Snam Spa

Good morning. This is the Chorus Call Conference Operator. Welcome and thank you for joining this NAMM 9 months 2023 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 of SNAM. Please go ahead, Madam.

Good morning, ladies and gentlemen, and welcome to SNAM 9 Months 2023 Consolidated Results. Today's presentation will be hosted by our CEO, Stefano Venier, and by our CFO, Luca Passa. In the presentation, Stefano will provide an overview of the results, the key highlights and achievements of the period, and an update of the most recently published outlook on energy market. 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.

Thank you. Thank you, Francesca, and good morning also by myself. I'm on slide two with a few key highlights on the first nine months. Gas demand declined by approximately 14% in the nine months. Gas prices were on average 70% below the first nine months of 2022 that were characterized by consistent volatility showing the fragility of the energy system. Domestic gas flows continued to be impacted by the geopolitical situation. In front of the declining volumes from the north, these were offset by 20% increase in the LNG imports that reached 12 BCM. On regulatory front, the observation period for the calculation of the weighted average cost of capital parameters ended in September, and the trigger level was reached. We expect in between 80 to 90 BPS uplift to kick in from January 24. On October 31st, the regulator published the resolution for the introduction of the base ROS from 2024. It provides visibility and continuity with some positives such as the reduction of the time lag of the allowed DNA from 2025, an update of the deflator, improvements in work-in-progress revaluation, and the capitalization rates based on historical and perspective average proposed by the companies. All in all, the document is in line with the expectations. We have recently published the 2023 scenario update, which is the basis for the new 10-year gas transmission network development plan, and incorporate some of the indications from the draft of the new Italian integrated national energy plan, so-called PNIEC, sent to the European Commission before summer. to a range of 59-68 BCM of natural gas demand by 2030, of which from 4 to 6 of biomethene. Carbon capture and storage emerged as a critical decarbonization enabler in the most mitigation pathways. Not mentioning that ENI has recently reached an agreement with the UK government for a first CCS regulated business model for a CCS high net Northwest project. And we are jointly progressing on the Ravenna project. Moving to the results, the nine-month figures are extremely sound. EBITDA adjusted is up by 9%, mainly driven by output-based incentives. Net profit adjusted reached $942 million, up 1% year-on-year, despite rising interest rates and relative cost of debt. Investments are topping 1,200 million euros, we're down 6% year-on-year. The BW Singapore payment will occur in Q4, bringing full-year investment to the guidance of 2.1 billion euros. Technical investments are up 29% year-on-year, supported by the completion of the first floating vessel in Pionvino and the start of onshore and offshore works reaching respectively 24% and 7% completion for the second floating vessel in Ravenna. Net debt reached 14.3 billion as a fact of the already anticipated reversal of regulatory working capital. Looking at our associate portfolio, we successfully placed the first-ever EU taxonomy-aligned transition bond exchangeable into existing ItalGas ordinary shares. We have proactively leveraged on our stake in Etelgas to contain our cost of debt while keeping voting rights and expected dividend flows. Our interconnection points are performing well, benefiting from their strategic position at the crossroad of the key gas corridors. Now moving on to slide three, beyond financial performance, we have made further achievement in terms of security of supply, energy transition, and sustainability. With respect to security of supply, storage facilities are now approximately 99% full at record level. We have obtained the authorization to run over pressure also to storage fields, which added further flexibility to the last infilling phase with additional 0.2 BCM of gas. For the next infilling season, we could further increase gas volumes in those facilities by in between 0.4, 0.5 BCM. From November, we have started to provide again the reverse flow service like we did last year. It consists in the availability of daily injection capacity in the next month associated with the corresponding delivering capacity in the period of January-March 2024, so providing further performance in the peak of the winter season. The Flosting Gola tundra started operation in the beginning of July in Piombino as scheduled Three LNG carriers have already been discharged, and thermal year 2023-2024 slots are fully booked. We will launch by year end, beginning 2024, the capacity option