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

Good morning. This is the Chorus Call conference operator. Welcome, and thank you for joining the Snam enters the capital of Open Grid Europe Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Francesca Pezzoli, Head of Investor Relations of Snam. Please go ahead, madam.

Good morning, ladies and gentlemen. We have convened you today -- here today for a quick call to provide some details with regards to the transaction announced yesterday at market close. The agenda envisage an introduction from Stefano Venier, Snam CEO, with the highlights of the transaction. Luca Passa, Snam CFO, will provide data around the assets acquired, the regulatory framework, the market outlook and the impact of the transaction on Snam. Finally, back to Stefano for closing remarks. At the end of the presentation, there will be time for Q&A. I will now hand over to Stefano.

Thank you, Francesca. Good morning, and thank you for joining. We are proudly announcing today a significant milestone in our strategy to consolidate the largest pan-European multi-molecule infrastructure operators, as I will show you on next page. Let me now come back on the major highlights of the transaction. We have reached a binding agreement to acquire from ADIA a 24.99% stake in Vier Gas Holding, which indirectly owns Open Grid Europe, the German's largest gas transmission network operator for an equity value of EUR 920 million. The closing is subject to some usual condition precedent. Implied multiple on '25 estimated EBITDA is equal to approximately 12x, broadly in line with regulated utilities average trading multiples. This transaction aligns and best fits with our broader pan-European multi-molecule perspective and aims to bolster Snam's role across key European gas and hydrogen corridors. Snam is the first Italian energy player to make a sensible entry in the core German energy infrastructure space. In fact, Germany, already the largest gas market in Europe by volume, is supposed to become the primary market for hydrogen in the continent. OGE's gas network is at the core of gas infrastructures in Europe, featuring 17 interconnections with 7 ordering countries, including the interconnection to Snam's Austrian associate GCA and TAG, interconnected to Italy through the Tarvisio entry point, where export capacity has been recently expanded to 9 bcm per year, and in 2026, will reach 14 bcm reverse flow. The acquisition can be financed through the current financial flexibility or via hybrid financing instrument in order to maximize net profit contributions while maintaining the financial flexibility. In this perspective, the transaction is expected to increase the annual net income by 3% on average over the current business plan period with no impact on Snam's credit ratings or dividend policy. On next page, Snam manages the largest transport dispatching storage and regasification natural gas infrastructure and operates the most developed multi-molecule energy transition platform in Europe, as you know. Snam's asset base expands beyond the major pipeline entry points due to our significant equity participations on TAP and DESFA on the East-West Med route; TAG and GCA on North, South and vice-versa route and the SeaCorridor on the South and North route. Thanks to the extended network and presence in core territories, OGE will complete and complement our presence along the key current and future energy corridors, primarily the north -- the South-North from Algeria to North Sea, strengthening our role in European energy transition through frontline exposure to the German hydrogen core grid in view of the integration with the hydrogen Southern backbone SouthH2 Corridor, which is promoted by Snam and the other 2 corridors, H2Med and SEEHyC, participated by our affiliates. The strategic rationale of this deal is very sound and built on the strategy outlined. I will now over to Luca for a transaction overview, OGE description, key highlights on German regulatory framework and the transition -- and the transaction impact. To you, Luca.

