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.

Thanks, Stefano, and good afternoon, ladies and gentlemen. Let me now move to the first of 2023 EBDA analysis on slide number seven. EBDA for the period was 1,221,000,000 euros, plus 5.7% versus last year, or €66 million. The increase was mainly attributable to a €71 million growth in the regulated revenues related to regulated revenues growth, 37 in transport, 9 in storage, and 20 in LNG. The incentives related to the fully depreciated assets for around €20 million, Higher contribution from flexibility services provided to the system for 6 million euros, mainly related to the default service. These effects were partially counterbalanced by a negative volume effect due to the already commented decline in gas demand and the usual phase-out of input-based incentives. Also, 26 million increase in the energy transition business, mainly attributable to energy efficiency and in particular public administration projects and deep renovations. The difference of the item others is mainly due to the one-off contribution in first half 2022 from the sale of gas excess inventory for 33 million and this party at the end of 2022 of the fee related to a telco lease contract only partially offset by some positive items in first half 2023. Moving to slide eight, Adjusted net income for the period was 621 million euro or minus 3.9% compared to first half 2022 due to higher DNA for 28 million euro following rising investments. Net financial expenses higher by 36 million euro mainly as a result of higher gross cost of debt which moved from 1% in first half 2022 to approximately 1.7% in in first half 2023 due to the increase in interest rates. 2023 is a transition year as the WAC was stable despite the rising interest rates environment, but our regulation provides a good cash flow edging over time. The mark-to-market for 2024 WAC points to a potential upward revision. A lower contribution from associates for 17 million euro, which was the result of Lower international associates contribution by 20 million euro driven by the decline of TAG due to the expiry of most of the long-term contracts and lower volumes as outbreak of the Russian-Ukrainian war, partially offset by entering into the perimeter of sea corridor, which represents a key route to compensate lower flows from north and strong DESPA results. I will comment in detail in the following slides. A positive contribution of Italian associates by €3 million thanks to higher results from Italgas, OLT, and Adriatic LNG. Higher taxes and minorities, tax rate was 24.5%, slightly higher than the first half of 2022. For the full year, we expect it to be at approximately 25%. Moving to the slide number nine on associates, International Associates, they positively contributed to the group net income by €130 million, equal to 18% of the group adjusted net income. SEA Corridor entered into the perimeter in January 2023. DESFA confirmed the strong performance recorded in the first quarter of 2023, supported by the higher export at its interconnection points with Bulgaria, and by the related auction premium. Year-on-year comparisons also benefit by the pass-through mechanism for the energy costs introduced from July 2022, when prices sharply increased following the energy crisis. TAP continues to work at full capacity. The increase versus first half 2022 is largely due to the CPI-linked tariff, The second phase of this two-step market test launched in 2021, which triggered a minimum expansion of 1.2 BCM on-year, is now expected by year-end, with the results to be published at the beginning of 2024. Terega results is up 3 million euros year-on-year, thanks to higher bookings in imports from Spain, from more gas transported via Pirineos, interconnection point with Spain, following a reversal week of strikes starting in March 2023 that slowed the arrival of LNG to France. AdNoc performance remains in line with last year. Looking at Interconnector, its contributions slightly declined year-on-year. Operating performance remains strong, but profit-cap mechanisms kicked in, while last year benefited from the recovery of past years underperformance. The assets enjoy a high medium-length-term visibility thanks to the bookings till 2027. CAP reached until 2026 and approximately 50% of 2027 capacity is booked. Moving to Austria, the negative contribution of TAG is due to the expiry of the long-term contracts only partially offset by higher reverse flow booking. Yearly auctions confirmed the relevant role of TAG for reverse flows, booked for approximately 90% to 95% until 2025 and 50% for 2026 with high auction premiums. GCA performance remains stable, also benefiting from long-term contracts until 2031. EMG performance, finally, is in line with the previous year. Turning now to cash flow on slide number 10. Cash flow from operations for the period amounted to minus 719 million euros, driven by the expected working capital absorption for around 1.7 billion euros. This was mainly driven by about $1.5 billion absorption due to the balancing activity of which about $650 million related to balancing item receivables, about $500 million related to cash deposits decreased due to the prices reduction, and about $500 million related to default service receivables increased, only partially counterbalanced by plus $150 million in positive settlement items. And finally, a negative of 250 million of energy efficiency net working capital absorption driven by the fiscal credits related to the eco-bonus revenues. As for the full year, we expect working capital absorption of about 2.2 billion, with high uncertainty over the evolution of the balancing activity. Net investment for the period amounted to 1 billion and 24 million euros, mainly related to net capex and capex payables for €759 million, the cash-out of the acquisition of Secoridor for €409 million, partially offset by the cash-in of €144 million for the disposal of the stake in the NORA. Other outflows were related to the payment of the full-year dividends for €919 million, resulting in a change in net debt of about €2.7 billion. Moving to slide 11, due to the previous commented cash flow evolution, the change in net debt of €2.7 billion resulted in €14.6 billion of net debt at the end of first half 2023. The average cost of debt moved to 1.7%, and the fixed-to-floating ratio stands at 75%. Sustainable finance on committed financing is up to 75% thanks to the recent funding closed in April. In April, we secured more than $2 billion of medium-long-term ESG-linked financing, out of which $1.8 billion RCF obtained from Apollo Banks and guaranteed by SACEF. In April, our recent EU Taxonomy Online Transition I has been awarded a Transition Bond of the Year by Environmental Finance, as evident in our continuous efforts in the sustainable finance. In June, S&P affirmed the rating BBB+, and lowered the threshold for the A- standalone credit profile from 12% to 11%, following the revision of the Country Risk Assessments of Italy. Given the previously commented working capital evolution and the funding already executed, financing needs for 2023 are almost covered. We confirm a net debt in range of 15 to 15.5 at the end of 2023, most likely in the upper part of the range, depending on working capital volatility and, in particular, the withdrawal evolution of cash deposits. In terms of financing cost, based on the current forward curve, we expect the average gross cost of debt to increase to just below 2% at the end of the year. And now, let me hand over to Stefano for the closing remarks.

