Snam Spa

Hello and welcome to SNAM's nine-month 2025 Consolidated Results conference call. My name is Zach and I will be your operator on today's call. Please note this conference is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing pound key 5 on your telephone keypad to enter the queue. I will now hand you over to your host, Francesca Pizzoli, Director of Investor Relations, to begin today's presentation. Please go ahead.

Good afternoon, ladies and gentlemen. Welcome to the presentation of SNAM Consolidated Results for the first nine months of 2025, which were approved by the Board earlier today. I'm here today with Luca Passa, SNAM Chief Financial Officer. Luca will walk you through the key market trends, the latest regulatory developments, and the main industrial and financial achievements of the period. He will then provide a detailed review of our financial results, an update of our full year guidance, and a few closing remarks. After that, we will open the floor for your questions. With that, I'm pleased to hand over to Luca.

Thank you, Francesca. Good afternoon, everyone. Let me start with the key trends in the Italian gas market during the first 9 months of 2025 at page number 2. Gas demand in Italy was above 44 billion cubic meters, a 2% increase compared to the same period last year. Residential and commercial sector was up 2%, largely due to slightly colder weather conditions, while industrial demand was broadly stable. The thermoelectric sector grew by more than 2%, driven by lower electricity imports and reduced hydroelectric output due to the lower rainfall compared to the same period in 2024, partially offset by weaker power demand. This confirms the critical role of gas-fired power generation in balancing the energy system, especially as we integrate an increasing share of renewable energy. Exports have also risen sharply, growing roughly five times compared to the previous year, mainly through outflows from Tarvisio, also driven by a decreasing TTF-PSV spread differential, becoming negative during September and October. Storage levels at 92%, well above the European average. Looking at supply flows, we have seen a notable shift. Pipeline imports decreased by 2.8 billion cubic meters, more than offset by liquefied natural gas imports, which rose by 4.2 billion cubic meters, a significant 38% increase year on year. This growth was supported by the full return to operation of the OLT terminal in Livorno and the start-up of the new terminal in Ravenna. As a result, LNG accounted for over 30% of Italy's gas imports. This contributes significantly to the enhancing both the country energy security and the diversification of supply sources, which is crucial in today's complex geopolitical environment. These dynamics highlight the relevance of a flexible and diversified infrastructure to ensure energy stability and system resilience in an increasingly volatile and interconnected environment. Let's move to the key financial allies on slide number three. We have delivered sound nine-month results despite persisting volatility. Adjusted EBITDA of €2,227,000,000 is up 6.6% year-on-year, driven by growth in regulated revenues. Adjusted net income at €1,096,000,000 grows double-digit year-on-year thanks to higher EBITDA and greater contribution from the associates, only partially offset by higher depreciation and financial charges. Investments at €1,767,000,000 were broadly in line with the same period of the previous year. Net debt stood at €17.4 billion, down 1% versus first half 2025, after the investment activity carried out during the period and the dividend payment. The average cost of debt remained broadly stable at 2.6%. The Board of Directors also approved the distribution of an interim dividend for 2025 of Euro 0.1208 per share, representing a 4% increase compared to the previous year, in line with our dividend policy. As for regulated updates, and as already disclosed, the regulator has changed the RAB indexation for 2025 to the normalized index of consumer price for the European Union countries relating to Italy, IPCA Italy. At the same time, the deflator for 2024 was updated to 7.9% from 5.3% to recover past adjustments. Therefore, 2025 tariff rub was lifted to 26.2 billion euros from 25.8. On the 6th of August, ARERA published a resolution for the progressive implementation of the full ROS by 2028 with a transition period for 2026-2027. The observation period for the 2026 WACC update ended in September. The calculation is very close to the trigger level, but the final outcome remains uncertain, and it will ultimately depend on the final inflation figure for 2026 and other components of the formula. The Council of Ministers approved on June 30 a draft law for the definition of legislative framework for carbon capture and storage, hydrogen and methane emission reduction that needs Parliament approval. Last week, on the 27th of October, the technical rules for CCS were issued jointly by the competent ministries. Several progress also on the financing front. We have successfully issued our first U.S. dollar multi-trans sustainability-linked bond totaling $2 billion, and €1 billion of EU Green Bond. Moreover, in October, we have cashed in €121 million of Adriatic Line