implementation of the National Recovery and Resilience Plan (PNRR - Piano nazionale di ripresa e resilienza) and for the efficiency of justice";
- Decree of the Ministry of Finance of 6th August 2021, on "Allocation of financial resources provided for the implementation of the interventions of the National Recovery and Resilience Plan (PNRR) and allocation of targets and objectives for six-monthly reporting deadlines";
- Decree of the Ministry of Ecological Transition of 30th July 2021, on "Operating procedures of the ETS Committee and the Technical Secretariat";
- Law no. 108 of 29th July 2021, on “Conversion into law, as amended, of the decree-law 31st May 2021, no. 77, containing governance of the National Recovery and Resilience Plan and first measures to strengthen administrative structures and to speed up and streamline procedures";
- Law no. 106 of 23rd July 2021, on “Conversion into law, as amended, of the decree-law no. 73 of 25th May 2021, on urgent measures related to the Covid-19 emergency, for businesses, work, young people, health and local services";
- Law no. 101 of 1st July 2021, on “Conversion into law, as amended, of the decree-law no. 59 of 6th May 2021, on urgent measures relating to the complementary Fund to the National Recovery and Resilience Plan and other urgent measures for investments";
- Decree of the Ministry of Ecological Transition of 25th June 2021, on "Operating procedures of the environmental observatories";
- Decree of the Ministry of Economic Transition no. 261 of 23rd June 2021, on "Approval of the general program for the prevention and management of packaging and packaging waste 2019-2023 - Art. 225, paragraph 4, Legislative Decree 152/2006";
- Regulation (EU) 2021/979 of 17th June 2021, on “Commission Regulation amending Annexes VII to XI of Regulation (EC) no. 1907/2006 of the European Parliament and of the Council on the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)";
- Decree-Law no. 77 of 31st May 2021, on "Governance of the National Recovery and Resilience Plan and initial measures to strengthen administrative structures and accelerate and streamline procedures";
- Law no. 69 of 21st May 2021 on “Conversion into law, as amended, of Decree-Law no. 41 of 22nd March 2021 on urgent measures in support of businesses and economic operators, labour, health and territorial services, related to the Covid-19 emergency”;
- Decree of the Ministry of Ecological Transition of 21st May 2021, on “Determination of the national quantitative energy saving targets that can be pursued by electricity and gas distribution companies for the years 2021-2024 (so-called white certificates)”;
- Decree of the Ministry of Labour and Social Policy of 18th May 2021, on "Transposition of Commission Directive no. 2019/1831/EU of 24th October 2019 establishing a fifth list of indicative occupational exposure limit values in implementation of Council Directive 98/24/EC and amending Commission Directive 2000/39/EC";
- Decree-Law no. 56 of 30th April 2021, on “Urgent provisions regarding legislative deadlines”;
- Law no. 53 of 22nd April 2021, on “Delegation to the Government for the transposition of European directives and the implementation of other European Union acts - European delegation law 2019- 2020”;
- Resolution no. 152/2021/R/ EEL of 13th April 2021 related to "Determinations regarding the essential Sarlux electricity production plant, for the period from 21st April to 31th December 2021";
- Regulation no. 2021/849/EU of 11th March 2021, on “Commission Delegated Regulation amending, for the purposes of its alignment with technical and scientific progress, Part 3 of Annex VI to Regulation (EC) no. 1272/2008 of the European Parliament and the Council on classification, labelling and packaging of substances and mixtures";
- Regulation no. 2021/280/EU of 22nd February 2021 about the Internal Energy Market Rules on "Commission Implementing Regulation amending Regulations (EU) 2015/1222, (EU) 2016/1719, (EU) 2017/2195 and (EU)
- 2017/1485 to align them with Regulation (EU) 2019/943";
- Decree of the Ministry of Labour and Social Policy of 11th February 2021, on " Transposition of Directive (EU) 2019/130 of the European Parliament and the Council of 16th January 2019 and Directive (EU) 2019/983 of the European Parliament and the Council of 5th June 2019 amending Directive (EC) 2004/37 of the European Parliament and the Council of 29th April 2004 on the protection of workers from the risks related to exposure to carcinogens or mutagens at work";
- Decree of the Ministry of Ecological Transition of 2nd February 2021, on "Updating of coordinated monitoring programmes for the continuous assessment of the environmental status of marine waters".
2021 was a very positive year for global financial listings: the recovery of global stock markets that began in the late months of 2020 continued in 2021, supported by accommodating central bank policies and major economic support plans from the United States and the European Union. Indeed, these markets performed better than those of emerging countries, as well as those of China and Latin America.
The European financial markets recovered the heavy losses recorded in the first half of 2020, with uninterrupted growth between the beginning of the year and the month of November: the composite index that summarises the performance of the 300 European companies with the largest capitalisation – the FTSE EuroFirst 300 - recorded an increase of 23% in the year. Among the main European lists, the best performances were that of the CAC of Paris which gained 28.9%, followed by the Ftse Mib which recorded an increase of 23.0%. Followed by the DAX in Frankfurt which gained 15.8%, the IBEX in Madrid up 7.9% and the FTSE ASE Large Cap in Athens up 11.1%. London FTSE 100 closed up 14.3%.
The US stock markets saw the S&P 500 rise by 27%, repeatedly hitting highs since 1995, the Dow Jones by around 19% and the Nasdaq by 21%.
At sector level, in addition to the IT sector, which continued to deliver strong returns, integrated large caps in the oil and energy sectors in particular benefited from these rises, in the face of the strong recovery in demand and the consequent appreciation of crude oil and other raw materials such as gas and coal. Two other sectors particularly penalised in 2020, real estate and financial, recorded the best performances in 2021.
On the currency market, the euro fell by 7.3% against the dollar, while with reference to government bonds the BTP-Bund spread widened by 23.7%.
The following graph provides a visual representation of the fluctuations in the share prices commented on, using the prices of 1st January 2021 as the “base 100” reference.
SHARE PRICE (EUR) | 2021 |
Minimum price (20/12/2021) * | 0.5304 |
Maximum price (09/06/2021) * | 0.88 |
Average price | 0.655 |
Closing price on 30/12/2021 | 0.5508 |
* Minimum and maximum prices refer to official reference prices on the closing of each trading day. | |
DAILY TRADING VOLUMES | 2021 |
Minimum traded volume in Euro (million) (27/12/2021) | 1.2 |
Minimum traded volume in number of shares (million) (27/08/2021) | 2.0 |
Maximum traded volume in Euro (million) (07/06/2021) | 45.5 |
Maximum traded volume in number of shares (million) (07/06/2021) | 53.2 |
Average traded volume in EUR million | 7.0 |
Average traded volume in number of shares (million) | 10.4 |
The previous data relate on the performance of the Saras stock in terms of price and volumes traded during the period from 4th January 2021 to 30th December 2021.
The market capitalisation at 30th December 2021 (last open market day of the year) amounted to approximately EUR 524 million and, on the same date, there were 951 million shares.
Following the resolution of the Shareholders' Meeting of 12th May 2021 regarding the 2018-2021 Stock Grant Plan, Saras SpA has assigned and delivered all treasury shares in its portfolio, equal to 9,220,216: therefore, the number of ordinary shares in circulation at 31st December 2021 was 951,000,000. For details on own shares held in treasury and on the share movements during the year, reference should be made to the Report on Operations to the separate financial statements of Saras SpA.
The following graph shows the daily trend of the Saras stock, compared with the benchmark index, the FTSE Italia Mid Cap index of the Milan stock exchange: as a result of the phenomena described in the course of this Report and which have affected the refining market, the Saras stock reported a negative performance of 7.4% in 2021. Regarding the Italian market, the benchmark FTSE Mid Cap index, which includes the Saras stock, saw a rise of 30.8%.
It should be noted that, following the quarterly revision of the FTSE index basket, at 21st March 2022, the Saras stock will be included in the FTSE Italia Small Cap Index, which includes all the shares of smaller capitalisation companies not included in the FTSE MIB and FTSE Italia Mid Cap Indexes, instead of the FTSE Italia Mid Cap Index, which includes the shares of the top 60 companies by capitalisation that do not belong to the FTSE MIB index.
The following graphic shows the structure of the Saras Group and the main companies involved in each business segment, as of 31/12/2021.
It should be noted that, from 1st January 2021, the “Industrial & Marketing” segment includes all refining and electricity generation activities as well as marketing activities. The Renewables segment includes activities previously included in the "Wind" segment, which was renamed in view of the potential developments in photovoltaic power and green hydrogen.