Thank you. Thank you, Luca. Just very short closing remarks. I do believe we delivered a solid H1 result in a very volatile environment. We are very well on track to achieve the 2023 targets that we confirmed. In detail, 2.1 billion of total investments that are up 10% year-on-year, driven by the capex in our gas infrastructure and the acquisition of the second floating vessel. 22.4 billion tariff rub that is up 5% year-on-year. net income of around $1.1 billion and a DPS up by 2.5% versus 2022. That is in line with our dividend policy. Net debt to fall close to $15.5 billion, including the reversal of the regulatory working capital and the high uncertainty on balancing activity as Luca described so far. We face 2023 winter in a stronger position, but the situation remains volatile and we need to keep the focus on strengthening the energy system for the long term. EU and Italian policies continue to support our strategy. The repower EU funds could back further key security of supply projects while improving affordability and the PNIEC fully recognized the role of gas and green gases as well as carbon capture to reach the decarbonization targets. We have made sound progress over the past months to deliver the strategic plan targets. We are now available to answer your question. Thank you so much.

Excuse me, this is the Coruscall conference operator. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touch-tone telephone. To remove yourself from the question queue, please press star and two. Please pick up the receiver when asking questions. Anyone who has a question may press star and one at this time. The first question is from Jose Ruiz, with Barclays. Please go ahead.

Yeah, good afternoon and thanks for taking my questions. I just have two. The first one is if you could give us a little bit of the timing of the approval of the, you said you filed the PCI for South H2 corridor, if you can give us the timing of approval. Secondly, if you can split the allowed WAC in DESFA in Greece between cost of equity and cost of debt recognized. Thank you very much.

Okay. About the first question, the timing for a PCI, I mean, the procedure is expected to enter the conclusion by year-end. Of course, the conclusion of the PCI process then will make the projects, let's say, available for specific funding. That is means that that is the first part of the progress for getting, let's say, additional financial support for the deployment of this project. For a second, I'll turn to Luca.

Yes, on the second one, regarding the 7.85% new allowed return from 2024 to 2027, the Gini ratio is 45%, the debt assumption is 4.8%, and then when it comes to Basically, the risk-free rate is 2.36, country 1.3%, and market risk premium of 5.5%.

Thank you.

