埃尼石油 (E) 2003 Q3 法說會逐字稿

Good afternoon ladies and gentlemen and welcome to ENI's 2003 Q3 Results Presentation. This Conference Call will be chaired by the CEO Mr. Vittorio Mincato.

Mr. Mincato, this Call is now over to you.

Ladies and gentlemen, good afternoon and thank you for attending this Conference Call and the comments on 2003 Q3 Results and Business Strengths.

Adjusted net income in Q3 2003 totaled around €960b with an increase of 12% compared to the same period of 2002. This result was achieved mainly thanks to strong growth in upstream production, an increase in Natural Gas sales and still higher Hydro-Carbon prices, plus 5% and refining margins versus the same period of 2002.

This positive business and the [marked] plans were almost entirely offset by the negative impact of the euro appreciation relative to the US dollar, flat 14% and the worse [mark] scenario in the Petrochemical business.

Despite the overall less favorable market trends during 2003 Q3, the adjusted operating profit was up 1% on a like-for-like basis. Below the operating profit line, we had the lower net financial expenses of around €100m, mainly due to lower interest rates as well as lower negative exchange rate differences. These positive effects were partially offset by higher minorities of around €20m.

Finally, I would like to highlight that in Q3 2003 we had negligible non-recurring items, while in the same period of 2002 they were positive of more than €60m.

In the first nine-months of 2003, net income before non-recurring items, amounted to €3.8b, which is an increase of more than [indiscernible].

Adjusted EPS, based on an average number of shares of €3.78b, increased by 17% [indiscernible] on the quarterly and the nine-months' basis of [indiscernible]. [indiscernible] recurred on cash flow per share received nil and 5% increase on a quarterly and a nine-month basis, compared to the corresponding periods of 2002.

In Q3 2003, daily Hydrocarbon production reached 1,556 boe up 7.2% versus the [indiscernible] corresponding period in 2002. The main contribution comes from the consolidation of Fortum, the increased production achieved in Nigeria and the [indiscernible] production in Pakistan, [indiscernible], Australia [indiscernible], Nigeria [indiscernible], Iran [indiscernible] and Algeria [indiscernible].

These positive effects were partially offset by declines of the mature fields mainly in Italy and the lower entitlements in [indiscernible] due to higher international oil prices.

In the first nine-months, the daily average Hydrocarbon production reached 1,537,000 boe showing a growth of around 6% versus the corresponding period of 2002 and improving the increase of around 5% we reached in the first half. Furthermore, in October, we have reached an average daily production of more than 1.6m boe. These results are in line with our plan to reach more than 1.8m boe per day in 2006.

Regarding our Gas and Power business, overall gas volume sold or consolidated and associated sales in Q3 were up 12% confirming the positive trend shown in the past months. In 2003, we can see the first results of our strategy aimed at placing the opening of the Gas and Power market in Italy and the development abroad in Natural Gas [indiscernible].

In the first nine-months, overall gas volume sold rose by around 12%. In particular sales in Italy declined by 1% compared to the last year, as a result of lower sales to the wholesalers and industrial customers, partially offset by higher volumes sold to end customers, things like Powergen, Residential and the Commercial sector.

International consolidated sales reached around [13bcm] with a 35% increase on a like-for-like basis. Other international gas sales of [5bcm] are mainly related to the [indiscernible] and the Gulf contribution on the product [indiscernible] basis.

These results are consistent with the [indiscernible] on the gas supply and the final customers in the domestic market and [indiscernible] our growth strategy for the international gas business.

That's all. Thank you for listening. Now I will hand you over to Marco who will review the Q3 results business by business.

Thank you Vittorio. Good afternoon, ladies and gentlemen. After the comments on the major trends, I will now focus on the economic results relevant to Q3 and the first nine-months of 2003.

As usual, I would like to remind you that any results are affected by several factors, including the seasonality in demand for Natural Gas and for Petroleum products used in residential heating. The demand for which is highest in the first quarter of the year, which included the coldest months and lowest in the third quarter, which includes the warmest months.

Therefore, ENI's operating income and change in net debt for the first nine-months cannot be extrapolated for the full-year. Having said that, Q3 operating income before negligible non-recurring items of €17m amounted to €1,914m with a 0.7% increase versus the corresponding period of 2002. Adding the effect of the euro versus the dollar, the Q3 [clean] operating result would be up 16% over the same period of 2002.

