Good afternoon, ladies and gentlemen, and welcome to the call on disposal of NAMM, offered by Paolo Scaroni, Chief Executive Officer and Alessandro Bernini, Chief Financial Officer. The call will start with a presentation and will be followed by analysts' Q and A session. After the end of the Q and A session, we will open the press conference for journalists. Until the time, journalists will be in listen only mode. I'm now handing you over to your hosts to begin today's conference.
Thank you.
Good afternoon, ladies and gentlemen, and thank you for joining us on this call on the disposal of our stake in Snam. Unlocking value from our holding in Snam, a fully unbundled and regulated company is one of Eni's stated strategic objectives. We first identified Snam as a non core asset in March 2011 and have since been studying options to maximize its value through a divestment. Within this context, the pace has been regulated by the Italian government, which set the ball rolling in January, permed up the legal framework and timeline in March and finalized the divestment conditions last Friday, identifying Casta, Depository and Pestity as the buyer for a controlling stake. We are pleased that we have been able to reach a rapid deal with Casta Depoitsi and Pestity.
And today, Sandro and I will take you through the terms and conditions of our transaction, our thoughts on the remaining stake in Snam and give you some initial visibility on what any will look like after the Snam disposal has been completed. First, let's take a look at the transaction with Casa Depository and Prestige. As some of you may remember, we set out the criteria by which we would evaluate the disposal of Snam in our start launching presentation last March. These criteria were: 1st, the transaction should be positive for any shareholders 2nd, the transaction should protect Snam shareholders by limiting the overhang on Snam shares. And third, lastly, the disposal should strengthen any balance sheet in view of its very attractive organic growth opportunities.
We believe the disposal meets all three criteria. 1st, it is positive for any shareholders. Casa Depository is paying €3.47 a share for a controlling 30% stake, a 3% premium to trading prices in the 30 days before the issue of the DPCM last Friday and a 5% premium to Snam's 2011 regulated asset base. 2nd, it protects Snum shareholders from an excessive overhang. More than half of our stake will be sold to a stable long term holder.
And there is no time limit on the sale of our residual shares, which means we have the flexibility to maximize value creation, while minimizing market disruption. Thirdly, at the end of the process, any will have cashed in something in excess of €6,000,000,000 and they consolidated over €11,000,000,000 of debt. There is no doubt that the new Eni will be a stronger company than it is today. Sandro will now take you through what it will look like.
Thank you, Paulo. To give you an idea of the impact of the disposal of Znam on any, I will take you through what we would have looked like in 2011 if the transaction had already taken place. Looking at our balance sheet first, we ended 2011 with net debt of 28,000,000,000 euros and shareholders' entity of around €60,000,000,000 If you factor in the sale of our entire stake in Snem, So the consolidation of over €11,000,000,000 of debt, €3,500,000,000 of cash in from the CDP transaction and €2,800,000,000 of cash in from the sale of the remaining stake at current market values. Taming net debt falls from €28,000,000,000 to less than €11,000,000,000 At the same time, the disposal would have a positive impact on our shareholders' equity, which would rise from €60,000,000,000 to over €62,000,000,000 Overall, the disposal of Snam would therefore improve leverage from 0.46 at year end 2011 to less than 0.20 on a pro form a basis. Looking at our profit and cash flows that the consolidation of Snam from the full year 2011 would reduce our EBITDA by 12%.
However, the impact on free cash flow would be negligible as Snam invests roughly the whole of the cash generated by its operations. In strategic terms as a consequence of the disposal of Snam, AAMI will be a much more upstream business than it is today. Looking at our capital employed, E and P will account for almost 60% of any, up from almost 50% at the end of 2011, while Gas and Power will fall from over 30% to R17. The deconsolidation of Usnam will also boost any adjusted returns on average capital employed from the 20 11 level of 9.9 percent to a pro form a of 10.4%. Ladies and gentlemen, thank you for our attention.
I will now hand you over to Paolo to wrap up.
