Snam Spa

Welcome and thank you for joining the SNAMS First Half 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 IR. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome to SNAM H1 2023 Consolidated Results. Today's presentation will be hosted by our CO, Stefano Venier, and by our CFO, Luca Passa. In the presentation, Stefano will provide an overview of the H1 results, the key highlights of the period, and an update on the delivery of the strategic plan. Luca will talk 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 afternoon from also my side. Let's start on page two. Gas demand declined by more than 16% on the first half. Gas prices were on average 55% below H1 2022. and experienced significant volatility showing the fragility of the energy system. Domestic gas flows continued to be impacted by geopolitical situation. The decline in volumes from north was offset by a 20% increase of LNG import and lower demand by 16%. On the regulatory front, we had the approval of the by the regulator of the output-based incentives on fully amortized assets for the years 2023 and 2024. Those were in line with the expectation, as well as of transport and LNG tariffs. The new Italian integrated national energy plan, that is so-called PNIEC, aligned with the most recent EU directives approved, was filed to Europe. It first sets ambitious decarbonization targets. Second, fully recognize the role of gas to grant security of supply and resilience. And third, to pour the role of Italy as energy hub. With reference to our activity, the key elements are the confirmation of the role of biomethane, whose contribution is maximized to about 6 BCM by 2030, representing approximately 10% of the gas demand mix. The relevance of hydrogen also via import and the recognition of the CCS, carbon capture and segregation opportunity, to reach the decarbonization target set. This is fully consistent with our strategy and business plan targets. The first half results were solid. EBDA adjusted was up 5.7% or 66 million year-on-year. Net profit adjusted reached 621 million, down 3.9 on year-on-year, affected by the higher DNA and the cost of debt. Investment reached 734 million. down 23% year-on-year due to the acquisition of the first vessel that happened in H1 2022. Technical investments, vice versa, are instead 33% year-on-year supported by completion of the Piombino and the start of works in Ravenna. Net debt increased to $14.6 billion as a fact of the expected reversal of working capital. Looking at the portfolio of our associates, on April 4th, along with the other core shareholders, we successfully placed at the 5.7% of the NORA shares via accelerated book building to increase free float. The deal generated a cash in of approximately $144 million and a capital gain of about $76 million. On 7 July, Nucera, the joint venture between ThyssenKrupp and Denora, was successfully listed, thus further crystallizing the Denora value. Finally, the weighted average cost of capital of gas transmission in Greece was lifted to 7.85% for the regulatory period between 2024 and 2027. This will support the profitability of our associate DESPA while increasing the visibility of the results. Now moving to slide three. Beyond the financial performance, we have made significant achievements on security of supply. The Golartundra floating vessel started operations at the beginning of July in Piombino. Tariffs for the period 2023-2024 were set and almost all the capacity sold for the 20 years going forward. Storage level is about 87% with a smooth infilling curve. A constructive dialogue with Italian and European institutions is ongoing for a possible allocation of Repower-U funds to some of these NAMS projects, starting with the first phase of the Adriatic pipeline construction. Moving to energy transition, the relevance of the South H2 corridors was reiterated by Italian and German prime ministers during the bilateral meeting held in June. Germany, that is leading the way in terms of H2 market design and development, has started the outline and defined the core H2 network involving the gas TSOs in order to have an infrastructure that connects key imports, production, and consumption areas maximizing the repurposing. Moving to Slamu, we further progress on the third-party appraisal of the H2 readiness for our network, now with more than 1,500 kilometers of pipes certified by RINA and two times the full year 2022 levels. Our partners in the energy transition are obtaining relevant accomplishment as well. DeCarbonix was awarded a gas storage license over the depleted Bains gas field in the East Irish Sea with possible hydrogen upside in the future, while Denora, an Italian-Italy hydrogen technologies, Slam and Denora joint venture, has signed a decree granting the public funding of the $32 million to finance the Gigafactory project that is out of the $63 allowed under the EU state ethical rule. I will now mention some relevant issues regarding our sustainability profile. CAPEX aligned to taxonomy and SDG represent 37 and 56 percent of the total and sustainable finance reached the 75 percent of funding. The efforts to reduce leakages are progressing and methane emissions are down. Sustainable finance reached the 75 percent of funding. The efforts to reduce leakages are