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 2022 Consolidated Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Francesca Pezzoli, Head of Investor Relations. Please go ahead, ma'am.

So good morning, ladies and gentlemen, and welcome to Snam Full year '22 consolidated results. Today's presentation will be hosted by our CEO, Stefano Venier and by our CFO, Luca Passa. In the presentation, Stefano will provide an overview of the results and the key highlights and strategic achievements of the period. Luca will walk you through the financial performance, then back to Stefano for closing remarks and finally, the usual Q&A session. And now let me hand over to Stefano.

Thank you, Francesca, and good morning also from me. I'm on Slide 2. In 2022, we operate in an extremely volatile environment, both in terms of energy markets and macro situation. However, we managed to deliver another set of solid financial results despite being the year of the weighted average cost of capital review applied since January 1. We made significant progress across several business KPIs in both gas infrastructure as well as energy transition business while improving ESG metrics, the different alignment and ratings. The key strategic milestones achieved along the energy trilemma paved the way for our long-term strategy that we updated last January. Finally, we continue to offer compelling shareholders' remuneration with a dividend per share proposal of EUR 0.2751 on -- of which EUR 0.11 already distributed in January as interim and EUR 0.1651 per share to be distributed in June. The result in DPS is up 5% versus previous year, in line with our dividend policy. So now if we move to Slide 3, I will start with a brief overview of the key full year 2022 financial results. Adjusted EBITDA closed at EUR 2,237 million as the WACC review impact applied from the beginning of the year, as I said, by EUR 130 million, that was largely offset by higher output-based incentives and regulated revenues as well as energy transition business that contributed EUR 24 million, up EUR 15 million versus 2021. The adjusted net income stands at EUR 1,163 million, yes, EUR 1,163 million, above the guidance we gave last year, mostly thanks to stronger-than-expected operating results. Total investment, including the Golar Tundra acquisition for EUR 329 million were up by a remarkable 52% versus the previous year with EUR 1,600 million on gas infrastructure. As a result, the 2022 tariff regulated asset base reached EUR 21.4 billion, that is up by 2% vis-a-vis 2021. And finally, the net debt is remarkably down to EUR 11.9 billion, well ahead of our guidelines mainly due to a temporary positive working capital effect related to system balancing activity in Q4 2022 when the market was long because of mild weather and gas savings initiatives. Now let's move on Slide 4 in where we have some operating KPIs across our gas infrastructure and energy transition businesses. 2022 has been a challenging year from an operational standpoint. We had to cope with an unprecedented reversal of flows injecting more than 4 bcm of gas into storage facilities versus the previous year, while managing a lower predictability on gas flows. This led to a more than 20% increase of the compressing station working hours from transport and storage of gas. LNG facility has been ranked close to full annual capacity, providing the much-needed flexibility of sources to compensate for a decline in Russian supplies. Moreover, as Italy, we contributed to the EU supply approximately for 4.6 bcm through export, mainly via track pipe and just to have a reference number, 4 bcm is basically 50% of the Austrian demand. Moving on the energy transition business. We reached 40-megawatt of installed biomethane and biogas capacity with 19 million cubic meters of production that is well above the previous year as new plants enter into operation or within our perimeter. Renovit, our energy efficiency company reached 46 megawatts of installed capacity in solar panels and cogeneration. In the last mature business of small-scale LNG, sustainable mobility and decarbonization projects, more than EUR 35 million of grants has been earmarked to Snam and more than EUR 175 million grants to the consortium in which Snam is involved in. Additionally, in June, the De Nora IPO was successfully completed, doubling the value of Snam's stake since acquisition. On emissions, gas transport flows material changes and their management had implication on our Scope 1 and 2 emissions. Nevertheless, regulated activities regarding gas infrastructure, Scope 1 and 2 emissions were down 0.6% versus 2021, mainly driven by a remarkable reduction of 23% year-on-year in methane emissions. We have completed a thorough analysis of the 20 -- 2022 investment, which points to a 39% alignment to EU taxonomy and 62% to SDGs. And Luca will provide more details later in the presentation and full details can be found in the annexes. Finally, we continue to be rated by several ESG agencies with excellent results, and I'm happy to share that we are best performer by Sustainalytics in the gas utility sector. Besides our financial and operational, I'm now on Page 5, let me comment on some key strategic achievements in 2022 along the 3 dimensions of the energy dilemma that we have assumed as a framework also for the strategic guidelines that we presented in June -- in January. They represent relevant milestones on the long-term strategy, as I said. Starting with security of supply. First, we have acquired and authorized in record time to new floating vessels, of 5 bcm annual capacity each. The first one, the Golar Tundra will arrive in the next