Thank you, Stefano. Good morning, everyone. I will start with an overview of the transaction. We have signed a binding agreement to acquire 24.99% stake in Vier Gas Holding, VGH, a Luxembourg-based company, which indirectly owns 100% of the share capital of Open Grid Europe from Infinity Investments S.A., Abu Dhabi Investment Authority fully owned investment vehicle for an equity value of EUR 920 million. This corresponds to an EV to EBITDA 2025 multiple of 12x and implied EV to RAB on 2025 expected RAB estimates of lower than 30%, in line with recent similar transaction. Besides the agreement with ADIA, Snam has also entered into a separate share purchase agreement with the Belgian TSO, Fluxys, current shareholder of VGH with a stake of approximately 24.11% and already partnering with them in Interconnector, TAP and DESFA. The agreement, subject to the completion of the transaction with Infinity Investments, entails the sale from Snam to Fluxys of a 0.5% stake of VGH so that Snam and Fluxys will hold a substantially equal shareholding. Snam will secure balanced governance rights aligned with other shareholders. The transaction is expected to close within the third quarter 2025 upon satisfaction of certain regulatory conditions, namely the obtainment of the merger contract clearance by the German Antitrust Authority, the Foreign Direct Investment clearance by the German Ministry of Economic Affairs and Climate Action and the successful finalization on the process for the exercise or other shareholders' relevant rights as foreseen by the shareholders' agreement. Let's now look at OGE assets and key figures on Slide #5. OGE is the Germany's largest independent gas transmission operator, managing a network extending for approximately 12,000 kilometers with an annual offtake volume of approximately 21 bcm and more than 400 end customers. This network is situated in the heart of Europe gas infrastructure featuring 17 interconnections with 7 neighboring countries, including Belgium and Switzerland as well as Snam's Austrian Associates, GCA and TAG and to Italy through Tarvisio entry point, where export capacity has been recently expanded to 9 bcm per year, in 2026 will reach 14 bcm. It plays a vitally important role in securing energy supply for Germany and Europe by operating connections to neighboring countries, LNG terminals, industrial companies and storage facilities. It has a solid track record in designing, building and operating gas transmission according to the highest safety and environmental standards, and it provides services related to gas transmission. Moreover, OGE is a cornerstone of the core H2 grid whose purpose is to create a nationwide publicly accessible hydrogen network in Germany, and it is ideally positioned in one of the most industrialized areas, where potentially CO2 transport infrastructure could be developed. Key 2024 figures, more than EUR 1.1 billion of revenues, 85% of which are fully regulated, and reported EBITDA of approximately EUR 434 million. A more appropriate parameter to look at its EBITDA adjusted for regulatory items stands at EUR 627 million in 2024 according to our estimates. It is gross of items offsetting over an underperformance compared to reference regulatory revenues in 2020 and 2024. In particular, 2024 revenue shortfall of EUR 155 million will be settled by a regulatory account mechanism in the period 2027, 2029. Net debt, with that like items according to our analysis, stands at EUR 3.4 billion as of December 2024. According to Vier Gas' recent public disclosure, the outlook for 2025 is sound with approximately EUR 500 million to EUR 600 million EBITDA range and CapEx to increase to EUR 650 million, EUR 750 million. Rising CapEx reflects the ramp-up of the H2 Core Grid construction as well as the continued investment for LNG integration into the CH4 grid. In Germany, RAB figures are not publicly available. Our valuation is based on an estimated RAB of approximately EUR 5.5 billion in 2025 and a EUR 6 billion CapEx plan 2025, 2034, 55% of which dedicated to gas, 40% to H2 and 5% to CO2, underpinning an estimated RAB growth to approximately EUR 8 billion by 2034. On Slide 6, an overview on the molecules demand evolution. Germany is currently the largest European market for natural gas with a total consumption of about 78 bcm in 2024 or about 840 terawatt-hours, up 3.5% vis-a-vis 2023. In addition to domestic demand, Germany plays a significant role as a transit market, contributing to the supply of natural gas to Central European market with about 8 bcm of export in 2024. It is also the most advanced market in terms of hydrogen development. We have estimated the German molecules market future evolution considering various decarbonization strategies and policy scenarios. We have also assessed the risk that Germany's legal net zero target for 2045 might be postponed to 2050 or later. Despite of the uncertainties surrounding the path to decarbonization and the increase in hydrogen volumes, molecules are projected to remain an essential part of the energy mix in all scenarios, especially due to the nuclear phase out in 2023 and the planned coal phase out by 2038. Moreover, there is a potential for CO2 grid to be developed to enable large-scale deployment of CCS in Germany, transporting more than 50 million tons of CO2 in the future, plus transit volume from neighboring countries. OGE's assets are positioned in high demand and high emission regions of North Rhine-Westphalia, Essen, ], which are also key for H2 Core Grid development. This provides a natural hedge between different molecules and their future evolution. Let's now move to the regulatory environment on Page 7. Germany has a well-established gas infrastructure regulatory framework in place for more than a decade, enabling an adequate remuneration of investment, incentives for efficient operators and no volume risk. Moreover, it is the most advanced European country in terms of regulation for H2 infrastructures. Moving to Slide 8. The current regulatory period, RP4, provides visibility until 2027 with the revenue's cap already largely set. It is a 5-year regulatory period, cost base with pass-through costs adjusted on an annual basis, efficiency factor and faster remuneration and recognition of new investments. Moreover, the regulator BNetzA is in the process of moving towards a reviewed framework, RP5, from 2028 based on WACC approach for capital cost, efficiency measures and optional shortening of depreciation period for natural gas assets. On hydrogen, and I'm now on Slide #9, Germany was one of the first European countries to issue a national hydrogen strategy. The most recent national H2 strategy outlines measures from the short to long term to establish a functional H2 market by 2030. A key component of this vision is the H2 Core Grid already approved by the regulator to enable suppliers and consumers to transition their operations to H2 usage. The H2 core network will be constructed from 2025 to 2032 and will cover a total length of approximately 10,000 kilometers with about 60% consisting of repurposed natural gas pipelines. The investment costs are estimated at EUR 19 billion. The network will be built and operated jointly by several H2 network operators with OGE contributing a significant portion of the investment amounting to EUR 1.6 billion already committed. Stage 2 regulatory framework will incentivize investment by ensuring sufficient returns and provide a downside protection mechanism through an establishment of an amortization account backed by KfW and a German state guaranteed. Let's now focus on the key impact on Snam footprint and figures on Slide #10. With this transaction, Snam will reach over 40,000 kilometers of gas pipeline length, including the pro quota of the associates, an 8% increase. Being a minority participation will be equity accounted, and therefore, contributing below EBITDA, like for the other associates. We estimate EUR 40 million of average contribution to net income over the period 2025, 2029, which implies a 2% to 3% accretion to net income depending on the financing and 1% EPS accretion. We intend to propose to the next Board of Directors authorization for a hybrid issuance to maximize net income accretion while keeping current financial flexibility. The deal will have no impact on Snam credit ratings and dividend policy. And now I will hand over to Stefano for the closing remarks.

