Saras S.p.A. (Saras), an Italy-based company active in the energy sector, has reported revenues of EUR1.2 billion for the first quarter of 2009, down 40%, compared with the revenues of EUR2.05 billion in the year-ago quarter. It also reported a net loss of EUR58.2 million for the first quarter of 2009, down 26%, compared with the net income of EUR78.3 million in the year-ago quarter.

Chairman, Gian Marco Moratti declared: “The deteriorating trend in oil demand, which started in the second half of the past year as a consequence of the economic recession, continued during the first quarter of 2009. This has been reflected also in lower consumption of diesel on European scale, and a consequent contraction of the refining margins. In the above market scenario, Saras started an important part of its scheduled maintenance programme, with a temporary limitation of the refinery conversion capacity, and a reduction of the EBITDA. Nevertheless, we strengthened our financial position, reducing leverage below 15% – a core advantage in the current global economic downturn.”

Comments to first quarter results:

During the first quarter of 2009, the economic downturn led to a reduction in oil products demand, and a consequent deterioration of refining margins. In this context, Saras carried out planned maintenance cycles both in the refinery and in the IGCC plant, with unavoidable impacts on our results. Marketing performance was also disappointing, due to a reduction in sale volumes and margins. On the contrary, the wind segment posted a very strong set of results, due to favorable weather conditions, and healthy valorization of the green certificates.

Group comparable EBITDA amounted to EUR91.1 million, down 38% versus same period last year due to the unfavorable economic scenario, the lower demand for oil products which reduced the margins of the marketing segment, and the previously mentioned maintenance cycles which affected the results of the refining and power generation segments.

Adjusted net income was EUR25.3 million, down 66% vs. first quarter of last year.

Group reported EBITDA in first quarter of 2009 (Q109) was EUR144.6 million, down 4%, and group reported net income stood at EUR58.2 million down 26%, when compared to the same period of 2008.

CAPEX amounted to EUR60.5 million in the period, in line with the investment program for 2009.

Net financial position improved to EUR-223 million, up EUR110 million from the negative of EUR333 million at the end of 2008, in the light of a strong operating cashflow.

Outstanding shares as of March 31, 2009 were 927.5 million, versus 949.9 million at the end of March 2008.

The average of Q1/09 has been $3.2/bl (higher than the $2.0/bl of same quarter last year). However, while last year was characterized by a strong diesel crack and a weak gasoline and fuel oil, this year the relative strength in the EMC margin can be mainly explained by the resilient behavior of gasoline, which benefited by a more stable demand, thanks to lower consumer prices and maintenance at several refineries.

Comments to first quarter results:

During the first quarter of 2009, the economic recession brought to a further reduction in oil products demand. In particular, in the European market, diesel suffered the largest drop in demand, due to its tighter link to the economic cycle. Diesel crack dropped from an average value of $25.6/bl in fourth quarter of 2008 (Q4/08), to an average of $13.7/bl in Q1/09. On the other hand, heating oil was relatively resilient because of much colder weather this winter versus same period last year.

Moving to light distillates, gasoline staged a good recovery during Q1/09 from its very weak performance in 2008, realigning its crack value to historical averages ($5.5/bl average for Q1/09, versus $2.4bl in first quarter of 2008 (Q1/08) and $0.9/bl in Q4/08). Gasoline strength can be mainly attributed to lower consumer prices and an important contraction in supply, due to maintenance at several refineries both in the US and in Europe.

Looking then at the heavy part of the barrel, fuel oil showed remarkable strength in Q1/09, mainly because of a reduction in availability of heavy crude oils, whose production has been cut by OPEC, in an attempt to put a floor under falling oil prices. High sulphur fuel oil crack stood at an average of -$8.8/bl in Q1/09, versus an average of -$16.9/bl in Q4/08, and -$27.1/bl in Q1/08.

With the above market scenario, our reference EMC refining margin stood at a healthy $3.2/bl, versus $2.0/bl in Q1/08. However, Saras premium above the EMC margin contracted to $1.7/bl (versus $5.6/bl in Q1/08), due to a remarkable reduction in the price differential between diesel and fuel oil – the so called “conversion spread”, which averaged at $200/ton in Q1/09, versus $431/ton in Q1/08.

Refinery runs were 3.72 million tons (27.2 million barrels, corresponding to 302 thousand barrels per day), down 5% vs. Q1/08, notwithstanding the planned turnaround activities for one Mildhydrocracker and for the Visbreaking unit, as per original maintenance schedule. The crude mix was slightly lighter than first quarter last year (with an average density of 33°API in Q1/09 vs. 32.7°API in Q1/08), and the processing on behalf of third parties was 28% of total runs, marginally down when compared with the 30% of Q1/08.

Comparable EBITDA of the refining segment was EUR39.4 million down 58% versus EUR94.4 million in Q1/08, driven by the lower conversion spread, and the losses on EBITDA for about $25 million, caused by the above mentioned maintenance activities on the MHC2 and the Visbreaking Unit. A further penalization for about $10 million came from the scheduled maintenance of one Gasifier and one turbine of the IGCC plant, which forced to sell on the market at discounted prices, the TAR which would otherwise be used as feedstock. Only partial compensation came from the stronger USD versus the EUR, with an exchange rate averaging at 1.30 during Q1/09 vs. 1.50 during Q1/08.

Refining CAPEX in Q109 was EUR52.6 million vs. EUR38.2 million in Q1/08, in line with investment plan for the year.

Comments to first quarter results:

In the first quarter of 2009, the marketing segment suffered from the global economic crisis and its negative impact on oil products demand.

In particular, in the Spanish market, sales shrank by 7% for gasoline and by 7.5% for gasoil (with a split of – 10.3% for diesel, and +0.5% for heating oil and agricultural gasoil). Accordingly, Saras Energia had a 5% contraction in sales volumes versus same quarter last year, and also a contraction in margins.

Similarly, in the Italian market, sales for gasoline decreased by 6.5%, and gasoil consumption contracted by 4.5% (with a split of -12.4% for diesel, +11% for agricultural gasoil and +3.5% for heating oil) versus same period last year. Notwithstanding the difficult market, Arcola increased its sale volumes by 8%, partially compensating the negative performance of the Spanish subsidiary.

Comparable EBITDA was negative at EUR-0.8 million, significantly down compared to the same period last year. Together with the above mentioned contraction in sales and margins, the reduction at the EBITDA level was also related to losses for approx. EUR2 million on sales from biodiesel production resulting from initial test runs.

CAPEX were EUR4.2 million.

Comments to first quarter results

Results of the Power Generation segment were in line with expectations during Q1/09. In particular, Power production was 0.897 TWh, down 20% when compared to Q1/8, because of the scheduled maintenance activities of one Gasifier and one production train, which proved slightly heavier than originally planned.

Italian GAAP EBITDA was EUR57.9 million, down 18% versus first quarter 2008, due to the above mentioned lower production, which was only partially offset from an increase in the total power tariff, which stood at EUR14.1cent/kWh in Q1/09, up 5% versus Q1/08 (with the fuel component at EUR7.3 cent/kWh, still benefiting from the 9-months delay formula, which links its calculation to oil prices).