The next question is from Xavier Suarez with Medioblanca. Please go ahead.

Hi, all, and thank you for the presentation. Two or three questions on my side as well. The first one is on the strategy for the company to provide security to European, I guess, gas and hydrogen supplies. There has been a document published by the European Hydrogen Background that is extending visibility to 2030 and then 2040, and they are mentioning a new interconnection with Italy to be built by 2040. So the The question for you is which is the possible upside for SNAM from the development of a southern European hydrogen hub by 2030 and then 2040, and which would be, in your view, the contribution to ensure better diversification of energy supply for Europe? Second question is on the upside from the recovery, the power, the power EU funds. When do you expect to have visibility on collection and also details on the project? That would be helpful. The third question is latest thought on the profitability and possible upside from your energy efficiency activity. Many thanks.

Okay. With respect to the strategic perspective, as we said, the The South H2 corridor is one of the five corridors that has been identified by the European Commission. It's progressing through the PCI. I think the most valuable part for this project is the fact that, according to the estimates and the assessment we have done so far, the largest part of... the largest part of the transportation pipe will be repurposed from existing pipes. We estimate, the current estimates assess that 70% will be, let's say, repurposed. And that makes the competitiveness of this corridor in terms of cost of transportation very high with respect to, let's say, alternative corridors, of course, with respect to the distance corridor. The second part is what role can be played. Of course, the role is, with respect to the gas, it's much easier. I mean, as Luca said, in the last auctions for the reverse flow toward Austria, 100% of the capacity has been sold for the next two years, 50% for Europe. for the third year I had that so means that there is appetite for let's say volumes of course the total capacity that was put on option was up to 6.5 BCM per year and among the projects we are developing that will be submitted for repower you funds there is also a let's say debottlenecking or strengthening of this export capacity up to 9-10 BCM per year because we think that this could be in the interest of the surrounding countries. That will work exactly with the same perspective also for hydrogen. When do we do expect the deadline for RepowerU? I mean, according to the most recent information we have, there is a deadline set by the end of August that might be potentially, let's say, managed within the following, let's say, 45-60 days. So to be conservative, I might say that by the end of September, end of October, we should have a return on the total amount of funds that will be devoted for the three projects we have submitted according to the request that came from the government. For the third one, I turn to Luca.

Hi, Avi. Regarding your contribution of energy efficiency for the full year, The overall energy transition business should contribute around 80 million of EBITDA for the full year. You know that we're starting from a good first half. The majority of the contribution of this increase towards second year is actually coming from energy efficiency, which is providing the majority of the growth between now and year-end.

The next question is from Maggie Pecker with IHSBC. Please go ahead.

Thank you so much. The first question is on your long-term expectations for gas demand, let's say for 2030 and beyond, considering the continued depressed levels that we are seeing. The second question is, is on the hydrogen supply options in Europe into the future. And I guess there are two parts to it. The first one is, under what circumstances would you consider not moving forward with investment into the South Corridor? And the second part is, how do you see the supply options between shipping hydrogen into Europe and the pipeline options? that the transmission system operators have proposed. Thank you.

In terms of projections on gas demand, let me rely first on the national update on the energy plan that was sent to Europe a few days ago. If we take the two the two scenarios that has been considered. The first one projects for 2030 gas consumption that is up to 67 BCM, that is with the current policies, whilst the consumption expected for 2030 that is compliant with the, let's say, CO2 reduction of 45-47% projects 59 BCM of gas. there is one thing we should consider in valuing these numbers is the fact that the underlying economic growth that has been assumed for these scenarios according to the guidelines from the EU is about 0.3% on average per year for a country. That might be a bit conservative to a certain extent. That would be reflected on the, let's say, projection of consumption. So to say that In general, the PNIAC is projecting something in the region of 60 BCM, or with a more, let's say, dynamic economy, we might have slightly more than 60 BCM of gas. Going forward toward 2040, that projection reduces the total gas demand in between 50 to 55 BCM. That is according to the government scenarios. I don't know if I got exactly your question on H2. What I'd like to say is the fact that, of course, the projections and the development of the hydrogen corridors still need to have... not only the financial support, but also the final approval of the market design that is part of the gas package that is under discussion at the European level. So what we do expect by year-end is the final approval of the gas, the green gas package that will design, to a certain extent, the market. And then, of course, will come the mechanism to, let's say... recognize the return on the investment of the hydrogen infrastructure. That is, of course, a key point for the investment decisions going forward. There might be also in this scenario the opportunity of receiving, let's say, hydrogen through shipping, possibly through, let's say, through the cracking of the ammonia, the green ammonia, is part of the scenarios we are starting. As you know, Italy has several industrial ports along the coast that might receive this kind of shipment. Of course, going forward, what we might have is a mix of the two solutions.