few days at Piombino and will start operations as planned in May. Storage levels reached 95% at the end of October 2022, well above the previous year and the targets at the European level. And now we are hovering around 60% as we will comment later on. In January 2023, we have closed the acquisition from Eni of 49.9% equity interest in the company's operating the 2 gas pipelines connecting Algeria to Italy called TTPC and TMPC that are essential assets in the new environment as long as -- also as long -- in the long-term perspective with respect to the hydrogen backbone. Moving to sustainability. Both the hydrogen backbone, as I mentioned, and CCS project has been filed as projects of common interest calls for proposal. And finally, the asset health methodology in connection with the remuneration mechanism of fully amortized assets has been approved by the regulator, thus testifying our proactive approach toward affordability through new services aligned with the forthcoming TOTEX regulatory evolution. In 2022, we further progressed on the hydrogen readiness analysis across our infrastructure. A third-party appraisal that is RINA has already certified 750 kilometers of our transport network, as hydrogen ready and in November, we successfully tested the variable 10% hydrogen blending in our Istrana compressing station. At the same time, we continue to run tests on storage facilities with very reassuring results. All the above was delivered in a challenging and volatile environment, as I said. Nonweather-adjusted gas demand was down 10% year-on-year, one of the largest annual declines ever, and the TTF price average was more than 2.5x versus 2021. With regard to macro, we enter in a higher interest rate cycle with European Central Bank tightening by 250 bps in 2022 and further 50 bps added last February and higher inflation driving the regulated asset base deflator to exceed 4%. Our regulatory framework, as you know, provides a good hedge against this higher interest rate backdrop over time, albeit with some time lag. In 2023, the weighted average cost of capital mark-to-market according to the regulatory formula was below the 50-bps trigger leading to no changes, while we expect an uplift in 2024 as anticipated in our business plan presentation. Let's move now on gas demand and injections. On Slide 6, with respect to the Italian full year demand, this was down 10% due to building consumption declined by 15.5%, mainly related to a decrease in the fourth quarter consumption due to milder weather, weather adjusted is down 10.1%, demand containment measures and increase in energy efficiency. The industry demand declined by 13.6%, driven by high gas prices, mainly energy-intensive industry and also a sizable fuel switch. Thermoelectric demand was down by 3.3%, driven by natural gas replacement with other fossil fuels as for industries in the thermoelectric production and also the government measures to minimize the use of gas in favor of coal consumption. In particular, over the period, Q4 demand was down 26%, which was mainly driven by material residential decline, this paved the way for different initiatives to maintain gas and storage for the next winter. The vast majority of the full year decline is not structural as it was driven by mild weather about 2 bcm contain and measure some consumption by another 2 bcm and gas to coal or oil switch for about 3 bcm. Gas injection at 75.4 bcm was almost in line with previous year, as the decline in gas demand was offset by higher storage injections and the increase in export by 3.1 bcm versus previous year. If we take a look on the Italian -- on the gas flows on Slide 7. In 2022, we had to cope with an unprecedented reversal. First, volumes from North were down 30% year-on-year, driven by Russian flows decline from Tarvisio that were partially offset by higher volumes from Passo Gries coming from Norway. Second, imports from southern routes were up by 15%, thanks to higher volumes from Algeria and partly by Azerbaijan. And third, the LNG volumes almost doubled year-on-year. As we say, the center of gravity of the entire European energy system shifted down towards the Mediterranean area. We could leverage on the 8 entry points that are 5 pipelines from different gas sources and 3 LNG terminals that soon will become 5 as the new FSRUs come on stream, able to play a strategic role within the entire European energy system. Within important to, let's say, make a focus on gas storage evolution, not only because of, let's say, the development but also because of the role that it is playing on gas prices development and in the perspective of the next summer and winter. That -- and you can find it on Slide 8. As you can see, this strategic infrastructure is full for more than 60%, including the strategic gas at the end of February at the level that is well above the 40% of the previous year and with the last 5 years' average at 45%. We have managed to get to this result, thanks to a 95% level reached at the end of last October, as I mentioned, the reverse flow service provided for the first time ever for about 0.5 bcm up to the end of January that was reopened in March with more than 350 million cubic meters sold as of today as well as the decline in demand, mainly driven by the mild weather. According to our estimates based on the current stock and the projected withdrawals, we will reach 4.5 to 5 bcm that is around 55% level at the end of March, which is a good, very good starting point for the next injection season, not only on volume side, but also because of the effects on price side. I will now hand over to Luca to comment on the financial results. Please, Luca.

