ENI (Milan:ENI) Q2 2024 Earnings Call

0:00 Good afternoon, ladies and gentlemen, and welcome to ENI's 2024 First Half Results Conference Call, hosted by Mr. Claudio Descalzi, Chief Executive Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you will have the opportunity to ask questions. Should anyone need assistance during the conference call, then we signal an operator by pressing star and zero on your telephone. Now I'm handing you over to your host to begin today's conference. Thank you.

0:37 Good afternoon and welcome to our second quarter and first half result conference call. This quarter confirms we are making significant strides forward in delivering on our strategy and the four-year plan set out in March. I will discuss our financial results in more detail, but in summary, Our performance in the first half exceeded our plan in terms of financial outcomes and cash flow generation, with capital expenditure and leverage showing a positive trend. Touching on some important milestones in the year so far. We are materially enhancing our upstream portfolio. We completed a high accretive acquisition of Neptune in January, already delivering significant value for rainy shareholders thanks to synergies in Indonesia, Norway and Algeria.

1:31 Following the step-up of our exposure on the UK ECS with Neptune, We have moved quickly and are creating one of the largest independent players in the country through the combination with Ithaca Energy. At the same time, we are also making real progress in high-grading our upstream portfolio, completing the sale of non-core assets in Congo and Nigeria, and announcing the sale of Alaska, which we expect to close before year-end. Furthermore, we are working on some additional transactions related to our dual exploration model that will mature in the coming quarters. Meanwhile, our upstream business continues to focus on its core activities.

2:16 We have reported production growth of 6% year-on-year and have other significant oil and gas resources, with notable exploration successes in our coasts, Cyprus and Mexico. On the businesses related to the energy transition, we are unveiling the value that the market places on our unique integrated chains in retail consumption and sustainable mobility. we completed on the 600 million euro equity investment into plenitude by energy infrastructure partners. And this week, we have announced the potential investment by KKUR into Enilive in a range between 2.5, 3 billion euro.

3:06 Together, the deals highlight an enterprise value of around 22 billion euro, a remarkable improvement versus the marginal value these activities were accorded only a few years ago. We are also pleased with the operational progress we are making for AnyLive, the FIDs of the two new biorefinery in Malaysia and South Korea, and for Plenitude, the start-up of its largest solar project to date, the Rinnepool Solar Park in Spain. Let's put all of these in context. The energy transition is irreversible, but it will only be sustainable if it allows returns attracting private capital.

3:54 And this is what we are proving through our portfolio of activities that are highly valuable for the market and achieving precisely those objectives of profitability and economic sustainability. We are also growing upstream, with higher margins and lower emissions to be net zero by 2030. We will grow underlining production by 4% per year over the planned period, reported production by 2% per year after disposals, and crucially, we will grow CFFO per barrel by 30%. Plenty today in any life. will close to double EBITDA over the four-year plan and double again by 2030. This is an outstanding plan of growth that is attracting the interest of main investors and will ultimately take both businesses toward full market valorization through IPOs.

4:52 Our transformation plan has more emerging options. We are restructuring and reorienting our chemical presence toward a sustainable platform based on biochemistry and the circular economy as we did and continue to do in biorefining. Furthermore, CCUS has a key role in reducing emissions in our 12-8 sectors and is also well suited to be an additional satellite in our system in due course. Taken together, supported by a clear and focused financial framework, AIN is able to offer a sector-leading CFO per share growth rate over 13% per year and highly competitive shareholders' returns. Turning to our results, Proforma EBIT, incorporating our associate operations, was € 4.1 billion in line with the last year, even without the benefit of the GDP one-off report in 2023.

5:51 Over the first six months, Proforma EBIT was € 8.2 billion, more than 60% of the original annual plan. In the upstream, we reported another excellent quarter with production up 6% year-on-year and performed an EBIT of 3.5 billion euro, capturing the oil price scenario and the recovering gas market. Indeed, GDP with 334 million euro also reported a strong result in line year-on-year on an underlining basin and in what is a traditional, a seasonally lower quarter. In the transition businesses, EniLife's pro forma EBIT was €120 million, reflecting the currently softer biorefining market conditions, offset by seasonally stronger market income, confirming the advantage of integration along the value chain with the sales of products and services to retail and wholesale.

6:55 Plenitude reported pro forma EBIT of €149 million, 12% higher than the second quarter last year, and giving a strong first-half progression. A weaker scenario for refined products impacted our traditional refining, offset by resilient wholesale and trading activities and supported by high plant availability. leading to a stronger result year on year. Chemicals in Versailles continue to face very challenging markets reflected in our Q2 losses. Taxes rose in the quarter with a country rate at 55%, primarily due to mixed effect within the upstream and across the income statement more generally.

7:50 Our CFO in the quarter is 3.9 billion euro and 7.8 billion euro for the first half, delivering a pleasing trend of efficient cash conversion, reflecting good dividend income and a cash tax rate of around 30%, consistent with the level we anticipate for the full year. Our first half CFO means we have already generated 55% of the planned annual amount. Organic Capes is currently tracking below our gross guidance of €9 billion, full year figure, but our expectation remains unchanged.

