Snam: net profit rises to 646 million euros (+1.7%) in the first half of 2022

Snam: net profit rises to 646 million euros (+1.7%)

in the first half of 2022

• Total revenues: 1,595 million euros1 (+9.7% compared with the first half of 2021, reflecting growth in regulated businesses, which benefitted from one-off effects, and the increase in energy efficiency);
• Adjusted EBITDA: 1,155 million euros (broadly in line with the first half of 2021, despite the reduction of 64 million euros in the WACC);
• Group adjusted net profit:2 646 million euros (+1.7% compared with the first half of 2021, also reflecting the good performance of associates);
• Capital expenditure: 537 million euros (566 million euros in the first half of 2021). The 2022 investment plan has been confirmed;
• Net financial debt: 12,822 million euros (14,021 million euros as of December 31st, 2021), with the decline mainly reflecting a temporary variation in working capital associated with balancing activities;
• Guidance on 2022 net profit: expected to increase to at least 1.13 billion euros, also reflecting the good performance of associates;
• Energy security: agreements for the purchase of two new floating storage and regasification units (FSRU) to facilitate the diversification of energy supply. Snam has also injected approximately 2 billion cubic metres of gas to help fill storage facilities;
• De Nora: Snam supported the company through the listing process, one of the largest such operations for the year in Europe, retaining a strategic stake (25.88%) to support its future development.

San Donato Milanese (Milan), July 27th, 2022 - The Board of Directors of Snam, meeting today under the chairmanship of Monica de Virgiliis, approved the consolidated Half-YearFinancial Report as of June 30th, 2022 (subject to limited audit).

Stefano Venier, Snam CEO, remarked: "Snam's first half results confirm the soundness of our core business, the positive operating performance and the growth in the contribution of new businesses and associates.

In the new geopolitical and energy environment, Snam is playing an increasingly central role in the security and diversification of energy supplies in Italy as well as Europe.

In recent months, we have supported Italy's energy strategy by helping fill storage facilities with the purchase of approximately 2 billion cubic metres of gas and acquiring two new floating storage and regasification units. We are also strongly committed to enabling the energy transition, as demonstrated with our support for the listing of De Nora, the largest

1. Net of "energy costs" (cost of gas needed for network operation).
2. Excluding non-controlling interests.

This press release is available at	Snam Press Office
www.snam.it	T+ 39 02.37037273 [e-mail]
	Snam Investor Relations
	T+39 02.37037898 [e-mail]

European IPO in the second quarter, and new initiatives in biomethane, energy efficiency and carbon dioxide capture and storage".

Summary of performance in the first half of 2022

Performance highlights

	First half
(millions of euros)	2021	2022	Change	% change
Total revenues (a)	1,454	1,595	141	9.7
Core business revenues (a)	1,297	1,309	12	0.9
- of which Regulated revenues (a)	1,285	1,253	(32)	(2.5)
New business revenues	157	286	129	82.2
EBITDA (*)	1,163	1,155	(8)	(0.7)
EBIT (*)	762	728	(34)	(4.5)
Net profit (*) (b)	635	646	11	1.7
Special item (c)	243	40	(203)	(83.5)
Reported net profit (b)	878	686	(192)	(21.9)

1. Adjusted values.

1. Net of "energy costs", cost of gas needed for network operation (85 million euros; 73 million euros in the first half of 2021).
2. Attributable to Snam shareholders.
3. An analysis of special items is given on page 9 of this press release. For a definition, please see "Methodological note - Non-GAAP measures".

Total revenues

Total revenues net of energy costs amounted to 1,595 million euros in the first half of 2022, up 141 million euros (+9.7%) on the same period of 2021. Revenues from new businesses increased (+129 million euros, +82.2%), due notably to the development of energy efficiency activities, led by the deep renovation sector. Despite the adverse effect of the reduction of the WACC (64 million euros), core business revenues also increased (+12 million euros) thanks to the implementation of planned investments and the delivery of output-based services, as well as positive one-off effects.

Regulated revenues net of energy costs amounted to 1,253 million euros, a decrease of 32 million euros, (-2.5%) compared with the first half of 2021. The reduction in the WACC noted above (-64 million euros, of which 50 million in respect of transportation) was partially offset: (i) by an increase in the RAB (+24 million euros, including the effect of lower "input-based" incentives); (ii) an increase in volumes of gas transported (+5 million euros) due to the recovery in domestic consumption and the growth in exports; and (iii) an increase in revenues from "output-based" services (+19 million euros: +8 million euros in respect of transportation and +11 million euros in respect of storage, for flexibility services offered in short-term auctions). In addition, the first half of 2021 had benefitted from the release of prior-period balance sheet items in the amount of 17 million euros.

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Adjusted EBITDA

Adjusted EBITDA for the first half of 2022 amounted to 1,155 million euros, substantially in line (-0.7%) with the corresponding aggregate in the first half of 2021. The growth of new businesses (+13 million euros) connected with the positive contribution of energy efficiency activities was offset by the reduction recognised by the core business, which was associated in part with provisions for risks and charges used in the first half of 2021 for disputes that have been resolved.

Adjusted EBIT

Adjusted EBIT in the first half of 2022 amounted to 728 million euros, down 34 million euros (-4.5%) compared with the corresponding period of 2021. This reflected the reduction in EBITDA and an increase in amortisation, depreciation and impairment losses (-26 million euros, 6.5%), mainly attributable to the entry of new assets into service.

