Snam : Full year 2019 results (PDF)

FY2019 results

Milan

March 19 th, 2020

COVID-19 impact on Snam

• Prioritised the safety of our people since the beginning of the alert:
• • Essential personnel are adopting specific protocols (es. dispatching centre)
  • Non-essentialpersonnel is working from home. Productivity has been maintained through smart-working (260k conference calls a week)
• Possible impacts will depend on duration and severity of the crisis:
• • Gas consumption may impact commodity element of our revenues (+/- €9m max)
  • Operating costs may reflect COVID containment measures
  • Financial charges may be impacted by higher perceived risk on Italian corporates
  • New businesses might temporarily slow down
  • Investments may suffer delays which may be non-recoverable during the year
• Strong financial position: 2020 refinancing needs are covered by 2019 prefunding and more than €700m 2-3 year funding at zero cost secured in the past 10 days; €3.2bn undrawn committed facilities available
• Snam, also through its Fondazione Snam, has allocated€ 20m for the purchase of medical equipment and

necessary goods for the Italian Health System

2

2019 results confirm growth trend

Regulated revenues	EBITDA adj.
(excluding pass through)	€m	+3.5%
€m
+2.6%
									2.169
							2.095
	2.427		2.489
							2018		2019
2018	2019
Income from associates	Net income adj.

€m	+35.8%	€m		+8.2%
		216	1.010	1.093
159
2018		2019	2018	2019

+ 11% EPS* growth thanks to the share buyback

3

* Calculated on year end number of shares

Fully committed to ESG agenda

Environment

• 19% natural gas emissions reduction in 2019 vs 2016
• Overall 419.380 t CO2 eq. avoided 2017-2019
• First Climate Action Bond executed in Europe (€500m of funds raised, c. 50% of capex already executed)
• Significant investment in new businesses functional to a sustainable energy transition
• Launch of Snam Plastic Less

Social

• Safety: employees accidents frequency index improved to 0.41 vs 0.84 in 2018
• Entered Forbes list of the best 150

companies in the world to work

for

• +5.9% hours training 2019 vs 2018

• Smart working: 122.762 hours in 2019 vs 62.930 hours in 2018 (+95%)

• Included in the Bloomberg gender diversity index, new policy on inclusion and diversity issued

Governance

• Among the very first companies worldwide to introduce an ESG board

committee

• Gender policy for BoD enshrined in Bylaws
• 5.348 reputational checks in 2019 (of which 2.490 on suppliers and subcontractors vs 2.074 in 2018)
• ESG embedded in the organization: new hydrogen and Energy Transition BUs launched

Top ranked in all the main sustainable indexes
>€5bn in sustainable financing	4

Another year of delivery on our strategic pillars

Continuous improvement in our core business

• 75.4bcm gas injected in the national network (+3.5%);
• 57 LNG ships (+36) arrived in Panigaglia
• Capex plan: invested € 963m in the year (in line with budget)
• 87 new connection to biomethane plants and cng stations signed in the year
• Output based incentives: revenues ca. € 18m in FY 2019 (vs €15m in 2018)

Progress on international activities

• TAP > 90% complete, on track for Q4 2020 completion (Snam's interconnection to TAP on track as well)
• Terega: issuance of € 400m bond, 8-yr tenor, with a 0.625% coupon

Value creation from optimization of financial structure

• Further reduction of cost of debt to 1.1% (gross); mainly thanks to bond rollover and treasury optimization
• Share buyback: €150m tranche completed, €889m bought back since start of the plan

Enhanced exposure to the energy transition

• Strong progress on our strategy
• Consultation document on innovation in natural gas transmission and distribution network

5

Consolidated position to deliver the energy transition

BUH2

Biomethane

TEP - Energy efficiency

Snam4mobility

Hydrogen

• Established new

Hydrogen business unit

• Proactive dialogue with policymakers in Europe

• Contursi experiment: doubled to 10% H2NG blend in transmission network

• Launched Hydrogen

readiness evaluation

• New Hy-ready

procurement standard

• MOU signed with Alstom for hydrogen in railway transport

* Related to Snam's share

6

Update on Snam's international portfolio

Exceptionally strong results

Acquisition of Desfa

€ mn closed in Dec. 18

Benefit from

anticipated past

tariffs recovery and

strong volumes

165

•

Austria: 2020 in in line

16

-2

with

2019

(new

regulation starting from

33

•

2021)

France: new regulation:

118

wacc from 5.25%-5.75%

Terega:

(Transport and Storage)

to 4.25%-4.75%

•

Gascoigne-Midi

•

IUK:

lower

capacity

•

project completed (+)

Lower residual dep.

booked so far for next

of the acquisition

•

thermal year

price premium (+)

Greece:

normalization

• Release of a tax

of gas demand and full

provision (+)

