Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Saras first half and second quarter 2022 results conference call. As a reminder, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. Should anyone need assistance during the conference call, they may signal an operator by pressing star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Ilaria Candotti, Head of Investor Relations. Please go ahead, madam. Good afternoon, everybody. Thank you for joining us today for this conference call on Saras first half and second quarter 2022 results. You should have received our press release a few hours ago, and our analyst presentation is available on our website directly on the home page and in Investor Relations section. We are also going to publish our consolidated financial report very soon after this call. Our agenda today will be the usual one. Mr. Dario Scaffardi, Chief Executive Officer and General Manager of Saras Group, will start with the highlights of the period, followed by a review of results of each business segment. After all, we will present the outlook for the year. Finally, together with Mr. Franco Balsamo, Chief Financial Officer, we would be delighted to take your question. At this time, I would like to hand over to Dario. Good morning, ladies and gentlemen. Welcome to our conference call. Thank you for being here. This has been a very good quarter for Saras. The group reported EBITDA for the second quarter was EUR 532 million, so up from 81 in the same period of 2021. The main reason for this, of course, is the oil market, the crack prices and the relative very high environment of oil refining margins. We will talk about the various main drivers in the forthcoming slides, so I believe it's useless to dwell on these numbers that you can see. I think it's worthwhile to mention that the group's comparable EBITDA is EUR 458 million in the second quarter, up from 19.5 of the same period of the previous year. This result does not include the positive effect of the change in inventories between the start of the period and the end of the period, but it includes the impact of currency derivatives. Franco will be able to give you a little bit more detail on this. In the quarter we need to mention, of course, the windfall tax enacted by the Italian government on energy companies. We expect this to account for about EUR 80-90 million, which we have set aside, at least for the moment, although the prepayment of the tax in Q2 was about 30 million. Again, also regarding this, Franco will give more detail going forward. I would also like to mention at this stage, with much regret that Franco, our CFO, has decided to leave the company for strictly personal reasons. We regret very much this decision. Franco has been an excellent CFO and a good friend and colleague, so we are very sad to see him go. Of course this transition would be managed in an orderly fashion since he will stay on until the end of the year. There will be no issues with the handover. Going forward and looking at the market, of course, Brent Dated touched new highs in the quarter. Again, relatively, compared to other commodities such as gas, just to name one, or metals, the levels that we have been seeing in this quarter are still below the peaks touching to 2011 and 2012. All in all, notwithstanding the extreme disruptions in the oil market, I would say that the Brent market has reacted in a relatively orderly fashion. There have been many issues with price quotations in these last months. Namely, first of all, the huge differences that we have seen between the futures prices and what are the so-called ICE quotations of Brent and the printed prices as well as reported by Platts, so Brent Dated. Let's say the physical price and the future price, which in the past had differences of course, but these differences were relatively small. In the last month, they've blown out to huge levels. We have seen an indicator which is called DFL, Dated-to-Frontline, which has gone up to $10-$11 a barrel, which is a huge amount of money and has created a lot of stress for all oil companies. Because while physical purchases are based on the Brent Dated quotations or financial instruments to hedge are generally based on the futures instrument. The basis risk has been difficult to manage for all. For Saras, not so high because we have a more conservative hedging policy, but still this effect has been very material, but it's an effect that we have seen also on the product prices. The other issue, of course, is the steep backwardation that we have seen in the market. Although I would say that the extremes that we have seen in the previous months have come in and now the market is at least compared to the past months, a little bit more normalized. Where some interesting things continue to happen is on the crude price differentials. We've mentioned many times that this is an essential part of the market and also our profitability, and is one of the reasons, the main reasons behind the differential that we obtain compared to the reference margin. Now, of course, the first material effect, which hasn't changed, is the steep discount that Urals has achieved in order to find buyers. Mainly, I would say that the crude oil market has been able to rebalance quite well. Russia has been able to continue selling crude oil into Europe because it's not outlawed. The sales to Europe have not changed significantly from the period prior to the war. Actually, some countries like Italy have actually