Eni S.p.A. (NYSE:E) Q1 2024 Earnings Call Transcript April 24, 2024
Eni S.p.A. misses on earnings expectations. Reported EPS is $1.04 EPS, expectations were $1.22. E isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to Eni’s 2024 First Quarter Results Conference Call, hosted by Mr. Francesco Gattei, Chief Financial Officer. For the duration of the call, you will be in listen-only mode. However, at the end of the call, you’ll have the opportunity to ask questions. [Operator Instructions] I’m now handing over to your host to begin today’s conference. Thank you.
Francesco Gattei: Thank you. Good afternoon, and welcome to Eni quarter one 2024 results conference call. Our first quarter is an excellent result. We have reported pro forma EBIT of €4.1 billion and cash flow from operation of €3.9 billion. Production growth in our upstream of 5%, an excellent contribution from our transition business of Enilive and Plenitude meant that we substantially resisted the overall deterioration in this scenario. The continued excellent cash conversion and CapEx discipline also meant that balanced gearing remains comfortably within our range, despite completing on Neptune and the 2023 share buyback program in this quarter. I will analyze our results in more detail shortly, but the slides also emphasize how busy we continue to be in actions to invest to high grade and transform our company.
I wanted to highlight a few items in the year-to-date because they provide helpful context for our strategic progress. In January, we completed the purchase of Neptune. The transaction is highly synergistic, and it has already delivered a very material value to any with significant upside in Indonesia and optionality in UK, as we will see later. With the Neptune deal, following on from Chalmette and Novamont last year, we have concluded the phase of inorganic positioning a new platform for growth, and we enter into a different cycle characterized by the valorization of these new business lines and by the dilution of exploration discovery. As a first step in this new phase, in March, we completed a €600 million equity investment by Energy Infrastructure Partners into Plenitude.
This is an important proof point for our satellite strategy, introducing aligned capital from a variable partner, supporting the future growth of the business and confirming the value created. At the same time, we are organically expanding our growth opportunities. In March, we announced the Calao discovery offshore Ivory Coast. This is another major high equity discovery with a potential resources of between 1 billion to 1.5 billion of oil equivalent. It follows our discovery of Baleine in the count in 2022 and the discovery of over 16 billion barrels of oil equivalent over the past 15 years, translating to organic production growth plus over $10 billion of cash via the dual exploration actions over the past 10 years. We strongly believe in value created via the drill bit and we continue to reinforce our technical competencies paired with the most advanced technological solution.
In this regard, in January, we began the construction of HPC6 supercomputer, that we raised Eni backlog five computing system in the world, with a computing power of over 600 Petaflops, 9x bigger than our current one. Finally, we have just announced the agreement to combine our UK E&P activities with also of Ithaca Energy, creating a new satellite inside the Eni universe. We believe that the hydrocarbon potential of the UKCS remain relevant, and we have immediately leveraged on our enhanced UK portfolio after the acquisition of Neptune to further reinforce our long-term positioning in this country. It is a well-understood model based on complementary portfolio and technical capabilities, and one successfully followed at Var and Azule, where the right combination generates significant top line operating financial and fiscal synergies.
Just before going into the first quarter numbers in more detail, here is a recap of the key industrial message from our Capital Markets Update in March. We now have a complementary portfolio of high-quality businesses that align with the transition and the Trilemma. Whilst that integrate across the Company, that leverage any strength in technology focus and early mover status and which crucially together offer the prospect of sustainable growth. We see 13% CAGR in cash flow from operation per share in a flat scenario, among the highest in our peer group and a progressive diversification and improved quality in our sources of cash. Our strategy will make Eni a larger and more profitable company at the end of our current plan and beyond. Our distinctive industrial approach is supported by a robust financial framework that balances the use of cash flow for shareholder returns with the investment for growth and the balance sheet.
Our satellite model helps to appropriately capital allocation and provide investors with visibility on the performance and valuation of activity with very different financial profiles. Ultimately, transition will only be real if it creates material and sustainable returns and profitable business. Moving to the quarter. The next three slides provide analysis of today’s results. We recorded an excellent quarter for production with the impact of the Neptune acquisition, the ramp-up of Ivory Coast in Norway and good performance in Libya. This production performance helped to mitigate the weaker gas price. GGP results are down year-on-year versus an exceptional quarter for trading and optimization in the first quarter 2023, and also down versus the last quarter of 2023, which saw the benefit of the arbitration procedure.
