ERG S.p.A. (ERG) has reported total revenues of EUR11.5 billion for the year-end 2008, compared with the total revenues of EUR10.2 billion in the previous year-end. It has also reported net profit of EUR646 million for the year-end 2008, compared with the net profit of EUR171 million in the previous year-end.
Fourth quarter 2008
Consolidated financial results
Consolidated adjusted EBITDA at replacement cost came to EUR66 million, as compared with the EUR39 million posted in the same period of 2007.
It should be noted that the result for the fourth quarter of 2007 reflected the negative effect of the downward review of the CIP 6 tariff related to the first nine months of 2007, accounted for in full in the fourth quarter, equal to EUR32 million (EUR19 million of which in the Thermoelectric Power Generation segment and EUR13 million in the Coastal Refining segment).
Coastal Refining: the adjusted EBITDA at replacement cost for the segment came to EUR14 million, against a negative result of EUR9 million registered in the fourth quarter of 2007. This result, although up from the previous period, was affected, during the period, by the effects of the accident at the ISAB Energy plant which negatively impacted the performance of some plants, and by the reduced processing capacity in December due to the different consolidation perimeter, following the transfer of 49% of ISAB srl to LUKOIL. The result benefited from a more favourable oil scenario compared with 2007 and from the strengthening of the US dollar against the Euro.
Integrated Downstream: EBITDA at replacement cost for the segment came to EUR56 million, up compared with the EUR13 million posted in the same period of 2007. The increase reflects the performance of marketing, which registered increasing margins, and the good performance of the inland refineries which benefited from a positive scenario that more than offset the effects of the scheduled shutdowns for maintenance during the period.
Power Generation – Thermoelectric7: EBITDA at replacement cost for the segment is negative by EUR2 million, down compared with the EUR40 million posted in the fourth quarter of the previous year. This decline reflects the negative effects of the accident which, on October 13, 2008 involved the ISAB Energy plant, leading to a complete halt for most of the quarter; on 18 December one of the two power trains returned to production.
Power Generation – Renewables 7: EBITDA at replacement cost for the segment came to EUR6 million compared with the EUR2 million of the same period of 2007. This is mainly due to the production of the enhanced wind farm in Vicari and to the higher prices of electricity and Green Certificates
The adjusted EBIT at replacement cost is equal to EUR14 million (it was negative by EUR10 million in the fourth quarter of 2007).
Group net income at replacement cost was negative by EUR12 million (in line with the fourth quarter of 2007), and it reflects higher financial charges mainly related to foreign exchange differences (-EUR12 million compared with 2007), as well as higher taxes mainly connected to the positive impact (EUR16 million) registered in the fourth quarter of 2007 following the reduction of the ordinary rate, restored afterwards with the so-called “Robin tax”).
Year 2008 Consolidated financial results
Consolidated adjusted EBITDA at replacement cost came to EUR540 million, up compared with the EUR361 million posted in the same period of 2007.
Coastal Refining: the consolidated adjusted EBITDA at replacement cost came to EUR230 million, against the EUR117 million posted in 2007. This result benefited from a more favourable oil scenario, from the new structure of the refinery and from lower fixed costs, which more than offset the negative impact resulting from the accident at the ISAB Energy plant and the strengthening of the Euro over the US dollar for most of the year.
Integrated Downstream: EBITDA at replacement cost amounted to EUR145 million, significantly higher compared with the EUR87 million posted the previous year. The increase reflects the same positive factors which characterised the performance of the fourth quarter.
Power Generation – Thermoelectric: this segment posted an increase of the EBITDA at replacement cost, from the EUR166 million of 2007 to the EUR181 million in 2008. This result mainly reflects the better performance of ISAB Energy, which also benefited from a favourable scenario, despite the lower production of electricity due to the accident that occurred in October 2008.
Power Generation – Renewables: EBITDA at replacement cost for the period came to EUR17 million, down from the EUR19 million posted in 2007. This decline is attributable to the lower production of Italian wind farms and to the higher restructuring costs, factors which were only partially offset by the increase in power generation by the French wind farms and by higher transfer prices for electricity in Italy.
Consolidated adjusted EBIT at replacement cost amounted to EUR336 million (vs. EUR176 million in 2007), after accounting for adjusted depreciation and amortisation expenses at replacement cost of EUR204 million (vs. EUR185 million in 2007).
The Group net profit at replacement cost amounted to EUR84 million (vs. EUR39 million in 2007).
Net financial debt totalled EUR274 million, down from the EUR1,378 million registered at December 31, 2007. This reduction primarily reflects the transfer of 49% of the capital of ISAB S.r.l. to LUKOIL, which led to a positive impact on the net financial position of the ERG Group totaling around EUR1.55 billion, inclusive of the positive result of the hedging transaction for the transferred oil inventory value, EUR0.6 billion of which was collected in 2008 while the remainder, plus accrued interests, was collected on February 17, 2009.
Net of this effect, there is an increase in net financial debt mainly due to the investments made during the period and to the trends in the working capital, which was negatively affected by the transfer to LUKOIL, as well as due to dividends paid and to the share buyback transaction, which were only partially offset by the cash flow from ordinary operations.
It should be noted that in general the level of debt as at December 31, 2008 compared with the average for the year, reflects the prepayment of excise duties8 and the prepayment of VAT for the month of December 2008.
In the words of Alessandro Garrone, chief executive offiocer of ERG, “the positive results of 2008 were achieved thanks to the favourable oil scenario and to the new plant structure of the ISAB Refinery, in spite of the negative effects of the accident that occurred in October at the ISAB Energy plant, which also affected the overall performance of the ISAB Refinery. The transfer of a 49% share in the latter represented a key step in the strategic development of the Group, which, also thanks to the early payment in full of the purchase price by LUKOIL in February, allowed us to strengthen the financial structure and look to the future with confidence, despite the difficult international situation. As regards the current year we expect, due to the persistence of the actual crisis, a less favourable overall scenario. Furthermore, the results achieved will continue to be affected by the effects of the accident at the ISAB Energy plant, at least until the plant is completely restored to operation, expected by mid- 2010, and the relevant insurance refund is received. As regards the renewables segment, we confirm our policy of development, both in Italy and abroad. However, the current scenario in this segment, made complex by a significant regulatory uncertainty and by the continuing financial crisis, has led us to revise our growth targets for the underlying period of the Plan, based on a more selective approach to investments”.