Delta Air Lines Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
July 26, 2024

There are 18 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to Annie's 2024 First Half Results Conference Call hosted by Mr. Claudio De Scalsi, Chief Executive Officer. For the duration of the call, you will be in listen only mode. However, at the end of the call, you will have the opportunity to ask questions. Now I'm handing you over to your hosts to begin today's conference.

Operator

Thank you.

Speaker 1

Good afternoon, and welcome to our 2nd quarter and first half results conference call. This quarter confirms we are making significant strides forward in delivering on our strategy and the 4 year plan set out in March. I will discuss our financial results in more detail. But in summary, our performance in the first half exceeded our plan in terms of financial outcomes and cash flow generation, with capital expenditure and leverage showing a positive trend. Touching on some important milestones in the year so far.

Speaker 1

We are materially enhancing our our upstream portfolio. We completed the high accretive acquisition of Neto in January, already delivering significant value for any shareholders, thanks to synergies in Indonesia, Norway and Algeria. Following the step up of our exposure on the UKCS with Neptune, we have moved quickly and are creating one of the largest independent players country through the combination of it with Iteka Energy. At the same time, we are also making real progress in high grading our upstream portfolio, completing the sale of non core assets in Congo and Nigeria and announcing the sale of Alaska, which we expect to close before year end. Furthermore, we are working on some additional transaction related to our dual exploration model that will mature in the coming quarters.

Speaker 1

Meanwhile, our upstream business continues to focus on its core activities. We have reported production growth of 6% year on year and have other significant oil and gas resources with notable aspiration success in Ivory Coast, Cyprus and Mexico. On the businesses related to the energy transition, we are unveiling the value that the market places on our unique integrated chains in retail consumption and sustainable mobility. In March, we completed on the €600,000,000 equity investment into Plenitude by Energy Infrastructure Partners. And this week, we have announced a potential investment by KKR into Any Life in a range between €2,530,000,000 Together, the deals highlight an enterprise value of around EUR 22,000,000,000, a remarkable improvement versus the marginal value.

Speaker 1

These activities were accorded only a few years ago. We're also pleased with the operational progress we are making for Eni Life, the FIDs of the 2 new biorefineries in Malaysia and South Korea and for Plenitude, the startups of its largest solar project to date, the Linapur Solar Park in Spain. Let's put all of these in context. The energy transition is reversible, but it will only be sustainable if it allows returns, attracting private capital. And this is what we are proving through our portfolio of activities that are highly valuable for the market and achieving precisely those objectives of profitability and economic sustainability.

Speaker 1

We are also growing upstream with higher margins and lower emission to be net 0 by 2,030. We will grow underlining production by 4% per year over the planned period, reported production by 2% per year after disposals and crucially, we will grow CFFO per barrel by 30%. Plant it to net any life will close to double EBITDA over the 4 year plan and double again by 2,030. This is an outstanding plan of growth that is attracting the interest of many investors and will ultimately take both businesses toward full market barrelization through IPOs. Our transformation plan is more emerging option.

Speaker 1

We are restructuring and reorienting our chemical presence toward a sustainable platform based on biochemistry and the circular economy as we did and continue to do in biorefining. Furthermore, CCUS has a key role in reducing emission in Taken together, supported by a clear and focused financial framework, Eni is able to offer sector leading CFO per share growth rate over 13 percent by a per year and highly competitive shareholders returns. Turning to our result. Pro form a EBIT incorporating our associate operations was €4,100,000,000 in line with the last year, even without the benefit of GGP 1 offs reported in 2023. Over the 1st 6 months, pro form a EBIT was €8,200,000,000 more than 60% of the original annual plan.

Speaker 1

In the Upstream, we reported another excellent quarter with production up 6% year on year and pro form a EBIT of €3,500,000,000 capturing the oil price scenario and the recovery in gas market. Indeed, GDP with €334,000,000 also reported a strong result in line year on year on an underlying basis and in what is a traditional, a seasonally lower quarter. In the transition businesses, Any Life's pro form a EBIT was €120,000,000 reflecting the currently softer biorefining market conditions, offset by seasonally stronger market income confirming the advantage of integration along the value chain with the sales of product and services to retail and wholesale. Plenitude reported pro form a EBIT of €149,000,000 12% higher than the Q2 last year and giving a strong first half progression. A weaker scenario for refined products impacted our traditional refining, offset by resilient wholesale and trading activities and supported by high plants availability, leading to a stronger result year on year.

Speaker 1

Chemicals in Versalis continue to face very challenging markets reflected in our Q2 losses. Taxes rose in the quarter with a country rate at 55%, primarily due to mix effect within the upstream and across the income statement more generally. Our CFFO in the quarter is €3,900,000,000 7,800,000,000 for the first half, delivering a pleasing trend of efficient cash conversion, reflecting good dividend income and a cash tax rate of around 30%, consistent with the level we anticipate for the full year. Our first half CFFO means we have already generated 55% of the planned annual amount. Organic CapEx is currently tracking below our gross guidance of €9,000,000,000 full year figure, but our expectation remains unchanged.

Speaker 1

Net portfolio activity was still cash out in the half year, but in the quarter, we generated proceeds of €480,000,000 being primarily the sale of shares of Saipem. After payment of the final dividend and the restart of the buyback, net debt fell from a Q1 peak. Let's focus for a moment on our upstream and transition businesses, the key current components of our value chain. This slide emphasize the resilience of the result in the absence of GGP one offs. In E and P, we have delivered excellent volume growth, backed by continuous operation success to feed the business and progress portfolio high grading.