for a second vessel to be operational in Ravenna by the end of next year. Biomethane sector is ramping up. We have received 300 requests of connections for new plants in the first nine months of 2023, which is 50 more than full year 2022. We are waiting for a possible allocation of RepowerU funds to some of our projects, starting with the first phase one of the Adriatic pipeline that is already under construction. Now moving to energy transition. As mentioned, carbon capture is gaining momentum. The carbon capture project in Ravenna, which I referred before, that is jointly developed with ENI, is on track to start a phase one in 2024. Then the ACON project in UK, of which our participated Sturega is the lead developer, has obtained a track two status by the UK government and is going to be one of the cluster that will be supported going forward. And Centrica, through one of his subsidiaries, has joined ESB and DeCarbonix which, by the way, is participated by SNAM, in the development of the Kerstel project aiming at the redevelopment of the decommissioned gas reservoir for a large-scale energy storage in Ireland. Green Tour, the subsidiary on small-scale activities, is starting the construction of the small-scale LNG plant in Pignataro. It will enter in service in 2025 and will be able to liquefy 50,000 tons of biomethane into bio LNG for transportation. We have so far been awarded approximately by 100 million euros of plan for resilience and relaunch grants for several projects such as the H2 Valley, the H2 refilling stations and the Gigafactory we are jointly developing with the NORA. I'm pretty confident that both the South H2 corridor and the CCS project in Ravenna of which we are partners, could be qualified as project of common interest by the end of the month by the European Commission. We are going to launch in Q1 2024 a market test for the transport of H2 and CO2. Let's now have a look at the progress made in terms of sustainability. CAPEX aligned to EU taxonomy and SDGs represent respectively 37% and 53% of the total. Methane emissions, which are part of scope one for SNEM, are down a remarkable 25% vis-a-vis nine months 2022. And we joined SBTN corporate engagement program as a first step for a certified biodiversity plan. Finally, sustainable finance reached roughly 80% three-year add of schedule, and according to a recent shareholder analysis, ESG investors reached 47% of the institutional investors, up from the 43% tracked in January. Now moving to page four, with regard to the gas demand context, Italian nine months demand was down 14%, 12% weather adjusted or 7.1 BCM due to a thermoelectric sector that is down 15.5% year on year or about four BCM driven by electricity demand decline, increase of net imports mainly from France by 0.9 BCM, and rise in hydroelectric production by about 1.2 BCM equivalent. Decline in industrial sector, minus 0.8 BCM, is mainly attributable to economic slowdown with an effect particularly on energy-intensive sector. Worth mentioning that in Q3 2023, the industrial gas demand started to show recovery signals with plus 1% growth. Civil sector contracted by 2.8 BCM due to the milder wind temperature that correspond to 1 BCM, demand containment actions 1.4 BCM, and the increase in energy efficiency. The majority of the decline is therefore not structural. Moving to gas flow, they were impacted by the geopolitical scenario, as I mentioned, with a 58% reduction in volumes from north compensated by an increase in LNG volumes by 20%. And as I said, the lower demand. We exported approximately two BCM to Austria and marginally through Switzerland in the first nine months. On the 13th of August, we have reached the physical export level of 40 million cubic per day, which is the maximum technical capacity on daily basis. Now on slide five, we have summarized two recent reports on energy outlook. What I want to emphasize is that there is an extraordinary high volatility over future energy scenario, as comes out from the two studies. And the energy crisis has somewhat eased, but there is consensus on the fact that the energy market to political and the global economy are unsettled. the risk of future disruption is therefore possible. If we take the word energy outlook published by EA, explores different pathways for the global energy system up to 2050, with solar production as assumed as the key technology to enable and accelerate the global decarbonization. Whilst focusing on gas, From the 2023 Global Gas Report, the key takeaway is that it's important to continue investing in gas infrastructure to secure reliable and affordable supply, also considering its balancing role for intermittent renewables increase in generation. We need to accelerate green low-carbon gas and CCS developments, considering the key role that molecules will play in the energy mix of the near and longer future. Now, I leave the floor to Luca to comment on the results in more detail. Thank you.