The adjusted operating income of the first nine-months of 2003, totaled €7.3b up 12.4% versus the same period of 2002. If we add the effect of the euro appreciation versus the US dollar of around €900m in the first nine-months of 2003, the increase in the clean operating income on 2002 would be in the range of 26%.

Reporting operating profit in Q3 2003 amounted to €1,897m, up 2.3% on the same period of 2002. In the first nine-months of 2003 the reported operating income totaled €7b with an increase of 9% in comparison with the corresponding period of the previous year.

Q3 clean operating income in the E&P amounted to €1,468m, up 11.4% if compared with the corresponding period of 2002. The result is mainly related to higher realization prices denominated in US dollars, following the positive oil market environment, plus 5.9% for both oil and natural gas, higher hydrocarbon sold, plus 13.2%.

These positive effects were partially offset by the 14% appreciation of the euro over the US dollars and the lower contribution coming from the [Sour] Gas [indiscernible], due to the new storage tariff system.

In the first nine-months of 2003, E&P clean operating income amounted to €4,507m with an increase of around 15% over the same period of 2002.

As far as the Gas and Power business is concerned, Q3 operating income before non-recurring items amounted to €390m with a 12.6% decrease, compared with €446m accounted in the corresponding period of 2002. The decrease is related to lower margins in the primary [indiscernible] due to the higher purchase price of our import, mainly related to the combined effect of the scenario, both energy and currency trends, which were not completely transferred in the same prices.

These two components have an overall impact of about €22m. This effect is expected to be fully recovered by the year-end.

Goodwill amortization relevant to the Italgas deals, which accounted for €23m and lower margins in the Power Generation, due to higher fuel costs and the planned maintenance [indiscernible] in our plant in [Toronto], which accounted for €10m. However, let me repeat that given the high seasonality in demand and the time lags affecting the results, it is more significant to analyze the gas business on a yearly basis, rather than quarter-by-quarter.

In the first nine-months, clean operating income reached €2,461m, 1% up if compared to the result achieved in 2002, which reflects a good reaction to the increasing competitive pressure in the Italian gas market.

Let's now turn to the R&M sector. The Q3 clean operating income totaled €152m, a 28% increase versus the 2002 results, thanks to still high refining margins and the positive contribution of the distribution activity both in Italy and abroad. These positive effects were once again partially compensated by the appreciation of the euro over the dollar.

In the first nine-months, the operating income before non-recurring items amounted to €477m with an increase of almost 100%, mainly determined by the robust refining margins, partially reduced by the strong appreciation of the euro over the dollar and lower profitability of [GPL] sales in Brazil.

In Q3 2003, the Petrochemical sector posted before non-recurring items an operating loss of €59m compared to the clean operating income of €34m in the same period of 2002. The result was due to the fall in unit margins related to the sharp reduction in selling prices of the main Petrochemical product, as compared to a less [marked] decline in oil based [indiscernible] prices in Europe. That was partially compensated by higher volumes sold, mainly [indiscernible].

In the first nine-months of 2003, the Petrochemical sector showed, before non-recurring items an operating loss of €4m, mainly due to the brief rally in the second quarter, related to timing differences on purchase and sales prices.

In Q3 2003, the Oil Field Services and Engineering operating income before non-recurring items amounted to €81m, an 11% increase if compared to the same period of 2002. Mainly thanks to a better operating result of [indiscernible].

In Q3 2003, the €53m operating loss before non-recurring items in other activities is substantially related to the €62m negative result of [indiscernible].

In Q3 2003, below the operating profit line, which increased by €43m, net financial expenses amounted to €64m, with a sharp decline if compared to €164m in 2002. Mainly due to lower negative exchange rate differences as well as to lower interest rates in the financial market, and the impact of appreciation of the euro on financial charges, relevant to debt denominated in US dollars, partially offset by the higher average debt.

Net income from investments amounted to €15m as compared to €36m in Q3 2002. Net extraordinary income amounted to €4m as compared to €122m in 2002, which was related to around €113m gains on disposal of assets, mainly in the R&M business, as a result of restructuring activities. In fact, we had sales of distribution activities in Nigeria and some service stations in Egypt.

Income taxes increased by €51m with respect to Q3 2002, while minorities increased by €21m if compared to the same period of last year. Due to higher share of profits of [indiscernible] Gas and [indiscernible] attributed to third parties.

