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

Good morning, ladies and gentlemen, and welcome to Snam '22/'26 Strategic Plan Presentation. First of all, I want to thank you for being here with us in Milan and for being connected remotely. Let me first introduce the management team here present. Stefano Venier, Snam CEO; Mr. Luca Passa, recently appointed Snam CFO; and Mr. Luca Oglialoro, Senior Vice President, Planning, Control and Accounting. We will start with a short video, and then Stefano will start the presentation. [Presentation]

Good morning. Thank you, Francesca for the introduction, and good morning also on my side. Let me say first, I'm pretty happy to have part of you here because this important event is giving, let's say, human feeling to this sort of presentation that we lost in the last couple of years. The presentation of Snam strategic plan that focused on building a secure and sustainable energy system is based on -- basically, on three pillars for what concerns us which are consistent with the previous strategy but with different focus to cope with the short-long priorities. First, the development of an adequate resilient and hydrogen-ready infrastructure, we could say, future proof. The second, the decarbonization of the system through green gases and solutions. And third, the full digitalization of our assets for the most effective management of those assets itself. Today's agenda starts with a recap of the key developments in 2022 and our reaction to the short-term challenges, also creating new opportunities for our strategic assets in the long term. We will then move to the key strategic actions on Snam' core priorities during the planned period and even beyond. Then I'll turn to Luca, and please join me in welcoming him in the role of CFO. Luca will take you through our detailed CapEx plan and the main financial targets, and then back to me for the Vision 2030 and for the closing remarks, then Q&A will follow. As everyone is aware, 2022 has been a turning point for a global energy system. The structural underinvestment in the second -- in the sector, both in the upstream and midstream and the bounce back in demand, along with the fallout from the war in Ukraine, completely reshaped the priorities, primarily in Europe, with an increased focus on security of supply. Against these backdrops, Snam, thanks to its assets, has been able to deal with the emergency and further consolidate its leadership in the industry, providing a decisive short-term response to the crisis while managing its strategic assets with a long-term view. Snam enjoys a unique position as the most integrated European TSO, along the old value chain, transportation, storage, LNG while having assets located along the key gas and hydrogen corridors, North, West and more recently, South with the acquisition of TTPC and TMPC stakes executed last January 10. Our strategy has evolved to first, effectively deliver the investment needed to build a more resilient energy system, which means with adequate capacity and flexibility in incoming flows also, to tackle with the extreme situation as we came through in the last months. Second, to support the pathway to carbon neutrality, while remaining a sustainable and reliable partner for all the stakeholders at the time of great volatility and uncertainty. So let's now move to the three main chapters of the presentation, and we will start setting the scene in the sense that 2022 has been a challenging year. First of all, we had to cope with an unprecedented reversal of cash flows with volumes from North down by 30%, import from Southern routes up by 15% and LNG volumes up by 45% year-on-year. Italy contributed to the European supply with 4.2 bcm throughout export, mainly via TAG pipeline. As I like to say, the hour glass has been overturned and we have managed this leveraging on flexibility of our existing infrastructure and operations. Let me remark, with no impact for the system. The high level of uncertainty around the scenarios as well as the need to diversify away from Russian supply means that the current -- means that the center of gravity of European energy system has a shift down to South and Mediterranean area that will structurally provide more flows. We, therefore, need to strengthen the South-North transport capacity, which will benefit both Italy and Southern Central Europe. As you know, gas storage is used to meet winter peak demand and as a buffer to manage swings in flows. It is therefore particularly critical in the current market context. Therefore, we are working to grow our asset flexibility by increasing pressure in some of those storage units and to expand the capacity with a new gas field project that is located in Alfonsine, in the province of Ravenna nearby where we will locate one of the floating vessels. Since the beginning of the emergency, Snam has used its experience in building and managing large energy infrastructure to deliver in the shorter possible time frame 2 new regas units with 5 bcm capacity each which, by the way, have been already authorized. And we expect to have 1 of the 2 in operation by May this year, which means 6 months after the authorization -- the final authorization. And we have presently more than 200 people working 7 to 7 to build and to meet this deadline. When on stream, these two facilities plus the additional 1 bcm that has been recently authorized for the old floating vessel will bring and will provide large flexibility to Italy, increasing the potential demand to be satisfied via LNG from the current 20% to 40% and creating new options for supply, both from overseas but primarily, we think, from the fast-growing Eastern Med. This will provide the necessary resilience in terms of flexibility and security. And by the way, all these investment are fully consistent with the 2030 European targets and decarbonization pathway to 2050. With the REPowerEU, the European Union has raised the biomethane target to 35 bcm and has increased the hydrogen target to 75 bcm of gas equivalent, half of which to be imported in large part by pipelines. As a result, the Med corridor is 1 of the 3 key import routes and Snam, with natural international assets available, will play a critical role in this new supply system. Today, our Italian gas infrastructure transport the equivalent of 800 terawatt hours of energy, more than twice the energy is transported by the electrical grid. This energy will be progressively decarbonized through green gases. Firstly, via the development of biomethane production that is present -- that is -- which development is under -- on course, and then with a growing role of hydrogen, and also through natural gas in combination with carbon capture, allowing the so-called blue hydrogen and blue electricity that are, by the way, taking ground among the options for the decarbonization. I'd like to drive your attention to the fact that the development of the hydrogen as significant implication for gas volumes flowing through the infrastructure. Due to the lower hydrogen energy density, that is 1/3 compared to the natural gas. Therefore, volumes are expected to increase to over 85 bcm. Strengthening the South and North capacity will not only address the short- and medium-term natural gas needs, therefore, but will also be the long-term decarbonization requirements. We expect then a coexistence of natural gas, part of which, in combination with carbon capture, biomethane and hydrogen managed through our infrastructure in the future, and here comes the view of multi-molecule future-proof infrastructure. Let me now step into the strategic developments and core priorities, and then I will present -- that I will present in the next slides