Thanks, Stefano, and good morning, ladies and gentlemen. Let's now move to the nine-month 2023 EBDA analysis on slide six. EBITDA for the period was €1,862,000,000 plus 9.1% versus last year or plus €156 million. The increase is mainly attributable to a €146 million growth in the regulated revenues related to regulated revenues growth for a total of about €100 million. These effects were partially counterbalanced by a negative volume effect due to the already commented lower gas demand and the usual phase-out of input-based incentives. The incentives relate to the fully depreciated assets for around €30 million, higher contribution from storage flexibility services around €40 million, mainly related to the short-term auctions provided in 2022 and booked in the third quarter 2023, higher contribution from flexibility services on transport, mainly default services, for around €11 million. Furthermore, a 44 million increase in the energy transition businesses mainly are treatable to the energy efficiency and in deep renovation on residential and public administration. With regards to the energy efficiency contribution, we are maximizing the delivery of our backlog on residential businesses. As already seen in the first half of the year, the difference of the items others is mainly due to the one-off contribution in first quarter 2022 from the sale of gas excess inventory and expiry at the end of 2022 of the fees related to a TLC, a telco contract leasing partially offset by some positive items. We confirm our full year guidance of 2.4 billion euro BDA supported by gas infrastructure growth in the last quarter in line with the nine months. excluding approximately $40 million of the non-repeatable 2022 storage flexibility services. Output base contribution is estimated at approximately $120 million on the full year. As far as the energy transition businesses, nine months 2023 benefited from the full contribution of the super bonus regime, which will end in December. Therefore, its margin contribution has peaked in the nine months. Moving to slide seven on adjusted net income. Adjusted net income for the period was 942 million euros or plus 1.1% compared to nine months 2022 due to higher DNA by 50 million following rising investments, net financial expenses higher by 66 million mainly as a result of higher gross cost of debt which moved from 1.1% in nine months 2022 to approximately 1.9% in nine months 2022-2023 due to the increase in interest rates. A slightly lower contribution from associates for 2 million, which was the result of lower international associates contribution by 8 million, driven by the decline of TAG due to the expire of most of the long-term contracts and lower volumes due to the Russian-Ukrainian war. partially offset by the contribution of Sea Corridor and some desperate results. I will comment in detail in the following slide. A positive contribution of the Italian Associates by 6 million, thanks to higher results from Italgas and Adriatic LNG. Higher taxes and minorities, tax rate was 24.4%, slightly higher than the month of 2022, and we expect it to be approximately 25% for the full year. As far as full year guidance on adjusted net income, we are fully confident to deliver 1.1 billion euro guidance as the last quarter below EBDA in terms of performance will be driven by higher linear DNA, higher interest cost, and lower contribution from associates. Moving to international associates, I'm now on The following slide, the contribution to group net income was 180 million euro, about minus 4% versus nine months 2022. Sea corridor entered into perimeter in January 2023 with a performance in line with budget. TESFA confirmed some performance recorded in the first half supported by auction premium and more products on LNG and exports at the connection point with Bulgaria. Year-on-year comparisons also benefited by the pass-through mechanism for energy costs introduced in July 2022. TAP continued to work at full capacity. The increase versus nine months 2022 is largely due to the CPI-linked tariff. Minimum expansion of plus 1.2 BCM one year from 2026 is confirmed and further expansion will depend on market test results at the beginning of 2024. Teregar results is up 8 million euro year-on-year, thanks to the higher revenues related to storage activities and lower operating costs. Unlocked performance remains in line with last year. Looking at interconnector, operating performance remains strong, but profit cap mechanism kicked in while last year benefited from the recovery of past year underperformance. Capacity is booked at almost 50% until 2027, providing medium long-term visibility. Moving to Austria, the negative contribution from TAG is due to the expiry of long-term contracts in 2022, only partially offset by higher reverse flow bookings. Reverse flow is booked for approximately 90% to 95% until 2025, and about 50% for 2026. GCA performance benefited from the recovery of the previous year's energy costs. Finally, EMG performance is in line, slightly above due to the lower DNA, and no impacts on 2022 figures are foreseen due to the outbreak of the conflict in Israel. Turning to our cash flows, slide nine. Cash flow from operation for the period amounted to nine months due to the working capital absorption for around 1.5 billion euro. This was mainly driven by about 800 million absorption due to the balancing activity of which about 600 million related to the balancing item receivables, about 500 million related to the cash deposit decrease due to the gas price reduction, about 400 million related to the full service receivables increase, and were partially compensated by about 700 million positive in settlement items. This is a temporary effect as It is a payment by the energy system clearing out to SNAM that then will reimburse to the shippers. And finally, about 400 million negative for the energy efficiency net working capital absorption driven by the fiscal credits related to the super bonus revenues. As for the full year, we expect working capital absorption of about 2.2 billion euro with some uncertainty over the evolution of the balance activity in the last quarter. Net investment for the period amount to €1,439,000,000, mainly related to net CAPEX and CAPEX payables for €1,173,000,000. They cash out for the acquisition of Sea Corridor for €410,000,000, partially offset by the cash-in of €144,000,000 for the disposal of the stake in Denora. Other outflows were related to the payment for the full year dividends for 933 million euro, resulting in a change in net debt of about 2.4 billion euro. Moving to slide 10, due to the previous commented cash flow evolution, the increase in net debt amounted to 2.4 billion euro, resulting in 14.3 billion of net debt at the end of third quarter 2023. The average cost of debt moved to 1.9% and the fixed to floating ratio stands at 78%. Sustainable finance on committed financing is about 80% thanks to the recent funding secured close to our long-term target three years in advance. In September, we issued the first EU taxonomy-aligned exchangeable transition bonds into Italgas shares for €500 million, which will enable a saving on the cash coupon of about 1% annually versus a plain vanilla bond. Considering the funding executed so far, financing needs for 2023 are fully covered, leaving the remaining part of the year for pre-funding activities for 2024. To date, we have already secured €700 million via banking facilities as 2024 pre-funding. We confirm a net guidance of 15.5 billion at the end of 2023, assuming a working capital assertion of 2.2 billion, mainly driven by balancing activity, which is subject to a degree of uncertainty, as mentioned before, on prices and on cash deposit withdrawal in the last quarter. In terms of financing costs, based on the current forward curve, we expect the average gross cost of debt to increase to approximately 2% for the full year. And now, let me hand over to Stefano for his closing remarks.