In Q3 2003, non-recurring items are negligible, while in Q3 2002, net income was affected by the negative impact of extraordinary items of €62m.

As far as investments are concerned, in Q3 ENI capital expenditure amounted to around €2.1b, of which around €1.4b invested in E&P and around €0.5b in Gas and Power, confirming our strong financial effort to sustain the growth in the core business. In addition, around €500m were spent in the equity investments, mainly related to the Union Fenosa Gas acquisition, it was about €440m.

As far as the buy-back program is concerned, the total cash out from June to the end of September 2003 amounted to €50m. The average price paid is €13.33 per share. In the first nine-months of 2003, ENI overall investments amounted to around €10.2b, on which €6.1b related to capital expenditure and around €4.1b in equity investment.

As far as the buy-back program is concerned, the total cash out from January to the end of September 2003 amounted to €307m. From the start of the program and up to the end of the September 2003, we bought back 229m shares, the equivalent of 5.7% of the share capital. The average price paid is €13.74 per share.

Before concluding my Presentation, I'd like to comment on the net debt and the gearing. Net debt, as at September 2003 amounted to €13b, €250m higher if compared to June end figures, mainly as a consequence of CAPEX requirements and the financial impact for the Union Fenosa Gas deal, partially compensated by cash generated in operating activities.

The net debt at the end of September was €1.9b higher than at the end of 2002, mainly as a consequence of the financial impact in Q1 2003 of around €3.6b cash out for the acquisitions Italgas and Fortum and the €2.8b cash out for the dividend payment at the end of June.

Our debt to equity ratio remained at 0.48 as at the end of June, increasing the 2002 year-end level, but still below the 0.5 target set in our strategic plan.

Thank you for listening. Now we are pleased to answer any questions you may have. I have to add that together with us today there are the three Chief Operating Officers of the business divisions, Stefano Cao, Gilberto Callera and Luciano Sgubini.

We are now ready for the Q and A session.

Our first question comes from Mr. Ian Reid from UBS. Go ahead, sir.

Good afternoon. I have a couple of questions please. Firstly, in buy-backs, your buy-back program has now gone down to a very low level compared to the levels of a year ago. Could you tell us, are you giving up on this or is it just a kind of seasonal dip in terms of the amount of buy-back you're doing at the moment? Maybe you reiterate your overall target for this both for the year and your longer-term target.

My second question is on goodwill. We've now got a number of goodwill items in there, two of which are fairly recent obviously, Italgas and Fortum. I wonder if you could give us the operating profit or maybe also the net income for the quarter prior to goodwill, both for this quarter and for the quarter of a year ago? Thank you very much.

Ian, I will answer the first question. The second one I will ask for some time for it to be elaborated. As regards to buy-backs, I wouldn't call a seasonal effect the fact that we have lowered it down, it is just a pragmatic approach to the increase of our debt to equity ratio. You may remember we have always said that the buy-back would have been an element of flexibility in our financial strategy. So it is not that neither we are giving up, nor seasonality. It has actually nothing to do with seasonality. It is just a matter of using it as an element of flexibility; that's all.

As regard the goodwill, we will come back later. The others are trying to figure out the answers you need.

Just another thing on buyback - do you have a target for the year?

No. We don't have targets.

Thank you, Marco.

Thank you. Our next question is coming from Nora Finardi from Euromobiliare.

Good evening. Just a couple of questions.

The first one is in ENP. How much was in absolute terms the impact of lower storage tariffs?

The second question in Gas and Power, if you could provide an indication of the mix effect in absolute terms, that I think should be negative? Thank you.

I think it [indiscernible] of accounts. The impact on lower on the ENP question is...

The impact of lower storage tariffs, in absolute terms?

The impact on the lower tariffs in the quarter amounted to €27m on a quarter on quarter basis. If you wish to have an indication of what is the expectation on the full year, we imagine that at the end of the year, it will be a total of €270m, year on year.

Thank you.

Nora, if you don't mind. We didn't hear the question regarding Gas and Power.

I will try to repeat. Just in absolute terms, an indication of the impact in terms of the mix effect in Gas and Power, that I think should be negative in [indiscernible].

Hello. This is Luciano Sgubini speaking here. The first thing is the mix effect. Our results mix is over to - what do you mean the mix effect?

They differ at the point at you had a higher contribution coming from foreign sales and versus Italian sales.