Thank you, Sandro. We will give you more information on the strategy of the new EME at our usual market update next March. But it is clear that we will be in a better position to deliver industry leading growth and robust returns. First, our new balance sheet, which we consider portfolio more focused on E and P, will protect us from market volatility. 2nd, we will leverage on our financial strength to continue to invest in our high return upstream projects and in the new fields that our world class exploration continues to deliver.
On top of the 4 €1,000,000,000 BOE discovered over the past 4 years, since the start of 2012, we have already added well over 1,000,000,000 Veolia Mures resources from major discoveries in Mozambique, Norway, Gulf of Mexico and Egypt and secure promising acreage in Russia and Indonesia. And third, we will continue to reward shareholders. By the end of the year, our business structure and balance sheet will be more similar to our peers. When that happens, we will adjust our method of rewarding shareholders in line with industry practice with the launch of a new buyback program on our shares. Thank you for your attention and we'll now be pleased to answer your questions.
Are there any questions from the floor? May I start the Q and A session? Yes, you may. Sorry. First question comes from Mr.
Alberto Gandolfi from UBS. Mr. Gandolfi, please go ahead.
Hi, good afternoon. It's Alberto Gandolfi in UBS Utilities. I wanted to ask if you could shed some light on the remaining stake in Snam. And particularly, could you elaborate if you are considering a retail offering in Italy? Or how much you're thinking about splitting between long term strategic investor visavis a place in the open market?
Thank you so much.
Well, as per the DPCM, I don't know if you have other possibility to go through the decree, but the decree specifically provide that AIM has to adopt transparent and nondiscriminatory market procedures. It means that as soon as it will be practicable, because we are still doing a legal analysis of the DPCM in order to assess finally when it will be possible to start with the disposal of the remaining stake then considering what will be the prevailing market condition then we'll decide the most appropriate procedure to dispose our stake. We do not exclude. However, we don't exclude for sure the possibility to place a portion of the remaining stake on the retail Italian market.
Thank you.
Next question comes from Mr. John Rigby from UBS. Mr. Rigby, please.
Thank you. Someone's dominating the start of this. I apologize. A couple of questions. The first is, I think, Mr.
Ghoni, you've talked about the lack of desirability of holding non controlling interest in listed shares and I think listed companies. And I think we've seen the danger of announcing a sale ahead of that sale with your stake in Galp, which appears to be hurting from the hangover of those shares. I mean, have you thought about that in the context of this transaction sort of pre announcing that? And what was your thinking of the Board when you looked at this overall transaction? The second question I have is take your point about the buyback, which is welcome news.
Can you also confirm something I think you said before is that there would be no change to the dividend policy as well subsequent to this transaction?
Well, answering to your question, I agree with you to announce that you will be selling, particularly in the case of gas certainly does not have the share price. But frankly, we could not see any alternative to that. This position of ours has been held for a long time. We had to negotiate with the public authorities in order to be able to sell. And when you have a complex negotiation process, it happens that you have to announce what you are going to do.
I mean, if we had not announced somebody else would have announced in our place. So frankly, I agree with you, but there is no alternative. In the case of Snam, I have to tell you I'm a little more confident because Snam is a, if I may say so, is an equity bond. It's a company that shareholders buy for the dividend, ask for the solidity of the dividend. And this makes me think that probably this effect will be lower than in case of companies which are more on the market than NAM.
Now in terms of I've also to tell you that we have already received a number of unsolicited expression of interest from strategic investors keen to buy a stake in Snam, which means that there is a huge interest for this kind of investment. At Bougain, in terms of dividend policy, we certainly confirm the dividend that we have already announced for 2012. So next dividend is what we announced it to be. In terms of what we will do in our strategic review next year, well, this is another story. We will certainly introduce in our reasoning a company which is different than what used to be.
Less debt, more upstream, less regulated businesses.
Can I
just ask a follow-up as well? Talking about share hangovers is there's been some discussion about a method that the Italian state or CDP would finance this would be through the sale of your own shares. Has this been considered yet by the Board? Or has this been discussed by the E and I Board to facilitate this process?