Thank you. Thank you, Luca. We delivered what we judged to be a sound nine-month result in a volatile environment characterized by still reshaping gas flows, high volatile gas prices, and rising interest rates. As stated before, we are fully confident to achieve the 2023 targets. 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 wrap that is up 5% year on year. Net income of 1.1 billion and dividend per share up by 2.5% versus 2022 in line with our dividend policy. And by the way, yesterday the board approved interim dividend of 0.1128 shares that is still again in line with the policies. And finally, the net debt of 15.5 billion, as Luca just explained. We face a 2023 winter in a better position, but volatility persists. That depends by external factors. Gas markets are in a fragile equilibrium and there is high uncertainty over the future scenarios. For this reason, energy planning and the strengthening of the energy system remains crucial to avoid new supply crises. It's important to continue investing in gas infrastructure to secure reliable and affordable natural gas supply and accelerate the development of the green, low-carbon gas platform and the CCS. which is fully in line with our strategy. We have made sound progress, as I explained, to deliver the strategic plan growth targets. We are planning to present the updated industrial plan the last week of January in Milan, and invitations will be out in the coming weeks. Now we turn to you for questions. Thank you.

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 1 on their touch-tone telephone. To remove yourself from the question queue, please press star and 2. Please pick up the receiver when asking questions. We ask participants to ask only two questions before turning to the queue. Management will take two participants' questions before answering. Anyone who has a question may press star and one at this time. The first question is from Sarah Lester with Morgan Stanley. Please go ahead.