Well, I can say that the [indiscernible] the result we have a reduction in terms of margins in Italy of €90m in the nine months. This is compensated with activity outside Italy of €24m. So you have to add also the different scenario that we have, that are the positive contributions of €129m. But the total [indiscernible], in terms of operating, results is flat €93m. This is combination of the three events.

Our next question comes from Ms. Irene Himona from Morgan Stanley.

Yes. Good afternoon. I have two questions.

Firstly, on page number 8, you provide us with Group Operating profit, adjusted for the exchange rate impact. Is it possible to do that for the two main businesses, ENP and Gas and Power? In other words, what would the change be at a constant rate?

My second question is on Petrochemicals. That business has swung back into losses. It doesn't feature any longer in your annual fact book. I am just wondering if you could possibly update us on how the restructuring plans are proceeding and what alternatives there are, if there is no sale? Thank you.

The impact of the different currency is substantially to be dedicated to ENP. The Gas and Power, let's say, is negligible.

As regards to petrochemicals, the procedure of sale of [Elastomil] didn't achieve the right price. Therefore, we decided to restructure [indiscernible] and others. We intend to increase the efficiency of the plant, beside after that, a new procedure.

Meanwhile, we shut down some plants. We shut down [indiscernible] plants in [indiscernible] and [indiscernible] plants in [indiscernible] and [indiscernible] and we began the procedure of shutting down of some uneconomic plants in Ravenna and in concentrating ADS [indiscernible] in Mantova, shutting down the Ravenna plant.

In other words, we accelerated the procedure of shutting down some plants and to reduce costs mainly in Ravenna, we intend to continue the procedure for the plants in UK and in US and more plants in Texas.

Thank you.

Thank you, Miss Himona.

I think that for the next question, we have the answer, which was missing in the first question, which was raised by Ian Reid. The one relevant to the goodwill - the impact of the goodwill. In the first nine months of the year, the goodwill related to Italgas, [indiscernible] and GBS amounted to €180m. While in the third quarter 2003, it is €60m again related to Italgas, [indiscernible] and GBS and [indiscernible].

So if Ian is happy, we can go ahead with the next question.

Thank you. Our next question is from Mr. Barry McCarthy from BNP. Go ahead, sir.

Thanks. It is Barry McCarthy from BNP Paribas. I have got a couple of questions, please.

One is on the CAPEX guidance for the half year. You indicated €8.5b this year. You are now indicating €9b. Can you tell us what is behind that and specifically whether it reflects cost pressures or other issues?

The second question, is what for you what would be the best possible outcome from the [indiscernible] restructuring discussions that are now under way?

If I can ask a third, any post-field trip developments from Kashagan on the approval side please?

As regards the [indiscernible], let me say increases in the amount of CAPEX by year end, I would say that a considerable component is represented by the fact that we take into our 2003 results an amount of CAPEX and also a proportion of the CAPEX dedicated to assets which we expected to be disposed of before the year end and which didn't materialize yet.

So that would be a good portion of that effected increase. Then [indiscernible] in the other items that should be taken into account is the possible acquisition of the additional share in the North Caspian Sea venture, which in the anticipated figures is considered as being completed before the end of the year. If that goes beyond the end of the year, that would mean around €300m, which will be in 2004.

We confirm our interest in [indiscernible] as in general in the end of the sector of the Iberia Peninsular. In these weeks, there are negotiations going on with the government in order to find the best possible outcomes for us at the time it is to maximize the value of our presence in Portugal. So we are really in the phase of negotiating with them and we plan to have some outcome shortly.

There was a third question related to the progress on the approval of the Kashagan development plan and budget. At this stage, the situation is not very different from the field trip we had in Kazakhstan. We are still negotiating. We see the republic and the negotiations are related to the agreement on the date on which we achieve the so-called Kashagan commercial production.

As you well know, in terms of the ENI plan, we do not consider the Kashagan production has a material until 2006 production as well as you know that during the course of 2003, between the time we presented the development plan which was at the end of last year, we have been continuing our work on the project. We have signed the contract for the engineering and the contract for the drilling for development and then we have continued the building of the artificial island as well as we have continued the site preparation for the offshore facilities, which are in construction.

The dialogue continues with a number of meetings, one after the other and we would still expect to have the conclusion by the end of the year.

That's great. Thank you very much.