Thank you, Stefano, and good morning, everyone. I will start on the -- with the full year 2022 investments on Slide 9, that reached EUR 1.9 billion, up 52% versus 2021 including the cash out for the acquisition of the Golar Tundra floating vessels with the second vessels, while the second vessel is secured, but the payment will take place only in 2024. Out of the EUR 1.9 billion, 39% is EU taxonomy aligned and includes. As far as transport is concerned, H2 ready replacement investment to reduce midterm leakage and emissions, i.e., electric compressors replacing as far compressors, new bulbs with better fugitive standards and biomethane plant connections. With regard to the energy transition business, 100% of CapEx for biomethane H2, CCS, energy efficiency, excluding cogeneration. This percentage moves to 62% alignment with SDGs, of which the majority goes toward SDG 7, 9 and 13, respectively, affordable energy, industry innovation and infrastructure and climate action. The investment related to the FSRU are considered aligned to SDG #7, as promoting affordable energy and security of supply in the current extremely volatile scenario. Let's now move to the full year '22 EBITDA analysis on Slide 10. EBITDA for the period was EUR 2,237 million, which is substantially in line with last year, minus 0.6% despite the effects of the WACC review applied from January 2022 which implied an overall cut of EUR 130 million in regulated revenues. We managed to almost completely offset this negative impact through EUR 93 million increase in regulated revenues, mainly attributable to the tariff RAB growth for plus EUR 58 million, a positive volume effect for EUR 9 million due to increase in volume are delivered and export growth, higher output-based incentives for plus EUR 37 million, mainly due to the default and storage flexibility services. EUR 50 million increase in the EBITDA of Energy Transition businesses, EUR 11 million in the energy efficiency, mainly residential business deep renovation and EUR 8 million in biomethane, new plants and larger perimeter. As far as others for EUR 25 million, we registered EUR 33 million one-off contribution from the gas excess inventories sale. EUR 4 million rental fee related to the Golar Tundra release as the LNG carrier pending the final installation and EUR 12 million capital losses related to the asset replacement. Finally, we had a EUR 60 million increase in fixed cost, about 5.5%, mainly attributable to higher utilities vehicle fuel for EUR 12 million and labor cost for EUR 6 million. Adjusted net income for the period, and I'm now on Slide 11, was EUR 1,163 million, minus 4.5% compared to the full year 2021 mainly due to higher D&A and the increase in net financial expenses. In particular, D&A increased by EUR 53 million due to a higher investment effort as commented before. Net financial expenses increased by EUR 21 million, mainly as a result of the higher gross cost of debt, which went from about 0.8% to about 1.1% in full year 2022 due to the increase in interest rates. The contribution from associates was higher by EUR 14 million, mainly due to the positive Teréga contribution, EUR 9 million, thanks to higher revenues following an increase in booking to Spain and lower financial charges due to bonds loads over. The sound performance of Interconnector plus EUR 42 million, thanks to high export flows supported by gas price spreads and greater LNG availability in the U.K. Its contribution also reflects the asset revaluation, given the high visibility, thanks to significant booking until 2026. These positive results, thanks to the higher revenues due to increased LNG import and export to Bulgaria, negative contribution from the Austrian GCA for EUR 35 million, which, despite our performance in our expectation was impaired due to the increase in discount rate. Reported net income for the period was EUR 671 million. The difference versus the adjusted net income is mainly attributable to the impairment of TAG stake for EUR 340 million, the ADNOC contribution adjustment for EUR 179 million, both of which were noncash items, partially offset by the De Nora stake disposal capital gain for EUR 73 million. The TAG write-down reflects future expectation of volumes following the structural Russian supply decline. We expect the regulatory framework reassessment with respect to both the volume exposure and the entry exit tariff scheme given its strategic role in allowing us flows from South. The ADNOC contribution adjustment was driven by the higher discount rate impacting the assets for value and its net income contribution, which, however, will be fully recovered in the coming years. Turning now to cash flows, and I'm now on Slide #12. Cash flows from operations for the period amounted to EUR 4,109 million, including EUR 2,337 million of exceptional cash generation from positive working capital evolution. This was driven by about EUR 300 million due to the tariff-related items, in particular, net over charges on the back of the tariff review, about EUR 1.9 billion regarding balancing activity, of which around EUR 800 million was related to the loan position in the balancing system and about EUR 900 million related to 2021 balancing credit cash-in and cash deposits increase and EUR 200 million for VAT cash-in and about EUR 200 million of other regulated cash deposits. All of the above positive effects are partially offset by about negative EUR 400 million of energy efficiency fees cash credits increase driven by the Ecobonus revenues. With respect to this positive evolution of working capital to be largely reabsorbed in 2023. Net investment for the period amounts to EUR 1.4 billion and are mainly related to CapEx and CapEx payables for EUR 1.3 billion. The cash out for the acquisition of the Golar Tundra in June for EUR 329 million and related to our biomethane platform for about EUR 100 million. The cash-in from the partial reimbursement of the OLT shareholders loan for about EUR 200 million and the De Nora IPO cash-in for EUR 153 million. Other outflow from the period was related to the payment of the dividend equal to EUR 866 million, while the noncash item mainly refers to the convertible bond conversion. Moving to Slide 13. Due to the previously commented cash flow evolution, the change in net debt amounted to EUR 2.1 billion positive, resulting in EUR 11.9 billion net debt at the end of 2022, well ahead of our guidance. Average cost of debt moved from the 0.8% in 2021 to 1.1% this year and the fixed to floating ratio moved to 80%. Sustainable finance and committed financing increased from 60% to 70%, making progress towards the target of 80% that we have in 2026. Financing activities in 2022 included EUR 1.5 billion in our sustainability linked bond, EUR 350 million of liability management exercise, EUR 400 million of convertible bond conversion and EUR 1.2 billion ESG revolving bank facilities. We also executed EUR 2.2 billion prefunding for 2023, including EUR 1.9 billion of banking facilities and EUR 300 million of the inaugural EU taxonomy aligned bond fully compliant with a European taxonomy for sustainable activities. Such prefunding is already included in the 1.1% cost of debt reached at the end of 2022. Given the previously commented working capital evolution and the prefunding already executed, financing needs for 2023 are almost covered, and we expect a net debt evolution in a range of EUR 15 billion to EUR 15.5 billion at the end of 2023, clearly depending on working capital volatility. Finally, in terms of financing cost, based on the current forward curve, we expect the average gross cost of debt to increase to just below 2% for 2023. On Slide 14, as a result of the better expected net debt evolution, our credit metrics displays a significant improvement versus 2021 and are well inside the reading threshold that's leaving us financial flexibility. Following our business plan presentation, both S&P and feature already affirmed their long-term credit rating of [indiscernible], both and the stable outlooks. The current maturities profile is well spread over time with an average EUR 1.4 billion per year up to 2027 thus with very limited refinancing risk over the period. And now I will hand over the floor to Stefano for the 2023 outlook and guidance.