in a -- with a factful and comprehensive description. We borrowed the energy -- the European energy framework to position the Snam strategic pathway as the energy system are secure, environmentally sustainable and affordable with the balance between the three dimension of the trilemma, you see in the chart. Maintaining this equilibrium in the transition and through external volatility is a very complex exercise, as we have seen in the last months. In the last 2 decades, sustainability attract most of the public attention while security and affordability were taken for grant. The current crisis has jeopardized the security of supply. And then resulting prices volatility has put the social cohesion and industrial competitiveness of Europe under threat. We, therefore, need to rebuild the system that is currently under severe strain with the -- with an out-of-balance trilemma. Uncertainty over future scenarios and flows implies that we need more flexible and ample infrastructure. Reaffirming carbon neutrality is a final objective. We have to acknowledge that no major transformation in history has been a leaner process. This energy transition will be no different, and therefore, we need proper risk management and relevant infrastructure. Innovation and efficiency are crucial enablers to promote affordability. Current technology do not provide a silver bullet for the abundant, clean and affordable energy that is -- that has to be alternative to fossil fuel. All available technologies are required as the transition should be economically sustainable, not only in Europe and U.S., but also as well in China and India and the rest of the world to be really successful. So let's now move on Page 7. Snam is taking a decisive strategic actions on all the three dimensions of the trilemma to deliver on its core objectives. First, we are investing in a multipurpose gas infrastructure along the old value chain, starting from the two new FSRUs moving to storage optimization and enlargement, strengthening the South and North backbone and finally, promoting the development of small-scale midstream LNG for LNG and bio-LNG used in the transportation industry. Second, we will further develop our energy transition platform by investing both in green gas production, like biomethane and hydrogen, and downstream in the decarbonization of consumption through carbon capture and energy efficiency activities. The third, we will continue to invest in the digitalization of our assets and optimizations, focusing on cost efficiency and leveraging on the flexibility of our infrastructure. So moving to Page 9. Let's now move to the first piece of our framework, the multipurpose gas infrastructure. To promptly respond to the emerging need of reshaping the domestic energy system, we have increased our CapEx to EUR 9 billion over the period 2022-2026. Firstly, we have confirmed the significant investment allocated in the previous plan, one pipe replacement, which we have optimized, taking to -- into account the new asset health approach. Second, the installation of dual fuel compress substation to reduce carbon footprint and increase flexibility. And third, the substitution of storage-aging equipment for asset performance increase. On top of that, we have added EUR 1.3 billion referring to the acquisition of the two floating vessels and the realization of onstream and off-stream interconnection works that approximately will cost EUR 300 million that are part of the national transport network. With 16 bcm of capacity, by the way, per quarter, Snam will become one of the largest LNG infrastructure players in Europe. To tackle with the need of expanding South and North capacity, we have brought forward the Adriatic backbone project to be completed by 2027 with a EUR 0.9 billion of investment to be carried out during the plan horizon, while the whole investment amounts to about EUR 2.5 billion. The project is composed of three pipe sections from Sulmona, that is located in the central part of Italy, in Abruzzo, to Minerbio, close to Bologna, of which two have been finally authorized, and one compressing station in Sulmona, that has been authorized as well. According to the regulatory framework, the consultation phase will end tomorrow, and we expect ARERA -- we expect from ARERA, the final clearance by the end of February, beginning of March. The third major pillar is storage, as we said. We are in the approval process for managing some of storage facility at higher pressure, which could add up to 1 billion cubic meter of capacity by 2026, providing therefore, further flexibility on the storage of the country. Longer term, we have asked a new gas field authorization, as I mentioned, Alfonsine, that could store up to 1.8 bcm capacity and will require approximately 5 years to be completed. And the very first minor investment are included in the current plan, while the remaining EUR 1 billion is beyond the planned horizon. All this additional investment that I just mentioned will be included in the regulated asset base and will enjoy a regulated return. As I said, this presentation is going to be also factful based and here is an example. All our investments are based on a verified knowledge that our transport and storage assets are compatible with hydrogen. This implies that the investments we have outlined today will be also valuable for the future. To prove that, over the past 12 months, we have made further progress on the hydrogen readiness analysis across the entire infrastructure. Let me qualify some of this information on what you already know. RINA has recently certified 750-kilometer and we have set the road map to reach more than 3,000 kilometer by 2026 on voluntary basis. In November 2022, we successfully carried out a test in one of our compression station in Istrana with a variable 10% hydrogen and methane blending. Third, the testing lab units simulated pressure and temperature on specific storage facility with very reassuring results. We are now in the detailed engineering phase of a field test on deeper layer of Fiume Treste, which is the largest storage unit we have in the country. We have recently signed an MOU with Enea and several distribution system operators to assess the hydrogen blend readiness of the old downstream infrastructure chain down to residential user. And finally, this quarter, we will start installation of hydrogen-ready gas chromatographs at key foreign interconnecting points. On Page 11, you have what we internally call the network of the future. Leveraging on the proven readiness of our assets and take into account scenarios in tailing rising hydrogen volumes at Italian and European level, we have framed the long-term evolution of the energy system toward a multiple set up. The chart shows the hydrogen backbone, which maximizes the existing infrastructure repurposing to deliver the most cost-effective midstream assets able to supply national demand and import export flows in large cases, more cost effective than shipping. We have estimated it to cost approximately EUR 4 billion. Since we have collected strong interest from market participants, both domestic and from Central Europe, we have applied to the European PCI, the Projects of Common Interest, and we believe this could become one of the most strategic and mature corridors in Europe. This backbone will support the creation of an integrated, interconnected European hydrogen market, potentially positioning Italy as hydrogen transit country as well as is happening for gas. We have also studied the cost and potential location of hydrogen storage facilities to support the ramp-up of the above-mentioned demand. According to preliminary estimates, it will cost EUR 3 billion to develop