Eni results for the second quarter and half year 2021

Eni CEO Claudio Descalzi said:

“Eni delivered exceptional results in the second quarter of the year, continuing the upward trend of the last three quarters and beating market expectations across all of its business segments. With an improved macro backdrop and energy market fundamentals, the Group reported €2 billion of EBIT and €0.93 billion of net profit, a €1.6 billion increase compared to the second quarter of 2020.

Group results were driven by a robust performance from the E&P segment, which recorded €1.84 billion of EBIT, up by €2.6 billion from the same quarter last year. The newly incorporated Eni gas e luce & Renewables division reported €70 million of EBIT, an increase of €50 million over the comparative period due to a growing customer base and higher revenue from value-added services. In renewables, we are going to exceed our 2021 target, reaching 2 GW of installed and in-construction power capacity. Finally, the Chemicals business reported around €200 million of EBIT, an increase of €270 million.

The strong performances across our business and a continued focus on capital discipline resulted in strong cash flow generation in the first half of 2021 with €1.82 billion of free cash flow after organic capital expenditure.

These results, the progress on delivering our strategy, the outlook, and a Brent reference scenario of 65 $/bbl, have allowed us to increase our dividend back to pre-COVID levels at €0.86 per share, with 50% paid next September. We will also start a €400 million share buy-back program over the next 6 months.”

Highlights

SHAREHOLDERS REMUNERATION

• Having reviewed the fundamentals of the energy scenario and the prospects of the oil market, Eni's Board of Directors resolved to define a Brent reference scenario of 65 $/bbl. Based on the shareholder remuneration policy approved on February 18, 2021, this means:
  - an annual dividend of €0.86/sh. for the fiscal year 2021[1], representing an increase of more than 100% from 2020 recovering the pre-COVID level;
  - the start of a buy-back program of €400 million[2].
• As announced by the proxy conferred by the Shareholders Meeting held on May 12, 2021, the Board of Directors approved the distribution of 50% of the expected dividend, equal to €0.43/sh, as 2021 interim dividend to be paid in September[3]. This distribution is planned to be made from the retained earnings and other available capital reserves of the parent company Eni SpA.

QUARTERLY RESULTS

• Commodities and energy prices performed strongly in the second quarter 2021: the Brent price increased from 61 $/bbl in the first quarter 2021 to 69 $/bbl; natural gas prices in Europe increased by 30-35% respectively for the Italian reference spot price “PSV” and the continental reference spot price “TTF”; in the chemical sector the polyethylene-ethylene spread reached the highest value since 2015 to about 800 $/ton (from 550 $/ton);
• On the negative side, refining margins continued to be extremely weak in the European/Mediterranean region, with the Eni benchmark margin SERM down to historic lows (-0.4 $/bbl on average in the second quarter 2021). This was due to continuing pandemic effects, which on one side with the gradual easing of OPEC+ supported the cost of the oil feedstock, while on the other side negatively affected demand for products, particularly middle distillates. In the wholesale gas business, spreads between the Italian PSV spot market and the spot prices at the "TTF" continental hub narrowed remarkably down to 1 €/kcm in the second quarter from 3 €/kcm in the first quarter 2021 and 18 €/kcm in the second quarter 2020.
• Strong recovery in Group adjusted EBIT: €2 billion in the second quarter 2021 compared to a loss of €0.4 billion in the same 2020 reporting period (€3.4 billion in the first half, up by €2.5 billion y-o-y). The Group result was driven by:
  - a robust performance in the E&P segment, which reported €1.84 billion of EBIT, €2.6 billion higher than 2020, thanks to a better pricing en
  - vironment and lower costs, despite 132 kboe/day less hydrocarbon production due to maintenance activities. The quarterly result also benefitted from retroactive contractual revisions;the Chemical segment, which reported its best ever quarterly results with EBIT of €202 million (up by €268 million) due to an improved macro backdrop, higher product margins and higher production availability, allowing the segment to capture a rebound in demand, in addition to a contribution from the green chemical business;
  - resilient results from the Eni gas e luce & Renewables business, which earned €71 million of EBIT (up €48 million) benefitting from effective marketing activities, a growing customer base and better margins.
  