Thank you. Thank you so much, Luca. Now I'm -- we are approaching the end of the presentation, and we are on Slide 15. As we said, 2023 continues to be characterized by a high level of volatility from a geopolitical and macro standpoint. Although our business model is well resilient with long-term visibility, allowing us to comfortably confirm our guidance. We target EUR 2.1 billion of total investment, which is up 10% year-on-year, driven by the CapEx in our gas infrastructure and the acquisition of the second floating vessel. The tariff regulated asset base is set to reach EUR 22.4 billion, which is up 5% year-on-year, a strong acceleration versus recent years thanks to the deflator effect and rising investments. Moving on to the profit and loss evolution. A higher contribution from output-based incentives, along with the ramp-up in the energy transition businesses will boost the EBITDA growth, but it will be offset by rising financial charges since the WACC reset will only take place in 2024. This lead us to comfortably confirming, as I said, our net income guidance of around EUR 1.1 billion. Not forgetting that 2022 benefited from some positive nonrecurring items for more than EUR 40 million. As Luca mentioned, we expect 2023 net debt to fall within a range of EUR 15 billion, EUR 15.5 billion. And finally, dividend per share is planned to be up by a minimum of 2.5% versus 2022. That is in line with our dividend policy we introduced and reconfirmed last January. So to conclude, in 2022, while successfully managing unprecedented risks around security of supply, we had a solid financial performance and pave the way for a new investment cycle and visible 2023 financial targets. And now we are open to take your questions. Thank you so much.

[Operator Instructions] The first question is from Fernando Garcia with RBC.

I have 3. My first question is on the working capital, EUR 2.3 billion positive in 2022. So what do you expect for working capital in 2023 within your net debt, EUR 15 billion to EUR 15.5 billion guidance? I guess that what I'm looking here is the recurring net debt number. My second question is on TAG, so can you tell us there what is the book value following the impairment? And then if you can provide a little bit of your assumptions on the north to south cash flows, for these investments and sensitivity there, please. And I would like as well to a question there on the -- if you can expand on your comment of reassessment expectations for this asset that you were making in the call. The third question is what do you expect for gas demand in Italy in 2023? And there, if you can split between electricity retail and industries that will be great.