•

year

effect

of

new

Consent fees (-)

regulation

started

in

Sep. 19

Net income

Net income

2020

contr.1 2018

contr. 1 2019

1. The reported financial figures: (i) are related to Desfa, GCA, IUK, TAG and Terega; (ii) refer to Snam Consolidated Financial Statements, (iii) take into consideration accounting adjustments (sub-consolidations; application of IFRS; alignment to Snam's accounting policies), (iv) take into account the economic impact of acquisition vehicles. For IUK the average exchange rate of GBP/EUR 2018 and 2019 was applied

Key operational achievements

• RAE approved '19-'22 allowed revenues and '19-'20 tariffs
• DESFA submitted '20-'29 TYDP with c.a. 2x capex vs '19-'28.
• Upgrade of Revithoussa terminal completed
• First reverse flow to Bulgaria
• Sale of 10% of Senfluga to DAMCO
• Regulation: '21-'24 tariff review ongoing. Resolution on allowed revenues expected in March '20
• MoU Snam - TAG - OMV on cooperation in sustainable LNG mobility
• TAG: Noxer 2 project completed (4 ElCos with 47mw of power installed)
• Approval by CRE of '20-23 tariffs for Transport and Storage
• MoU Snam - Terega on new businesses and innovation

• Acquisition of a minority stake in biomethane player Dualmetha and launch of a pilot project

• In February: issue of a 8y - €400m - 0.625% coupon bond
• OFGEM approval for offering 75% of capacity through Implicit Allocation Mechanism and launch of new innovative products

7

€51m of cost saving achieved up to 2019

€m
			51
								IT modeling review
							€51m	Make vs Buy
							Other
							Process Optimization
								Purchasing Cost Reduction
								Real Estate Saving
2016	One off costs	2016	Efficiency	Demerger	Labour	Other	2019
Net pass-	& write off	Core	Program	Dissynergies	inflation	including	Core
through	& service	Business				network	Business
	contracts					expansion &
						variable costs

	Integrated management	Reduction of	Lower maintenance
		transport & storage	reinsurance costs	from data center
				renewal
Savings	€ 6.6m	€ 1.5m	€ 0.4m
@2019		Automation of IT	Insourcing of	Surveillance services
		services for users	maintenance	optimization
			activities
		€ 3.9m	€ 0.9m	€ 1.8m

• • €60m expected by 2020
• More effort on reduction of external expenses, with insourcing of operations activities
• Process review on staff activities
• Additional savings from initiatives ongoing
• Further savings from contracts renegotiation

 Process optimization on operation activities	8

Ebit FY 2019

€ mn	•	Tariff update
	•	Tariff RAB increase	• Ongoing efficiency program	• Higher accruals
	•	Output based incentives

1.405	62	23			1.417
		-62
			-11
Ebit Adj.	Regulated	Controllable	D&A	Other	Ebit Adj.
2018	revenues	fixed costs			2019

9

Net Income FY 2019

€ mn	• Lower cost of debt	•	Desfa acquisition
•	Terega one off effects

	12	30	57	1.093
1.010		-16

Net profit	Ebit	Net interest	Net income	Income	Net profit
Adj. 2018		(expenses)	from associates	taxes	Adj. 2019

10

Cash flow

€ mn

• Payment to CSEA € -180m

• Tariff related Items € -38m

617

•

Capex € -963m

1.486

(221)

1.090

• Energy transition € -41m

523

482

963

(42)

(300)

3

(746)

(39)

Net profit

Depreciation

Change in

Cash Flow

Net

Free Cash

Financial

Free Cash

Dividend

Equity

SBB

Cash Flow

reported

& other

working

from

Investments

Flow ante

investments

Flow

contribution

items

capital

Operation

M&A

by third

11

parties

Snam Debt Structure

Key Highlights

Bond maturity Profile (€ bn) as of 31 December 2019

• Total net financial charges: 165m€
• Funding for 2.3bn€ at an average cost of 0.9% with a maturity of ca. 9Y o/w:
• • 0.5bn€ Climate action bond in 1Q2019 (first ever in Europe)
  • €1.1bn as pre-funding of 2020 needs
• Treasury management optimization exploiting supportive market conditions:
• • Commercial Paper Programme fully utilized for 2bn€ at the year end; average cost of the year ca. -25bps
  • Ample access to uncommitted credit lines market at negative yield

ca. 60% already

reimbursed to date

1,5

1

0,5

0

2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 … 2034

 Proactive management of maturities:	Total MLT committed credit facilities and bonds*

	 ca. 600m€ bonds bought back in December (avg. coupon and residual maturity
	of ca. 1.3% and 4 years respectively) mainly financed through cash	15.5
	 Banking facilities: : extension for one year of 3.2bn€ pool facility and term	1.7
	1.6
	loans refinancing for 700m€
 >5bn€ - 1/3 of total committed funding in sustainable financing	9.1
 M/L term debt maturity: ~ 5.6y and maturities well spread over time	11.9
	> ¾ Fix-Floating in line with our target	3.2