Thank you, Luca. I think that with this transaction, Snam is the first-ever Italian energy player to make a sizable entry into the German energy infrastructure space, as I said. The German market, as realized, is the largest in Europe with gaseous fuel demand of approximately 85 bcm in 2024 and expected to remain solid, also due to the development of the hydrogen market and CO2. It has a well-established regulatory framework as we explained to you with solid investment prospects across deferent molecules. OGE is a German's largest independent gas transmission operator at the center of European system with extensive interconnection with key access points in countries and which contribute to energy transition effort through its leading role on German hydrogen core grid development. Snam and OGE joins a great strategic fit given their key role in gas and decarbonized molecule transport and the geographical positioning of assets along the South to North energy corridor and the relevant branches towards East and West. With these transactions, Snam will announce its standing as Europe's largest gas infrastructure operator, improving net income while maintaining financial flexibility. This represents another key milestone in implementing our strategy focused on further developing a pan-European multi-molecule network, as we presented last January with our business plan. Let me now turn to you for some questions.

[Operator Instructions] The first question is from James Brand, Deutsche Bank.

Congratulations on the deal. I have 3 questions, if that's okay. The first one is, you've obviously taken a 25% stake, would you ideally like to go higher? Or are you satisfied with 25%? Secondly, I'm not sure if you mentioned the RAB at '24 year-end on the call earlier, but if you did, I didn't catch it. And I was wondering whether you could just tell us what the kind of current '24 year-end RAB is and whether there's any debt at the holding company, so we can have a slightly clearer view on the financials. And then the third question is whether there are any details you can give us on how the company is performing under the regulatory framework in Germany because it's not known for being that generous in terms of the base allowed return, but sometimes companies can outperform quite materially under incentives. So how are you doing under incentives?

Luca?