Speaker 1

GGP continues to capture margin in our equity gas sales, leveraging its excellent asset and logistic positioning. Financial performance in our transition businesses remain on track despite volatile and often challenging scenario conditions. This reflects the underlying resilience in these balanced and integrated businesses. As a result, we are maintaining growth in a consistently competitive fashion and investing for volume for the long term. This means we are able to launch new advantaged biorefineries projects and have a significant portfolio in new renewables capacity under construction to sustain our growth.

Speaker 1

Confirmation of the value we are creating is evident in the financial investment we have attracted in both Plenitude and AnyLife. A strong balance sheet remains a key target in our plan, providing resilience, flexibility and strategic optionality. In March, we said gearing over the 4 year plan would range between 15% 25%. The impact of the strategic acquisition we made to support our growth platform pushed gearing up toward the higher end of that range by the Q1. But as we have seen in Q2, even with the limited impact of disposal actions, leverage is already inflecting down, falling by almost 1.5 percentage points versus Q1.

Speaker 1

We are executing our disposal plan much faster than planned. As a reminder, in March, we announced we would deliver €8,000,000,000 of net portfolio inflows in the 4 year plan and indicated we expected the divestment activity to be front end loaded. In the 1st 6 months, we have, in fact, advanced this program faster and for better value than anticipated. The announcement deal in Alaska and Nigeria will reduce our leverage by around 3 percentage points, while the sales of a 20%, 25% of any line will impact our leverage by further 5%, 6%. This means by the end of the year, we now expect leverage to be well below 20% and considerably toward 15% on a pro form a basis, awaiting the full cash in of these deals and other planned actions.

Speaker 1

And we are working on several additional transaction that will further contribute to our portfolio enhancement and debt reduction. In other words, by the end of the year, we expect to be able to provide visibility either by actions completed, announced or with defined plans. Over the large majority of the transaction, that will be roughly split fifty-fifty between Upstream and the new transition businesses. That brings me to our satellite model, a crucial source of cash to fuel our growth plan, distribution and to maintain a strong balance sheet. 2024 has been important proof point for the distinctive model we have built.

Speaker 1

The Plenitude and any life transactions that will generate over €3,000,000,000 in total represent the material deals of aligned capital and attractive multiples with valuable partners. This is only a portion of the €11,000,000,000 cash we generated from dividend, disposal and IPOs through our key satellites, Enelive, Plenitude, Azul and Vaa Energy since their creation. This new capital supports our funding needs and confirms the value we are creating in different businesses and anticipate cash flow generation from these long term opportunities. Cash generated from our satellite lines has double impact on our distribution, accelerating growth in our cash flow from operations as a result of the material increase of these businesses. During the planned VAR and Azul production, we grow together by 45%, while Plenitude and Anylife are almost doubling their EBITDA.

Speaker 1

Diversifying our business and improving our balance sheet, allowing us to progressively announce our distribution policy. Finally, let me elaborate on the outlook for the remainder of the year. We now expect reported full year production to be at the top end of our guidance, implying a growth rate of close to 4%. Similarly, GGP has now significantly derisked our original €800,000,000 pro form a EBIT guidance for the year and we now expect a full year figure of around €1,000,000,000 Our main transaction businesses transition businesses, Plenitude and Any Life remain on course to deliver their combined guidance of €2,000,000,000 of pro form a EBIT this year. Any full year pro form a adjusted EBIT and CFO before working are expected to be around €15,000,000,000 and over €14,000,000,000 respectively, at our current scenario.

Speaker 1

And in that context, we confirm the buyback will be a minimum of €1,600,000,000 Thanks to the improved visibility on our divestment program, we will speed up repurchasings through Q3 and Q4 versus our previous plan. Moreover, given the lower expected debt in the light of the progress of the M and A, we will be able in the Q3 to evaluate a further raise to the distribution share up to the maximum limit of 35% of the budget CFFO, which corresponds to a potential buyback value of additional €500,000,000 To help with the CFFO profiling for modeling purposes, we can confirm that dividend cash in from associate should closely approximate the next the net income, while the cash tax rate for the full year is expected to be around 31%. Net CapEx is now expected to be under €6,000,000,000 significantly below the previous guidance in line with our updated expectation that year end gearing will be well below 20% and pro form a on deals awaiting form a closing will be even lower than that. Finally, with the work now underway, we have already identified savings in excess of EUR 250,000,000 for 2024. We are raising to around €2,000,000,000 the full value of the for saving and simplification benefit over the planned period that we announced in March.

Speaker 1

To conclude, we are really pleased with the progress we are making. Our strategy is to invest in our high quality businesses to make any more profitable, fund the next phase of growth, work to highlight the full value of our assets and to deliver a growing and competitive shareholders' distribution. The first half of twenty twenty four has been seen as making clear stride forward in terms of operational delivery and the new project that underpin that growth. This has translated into an excellent financial outcome. And in addition, we are also ahead of our expectation, our divestment program in terms of proceeds, value realization timing, risking the business and accruing further value to shareholders.

Speaker 1

The any investment proposition is clear. I like competitive growth in the key segment of business related to transition and transition energy. Value realization through portfolio management, fast deleveraging and strict investment discipline in prioritizing our significant pipeline of new projects, a competitive and progressive distribution policy supported by the material growth in cash flow generation and balance sheet announcement. With these remarks, I conclude our review of the quarter. And now along with any top manager, we are ready to answer your question.

