Snam S.p.A. (SRG) Earnings Call Transcript & Summary

Good afternoon. This is the Chorus Call conference operator. Welcome, and thank you for joining the Snam Full Year 2020 Financial Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Marco Alvera, CEO of Snam. Please go ahead, sir.

Thank you. Ladies and gentlemen, good afternoon, and welcome to Snam's Full Year 2020 Results Presentation. 2020 has been a very difficult year all over the world. Lombardy was the first region to be hit outside of China, and the first lockdowns were only a few miles from here. We were able to ensure the safety of our people, adopting special protocols for essential staff working in the dispatching centers. We guaranteed uninterrupted gas flows and full commercial and technical availability of our grid and storage. And we played a significant role in supporting local communities where and how we could. During this very complex time, we've managed to exceed our original guidance and to continue to press ahead with our strategic positioning internationally and in the energy transition businesses. Project delivery is our key feature, and we expect this to become increasingly sought after for the energy transition. Snam managed to recover operational delays to deliver our investment budget for the 14th year in a row. The EUR 1.2 billion we invested is almost 1/4 higher than our CapEx in 2019, and we're planning to increase this further by 14% to EUR 1.4 billion in 2021. TAP at is a good example of our capability to deliver major undertakings. This was one of the most complex projects in our industry and started up ahead of schedule after 4.5 years of work. Our EUR 300 million equity investment in TAP will result in an annual contribution of around EUR 55 million from this year. Strategically, we also made significant headway entering into the shareholder base of ADNOC Gas Pipelines, being the only industrial player in a large consortium of infrastructure funds. We've also made investments in the hydrogen value chain through De Nora and our small stake in ITM Power. Meanwhile, our energy transition startups broke even in 2020 despite some delays caused by COVID. Hydrogen, biomethane, energy efficiency and sustainable mobility will be key pillars of our long-term growth opportunity. Helped by a strong contribution from international associates and lower financing costs, net profit rose to EUR 1.164 billion, far exceeding pre-pandemic guidance of EUR 1.1 billion. In 2020, we've delivered another year of strong growth. Regulated revenues are driven by continued investment in the network and higher allowed D&A, counterbalanced by the phasing out of older input-based incentives and the decrease linked to the commodity component of our revenue due to decline in 2020 volumes. In 2020, we saw the inclusion of energy costs in revenues, which were previously addressed in kind for around EUR 60 million. These contribute to revenues and costs with essentially no impact on EBITDA. Adjusted EBITDA benefited from the contribution of new energy transition businesses, the continuing effect of the efficiency program launched in 2016 and some additional COVID-related savings, mainly lower travel costs and prolonged smart working for 2020. Income from associates was up EUR 33 million compared to last year, benefiting from the inclusion of ADNOC and the start-up of TAP plus a number of other effects, which are -- some of them specific to 2020 for a total of EUR 30 million positive one-offs. Alessandra will go into more detail on this in a second. On top of all of this, financial charges were EUR 39 million lower in 2020, and this gave us our net profit growth of 6.5%. In 2020, we also made continuing progress on our ESG strategy. We've introduced an ESG scorecard defining 22 targets on which we provided a 2020 baseline, and we will report progress on these regularly. You'll find details in the backup. Among our key areas of focus is the reduction of our carbon footprint. We've adhered to the new net protocol, and we commit to a 45% cut in methane emissions by 2025. As you might recall, in November, we announced scope 1 and 2 targets of a 50% reduction in CO2 emissions by 2030 compared to 2018, which is our base year and we've also committed to carbon neutrality by 2040. We're making significant progress on our strategy of emissions reductions, with 2020 emissions down 5% year-on-year and already 15% compared to 2018. Looking at the S in ESG. We believe that well-being will become a key metric. We have focused on the well-being of Snam's employees and our communities in this difficult year with initiatives including medical and psychological support, virtual gym memberships and the reimbursement of child-minding expenses. We're launching, together with the University of Oxford and other important partners, the World Well-Being movement, a global partnership which will promote a simple measure of well-being as a key ESG indicator. Our leadership in ESG is confirmed by the awards obtained and by our strong positioning within the key ESG ratings. We will hold a webinar dedicated to our ESG initiatives and strategy in April. Thank you for your attention. I'll now hand over to Alessandra.

