Snam Spa

Good morning. This is the Coruscant Conference Operator. Welcome and thank you for joining the SNAM First Quarter 2023 Consolidated 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 star and zero on their telephone. At this time, I would like to turn the conference over to Ms. Francesca Pezzoli, Head of Investor Relations. Please go ahead, Madam.

Good morning, ladies and gentlemen. Welcome to SNAM Q1 2023 Consolidated Results. Today's presentation will be hosted by SNAM CEO, Stefano Veniere, and by our CFO, Luca Passa. During the presentation, Stefano will provide you an overview of the results and the key highlights of the period. Luca will walk you through the financial performance, then back to Stefano for closing remarks, and finally the Q&A session. And now let me hand over to Stefano.

Good morning, ladies and gentlemen, also on my side. I'm on slide two to start a presentation. Volatility continued in Q1. Gas demand declined by nearly 20% while gas prices experienced some stabilization. 46% below previous year level, but still nearly two times pre-energy crisis level. Gas flows continue to be impacted by the geopolitical situation, and the volume decline from north was offset by a 35% increase of LNG import and lower demand. On the regulatory front, we had two new ARERA resolutions. The first, number 139, That's the criteria for gas transportation and metering services in the sixth regulatory period that goes from 24 to 27. More importantly, it confirms the four-year duration as well as the gearing and beta parameters. The second resolution was the number 163 that defines the general rules for the LOSS. implementation supporting a smooth transition. Details such as capitalization, efficiency sharing rates will be defined after consulting period. We have just completed the submission to the regulator of the output-based incentives on the fully amortized assets based on the asset health methodology. We expect a full year contribution according to guidance. with reactive effect since January the 1st. First quarter results were solid. Investment at 313 million were up 5% year-on-year, supported by the first floating vessel interconnections. EBDA was up by 1.5% or 9 million euros year-on-year, notwithstanding positive non-recurring items of $33 million posted in Q1 2022. Net profit reached $301 million, down 7% year-on-year, affected by higher depreciation and amortization and higher cost of debt, while associate delivered stable contribution. Moreover, in April 23, we closed more than $2 billion of sustainable financing, supporting our solid financial structure, as Luca will provide more details later on. And on April 4, along with the other core shareholders, we successfully placed 5.7% of the NORA shares via an accelerated book building to increase the free float, supporting the potential share re-rating. The cash in from SNAM reached approximately $145 million and the capital gain about $76 million to be booked in Q2 2023. Moving now to slide three. Beyond the financial performance, we have progressed in delivering along our key strategic milestones. We made some sound progress on key security of supply projects. First, We received the green light by ARERA on the Adriatic pipeline, which is also eligible for public financing. Second, the Golar tundra started its commissioning on May the 5th and will start operations by the end of May as planned. Moreover, all the capacity was sold for the first three years and 86% for the remaining 17 years, confirming the strategic role of this infrastructure for the entire Italian system. Additionally, OLT capacity was fully booked via auction until 2027, and we have the 20% booked for until 2029. Finally, regarding storage, 1.5 BCM of reverse flow capacity was sold in Q1, contributing, along with gas demand decline, to keep storage levels at approximately 65% well above last year. With respect now to energy transition, the South H2 corridor that is promoted by SNAM, among others, was presented to the EU within the project of common interests. And a few days ago, the project got support letter by the Austrian, German, and Italian government that was sent to Europe. We further progressed on third-party appraisal of H2 readiness of our network with now more than 1,100 kilometers of pipes certified by RHNA towards our 3,000-kilometer target set by 2026. Modena H2 Valley, the development of a green hydrogen production hub jointly promoted by SNAM and ERA, was awarded 19.5 million in funding that covers 100 percent of the investment as part of the National Recovery and Resilience Plan. We were also awarded by 15 million euros for the realization of eight hydrogen refueling stations. He participated in ORA, just started the realization of the Gigafactory nearby the city of Milan. Then moving to sustainability, CAPEX aligned to taxonomy and SDGs represent respectively 30% and 46% of the total. We monitor the performance of our ESG scorecard KPIs on quarterly basis. and you can find it in the appendix of this presentation, and we are very well on track to reach the full-year targets. We have done an extensive engagement with the key shareholders ahead of the AGM, which resulted in an average approval rate of 97 percent on all the