seasonal and above ground capacity to serve the evolving demand needs over the years. Let's move now to the energy transition platform and specifically on green gases. Biomethane is the most mature and rapidly scalable green gas available. Snam has built a solid platform with 40-megawatt of biomethane and biogas plants in operation at the end of 2022. We will act as industrial developer, as we always had, and focus our investment primarily on agri feedstocks. The current Italian biomethane degree relying also on resilience and redundancy and relaunched funds, provides a compelling incentive scheme and the visibility required to ramp up our pipeline of investments. We project to reach more than 100-megawatt by 2026 based on both upgrade of biogas as well as new biomethane plants. On hydrogen, we have selected a handful of projects leveraging on financial facilities such as the innovation fund, Horizon program and again, the PNRR. This too, unlock the demand growth and to build the know-how for further larger scale project, which will provide synergies with our existing infrastructure, by the way. This will also include a first set of green hydrogen refueling stations. We have also shaped the proposal for the production of hydrogen from excess renewable capacity, primarily in the Southern part of Italy as a system service, and this will be part of the discussion on the new gas package at the European level. We continue to make research and development investments into innovative technologies, thereby relying on the strategic partnership we have with De Nora. And with respect to De Nora, I'd like to say to highlight that the European Commission recently authorized up to EUR 63 million of grants for building the first Gigafactory in Italy. On Page 13, let me drive you and have a look on the other side of the decarbonization options. CO2 capture, transport and storage is key for climate change mitigation strategies as reflected in the latest IPCC and the IEA reports. Snam enjoys a unique expertise in transport and storage of molecules that we think could be applied to CO2 as well. Our strategy is straightforward, we are learning from our associates, Terega, a company with strong CCS exposure in the U.K. with respect to the [ Amcor ] project, and dCarbonX that is a company specialized in the underground storage of molecules with the aim to support the decarbonization of the hard-to-abate industries. On December '22, as you know, we signed an agreement with Eni to develop and manage the Ravenna carbon capture and storage project. The project covers the capture of 25,000 tons of CO2 emitted by Eni's natural gas treatment planning in Ravenna, and will be injected into the depleted gas field offshore Ravenna. But the real purpose is to prepare for the subsequent development phases, aiming at expanding progressively the activity, so to address the decarbonization needs of Northern Italy's industrial cluster, which showed strong interest. Moreover, we have submitted another PCI proposal to combine [ Ameter's ] clusters in Italy and the French [indiscernible] hub. Finally, through Renovit, a joint venture with CDP, that is a leading player in energy services in Italy, we foster energy independence through energy efficiency and distributed generation. This business provides great revenue visibility due to a sizable backlog. Let's move on commitments on decarbonization pattern on Page 14. As you know, we have a clear decarbonization path to reshape carbon neutrality on our own operations, means Scope 1 and 2 by 2040. We also see a growing role for Snam as an enabler of emission avoidance due to our concrete efforts in biomethane and energy efficiency. Our long-term commitment remains firm, even in the current more challenging scenario. Most of the disruptions I described before turned up in a higher intensity of activities and related emissions. The reversal of flows, for example, translated into 18,000 additional operating hours of compressor stations for transporting and storing the gas in 2022. In light with our short-long strategy, also on decarbonization, we took immediate actions while striking with our long-term goals. First, we accelerated our plan to replace compressor station with dual fuel ones. Second, we intensified our efforts to reduce the methane emissions where we are outperforming our target and those recommended by UNEP. On Scope 3, we introduced ESG criteria in tenders, while working with the supply chain on education, data gathering and best practices sharing. 7 out of 9 of our associates have already defined long-term GHG targets. In a like-for-like scenarios, now we would be on track to meet both short and long-term targets as announced in the past 2 years. In the short term, actual figures will reflect the increase of our industrial footprint and the changed flows scenario that will be progressively recovered through the actions that has been already put in place. At the same time, we see a significant emission avoidance deriving from our decarbonization platform, energy efficiency projects carried out by Renovit and the biomethane produced by bio-analysts will amount to 500,000 tons of CO2 equivalent of emissions avoided in 2025 and the tangible contribution to global net zero targets. By the way, in the annexes, we will find a comprehensive overview of this non-ESG positioning. Let's now move to innovation and technology that are, by the way, key drivers for affordability. SnamTEC, Tomorrow's Energy Company is our innovation and digitalization platform, which started more than 3 years ago and will account for about EUR 450 million of investments over the plan horizon. It is composed by 52 projects responding to four key corporate needs: Safety, asset resilience, process optimization and operation sustainability. Key enabling technologies will be the IoT and sensor installation, increase of computational capacity, the artificial intelligence to process all this amount of data and definitely, the data platform to manage effectively, the integrated information. The program enables among others, predictive maintenance and the optimization of maintenance cycle and cost. In the program, we will also support staff security and safety and the energy efficiency and CO2 emission reductions. This will further enhance our assets and operational security and then -- and make them more cost efficient, underpinning also the growth of the output-based incentives as well. We have been working proactively to add new incentives to the existing ones on the balancing, storage and default activities. First of all, we have developed and consulted a cutting-edge [indiscernible] methodology. And on December '22, ARERA Resolution shed light on the calculation of the incentives kicking in, in 2023, in line with the expectations we had. Further opportunities have been identified on storage flexibility, congestion removal and customer satisfaction. At the same time, we aim to extract value from our tangible and intangible assets. As I mentioned, we have included in the planned new midstream small-scale initiatives such as the LNG truck vessels in Panigaglia, that has been authorized recently, and the bunkering at OLT, by leveraging on the synergies with the -- with our assets and by the way, the public funding. Toward this perspective, we are progressively also in our discussion with Edison to establish a partnership with complementary roles between the two parties. Finally, we will further export the Snam global solution expertise and knowledge, and we will continue constantly to pursue cost efficiency. This will provide 100 basis points of annual EPS growth by 2026. Let me now hand over to Luca for the business plan projections. Thanks.