8:36 Net portfolio activity was still cashed out in the half year, but in the quarter we generated proceeds of €480 billion, being primarily the sale of shares of Saipem. After payment of the final dividend and the restart of the buyback, net debt fell from a Q1 peak. Let's focus for a moment on our upstream and transition businesses, the key current components of our value chain. This slide emphasizes the resilience of the result in the absence of GGP one-offs. In EMP, we have delivered excellent volume growth backed by continuous operation success to feed the business and progress portfolio high grading. GGP continues to capture a margin in our equity gas sales, leveraging its excellent asset and logistic positioning.

9:34 Financial performance in our transition businesses remain on track despite the volatile and often challenging scenario conditions. This reflects the underlying resilience in these balanced and integrated businesses. As a result, we are maintaining growth in a consistently competitive fashion and investing for value and for the long term. This means we are able to launch new advantageous biorefinery projects and have a significant portfolio of new renewables capacity under construction to sustain our growth. Confirmation of the value we are creating is evident in the financial investment we have attracted in both Plenitude and AnyLive.

10:21 A strong balance sheet remains a key target in our plan, providing resilience, flexibility and strategic optionality. In March, we said gearing over the four-year plan would range between 15% and 25%. The impact of the strategic acquisition we made to support our growth platform pushed gearing up toward the higher end of that range. by the first quarter, but as we have seen in Q2, even with limited impact of disposal actions, leverage is already inflecting down, falling by almost 1.5 percentage points versus Q1. We are executing our disposal plan much faster than planned.

11:07 As a reminder, in March we announced we would deliver €8 billion of net portfolio inflows in the four-year plan and indicated we expected the divestment activity to be front-end loaded. In the first six months we have, in fact, advanced this program faster and for better value than anticipated. The announcement deal in Alaska and Nigeria will reduce our leverage by around 3 percentage points, while the sales of 20-25% vanilline will impact our leverage by a further 5-6%. This means, by the end of the year, we now expect leverage to be well below 20% and conceivably toward 15% on a performance basis, awaiting the full cash-in of these deals and other planned actions.

12:04 And we are working on several additional transactions that will further contribute to our portfolio enhancement and debt reduction. In other words, by the end of the year we expect to be able to provide visibility either via actions completed, announced or redefined plans. Over the large majority of the transactions that will be roughly split 50-50 between upstream and the new transition businesses. That brings me to our satellite model, a crucial source of cash to fuel our growth plan distribution and to maintain a strong balance sheet. 2024 has been an important proof point for the distinctive model we have built.

12:54 The plenitude and any live transactions that will generate over 3 billion euro in total represent the material deals of aligned capital and attractive multiples with valuable partners. This is only a portion of the 11 billion euro cash we generated from dividends, disposals and IPOs through our key satellites and live Plenitude, Azul and Va energy since their creation. This new capital supports our funding needs and confirms the value we are creating in different businesses and anticipates cash flow generation from these long-term opportunities.

13:39 Cash generated from our satellites has a double impact on our distribution. Accelerating growth in our cash flow from operations, as a result of the material increase of these businesses, during the planned VAR and Azul production will grow together by 45% while Plenitude and AnyLive are almost doubling their EBITDA. Diversifying our business and improving our balance sheet, allowing us to progressively enhance our distribution policy. Finally, let me elaborate on the outlook for the remainder of the year. We now expect reported full-year production to be at the top end of our guidance, implying a growth rate of close to 4%.

14:27 Similarly, GDP has now significantly reduced our original 800 million euro pro forma EBIT guidance for the year and we now expect a full year figure of around 1 billion euro. Our main transition businesses, Plenitude and Enelive, remain on course to deliver their combined guidance of 2 billion euro of pro forma EBIT this year. Any fully preformed adjusted EBIT and CFO before working capital are expected to be around 15 billion euro and over 14 billion euro respectively at our current scenario.

15:13 And in that context, we confirm the buyback will be a minimum of 1.6 billion euro. Thanks to the improved visibility on our divestment program, we will speed up report chasing through Q3 and Q4 versus our previous plan. Moreover, given the lower expected debt in the light of the progress of the M&A, we will be able in the third quarter to evaluate a further raise to the distribution share up to the maximum limit of 35% of the budget CFFO, which corresponds to a potential buyback value of additional 500 million euros.

16:00 To help with the CFFO profiling for modeling purposes, we can confirm that dividend cash-in from an associate should closely approximate the net income, while the cash tax rate for the full year is expected to be around 31%. Net cap is now expected to be under 6 billion euros, significantly below the previous guidance, in line with our updated expectation that year-end gearing will be well below 20%, and pro forma on deals awaiting formal closing will be even lower than that. Finally, with the work now underway, we have already identified savings in excess of €250 million for 2024, and we are raising to around €2 billion the full value of savings and simplification benefits over the planned period that we announced in March.

17:05 To conclude, we are really pleased with the progress we are making. Our strategy is to invest in our high-quality businesses to make any more profitable, fund the next phase of growth, work to highlight the full value of our assets and to deliver a growing and competitive shareholders' distribution. The first half of 2024 has been as seen as making clear a stride forward in terms of operational delivery and the new project that underpins that growth. This has translated into an excellent financial outcome. And in addition, we are also ahead of our expectation in our investment program in terms of perceived value realization timing. You're risking the business and accruing further value to shareholders.