Thank you. I've just got one high-level question, please, on regulation. So this new ROS-based regime, the move to the Totex-like framework, I'm interested in how you see this impact in the sector as a whole in the longer term. You mentioned a couple of positives earlier, but for instance, Do you think that spending amounts will be harder to justify under this new regime? And do you think it would result in a more or a less nimble framework? Just generally speaking, I'm wondering if you think this is a net positive for network spending in the space or really no change at all? Thank you.

Hi Sara, this is Luca. I mean, on the ROS introductory regime, as we mentioned, first of all, is in line with expectation. There are, I would say, certain positives, clearly the DNA recognition at T-1, which is an improvement for transport and will start in 2025. Second, the deflator that will be used for the calculation of the revenues related to the first year will be adjusted taking into consideration the inflation of the year 2023, which again is a positive. The improved remuneration on work in progress, again, And as far as the overall or high-level question, capitalization rates will be calculated as the average of the past two years and the estimation on the forward three years, which will be basically given by operators to the regulator. So clearly is a positive in terms of, you know, future spending for regular companies overall, and with him is a positive, I would say, event for the sector going forward. Thank you.

The next question is from Javier Suarez with Mediobanca. Please go ahead.

Hi, good morning, and thank you for taking my questions. Two questions. The first one is on the general gas outlook. On the slide number four, you are showing significant decreases across the board, but mainly in the residential area and also in the industrial area, which are quite significant. So the question for you is going into 2024, which are your expectations maybe by activities in terms of gas consumption for next year? And then the second question is on the guidance and what you are including in current guidance. So when you are talking about 2.4 billion euros of EBITDA, you can help us to understand what are you including in terms of output-based incentives. I think that in previous conference call, you were mentioning 100 million euros. During third quarter, you have been accounting something like 40 million euros related to activities provided So the new guidance includes 140 million euros or different numbers. And also I think that you mentioned last conference call 80 million euros from the energy efficiency business. You can confirm that. And also in terms of net income guidance, you can share with us that 1.1 billion euros of net income, what is included in terms of contribution from associates. Thank you.

With respect to the general outlook, I can say that, of course, this year is reflecting different events that happened. I mean, the mild winter that affected the first quarter of the year, of course, had a significant impact. Of course, when we made the projections we referred to, let's say, average temperature over, let's say, the past periods. So it's extremely difficult to make projections, of course, a projection on what is going to happen. Anyhow, what we take as a reference is the average of the last 10, 20 years to let's make projections. With respect to the industrial sector, I think here depends on the development of the industrial production we're going to have looking forward. As a matter of fact, in the Q3, we saw some let's say rebound on the consumption as I mentioned and also we will see progressively some return on consumption on the energy intensive sectors that because of the high prices and the volatility they worked on a stop and go basis and therefore I think with the stabilization of the prices at 40, 45 Eurocent per cubic meter, we will see some of those consumption coming back. The third is the thermal generation. We have to consider three major aspects we have had this year. The first one in the first part of the year we had the coal production that was under a full capacity regime that now this is over. The extremely the significance of the rainfalls that happened during summer and this month that increased remarkably the hydro production and the strong contribution that came from France because of the spread in prices. Also, these kinds of events should, let's say, stabilize going forward. I think we expect to see a consumption for 2024 in a region of let's say 65-67 BCM with a slight recovery of the gap that we have seen. in this year because of the reason I mentioned. And looking forward, the different scenarios, as I said during my presentation, see that by 2030, consumption in between let's say 58 BCM and 63, 64 BCM, depending on the speed of development of the renewables we're going to have in the country. Of course, these numbers with respect to the total volume shipped in our pipelines do not take into consideration the export volumes that of course goes on top of the consumption and we expect to have some benefit primarily with the put on stream of the Ravenna facility that is exactly in the corridor toward Austria and southern part of Germany. I think going forward we will see an increase on the volumes on export side that will be shipped in the pipeline system. Luca.

