Snam Spa

Hello, everyone. Welcome to the Q1 2026 Results Presentation Conference Call. My name is Gaur, and I will be your operator for today's event. Please note, this conference has been recorded, and for the duration of the call, your lines will be on its own mode. However, you will have the opportunity to ask questions at the end of the presentation. It can be done by pressing the pound key, then five, on your telephone keypad. I will now hand you over to Francesca Pezzoli, Executive Director, Investor Relations, Sustainability, P&C and Ratings. To begin the conference, please go ahead.

Good afternoon, ladies and gentlemen. Welcome to the presentation of Znam's consolidated results for the first quarter of 2026, which were approved by the Board earlier today. I am here with Luca Passa, NAMS Chief Financial Sustainability and International Asset Management Officer. Luca will walk you through the most recent market trends and updates, the latest regulatory developments, and the main industrial and financial achievements over the period. He will then provide a detailed review of our financial results, and then we will open the floor for your questions. With that, I'm pleased to hand over to Luca.

Thank you, Francesca, and good afternoon, everyone. I'm on page number two. Italian gas demand was around 0.5% in the first quarter of 2026, with exports stable at 0.5 BCN. Physical flows were unaffected by almost developments, while geopolitical uncertainty draws price volatility. 2026 WACC is stable across all our businesses, providing visibility on returns. In parallel, the recent energy law decree has mandated ARERA, our regulator, to define the regulatory framework and key principles for CCS, representing an important step towards greater clarity on the development of this segment. We deliver sound first quarter 2026 results. Adjusted EBITDA of 775 million euro is up 9% year-on-year when adjusted for first quarter 2025 one-off related to the 2024 deflator update recovery, driven by organic growth and larger perimetre. Adjacent net income at €375 million is up 2% year-on-year, net of the above-mentioned one-off, thanks to higher EBDA partially counterbalanced by depreciation and financial charges. Investment at approximately €1 billion includes the acquisition control over OAT. The transaction is strategic to expand our LNG footprint, which is essential for national security of supply. Net debt stood at 18.5 billion versus 17.5 billion euro at the end of 2025 after the investment activity carried out during the period, the payment of the interim dividend, OLT control acquisition, and the cash out for the ETI gas exchangeable refinancing. The average cost of debt remained broadly stable at 2.6%. Moving to M&A and financing, In March, we completed the acquisition of the control of OLT and promptly refinance is existing there, achieving more favorable terms and optimizing the capital structure. In addition, we have extended an increase to 5.1 billion euro our sustainability link revolving credit facility. Following the presentation of our business plan, Moody's upgraded our rating to BAA1 with stable outlook. while S&P Global Ratings revised its outlook from negative to stable this morning, confirming the A- rating. At the same time, equity analysts have revised upwards their estimates and target prices, confirming the positive market reception of the plan in terms of value creation and strengthening of our credit profile. Moving to slide number three, Adriatic Line Phase 1 is 80% completed, It was 68% at December 2025, with total grants cashed in for around €291 million, including €57 million received in the quarter. Storage levels already reached around 50% at the end of April, and they are at 53% as of today, with 90% filling targets before the next winter already secured through the latest options. LNG continues to provide significant volumes and flexibility, accounting for around 33% of total gas imports, with 52 cargoes delivered to Italy versus 45 last year. We have successfully completed Phase 1 of the competitive auction process for the disposal of our biomethane business, which attracted very significant market interest. We are now moving into the second phase, with the objective of signing by year-end, with the business to be classified as help for sale, and the closing at the beginning of next year. We also made important progress on sustainability. Sustainable finance reached 86% at 1% versus December 2025. We maintained extensive gains with shareholders, reflecting in an average approval rate of around 98% across all AGM items. On ESG ratings, MHCI AAE was confirmed, and we are included also this year in the Dow Jones Sustainability Packing Class Index. Moving to page number four, in the January-March period, Italian gas demand amounted to 21.8 BCN. The 0.5% increase year-on-year was mainly driven by the thermoelectric sector, 0.1 bcm or plus 2%, partially offsetting lower hydroelectric generation. Demand from the industrial and civil sectors remained broadly in line with the first quarter 2025 levels. In the early months of the year, residential consumption was primarily influenced