EU Budget Proposal Doubles Ukraine Aid And Boosts Military Spending
The European Commission has put forward its vision for the next long-term (2028-2034) European Union budget — a record-high 2-trillion-euro ($2.3 trillion) framework, with a doubling of funds for both Ukraine and EU foreign policy in general, and a fivefold increase in defense-related investment.
It is worth remembering that the July 16 proposal is just the opening shot in a battle that will consume Brussels for the next two years.
All 27 EU member states, which provide the vast majority of the cash through national contributions linked to their gross national income (GNI), must approve the proposal.
But this is not likely to happen until what is expected to be marathon, last-minute negotiations in the latter half of 2027.
So don't count on the budget remaining at 2 trillion euros by then — or on Ukraine, foreign policy, and enlargement policy getting as much financial support as the European Commission presented on July 16.
Most of the net contributors — in other words, those who pay more into the common budget than they receive back — are mainly richer northern member states such as Germany, the Netherlands, and Sweden, and they aren't keen to increase the budget at all.
The commission proposal is already a 600-billion-euro ($700 billion) jump compared to the 2021-2027 budget.
And with several countries grappling with low growth, ballooning deficits, and budget cuts, the idea of the EU expanding its coffers right now could be useful ammunition for Euroskeptic parties railing against Brussels across the continent.
To appease member states on this, the European Commission is proposing two things.
First, new 'own resources' so that the budget isn't so dependent on member state contributions. Some of the new ideas include a tobacco tax and levies on large corporations.
Few think this will succeed or have much impact.
So instead, the second thing that the commission proposes is to send most of the cash back to member states in the shape of support for farmers, fishermen, and poorer regions of the bloc. This is already the biggest section of the budget at the moment — worth a total of 865 billion euro ($1 trillion) of the 2-trillion-euro proposal.
It probably won't shrink.
Interestingly, there is now a proposal to allocate 131 billion euro ($152 billion) for defense, which would be a fivefold increase compared to the current level.
Several member states, notably Denmark and France, have indicated that the EU must become more of a military player, especially as the United States might dedicate fewer military resources to the continent in the coming years.
If the proposal is not watered down, this would signal real intent on the issue.
So, what about the foreign policy aspects of the commission's plan?
It's all grouped under the heading 'A Stronger Europe in the World' and totals €200 billion ($233 billion).
This is a doubling of the previous budget and contains everything from humanitarian aid, various foreign missions the bloc has — such as a monitoring mission in Armenia — to pre-accession funds for EU candidate countries in the Western Balkans and the bloc's eastern neighborhood.
The money proposed for pre-accession is around 40 billion euros ($46 billion), an increase from before, but there is still no breakdown of how much cash each country will get.
What is interesting, however, is that there is a revision clause in the proposal which means that the budget will be reworked if a country joins the club during the 2028-2034 period.
After all, members tend to get more money than candidate countries. And given that nations like Albania, Montenegro, and possibly even Moldova could join within this time frame, they stand to gain even more.
It is worth remembering here that Ukraine has been given a separate heading altogether.
While Kyiv, of course, can benefit from the 200 billion euro of accession and humanitarian cash, European Commission President Ursula von der Leyen has promised a dedicated 100-billion-euro ($116 billion) pot for the reconstruction of the war-torn country.
Between 2024 and 2027, this so-called 'Ukraine facility' amounts to €50 billion ($58 billion) in loans and grants, financed through common EU borrowing, which all member states guarantee to repay.
The question is whether a country like Hungary, which has been skeptical about all things Ukraine in recent years, will agree to this — especially as von der Leyen announced that rule of law conditionality applies to all the funds in the new budget.
This conditionality existed to a certain degree in the previous budget and allowed Brussels to freeze billions heading to Budapest.
Watering down conditionality in order to get more money for Ukraine already seems like one of the many compromises that will now have to be struck for this budget to eventually go through.