17:59 The end investment proposition is clear. I like competitive growth in the key segment of business related to transition and transition traditional and transition energy, value realization to portfolio management, fast leveraging and strict investment discipline in prioritizing our significant pipeline of new projects, a competitive and progressive distribution policy supported by the material growth and cash flow generation, and balance sheet enhancement. With this remark, I conclude our review of the quarter, and now, along with any top manager, we are ready to answer your question.

18:45 Thank you. This is the Chorus Call Conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchtone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. We will pause for a moment as participants are joining the queue. The first question is from Irene Haimona with Bernstein. Please go ahead.

19:24 Thank you and congratulations on these numbers. My first question is on biofuels. If you could perhaps share your views on biofuels what is currently a rather oversupplied biofuels market. When and how would you expect rebalancing and for margins to start recovering? And my second question, it's quite unusual to flag a future potential buyback increase. I wonder if you can talk around the reason. I think it's the first time you're doing it. And also, would you agree that it is linked to the faster pace of asset disposals via a stronger balance sheet. Thank you. Yes, there is no doubt that actually this quarter has been very challenging for the biofuel business.

20:27 We recorded the lowest margin ever, and this is a situation actually that is going on. in continuity with the first quarter, and let me say very, very well expected. It's driven by fundamentals with a short-term view. So it's a transition phase pretty much defined due to oversupply both in Europe and in the U.S. And reasons are pretty much the same we discussed in previous calls, like Sweden from one side and a specific step up in terms of capacity in the US, plus some extra flows from China. But what is really important is that this is a transition period. Obligation and mandate are strongly in place and defined. I just quote some of them like refuel aviation is going to be in place starting from next year.

21:19 It's going to lead to plus than a million ton of extra demand in Europe. And it's going to increase along the timeline. And this is a regulation, so there is no debate about when it's going to be fulfilled. Second core element is the renewable energy directive number three. It has been approved. As we know, each country has like 18 months to deploy it at country level. Targets are going to be doubled compared to current one, from 14% to 29% in terms of energy content. This is going to be in place starting, let me say, from the second half of next year, given it has been approved at the end of previous year. And it's going to push for a strong extra demand. On top, I want to mention there are also states that are even now changing some key rules. I want to quote Germany that actually starting from next year will consider the UER no more eligible for biotech.

22:17 for bio demand and so this is going to create an additional demand. So in short this is a transitionary phase with a market rebalancing in the next future along the 2025 with a potential step up and this is the last comment coming from the first evidence on the anti-dumping procedure. We got preliminary and provisional duties that is going to, in a way, create a level-play field with the current Chinese flow, and this is going to give an improvement. It's difficult to quantify now, but along the year.

22:53 Thank you, Stefano. I just want to add something, because Stefano was very clear about regulation and what is going to happen in the next month. Looking at the market, what is happening, what we are experiencing in the market, is that we have many, many, many requests from maritime operation, maritime operation, aviation, a lot of different kind of entities that they want to reduce their CO2 emissions. So we are signing... a huge number of contracts with these different companies. So that is the first hand evidence that we have in our business. Clearly, we talk about this moment, this anomaly that we forecast, but we have to say also that AnyLive reacted really very positively.

23:53 Why this reaction compared also to other operators? Because we are on the value chain. We are in the upstream, so we are in the feedstock. with all the Western residues. So we try and we study that to stabilize our feedstock. We have our technology, we have our refineries, then we have a huge retail. So we are not just in the biofuel and biorefineries. And that helped us a lot in the quarter in this semester. So I think that is very important because that is the first hand of a company, people that every day are on the market and talk with the customers. So the second is for Francesco.

24:38 Yes, on the buyback, clearly what we design is... since a few years is a progressive distribution that is linked mainly to cash flow from operation. But this cash flow from operation, let's say, sharing is clearly continually monitored in terms of performance, in terms of scenario. And in terms of balance sheet, so as you have seen, the buyback is defined in two ways. We have at the beginning of the year the overall distribution, dividend plus buyback, that was a percentage of the budgeted cash flow from operation between 30% to 35%. We fixed our reference around the middle of that range.

25:26 And we announced the buyback of 1.1%. In the policy, also, we stated clearly that 60% of the upside related to cash flow from operation would have been shared with our investors. And we announced that in the first quarter results. And now we are in a situation where we can look differently to the bottom line of this distribution policy, the buyback that we originated, designed on the basis of the cash flow of the budget. The idea is that, substantially, there is room if, in the third quarter, all the deals and progress in the various disposals are confirmed and even enhanced to review that percentage. So there is still 2-3% of additional share of that percentage. amount that at the beginning of the year if you remember was the 13.5 the cash flow for operation it means that there is a potential of 500 million dollar or euro sorry of additional cash flow of additional buyback I will also say that we have an immediate effect today of the improvement of our balance sheet and the visibility we have seen in the disposal plan, that is the acceleration.

26:48 So we are speeding up the pace of our buyback shares. And also, in the third quarter, we will have also a review overall of the cash flow from operation, let's say analysis, and if there is an additional increase of the potential cash flow operation, there is, again, the application of the rule of the 60% upside. So we mentioned that there is a floor at the beginning of the year. We improved this floor in the first quarter. Now we are evaluating in the third quarter a potential step up with different mechanisms. So I think that is quite, let's say, progressive, our distribution policy mechanism.