by the weather conditions. Export was stable at approximately 0.5 bcm, mainly through Tarvisio. Looking at the supply flows, we have seen a further increase, with LNG volumes up 17% versus first quarter 2025, mainly driven by the good availability of the Ravenna terminal, which has been fully operational since May 2025. The additional LNG capacity is significantly enhancing the country's energy security by diversifying supply sources, which is particularly important in the current geopolitical environment. So far in Italy, we have not observed any physical disruption to the gas flows, with all expected cargoes in March delivered as planned. In April, Qatari volumes affected by the first majeure were effectively replaced by cargoes from alternative geographies. More broadly, Europe has experienced limited physical tightness so far, supported by weaker weather-driven demand in March and April, as well as reduced competition from Asia. Storage refilling remains as a key European team looking ahead, and in this context we have proactively accelerated the injection into our storage facilities, securing the volumes required for the next winter season. In fact, moving to slide number five, Through a proactive approach and close coordination with institutions and the regulator, SNAM has ensured the condition for a timely and efficient storage refill ahead of the winter. Following the reduction, sufficient capacity has been allocated to achieve the target of filling Italian gas storage facilities to at least 90%. In total, around 17.5 BCM has been allocated out of a domestic storage capacity of just over 19 billion kilometers, taking into account both the gas already stored and the volumes contractually secured. As a result, by the end of April, storage levels reached around 50% of available capacity, today at 53%, compared with a European average of approximately 33%, which includes also Italy. This represents a critical factor in the current context of supply uncertainty, supporting system security while helping to mitigate price volatility and reduce market speculation. Moving to slide number six on investments, out of the total investments, around 54% refers to the OLT transaction. Considering only technical investments, over 50% are related to development. 90% of the investment gross over LT enterprise value acquisitions are European taxonomy aligned and include H2 ready replacement, dual fuel compressor stations, biomethane trans connection, H2 and CCS investment, and large part of biomethane capex and energy efficiency, excluding cogeneration. SDG alignment is calculated only on technical investment, excluding the OFP business combination, and is 56%, of which majority goes towards SDG 9, 13, and 7, respectively industry innovation and infrastructure, climate action, and affordable and clean energy. Let's now move to the EDDA analysis on slide number 7. Adjusted EBITDA for the period was $775 million, plus 2% compared to last year, and plus 9%, netting the $52 million deflator one-off recognized in the first quarter of 2025. The growth is mainly attributable to regular revenues increased for about $33 million mainly related to tariff rub and auto-based growth, Perimeter effects are related to Stogic Adriatica growth for 8 million that in 2025 entered into perimeters from March, Ravine FSRU for 10 million that started operating from May 2025, and OLT consolidation from March 2026. The slight increase in regulated costs is mainly attributable to labor costs and new hires. With regards to the market solution businesses, the plus a million EBITDA contribution is mainly driven by biomethane, following higher business volumes and to energy efficiency and energy performance contracts in public administration segments. As for the full year 26 guidance, we confirmed adjusted BDA to reach around 3.1 billion euro, driven by rapid growth, wealthy consolidation, and the full year contribution of Stogic Adriatica and Ravenna FSRU. Moving to slide number 8, during the first quarter, our associate portfolio confirmed its resilience against a backdrop of heightened geopolitical and macroeconomic volatility. TAP delivered a strong quarter, supported by the capacity expansion by 1.2 BCM a year, reinforcing its strategic role in the diversification of Italy's gas imports. DESFA benefited from lower net financial expenses, although this effect is expected to reverse over the year. C Corrido's performance was mainly driven by higher operating costs and depreciation, also reflecting phasing effects related to carryover activities that we partially absorbed during the year. Peregrin was impacted by lower cross-border bookings at the Spanish interconnection, an effect expected to be recovered over time through standard regulatory mechanisms. The recent agreement by Enagas to acquire 31.5% stake in Terega, in which we hold a 40.5% interest, clearly highlights the underlying value of the assets, which benefits from a stable and visible regulated return profile, supported by an integrated gas infrastructure platform made by Pipers and Storage, with upside potential from the development of H2 and CCS infrastructures. EMG