As far as assumptions for the full year guidance, at the BDA level you asked about the output base and we are basically estimating a contribution of 120 million approximately for the full year, which includes also the 40 million basically not recurring that we booked in the third quarter this year on flexibility. As far as the energy transition, as I mentioned in the call, you know, the contribution has peaked for the deep renovation, both residential and public administration, mainly because of, you know, basically the end of the super bond cycles by December of this year. we actually confirmed a guidance of 70 million contribution in the last conference call, which we confirm here, basically depending on how this ending of the super bonus period will basically perform by the end of this year, but that is confirmed. And then going below a BTA for the 1.1 billion guidance, You have basically two effects. As I said, interest cost is increasing to 2% on average for the full year. So we will have an higher interest basically payment towards the fourth quarter for an higher average overall debt for the full year. And in terms of associates, in terms of debt contribution, we expect just below $300 million overall for the full portfolio. which for the international is just about 200 million in terms of contribution for the full year.

Thank you.

The next question is from Jose Ruiz with Barclays. Please go ahead.

Yeah, good morning. Thanks for taking my questions. The first one is if you can confirm that your M&A activity is in standstill, if anything has changed. The second question is you have increased the average cost debt guidance for 2023 and I guess this is related to refinancing at a higher cost. Can you kind of set up a path of increase into 2024? Thank you very much.

Hi. With respect to the M&A, we are not in standstill, frankly speaking. I mean, there are some, let's say, possible opportunities that are going on. Let me list them first. As you know, Exxon and Catara Energy are negotiating with, let's say, BlackRock, the acquisition of a stake on Adriatic LNG, that is the LNG facility offshore the North Adriatic and we have a preemption right or we have the right to increase our stake that is presently at 7.3. That kind of negotiation is not ended yet so we don't know the final terms and conditions that will be agreed by the three parties when those will be available and notified to us so we will evaluate whether or not to increase that stake of course creating and strength further strengthening the presence of the company in the LNG facility and the LNG capacity The second that is well known is Edison Stockaji. The Edison group and EDF group started the sounding of the market just a month ago and we expect, as other players, we expect to submit a non-binding offer by beginning December. That means that after that first phase we will see if there will be ground to go forward, but as I said, in other the site situation this is an asset of our interest of course it's going to be an opportunity depending on the price that will come up and these are the two major let's say titles i like to mention so we are not in the stand still we are looking around of course we have for a time being a major focus on the investments but asset rotation or strengthening of the asset on strategic areas is still let's say, at the top of the attention of the management.

And then as far as average cost of debt, Jose, we have not changed our guidance for this full year, which has always been 2% average cost for the full year, which we confirm by the end of the year. We're currently at 1.9% and we will finish at 2% by the end of the year. Now, in terms of evolution in the following years, clearly we will have a more, I would say, ground discussion when we will present the plan in January, but interest rates are higher, the scenario is higher, so you could point to an overage cost of debt for 2024, which is closer to 2.5%, which is clearly higher than what we expect in the current approved plan and presented last January.

Thank you, very clear.

The next question is from Meike Becker with HSBC. Please go ahead.

Yes, thank you very much for taking my questions. I have two on the progress of your business, the newer ones, so to speak. On the energy transition and specifically the energy efficiency, how confident do you feel about your 24 to 26 outlook? I mean, on the energy efficiency, 23 seems to have gone very well. So I'm just wondering what your outlook is for that business specifically longer term. And the second question is, Some of your peers have made comments that maybe their expectations for hydrogen project development might be going slower than expected. So it would be great to hear how your CCS and hydrogen projects are progressing. And if you're sort of like how your expectations have changed over the last, over the year, if they have changed at all, that would be great. Thank you.