Operator

Thank you. This is the Chorus Call conference operator. We will now begin the question and answer session. The first question is from Irene Himona with Bernstein. Please go ahead.

Speaker 2

Thank you and congratulations on these numbers. My first question is on biofuels, if you could perhaps share your views on what is currently a rather oversupplied biofuels market. When and how would you expect a rebalancing and for margins to start recovering? And my second question, it's quite unusual to flag a future potential buyback increase. So I wonder if you can talk around the reason.

Speaker 2

I think it's the first time you're doing it. And also, would you agree that it is linked to the faster pace of asset disposals via a stronger balance sheet? Thank you.

Speaker 1

Okay. Thank you for the question, Stefano Ballista, CEO of Enelife.

Speaker 3

Yes. Yes. There is no doubt that actually this quarter has been very challenging for the biofuel business. We recorded the lowest margin ever. And this is a situation actually that is going in continuity with the Q1.

Speaker 3

And let me say very, very well expected. It's driven by fundamentals of short term with a short term view. So it's a transition phase pretty much defined by due to oversupply both in Europe and in U. S. And reason are pretty much the same we discussed in previous call, like Sweden from one side and a specific step up in terms of capacity in U.

Speaker 3

S. Plus some flows from extra flows from China. But what is really important is that this is a transition period. Obligation and mandate are strongly in place and defined. I just quote some of them like refuel aviation is going to be in place starting from next year.

Speaker 3

It's going to lead to plus than a1000000 tonne of extra demand in Europe and it's going to increase along the timeline. And this is a regulation, so there is no debate about when it's going to be fulfilled. 2nd core element is the Renewable Energy Directive 3. It has been approved. As we know, each country has like 18 months to deploy at country level.

Speaker 3

Targets are going to be doubled compared to current one from 14% to 29% in terms of energy content. This is going to be in place starting, let me say, from the second half of next year, given it has been approved end of previous year. And it's going push for a strong extra demand. On top, I want to mention there are also stated that even now changing some key rules, I want to quote Germany that actually starting from next year, we consider the UER no more eligible for bio demand. And so this is going to create an additional demand.

Speaker 3

So in short, this is a transitionary phase with a market rebalancing in the next future along the 2020 25 with a potential step up, and this is the last comment coming from the first evidence on the antidumping procedure. We got preliminary and provisional duties that is going to, in a way, create a level the played field with the current Chinese flow, and this is going to give an improvement. It's difficult to quantify now, but along the year.

Speaker 1

Thank you, Stefano. I just want to add something because Stefano was very clear about regulation and what is going to happen in the next month. Looking at the market, what is happening, what we are experiencing in the market is that we have many, many, many requests from maritime operation, maritime operation, aviation, a lot of different kind of entities that they want to reduce their CO2 emissions. So we are signing a huge number of contracts with these different companies. So that is the first hand evidence that we have in our business.

Speaker 1

Clearly, we talk about this moment, this anomaly that we forecast, but we have to say also that any live reacted really very positively. Why this reaction compare also to other operators? Because we are on the value chain. We are in the Upstream. So we are in the feedstock with Agri Al, with all the Western residues.

Speaker 1

So we try and we study that to stabilize our feedstock. We have our technology. We have our refineries. Then we have a huge retail. So we are not just in the biofuel and biorefineries.

Speaker 1

And that helped us a lot in the quarter and this semester. So I think that is very important, but that is a first hand of a company, people that every day are on the market and talk with the customers. So the second is for Francesco.

Speaker 4

Yes. On the buyback, clearly, what we design since a few years is a progressive distribution that is linked mainly to cash flow from operation. But this cash flow from operation, let's say, sharing is clearly continually monitored in term of term of performance, in term of scenario and in term of balance sheet. So as you have seen, the buyback is defined in 2 ways. We have, at the beginning of the year, the overall distribution, dividend plus buyback that was a percentage of the budget, the cash flow from operation between 30% to 35%.

Speaker 4

We fixed our reference around the middle of that range and we announced the buyback of 1.1%. In the policy also, we stated clearly that 60% of the upside related to cash flow from operation would have been shared with our investors, and we announced that in the Q1 results. And now we're in a situation where we can look differently to the bottom line of this distribution policy, the buyback that we originated the designed on the basis of the cash flow of the budget. The idea is that substantially, there is room if in the Q3 all the deals and progress in the various disposal are confirmed and even enhanced to review that percentage. So there is still 2%, 3% of additional share of that amount that at the beginning of the year, if you remember, was 13.5%, the cash flow from operation.

Speaker 4

It means that there is a potential of $500,000,000 sorry, of additional cash flow of additional buyback. I will also to say that we have an immediate effect today of the improvement of our balance sheet and the visibility we have seen in the disposal plan that is the acceleration. So we are speeding up the pace of our buyback shares. And also, in the Q3, we will have also a review overall of the cash flow from operation, let's say, analysis. And if there is an additional increase of the potential cash flow from operation, there is, again, the application of the rule of the 60% upside.

Speaker 4

So we mentioned that there is a floor at the beginning of the year. We improved this floor in the Q1. Now we are evaluating in the 3rd quarter a potential step up with different mechanisms. So I think that is quite, let's say, progressive, our distribution policy mechanism.

Speaker 2

Thanks very much.

Operator

The next question is from Josh Stone with UBS. Please go ahead.