Thank you, Mr. McCarthy. The next question is coming from Ms. Caroline Cook from the Deutsche Bank. Go ahead, Miss Cook.

Good afternoon, everybody. Just a couple of questions.

First, on gas sales. You show in the presentation, a decline of about 1% year over year in domestic Italian gas sales and you talk about an expectation that total demand for natural gas in Italy, this year, will grow about 8% compared to last year. So that sounds like you are letting your market share fall quite rapidly and certainly more than the 2% that is required by the legislation. I just wondered if you could explain if, firstly, my assumption is correct, and secondly, why you are letting it fall? Maybe it is relative to market growth?

The second question is just on CAPEX. Given that you have increased the guidance for this year again, it sounds like most of that is the Kashagan, but maybe you could update us for your expectations for capital spending now, in 2004 on the back of that?

Lastly, I wondered if you could just comment about the refinery closure in Sicily that was announced earlier on, today? Thank you.

The gas sales in Italy have decreased, as you mentioned. This is due to the fact that we have increased the gas that we sold to third parties for the target markets. So this operation is, if you remember, was due just to say within the limit of the ceiling that we have by law. As far as the market share in the final market, I can confirm that we are ready to limit to 50%. We have a figure of about 47.2% of the final market - as Marco said, the ceiling of the final market.

As regards the guidance of 2004 CAPEX. We are these days updating our 2004 format, 2003 - 2006 and now 2004 - 2007 plan. I think it would be inaccurate to give any guidance. Be patient for another couple of months and we will come back with a wider picture of everything.

Now Gilberto Callera will answer your question relevant to the situation in the refinery.

As you probably know, last week ,the total [indiscernible] investigated the level of pollution on our refinery. It has [indiscernible] exploration injunction involving a significant number of tanks in our refinery. Really, this is [indiscernible]. We are co-operating with the court in order the define other measures technically available in order to ensure that the results of the injunction [indiscernible] they are co-operating on the refinery.

We are confident that not now, but in a very short time, we will be able to find a solution, so that the refinery can operate with very small difficulties on the production.

Okay. So any idea when it may restart?

We are confident to find a solution in order to make the refinery, which is not completely shut down at the moment. It is operating with some plants to shut down. We are operating. We close the plants that have been [indiscernible]. We are trying to find a solution in order to keep all the refinery plants in operation.

Okay. Thank you very much.

Our next question is coming from Mr. Edward Westlake from ABN Amro.

Two questions.

First, just a small question on the results. The net income from associates, which I believe is mainly International Gas, was quite weak in the quarter. If you could just talk through what effects are going on there?

Then secondly, at this stage in the year, I am just wondering just what your reserve replacement looks like when you have had a good year in terms of drilling success?

The first question - the one relevant to the income from [indiscernible] which amounted to €50m as compared to the €36m we had in the third quarter of 2002.

The decrease is mainly related to the capital gain from the disposal of assets in the petrochemical sector which accounted for about €52m, which we had in 2002 and the goodwill amortization in the Union Fenosa Gas which accounts for €15m in 2003. These negative effects were partially compensated by higher share of income from subsidiaries that accounted for with the equity method - in particular, Gas and Power and RNM for about €22m.

I will hand you over to Stefano as regards the question on the reserves.

The assessment of the reserve replacement is a fairly complex process, which requires a certain amount of information, some of which is only going to be available at the end of the year. I think that the first example, we see value of the reference is [indiscernible] uses for the reserves valuation.

I think at this stage, with what we have in hand, being at three-quarters of the year, we would not anticipate reserves replacement any lower than something like 120%.

Thank you.

Thank you, Mr. Westlake. Our next question is coming from Mr. Jeremy Elden from Lehman Brothers. Go ahead, sir.

Good afternoon, gentlemen.

Could you tell us a little bit about the progress you have had in the renegotiation of your gas sales contracts in the fourth quarter? As I understand it, you have a lot falling due for renewal from October 1 and I wondered how that process was going?

Secondly, I would be interested in a little bit more information if you can give it, on your Chemicals operations. Am I right that you intend now to permanently keep the operations you have lumped under Petrochemicals? They do see to be not just actually losing money on a P&L, but losing money on a cash basis. Is there any plan for radical change there, aside from the ones you are looking to sell?