was the only group associate directly affected by the conflict in Iran, with a temporary reduction in gas flows in March, resulting in a limited impact of 2 million euros on the first quarter results, with flows back at the regime from April 3rd. Finally, the Italian associate benefited from a one-off effect linked to the EORC transaction closings. Overall, first quarter performance is in line with our full year expectation of around 360 million contribution. The year-on-year decline is mainly driven by the one-off and perimeter effects, including the ad-hoc divestment in the early 2025 and the deconsolidation of OIT from associates following its full consolidation on a line-by-line basis from March. Let's now move to the first quarter of 2026 net income analysis on slide number 9. Adjusted net income for the period was $375 million, minus 8% compared to the first quarter of 2025, and plus 2% considering the deflated one-off recorded in the first quarter of 2025 net of the fiscal effect. The trend is a treatable two. higher EBITDA, partially counterbalanced by higher DNA for 34 million following new assets entering into operation, and perimeter effects related to Stojica Adriatica, Ravenet SRU, and the auto-consolidation, all of which weights for about 14 million euros. Higher net financial expenses due to higher average net debt, with an average net cost of debt stable at approximately 2.6%. Slightly negative contribution from associates for 4 million euro, as a result of higher Italian associates contribution for 7, counterbalanced by a decrease of 11 million in the international associates. First quarter 2026 taxes includes the ERAP increase and a benefit on the OLT from the recovery of deductible financial expenses related to previous years. As for the full year 2026 guidance, we confer an adjustment income above 1.45 billion euros, which reflect the LBDA performance, partially counterbalanced by higher DNA and higher net financial expenses. It includes around 40 million euros of higher-up increase related to the energy decree mentioned before. Turning now to the cash flow of slide number 10. Cash flow from operation for the period amounted to around $860 million and was the result of $626 million of funds from operation and $234 of positive working capital. The change in working capital was mainly driven by about 400 million of tariff-related items and 100 million of super bonus fiscal credit decrees, partially counterbalanced by around minus 180 million of temporary commercial net working capital and minus 100 million related to default service. Net investment for the period amounted to 574 million, including the cash-out related to the OT transaction net of cash acquired. Other outflows were mainly related to the payment of the interim dividend for €404 million and to the impact of the Italgas bond exchangeable refinancing for €432 million, while other items are largely attributable to the OLT debt consolidation resulting in a change in debt of about €992 million. Moving to slide number 11, Net debt amounts to around $18.5 billion at the end of March 2026, with net cost of debt substantially stable at 2.6%, while the fixed-to-floating mix stands at 75-25%. Sustainable finance reached approximately 86% of committed financing, up 1% versus December 2025. During the first part of 2026, we successfully issued an exchangeable bond in ItalGas shares for €500 million as refinancing of the existing bond. We secured bilateral banking facilities covering €600 million, as well as drawn down €140 million from the European Investment Bank, signed early in 2025, for the connection of biomethane production plants into national gas networks. In addition, we have extended and increased to 5.1 billion euro our sustainability link revolving credit facility. As for credit agencies, Moody's upgraded SNAM to BAA1 stable outlook in April on the back of the 2025 results and stronger forward matrix compliant with a 12% threshold on FFO net debt for the higher position. Fitch affirmed the triple B-plus rating with stable outlook, flagging the metrics are very well positioned for the current rating and close to the A-minus positioning. And finally, today, Standard & Poor's affirmed the A-minus rating, improving the outlook from negative to stable, confirming the solid investment grade profile of SNAM. As for the full year 2026 guidance, we confirmed a net debt at around €19 billion, including the OST acquisition and its consolidations. To conclude, we are delivering across all fronts, security of supply, strategy execution, and financial performance. I'm on slide number 12. We are supporting security of supply. The 90% storage filling target, Iron Winter, has already been contracted, strengthening the resilience and flexibility of the national energy system. At the same time, we are making solid progress in executing our strategy, with key projects advancing as planned. This is translating into a solid financial performance, underpinned by the strength and full visibility in our regulated business. Overall, we remain fully on track to deliver our full year 2026 guidance. We are now ready to take your questions.

