Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Eni SpA (E, Financial) reported a strong financial performance in the first half of 2024, exceeding their plan in terms of financial outcomes and cash flow generation.
- The company completed the high accretive acquisition of Neptune, delivering significant value for shareholders through synergies in Indonesia, Norway, and Algeria.
- Eni SpA (E) reported a production growth of 6% year on year and added significant oil and gas resources with notable exploration successes in Ivory Coast, Cyprus, and Mexico.
- The company is making progress in its energy transition businesses, with significant investments and operational advancements in Plenitude and Enilive.
- Eni SpA (E) is ahead of its divestment program expectations, generating better value and timing, which is expected to significantly reduce leverage by the end of the year.
Negative Points
- The biofuel business faced very challenging market conditions, recording the lowest margins ever due to oversupply in Europe and the US.
- The chemical division, Versalis, continued to face very challenging market conditions, resulting in Q2 losses.
- Taxes rose in the quarter with an accounting rate at 55%, primarily due to mix effects within the upstream and across the income statement more generally.
- The company is experiencing volatility in its tax rate, driven by seasonality and the contribution of different segments.
- There is uncertainty regarding the future potential buyback increase, which is linked to the faster pace of asset disposals and a stronger balance sheet.
Q & A Highlights
Q: My first question is on bio-fuels. If you could perhaps share your views on what is currently a rather oversupplied biofuels market? When and how would you expect the rebalancing and for margins to start recovering?
A: Stefano Ballista, CEO of Enilive: The biofuel market is currently oversupplied, leading to the lowest margins ever recorded. This situation is expected to be temporary, driven by short-term oversupply in Europe and the US. However, regulatory mandates like the Renewable Energy Directive and refuel aviation requirements will increase demand starting next year, rebalancing the market by 2025.
Q: It's quite unusual to flag a future potential buyback increase. Can you talk about the reason behind this? Is it linked to the faster pace of asset disposals and a stronger balance sheet?
A: Francesco Gattei, CFO: The potential buyback increase is linked to our progressive distribution policy, which is based on cash flow from operations. Given the improved visibility on our divestment program and the strong balance sheet, we are evaluating a potential increase in the buyback up to EUR500 million in the third quarter.
Q: Do you think there's a chance you could exceed your EUR10 billion gross divestment target? Are you finding more assets to sell or at higher values than expected?
A: Claudio Descalzi, CEO: We have accelerated our divestment program due to the high quality of our assets and strong interest from various entities. We are likely to exceed our initial EUR8 billion target, especially in dual exploration, where we have found significant resources with minimal investment.
Q: Why sell so much of Enilive now? Are there particular attributes these new partners are bringing beyond financing?
A: Claudio Descalzi, CEO: We aim to grow and create more value in Enilive. The strong interest and good valuation from investors like KKR allow us to finance growth without using our capital or debt. This strategic move helps us progress and attract strong partners who share our vision.
Q: Can you elaborate on your LNG growth plans? Are you considering offtake deals from the Gulf Coast US?
A: Guido Brusco, COO: Our LNG growth is primarily through integrated projects like those in Congo, Mozambique, Qatar, and Indonesia. We see more value in organic growth from our successful exploration campaigns rather than buying and selling gas from third parties. However, we may consider small deals to complement our portfolio.
Q: What is your view on the potential for additional interest in selling stakes in Plenitude in the second half of the year?
A: Claudio Descalzi, CEO: While we have received significant interest in Plenitude, we do not expect to sell additional stakes in the second half of the year. However, we remain open to exploring opportunities with serious investors who share our growth vision.
Q: Can you update us on the restructuring plans for the chemicals division, given the challenging market conditions?
A: Adriano Mongini, CEO of Versalis: We are facing a negative market momentum with high raw material costs and weak demand. Our transformation plan aims to achieve breakeven EBITDA by 2025, breakeven EBIT by 2026, and breakeven cash flow by 2027. We are engaging with stakeholders and will provide more updates in the third quarter.
Q: What is your tax rate outlook for the coming quarters, given the recent volatility?
A: Francesco Gattei, CFO: The tax rate has been volatile due to seasonality and segment contributions. We expect a tax rate of around 50% for the full year, slightly above our initial guidance. For the next four-year plan, we anticipate a tax rate in the range of 45%.
Q: Can you clarify the position on a future IPO of Enilive? Would you be prepared to fall below a 50% stakeholding?
A: Francesco Gattei, CFO: The IPO is the goal for both Enilive and Plenitude. The structure will depend on the percentage the market can absorb and the type of funds involved. It is premature to determine the ultimate percentage we will hold, but various options are being considered.
Q: What differentiates GGP's performance in the first half of the year, given the less consistent trading conditions?
A: Cristian Signoretto, Chief Gas & LNG Marketing and Power Officer: Despite reduced market volatility, we captured value from geographical spreads and combined volatility between oil and gas hubs. Anticipated renegotiations and accounting adjustments also contributed to the strong performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