GAAP and Non-GAAP measures (alternative performance indicators)
To present the Group’s operating performance in a way that best reflects the most recent market trends, in line with generally accepted practices in the oil sector, the operating profit and comparable net profit, non-accounting values processed in this report on operations have been stated with the measurement of stocks using the FIFO method, but excluding unrealised gains and losses on stocks resulting from scenario changes calculated by measuring opening stocks (including the related derivatives) at the same unit values as closing stocks (when quantities increase in the period), and closing stocks at the same unit values as opening stocks (when quantities decrease in the period). Items that are non-recurring in terms of their nature, materiality and frequency have been excluded from both the operating profit and the comparable net profit.
The results thus calculated, which are referred to as “comparable”, are not indicators defined by the International Financial Reporting Standards (IAS/IFRS) and are unaudited. 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.
KEY GROUP FINANCIAL AND OPERATING RESULTS
EUR million | 2021 | 2020 |
REVENUE | 8,636 | 5,342 |
Reported EBITDA | 277.1 | (87.1) |
Comparable EBITDA | 54.1 | (20.8) |
Reported EBIT | 78.5 | (341.1) |
Comparable EBIT | (144.5) | (238.9) |
Reported NET RESULT | 9.3 | (275.5) |
Comparable NET RESULT | (136.0) | (197.0) |
NET FINANCIAL POSITION BEFORE IFRS 16 | (453) | (505) |
NET FINANCIAL POSITION AFTER IFRS 16 | (494) | (545) |
CAPEX | 77.8 | 256.0 |
Please refer to the reconciliation of GAAP-non-GAAP measures in the next paragraph. | ||
Comments on Group results 2021
In 2021, the Saras Group achieved better financial results compared to 2020, although the scenario was still affected by the persisting effects of the pandemic crisis caused by Covid-19. In fact, a more substantial recovery in refining margins - particularly diesel oil crack margins– only took place starting from the second half of the year.
Specifically, since September, diesel refining margins, which were more affected than gasoline by the economic slowdown following the Covid crisis, showed a significant recovery in Europe, averaging $11.1/Specifically, since September, diesel refining margins, which were more affected than gasoline by the economic slowdown following the Covid crisis, showed a significant recovery in Europe, averaging $11.1/bl in the last quarter, a double-digit level not seen since early 2020. These values, while on the rise, did not reach the pre-Covid levels of around $14/bl. In 2021, European air traffic recovered considerably, although not completely, thanks to vaccination campaigns, reaching 64% of pre-Covid levels in January, rising to 70% during the summer,and 78% in December1. In the second half of the year, however, acceleration of consumption due to the post-pandemic recovery led to a surge in raw material costs and energy commodity costs, driving gas, electricity and CO2 prices to record levels and largely offsetting the benefits derived from improved margins.
Within this scenario, the Group continued in 2021 to implement the cost efficiency and investment reduction plan adopted in 2020 with the aim of minimising the impact of the Covid-19 pandemic crisis. In particular, on the operating costs front, during 2021 the Company internalised, through its subsidiary Sartec, its engineering activities and continued its plan to contain labour costs, through the use of the redundancy fund which was adopted to a partial extent for all group employees and extended in the second half of the year, although in a reduced form, with the implementation of a plan for incentivised voluntary termination of employment.
In addition, the refinery's operations were modulated over the months according to the cost-effectiveness of processing the main refined products: in particular, the production of gasoline was maximised due to its higher profitability compared to diesel, especially in the first part of the year and, at the same time, although representing a secondary component of the yield, to be noted is the increase in the production of VLSFO, the fuel oil with a very low sulphur content, which showed a growing marginality during the year thanks to a recovering maritime traffic.
As regards power generation activities, on 21st April 2021, following Resolution no. 598/2020/R/EEL of 29th December 2020, which included the Sarlux Srl IGCC combined cycle power plant among the plants essential for the safety of the electricity system for 2021, and following ARERA Resolution no. 152/2021/R/EEL of 13th April 2021, which defined the economic conditions for its operation in 2021, the transition from the CIP6/92 convention to the essentiality regime was finalised by adopting new technical and economic parameters.
At the same time, the Company continued to implement its plan to expand the Renewables segment, as set out in the Plan, with the acquisition in the second quarter of the year of an additional 45MW of installed wind power capacity, which, net of some maintenance activities, began operations immediately.
In 2021, Group revenues amounted to EUR 8,636 million, compared to EUR 5,342 million last year. The change is primarily attributable to the significant appreciation of the main oil products compared to the same period of the previous year which, we should point out, had been characterised by a heavy slump in prices due to the effects of the pandemic; specifically, the average gasoline price in 2021 was $671/tonne (vs. $382/tonne in 2020), while the average diesel price was $579/tonne (vs. $362/ tonne in 2020). Other factors that contributed positively to the increase in revenues were electricity sales due to the significant increase in the single national price, which averaged 125/MWh in 2021 (vs. EUR 39/MWh in 2020) and higher processing and sales of petroleum products; in fact, it should be noted that in 2020, production was affected by the impact of the multi- year maintenance of the FCC plant and the adverse scenario conditions.
The Group's reported EBITDA in 2021 amounted to EUR 277.1 million, up from EUR -87.1 million in 2020. This positive change was due predominantly to the different impacts of commodity price trends on oil inventories. In 2021, the change in inventories (net of related hedging derivatives) benefited from an appreciation of EUR 226.5 million compared to a loss of EUR 32.2 million in the same period of 2020. In addition, for the remaining part of the improvement in EBITDA, there was an overall improvement in the impact of the oil scenario on margin generation and a negative impact from the increase in electricity and CO2 prices, which, starting from the second half of the year, increased variable costs (only partly offset by essential plant reimbursements). For other comments on operations, please refer to the "Segment Analysis" section.
The Group's reported Net Profit was EUR 9.3 million, compared to EUR -275.5 million in 2020. In addition to the EBITDA figures, depreciation and amortisation decreased in 2021 compared to the previous year, due on the one hand to the negative effect of the reduction in the value of property, plant and equipment as a result of the impairment test (pursuant to IAS 36) recognised in the previous year, and on the other hand to the reduction in intangible assets due to the end of the CIP6 contract; in addition, there was an increase in net financial income and expenses in 2021 due to the effects of exchange rate hedges.
The Group's comparable EBITDA in 2021 stood at EUR 54.1 million, up from EUR -20.8 million recorded in 2020. With respect to reported EBITDA, this result does not include the above-mentioned positive effect of the scenario on changes in inventories (net of related hedging derivatives) from the beginning to the end of the period, includes the impacts of currency derivatives (restated under core business) and excludes non-recurring items mainly relating to the price differential of the shares of CO2 pertaining to the previous year and to the write- down of trade receivables while it maintains the release effect of the unused incentive fund for approximately 4 million euros, as it is not relevant for comparable purposes value and nature. The higher result compared to 2020 is made up of a positive variance in both the "Renewables" and "Industrial & Marketing" segments, which will be described in more detail in the "Segment analysis" section.
The Group’s comparable net loss for 2021 was EUR -136.0 million, versus EUR -197.0 million in the same period last year.
Investments in 2021 amounted to EUR 77.8 million, significantly lower than in 2020. Investments related to the Industrial & Marketing segment amounted to EUR 69.4 million, down on the previous year due to both the initiatives to contain investments, implemented to mitigate the impact of the Covid-19 pandemic, and the lower planned shutdown activities carried out during the year. Investments relating to the Renewables segment amounted to EUR 8.4 million and mainly related to the completion of the reblading activities.
The following tables show the details on the calculation of EBITDA and comparable Net Result for the years 2021 and 2020.
DETAILS ON THE CALCULATION OF COMPARABLE EBITDA
EUR million | 2021 | 2020 |
Reported EBITDA | 277.1 | (87.1) |
Gains/(losses) on inventories and inventory hedging | (226.5) | 32.2 |
Exchange rate derivatives | (15.8) | 5.3 |
Non-recurring items | 19.3 | 28.8 |
Comparable EBITDA | 54.1 | (20.8) |
DETAILS ON THE CALCULATION OF COMPARABLE NET PROFIT
EUR million | 2021 | 2020 |
Reported NET RESULT | 9.3 | (275.5) |
Gains/(losses) on inventories and inventory hedging, net of taxes | (163.3) | 23.4 |
Non-recurring items after tax | 18.0 | 55.2 |
Comparable NET RESULT | (136.0) | (197.0) |
The Net Financial Position as of 31st December 2021, before the effect of applying IFRS 16, was negative by EUR 453 million, compared with a negative reported net financial position of EUR 505 million as of 31st December 2020. The Net Financial Position including the effects of IFRS16 (negative impact of EUR 41 million) was a negative EUR 495 million.