Thank you very much. If you wish to ask a question, please dial pound key then five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key then six on your telephone keypad. The next question comes from the line of James Brand of Deutsche Bank. Please go ahead and ask your question.

I thank you for the presentation. I have two questions. The first is on the new CCS regulation that you mentioned. In the strategic plan, I think there was 0.8 billion of investment in the plan related to a new CCS pipeline. And I'm just wondering, you know, is the regulation kind of shaping up in the early discussions around it how you expected could that provide kind of upside to the plan or do you still see that that level of investment as being reasonable that's the first question and then the second question is just on the kind of trigger obviously there's been some pretty big movements in bond yields and inflation there's a kind of debate around whether France gets taken out of the measurement of the risk-free rate. Where do you see those debates going? And do you think if market premises stay where they are at the moment, you'd get a trade-off later this year? Thank you very much.

Okay. Thanks, James. You're right. It's 800 million on CCS of investment during the plan. Regarding, you know, the regulation, what I can say at the moment is that the decree provides for basically ARERA to start drafting the guideline of the regulation. The decree has not been translated into law. Once it's done, ARERA will have 120 days to draft these guidelines. We don't have, let me say, further visibility vis-à-vis what we already assume in our business plan. Our business plan for the 800 million of investment, which I remind are divided between 400 on transport and 400 on the equity injection in the JD for the storage part, which is a commercial with E&I. We are assuming an average return which is 100 basis points higher than the one we are using for gas in transport and gas in storage. Now, we will have more visibility during basically the course of this year, I suppose. And to the questions whether with this more visibility we might decide to accelerate or increase investment, I think we will know, you know, a few months before we take FID, which at the moment is expected to be taken, I would say, the beginning first quarter next year. And that's what we can say at the moment on this topic. Regarding the second question, so the movements, yes, we saw the movements on MOLIT, on inflation. I can tell you that our mark-to-market for the 2027 trigger, taking out France, and I will come back on that, is currently below 30 basis points. Therefore, it doesn't trigger for the three businesses. The assumption is that France will be taken out because, as you probably remember, they've been downgraded before the start of the reservation period. Therefore, we'll have a discussion with the regulator on this calculation because technically, within the regulation, the fact that France is still in, notwithstanding they are not anymore a double-A country. As far as the other impacts, clearly what might drive problems Some upside to our numbers is inflation. We are seeing inflation higher than our business plan in the next two years, 2027 and 2028. Clearly, if that materializes, you will have a higher revaluation of the RAB. Overall, also in the longer year, we can say that the increase in inflation is in the region of 0.1%, 0.2%, vis-à-vis an average that was 1.9% across the five years of the plan.

Great, thank you very much.

The next question comes from the line of Javier Suarez of Mediabanca. Please go ahead and ask your question.

Hello, and many thanks for the presentation. I wanted to focus on the asset contribution. I think that during the presentation, the company has highlighted limited impact on the Middle East market. in the Middle East crisis or gas disruption in the gas market, et cetera, et cetera. So I just wanted to elaborate with you on the possible disruption in the contribution from an associate in the situation in the Middle East continues to stay as a complicated one. Do you perceive that as a risk in any of the subsidiaries? And if you can elaborate on that, that would be helpful. Also on the associate, I'm interested on the by the entrance of Enagas in the that you mentioned during the presentation. Do you see that as an accelerator in the business plan of the company or the strategic relevance of that to better integrate different relevant European countries on the gas side as well? And the third question is on the taxation. this quarter taxation is relatively low and stable versus last year. I understand that there is a one-off this quarter. So can you elaborate with us, which is your expectation for a normalized taxation by the year end? Thank you.

Thanks, Avi. Regarding, you know, asset contribution, association contribution around this geopolitical context, we do not foresee any other impact on our association. The only impact, and I mentioned that during the presentation, was on the EMG pipeline, which is the pipeline connecting Egypt to Israel. where flows for just one month were lower than usual. They become, I would say, normal back at the beginning of April. The impact of EMG being on low flows is in a region of one million per month. to give you basically a sensitivity, but since the 3rd of April is running without basically any problem. And regarding the other subsidiary, we do not see any, you know, potential impact from the current geopolitical tensions. Whether on the second question from Terega, first of all, What we can comment is that clearly the evaluation that Terega assigned for the transaction, which they're currently under antitrust and golden power approval in France, is re-evaluating some of the parts of some of the analysts for our stake. Because according to the evaluation that Terega is paying, Basically, our stake should be in the region of 750 million, more or less, of value, while some of the parts is in the region of 600. So there is, let me say, a value crystallization there that could be extracted. Terega is a very mature asset, a very efficient asset in terms of strategies, very similar to the SRAM strategy because they are very much involved in transport as well as in storage, one of the few assets that is involved in storage. and they are developing both hydrogen, as you know, to the BAM project, as well as CCS. So the Enagas, I would say, acquisition is welcomed by us. They are a partner to us in other assets, and we welcome an industrial operator vis-à-vis financial investors in these assets also going forward. Regarding to taxation, yes, you are right. We have a positive impact of $4 million around the OLT acquisition, which is basically lowering our tax rate. Tax rate for the first quarter is 24.5%. A normalized tax rate we are expecting for the full year guidance is in the region of 26.5%, which assumes a 2% year-up increase that I have mentioned before.

The next question comes from the line of Bartek Kubicki of Bernstein. Please go ahead and ask your question.

