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.