Thank you. The next question is from Marcin Voital with Bank of America. Please go ahead.

Yes, good afternoon. Thank you so much. A couple of questions. Firstly, if I can ask you about your Austrian associates. How much visibility do you have on these assets achieving a turnaround and what is actually required to see earnings rebounding? Do you have visibility on auctions or perhaps can you enter into some longer term and when would you expect earnings to improve in that part? And secondly, can I ask you about your potential targets for M&A? I'm talking more about small and medium-sized M&A. Previously you said that you wouldn't rule out perhaps some transactions in Italy. It was reported in the press that you were looking at assets of Edison, I believe. Is there any update on your M&A ambitions? Thank you.

Thanks, Martin. This is Luca. I'm answering the first one, and then I'll leave Stefano to comment on the second one. Basically, regarding TAG, clearly we have some visibility on booking up until 2027. But the assets as a regulation which currently is not supporting the reversal of flow that we've seen in 2022, then we're expecting to be there going forward given the geopolitical situation. So we are conducting basically discussion with the regulator in order to change the way in which this asset is remunerated. The discussion has started. We expect to have further visibility, I would say, and final decision by 2024, or the end of 2024, and to have basically a new type of regulation kicking in in 2025 for TAG. So that's what we're working on, but clearly the asset has to change the way it's remunerated, given the radical change in flows that we've seen and we're expecting to be there for the foreseeable future. And on the second one?

Yeah, with respect to the Edison's to catch them in the storage activities of Edison, we already expressed during the business plan presentation and several times afterwards about the fact that we are interested in looking at that asset. I have to be frank. Honestly, the process has not started yet. We do expect it's going to start very soon, but not yet, as a matter of fact. So we will follow that process and we will see how it will develop.

Okay, thank you.

The next question is from Stefano Gamberini with Equita. Please go ahead.

Good afternoon, everybody, and thanks for taking my question. Just a few of them. First of all, regarding the picture of Italy in the future, according to Minister Picchetto, he plans to present a new energy decree in September on energy situation, and he underlined in some interview that, according to him, the LNG import of gas should be around 35-40 BCM in order to be completely independent in the future from situations like the Russian one, and he also referred to the Algeria, which is now the main supplier of Italy. So could you comment about the statement and 35, 40 BCM means I don't know how many new LNG and are you also ready to invest in this asset or not? The second, regarding the update of the woodwork on 2024, do you expect around 80 BCM? of increasing in returns and what is the scenario that you expect from 2025 onwards considering the current situation. And the third, according to your statement, you are interested also in some M&A activities on the other day, short-term interest rate scenario worsened a little bit compared to the presentation of your business plan. So could we expect also some asset rotation in the forthcoming months or year, or you're still fine with the current situation of no disposal of assets? Thanks.

Let me say first about the projections of LNG. I mean, I think With the completion of and the full operation of Ravenna, Italy will have a total energy capacity in between 28, 29 BCM. Okay. So with respect to the projections that the Minister of Energy mentioned of 3540, I mean, I not have clear at what year he was referring to. Okay, and I think that means there could be space for further LNG capacity. For the time being, we don't have projects for expanding that capacity, but it doesn't mean that other entrepreneurs might intend to develop this kind of assets. I have also to say that... As was mentioned during our presentation, I think we have also to see how the market sounding that will happen year-end will go with respect to the possible bottlenecking of the capacity of the TAP. because as we know, presently that asset is importing roughly 9 BCM of gas, and there has been, let's say, first approval for a minimum expansion of 1.5, 1.3, and we have this sound of the market by the last quarter of the year to see if there is gas available for further imports and appetite from the market. Theoretically... This increase might top up to the size 7, 10 BCM, but we will see what the market will turn. Third, we have also to consider how the production of gas will evolve in Libya. according to the significant investments that ENI has planned to do on the offshore part of that country. So I think there are different pieces in the puzzle that will evolve in the next two to three years and will let us to understand what is going to be the balancing between the sourcing through pipes and the sourcing through LNG. About the third, and I will leave Luke... Luca for the second. About the third, I mean, we are sticking with the position we expressed during the capital market day. We said that we will consider asset rotation in case of, let's say, M&A activity. The M&A activity for the time being is still in standby, as I said, because the process has not started yet, and therefore we are sticking with that side position we had a few months ago. Luca.

