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Profit and loss account 1

 
2010 (€ million) 2011 2012 Change % Ch.
96,617 Net sales from operations 107,690 127,220 19,530 18.1
967 Other income and revenues 926 1,546 620 67.0
(73,202) Operating expenses (83,199) (100,021) (16,822) (20.2)
246 of which non-recurring items (69)
131 Other operating income (expense) 171 (158) (329) ..
(9,031) Depreciation, depletion, amortization and impairments (8,785) (13,561) (4,776) (54.4)
15,482 Operating profit 16,803 15,026 (1,777) (10.6)
(749) Finance income (expense) (1,146) (1,307) (161) (14.0)
1,112 Net income from investments 2,123 2,881 758 (35.7)
15,845 Profit before income taxes 17,780 16,600 (1,180) (6.6)
(8,581) Income taxes (9,903) (11,659) (1,756) (17.7)
54.2 Tax rate (%) 55.7 70.2 14.5
7,264 Net profit - continuing operations 7,877 4,941 (2,936) (37.3)
119 Net profit - discontinued operations (74) 3,732 3,806 ..
7,383 Net profit 7,803 8,673 870 11.1
Attributable to:
6,318 Eni’s shareholders: 6,860 7,788 928 13.5
6,252 - continuing operations 6,902 4,198 (2,704) (39.2)
66 - discontinued operations (42) 3,590 3,632 ..
1,065 Non-controlling interest: 943 885 (58) (6.2)
1,012 - continuing operations 975 743 (232) (23.8)
53 - discontinued operations (32) 142 174 ..
  1. In the circumstances of discontinued operations, the International Financial Reporting Standards require that the profits earned by continuing and discontinued operations are those deriving from transactions external to the Group. Therefore, profits earned by the discontinued operations, in this case the Snam operations, on sales to the continuing operations are eliminated on consolidation from the discontinued operations and attributed to the continuing operations and vice versa. This representation does not indicate the profits earned by continuing and Snam operations, as if they were standalone entities, for past periods or likely to be earned in future periods. Results attributable to individual segments are not affected by this representation as reported at the paragraph “Reconciliation of reported operating profit and reported net profit to results on an adjusted basis”.

Net profit

In 2012, net profit attributable to Eni’s shareholders from continuing operations was €4,198 million, a decrease of €2,704 million, down by 39.2% from 2011. The result was negatively impacted by a lower operating profit, down by €1,777 million driven by the recognition of impairment losses of €4,029 million (€1,031 million in 2011) which were incurred on tangible and intangible assets, mostly in the gas marketing and refining businesses due to a reduced profitability outlook on the back of the ongoing European downturn.

In addition, net profit reflected increased income taxes (up by €1,756 million) due to higher taxable income reported by the Exploration & Production Division, subject to higher tax rates, and a write-down of €1,030 million recognized to reflect a lower likelihood that certain deferred tax assets of Italian subsidiaries can be recovered in future periods due to an expected reduction in taxable income generated in Italy, and as Eni has lost the availability of Snam taxable profit against which Italian tax assets can be utilized following the deconsolidation of Snam. Net finance and exchange rate charges increased by €161 million due to the negative impact of downward estimate revisions of certain discounted provisions following a changed interest rate environment.

On a positive side, net profit for the year reflected higher net profit from investments (up by €758 million) due to gains from the disposal of part of Eni’s interest in Galp, including the fair value revaluation of the residual interest as well as an extraordinary gain registered on Eni’s interest in Galp due to the Galp-Petrogal transaction, for an overall gain of €2.08 billion. These positive effects were partly offset by lower income from equity accounted entities, impairments of certain interests (€156 million) as well as by the circumstance that in 2011 a gain of €1,044 million was recorded on the divestment of Eni’s interests in the international gas pipelines.

Adjusted net profit attributable to Eni’s shareholders including results from discontinued operations amounted to €7,788 million, an increase of €928 million (up 13.5% from 2011).