Net financial expense

Net financial expense amounted to 51 million euros, broadly in line with the first half of 2021 (+1 million euros, +2%). The increase in the average cost of gross debt, which went from 0.8% in the first half of 2021 to about 1% in the first half of 2022, was offset by one- off income from the partial repayment of the Shareholders Loan by OLT with related remeasurement of future cash flows.

Net income from equity investments

Net income from equity investments amounted to 176 million euros, an increase of 37 million euros (+26.6%) compared with the first half of 2021, mainly reflecting the positive contribution of associates and, in particular, Interconnector Limited (+18 million euros), attributable to an increase in available export capacity fostered by current market conditions and, in particular, the abundant supply of liquefied natural gas in the United Kingdom, with a consequent increase in price competitiveness.

Adjusted net profit

The Group's adjusted net profit for the first half of 2022 amounted to 646 million euros, an increase of 11 million (+1.7%) on the same period of 2021 (635 million euros), mainly reflecting the good performance of associates.

Capital expenditure

Capital expenditure amounted to 537 million euros in the first half of 2022, down 29 million euros (-5.1%). Investments essentially regarded natural gas transportation (430 million euros; 458 million euros in the first half of 2021) and storage (60 million euros; 68 million euros in the first half of 2021). Despite the slowdown reflecting the effects of the pandemic and the supply difficulties associated with the Russia-Ukraine conflict, the investment plan announced for 2022 for the regulated core business has been confirmed.

Cash flow

The positive net cash flow from operating activities (2,318 million euros), mainly attributable to developments in working capital connected with balancing activities,

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together with receipts deriving from the repayment of the financial receivable by the associate OLT, with concomitant refinancing on the market, and from the disposal of an interest in Industrie De Nora to support the company's listing on the stock market, made it possible to generate free cash flow of 1,749 million euros. Net financial debt, including the equity cash flow (844 million euros) connected with the distribution of the 2021 dividend to shareholders3 and non-monetary changes mainly relating to the extinguishment of the convertible bond through the assignment of Snam treasury shares, decreased by 1,199 million euros compared with December 31st, 2021 to 12,822 million euros (14,021 million euros as of December 31st, 2021).

Outlook

The most recent projections for the evolution of natural gas demand in Italy this year point to a decline compared with 2021, mainly due to the effect of the increase in energy prices in the industrial sector and forecasts for warmer temperatures.

The optimisation of the financial structure over the past six years lowered the average cost of gross debt to an average of less than 1% in 2021, compared with 2.4% in 2016. Current market conditions and interest rate and credit spreads are expected to impact the remainder of the year, albeit to a limited extent thanks to the funding and liability management operations finalised in early 2022, as well as revolving credit lines obtained in the second quarter of 2022 and in July 2022. These actions made it possible to complete funding as planned for 2022, leaving the second half of the year open for possible pre- funding initiatives.

With regard to the Russia-Ukraine conflict, note that Snam is not active in the Russian market and does not hold investments in Russian companies of any sort, including joint ventures.

At the moment, flows from Russia to Europe have declined and a number of interruptions have occurred. The persistent uncertainty and fear of additional possible impacts on supply continue to drive a significant rise in gas prices.

TAG (joint control) and GCA (associate) are the foreign investees with the greatest exposure to Russian gas supplies through transport contracts. A modest impact on the Group's overall performance could emerge if prolonged interruptions of imports should occur and/or if existing long-term contracts should be cancelled (although these are generally partially covered by bank guarantees).

Regarding the operational management of ordinary activities and the implementation of the 2022 investment programme, the announced level of expenditure has been confirmed, with particular regard to regulated businesses, in order to support Snam's industrial growth. The guidance for 2022 net profit has been increased to at least 1.13

3 The total dividend from 2021 net profit amounts to 872 million euros, of which 345 million euros paid as an interim dividend and 527 million euros as the balance. Amounts still to be paid as of June 30th, 2022 are attributable to a request from a number of shareholders to defer payment.

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billion euros, thanks primarily to the good performance of associates, assuming the stability of the contribution of the Austrian associates.

***

At 3:00 p.m. CET today, July 27th, 2022, a conference call will be held to present the consolidated results for the first half of 2022 to financial analysts and investors. It will be possible to follow the event via conference call and all supporting documentation will be available at www.snam.it in the Investor Relations section from the beginning of the call. The presentation can also be followed through a video webcast in the same section.

***

Key operational highlights

		First half		%
		2021	2022	Change	change
Natural injected into the National Gas	(billions of m3)
Transportation Network (a) (b)	38.51	39.11	0.60	1.6
Gas demand (a)	(billions of m3)	39.97	39.20	(0.77)	(1.9)
LNG regasification (a)	(billions of m3)	0.76	0.88	0.12	15.8
Total storage capacity (a) (c)	(billions of m3)	16.5	16.5
Natural gas moved through storage system (a)	(billions of m3)	11.5	10.5	(1.00)	(8.7)
Employees in service at period end (d)	(number)	3,357	3,526	169	5.0

1. For the first half 2022, gas volumes are expressed in standard cubic metres (SCM) with an average higher heating value (HHV) of 38.1 MJ/SMC (10.573 kWh/SMC).
2. The figure for the first half of 2022 is updated to July 8th, 2022. The corresponding value for 2021 has been definitively updated.
3. Of which 4.5 billion cubic metres of strategic gas and 12.0 billion cubic metres of working gas available for modulation, mineral and balance services. Available storage capacity as of June 30th, 2022 is that reported to the Authority for the Electricity, Gas and Water System at the start of the 2022-2023 thermal year.
4. Fully consolidated companies. The change reflects the entry of new personnel due to the change in the scope of consolidation (77 employees) and to the strengthening the new businesses connected with the energy transition.

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