			Net Debt YE 2019	Total M/LT* committed
				credit facilities and bonds
Well positioned to cope with worsening market conditions leveraging on (i) more than
€700m 2-3 year funding at zero cost secured in the past 10 days with core relationship			Pool banking facilities
banks, (ii) 3.2bn€ undrawn pool credit lines, (iii) significant cash on hand and (iv)			Debt capital market
		Bilateral banking facilities
supportive Commercial paper and uncommitted credit lines markets and (v) limited			Institutional lenders financing	12
refinancing needs in 2020		* Excluding uncommitted lines and Commercial Paper

Q&A

ANNEXES

Income Statement

[ € mn ]	2018	2019	Change	Change %
Revenues	2,586	2,665	79	3.1%
Operating expenses	(491)	(496)	(5)	1.0%
EBITDA	2,095	2,169	74	3.5%
Depreciation & amortisation	(690)	(752)	(62)	9.0%
EBIT	1,405	1,417	12	0.9%
Net interest income (expenses)	(195)	(165)	30	(15.4)%
Net income from associates	159	216	57	35.8%
EBT	1,369	1,468	99	7.2%
Income taxes	(359)	(375)	(16)	4.5%
NET PROFIT	1,010	1,093	83	8.2%

15

Revenues

[ € mn ]	2018	2019	Change	Change %
Regulated revenues	2,485	2,550	65	2.6%
Transport	1,907	1,969	62	3.3%
Storage	503	503	-	-
LNG	17	17	-	-
Pass-through revenues	58	61	3	5.2%
Other revenues	101	115	14	13.9%
TOTAL REVENUES	2,586	2,665	79	3.1%

16

Operating Expenses

[ € mn ]	2018	2019	Change	Change %
Regulated activities	397	352	(45)	(11.3)%
Controllable fixed costs	274	251	(23)	(8.4)%
Variable costs	6	6	-	-
Other costs	59	34	(25)	(42.4)%
Pass-through costs	58	61	3	5.2%
Non regulated activities	94	144	50	53.2%
TOTAL COSTS	491	496	5	1.0%

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Balance Sheet

[ € mn ]	2018	2019	Change	Change %
Net invested capital	17,533	18,181	648	3.7%
Fixed capital	18,856	19,311	455	2.4%
Tangible fixed assets	16,516	16,802	286	1.7%
Intangible fixed assets	907	990	83	9.2%
Equity-accounted and other investments	1,750	1,828	78	4.5%
Financial receivables held for operating activities	11	3	(8)	(72.7)%
Net payables for investments	(328)	(312)	16	(4.9)%
Net working capital	(1,259)	(1,094)	165	(13.1)%
Receivables	1,487	1,549	62	4.2%
Liabilities	(2,746)	(2,643)	103	(3.8)%
Provisions for employee benefits	(64)	(46)	18	(28.1)%
Other	-	10	10	n.a.
Net financial debt	11,548	11,923	375	3.2%
Shareholders' equity	5,985	6,258	273	4.6%

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Share buyback recap

Outstanding shares at 31/12/2018	3,469,038,579
Shares held by Snam at 31/12/2018	168,197,663 (4.85% of Share Capital)
Shares to serve convertible and	94 million
management incentives
Shares cancelled - A.G.M. April 2019	74,197,663
Outstanding shares after cancellation in	3,394,840,916
April 2019
Outstanding shares after cancellation in	3,300,840,916
April 2019 and excluding treasury shares
Shares bought by 31/12/2019	8,412,920
Shares held by Snam at 31/12/2019	102,412,920
Shares bought during the 2020	23,070,187
Shares held by Snam as of today	125,483,107
Shares to serve convertible and

management incentives @ march '20	91.5 million
Available shares excluding those serving	33,983,107
convertible and management incentives

19

2019 Italian business capex highlights

	Import
Import	Russia
North EU
	GORI
	ZIA

Investments 2019

Key replacement activities

				CAVARZERE
		3	• > 30 kms of pipes replaced and already in
		RAVENNA
			1	12%	17%	13%
				1	operation; around 970 kms of projects ongoing
	LNG
			4%
	LA
	SPEZIA			RECANATI
	LNG OLT				Key maintenance activities
	LIVORNO					29%

Import Algeria

• More than 760 hydrogeological interventions

2

Key development activities

2• 55kms of interconnection with TAP - in line with construction plan (about 50% completed)

• Biomethane connections - about 10€m of capex; with 12 connections realized

3• 1 Turbo compressor in Minerbio already in operation

84%		41%
			Replacement
Transport
LNG & Other			Maintenance
				Development
Storage
				Other

Import

Libia

19

Confirmed length of the period of 4 years Beta equal to 0.524

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

•

REGAS.4° regulatory periodTransition5° regulatory period• 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

• Opex to be calculated on the basis of last

Introduction of output basedavailable certified year (2018) incentives

Transparent regulatory framework

21

Disclaimer

Franco Pruzzi, 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 accounting 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 perates 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.

22