Okay. Thanks, James. Regarding the first question, yes, we have signed a binding agreement for 24.99%. But also, I said that we will concurrently sign an agreement once this is closed to sell 0.5 to Fluxys, which means our final position will be 24.5%, more or less equal to the position of Fluxys that we'll have into the shareholding. Regarding potential increase of the stake in the future, clearly, this is the first step. We will see also the other shareholders, what will be their attitude. We will evaluate. But clearly, we now want to have exposure to the assets with a minority participation and see how basically the regulatory evolution also in Germany will play out. Regarding the second question, I didn't mention the RAB for 2024. I did mention RAB for 2025. So 2025 RAB is EUR 5.5 billion, and this is our estimate. 2024 RAB is EUR 5.2 billion. And again, this is our estimate. Therefore, multiples of 2025 is 1.29x for the transaction, while multiple on 2024 RAB is 1.36x. There is the debt that I mentioned, EUR 3.4 billion, is all at the holding company level. Therefore, there is no additional debt that needs to be referred. Regarding the performance of basically the company vis-a-vis the regulatory framework, you know that RP4 has been already, let me say, adjusted in the sense that you have a remuneration for old assets, for new assets, plus there is a cost -- capital cost acceleration that actually has even a higher type of return. I think the company also in terms of incentive is performing according to the basically regulatory framework. Clearly, on our side, we will, as a minority shareholder, push for efficiency outperformance, also in the new regulatory period, which will have a different sector in terms of both efficiency and productivity factor vis-a-vis the existing one. You know that they are moving, and this was publicly stated by the regulator and already implemented for some electricity TSOs in Germany to RAB WACC remunerated model according to the different molecules that will be transported. So we will have a remuneration, which will be set by the regulator. And on top of that, there will be efficiency factor and productivity factors set, again, by the regulator, which we deem to be appropriate, let me say, going forward for what we know today because this is a current discussion that is happening with the regulator. And I'll probably stop there. I don't know whether, Stefano, you want to add anything.

Just one thing to add with respect to the first question. Let me say that the government structure of the company is very well balanced. With this stake, we will have the right to appoint to Board members as for proxies and BCI, which may, I guess, is single board member. And I think with this 24.5% at the final stage of the process, we will have equally represented, and we will equally contribute to the governance of the company. So I think it's going to work very well, particularly beginning. Then, as Luca said, we will see for the future. For the time being, we are satisfied with this first step move.

Next question is from Javier Suarez, Mediobanca.

3 questions. The first one is beyond the financial aspect and thinking about the strategical imprinting of Snam Europe after this acquisition, how do you consider the potential benefit for Snam and its European strategy stemming from this operation and thinking about operational efficiencies, know-how, again, capacity to influence European energy strategy, things related to security? And maybe a follow-up question on the governance because, obviously, with a minority stake, which is the capacity of Snam to influence the strategical roadmap of this company for the next year to come? That would be the first question. The second question is on the financing. It is fair to say that the preferred option of Snam is to finance this acquisition via additional hybrid. And a question linked to that one, would you consider also the disposals and additional disposal, maybe to concentrate more on what you call an European multi-molecular strategy? And then the third question is on the profitability or the profitability of this company and CapEx profitability while expanding the network in Germany. Can you please make us a comparison on how the regulation in Germany for this company compared with the regulation for Snam gas transmission activities in Italy, just to have a sense on the difference in profitability while investing between the 2 -- these 2 countries?

I'll take the first 2. I mean, with respect to the first about printing, as you said, in Europe, I think this move is extremely important. It gives us a first-hand direct exposure to the major market in Europe that is central and pivotal, not only for the gas energy security, but also in perspective on the green molecules or decarbonized molecules with a very important options also related to the CO2. That is an emerging solution also for out of 8 industries in Germany. And this led us to, let's say, better coordinate what are the decisions that are taking in Italy with respect to decisions taken in Austria, specifically in Germany and with our partner, Fluxys, also on the west part of Europe. I think this, let's say, move, this entry into German market compliments and give us also certain, let's say, additional capabilities to try to, let's say, propose and influence what are the decisions on European level at all given also the presence we have in other key countries like France, Greece and the South corridor, East-West. I think it's extremely important also to, let's say, coordinate on transnational projects. If you think about SouthH2 Corridor, of course, SouthH2 Corridor exists if there is a full coordination between the development in the Italian market, in the German market and on the production side on the Northwest Africa, where, as you know, we have a presence on the pipeline of sea corridors. So I think it give us a comprehensive and very strategic positioning to try to steer and best fit the investments with respect to the different countries. Taking, I would say, also a leading role in this process of creating an interconnect and unique energy market that is, say, the -- that underpins the better efficiency in the gas market in Europe, of course, as far as the infrastructure is related. And also the most recent, let's say, openings, like the new FSRU, Ravenna, of course, takes a further and additional, let's say, strategic perspective with respect to the corridor that goes from north part of Italy towards the central part of Germany. Just to make an example, 2 days ago, we were exporting 23 million cubic meter in a single day, that is almost full capacity with respect to the 9 bcm that we made available in the corridor from Italy to Austria. With respect to the second part of the question was governance, yes, of course, we have some rights in designing and in taking the decision as the other shareholders. So I think the governance is very well balanced considering the different stakes and the role that the player has. I think it's important to underline that with this acquisition, the company, we have 2 major industrial players in the shareholding and 2 major financial players, so in some way balancing the perspective -- industrial perspective with respect to the financial perspective. On second question about the preference for a hybrid funding, of course, it is a decision that the Board has to take. As Luca said, we will propose the Board to finance the acquisition with the issuing of hybrid. That is the ideal instrument considering the -- let's say, the type of acquisition we are doing. With respect to potential disposal, as we said, and we committed a couple of years ago, in making some asset rotation is something that we always consider with the clustering we presented to the market. We execute in the disposal of ADNOC a month ago or even less than a month ago. A few weeks ago, that was consistent with what we said. And we will keep on moving in the same direction we presented even also last January with the business plan with clear clusters of the stakes we have, between strategic and more opportunistic. I'll leave the third to Luca.