Okay. I'll take the first question. In terms of working capital for our guidance of EUR 15 billion to EUR 15.5 billion net debt in 2023, we are assuming net working capital basically that is absorbing for -- in the region of EUR 2 billion. So all the positive effect that we experienced this year will be almost fully absorbed throughout 2023. And that's basically how we get to the EUR 15 billion to EUR 15.5 billion evolution over the year. Bear in mind also that in this guidance, we also include the cash disbursement for the acquisition of the South Corridor that actually happened in January this year, which was not previously included in the guidance. And as far as the 2 other questions, I don't know whether you want to comment. Okay. Regarding to TAG, basically, the impairment reflects basically what we have in terms of gas expected flows in our business plan. And that's why actually impaired the assets up for EUR 340 million. Now it also reflects the expectation that the regulator by 2026, i.e., the last year of the plan will address both volume -- in terms of fixing the volumes as well as entry exit tariff review. And that is where we stand as of now. We do not expect, given our assumption in the business plan of flows, which are just above the 10 bcm in terms of flows to have further sensitivities around these impairments. And on the third, Stefano, if you want to comment?

Yes, I'll take it. I'll take it. So what do we -- we do expect for this year, I think we are planning to see in between, let's say, 68 to 70 bcm for the year. This is based, of course, on some assumptions. First one that is that the, let's say, the incentives to reduce the consumption will be prolonged for the entire year as well as the possibility or, let's say, the use of coal for power generation at least till the end of the year. If I can give you couple of numbers that can help you to understand the situation. Let's say that in Q4 2022, demand was down by 6 bcm, whilst in the first 2 months of the year, January and February, demand is down by 3 bcm. So at the end of March, we expect something lower than -- a reduction lower than the Q4 2021. As well as -- as we said, out of the 8 bcm decline we envisaged in 2022, only 2 bcm can be, let's say, linked to real restructuring and restructural reduction in demand. All the rest is related to the initiatives to, let's say, reduce consumptions or switch to other fuels, part of this can -- could come back or stay at the same level. Of course, the last thing to be considered is what is going to be the weather condition in Q4 2023 that can influence within a range of 2 bcm. And that's the reason why in our estimate, we set ranging between 68 and 70 bcm, that -- it's then expected progressively to recover in 2024 with, let's say, the curtailment of some of those initiatives I was mentioning before because as it is clear the allowance to use at full capacity, the coal production is providing a sizable impact on emissions of the country.

The next question is from Javier Suarez with Mediobanca.

Three questions from me as well. The first one is on the guidance. If you can share with us also the guidance for 2023 in terms of EBITDA and what you are attributing to that guidance for EBITDA from output-based incentives and how this assumption compared with the output-based incentives achieve in 2022? That would be the first question. Then the second question is on the equity accounted investment that on an adjusted basis of EUR 308 million. So if you can share with us your expectations for 2023 from this investment? And what are the moving pieces that you are expecting here? And then the third question is on the contribution to the EBITDA from the energy transition business and we start to see a positive contribution. So you can say with us your expectation for 2023 in terms of revenues and then EBITDA contribution from this activity?

I'll take the first, Javier. In terms of, let's say, expectations guidance we have on the EBITDA, it's about EUR 2.4 billion. And the contribution from output-based is about EUR 100 million. That is up roughly EUR 50 million with respect to the 2022 actuals. The last one was the contribution we expect energy transition is about EUR 70 million, 7-0. I leave, Luca the second.

Okay. Thanks, Stefano. Regarding the second question on the contribution of basically assess an evolution in 2023. Javier, basically here, we expect contribution, which is slightly lower than what we had in 2022. And the 2 major obviously moving pieces is clearly the performance of TAG reflecting the volumes that was answering in the Q&A before, where we expect volumes below, obviously, the historic volumes around TAG, but also the positive contribution from the consolidation of the South Corridor, which should bring an additional EUR 50 million within the period. So all in all, slightly lower contribution as the portfolio in 2023 vis-a-vis 2024. And let me not be more specific on that, but clearly, there are many different contributors. You can imagine all the other participation. We have a normalization of Interconnector UK, some normalization of -- in OLT as well as some positive outlook from the DESFA stake given the performance in 2022 as well as we expect for 2023.

The next question is from José Ruiz with Barclays.

I only have 2. The first one is if you can share with us an outlook for winter '23, '24 at European level, not Italian level. And second question, maybe it's not very relevant, but I saw in your balance sheet, you have assets held for sale, I think it's for EUR 63 million. I was wondering what that is.