With respect to the energy efficiency, as you said, I mean, 2023 performed very well. Of course, the, let's say, change in the incentive schemes related to the super eco bonus, as we used to call, was expected also when we set up the business plan, the current business plan. Therefore, if we look at the new projections that we are working on for As I said, the new business plan will be presented in January. There are no major news that changes the expectations and projections. Of course, as Luca said, the super eco bonus created a sort of pick in 2022 and specifically in 2023. This is going to be over in 2024. But we have strong fundamentals, especially on the industrial business and the public sector we can leverage upon with a very long-term backlog of contracts that will provide and will underpin the projections we already presented with the existing business plan. So we are not seeing in the discussion we are having with the management major changes in the period between 2024, 2026, 2027. With respect to H2 development, yes, it's true. I mean, some of the projects are taking some delay. But as a matter of fact, we are not linked much to single projects. We are working on the infrastructure. As we always said, this repurposing of the infrastructure will start and happen from the second part of the decade and the first part of 2030. This is the period when we will see exactly how the progress will come. We have to say that To that extent, we also have one, let's say, angle of flexibility that is related to the fact that we can develop this South H2 corridor end-to-end through the pipe, but also having several, let's say, ports that can receive some of the green molecules along the way that could make or provide an optimization in development. I think that one important step will happen very soon with the conclusion of the process of the PCI. This will open the window to, let's say, a request for the full support. And on the other side, I have to say that discussions with the, let's say, German, Austrian, and Italian companies to, let's say, create a sort of projections between demand and production on long-term basis is progressing. We had the meeting, large meeting in January a month ago, next one is going to be in Vienna beginning of January, and the next one in Rome. So things are progressing, not as fast as originally figure out, but I have to say that the commitment, especially from the large consumer outdoor-based industry, is strong and will be confirmed as far as Italy is concerned by a sounding survey we're going to take on Q1 2024 that will involve not only the potential hydrogen demand, but also demand for CO2 capture. The two solutions probably will come in, let's say, a complementary way for the outdoor bait industry.

And just on the first question, just to give you some numbers underlying, we're going to finish the year on the energy efficiency with a backlog of 1.3 billion, which has a duration of 11 years. So as Stefano pointed out, clearly some slowdown due to the end of the SuperEQ bonus, but enough visibility for the following years.

Thank you.

Very helpful. The next question is from Stefano Gamberini with Equitasim. Please go ahead.

Good morning, everybody. I have two questions, the first regarding the situation in the current scenario of higher interest rate, could you still finance the strong acceleration of capacity you have in the forthcoming years or are you working on some measures in order to sustain your capital structure like for example what you issued as convertible bond, could we expect something in the long run and if you can confirm that the dividend policy will be anyway confirmed. What I'm interested in is to understand what is your financial flexibility for all these projects that you are mentioning, like CCS, that could arrive in forthcoming years. Then the second regarding your comment about the TROS regulation on the RAB deflator. If I'm not wrong, in 2024, you should apply the rate of gross fixed investment of 2022, which was around 4%. But if you now move with the new regulation applying the 2023 expected RAB deflator, expected, sorry, gross fixed investment, this was just in the region of 1% in the first quarter. In the second quarter, 23, so you see the risk of lower RAB deflator for 24 due to the introduction of the new.

Ross, many thanks. I'll take the second and I'll leave the first for Luca. The method of the deflator needs to be treated very carefully because the setup, the year zero or year one as you want to call it, that is 2024, will have to consider also the readjustment on the deflator that happened with respect to 2021 and 2022 that in total was 1.5%, okay? And this, we expect, is going to be part of the, let's say, definition of the deflator to be adjusted for 2024. So that will, to our extent, offset partly the risk that you were mentioning.