purchased more crude than before. Many other operators have decided, among them our company, not to purchase Russian crude. In order to place their crude, they have had to find buyers, mainly in India and China. A couple of months ago when this happened, we were extremely worried that there would be a material effect on the prices of sour crudes, which are a very important part of our profitability. This has not materialized. Actually the opposite has happened, luckily. The presence of Russian crude in Indian and Chinese market has displaced typical Middle Eastern barrels, so barrels coming from the Persian Gulf. These barrels have tried to find homes mainly in Europe. In reality, the discount of the official selling price for these sour barrels, mainly Iraqi, Saudi barrels, has increased. As you can see in the graph on the lower left-hand side of the page. This has definitely been an unexpected boost in the profitability of the sour component, of which we were actually quite worried in the initial moment of being able to supply sour crude. The discounts for Basrah Medium crude have basically touched their lowest historical levels, which is extremely positive for us. Instead, and this was a bit unexpected, quite the opposite has happened on sweet crudes. Strong demand for incremental runs and simple refineries have created a big demand for sweet crude, which is undersupplied, particularly in Europe, because of the outages from Libya. This has created some very, very strong premiums on the benchmark ref grade, which is Azeri, which has touched high double-digit figures in the sense that it almost has reached in certain instances $18-$19 per barrel, which is totally unprecedented because the historical average has been $2. This has created a strain on the profitability of the lighter end of the barrel, basically linked to FCC runs. This has been a reason of worry. On the brighter side here, there has been opportunities coming from the U.S. For the first time, we have been using American grades because they have become, with the sense of the high prices, we have taken full advantage of Saras's flexibility, so we have been using various U.S. grades or North American grades. We have been purchasing grades from other areas of the world, mainly Africa, trying to move away from the higher- priced crudes. There is some hopefully encouraging developments in Libya, but every month we see encouraging development in Libya. We're still waiting, of course. We are always disappointed. Distillate prices touched unprecedented levels in Q2. Since then have retreated to a more normal situation. This very strong quarter is mainly attributed to the high refining margins, which comes on the back of strong physical reasons. Very high demand for diesel and for gasoline. Diesel touched almost $60 crack in end June. Gasoline was at $30. Since then, it has, they have both come back to more normal levels. I will say that the market still, in my opinion, looks extremely constructive. Now, first of all, I don't want to be. I'm a bit superstitious, so I'm always scared of expecting, the better and actually trying to expect for the worse and then hope for the better. In reality, the situation is extremely constructive. At the moment, we see a pause in margins and in cracks, but there are very strong reasons why in the autumn we should see a strong comeback of the diesel crack. One of the reasons is that, of course, the obvious one, that, unless something happens or changes at the beginning of December, the ban on Russian products will come into effect. And this will have a huge impact on Europe. I wish to stress that up to now, this impact has not materialized because imports from Russia have been the same as before. It is just the buyers that have changed. Many big companies have turned away from Russian oil, other companies have stepped in. The overall balance has not changed significantly, and this will change. Second reason is that Russian diesel, which is decreasing in production because one of the effects of the sanctions is certainly a decrease in runs from Russian refineries. Russian diesel, which is a very good quality, is essential during the winter to correct the pool of the distillate. The distillate pool, excuse me. Without Russian diesel, which has very good winter cold properties, without wanting to get technical, it will be difficult to correct other diesels which are not suitable for European winter. That will be a pressure area on product prices, definitely. The picture looks constructive. On the threats that we can see, I would say that there is an increased export from China. Although China has officially banned oil exports, excuse me, still they seem to be exporting some diesel. I think that, you know, the margins are attractive for them as well. We see a little bit more supply of Chinese diesel creeping into the eastern markets, but also into the European markets, which could put a bit of pressure here. There is the unpredictable fact of what Chinese authorities will authorize or not. All in all, the outlook for the second part of the year is constructive also on gasoline. Gasoline has been following in the wake of diesel. So with, you know, diesel cracks going up, gasoline has to go up as well and when they come down, they have to come down. But the demand is strong, particularly with the shift in demand in Europe from diesel to gasoline. Demand destruction due to recession is a possibility of course, although we are not really seeing any signs