Financial review

Capital expenditure

 

 

 

 

 

 

(€ million)

2013

2014

2015

Change

% Ch.

Exploration & Production

10,475

10,524

10,234

(290)

(2.8)

- acquisition of proved and unproved properties

109

 

 

 

 

- exploration

1,669

1,398

820

 

 

- development

8,580

9,021

9,341

 

 

- other expenditure

117

105

73

 

 

Gas & Power

229

172

154

(18)

(10.5)

Refining & Marketing

672

537

408

(129)

(24.0)

Corporate and other activities

211

113

64

(49)

..

Impact of unrealized intragroup profit elimination

(3)

(82)

(85)

(3)

 

Capital expenditure - continuing operations

11,584

11,264

10,775

489)

(4.3)

Capital expenditure - discontinued operations

1,216

976

781

(195)

(20.0)

Capital expenditure

12,800

12,240

11,556

(684)

(5.6)

Adjusted results(*)

 

 

 

 

 

 

(€ million)

2013

2014

2015

Change

% Ch.

(*)

Adjusted results from continuing operations exclude as usual the items “profit/loss on stock” and extraordinary gains and losses (special items), while they reinstate the effects relating to the elimination of gains and losses on intercompany transactions with sectors which are in the disposal phase, E&C and Chemical, represented as discontinued operations under the IFRS 5.

Adjusted operating profit (loss) - continuing operations

11,280

10,447

3,795

(6,652)

(63.7)

Reinstatement of intercompany transactions vs. disc. Op.

1,856

995

309

 

 

Adjusted operating profit (loss) - continuing operations on a standalone basis

13,136

11,442

4,104

(7,338)

(64.1)

 

 

 

 

 

 

Net profit (loss) attributable to Eni's shareholders - continuing operations

3,472

101

(7,680)

(7,781)

..

Exclusion of inventory holding (gains) losses

291

890

561

 

 

Exclusion of special items

(1,264)

1,209

6,421

 

 

Adjusted net profit (loss) attributable to Eni's shareholders - continuing operations

2,499

2,200

(698)

(2,898)

..

Reinstatement of intercompany transactions vs. disc. Op.

1,355

1,654

1,032

 

 

Adjusted net profit (loss) attributable to Eni's shareholders on a standalone basis

3,854

3,854

334

(3,520)

(91.3)

Tax Rate (%)

63.2

65.3

93.0

 

 

Summarized Group balance sheet

The summarized Group balance sheet aggregates the amount of assets and liabilities derived from the statutory balance sheet in accordance with functional criteria which consider the enterprise conventionally divided into the three fundamental areas focusing on resource investments, operations and financing. Management believes that this summarized group balance sheet is useful information in assisting investors to assess Eni’s capital structure and to analyze its sources of funds and investments in fixed assets and working capital. Management uses the summarized group balance sheet to calculate key ratios such as the proportion of net borrowings to shareholders’ equity (leverage) intended to evaluate whether Eni’s financing structure is sound and well-balanced.

Summarized Group Balance Sheet

 

 

 

 

(€ million)

December 31, 2014

December 31, 2015

Change

Fixed assets

 

 

 

Property, plant and equipment

71,962

63,795

(8,167)

Inventories - Compulsory stock

1,581

909

(672)

Intangible assets

3,645

2,433

(1,212)

Equity-accounted investments and other investments

5,130

3,263

(1,867)

Receivables and securities held for operating purposes

1,861

2,026

165

Net payables related to capital expenditure

(1,971)

(1,276)

695

 

82,208

71,150

(11,058)

Net working capital

 

 

 

Inventories

7,555

3,910

(3,645)

Trade receivables

19,709

12,022

(7,687)

Trade payables

(15,015)

(9,345)

5,670

Tax payables and provisions for net deferred tax liabilities

(1,865)

(3,133)

(1,268)

Provisions

(15,898)

(15,266)