Thank you, Marco. Adjusted net profit in 2020 was EUR 1.164 billion, up EUR 71 million compared to the same period of 2019. EBITDA core rose by EUR 15 million as effect of on the revenue side, the continued investment, offset by a reduction of input-based incentives and the volume effect of the commodity component, which impacted year-on-year EUR 17 million. On the cost side, the decrease of EUR 18 million in both core fixed costs and other core items due to ongoing effects and some specific of 2020. On the structural side, the benefit of the ongoing efficiency program has been partially offset by higher staff costs due to growing perimeter and inflation. In 2020, we benefited from massive reports to smart working related to the COVID situation, fewer extraordinary growth projects, lower capitalized costs, lower accrual and other items, partially offset by the lack of release of a prior retirement fund that we had in 2019. The new business portfolio contributed positively for EUR 30 million year-on-year despite delays due to COVID. These start-ups in some, such as mobility and hydrogen, are not yet at breakeven. And the main positive contributors, we had Snam Global Solutions; our energy efficiency platform, which consolidated Mieci and Evolve and the biomethane business, with the first full year of contribution of solution of Renerwaste; and the better performance of [indiscernible]. We expect new businesses to continue to gain momentum in 2021. Other positive effect on net income came from lower net interest expenses, which we will comment later on, also thanks to the OLT financial income from shareholder loans and strong performance of our international portfolio that I will describe in the next slide. Looking at our international source in more detail, the increase of net income contribution in 2020 versus 2019 was driven by the contribution of ADNOC since July for EUR 20 million. This includes a positive one-off impact related to the refinancing that was completed between the end of last year and the beginning of this year. We expect a substantial reversal of this in the course of 2021 as a result of adjustments related to the acquisition agreement. We confirm an expectation of an average EUR 15 million annual contribution over the 20 years contract horizon. The first positive contribution of TAP, which accounted for EUR 15 million in 2020 due to a 1.5-month operation, the fact that last year was a loss-making still being under construction and a one-off contribution in connection with the business-related settlement. TAG positively contributed by EUR 10 million more versus prior year due to one-off item of approximately EUR 4 million and recognition of CapEx at the end of the regulatory period. These were partially offset by Teréga due to the new regulation in place since the 1st of April, the positive one-off effect accounted in 2019 connected to the release of a tax provision and the decrease of the contribution of IUK mainly linked to the lower capacity book versus prior year. At our associates, we promote strategy coherence with our broader view in terms of emission reduction and exposure to energy transition and promotion of green gases. Teréga, for instance, is entering the biomethane market and has joined the HyDeal Ambition, a coalition of which we are also part that aims at reducing the cost of production of green hydrogen below EUR 1.5 per kilo. Several of our sources are starting to work on hydrogen assets readily. Looking ahead to 2021, we expect an overall contribution of our sources, international and Italian, almost in line with 2020 but with a different mix. The [ 20-year ] specific positive effect for 2020 will not be replicated. We expect lower contribution from our [ Austrian ] activities in line with new regulation and different contractual setups. And that's [indiscernible] its performance. This will be offset by the full year contribution of TAP and the contribution of De Nora. Turning now to our cash flow. Cash flow from operations was EUR 1.6 billion, including EUR 269 million of working capital absorption, of which EUR 158 million of tariff-related items, EUR 32 million of net tax payables and EUR 32 million of were absorption of capital -- working capital from our energy efficiency business. Cash flow from operation cover CapEx and CapEx payables and the M&A referring to the acquisition of OLT, ADNOC and the stake in ITM Power, instead, the acquisition of De Nora, which was announced in November was completed in January 2021, and therefore, its effect on the net financial position will be visible for Q1 2021. The outlook of the year have been the dividend payment and the share buyback amount. This led to a net debt at the end of 2020 of EUR 12.9 billion versus a guidance of [ EUR 20.8 billion ] mainly due to higher related tariff absorption of EUR 168 million versus this year's [ EUR 100 million ] assumption that we gave before. Moving on Snam's debt structure and the reduction in the cost of debt. Our average gross cost of debt in 2020 was down from 1.1% to 0.9%, mainly thanks to the bond rollover effect with the replacement of overall EUR 1.4 billion of bond expired in 2020, with new debt raised a very positive condition even at a peculiar year. The continuous effort in treasury management optimization, as shown by the increase in the size of our Euro Commercial Paper from EUR 2 billion to EUR 2.5 billion and the utilization of uncommitted lines, both had deeply negative yield. And the proactive management of maturities with our [ fees ] liability management transaction and a 1-year extension of our EUR 3.2 billion sustainable loans. Debt-related net financial charge was down by circa EUR 20 million, driven, therefore, by the lower cost of debt, offsetting circa EUR 1 billion increase in average debt. On sustainable finance, ESG is a key element in our financing choices. In 2020, Snam has raised circa EUR 1.7 billion of new sustainable financing instruments with 2 transition bond issued and Commercial Paper under our new ESG-rated program, reaching a total amount of approximately EUR 7 billion equal to circa 40% sustainable finance on total committed funding. As affirmed in our strategic plan in November, our ambition and goal is and remain to increase this number up to 60% by 2024. I now hand over back to Marco.