of that. As a matter of fact, our marketing divisions are doing extremely well, both in Italy and in Spain. Strong again from jet. We all read the papers and see what's happening in the airports. The only thing that is constraining further jet demand is the impossibility of the airline companies to put enough airplanes or crews or whatever the reason is on the field. All in all, I would say that the outlook for refining is constructive and particularly for somebody like Saras who is able to cover a world market in this way. If we look at the prices of gas, which in turn is in the price of gasoline, this is extremely worrisome of course. We are not linked directly to the price of gas, which is one of the reasons why some of our fellow refiners are facing issues and are trying to move away from gas. Gas is essential in order to be able to produce hydrogen for the decarbonization process. Saras does not have. I mean, there is no gas in Slovenia, so the reason why we don't use gas, because none is available. At the same time, we are not subject to the gas prices. The overall price of electricity is based on the fundamental price of gas, and this is a threat. We have moved from an area which the price of electricity was in the range of EUR 50-60 per MW to where we touched more than EUR 500. Since then the price retraced. The price has gone back up to more than EUR 500. Today, it's back to EUR 440. We do hope to see a correction in the electricity price because this is very troubling for the industry. For our industry of course, but for all industries. CO2 instead has been relatively stable. On this front, there is not much to say. If we look at the overall Saras margin, we've had an exceptional quarter. The EMC reference margin has touched levels never seen before. Our add- on to this has been relatively small, but there are strong fundamental reasons for this. What I was saying of, you know, the crazy things happening on the market in terms of backwardation, in terms of basis risk, so in the difference between the futures markets and the physical markets and the premiums paid for crude have all been the reason why the margin that we have been able to add has been lower than expected. We have been able to achieve higher premiums on our physical sales, which have been extremely robust, but not enough in certain instances to compensate for the higher premiums on crudes. In Q2, the operation of the refinery has been, as you can see from the numbers, the majority of the EBITDA comes from this segment as was understandable of course. Refinery runs are up compared to the same quarter of last year, and more or less in line, up in the second part of the year. Overall, 2022 should end with higher runs than 2021. The runs sometimes are limited by the availability of appropriate crude. We would have the technical feasibility to be able to run more certain plants. Given the current market scenario, this has been impossible. One of the impacts of Russia is on feedstocks. Sour grade runs and VGOs, which could have been used in our secondary units to increase throughput, have not been available. We have actually had spare capacity on these plants. In the second quarter, we completed without flaws or incidents our second cluster of programmed maintenance. The effect of this, of course, in a high margin environment, has been higher than it would have been in other periods in the past with lower margins. The supply and trading activities have done well, adding more than EUR 40 million more than the same period of last year, notwithstanding the extreme turns in the futures market with the strong backwardation and strong EFL. Production planning, of course, was extremely difficult to maintain due to all the constraints that have come in the supply of crude and feedstocks. They've been able to do a very good job notwithstanding all the limitations that have been imposed. Variable costs, of course, were impacted strongly by the rise in energy costs, which also affect the price of chemicals, of oxygen, of catalysts and so forth. Our fixed costs instead are approximately EUR 30 million higher in Q2 of 2022 compared to the same period of last year, mainly due to higher maintenance and to the higher personnel costs that in the same period of last year was covered by the furlough schemes. If we look at crude oil slate and production, half of the year starts to be a little bit more meaningful as a comparison. We can see that, as it was mentioned before, the opportunities on heavy crudes was immediately captured by our system. Our average API moved from 34 in the first half of last year to 33.4. So a 0.6 reduction API is significant. This means that basically we try to run full out on our heavy sour, which is the part which also produces power, which recent events have put on the center stage. The request from our power plant is always at absolute full capacity. Our agreement with the authorities was for 480 MW, but we are running consistently at 540, which is basically the maximum possible sustainable rate, particularly when during the summer season when things are a little bit more crucial in terms of it's possible to produce a little bit more power during the winter than during the summer. If we look at the output of products, this reflects 100% what has been happening in the market. We have increased, as much as possible, middle distillates, which are back to about 52% compared to 48% of last year. The other products are broadly in line. Very low sulfur fuel