Listen, as you may remember, we have been holding 9.4% of our shares for a couple of years as the result of a buyback in 2,002, 3 years. Okay. We certainly will cancel these shares in order to announce the new buyback program. Now what the government and the Casa de Positivo will do with the stake they have exceeding the 30%, it's not really my business.
Right. Okay. Thank you.
Thank you.
Next question comes from Ms. Luci Kajaskins from Barclays. Ms. Kajaskins, please.
Thank you. And perhaps a follow on to that question, would you given you're talking about reintroducing a buyback program, would you be tempted to buy that residual holding from CDP? And a couple of the I
am not understood. To buy what from CDP?
So effectively if CDP is to sell down part of its interest in yourself to Sandd, the acquisition of Snam, Would that be something to buy from them as part of your buyback program? Could you not No. That is no. Okay. Capital?
Taxation.
Luciano, you're asking about the capital gains
on the Snam transaction? Yes.
Well, for sure, the price that we have agreed with the CBT will make it possible to realize a quite remarkable amount of capital gain. And then of course, we are targeting to be able to replicate more or less the same dimension when we'll approach the market. All in all, we expect to realize something close to in excess of couple of €1,000,000,000 on which we do not expect to face any significant amount of taxation because of course we are enjoying the participation exemption rules in Italy.
So sorry, could you tell me, so this wouldn't be subject to capital?
It would be subject to a very limited tax rate. We can define it in the region of 1.5% on the capital gain that will be realized from the disposal.
That's great. Thank you. And if I could just one more sort of follow through. The price that you have achieved from CDP, are you going to use that as a floor for any other potential divestments or the remaining stake that you sell down in Snab?
No. The answer is no. The answer will not be a flow.
Thank you. We will do our best. Many thanks.
Next question comes from Mr. Stefano Gamberini from Equitasim. Mr. Gamberini, please.
Good afternoon. Stefano Gamberini from Equitasim, the utility side. Just two questions about the price. First of all, how did you calculate the RAB at the end of 2011, the RAB per share? And second, if you can share with us your assumption regarding the DCF valuation.
3rd question regarding the second point the flexibility on disposal of the remaining stake. Do you have an idea when could be the best period to dispose considering the regulatory period of distribution, which will end in the year and transport that will end at the end of 2014? Many thanks.
Well, as far as the rub to which we have referred in determining in sentencing that we have been recognized premium by 5%. You can refer of course to the normal calculation that is done in determining what Norris call the equity rub. So starting from the enterprise value of the company less the net debt of the company and then adding what normally is defined the NPV or the incentive investments and we're considering also some provisions, which reduce the amount of Equitable for example environmental provision, pension provision and some other minor minor provision. So if you consider those amounts relating to the 2011 situation existing at year end, you will quite easily define calculate the amount and accordingly the premium that has been recognized. In terms of discount and the cash flow, which was one of the criteria to which we have referred during our negotiation with CDP.
Of course, it consider take into account what the company has announced for the next 4 years, the official information which has been publicly released and considering a discount ratio equivalent to the weighted average cost of capital for a regulated business company. So ranging between 5% and 6%. Then as far as the flexibility with reference to the remaining stake. Of course, in terms of timing, we are quite happy that the government has not imposed any specific deadline considering that immediately after having transferred the controlling stake to CDP, our residual stake will have sterilized the vote. And consequently, we will be able to maintain our stake up to when we will consider appropriate or we will consider the market condition will be satisfactory for the disposal.
Well, for sure, over the next few months and few years, the company is numb and the other controlling companies will have to meet the Italian authority in order to renegotiate the new regulatory period. We do not consider this event as a major event which can affect the timing of our disposal. We have not agreed any residual effect with the CDP as a consequence of any modification which could happen on the regulatory framework. And we do not I repeat, we do not consider this event a major event affecting our disposal process.
Just a quick follow-up, if I may. As we guided the evaluation of the company in the 3 different criteria, Do you weighted the different criteria with different weight during your calculation? Or it was just an average of the 3 different prices, if I may?