progressing, and methane emissions are down 63% for 2023 versus 2015, then well ahead of the United Nations targets of 45% reduction by 2025. Then, SNAM has been included in the CDP Climate A list, which ranks companies for for their commitment, transparency, and action on climate change. Also, we recently published a paper to describe our climate advocacy position reiterating our commitment to the Paris Agreement and the tax transparency framework. From a recent employee survey carried out, emerged an engagement level well above the 70-75% threshold set in our ESG scorecard. combined with a high participation rate of 80%. We also got two new important certifications on anti-corruption and gender equality. Page four. Let me provide an update to the successful delivery of our strategic plan on transport. Output-based incentives on fully depreciated assets were approved and effective January the 1st. We received a green light from ARERA and the government for the development of the Adriatic Line, strategic projects submitted to the Italian government for the allocation of the RepowerEU public funds, as I mentioned before. We progressed on our H2 readiness certification roadmap, and leak detection and repair program was completed in 85% of the network main plans. The South Edge 2 corridor, as I mentioned, is making strong progress and was filed to the PCI. Let's now move to storage. We offer new flexibility services to the system. We have made progress on permitting overpressure at some storage facilities in the Lombardy area, as well as on performance upgrade in the storage in nearby Bologna. On LNG, Piombino was commissioned and entered into operation on time. The capacity was nearly fully sold. We submitted the proposal to relocate the vessel after the 30-year in the Liguria region, and the new commissioner was appointed. We started the preliminary works for Ravenna and the four new connections of the FSRU, and the track logging project in Panigaglia we mentioned in our business plan was recently approved. As far as energy transition business, on biomethene, we have executed the remaining pipeline of plant acquisition, and we took part to the first auction for upgrading with three projects that were all successful. On decarbonization projects, We have first Modena H2 Valley, the development of a green hydrogen production app jointly promoted by SNAM and NERA that was awarded with $19.5 million in funding as part of the National Recovery and Resilience Plan. We were also awarded with $15 million for the realization of eight H2 refueling stations. Second, we are on track in the development of the pilot project with ENI for carbon capture nearby Ravenna. Third, we are progressing to launch a market test for expression of interest for the transport of H2 and the CCS capture. On energy efficiency, we delivered a strong project pipeline and deeper innovation projects while working on the repositioning of our portfolio toward public, PA, and industrial clients. On page five, we spot the gas demand and flows. With regard to the gas market context, Italian first half demand was down 16%, minus 14% on weather-adjusted, or 6.4 BCN. That was due to, first, the thermoelectric sector that was down 19.2 year-on-year, or about 3 BCN, driven by the electricity demand decline, increasing imports, and the raise on hydroelectric production. Civil sector contracted by 2.7 BCM due to the milder temperature we had in the last part of the winter, demand containment actions by 1 BCM, and increase in energy efficiency. The majority of the decline is therefore not structural. Third, declining industrial sector by less than 1 BCM is mainly attributable to economic slowdown, with an effect particularly on energy-intensive sectors, so-called out-to-abate. Worth reminding that last year gas demand proved to be quite resilient in the first half and started to decline severely in the second part, with an effect on the year-over-year comparison. Moving to gas flows that were impacted by the geopolitical scenario, with a 50% reduction in volume from north, fully compensated by an increase in LNG volumes by 20 percent and, as I said, the lower demand. We exported 1.2 BCM to Austria in the first half of 2023. Let's talk about the gas storage situation on page six. The gas in storage is approximately 15 BCM, including the strategic reserves, corresponding to a filling level of approximately 87%, well above previous year and the last five-year average. We face next winter with a stronger energy system as we have gas storage facilities full above historical levels and Piumbino floating vessel in operation. However, the recent gas price volatility shows that the gas market balance remains fragile and the reserve margin tight. European gas market now structurally relies more on LNG, about 40% of total in the first half of 2023. Therefore, any pickup in Chinese demand could have an impact on prices. In addition, last winter benefited from a mild weather and demand containment measures that are temporary. Measures aimed at maximizing coal, by the way, are being lifted. For those reasons, The reaction to this crisis needs to be structural, and we are continuing to strengthen our infrastructure for that purpose. I will now hand over to Luca to comment the financial results.