oil has been a very profitable area. Strong demand has come back in for this product. All the things that we were anticipating in 2019 relative to the IMO effect have come into play now with the two years delay due to COVID. Indirectly, this is also one of the reasons responsible for the high diesel cracks. Renewables have had a positive performance in terms of production, thanks to the new wind farm acquired and to the reblading activity. Of course, the actual wind has been lower, so we've been able to add production notwithstanding that the wind conditions in this first half of the year have been worse than the previous period. There have been all the Italian government has capped the price of renewable energy, I think at EUR 61 per MW, but this applies unevenly to the production. It applies to the plants that were installed prior to 2010. After 2010, it doesn't apply. There is a differentiated system which is a bit complicated, and I think it's worthwhile to go into too much detail. It does have a material effect and because selling electricity at EUR 61 when the market is at EUR 500 is a bit awkward. We are on schedule with our new solar farm. The solar farm we have acquired the land, the rights for the land, so we are in the process of purchasing the solar panels and installing them, and hopefully this process will be finished, well, we're aiming at end of the year, but realistically the beginning of next year is more realistic. The outlook all in all for our company, for refining in general, but in particular for Saras because of our ideal positioning are good for the reasons that I have explained before. I don't think it's worthwhile to repeat them. We maintain our guidance on OpEx and CapEx. The production and maintenance spend that has already been presented. Renewables are absolutely on track. The authorization process is advancing. Every time we have a meeting, we are always hoping that there will be some sort of breakthrough with the authorities on the authorization process. This is always promised, but then does not materialize, although there are some signs that something should come into place that would speed up the system. Already on our solar farm, we have broken every record because the whole process has taken under 18 months. This is really unprecedented. It's a good omen for the future. We are on target to have 500 MW capacity installed by 2025. At this point, I would leave. I would want to look at the net financial position. The evolution has been extremely positive. At the last meeting we had, the net financial position was negative EUR 445 million, and now at the end of June is positive EUR 65 million. In the meantime, we have executed the loan facility set at six years on maturity, as we have also described last time. Nowadays we have, in a global view, we have liquidity in the account, and we have gross debt. Based on the evolution of the next quarter, we will take a decision on this positive situation. Nevertheless, today could be less efficient in terms of the carry forward on the interest rate. The U-turn in terms of liquidity is mainly due to the cash flows generated by the business. We have a small positive change in working capital, but is related to a normal course of business. The CapEx was EUR 27 million. That is lower than the budget level. We have the outflows for taxes, as Dario said before, related to the windfall tax. The total amount that we have accounted for as a cost at the end of June for the windfall is about EUR 96 million, of which more than EUR 50 million are related to the tax contribution related to the event of a size that is very peculiar because we have to pay a tax on a cost rather than a positive margin. On these issues, we will see the potential evolution of the tax interpretations. At the end of November, when we have to pay the full amount, we have time to take a decision. We have concluded. I will pass to your question. We are pleased to receive your questions. Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. To remove yourself from the question queue, please press star and two. We kindly ask you to use handsets when asking questions. Anyone who has a question may press star and one at this time. We will pause for a moment as callers join the queue. The first question is from Alessandro Pozzi with Mediobanca. Please go ahead. Good afternoon, everyone. I have three questions. The first one is on the outlook for the refining margins. I think in the opening remarks it mentions a strong outlook, but that somewhat clashes with the last print of the EMC that we've seen, I think below $3 a barrel, the lowest that we've seen since mid-March. Can you explain maybe the reason why last week was so low? Of course, the gasoline cracks have been coming down a little bit, but I suspect there is the spike in electricity that may have pushed down EMC. Remaining on this theme, with regards to the premium to the EMC, can you explain how the backwardations is impacting the premium and whether there is a headwind that maybe is going to be still there in the second half of the year or maybe less so compared to what we've seen so far? Finally, on guidance for Q3, is there any guidance you can give us, perhaps, in terms of how the net cash is going to evolve this quarter? I'm assuming it's gonna stay net cash in Q3. Thank you, Alessandro. On the EMC, I would say that forgetting about the detail at the moment, the two main factors have been, first of all, the price of electricity, which has