In 2021, operations, apart from the positive price changes in inventories, did not offset the disbursements related to the financing of investments and to financial expenses. As for the working capital, it should be noted that the trend in raw material prices generated an increase in trade payables that more than offset the increases related to inventory changes and the increase in trade receivables also induced by the performance of prices in finished products. It should be noted that trade receivables also include those relating to essential plant reimbursements.
It should be noted here that the additional credit lines granted and not used by the Group at 31st December 2021 are mainly short-term and amounted to approximately EUR 500 million. The bank loans referable mainly to the SACE credit line, and the Unicredit loan, have been classified among short-term loans for respectively EUR 258 million and 50 million. This is in application of the accounting standard IAS 1.74, which provides for this type of case where potential breaches of commitments which invalidate the mandatory right to defer the settlement of the liability until its natural expiry beyond twelve months. These payables will be reclassified in the medium-long term, according to their original contractual deadlines, upon receipt of the formal waiver of the banks (actually issued on March 31st, 2022) to make use of this contractual right.
For further details, please refer to the following paragraph "Risk Analysis" and to the Explanatory Notes in sections 1 – Foreword – continuity in Operations and business 5.3.1 Short-term financial liabilities and
5.4.1 Long-term financial liabilities.
KEY GROUP FINANCIAL AND OPERATING RESULTS:
EUR million | 2021 | 2020 |
Medium- and long-term bank loans | (6) | (399) |
Medium- and long-term bonds | 0 | (199) |
Other medium- and long-term financial liabilities | (5) | (13) |
Other medium- and long-term financial assets | 4 | 6 |
Net medium-/long term financial position | (7) | (606) |
Bank loans | (385) | (19) |
Bonds loans | (200) | 0 |
Payables to banks for bank overdrafts | (163) | (456) |
Other short-term financial liabilities | (114) | (39) |
Fair value on derivatives and realised net differentials | (9) | (6) |
Other financial assets | 58 | 62 |
Cash and cash equivalents | 367 | 559 |
Net short-term financial position | (446) | 101 |
Total Net Financial Position before lease liability pursuant to IFRS 16 | (453) | (505) |
Financial payables for leased assets pursuant to IFRS 16 | (41) | (40) |
Total Net Financial Position after lease liability pursuant to IFRS 16 | (495) | (545) |
.
In order to present the Group's business performance in a consistent manner, the information of the individual companies is attributed to the business segments identified; note that, from 1st January 2021, the “Industrial & Marketing” segment includes all refining and electricity generation activities as well as marketing activities. The “Renewables” segment includes activities previously included in the "Wind" segment, which was renamed in view of the potential developments in photovoltaic power and green hydrogen.
The Sarroch production site, located on the coast south-west of Cagliari, consists of one of the largest refineries in the Mediterranean in terms of production capacity and plant complexity, perfectly integrated with an IGCC (combined cycle gasification) plant. The site is strategically located in the centre of the Mediterranean and has a processing capacity of 15 million tonnes/year, corresponding to about 17% of the total distillation capacity in Italy, and an installed power generation capacity of 575 MW.
As regards power generation activities, on 21st April 2021, following ARERA Resolutions 5 98/ 20 20 /R/EEL of 29 th December 2020, which ordered the inclusion of the Sarlux Srl IGCC combined-cycle power plant among the plants essential for the safety of the electricity system for 2021, and 152/2021 of 13th April 2021, the transition from the CIP6/92 convention to the essentiality regime was finalised and the resulting change in the technical and the economic parameters to be considered for its operation was implemented. In particular, Resolution 152/2021 of 13th April 2021 defined the economic conditions for the operation of the plant for 2021, i.e. the reintegration component of the fixed costs strictly necessary for electricity production, the amortisation and remuneration of invested capital, and for essential electricity production, the integration of variable costs with respect to what is collected from sales on the market at the reference zonal price.
The production set-up of the IGCC power plant takes into account the requirements defined by Terna related to the safe operation of the electricity system, compatibly with the operational constraints of the SARLUX plant.
It should be noted that for the "Industrial & Marketing" segment, the results include the sum of the "Refining", "Power", "Marketing" and "Other Activities" segments, as defined from the Quarterly Report at 31st March 2021.
The Saras Group operates in the Refining sector through its Sarroch refinery, one of the biggest in the Mediterranean in terms of production capacity (15 million tonnes/year) and also in terms of the complexity of plants it is ranked among the best in Europe (11.7 on the Nelson Index). Located on the coast south-west of Cagliari, it enjoys a strategic position in the middle of the Mediterranean Basin, close to the various crude supplier countries and the main markets for refined products.
The most recent estimates in the International Monetary Fund's (IMF) World Economic Outlook confirmed that global GDP grew by 5.9% in 2021, thanks to anti-Covid vaccination campaigns and strong economic support policies adopted by many countries. In particular, Europe with 5.2% growth at the end of the year returned fully to pre-crisis levels, while Italy's 6.2%
growth brought GDP back to 0.5 percentage points below its peak in the last quarter of 2019.
Global oil demand averaged 100.2 mb/d in the last quarter of 2021, a level in line with that of 2019. In addition, the shortage of natural gas, LNG and coal supplies caused by the strong recovery in energy demand has increased the demand for fuel oil, crude oil and middle distillates as alternatives in power generation processes, particularly in Europe, where additional consumption has reached up to approx. 250÷300 kb/d in the fourth quarter of 2021 compared to a normal seasonal trend.
However, looking at the global refining industry, the market was still weak in the first half of the year, and a recovery was only recorded from the summer period onwards, especially in terms of margins and processing. Refinery processing, which had declined globally by 7.2 mb/d in 2020, increased by around 3 mb/d in 2021, averaging 77.8 mb/d in the year and reaching 79.9 mb/d in the fourth quarter of 2021. In addition to growing demand, impacting the performance of refining margins, was the reduction in global refining capacity which, during 2021, fell for the first time in 30 years, by more than 0.7 mb/d, with almost 1.6 mb/d of capacity permanently closed or converted to biorefineries over the year, compared to 0.85 mb/d of new capacity coming on stream. However, the surge in energy costs occurring globally, but particularly in the second half of the year in Europe, largely offset the benefits derived from the improved oil scenario.
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 annual values * | 2021 | 20202019 | |
Crude Oil (USD/bl) | |||
Price of Dated Brent (FOB Med) | 70.9 | 41.8 | 64.2 |
Price of Urals (CIF Med) | 69.8 | 42.1 | 63.8 |
Heavy-light price differential | -1.1 | +0.2 | -0.4 |
Refined Products (USD/tonne) | |||
ULSD price | 579.4 | 362.1 | 585.6 |
Gasoline 10ppm | 670.7 | 381.8 | 594.6 |
HSFO | 375.3 | 214.5 | 324.0 |
Crack spreads (USD/bl) | |||
ULSD crack spread | 6.8 | 6.7 | 14.3 |
Gasoline crack spread | 9.5 | 3.9 | 7.0 |
HSFO crack spread | -11.3 | -7.8 | -12.8 |
Other indicators of profitability | |||
EMC Benchmark margin (USD/bl) | -0.2 | -0.5 | +1.1 |
USD/EUR forex | 1.183 | 1.141 | 1.195 |
* Sources: “Platts” for prices and crack spreads, and “EMC – Energy Market Consultants” for the reference refining margin EMC Benchmark.
Crude Oil Prices
In 2021, Brent dtd quotations rose by more than 50%, from a quotation of USD 50/bl at the start of the year to around USD 78/bl at the end of the year, and an average quotation over the twelve months of USD 70.9/bl (USD 41.8/bl in 2020).
In the first quarter alone, quotations rose from USD 50/bl to over USD 69/bl in mid-March, buoyed not only by the optimism triggered by the vaccination campaigns, but also by the production discipline of Opec+ Russia countries, which maintained in the first months of the year the same levels of production quotas set for 2020.
In late March and early April, the upturn in the infection curve and a slowdown in the supply of vaccines to EU countries led to new restrictions, and quotations momentarily fell to USD 62-63/bl. Brent prices therefore averaged USD 61.1/bl in the first quarter.
Between May and June, the increase in vaccinations and the relaxation of restrictive measures led to an increase in global oil demand by more than 3 million barrels per day to 98 million barrels per day. Average quotations for the second quarter thus stood at USD 69/bl. Fears of stronger-than-expected demand with the onset of the summer period, unsupported by a gradual easing of production cutbacks, led Brent prices to exceed USD 76/bl at the end of June, reaching their highest values since 2018.