Thank you, Stefano. Good morning to everyone. We are now on Slide #18. Overall, our CapEx plan for the period 2022-2026, has increased by 23% year-on-year to EUR 10 billion. Total investment in our gas or better say, gases infrastructure amount to EUR 9 billion broken down as follows: EUR 6.3 billion related to transport increasing by about 15% compared to the previous plan, mainly due to the investment in the Adriatic line; EUR 1.3 billion on storage, mainly related to the performance upgrading of the existing fields with a small contribution from the early phase of Alfonsine site development included in the plan horizon as mentioned by Stefano. EUR 1.4 billion related to LNG due to the acquisition of two gasification units and all related infrastructure investments. Investments in the energy transition business account for EUR 1 billion to complete the development of our platforms in biomethane, decarbonization and energy efficiency. Our strategy has not changed, but we have fine-tuned to focus on regulated business and high revenue visibility projects. We have run a thorough assessment of taxonomy alignment, which determined that about EUR 3.6 billion of our investment broadly in line with last year are taxonomy aligned, mainly thanks to hydrogen radio replacements, investment to reduce CO2 emissions and investment in the energy transition businesses. Let's move to Slide 19. Based on the CapEx plan and on the strategic actions described by Stefano earlier, Snam will be able to deliver solid growth while keeping financial solidity. In the annex, you will find all the assumptions underlying these projections, which are based on consistent and conservative scenario. For sake of clarity, there is currently no M&A included in the plan. We foresee more than 5% RAB CAGR 2022-2026, which is more than 2x the level projected last year, thanks to higher investment and the deflator contribution. EBITDA CAGR at 7% is the result of the RAB growth, updated WACC remuneration according to the regulatory framework and increasing contribution from out-based incentives, coupled with the energy transition business as mentioned before. Net profit CAGR is approximately 3%, reflecting rising D&A from increased investments and higher interest expense with a cost of debt over the plan horizon at about 2% versus 1.1% in the previous plan. Moving to Slide 20. This CapEx profile fits with our home rule on financial discipline. Credit rating metrics are expected to remain within the threshold of our current trading positioning by Moody's, Standard & Poor's and Fitch over the plan horizon. In particular, leverage will remain below the 75% threshold of net debt to fixed asset plus book value associated by Moody's, with a comparable FFO to net debt around 12% displaying a positive trend underpinned by the solid EBITDA growth over the plan period. Moving to 20 -- 21, let's look in detail at EBITDA evolution to 2026. EBITDA growth is significantly higher than the 4.5% in the 2022-2025 plan embedded in the previous plan and higher degree of certainty and visibility. The 7% CAGR between 2022 and 2026 to EUR 2.85 billion will mainly be driven by the contribution of the gas infrastructure, which will account for more than 80% of the total EBITDA increase. The remainder comes from the growth of the energy transition businesses. In terms of gas infrastructure, the EBITDA growth is approximately EUR 500 million, which will benefit from the RAB growth, the increase in RAB remuneration following a slight rise in WACC kicking in from 2024 and the previously mentioned additional out-based incentives. In terms of the energy transition businesses, the contribution will come from the ramp-up of biomethane and the growth consolidation of the energy efficiency businesses as we deliver on our strong project pipeline. Energy transition businesses will provide around EUR 140 million of EBITDA by 2026. In terms of invested capital, we will lift by about 50 basis points, our 2022 return on invested capital with accumulated value creation over the plan horizon of about EUR 1.5 billion. Moving to Slide 22, to the net income analysis. We project 3% CAGR over the plan horizon, starting from our full year 2022 guidance of EUR 1.130 billion. This will be mainly the result of a strong operating performance at EBITDA level, as explained before, counterbalanced by the increase in D&A and the rise of interest expenses. The contribution of our associates will be slightly positive, thanks to the consolidation of the Algerian pipelines from this year, 2023, and the organic growth from the Italian associates that will offset the cyclicality of the others. Despite the new interest rate scenario, we will be able to deliver 3% EPS CAGR and a 14% average ROE, return on equity. Moving to Slide 23. In terms of funding strategy, the priority will be to optimize the cost of debt in a higher interest rate environment. In the short term, we will focus on more flexible debt instruments, leveraging our relationship with core banks while the market normalizes. Over time, we will adopt an opportunistic approach managing the maturities profile while retaining optionality in diversifying our funding by implementing multicurrency issuances, exchange over bonds and [ prop ] placements. At the same time, we will explore other source of funding such as investment guaranteed by SACE, the Italian ECA, and we might benefit from a more benign approach at European level, such as by the revision of the recovery plan to include critical gas-related investments such as the Adriatic line. We will continue to focus on sustainable finance with an increasing share of ESG financing from 70% expected at the end of 2022 to about 80% by 2026. All future Snam issuances are expected to be in ESG format, either sustainability linked or with specific user proceeds. Average cost of debt over the plan horizon is expected to approximately be at 2%, which is 90 bps or basis points, up versus the previous plan. The cost of that evolution reflects the current increase in short-term interest rates, while assuming a normalization for the remaining part of the plan. Our capital allocation strategy remains consistent with the previous years. The harder rate for all our investment remains in line with the risk-adjusted returns, at least equal to the regulated returns achieved on our regulated activities. Key priority for us is delivery on the investment plan described before and the value enhancement of our associate portfolio, tangible and intangible assets. The CapEx plan is well funded and does not assume any disposal. Given the attractive return offered by associates that have so far delivered a consistent 10% cash yield, for the time being, we will consider asset rotation optionality only in connection with no strategic opportunities and core activities, primarily in the domestic market, taking into consideration the strategic perspective as I will show in the next slide. We have clustered our portfolio equity participations to provide the relevant strategic perspective. I'm on Slide 24. In the first bucket, we have the so-called value enhancers, core industrial assets that have a connection with the Italian infrastructure. They represent about 60% of the associates' contribution in 2026. The second bucket contains enablers of business optionality, which are instead industrial assets such as Terega Interconnector and ADNOC gas pipeline that do not have the connection with our assets and represent about 20% of 2026 associate contribution. These associates provide additional market visibility and a reach to Snam as well as new business opportunities and M&A optionality. The cash yield is approximately between 9% and 10%, well above marginal cost of funding. Therefore, any disposal would be EPS dilutive in the absence of capital redeployment opportunities. Finally, we have some opportunistic financial assets such as Italgas and ITM Power that could be leveraged in the future when conditions are right as part of our asset management. Let's now move to the short-term outlook on Slide 25. In 2023, CapEx will reach EUR 2.1 billion, mainly driven by gas infrastructure investments that include the cash out of the acquisition of BW Singapore Vessels for about EUR 400 million. Tariff RAB is up 5% year-on-year at EUR 22.4 billion. We expect net income of around EUR 1.1 billion, higher contribution from output-based incentive, along with the ramp-up of the energy transition businesses will boost EBITDA but will be offset by the rising financial charge since the WACC reset will only take effect in 2024. The regulatory framework provides a good cash flow hedge against this backdrop over time, but with a slight delay. Let me remind you that 2022 net profit benefited from several nonrecurring items, such as the gas inventory disposal and other nonrecurring items. And now let me hand over to Stefano for our 2030 vision and the closing remarks for the presentation.