Thank you, Alessandra. Let's now look at our 2021 outlook. We confirm our guidance for EUR 1.4 billion of investments. We're improving our net income to EUR 1.170 billion, including the De Nora contribution for over EUR 10 million. This is an improvement compared to the guidance provided at our strategy presentation in November of EUR 1.130 billion plus 3% versus 2020 net profit guidance. It is mainly related to lower costs and financial charges. The result is also supported by rising contribution of our new businesses. Full year 2021 net debt is now foreseen at around EUR 14 billion with debt to RAB set to remain below 60%. De Nora is performing better than expected, and there are now a number of strategic options to realize value from our investments. We confirm our dividend policy of 5% dividend growth to 2022 and 2.5% minimum from 2022 to 2024, offering a visible and compelling shareholders' return. Thank you for your attention. We're now happy to take your questions.

[Operator Instructions] The first question is from Javier Suarez with Mediobanca.

Three questions. The first one is on the new administration in Italy, new government, new Minister for Ecological Transition. So the question for you is any feedback or update in the initial conversations with the new administration and the new minister on their view or his view on the role for gas transmission networks and the overall hydrogen opportunity? That would be the first question. The second question is on the 2021 guidance. So the company has increased quite substantially the net income guidance for 2021. So you can help us to understand if that is due to a better performance when it comes to cost reduction or that has to do mainly with the development of new business opportunities. And then the third question is on the international subsidiary. During the presentation, it has been mentioned the -- that the numbers should be similar, but the composition should be different. But I was not -- I'm not completely sold that I could follow the argument, so you could kindly repeat why it's different in the composition and I guess that these one-offs are going to disappear and the number is going to be the same one without one-off. Is that the argument?

