Eni SpA Q2 FY2024 earnings call

Management Statement and Operational Highlights

• Upstream Progress: Enhanced upstream portfolio via acquisitions (Neptune), sold non-core assets in Congo, Nigeria, and Alaska (expected to close by end of 2024), and reported 6% year-on-year production growth with exploration success in Cyprus and Mexico.
• Energy Transition: Completed EUR600 million equity investment in Plenitude, announced potential KKR investment in Enilive (valuing enterprises at ~EUR22 billion), FIDs of biorefineries in Malaysia and South Korea, and Plenitude's largest solar project startup.
• Financial Performance: Pro forma EBIT in Q2 was EUR4.1 billion, EUR8.2 billion for H1; CFFO in Q2 was EUR3.9 billion, EUR7.8 billion for H1; cash conversion efficient with cash tax rate around 30%.

Segment Performance

• Upstream: Reported pro forma EBIT of EUR3.5 billion, with production up 6% year-on-year. Achieved exploration success in Cyprus and Mexico.
• Transition businesses:
  • Enilive: Pro forma EBIT of EUR120 million, impacted by softer biorefining market but offset by seasonally stronger marketing income.
  • Plenitude: Pro forma EBIT of EUR149 million, 12% higher than Q2 last year.
  • Chemicals (Versalis): Facing very challenging markets, resulting in Q2 losses.
  • Traditional refining: Weaker refined products impacted results, but resilient wholesale and trading activities offset some effects.

Guidance

• Production: Expected to be at the top end of guidance, with growth close to 4%.
• GGP: Revised guidance to EUR1 billion for full year.
• Transition Businesses: Plenitude and Enilive combined pro forma EBITDA guidance of EUR2 billion.
• Buyback: Minimum EUR1.6 billion, potential to increase by EUR500 million based on divestment progress; net CapEx expected under EUR6 billion.

Risks

• Biofuels Market: Oversupply leading to lower margins, with market rebalancing expected in the transition phase.
• Taxes: Accounting tax rate at 55% due to mix effects; constitutional court ruling on windfall tax and potential legal actions for recouping taxes.
• Chemicals Market: Challenging conditions impacting Versalis' performance.

Q: On GGP guidance increase to EUR1 billion?

A: Cristian Signoretto said sustained trading environment, anticipation of renegotiations, and accounting readjustment contributed to raising guidance, with potential upside in H2.

Q: On chemicals restructuring?

A: Adriano Alfani said ongoing transformation plan with breakeven targets by 2025-2027, engaging stakeholders for implementation.

Q: On windfall tax recoupment?

A: Francesco Gattei said ongoing legal actions for compensation related to gas trading arm impacted by tax.

Q: On Enilive IPO and stake below 50%?

A: Francesco Gattei said IPO at proper time with market absorption, premature to determine exact stake percentage.

Q: On upstream production timing of disposals and start-ups?

A: Guido Brusco said production expected at upper guidance bound, Cassiopea to start gas in early August, Baleine Phase 2 to start end of year.

Q: On Egypt gas situation and Cronos discovery in Cyprus?

A: Guido Brusco said Egypt's LNG import/export situation, potential hub role, but alignment needed; Cronos discovery in Cyprus has good deliverability but political alignment needed for Egypt connection.

Q: On gross CapEx and buyback potential?

A: Claudio Descalzi said gross CapEx expected close to EUR9 billion target, buyback potential linked to cash flow scenario with minor impact on overall cash flow.