Net profit from discontinued operations included results of Snam until loss of control by Eni and the gains recorded both on the divestment to Cassa Depositi e Prestiti for an amount of €2,019 million and the fair value revaluation at the residual interest based on current market prices for €1,451 million. Total gains amounted to €3,425 million, net of the fiscal effect.

Adjusted net profit

2010 (€ million) 2011 2012 Change % Ch.
6,252 Net profit attributable to Eni’s shareholders - continuing operations 6,902 4,198 (2,704) (39.2)
(610) Exclusion of inventory holding (gains) losses (724) (23)
1,128 Exclusion of special items 760 2,953
of which:
246 - non-recurring items (69) ..
1,374 - other special items 691 2,953
6,770 Adjusted net profit attributable to Eni’s shareholders - continuing operations (a) 6,938 7,128 190 2.7
  1. For a detailed explanation of adjusted operating profit and net profit see paragraph “Reconciliation of reported operating and net profit to results on an adjusted basis”.

Adjusted net profit attributable to Eni’s shareholders from continuing operations of €7,128 million increased by €190 million from 2011, or 2.7%. When excluding Snam’s contribution to results from continuing operations which corresponds to Snam margins on intercompany transactions as per IFRS 5, the year on year increase in adjusted net profit was equal to 7.6%.

The increase reflected an improved performance reported by the Exploration & Production Division and the downstream businesses, partly offset by lower income from investments, increasing taxable profit reported by the Exploration & Production Division subject to higher tax rates, as well as a write-down of deferred tax assets of Italian subsidiaries which were not included within special charges albeit being a non-recurring item (approximately €230 million).

Adjusted net profit was calculated by excluding an inventory holding gain amounting to €23 million and special charges of €2,953 million, with an overall positive impact of €2,930 million.

Special charges in operating profit from continuing operations of €4,744 million mainly related to:

  1. impairment losses of €4,029 million which were recorded to write down the book values of goodwill and other tangible and intangible assets to their lower value-in-use mainly in the gas marketing and the refining businesses. In performing the impairment review, management assumed a reduced profitability outlook in those businesses driven by a deteriorating European macroeconomic environment, volatility in commodity prices and margins, and rising competitive pressures. Other impairment losses were incurred at a number of oil&gas properties in the Exploration & Production Division reflecting downward reserve revisions and a changed pricing environment, as well as marginal lines of business in the Chemical segment due to lack of profitability perspectives;
  2. extraordinary expenses and risk provisions of €945 million incurred in connection with price revisions at long-term gas purchase contracts which were presented as special items given the contractual time span for price revisions expired in previous periods and relating to gas volumes purchased in previous reporting periods, including the one related to the settlement of an arbitration proceeding with GasTerra;
  3. exchange rate differences and exchange rate derivative instruments reclassified as operating items (a loss of €79 million) as they mainly related to derivative transactions entered into to manage exposure to the exchange rate risk implicit in commodity pricing formulas;
  4. provisions for redundancy incentives (€64 million) and environmental issues (€63 million);
  5. a gain on the divestment of a 10% interest in the Karachaganak project to the Kazakh partner KazMunaiGas as part of the settlement agreement (€343 million).

Special items in net profit included:

  1. the gains recorded on the divestment of a 9% interest in Galp (€311 million) which were realized in two different transactions. A 5% stake was sold in July 2012 to Amorim BV and a further 4% interest was sold through an accelerated book-building procedure with institutional investors which took place in November 2012. They also included a revaluation gain of the residual interest in Galp at market fair value through profit (€865 million) as well as a gain recognized on occasion of a capital increase made by Galp’s subsidiary Petrogal whereby a new shareholder, Sinopec, subscribed for its share of the capital increase by contributing a cash amount which was in excess of the net book value of the interest acquired (€835 million);
  2. a write-down incurred at Italian subsidiaries’ deferred tax assets which regarded the opening balances of such deferred tax assets in the amount of approximately €800 million out of a global write-down of €1,030 million. This impairment was recognized to reflect a lower likelihood that certain deferred tax assets of Italian subsidiaries can be recovered in future periods due to an expected reduction in taxable income generated in Italy, and as Eni has lost the availability of Snam taxable profit against which Italian tax assets can be utilized following the deconsolidation of Snam.

