Snam Spa

Welcome to the H12026 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 listen only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing pound key then five on your telephone keypad. I will now hand you over to Francesca Pezzoli, Executive Director, Investor Relations and Sustainability, to begin the conference. Please go ahead.

Good afternoon, ladies and gentlemen. Welcome to the presentation of SNAM's consolidated results for the first half of 2026, which were approved by the Board earlier today. I am here with Agostino Scornajenchi, SNAM's CEO and General Manager, and Luca Passa, Chief Financial Sustainability and International Asset Management Officer. The presentation will be divided into three parts. First, Agostino will offer an overview of recent market developments and the main industrial and financial milestones achieved during the period. Luca will then provide a detailed overview of our financial performance. After that, Agostino will provide the closing remarks followed by the usual live Q&A session. With that, I'm pleased to hand over to Agostino.

Thank you very much, Francesca. Good afternoon, everybody. Before commenting our first half results, I would like to start with a broader perspective on the energy system on slide number three. When discussing energy, it is important to keep a clear view of the facts and the underlying numbers. In Italy, as in many other major European countries, figures state that natural gas is the backbone of the energy system. In particular, in Italy, it accounts for around 37% of the country's primary energy consumption, making it the largest single energy source. Its importance becomes even clearer when looking at power generation. While electricity accounts for only around one quarter of Italy's final energy consumption, a share that has remained broadly stable over the past decade, natural gas generates roughly half of the country's domestic electricity production, excluding imports, which account for around 15% of supply. This underscores the critical role of natural gas in ensuring flexibility and system balancing. Its contribution is not only ascension today, but it's likely to become even more important in the years ahead. As renewable penetration continues to increase, the need for flexible generation capacity will grow. At the same time, ongoing electrification of final users and new sources of demand, including data centers, could trigger electricity consumption growth after years of stagnation. further reinforcing the need for reliable and resilient gas-fired generation fleet, which is the only flexible generation technology available. This is why we believe the future is not about replacing one technology with another. It's about building an increasingly integrated, diversified, and resilient energy system where electricity, molecules, storage, and infrastructure will work together. This is why we consider this as the energy integration era.

Moving now to slide number four.