  

Furthermore, despite an unfavorable comparison with the second quarter 2020, the segments that have lagged the recovery so far are also showing improving trends:

- the GGP business reported a positive €24 million (down by €106 million from the second quarter 2020) up by €54 million when compared to the first quarter 2021; the reduction of gas spreads (PSV vs TTF) was more than offset by the better result of the LNG business and one-off positive effects related to contract renegotiations;

- the R&M business, which narrowed its losses to -€12 million (down by €151 million vs. the second quarter 2020), substantially at breakeven, improving results by €147 million from the first quarter of 2021, thanks to a partial recovery of sales volumes at the retail network due to the reopening of the economy. Reduced by 10 percentage points the volume of palm oil supplied to the production of bio-diesel leveraging better plant flexibility due to the start-up of the Gela Biomass Treatment Unit.

• Adjusted net profit back to pre-COVID levels: €0.93 billion and €1.20 billion respectively in the second quarter and first half 2021 (up by €1.6 billion and €1.9 billion) due to a better operating performance and the normalization of the tax rate (58% in the first half of 2021) due to an improved oil price scenario and a better profitability outlook of the green activities in Italy.
• Robust cash flow from operations before changes in working capital at replacement cost: €2.80 billion in the second quarter to fund net capex of €1.52 billion. In the first half of 2021, the Group generated €4.76 billion of cash flow, which after funding €2.91 billion of net capex (unchanged y-o-y) left a free cash flow ante working capital of €1.82 billion.
• Portfolio: net investment of about €0.87 billion, including net borrowings of acquired entities, fully deployed to accelerate growth in the renewables business.
• Significant reduction in net borrowings ante IFRS 16: €10 billion, down by €1.5 billion vs. December 31, 2020. Leverage lowered to 0.25 (vs 0.31 as of December 31, 2020). In May 2021, Eni Published the first Sustainable Linked Framework in the industry and in June 2021 the first sustainable linked bond of €1 billion was placed and was oversubscribed six times compared to the initial offer.

Outlook 2021

• FY 2021 cash flow from operations before changes in working capital at replacement cost expected to be above €10 billion at a Brent scenario of 65 $/bbl and assuming a SERM benchmark refining margin slightly in negative territory.
• Reaffirming the guidance for hydrocarbon production at about 1.7 million boe/d for the FY 2021. In the third quarter hydrocarbon production is expected at 1.68 million boe/d.
• Fast growing renewable installed and under construction capacity: expected to be 2 GW at year end, a strong increase from the previous outlook of about 1 GW. Leveraging recently acquired assets, installed capacity is expected to increase from a previous target of 0.7 GW to 1.2 GW at year end 2021.

All the other targets are reaffirmed as previously guided:

- 2021 organic capex expected at approximately €6 billion, of which approximately €4.5 billion in the E&P segment;

- about 500 million boe of new explorative resources to be discovered in 2021;

- GGP: adjusted EBIT expected to reach breakeven despite a worsening trading environment. Expected about €200 million of free cash flow from this segment in 2021;

- Eni gas e luce & Renewables adjusted EBIT projected at €350 million, cash flow from operations expected at approximately €400 million;

- Downstream: pro-forma adjusted EBIT at about €400 million. The greater portion of this result is related to the Chemical segment, offsetting R&M result affected by slightly negative SERM refining margins;

- Organic leverage expected lower than 0.3 at year end, at a Brent price of 65 $/bbl and a slightly negative SERM refining margin.

_{[1] In line with the dividend policy announced to the financial market during the strategy presentation held on February 19, 2021, (see page 31) of which at the following URL https://www.eni.com/content/dam/enicom/documents/eng/investor/presentations/2021/strategy-4q-2020/strategy-2021-2024.pdf.}

_{[2] The procedure to implement the buy-back program is detailed in the section “Other information – start of the buy-back program” of this press release.}

_{[3] Ex-dividend date being September 20, 2021 (record date September 21, 2021). The dividend will be paid on September 22, 2021. The Board of Directors resolved  to distribute part of retained earnings and/or available capital reserves of the parent company Eni SpA as 2021 interim dividend in place of the resolution of the 2021 interim dividend, in accordance to Art. 2433 – bis c.c., scheduled in Eni’s financial calendar on September 16, 2021. The Company’s financial calendar will be amended accordingly and a dedicated press release will be disseminated to the market. ADR holders will receive €0.86/ADR.}

The full version of the Press Release is available in PDF format.