We have as well as the advisers, which has worked with us on this transaction. And on top of the advisor assisting the Board, you have to consider that there was also another advisor specifically appointed by the independent directors of the company since transaction with a related entity. The criteria to which altogether we have referred in determining the most appropriate price refers not only to 1 or 2 specific criteria, but we have referred to a number of criteria starting from the most important, the most represented one which was the DCF. Of course, then we have referred to the RAB existing either at the year end and what it is expected to be when the closing will take place plus another criteria to which we have referred it to as the multiples for regulated business or what has been already done in the recent past for similar type of businesses. All in all, the average of those criteria have confirmed the fairness of the price that we have agreed with CDP.
Many thanks.
Next question comes from Mr. Alberto Ponti from SG. Mr. Ponti, please.
Yes, good afternoon. Just a quick one. Can you given that the payment for is in 3 tranches for from Sigvee to you, can you tell us remind us when are you going to deconsolidate the Snam, so that we can then start counting the grace period for the refinancing of the SAM? Thank you.
Yes. The consolidation will take place as soon as the closing will take place. So it will depend on when the commission precedent, the most important of which is the approval from the Italian antitrust authority will be it will be received. But however, we can position the closing date by the end of September half of October. And at the closing, we will transfer the shares to CDP.
And in that specific moment, we will not be anymore the controlling entity of Snam. So you can consider that the last quarter of 2012 will pertain to GDP because we'll not be anymore the controlling entity of Snam. So from the 1st October, it is reasonable to assume that Eni will not control anymore Snam. And from that date onward Snam has to start the repayment of their debt to Eni.
Okay. It's very clear. Thank you very much.
Next question comes from Mr. Domenico Ghilotti from Equita. Mr. Ghilotti, please.
Good afternoon. I have a question on the treasury share cancellation. What is the timing for the approval and completion of this process?
The approval, what do you mean?
You said that you are considering a treasury share cancellation. So when do you expect to issue the proposal and then the timing for the full effectiveness
of the cancellation. Just a second. We are going to call a shareholder meeting on the 16 July. 16 July. Okay.
This shareholder meeting on the 16 July, I believe, at 10
in the
morning, we will propose the cancellation of our buyback shares and the launch of a new plan of buyback. This new plan of buyback will last 18 months then it will be renewed at a successive shareholder meeting. But as you may have read in our may have read in our press release, our buyback will not start then after the presentation of our new strategy, which is likely to be end of February beginning of March next year.
Okay. Thank
you. No more question at the moment. You. Next question comes from Mr. Paolo Chitti from Intermonte.
Mr. Chitti, please.
Good afternoon. First question regarding Ital gas. You have read the newspaper regarding potential antitrust problems. But what's your view on this issue in particular? 2nd question regarding the PAG.
Do you think that a potential merger of Business NAND and the TAG could be an interesting move for the GDP creating potential synergies for the company. And my final question is on the gas prices in Italy. I'd like to have your comment regarding the potential impact of this disposal of NAM on gas prices.
Listen, I'm afraid you asked 3 questions that I cannot answer, either one of those. Now as far as the first one around Ital gas, I just want to tell you that as far as we are concerned, whatever the antitrust decides on Ital gas, we are immune from any consequence. So this is not our problem. It is if it is a problem, it is a problem of casa deposit precipitate. As far as tariff is concerned, again, we don't know much about it.
And frankly, we don't want to investigate much more on something which is not at the center of our interest. As far as the gas price is concerned, I would if I may suggest you to ask the government their view about that because this looks like having been the motivation of this of all this decision. So frankly, I believe that CASA and possibly the Italian government are better placed than us to give you an answer on the gas price.
No more questions at the moment. Next question comes from Mr. Neil Mortein from Berenberg. Mr. Mortein, please.
Yes, thank you. I don't know whether this is a question for CDP or for yourselves, but clearly you were negotiating with them. And I'm sure their sort of ability to pay must have been a matter of debate. We had heard in the press various stories about as has been mentioned previously cancellation of treasury shares, CDP selling a stake or selling down the stake to an outside buyer. I mean, are you basically, are you happy that CDP are good for the out of money?
Thank you.
I'm not sure I understood the question. Are we happy with the money they're paying to us?