I'll take the first about, let's say, the outlook for next winter. It's difficult to say, of course, as you know, there is -- there are a couple of pieces that, let's say, can contribute to the thoughts about the perspective. The first one is the storage fulfillment. That is a benefit for all across Europe. As you know, the percentage of fulfillment of the storage is in the different -- in the main countries across Europe, is well above 50%. So at the end of the season, that will hover around, I think, on average about 50%, 55%. That means that the total volumes that need to be injected during summer will be half of the amount of last year. That will, of course, relax the demand in terms of volume. We'll make, let's say, the projections during summertime in terms of prices, I expect in line with the ones that we are envisaging right now that will mean that the spread between summer winter will stay there, let's say creating conditions for fulfilling the storages even from the economic standpoint. On the other side, all the facilities that were expected to come on stream and being connected for the -- for receiving additional volumes on LNG are on track. I mean the Germans started 3 vessels. We will start the first vessel mid of May. So part of the contribution will be in line with. Of course, there will be some, let's say, unpredictable events like, let's say, the weather and the temperature -- the average temperature during next winter that can influence a significant demand. And I think the second aspect that we all know is how we'll evolve the demand, the Chinese demand with respect to the winter. So in general, what I have to say is that we overcome this winter successfully, not only because of the mild weather, but also because of all the initiatives that were put in place, this is providing an advantage for next summer preparing for next winter. I think next winter, we'll have still a degree of uncertainty that will be overcome during next summer when we will complete a large part of the initiative to secure and to pave the way for the full [indiscernible] situation.

As far as the second question, the EUR 60 million of assets are for sale, José relates to initiative biomethane, which is one of the components we have in our biomethane developments, which we are restructuring together with the other shareholders, and we are going to basically reduce our stakes from control to noncontrolling in 2 assets while gaining control on other assets, which currently we don't have control. So it's just, I would say, a restructuring of part of our biomethane business, but we should not expect to have major impacts from a financial standpoint in that restructuring.

The next question is from Mark Freshney with Credit Suisse.

Firstly, can we just go back to TAG, is it possible that if the remuneration is adjusted as you would hope, would you be able to write back the impairment i.e., will there be no risk to the economics if you can get the contract changed? And just secondly, with regards to Gas Connect Austria, it's interesting that I believe your partner of bund, which bought more recently, I think, a higher place than you has impaired their stake in the asset today, and I believe they may fully consolidate it. Can you talk about why you're not impairing Gas Connect Austria as well?

Okay, Mark, this is Luca. Regarding TAG, first of all, you're asking whether we're expecting changes from a regulator perspective, we might have a revaluation of the assets. Clearly, it depends on how this discussion with the regulator will basically end, but clearly, it's a possibility. I mean if you have an impaired assets and, let's say, future flows are expected to be better than what we expect in the current valuation for the impairment, clearly, we might have a revaluation of these assets. So to your question, the answer is yes. When it comes to GCA, actually, we have impaired the GCA stakes for about EUR 35 million into these results and that is within basically the contribution of our associates. That has been probably less evident because it's offset by a revaluation in this case of the Interconnector UK, which is another asset for around more than EUR 30 million, EUR 35 million when it comes to Interconnector UK. But to your question, GCA has been impaired by EUR 35 million within the 2022 results at Snam.

The next question is from Marcin Wojtal with Bank of America.

Yes. Firstly, could we please get an update on your refinancing strategy? I think you mentioned that some of the maturities for 2023 already are prefunded. But what about 2000 -- 2024, are you looking to issue euro bonds or perhaps you're looking to switch to bond financing. And I was also wondering if you're planning to switch more of your debt from floating rates into fixed because I noticed that, that has already increased in the last 12 months. And question number two, if I may, very quickly. Just to come back on working capital just on the numbers. So you had a positive impact of EUR 2.4 billion in 2022, and you mentioned EUR 2 billion will reverse in 2023. So are you going to keep the balance of EUR 400 million, EUR 500 million or there could be some further reversals in 2024? And I appreciate it's very difficult to predict those.