The Opec+ Russia countries showed difficulty in reaching an agreement on the modulation of the recovery, which was only reached in July with the decision to increase production by 400,000 bl/day every month from August, despite requests from the main consumer countries for a more substantial increase. These tensions were worsened by the uncertainties surrounding a possible resolution of the US-Iran nuclear deal negotiations, resulting in a return of Iranian crude exports, and the production reductions in the US triggered by Hurricanes Ida and Nicholas, which hit the Gulf of Mexico, halting production for weeks at a time during the summer months.
In the third quarter, the very positive economic outlook, with consumption and mobility data recovering strongly, led to the highest average Brent price recorded since 2018, at USD 73.5/bl (+6.5% compared to the second quarter of USD 69/bl). The increase in oil prices was also affected by the shortage of natural gas and coal from the second half of the year onwards, which increased the demand for fuel oil, crude oil and middle distillates by up to 500k/bl per day for power plants in many countries, including China, Japan and Pakistan in Asia; Germany and France in Europe; and Brazil.
At the beginning of October, the OPEC+ Russia countries confirmed the strategy adopted in mid-July
- despite requests from the main consumer countries for a more substantial increase - foreseeing no production cuts only at the end of 2022, also declaring some difficulties in meeting the target quotas, also due to underinvestment in previous years by some member countries, including Angola, Nigeria and Malaysia.
In November, however, uncertainties over demand related to the onset of the Omicron Covid variant and the effects of inflation on economic growth led to a temporary downturn in prices, which then rebounded sharply at the end of the year: after rising in October by more than USD 9/bl in a single month, due to concerns over energy supply and ongoing stock drawings, prices fell by around 15%, or around USD 15-17/bbl, in November.
This situation continued for several weeks, with producers and refiners forced to cope with the uncertainties of fluctuating demand due to new Covid-related emergencies and changes in the economic environment.
Prices remained under pressure until 20th December, when the oil and financial markets gradually gained a better understanding of Omicron's impact, and Brent quickly returned to values above USD 75/bl, resuming a bullish trend and ending the fourth quarter with an average price of USD 79.8/bl.
Price differential between heavy and light crude oils (“Urals” vs. “Brent”)
The heavy-light differential in 2021 returned to negative values, averaging a discount of USD -1.1/ bl, compared to an average of USD
+0.2/bl in 2020 (and an average of USD +0.6/bl in 2019), when the production cuts implemented by OPEC+ Russia countries, which mainly affected medium-heavy high-sulphur crude oils, had driven the entire sour basket sharply upwards. The differential returned to negative territory in the first quarter of 2021 at USD -0.5/bl, in a context of increased exports from Russia and still weak demand, and gradually widened in the second quarter to USD -1.2/bl, thanks to an initial and partial reduction in OPEC+ Russia production cuts, and also as a result of lower utilisation by Russian refineries engaged in maintenance cycles. The "heavy- light" differential widened further in the third quarter as a result of unfavourable margins for middle distillates - which process sour crude oils - and reduced buying interest from Eastern buyers. Conversely, the reduction in planned Russian exports in September resulted in a compression of the discount. The average for the third quarter therefore stood at USD -1.8/bl. The Ural therefore strengthened in the last two months of the year, due to delays in supplies from the Black Sea caused by unfavourable weather conditions, which brought the average for the last quarter to USD -1/bl.
“Crack spreads” of the main refined products (i.e. the difference between the value of the product and the cost of crude oil)
The gasoline crack in 2021 averaged USD 9.5/bl compared to USD 3.9/ bl in 2020, a value in line with pre- Covid multi-year averages (USD 8.8/ bl the 2017-19 average; USD 7/bl the 2019 average), which benefited from a particularly significant increase in demand at the end of the summer period. After a major recovery in the first quarter with an average of USD 6.2/bl (compared to USD 3.4/ bl in the fourth quarter of 2020), gasoline margins benefited from a robust increase in car traffic with the start of the summer season, averaging in the second quarter USD 8.9/bl. In addition, between late August and mid-September, hurricanes Ida and Nicholas hit the west coast of the USA, blocking refineries and platforms in the Gulf of Mexico for weeks. This has offered further support, with the gasoline margins in mid-September exceeding USD 17/bl, with a USD 12.6/bl average in the third quarter. In November, in addition to the rebalancing due to the end of the summer period, the crack saw a downturn due to concerns over the release of the new Omicron variant. However, in December a rapid recovery, due both to the decline in crude oil and to contingent problems that reduced gasoline exports from Northern European refineries, resulted in an average fourth-quarter gasoline crack price of USD 10.1/bl, a high level in view of the seasonality and the switch to winter specification.
The diesel crack in 2021 averaged USD 6.8/bl in line with the average recorded in 2020 of USD 6.7/bl, still below the average of USD 14.3/bl recorded in 2019. In the first half of the year, margins were still very weak, averaging USD 4.3/ bl and then USD 4.8/bl in the first and second quarters respectively, particularly affected by reduced demand for jet fuel. In the third quarter, starting in September, a first real improvement was observed thanks to an increase in air traffic in both the US and Europe, supported by a drop in the volume of imported middle distillates, as a result of the aforementioned shutdown of US refineries due to Hurricane Ida. Inventories quickly hit values below historical averages, and the diesel crack averaged USD 7/bl in the third quarter. In the fourth quarter, the effects of economic recovery, despite concerns about new waves of contagion, further reduced stocks of middle distillates to their lowest levels in recent years and, thanks in part to a partial recovery in domestic and international air traffic and a temporary drop in crude oil prices recorded in December, diesel crack averaged USD 11.1/bl, a double-digit level not seen since early 2020.
Jet fuel crack increased to an average of USD 4.1/bl in 2021 from USD 1.2/bl in 2020. In 2019,Jet fuel crack increased to an average of USD 4.1/bl in 2021 from USD 1.2/bl in 2020. In 2019,the average stood at USD 13.9/bl. The demand for jet fuel, while still remaining well below pre-Covid levels (averaging 65% of pre-Covid levels according to the latest IEA estimates) in the second half of the year benefited from a more substantial recovery in air traffic on a national and international scale. In particular, during the summer season, the increase in flights made a substantial contribution to the demand for jet fuel, which in the third quarter recorded an average margin value of USD 4.1/ bl (compared to an average of USD 2/bl in the second quarter and USD 1.6/bl in the first quarter). In the fourth quarter, despite a setback caused by fears over the spread of the Omicron variant, and also thanks to the use of kerosene as a heating fuel in several Asian countries, the average crack more than doubled to USD 8.7/bl.
The VLSFO crack averaged USD 2/bl in 2021 (vs. USD 3.8/bl in 2020). After having continued, at the beginning of the year, the recovery recorded at the end of 2020, with an average in the first quarter of USD 4.5/bl, from the second quarter onwards the VLSFO crack showed a significant compression, in particular between May and June, with values just above zero, due to the rise in crude oil prices and maritime traffic still below the usual seasonal levels. The average for the second quarter therefore stood at USD 1.3/bl. After having reached negative values in July, the recovery of maritime traffic, especially dry- bulk and containers, made it possible to reach values of USD 2/bl between August and September. The average VLSFO crack in the third quarter was therefore USD 0.8/bl. In the last quarter, the recovery of maritime traffic, and increased consumption of fuel oil for power generation to replace gas, resulted in an average of USD 1.6/bl.
The crack of the LSFO, used as blendstock in the formulation of the VLSFO, averaged negative USD -0.2/bl in 2021, compared to an average of USD 1.3/bl in 2020.
The HSFO crack averaged USDThe HSFO crack averaged USD -11.3/bl in 2021 (vs. USD -7.8/bl in 2020). Although the reduction in OPEC+ Russia production cuts contributed to an increase in ATZ crude production, helping to bring the HSFO crack down to ever lower levels and closer to pre-pandemic levels, high natural gas prices have diverted a significant portion of HSFO volumes to power generation in some Asian and Middle Eastern countries.
With regard to the analysis of the profitability of the Industrial & Marketing segment, 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.
As shown in the graph below, the Industrial & Marketing segment of the Saras Group achieves normally a higher margin than the EMC Benchmark margin. The variability of the margin is dependent upon specific market conditions, as well as the performance of industrial and commercial operations in each individual quarter.
The EMC Benchmark recorded a still negative average value of USD -0.2/ bl in 2021 (USD -0.5/bl in 2020), only showing positive values from the second half of the year onwards.
Saras showed an integrated I&M segment margin of USD 4.5/bl on average in 2021 (including a Marketing channel contribution of USD 0.6/bl) compared to a margin of USD 4.7/bl in 2020 (including a Marketing channel contribution of USD 0.5/bl).