Thank you, Luca. Thank you. I finally now provide, on Page 26, a brief update on the CapEx vision to 2030, that is consistent with the perspective I've shown you on Page 11. The overall investment opportunities we can tap into could be a very significant, even beyond the planned horizon, driven by the security of supply and by the decarbonization process through green gases. Starting from the first pillar, security of supply. We have a sizable ongoing investment program to maintain world-class reliability and resilience of our assets while reducing carbon footprint. In addition, we have to complete the Adriatic line by 2026 -- 2027, whose total CapEx amounts to EUR 2.5 billion, as I said, and the development of Alfonsine new storage facility for EUR 1 billion, mostly after 2026. Significant investment will be required to evolve the energy system toward multi-molecule setup, which is key to enable the transition to green gases and the decarbonization of final uses, as I explained before. The level and the timing of this investment in the hydrogen backbone storage will be assessed on the back of the evolution of the regulatory framework. For the time being, in these numbers -- in these figures, we have accounted in between EUR 2 billion to EUR 3 billion. We expect these investments to be regulated as the decarbonized gases and hydrogen package that is under discussion, promotes this model. We have started and designed a set of infrastructure alternatives to adapt to the evolution of the supply demand needs thereby, maximizing the repurposing to deliver the most cost-effective energy system. Let me now move to the closing remarks, and I'll start first with the dividend policy that you see on Page 28. We think our safe and sound strategic plan will allow us to reconfirm our dividend policy since it remains well underpinned by the EPS growth, solid balance sheet and credit metrics. We commit to a minimum 2.5% annual DPS growth from 2022, and we have extended by 1 year, aligning it to our plan horizon to 2026. The regulatory nature of our core business provides strong visibility with safe pathway that supports the sustainability of this commitment that has been back-tested by sensitivities performed. Page 29 for last comments and closing remarks. In conclusion, we deem we have set a visible, comprehensive and future-proof strategy and projections based on first, development delivery and delivery of the investment to provide a resilient, efficient and hydrogen-ready infrastructure; second, unchanged commitment to the carbon neutrality, both on our operations and as enabler of the system decarbonization by promoting green gases and carbon-neutral solutions; third, the full digitalization of our assets to reach a data-driven effective management. The 2022-2026 strategic plan will strongly accelerate the asset and EBITDA growth while maintaining a compelling and increasing shareholder return and a solid financial structure with full commitment to the current credit rating. Thank you very much, and now we are available to take your questions. Thank you.