Well, we are living in a world increasingly shaped by competing geopolitical blocks where access to energy has once again become a source of economic and strategic power. The events of the past few years, from the war in Ukraine to the recent escalation in the Middle East, have reminded us the importance of resiliency. One lesson stands above all others. Energy systems must be diversified and built with redundancy. We need multiple routes, multiple suppliers, and sufficient spare capacity to absorb shocks that are unpredictable by definition. The slide clearly illustrates how rapidly Italy has transformed its supply mix. Moving from a system largely dependent on pipeline imports from Russia to a significantly more diversified one, leveraging both the flexibility of existing gas infrastructure and the addition of new strategic assets. In particular, LNG plays a pivotal role in this transformation. LNG imports have more than doubled since 21 and accounted for 32% of total inflows in the first half of 2026. supported by the commissioning of the Piombino and Ravenna regasification terminals. As a result, LNG has evolved from a complementary source of supply into a structural pillar of Italy's energy security, significantly enhancing the flexibility, resilience, and diversification of the country's gas system. In this context, Italy holds a unique position in Europe, with five entry points by PI and five LNG terminals, diversified sources of supply and strong connectivity with both North Africa and Central Europe. This creates optionality, which has become one of the most valuable assets in today's geopolitical environment. Italy can really help Europe enhancing its security of supply. Such security of supply is built on two complementary pillars. Diversified import routes and strategic storage capacity. And I'm now on slide number five. Diversification protects against supply disruption or changes. Storage provides flexibility, meets seasonal demand peaks, and acts as a strategic buffer, helping market stabilization during a period of stress. This has become even more evident over the last few years. Through a proactive approach and close coordination with the institution and the regulator, SNAM has ensured the condition for a timely and efficient storage refill ahead of winter. As of today, storage levels reach around 70% of total available capacity, compared with a European average of approximately 55%, and this including Italy. Moreover, through actions held in April, It has been allocated sufficient capacity to achieve the target of filling Italian gas storage facilities to at least 90%. The coordinated effort of institutions in achieving this target has helped minimize overall system costs. This really represents a critical factor in the current context of supply uncertainty, supporting system security while helping to mitigate price volatility and reducing market speculation. While storage filling is a necessary condition, it is not sufficient on its own to ensure security of supply throughout the next winter. Nevertheless, thanks to its storage position, diversified supply portfolio and infrastructure flexibility, Italy is currently better positioned than many, many other European countries. Now it's time for our European peers to accelerate as the rest of Europe continues to lag behind. Moving now to gas demand on page 6. In the January-June period, Italian gas demand amounted to 33.1 billion cubic meters. The 0.4% increase year-on-year was mainly driven by the thermoelectric sector due to lower hydroelectric generation and rising power demand. 26. It is the second year in a row displaying a recovery of volumes, notwithstanding high and volatile prices. Residential consumption was primarily influenced by weather conditions, and overall demand proved to be quite volatile. Export remained broadly stable at around 1 billion cubic meters, mainly through Tervizio. So far in Italy, we have not observed any physical disruption to gas flows, as all the Qatari volumes affected by force majeure were effectively replaced by cargoes from alternative geographies, mainly from the U.S. Looking more broadly at Europe, gas demand across the six largest markets has declined by around 1% since the beginning of the year, with the most significant reduction recorded in France and the UK. At the same time, LNG inflows have remained resilient in a slight increase overall. Lower LNG imports from Qatar have been largely offset by higher volumes from the United States. Meanwhile, storage levels in Europe, as previously discussed, remain at the lowest point seen over the last five years. While physical flows were unaffected, geopolitical uncertainty drove prices' volatility. In order to facilitate the access to updated, trustworthy, and neutral data, I am glad to announce that we have just launched Polaris' SNAM new monthly energy market report. designed to provide investors and stakeholders with timely, reliable and data-driven data and analysis on the Italian