Saras' premium over the EMC benchmark therefore stood at USD 4.7/bl (including USD 0.6/bl contribution from the Marketing channel) compared to a premium of USD 5.2/bl in 2020 (including USD 0.5/bl from the Marketing channel), slightly higher than the guidance of USD 4.3-4.5/bl (including USD 0.5/bl contribution from the Marketing channel) provided last quarter. The value of the premium should also be considered on the basis of processing in the period, amounting to 94.7 million barrels in 2021 compared to only 83 million barrels in 2020.
The reasons for the higher premium of around USD +0.3/bl compared with the guidance are described in the "Segment Analysis"/"Industrial & Marketing" chapter and are attributable to the performance in the fourth quarter and in particular: USD +0.1/bl to a higher contribution from the marketing channel, thanks to higher-than-expected margins; USD +0.2/bl to the positive effect of the improvement in the oil scenario, which more than offset the appreciation in energy costs.
It should be noted that, in some exceptional market conditions, EMC may not be a correct proxy for the performance of the Saras refinery, as happened in the second half of 2021, when variable energy costs were very high compared to historical averages. Energy costs within the EMC benchmark are included in variable costs4, which are in turn determined on the basis of a fixed percentage of the LSFO3 price per barrel; therefore, the EMC does not incorporate the actual appreciation of electricity and CO2 that impacted Saras' margins.
In particular, with reference to electricity, it should be noted that the SNP in the third quarter recorded an average value of EUR 125/MWh and in the fourth quarter an average value of EUR 242/MWh, compared to an average of approximately EUR 80/MWh in June. Similarly, CO2 permit prices averaged EUR 57 and EUR 68/tonne in the third and fourth quarters respectively, compared to a June average of EUR 50/tonne.
These increases had an impact on Saras' margin, estimated on the basis of processing and electricity requirements, of USD -0.5/bl in the third quarter and USD -1.6/bl in the fourth quarter, respectively. If these impacts had been included, EMC would have recorded a lower value of USD +0.5/bl (instead of USD 1/ bl) in the third quarter, and USD
-0.3/bl (instead of USD +1.2/bl) in the fourth quarter, with an average annual value of USD -0.7/bl instead of USD -0.2/bl. Compared to these values of the EMC, recalculated to include the impact of the appreciation of electricity and CO2, the Saras Industrial & Marketing premium would have been equal to USD 5.2/bl (instead of USD 4.7/bl).
In 2021, accelerating consumption for the post-pandemic recovery has led to an unprecedented surge in the cost of raw materials and energy commodities, creating tensions in key supply markets and driving prices to record levels.
The January 2022 IEA semi-annual report on the electricity market notes that the acceleration in consumption following the pandemic together with more extreme weather conditions in 2021 than in 2020, including a colder-than-average winter, led to a 6% increase in global electricity demand, the highest in percentage terms since 2010. In absolute terms, last year's increase of more than 1,500 terawatt hours was the highest ever recorded. About half of the increase was due to the demand from China which grew by about 10%. This has triggered a build-up of natural gas, LNG and coal stocks and a surge in energy prices in the world's major economies. In particular, the growth in demand for gas from Asia to Russia has led to less availability in Europe.
In Italy in particular, the spot price of natural gas at the TTF (the European reference market for natural gas) increased in 2021 by almost 500% from an average of EUR 21/MWh in January to an average of EUR 120/MWh in December 2021. This exponential increase in the price of gas - on which more than 40% of Italy's electricity production depends - was immediately reflected in the price of wholesale electricity, the SNP (Single National Price), which, from a historical average over the period 2015-2020 of around EUR 50/MWh, rose by almost 400% in 2021, from an average of EUR 61/ MWh in January to an average of EUR 288/MWh in December.
This increase was particularly evident in the second half of the year, when the SNP rose from an average value of EUR 75/MWh in the second quarter, to an average of EUR 125/MWh in the third quarter and then to EUR 242/MWh in the fourth quarter, setting new all-time highs. The 2021 annual average stood at EUR 125.5/kWh compared to the historical minimum of EUR 38.9/kWh in 2020.
The values of "EUA" CO2 emission quotas, traded in the European Emission Trading Scheme (ETS), also more than doubled in 2021 from an average of EUR 33 to EUR 79/ tonne, recording an annual average of EUR 53.2/tonne. These values can be compared with a historical pre-Covid average of about EUR 20/tonne.
The increase in EUAs stems from a number of factors, including the start of "phase 4" of the ETS from 2021 to 2030, for which the European Union expects a greater reduction in the total quantity of emission quotas at an annual rate of 2.2% compared to the previous 1.74%. This helps to reduce oversupply, with consequent upward pressure on prices, together with another mechanism set up by the European Union with the same objective: the so-called "market stabilisation reserve", a fund where excess carbon emission allowances flow, most of which will be phased out from 2023 onwards.
On 14 th July, the European Commission also approved the "Fit for 55" climate package, providing for a series of measures aimed at reducing greenhouse gas emissions by at least 55% (from the previous 40%) compared to 1990 levels by 2030, with the aim of supporting the ecological transition process envisaged in the Green Deal. These measures cover different sectors, from economy to transport, from renewable energy to energy efficiency; in the manufacturing industry the reduction will be 62% (compared to the previous 43%).
Finally, the sudden post-pandemic recovery contributed to this trend. Indeed, the continuing high cost of gas has led to increased use of coal in power generation processes, which produces about twice as much CO2 emissions as gas-fired plants. According to the IEA, the return to more polluting sources of electricity increased global carbon dioxide emissions from electricity production by 7% in 2021, reaching a new all-time high after falling in the previous two years.
Last but not least, there is a speculative component not related to hedging one's position under the ETS Directive, based on the expectation that the price may rise further, at least in the short term. The presence of Investment Funds has grown dramatically since mid 2020, from around 150 to 250 by June 2021, four times the presence of obliged parties (Source NE Numisma Energia).
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REFINERY RUNS | 2021 | 2020% | ||||
CRUDE PROCESSING | ||||||
Thousand tonnes | 12,978 | 11,36914% | ||||
Million barrels | 94.7 | 83.014% | ||||
Thousand barrels/day | 260 | 22914% | ||||
COMPLEMENTARY FEEDSTOCKS | ||||||
Thousand tonnes | 809 | 70215% | ||||
ELECTRICITY PRODUCTION | ||||||
GWh | 3,524 | 4,071-13% | ||||
TOTAL SALES | ||||||
Thousand tonnes | 3,336 | 2,95613% | ||||
of which: in Italy | Thousand | tonnes | 2,156 | 1,90913% | ||
of which: in Spain | Thousand | tonnes | 1,180 | 1,04813% | ||
Crude oil processing at the refinery in 2021 amounted to 13.0 million tonnes (11.4 million tonnes in 2020), corresponding to 94.7 million barrels (83.0 million barrels in 2020) and 260 thousand barrels/day (229 thousand barrels/day in 2020), up 14% from 2020.
Processing of complementary charges to crude oil was 0.8 million tonnes, compared to 0.7 million tonnes in 2020. This trend is primarily attributable to the different maintenance cycle planned for the two years (it should be noted that 2020 was affected by significant maintenance of the Topping T1 plant and the FCC unit in the first half of the year); in addition, the changed scenario conditions (especially in the second half of the year) and the different set-ups introduced by the two operating regimes of the power generation plant (operated under the essentiality regime in 2021 compared to the CIP 6 regime that characterised the 2020 operation) also contributed.
Electricity production amounted to 3,524 GWh, down 13% compared to 2020, mainly due to a number of significant production shutdowns involving power generation plants in the first half of 2021 and the changed production set-ups required under the new essentiality regime.
Before analysing in detail the volume of sales of the Marketing channel, it is necessary to highlight some relevant market trends.
In Italy, according to data collected by Unione Energie per la Mobilità (UNEM), oil consumption in 2021 was 9.8% higher than in 2020, but still 8.2% lower than the pre- pandemic levels. In particular, the consumption of transport fuels (gasoline and diesel) amounted to million tonnes, an increase of 17.2% compared to 2020 (increase of 21.7% for gasoline and 15.9% for diesel). New car registrations in 2021 showed an increase of 5.8%, although the comparison was affected by the lockdown in the first part of the previous year. Gasoline-powered cars accounted for 29.7% of the total (vs. 37.5% in 2020), diesel-powered cars for 22.6% (vs. 33.1% in 2020), and hybrid cars for 29% (vs. 15.5% in 2020). In this context, the Saras Group recorded a sales volume of 2,156 million tonnes, an increase of 13% compared to the previous year.
Continuing with the analysis of the Spanish market, data compiled by CORES show that in 2021 the consumption of automotive fuel increased by 13.9% compared to 2020, with a more evident increase for gasoline (+23.4%) than for diesel (+11.8%). In this context, the Spanish subsidiary Saras Energia recorded a sales volume of 1,180 million tonnes, up 13% compared with the previous year.