Okay, Marcin, thanks for your 2 questions. On the first one, so as I commented, basically, for 2023, we are almost covered in terms of financing needs. Therefore, we don't have to basically access the market in order to fulfill some of the needs because of net debt evolution, so starting point at any point that we are currently estimating. In terms of basically how we are targeting 2024, you've seen in the chart of the presentation that the refinancing need for 2024 in terms of bonds is just over EUR 1 billion, so very limited, then we have some bank facilities, but let me say that it's really limited. So we might consider to start some prefunding for 2024 at the end of this year, depending obviously on market conditions. And in terms of obviously, the markets again, we are basically a heavy user of the euro market. We've been a heavy user of the euro market, we might look at other markets if there are any, let me say, arbitrages in that respect and we might consider also other markets. But clearly, we are in a very comfortable position, given the fact that in March, we are basically fully done for 2023, and we only need to look at 2022, we have very limited referencing risk. And then on your second question regarding also the fixed to float, we are fixing a little bit more than before. Clearly, we ended at 80% for 2022, but the evolution of rates basically give us the possibility to fix a little bit more than before. We don't have a clear target, but we have a metric that we need to be at least 30% evolution in terms of fixed to floating for the -- for coming couple of years. I don't know whether you had other question, Marcin.

Working capital.

Working capital evolution, sorry. On the working capital evolution, yes, as I said, we are expecting EUR 1.9 billion negative and about EUR 500 million of balancing. Can we retain that towards the year, it will depend on the evolution, but clearly, it's a possibility for us. So lending to something better than what we expect in the business plan in terms of the net debt evolution.

The next question is from Stefano Gamberini with Equita.

I have just 2 questions. First regarding the situation of the authorization about the Adriatic backbone, if I'm not wrong, you should receive some important authorization shortly as well as I don't know if there are some novelties about also the Alfonsine storage? And the second question is regarding the top situation. If I'm not wrong, there was an auction for award new capacity, and this was just the requested 1.5 bcm out of the 10 bcm or further. So if you can elaborate a little bit if this could cause some postponement of the investment or not? The second question -- sorry, the third one is regarding -- if I understood correctly, your EBITDA will grow to EUR 2.4 billion, so EUR 140 million up. There were also a EUR 40 million one-off in 2022, while on the other, the net profit will decline by around EUR 60 million. Could you help us to understand if at the end of the day, there is also higher financial charges? Or where are the difference considering such improvement in EBITDA and declining in net profit?

Okay. I'll take the first 2. The first one is on Adriatic backbone. As you know, we consultant initiative in between Jan -- December and January. We delivered to the authority, all the outcomes and the comments on, let's say, the questions raised and the support that was raised for the infrastructure. I can say that within the next couple of weeks, definitely by the end of March, we expect the outcome -- final outcome from the Arera with the final authorization. That also will pave the way for submitting part of this infrastructure for, let's say, European support in case. The second question is about TAP. Yes, we had this preliminary -- this first auction a few months ago that ended, as you said, the most important one will come fall this year when there will be a new open season up to the major expansion. As you know, that could be, let's say, up to in terms of capacity -- input capacity for Italy up to 18, 20 bcm, as was mentioned by the CEO of TAP a few days ago. This open season will land beginning 2024 with the bidding offering at the end. So within the next 12 months, we will see how will be the next step up. This first step up for 1.5 bcm will be on stream beginning 2025. The second is about Alfonsine, yes, in Alfonsine, we are preparing the project to be submitted. We are making a check with Terna because we want to, let's say, set up this new infrastructure, not with traditional compressing stations, but with electromechanical compression stations, so to have 0 impact for this new facility. So I think that in next month, we will submit this new design of the Alfonsine to the Ministry for the full authorization process. In the meantime, we are keep -- bringing on the process for getting some -- the authorization for running a couple of the storages with, let's say, a higher pressure with respect to the past performance that will -- can contribute next winter for -- in between 0.5, 0.7 bcm additional capacity.

When it comes to the final question, EBITDA and net income evolution for 2023. As Stefano commented, basically, we have an EBITDA guidance of EUR 2.4 billion for 2023 that is driven by clearly the solid contribution from the upgrowth widening of the business perimeter, i.e. the floating vessels, and higher output-based incentives that Stefano pointed to just over EUR 1 million in terms of output base as well as the energy transition business, would expect an EBITDA to basically land in around EUR 70 million contribution by the end of 2023. Now why this do not translate to an increase in net income level, clearly, as you just said, net financial charges arising given the rising interest rates and cost of debt. We gave an estimate of net debt evolution of EUR 15 billion to EUR 15.5 billion and an estimate of cost of debt for 2023 at around 2%, which means that our financial charges from around EUR 120 million of this for 2023 at around 2%, which means that our financial charges from around EUR 120 million of this year basically have an increase to around EUR 250 million next year. So that's the reason why you don't have, let me say, net income accretion at least for 2023. And then starting from 2024, we expect the WACC which should allow us to basically offset part of this effect.

The next question is from Davide Candela with Intesa Sanpaolo.