As far as the negotiation of gas sales contracts, I can confirm that the negotiations are going on. We have completed and finalized about 50% of our portfolio. There is continued pressure on the market, so we have to manage the market, but I can confirm today the estimation that we made two years ago, it can be confirmed and so we are in line with our provision.

As regards the Petrochemical sector, Jeremy, Vittorio has made a list of some plants, which are being shut down and these are the plans where the cash requirement came from. The strategy is from now on, to dedicate special care to the plants, which are asking for additional cash, and to close them on a case-by-case basis.

Am I right in thinking that the whole sector in aggregate is cash negative, even before CAPEX?

Yes it is.

Wouldn't it be easier to just shut it all down?

From a theoretical point of view, I would say yes. From a practical point of view, to close all the plants, it is a little bit more complicated. You must not forget some [indiscernible] which are typical of this business segment. But the attitude is to try to close as quickly as possible, those plants, which are asking for additional cash.

Right, that's great. I think you just need to get some boys up from Sicily and have a few fires, but thanks.

Thank you Mr. Elden. Our next question is coming from Mr. Andrew Archer from Commerzbank Securities. Go ahead sir.

Thank you. I have just a couple of questions on the Gas and Power business. Could you say how the changes to the [indiscernible] clause have affected your business?

Secondly, what your expectations for the network distribution carrier, when do you think that might be finalized and how that affects the structure of your regulated businesses?

The [indiscernible] cancellation that we negotiated with [indiscernible] the possibility concerning the gas coming from Russia to the other European countries. So we now have the freedom to sell that gives us the opportunity to grow in other markets. So this is an important event for our business.

The regulated assets, you know that we [indiscernible] our program to dispose of our present [indiscernible] business. This will be done - the timing we have to decide, we have not yet decided at the moment.

Okay, thanks a lot.

Thank you Mr. Archer. Our next question is coming from Javier Valverde from ING. Please go ahead sir.

Hello, good afternoon to everybody [indiscernible]. Two questions if I may, the first one, is if you could give some indication on return on capital employed? Perhaps in Q3 or in the first nine-months?

My second question is regarding the Gas and Power EBIT in 2003, if it is reasonable to expect a modest growth in 2003 compared to 2002, let's say 3%, 4% or 5% compared with €2.2b posted in 2002. Thank you.

As regards the return on capital, we will elaborate on that at the year-end. We are not producing it on an interim basis. As regards the expected result in the Gas and Power division, the [indiscernible] channel - I will just say that yes, you can - the estimation that you anticipate plus.

Plus, thank you.

Thank you sir, that answers your question? Thank you. Our next question is coming from Mr. Jonathan Copus from HSBC. Please go ahead sir.

Hi, I have just a couple of quick operational questions on the Gas and Power side of things. First of all, I just wondered if you had any updates on the small potential [indiscernible] liability, which you were highlighting last quarter?

Then also, we had quite a lot of information from Snam yesterday about new CCGT rollout in Italy. I noticed that out of Spain we've seen the National Energy Commission highlighting that there are continued delays to the rollout program there, and I was just wondering how your sales operation in Spain is going and whether you were rethinking any of your gas sales targets within Spain.

The [indiscernible] problem for 2003, now that we are almost at the end of the year, we can say for this year we will have a [indiscernible] of about €700m cubic meters. This will be recovered next year, to we don't expect to have a major problem for the [indiscernible].

We don't see any particular problem in the other activity - commercial activity in Spain. We have already committed ourselves to Sour Gas to some local operators. So we think that we can confirm our previous numbers that [indiscernible] in Spain.

Okay, thanks.

Does that answer your question Mr. Copus?

Yes, thanks very much.

Thank you. Our next question is coming from Mr. Rod McLean from Credit Suisse First Boston. Please go ahead sir.

Good evening, I have three very quick questions. The first one is that it looks as though you're on line, this year, to generate cash flow of something in the range of €10b to €11b, but obviously that's $28 Brent. Can you just give us some sort of idea of the sensitivity of your cash flows to oil prices?

My second question is to do with Power Production sold. The target you set yourself, I think for the full-year, was to see growth at 8.5% over 2002, it looks as though the nine-month period is flat, and you did talk about maintenance in some of the power stations in Italy. Can you just address that number?

If I can just come back on an answer to a previous question, I reckon that if you're going to deliver 4% growth in the Gas and Power number in '03 versus '02, that must mean that you're actually going to see a Q4 Gas and Power number above the Gas and Power result for Q4 2002. Is that actually what you're guiding to?