27:29 Thank you very much. The next question is from Josh Stone with UBS. Please go ahead.

27:37 Thanks, and good afternoon. Thanks for the presentation. And congratulations on the strong results. Two questions, please. Firstly, coming back on disposals, you highlighted an acceleration, or you've got good visibility on a very big chunk of your four-year program. So do you think there's a chance you could actually exceed your 10 billion euro gross divestment target, or in other words, As you've been reviewing your assets and portfolio, are you finding there's more things to sell or at a higher value than you first expected? Or is this simply in line? Second question back on AnyLive. One thing that struck me with the KKR announcement was that you're willing to sell up to 25% of the business and then possibly another 10% to another investor.

28:23 So you're leading ENI with 65%. So my question is, why sell so much of AnyLive now? I understand you get a good valuation, but once it's sold, it's sold. So are there particular attributes that these new partners are bringing to any life beyond a particular source of financing? Anything you can add there would be great.

28:42 Thanks. So thank you for the question about disposal. I say something and then maybe Francesco wants to elaborate further. We have accelerated, first of all, because we have good assets. So the natural assets, when we talk about upstream, we said that it's 50-50, so 50% upstream, 50%. transition businesses, but we have good assets. So we have a lot of talks with different kind of entities and companies that they are interested to our asset. It's been very fast because we thought to deploy this investment in the first two years, but in the first six months, we are practically, we have reached the target.

29:39 We can go up to this 8 billion, maybe yes, more on the dual exploration because we found a lot of resources, it's not a lot of investment, we risk the asset and that could be a possible additional potential that we can explore. in the 2025 clearly now we want we are focused on these projects that we announced and other that we are working on they are mature but we will be ready in the third quarter to say more but uh we have the potentiality uh to overcome and do better respect to our initial expectation So better than the 8 billion. I think, yes, we can do that.

30:33 For any lives, clearly, we try to balance. There is a lot of interest. The valuation is very good. We want to invest because we have a big component of the two companies that is growth, biorefinery growth and renewables and be charging point growth. I think that we need money and that we understood. We have the proof that these companies are able to finance themselves without using our capital and our debt. So I think that that is the reason. We want to progress. We want to grow. And when we are able to find very strong, good partners, good investors, very strong that can help us, the company that they share our view, our project, I think that is a good opportunity.

31:33 I don't know if we are going to do that immediately because we have to finalize the deal yet, but there is a clear reason to do that. We want to grow, we want to create more value in this company that are doing very, very well. We reach, as a valuation through our strategic investors, $22 billion for the two companies. That is really a huge number, considering that this business, until a few years ago, were in different parts of Eni with a very low value. So I don't know if Francesco wants to add something. We clarified since the beginning that the 8 billion net was a risked, let's say, amount that was clearly based on a larger assumption.

32:21 In that assumption of disposal, we didn't include the outcome of this, let's say, positive feedback from the market specifically on any live in terms of evaluation and appetite. So there is clearly room to decide, prioritize, and improve the overall guidance, as was said.

32:42 Good news. Good news, absolutely. I think that was clear. It was good. And the other element, clearly, you mentioned about the potential disposal of a second stake. First of all, this is not included in our forecast, so it is, again, an upside eventually to be considered. We need first to conclude... The discussion, the negotiations that are ongoing with KKR, it is a deal that has to be, let's say, finalized. And after that, we evaluate, due to the fact there is quite a very strong appetite by the market, if there is an opportunity to make an additional deal. let's say, joint deal related to that specific asset. So again, it's another positive sign that the assets are extremely, let's say, interesting for the market and there is a lot of potential valuation coming on.

33:39 Thank you. The next question is from Birajai Porkataria with RBC. Please go ahead.

33:52 Hi, thanks for taking my questions. Um, the first one is just on your LNG, uh, growth plan. So you, you, you continue to build up your, your options, uh, but mostly through sort of integrated, uh, approach. We haven't seen you do too many sort of off stake deals, you know, for example, um, Gulf Coast US, is that something, uh, that you think would be a good addition to your portfolio or would you rather build up in an integrated, uh, fashion? Um, And then secondly, just going back to the last question on the financial framework, if I was to plug in the disposals in the market, which I understand you've risked in your plan, but the ones that are already there, it's possible that I could see E&I at single-digit gearing by the end of 2025.

34:38 So I just wanted to get some thoughts on at what point does your balance sheet not need that additional cash? And secondly... one of the things that's happened over the last couple of years is that you very clearly created more value through building these businesses than you would have by buying back shares. So I just wanted to get some color on how you think about the balance between paying out that capital, the excess capital, and then maybe increasing CapEx to build these businesses to more scale. Thank you.

35:15 Thank you. So the first question is for Guido Brusco, and the second from Francesco.

35:22 Thank you, Birgit. You spotted rightly. So we are building a portfolio mainly of integrated projects, which spans from the Congo project, which just started up and will increase up to 3 million tons per annum by the end of next year. We have Mozambique. We have Qatar. We have Indonesia, which is currently delivering gas for liquefaction only from the south hub of the Kutai Basin, but soon we'll have a second hub in the north part, which is pretty exciting. So, as you have seen, this is mostly organic, reason being our successful exploration campaign in the past year.