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Totalenergies -- Investment risk analysis
TotalEnergies is a French company with over 100 years of experience in the oil industry and a presence in more than 130 countries. It is considered one of the major oil companies, with a leading position in the upstream, midstream, and downstream oil segments. The Company also plays a significant role in the LNG market and has increased its capital expenditures on low-carbon energies to strengthen its position in this industry. Thanks to its leading position in the oil and LNG sectors, the French-based company generates solid cash flows from its core business and guarantees competitive returns to shareholders. In the period 2012-2025, Totalenergies has offered increasing dividends, from 0.57 Euro paid in 2012 to 0.85 Euro the Company will pay in July 2025 (+49.12%). Since 2012, Totalenergies has offered the following annual dividend increases to shareholders: 3.13% and 4.48% in 2018 and 2019 6.05%, 6.64% and 6.52% in 2022, 2023 and 2024 Up to 2.46% (2013) in the other periods. (The calculation does not consider the interim dividend of 1 Euro paid in 2022). In 2020 (COVID), the Company paid the dividends with a decrease of 1.52% compared to 2019. During the presentation of Q1/2025 results, the Board of Directors confirmed a shareholder return policy for 2025 targeting >40% CFFO payout, which will combine interim dividends increasing to 0.85 Euro per share and $2 billion of share buybacks per quarter, a level which will be pursued under reasonable market conditions. Based on our analysis, it is reasonable to expect that the French Company will be able to guarantee a dividend increase of 3-5% at low risk until 2030. TotalEnergies is a stock usually selected by investors seeking a reliable dividend income source at low risk and at a cheap price, like the following well-respected investors who have the stock inside their portfolio at this moment: Jeremy Grantham (Trades, Portfolio) (Chairman of the Board of Grantham Mayo van Otterloo (GMO) LLC, a Boston-based asset management firm) has built much of his investing reputation over his long career by correctly identifying speculative market "bubbles" as they were happening and steering clients' assets clear of impending crashes. Joel Greenblatt (Trades, Portfolio) (founder and managing partner of Gotham Asset Management LLC) specialised in cheap stocks by focusing on what "normalized earnings" will be 3-4 years into the future. T. Rowe Price Equity Income Fund, established in 1985, which is focusing on common stocks that have a strong track record of paying dividends or that are believed to be undervalued. Warning! GuruFocus has detected 3 Warning Sign with TTE. If investors are considering purchasing TotalEnergies' stock, they must also assess the risk that the French company may not be able to pay the expected dividends. This article analyzes TotalEnergies' balance sheet as of March 31, 2025 to verify its financial solidity. It also presents the company's long-term strategy and identifies the market scenarios in which the French-based company may not be able to guarantee the anticipated dividend returns. 31.03.2025 Balance Sheet - Risk Analysis In every balance sheet: Assets = Liabilities + Shareholders' equity This equation is always guaranteed because the balance sheet is the result of the double-entry accounting system where each transaction requires at least two accounts to be recorded in a journal ledger where the debit side has the same total of the credit side. Totalenergies balance sheet respects this equation: at the end of March 2025, total assets was $291,057m, the same amount as liabilities + equity. Totalenergies balance sheet is presented in increasing order of liquidity; from the less liquid to the more liquid. Non-current assets ($193,930m) are presented first, and current assets ($97,127m) after. Likewise, the liability section starts with shareholders' equity ($120,421m) followed by long-term liabilities ($80,175m), and current liabilities ($90,461m). This representation offers a first insight into how the company finances its activities and the relationship between current assets and current liabilities. Non-current assets vs. non-current liabilities At the end of March 2025, Totalenergies recorded $193,930m as non-current assets: 57.88% Properties, plant and equipment 17.81% Intangible assets 18.40% Equity affiliates: investments and loans 5.91% Others The non-current assets are funded by shareholders' equity ($120,421m) and long-term liabilities ($80,175m). Since 2013, shareholders' equity has always represented the most important guarantee for long-term projects. Paid-in surplus and retained earnings is the main contributor of this section; at the end of March 2025, it has a total amount of $128,787m. In relation to long-term liabilities, the chart below shows how TotalEnergies has managed its leverage throughout various cycles. During the COVID pandemic, the company increased its liabilities to sustain its operations and continue returning value to shareholders. Following the COVID period, two macroeconomic events contributed to TotalEnergies' cash