Speaker 5

Thanks and good afternoon. Thanks for the presentation and congratulations on the strong results. Two questions, please. Firstly, coming back on disposals, you highlighted an acceleration or you've got good visibility on a very big chunk of your 4 year program. So do you think there's a chance you could actually exceed your €10,000,000,000 gross divestment target?

Speaker 5

Or in other words, as you've been reviewing your assets and portfolio, are you finding there's more things to sell or at a higher value than you first expected? Or is this simply in line? Second question on back on Any Lives. One thing that struck me with your the KKR announcement was that you're willing to sell up to 25% of the business and then possibly another 10% to another investor. So your leading ENI was 65%.

Speaker 5

So my question is why sell so much of AnyLife now? I understand you get a good valuation, but once it's sold, it's sold. So is there are there particular attributes that these new partners are bringing to any life beyond a particular source of financing? Anything you can add there would be great. Thanks.

Speaker 1

So thank you for the question about disposal. I say something, and then maybe Francesco want to elaborate further. We have accelerated, 1st of all, because we have good assets. So the natural assets, when we talk about upstream, we said that we it's a fifty-fifty, so 50% upstream, 50% transition businesses. But we have good answers.

Speaker 1

So we have a lot of talks with different kind of entities and companies that they are interested to our asset. Has been very fast because we thought to deploy this divestment in the 1st 2 years. But in the 1st 6 months, we are practically, we have reached the target. We can go up at least EUR 8,000,000,000 maybe, yes. More on the dual aspiration because we found a lot of resources.

Speaker 1

It's not a lot of investment. We derisk the asset and that could be a possible additional potential that we can explore in the 2025. Clearly, now we are focused on these projects that we announced and other that we are working on. They are mature, but we will be ready in the Q3 to say more. But we have the potentiality to overcome and do better respect to our initial expectation, so better than the €8,000,000,000 I think, yes, we can do that.

Speaker 1

For any life, clearly, we try to balance. There is a lot of interest. The valuation is very good. We want to invest and we because we have a big component of the 2 companies that is growth. Biorefineries growth and renewables and be charging point growth.

Speaker 1

So I think that we need money and that we understood we have the proof that this company are able to finance themselves without using our capital and our debt. So I think that, that is the reason. We want to progress. We want to grow. And when we are able to find very strong, good partners, good investor, very strong that can help the company that they share our view, our project.

Speaker 1

I think that is a good opportunity. I don't know if we are going to do that immediately because we had to finalize the deal yet. So but that is there is a clear reason to do that. We want to grow. We want to create more value in this company that are doing very, very well.

Speaker 1

We reach as a valuation through our strategic investors, euros 22,000,000,000 for the Clue company. That is really a huge number considering that this business until a few years ago were in any in different part of any with a very low value. So I don't know if Francesco want to add something.

Speaker 4

Just to let's say, we clarified since the beginning that the EUR 8,000,000,000 net was a risk, at, let's say, amount that was clearly based on a larger assumption. In that assumption of disposal, we didn't include the outcome of this, let's say, positive feedback from the market specifically on any life in term of evaluation and appetite. So there are there is clearly room to decide, prioritize and improve the overall guidance, as was said.

Speaker 1

So good news.

Speaker 4

Good news, absolutely. I think that was clear. It was good. And the other element, clearly, you mentioned about the potential disposal of a second stake. First of all, this is not included in our forecast.

Speaker 4

So it is, again, an upside inventory to be considered. We need, 1st, to conclude the discussion, the negotiation that are ongoing with KKR. It is a deal that had to be, let's say, finalized. And after that, we evaluate, due to the fact there is a quite a very strong appetite by the market, if there is an opportunity to make an additional, let's say, joint deal related to that specific asset. So again, it's another positive sign that the assets are extremely, let's say, interesting for the market and there is a lot of potential valuation coming on.

Operator

The next question is from Birajay Porgatarya with RBC. Please go ahead.

Speaker 6

Hi, thanks for taking my questions. The first one is just on your LNG growth plan. So you continue to build up your options, but mostly through sort of the integrated approach. We haven't seen you do too many sort of off stake deals, for example, Gulf Coast U. S.

Speaker 6

Is that something that you think would be a good addition to your portfolio? Or would you rather build up in an integrated fashion? And then secondly, just going back to the last question on the financial framework. If I was to plug in the disposals in the market, which I understand you risked in your plan, but the ones that are already there, it's possible that I could see E and I at sort of single digit gearing by the end of 2025. So just wanted to get some thoughts on at what point does your balance sheet not need that additional cash?

Speaker 6

And secondly, one of the things that's happened over the last couple of years is that you very clearly created more value through building these businesses than you would have by buying back shares. So I just want to think of wanted to get some color on how you think about the balance between paying out that capital, the excess capital and then maybe increasing CapEx to build these businesses to more scale? Thank you.

Speaker 1

Thank you. So the first question is for Guido Brusco and the second one for Francesco.

Speaker 7

Yes. Thank you, Birgia. You spotted rightly. So we are building a portfolio mainly of integrated projects, which spans from the Congo project, which just started up and will increase up to 3,000,000 tonne per annum by the end of next year. We have Mozambique.

Speaker 7

We have Qatar. We have Indonesia, which is currently delivering gas for liquefaction only from the south hub of the Q3 basin, but soon we'll have a second hub in the north part, which is pretty exciting. So as you have seen, this is mostly organic, reason being our successful exploration campaign in the past year. And we see much more value in the integration rather than buy and sell gas from 3rd party. I might not rule out some small deals we can have in the future to complement our portfolio, but the growth is essentially linked to the organic component.