So thank you very much. We start with the questions coming from the room. And then I will read the question coming from the chat. I kindly ask you to raise your hand and say your name and company name before asking the question. Stefano, there.

Few questions, if I may. First of all, if you can spend a few words about the gas market situation. What do you see, the main risks in the forthcoming, we can say, next winter at this stage, considering the current situation of storages in Italy and in Europe and so, if some risk are still there in your view next year or with the investment in LNG floats now via safety? The second question regarding the investment plan. You confirmed more or less the previous investments of EUR 6.4 billion, including also replacement investments. The previous plan was in the region of 1,300 kilometers of pipeline. Now you reduced to 1,000 kilometers of substitution. So is there a lot of inflation in the market? And do you see some risk with the switch to TOTEX system in 2026, probably about these investments in the long run? The second question regarding the investments in biomethane. You underline the opportunities in this sector, the fact that the Ministry of Decree also provides around EUR 1.7 billion of subsidies for this sector. But in the meantime, it seems to me that you reduced from EUR 850 million to EUR 550 million in investments in this sector. So what is the target in the long run regarding investments in biomethane? And the last question regarding the associates. You said this is potential opportunities but what is the structure of capital that you expect in the long run on this -- regarding also the associate? Are you -- will you increase the investments in this -- with -- sorry, in associate or not? Very finally, sorry, regarding the market in 2030. You reduced by around 4 bcm, the gas demand in 2030. You expect this target, if I'm not wrong, REPowerEU targets see a strong reduction of consumption in 2030?

Okay. We go to answer. Okay, I'll try to follow your list. First, what is the market situation? Of course, as you read from the numbers we published, the situation is pretty good in the sense that thanks to the mild climate we have had in December and so far in January, apart from the last couple of days, and thanks to the several initiatives we have taken to preserve the gas and the storage, okay, the counterflow initiatives, the options to deliver the gas next winter, I don't want to list all the actions we have done, we have a significant gas in the storage. That is -- today, that is roughly 2.5 bcm more than last year at this time. This will mean that we expect by the end of the thermal season, that means the end of March, a residual gas in the storage nowadays around 3 bcm. I wouldn't be surprised if this total amount is going to be up to 4 bcm at the end of March that has to be compared with the 0.6 bcm we had last year. In other words, we will start the injection season, summer season with 25%, 30% of the gas already in the storage that will relieve the pressure to put the gas in the storage to get back to the 11 bcm that is the target we had this year and we have to replicate for next year. This will -- what are the implications? Of course, the implication will be on, let's say, the volatility of the summer price market, on one side. And on the other side, of course, this target is going to be the 11 bcm, or 90% fulfillment of the storage will become much more achievable than it appeared to be last summer. With respect to next year, I think this will not change much, the perspective in the sense that we will still have to see what will be the flows from Russia in terms of gas that nowadays are still around 20 million, 30 million cubic meter per day and, of course, the climate of next winter. Definitely, the operation of the Piombino floating vessel, will give a contribution in the summer up to 2 bcm and in the next winter, 2 bcm as well. Second is about the substitution. No. As I said, we made some optimization in the profile of the substitution, taking into consideration the new asset out approach. And we try to optimize these investments also with respect to the output-based returns. About the biomethane, what has changed with respect to last year apart from the natural development in the backlog of initiatives is the fact that we have adjusted the hard to rate to take into consideration the higher interest rates. So we raised the expected return by 100 basis points, and this has cut off some of the initiatives that were borderline. Nothing different than that. Do you want to answer the associates?

Sure. In terms of the contribution of associates, the increase in the plan is positive, but it's mild because obviously, we have some assets, as I mentioned in the presentation that are contributing negatively since the starting point and other are positive, but there is some contribution. Overall, they contribute 25%. And part of the question is capital structure. We see the associates as part of the plan. The capital structure, which we are committed to confirms, let me say, the flexibility that we have in terms of credit metric thresholds. So 12% in terms of FFO to net debt and basically, our level, which is below the 70% in terms of net debt to fix assets.

Finally, your last question was about projections of consumption of gas in 2030, if I do recall correctly. Yes, of course, REPowerEU has further, let's say, adjust the projections. But if we are consistent with this natural scenario, the expected volumes by 2030 are about -- are hovering around 63 bcm, including 4 -- 3 bcm from -- 3, 4 bcm from biomethane that, of course, is shipped to the same infrastructure. I have to say that, of course, these numbers have to be taken with some consciousness. As I said during my presentation, to cope with this transition, we need to keep some flexibility in the infrastructure to, let's say, tackle possible cyclicality or delays in the deployment of renewable sources that are part of the, let's say, overall REPowerEU scenario. So I think also with respect to the development of, let's say, hydrogen, this too, the last 12 months has, in some way, let's say, reshaped the timing of development. That, of course, depends primarily on the deployment of renewable energy production because you come to green hydrogen without energy -- renewable energy available.

Okay. The next question there, Marcin.