flow rebound: The Recovery post-COVID The Russia-Ukraine war. This event has shocked the market with oil prices that have jumped above $100 a barrel and increased to $127 per barrel on the 8th of March before falling back to below $100 in June. In addition, the European decision to find an alternative to Russia LNG supply has push LNG prices to never-seen-before levels. These events have driven oil and LNG prices to record levels, greatly benefiting cash generation for companies in these sectors. In 2022, TotalEnergies achieved an all-time high in cash flow generation, totalling $46 billion. As a result, the company was able to offer an additional dividend of 1 Euro to its shareholders and successfully worked to reduce its debt on the balance sheet. Over the past few years, long-term liabilities have significantly decreased, and the gearing ratio has improved from 21.7% in 2020 (during COVID) to 8.3% at the end of 2024. At the end of March 2025, the gearing ratio was 14.3% (the result was highly influenced by the seasonality of the working capital (more details below). Excluding the impact of this seasonality, the normalized gearing would be 11%). Our analysis confirms that non-current assets are well funded by non-current liabilities. The fact that the gearing ratio has also been reduced to 11% can offer different options to the Directors to manage a possible recession in the economy successfully. Current assets vs. Current liabilities As of March 31, 2025, Totalenergies recorded current assets for an amount of 97,127 million of Dollars. Total current liabilities was 90,461 million of Dollars. Regarding the working capital, Patrick Pouyanne (Chairman & CEO of Totalenergies) explained that the seasonal working capital of $4.4 billion ($6 billion in Q1/2024, $4.5 billion in Q1/2023, $3.5 billion in Q1/2022) was significantly impacted by three elements: $1 million reversal of exceptional working cap items reported in Q4/2024. $2 billion seasonal effect from gas and power distribution activities in Europe and related to advanced payments occurring in Q1/2025. $1 billion impact from the evolution of the business related to stocks and sales increased at the end of the quarter. It is also important to note that the seasonability of the working capital in the first quarter of every year is highly influenced by winter sales; customers heat their homes much more in wintertime, but they used to pay their bills monthly in equal instalments throughout the year. As of 31 March 2025, liquidity ratios present the following results: Current Ratio: 1.07 Acid (Quick) Ratio: 0.86 Cash Ratio: 0.25 Liquidity results at the end of March 2025 confirm the trend of current ratio and acid ratio noted in the chart above: Current ratio has been above 1 in all years since 2013; it is 1.07 at the end of March 2025. Acid (Quick) ratio has moved from values above 1 to values slightly below 1 starting from the pandemic period. It is 0.86 at the end of March 2025. In our opinion, the deterioration of the liquidity ratios (a constant but not material reduction), and the cash reduction of 3 billion in the last 12 months are not a matter of concern at this moment. Directors are confident in the business's ability to generate solid cash flows; for this reason, they are making significant investments in CAPEX and offer robust returns for shareholders. Totalenergies' long-term strategy - risk analysis Totalenergies has established a long-term strategy to become a net-zero company by 2050. The Company is making substantial investments in low-carbon energy to increase its production from 14 PJ/d to 20 PJ/d by 2030 to meet rising demand. Renewable electricity will account for half of this increase, with a target power generation of approximately 130 TWh, while LNG will make up the balance. TotalEnergies' investment policy supports its strategy through CAPEX investments based on two pillars: Maintaining and growing oil and gas production Expanding low-carbon activities, primarily focusing on electricity from renewable sources. In 2025, TotalEnergies expects net investments of $17-17.5 billion, of which $4.5 billion is dedicated to low-carbon energies. Through cycles, the French Company expects net investments between $14 and $18 billion per year along the following lines: 33% of net investments are in low-carbon energies. 20% of net investments in natural gas, mainly LNG. 45% of net investments in the oil chain Totalenergies' investment strategy is well-balanced and set up to take full advantage of the evolution of the energy industry: CAPEX investments in low-carbon energies will increase the presence of Totalenergies in a growing industry with the goal of becoming a leading company in the long-term. CAPEX investments in oil and gas will support the business of Totalenergies in a sector where the French Company already has a leading position and it is able to generate significant returns from its investments. Also if TotalEnergies gradually decreases its investments in oil, it is projected that 80% of its production will continue to be in "oil and gas" by 2030. For this reason, we believe that Totalenergies' strategy will not change