RAW MATERIALS BY TYPE | 2021 | 2020 |
Light extra sweet | 42% | 26% |
Light sweet | 7% | 15% |
Medium sweet/extra sweet | 5% | 4% |
Medium sour | 28% | 32% |
Heavy sour/sweet | 18% | 24% |
Average Density°API | 33.9 | 33.6 |
The mix of crude oils that the Sarroch refinery processed in 2021 had an average density of 33.9°API, lower than the average density processed in 2020. A more detailed analysis of the classes of used crude oils shows an increase in the percentage of light crude oils with a very low sulphur content ("light extra sweet") (an effect attributable to the above- mentioned maintenance work on the FCC plant and the lightening of some types of crude oils typically used), as opposed to a reduction in medium sour and heavy crude oils with both a low and high sulphur content ("heavy sour/sweet"), mainly due to the shutdowns involving the gasification cycle and the different production set- ups of the plant required by the essentiality regime.
An analysis of the mix of raw materials by origin shows that in 2021 the share of raw materials from North Africa decreased by 14% (vs 22% in 2020) and that from the Middle East by 26% (vs 31% in 2020); reductions were offset by an increase in raw materials from the Caspian and North Sea. These changes are due to different conditions concerning market availability and convenience.
RAW MATERIALS BY ORIGIN | 2021 | 2020 |
North Africa | 14% | 22% |
North Sea | 11% | 6% |
Middle East | 26% | 31% |
Caspian region | 32% | 27% |
West Africa | 15% | 13% |
Other | 0% | 0% |
With regard to the yields of finished products, to be noted is that in 2021 the yield of light distillates (29.0%) increased compared to 2020 (26%), the yield of middle distillates (48%) decreased compared to 2020 (50%), while the yield of fuel oil (8%) increased compared to 2020 (7%). These changes are due to the different plant structures between the two periods, as well as to changed market conditions.
PRODUCTION | 2021 | 2020 |
LPGThousand tonnes | 269 | 210 |
yield (%) | 2% | 2% |
NAPHTHA + GASOLINESThousand tonnes | 4,026 | 3,139 |
yield (%) | 29% | 26% |
MIDDLE DISTILLATESThousand tonnes | 6,681 | 6,082 |
yield (%) | 48% | 50% |
FUEL OIL AND OTHERSThousand tonnes | 1,035 | 847 |
yield (%) | 8% | 7% |
Note: The balance to 100% of the production is the "Consumption and Losses" of the Site (related to refining activities and electricity production) | ||
EUR million | 2021 | 2020% |
Reported EBITDA | 243.7 | (93.8)N.A. |
Comparable EBITDA | 20.7 | (28.3)N.A. |
of which: related to the Marketing channel | 34.9 | 21.662% |
Reported EBIT | 52.6 | (341.3)N.A. |
Comparable EBIT | (170.4) | (239.9)N.A. |
EMC BENCHMARK MARGINUSD/bl | (0.2) | (0.5)N.A. |
SARAS IND & MKTG MARGINUSD/bl | 4.5 | 4.7-4% |
CAPEX | 69.4 | 248.2-72% |
Comparable EBITDA in 2021 was positive at EUR 20.7 million, with a Saras Industrial & Marketing margin of USD 4.5/bl, within which the contribution of the Marketing channel was USD 0.6/bl (as usual, already net of the impact of the maintenance activity carried out in the period). This is against a comparable EBITDA of EUR -28.3 million and a Saras Industrial & Marketing margin of USD +4.7/bl (within which the contribution of the Marketing channel was USD 0.5/bl) in the same period of the previous year.
More specifically, when analysing the more purely industrial component, the comparison must take into account: market conditions, the specific performance of the Saras Group (in terms of both operations and commercial management) and the method according to which the costs governed by the applicable legislation for plants essential to the security of the electricity system (i.e. in essentiality regime) are reintegrated. It should be noted that this scheme provides that, where the revenues generated from the sale of essential electricity are lower than the costs incurred in its production (including raw material procurement costs, other variable costs, fixed costs and the share relating to return on capital), these must be supplemented by an appropriate reimbursement by the competent authorities. Conversely, in cases where the revenues generated from the sale of electricity are higher than those costs, the higher margin generated is retroceded in accordance with current regulations.
As far as market conditions are concerned, the impact on margin generation was positive by approximately EUR 60 million and it is to be mainly attributable to the strengthening of the gasoline crack USD 9.5/bl in 2021 (vs. USD 3.9/bl in 2020), only partly offset by the strengthening of the Brent price and the EUR/USD exchange rate, which averaged 1.18 (vs. 1.14 in 2020).
In terms of operating performance in 2021, compared to the same period in 2020, it was approximately EUR -4 million lower, with the impact of the lower performance almost entirely offset by the return on capital guaranteed by the essentiality.
The commercial contribution (which relates to the procurement of crude oil and complementary raw materials, the sale of finished products, tanker charter costs, and inventory management, including mandatory stocks quantities), although positive, compared to what was achieved in 2020 contributed negatively by approximately EUR -45 million; this variance is due to the particularly positive performance that the trading, the sale of products by ship and the sale of compulsory stocks had generated in 2020 (also due to the specific characteristics of the market that cannot be replicated in the changed context of 2021).
Production planning (which consists of optimising the mix of crude oils brought in for processing, the management of semi-finished products, and the production of finished products, including those with special formulations) made a slightly lower contribution than in the previous year, despite a more unfavourable context characterised by limited availability of certain types of crude oil and a deterioration in the characteristics of certain qualities used.
The performance of production activities (which takes into account penalties related to maintenance, both scheduled and unscheduled, and higher consumption compared to the technical limits of some "utilities" such as fuel oil, steam, electricity and fuel gas) was slightly worse than in 2020. Where the potential benefits of a less onerous maintenance plan were substantially offset by a lower production performance.
Variable costs of an industrial nature, net of the components related to the essentiality regime, increased by approximately EUR 105 million in 2021. This increase is attributable for approximately EUR 59 million to the increase in the cost of electricity and for approximately EUR 41 million to the increase in the cost of CO2.
In 2021, industrial fixed costs, as a result of cost containment initiatives launched from the fourth quarter of 2020, decreased by approximately EUR 38 million compared to the previous year's figures. It should also be noted that, within the final costs, approximately EUR 45 million is the amount subject to reimbursements relating to the essentiality regime not present in the previous year.
The contribution of the marketing channel to the comparable EBITDA amounted to EUR 34.9 million, versus EUR 21.6 million in 2020. This difference is mainly due to higher sales margins in Italy (due to the increase in volumes) - where Saras has consolidated its presence in the fuels market (gasoline + diesel) of 4.4% - and in Spain (due to the increase in volumes and unit margins). This contribution should be considered together with the industrial one because their technical and commercial expertise, on which the Group’s business model is based, is closely coordinated.
The Saras Group has historically been active in the production and sale of electricity from renewable sources through its subsidiary Sardeolica Srl, which manages a wind farm located in Ulassai and Perdasdefogu (Sardinia) and, starting from financial year 2021 through the newly acquired Energia verde Srl and Energia Alternativa Srl, owners of two wind farms located in Macchiareddu (Cagliari).
It should be noted that for the "Renewables" segment, the 2020 results correspond to the "Wind" segment, as defined in the 2020 Financial Statements.
In the 2021 financial year, Saras' production from renewable sources amounted to 258,453 MWh, which corresponds to the annual electricity needs of around 186,337 people. The use of renewable wind power has therefore saved 331,028 barrels of oil and reduced CO2 emissions by around 167,475 tonnes. Furthermore, cumulatively, from the time it became operational until 31st December 2021, the park's electricity production reached 2,928,100 MWh.
Directive (EU) 20 18/ 200 1 (Renewable Energy Directive II, RED II) sets forth that EU Member States shall collectively ensure that, by 2030, the share of energy from renewable sources in the EU's gross final consumption of energy is at least 32% and the share of energy from renewable sources in transport is at least 14% of final consumption in that sector.
The new "Fit for 55" climate package approved by the European Commission on 14th July introduced, with regard to renewable energy, a revision of the RED Directive, increasing the minimum target of 32% to 38-40%, further incentivising the deployment of renewables in the energy, heating and cooling and transport sectors, and promoting a better use of waste heat and a better integration of renewables in buildings. The Fit for 55 legislative process provides that any proposal must first go through the scrutiny of the European Parliament and the Council and then through inter- institutional negotiations for the definition of the compromise text and subsequent approval. The first approvals are expected between the last quarter of 2022 and the first quarter of 2023.
In Italy, the share of energy from renewable sources in gross final energy consumption is now about 18%, compared to 19.7% for the EU as a whole, in 2019.