been unprecedented, which is clearly a threat. In order to pay for that electricity, you need a very strong crack. The crack has been very strong, apart from the last couple of weeks in which this has come down. My view is that this is just a pause in a strong market. The other strong reason is the effect on the premiums of certain crudes, particularly Azeri crude, which is certainly part of the benchmark, which has seen unprecedented levels. Which again, I think will be corrected, first of all, because we have tried to move away from this grade of crude, which has become also prone to speculation. There are signs in the market that it's normalizing a little bit. The EMC has been under pressure, but the fundamental reasons for a strong outlook on refining is still there based on physical factors or the demand for diesel. The single most important reason for a strong refinery margin is the demand, like for any commodity, for the end product. We can imagine to have a strong refining environment also, only if there is a strong demand for these, which in my opinion, will be there on both the terms of the physical demand but also the technical demand that will emerge due to the difficulties that I mentioned before in the reorganization of the supply system going into the winter. Let's not forget that we are in the peak of summer. In Europe, it's almost impossible to produce electricity from diesel, but in other parts of the world this is happening. The gas oil is important in Northern Europe as a fuel for heating. I would imagine that with the price of gas and the non-availability of gas, Germany, which still has a significant amount of its households based on gas oil, will start buying. Now, historically, the purchase campaign has started always in the summer because in the summer the prices were the lowest. Now, with the outcome of what is happening, I would imagine that the households have restrained from buying, hoping to see lower prices in the months going forward. But whatever the absolute price, still, I would imagine a very, very strong scenario for diesel. In terms of what you were saying, the backwardation, the effect of the backwardation is that all hedging programs are based on selling one month and then buying the next month. If the next month is lower than the current month, you are automatically locking in a loss when you roll forward the position. This is structural with the backwardated market, so there is basically nothing that you can do about it in a backwardated market. Only that if the backwardation is, as it was historically, $2-$4 a ton, talking about diesel and $0.10 or $0.20 a barrel talking about crude, it was a fact and a price and a cost that was factored into the system. What happened in March in which the backwardation was $350 was unprecedented. Similar to what happened in 2020 when the price of WTI went negative, something that was unheard of has created for many companies big losses. For us, this was fortunately not the case, but it still increased the overall program of our hedging, which is used to normalize over the period of the month our cost and even out purchases and sales that are distributed unevenly during the month in trying to obtain the monthly average. In whatever hedging program on crude and products, backwardation is a cost, while contango is a profit. This has happened. The backwardation now is less strong, much less strong than what it was, but it's still significant. Still significant. I mean, we're talking double-digit numbers on gasoline, but not triple in diesel. As part of your third question, Alessandro. Related to the projection of cash flow for year- end, taking consideration the reference margin, plus the guidance on premium, the generation of cash from the operation will be a good amount. We don't have any other outflows. We have to complete the investment, and is for about EUR 70 million. We have to pay interest on our indebtedness. The payment for tax will be switched to the next year, in spite of the huge net income. Net of potential risk on the working capital, the generation of cash flow will be material. Into the delta working capital, we have to take into consideration the payment on the CO2 related to the essentiality contract, that on one side is collected through the sale of electricity in the market, but the payment is on pro rata. Having said that, the liquidity in place at June will be adjusted and the expected net financial position at year-end will be higher than the ones at the end of June. Thank you. The next question is from Niccolò Storer with Kepler. Please go ahead. Yes, good afternoon, everybody. I have two questions. The first one, a clarification on Alessandro's question on EMC benchmark versus. If I understood well, you mentioned the discount premium structure of Urals, which I was expecting impacting more your premium rather than the benchmark. If you can comment a bit on that, and how this has been impacting your premium, if this is the case. The second question is on Urals. I saw that you have cut expectations for Q3 and Q4. What's behind that? The third question, I was trying to make ends meet on working capital. In sli... On slide 16, I saw EUR 86 million release, while if I go to the balance sheet, slide 21, I saw that between Q1 and Q2, working capital has increased. How this can be explained? Thank you. Okay. Working capital calculation is always extremely complicated because the turnover is very high, and any single change may generate a