Good afternoon, and thank you very much for taking my question and for the presentation. I would like to touch base on two aspects. First of all, on the gas market per se and the regulation, meaning you mentioned first quarter was okay in terms of gas demand, but I would like to know whether you are seeing any changes gas demand destruction in April and May so far in Italy, but also in neighboring countries where you are exporting gas, and whether you think the government may, or more specifically the Italian government, may do something to limit gas consumption in the country. And also on the gas market, I would like to ask you about your... and first impressions, conversations with the new regulatory body or the regulatory board, and what is your view on their view and opinion on the gas market per se, whatever is something different versus the previous regulator. And just a clarification on the biomethane, if you can just update us on the book value of those assets at the end of first quarter, 26. Thank you very much.

Thanks, Patek. On the first question, gas market, I would say evolution. As I said, first up until the end of March is up basically 0.5%. We are estimating gas consumption for the full year at 64%. which is higher than last year. April is a little bit less in terms of demand. It's minus 2% vis-à-vis April, basically, 2025, and that is most linked to weather. Now, the increase in gas demand we are seeing is coming from the thermoelectric sector, being, you know, power generation with gas. Therefore... we are not seeing any, I would say, effect from the current crisis around, you know, gas consumption. And on the second part of your question, whether the government is thinking about measures to limit gas consumption, we are not aware of any of these basically potential interventions. Clearly, what the government is focused on is in lowering the energy bills for both industrial as well as residential customers, but that is part of the energy decree that they have actually approved at the end of February. But there are no design or no potential intervention, at least for the moment, around basically gas consumption. On the second question, what I can tell you is we had, as all the other operators, the first public auction with the new, basically, board of ARERA, including clearly the chairman. I think what I can comment there is that they're very receptive of our views on the current situation with regards to gas and, in particular, infrastructure supporting basic gas flows. So if I can comment, you asked what is the difference between, you know, them and the previous, I think they've been very pragmatic on, you know, what is the current situation, realizing that what we have done in terms also the actions we took through the options in order to secure Basically, the field storage target at 90% is clearly a sign that this regulator is supportive of an infrastructure that is supporting clearly the gas as an energy vector in the country. As far as the book value of our biomethane platform at the end of the first quarter, you can call it at 635 million more or less, which is 20 million more of what we had basically at the end of 2025.

Thank you.

The next question comes from the line of Mafalda Pompeiro of Goldman Sachs. Please go ahead and ask your question.

Hi, good afternoon, and thanks for taking my questions. I only have one. Luca, is there any update on the progress or maybe even on timing that you could give us with respect to your asset rotation program announced at your recent CMD? I think there's been a few press news hinting something could happen, and just interested to hear any comments you can give. Thank you.

To be honest, Mafalda, you know, we present the asset rotation as a part of a combination of disposals for 1.6 billion and a combination of potential acquisition for 1.2 billion. We generally do not comment on M&A unless there is a formal process ongoing, like the one that we are currently doing for the Biometan platform. I already said on that particular process, we just ended phase one, we are entering phase two. with expectation to basically receive binding offers basically before the summer and potentially signing before year-end. Regarding the other assets around the asset rotation, again, I cannot comment. Once we have something to comment, we will tell you what we have signed in terms of disposal or in terms of acquisition. but I cannot comment. I can tell you that there are ongoing discussions on both sides of the asset rotation, both on acquisition as well as on asset proposals.

As a reminder, if you wish to ask a question, please dial pound E then five on your telephone keypad. The next question comes from the line of Emanuele Occhioni of Kepler. Please go ahead and ask your question.

Good afternoon. Thank you for the presentation and taking my question as well. The first one is only clarification on the guidance, the net profit guidance, I suppose, is adjusted net profit, so does not include the year-up, the additional year-up for €40 million a year in 2026. The second question is on an update on the TAP, because The overall capacity is around 10 billion cubic meters, which was in 25, but in 26, this capacity should increase by 1.2 billion cubic meters. So you can update on this, considering that Q1 was basically flat, plus 3% flows year on year. Thank you.

Thanks, Emanuele. Regarding the guidance, yes, it's adjusted net income for 1.450 million euros. It includes, this guidance, 40 million of additional taxation for the ERAP increase. So, I repeat, it includes the 40 million of the ERAP increase. Regarding, you know, basically TAP, Yes, you are right, 2026, since January, we started to operate the pipe with 11.2 BCM of capacity, which has been, as you know, through basically market testing agreed with the shippers that are using this pipe, therefore the improvements that you see in the first quarter are derived basically from that kind of additional contribution. I can tell you that we are foreseeing TAP contributing above 85 million euros for the full year of 2026.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Thank you very much for listening. We are available for any follow-up questions. Good afternoon. Thank you.