36:14 And we see much more value in the integration rather than by... and sell gas from third parties. I might not rule out some small deals we can have in the future to complement our portfolio, but the growth is essentially linked to the organic component. In terms of leverage, clearly, you know what is our, let's say, guidance. Our reference is a range between 10% to 20%. We are moving fast towards the 15%, the middle of that range. There could be, as we said, the upside. We have a lot of additional opportunity that has the materiality to push even lower that leverage.

37:05 It is important for us to understand that reducing leverage is a value if there is no alternative. But if you have opportunity to invest pipeline of projects and also clearly there is no financial sense. We are paying 1% net financial cost in that leverage. So I can push down the leverage to keep enough buffer for the bad times, but it is also important that I have opportunity where I can invest at much higher return. So is this the balance we want to keep? We think that 10 to 20 is the range. You could drop below in the lower part of that range, but this should be the area of comfort that we want to stay.

37:53 Understood. Thank you. The next question is from Alejandro Vigil with Santander. Please go ahead.

38:02 Yes, thank you for taking my questions and congratulations for the any life transaction. My first question is about the plenitude. If in connection with the interest you're seeing any life, we could see some also additional interest on selling stakes in plenitude in the second half of the year. And the second question is also regarding the the low-carbon strategy, particularly in terms of the CCS. The CCS is an area in which you were considering to invest hundreds of millions or billions in the coming years, and what kind of returns are you expecting from these investments? Thank you.

38:44 Thank you, Alejandro. For Plenitude, I don't think it's the second half because we have other projects more mature but we had a lot of interest also for Plenitude from big funds and other companies so Plenitude is there, there is room, we have rooms and clearly also Plenitude is in the same situation of any life, they need money to invest on their growth. They have a very important plan of growth. So it's not something that we can exclude. We have to understand that if these investors are serious and want to really share our projects, but we have room in plenitude and we have also a lot of interest. CCS is not a question of how much we are going to invest there.

39:40 CCS is there, it's becoming more and more real. in terms of projects, in terms of acceptance. In the UK, we are proceeding. In a few days or weeks, we are going to inject gas in Ravenna, so it's there. We have a lot of interest from hard-to-abate aviation industry, not just from Italy, but also from France, from Greece. So there is a strong interest, strong movement Our investment in the model that we now have in Italy and UK, where we take care about transportation and storage, we don't talk about a lot of investments.

40:28 And in any case, our model that is based on existing facilities, depleted reservoirs, where we have everything practically, because we have all the wells and platform and compressor. So we have just to reverse the flow, maybe drill some injectors, but it's not a big investment. So it's a big, big deal, big business, a lot of interest. And It doesn't need a lot of investment. So the only heavy part that's relatively expensive with the capture and is not an investment is a operating cost that we have to perform every time we capture the CO2, depending on the level of the percentage of CO2.

41:18 So it's not really a very intensive capital process. deal project but it is something that can be very useful for the transition is going to reduce CO2 for the actual bait and we have a quite interesting advantage and also priority in the system because we are the only one that are performing real projects that are start production now in few months or in one maximum one year. Want to add something Guido?

41:55 Just to complement what you said, not that much capital, and the capital needed will be mainly provided through project financing also, which we've seen appetite from banks and institutions to fund those kind of projects. Thank you. The next question is from Alessandro Pozzi with Mediobanca. Please go ahead.

42:20 Good afternoon. Thank you for taking my questions. I have three questions. The first one is on GGP, the new guidance, sort of 1 billion. Can you perhaps elaborate on what allowed you to raise the guidance to the 1 billion and how you see opportunities in the market for the second half? I'm just trying to understand whether potentially there could be further upside to the 1 billion in the second half. The second question is on chemicals. Of course, your set of results is great. The only probably sore point was chemicals that lost still 200 million. Can you give us an update on the restructuring plans for that division?

43:08 And finally, I believe only a few weeks ago, the Constitutional Court in Italy declared part of the rainfall tax unconstitutional. I was wondering whether there is any chance of recouping at least part of the taxes paid in the last couple of years. Thank you.

43:27 Thank you, Alessandro. So I think Christian is going to answer the first question and then Adriano for Versaliz and then Francesco.

43:38 So on the raised guidance, there are three major elements that actually allowed us to raise this guidance. One is the, I would say, still sustained trading environment. So we were able to capture value out of the volatility, especially, I would say, geographical spreads, especially in Italy, I would say, and oil and gas spreads. Second element is the anticipation on some renegotiation that we were expected to close later in the year. Actually, we anticipated that in the second quarter. That helped the result of the second quarter. And the third element is linked to an accounting, let's say, readjustment that actually increased the EBIT, but without any impact on the cash flow. And when it comes to the second semester of the year, so we see still those elements kicked in in the guidance, and so that's why we were able to raise that guidance to $1 billion.