energy system. Each edition will include key market indicators, gas demand and supply dynamics and storage trends. In addition, every quarter the report will feature an in-depth analysis of different strategic topics, helping to provide context beyond the headlines. But now I'd like to highlight an important dynamic that we observed during the severe headway that affected Europe over the past few weeks on slide number seven. The data provide a very clear illustration of the role of gas-fired flexible generation plays in maintaining system stability during periods of stress. During the hottest week of June, we observed a significant decline in wind generation, which is a fairly typical pattern during prolonged heatwave conditions. At the same time, electricity demand remains robust, driven in part by higher cooling needs. Gas-fired power generation stepped in to fill the gap. In some weeks, gas generation almost doubled, effectively compensating for the lower output from wind. This is an important reminder. Gas demand is not only evolving in terms of volumes, but also becoming increasingly volatile. Beyond average consumption level, there are periods where gas is required at very short notice and in significant quantities to offset fluctuations in other sources of generation. On slide number eight, we highlight the key achievement delivered across our industrial growth agenda, which remains the core pillar of our strategy. Progress has been made across all of our platforms, including natural gas infrastructure, carbon capture and storage, hydrogen and market solution. Starting with transport, the Adriatic Line Phase 1 is 90% completed and the first batch of the Sesino-Milervio line entered in operation. Storage levels reached around 67% at the end of June and are at 75% today with the 90% filling target before the next winter already secured through and the above-mentioned auctions. LNG continues to provide significant volumes and flexibility, accounting for around 32% of total gas imports, with 110 cargoes already delivered to Italy. Moreover, we sold 40% of Ravenna capacity for work for the next 10 years. Moving now to hydrogen and CCS. Our projects have been confirmed as projects of common interest and projects of mutual interest, underscoring their strategic relevance. On the Dallinna CCS project, following the approval of the environmental impact assessment for the first section of the transport network, the permitting process continues to advance. The environmental impact assessment and the single authorization procedure for the storage phase are currently underway. On Biomethan, the binding offer phase has been concluded. confirming strong market interest in the asset. We are now close to define next step of the process targeting signing by your end with the business to be classified as held for sale. Moving now to page nine, some highlights for the period. On the regulatory front, the energy load acquiesce mandated to define the regulatory framework and the key principle for CCS. The first consultation document for the seventh gas transportation regulatory period was published during the quarter, and we submitted our comments by the June deadline. There are two months remaining in the observation period for the macroeconomics variables underpinning the 27 WAC mark market. Based on the data observed to date and the forward curves today available, regasification appears to be on the edge of activation, excluding France. Given the elevated market volatility, we consider it still premature to draw definitive conclusions. Moving now to financing. In June, we successfully issued a dual-crunch European grid bond, a sustainability-linked bond, and the Board of Directors today approved a potential US dollar future insurance following last year's inaugural one. On sustainability, we continue to progress. with sustainable finance reaching 90% of total and scope one and two emission expected to decline by more than 30% versus 22. We also renewed the gender equality certification for the group. Our results, we deliver sound H126 figures. We've adjusted the BDA of 1,572 million. That is up 9% year-on-year driven by organic growth and larger perimeter when adjusted for The one-off related to 2024 deflator update recovery booked in Q1 25. Adjusted net income at 733 million is up 3% EUR. Net of the above mentioned one-off thanks to higher EBDA partially counterbalanced by additional depreciation and financial charges. Investments at approximately 1.6 billion include the acquisition control over OLT. Net debt stood at 18.8 billion versus 17.5 at the end of 2025, after the investment activity carried out during the period, the payment of the dividend, but also the OLT control acquisition and the cash out for Italgas exchangeable refinancing. Net of these non-recurring items related to OLT and Italgas, net debt remained broadly stable. and also the average cost of debt remains stable at 2.6%. And now let me hand over to Luca for additional details.