Sure, which is profitability and on CapEx. So just to give you some numbers, the current regulatory framework, RP4, provides basically for all the assets, return on equity, real pretax of 3.51%. For new assets, a return on equity nominal pretax of assets between 2026 and 2023 ] of 5.07%. And then at the CCA, which is the cost capital acceleration, return on equity, nominal pretax of 7.1, which affects basically assets from 2024 and onwards, up until the end of the period. So I think it is more or less in line with the remuneration we are taking into account that clearly cost of capital in Germany is, I would say, lower than what it is currently in Italy. Our expectation clearly for the next regulatory period, we made some assumptions, but it's the current, I would say, dialogue with the regulators. So I will not comment on what is going to be the expectation there, although, again, it will be limiting, risk adjusted for the risk profile or investments in Germany vis-a-vis Italian investment. And then finally, on the CapEx plan, as I mentioned during the presentation, we expect EUR 6 billion of CapEx up until 2034 from OGE. There is clearly a ramp-up in the next 2 to 3 years, which gets on an annual spending above EUR 1 billion. And then once I would say the majority of the CH4, so the gas investments are -- for the security supply are finished, the company will align over EUR 600 million more or less of spending on an annual basis.

Let me add only single information, among the EUR 6 billion of CapEx that were mentioned by Luca, the contribution of the CO2 pipeline is very negligible. So in case this type of, let's say, solution will ramp up, as we see, by the way, across -- all across Europe, this will imply a further role of OGE and part of business.

And the investment plan should basically provide regulatory asset base by 2034 in the region of EUR 8 billion. Therefore, the growth -- the annual growth, the regulatory asset base is very much in line with the current growth of Snam regulatory asset base.

Next question is from José Ruiz, Barclays.

Just 3 quick questions. Number one, from a strategic point of view, can we understand your refocusing on Europe and kind of leaving aside international expansion outside Europe? Second question, can we assume that you will sell at the same price you're buying the -- sorry -- can we assume that you're selling the 0.5% stake to Fluxys at the same price that you acquired from ADIA? And last one is a clarification on the net profit that you're expecting, I mean, you have in the annex the net profit for Vier Gas moving from EUR 470 million to EUR 107 million, and if I assume the EUR 40 million, you're expecting EUR 160 million net profit going forward, unless you're including the net financing costs from the acquisition. Can you clarify a little bit the earnings profile of Vier Gas?

I'll take the first 2 again. The first one, the strategic direction clearly is on focusing on Europe, and let's say, the perspective towards the southern part of Mediterranean area since we have already the interconnection with Tunisia and the interconnection towards Greece and the presence in Greece. All the rest outside Europe has been, as you know, disposed through the sale of the ADNOC stake, and we are not pursuing options all around the world. So full focusing is on this area and on the perspective of the multi-molecule that means CH4, natural gas nowadays, and the other 2 molecules, the hydrogen and the CO2. About the selling of stake to Fluxys, it's going to happen at the same price we are buying the stake from ADIA. Luca, for the third.

Yes. On net profit, you are right, reported net profit is lower this year. But as I mentioned before, there is a regulatory adjustment for basically past underperformances both of revenues booked in 2020 and 2024 that will be reabsorbed in the coming years. Therefore, you should expect also the reported net profit in the coming years to be higher than the one that is reported for 2024, therefore, contributing on average is EUR 40 million. There is clearly, I would say, a starting point, which is lower. And then from next year, it's actually going even above the target contribution. When we give numbers without the financing through hybrids, clearly, we take into account also the cost of financing for us. Therefore, the 1% EPS accretion with basically financial flexibility, i.e., normal financing is net of the financing costs.