According to the RES Observatory carried out by ANIE Rinnovabili, an association of ANIE Federazione, on the basis of Terna's Gaudì data in the first nine months of 2021 photovoltaic, wind and hydroelectric installations reached a combined total of connected power of 809 MW (+30% compared to the same period in 2020), with different trends for the three sectors: positive for photovoltaic, with an installed capacity of 607 MW (+20%), and wind, with an installed capacity of 179 MW (+229%), and negative for hydro with an installed capacity of e 22 MW (-63%).
According to WindEurope at European level, 17 GW (11 GW in the EU-27) of new wind capacity were installed in 2021, of which 81% coming from onshore installations. These figures compare with the 2020 figures of 14.8 GW of new installed capacity over the full year and the 2019 pre-pandemic figures of 15.5 GW of new installed capacity.
Sweden, Germany and Turkey have built most of the onshore wind power. The UK has the highest total of new wind installations, accounting for the majority of new offshore wind installations.
Europe currently has 236 GW of wind power capacity and will install 18GW per year between 2022 and 2026, but in order to reach Europe's 2030 target of 40% renewable energy, at least 30 GW per year will have to be installed.
Data produced by Terna show that wind power in Italy produced 20,619 GWh in 2021, an increase of 10.8% compared to 2020, with greater windiness and installed capacity, covering 7.4% of national electricity production (compared to 6.8% in 2020) also thanks to favourable weather conditions, which allowed for greater use of the plants.
2021 | 2020% | |
ELECTRICITY PRODUCTIONMWh | 258,453 | 225,53015% |
POWER TARIFFEURcent/KWh | 12.2 | 3.7228% |
INCENTIVE TARIFFEURcent/KWh | 10.9 | 9.910% |
In 2021, the comparable EBITDA of the Renewables segment was equal to EUR 33.4 million including the release of the provision for early retirement incentives, equal to EUR 0.7 million, carried out in 2021 on the amount set aside in 2020, compared to EUR 7.4 million realised in 2020; we remind you that in 2020 the difference with respect to reported EBITDA, equal to EUR 6.7 million for the year, is due to costs related to early retirement incentives for the subsidiary Sardeolica.
This variation is attributable for approximately EUR 6 million to the contribution of the wind farms acquired during 2021 and for approximately EUR 20 million to the higher EBITDA generated by the existing wind farm, mainly due to the increase in the average sale price, which in 2021 was 12.2 euro cents per KW/h compared to 3.7 euro cents per KW/h in 2020. The Incentive Tariff was 1.0 EURcent/ kWh higher than in 2020 and incentivised production accounted for around 8% of volumes in 2021 (compared to 7% in 2020).
Production volumes in the period were 15% higher than in the same period of the previous year, mainly due to the production impact of the newly acquired wind farms.
On 4th June 2021, Sardeolica Srl acquired 100% of the shares of Energia Verde Srl and Energia Alternativa Srl, owners of two wind farms located in Macchiareddu, Cagliari (Sardinia), with a total installed capacity of 45 MW, from GWM Renewable Energy SpA, bringing the Group's total installed capacity to 171 MW. 50% of the newly installed capacity benefits from an overall incentive tariff (GRIN), which in 2020 averaged EUR 9.9/KWh, for a period of 6 years (until 2027).
During the year, activities also continued for the development of a pipeline of projects that will lead to the acquisition of additional wind power and photovoltaic capacity for a total of 500 MW by 2025.
Milioni di Euro |
| 2021 | 2020 | Var % |
EBITDA Reported |
| 33,4 | 6,7 | N.A. |
EBITDA comparable |
| 33,4 | 7,4 | N.A. |
EBIT Reported |
| 25,9 | 0,2 | N.A. |
EBIT comparable |
| 25,9 | 0,9 | N.A. |
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|
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INVESTIMENTI IN IMMOBILIZZAZIONI |
| 8,4 | 7,5 | N.A. |
The investments made by the Saras Group in 2021 amounted to EUR 77.8 million, down from EUR 255.7 million in 2020.
For the Industrial & Marketing segment, investments in 2021 amounted to EUR 69.4 million, a significant reduction compared to the EUR 248.2 million in 2020, both due to the initiatives to contain investments, put in place to mitigate the impacts of the Covid-19 pandemic, and the reduced planned shutdown activities in the two periods.
Investments in the Renewables segment in 2021 amounted to EUR 8.4 million. These investments mainly concerned reblading activities, which were completed in the third quarter of 2021.
EUR million | 2021 | 2020 |
INDUSTRIAL & MARKETING | 69.4 | 248.2 |
RENEWABLES | 8.4 | 7.5 |
TOTAL | 77.8 | 255.7 |
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The International Monetary Fund indicated in late January GDP growth of +4.4% globally and +3.9% in Europe in 2022, with all member states back to pre-pandemic levels by the end of the year. Looking ahead to 2023, the IMF estimated another year of growth of +3.8%, provided the healthcare situation in most countries finally normalises by the end of this year.
The IEA's estimates in its mid- February monthly oil market report, also indicated a higher global oil demand at the end of 2022 than before the pandemic, with consumption averaging 100.6 million barrels per day, on average about 300kb/d more than in 2019.
The geopolitical crisis in Russia and Ukraine has unfortunately dramatically changed the reference scenario, particularly in Europe, leading to unprecedented volatility in oil and energy commodity prices, the short-term evolution and it will take some time to recover from a normal situation.
The scenario envisaged in the Group's economic and financial forecasts is therefore based on identifying the best forecast in a condition of normality.
With respect to the price of the benchmark oil, Brent Dtd, the assumptions adopted in the 2022 budget saw a price between USD 85-90/bl in the first half of the year, gradually declining between the first and second quarters, with a further rebalancing in the second half of the year to values close to USD 70/bl; the annual average was USD 80/bl. Furthermore, the expected end of OPEC+ Russia cuts, allowed to assume the gradual return of greater availability of sour crude oils, and to assume for 2022 a heavy light differential, i.e. a Ural- Brent dtd discount of USD -1.2/bl on average.
When looking at the margins of the main refined products, namely gasoline and diesel, the projections adopted in the 2022 budget would have led to the assumption of an improvement in crack prices compared to the average values of the fourth quarter of 2021, supported by high demand, the normalisation of demand for jet fuel and the expected reduction in Brent prices. An average gasoline crack of USD 11.1/bl (USD 10.1/bl in Q4 2021) and an average diesel crack of USD 12.8/bl (USD 11.1/bl in Q4 2021) were therefore considered for 2022. The risks considered in the budget assumptions on the demand side were mainly related to the possibility of a resurgence of a new Covid variant, and too high a level of inflation, with a possible increase in interest rates that could slow down the growth of oil demand.
In terms of energy costs, and in particular electricity costs, the assumptions adopted envisaged an average PUN in 2022 of EUR171/MWh and an average EUA permit price of EUR 80/tonne. More specifically, after a first half still under pressure, a partial rebalancing of the price of gas and with it the value of the SNP had been considered due to the end of the winter season, as well as a possible opening of the NordStream2 pipeline - no longer to be expected, an increase in imports from other countries already connected by pipelines, and an increase in domestic production.
By the same token, the assumptions adopted on the quotations of CO2 emission permits would have incorporated a gradual rebalancing of quotations compared to current values from the second half of the year onwards, due to less upward pressure from the price of gas, at an average annual value of EUR80/tonne.
These assumptions would lead in different conditions to consider an average EMC in 2022 of approximately USD 1.6/bl, on the basis of which management estimated to achieve in 2022 an average annual premium for the Industrial & Marketing segment of between USD 4.0 ÷ USD 4.5/bl. This Saras margin was expected to improve further in the period 2023- 24 thanks to sustained levels of demand, a gradual rebalancing of the prices of brent and partly also of costs of electricity.
Furthermore, from an operational point of view, the objectives aimed at are confirmed to consolidate certain measures to make the industrial cost structure more efficient and contain investments. Initiatives that continue to be tailored to the evolution of the macroeconomic context and any operational and commercial opportunities that may arise.
The current Russian-Ukrainian crisis has created strong volatility in the prices of oil and energy commodities, in particularly in Europe. The need to ensure diversification of oil supplies has emerged at various locations and energetic. In this context, the strategic role of Saras is increasingly central thanks to its positioning at the center of Mediterranean, in guaranteeing the security of both oil supplies on the reference markets and electricity to the territory of Sardinia, thanks to its operational continuity.
As noted above, following the outbreak of the conflict between Russia and Ukraine, the level of uncertainty surrounding these assumptions has increased sharply, more so on the supply side, where attention is primarily focused on the impact that forthcoming developments may have on access to the Russian oil and gas market.