632

Other current assets and liabilities

222

1,804

1,582

 

(5,292)

(10,008)

(4,716)

Provisions for employee post-retirement benefits

(1,313)

(1,056)

257

Discontinued operations and assets held for sale including related liabilities

291

10,446

10,155

CAPITAL EMPLOYED, NET

75,894

70,532

(5,362)

Eni shareholders' equity

59,754

51,753

(8,001)

Non-controlling interest

2,455

1,916

(539)

Shareholders’ equity

62,209

53,669

(8,540)

Net borrowings

13,685

16,863

3,178

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

75,894

70,532

(5,362)

The summarized Group balance sheet was affected by a sharp movement in the EUR/USD exchange rate which determined an increase in net capital employed, net borrowings and total equity by €4,670 million, €136 million and €4,534 million respectively. This was due to translation into euros of the financial statements of US-denominated subsidiaries reflecting a 10.3% appreciation of the US dollar against the euro (1 EUR= 1.089 USD at December 31, 2015 compared to 1.214 at December 31, 2014).

Fixed assets (€71,150 million) decreased by €11,058 million from December 31, 2014 mainly due to the reclassification of the tangible and intangible assets of Saipem and Versalis as discontinued operations. Other changes related to impairment losses and DD&A at continuing operations (€14,480 million), which were partly offset by currency movements and capital expenditure (€10,775 million). The reduction in the line item “Equity-accounted investments and other investments” was due to the divestment of Eni’s interest in Snam and Galp.

Net working capital was in negative territory at minus €10,008 million and decreased by €4,716 million year-on-year. This mainly reflected the mentioned reclassification of the disposal groups Saipem and Versalis as discontinued operations. In addition, the G&P segment reduced its working capital, while the carrying amount of oil and gas inventories declined due to the impact of lower prices on the weighted-average cost accounting method as well as the destocking of products and gas inventories as part of ongoing optimization measures. These decreases were partly offset by the increased balance of other current assets and liabilities. This was due to increased working capital exposure to joint venture partners in E&P. This latter increase was partly offset by the reversal of the deferred costs related to pre-paid gas volumes in previous reporting periods in the G&P segment following the off-taken of the underlying gas; while an opposite trend was recorded due to our long-term buyers off-taking Eni’s gas. Finally, the change in the balance of tax payables and provisions for deferred taxes (up by €1,268 million) reflected the write-off of Italian deferred tax assets (€885 million) due to projections of lower future taxable profit at Italian subsidiaries as well as deferred tax assets of subsidiaries located outside Italy of the upstream segment (€1,058 million) and the reimbursement/transferring to financing institutions of taxes receivables in Italy (approximately €900 million).

Discontinued operations and assets held for sale including related liabilities (€10,446 million) comprised: i) Saipem and its subsidiaries considering the arrangements signed on October 2015 with the Fondo Strategico Italiano (FSI). These include the sale of a 12.503% stake of the share capital of Saipem to FSI and a concurrent shareholder agreement with Eni intended to establish joint control over the target entity; ii) the chemical operating segment. As of the reporting date, negotiations were underway to define an agreement with an industrial partner who, by acquiring a controlling stake of Versalis, would support Eni in implementing the industrial plan designed to upgrade this segment. In addition, the book value of goodwill and of the non-current assets of the two disposal groups have been aligned to the fair value of the underlying net assets. This item also includes non-strategic assets in the Refining & Marketing and Gas & Power businesses.

Shareholders’ equity including non-controlling interest was €53,669 million, representing a decrease of €8,540 million from December 31, 2014. This was due to net loss in comprehensive income for the year (€5,032 million) given by net loss of €9,378 million partly offset by positive foreign currency translation differences (€4,534 million). Also affecting the total equity was dividend distribution and other changes of €3,478 million (€3,457 million being the 2014 final dividend and the interim dividend for 2015 paid to Eni’s shareholders and dividends to other non-controlling interests).

