Snam S p A : 2020 Interim results (PDF)

2020 Interim Results

Milan

July 30, 2020

Reduction of gas demand of ca. 4.4bcm (-11% y-o-y)

• Weather impact: - 1.6bcm

• Power sector: - 1.6bcm mainly due to lower power demand (-9%);gas share in the power mix stable (48%)

• Industrial sector: -1.0bcm owing to lockdown measures

• Gas demand: -7% y-o-yin Q1, -18% y-o-yin Q2 (-23%in Apr-Mayand - 5% in June)

Gas scenario update

Gas consumption in Italy (Jan-June)

Bcm	(11%)
40.4
1.2	36.1
		1.0
12.8
		11.1
9.1	8.0				Other
					Industry
17.4	15.9				Building
			Thermoelectric
	1H 2019	1H 2020

Weekly gas consumption

	1.800,0
	1.600,0
	1.400,0
	1.200,0
Smc	1.000,0
800,0

600,0

400,0

200,0

-

2019 2020

Progressive improvement in demand

• Industrial sector is progressively recovering from the end of the lockdown (May 4th, 2020)
• Gas demand from the power sector still suffers from lower power demand and higher renewables generation during the summer period
• Demand from households and commercial sector fully recovered in July compared to 2019

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H1 highlights

Continuous improvement in our core business

Enhanced exposure to the energy transition

• €457m of capex in H1. Large part of investments delay due to Covid to be recovered by year end
• Storage capacity for thermal year 2020-21 fully booked in April
• 31 LNG ships arrived in Panigaglia in line with a strong 2019 despite weak demand. Revamping of the second LNG tank started
• Efficiency plan ongoing: €55m cumulated achieved

Progress on international activities

• Closing of the $250m deal with Adnoc to enter the UAE
• TAP > 96% complete at the end of June, COD confirmed for Q4 2020.
• Regulatory review in Austria completed, in line with expectations

• Signing for a 50% stake in Iniziative Biometano
• Signing for a 70% stake of Mieci and Evolve, a further step in the creation of a leading energy efficiency platform
• Other developments
• • Hydrogen: agreement with Alstom for the development of hydrogen trains in Italy, completed test on hybrid turbine with Baker Hughes
  • Founding of a benefit corporation with CDP for the reforestation and CO2 absorption in Italy

Value creation from optimization of financial structure

• Final dividend paid in June for €457m, dividend policy confirmed
• Launched the first Transition Bond for €500 million
• Cancellation of 33.98m of treasury shares
• €500m new SBB approved by last AGM

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H1 2020 results

Regulated revenues (€bn)

EBITDA (€bn)

	+1.7%	• Higher		-0.4%
1.252	1.273	•	transport RAB	1.111	1.107
Energy costs
		•	recognition
1H 2019	1H 2020	Commodity	1H 2019	1H 2020
			effect

• Lower costs capitalizations
• Costs savings

Net profit (€bn)

Net debt (€bn)

-0.5%

+8.4%

• Lower cost of

• FY Dividend paid

581

578

debt

• OLT acquisition

• Associates stable

11.9

12.9

• Working capital

(ex one-offs)

absorption

1H 2019

1H 2020

Back to pre-Covid net profit guidance

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ADNOC: strategic asset in the UAE

Transaction structure

			Ontario	NH Investment	Brookfield
GIP	GIC		Teacher's	Asset	ADNOC
	& Securities
			Pension Fund	Management
								51%
		Bidco
			49%
		AssetCo

UAE market

• Seventh-largest world natural gas reserves
• Gas to play a key role in driving the country's economic activities
• Target to become self-sufficienton gas within 2030 (replacing imports with domestic production), strong per- capita energy use and growing expected desalinization demand, to support future national gas demand forecasts

Strategic rationale

• Gas transportation infrastructure which connects ADNOC onshore and offshore gas fields to the UAE markets
• Attractive opportunity to gain exposure to UAE's gas market
• Potential to unlock additional opportunities in the energy transition sector