This is Marcin Wojtal from Bank of America. Firstly, you mentioned several times output-based incentives. Would you be in the position to quantify what do you expect for 2023 and maybe for 2026? Secondly, I think in the release and in the presentation, you mentioned potential opportunities for nonorganic growth. Would that be related to your non-regulated segment? And could that be material during the business plan? Or is this rather something relatively small? And maybe lastly, on the financing and your diversification of funding, would you perhaps consider issuing hybrid bonds? And do you see that as an interesting tool to perhaps manage your balance sheet?

Okay. As a matter of -- with respect to the output based, of course, a significant step up in the, let's say, income from output base will come from the new asset health methodology, okay? What we do expect throughout the business plan is a total number in between EUR 80 million to EUR 100 million. Of course, 2023 will be the first year. So we will move closer to the lower end, but we are targeting to reach the upper end of the range by 2026. With respect to the acquisition, I want to be clear. I mean, if any nonorganic opportunity will be in the, let's say, gas infrastructure business, of course, with a clear focus on the domestic market, okay? The third, please.

Yes, on the third one, regarding financing, the objective, as I said, when I explain our financing strategy is to reduce the cost of debt. Plus we have flexibility in the current metrics according to rating agencies. Therefore, there is no need for any hybrid instruments in our capital structures, plus the cost of every instruments are completely against our objective to reduce the cost of funding overall.

Let me add the word there to be even more precise. My statement on organic is that we only have, let's say, some minor acquisitions that are ongoing in the biomethane business, that are part of the pipeline we carried along in 2022 that will be executed in 2023. But it's marginal with respect to the numbers we are talking about.

So we have question from Javier Suarez there.

Three questions. One is on the new management [ imprinting ] for the company. The second one is on the capital structure of the company, and the third one is on the overall assumption within the business plan. On the new managerial imprinting, I think that during the presentation, there has been an argument that there is a consistent approach versus the previous business plan. But I have also noticed that there is more granularity on the hydrogen opportunity in the short to medium term and there is lower investment in nontraditional activities. So the first question to the new CEO is, what do you bring into the company in terms of new management approach into the security of supply of Italy or investment of the company into traditional versus nontraditional activities, international investment, et cetera, et cetera? So the thing that I'm trying to understand is what is new in terms of management versus the previous path? The second one is on the capital structure of the company. We are in a scenario in which interest rates are significantly higher. Obviously, the company has done a very good job in the past maintaining cost of capital low, but CapEx continues to increase and the dividend continues to increase as well. And the possibility that CapEx is going to be significant down the road in 2026 to 2030 is a real one. So when you are thinking about sustainability on the capital structure, what would be your answer on how do you intend to square the circle between higher dividends, higher CapEx and management of your overall asset base, I'm thinking about the affiliates? That's the second question. And the third one is in the assumption. You can give us a little bit more granularity in your assumptions on the [indiscernible] TEP into 2024 and 2025. I have seen the assumption for 2026. You can share with us explicit targets for TEP in 2022, '23? And also, I would be interested on your assumption on revenues contribution from nonregulated activities through the business plan and the contribution to the EBITDA. I think that the CFO mentioned something on that, but more granularity would be welcome.

Okay. Let me start with the first question that is for me by -- I think in the last 8 months I've spent in the company, what came clear was that some of the priorities were changed by the environment, okay? And at the same time, what I saw was a significant opportunity that through refocus on some of the gas infrastructure, we could combine the short-term priorities with the long-term targets. I mean we could have a sort of short-long perspective without losing, okay, the eye on the horizon and with the final target of having this infrastructure available and as an enabler for the transition, okay? Of course, you mentioned one point, the granularity of the things I've described in my strategy. I mean, I said, I want to be real, let's say, concrete and factful on the facts. And there is one number that comes to my mind that is extremely important. [ 55 ] of the CapEx plan I've shown to you is -- has been already approved, okay? I think on the basis of this platform, it makes the opportunity to deploy these investments extremely concrete and visible, okay? Of course, the general situation is also posing us another core strategic questions. And that is the fact that we can relaunch the role of Italy with respect to the entire European energy system. And here comes another angle that in the past was residual, that is the reverse flow. We exported 4.2 bcm of gas, 100% of the capacity through the TAG next year has been already booked, 6 bcm, and consider that the Austrian market accounts for not more than 8 bcm, okay? And I think that going forward, this is going to be an opportunity that will further consolidate. In fact, in the projections and the site perspective, we are giving to this North direction, we will expand the reverse flow capacity up to 10 bcm, okay? And this will lead also to TAG, a new strategic role. We redesigned the role of TAG in this kind of perspective that perfectly fits with the perspective -- with the green gases. I mean, I have to say, and I mentioned in my presentation that we submitted a PCI for the hydrogen backbone. That is a step further with respect to the fact that REPowerEU identified the that backbone as one of the core backbones for hydrogen. And what made us confident to submit the PCI was the fact that we had a sizable interest from Southern German companies, Austrian companies ready to invest in Northern Africa and to get the hydrogen through that pipeline. And here comes another very core angle we have to consider because through the Adriatic pipeline, we will have three backbones going from South to North, and this gives us much more flexibility in repurposing and redevoting 1 of the 3 pipelines to hydrogen. That is going to be totally different in case we have only two. And at the same time, we have three backbones on TAG that makes possible the two, let's say, corresponding flows. I think if you consider and you take into consideration, I mean, the options that, as we said, comes also because we are the largest and unique player in Europe that has the entire value chain under control: LNG, storage and pipeline. And I try to leverage on this, let's say, real unique strength to relaunch the plan we presented to you.