44:42 On Versalis, thanks, Alessandro, for the question. As you described, we are really grappling with a continuous negative momentum in terms of market. Raw material, let's say all the variable costs remain pretty high for the chemical sector. There is a weak demand. On the other side, there is also strong availability of product from import, also related to a very weak demand. a demand in China that is rerouting a lot of product from the U.S. into Europe. So really a negative momentum. In relation to the transformation plan that we present also in the capital market update, We are developing the plan, taking in consideration all the elements that we present in March during the capital market update.

45:33 That will enable, as we said in March, breakeven EBITDA in 2025, breakeven EBIT in 2026, and breakeven cash flow in 2027. Engagement with all the stakeholders are ongoing. We will continue this engagement in the second half and we are confident that in the call for the result of third quarter we'll be able to share more and go in implementation by Q4. Okay. Instead about the ruling of the Constitutional Court, clearly the court has recognized that under special circumstances there is the possibility to raise this levy or base it also on a on a peculiar structure, the VAT, the Delta VAT basis.

46:29 So it is one-time tax measure originated by the special circumstances. This does not exclude the possibility for us to move forth legal action, in particular related to our gas trading arm that was mainly heavily impacted by the tax, and the case was not dealt by the Constitutional Court resolution. On the other side, we are going to pay in the next, let's say, six months, the last installment of the tax, $450 million, and also in that case we will move forward. our appeal for, let's say, raising our reason about these taxes. So we will continue to provide or to ask for compensation or reduction in certain cases.

47:16 Thank you. The next question is from Alistair Syme with Citi. Please go ahead.

47:25 Hello. Can I just clarify the position on whether there might be a future IPO of any life? I think to the point that was made earlier, you might come down to a 65% stake. So it was a question of whether you could go lower than that or is now a future IPO really being held as a future exit for one of the partners like KKR? And then secondly, it's widely known out there that there's a large... industry farm and opportunity in Namibia. I wonder if you could talk in concept, could you see a role for Azul to be used as an acquisition vehicle? I guess more to the point, are you prepared to put capital into Azul if a good opportunity came up?

48:15 Thank you. For any last first question, Francesco can give some Yeah, clearly the IPO is the goal both for Enelive and Plenitude. The structure of the IPO will require a certain mechanism. Also, it is important to understand which is the amount that the funds that are involved, first of all, to understand which is the percentage overall. of the funds, if it is one or two. Secondly, which is the kind of funds that have to be, let's say, or have to exit in the liquidity event of an IPO. And in that case, there will be, in case, let's say, larger room for them at the beginning than for E&I.

49:02 But it's something that has to be structured. First of all, we have to do the deal with the KKR, eventually the second deal. So I think that is quite premature now, thinking on the structure of an IPO that will occur in a number of years. In any case, there are different options.

49:22 Before giving the floor to Guido, just to clarify something. Normally, we go through dual exploration models. That means that we go through exploration And then we sell. It's not our habit to do the vice versa. We are not really interested to buy something that has been directed by somebody else because we are. Huge amount of exploration block, huge amount of discoveries. Azul made an entry recently in an exploration block, the PL-85. So our strategy, you know very well, is different.

50:07 We are not really seeking the risk exploration. We produced the risk exploration. So Guido, I think I said everything? Yeah, clear. I doubt about it.

50:22 Can I just ask back to the IPO concept? Would you be prepared to fall below 50% stakeholding in either Plenitude or any life at some point in the future? In Plenitude and NLI, we want to do an IPO at the proper time with the percentage the market will absorb. And there will be different steps in order to decide what will be the percentage we are going to hold. So speaking about what is our ultimate percentage in these two entities is something that is extremely, extremely premature now. Okay.

50:59 Thanks very much. The next question is from Lydia Rainforth with Barclays. Please go ahead.

51:07 Thank you, and good afternoon. Actually, quite a lot of my questions have been asked, but two if I could. Just coming back to the distribution policy and the additional potential for, I think, up to about 500 million buyback, what would actually stop you from doing that? So when you get to October and you look at the balance sheet and go, we're in a good place, we've got any live coming through, what would actually stop that from happening? And then secondly, this is just more of a big picture question, Claudia, but in terms of the satellite model, how many satellites do you think is actually manageable? And by that, I'm thinking you've got different. Now you've got Ithaca up in the North Sea. You've got Azul in Angola. We'll have any life. We'll have plenitude. How do you keep that kind of E&I ethos kind of going across everything?

51:52 Thanks.

51:56 The first question, distribution policy, who is preventing us to do that now? Because we are prudent and we want to have a clear vision of everything. We could do now because... Everything is mature, but we want to be sure that all the capital allocation is done in the right way. It's a responsibility. We don't want to run. We don't need now to run. It's a question of a couple of months. So I think that, first of all, we have to understand that everything is progressing as we think, as we hope, and it's likely that everything will be good. But that is the main reason. On the satellite model, Francesco, if you want to say something.

52:45 any respect to this satellite. I think that it proves that with the experience that we have matured so far, both with VAR, with the experience of Azul, and now with Ithaca that's yet to be completed, as you know. I think that we proved there is an opportunity to create this model. This is a bit hybrid versus the traditional model of an oil and gas integrated company that want to have all the control of everything. You need to have good management, good capability to deal with the boards, having a strong technical relationship, having the understanding of your counterpart, of the market rules.

53:31 So far, I think that we have seen only benefits in what we have designed as satellites and the capability to manage the complexity that this will imply.