Please, Luca. Thank you, Agostino, and good afternoon, everybody. I am on slide number 11. Out of the total investment, around 33% refers to the OLT transaction. Considering only technical investments, over 50% are related to the development. 27% of the investment gross of OLT enterprise value acquisitions are European taxonomy aligned and include H2 ready replacements, dual fuel compressor station, biomethane plants connection, H2 and CCS investment and a large part of the biomethane capex and energy efficiency excluding cogeneration. This figure would be 42% excluding OLT. SDG alignment is calculated only on technical investments excluding the OLT business combination and is 52% of which the majority goes towards SDG 13, 9 and 7 respectively climate action, industry innovation and infrastructure and finally affordable and clean energy. Let's now move to the BDA analysis on slide number 12. Adjusted EBDA for the period was €1,572,000,000 plus 5% compared to last year and plus 9% netting the €52,000,000 deflated one-off recognized in the first quarter 2025. The growth is mainly a treatable two. Regulated revenues increased for about €47,000,000 mainly related to tariff rub and output-based growth partially counterbalanced by past money effects. Perimeter effects related to Stogic Adriatica growth for 8 million that entered into perimeter from March 2025, Ravine FSRU for 8 million that started operating from May 2025, OLT consolidation for 32 million consolidated from March 2026. On top, revenues from Biometan connections to our network for 10 million euros. The slight increase in regulated costs, about 6 million euro, is mainly attributable to labor costs and new hires. With regards to the market solution businesses, the 10 million EBITDA contribution increase is mainly driven by biomethane, following higher business volumes, and to the energy efficiency for energy performance contracts in the public administration segment. As for the full year 2026 guidance, we confer adjusted BDA to reach around 3.1 billion, driven by RAP growth, OLT consolidation, and the full year contribution of Stogica Adriatica and Ravenna FSRU. Moving to slide 13, our associate portfolio once again demonstrated strong resilience in the first half of 2026 despite the ongoing geopolitical volatility affecting global energy markets. Overall contribution from associates reached €212 million, up 4% year-on-year. The positive and negative drivers broadly offset each other, highlighting the benefits of a diversified portfolio and its ability to deliver stable earnings even in a challenging market environment. Let me now walk you through the main movements during the period. Starting with TAP, the assets deliver another very strong performance supported by the additional 1.2 BCM per year of transport capacity and a continued focus on cost efficiency and financial optimization. As a result, TAP was the main positive contributor to the portfolio's performance during the period. Looking ahead, we expect its contribution to be more than €15 million above 2025 levels by year-end, driven by both incremental capacity and by a stronger financial profile. Turning to C Corrido, the performance reflected additional revenues during the second quarter, highlighting its role as a major import and diversification route in times of uncertainty in the global LNG markets. Peregat delivered a much stronger second quarter, partially recovering the weaker start of the year thanks to cost refacing and some additional bookings. However, lower cross-border bookings at the Spanish interconnection point are expected to wait on the full year results. EMG was the only associate directly impacted by the conflict in Iran. Flows have fully resumed in April and it's now running as expected. Finally, among the Italian associates, we recorded a lower contribution from Italgas due to the absence of a regulatory one-off recorded last year. combined with a dilution of our participation to 11.4%. We expect it to be more than compensated by the full-year contribution of 2i Rete Gas. Building on the excellent performance delivered in the first half, we expect around €365 million contribution from the overall associate portfolio for the full year. To provide a more detailed view on our associates and better understand of their values, we have included a dedicated section in the appendix of this presentation. Let's now move to the first half 2026 net income analysis on slide number 14. Adjusted net income for the period was 733 million euro minus 2% compared to first half 2025 and plus 3% net of the deflator one-off recorded in the first quarter 2025 net of fiscal effect. The trend is a treatable two. Higher BDA, already commented, higher DNA for 45 million euro following new assets entering into operation and perimeter effects related to Societica Adriatica, Ravenna FSRU and the OLT consolidation. Net financial expenses increased due to higher average net debt, with an average net cost of debt substantially stable at approximately 2.6% compared to 2.5% in the same period of 2025. Higher contribution from associates for 8 million as a result of higher international associates for 10, counterbalanced by a decrease of 2 million in the Italian associates. Finally, higher income taxes due to the increase in the IRAP rate. As for the full year guidance, we confirm an adjusted net income above €1,450,000,000, which reflect the BDA performance, partially counterbalanced by higher DNA and higher net financial expenses. It includes around €40,000,000 of higher-up increase related to the energy decrease. Turning now to the cash flow, on slide number 15. Cash from operation for the period amounted to around 1 billion 832 million euro and was the result of 1 billion 232 million of funds from operation and about 600 million of positive working capital. The change in working capital was mainly driven by about 400 million of tariff related items, mainly related to the additional tariff components, and about 200 million of super bonus fiscal credit decrees. Net investment for the period amount to 1 billion 154 million euro including the cash out related to the OLT transaction net of cash acquired. Outflows were mainly related to the payment of the dividend for 1 billion and 4 million. On top of that, we accounted the impact of the Italgas bond refinancing for 432 million euro, while other items are largely attributable to the OLT debt consolidation, resulting in a change in the debt of about 1,294,000,000 euro, of which 913,000,000 euro of non-recurring transaction related to OLT and Italgas. As for the full year 2026, We expect the change in working capital to remain broadly stable at around 600 million. The unwind of tariff related items should be substantially offset by a further reduction in the ECO bonus receivables and by the positive working capital effect stemming from the disposal of a portion of the gas volumes acquired in 2022 under the strategic storage scheme earmarked for the liquidity corridor. Moving to slide number 16, Net debt at the end of June stood at approximately 18.8 billion. The average cost of debt remained broadly stable at 2.6 while the fixed to floating mix stood at 65-35%. This reflects a tactical rebalancing towards the floating rate exposures aimed at preserving flexibility and optionality for future refinancing opportunities in a steep volatile interest rate environment as well as in the view of the upcoming new WAC period starting in 2028. Sustainable finance reached 90% of committed financing up 5% versus December 2025 closing. Following the refinancing in January of the 500 million exchangeable bond units with Agas shares, we completed in June a dual transaction consisting of a four-year European green bond and a 10-year sustainability link bond for 750 million each. In parallel, we secured approximately 1.2 billion of additional bilateral bank facilities and we signed a second tranche with the European Investment Bank for 124 million euro to finance the biomethane connection projects. In addition, we strengthened our liquidity profile and funding flexibility by extending and upsizing our core sustainability link revolving credit facility to 5.1 billion euro. Our credit profile further improved during the period. Moody's upgraded SNAM to BAA1 with stable outlook, Fitch reaffirmed Triple B Plus with stable outlook highlighting metrics close to a single A category, and finally S&P confirmed the A- rating while improving the outlook from negative to stable. Overall, these developments confirm the strengths of our sound investment grade profile. As for the full year 2026, we upgrade our net debt guidance from the previous 19 billion euro to 18.9, mainly thanks to the expected better working capital evolution. And with that, I conclude it, and I will hand over to Agostino for the closing remarks. Thank you.