Next question is from Bartek Kubicki, Bernstein.

Congratulations on the relatively bold move towards Germany. But I would have to say the transaction doesn't seem very cheap in my numbers. It's like 22, 23x PE. You are mentioning that the assets are growing at the CAGR similar to Snam, while Snam is trading at 11x, 12x PE. So consequent, of course, the first one will be, how do you justify the significant premium you are paying for those assets over, let's say, Snam? So how would you justify it against, for instance, buying back your own shares? And then my question would be on the net income, what you just discussed, because you said that the next years will be impacted by regulatory adjustments from the previous years, which means they will be above norm. So consequently -- so I would assume this EUR 40 million is also taking into account those regulatory adjustments. So my question on this will be what is really the sort of non -- sort of the recurring level of net income excluding the regulatory adjustments? And also given the RAB growth and the CapEx growth, what kind of EPS or net income CAGR are we looking for, for the next, whatever, 5, 10 years to justify this 20-plus PE multiple on the transaction? And that would be everything for the moment.

Okay. So first of all, in terms of multiples, the closest comparable to this transaction is actually the acquisition that Fluxys made in 2023 from acquiring for just north of 24% stake. At the time, they paid 12.3x EBITDA and a multiple on RAB of 136%. Clearly, this was 2023, when there was much less certainty on the CapEx deployment for both CH4 and the core H2 grid was not approved and financed by the government. So what I'm trying to say is we are paying lower multiples in 2025 for a slightly larger stake with a visibility in terms of CapEx deployment, which is much higher, and is much higher both on CH4 as well as on the H2 core network. The average multiples for this type of transaction in Germany have a premium to RAB of 150%, so even higher and an EV to EBITDA multiple of 12.2%. And we're taking into account 6 or 7 transactions that were done basically in the country. Therefore, I think that in terms of valuation, we just paid what is the correct in terms of multiples. Then when it comes to basically net income, as I said, net income will be adjusted for regulatory impact on the performances, and today is in the region, as reported by Vier Gas of EUR 110 million, you should assume a recurring, which is more closer to EUR 150 million going forward as regarding net income for 100% clearly of Vier Gas.

And if I may, and what kind of net income CAGR are we seeing for the next, whatever, 10 years, given this 4% RAB CAGR, more or less? I mean, you must have something in your mind, I guess, on this one.

I mean, Bartek, these are our estimates. This company has listed bonds. We cannot comment too much on what we expect in terms of growth. So even -- the RAB estimates, the CapEx estimates, I think we gave you enough data. You asked for, let me say, an ordinary net income, and I give you a figure. I cannot give you the exact CAGR because this is a company with listed securities.

Next question is from Piotr Dzieciolowski, Citibank.

I wanted to ask about the net income improvement that you expect from the transaction, which you would like to be 2% to 3%. I mean, it's -- correct me what you do on the math, so if you get a EUR 40 million net income contribution, but then you have to take a debt on the back of it, finance with hybrid. How much it costs you? And then, where do you see the actual post-hybrid improvement of this one? And then the second question I have, what's your expectations towards regulatory review that is going on in Germany with regards to the gas transmission asset? What's your either ROE for '28 or a proxy WACC for '28? So I will start with these 2 questions, please.

Sorry, can you repeat the second question, which was unclear, I mean you...

Yes, sure. So basically, in Germany, as I understand, we are going to change the regulatory framework, where we're going to blend every different type of asset into 1 RAB, 1 WACC. And I just wanted to understand what's your expectations towards this element. Like do you see an uplift of the returns in the -- in '28 versus '27 because we changed the kind of -- repriced the old assets, so to say?

Okay. So regarding the first question, in terms of -- the math is pretty simple. If you take EUR 100 million, we assume a cost that for us, it should be in the region of EUR 25 million, a net income on average of EUR 40 million. So you do the math, you subtract because of financing and you get to basically an EPS accretion that is more than 1%. Clearly, if we were using hybrid, which is the preferred route, as I just said before, we will reach over 3% on net income accretion because in that case, the cost of financing of the hybrid will not go against net income because, as you know, from an IFRS standpoint, hybrids are accounted as capital. So those are the math, which are pretty simple, basically, to be done. Regarding the new regulatory period in Germany, as I said, we can give limited information as the company itself is having the regulatory -- I would say, dialogue with the regulator currently. We do expect, let me say, a RAB-based WACC remunerated period where the WACC is, let me say, in line with Italian taking into account what is the difference in terms of rate of free risk of Germany vis-a-vis Italian one. Therefore, you should expect something which is attractive for us or for the company itself to basically commit those types of investments that we are estimating.