However, the Q1 result is in line with our expectation given seasonal strength but low market volatility. You will have seen, we have re-segmented Enilive and Plenitude together to highlight their importance, together as material growth business for any in the changing energy market. An important theme of this quarter is growth. I mentioned hydrocarbon production up 5% year-on-year. But in this transition businesses, it is really significant bio throughputs have more than doubled, renewable energy generation is up 12%, and quarter-end capacity up 30% year-on-year, while charging points are up 33%. And we are also progressing the regulatory framework for our CCS program. Our more traditional downstream businesses are now grouped together with refining showing improved utilization and capturing the quarter-over-quarter improvement in the refining margins.
Versalis was again loss-making, albeit an improvement over the last quarter of the quarter four of last year. But recall, we set up — set out our plans at the Capital Markets Day in March to restructure and transform our chemical operation, and you should expect more of this as we go through the year. We have demonstrated good cash conversion once again, and this will drive a higher distribution, as we indicated, it would be in March. With a strong first quarter delivery and the prospect of improved macro conditions versus the plan, we are raising our guidance for cash flow from operations. We are now seeing cash flow from operation for the full year in excess of €14 billion. Incidentally, marking to market based on a snapshot of the market this week would generate even a higher figure.
As we set out in March, our distribution commitment is to share up to 60% of additional cash flow above plan with our investors via the buyback. Therefore, we are raising the 2024 buyback by 45% to €1.6 billion from €1.1 billion with a continuing commitment to revisit in each of the remaining quarters to update on a better financial performance and the associated distribution. Our aim is that at a minimum, we deliver the underlying business performance we target and ensure we capture the available upside from the scenario. Our shareholder meeting on 15th of May will consider the proposal to authorize our new buyback program up to a maximum of €3.5 billion. Our normal practice will be to begin repurchases shortly after this authorization.
If authorized, our 2024 dividend of €1 per share paid quarterly will start in September. Our CapEx in the first quarter of €2 billion was in line with a full year figure of around €9 billion. Take into account, this period is historically lighter on spending. Similarly, we confirm that our major strategic inorganic acquisitions have been completed, and we are making good progress in our target of a front-end loaded net €8 billion cash in over the four-year plan period, which will result in net CapEx of €7 billion to €8 billion in 2024. In the annex, you will see also the bridge to net debt with leverage at 23% at the end of March, which remains well within our guided range despite the portfolio cash out and the completion of the 2023 buyback.
Turning back to the proposed combination of our UK E&P operation with Ithaca, let’s take a more detailed view. You are familiar with our use of satellite structure at Var and Azule. In the upstream, we use the satellite structure to build scale, realize synergies, increasing near field exploration, development potential and matching complementary cash flow profile and efficiently access capital market. With Ithaca, we tick all of the boxes. With the addition of Neptune and now Ithaca, we are moving from a mature and quite marginal position in UK to a leading status in terms of production of over 100,000 barrel per day in resources. Quite clearly, the UK has its challenges, but we are confident we are now in a position to access considerable operating and cost synergy critical for business success in a mature basin, give ourselves significant optionality and helping to provide additional supply while addressing emissions.
Together with our existing activity in CCS, which were also boosted with the Neptune purchase and our participation in the giant Dogger Bank Wind Farm development, we are establishing ourselves as a significant participant in the UK energy industry as it grows and decarbonize. Reviewing our guidance versus March, we have increased the confidence in upstream production. Underlying profitability at GGP, Enilive and Plenitude are all confirmed. So, with a more positive scenario, we have raised 2024 guidance for both group pro forma EBIT and cash flow from operation in excess of €14 billion each. With that in mind, we can also confirm our gearing guidance and raise expected buyback for the year by 45% to €1.6 billion, evidencing our committed to share upside with our shareholders by means of a clear attractive distribution policy.
Finally, I can provide some guidance for Q2. We expect production to be lower sequentially, reflecting seasonal maintenance impact and any divestment will conclude. In line with typical seasonal pattern reflecting current trading environment, we expect the Q2 results from GGP to be lower than Q1. For Plenitude, we expect a solid Q2 performance in retail, albeit with lower seasonal volume as well as renewable contribution that continue to reflect the recent capacity growth. We anticipate utilization rate in our conventional refineries to be down sequentially because of planned maintenance. While biorefinery availability is expected to remain steady at around through 90%, with scope to capture higher seasonal demand in marketing. To conclude, we are very pleased with our progress at the outset of 2024, demonstrating evidence of delivering against all our key objectives.
And we can see continued positive momentum across the remainder of this year. We are also pleased to be able to materially raise the shareholder distribution for the year while continuing to grow a larger and more profitable Eni. This concludes my review of the quarter. Along with Eni top management, I’m ready to answer your questions.
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