Thank you very much, Luca. I'm now at slide 18 for my conclusion. Well, natural gas plays a key role in the Italian integrated energy system. It remains the country's largest primary energy source while also supporting around half of domestic electricity generation. In this specific context, security of supply is the main priority. Through our infrastructure, we contribute to national energy security in two key ways. First, providing a highly flexible and diversified system where pipelines and LNG terminal work together to ensure access to multiple sources and routes of supply. In recent years, LNG has evolved from a complementary source into a structural component of Italian energy mix, significantly strengthening the system resilience. And second, by supporting the timely replenishment of our gas storage facilities. As said, today, Our storage size around 70% full, well ahead of the European average, with the 90% level for next winter already contracted. While this is not by itself a guarantee against all potential challenges in the coming season, it is certainly the right place to start. In the first half of the year, we delivered across all our priorities and advanced the execution of our clear strategy. This is translating into a strong financial performance underpinned by the strength, visibility, and stability of our regulated business model. Looking ahead, we confirm that we are fully in track to achieve our 2026 financial targets while improving our net debt outlook, reflecting once again our continued focus on financial discipline, balance sheet strength, and long-term flexibility. With that, we are now happy to take your live questions. Thank you very much for your attention.

Thank you very much. We will now begin the Q&A session. 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. And the first question comes from the line of James Brand of Deutsche Bank. Please go ahead and ask your question.

Hi, thank you for the presentation and also for the additional disclosure on the associates. That's kind of interesting to see. Just had a couple of questions. Firstly, on the seventh regulatory period consultation document, just wondering whether you had any thoughts on that. Does that seem to be kind of heading in a similar direction to current regulation or are there any major changes that are worth highlighting? and then secondly on TAP, you're seeing quite a nice step up in profitability this year based on the expansion that you've done. Are there any more opportunities for expansion of the TAP pipeline? Could we see another one in a few years or is it kind of maxed out now in terms of where you can get to? Thank you very much.

Okay, James, thank you very much.

Well, our consultation document, The ARERA that was the new board recently appointed started the consultation around the 7th regulatory period and they published on the 14th of May the relative consultation document. Well, we see both positive elements and also an area of attention about that. A key positive aspect is that They have proposed a simplification of the ROS framework, which could reduce fast low-money volatility through the application of the current capitalization rate. There are, of course, areas of attention that are related to the potential increase in gearing that's used in the work formula, which are considered more consistent with our current leverage profile.