Listen, as far as the sensitivity of the cash flow - we will have to come back to you Rod, because we don't have it here with us now.

As Marco said, we're planning to have a production this year. So in the first nine-months, we had a production of 3,615 [indiscernible] [Sour] Gas. Plus, we have some trading activities and the [indiscernible] power we sold in the market in the first nine-months was 6,020 [indiscernible] by [Sour] Gas, compared with the previous number it was 480. So we have increased the [indiscernible] power sold to the market in the first nine-months of 23%.

The new power plant will be in operation during the next year, 2004. So starting from next year a higher number will be sold in the market.

I didn't realize your target actually included the trading volume as well, but...

Our target is to reach in the year 2006 37,000/38,000 [gigawatt] [indiscernible].

Has that covered your call Mr. McLean?

I have the answer to the sensitivity on the cash flow - in the sense that the sensitivity we used to give you at net result level for each single dollar per barrel shipped is entirely linked to the cash generating capacity. So you can assume that for each dollar shipped, we have something in the range of €230m - €250m additional cash available.

Thanks very much. I asked a question about the Q4 Gas and Power number, just having had a look at the quarterly break downs, if you were going to see 4% growth in Gas and Power profits this year, that must mean that your Q4 number is up on last year, which is certainly not what I was forecasting. But it would just be interesting to have a comment on that please.

Well we can talk about our Q3 result and the first nine-months result, to anticipate a number for Q4 it is too early.

All right, thanks very much.

Thank you Mr. McLean. Our next question comes from Mr. Alastair Syme from Merrill Lynch. Please go ahead sir.

Hi, I just have a follow-up question really to Rod's about the Gas and Power. If you could just try and give us quantification for the nine-months of this year, about how much of that EBIT you reckon might equate to the weather conditions we're seeing this year in Italy.

Just a moment. The first nine-months has been affected by weather for something like [1.2bcm]. So this is a higher [bond] sold for weather issues. This business has an affect on the EBIT of about €35m.

Thank you.

There is one more question that is coming from Mr. Neil Morton from DRKW. Please go ahead Mr. Morton.

Yes, good evening, sorry to keep you for one more question. You mentioned earlier that you are currently uncertain about the potential timing of reducing your stake in Snam Rete Gas. But you have also previously indicated your intention to dispose of Italgas's regulated pipeline business. I just wondered in terms of this two-step process, would you envisage disposing of Italgas before selling down Snam Rete Gas or vice versa?

No, listen, we didn't say that we are not [indiscernible] about to dispose of [indiscernible] entity. As you may know, as regards Snam Rete Gas a law was passed some weeks ago, which as we say at last, fixed a dead line, which is the end of June 2007, which is the dead line before which we and anyone owning a participation in a network, which could be either in Natural gas or in a [indiscernible] network has to go down to at least 20%. So the point is that we hope that we will be able to [indiscernible] that target without letting you know in advance.

Second, as regards Italgas, we always said that Italgas distribution system deserved special care for two main reasons. One related to the concession system, which is different on - let me say [indiscernible] basis - so you have to take into account several concessions, and several characteristics of the concessions.

Second, we think that today Italgas Network can be considered still as a tool for carrying out a workable commercial policy. So these are the two points, which we are carefully monitoring before taking a decision on Italgas Network system.

Okay, [indiscernible] on the timing. But given your indications that there is a higher complexity involved in Italgas, would it be fair to assume that that deconsolidation would likely happen after you deconsolidate Snam Rete Gas?

No, I wouldn't elaborate on that, it's open.

Okay, that's fine. Thank you.

Okay, we have one further question for you. It comes from Mr. [Bablu Teraldo] from Santander.

Good afternoon, last question. I just want to know if it is possible to know the increase in your volumes in Q3? How much of this increase is provided by the Fortum acquisition?

Yes, the amount, which is related to Fortum and consolidated at the beginning of 2003 in the quarter was 40,000 boe [indiscernible] average in the quarter.

Thank you very much.

Thank you. Okay, there are no further questions at the moment. I would like to hand it back over to Mr. Mincato to close up the Conference Call.

Thank you everybody for joining us. We'll come back to you at the beginning of next year. Bye-bye.

Thank you, ladies and gentlemen for joining today's Conference Call. Have a good evening and have a good night.