Eni

escveritas
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Eni

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Eni results for the third quarter and nine months of 2020

Today, Eni's Board of Directors approved the consolidated results for the third quarter and the nine months of 2020 (not subject to audit). Having examined the results, Eni CEO Claudio Descalzi said:

“In a market environment that remains challenging, we are continuing to successfully mitigate the negative impact of this crisis and making progress with our decarbonization strategy. We achieved excellent results during the quarter, clearly exceeding market expectations in the face of a 30% decline in oil and gas prices, and a 90% decline in refining margins. In E&P, even with Brent at 43 $/barrel, we achieved production levels in line with our expectations, and an EBIT of €0.52 billion, double consensus estimates. In a quarter that is traditionally weaker seasonally, the Global Gas & LNG Portfolio has achieved significant results. R&M has shown its resilience in a particularly unfavourable scenario for traditional refining, driven by strong marketing performance, particularly in biofuels, as our two biorefineries allowed us to capture advantageous market opportunities. The growth of gas retail, driven by customer loyalty, and the stable results of the power and oil products marketing, helped to offset the impact of an extremely negative scenario in traditional refining and chemicals. Over the last nine months, thanks to the reduction in capex and costs efficiencies implemented earlier this year, we generated an operating cash flow of over €5 billion, compared to a level of capex equal to €3.8 billion. These results showcase our robust capital structure that has been further strengthened by the two hybrid bond issues of €3 billion made in October, which have allowed us to keep leverage below 30%. Faced with a crisis of unprecedented proportions, Eni has demonstrated great resilience and flexibility. In light of these results, we look forward to a recovery in demand, whilst continuing to pursue our energy transition program.”

Eni’s new organizational structure and segment reporting

On June 4, 2020, Eni’s Board of Directors established a new organizational structure with two business groups to align with an ongoing strategic shift. The “Natural Resources” business group is responsible for enhancing the upstream oil & gas portfolio in a sustainable manner, focusing also on energy efficiency activities, projects for forests conservation (REDD+) and carbon capture and storage projects. In addition to E&P, this business group comprises the results of the wholesale gas and LNG businesses as well as the activity of environmental clean-up and remediation managed by our subsidiary Eni Rewind. The other business group “Energy Evolution” is responsible for progressing the generation, transformation and retail and marketing businesses from fossil to bio, blue and green products. This business group comprises the results of the Refining & Marketing business, the chemical business managed by Versalis SpA and its subsidiaries, the retail gas and power business managed by Eni gas e luce and the business of producing and selling power from thermoelectric plants and renewable sources.

The new organizational structure is a fundamental step towards the implementation of Eni’s 2050 strategy aimed at leading the market for the supply of de-carbonized products, combining value creation, businesses sustainability and economic and financial robustness.

In re-designing the Group’s segmental information for financial reporting purposes, the management evaluated that the components of the Company whose operating results are regularly reviewed by the CEO (Chief Operating Decision Maker as defined by IFRS 8) to make decisions about the allocation of resources and to assess performances would continue being the single business units which are comprised in the two newly-established business groups, rather than the two groups themselves. Therefore, in order to comply with the provisions of the international reporting standard that regulates the segment reporting (IFRS 8), the new reportable segments of Eni, substantially confirming the pre-existing setup, are identified as follows:
  • Exploration & Production, which also comprises the economics of the forestry projects (REDD+) and projects for CO2 capture and storage;
  • Global Gas & LNG Portfolio (GGP): engages in the wholesale activity of supplying and selling natural gas via pipeline and LNG, and the international transport activity. It also comprises gas trading activities targeting to both hedge and stabilize the Group commercial margins and optimize the gas asset portfolio;
  • Refining & Marketing and Chemicals: engages in the manufacturing, supply and distribution and marketing activities of oil products and chemical products and also in trading. Oil and products trading activities are designed to perform supply balancing transactions on the market and to stabilize or hedge commercial margins;
  • Eni gas e luce, Power, Renewables: engages in the activities of retail marketing of gas, power and related services, as well as in the production and wholesale marketing of power produced by both thermoelectric plants and from renewable sources. It also comprises trading activities of CO2 emission allowances and of forward sales of power to help stabilize/hedge the clean crack spreads of power;
  • Corporate and Other activities: include the costs of the main business support functions, as well as the results of the Group environmental clean-up and remediation activities performed by the subsidiary Eni Rewind.
Group results

Results were significantly impacted by the combined effects of the economic downturn due to COVID-19 that suppressed energy demand and caused oversupplied markets. The third quarter performance showed a noticeable improvement over the previous quarter due to a better balance in oil market fundamentals, against the backdrop of a slow economic recovery and uncertainties about the containment of the pandemic with repercussions on travel.

Adjusted operating profit of €0.54 billion in the third quarter 2020 increased significantly from the second quarter 2020 loss (up by €1 billion). Compared to the year-ago quarter, the quarterly performance (down by 75%) was materially hit by the downturn in energy demand driven by the COVID-19 pandemic. In the nine months of 2020, adjusted operating profit was €1.41 billion (down by 79% compared to same period of 2019).
Net of scenario effects of -€1.6 billion in the quarter (-€5.1 billion in the nine months) and the operational effects of COVID-19 for -€0.3 billion (-€0.8 billion in the nine months)2, the underlying performance was a positive €0.3 billion in the quarter (+€0.5 billion in the nine months).
Adjusted net result: adjusted net loss at €0.15 billion in the third quarter and €0.81 billion in the nine months.

Net result: the Group reported a net loss of €0.5 billion in the third quarter of 2020, negatively impacted by lack of recognition of deferred tax assets for losses of the period. In the nine months, the net loss was €7.84 billion due to the recognition of pre-tax impairment losses at non-current assets for €2.75 billion mainly relating to oil and gas assets and refinery plants, due to a revised outlook for oil and natural gas prices and product margins, an inventory loss of €1.4 billion due to the alignment of the book value to current market prices, as well as by the write-off of deferred tax assets (€0.8 billion).

Adjusted net cash before changes in working capital at replacement cost: €5.14 billion in the nine months of 2020, down by 44% versus the nine months of 2019 (€1.77 billion in the third quarter 2020, down by 31%) driven by negative scenario effects for approximately -€4.8 billion, including the impact of dividends from equity accounted entities, operational impacts associated with the COVID-19 for -€0.9 billion, while the underlying performance was a positive €1.7 billion.

Net cash from operations: €3.83 billion in the nine months, down by 56% from the nine months 2019.

Net investments: €3.76 billion, down by 33% due to the curtailment of the capex plan adopted since March 2020, fully funded by the adjusted cash flow.

Net borrowings: €19.85 billion (€14.53 billion when excluding lease liabilities), up by €2.7 billion from December 31, 2019.

Leverage: 0.40, before the effect of IFRS 16, higher than the ratio at December 31, 2019 (0.24) and at June 30, 2020 (0.37). Including IFRS 16, leverage was 0.54.

On October 6, 2020 two hybrid bonds were successfully issued, rising an overall financing of €3 billion. The proforma leverage as of September 30, 2020 including this issuance as equity instruments would be 0.29.
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