53:42 So I'd like to add that clearly we are going through a different kind of model. I think it's a very good model, but that is a challenge for us. What is the challenge? That we have to be useful. We have to attract our satellite. These new companies, they have to understand or we have to show that we give value to them. So that is a challenge where we give our value, we give our value on technologies. All the technologies that the satellite are using, our proprietary technology, we update, we update the software, the hardware. So there is a relationship that is going to be, isn't ready because we are experiencing a very strong relation from a technical point of view, from a material point of view because the on this new technology we had in the past to reskill, upskill our people and our people is going in these companies and there is a strong link, umbilical link because the reskill and the technical capability is something that we produce in the corporate, in the corporation. I think that is completely different.

54:58 But clearly we are facing a different period. We are facing the transition. We are facing a different kind of world. We cannot think that we cannot continue to use models that we used 30, 40 years ago. And that is a reason why we moved a few years ago because we understand that the future will be different. We must have different tools. Clearly they know how the technology And really the interest that everybody can show on us because what happened in the different kind of new biorefinery project worldwide, people call us because they are interested at our competencies and at our know-how and technologies. So I think that we have gas, we have oil, but...

55:49 We have also very strong resources that is technology, know-how, R&D, and skilled people. The next question is from Peter Low with Redburn Atlantic. Please go ahead.

56:09 Thanks. The first was on upstream production. You said that that's now expected to be towards the top end of the guided range. David Sloan- And what have you assumed in terms of the timing of disposals within that and then, can you perhaps update on some of the 2024 startups in the plan. David Sloan- Specifically cassiopeia and belaine phase two, how are they progressing and then the second question was on your bio refining targets, I think you previously targeted 3 million tons of capacity by 2026. I thought that included a contribution from Pengerang. I think in the press release today, you said that that might not start up until 2028. Does that three million tonne target still hold or could that slip a bit?

56:53 Thanks. Well, the first question is for Guido and the second one for Stéphane.

57:02 As we said, we are expecting to be at the upper bound of the guidance, and this is being reinforced by a number of things. First, the good performance on the first half, driven by Ivory Coast, Indonesia, Congo, and Libya. and the confidence we are growing on the startup. Cassiopeia, as we speak, we are at the very last stage of commissioning, and first gas is coming soon, is expected. in early August. On Bali in phase two, we just completed the naming ceremony the day before yesterday. So the ship soon will sail, will be in country in September.

57:53 And building on the experience of the phase one, we expect a couple of months of final integrated commissioning. So this startup will also happen at the at the end of the year. So the uptime was also pretty low. And all the major maintenance are factored into our budget. So I would say we are pretty confident to be in the upper side of the guidance. Yes, on biorefining, actually all our choices are driven by two key drivers. The first one is to ensure state-of-the-art biorefining capabilities.

58:46 This means... Capability to process 100% waste and residues. High flexibility in order to shift from sustainable aviation fuel to HVO depending on value pool driven by market volatility and market demand evolution. Very efficient and effective process. This required a detailed deep dive in order to ensure the maximum value creation in whatever context. And second, having a view about market evolution, the second driver has been getting the right phasing in terms of cash outs or capex and value creation in order to maximize the IRR of each investment. Given these two main drivers, we refaced in a minor way capacity development. We're going to get to the 3 million within the 2027.

59:35 The next question is from Michele Della Vigna with Coleman Sachs. Please go ahead.

59:49 Thank you and congratulations again for the strong results. Two questions, if I may. The first one is on your tax rate. It's been quite volatile in the last few quarters. I was wondering what you think would be the best assumption for us to use in the coming quarters. And then secondly, I wanted to come back to Egypt. It looks like They are committing to imports of LNG, which effectively implies there will be short gas, you know, even potentially in winter for the next couple of years. In the last five years, you've effectively turned that country from a net importer to a net exporter of gas. I was wondering if there was anything... through exploration or development, you could do there, especially connected to your Kronos discovering Cyprus, which seems to have very good well-deliverability and whether there was effectively a political agreement to potentially get it into Egypt.

1:00:44 Thank you.

1:00:48 Yes, Michele, you are right. I mean, it's open sources information that Egypt has awarded 20 cargo for the summer. from now to September. We don't have more visibility than what the open sources can provide. Clearly, things may change. Import from a neighbour country or demand in the country may not raise as expected, so we cannot rule out that fuel cargo may be exported next winter, but for sure it's It's not very likely as it was this year. In terms of attractiveness of Egypt as a potential hub, clearly there is this potential. Egypt has capacity in LNG.

1:01:47 capacity of liquefaction, capacity of processing, but this requires alignment between many stakeholders, private, but also government. I know that Egyptian government is working on that, but it's quite a long journey. About the tax rate, yeah, it's correct that there is volatility, but volatility is driven by seasonality, by the contribution of the different segments in line with their seasonal cycles. You know very well that if the contribution of the results are driven by GDP or by the downstream, this will help to reduce the...

1:02:36 The tax rate, while in the quarter where EMP is dominating, the tax rate is a bit higher. Expectation for the year is to have a 50% tax rate in line with what we also presented at the beginning of the year, just a bit above, but it's not material, very high. normal fluctuation, and we expect that this 50% will be a top end in the coming years. So we're probably something in the range of 45 as a percentage in the next four-year plan. Thank you. The next question is from Matt Smith with Bank of America. Please go ahead.