items. And according to a recent analysis, ESG investors represent more than 40 percent of our institutional investors base, well above the sector and Italian average. Let's now move to slide four and take a European perspective. Europe and Italy are extending measures to promote security of supply, which remains a key priority, while policies to favor decarbonization and affordability are progressively being outlined and implemented. Let's talk about storage capacity. The storage filling obligation of at least 90% by the end of October this year was confirmed at European level and emergency measures to voluntarily reduce gas demand of 15% at national level were further extended to March 24th. Moreover, on April 25th, The EU Commission launched the process for European companies to register their gas purchases needs via the aggregate EU mechanism, a key milestone to refill EU gas storage facilities in a coordinated and timely manner. The news that you find on the paper today is that 77 companies registered in this mechanism for a total demand of 11.6 BCM. the Vice President Sekpovic declared. Under the current RepowerU discussions, some of our key security of supply projects, such as the Adriatic Line, new LNG terminals, further reverse flow capacity, could be eligible to receive RepowerU funds in the form of grants and concessional loans, thus reducing the overall cost for the system. While looking at affordability, As far as production is concerned, the recently announced EU Hydrogen Bank will support green hydrogen production and import, while Biomethane in Italy already enjoys a favorable incentive scheme providing 15 years' feed-in tariff coupled with grants. The Red II Delegated Act has outlined certification rules that are conducive of centralized green H2 production model. This is consistent with the results of a new H2 backbone study promoted by major European gas TSOs, which estimates in 330 billion cost savings over the period of 3050 through a pan-European H2 network. Finally, the third angle that is sustainability. The Net Zero Industry Act launched in March proposes a framework where greens, hydrogen, CCS, and biomethane are defined as strategic technologies for strengthening a competitive net zero ecosystem in Europe. A new European CCS strategy is expected before year end. Both our CCS project in Ravenna and South H2 corridor could be then eligible for EU funds. We are following very closely final negotiation on decarbonized gas and hydrogen package aimed at assuring that green gases will contribute to reach the EU energy and climate objectives. It's expected to be finalized before the year end and will define the framework for hydrogen infrastructure and the rule of gas TSOs in the future hydrogen system. Let's have a look now on the development of gas demand in the first quarter of 2023, and we are on page five. So then with regard to the gas market context, Italian full-year demand was down by 20% due to thermoelectric sector down by 22.7%, driven by gas to other fossil fuel switch. Electricity demand decreased by 0.7 BCM, and raised in net electricity imports. That was the major contributor in this decline. Civil sector contracted sharply due to the milder temperature and to demand containment actions. The vast majority of the Q1 decline is not structural, as driven by mild winter, 1 BCM, and containment measures by 0.7 BCM. We had a significant decline in the industrial sector in line with what was observed in previous quarters, preliminary data for April points to a mild decline versus last five-year average, with signs of recovery in the industrial demand. Last year, gas demand proved to be quite resilient in the first half and started to decline severely in the second part, impacting year-on-year comparison. Moving to gas flows, they were impacted by the geopolitical scenario with 48% decline in volumes from North, compensated by higher LNG volumes, plus 35%, and lower demand. At European level, in Q1, we had 15% increase in LNG imports, or 2 BCM, and we reached the record high daily deliveries of LNG in April, with U.S. still the first exporter. Let's move now to gas storage facility on slide six, which are strategic in the security of supply and let me say also in the development of the prices will be in the forthcoming months. At the end of the thermal year, March 31st, 2023, the stock in the storage was approximately 5.4 BCM. that together with the strategic reserve corresponds to a filling level of approximately 60%, well above the previous five year and last five years average, as you can see on the chart. In April, storage was filled up on a regular basis with quantity injected in approximately 1.1 billion cubic meters and stock at the end of the month of approximately 6.5 billion cubic meters, which correspond together with the strategic reserve to a filling level of approximately 65% above the European average that hovers around 60%. We face next winter with a stronger and more resilient energy system as we have gas storage facilities full above historical level and we are bringing on stream the first new floating vessel in Piombino in the next few days, which will provide further import flexibility. I now hand over to Luca to comment the financial results.