Okay, Javier, I'll take the first 2 and then Ale, you can reconcile the moving parts of our international portfolio. So the government has been very explicit on their view of hydrogen just based on public, the available information, the -- where hydrogen was included in 2 of the Prime Minister's speeches. And I think yesterday, or the day before, Minister Cingolani, who leads the ecological transition, which is the combination of the former Environmental Ministry plus a large part, if not most of the energy-related part of the previous Economic Development Ministry, they're being merged, and Cingolani the day before yesterday came out saying that he expects a hydrogen strategy to be available soon. And there's a lot of work ongoing on the IPCEIs, which are the European projects of common interest, which is something that Italy is very keen to work on. And Germany is leading this program with early projects expected already by July for first screening. Now the good news is that in order to present projects for this screening, our understanding is that in Germany, there's something around 400 projects being identified right now. That will certainly be reduced over time as they get filtered and analyzed. But one of the conditions, of course, is that the projects need to be bankable. And so there needs to be a combination of some regulatory framework, some subsidies, some industry sector, specifically. So we expect between now and July, there's going to be a lot of work to define the details. So hydrogen strategy, expected by April and then a lot of policy work thereafter. On the guidance for 2021, there is around EUR 40 million difference. And as I mentioned, coming from De Nora and the rest almost evenly split between outperformance on our debt and interest charge and the rest is a combination of better performance on costs and revenues. Ale, you want to go through the international associates?

Yes. Javier, on the 2020 numbers, we have fewer events, which we call one-off, which I can repeat. There is a business-related settlement in relation to TAP, which is worth more than EUR 10 million, which is not going to be there in 2021. There was a one-off of around EUR 5 million related to ADNOC, which will be effectively more than reversed in 2021. This is in relation to the acquisition mechanism that we entered into in 2020. There was a one-off effect of around EUR 5 million for specific tariff-related recognition that relates to TAG, and there was also a one-off related to our Italgas. So overall, we have approximately EUR 30 million of literally one-offs. We also had, in 2020, a very strong performance in some of our associates, which is a different concept. DESFA performed very strongly. And the Austrian, again, in general, performed very strongly. When we look at 2021 and the type of different mix, you will have a greater contribution from TAP because effectively, we always said that at regime TAP reaches EUR 60 million. 2021 is still a year of transition between a company that is set up for a construction phase, the company that operates the pipeline. So we are not probably going to be reaching this EUR 60 million yet but thereabout. We have, vis-à-vis the ADNOC performance, something shorter because of the reversal that I referred to before, then the EUR 50 million on average that we expect from these investments over a period of 20 years. And we have a normalization of DESFA, which performed very strongly in 2020 and will be in line with the, let's say, EUR 15 million typical year contribution that we would expect. And at the same time, the effect of the new regulation in Austria and different contractual setup with more short-term contract versus long-term contracts, which will have an impact of lowering the contribution from our Austrian associates. Net-net, we will still have approximately the same EUR 250 million, broadly speaking, between our Italian and international associates.

The next question is from Harry Wyburd with Bank of America.

I've got 3. The first one, just a follow-up on your answer to Javier's question on the projects of common interest and submitting projects for screening. We've begun to hear here a little bit from some of your utility peers in Europe that the sort of projects that might be possible under EU stimulus spending are actually turning out perhaps to be a bit higher than just in general. Companies had expected it when they set their CapEx plans back in last autumn. So I'd just be interested to get your view on where you think things are developing, particularly with your sort of hydrogen exposure on your new businesses exposure. Do you think we could see a situation where there are actually more projects that your businesses could get involved in than you'd anticipated when you set your CapEx guidance, I guess, only a few months ago? That's the first one. Second one on the regulatory review. It's a very specific question on the formula. So my understanding was that because this is a sort of full review, so to speak, that the actual WACC formula itself would be reviewed, and therefore, that there might be some potential for the formula itself to change. Obviously, we can put the parameters into the current formula and get an estimate of what we think might happen to the WACC. But I'm just interested if you could clarify whether you -- whether it's possible that some of the formula construction itself might actually change? And then final one on inflation. I think, if I remember correctly, you'd assumed inflation of 0.9% in your plan. And obviously, inflation is a very closely watched issue at the moment. Is there any way you can give any kind of sense as to the sensitivity perhaps of your earnings growth if inflation was to be materially higher than 0.9%?