The breakdown of adjusted net profit from continuing operations by division is shown in the table below:

2010 (€ million) 2011 2012 Change % Ch.
5,609 Exploration & Production 6,865 7,425 560 8.2
1,267 Gas & Power 252 473 221 87.7
(56) Refining & Marketing (264) (179) 85 32.2
(73) Chemicals (206) (395) (189) (91.7)
994 Engineering & Construction 1,098 1,109 11 1.0
(216) Other activities (225) (247) (22) (9.8)
(867) Corporate and financial companies (753) (976) (223) (29.6)
1,124 Impact of unrealized intragroup profit elimination(a) (1,146) 661 (485)  
7,782 Adjusted net profit - continuing operations 7,913 7,871 (42) (0.5)
  of which attributable to:        
1,012 - Non-controlling interest 975 743 (232) (23.8)
6,770 - Eni’s shareholders 6,938 7,128 190 2.7
  1. This item concerned mainly intragroup sales of commodities, services and capital goods recorded in the assets of the purchasing business segment as of end period.

Group results were achieved in a trading environment characterized by a marker Brent price of $111.58 per barrel, almost in line with 2011. The gas market was influenced by weak demand as a consequence of the European economic slowdown. In the meantime the marketplace was well supplied, with very liquid continental hubs for spot transactions. 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 5% from 2011, even if this was not reflected in gas margins because of higher oil-linked supply costs and competitive pressure. Refining margins showed a recovery from the depressed levels registered a year ago (the benchmark margin on Brent crude averaged $4.83 per barrel, up $2.77 per barrel). However the absolute size of margins remained in unprofitable territory due to volatility of trading environment and weak fuel demand on the back of the economic downturn, excess capacity and high cost of oil feedstock and oil-linked energy utilities. Furthermore, Eni’s complex refineries were impacted by narrowing price differentials between light and heavy crudes. Results for the year were helped by the appreciation of the US dollar over the euro (up 7.7%).

2010   2011 2012 % Ch.
79.47 Average price of Brent dated crude oil(a) 111.27 111.58 0.3
1.327 Average EUR/USD exchange rate(b) 1.392 1.285 (7.7)
59.89 Average price in euro of Brent dated crude oil 79.94 86.83 8.6
2.66 Average European refining margin(c) 2.06 4.83 ..
3.47 Average European refining margin Brent/Ural(c) 2.90 4.94 70.3
2.00 Average European refining margin in euro 1.48 3.76 ..
6.56 Price of NBP gas(d) 9.03 9.48 5.0
0.8 Euribor - three-month euro rate (%) 1.4 0.6 (57.1)
0.3 Libor - three-month dollar rate (%) 0.3 0.4 33.3
  1. In USD dollars per barrel. Source: Platt’s Oilgram.
  2. Source: ECB.
  3. In USD per barrel FOB Mediterranean Brent dated crude oil. Source: Eni calculations based on Platt’s Oilgram data.
  4. In USD per million BTU (British Thermal Unit). Source: Platt’s Oilgram.

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Eni S.p.a. - Registered Head Office
Piazzaie Enrico Mattei, 1
00144 Roma

Branches
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e Piazza Ezio Vanoni, 1
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Rome Company Register
Tax Identification Number. 00484960588

Mission
We are a major integrated energy company, committed to growth in the activities of finding, producing, transporting, transforming and marketing oil and gas. Eni men and women have a passion for challenges, continuous improvement, excellence and particularly value people, the environment and integrity.