And as far as, you know, basically the higher interest rate scenario, clearly, yes, it's higher than our assumption in the business plan, but, you know, this higher interest rate scenario also will affect, you know, our expectation on, you know, basically the remuneration through tariffs. So I think we have, you know, a more balanced, actually, approach, you know, going forward. We don't have any risk in terms of, you know, refinancing. We're talking about between 2 and 3 billion refinancing per year which includes existing refinancing plus financing of the new capex, which is something very feasible basically for our credit rating in the current market. Clearly, if we have the flexibility to use instruments like we used for the recent exchangeable bond, we will do so. And in terms of financial flexibility, we still maintain financial flexibility because we are well below the 70% threshold from the credit agencies. If you want to quantify that, we're talking in terms of financial flexibility more than a billion euros in terms of financial flexibility. That doesn't mean we would like to basically fill, i.e., we want to maintain this flexibility. Therefore, our approach to non-organic will be also driven by these metrics. Bear in mind that the two deals that Stefano mentioned before are for the second one clearly regulated and a lever type of transaction, so clearly will contribute to RAB if successful, and for the first one is an equity ticket which is very minor given the size of our balance sheet.

Thank you.

The next question is from Piotr. I have two questions.

So the first one I wanted to ask you about, you know, I was listening to the calls of one other pipe operator and they mentioned that essentially they've seen a big decrease of the cost of a compressor stations because of the cost of gas purchases and that fed into their financial. So I just wanted to ask you how is that accounted on your side, you know, whether you benefit of it or that's a full pass-through element on your financials. And the second element, second question I wanted to ask you about the TAC, which is now not utilized in Austria. So is there any update on your discussion with the regulator how the issue could be resolved? Thank you.

As far as the TAG is concerned, I mean, we have this discussion ongoing with the regulator. I think we will have some outcome, official outcome beginning next year. So I hope to give you some, let's say, more detailed results during the presentation of the business plan. So the only thing I can say, those discussions are progressing and are progressing in the direction we were let's say, hoping for, that means find a way to sterilize the volatility of the results linked to the volume shift and switch to a more strategic perspective that takes into account not only the role as a vehicle for the gas security of supply, but also the hydrogen opportunities. And the second, regarding the cost of compressing stations, those being technical investments on the infrastructure goes into the RAB and are fully covered by, let's say, the return on RAB on the regulatory framework. I have to say that the increasing cost for the compressing station has not been so remarkable as probably you were referring to.

Apologies, I was asking more about the cost of shipping the gas, you know, the operating of it, like an OPEX cost of the gas you have to burn for the compression stations to put the gas around.

Ah, sorry, sorry, okay, okay. That is a pass-through cost.

Okay, I understand.

The next question is from Davide Candela with Intesa San Paolo. Please go ahead.

Hi, good morning and thank you for the presentation and taking my question. I actually have just one and I was wondering if you can comment a bit on the draft of the energy decree that is under discussion to the Italian government and the draft was mentioning about the new regasification facilities in Italy in order to ensure supply and I was just wondering I am aware that you may comment this and the final outcome will be out and maybe in the plan, but just to know if your formal plan, your current plan was envisioning those investments related to potential new regasification facilities and if these facilities should be built in the next few years. This would imply an additional strengthening of the infrastructure in south of Italy for use of, at the end, further investment on gas infrastructure.

Thank you. The two facilities you are referring to, of course, are developed by two, let's say, private players. As I mentioned, and as part of the strategic infrastructure to let's say strengthen the Italian system, there is the Adriatic Backbone. The Adriatic Backbone will be built by 2028. The first one will be ready by the end of 2026 to be, let's say, compliant with the RepowerEU and the same possible proceeds from EU. And the second phase will be by the end of 2027. So to have this 10 billion cubic meter of additional capacity available from 2028. This is the additional capacity, transportation capacity south to north that we will offer to the market and that will be fulfilled, potentially fulfilled by these new units. Of course, additional capacity can come in case there is a reduction in flows from the current sources. That means primarily Algeria. Otherwise, new additional transport capacity will be required with the consequent time for authorization and construction. There is another number I'd like to recall. is the fact that with this 10 bcm of additional capacity total transport interpretation capacity south to north will increase up to 55 billion cubic meter okay that has to be added to the 28 billion cubic meter of the lng capacity that will be available on the northern part of italy through the LNG infrastructure that makes the total input capacity for the country. Many thanks.

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

So thank you to everyone for participating in this call and see you soon.