Economic rationale

• Equity injection: $250m
• 20 years take or pay contract dollarized with a guaranteed floor for volumes and a carry forward mechanism
• Stable cash flows
• Solid counterpart with AA credit rating

First acquisition outside Europe in a valuable energy infrastructure

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Creating a leading Italian Energy Efficiency player

Creating a platform in energy efficiency

• Snam is creating a leading national player in energy efficiency leveraging on its industrial expertise, local presence scale
• Recent acquisition of 70% of Mieci and Evolve is a further step:
• • Main economics: Total value of the transaction: ca. €50m, FY-19 total revenues ca. €61m and EBITDA ca. €12m
  • Completing the range of services and clients. Great potential to pursue in public administration

Tax deductions scheme up to 110% in 5Y extended until 2021

	Residential and	Energy
EcoBonus	Commercial	requalification
	Building	interventions

Industrial

• Energy Performance Contracts
• • 5 - 10 years contract with granted performances
  • Direct investment

Condominiums and Commercial Building

• Energy management & deep renovation
• • 7 - 10 years contract for HVAC * mgm
  • Building renovation exploiting tax benefit and incentives

Public

Administration

(Hospitals, Schools,

Public Offices)

• Public Private Partnership and tenders
• • 5 - 20 years contract
  • Direct investments

		Interventions aimed	•	Sustainable energy	•	Deep renovation	•	Public lighting
	Residential and		programme	•	Development,	•	Deep renovation &
SismaBonus	at reducing seismic
Commercial	•
	Building	exposure	Asset management		installation, O&M,		HVAC
						energy management
		Tax deductions for
Bonus Casa	Residential	requalification plus
		additional
		interventions

Fiscal incentives support a solid commercial pipeline

* Heating, ventilation air conditioning

6

Hydrogen policy and technology update

Policy support		Snam progressing on its hydrogen strategy
H2 strategy launched at EU level
	Scenarios and system design

• By 2024: 1mtons production of renewable H2, 6 GW of electrolyzing capacity
• By 2030: 10mtons of renewable H2, 40 GW electrolyzing capacity
• By 2050: 1/3 of the electricity to be used for the production of renewable H2 by 2050

Sector coupling policy

• Leverage capacity of gas networks to integrate renewables

• Launch of the new Snam-Terna scenario planning process
• Published vision of a 2040 H2 network of 23000km, spanning a number of European countries

Snam grid "Hy-readiness"

• New procurement standards set for hydrogen ready pipelines replacement
• New "hybrid" compressor station tested with Baker Hughes, suitable for blends up to 10% NG

• By 2021 national and EU Ten Years Development Plans to be developed in parallel by gas and electricity TSOs

National plans

• EU countries starting to identify H2 targets (Germany, Portugal, Spain and the Netherlands)

Value chain development

• Clean Hydrogen Alliance
• Collaborations across the value chain to enable hydrogen adoption
• Potential opportunities/investments in pilot projects to scale up clean H2 production & use

H2 industry is taking shape and Snam is well positioned

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Progressing on our ESG guiding principles

Environment

• ~25%E natural gas emissions reduction in 2020 vs 2016
• Talk to inspire the world: podcast promoted by Snam to voice important issues on sustainability and energy transition

Social

• Covid emergency management: employees safety as an absolute priority, delay in 2020 capex nearly fully recovered
• Smart working for 2.300 employess out of a total of 3,000
• Safety: employees accidents gravity index improved to 0.01 vs 0.04 in 1H 2018
• Diamo forma al futuro programme: aimed at supporting solidarity gesture in the Covid crisis

Governance

• New remuneration plan: increase from 10% to 20% the ESG KPIs component on the short and long term incentives.
• 3,400 reputational checks; 6,000 expected in full year 2020
• New ESG officer position established, reporting directly to the
  CEO

Top ranked in all the main sustainable indexes
~€6bn in sustainable financing	8

2020 1H consolidated results

2020 1H results: Ebitda analysis

• mn
• • Lower "commodity" revenues (volume effect)

