Snam S p A : 2021 Interim results (Transcript)

First Half 2021 Financial Results - Conference call

Thursday, July 29, 2021, 15:30

Investor Relations Snam T [phone] [e-mail]

MODERATORS: MARCO ALVERÀ, CHIEF EXECUTIVE OFFICER ALESSANDRA PASINI, CHIEF FINANCIAL OFFICER

OPERATOR:	Good afternoon. This is the Chorus Call conference operator. Welcome
	and thank you for joining the Snam First Half 2021 Financial Results
	Conference Call. As a reminder, all participants are in listen-only mode.
	After the presentation, there will be an opportunity to ask questions. Should
	anyone need assistance during the conference call, they may signal an
	operator by pressing "*" and "0" on their telephone.
	At this time, I would like to turn the conference over to Mr. Marco Alverà,
	CEO of Snam. Please go ahead, sir.
MARCO ALVERÀ:	Thank you. Good afternoon, ladies and gentlemen, and welcome to Snam's
	first half results presentation. We've seen a strong start to the year. CAPEX
	has significantly grown, reflecting the ramp up of our investment program
	result, as a dampened operational activity in the first half of last year.
	One of the drivers of our investment plan is digitalization. Here we have the
	objective of becoming the most technologically advanced gas TSO in the
	world. We reached an important milestone in our digital transformation
	program, with the inauguration of the Bologna TecHub in July. You will find
	some detail on this in the back up slides. We're also seeing a recovery in
	gas demand that rose by 10% in the first 6 months of the year. Thanks to
	rebound in industrial production power generation, and cooler than usual
	weather.

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On the regulatory front, the first consultation document on the WACC formula has been published by ARERA. Changing the key parameters have been proposed, including the risk free rate, country risk premium and the way to calculate the cost of debts. Depending on how it will be applied, the formula gives rise to a wide range of potential outcomes, including the possibility of a significant cuts. There will not be consultation period and expect an intermediate document by October and the final release by year end.

Hydrogen's momentum continues to increase, and we have dedicated a slide on how policies and scenarios are evolving. We are continuing to build skills and knowledge in this field, leading projects that test hydrogen's use in de-carbonizing rail transport, ceramics, glass making, and steel sectors. In May, we successfully carried out the world's first test of a 30% hydrogen natural gas plants in the forging process used in industrial steel making in Milan.

We have also been awarded grant by the innovation fund to build an electrolyzer plant connected to a waste energy facility invasion. Our subsidiary, De Nora, a global leader in sustainable technologies, continues to show strong growth while increasing its H2 backlog. It is ideally positioned to become a key player in the hydrogen ecosystem.

Thanks to the credibility and track record both of De Nora itself, and its joint venture with the German Group, Thyssen which is involved in the Neom projects in Saudi Arabia, with a target of 2 gigawatts of electrolyzer capacity. We are starting to discuss possible options to crystallize value from our minority investments and support De Nora in the next phase of its growth.

Another key source of value creation comes from the optimization of our financial structure. Average cost of debt is now below 1%. All the funding of the first 6 months of 2021 has been based on sustainable finance instruments, bringing it to around 60% of total of the above funding.

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Our financial results in the first half of 2021 were very strong. EBITDA benefited from the contribution of higher tariff RAB. Thanks to our investments in our infrastructure and ILO D&A. Our new businesses grew by €5 million versus the same period of 2020, a significant acceleration compared to first quarter 2021.

Financial charges are down, thanks to our team's excellent liability management capabilities, and our continuing treasury optimization measures. Income from associates is up €29 million, compared to last year benefiting from a premature effect including ADNOC and De Nora and from the full year contribution of TAP. These effects are partially offset by the decrease of Austrian associates, which was affected, and Desfa [ph] for the lower inventory tariffs and reversal of the extraordinarily strong results in the previous years.

Net profit was up €57 million, thanks to strong operational results, lower financial charges and the contribution from associates. The strong results achieved in the first half of this year mean that we can confidently confirm our full year net profit guidance of €1.170 million, confirming the guidance.

The world of green gas in the energy transition is gaining traction globally and in Europe, with the recovery plan and the Fit for 55 EU package. There is finally growing consensus around the world of hydrogen and biomethane to de-carbonize the hard to abate sectors in particular, and to meet overall climate targets.

A significant share of the Italian recovery plan will be dedicated to areas in which Snam has built strong expertise and capability. In Europe, the Fit for 55 package introduces specific target for green hydrogen and the industrial and transport sectors already by 2030. Half of the hydrogen currently used in the industry will need to be green, and 2.6% of the energy used in transport will come from hydrogen.

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At the same time, forecast for the growth of the hydrogen market are now increasing. The IA has published a net zero scenario with 850 gigawatts of electrolyzer capacity by 2030, while the most recent Bloomberg Green scenario envisages 1,900 gigawatts. The direction of travel is clear, and thanks to our leadership in key energy transition technologies, in hydrogen, and our execution capabilities, we are very well positioned to take part in this investment cycle.

We've identified around 1 billion projects aligned with the recovery funds, in particular, in the use of hydrogen in the hydrogen valleys, rail and transport hard to abate sectors, development of hydrogen supply chains and R&D. These projects will be selected to receive funding through a state tendering processes, and some will require operating support to be viable. We will be working on some of these projects in partnership with other groups, and the details of the centers, and tendering processes are not yet available.

We have also been selected as a direct partner in the first few hydrogen related waves of the IPCEI, which are important projects of common European interest regarding hydrogen technologies and hard to abate sectors. This is a program that aims to support strategic value chains in Europe and allows member states to finance up to 100% of the funding gap of projects in R&D or in the first industrial development.

I will now hand over to Alessandra for a closer look at our first half results.

ALESSANDRA PASINI: Thank you, Marco. Net profit for the period was €635 million up €57 million versus the same period of last year. This was mainly driven by the growth in EBITDA core by more than €50 million, due to higher regulated revenues. Thanks to the continuous growth in the transportation business, related to the ongoing investment and the commodity effect due to the recovery of the gas demand in 2021, and also to the cold weather in April and May. This was only partially offset by the ongoing reduction of input-

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