Speaker 4

In term of leverage, clearly, you know what is our, let's say, guidance. Our reference is a range between 10% to 20%. We are moving faster towards the 15%, the middle of that range. There could be, as we said, the upside. We have a lot of additional opportunity that has the materiality to push even lower that leverage.

Speaker 4

It is important for us to understand that reducing leverage is a value if there is no alternative. But if you have opportunity to invest pipeline of projects and also clearly, there is no financial sense. We are paying 1% net financial cost in that leverage. So I can push down the leverage to keep the enough buffer for the bad times, but it is also important that I have opportunity where I can invest at much higher return. So is this a balance we want to keep?

Speaker 4

We think that 10% to 20% is range, you could drop below in the lower part of that range, but this should be the area of comfort that we want to stay.

Speaker 6

Understood. Thank you.

Operator

The next question is from Alejandro Vigil with Santander. Please go ahead.

Speaker 6

Yes, thank you for taking my questions and congratulations for the AnyLife transaction. My first question is about the Plenitude. If in connection with the interest you're seeing, any life, we could see some also additional interest on selling stakes in Plenitude in the second half of the year? And the second question is also regarding the low carbon strategy, particularly in terms of the CCS. The CCS is an area in which you were considering to invest 100 of 1,000,000 or 1,000,000,000 in the coming years?

Speaker 6

And what kind of returns are you expecting from these investments? Thank you.

Speaker 1

Thank you, Alejandro. For Plenitude, I don't think it's second half because we have other projects more mature, but we had a lot of interest also for Plenitude from big funds and other companies. So Plenity is there. There is room. We have rooms and clearly also plenty to this in the same situation of any life.

Speaker 1

They need money to invest on their growth. They have a very important plan of growth. So it's not something that we can exclude. We have to understand that if the these investors are serious and want to really and share our projects, but we have room in planning to the end. We have also we have a lot of interest.

Speaker 1

CCS is not a question of how much we are going to invest. CCS is there is becoming more and more real in term of project, in term of acceptance. And in U. K, we are proceeding. In few days or weeks, we are going to inject gas in Ravenna.

Speaker 1

So it's there. We are we have a lot of interest from how to abate. So heavy industry, not just from Italy, but also from France, from Greece. So there is a strong interest, strong movement. Our investment in the model that we now we have in Italy and U.

Speaker 1

K. Where we take care about transportation and storage, we don't talk about a lot of investments. And in any case, our model that is based on existing facilities, depleted reservoirs, where we have everything practically because we have all the wells and platform and compressor. So we have just to reverse the flow, maybe print some injectors, but it's not a big investment. So it's a big, big deal, big business a lot of interest and it doesn't need a lot of investments.

Speaker 1

So the only heavy part that's relatively expensive with the capture and is not an investment is operating cost that we have to perform every time we capture the CO2 depending on the level of a percentage of CO2. So it's not really any very intensive capital deal project, but it's something that can be very useful for the transition is going to reduce CO2 for the Arto Oblate. And we have a quite interesting advantage and also priority in the system because we are the only one that are performing real projects that start production now on in few months or in 1 maximum 1 year. You want to add something, Guido?

Speaker 7

Just to complement what you said, not that much capital and the capital needed will be mainly provided through project financing also, which we've seen appetite from banks and institutions to fund those kind of projects.

Speaker 6

Thank you.

Operator

The next question is from Alessandro Pozzi with Mediobanca. Please go ahead.

Speaker 8

Good afternoon. Thank you for taking my questions. I have 3. The first one is on GGP, the new guidance sort of €1,000,000,000 Can you perhaps elaborate on what allowed you to raise the guidance to the €1,000,000,000 and how you see opportunities in the market for the second half? I'm just trying to understand whether potentially there could be further upside to the EUR 1,000,000,000 in the second half.

Speaker 8

The second question is on Chemicals. Of course, you set the results is great. The only probably saw point was Chemicals that lost still EUR 200,000,000. Can you give us an update on the restructuring plans for the division? And finally, I believe only a few weeks ago, the constitutional court in Italy declared part of the windfall tax unconstitutional.

Speaker 8

I was wondering whether there is any chance of recouping at least part of the taxes paid in the last couple of years. Thank you.

Speaker 1

Thank you, Alessandro. So I think Christian is going to answer the first question and then Adriano for Versalis and then Francesco.

Speaker 9

Yes. So on the raised guidance, there are 3 main major elements that actually allowed us to raise this guidance. 1 is the, I would say, still sustained trading environment. So we were able to capture value out of the volatility, especially, I would say, geographical spreads, especially in Italy, I would say, and oil and gas spreads. 2nd element is the anticipation on some renegotiation that we are expected to close later in the year.

Speaker 9

Actually, we anticipated that in the Q2. That helped the result of the Q2. And the 4th element is linked to an accounting, let's say, readjustment that actually increased the EBIT, but without any impact on the cash flow. And when it comes to the 2nd semester of the year, so we see still those elements kicked in, in the guidance. And so that's why we were able to raise that guidance to 1,000,000,000

Speaker 10

euros As you described, we are really grappling with a continuous negative momentum in term of market. Raw material, let's say, all the variable costs remain pretty high for the chemical sector. There is a weak demand. On the other side, there is also strong availability of product from import also related to a very weak demand in China that is rerouting a lot of product from U. S.

