Profit and loss account¹

Net profit

In 2013, net profit attributable to Eni’s shareholders was €5,160 million. The result was achieved against the backdrop of tough market conditions which impacted all of Eni’s business segments. The E&P recorded extraordinary disruptions to its producing activities related to geopolitical factors.

The mid-downstream businesses were hit by a continued deterioration in selling prices and margins due to the economic downturn and structural headwinds in the trading environment reflecting plunging demand for energy commodities, excess supplies/overcapacity and competitive pressure. Finally Saipem reported extraordinary contract losses.

Despite these extraordinary negatives, 2013 net profit increased by 22.9% (up €960 million) from 2012, driven by the portfolio rationalization permitted by the recent discoveries that has allowed an anticipated monetization of results and cash. Eni has thus monetized a 20% interest in the Mozambique discovery by divesting it to CNPC for a cash consideration of €3.4 billion and a net gain recorded in profit of approximately €3 billion. It has also divested its 60% stake in Artic Russia for a total consideration of €2.2 billion which was cashed-in in January 2014, with the profit for 2013 benefitting of a fair-value revaluation of €1.7 billion taken at the investee due to the loss of joint control at the balance sheet date.

Adjusted net profit

Adjusted net profit attributable to Eni’s shareholders amounted to €4,433 million, a decrease of €2,697 million, down by 37.8% from 2012. Excluding Snam’s contribution to continuing operations in 2012, the decline of 2013 adjusted net profit was 35%. The decline reflected the lower performance incurred by all the Divisions reflecting the above mentioned drivers. Adjusted net profit was calculated by excluding an inventory holding loss which amounted to €438 million and special gains of €1,165 million, net of exchange rate differences and exchange rate derivative instruments reclassified in operating profit, as they mainly related to derivative transactions entered into to manage exposure to the exchange rate risk implicit in commodity pricing formulas, resulting in a net negative adjustment of €727 million.

Special charges in operating profit of €3,046 million mainly related to:

1. impairment losses of €2,400 million recorded to write down the book values of property, plant and equipment, goodwill and other intangible assets to their lower values-in-use in the gas marketing (€1,685 million), electricity generation and refining businesses (€633 million). In performing the impairment review, management assumed a reduced profitability outlook in those businesses driven by structural headwinds in demand, excess capacity and oversupplies, rising competitive pressures and other cost disadvantages. Minor impairment losses were incurred at a number of oil & gas properties in the Exploration & Production Division (a net loss of €19 million) reflecting downward reserve revisions, almost completely offset by the reversal of assets impaired in previous years following positive revisions of reserves, as well as marginal lines of business in the Chemical segment (€44 million) due to lack of profitability perspectives;
2. risk provisions (€334 million) related to onerous contracts, net of reversal;
3. exchange rate differences and exchange rate derivative instruments reclassified as operating items, mainly related to derivative transactions entered into to manage exposure to the exchange rate risk implicit in commodity pricing formulas (gain of €195 million);
4. provisions for redundancy incentives (€270 million in the year) and environmental provisions (€205 million);
5. the effects of fair-value evaluation of certain commodity derivatives contracts lacking the formal requisites to be accounted as hedges under IFRS (a loss of €315 million);
6. net gains on the divestment of marginal properties in the Exploration & Production Division (€283 million).

Non-operating special items included:

1. the gain on the divestment of an interest to CNPC in the Mozambique project (€2,994 million net of the related tax effect), the divestment of an interest of 8.19% in the share capital of Galp amounting to €98 million, of which €67 million related to the reversal of the evaluation reserve and on the divestment of an interest of 11.69% of the share capital of Snam amounting to €75 million, of which €8 million related to the reversal of the evaluation reserve;
2. the fair-value revaluation of 60% Eni’s stake in the joint venture Artic Russia, based on the Sale and Purchase Agreement signed with Gazprom (€1,682 million);
3. a write-off of deferred tax assets which were assessed to be no more recoverable due to the projections of lower earnings before income taxes at Italian activities (€954 million);
4. a write-off of deferred tax assets relating to the renegotiation of certain petroleum contracts (€490 million).

The breakdown of adjusted net profit by Division is shown in the table below:

Group results were achieved in a trading environment characterized by lowering oil and gas realizations in dollar terms due to a slightly declining Brent price, down by 2.6% from 2012.

Refining margins in the Mediterranean area fell to an unprecedented level, down to less than one dollar per barrel (down by 45.3% from 2012) due to structural headwinds in the industry driven by overcapacity, lower demand and increasing competition from imported refined product streams.

Furthermore, Eni’s results in the Refining & Marketing Division were affected by narrowing differentials between the heavy crudes processed by Eni’s refineries and the marker Brent which reflected the lower availability of the former in the Mediterranean area.

Gas market was characterized by a weak demand, strong competitive pressures and oversupplies.

Price competition among operators has been stiff taking into account minimum off-take obligations provided by gas purchase take-or-pay contracts and reduced sales opportunities.

Spot prices in Europe increased by 12.2% from 2012, even if this was not reflected in gas margins because of higher oil-linked supply costs.

Eni’s results were also impacted by sharply lower margins in the production and sale of electricity due to oversupply and increasing competition from more competitive sources.

Results of 2013 were affected by the appreciation of the euro against the dollar (up by 3.3% over the year).