Okay. Thanks, Harry. So as you'll recall, we have around EUR 150 million of CapEx for hydrogen in our 5-year plan presented in November. And that is essentially on the railway projects that are kind of in the money even without subsidies. Of course, we hope to make them more attractive with some subsidies to support those. So it's still early days. Things are moving fast, but we will update you as we know how much of our own projects make it through these hurdles and how much those projects will be, say, subsidized through incentives. Of course, the CapEx will be a function of the type of subsidy. We are believers that contracts for difference are the best types of subsidies for these long-term projects linked to infrastructure. The national recovery plan of Italy and other countries as post-COVID effort has to be spent by 2026. So it's not catered for that type of longer-term subsidy. So we have to wait and see how these discussions pan out. I can assure you that across Europe, a number of policymakers across different countries, across different ministries within each country is working on this. So we'll update you as we have news. We have quite a number of attractive projects that we're searching in these funnels. On the regulatory review, we hope there is a change in the formula. By putting in the current numbers and the current forward curves in the formula, you see a significant impact. We think there are arguments to be made that the formula should be adjusted not to take the full blow of what a mark-to-market would be. We expect some news in late spring with an early consultation coming out. And again, you'll hear more from us and all the other utilities if and when that happens. Around inflation, certainly, our RAB is inflation-adjusted. So we are geared to inflation if indeed, there is a rise. 1% inflation has around 20 -- as is obviously a function of the RAB has a EUR 20 million impact of a [ EUR 20 billion ] RAB 2 years later. That's more or less what you should assume if you want to model this. Thank you.

The next question is from Enrico Bartoli with Stifel.

I have 2 left. One is related to your cost of debt. If you can guide us to what to expect for 2021. And you made a very significant reduction in your average cost of debt. So you think that you have still room to optimize it? And second is related to De Nora. You indicated the impact that you expect to net profit in 2021. I was wondering if you can give some details on how you expect to consolidate the company? And if I remember well, De Nora should be one of the assets that you were planning to transfer to a special fund related to energy transition, if this is going to happen in 2021 and if you can update us on this project.

De Nora is performing better than expected. But apart from De Nora's performance that we will not consolidate because we have a 37% stake in the company, what is interesting is not only the growing excitement around hydrogen components, and we've seen our investment in ITM, for example, double in value recently. We have seen public commentary around the value of the stake that De Nora has in the Thyssen joint venture for the manufacturing of electrolyzers. And we've seen reports out there that attribute value to our De Nora stake in that JV higher than what we valued the whole of De Nora. Just to say how fast things are moving. And so with that as a background, we're now assessing strategic options around this very attractive investment that we've made. And we'll keep you posted as those thoughts come to some decision. We're receiving a lot of inbound interest, both for De Nora and for the platform concept. We're now working on different levels. One is kind of a more technology venture capital level for small amounts of capital, including some regulated investment money that could be made available -- that will be made available by the regulator. And then we're working around kind of some bigger idea based around De Nora. Ale, please, on the international -- on the cost of debt.

Thank you. So on -- in 2020, the significant reduction, as I said, was result of 3 actions on one side: the benefit from the 2019 liability management; the benefit from commercial papers that have been a fantastic instrument to use -- I mean to manage our short-term funding requirements, deeply in negative yields, when I say deeply, I mean below minus 40 basis points; and the bond rollover effects of all issuance that still were at coupons much higher than were today we can print a trade. Looking forward, in terms of where -- and this is what has allowed us to achieve the 0.9% that I commented before. Looking at 2021, what I can say is that we have completed another liability management exercise in December. That gives a benefit on our cost of funding for 2021 of slightly less than EUR 10 million. And today, we already [ saved ] between what we've done and what we have locked in another few millions of optimization of our treasury management optimization, which yields the EUR 15 million that Marco commented before. We remain opportunistic. We think that this is a unique environment, which funding is really at advantageous conditions. And we are trying to extend maturity and do prefunding before rates may start to rise again, which is similar to the question you asked on inflation, a little bit of the -- what we are starting to see more recently from some of the market indicators.

The next question is from José Ruiz with Barclays.