grants. Moving now to our associated portfolio, the stake in Adwo Gas Pipeline was sold to Lunate for €233 million in March, while our 2% stake in Ati Empower was disposed at the end of July. With regards to OG acquisition in Germany, The foreign direct investment clearance is still ongoing and this is one condition present for the closing of the deal. The longest update is now November 17th. In addition, we have signed an exclusive agreement for the acquisition of Higas, which has the rights for the conversion of its Oristano LNG coastal storage facility in the Sardinia region, into an FSRU terminal. In nine months, we have accelerated our strategy delivery. I'm now on page number four. Let me remind the key lights on gas infrastructure. We have more than 850 construction sites open, which represent a 19% increase versus nine months 2024. Works on phase one of the red decline are moving forward steadily with an overall completion at 43%. It was 35% on June 30th. The BW Singapore Regassification Unit moved offshore Ravenna, began operations in May, and 13 vessels arrived so far. In the nine months, Italy received 165 LNG tankers, half of which coming from the US, for a total volume of about 15 billion cubic meters. At the end of September, storage level was 92, as mentioned, 10% higher than the European average, At the moment, we have improved at around 95%, well ahead of the rest of Europe, to be fully prepared for the winter season. Moving to our energy transition platform on page number 5. The first phase of the CCS project in Ravenna has delivered solid technical results. On the industrial phase, permitting for the pipeline is at an advanced stage, and the process for storage has recently begun. We have submitted an application for the CONNECT European Facility Grants in excess of €300 million and we look forward to additional regulatory instruments to move ahead. As mentioned, the Ministry of Environment has just published the Ministerial Decree on CCS Technical Regulation issued jointly by the competent Ministries. On biomethane, we have 72 megawatts already in operation, authorized or under construction, and our mission is to speed the ramp up and maximize the value of these assets. Renovit backlog is broadly stable at 1.4 billion euro. With regard to the H2 backbone, we have been awarded 24 million contribution by the Connect European Facility to cover approximately half of the feasibility studies, and we are progressing with them. Looking at sustainability and innovation, 35% of CAPEX aligns with EU taxonomy and 57% with SDGs, while sustainable finance is stable at 86% of the total. We expect 2025 Scope 1 and 2 CO2 emissions down at least 25% versus 2022, which is our baseline. This is an improvement versus initial expectation of 20% reduction, mainly thanks to the new dispatching optimization tool supported by AI and a better performance on methane in this transition year of application of the new European rules. Furthermore, for the fifth consecutive year, SNAM received the gold standard recognition from the United Nations Environment Programme, UNEP, for methane emission reduction, confirming the group's high standard of transparency and accuracy in methane emission reporting and concrete commitment on emission reduction. Our first employee shared ownership plan has had an outstanding participation rate of 55% of the total workforce, even more relevant as the first window only allowed for subscription through home capital. A tangible sign of employees' alignment with corporate objectives and their active participation is NAM's long-term value creation journey. I would like to take this opportunity to express personally my sincere gratitude to all colleagues who joined and supported this initiative. Moving to slide number six. Out of the total $1.8 billion of investment, broadly in line with the previous year, 35% is new taxonomy aligned and includes, with regard to gas infrastructure, H2 ready replacements, dual fuel compressor station, biomethane plants connection. As for the energy transition businesses, H2 and CCS, a large part of biomethane capex depending on the plant's technical standards and energy efficiency excluding cogeneration. SDG alignment is at 57%, of which the majority goes toward SDG 7, 9 and 13, respectively affordable and clean energy, industry innovation and infrastructure and climate action. More than 50% of the CAPEX are development investment, reflecting the company industrial growth phase. Let's now move to the 9-month 2025 IBDA analysis on slide number 7. IBDA for the period was €2,227,000,000 plus 6.6% compared to last year or plus €138,000,000. Regulatory items were brought in neutral as the recognition of the 2024 deflator update for €52 million and the adoption of the Italian IPCA for rubber evaluation starting in 2025 for around €23 million were counterbalanced by the WACC decrease for around €77 million. The growth is mainly untreatable too. Regulatory revenues increased for around €190 million Stochic Adriatica rented the perimeter from the 3rd of March 2025 and positively contributed by €30 million. Ravine FSRU that started operation from May and contributed by €18 million. In details, the regulated revenues growth breaks down as follows. Transport and