• Tariff RAB increase

• Lower capitalized costs

• Lower accruals

1.111	6	2	1.107
-9	-3

Ebitda	Regulated	Fixed costs	Other core (net	New businesses Adj. Ebitda
1H19	revenues	core	of energy costs)	1H20
	(net of			10
	energy costs)

Net Profit Adj. 1H 2020

€ mn	•	Lower cost of debt	• Terega release of a tax prov. in Q1/19	•	Lower pre-tax profit
• IUK lower booked capacity	•	ACE benefit
	•	OLT financial income
	• Italgas lower contribution		reintroduction

581	18		578
	-23	-8	10

Net profit	Ebit	Net interest	Net income	Income	Net profit
Adj. 1H19		(expenses)	from associates	taxes	Adj. 1H20

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Cash flow
€ mn	•	Tariff related items c. € -113m	•	Capex € -457m
		•	OLT € -334m
		327
			749
572		(150)
				(832)	(83)
					(770)

						(111)	(964)
Reported	Depreciation	Change in	Cash Flow	Net	Free Cash Dividend	SBB	Cash Flow
Net profit	& other	working	from	Investments	Flow
	items	capital	Operation				12

Snam Debt Structure

Highlights

Net debt and funding sources as of

Bond maturity Profile as of

• First worldwide Transition bond issued in June by a Transmission system operator 500m€ - 10 years - coupon 0.75%
• Approx. 6bn€ in sustainable financing (ca. 40% of total funding)
• >700mln€ 0 cost new term loans secured in March with tenors of 2-3 years
• Further Treasury Management Optimization leveraging on short term funding at negative yield
• Share Buyback Program
• • ca. 34m treasury shares cancelled by the AGM in June. Remaining treasury shares: 91.5m
  • new SBB plan approved: 500m€ - 18 months - 6.5% of outstanding shares

17	30 June 2020	30 June 2020
		15.7	Already refinanced in
15			1.7
		1H 2020
13			1.5	1,5
11			1.1	1
9			8.7	0,5
7	12.9
			0
5			2.1
		2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030	… 2034
11.4		8.1
3		3.2
1
			Fixed - Floating gross debt breakdown
-1	Net Debt	Total committed
		credit facilities and	1H 2020
	Istitutional Lenders	bonds*
	3.2	¾ fix floating
	Debt Capital Market
		29%
	Bilateral Banking Facilities
	Pool Banking Facilities	Fix

* Not including ca . €2 billion Euro Commercial Paper	71%		Floating

Strong liquidity profile leveraging on new financing executed in 1H2020, relevant cash on

hand and the undrawn 3.2bn€ RCF credit line	Maturity of M/L term debt ~ 5 years

Uncommitted credit lines and Commercial Papers are considered as 1313 floating rate debt, given their nature of short-term facilities used

for treasury management optimization

BACKUP

Income Statement adjusted

[ € mn ]	1H 2019	1H 2020	Change	Change %
Revenues	1,303	1,346	43	3.3%
Operating expenses	(192)	(239)	(47)	24.5%
EBITDA	1,111	1,107	(4)	(0.4)%
Depreciation & amortisation	(355)	(374)	(19)	5.4%
EBIT	756	733	(23)	(3.0)%
Net interest income (expenses)	(85)	(67)	18	(21.2)%
Net income from associates	118	110	(8)	(6.8)%
EBT	789	776	(13)	(1.6)%
Income taxes	(208)	(198)	10	(4.8)%
NET PROFIT	581	578	(3)	(0.5)%

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Revenues

[ € mn ]	1H 2019	1H 2020	Change	Change %
Regulated revenues	1,252	1,273	21	1.7%
Transport	992	1,014	22	2.2%
Storage	251	248	(3)	(1.2)%
LNG	9	11	2	22.2%
Non regulated revenues	16	12	(4)	(25.0)%
Total core business revenues	1,268	1,285	17	1.3%
New business revenues	35	61	26	74.3%
TOTAL REVENUES	1,303	1,346	43	3.3%

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Operating Expenses

[ € mn ]	1H 2019	1H 2020	Change	Change %
Core business costs	156	179	23	14.7%
Variable costs	10	21	11	n/a
Fixed costs	139	142	3	2.2%
Other costs	7	16	9	n/a
New business costs	36	60	24	66.7%
TOTAL COSTS	192	239	47	24.5%