Okay. But -- I mean, correct me if I'm wrong, but on the hybrid, you're going to take your hybrid and use it versus to finance setting the German regulatory framework, and there's German cost of debt for municipality utilities, which is [ 3.87% ] or for around 4%. So you're not going to outperform on the financing side. And it's -- so the net impact if -- I understand the accounting EPS enhancements you're talking about, but the net effect on my kind of cash flow is going to be 0 or even negative. Correct me if I'm wrong in my thinking.

It's not 0 because as I said, if I were to finance these with primary financing, my cost will be in the region of EUR 25 million of financial expenses per year against an average of net income contribution in the 40s. So it's positive and it's accretive of 1% on EPS. When you are using the hybrids, the cost of financing doesn't go against the contribution. And bear in mind that we are acquiring a minority stake, this will be accounted as equity method; therefore, we are not consolidating the assets. So we shouldn't compare it in terms of -- to finance an asset, which is based in a country with the same country risk. We are buying an equity stake, which is equity accounted for.

[Operator Instructions] Next question is from Aleksandra Arsova, Equita.

3 questions on my end. The first one, maybe a high-level one, since you're increasing your exposure to an infrastructure with, let's say, high level of expected CapEx related to H2 and innovative molecules, so does it also imply that you're more confident or that this increases the visibility on a positive investment decision on hydrogen also in Italy in 2027 and beyond? The second one is on the CapEx planning for open grid. So you already mentioned this EUR 6 billion in the coming decade. I was wondering, just now in Germany, the government is launching its new infrastructure plan also related to energy infrastructure. So do you expect to maybe have an impact from this new infrastructure plan or to add a new CapEx and to show maybe growth from this? And the final one is in -- on financial flexibility. You said, if I understand correctly, that you have additional financial flexibility also after this latest deal. So can you remind us what is the remaining financial flexibility you have to pursue further deals potentially?

Stefano, do you want to take the first one?

Yes, the first one, of course. I think we are in the sense that we're increasing the exposure on the H2, but with respect to Germany, where there is a clear plan approved by the government and with a clear allocation of resources that as far as OGE is concerned accounts for EUR 1.6 billion that are already committed by the government and covered by a mechanism of protection that is backed by KfW. So we are not increasing the exposure in terms of risk. We are just increasing the exposure with respect to the development that Germany plays -- reminding that Germany plays a key role in the development of the hydrogen corridors and the hydrogen market in Europe. And therefore, to a certain extent, as you highlighted, this will, let's say, make the development of the SouthH2 Corridor more feasible as soon as this infrastructure will be deployed and the demand will move up. And this -- the presence in OGE will give us a clear firsthand position to understand how the market -- the German market will develop since with respect to SouthH2 Corridor, it has to absorb around 50% of the volumes that are expected to transit in this infrastructure, and the coordination between the developments of the 2 markets is very important. With respect to the new plan for infrastructure set by the government. I think the one that they already defined for hydrogen is part of, of course, is not in the additional part that they are launching, but is part of the Phase 1 that has been already defined. So I don't expect additional ones apart from possibly the -- eventually the CO2 that has not been involved in this first round with -- that includes the hydrogen. About the financial flexibility, Luca, it's over to you.

Yes. In terms of financial flexibility, today, after the sale of ADNOC, we are currently running a couple of billion of financial flexibility, up to 70%, which is the threshold we set internally in terms of the debt to fixed asset, including the associates. You know that the real threshold is 75% for the agencies. Now, as I mentioned, while we are choosing to basically finance the acquisition, if the Board clearly approved the authorization through hybrid is to maintain this financial flexibility going forward. Therefore, if we were to finance fully with hybrid transaction, we might have even additional financial flexibility to the position today. And according to that, we will size the average issuance accordingly. But the idea is to maintain the current financial flexibility after this transaction is basically closed.

[Operator Instructions] Gentlemen, there are no more questions registered at this time.

Okay. Thank you very much for connecting today, and we are available for any follow-up questions.

Thank you. Thank you. Bye.

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