storage revenue increased by around €122 million linked to the investment plan execution. Fast money effect amount to around 16 million euro. Higher allowed OPEX mainly due to inflation recognition. Positive volume effect. These items were partially counterbalanced by the absence of LNG extra revenue recognized in the second quarter of 2024 for around 40 million. Lower output base incentives by 16 million euro versus last year. Mainly attributable to the storage reverse flow service and the expected phase out of input base incentives. The increase in gas infrastructure operating costs, about €29 million, is mainly attributable to labour costs in large part due to the inflation recognition under the collective labour contract and new hires. With regard to the energy transition business, the plus €5 million BDA contribution versus 9 months 2024 is mainly driven by biomethane supported by higher volumes. As for the full year guidance, we update our guidance to 2,950,000,000 euros EBDA, which reflect the positive impact of the 2024 deflator update, accounting for around 52,000,000 euros, and the switch to the Italian IPCA index for rubber evaluation starting in 2025, worth approximately 40,000,000 euros for the full year. I'm now on page number 8 on the associates. Their contribution to group net income was €290 million, a plus €57 million increase compared to the same period of the previous year. Out of the total contribution, €197 million come from international associates and the remaining €93 million from the Italian associates. Let's now dive into the performance of each one. TAP's slightly higher year-on-year contribution is mainly driven by inflation-adjusted tariff and lower net financial expenses. With 16% of Italian imports, TAP is the second-largest pipeline import route and will be further reinforced by the start of commercial operation of the 1.2 BCM yearly expansion from January 2026. Securidor operating performance is slightly higher thanks to lower OPEX incurred in the first nine months, expected to normalize by year-end, and lower DNA due to some investment postponement. With approximately 15 BCM imported, it represents the first Italian import route. Peregrine contribution is substantially in line thanks to cost saving, with partially offset the higher financial charges due to 2024 refinancing. Moving to Austria, in 2025, TAG benefited from the new regulatory framework, which eliminates volume risk, bringing net income contribution to positive. Also, GCA's performance benefited from the new regulatory framework, however, offset by a worsening in the bookings, which will be recovered in T plus 2 tariff. Or mentioning the significant increase of exports from Italy to Austria underline the strategic relevance of this route. Thus far, lower contribution was due to extraordinary auction premia on LNG imports and exports to Bulgaria in 2024. However, the market outlook remained positive. Greek gas demand rose by nearly 17% year-on-year, driven by higher power generation needs and a colder winter. LNG remains key, covering over 40% of imports, and the Alexandropolis FSRU is now back in operation. As the ambitious CAPEX plan underpins this strategy, and just yesterday, the Komotini compressor station's starts of operations marked the interconnection strengthening with Bulgaria and the wider region. Interconnectors' contribution remains in line since we are reaching the yearly regulatory cap thanks to capacity of almost 50% booked until 2026. EMG contribution is substantially in line compared to the same period of 2024. Regarding ADNOC, as already explained in March, we have completed the stake disposal. On the Italian Associates, the growth is mainly driven by Italian gas overperformance and by the higher contribution from Adriatic LNG following the increase of SNAP participation in the company from last December. For the full year, we expect approximately €365 million contribution from Associates, excluding OGE potential contribution. let's now move to the nine months 2025 net income analysis on slide number nine adjusted net income for the period was 1 billion and 96 million or plus 10 percent compared to nine months 2024 due to higher bda by 138 million euro as previously commented Partially counterbalanced by higher DNA by 77 million euro, following rising investment and the enter into perimeter of Stoggia Adriatica from March and Ravenna FSRU from May. Higher net financial expenses by 16 million euro, mainly driven by a slight increase in financial expenses related to debt, reflecting higher average net debt with an average cost broadly stable at approximately 2.6%. Contribution from associates is positive for 57 million euro as already commented as a result of higher international associates for 33 and higher Italian associates for 24 million euro. Lower taxes reflect higher contribution from associates to EBT as well as tax credit adjustment related to 2024 income taxes. As for the full year, we update our guidance to 1,420,000,000 euro, net income adjusted, which reflects the positive impact net of taxes of the 2024 deflator update and the switch to Italian IPCA index for revaluation starting in 2025, with a tax rate for the full year expected to be around 25%. Turning now to