I have 3. First of all, if you could explain a little bit why have you increased the guidance for net debt in 2021? Secondly, related to the previous question, in the case that we would see a cut in the allowed WACC, what could you do in terms of optimizing -- further optimizing your cost of debt, bringing it further down? And the last question, yes, regarding the agreement with Hera, which I found very interesting, could you replicate that with other municipalities?

Thank you, José Ruiz. So on the first question on the debt. It's just De Nora that wasn't included in the previous guidance. And so you have the data for that. The allowed WACC, the -- these are distinct activities. Everything Ale just said on debt, we will do regardless of the WACC and whatever efficiency program we can launch, even though with EUR 63 million already achieved, a lot higher than originally anticipated, we don't have much more we can expect. In fact, we have very little we can expect on the cost-cutting side. And on the revenue side, whatever growth we can get on output-based, new investments, some overtime, some inflation adjustments. But it's not as if there's something that we will activate based on the WACC determination. As I mentioned earlier, we will try to work to mitigate this impact. It's a joint effort with most of the other utilities. And I think it's -- on the positive side, there's a favorable investment cycle with people expecting companies like us to step in and spend CapEx also to help the economies recover from COVID. But -- and there's also some maybe positive inflation expectation. But we have to deal with the fact that spreads are a lot lower, and that's just the way the market is. On Hera, we like these types of deals. We've announced an agreement with Eni as well, and we are open to offering these types of opportunities to whichever utility is interested. We want to make our knowledge available almost with an open source when it comes to things like biomethane, for example, where it's in a country's interest and in our own interest that we have as much biomethane flowing through our network, as many connections, new connections made to our network, which makes our infrastructure become more and more renewable. And the quicker that it is, the quicker we can achieve net 0, not just for Snam, which is confirmed at 2040, but also for our customers. So we're launching a platform. We'll provide more details in a few weeks to make this type of know-how available to whoever wants to use it on a nondiscriminatory basis.

The next question is from James Brand with Deutsche Bank.

I have just one question, and it's not really on the results, it's on decarbonization, possibly slightly left field, but I'll try it on you anyway because I know you're very -- both very excellent at answering kind of decarbonization questions around hydrogen and things like that. So the question is, if the end game for your network is that we're probably putting 100% hydrogen through it, and the position today is we're putting pretty much 100% natural gas, how do you see the kind of transition between the 2? Because it strikes me that, that's, in some respects, the most difficult element of the processes, how do you get from one to another. The industry wants to switch to 100% hydrogen. You can obviously start blending hydrogen alongside natural gas, but that's very different from that demand that might be coming from industry. I would just be interested in any thoughts on how you think you get from one to the other.

James, that's an excellent question. That's what we're putting our best minds at work to solve because it will depend on which part of the network we're in. We have parts of our networks in Italy and other countries where we have some redundancy, so we can rather quickly move to having 2 or even 3 systems. And we have other parts where we don't have that redundancy and we will need to prioritize one over the other. When I say 2 to 3 systems, it's not going to be fossil methane to hydrogen. It's going to be fossil methane and biomethane are the same molecule so they will be -- together, they will be blended, and they will be blended for a very long time because it's essentially the same thing. When it comes to hydrogen, the blending is just a tactical move to get the market going, to create demand with low effort with no changes to anything else. So it's a way to just generate that demand. But over time, blending is not the most effective way. We will need dedicated hydrogen infrastructure. If you look at European projections now available for 2050, they expect the green gases to account for the same amount of energy as today is fossil methane by 2050, with some biomethane, some hydrogen. Keep in mind that hydrogen has more volume. So the same energy amount means more volumes in our pipes and also some methane with CCS. So we will have -- in a nutshell, we will have biomethane, we will have, let's say, blue and green hydrogen in the same pipeline and we will have methane delivered at power plants and CCS done at the power plant, for example. And so we may also need some parts of our -- or other people's networks to transport CO2 over shorter distances. So there's many variables at play. It depends on, as I said, the network configuration, how demand and supply evolve, but we will need to get ready to transport all 3 types of gases.