I just have 2. The first one, I was wondering if you can comment on the rumors about ExxonMobil and Qatar Energy potentially exiting from the Adriatic LNG, and if this is the case, you -- it is now will be interested in increasing its stake in the company or it will be more comfortable to stay with the current 7% in the Adriatic LNG. And the second one, it's a more broad question. I'm aware about the fact that you have priorities on the organic development and infrastructure. But looking at connecting by -- as an end-to-end process, the backbone from Italy to South Africa. And I was wondering if a potential involvement in the EastMed-Poseidon project, that could be finalized at least in the engineering process by the end of this year. If a potential involvement in the future will be -- would you consider to get there and to participate in the project.

As far as the Adriatic LNG, of course, generally, we do not comment press rumors, as you can easily figure out. Of course, in case ExxonMobil and Qatar Energy will decide to go on with the sale of their stake, we will carefully follow the process, not only because we are a shareholder of the company, but also because, as we mentioned during the Capital Market Day with the 2 additional floating vessels, we will become the second largest player in the LNG infrastructure, and that infrastructure is, of course, core for the Italian security of supply. So we might consider eventually to around our stake. The second question about EastMed-Poseidon, I think apart from the finalization of the engineering, what counts is what is going to be the decision from -- of Chevron and the other partners that are planning to develop Leviathan and the other gas fields that has been discovered offshore Cyprus, offshore Israel and offshore Egypt because, of course, in case they decide to ship out to send out the gas via LNG. Of course, it's met -- it's an alternative in terms of infrastructure. So I think what comes first is the decision of those developers on what is the solution they intend to implement for, let's say, shipping out that gas and then comes, of course, eventually the evaluation of this EastMed-Poseidon infrastructure. Could we be interested in? Frankly, I don't know. Right now, I don't know the cost of the infrastructure. I don't know if the gas is going to flow through that infrastructure. I don't know what is going to be the final investment decision of the E&P developers. So it's too early to make a comment or to, let's say, figure out the possible involvement of Snam in this prospect.

The next question is from Bartek Kubicki with Societe Generale.

Two please, both are related to associates again. Firstly, on the accounting treatment of the revaluations and devaluations. Some of the associates you include revaluation and devaluation. I'm talking about Interconnector and GCA, you included into recurring income while the others, TAG and ADNOC was treated as nonrecurring. So I wonder what is -- how did you look at this while deciding what is recurring, what is not recurring? And how should we look at this the future as well? And secondly, on Italgas, as you can imagine, there is plenty of discussions on the market regarding your stake on Italgas. So if you could again clarify your view on the Italgas stake and perhaps outline the key points of the shareholders' agreement between you and CDP regarding the 13.5% stake in the company?

Okay. Thanks, Bartek. Regarding, let me say, the accounting, whether some adjustments are recurring or nonrecurring, let me be very specific. So TAG is an impairment driven by the change in flows for the Ukraine war, therefore, really something not part of, let me say, the business or expectation of the business given a very, I would say, a sudden and not expected event. When it comes to ADNOC, ADNOC is not an impairment per se is a fair value revaluation of the asset given the change in interest rates. So clearly, it's part of our [indiscernible] even because those cash flows will be recovered in the following years. I mean, the cash flows are basically fixed. This is just an adjustment on the NPV of the cash flows to the date as of today. While for the revaluation of Interconnector and the impairment on GCA, there are no specific items for which we could consider them as nonrecurring. However, given that, clearly, the volatility in the market seeing is pausing also for us the questions of what is recurring, what is not recurring we are working on a policy that we are -- we would like to implement towards basically this year so to have full year 2023 with this policy basically available so that you have clarity on what actually goes into recurring and nonrecurring. And then for the Italgas stake, I'll leave the word to Stefano.

Yes. I try to be clear with regard to Italgas stake. We have a shareholder impact with CDB network that covers 50% of our stake. We are extremely happy with the return that this stake is providing. We are not planning to sell the stake.

[Operator Instructions] We have a follow-up question from Stefano Gamberini with Equita.

Yes. If I can have a follow-up regarding the same question on De Nora, considering the prices now are very better than a few months ago. So what is the environment that could give you the opportunity to reduce your stake considering that both of them are considering not a strategic stake.

First, we are in blackout period since -- next 2023, there will be let's say, a Board that will examine the new business plan. We are extremely happy for the performance. And then we are convinced that we did the right thing in listing the company last year. So the prices so far, I think, more adequately reflecting the value of the company that we think can be even higher with respect to the good performance is delivering also in 2022. Okay. Then if there are no more questions, I'd like to thank you all of you for taking part to this conference. Thanks for the questions and have a good day. Bye.

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