Speaker 10

Into Europe. So really a negative momentum. In relation to the transformation plan that we present also in the Capital Market update, we are developing the plan, taking in consideration all the element that we present in March during the capital market update that will enable, as we said in March, breakeven EBITDA in 2025, breakeven EBIT in 2026 and breakeven cash flow in 2027. Engagement with all the stakeholders are ongoing. We will continue this engagement in the second half, and we are confident that in the call for the result of Q3, we'll be able to share more ongoing implementation by Q4.

Speaker 4

Okay. Instead about the ruling of the constitutional court, clearly, the court has recognized that under special circumstances, there is the possibility to raise this levy or base it also on a pipe peculiar structure, the VAT, the delta VAT basis. So it is onetime tax measure originated by the special circumstance. This does not exclude the possibility for us to move further legal action, in particular related to our gas trading arm that was mainly heavily impacted by the tax. And the worst case was not dealt by the constitutional court resolution.

Speaker 4

On the other side, we are going to pay in the next, let's say, 6 months the last installment of the tax, €450,000,000 And also on the case, we will move our appeal for, let's say, raising our reason about these taxes. So we will continue to provide or to ask for compensation or reduction in certain cases.

Speaker 11

The

Operator

next question is from Alastair Syme with Citi.

Speaker 5

Hello. Can I just clarify the position on whether there might be a future IPO of Anylife? I think to the point that was made earlier, you might come down to a 65% stake. So was it a question of whether you could go lower than that? Or is now a future IQ really being held as a future exit for one of the partners like KKR?

Speaker 5

And then secondly, it's widely known out there that there's a large industry farm and opportunity in Namibia. I wonder if you could talk in concept. Could you see a role for Azul to be used as an acquisition vehicle? I guess more to the point, are you prepared to put capital into Azul if a good opportunity came up?

Speaker 1

Thank you. For any light, the first question, Francesco can give some returns.

Speaker 4

Yes. Clearly, the IPO is the goal both for Any Life and Plenitude. The structure of the IPO will require a certain mechanism. Also, it is important to understand which is the amount that the funds that are involved, 1st of all, to understand which is the percentage overall of the funds, if it is 1 or 2. Secondly, which is the kind of funds that have to be, let's say, or have to exit in the liquidity event of an IPO.

Speaker 4

And in that case, there will be, in a case, let's say, larger room for them at the beginning than for Eni. But it's something that have to be structured. First of all, we have to do the deal with KKR, eventually the second deal. So I think that is quite premature now thinking on the structure of an IPO that will occur in a number of years. In any case, there are different options.

Speaker 1

Before giving the floor to Guido, just to clarify something. Normally, we go through dual aspiration models. That means that we go through aspiration and then we sell window. It's not our habits to do the vice versa. We are not really interested to buy something that has been derisked from some by somebody else because we are huge amount of aspiration block, huge amount of discoveries.

Speaker 1

Azul made an enter recently in an exploration block, the PL-eighty five. So our strategy very well is different. We are not really seeking the risk exploration. We produced the risk aspiration. So we don't I say everything, yes, clear.

Speaker 1

I doubt about it.

Speaker 5

Can I just ask back to the IPO concept? Would you be prepared to fall below 50% stakeholding in other Plenitude or any life at some point in the

Speaker 12

future?

Speaker 4

In Planete or Any Life, we want to do an IPO with the proper at the proper time with the percentage the market will absorb. And we will there percentage we are going to hold. So speaking about what is our ultimate percentage in these two entities is something that is extremely, extremely premature now.

Speaker 5

Okay. Thanks very much.

Operator

The next question is from Lydia Rainforth with Barclays. Please go ahead.

Speaker 13

Thank you and good afternoon. Actually quite a lot of my questions have been asked, but 2 if I could. Just coming back to the distribution policy and the additional potential for, I think, up to about €500,000,000 buyback, what would actually stop you from doing that? So when you get to October and you look at the balance sheet and go we're in a good place, we've got any life coming through, what would actually stop that from happening? And then secondly, this is just more of a big picture question, Claudia.

Speaker 13

But in terms of the satellite model, how many satellites do you think is actually manageable? And by that, I'm thinking you've got different now you've got Ithaca up in the North Sea. You've got Azul and Angola will have any life, will have plenitude. How do you keep that kind of E and I ethos kind of going across everything? Thanks.

Speaker 1

The first question, distribution policy, who is preventing us to do that now? Because we are prudent and we want to have a clear vision, everything clear. We can we could do now because everything is mature, but we want to be sure that all the capital allocation is done in the right way. It's a responsibility. We don't want to run.

Speaker 1

We don't need now to run. It's a question of a couple of months. So I think that, first of all, we have to understand that everything is progressing as we think, as we hope. And it's more it's likely that everything will be good, but that is the main reason. On the satellite model, Francesco, if you want to say something, any respect to the satellite?

Speaker 4

I think that it proves that with the experience that we have managed, let's say, mature so far, both with RAR, with the experience of Azul and now with Itacad, that's yet to be completed, as you know. I think that we proved there is an opportunity to create this model. This is a bit hybrid versus the traditional model of an oil and gas into the company that wanted to have all the control of everything in different. You need to have good management, good capability to deal with the boards, having a strong technical relationship, having the understanding of your counterpart of the market rules. So, so far, I think that we have seen only benefits in what we have designed as a satellite and the capability to manage the complexity that this will imply.