the cash flow of line number 10. cash from operation for the period amount to around 2 billion and 63 million euro and was the result of 1 billion 717 million euro of funds from operation and 346 million euros of working capital cash generation the change in working capital was mainly driven by regular working capital with around plus 170 million due to tariff related items, mainly driven by tariff receivable decrease, around minus 110 million absorption due to balancing activities and default service, about plus 130 million of cash generation, mainly driven by the super bonus fiscal credit decrease, and around plus 160 million of temporary cash generation due to a reduction in receivable from the compensation energy cleaning house related to flexibility service to be restored by year-end. Net investment for the period amount to 2 billion 237 million euro including 564 million euro of cash out related to Stojica Adriatica, and around 233 million euros of ad-hoc disposal cash in. Other outflows were mainly related to the payment of the dividend for 969 million euros, resulting in a change in net debt of about 1,188 million euros. Moving to slide number 11, net debt amounted to around 17.4 billion euros at the end of September 2025. Net cost of debt, which is calculated as financial charges net of liquidity incomes on average net debt for the period, was broadly stable at 2.6%, while the fixed floating mix stood at 89.11%. Sustainable finance ratio is at 86%, well on track to reach our long-term target of 90% by 2029. Following the publication of a new sustainable finance framework, we successfully placed in May our first US dollar multi-tranche sustainability-linked bond, totaling $2 billion, which was the first sustainability-linked transaction globally with a net zero emission reduction target across Scope 1, 2 and 3. Moreover, in June, we have published a European Green Bond fact sheet and issued our first European Green Bond of about 1 million, which so far is the largest senior single tranche by a European corporate. Following this transaction, the funding for the year is completed, leaving remaining part of the year for further opportunistic pre-funding activities. Credit ratings were confirmed by Moody's and Fitch following OGE acquisition announcement, while Standard & Poor's raised SNAM positioning to A-, following the upgrade of the sovereign, providing the strengths of our credit metrics and business profile. As for the full-year guidance, we reduced our net debt guidance to $18 billion thanks to higher cash conversion, the neutral net working capital effect, greater cashing from associates, and an increase in investment-related payables. Net cost of debt is expected to remain stable at 2.6%, with net financial expenses at around 340 million euro. I am now on slide number 12 to wrap up the full year 2025 guidance, where we confirmed 2.9 billion of CapEx for the year, of which 2.5 billion on gas infrastructure and 0.4 billion on energy transition. as well as Tariff Rab for €26.2 billion, already reflecting the effects of the Real Resolution 130 as discussed earlier. We upgrade our full year guidance with respect to an EBITDA of €2,950,000,000 versus the previous guidance of €2,850,000,000, mainly to reflect the effects of the above-mentioned resolution for a total impact of approximately €90 million. Adjusted net income guidance moved to approximately 1 billion 420 million euros from 1 billion 350, mainly to reflect the above-mentioned resolution, net of taxes. Net debt guidance significantly improves to 18 billion thanks to higher cash conversion, the neutral net working capital effect, greater cash in from associates, and increased investment-related payables. This outlook incorporates the expectation that the 24.99% OGE stake acquisition, if completed by 2025 year-end, will be financed through either asset rotation or the issuance of a dedicated hybrid instrument. Finally, the Board has approved the distribution of an interim dividend for 2025 amounting to €0.1208 per share, with a payment due starting from January 21, 2026. This is up 4% versus the previous year, in line with the guidance, and represents a 71.4% payout. To close on page number 13, the current energy scenario continues to highlight the crucial role of gas in ensuring system stability and resilience within an increasingly volatile and interconnected environment. We remain fully committed to support Italy's security of supply, as shown by the high storage levels and the significant increase in LNG volumes injected into the network, demonstrating the country's role as a strategic energy gateway for Europe. We are also accelerating the execution of our strategy with over 8,050 construction sites currently active across the country, the commission of the Ravenna Terminal and the City Progress on the Adriatic Line. Our strong performance over the first nine months, with all key financial indicators improving, reflects the solidity of our business model and operational excellence. This, together with greater financial flexibility, allow us to upgrade our 2025 guidance on EBDA, net profit, and net financial debt, supporting long-term sustainable value creation for all our stakeholders. We are now open to take your questions.