No. Just in terms of their ability to raise funds to pay you the CDP?
Well, CDP is a very rich institution. So frankly, we are not worried about the fact that they will be paying what they signed to pay. Frankly, I could hardly imagine a better buyer in terms of being safe and relaxed about the payment. As far as their decision to sell any shares in excess of the 30% they hold, frankly, I don't know what they would be doing. This is really a question for them.
Okay. That's fine. Thank you.
Next question comes from Mr. Marc Bloomfield from Deutsche Bank. Mr. Bloomfield, please.
Good afternoon. Thanks for taking my question. I appreciate that you'll give us a better sense of the new financial framework come February, March next year.
But I just wondered in order
to help us better understand the level of distributions or potential distributions going forwards, could you perhaps offer some comment on what you think is a sensible pro form a gearing range for the company ex Sam? And perhaps also give us some kind of framework under which you would actually consider buying back stock. So not just a fact you're going for an approval, but what kind of scenarios would you consider buying back? Thanks.
Lisa, you are asking a very appropriate question I have to tell you because we have in front of us a major change in our balance sheet in the next 12, 15 months or so. Because there is not only the Snam transaction, but also the Galp transaction, which we are looking at. On the other side, the quite impressive amount of discoveries that any has been achieving in the last years months will give us a lot of room for internal growth and CapEx in the next 10 years or so. So yes, we will be working on a detailed plan, which will take into account among many we've taken into account of course CapEx, dividend distribution, share buyback, but also the level of leverage that we want to have. More generally, since we are not ready to answer your question, although we will be because this is a crucial issue for us.
But generally speaking, I believe that an upstream company like us, which has so much portfolio of new discoveries needs to have a strong balance sheet, because we sell around the world our balance sheet. And my general view is that we certainly want to have in the future a much lower gearing that we have been having in the past few years.
Thank you.
No more questions at the moment. Thank you. The control room confirmed. There are no more questions.
Thank you. In that case, we can call the analyst and investor conference over.
Thank you, ladies and gentlemen. The investor and analyst call now is over. The press conference will start shortly, so journalists should stay on line. Ladies and gentlemen, welcome to our press conference.
Okay.
Next question comes from Mr. William Kennedy from Bloomberg. Mr. Kennedy, please.
Good evening. You mentioned that you'd already had some approaches for the remaining 20% of SAN. I wondered if
you could give some details of the types of buyers who
are interested and whether they are interested in the entire 20% or a portion thereof? Thank you very much.
Well, based on the informal contact and informal approach that we have received so far. We cannot we don't want to disclose any specific percentage, which would be in a position to place on a bilateral negotiation basis. But for sure, what we can confirm so far is that there is a strong interest for even for interesting remarkable percentage of Snam stake. Of course, our first goal that we wanted to achieve over the next few weeks is to start to verify to check whether or not those demonstration of interest are founded or not. But so far, we are extremely positive about what could come out from the negotiation with those entities.
Some of them have also already disclosed potential interest for a double digit percentage. So this is the reason why we are so positive about this strategy.
Would you just to quickly follow-up, would you expect to do a
deal this year do you think?
Would you expect excuse me?
To do a deal for that 20%. It sounds like there's a lot of interest. Would you expect to do a deal this year? Is that possible?
Well, as already stated by Mr. Scarone, we have been successful in not having a specific decline for the disposal. So of course, our goal is to monetize as soon as possible. But of course, we don't want to destroy value. We want to maximize value.
And of course, the timing will be significantly influenced by the prevailing market value of Snammo shares. So it will depend on the price.
Yes. But to answer your specific question, it is quite unlikely that the numbers won't buy for 22%, because we own 22%. I think it is going to be very unlikely. In any case, our North Star in all what we will be doing will be to maximize value from our stake.
Okay. That's very clear. Thank you, gentlemen.
Next question comes from Mr. Liam Maloney Maloney, please.
Retail Investors, institutional investors.
If there are no more questions, we will close the press conference.
The conference room confirmed. There are no more questions. Thank you.
Thank you. Bye. Bye.