Saras SpA said on Tuesday it has approved its 2008-2011 business plan which foresees investments for about 1.230 billion euros, mainly to further upgrade its diesel-focused Sarroch refinery in Sardinia and cut fuel oil output.
The Italian oil refiner said diesel margins will continue to remain healthy as diesel is expected to continue leading world demand growth, while demand for fuel oil is expected to decrease due to lower demand for power generation.
"Our priority continues to be organic growth in the refining and marketing segments. We strongly believe in refining and its long-term profitability," said chairman GianMarco Moratti said in a statement.
Investments in refining will be 1.080 billion euros over the life of the plan, of which 620 million will be in upgrading projects with the remainder in maintenance and HSE (Health Safety and Environment).
Saras said the aim is to move towards a "zero fuel oil" refinery by increasing diesel production by 365,000 tonnes per year and raise the yield of middle distillates by 2.5 percent.
Energy consumption and losses at the refinery will be cut by 0.5 percent and the amount of processed oil will increase by 10,000 barrels a day, it said.
Saras said it plans to invest 69 million euros in its marketing operations and 78 million in its Sarlux power plant at the refinery site.
The company also said it is evaluating buying the 30 percent stake held by Babcock & Brown in wind power company Sardeolica, while on gas exploration it said onshore seismic tests have been completed with positive results.
Saras said the internal rate of return of the various investment projects will exceed 15 percent and that gross margin is expected to increase by about $240 million from 2012.
The company also confirmed its dividend payout ratio of 40 to 60 percent of net profits and said it will return to shareholders about 1 billion euros over the life of the plan through dividends and share buybacks.
The combination of investments, dividends and buybacks will re-leverage its balance sheet to 25-50 percent at the end of 2011 from 2 percent and the end of 2007, while free cash flow will remain positive, it said.
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