1:03:21 Hi there, good afternoon. Thanks for taking my questions. I've got two, please. I mean, lots of focus, quite rightly, on your net capex today and their progress there. I just wonder if I could come back to the gross capex, please. I think, like you... alluded to, the run rate, if we look at the first half result, is tracking closer to $8 billion rather than the $9 billion full-year guidance. I just wonder if you could give us any color on that and what sort of activity set we're looking at for the second half of the year, just to conceptualize how that number might move higher throughout the year. And then my second one would be another question to come back on the buyback, if I could. And that was really just whether you would be comfortable.

1:04:06 You're talking about the potential for an additional 500 million of the buybacks. Would you be comfortable executing that if the disposals come through in the current period? macro environment, I guess is my question, because I suppose I just want to clarify whether you're targeting 35% of CFFO in that scenario, whatever that CFFO might be, or whether you're looking to execute on, you know, 500 million of additional buybacks. And I guess I asked the question because I note your CFFO guidance still assumes a Brent price of 86 for the full year, so slightly ahead of the price on the screen at the moment. Thank you.

1:04:50 So for the first question on growth cap is what I said during the presentation that our expectation is to stay close, lower but close to the nine billion that was our original target. It's true that now if we consider what we spend, the spending in the first half, we are a little bit more than eight billion. So we have space. What we have, we have activity that is linked to exploration, to development, so we can save something, we can maybe reduce, but our expectation linked to the activity we have, not only in the upstream, is to stay close to our initial forecast.

1:05:37 It's likely that we can spend a little bit less, but that at the moment is our target. For the buyback, Francesco? The buyback, clearly, the scenario, if we apply the scenario of today, this will not make a major change to the overall cash flow from operation in the year. So we are speaking about probably a potential impact in the range of 300,400 million dollars. So this is something that is almost equivalent to a 1% leverage impact. This will not be the major, let's say, driver of our decision. The major driver of our decision is clearly the capability to complete, to execute, and to have visibility to the disposal plan. So the 1% is not a big effect that will change the view.

1:06:34 The next question is from Martin Ratz with Morgan Stanley. Please go ahead.

1:06:39 Hi, hello. I don't think I've ever said this, but on this occasion, congratulations for the great quarter. It was really very impressive. A lot of questions have been asked, but I have one left. And that is that I noticed that on slide three of the pack that you sent around, it reiterates the 17 billion euro CFFO guidance targets. for 2027. So it's a few years out, but it's another step up. And I was wondering if you would felt it appropriate if we were to assume the same structure of the payout on that number as you're now talking about for this year, i.e. 35% payout on the first $13.5 billion and then 60% on the increment above that. Is that sort of structure of payout also applicable due to CFO guidance for 2027.

1:07:35 You know that we have this guidance, 3035, and we revise every year. We announce the capital market day, take into account of various elements, including clearly the scenario, including the leverage, including the structure of the company, moving eventually on growing the role of the transition business, also change the volatility of the results. So it is quite premature to recognize or to announce today what will be potentially the percentage. But the logic behind the distribution policy is clearly to improve even the percentage on the basis of the enhancement of the strength of the company. So that will be a natural consequence of this evolution.

1:08:16 Okay. Thank you. The next question is from Matt Loftin with J.P. Morgan. Please go ahead.

1:08:26 Thanks for taking the questions. You've covered a lot of ground already, including a lot of the questions that I had, so I'll just limit myself to one. I wanted to come back to GDP. Performance in the first half of the year looks strong, and it struck me that that comes in an environment where the conditions for trading and optimization through gas markets have perhaps been less consistent than was the case over the prior couple of years. So I wonder if you could talk a bit about what you think has differentiated GDP's performance through the first half of the year. And I ask partly because the financial results that do suggest when we look forward to 25 plus that the 800 million baseline per year that you provided in March perhaps increasingly looks quite conservative.

1:09:18 Thank you.

1:09:22 So thanks for the question. Let's say as we anticipated during the strategy meeting, you know, the market has been reducing in terms of volatility. I mean, just to give you a number, I mean, last year in the first six months, the daily TTF movements were around 2.2, 2.3 euro per megawatt hour. This year, we are clearly down to 0.9 euro per megawatt hour. So this is a trend which is actually happening. Having said that, this is still a volatility which actually gives opportunities into the market vis-a-vis, if you want, the period before the energy crisis. And as I told you, especially on the geographical spreads, you know that we have substantial activity in Italy, and that actually helped during the first six months.

1:10:12 Second, the combined volatility between oil, Brent, and hub, also that actually gave us opportunities. And so those were the two elements, I'd say, in the first six months that were behind, let's say, the results. It's John Rigby here. I'm going to have to call it to a close. We've run about 10 minutes over, but hopefully that's a reflection of the interest in these results. So thank you very much for your questions. Anybody who has follow up questions, please contact me or one of the team and we can arrange to to help you with with with any questions that you have.

1:10:57 So thank you very much. I know you've had a long week. Get some rest. Have a good weekend. We'll speak soon. Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.