Yeah, on the second one, the expectation according to how the variables has moved in terms of, you know, WAC basically reset for 2024 is in the region of between 80 and 90 basis points upwards, which is about 20 basis points higher than what we actually assume in our business plan. And then going forward for the following years, clearly a lot will depend on how the formula will be triggered down, but in the business plan we had a reduction from the 2024 increase by about 40 basis points. So that's the assumption for now. Clearly, when we have more visibility towards the end on the reset this year, there might be some visibility also for the following down in 2025.

Thank you. Just a quick follow-up. So the 40 bps reduction is from your previous expectation. So this means around 60 bps reduction compared to this increase of 80 bps in 2024. Am I wrong?

No. The reduction in the business plan from the reset in 2024 was 40 bps. According to the market of the formula as of today, the reduction could be even smaller in around 30 bps. Thank you.

The next question is from Emanuele Oggioni with Kepler. Please go ahead.

Good afternoon and thank you for the presentation. My first question is on how to base incentives. You collected 25 million euros in each one, if I'm not wrong. So my question is what could be the full year contribution? So roughly 50, twice this year. this amount collected in each one. This is the first question. The second is on LNG vessel, Golar Tundra. I wonder what is the booked capacity for the coming years. If you could provide us more color details on that. And also as regards to the capacity booked for OLT plant. And finally, as regards to gas storage, you mentioned 87% of the capacity. I suppose basically this means that all the next winter's demand is already fully sold for SNAM gas storage. Thank you.

Let me start from the last. I mean, we are standing at 87% fulfillment. We count to reach the 95% that was the same level we reached last year. That means we're going to have roughly 12 PCM of cash of working capital plus the strategic reserve of 4.5. That is basically the level we had last year. It's not enough to say, frankly speaking, that any problem for next year will then be solved, because mainly it will depend on how the winter is going to be. Of course, if the winter will be as mild as last year, I mean, we will not run significant risks there. If it's going to be more colder, of course, it depends on how much colder. That is one point. Second, when we consider the possible risk profile for next year, we have to consider that you have two dimensions to deal with. The first dimension is the total consumption over the winter. The second is the peak in demand in specific days when the climate might be extremely hot. cold. And that is, of course, the more complicated part, especially if this cold day comes in February and March when the storages are half empty and the pressure you have in the storage is much lower than at the beginning of the winter. The way you can, let's say, reduce down to zero this kind of risk is to have even more flexibility on, let's say, the delivery points for receiving the gas. And to that extent, the second floating vessel will play a significant role on the next scenario to secure the situation in the different winters. In terms of output base, what we do expect is almost 100 million euros for the year, with respect to with respect to the $50 million, $45 million we had last year. Consider that the major change in this performance will come from the fully amortized assets, the so-called asset health contribution that will over in between $40 to $45 million. With respect to the goal of Tundra, that was your second question, I can tell you, I mean, we have sold the capacity with the auctions from October the 1st, that is the beginning of the thermal year. For the first year, we have sold 100% of the capacity. For the second and the third year, we have sold 95% of the capacity, so means that we have only two slots still available, whilst from the fourth year to the 20th year, means the following 17 years, we have already sold 87% of the capacity. So in other words, almost full of the capacity of that asset has been sold for the next 20 years.

And just complementing on OLT, 100% to 2027 is fully sold and 20% to 2029.

Thank you.

Gentlemen, there are no more questions registered at this time.

So thank you all, and I wish you a good vacation for those who have still to do them like we. Bye.

Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.