Reconciliation of reported operating profit and reported net profit to results on an adjusted basis

Management evaluates Group and business performance on the basis of adjusted operating profit and adjusted net profit, which are arrived at by excluding inventory holding gains or losses, special items and, in determining the business segments’ adjusted results, finance charges on finance debt and interest income. The adjusted operating profit of each business segment reports gains and losses on derivative financial instruments entered into to manage exposure to movements in foreign currency exchange rates which impact industrial margins and translation of commercial payables and receivables. Accordingly also currency translation effects recorded through profit and loss are reported within business segments’ adjusted operating profit. The taxation effect of the items excluded from adjusted operating or net profit is determined based on the specific rate of taxes applicable to each of them. The Italian statutory tax rate is applied to finance charges and income (38% is applied to charges recorded by companies in the energy sector, whilst a tax rate of 27.5% is applied to all other companies). Adjusted operating profit and adjusted net profit are non-GAAP financial measures under either IFRS or US GAAP. Management includes them in order to facilitate a comparison of base business performance across periods, and to allow financial analysts to evaluate Eni’s trading performance on the basis of their forecasting models.

The following is a description of items that are excluded from the calculation of adjusted results.

Inventory holding gain or loss is the difference between the cost of sales of the volumes sold in the period based on the cost of supplies of the same period and the cost of sales of the volumes sold calculated using the weighted average cost method of inventory accounting.

Special items include certain significant income or charges pertaining to either: (i) infrequent or unusual events and transactions, being identified as non-recurring items under such circumstances; (ii) certain events or transactions which are not considered to be representative of the ordinary course of business, as in the case of environmental provisions, restructuring charges, asset impairments or write ups and gains or losses on divestments even though they occurred in past periods or are likely to occur in future ones; or (iii) exchange rate differences and derivatives relating to industrial activities and commercial payables and receivables, particularly exchange rate derivatives to manage commodity pricing formulas which are quoted in a currency other than the functional currency. Those items are reclassified in operating profit with a corresponding adjustment to net finance charges, notwithstanding the handling of foreign currency Exchange risks is made centrally by netting off naturally-occurring opposite positions and then dealing with any residual risk exposure in the exchange rate market. As provided for in Decision No. 15519 of July 27, 2006 of the Italian market regulator (Consob), non recurring material income or charges are to be clearly reported in the management’s discussion and financial tables. Also, special items include gains and losses on re-measurement at fair value of certain non hedging commodity derivatives, including the ineffective portion of cash flow hedges and certain derivatives financial instruments embedded in the pricing formula of long-term gas supply agreements of the Exploration & Production Division.

Finance charges or income related to net borrowings excluded from the adjusted net profit of business segments are comprised of interest charges on finance debt and interest income earned on cash and cash equivalents not related to operations. Therefore, the adjusted net profit of business segments includes finance charges or income deriving from certain segment-operated assets, i.e., interest income on certain receivable financing and securities related to operations and finance charge pertaining to the accretion of certain provisions recorded on a discounted basis (as in the case of the asset retirement obligations in the Exploration & Production Division).

Finance charges or interest income and related taxation effects excluded from the adjusted net profit of the business segments are allocated on the aggregate Corporate and financial companies.

For a reconciliation of adjusted operating profit and adjusted net profit to reported operating profit and reported net profit see tables below.

2009

2009

(€ million)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other
activities
(a)

 

 

Discontinued
operations

 

 

 

Explor­ation & Pro­duction

Gas & Power (a)

Refin­ing
& Market­ing

Versalis

Engine­ering & Con­struc­tion

Cor­porate and
finan­cial com­panies

Snam

Other acti­vities

Impact of unrea­lized
intra­group profit elimi­nation

Group

Snam

Conso­lidation
adjust­ments

Total

Conti­nuing
oper­ations

(a)

Following the announced divestment plan, Snam results are reclassified from “Gas & Power” sector to “Other activities” and accounted as discontinued operations.

(b)

Excluding special items.

Reported operating profit

9,120

1,914

(102)

(675)

881

(420)

1,773

(436)

 

12,055

(1,773)

1,513

(260)

11,795

Exclusion of inventory holding (gains) losses

 

326

(792)

121

 

 

 

 

 

(345)

 

 

 

(345)

Exclusion of special items

 

 

 

 

 

 

 

 

 

 

 

 

 

 

of which:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-recurring (income) charges

 

 

 

 

250

 

 

 

 

250

 

 

 

250

Other special (income) charges:

369

(218)

513

113

(11)

78

23

178

 

1,045

(23)

 

(23)

1,022

environmental charges

 

7

72

 

 

 

12

207

 

298

(12)

 

(12)

286

net asset impairments

618

27

389

121

2

 

 

5

 

1,162

 

 

 

1,162

gains on disposal of assets

(270)

(1)

(2)

 

3

 

(5)

(2)

 

(277)

5

 

5

(272)

risk provisions

 

115

17

 

 

 

 

(4)

 

128

 

 

 

128

provision for redundancy incentives

31

9

22

10

 

38

16

8

 

134

(16)

 

(16)

118

commodity derivatives

(15)

(292)

39

(3)

(16)

 

 

 

 

(287)

 

 

 

(287)

exchange rate differences and derivatives

5

(83)

(24)

(15)

 

 

 

 

 

(117)

 

 

 

(117)

other

 

 

 

 

 

40

 

(36)

 

4

 

 

 

4

Special items of operating profit

369

(218)

513

113

239

78

23

178

 

1,295

(23)

 

(23)

1,272

Adjusted operating profit

9,489

2,022

(381)

(441)

1,120

(342)

1,796

(258)

 

13,005

(1,796)

1,513

(283)

12,722

Net finance (expense) income (b)

(23)

6

 

 

 

(443)

14

12

 

(434)

(14)

 

(14)

(448)

Net income(expense) from investments (b)

243

297

75

 

49

 

35

1

 

700

(35)

 

(35)

665

Income taxes (b)

(5,828)

(670)

94

90

(277)

77

(597)

 

(3)

(7,114)

597

(83)

514

(6,600)

Tax rate (%)

60.0

28.8

..

 

23.7

 

32.4

 

 

53.6

 

 

 

51.0

Adjusted net profit

3,881

1,655

(212)

(351)

892

(708)

1,248

(245)

(3)

6,157

(1,248)

1,430

182

6,339

of which attributable to:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- non-controlling interest

 

 

 

 

 

 

 

950

 

 

68

1,018

- Eni’s shareholders

 

 

 

 

 

 

 

5,207

 

 

114

5,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported net profit attributable to Eni’s shareholders

 

 

 

 

4,367

 

 

121

4,488

Exclusion of inventory holding (gains) losses

 

 

 

 

 

(191)

 

 

 

(191)

Exclusion of special items:

 

 

 

 

 

1,031

 

 

(7)

1,024

- non-recurring charges

 

 

 

 

 

250

 

 

 

250

- other special (income) charges

 

 

 

 

 

781

 

 

(7)

774

Adjusted net profit attributable to Eni’s shareholders

 

 

 

 

5,207

 

 

114

5,321

2010

2011

2012

2013

Breakdown of special items

Adjusted operating profit by Division

Adjusted net profit by Division