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Balance Sheet

[ € mn ]	2019	2020 1H	Change	Change %
Net invested capital	18,181	19,112	931	5.1%
Fixed capital	19,311	19,773	462	2.4%
Tangible fixed assets	16,802	16,832	30	0.2%
Intangible fixed assets	990	1,031	41	4.1%
Equity‐accounted and other investments	1,828	1,844	16	0.9%
Financial receivables held for operating activities	3	318	315	n/a
Net payables for investments	(312)	(252)	60	(19.2)%
Net working capital	(1,094)	(618)	476	(43.5)%
Receivables	1,549	1,524	(25)	(1.6)%
Liabilities	(2,643)	(2,142)	501	(19.0)%
Provisions for employee benefits	(46)	(43)	3	(6.5)%
Non current assets held for sale	10	‐	(10)	n.a.
Net financial debt	11,923	12,888	965	8.1%
Shareholders' equity	6,258	6,224	(34)	(0.5)%

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Share buyback recap

Total shares at 31/12/2019

Outstanding shares at 31/12/2019 and excluding treasury shares

Shares held by Snam at 31/12/2019

Shares bought during the 2020

Shares to serve convertible and management incentives @ june '20

Shares cancelled - A.G.M. June 2020

Shares held by Snam as of today

3,394,840,916

3,292,427,996

102,412,920

23,070,187

91.5 million

33,983,107

91,500,000

Visible and stable regulation

Wacc 2019-2021:

• 5.7% transport

•

6.7% storage

Final resolution 114/2019/R/gas

•

6.8% LNG

• 2019 Tariff RAB: Euro 16.366m

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

• WIP included in RAB

• Beta unlevered at 0.364 (unchanged)

• Incentives on new development capex

TRANSPORT

4° regulatory period

Transition

5° regulatory period

2020-22 (+1.5% for 10 years, if CBA > 1.5)

period

Final resolution 474/2019/R/gas

• Confirmed length of the period of 4 years

Transition

REGAS.

4° regulatory period

5° regulatory period

• Beta equal to 0.524

period

• Tariff RAB calculation methodology

confirmed

STORAGE

4° regulatory period

Transition

5° regulatory period

period

Final resolution 419/2019/R/gas

• Length extension to 6 years

Definition of possible incentives to

• Beta equal to 0.506

operate fully depreciated assets	• Tariff RAB calculation methodology
	confirmed
Introduction of output based	• Opex to be calculated on the basis of last
available certified year (2018)
incentives

Transparent regulatory framework

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Disclaimer

Luca Oglialoro, in his position as manager responsible for the preparation of financial reports, certifies pursuant to paragraph 2, article 154-bis of the Legislative Decree n. 58/1998, that data and information disclosures herewith set forth correspond to the company's evidence and accounting books and entries.

This presentation contains forward-looking statements regarding future events and the future results of Snam that are based on current expectations, estimates, forecasts, and projections about the industries in which Snam operates and the beliefs and assumptions of the management of Snam.

In particular, among other statements, certain statements with regard to management objectives, trends in results of operations, margins, costs, return on equity, risk management are forward-looking in nature.

Words such as 'expects', 'anticipates', 'targets', 'goals', 'projects', 'intends', 'plans', 'believes', 'seeks', 'estimates', variations of such words, and similar expressions are intended to identify such forward-looking statements.

These forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict because they relate to events and depend on circumstances that will occur in the future.

Therefore, Snam's actual results may differ materially and adversely from those expressed or implied in any forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to, economic conditions globally, political, economic and regulatory developments in Italy and internationally.

Any forward-looking statements made by or on behalf of Snam speak only as of the date they are made. Snam does not undertake to update forward-looking statements to reflect any changes in Snam's expectations with regard thereto or any changes in events, conditions or circumstances on which any such statement is based.

The reader should, however, consult any further disclosures Snam may make in documents it files with the Italian Securities and Exchange Commission and with the Italian Stock Exchange.

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