company's ability to return solid dividends to investors in the short & mid-term period. TotalEnergies: Risk & Strategy Overview - Final Comment The oil sector is a cyclical industry that is heavily influenced by economic trends. When the economy falls into a recession, companies within this sector may have difficulties to provide solid returns for their investors. However, it is also characterized by high barriers to entry; the major oil companies operating in the upstream, midstream, and downstream segments have a strong position in the market, allowing them to effectively manage their businesses in this well-established industry. Totalenergies is an integrated company with over 100 years of experience in the oil business. The French firm successfully managed the difficult COVID period by using leverage to maintain its position in the sector and continuing to return value to shareholders, including dividends. Over the past three years, buoyed by favorable market conditions, TotalEnergies has effectively reduced its debt and prepared the company for the next economic downturn. Simultaneously, it has sustained stable capital expenditures (CAPEX) at approximately $17 billion per year. Although Totalenergies has a long-term strategy to transform its core business from oil to low-carbon energies in order to become a net zero Company by 2050, the French firm will maintain its focus on the oil business for many years to come. Therefore, oil quotations and CAPEX investments in the upstream business unit will still determine the Company's cash flow for the next 5-7 years (and more) and its ability to guarantee the expected returns to shareholders. The Company's portfolio has a low breakeven point, in line with its objective of keeping it below $30/b (Totalenergies' organic cash breakeven point before dividend was $25.4/b in 2024), which ensures the competitiveness of its resources, and it allows the French company to realise profit margins also at a low oil price. During the presentation of the quarterly results in Paris, Patrick Pouyanne confirmed that the Company will maintain the actual dividend and share buyback program at $65/b; if the oil price will be listed at that level, the Company's gearing ratio will be around 14%, which is not a matter of concern. The Board of Directors is expected to change its return policy to shareholders only if oil price hits $50-55/b. In that scenario, it is reasonable to estimate a reduction of the share buyback program but no actions on dividend returns. Investors should expect an impact on dividends only if the price will slow down below $50/b. Based on our analysis, the targets set by TotalEnergies are reasonable: Also if the Company plans to significantly increase its presence in the low-carbon industry, 80% of its production will still be oil & gas by 2030. Company's portfolio has a low breakeven point which allow it to operate in profit also if oil price will reduce. The Company has significantly reduced its gearing ratio and give more opportunity to Directors to successfully manage difficult periods. It is important to note that an oil price of $50 per barrel is significant for oil companies. At this price level, many investments in the upstream industry may record no profit margins, leading to the suspension of production by many small and medium-sized companies (this situation could result in a rebound in prices in the mid-term). The scenario of oil quotation at $50/b: It is possible but with a low probability to happen There is a low probability that this quotation will last for a long time. Therefore, the strong balance sheet of Totalenergies and its leading position in a profitable industry decrease the likelihood that the French company will fail to guarantee expected returns to shareholders, maintaining its status as a low-risk investment for investors. How Totalenergies plans to support American investors Totalenergies is a French Company which primary stock exchange is in Paris. The firm is already present in the American market through ADRs, which currently account for approximately 9% of its capital (these instruments allow American investors to purchase foreign shares in a format regulated by the SEC). However, American investors used to pay more to purchase Totalenergies stocks (financial intermediaries used to impose additional fees compared to the purchase of stocks listed in the American market). In addition, investors have a currency risk because dividends are in Euro. In order to attract more American investors, TotalEnergies plans to convert these ADRs into ordinary shares to improve liquidity and reduce acquisition costs. The French company plans to list its shares on the New York Stock Exchange by the end of 2025. Unlike some multinational corporations that maintain distinct share classes across multiple markets, TotalEnergies has opted for a simultaneous single-class listing in both Paris and New York. This strategy ensures that the stock price remains aligned between the two exchanges, adjusted for exchange rates. This article first appeared on GuruFocus. Sign in to access your portfolio
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