Summarized Group Cash Flow Statement

 

 

 

 

 

(€ million)

2013

2014

2015

Change

Net profit (loss) - continuing operations

3,896

192

(7,127)

(7,319)

Adjustments to reconcile net profit to net cash provided by operating activities:

 

 

 

 

- depreciation, depletion and amortization and other non monetary items

8,917

10,919

15,521

4,602

- net gains on disposal of assets

(3,877)

(99)

(559)

(460)

- dividends, interests, taxes and other changes

9,203

6,822

3,259

(3,563)

Changes in working capital related to operations

121

2,148

4,450

2,302

Dividends received, taxes paid, interests (paid) received during the period

(9,128)

(6,820)

(4,363)

2,457

Net cash provided by operating activities - continuing operations

9,132

13,162

11,181

(1,981)

Net cash provided by operating activities - discontinued operations

1,894

1,948

722

(1,226)

Net cash provided by operating activities

11,026

15,110

11,903

(3,207)

Capital expenditure - continuing operations

(11,584)

(11,264)

(10,775)

489

Capital expenditure - discontinued operations

(1,216)

(976)

(781)

195

Capital expenditure

(12,800)

(12,240)

(11,556)

684

Investments and purchase of consolidated subsidiaries and businesses

(317)

(408)

(228)

180

Disposals

6,360

3,684

2,258

(1,426)

Other cash flow related to capital expenditure, investments and disposals

(243)

435

(1,351)

(1,786)

Free cash flow

4,026

6,581

1,026

(5,555)

Borrowings (repayment) of debt related to financing activities

(3,981)

(414)

(300)

114

Changes in short and long-term financial debt

1,715

(628)

2,126

2,754

Dividends paid and changes in non-controlling interests and reserves

(4,225)

(4,434)

(3,477)

957

Effect of changes in consolidation, exchange differences and cash and cash equivalent related to discontinued operations

(40)

78

(789)

(867)

NET CASH FLOW FOR THE PERIOD

(2,505)

1,183

(1,414)

(2,597)

Net cash provided by operating activities on standalone basis

10,818

14,387

12,189

(2,198)

Change in net borrowings

 

 

 

 

 

(€ million)

2013

2014

2015

Change

Free cash flow

4,026

6,581

1,026

(5,555)

Net borrowings of acquired companies

(21)

(19)

 

19

Net borrowings of divested companies

(23)

 

83

83

Exchange differences on net borrowings and other changes

349

(850)

(810)

40

Dividends paid and changes in non-controlling interest and reserves

(4,225)

(4,434)

(3,477)

957

CHANGE IN NET BORROWINGS

106

1,278

(3,178)

(4,456)

In 2015, net cash provided by operating activities from continuing operations amounted to €12,189 million and was impacted by the eliminations of intercompany flows with discontinued operations. Proceeds from disposals were €2,258 million and mainly related to an interest in Snam due to exercise of the conversion right by bondholders (€911 million), an interest in Galp (€658 million) and the divestment of non-strategic assets mainly in the Exploration & Production business. These inflows funded part of capital expenditure (€10,775 million), other changes relating to capital expenditure and the payment of Eni’s dividend (balance dividend for fiscal 2014 and the 2015 interim dividend totaling €3,457 million). When considering the cash flow of discontinued operations, the Group’s net debt increased by €3,178 million to €16,863 million, net of negative exchange rate differences and the reclassification of Saipem net cash in the discontinued operations.

Net cash provided by operating activities from continuing operations on a standalone basis was €12,189 million for 2015 and it fully funded capital expenditure. The Group cash flow performance was excellent (down by 15% from 2014) in spite of sharply lower oil prices. This result was driven by optimization initiatives in working capital performed mainly in the G&P segment, with the substantial recovery of prepaid gas volumes and other renegotiation benefits, and in the R&M segment as well as in corporate activities. Non-recurring effects of the working capital positively influenced cash flow by approximately €2.2 billion.