On capital structure, Javier, clearly, we are in an interest rate environment, which is increasing. I think we projected our CapEx plan beyond 2026, which is increasing because the run rate more or less in the current plan is EUR 2 billion while for the last 4 years, up until 2030 is actually increasing by another EUR 2 billion for the period. And obviously, our current capital structure can sustain that kind of investment. Now if there were opportunities to increase investment further, clearly, we have, let's say, the ample associate portfolio to finance it. Therefore, let me stress, our commitment is to maintain financial flexibility according to rating agency metrics and to maintain our commitment to dividend. Therefore, we will play our associate portfolio in order to basically finance if there is an increase on investment CapEx projected in 2030. And on the third?

The assumption in the weighted average cost capital for 2024, the net debt projection for 2023, if I do recall correctly, let me -- you addressed the weighted average cost of capital. I do address the net debt. Of course, the target for net debt should take into consideration two variables that are unpredictable, the price of gas and the development of the gas demand in Q4. Because as this year happened with very -- with a strong shortfall in the gas demand, we had, year-end, a sizable temporary contribution from the balancing mechanism in which we had to set -- to keep the system in balance, we cashed in some cash through the selling of gas that we have to give back to the system year-end. So if we take a normalized situation on working capital, okay, and in a sort of normalized gas prices, we want to keep the net debt not higher than EUR 16 billion, take into consideration the EUR 2 billion of investments we have.

Then on WACC assumption for the mid period of the plan, basically, we are assuming according to the interest environment, the starting point is 5.1% for transportation. The peak is in 2024 at 5.8% in terms of expected allowed return. For storage, the peak again is in '24 at 6.4%. And then finally, for regasification at 6.5% in 2024. Then it was part of your question regarding more granularity on our basically, energy transition businesses. And there, you've seen the growth is from about EUR 35 million more or less that we are expecting for this year to around EUR 140 million in 2026. The majority of the drop clearly, there is biomethane, which is just, I would say, south of EUR 100 million in terms of growth within the business plan and the rest are the energy transition businesses.

Yes. Let me add one number that could help you to, let's say, reverse numbers for biomethane. We expect with the roughly 100 megawatts of installed capacity to produce around 200 million cubic meter of biomethane that will be used and valued specifically in the transportation industry that keeps the higher incentive.

We have a question here from Emanuele Oggioni.

Emanuele Oggioni of Kepler Cheuvreux. Sorry for my voice. I have two questions. First of all, on LNG. The current project -- your two current projects. And so I kindly ask the confirmation of the deadline for both and also the contribution in terms of EBITDA. I suppose, roughly EUR 40 billion each in terms EBITDA. And secondly, the question about further projects in Italy of LNG. For example, we know two large projects in Gioia Tauro and another one in Porto Empedocle. How Snam could be involved, for example, not directly in the projects because the shareholders are different. But in terms of CapEx for gas transport pipeline, for example, if this project will be approved in the future? As regards to the underlying hypothesis of the business plan. You mentioned before the allowed WACC. My question is more granularity on the RAB deflator, which is very -- is a key driver in my opinion for the year up and on the plan and the source?

Okay. I'll take the first one. LNG, we do confirm the planning for the two floating vessels. As I mentioned, both projects has been fully authorized by the commissioner in Title IV. The first one is the one that we will -- we are working -- on where we are working on that is in Piombino. We expect to have it on stream by May next year. So means, this year. Sorry, not next year, this year. So in few months -- 3 months -- 3, 4 months' time. All the works are progressing according to the time schedule. So no delay so far. And as I said, we have more than 20 -- 200 people working on those -- in the construction of those facilities, 7 by 7. The second is the Ravenna one that will be on stream on Q4 2024, okay? It's going to take longer because will be more [indiscernible] that has need to be refurbished. This already exist. We have both that infrastructure. And so works are going to -- will take longer, but the asset will be on stream, as I said, Q4 2024. The vessel -- the acquisition of the vessel will be executed September this year with a cash out of EUR 400 million. Further projects. Of course, we know about the two initiatives that started, I think, 10, 15 years ago, the one in Gioia Tauro and the other one in Porto Empedocle. What could be our role? Of course, as for any other infrastructure developed by, let's say, other players, of course, we will provide the connection, but we have to consider if these facilities -- if we can receive the flows from these facilities. I want to give you a number and that underpins also the thoughts about the Adriatic pipeline. The total capacity we have from South to North is 125 million cubic meter per day. That is the transportation capacity available. How much is used today? Almost 100 million. The additional flows and the flexibilities required are the reason why we need to have as soon as possible the Adriatic pipeline because this will add up 25 million cubic meter per day, bringing the total transportation capacity up to 150. And this additional capacity will be available to the different players that could be the shippers through the TAP, thanks to the, let's say, the expansion of that pipeline rather than additional domestic production, rather than additional flows from the two existing pipeline, the one that comes from Algeria, but we don't have to forget also the green stream that has a total capacity of 10 bcm and now is running at a rate of 3 bcm per year. So there is ample of options for additional flows, but we have to deal with the constraint in the South North capacity, and that is the reason why I'm saying we are not running the risk to have, let's say, excessive capacity South North and we need to develop this infrastructure that is well understood also, I think, by the government and at the European level, having said that the Adriatic backbone is part of the strategic infrastructure in the European interest. Second -- I'll leave you for the second.

On the last one, in terms of assumptions of deflater, we are basically projecting 2.3% average within the business plan period, 2022-2026.

Any further question? Davide Candela.