positive or negative cash flow. Having said that, the working capital at the end of June, we had more or less variations of positive and negative working capital related to the evolution of inventory. That is, was increased by EUR 330 million because the value of commodity embedded into the inventory is gross. On the other side, we have more or less the same variations in terms of oil suppliers. The differential in terms of invoices is not material. There is a balance between delta stock inventories and delta supplies. The positive effect is mainly due to the accounting for the CO2 that is accounted for in cash when the CO2 is paid. On the other side, we are taking the carry due to the part of it in the pool sales within the essentiality contract. This is merely a differential between accounting and cash out. Apart from this amount is purely a mechanics of the accounting of the essentiality, the working capital is balanced. Yes, Niccolò, on the EMC, I'm sorry if I created confusion. The EMC margin is based on the Platts quotations of Azeri. It does not take into account the premium. While the premium paid is reflected in, let's say, what we call services premiums or cost, whatever. The reasons behind the fall in EMC are basically due to the lower values of the crack on diesel and gasoline. That has come down significantly in July compared to June, for instance. What you see, and the very high cost of electricity, I would say that these are the main factors behind it. The other things are more or less haven't changed significantly. The next question is from Massimo Bonisoli with Equita. Please go ahead. Good afternoon, Dario, Franco and Ilaria. Two broad question. I'm curious to hear your thoughts on the scenario on refining in Italy once the sanction on Russian crude are in place and Russian products. What would happen to the supply of products from Priolo and may it increase demand for your products across Italy as well as marketing margins across Italy? The second question is on capital deployment. Following the sharp improvement in net financial position, would you consider the payment of a dividend in 2023? Can you remind us the payout policy, please? Well, in 2023, I would say that if these results are confirmed, I hope that nothing happens in the second half of the year at all, yes, the policy has always been to pay between 40%-60% of the adjusted net income. This policy has never changed, I would absolutely expect the board, first of all, to propose to the shareholders to recognize the dividend in that range. I would also imagine probably on the higher part of the range, unless there are other reasons of course that I cannot imagine in this moment. Regarding your question on refining in Italy, as usual things in Italy are not certain, right? Priolo, well, the ISAB refinery, which is run by an Italian company. ISAB is an Italian company registered in Italy, owned by, of course, in the end by a Russian entity. I mean, I think it's owned by a Swiss entity, then in turn is owned by a Russian entity. Apparently, I mean, to the best of my knowledge, but I think this question should be made to them. Italian and foreign banks have made life difficult for them, so very reluctant to open LCs and so forth, and even pay for industrial goods and so forth, just on the basis, not of any regulation or law, but just on the basis that the banking system was unwilling to work with Russian-related entities, let me say it this way. I know that our colleagues over there have faced some tough moments. They've been able to overcome them. I think that they are, at the moment, making some very good results because to the best of my knowledge, they are buying Russian crude at $30 discount and selling the diesel at the same price that we are selling. And others, of course. I think that they're doing very well. What is going to happen, I simply do not know. There has been some pressure from various parts to adopt a German-like solution, the solution that Germany has adopted for the Rosneft refineries. For Rosneft, it's not Rosneft, it's what's the name of the refinery? Schwedt, which is a sort of nationalization. I mean, it's been taken over by the government. I don't know how to call it. The Italian government, before it fell, said that it would never nationalize. I think that at the moment, they are searching for a solution, which I have no idea what could be. Certainly this points out that the refining sector is important. Saras as a company is committed to providing the oil products that the Italian people, but also the other Europeans, because we export our diesel to Spain, to France and to other countries. We are committed to continuing to provide the market with what it needs. I think it underlines on how important it is to have a system that is able to be reasonably self-sufficient in times of crisis such as we are facing now. Otherwise, I mean, you know, these are just general comments. What will happen to ISAB, I honestly don't know, and I don't think I'm qualified to answer. Thank you anyway. Just a clarification, the 40%-60% regarding the payout policy, is on net income reported or net income adjusted? No, the adjusted net income. Net income, the adjusted. Thank you. As a reminder, if you wish to register for a question, please press star and one on your telephone. For any further questions, you may press star and one. If there are no more questions, we thank you for being with us and remain at your disposal for any other inquiries. Bye-bye.