Speaker 1

So I'd like to add that clearly, we are going through a different kind of model. Is I think it's very good model, but that is a challenge for us, which is a challenge that we have to be useful, we have to attract our satellite. These new companies, they have to understand or they we have to show that we give add value to them. So that is a challenge where we give add value, we give our value on technologies. All the technologies that the satellite are using, our proprietary technology, we update the software, the hardware.

Speaker 1

So there is a relationship that is going to be is already because we are experiencing a very strong relation from a technical point of view, from a Medellin area point of view because the on this new technology we had in the past to rescale, upscale our people and our people is going in these companies. And there is a strong link, umbilical link because there is skill and the technical capability is something that we produce in the corporate, in the corporation. So I think that is completely different. But clearly, we are facing a different period. We are facing the transition.

Speaker 1

We are facing a different kind of world. We cannot think that we cannot continue to use model that we use 30, 40 years ago. And that is a reason why we moved few years ago because we understand that the future will be different. We must different tools. Clearly, they know how the technology and really the interest that everybody can show on us because what happened in the different kind of new biorefinery project worldwide, people call us because they are interested at our competencies and at our know how and technologies.

Speaker 1

So I think that we have gas, we have oil, but we have also very strong resources that is technology, know how, R and D and skilled people.

Operator

The next question is from Peter Low with Redburn Atlantic. Please go ahead.

Speaker 14

Thanks. The first was on upstream production. You said that that's now expected to be towards the top end of the guided range. What have you assumed in terms of the timing of disposals within that? And then can you perhaps update on some of the 2024 startups in the plan, specifically Cassiopeia and Belen Phase 2?

Speaker 14

How are they progressing? And then the second question was on your biorefining targets. I think you previously targeted 3,000,000 tonnes of capacity by 2026. I thought that included a contribution from Pengerang. I think in the press release today, you said that, that might not start up until 2028.

Speaker 14

Does that 3,000,000 tonne target still hold? Or could that slip a bit? Thanks.

Speaker 1

Well, the first question is for Guido and the second one for Stefano.

Speaker 7

Yes. The As we said, we are expecting to be at the upper bound of the guidance, and this is being reinforced by a number of things. First, the good performance on the first half, driven by Ivory Coast, Indonesia, Congo and Libya. And the confidence we are growing on the startup. Casiopeia, as we speak, we are at the very last stage of commissioning and 1st gas is coming soon, is expected in early August.

Speaker 7

On Balin Phase 2, we just completed the naming ceremony the day before yesterday, so the ship soon will sail. We'll be in country in September. And building on the experience of the Phase 1, we expect a couple of months of final integrated commissioning. So this startup will also happen at the end of the year. So the uptime was also pretty low.

Speaker 7

And all the major maintenance are factored into our budget. So I would say we are pretty confident to be in the upper side of the guidance.

Speaker 3

Yes. On biorefining, actually, all our choices are driven by 2 key drivers. The first one is to ensure state of the art biorefining capabilities. This means capability to process 100 percent waste and residues, high flexibility in order to shift from sustainable aviation fuel to HVO depending on value pool and driven by market volatility and market demand evolution, very efficient and effective process. These required detailed deep dive in order to ensure the maximum value creation in whatever context.

Speaker 3

And second, having a view about market evolution, the second driver has been getting the right phasing in term of cash out, so CapEx and value creation in order to maximize the IRR of each investment. Given these two main driver, we rephased in a minor way capacity development, we're going to get to the $3,000,000 within the 2027.

Operator

Next question is from Michele Della Vigna with Goldman Sachs. Please go ahead.

Speaker 15

Thank you and congratulations again for the strong results. And two questions, if I may. The first one is on your tax rate. It's been quite volatile in the last few quarters. I was wondering what you think would be the best assumption for us to use in the coming quarters?

Speaker 15

And then secondly, I wanted to come back to Egypt. It looks like they are committing to import of LNG, which effectively imply they will be short gas, even potentially in winter for the next couple of years. In the last 5 years, you've effectively turned that country from a net importer to a net exporter of gas. I was wondering if there was anything through exploration or development you could do there, especially connected to your Cronos discovery in Cyprus, which seems to have very good well deliverability and whether there was effectively a political agreement to potentially get it into Egypt? Thank you.

Speaker 7

Yes. Mikael, you are right. I mean, it's open sources information that Egypt has awarded 20 cargo for the summer from now to September. We don't have more visibility than what we I mean, the open sources can provide. Clearly, things may change, import from neighbor country or demand in the country may not raise as expected.

Speaker 7

So we cannot rule out that few cargo may be exported next winter, but for sure, it's not very likely as it was this year. In term of attractiveness of Egypt as a potential hub, clearly, there is this potential Egypt as capacity in LNG, capacity of liquefaction, capacity of processing, but this requires alignment between many stakeholders, private but also government. I know that Egyptian government is working on that, but it's quite a long journey.

Speaker 4

About the tax rate, yes, it's correct that there is volatility, but volatility is driven by seasonality, by the contribution of the different segments in line with their seasonal cycles. You know very well that if the contribution of the results are driven by GDP or by the Downstream, this will help to reduce the tax rate, while in the quarter where the E and P is dominating, the tax rate is a bit higher. The expectation for the year is to have a 50% tax rate, in line what we also presented at the beginning of the year, just a bit above, but it's not material, very normal fluctuation. And we expect that this 50% will be a top end in the coming years. So we have probably something in the range of 45% as a percentage in the next 4 year plan.