[Operator Instructions] The next question is from Bartek Kubicki with Societe Generale.

I would have 2 questions, please. Firstly, you mentioned -- on the allowed WACC reset, you mentioned there are arguments for actually changing the formula. And would you mind sharing those arguments with us, please? I mean, obviously, I mean, if something happens that the WACC is changed, that is good for you, but it will somehow distort the discontinuity of the regulations, the continuity of the regulations. So maybe -- I mean what is your view on this one? And how do you think investors will look at this? Because contrary to that -- or symmetrically to that, once the spreads are widening, maybe the regulator may say, "Look, the spreads are too wide. We will also change the formula." Not in your favor anymore. And secondly, on storage and hydrogen. I mean, obviously, yes, as you mentioned as well, hydrogen is much more volumes than normal gas. Do you think as a consequence, there will be a lot of storage investment opportunities in Italy? Or do you think the storage level you are having will be enough to accommodate the switch from natural gas to hydrogen or hydrogen blend?

Thank you, Bartek. So on the WACC, I think it's prudent to wait. You'll hear news coming out of us and the regulator in the coming months. I don't want to create any expectation that we expect the formula to be overhauled. There's some technical elements as to how the country risk premium is calculated. That could be adjusted because, quite frankly, the logic is strong to just neutralize some of those adjustments. And I think there are arguments, hopefully, to be made to -- if there is, let's say, not artificially low, but an extraordinarily low WACC coming out of an observation period in an extraordinary time like this one with so much liquidity available and spreads at record lows, I think there's an argument to try to normalize it somehow. But it's early days, and it's not going to be an easy and simple process. On storage, I expect that storage will be one of the more exciting parts of the energy transition. That's both for batteries, and you're already seeing a number of gigafactories for batteries and utility scale battery. But essentially, all the renewable growth will require much more storage. And when it comes to hydrogen, because of the volumes as you discussed, we need a lot more storage in Italy and elsewhere. On the salt caverns, it's quite straightforward, and they're already being used for hydrogen. When it comes to our reservoirs, it's not so easy to model in for 100% hydrogen. Even if we could put in 100% hydrogen, that would still leave us with a significant need for new storage projects to be developed. The good news for us is that even if you take some of the more complex and advanced hydrogen storage projects, they are still a lot cheaper than any of the energy storage alternatives, whether it's batteries or pumped hydro, where not only it's expensive, but it's very difficult to see the infrastructure being built in many countries in Europe, but there's a lot of opposition to new infrastructure like that.

Okay. And if I may follow-up, do you think you will need a lot of investments to adjust your depleted oil reservoirs to sort of adjust them to be hydrogen ready or not? What do you think about this?

Sorry, to adjust what sort of hydrogen?

I mean your current storage, I think it is not -- you are not able to store 100% of hydrogen, right, because you are using the old gas reservoirs, old gas fields. So my question is whether it needs a lot of investments to actually make those storage hydrogen ready.

It's not so much about the investments. It's about the interaction between the hydrogen and the methane and some bacteria that are present in the reservoir. And so tests are ongoing, and we're -- we know there's something to be done. We don't know yet if it's a blend. We don't know if it's going to be pure hydrogen. And as I said, how that interacts with the materials, that has to do with the facilities and some of the bacteria inside the reservoir. And another promising idea is to have a circular CCS mechanism so that you're actually storing CH4, which is methane, but you're pumping in and pumping out essentially the hydrogen, keeping the CO2 underground. So there's a lot of work and cutting-edge research being done. I think this is now the frontier of energy infrastructure.

Gentlemen, there are no more questions registered at this time. Do you perhaps have any closing comments?

No. I don't have any further comments. Thank you, everyone, for your time and your questions. And as always, any follow-on questions, you can get in touch with our team here. Thank you.

Ladies and gentlemen, thank you for joining. The conference is now over, and you may disconnect your telephones.