The high risk of supply affecting imports from this country has in fact caused a collapse in demand and prices for Russian Ural crude, the discount on which - at the time of writing - has exceeded USD -20/ bl, in preference to alternative sour crude oils, and an immediate rise in Brent prices, which have exceeded USD 120/bl. OPEC+ countries also initially agreed to continue with the gradual restoration of production interrupted during the pandemic, moderately increasing production by 400,000 barrels per day in April, pointing out that "oil price volatility is linked to contingent geopolitical factors, while market fundamentals indicate a well-balanced market". The next OPEC+ meeting is scheduled for 31st March.
The margins on diesel surged dramatically to over USD 25/bl at the time of writing, mainly reflecting fears of a drastic reduction in supply, as well as increased demand for diesel as a substitute for gas.
Gas prices on the TTF market peaked at EUR 295/MWh and the SNP exceeded EUR 500/MWh, while CO2 showed a reduction to EUR 65/tonne.
This volatility does not currently allow reliable forecasts to be made on the short and medium to long- term economic and financial impacts. More specifically, it is not possible to predict the trend in certain variables that are fundamental to the calculation of the Saras margin, such as the prices of Brent and URAL crude, the crack in products, and the PUN and CO2 prices.
In addition, it should be noted that the same EMC benchmark, based on current prices, is no longer a reliable proxy for the profitability of the Sarroch refinery: in fact, it takes into account a different and "simplified" crude slate than that of Saras, composed of 50% Ural and 50% Brent (Brent DTD prices). As indicated, Ural crude oils today present an extraordinarily high discount no longer representative. It should also be remembered that EMC is not representative in conditions of extreme appreciation of the prices in electricity and CO2: in the calculation of the benchmark these costs are in fact included in the variable costs, which are in turn determined on the basis of a fixed percentage of the LSFO price per barrel.
Moreover, the variable costs of EMC do not include the cost of CO2.
In the current context of volatility, however, which still has extremely high refining margins and one sustained demand for products, any short to medium term forecast may not be reliable.
As regards the Renewables segment, the valorisation of the segment's production must take into account the provisions of Decree-Law no. 4 of 27th January 2022, the so-called "TER support", which establishes a "compensation" mechanism for non-incentivised renewable sources, under which producers must repay, up until the end of 2022, the difference between the prices that will occur on the market and "an equitable remuneration", referred to the historical average of prices the market area prices, from the start-up of the plant until 31st December 2020. For Sardeolica, the compensation is based on a historical average price of approximately 62
€/MWh, to be applied to the non- incentivized production sections, equal to approximately 92% of the total production.
Still in the Renewables area, authorisation activities for the development of new greenfield plants are continuing: namely, the authorisation process for the installation of 80 MW of photovoltaic plants has been favourably completed and new authorisations for the development of further wind and photovoltaic capacity are expected to be obtained in 2023. Initiatives are continuing with the aim of reaching a total installed renewable capacity of 500 MW by 2025.
These objectives will be achieved through the development of a pipeline of greenfield wind and photovoltaic projects that can contribute to the achievement of ambitious new capacity development targets, guaranteeing higher returns than to the acquisition of existing assets. The evaluation for the launch of any new partnerships also continues with the aim of create long-term sustainable value.
In this context, in order to accelerate the implementation of the initiatives described and to seize new opportunities deriving from the changed conditions of the sector according to the provisions of the Integrated National Plan for Energy and Climate 2030 and the Green European Deal, the implementation of this plan will consider the best options, including the opportunity to new partnerships with the aim of creating long-term sustainable value.
With regard to the other projects launched by the Group as part of its energy transition strategy, green hydrogen and "Carbon Capture and Storage" (CCS) projects are expected to progress during 2022.
In fact, the project, for which Saras launched a partnership in February 2021 with Enel Green Power, is designed to supply green hydrogen to the Saras refinery through the use of an approximately 20 MW electrolyser, powered exclusively by renewable energy. For this reason Sardhy Green Hydrogen Srl, a subsidiary owned 50% by Saras SpA and 50% by Enel Green Power Italia Srl, was incorporated in the last quarter of 2021.
In 2022, the first steps of the authorization procedures for the electrolysis plant is scheduled to begin, and, if the funding requested under the European IPCEI (Important Projects of Common European Interest) programme has been obtained, the construction of the electrolyser and related works will also be started.
With respect to the Carbon Capture and Storage project, the first phase aimed at evaluating various plant solutions for capturing CO2 was completed in 2021. Further evaluations are underway to proceed with a second phase, in order to achieve a better definition of the whole development chain including logistics and transport aspects, together with an estimate of costs and timeframe.
In the biofuel sector, Saras remains committed to the objective and continues to monitor the possibility of expanding the current production capacity of Hydrogenated Vegetable Oil in co-processing to 100kt/year, and potentially to 250kt/year with reduced investment, depending on the cost-effectiveness of crude vegetable oils.
As far as the Group's investments are concerned, an amount of EUR 150 million is expected in 2022. In the Industrial & Marketing segment in particular, investments of EUR 123 million are planned, which are necessary, after the reduction in expenditure in 2021, to maintain the level of efficiency and competitiveness of the refinery's plants. In the Renewables segment, investments of EUR 27 million are planned, mainly for the execution of the 80 MW photovoltaic park in the Macchiareddu area.
Finally, with regard to the expected trend of the Group's Net Financial Position, in 2022, on the basis of the assumptions described and subject to high market volatility, a level of indebtedness was expected to be partially lower than at the end of the 2021 financial year. In this context the reduction in electricity prices and the improvement in refining margins would have allowed a gradual repayment of debt also due to the development plan in the Renewables sector. The recent geopolitical events do not allow us to predict the evolution of the scenario, let alone to reliably quantify the short-term impacts, although they are causing, on the one hand, a positive impact on margins and working capital, that cannot be quantified to date due to the appreciation of crude oil and oil products, and, on the other, a negative impact arising from higher energy costs.
To pursue the Group's sustainable development path, and in line with its ESG strategy, Saras updated its environmental, social and governance KPIs and related targets for 2022. In recent years, these performance indicators have proved to be valuable tools for keeping the organisation focused and for regularly measuring progress in each of the areas identified.
As an example, the main indicators refer to:
- Emissions of greenhouse gases (GHG) and air pollutants;
- Increase in energy efficiency;
- Reduction in water consumption by industrial associations;
- Reduction in waste production;
- Co-processing of vegetable oils at the refinery;
- Increase in electricity production from renewable sources;
- Reduction of the accident frequency index;
- Regular training of Group employees;
- Promotion of gender diversity;
- Audits on the implementation of the Group's Internal Control System;
- Engagement with stakeholders (external and internal).
In accordance with the provisions of Article 5, paragraph 3, letter b of Legislative Decree no. 254/2016, the Company prepared the consolidated non-financial statement, which constitutes a separate report. The 2020 consolidated non-financial statement, prepared in accordance with GRI Standards, consists of an autonomous document, which, in addition to fulfilling the requirements of Legislative Decree no. 254/16, enables the sharing of the Company Purpose and the sustainable development strategy. Therefore, the chapters concerning Human Resources, Social Responsibility, Health, Safety and Environment and activities with the community, will be broken down more thoroughly in the Sustainability Report - Consolidated Non-Financial Statement.
The systematic set of tools, interventions and activities prepared during the year in the field of human resources is illustrated below to ensure that the organisation achieves its business objectives and continuously improves performance according to the strategic plan defined in the business plan and in the annual budget.
The interventions were inspired by the principles contained in the Group's Purpose relating to sustainable development, the transformation of our way of working and the enhancement of the potential of our people. The initiatives carried out have focused on the development of existing skills, the strengthening of managerial sensibilities enabling people management roles and the importance of awareness of the individual impact on results.
As in the previous year, also during 2021, human resources management policies were affected by the crisis induced by the Covid-19 pandemic.
In particular, the implementation of the programme to reduce operating costs, launched in 2020 in order to ensure the long-term sustainability of the company, continued.
As part of this programme, the redundancy fund continued to be used and was partially reduced in the second half of the year and ended at the end of the year. The redundancy fund involved all employees of the Italian companies, with very few exceptions linked to the need for continuity of operations and business.
In addition, the plan was replicated, after having already led to the exit of 58 employees by 1/1/2021, thus allowing for substantial incentives for early retirement and support to undertake a different professional or business activity. Following the implementation of this new plan, a further 41 employees left the Group at the end of 2021. These exits are mainly the result of the agreements signed with the Trade unions who, fully aware of the extremely difficult context, have actively supported the programmes from the beginning, sharing their objectives and validity.