Operator

The next question is from Matt Smith with Bank of America.

Speaker 11

Hi there. Good afternoon. Thanks for taking my questions. I've got 2, please. I mean, lots of focus quite rightly on your net CapEx today and the progress there.

Speaker 11

I just wonder if I could come back to the gross CapEx, please. I think like you alluded to, the run rate, if we look at the first half result, is tracking closer to €8,000,000,000 rather than the €9,000,000,000 full year guidance. So I just wonder if you could give us any color on that and what sort of activity set we're looking at for the second half of the year just to conceptualize how that number might move higher throughout the year? And then my second one would be another question to come back on the buyback, if I could. And that was really just whether you would be comfortable.

Speaker 11

You're talking about the potential for an additional €500,000,000 of the buybacks. Would you be comfortable executing that if the disposals come through in the current macro environment, I guess, is my question because I suppose I just want to clarify whether you're targeting 35% of CFFO in that scenario, whatever that CFFO might be or whether you're looking to execute on €500,000,000 of additional buybacks? And I guess I asked the question because I note your CFFO guidance still assumes a Brent price of €86 for the full year, so slightly ahead of the prices on the screen at the moment. Thank you.

Speaker 1

So for the first question on gross CapEx, what I said during the presentation and our expectation is to stay close lower but close to the €9,000,000,000 that was our original target. It's true that now if we consider what we spend the spending in the first half, we are a little more a little bit more than €8,000,000,000 So we have space. What we have, we have activity that is linked to exploration, to development. So we can save something. We can maybe reduce, but our expectation linked to the activity we have, not only in the upstream, is to stay close to our initial forecast.

Speaker 1

It's likely that we can spend a little bit less, But that, at the moment, is our target. For the buyback, Francesco?

Speaker 4

The buyback, clearly, the scenario if we apply the scenario today, this will not make a major change to the overall cash flow from operation in the year. So we are speaking about probably a potential impact in the range of €300,000,000 €400,000,000 So this is something that is almost equivalent to a 1% leverage impact. This will not be the major, let's say, driver our decision. The major driver of our decision is clearly the capability to complete, to execute, to have visibility to the disposal plan. So the 1% is not a big effect that will change the view.

Operator

The next question is from Martin Ratz with Morgan Stanley. Please go ahead.

Speaker 12

Hi, hello. I don't think I've ever said this, but on this occasion, congratulations for the great quarter. That was really very impressive. A lot of questions have been already asked, but I have one left. And that is that I noticed that on Slide 3 of the pack that you sent around, it reiterates the EUR 17,000,000,000 CFFO guidance targets for 2027.

Speaker 12

So it's a few years out, but it's another step up. And I was wondering if you would felt it appropriate if we were to assume the same structure of the payout on that number as you're now talking about for this year, I. E, 35 percent payout on the first €13,500,000,000 and then 60% on the increment above that. Is that sort of structure of payout also applicable to the CFO guidance for 2027?

Speaker 4

You know that we have this guidance, 30%, 35%, and we revise every year. We announce at the Capital Day, taking into account of various elements, including clearly the scenario, including the leverage, including the structure of the company, moving eventually on growing the role of the transition business, also change the volatility of the results. So it is quite premature to recognize or to announce today what will be potentially the percentage. But the logic behind the distribution policy is clearly to improve even the percentage on the basis of the enhancement of the strength of the company. So that will be a natural consequence of this evolution.

Speaker 12

Okay. Thank you.

Operator

The next question is from Matt Loftin with JPMorgan. Please go ahead.

Speaker 16

Thanks for taking the questions. You've covered a lot of ground already, including a lot of the questions that I had. So I'll just limit myself to 1. I wanted to come back to GGP. Performance in the first half of the year looks strong and it's just struck me that, that comes in an environment where the conditions for trading and optimization through gas markets have perhaps been less consistent than was the case over the prior couple of years.

Speaker 16

So I wonder if you could talk a bit about what you think has differentiated GGP's performance through the first half of the year. And I ask partly because the financial results that do suggest when we look forward to 2025 plus that the €800,000,000 baseline per year that you provided in March perhaps increasingly looks quite conservative?

Speaker 9

So thanks for the question. Let's say, as we anticipated during the strategy meeting, the market has been reducing in terms of volatility. I mean, just to give you a number. I mean, last year, in the 1st 6 months, the daily TTF movements were around €2.2, €2.3 per megawatt hour. This year, we are clearly down to €0.9 per megawatt hour.

Speaker 9

So this is a trend which is actually happening. Having said that, this is still volatility which actually gives opportunities into the market visavis, if you want, the period before the energy crisis. And as I told you, especially on the geographical spreads, you know that we have substantial activity in Italy and that actually helped during the 1st 6 months. 2nd, the volatility combined volatility between oil Brent and Hub, also that actually gave us opportunities. And so those were the two elements, I'd say, in the 1st 6 months that were behind, let's say, the results.

Speaker 17

It's Jon Rigby here. I'm going to have to call it to a close. We've run about 10 minutes over, but hopefully that's a reflection of the interest in these results. So thank you very much for your questions. Anybody who has follow-up questions, please contact me or one of the team and we can arrange to help you with any questions that you have.

Speaker 17

So thank you very much. I know you've had a long week. Get some rest. Have a good weekend. We'll speak soon.

Operator

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.

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